As filed with the Securities and Exchange Commission on February 15, 2000
Securities Act Registration No. 333-94041
Investment Company Registration No. 811-6721
- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. 1 |X|
Post-Effective Amendment No. | |
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 |X|
AMENDMENT NO. 7 |X|
------------------
THE BLACKROCK INSURED MUNICIPAL 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.
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
Thomas A. DeCapo, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
One Beacon Street
Boston, Massachusetts 02108-3194
Cynthia G. Cobden, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
------------------
Approximate Date of Proposed Public Offering: As soon as practicable
after the effective date of this Registration Statement.
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CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
=======================================================================================================================
PROPOSED PROPOSED
TITLE OF SECURITIES AMOUNT BEING MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
BEING REGISTERED REGISTERED PRICE PER UNIT OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Auction Rate Municipal Preferred Stock, Series
(Liquidation preference $25,000 per share).... 2,600(shares $25,000 $65,000,000 $17,160
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THE BLACKROCK INSURED MUNICIPAL 2008 TERM TRUST INC.
CROSS REFERENCE SHEET
Part A-Prospectus
<TABLE>
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ITEMS IN PART A OF FORM N-2
SPECIFIED IN PROSPECTUS LOCATION IN PROSPECTUS
<S> <C> <C>
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; Invest
ment Objective and Policies
Item 9. Management..............................................Prospectus Summary; Management of the Trust
Item 10. Capital Stock, Long-Term Debt, and Other Securities.....Capitalization; Investment Objective and Policies;
Description of New Preferred Shares; the Auction;
Tax Matters
Item 11. Defaults and Arrears on Senior Securities.............. Inapplicable
Item 12. Legal Proceedings.......................................Inapplicable
Item 13. Table of Contents of the Statement of Additional Table of Contents of the Statement of Additional
Information.............................................Information
Part B-Statement of Additional Information
ITEMS IN PART B OF FORM N-2 LOCATION IN STATEMENT OF
ADDITIONAL INFORMATION
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 Poli-
cies and Techniques
Item 18. Management..............................................Management of the Trust
Item 19. Control Persons and Principal Holders of Securities.....Management of the Trust
Item 20. Investment Advisory and Other Services..................Management of the Trust
Item 21. Brokerage Allocation and Other Practices................Portfolio Transactions
Item 22. Tax Status..............................................Tax Matters
Item 23. Financial Statements....................................Financial Statements (incorporated by reference)
</TABLE>
Part C-Other Information
Items 24-33 have been answered in Part C of this Registration Statement
[FLAG]
The information in this Prospectus is not complete and may be changed. We
may not sell these securities until the Registration Statement filed with
the Securities and Exchange Commission is effective. This Prospectus is not
an offer to sell these securities and is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED ____________, 2000
PROSPECTUS
$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:
o to provide current income that is exempt from regular Federal
income tax; and
o 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:
o rated at the time of investment Aaa by Moody's or AAA by S&P;
o guaranteed by an entity with a Aaa or AAA rating;
o backed by an escrow or trust account containing sufficient U.S.
Government or U.S. Government agency securities to ensure timely
payment of principal and interest; or
o determined by the Trust's investment advisor to be of Aaa or AAA
credit quality at the time of investment.
The Trust seeks to return $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 , 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 information prospectus. You can review the table of
contents of the statement of additional information on page of this
prospectus. You may request a free copy of the statement of additional
information by calling (800) 227-7236. You may also obtain the statement of
u may additional information and other information regarding the Trust on
the SEC's web site (http://www.sec.gov).
INVESTING IN THE NEW PREFERRED SHARES INVOLVES CERTAIN RISKS. SEE
"RISKS" BEGINNING ON PAGE ___. THE MINIMUM PURCHASE AMOUNT OF THE NEW
PREFERRED SHARES IS $25,000.
(continued on following page)
Neither the SEC nor any state securities commission has approved or
disapproved these securities or determined if this prospectus is truthful
or complete. Any representation to the contrary is a criminal offense.
Per Share Total
Public Offering Price $25,000 $65,000,000
Sales Load $ $
Proceeds to Trust (before expenses)(1) $ $
----------------
(1) Offering expenses payable by the Trust are estimated to be $300,000.
The underwriters are offering the New Preferred Shares subject to
various conditions. The underwriters expect to deliver the New
Preferred Shares to purchasers, in book-entry form, through the
facilities of The Depository Trust Company on or about ___, 2000.
February __, 2000
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 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:
o a buy order (called a "bid") or sell order is a commitment
to buy or sell New Preferred Shares based on the results of
an auction;
o auctions will be conducted by telephone; and
o purchases and sales will be settled on the next business day
after the auction.
Dividends on New Preferred Shares, to the extent payable from
tax-exempt income earned on the Trust's investments, will be exempt from
regular Federal income tax in the hands of owners of such shares. All or a
portion of the Trust's dividends may be subject to the Federal alternative
minimum tax. The Trust is required to allocate net capital gains and other
taxable income, if any, proportionately between common shares and Preferred
Shares, including the New Preferred Shares, based on the percentage of
total dividends distributed to each class for that year. The Trust will, in
the case of a dividend period of 28 days or less, and may, in the case of a
dividend period of 35 days of 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.
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY...........................................................4
FINANCIAL HIGHLIGHTS.........................................................8
THE TRUST....................................................................9
USE OF PROCEEDS.............................................................10
CAPITALIZATION..............................................................10
INVESTMENT OBJECTIVE AND POLICIES...........................................11
MUNICIPAL OBLIGATIONS.......................................................12
INSURANCE...................................................................13
OTHER INVESTMENT PRACTICES..................................................15
RISKS ...................................................................16
MANAGEMENT OF THE TRUST.....................................................17
DESCRIPTION OF PREFERRED SHARES.............................................20
DESCRIPTION OF NEW PREFERRED SHARES.........................................21
THE AUCTION.................................................................28
TAXES ...................................................................32
DETERMINATION OF NET ASSET VALUE............................................32
REPURCHASE OF COMMON SHARES.................................................32
DESCRIPTION OF CAPITAL STOCK................................................32
CUSTODIAN...................................................................34
UNDERWRITING................................................................35
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR.....................35
LEGAL OPINIONS..............................................................36
EXPERTS ...................................................................36
REPORTS TO STOCKHOLDERS.....................................................36
AVAILABLE INFORMATION.......................................................36
TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL INFORMATION...............37
APPENDIX A.................................................................A-1
PROSPECTUS SUMMARY
The following information is a summary of, and is qualified in its
entirety by reference to, more detailed information included in this
prospectus and the Trust's statement of additional information.
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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 outstand
ing 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:
o rated at the time of investment Aaa by Moody's or AAA by
S&P;
o guaranteed by an entity with an Aaa or AAA rating;
o backed by an escrow or trust account containing sufficient
U.S. Government or U.S. Government agency securities to
ensure timely payment of principal and interest; or
o determined by the Trust's investment advisor to be of Aaa or AAA
credit quality at the time of investment.
The Trust seeks to return $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:
o if an auction fails you may not be able to sell some or all of
your shares;
o because of the nature of the market for New Preferred Shares, you
may receive less than the price you paid for your shares if you
sell them outside of the auction, espe cially when market
interest rates are rising;
o a rating agency could downgrade the rating assigned to the New
Preferred Shares, which could affect liquidity;
o the Trust may be forced to redeem your shares to meet regulatory
or rating agency requirements or may voluntarily redeem your
shares in certain circumstances;
o in extraordinary circumstances the Trust may not earn sufficient
income from its investments to pay dividends;
o if interest rates rise, the value of the Trust's investment
portfolio will decline, reducing the asset coverage for the New
Preferred Shares; and
o if an issuer of a municipal bond in which the Trust invests
experiences financial difficulty or defaults, there may be a
negative impact on the income and net asset value of the Trust's
portfolio.
SECONDARY MARKET TRADING.................. The New Preferred Shares will not be listed on a stock exchange.
Instead, you may buy or sell New Preferred Shares at a periodic
auction by submitting orders to a broker-dealer (a "Broker- Dealer")
that has entered into a separate agreement with the auction agent
and the Trust or to a broker-dealer that has entered into an
agreement with a Broker-Dealer. In addition to the auctions,
Broker-Dealers and other broker-dealers may maintain a separate
secondary trading market in New Preferred Shares, but may
discontinue this activity at any time. You may transfer shares
outside of auctions only to or through a Broker-Dealer, a
broker-dealer that has entered into a separate agreement with a
Broker-Dealer, or other persons as the Trust may agree. There can be
no assurance that a secondary trading market for the New Preferred
Shares will develop, or if it does develop, that it will provide
holders with liquidity of investment.
DIVIDENDS AND DIVIDEND PERIODS............ After their initial dividend period, the New Preferred Shares
normally will have a dividend period consisting of seven days. The
board of directors of the Trust may, from time to time, declare a
special dividend period upon giving notice to the holders of the New
Preferred Shares.
Dividends on the New Preferred Shares offered hereby are cumulative
from the date they are first issued and are payable when, as and if
declared by the board of directors of the Trust, out of funds
legally available therefor. The Trust will pay the initial dividend
for the New Preferred Shares on [____________] and thereafter
generally on each succeeding 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 substan
tially all of its assets in municipal obligations that pay interest
that is exempt from regular Federal income tax, the income you
receive will ordinarily be exempt from Federal income tax. Your
income may be subject to state and local taxes. All or a portion
of the income from these bonds may be subject to the Federal
alternative minimum tax, so New Preferred Shares may not be
a suitable investment if you are subject to this tax or would
become subject to such tax by investing in New Preferred
Shares. Taxable income or gain earned by the Trust will be
allocated proportionately to holders of the Trust's preferred
shares and common shares, based on the percentage of total
dividends paid to each class for that year. Accordingly, certain
specified New Preferred Share dividends may be subject to
income tax on income or gains attributed to the Trust. The Trust
will, in the case of a dividend period of 28 days or less, and may,
in the case of a dividend period of 35 days or more, give notice
before any applicable auction of the amount of any taxable
income and gain to be distributed for the period relating to that
auction. If the Trust does not provide such notice, the Trust
generally will make holders of New Preferred Shares whole for
taxes owing on dividends paid to shareholders that include
taxable income or gain.
ALTERNATIVE MINIMUM TAX................... All or a portion of the Trust's dividends may be subject to the
Federal alternative minimum tax.
LIQUIDATION PREFERENCE.................... The liquidation preference of each New Preferred Share will be
$25,000, plus an amount equal to accumulated but unpaid
dividends (whether or not earned or declared) plus the premium,
if any, resulting from the designation of a premium call period.
RATINGS................................... It is a condition to their issuance that the New Preferred Shares
be issued with a rating of "aaa" from Moody's and "AAA" from
S&P and that the Trust receive written assurance from each of
Moody's and S&P that the issuance of the New Preferred Shares
will not cause a downgrading of the Trust's currently outstand
ing 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.
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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>
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YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
SEPTEM-
BER 28,
1992
THROUGH
DECEMBER
PER COMMON SHARE OPERATING 31,
PERFORMANCE: 1999 1998 1997 1996 1995 1994 1993 1992***
--------- ------- ------- ------- ------- ------- ------- --------
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Net asset value, beginning of
the period................. $17.06 $ 16.80 $ 15.90 $ 16.08 $ 13.88 $ 16.23 $ 14.31 $ 14.10
------ ------- ------- ------- ------- ------- ------- --------
Net investment income........... 1.21 1.20 1.18 1.17 1.19 1.15 1.14 0.17
Net realized and unrealized
gain (loss) on investments... (1.23) 0.11 0.78 (0.27) 2.21 (2.39) 1.91 0.31
------- ------- ------ ------- ------- ------- ------ --------
Net increase (decrease) from
investment operations.......... (0.19) 1.31 1.96 0.90 3.40 (1.24) 3.05 0.48
-------- -------- ------- ------- ------- ------- ------- -------
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) (0.07)
Preferred shareholders.......... (0.24) (0.25) (0.27) (0.25) (0.28) (0.23) (0.20) (0.02)
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) (0.09)
Capital charge with respect to
issuance of shares.............. -- -- -- -- -- -- -- ($0.18)
Net asset value, end of period*...... $ 16.00 $ 17.06 $ 16.80 $ 15.90 $ 16.08 $ 13.88 $ 16.23 $14.31##
Market value, end of period*......... $ 13.75 $ 16.13 $ 15.25 $ 14.50 $ 13.50 $ 12.25 $15.125 $13.75
TOTAL INVESTMENT RETURN+............. (10.14)% 11.21% 10.97% 13.56% 17.64% (13.71)% 16.05% (1.99)%
RATIOS TO AVERAGE NET ASSETS OF
COMMON SHAREHOLDERS:@
Expenses++........................... 0.93% 0.88% 0.92% 0.95% 0.95% 1.02% 0.88% 0.73%+++
Net investment income before
preferred dividends++............. 7.30% 7.10% 7.19% 7.32% 7.74% 7.80% 7.43% 4.97%+
Preferred stock dividends............ 1.47% 1.49% 1.63% 1.64% 1.97% 1.55% 1.35% 0.71%+++
Net investment income available
to common shareholders............ 5.83% 5.61% 5.56% 5.68% 5.77% 6.25% 6.08% 4.26%+++
SUPPLEMENTAL DATA:
Average net assets of common
shareholders in thousands).........$452,317 $458,993 $444,895 $434,692 $417,017 $400,555 $420,532 $372,256
Portfolio turnover................... 1% 0% 11% 8% 27% 64% 15% 2%
Net assets of common shareholders,
end of period (in thousands)..... $435,314 $464,236 $457,192 $432,609 $437,470 $377,679 $441,543 $389,333
Preferred stock outstanding
(in thousands) $206,000 $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 $ 81,339 $ 80,484 $ 77,501 $78,091 $141,670 $157,171 $144,500
------------
* 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.
@ 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.
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>
<TABLE>
<CAPTION>
Amount Outstanding
Exclusive of Treasury Asset Coverage Involuntary Liquidating
As of Securities Per Share* Preference Per Share
----- ---------- ---------- --------------------
<C> <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
* Calculated by dividing net assets by the number of Preferred Shares
outstanding.
** A 2-for-1 stock split with respect to the Preferred Shares occurred
on July 24, 1995.
</TABLE>
The following table provides information about the Trust's outstanding
shares as of December 31, 1999:
<TABLE>
<CAPTION>
Amount Held by
the Trust or for
Title of Class Amount Authorized its Account Amount Outstanding
-------------- ----------------- ----------- ------------------
<S> <C> <C> <C>
Common Shares 200,000,000 0 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>
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 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>
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:
o rated at the time of investment Aaa by Moody's or AAA by
S&P;
o guaranteed by an entity with a Aaa or AAA rating;
o backed by an escrow or trust account containing sufficient
U.S. Government or U.S. Government agency securities to
ensure timely payment of principal and interest; or
o determined by the Advisor to be of Aaa or AAA credit quality
at the time of investment.
Generally, municipal obligations which are covered by insurance or a
guarantee would not be rated Aaa or AAA, and might not be considered to be
of investment grade credit quality in the absence of such insurance or
guarantee. In determining whether to purchase a particular municipal
obligation which is covered by insurance or a guarantee, the Advisor
considers the credit quality of the underlying issuer (among other factors
such as price, yield and maturity), although such credit quality will not
necessarily be the determinative factor in making the investment decision.
Municipal obligations which are backed by an escrow or trust
account which contains U.S. Government or U.S. Government agency securities
("collateralized obligations") generally are not insured and may not be
rated Aaa by Moody's or AAA by S&P, and may not be of equivalent credit
quality in the view of the Advisor. Collateralized obligations include, but
are not limited to, municipal obligations that have been (i) advance
refunded where the proceeds of the funding have been used to purchase U.S.
Government or U.S. Government agency securities that are placed in escrow
and whose interest or maturity principal payments, or both, are sufficient
to cover the remaining scheduled debt service on the municipal obligations,
or (ii) issued under state and local housing finance programs which use the
issuance proceeds to fund mortgages that are then exchanged for U.S.
Government or U.S. Government agency securities and deposited with a
trustee as security for the municipal obligations. These collateralized
obligations are normally regarded as having the credit characteristics of
the underlying U.S. Government or U.S. Government agency securities.
The Trust seeks to return $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
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 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 obligation ("Original Issue
Insurance") or by the Trust or a third party subsequent to the original
issuance of a municipal obligation ("Secondary Insurance"). In each case, a
single premium is paid to the insurer by the party purchasing the insurance
when the insurance is obtained. Original Issue Insurance and Secondary
Insurance policies are non-cancellable and remain in effect for so long as
the insured municipal obligation is outstanding and the insurer is in
business. Accordingly, whether a particular municipal obligation is covered
by Original Issue Insurance as opposed to Secondary Insurance will not, in
and of itself, be determinative to the Trust in making an investment
decision to purchase such municipal obligation.
The Trust may also purchase insurance covering certain municipal
obligations which it intends to purchase for its portfolio or which it
already owns ("Portfolio Insurance"). Portfolio Insurance policies
guarantee the timely payment of principal of, and interest on, covered
municipal obligations only while they are owned by the Trust. Such policies
are non-cancellable and remain in effect until the Trust terminates
provided the Trust pays the applicable insurance premiums and the insurer
remains in business. Municipal obligations in the Trust's portfolio covered
by a Portfolio Insurance policy will not be covered by such policy after
they are sold by the Trust unless the Trust elects to obtain some
form of Secondary Insurance for them at the time of sale. The Trust would
obtain such Secondary Insurance only if, in the Advisor's view, it would be
economically advantageous for the Trust to do so.
The Trust may purchase municipal obligations covered by Original
Issue Insurance provided by AMBAC Indemnity Corporation ("AMBAC"), Bond
Investors Guaranty Insurance Company ("BIGI"), Capital Markets Assurance
Company ("CAPMAC"), Municipal Bond Investors Assurance Corporation
("MBIA"), Financial Security Assurance Inc. ("FSA") and Financial Guaranty
Insurance Company ("FGIC"); each has received insurance claims- paying
ability ratings of Aaa from Moody's and AAA from S&P. See Appendix B to the
statement of additional information for a description of Moody's and S&P's
insurance claims-paying ability ratings and financial data regarding each
of these insurers. The Trust may also purchase Secondary Insurance and
Portfolio Insurance policies from any of such insurers. In the future, the
Trust may purchase municipal obligations covered by Original Issue
Insurance provided by, and may purchase Secondary and Portfolio Insurance
from, other insurers (not listed above) whose claims- paying abilities are
rated Aaa by Moody's or AAA by S&P or, if unrated, are of comparable credit
quality in the view of the Advisor. Any payments received from an insurer,
whether the insurance is obtained by the Trust or by other parties, is
treated for Federal income tax purposes in the same manner as if the
payments were received directly from the issuer of the municipal
obligations. See "Taxes".
The Advisor anticipates that a majority of insured tax-exempt
municipal obligations purchased by the Trust will be insured under policies
obtained by parties other than the Trust. The Trust does not pay the
premiums for such policies; rather the cost of such policies may be
reflected in a higher purchase price for such insured municipal
obligations. Accordingly, the yield on such municipal obligations may be
lower than that on equivalent uninsured municipal obligations. The cost of
insurance purchased by the Trust will increase its expenses, and the yield
on the Trust's portfolio will be reduced accordingly.
In the event the claims-paying ability rating of an insurer of
municipal obligations in the Trust's portfolio were to be lowered from Aaa
or AAA (in the case of Moody's or S&P, respectively), or if the Advisor
anticipates such a lowering or otherwise does not believe an insurer's
claims-paying ability merits its existing triple-A rating, the Trust may
seek to obtain additional insurance from an insurer whose claims-paying
ability is rated Aaa by Moody's or AAA by S&P or, if the Advisor determines
that the costs of obtaining such additional insurance outweigh the
benefits, the Trust may elect not to obtain additional insurance. In making
such determination, the Advisor will consider the costs of the additional
insurance, the new claims-paying ability rating and financial condition of
the existing insurer and the creditworthiness of the issuer and/or
guarantor of the underlying municipal obligations. The Advisor may also
determine not to purchase additional insurance in such circumstances if it
believes that the insurer is taking steps which will cause its triple-A
claims-paying ability rating to be restored promptly. The foregoing
policies also will be applied in the case of insurers whose claims-paying
abilities are not rated but which are determined by the Advisor to be
comparable to Aaa or AAA. See "Investment Objective and Policies".
Although the Advisor periodically reviews the financial condition
of each insurer, there can be no assurance that the insurers will be able
to honor their obligations in all circumstances. The Trust cannot predict
the consequences of a state takeover of an insurer's obligations and, in
particular, whether such an insurer (or its state regulatory agency or a
subsequent purchaser) could or would honor all of the insurer's contractual
obligations including any outstanding insurance contracts insuring the
timely payment of principal and interest on municipal obligations. The
Trust cannot predict the impact which such events might have on the market
values of such municipal obligations. In the event of a default by an
insurer on its obligations in respect of any municipal obligations in the
Trust's portfolio, the Trust would look to the issuer and/or guarantor of
the relevant municipal obligation for payments of principal and interest
and such issuer and/or guarantor may not be rated Aaa by Moody's or AAA by
S&P or, in the view of the Advisor, be of equivalent credit quality.
Accordingly, the Trust could be exposed to greater risk of non-payment in
such circumstances, which could adversely affect the Trust's net asset
value and the market price per common share. Alternatively, the Trust could
elect to dispose of such municipal obligations; however, the market prices
for such municipal obligations may be lower than the Trust's purchase price
for them and the Trust could sustain a capital loss as a result. Capital
losses incurred by the Trust which are not offset by capital gains may
adversely affect the Trust's net asset value and the Trust's ability to
return $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. Such guidelines may preclude or limit the
Trust from engaging in many of the investment practices described under
this caption or in the statement of additional information. In particular,
for so long as New Preferred Shares are rated by Moody's, unless the
Moody's ratings guidelines change from those presently applicable as
described under "Description of New Preferred Shares -- Rating Agency
Guidelines and Asset Coverage," the Trust will not buy or sell futures
contracts or options thereon or write put or call options (except covered
call options) on portfolio securities unless it receives written
confirmation from Moody's that engaging in such transactions would not
impair the ratings then assigned to the New Preferred Shares by Moody's
except that the Trust may sell exchange traded futures contracts based on
the Municipal Index (the Bond Buyer Municipal Bond Index or such other
index as may be specified in the Articles Supplementary) or Treasury Bonds
and purchase exchange traded put options on such futures contracts and
write exchange traded call options on such futures contracts (collectively
"Moody's Hedging Transactions") subject to the limitations described below.
For so long as New Preferred Shares are rated by S&P, unless S&P's ratings
guidelines change from those presently applicable as described under
"Description of New Preferred Shares -- Rating Agency Guidelines and Asset
Coverage," the Trust will not buy or sell futures contracts or options
thereon or write put options (except covered put options) or call options
(except covered call options) on portfolio securities unless it receives
written confirmation from S&P that engaging in such transactions will not
impair the ratings then assigned to the New Preferred Shares by S&P except
that the Trust may buy and sell futures contracts based on the Municipal
Index or Treasury Bonds and purchase put and call options on such contracts
(collectively "S&P Hedging Transactions") subject to the limitations
described below.
HEDGING
Although in normal circumstances the Trust does not intend to
invest more than 5% of its assets in instruments other than municipal
obligations, the Trust may also enter into certain hedging transactions. In
particular, the Trust may purchase and sell futures contracts,
exchange-listed and over-the-counter put and call options on securities,
financial indices and futures contracts and may enter into various interest
rate transactions (collectively, "Hedging Transactions"). Hedging
Transactions may be used to attempt to protect against possible changes in
the market value of the Trust's portfolio resulting from fluctuations in
the debt securities markets and changes in interest rates, to protect the
Trust's unrealized gains in the value of its portfolio securities, to
facilitate the sale of such securities, for investment purposes or to
establish a position in the securities markets as a temporary substitute
for purchasing particular securities. Any or all of these techniques may be
used at any time. There is no particular strategy that requires use of one
technique rather than another. Use of any Hedging Transaction is a function
of market conditions. The Hedging Transactions that
the Trust may use are described in the statement of additional information.
The ability of the Trust to hedge successfully will depend on the Advisor's
ability to predict pertinent market movements, which cannot be assured.
OTHER INVESTMENT TECHNIQUES
The Trust may engage in other types of transactions, including
investment in restricted and illiquid securities, repurchase and reverse
repurchase agreements, when-issued and forward commitment transactions,
borrowing, securities lending and other transactions. For a description of
such types of transactions, see "Investment Policies and Techniques - Other
Investment Policies and Techniques" in the statement of additional
information.
RISKS
Risk is inherent in all investing. Investing in any investment
company security involves risk, including the risk that you may receive
little or no return on your investment or that you may lose part or all of
your investment. Therefore, before investing you should consider carefully
the following risks that you assume when you invest in New Preferred
Shares.
INTEREST RATE RISK
The Trust issues preferred shares (including the New Preferred
Shares), which pay dividends based on short-term interest rates. The Trust
then uses the proceeds from the sale of preferred shares to buy municipal
obligations, which pay interest based on long-term rates. Both long-term
and short-term interest rates may fluctuate. If short-term interest rates
rise, the preferred shares dividend rates may rise so that the amount of
dividends paid to holders of preferred shares exceeds the income from the
portfolio securities purchased with the proceeds from the sale of preferred
shares. Because income from the Trust's entire investment portfolio (not
just the portion of the portfolio purchased with the proceeds of the
preferred shares offering) is available to pay preferred share dividends,
however, preferred share dividend rates would need to greatly exceed the
yield on the Trust's portfolio before the Trust's ability to pay preferred
share dividends would be impaired. Generally, municipal obligations will
decrease in value when interest rates rise and increase in value when
interest rates decline. If long-term rates rise, the value of the Trust's
investment portfolio will decline, reducing the amount of assets serving as
asset coverage for the preferred shares.
AUCTION RISK
The dividend rate for the New Preferred Shares normally is set
through an auction process. In the auction, holders of New Preferred Shares
may indicate the dividend rate at which they would be willing to hold or
sell their New Preferred Shares or purchase additional New Preferred
Shares. The auction also provides liquidity for the sale of New Preferred
Shares. An auction fails if there are more New Preferred Shares offered for
sale than there are buyers. You may not be able to sell your New Preferred
Shares at an auction if the auction fails. Also, if you place hold orders
(orders to retain New Preferred Shares) at an auction only at a specified
dividend rate, and that rate exceeds the rate set at the auction, you will
not retain your New Preferred Shares. Finally, if you buy shares or elect
to retain shares without specifying a dividend rate below which you would
not wish to buy or continue to hold those shares, you could receive a lower
rate of return on your shares than the market rate. See "The Auction".
SECONDARY MARKET RISK
If you try to sell your New Preferred Shares between auctions, you
may not be able to sell any or all of your shares, or you may not be able
to sell them for $25,000 per share or $25,000 per share plus accumulated
dividends. If the Trust has designated a special dividend period (a rate
period of more than seven days), changes in interest rates could affect the
price you would receive if you sold your shares in the secondary market.
Broker-dealers that maintain a secondary trading market for New Preferred
Shares are not required to maintain this market, and the Trust is not
required to redeem shares either if an auction or an attempted secondary
market sale fails because of a lack of buyers. New Preferred Shares are not
listed on a stock exchange or the NASDAQ stock market. If you sell your New
Preferred Shares to a broker-dealer between auctions, you may receive less
than the price you paid for them, especially if market interest rates have
risen since the last auction.
RATINGS AND ASSET COVERAGE RISK
While it is a condition to the issuance of the New Preferred Shares
that Moody's assign a rating of aaa and S&P a rating of AAA to the New
Preferred Shares, such ratings do not eliminate or necessarily mitigate the
risks of investing in New Preferred Shares. Moody's or S&P could downgrade
New Preferred Shares, which may make your shares less liquid at an auction
or in the secondary market. If Moody's or S&P downgrades the New Preferred
Shares, the Trust may alter its portfolio or redeem New Preferred Shares in
an effort to improve the rating, although there is no assurance that it
will be able to do so to the extent necessary to restore the prior rating.
The Trust may voluntarily redeem New Preferred Shares. See "Description of
New Preferred Shares-Rating Agency Guidelines and Asset Coverage" for a
description of the asset maintenance tests the Trust must meet.
CREDIT RISK
Credit risk refers to an issuer's ability to make timely payments
of interest and principal. Credit risk should be low for the Trust because
it invests primarily in insured municipal obligations.
MUNICIPAL OBLIGATIONS MARKET RISK
Investing in the market for municipal obligations involves certain
risks. The amount of public information available about the municipal
obligations in the Trust's portfolio is generally less than that for
corporate equities or bonds, and the investment performance of the Trust
may therefore be more dependent on the analytical abilities of the Advisor
than a stock fund or taxable bond fund. The secondary market for municipal
obligations also tends to be less well-developed or liquid than many other
securities markets, which may adversely affect the Trust's ability to sell
its portfolio securities at attractive prices.
The ability of municipal issuers to make timely payments of
interest and principal may be diminished during general economic downturns
and as governmental cost burdens are reallocated among Federal, state and
local governments. In addition, laws enacted in the future by Congress or
state legislatures or referenda could extend the time for payment of
principal and/or interest, or impose other constraints on enforcement of
such obligations, or on the ability of municipalities to levy taxes.
Insurance on municipal obligations held by the Trust may reduce, but will
not necessarily eliminate, such risks. Issuers of municipal securities
might seek protection under the bankruptcy laws. In the event of bankruptcy
of such an issuer, the Trust could experience delays in collecting
principal and interest and the Trust may not, in all circumstances, be able
to collect all principal and interest to which it is entitled. To enforce
its rights in the event of a default in the payment of interest or
repayment of principal, or both, the Trust may take possession of and
manage the assets securing the issuer's obligations on such securities,
which may increase the Trust's operating expenses. Any income derived from
the Trust's ownership or operation of such assets may not be tax-exempt.
REINVESTMENT RISK
Reinvestment risk is the risk that income from the Trust's
portfolio will decline if and when the Trust invests the proceeds from
matured, traded, prepaid or called bonds at lower interest rates. This risk
will increase as the Trust approaches its termination date, because the
Trust will reinvest such proceeds in municipal obligations with maturities
on or about its termination date, and shorter term municipal obligations
generally pay lower rates of interest than longer term municipal
obligations. A decline in income could affect the Trust's ability to pay
dividends on the New Preferred Shares.
INFLATION RISK
Inflation is the reduction in the purchasing power of money
resulting from the increase in the price of goods and services. Inflation
risk is the risk that the inflation adjusted (or "real") value of an
investment in New Preferred Shares or the income from that investment will
be worth less in the future. As inflation occurs, the real value of the New
Preferred Shares and distributions declines. In an inflationary period,
however, it is expected that, through the auction process, dividend rates
on the New Preferred Shares would increase, tending to offset this risk.
MANAGEMENT OF THE TRUST
DIRECTORS AND OFFICERS
The board of directors is responsible for the overall management of
the Trust, including supervision of the duties performed by the Advisor.
There are eight directors of the Trust. Two of the directors are
"interested persons" (as defined in the 1940 Act). The names and business
addresses of the directors and officers of the Trust and their principal
occupations and other affiliations during the past five years are set forth
under "Management of the Trust" in the statement of additional information.
INVESTMENT ADVISOR
BlackRock Advisors, Inc. acts as the Trust's investment advisor.
BlackRock Advisors, Inc. together with its investment advisory subsidiaries
is a global asset management firm with assets of approximately $165 billion
under management as of December 31, 1999. The Advisor has its principal
office at 400 Bellevue Parkway, Wilmington, Delaware 19809. BlackRock
Advisors and its subsidiaries constitute the asset management arm of PNC
Bank, N.A., and together have over 684 employees. The Advisor and its
affiliates provide fixed income, liquidity, equity, alternative investment,
and risk management products for clients worldwide. As of December 31,
1999, the Advisor managed approximately $86 billion in various fixed income
sectors, including $8 billion in municipal securities. The Advisor and its
affiliates also manage 13 closed-end, six open-end and six money market
municipal funds. In addition, the Advisor manages portfolios of municipal
securities for large insurance companies and high net worth individuals.
As a result of an internal reorganization effective January 1,
2000, BlackRock Advisors, Inc. has replaced BlackRock Financial Management,
Inc. as investment advisor of the Trust. The investment management and
other personnel responsible for providing services to the Trust did not
change as 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, which
he joined in 1985. Mr. Klingert has primary responsibility for managing
client portfolios with a special emphasis on municipal securities. The
portfolio management team also includes Craig Kasap. Mr. Kasap has been a
portfolio manager at the Advisor for over two years and is a member of the
Advisor's Investment Strategy Group. Prior to joining the Advisor in 1997,
Mr. Kasap spent three years as a municipal bond trader with Keystone
Investments in Boston where he was involved in formulating the firm's
municipal bond investment strategies. James McGinley is also a member of
the Advisor's municipal bond portfolio management team and Investment
Strategy Group. Prior to joining the Advisor in 1999 as a Vice President,
Mr. McGinley worked at Prudential Securities as an Associate Vice President
in Municipal Research.
The Advisor's municipal bond portfolio managers are responsible for
27 municipal bond portfolios, valued as of December 31, 1999 at
approximately $5 billion, plus approximately an additional $3 billion in
municipal bonds held across portfolios with broader investment mandates.
The team is responsible for portfolios with a variety of investment
objectives and constraints, including national funds and state-specific
funds. As of December 31, 1999, the team managed 13 closed-end municipal
funds with over $3 billion in assets.
The Advisor's Investment Process. The Advisor has in-depth
expertise in the fixed income market. The Advisor applies the same
risk-controlled, active sector rotation style (discussed below) to the
management process for all of its fixed income portfolios. The Advisor
believes that it is unique in its integration of taxable and municipal bond
specialists. Both taxable and municipal bond portfolio managers share the
same trading floor and interact frequently for determining the firm's
overall investment strategy. This interaction allows each portfolio manager
to access the combined experience and expertise of the entire portfolio
management group at the Advisor.
The Advisor's portfolio management process emphasizes research and
analysis of specific sectors and securities, not interest rate speculation.
The Advisor believes that market-timing strategies can be highly volatile
and potentially produce inconsistent results. Instead, the Advisor thinks
that value over the long-term is best achieved through a risk-controlled
approach, focusing on sector allocation, security selection and yield curve
management (discussed below).
In the municipal market, the Advisor believes one of the most
important determinants of value is supply and demand. The Advisor's ability
to monitor investor flows and frequency and seasonality of issuance is
helpful in anticipating the impact of supply and demand on sectors. The
Advisor believes that the breadth and expertise of its municipal bond team
allows it to anticipate issuance flows, forecast which sectors are likely
to have the most supply and plan its investment strategy accordingly.
The Advisor also believes that over the long-term, intense credit
analysis will add value and avoid significant relative performance
impairments. The municipal credit team is led by Susan C. Heide, Ph.D who,
since December 15, 1998, has been managing director responsible for
municipal credit research at the Advisor. Ms. Heide supervises a team of
five municipal research analysts who have an average of 10 years of
experience in municipal credit research. Between 1993 and December 15,
1998, Ms. Heide served as a director at the Advisor, specializing in the
credit analysis of municipal securities.
The Advisor's approach to credit risk incorporates a combination of
sector-based top-down macro-analysis of industry sectors to determine
relative weightings with an issuer-specific, bottom-up detailed credit
analysis of issuers and structures. The sector-based approach focuses on
rotating into sectors that are undervalued and exiting sectors when
fundamentals or technicals become unattractive. The issuer-specific
approach focuses on identifying special opportunities where the market
undervalues a credit, and devoting concentrated resources to research the
credit and monitor the position. The Advisor's analytic process focuses on
anticipating changes in credit trends before market recognition. Credit
research is a critical element of the Advisor's municipal process. The
Advisor's yield curve management process involves, among other things, an
evaluation of the risk/return trade off for bonds having different
durations, and selecting bonds believed to present an attractive yield
relative to the degree of interest rate risk involved.
THE INVESTMENT ADVISORY AGREEMENT
Pursuant to an investment advisory agreement, the Advisor manages
the investment of the Trust's assets and provides such investment research,
advice and supervision, in conformity with the Trust's investment objective
and policies, as necessary for the operations of the Trust.
The advisory agreement provides, among other things, that the
Advisor will bear all expenses of its employees and overhead incurred in
connection with its duties under the advisory agreement, and will pay all
directors' fees and salaries of the Trust's directors and officers who are
affiliated persons (as such term is defined in the 1940 Act) of the
Advisor, except that the board of directors may approve reimbursement for
the time spent on Trust operations of personnel who spend substantial time
on the operations (other than the provision of investment advice) of the
Trust or other investment companies advised by the Advisor. The advisory
agreement provides that the Trust shall pay to the Advisor for its services
a monthly fee at the annual rate of 0.35% of the Trust's average weekly net
asset value. The liquidation value of any outstanding preferred shares
(including the New Preferred Shares) of the Trust is included in
determining the Trust's average weekly net asset value.
Although the Advisor intends to devote such time and effort to the
business of the Trust as is reasonably necessary to perform its duties to
the Trust, the services of the Advisor are not exclusive and the Advisor
provides similar services to other investment companies and other clients
and may engage in other activities.
The advisory agreement also provides that, in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of
its obligations thereunder, the Advisor is not liable to the Trust or any
of the Trust's stockholders for any act or omission by the Advisor in the
supervision or management of its respective investment activities or for
any loss sustained by the Trust or the Trust's stockholders and provides
for indemnification by the Trust of the Advisor, its partners, officers,
employees, agents and control persons for liabilities incurred by them in
connection with their services to the Trust, subject to certain limitations
and conditions.
The advisory agreement will continue in effect, provided that each
continuance is specifically approved at least annually by both (i) the vote
of a majority of the Trust's board of directors or the vote of a majority
of the outstanding voting securities of the Trust (as such term is defined
in the 1940 Act) and (ii) by the vote of a majority of the directors who
are not parties to such Agreement or interested persons (as such term is
defined in the 1940 Act) of any such party, cast in person at a meeting
called for the purpose of voting on such approval. The advisory agreement
may be terminated as a whole at any time by the Trust, without the payment
of any penalty, upon the vote of a majority of the Trust's board of
directors or a majority of the outstanding voting securities of the Trust
or by the Advisor, on 60 days' written notice by either party to the other.
Except as otherwise provided by order of the SEC or any rule or provision
of the 1940 Act, the Agreement will terminate automatically in the event of
its assignment (as such term is defined in the 1940 Act and the rules
thereunder).
THE ADMINISTRATION AGREEMENT
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:
o the salaries and expenses of all personnel of the
Administrator; and
o all expenses incurred by the Administrator in
connection with administering the ordinary course of
the Trust's business, other than those assumed by the
Trust, as described below.
The Administration Agreement provides that the Trust shall pay to
the Administrator a monthly fee for its services and the facilities
furnished by the Administrator at the annual rate of 0.10% of the Trust's
average weekly net asset value. The liquidation value of any outstanding
preferred shares (including the New Preferred Shares) of the Trust is
included in determining the Trust's average weekly net asset value.
The Administration Agreement is terminable on 60 days' prior
written notice by either party to the other.
EXPENSES OF THE TRUST
Except as indicated above, the Trust will pay all of its expenses,
including fees of the directors not affiliated with the Advisor and board
meeting expenses: fees of the Advisor and the Administrator; interest
charges; taxes; organization expenses; charges and expenses of the Trust's
legal counsel and independent accountants, and of the transfer agent,
registrar and dividend disbursing agent of the Trust; expenses of
repurchasing shares; expenses of issuing any preferred shares (including
the New Preferred Shares) or indebtedness; expenses of printing and mailing
share certificates, stockholder reports, notices, proxy statements and
reports to governmental offices; brokerage and other expenses connected
with the execution, recording and settlement of portfolio security
transactions; expenses connected with negotiating, effecting purchase or
sale, or registering privately issued portfolio securities; custodial fees
and expenses for all services to the Trust, including safekeeping of funds
and securities and maintaining required books and accounts; expenses of
calculating and publishing the net asset value of the Trust's shares;
expenses of membership in investment company associations; expenses of
fidelity bonding and other insurance expenses including insurance premiums;
expenses of stockholders meetings; SEC and state registration fees; New
York Stock Exchange listing fees; and fees payable to the National
Association of Securities Dealers, Inc. in connection with this offering
and fees of any rating agencies retained to rate any preferred shares
(including the New Preferred Shares) issued by the Trust.
DESCRIPTION OF PREFERRED SHARES
Certain of the capitalized terms used herein are defined in the
Articles Supplementary and Articles of Amendment of the Trust attached as
Appendices C-1, C-2 and C-3 to the statement of additional information.
The Preferred Shares of each series are shares of preferred stock
of the Trust that entitle their holders to receive dividends when, as and
if declared by the board of directors, out of funds legally available
therefor, at a rate per annum that may vary for the successive dividend
periods for each such series. In general, the applicable rate for a
particular dividend period for a particular series of Preferred Shares will
be determined by an auction conducted on the day before the start of such
dividend period. Existing holders and potential holders of Preferred Shares
may participate in auctions therefor, although existing holders desiring to
continue to hold all of their Preferred Shares regardless of the applicable
rate resulting from auctions 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 in respect of each
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); however, the Series T28 Preferred
Shares will have a dividend period of 28 days in length and the Series T7
Preferred Shares (including the New Preferred Shares) will have a dividend
period of seven days in length (except in the case of the initial dividend
period or a special dividend period in respect of either series).
The Preferred Shares have a liquidation preference of $25,000 per
share plus an amount equal to accumulated but unpaid dividends (whether or
not carried or declared) plus the premium, if any, resulting from the
designation of a Premium Call Period (which is a period during a special
dividend period during which the Trust must pay a premium in order to
redeem Preferred Shares) and are fully paid and non-assessable. The
Preferred Shares are not convertible into common shares or other capital
stock of the Trust and the holders thereof have no preemptive rights. The
Preferred Shares are not subject to any sinking fund and are generally
subject to redemption at the option of the Trust on any dividend payment
date with respect thereto (provided that no Preferred Shares shall be
subject to optional redemption during a Non-Call Period) and, in certain
circumstances, are subject to mandatory redemption by the Trust. Except
with regard to their respective initial dividend periods and initial
dividend rates and except for the timing of their respective auction dates
and dividend payment dates, the rights and preferences of each series of
Preferred Shares are the same.
In connection with the auction procedures described below, Deutsche
Bank Group is the auction agent, the transfer agent, registrar, dividend
disbursing agent and redemption agent for the Preferred Shares.
DESCRIPTION OF NEW PREFERRED SHARES
The following is a brief description of the terms of the New
Preferred Shares. For the complete terms of the New Preferred Shares,
including definitions of terms used but not defined, please refer to the
detailed description of the New Preferred Shares in the Articles
Supplementary and Articles of Amendment attached as Appendices C-1, C-2 and
C-3 to the statement of additional information. We refer to the Articles
Supplementary and Articles of Amendment in this prospectus collectively as
the "Articles Supplementary."
GENERAL
The Trust is authorized to issue 200 million shares of capital
stock, $.01 par value. The board of directors of the Trust is authorized to
classify and reclassify any unissued shares of capital stock from time to
time by setting or changing the preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends, qualifications or
terms or conditions of redemption of such shares of stock. In connection
with the offerings of New Preferred Shares described herein, the board of
directors has reclassified 2,600 shares of unissued capital stock as New
Preferred Shares.
The New Preferred Shares will rank on parity with the currently
outstanding Preferred Shares of the Trust as to the payment of dividends
and the distribution of assets upon liquidation. Each New Preferred Share
carries one vote on matters that New 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. 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,
on _____________, 2000, and thereafter generally on each Wednesday.
However, 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 Trust's charter. In the
case of a special dividend period, dividends are generally payable (i) with
respect to a special dividend period of 35 days or fewer, on the day
following the last day of such dividend period, (ii) with respect to a
special dividend period of more than 35 but less than 92 days, on the day
following the last day of each period of 30 days to occur during such
dividend period and on the day following the last day of such dividend
period, and (iii) in the case of a special dividend period of 92 days or
more, as the Trust may specify in the notice of special dividend period
issued for such special dividend period.
Dividends will be paid through The Depository Trust Company on each
dividend payment date. DTC, in accordance with its current procedures, is
expected to distribute dividends received from the auction agent in
same-day funds on each dividend payment date to Agent Members (members of
DTC that will act on behalf of existing or potential holders of Preferred
Shares). These Agent Members are in turn expected to distribute such
dividends to the persons for whom they are acting as agents. However, each
of the current Broker-Dealers has indicated to the Trust that dividend
payments will be available in same-day funds on each dividend payment date
to customers that use such Broker-Dealer or that 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
the auction, except as provided below. The dividend rate that results from
an auction for New Preferred Shares will not be greater than the maximum
applicable rate. 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 of 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 below) of the higher of the
30-day "AA" Composite Commercial Paper Rate and the Taxable Equivalent of
the Short-Term Municipal Bond Rate. In the case of a special dividend
period, 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 (which will ordinarily be specified by the Trust in the
notice of the special dividend period) 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 Trust has
provided notification to the auction agent prior to the auction
establishing the applicable rate for any dividend period that net capital
gains or other taxable income will be included in such dividend on New
Preferred Shares as follows:
<TABLE>
<CAPTION>
Applicable Applicable
Credit Ratings Percentage: Percentage:
Moody's S&P No Notification Notification
------- --- ---------------- -------------
<S> <C> <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. If, in the case of a dividend period of 28
days or fewer, the Trust retroactively allocates any net capital gain or
other taxable income to a dividend paid on New Preferred Shares and did not
give advance notice thereof to the auction agent as described below under
"The Auction-Auction Procedures" (the amount of the retroactive allocation
referred to herein as a "Retroactive Taxable Allocation") solely by reason
of the fact that the retroactive allocation is made as a result of the
redemption of all or a portion of the outstanding New Preferred Shares or
the liquidation of the Trust, the Trust will, within 90 days (and generally
within 60 days) after the end of the Trust's fiscal year for which a
Retroactive Taxable Allocation is made, provide notice thereof to the
auction agent and to each holder of New Preferred Shares (initially
expected to be Cede & Co. as nominee of DTC) during such fiscal year at the
holder's address listed on the stock books of the Trust. The Trust 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 New Preferred
Shares), out of funds legally available therefor, an amount equal to the
aggregate Additional Dividend (as defined below) with respect to all
Retroactive Taxable Allocations made to such holders during the fiscal year
in question. See "Taxes".
If, in the case of a dividend period of 35 days or more, the Trust
makes a Retroactive Taxable Allocation to a dividend paid on New Preferred
Shares, the Trust will, within 90 days (and generally within 60 days) after
the end of the Trust's fiscal year for which a Retroactive Taxable
Allocation is made, provide notice thereof to the auction agent and to each
holder of New Preferred Shares (initially expected to be Cede & Co., as
nominee of DTC) during such fiscal year at the holder's address list on the
stock books of the Trust. The Trust 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 New Preferred Shares), out of funds legally
available therefor, an amount equal to the aggregate Additional Dividend
(as defined below) with respect to all Retroactive Taxable Allocations made
to such holders during the fiscal year in question. See "Taxes".
In no other instance will the Trust be required to make payments to
holders of New Preferred Shares to offset the tax effect of any
reallocation of net capital gain or other taxable income.
An "Additional Dividend" means an amount paid to a holder of New
Preferred Shares that, 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 the holder's dividends from the
aggregate of both the Retroactive Taxable Allocations and the Additional
Dividend to be equal to the amount of the dividends that would have been
received and retained by the holder if the Retroactive Taxable Allocations
had not been made. Additional Dividends shall be calculated:
o without consideration being given to the time value of
money;
o assuming that no holder of New Preferred Shares is
subject to the Federal alternative minimum tax with
respect to dividends received from the Trust; and
o assuming that each Retroactive Taxable Allocation would
be taxable in the hands of each holder of New Preferred
Shares at the maximum marginal regular Federal income
tax rate applicable to individuals or corporations,
whichever is greater, in effect during the fiscal year
in question.
Although the Trust generally intends to designate any Additional Dividend
as an exempt-interest dividend to the extent permitted by applicable law,
it is possible that all or a portion of any Additional Dividend will be
taxable to the recipient thereof. See "Taxes." The Trust will not pay a
further Additional Dividend with respect to any taxable portion of an
Additional Dividend.
Restrictions on Dividends and Other Distributions. Except as
otherwise described herein, when the Trust has any preferred shares
outstanding, including the New Preferred Shares, the Trust may not declare,
pay or set apart for payment, any dividend or other distribution (other
than a dividend or distribution paid in, or in options, warrants or rights
to subscribe for or purchase, its common shares) in respect of common
shares. In addition, the Trust may not call for redemption, redeem,
purchase or otherwise acquire for consideration any common shares (except
by conversion into or exchange for shares of the Trust ranking junior to
the New Preferred Shares as to the payment of dividends and the
distribution of assets upon liquidation). However, the Trust is not
confined by the above restrictions if:
o immediately after such transaction, the Discounted
Value of the Trust's portfolio would be equal to or
greater than the Preferred Shares Basic Maintenance
Amount and the 1940 Act Preferred Shares Asset Coverage
is met (see "-- Rating Agency Guidelines and Asset
Coverage" below),
o full cumulative dividends on the New Preferred Shares
due on or prior to the date of the transaction have
been declared and paid or shall have been declared and
sufficient funds for the payment thereof deposited with
the auction agent;
o any Additional Dividend required to be paid on or
before the date of such declaration or payment has been
paid; and
o the Trust has redeemed the full number of New Preferred
Shares required to be redeemed by any provision for
mandatory redemption contained in the Articles
Supplementary.
Except as set forth in the next sentence, the Trust 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 for any period unless the Trust has declared and paid or
contemporaneously declares and pays full cumulative dividends on the New
Preferred Shares through its most recent dividend payment date. However,
when the Trust has not paid dividends in full on the New Preferred Shares
through the most recent dividend payment date or upon any shares of the
Trust ranking, as to the payment of dividends, on a parity with New
Preferred Shares through their most recent respective dividend payment
dates, the Trust will declare all dividends upon New Preferred Shares and
any shares of the Trust ranking, as to the payment of dividends, on a
parity with New Preferred Shares, pro rata so that 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 and whenever permitted by law, 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 and 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 and specified in such notice. For any auction
occurring after the initial auction, the Trust may not give a request for
special dividend period 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. The Trust must have also
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 will also 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
for special dividend period and, if advisable, 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. If 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 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
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. To the extent permitted under the 1940 Act and
Maryland law, upon giving a notice of redemption, as provided below, the
Trust, at its option, may redeem the New Preferred Shares, in whole or in
part, out of funds legally available therefor, on any dividend payment date
at the optional redemption price per share of $25,000 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; provided that no
New Preferred Shares shall be subject to optional redemption during a
Non-Call Period. In addition, holders of New Preferred Shares may be
entitled to receive Additional Dividends in the event of redemption of such
New Preferred Shares to the extent provided herein. The Trust has the
authority to redeem the New Preferred Shares for any reason and may redeem
all or part of then-outstanding New Preferred Shares if it anticipates that
the Trust's leveraged capital structure will result in a lower rate of
return to holders of common shares of the Trust for any significant period
of time than that obtainable if such common shares were not leveraged. 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
Upon a voluntary or involuntary liquidation of the Trust, the
holders of outstanding New Preferred Shares will receive, from the assets
of the Trust available for distribution to its shareholders, the
liquidation preference plus all accumulated but unpaid dividends (whether
or not earned or declared) plus the premium, if any, resulting from the
designation of a Premium Call Period and any applicable Additional
Dividends before any payment is made to the common shares. The holders of
outstanding New Preferred Shares will be entitled to receive these amounts
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 provided for as described, the
holders of New Preferred Shares will have no right or claim to any of the
remaining assets of the Trust.
Neither the sale of all or substantially all the property or
business of the Trust, nor the merger or consolidation of the Trust into or
with any other corporation, nor the merger or consolidation of any other
corporation into or with the Trust, is a voluntary or involuntary
liquidation for the purposes of the foregoing paragraph.
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
such assets included in the portfolio at any time may vary depending upon
the rating, diversification and other characteristics of the eligible
assets included in the portfolio. The Preferred Shares Basic Maintenance
Amount includes the sum of (a) the aggregate liquidation preference of New
Preferred Shares then outstanding and (b) certain accrued and projected
payment obligations of the Trust.
The Trust is also required under rating agency guidelines to
maintain, with respect to New Preferred Shares, as of the last business day
of each month in which any such shares are outstanding, asset coverage of
at least 200% with respect to senior securities which are equity shares,
including the New 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 equity shares of a closed-end
investment company as a condition of declaring dividends on its common
shares) ("1940 Act Preferred Shares Asset Coverage"). Based on the
composition of the portfolio of the 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
$950,000, would have been computed as follows:
Value of Trust assets less liabilities
not constituting senior securities =$ 702,323,993 = 260 %
---------------------------------- ---------------
Senior securities representing indebtedness $ 270,050,000
plus
liquidation value of the preferred shares
In the event the Trust does not timely cure a failure to maintain
(a) a Discounted Value of its portfolio equal to the Preferred Shares Basic
Maintenance Amount or (b) the 1940 Act Preferred Shares Asset Coverage, in
each case in accordance with the requirements of the rating agency or
agencies then rating the New Preferred Shares, the Trust will be required
to redeem New Preferred Shares as described under "--Redemption--Mandatory
Redemption" above.
Pursuant to S&P guidelines, for so long as the New Preferred Shares
are rated by S&P, the Trust will also be required under the Articles
Supplementary to have, as of each Valuation Date (ordinarily every Friday),
Deposit Securities with maturity or tender payment dates not later than the
dividend payment date (collectively, "Dividend Coverage Assets") for each
share of New Preferred Shares outstanding that follows such Valuation Date
and having in the aggregate a value not less than the Dividend Coverage
Amount (the "Minimum Liquidity Level"). The "Dividend Coverage Amount," as
of any Valuation Date, means (A) the aggregate amount of cash dividends
that will accumulate on outstanding New Preferred Shares to (but not
including) the next dividend payment date that follows such 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 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.
In connection with the election of the Trust's directors, 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, and 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, then, the sole remedy of holders of outstanding preferred shares
of the Trust, including New Preferred Shares, 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 of the Trust,
including New Preferred Shares, as described above, would constitute a
majority of the board of directors. The holders of preferred shares of the
Trust, including New Preferred Shares, 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 shall pay, or declare and set apart for payment, in full, all
dividends payable on all outstanding preferred shares of the Trust,
including New Preferred Shares, 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 shall 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 of the holders of at least a majority of the 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 preferred shares. 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. 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, is necessary to take the actions
contemplated by (a) and (b) above and 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
herein, the applicable rate for the New Preferred Shares for each dividend
period after the initial dividend period will equal the rate per annum that
the auction agent advises has resulted on the business day preceding the
first day of such subsequent dividend period (which business day will be
the auction date for the subsequent dividend period) from implementation of
the auction procedures set forth in the Trust's charter and summarized
below, in which persons determine to hold or offer to sell or, based on
dividend rates bid by them, offer to purchase or sell New Preferred Shares.
Each periodic implementation of the auction procedures is referred to
herein as an "auction." 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 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 1/4 of 1% 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 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 of New Preferred Shares or (b) the subject of an order submitted by
such Broker-Dealer that is (i) a bid submitted by an existing holder that
resulted in such existing holder continuing to hold such shares as a result
of the auction or (ii) a bid submitted by 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 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 orders with respect to
New Preferred Shares to that Broker-Dealer as follows:
1. Hold order--indicating its desire to hold New Preferred
Shares without regard to the applicable rate for the next
dividend period thereof.
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 thereof is less than the
rate or spread specified in such 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
thereof.
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 therefor will be treated as having submitted a sell order
to its Broker-Dealer. A beneficial owner that fails to submit an order to
its Broker-Dealer will be deemed to have submitted a hold order to its
Broker-Dealer; provided, however, that if a beneficial owner fails to
submit an order to its Broker-Dealer for an auction relating to a 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 shall constitute
an irrevocable offer to sell the New Preferred Shares subject thereto. A
beneficial owner that offers to become the beneficial owner of additional
New Preferred Shares is, for purposes of such offer, a potential holder as
discussed below.
A potential holder is 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 that is 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 therefor 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, designating themselves (unless otherwise permitted by the
Trust) as existing holders in respect of shares subject to orders submitted
or deemed submitted to them by beneficial owners and as potential holders
in respect of shares subject to orders submitted to them by potential
holders. However, neither the Trust nor the auction agent will be
responsible for a Broker-Dealer's failure to comply with the foregoing. Any
order placed with the auction agent by a Broker-Dealer as or on behalf of
an existing holder or a potential holder will be treated in the same manner
as an order placed with a Broker-Dealer by a beneficial owner or potential
holder. Similarly, any failure by a Broker-Dealer to submit to the auction
agent an order in respect of any New Preferred Shares held by it or
customers who are beneficial owners will be treated in the same manner as a
beneficial owner's failure to submit to its Broker-Dealer an order in
respect of 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.
If sufficient clearing bids for New Preferred Shares exist (that
is, the number of shares subject to bids submitted or deemed submitted to
the auction agent by Broker-Dealers as or on behalf of potential holders
with rates 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 as or
on behalf of existing holders), 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 sufficient clearing bids for New Preferred Shares do not
exist, the applicable rate for the next succeeding dividend period thereof
will be the maximum applicable rate on the auction date therefor. In such
event, beneficial owners of New Preferred Shares that have submitted or are
deemed to have submitted sell orders may not be able to sell in such
auction all shares subject to such sell orders. If all of the outstanding
New Preferred Shares are the subject of submitted hold orders, then the
dividend period next succeeding the auction shall automatically be the same
length as the immediately preceding dividend period and the applicable rate
for the next succeeding dividend period will be the higher of the 30-day
"AA" Composite Commercial Paper Rate and the Taxable Equivalent of the
Short-Term Municipal Bond Rate multiplied by 1 minus the maximum marginal
regular Federal individual income tax rate then applicable to ordinary
income or the maximum marginal regular Federal corporate tax rate then
applicable, whichever is greater (or 90% of such rate if the 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" means the 30-day
rate on commercial paper issued by corporations whose bonds are rated AA by
S&P as made available by the Federal Reserve Bank of New York or if such
rate is not made available by the Federal Reserve Bank of New York, the
arithmetical average of such rates as quoted to the auction agent by
Merrill Lynch, Pierce, Fenner & Smith Incorporated or such other commercial
paper dealer as may be appointed by the Trust.
"Taxable Equivalent of the Short-Term Municipal Bond Rate" means
90% of an amount equal to the per annum rate payable on taxable bonds in
order for such rate, on an after-tax basis, to equal the per annum rate
payable on tax- exempt bonds issued by "high grade" issuers as determined
in accordance with the procedures set forth in the Articles Supplementary.
The auction procedures include a pro rata allocation of shares for
purchase and sale, which may result in an existing holder continuing to
hold or selling, or a potential holder purchasing, a number of New
Preferred Shares that is different than the number of shares specified in
its order. To the extent the allocation procedures have that result,
Broker-Dealers that have designated themselves as existing holders or
potential holders in respect of customer orders will be required to make
appropriate pro rata allocations among their respective customers.
Settlement of purchases and sales will be made on the next business
day (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 next preceding the auction date on which the
applicable rate for such dividend is to be established. Whenever the
auction agent receives such notice from the Trust, it will be required in
turn to notify each Broker-Dealer, who, on or prior to such auction date,
in accordance with its broker-dealer agreement, will be required to notify
its 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 therefor, depending upon market conditions. Investors who purchase
shares in an auction for a special dividend period in which the Bid
Requirements require a bid to specify a spread should be aware that the
value of their shares may also fluctuate and may be more or less than their
original cost if sold on the open market in advance of the next auction,
particularly if market spreads narrow or widen in a manner unfavorable to
such purchaser's position.
A beneficial owner or an existing holder may sell, transfer or
otherwise dispose of New Preferred Shares only in whole shares and only:
o pursuant to a bid or sell order placed with the
auction agent in accordance with the auction
procedures;
o to a Broker-Dealer; or
o to such other persons as may be permitted by the
Trust;
provided, however, that
o a sale, transfer or other disposition of New
Preferred Shares from a customer of a Broker- Dealer
who is listed on the records of that Broker-Dealer as
the holder of such shares to that Broker-Dealer or
another customer of that Broker-Dealer shall not be
deemed to be a sale, transfer or other disposition
for purposes of the foregoing if such Broker-Dealer
remains the existing holder of the shares so sold,
transferred or disposed of immediately after such
sale, transfer or disposition; and
o in the case of all transfers other than pursuant to
auctions, the Broker-Dealer (or other person, if
permitted by the Trust) to whom such transfer is made
shall 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 or more other positions in
substantially similar or related property, or through certain options or
short sales. Any loss realized on a sale or exchange of shares of the Trust
will be disallowed to the extent those shares of the Trust are replaced by
other shares within a period of 61 days beginning 30 days before and ending
30 days after the date of disposition of the original shares. In that
event, the basis of the replacement shares of the Trust will be adjusted to
reflect the disallowed loss.
The statement of additional information contains a more detailed
summary of the Federal income tax rules that apply to the Trust and its
shareholders. Legislative, judicial or administrative action may change the
tax rules that apply to the Trust or its shareholders, and any such change
may be retroactive. You should consult with your tax advisor about Federal
income tax matters.
STATE AND LOCAL TAX MATTERS
While exempt-interest dividends are exempt from regular Federal
income tax, they may not be exempt from state or local income or other
taxes. Some states exempt from state income tax that portion of any
exempt-interest dividend that is derived from interest that a regulated
investment company receives on its holdings of securities of that state and
its political subdivisions and instrumentalities. Therefore, the Trust will
report annually to its shareholders the percentage of interest income the
Trust earned during the preceding year on tax-exempt obligations and the
Trust will indicate, on a state-by-state basis, the source of this income.
You should consult with your tax advisor about state and local tax matters.
DETERMINATION OF NET ASSET VALUE
The net asset value of common shares of the Trust will be computed
based upon the value of the Trust's portfolio securities and other assets.
Net asset value per common share of the Trust will be determined as of the
close of the regular trading session on the New York Stock Exchange no less
frequently than Friday of each week and the last business day of each
month, provided, however, that if any such day is a holiday or
determination of net asset value on such day is impracticable, the net
asset value shall be calculated on such earlier or later day as determined
by the Advisor. The Trust calculates net asset value per common share of
the Trust by subtracting the Trust's liabilities (including accrued
expenses, dividends payable and any borrowings of the Trust) and the
liquidation value of any outstanding preferred shares (including New
Preferred Shares) of the Trust from the Trust's total assets (the value of
the securities the Trust holds plus cash or other assets, including
interest accrued but not yet received) and dividing the result by the total
number of common shares of the Trust outstanding.
The Trust values its fixed income securities by using market
quotations provided by pricing services, prices provided by market makers
or estimates of market values obtained from yield data relating to
instruments or securities with similar characteristics in accordance with
procedures established by the board of directors of the Trust. Short-term
securities having a maturity of 60 days or less are valued at amortized
cost, which approximates market value. Any securities or other assets for
which current market quotations are not readily available are valued at
their fair value as determined in good faith under procedures established
by and under the general supervision and responsibility of the Trust's
board of directors.
REPURCHASE OF COMMON SHARES
Shares of closed-end investment companies often trade at a discount
to their net asset values, and the Trust's common shares may also trade at
a discount to their net asset value. The market price of the Trust's common
shares will be determined by such factors as relative demand for and supply
of such common shares in the market, the Trust's net asset value, general
market and economic conditions and other factors beyond the control of the
Trust. Although the Trust's common shareholders will not have the right to
have the Trust redeem their common shares, the Trust may take action to
repurchase common shares in the open market or make tender offers for its
common shares at their net asset value. This may, but will not necessarily,
have the effect of reducing any market discount from net asset value. See
"Repurchase of Common Shares" in the statement of additional information.
DESCRIPTION OF CAPITAL STOCK
The Trust is authorized to issue 200 million shares of capital
stock, $.01 par value. The board of directors of the Trust is authorized to
classify and reclassify any unissued shares of capital stock from time to
time by setting or changing the preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption of such shares of
stock. In connection with the offerings of New Preferred Shares described
herein, the board of directors has reclassified 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.
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) 662/3% of the votes entitled to be cast by
holders of voting stock other than voting stock held by the interested
stockholder who is (or whose affiliate is) a party to the business
combination or an affiliate or associate of the interested stockholder
(with dissenting stockholders having certain appraisal rights), unless
certain value and other standards are satisfied or some other statutory
exemption is available. The vote specified in the preceding sentence will
be required to amend the charter to change the provisions subjecting the
Trust to the provisions of the Maryland General Corporation Law discussed
above.
The percentage of votes required under these provisions, which are
greater than the minimum requirements under Maryland law absent the
elections described above or in the 1940 Act, will make more difficult a
change in the Trust's business or management and may have the effect of
depriving holders of common shares of an opportunity to sell shares at a
premium over prevailing market prices by discouraging a third party from
seeking to obtain control of the Trust in a tender offer or similar
transaction. The Trust's board of directors, however, has considered these
antitakeover provisions and believes they are in the best interests of
shareholders.
CUSTODIAN
The Trust's securities and cash are held under a Custodial
Agreement with State Street Bank and Trust Company (the "Custodian"), 225
Franklin Street, Boston, Massachusetts.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement
dated the date hereof, each underwriter named below has severally agreed to
purchase, and the Trust has agreed to sell to such underwriter, the number
of New Preferred Shares set forth opposite the name of such underwriter.
Number of
Series T7
Name Preferred Shares
- ---------------- ------------------
Total ........................ 2,600
=================
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 perform services for, the Trust in the
ordinary course of business.
TRANSFER AGENT, DIVIDEND
DISBURSING AGENT AND REGISTRAR
The transfer agent, dividend disbursing agent and registrar for the
New Preferred Shares will be Deutsche Bank Group, 4 Albany Street, New
York, New York. The transfer agent, dividend disbursing agent and registrar
for the common shares of the Trust is State Street Bank and Trust Company.
LEGAL OPINIONS
Certain legal matters in connection with the New Preferred Shares
offered hereby will be passed upon for the Trust by Skadden, Arps, Slate,
Meagher & Flom LLP, New York, New York and for the Underwriters by Simpson
Thacher & Bartlett, New York, New York. Such counsel will rely, as to
matters of Maryland law, on the opinion of Miles & Stockbridge, Baltimore,
Maryland.
EXPERTS
The data in the "Financial Highlights" section of this prospectus
are based upon financial statements that have been audited by Deloitte &
Touche LLP, Two World Center, New York, New York, independent auditors, as
indicated in their reports with respect thereto, and are incorporated by
reference herein in reliance on their reports given on their authority as
experts in auditing and accounting.
REPORTS TO STOCKHOLDERS
The Trust sends unaudited semiannual reports and audited annual
reports, including a list of investments held, to stockholders.
AVAILABLE INFORMATION
The Trust is subject to the informational requirements of the
Securities Exchange Act of 1934 and the 1940 Act and in accordance
therewith is required to file reports, proxy statements and other
information with the SEC. Any such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
of the SEC, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and the SEC's New York Regional Office, Seven World Trade Center,
New York, New York 10048 and its Chicago Regional Office, Suite 1400,
Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois
60661. Reports, proxy statements and other information concerning the Trust
can also be inspected at the offices of the NYSE, 20 Broad Street, New
York, New York 10005.
Additional information regarding the Trust and the New Preferred
Shares is contained in the Registration Statement on Form N-2, including
amendments, exhibits and schedules thereto, relating to such shares filed
by the Trust with the SEC. This prospectus does not contain all of the
information set forth in the Registration Statement, including any
amendments, exhibits and schedules thereto. For further information with
respect to the Trust and the shares offered hereby, reference is made to
the Registration Statement. Statements contained in this prospectus as to
the contents of any contract or other document referred to are not
necessarily complete and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
A copy of the Registration Statement may be inspected
without charge at the SEC's principal office in Washington, D.C., and
copies of all or any part thereof may be obtained from the SEC upon the
payment of certain fees prescribed by the SEC. The SEC maintains a web site
(http://www.sec.gov) that contains the Registration Statement, other
documents incorporated by reference, and other information the Trust has
filed electronically with the SEC, including proxy statements and reports
filed under the Securities Exchange Act of 1934.
TABLE OF CONTENTS FOR THE
STATEMENT OF ADDITIONAL INFORMATION
Page
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
APPENDIX A
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a security must earn at
various income brackets to produce after- tax yields equivalent to those of
tax-exempt bonds yielding from 4% to 6% under the regular Federal income
tax law and tax rates applicable to individuals for 2000.
<TABLE>
<CAPTION>
MARGINAL
(TAXABLE INCOME*) INCOME TAX EXEMPT YIELD OF:
------------------- TAX 4% 4.5% 5% 5.5% 6%
SINGLE RETURN JOINT RETURN BRACKET IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ----------------- ---------------- ------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $26,250 Up to $43,850 15.00% 4.71% 5.29% 5.88% 6.47% 7.06%
$26,251 - $63,550 $43,851 - $105,950 28.00 5.56 6.25 6.94 7.64 8.33
$63,551 - $132,600 $105,951 - $161,450 31.00 5.80 6.52 7.25 7.97 8.70
$132,601 - $288,350 $161,451 - $288,350 36.00 6.25 7.03 7.81 8.59 9.38
Over $288,350 Over $288,350 39.60 6.62 7.45 8.28 9.11 9.93
</TABLE>
---------------
* Net amount subject to Federal personal income tax after deductions and
exemptions.
The above indicated Federal income tax brackets do not take into
account the effect of a reduction in the deductibility of itemized
deductions for individual taxpayers with adjusted gross income in excess of
$128,950. The tax brackets also do not show the effects of phaseout of
personal exemptions for single filers with adjusted gross income in excess
of $128,950 and joint filers with adjusted gross income in excess of
$193,400. The effective tax brackets and equivalent taxable yields of those
taxpayers will be higher than those indicated above.
Yields shown are for illustration purposes only and are not meant
to represent the Trust's actual yield. No assurance can be given that the
Trust will achieve any specific tax-exempt yield. While it is expected that
the Trust will invest principally in obligations the interest from which is
exempt from the regular Federal income tax, other income received by the
Trust may be taxable. The table does not take into account state or local
taxes, if any, payable on Trust distributions. It should also be noted that
the interest earned on certain "private activity bonds," while exempt from
the regular Federal income tax, is treated as a tax preference item which
could subject the recipient to the Federal alternative minimum tax. The
illustrations assume that the Federal alternative minimum tax is not
applicable and do not take into account any tax credits that may be
available.
The information set forth above is as of the date of this
prospectus. Subsequent tax law changes could result in prospective or
retroactive changes in the tax brackets, tax rates, and tax-equivalent
yields set forth above. Investors should consult their tax advisor for
additional information.
- ---------------------------------------------------------------------------
$65,000,000
THE BLACKROCK
INSURED MUNICIPAL
2008 TERM TRUST INC.
AUCTION RATE MUNICIPAL PREFERRED STOCK
2,600 SHARES, SERIES T7
---------------------
PROSPECTUS
, 2000
---------------------
- -----------------------------------------------------------------------------
[FLAG]
The information in this statement of additional information is not complete
and may be changed. We may not sell these securities until the Registration
Statement filed with the Securities and Exchange Commission is effective.
This statement of additional information is not an offer to sell these
securities and is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED _____________,2000
THE BLACKROCK INSURED MUNICIPAL 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.
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.
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 percentage
resulting from changing market values will not be considered a deviation
from policy. The Trust may not:
(1) with respect to 75% of its total assets, invest more
than 5% of the value of its total assets (taken at market value at
time of purchase) in the outstanding securities of any other issuer
or own more than 10% of the outstanding voting securities of any
one issuer, in each case other than securities issued or guaranteed
by the U.S. government or any agency or instrumentality thereof or
other investment companies;
(2) invest 25% of more of the value of its total assets in
any one industry provided that such limitation shall not be
applicable to municipal obligations other than those municipal
obligations backed only by assets and revenues of non-governmental
users;
(3) issue senior securities other than (a) preferred shares
not in excess of the excess of 50% of its total assets over any
senior securities described in clause (b) below that are
outstanding, (b) senior securities other than preferred shares
(including borrowing money, including on margin if margin
securities are owned and through entering into reverse repurchase
agreements) not in excess of 331/3% of its total assets, and (c)
borrowings up to 5% of its total assets for temporary purposes
without regard to the amount of senior securities outstanding under
clauses (a) and (b) above; provided, however, that the Trust's
obligations under interest rate swaps, when issued and forward
commitment transactions and similar transactions are not treated as
senior securities if covering assets are appropriately segregated;
or pledge its assets other than to secure such issuances or in
connection with Hedging Transactions, short sales, when-issued and
forward commitment transactions and similar investment strategies.
For purposes of clauses (a), (b) and (c) above, "total assets"
shall be calculated after giving effect to the net proceeds of any
such issuance and net of any liabilities and indebtedness that do
not constitute senior securities except for such liabilities and
indebtedness as are excluded from treatment as senior securities by
the proviso to this item (3);
(4) make loans of money or property to any person, except
through loans of portfolio securities, the purchase of fixed income
securities consistent with the Trust's investment objective and
policies or the acquisition of securities subject to repurchase
agreements;
(5) underwrite the securities of other issuers, except to
the extent that in connection with the disposition of portfolio
securities or the sale of its own shares the Trust may be deemed to
be an underwriter;
(6) invest for the purpose of exercising control over any
issuer, except that the Trust may control a portfolio subsidiary;
(7) purchase or sell real estate or interests therein other
than municipal obligations secured by real estate or interests
therein;
(8) purchase or sell commodities or commodity contracts
except for purposes, and only to the extent, permitted by
applicable law without the Trust becoming subject to registration
with the Commodity Futures Trading Commission as a commodity pool;
or
(9) make any short sale of securities except in conformity
with applicable laws, rules and regulations and unless, giving
effect to such sale, the market value of all securities sold short
does not exceed 25% of the value of the Trust's total assets and
the Trust's aggregate short sales of a particular class of
securities does not exceed 25% of the then outstanding securities
of that class.
The Trust has no intention to file a voluntary application for
relief under Federal bankruptcy law of 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 manage ment strategies, the Trust may also
enter into contracts for the purchase or sale for future delivery ("futures
contracts") of debt securities, aggregates of debt securities, financial
indices, and U.S. Government debt securities or options on the foregoing to
hedge the value of its portfolio securities that might result from a change
in interest rates or market movements. The Trust will engage in such
transactions only for bona fide hedging, risk management and other
appropriate portfolio management purposes, in each case, in accordance with
the rules and regulations of the Commodity Futures Trading Commission.
Calls on Securities Indices and Futures Contracts. In order to
enhance income or reduce fluctuations in net asset value, the Trust may
sell or purchase call options ("calls") on municipal obligations and
indices based upon the prices of debt securities that are traded on US.
securities exchanges and in the over-the-counter markets. A call option
gives the purchaser of the option the right to buy, and obligates the
seller to sell, the underlying security, futures contract or index at the
exercise price at any time or at a specified time during the option period.
All such calls sold by the Trust must be "covered" as long as the call is
outstanding (i.e., the Trust must own the instrument subject to the call or
other securities or assets acceptable for applicable segregation and
coverage requirements). A call sold by the Trust exposes the Trust during
the term of the option to possible loss of opportunity to realize
appreciation in the market price of the underlying security, index or
futures contract and may require the Trust to hold an instrument which it
might otherwise have sold. The purchase of a call gives the Trust the right
to buy the underlying instrument or index at a fixed price. Calls on
futures contracts on municipal obligations written by the Trust must also
be covered by assets or instruments acceptable under applicable segregation
and coverage requirements.
Puts on Securities Indices and Futures Contracts. As with calls,
the Trust may purchase put options ("puts") on municipal obligations
(whether or not it holds such securities in its portfolio). For the same
purposes the Trust may also sell puts on municipal obligations financial
indices and puts on futures contracts on municipal obligations if the
Trust's contingent obligations on such puts are secured by segregated
assets consisting of cash or liquid high grade debt securities having a
value not less than the exercise price. The Trust will not sell puts if, as
a result, more than 50% of the Trust's assets would be required to cover
its potential obligation under its hedging and other investment
transactions. In selling puts, there is a risk that the Trust may be
required to buy the underlying instrument or index at higher than the
current market price.
The principal risks relating to the use of Hedging Transactions
are: (i) less than perfect correlation between the prices of the hedging
instrument and the market value of the securities in the Trust's portfolio;
(ii) possible lack of a liquid secondary market for closing out a position
in such instruments; (iii) losses resulting from interest rate or other
market movements not anticipated by the Advisor; and (iv) the obligation to
meet additional variation margin or other payment requirements. See
Appendix A "General Characteristics and Risks of Hedging Transactions."
Certain provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), may restrict or affect the ability of the Trust to engage in
Hedging Transactions. See "Tax Matters" and the prospectus.
OTHER INVESTMENT POLICIES AND TECHNIQUES
Restricted and Illiquid Securities. Certain of the Trust's
investments may be illiquid. Illiquid securities are subject to legal or
contractual restrictions on disposition or lack an established secondary
trading market. The sale of restricted and illiquid securities often
requires more time and results in higher brokerage charges or dealer
discounts and other selling expenses than does the sale of securities
eligible for trading on national securities exchanges or in the over-
the-counter markets. Restricted securities may sell at a price lower than
similar securities that are not subject to restrictions on resale.
Repurchase Agreements. The Trust may invest temporarily, without
limitation, in repurchase agreements, which are agreements pursuant to
which securities are acquired by the Trust from a third party with the
understanding that they will be repurchased by the seller at a fixed price
on an agreed date. These agreements may be made with respect to any of the
portfolio securities in which the Trust is authorized to invest. Repurchase
agreements may be characterized as loans secured by the underlying
securities. The Trust may enter into repurchase agreements with (i) member
banks of the Federal Reserve System having total assets in excess of $500
million and (ii) securities dealers, provided that such banks or dealers
meet the creditworthiness standards established by the Trust's board of
directors ("Qualified Institutions"). The Advisor will monitor the
continued creditworthiness of Qualified Institutions, subject to the
supervision of the Trust's board of directors. The resale price reflects
the purchase price plus an agreed upon market rate of interest which is
unrelated to the coupon rate or date of maturity of the purchased security.
The collateral is marked to market daily. Such agreements permit the Trust
to keep all its assets earning interest while retaining "overnight"
flexibility in pursuit of investments of a longer-term nature.
The use of repurchase agreements involves certain risks. For
example, if the seller of securities under a repurchase agreement defaults
on its obligation to repurchase the underlying securities, as a result of
its bankruptcy or otherwise, the Trust will seek to dispose of such
securities, which action could involve costs or delays. If the seller
becomes insolvent and subject to liquidation or reorganization under
applicable bankruptcy or other laws, the Trust's ability to dispose of the
underlying securities may be restricted. Finally, it is possible that the
Trust may not be able to substantiate its interest in the underlying
securities. To minimize this risk, the securities underlying the repurchase
agreement will be held by the custodian at all times in an amount at least
equal to the repurchase price, including accrued interest. If the seller
fails to repurchase the securities, the Trust may suffer a loss to the
extent proceeds from the sale of the underlying securities are less than
the repurchase price.
Reverse Repurchase Agreements. The Trust may enter into reverse
repurchase agreements with respect to its portfolio investments subject to
the investment restrictions set forth herein and in the prospectus. Reverse
repurchase agreements involve the sale of securities held by the Trust with
an agreement by the Trust to repurchase the securities at an agreed upon
price, date and interest payment. At the time the Trust enters into a
reverse repurchase agreement, it may establish and maintain a segregated
account with its custodian containing liquid instruments having a value not
less than the repurchase price (including accrued interest). If the Trust
establishes and maintains such a segregated account, a reverse repurchase
agreement will not be considered a borrowing by the Trust; however, under
circumstances in which the Trust does not establish and maintain such a
segregated account, such reverse repurchase agreement will be considered a
borrowing for the purpose of the Trust's limitation on borrowings. The use
by the Trust of reverse repurchase agreements involves many of the same
risks of leverage since the proceeds derived from such reverse repurchase
agreements may be invested in additional securities. Reverse repurchase
agreements involve the risk that the market value of the securities
acquired in connection with the reverse repurchase agreement may decline
below the price of the securities the Trust has sold but is obligated to
repurchase. Also, reverse repurchase agreements involve the risk that the
market value of the securities retained in lieu of sale by the Trust in
connection with the reverse repurchase agreement may decline in price.
If the buyer of securities under a reverse repurchase agreement
files for bankruptcy or becomes insolvent, such buyer or its trustee or
receiver may receive an extension of time to determine whether to enforce
the Trust's obligation to repurchase the securities, and the Trust's use of
the proceeds of the reverse repurchase agreement may effectively be
restricted pending such decision. Also, the Trust would bear the risk of
loss to the extent that the proceeds of the reverse repurchase agreement
are less than the value of the securities subject to such agreement.
When-Issued and Forward Commitment Securities. The Trust may
purchase municipal obligations on a "when- issued" basis and may purchase
or sell municipal obligations on a "forward commitment" basis in order to
hedge against anticipated changes in interest rates and prices. When such
transactions are negotiated, the price, which is generally expressed in
yield terms, is fixed at the time the commitment is made, but delivery and
payment for the securities take place at a later date. When-issued
securities and forward commitments may be sold prior to the settlement
date, but the Trust will enter into when-issued and forward commitments
only with the intention of actually receiving or delivering the securities,
as the case may be. If the Trust disposes of the right to acquire a
when-issued municipal obligation prior to its acquisition or disposes of
its right to deliver or receive against a forward commitment, it might
incur a gain or loss. At the time the Trust enters into a transaction on a
when-issued or forward commitment basis, it will segregate with the
custodian cash or liquid high grade debt securities with a value not less
than the value of the when-issued or forward commitment securities. The
value of these assets will be monitored daily to ensure that their marked
to market value will at all times equal or exceed the corresponding
obligations of the Trust. There is always a risk that the securities may
not be delivered and that the Trust may incur a loss. Settlements in the
ordinary course, which may take substantially more than five business days,
are not treated by the Trust as when-issued or forward commitment
transactions and accordingly are not subject to the foregoing restrictions.
Borrowings. Although it has no present intention of doing so, the
Trust receives the right to borrow funds to the extent permitted as
described under the caption "Investment Objective and Policies --
Investment Restrictions." The proceeds of borrowings may be used for any
valid purpose including, without limitation, liquidity, investing and
repurchases of capital stock of the Trust. Borrowing is a form of leverage
and, in that respect, entails risks, including volatility in net asset
value, market value and income available for distribution.
Lending of Securities. The Trust may lend its portfolio securities
to Qualified Institutions. By lending its portfolio securities, the Trust
attempts to increase its income through the receipt of interest on the
loan. Any gain or loss in the market price of the securities loaned that
may occur during the term of the loan will be for the account of the Trust.
The Trust may lend its portfolio securities so long as the terms and the
structure of such loans are not inconsistent with requirements of the 1940
Act, which currently require that (i) the borrower pledge and maintain with
the Trust collateral consisting of cash, a letter of credit issued by a
domestic U.S. bank, or securities issued or guaranteed by the U.S.
Government having a value at all times not less than 100% of the value of
the securities loaned, (ii) the borrower add to such collateral whenever
the price of the securities loaned rises (i.e., the value of the loan is
"marked to the market" on a daily basis), (iii) the loan be made subject to
termination by the Trust at any time and (iv) the Trust receive reasonable
interest on the loan (which may include the Trust's investing any cash
collateral in interest bearing short-term invest ments), any distributions
on the loaned securities and any increase in their market value. The Trust
will not lend portfolio securities if, as a result, the aggregate of such
loans exceeds 331/3% of the value of the Trust's total assets (including
such loans). Loan arrangements made by the Trust will comply with all other
applicable regulatory requirements, including the rules of the New York
Stock Exchange, which rules presently require the borrower, after notice,
to redeliver the securities within the normal settlement time of five
business days. All relevant facts and circumstances, including the
creditworthiness of the Qualified Institution, will be monitored by the
Advisor, and will be considered in making decisions with respect to 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 periodi cally. 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.
<TABLE>
<CAPTION>
Principal Occupation
During the Past Five
Name and Address Title Years and Other Affiliations
- ---------------- ----- ----------------------------
<S> <C> <C>
Andrew F. Brimmer Director President of Brimmer & Company, Inc., a Washington,
4400 MacArthur Blvd., N.W. D.C. based economic and financial consulting
Suite 302 firm. Director of CarrAmerica Realty Corporation
Washington, DC 20007 and Borg-Warner Automotive. Formerly member of
Age: 72 the Board of Governors the Federal Reserve System.
Formerly Director of AirBorne Express,
BankAmerica Corporation (Bank of America),
BellSouth Corporation, College Retirement
Equities Fund (Trustee), Commodity Exchange,
Inc. (Public Governor), Connecticut Mutual Life
Insurance Company, E.I. duPont de Nemours &
Company, Equitable Life Assurance Society of the
United States, Gannett Company (publishing), MNC
Finan cial 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 Con
845 Third Avenue ference Board, Inc., a leading global business mem
New York, NY 10022 bership organization, from 1995-present. Former
Age: 52 Executive Dean of the John F. Kennedy School of
Government at Harvard University from 1988-1995.
Acting Director, Harvard Center for Government
(1991-1993). Formerly Partner (principal) of
McKinsey & Company, Inc. (1980-1988). Former
Executive Director of Federal Cash Management,
White House Office of Management and Budget
(1977-1979). Co-author, THE WINNING PERFORMANCE
(best selling management book published in 13
national editions). Trustee, Wesleyan
University, Drucker Foundation, Educational
Testing Services (ETS) and Airplanes Group, Air
craft Finance Trust (AFT). Director, Arch Chemi
cals (chemicals), Fremont Group (investments)
and The Guardian Life Insurance Company of
America (insurance).
Kent Dixon Director Consultant/Investor. Former President and Chief
9495 Blind Pass Road Executive Officer of Empire Federal Savings Bank
Unit #602 of America and Banc PLUS Savings Association,
St. Petersburg, FL 33706 former Chairman of the Board, President and Chief
Age: 61 Executive Officer of Northeast Savings. Former
Director of ISFA (the owner of INVEST, a
national securities brokerage service designed
for banks and thrift institutions).
Frank J. Fabozzi Director Consultant. Editor of THE JOURNAL OF PORT-
858 Tower View Circle FOLIO MANAGEMENT and Adjunct Professor of
New Hope, PA 18938 Finance at the School of Management at Yale
Age: 50 University. Director, Guardian Mutual Trusts
Group. Author and editor of several books on fixed
income portfolio management. Visiting Professor of
Finance and Accounting at the Sloan School of
Management, Massachusetts Institute of Technology
from 1986 to August 1992.
Laurence D. Fink* Director Chairman and Chief Executive Officer of
Age: 47 BlackRock Financial Management, Inc., BlackRock
Advisors, Inc. and BlackRock Inc. Formerly a
Managing Director of The First Boston Corporation,
member of its Management Committee, co-head of
its Taxable Fixed Income Division and head of its
Mortgage and Real Estate Products Group (Decem
ber 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 Out-
door Leadership School and Phoenix House. A
Director of VIMRx Pharmaceuticals, Inc. and
Innovir Laboratories, Inc.
James Clayburn LaForce, Jr. Director Dean Emeritus of The John E. Anderson Graduate
P.O. Box 1595 School of Management, University of California
Pauma Valley, CA 92061 since July 1, 1993. Director, Jacobs Engineering
Age: 69 Group, Inc., Rockwell International Corporation,
Payden & Rygel Investment Trusts (investment
companies), Timken Company (roller bearing and
steel) and Motor Cargo Industries
(transportation). Acting Dean of The School of
Business, Hong Kong University of Science and
Technology 1990-1993. From 1978 to September
1993, Dean of The John E. Anderson Graduate
School of Management, Univer sity of California.
Walter F. Mondale Director Partner, Dorsey & Whitney, a law firm (December
220 South Sixth Street 1996-present, September 1987-August 1993).
Minneapolis, MN 55402 Formerly U.S. Ambassador to Japan (1993-1996).
Age: 71 Formerly Vice President of the United States, U.S.
Senator and Attorney General of the State of Minne-
sota. 1984 Democratic Nominee for President of the
United States.
Ralph L. Schlosstein* Director and President President of BlackRock Financial Management, Inc.,
Age: 48 BlackRock Advisors, Inc. and BlackRock Inc.
Formerly a Managing Director of Lehman Brothers,
Inc. and co-head of its Mortgage and Savings Insti-
tutional Group. Currently President of each of the
closed-end funds in which BlackRock Financial
Management, Inc. acts as investment advisor.
Trustee of Denison University and New Visions for
Public Education in New York City. A Director of
the Pulte Corporation and a member of the Visiting
Board of Overseers of the John F. Kennedy School
of Government at Harvard University.
Keith T. Anderson Vice President Managing Director of BlackRock Advisors, Inc.
Age: 40 since January 1991. Managing Director of
BlackRock Financial Management, Inc. since Janu-
ary 1991. Director of BlackRock Financial Manage
ment, 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 Invest
ment Management Company (now Nicholas-
Applegate).
Henry Gabbay Treasurer Managing Director of BlackRock Advisors, Inc.
Age: 52 since January 1990. Managing Director of
BlackRock Financial Management, Inc. since Janu-
ary 1990. Director of BlackRock Financial Manage
ment, Inc. from February 1989 to January 1990.
From September 1984 to February 1989, Vice
President at The First Boston Corporation.
Robert S. Kapito Vice President Vice Chairman of BlackRock Advisors, Inc. since
Age: 42 March 1988. Vice Chairman of BlackRock Finan-
cial 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 Manage
Age: 39 ment, Inc. since January 1996. Director of
BlackRock Financial Management, Inc. from Janu-
ary 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 Administra-
tion Department. Previously affiliated with Deloitte
Haskins & Sells (now Deloitte & Touche LLP).
Karen H. Sabath Secretary Managing Director of BlackRock Advisors, Inc. and
Age: 34 BlackRock Financial Management, Inc. since Janu-
ary 1993. Vice President and Associate of
BlackRock Financial Management, Inc. from Janu-
ary 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 Manage-
Age: 41 ment, Inc. since January 1991. Director of
BlackRock Financial Management, Inc. from Janu-
ary 1989 to January 1991. From July 1985 to
January 1989, Vice President at The First Boston
Corporation in the Fixed Income Research Department.
Kevin Klingert Vice President Managing Director of BlackRock Advisors, Inc.
Age: 37 since January 1996. Managing Director of
BlackRock Financial Management, Inc. since Janu-
ary 1996. Director of BlackRock Financial Man-
agement, Inc. from January 1994 to January 1996.
Vice President of BlackRock Financial Manage
ment, Inc. from October 1991 to January 1994.
From March 1985 to October 1991, Assistant Vice
President at Merrill Lynch, Pierce, Fenner & Smith
in the Unit Investment Trust Department.
Richard Shea, Esq. Vice President Effective January 2000 Managing Director of
Age: 40 BlackRock Financial Management, Inc. Director of
BlackRock Financial Management, Inc. from Janu-
ary 1996 to January 2000. Vice President of
BlackRock Financial Management, Inc. from Febru-
ary 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 Special
ist at Laventhol & Horwath.
</TABLE>
As of February 4, 2000, no person is known to the Trust to own of
record or beneficially 5% or more of the outstanding common shares or
preferred shares, except Cede & Co., Bowling Green Station, P.O. Box 20,
New York, NY 10274-0020, which owned of record all of the outstanding
common and preferred shares.
Laurence D. Fink and Ralph L. Schlosstein serve as members of the
executive committee of the board of directors. The executive committee,
which meets between regular meetings of the board of directors, is
authorized to exercise all of the powers of the board of directors except
as otherwise set forth in the charter.
The Trust has an Audit Committee consisting of those directors who
are not interested persons of the Advisor.
No officer or employee of the Trust receives any compensation from
the Trust for serving as an officer or director of the Trust. The Trust
pays each director who is not an "interested person" of the Trust (as
defined in the 1940 Act) $6,000 per year plus $1,500 per board meeting
attended in person or by telephone for travel and out-of-pocket expenses.
The aggregate estimated compensation received by each current
director of the Trust for the fiscal year ending December 31, 1999 and the
aggregate estimated compensation to be received by each current
director/trustee of the BlackRock family of funds for the fiscal year
ending December 31, 1999 as a whole are estimated as follows:
<TABLE>
<CAPTION>
1999 Estimated
Aggregate Estimated Total Compensation from
Compensation From the Trust and Fund
Name of Board Member Trust Complex Paid to Board Member*
- -------------------- ----- -----------------------------
<S> <C> <C>
Andrew R. Brimmer $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.
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.
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 action that might be taken to reduce or eliminate any material
discount from net asset value in respect of common shares, which may
include the repurchase of such shares in the open market or in private
transactions, the making of a tender offer for such shares at net asset
value, or the conversion of the Trust to an open-end investment company.
The board of 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 preferred shares
dividends have been paid and (2) at the time of such purchase, redemption
or acquisition, the net asset value of the Trust's portfolio (determined
after deducting the acquisition price of the common shares) is at least
200% of the liquidation value of the outstanding preferred shares (expected
to equal the original purchase price per share plus any accrued and unpaid
dividends thereon). The staff of the SEC currently requires that any tender
offer made by a closed-end investment company for its shares must be at a
price equal to the net asset value of such shares on the close of business
on the last day of the tender offer. Any service fees incurred in
connection with any tender offer made by the Trust will be borne by the
Trust and will not reduce the stated consideration to be paid to tendering
shareholders.
Subject to its investment limitations, the Trust may borrow to
finance the repurchase of common shares or to make a tender offer. Interest
on any borrowings to finance share repurchase transactions or the
accumulation of cash by the Trust in anticipation of share repurchases or
tenders will reduce the Trust's net income. Any share repurchase, tender
offer or borrowing that might be approved by the Trust's board of directors
would have to comply with the Securities Exchange Act of 1934 and the 1940
Act and the rules and regulations under each of those acts.
Although the decision to take action in response to a discount from
net asset value will be made by the board of directors at the time it
considers such issue, it is the board's present policy, which may be
changed by the board of directors, not to authorize repurchases of common
shares or a tender offer for such shares if (1) such transactions, if
consummated, would (a) result in the delisting of the common shares from
the NYSE, or (b) impair the Trust's status as a regulated investment
company under the Internal Revenue Code of 1986 (which would make the Trust
a taxable entity, causing the Trust's income to be taxed at the corporate
level in addition to the taxation of shareholders who receive dividends
from the Trust) or as a registered closed-end investment company under the
1940 Act; (2) the Trust would not be able to liquidate portfolio securities
in an orderly manner and consistent with the Trust's investment objective
and policies in order to repurchase shares; or (3) there is, in the board's
judgment, any (a) material legal action or proceeding instituted or
threatened challenging such transactions or otherwise materially adversely
affecting the Trust, (b) general suspension of or limitation on prices for
trading securities on the NYSE, (c) declaration of a banking moratorium by
Federal or state authorities or any suspension of payment by United States
banks in which the Trust invests, (d) material limitation affecting the
Trust or the issuers of its portfolio securities by Federal or state
authorities on the extension of credit by lending institutions or on the
exchange of foreign currency, (e) commencement of war, armed hostilities or
other international or national calamity directly or indirectly involving
the United States, or (f) other event or condition which would have a
material adverse effect (including any adverse tax effect) on the Trust or
its shareholders if shares were repurchased. The board of directors may in
the future modify these conditions in light of experience.
The repurchase by the Trust of its common shares at prices below
net asset value will result in an increase in the net asset value of those
shares that remain outstanding. However, there can be no assurance that
share repurchases or tenders at or below net asset value will result in the
Trust's common shares trading at a price equal to their net asset value.
Nevertheless, the fact that the Trust's shares may be the subject of
repurchase or tender offers at net asset value from time to time, or that
the Trust may be converted to an open-end company, may reduce any spread
between market price and net asset value that might otherwise exist.
In addition, a purchase by the Trust of its common shares will
decrease the Trust's total assets which would likely have the effect of
increasing the Trust's expense ratio. Any purchase by the Trust of its
common shares at a time when preferred shares are outstanding will increase
the leverage applicable to the outstanding common shares then remaining and
decrease the asset coverage of the preferred shares.
Before deciding whether to take any action if the common shares
trade below net asset value, the Trust's board of directors would likely
consider all relevant factors, including the extent and duration of the
discount, the liquidity of the Trust's portfolio, the impact of any action
that might be taken on the Trust or its shareholders and market
considerations. Based on these considerations, even if the Trust's shares
should trade at a discount, the board of directors may determine that, in
the interest of the Trust and its shareholders, no action should be taken.
TAX MATTERS
The Trust has qualified and elected, and intends to continue to
qualify under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), as a regulated investment company and to satisfy conditions
which enable dividends on common shares or Preferred Shares which are
attributable to interest on tax-exempt municipal securities to be exempt
from Federal income tax in the hands of owners of such shares, subject to
the possible application of the Federal alternative minimum tax.
To qualify for tax treatment as a regulated investment company, the
Trust must, among other things: (a) distribute to its shareholders at least
an amount equal to the sum of (i) 90% of its net investment income (which
is its investment company taxable income as that term is defined in the
Code but determined without regard to the deduction for dividends paid) and
(ii) 90% of its net tax-exempt interest income and (b) diversify its
holdings so that, at the end of each fiscal quarter of the Trust (i) at
least 50% of the market value of the Trust's assets is represented by cash,
cash items, U.S. government securities and securities of other regulated
investment companies, and other securities, with these other securities
limited, with respect to any one issuer, to an amount not greater in value
than 5% of the Trust's total assets, and to not more than 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of
the market value of the Trust's assets is invested in the securities of any
one issuer (other than U.S. government securities or securities of other
regulated investment companies). In meeting these requirements, the Trust
may be restricted in the utilization of certain of the investment
techniques described above and in the prospectus. If in any year the Trust
should fail to qualify for tax treatment as a regulated investment company,
the Trust would incur a regular Federal corporate income tax upon its
taxable income for that year, and distributions to its shareholders would
be taxable to such holders as ordinary income to the extent of the Trust's
earnings and profits. A regulated investment company that fails to
distribute, by the close of each calendar year, at least an amount equal to
the sum of 98% of its ordinary taxable income for such year and 98% of its
capital gain net income for the one year period ending October 31 in such
year, plus any shortfalls from the prior year's required distribution, is
liable for a 4% excise tax on the portion of the undistributed amount of
such income that is less than the required amount for such distributions.
To avoid the imposition of this excise tax, the Trust generally makes the
required distributions of its ordinary taxable income, if any, and its
capital gain net income, to the extent possible, by the close of each
calendar year.
Certain of the Trust's investment practices are subject to special
provisions of the Code that, among other things, may defer the use of
certain deductions or losses of the Trust, affect the holding period of
securities held by the Trust and alter the character of the gains or losses
realized by the Trust. These provisions may also require the Trust to
recognize income or gain without receiving cash with which to make
distributions in the amounts necessary to satisfy the requirements for
maintaining regulated investment company status and for avoiding income and
excise taxes. The Trust will monitor its transactions and may make certain
tax elections in order to mitigate the effect of these rules and prevent
disqualification of the Trust as a regulated investment company.
The Trust intends to qualify to pay "exempt-interest" dividends, as
defined in the Code on its common shares and Preferred Shares. Under the
Code, at the close of each quarter of its taxable year, if at least 50% of
the value of the Trust's total assets consists of municipal bonds, the
Trust will be qualified to pay exempt-interest dividends to its
shareholders. Exempt-interest dividends are dividends or any part thereof
(other than a capital gain dividend) paid by the Trust which are
attributable to interest on municipal bonds and are so designated by the
Trust within 60 days of the Trust's fiscal year-end. Exempt-interest
dividends will be exempt from Federal income tax, subject to the possible
application of the Federal alternative minimum tax. Insurance proceeds
received by the Trust under any insurance policies in respect of scheduled
interest payments on defaulted municipal bonds, as described herein, will
generally be excludable from gross income under Section 103(a) of the Code.
In the case of non-appropriation by a political subdivision, however, there
can be no assurance that payments made by the issuer representing interest
on such "non-appropriation" municipal lease obligations will be excludable
from gross income for Federal income tax purposes. See "Investment
Objective and Policies" above. Gains of the Trust that are attributable to
market discount on certain municipal obligations acquired after April 30,
1993 are treated as ordinary income. The interest on private activity bonds
in most instances is not Federally tax-exempt to a person who is a
"substantial user" of a facility financed by such bonds or a "related
person" of such "substantial user." As a result, the Trust may not be an
appropriate investment for shareholders who are considered either a
"substantial user" or a "related person" within the meaning of the Code. In
general, a "substantial user" of a facility includes a "non- exempt person
who regularly uses a part of such facility in his trade or business."
"Related persons" are in general defined to include persons among whom
there exists a relationship, either by family or business, which would
result in a disallowance of losses in transactions among them under various
provisions of the Code (or if they are members of the same controlled group
of corporations under the Code), including a partnership and each of its
partners (and certain members of their families), an S corporation and each
of its shareholders (and certain members of their families) and various
combinations of these and other relationships. The foregoing is not a
complete description of all of the provisions of the Code covering the
definitions of "substantial user" and "related person." The Code provides
that every holder of Preferred Shares required to file a tax return must
include for information purposes on such return the amount of tax-exempt
interest received during the taxable year, including any exempt-interest
dividends received from the Trust.
Federal tax law imposes an alternative minimum tax with respect to
both corporations and individuals. Interest on certain municipal
obligations, such as bonds issued to make loans for housing purposes or to
private entities (but not to certain tax-exempt organizations such as
universities and non-profit hospitals) is included as an item of tax
preference in determining the amount of a taxpayer's alternative minimum
taxable income. To the extent that the Trust receives income from municipal
obligations subject to the Federal alternative minimum tax, a portion of
the dividends paid by it, although otherwise exempt from Federal income
tax, will be taxable to its shareholders to the extent that their tax
liability is determined under the alternative minimum tax. The Trust will
annually supply a report indicating the percentage of the Trust's income
attributable to municipal obligations subject to the Federal alternative
minimum tax. In addition, for certain corporations, alternative minimum
taxable income is increased by 75% of the difference between an alternative
measure of income ("adjusted current earnings") and the amount otherwise
determined to be the alternative minimum taxable income. Interest on all
municipal obligations, and therefore all distributions by the Trust that
would otherwise be tax-exempt, is included in calculating a corporation's
adjusted current earnings. Certain small corporations are not subject to
the alternative minimum tax.
Tax-exempt income, including exempt-interest dividends paid by the
Trust, is taken into account in calculating the amount of social security
and railroad retirement benefits that may be subject to Federal income tax.
Distributions to shareholders by the Trust of net income received,
if any, from taxable temporary investments and net short-term capital
gains, if any, realized by the Trust will be taxable to its shareholders as
ordinary income. Distributions by the Trust of net capital gain (which is
the excess of net long-term capital gain over net short-term capital loss),
if any, are taxable as long-term capital gain, regardless of the length of
time the shareholder has owned common shares or Preferred Shares. The
amount of taxable income and net capital gain allocable to the Trust's
Preferred Shares will depend upon the amount of such income and gain
realized by the Trust, but is not generally expected to be significant.
Except for dividends paid on Preferred Shares which include an allocable
portion of any net capital gain or other taxable income, the Trust
anticipates that all dividends paid on shares of its Preferred Shares will
constitute exempt-interest dividends for Federal income tax purposes.
Distributions, if any, in excess of the Trust's earnings and profits will
first reduce the adjusted tax basis of a shareholder's shares and, after
that basis has been reduced to zero, will constitute capital gains to the
shareholder (assuming the shares are held as a capital asset). As long as
the Trust qualifies as a regulated investment company under the Code, no
part of its distributions to shareholders will qualify for the
dividends-received deduction for corporations.
The Internal Revenue Service (the "IRS") requires that a regulated
investment company that has two or more classes of shares designate to each
such class proportionate amounts of each type of its income for each tax
year based upon the percentage of total dividends distributed to each class
for such year. The Trust intends each year to allocate, to the fullest
extent practicable, net tax-exempt interest income, net capital gain and
other taxable income, if any, between its common shares and preferred
shares, including the Preferred Shares, in proportion to the total
dividends paid to each class with respect to such year. To the extent
permitted under applicable law, the Trust reserves the right to make
special allocations of income within a class, consistent with the objective
of the Trust. The Trust may, at its election, notify the auction agent of
the amount of any net capital gain or other income taxable for Federal
income tax purposes to be included in any dividend on 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.
The Trust may, at its option, redeem its Preferred Shares in whole
or in part, and is required to redeem Preferred Shares to the extent
required to maintain the Preferred Shares Basic Maintenance Amount and the
1940 Act Preferred Shares Asset Coverage. Gain or loss, if any, resulting
from a redemption of Preferred Shares will be taxed as gain or loss from
the sale or exchange of Preferred Shares under Section 302 of the Code
rather than as a dividend, but only if the redemption distribution (a) is
deemed not to be essentially equivalent to a dividend, (b) is in complete
redemption of an owner's interest in the Trust, (c) is substantially
disproportionate with respect to the owner, or (d) with respect to a
non-corporate owner, is in partial liquidation of the owner's interest in
the Trust. For purposes of (a), (b) and (c) above, a shareholder's
ownership of common shares will be taken into account.
The sale or other disposition of common shares or Preferred Shares
will normally result in capital gain or loss to shareholders. Present law
taxes both long-term and short-term capital gains of corporations at the
rates applicable to ordinary income. For non-corporate taxpayers, however,
under current law short-term capital gains and ordinary income will be
taxed at a maximum rate of 39.6% while long-term capital gains generally
will be taxed at a maximum rate of 20%. However, because of the limitations
on itemized deductions and the deduction for personal exemptions applicable
to higher income taxpayers, the effective rate of tax may be higher in
certain circumstances. Losses realized by a shareholder on the sale or
exchange of shares of the Trust held for six months or less are disallowed
to the extent of any distribution of exempt- interest dividends received
with respect to such shares, and, if not disallowed, such losses are
treated as long-term capital losses to the extent of any distribution of
net capital gain received with respect to such shares. A shareholder's
holding period is suspended for any periods during which the shareholder's
risk of loss is diminished as a result of holding one or more other
positions in substantially similar or related property, or through certain
options or short sales. Any loss realized on a sale or exchange of shares
of the Trust will be disallowed to the extent those shares of the Trust are
replaced by other shares within a period of 61 days beginning 30 days
before and ending 30 days after the date of disposition of the original
shares. In that event, the basis of the replacement shares of the Trust
will be adjusted to reflect the disallowed loss.
The Code provides that interest on indebtedness incurred or
continued to purchase or carry the Trust's shares to which exempt-interest
dividends are allocated is not deductible. Under rules used by the IRS for
determining when borrowed funds are considered used for the purpose of
purchasing or carrying particular assets, the purchase or ownership of
shares may be considered to have been made with borrowed funds even though
such funds are not directly used for the purchase or ownership of such
shares.
Nonresident alien individuals and certain foreign corporations and
other entities ("foreign investors") generally are subject to U.S.
withholding tax at the rate of 30% (or possibly a lower rate provided by an
applicable tax treaty) on distributions of net investment income (which
includes net short-term capital gain). To the extent received by foreign
investors, exempt-interest dividends, distributions of net capital gain and
gain from the sale or other disposition of Preferred Shares generally are
exempt from United States Federal income taxation. Different tax
consequences may result if the owner is engaged in a trade or business in
the United States or, in the case of an individual, is present in the
United States for 183 or more days during a taxable year.
The Trust is required in certain circumstances to backup withhold
31% of taxable dividends and certain other payments paid to non-corporate
holders of the Trust's shares who do not furnish to the Trust their correct
taxpayer identification number (in the case of individuals, their social
security number) and certain certifications, or who are otherwise subject
to backup withholding. Backup withholding is not an additional tax. Any
amounts withheld from payments made to a shareholder may be refunded or
credited against such shareholder's United States Federal income tax
liability, if any, provided that the required information is furnished to
the IRS.
The foregoing is a general, summary of the provisions of the Code
and regulations thereunder presently in effect as they directly govern the
taxation of the Trust and its shareholders. These provisions are subject to
change by legislative or administrative action, and any such change may be
retroactive. Moreover, the foregoing does not address many of the factors
that may be determinative of whether an investor will be liable for the
Federal alternative minimum tax. Shareholders are advised to consult their
own tax Advisors for more detailed information concerning the Federal
income tax consequences of purchasing, holding and disposing of Trust
shares.
FINANCIAL STATEMENTS
INDEPENDENT AUDITORS
Deloitte & Touche LLP, located at Two World Financial Center, New
York, New York, provides auditing services to the Trust. The financial
statements and independent auditors report incorporated by reference into
this statement of additional information have been so incorporated and the
financial highlights included in the prospectus have been so included, in
reliance upon the report of Deloitte & Touche LLP given on their authority
as experts in auditing and accounting.
INCORPORATION BY REFERENCE
The Trust's Portfolio of Investments, dated December 31, 1999
(audited); Statement of Assets and Liabilities, dated December 31, 1999
(audited); Statement of Operations for the year ended December 31, 1999
(audited); Statement of Changes in Net Investment Assets for the two years
ended December 31, 1999 (audited) and the independent auditors report
included in the Trust's Annual Report for the fiscal year ended December
31, 1999 (the "Reports"), which accompany this statement of additional
information, are incorporated herein by reference. The Trust will furnish,
without charge, a copy of the Reports upon written request to the Trust at
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.
APPENDIX A
GENERAL CHARACTERISTICS AND
RISKS OF HEDGING TRANSACTIONS
In order to hedge against changes in the value of its portfolio
securities, the Trust may from time to time engage in certain hedging
strategies. The Trust will engage in such activities from time to time in
the Advisor's discretion, and may not necessarily be engaging in such
activities when movements in interest rates that could affect the value of
the assets of the Trust occur. The Trust's ability to pursue certain of
these strategies may be limited by the Commodity Exchange Act, applicable
regulations of the Commodity Futures Trading Commission ("CFTC") and the
federal income tax requirements applicable to regulated investment
companies.
PUT AND CALL OPTIONS ON SECURITIES AND INDICES
The Trust may purchase and sell put and call options on securities
and financial indices. A put option gives the purchaser of the option the
right to sell and the seller the obligation to buy the underlying security
at the exercise price during the option period. Index options are similar
to options on securities except that, rather than taking or making delivery
of securities underlying the option at a specified price upon exercise, an
index option gives the holder the right to receive cash upon exercise of
the option if the level of the index upon which the option is based is
greater, in the case of a call, or less, in the case of a put, than the
exercise price of the option. The purchase of a put option on a debt
security would be designed to protect the Trust's holdings in a security
against a substantial decline in the market value. A call option gives the
purchaser of the option the right to buy and the seller the obligation to
sell the underlying security at the exercise price during the option
period. The purchase of a call option on a security would be intended to
protect the Trust against an increase in the price of a security that it
intended to purchase in the future. In the case of either put or call
options that it has purchased, if the option expires without being sold or
exercised, the Trust will experience a loss in the amount of the option
premium plus any related commissions. When the Trust sells put and call
options, it receives a premium as the seller of the option. The premium
that the Trust receives for selling the option will serve as a partial
hedge, in the amount of the option premium, against changes in the value of
the securities in its portfolio. During the term of the option, however, a
covered call seller has, in return for the premium on the option, given up
the opportunity for capital appreciation above the exercise price of the
option if the value of the underlying security increases, but has retained
the risk of loss should the price of the underlying security decline.
Conversely, a secured put seller retains the risk of loss should the market
value of the underlying security decline below the exercise price of the
option, less the premium received on the sale of the option. The Trust is
authorized to purchase and sell exchange listed options and
over-the-counter options ("OTC Options") which are privately negotiated
with the counterparty to such contract. Listed options are issued by the
Options Clearing Corporation ("OCC"), which guarantees the performance of
the obligations of the parties to such options. All put and call options
written by the Trust will be covered.
The Trust's ability to close out its position as a purchaser or
seller of an exchange-listed put or call option is dependent upon the
existence of a liquid secondary market. Among the possible reasons for the
absence of a liquid secondary market on an exchange are: (i) insufficient
trading interest in certain options; (ii) restrictions on transactions
imposed by an exchange; (iii) trading halts, suspensions or other
restrictions imposed with respect to particular classes or series of
options or underlying securities; (iv) interruption of the normal
operations on an exchange; (v) inadequacy of the facilities of an exchange
or the OCC to handle current trading volume; or (vi) a decision by one or
more exchanges to discontinue the trading of options (or a particular class
or series of options), in which event the secondary market on that exchange
(or in that class or series of options) would cease to exist, although
outstanding options on that exchange that had been listed by the OCC as a
result of trades on that exchange would generally continue to be
exercisable in accordance with their terms. OTC options are purchased from
or sold to dealers, financial institutions or other counterparties which
have entered into direct agreements with the Trust. With OTC Options, such
variables as expiration date, exercise price and premium will be agreed
upon between the Trust and the counterparty, without the intermediation of
a third party such as the OCC. If the counterparty fails to make or take
delivery of the securities underlying an option it has written, or
otherwise settle the transaction in accordance with the terms of that
option as written, the Trust would lose the premium paid for the option as
well as any anticipated benefit of the transaction. As the Trust must rely
on the credit quality of the counterparty rather than the guarantee of the
OCC, it will only enter into OTC Options with counterparties with the
highest long-term credit ratings, and with primary U.S. Government
securities dealers recognized by the Federal Reserve Bank in New York.
The hours of trading for options on debt securities may not conform
to the hours during which the underlying securities are traded. To the
extent that the option markets close before the markets for the underlying
securities, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Characteristics. The Trust may purchase and sell futures contracts
and purchase put and call options on such futures contracts traded on
recognized domestic exchanges as a hedge against anticipated interest rate
changes or other market movements and future risk management. The sale of a
futures contract creates an obligation by the Trust, as seller, to deliver
the specific type of financial instrument called for in the contract at a
specified future time for a specified price. Options on futures contracts
are similar to options on securities except that an option on a futures
contract gives the purchaser the right in return for the premium paid to
assume a position in a futures contract (a long position if the option is a
call and a short position if the option is a put).
Margin Requirements. At the time a futures contract is purchased or
sold, the Trust must allocate cash or securities as a deposit payment
("initial margin"). It is expected that the initial margin that the Trust
will pay may range from approximately 1% to approximately 5% of the value
of the instruments underlying the contract. In certain circumstances,
however, such as periods of high volatility, the Trust may be required by
an exchange to increase the level of its initial margin payment
Additionally, initial margin requirements may be increased in the future
pursuant to regulatory action. An outstanding futures contract is valued
daily and the payment in cash of "variation margin" may be required, a
process known as "marking to the market." Transactions in listed options
and futures are usually settled by entering into an offsetting transaction,
and are subject to the risk that this position may not be able to be closed
if no offsetting transaction can be arranged.
Limitations on Use of Futures Contracts and Options on Futures
Contracts. The Trust's use of futures contracts and options on futures
contracts will in all cases be consistent with applicable regulatory
requirements and in particular, the rules and regulations of the CFTC and
will be entered into only for bona fide hedging purposes or other
appropriate risk management and duration management or other appropriate
portfolio strategies. In addition, the Trust may not sell futures contracts
if the value of such futures contracts exceeds the total market value of
the Trust's portfolio securities.
The Trust will not engage in transactions in futures contracts or
options thereon for speculative purposes but only as a hedge against
changes resulting from market conditions in the values of securities in its
portfolio. In addition, the Trust will not enter into a futures contract or
option thereon if, immediately thereafter, the sum of the amount of its
initial deposits and premiums on open contracts and options would exceed 5%
of the Trust's total assets (taken at current value); provided, however,
that in the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. Also, when required, a segregated account of cash or cash
equivalents will be maintained and marked to market in an amount equal to
the market value of the contract. The Advisor reserves the right to comply
with such different standards as may be established from time to time by
CFTC rules and regulations with respect to the purchase and sale of futures
contracts and options thereon.
Segregation and Cover Requirements. Futures contracts, interest
rate swaps, caps, floors and collars, and options on securities, indices
and futures contracts sold by the Trust are generally subject to
segregation and coverage requirements established by either the CFTC or the
SEC, with the result that, if the Trust does not hold the instrument
underlying the futures contract or option, the Trust will be required to
segregate on an ongoing basis with its custodian, cash, U.S. Government
securities, or other liquid high grade debt obligations in an amount at
least equal to the Trust's obligations with respect to such instruments.
Such amounts will fluctuate as the market value of the obligations
increases or decreases. The segregation requirement can result in the Trust
maintaining positions it would otherwise liquidate and consequently
segregating assets with respect thereto at a time when it might be
disadvantageous to do so.
---------------
Hedging Transactions present certain risks. In particular, the
variable degree of correlation between price movements of hedging
instruments and price movements in the position being hedged creates the
possibility that losses on the hedge may be greater than gains in the value
of the Trust's positions. In addition, certain hedging instruments and
markets may not be liquid in all circumstances. As a result, in volatile
markets, the Trust may not be able to close out a transaction in certain of
these instruments without incurring losses substantially greater than the
initial deposit. Although the contemplated use of these instruments should
tend to minimize the risk of loss due to a decline in the value of the
hedged position, at the same time they tend to limit any potential gain
which might result from an increase in the value of such position. The
ability of the Trust to hedge successfully will depend on the Advisor's
ability to predict pertinent market movements, which cannot be assured.
Finally, the daily variation margin deposit requirements in futures
contracts that the Trust has sold create an ongoing greater potential
financial risk than do options transactions, where the exposure is limited
to the cost of the initial premium and transaction costs paid by the Trust.
Losses due to Hedging Transactions will reduce net asset value.
The Trust's use of Hedging Transactions may be limited or affected
by certain provisions of the Code and rating agency guidelines.
APPENDIX B
INSURANCE RATINGS
The Trust will purchase or obtain insurance in respect of municipal
obligations only from insurers having claims-paying ability ratings of Aaa
from Moody's Investors Service, ("Moody's") and AAA from Standard & Poor's
("S&P") or, if unrated, which are viewed by the Advisor to have similar
claims-paying abilities.
A Moody's insurance claims-paying ability rating is an opinion of
the ability of an insurance company to repay punctually senior policyholder
obligations and claims. An insurer with an insurance claims-paying ability
rating of Aaa is adjudged by Moody's to be of the best quality. In the
opinion of Moody's, the policy obligations of an insurance company with an
insurance claims-paying ability rating of Aaa carry the smallest degree of
credit risk and, while the financial strength of these companies is likely
to change, such changes as can be visualized are most unlikely to impair
the company's fundamentally strong position. An S&P insurance claims-paying
ability rating is an assessment of an operating insurance company's
financial capacity to meet obligations under an insurance policy in
accordance with the terms. An insurer with an insurance claims-paying
ability rating of AAA has the highest rating assigned by S&P. Capacity to
honor insurance contracts is adjudged by S&P to be extremely strong and
highly likely to remain so over a long period of time.
An insurance claims-paying ability rating by Moody's or S&P does
not constitute an opinion on any specific contract in that such an opinion
can only be rendered upon the review of the specific insurance contract.
Furthermore, an insurance claims-paying ability rating does not take into
account deductibles, surrender or cancellation penalties or the timeliness
of payment; nor does it address the ability of a company to meet non-policy
obligations (i.e., debt contracts).
The assignment of ratings by Moody's or S&P to debt issues that are
fully or partially supported by insurance policies, contracts or guarantees
is a separate process from the determination of claims-paying ability
ratings. The likelihood of a timely flow of funds from the insurer to the
trustee for the bondholders is a key element in the rating determination
for such debt issues.
Each of AMBAC Indemnity Corporation ("AMBAC"), Municipal Bond
Investors Assurance Corporation ("MBIA") and its subsidiaries, Bond
Investors Guaranty Insurance Company ("BIGI") and Capital Markets Assurance
Company ("CAMPAC"), Financial Guaranty Insurance Company ("FGIC") and
Financial Security Assurance, Inc. ("FSA") has a claims-paying ability
rating of Aaa from Moody's and AAA from S&P, and the Trust expects to
purchase insurance from any such firm in respect of particular municipal
obligations.
AMBAC has received a letter ruling from the Internal Revenue
Service which holds in effect that insurance proceeds representing maturing
interest on defaulted municipal obligations paid by AMBAC to municipal bond
funds substantially similar to the Trust, under policy provisions
substantially identical to the policy described herein, will be excludable
from Federal gross income under Section 103(a) of the Internal Revenue
Code.
As of September 30, 1999, AMBAC's insured portfolio (unaudited) was
approximately $232 billion supported by approximately $4.8 billion in
claims paying resources (unaudited).
As of September 30, 1999, MBIA's insured portfolio (unaudited) was
approximately $396 billion supported by approximately $8.3 billion in
claims paying resources (unaudited).
As of September 30, 1999, FGIC's insured portfolio (unaudited) was
approximately $136 billion supported by approximately $2.7 billion in
claims paying resources (unaudited).
As of September 30, 1999, FSA's insured portfolio (unaudited) was
approximately $126 billion supported by approximately $2.4 billion in
claims paying resources (unaudited).
None of AMBAC, MBIA, FGIC and FSA or any associate thereof, has any
material business relationship, direct or indirect, with the Trust.
AMBAC, MBIA, FGIC and FSA are subject to regulation by the
department of insurance in each state in which they are qualified to do
business. Such regulation, however, is not a guarantee that any of AMBAC,
MBIA, FGIC or FSA will be able to perform on its contractual insurance in
the event a claim should be made thereunder at some time in the future.
The information relating to AMBAC, MBIA, FGIC and FSA set forth
above, including the financial informa tion, has been furnished by such
corporations. Financial information with respect to AMBAC, MBIA, FGIC and
FSA appears in reports filed by AMBAC, MBIA, FGIC and FSA with insurance
regulatory authorities and is subject to audit and review by such
authorities. No representation is made herein as to the accuracy or
adequacy of such information with respect to AMBAC, MBIA, FGIC or FSA or as
to the absence of material adverse changes in such information subsequent
to the date thereof.
APPENDIX C-1
ARTICLES OF AMENDMENT
OF
THE BLACKROCK INSURED MUNICIPAL 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 Corpora tion 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:
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 different meaning or intent, in these Articles Supplementary the
following terms have the following meanings, whether used in the singular
or plural:
"'AA' Composite Commercial Paper Rate" for any period less
than 183 days as of any date means (i) the Interest Equivalent of the rate
on commercial paper for such period placed on behalf of issuers whose
corporate bonds are rated "AA" by S&P, or the equivalent of such rating by
S&P or another nationally recognized statistical rating organization, as
the rate for such period is made available on a discount basis or otherwise
by the Federal Reserve Bank of New York for the Business Day immediately
preceding such date, or (ii) in the event that the Federal Reserve Bank of
New York does not make available such a rate, then the arithmetic average
of the Interest Equivalent of the rate on commercial paper for such period
placed on behalf of such issuers, as quoted to the Auction Agent on a
discount basis or otherwise by the Commercial Paper Dealers for the close
of business on the Business Day immediately preceding such date. If a
Commercial Paper Dealer does not quote a rate required to determine the
"AA" Composite Commercial Paper Rate for such period, the "AA" Composite
Commercial Paper Rate for such period will be determined on the basis of
the quotation or quotations furnished by any Substitute Commercial Paper
Dealer or Substitute Commercial Paper Dealers selected by the Corporation
to provide such rate or rates not being supplied by the Commercial Paper
Dealer.
"Accountant's Confirmation" has the meaning set forth in
paragraph 7(c) of these Articles Supplemen tary.
"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 Supplemen tary.
"Applicable Rate" means (i) for purposes of the Auction
Procedures, the rate per annum or, in connection with any Auction in which
Bid Requirements are imposed by the Corporation, the method by which one or
more such rates may be determined, at which cash dividends are payable (if
declared) on the Preferred Shares or Other Preferred Shares, as the case
may be, for any Dividend Period and any Dividend Payment Period included
therein and (ii) for purposes of determining the amount of cash dividends
payable (if declared) at any Dividend Payment Date, the rate per annum
(including in the case of any Applicable Rate expressed as a Spread the
rate per annum determined by periodic application of such Spread to the
applicable Reference Index or Reference Security at the frequency and
weighting, if any, specified in the related Bid Requirements, subject to
any Maximum Applicable Rate or Minimum Applicable Rate applicable to such
Dividend Payment Period) at which cash dividends are payable (if declared)
on the Preferred Shares, and includes, to the extent provided by paragraph
2(c)(i) of these Articles Supplementary, any late charge provided for by
such paragraph.
"Auction" means a periodic operation of the Auction
Procedures.
"Auction Agent" means Bankers Trust Company unless and until
another commercial bank, trust company or other financial institution
appointed by a resolution of the Board of Directors of the Corporation or a
duly authorized committee thereof enters into an agreement with the
Corporation to follow the Auction Procedures for the purpose of determining
the Applicable Rate and to act as transfer agent, registrar, dividend
disbursing agent and redemption agent for the Preferred Shares and Other
Preferred Shares.
"Auction Procedures" means the procedures for conducting
Auctions set forth in paragraph 11 of these Articles Supplementary.
"Bid Requirements" means (i) any requirement for a Special
Dividend Period longer than 91 days that Bids by Potential Holders shall be
expressed as a Spread below, at or above the rate of a specified Reference
Index or Reference Security, (ii) the Reference Index or Reference
Security, the most recently announced rate thereof and the frequency with
which the rate of Reference Index or the Reference Security, as the case
may be, shall be recalculated for purposes of determining rates expressed
as Spreads thereon in accordance with these Articles Supplementary, which
frequency shall be the same as the frequency with which the person
maintaining the Reference Index being utilized recalculates such Reference
Index, or the same as the frequency with which the interest rate on the
Reference Security being utilized changes or such other frequency as the
Corporation shall specify (which specification may include a formula
specified by the Corporation indicating the weighting to be given to each
recalculation of the Reference Index or change in the rate of the Reference
Security during a specified period), (iii) the frequency of Dividend
Payment Dates during such Special Dividend Period (which shall not be more
often than the frequency specified pursuant to clause (ii) above), (iv) one
or more Minimum Applicable Rate or Rates (the Indicated Minimum Applicable
Rate or Rates in the case of Bid Requirements set forth in a Request for
Special Dividend Period) and/or (v) one or more Special Dividend Period
Reference Rate or Rates and the Maximum Applicable Rate or Rates (the
Indicated Maximum Applicable Rate or Rates in the case of Bid Requirements
set forth in a Request for Special Dividend Period) derivable from such
Special Dividend Period Reference Rate or Rates, in each case as set forth
in the Notice of Special Dividend Period for such Special Dividend Period.
"Broker-Dealer" shall mean any broker-dealer, or other
entity permitted by law to perform the functions required of a
Broker-Dealer in paragraph 11 of these Articles Supplementary, that has
been selected by the Corporation and has entered into a Broker-Dealer
Agreement with the Auction Agent that remains effective.
"Broker-Dealer Agreement" shall mean an agreement between
the Auction Agent and a Broker-Dealer pursuant to which such Broker-Dealer
agrees to follow the procedures specified in paragraph 11 of these Articles
Supplementary.
"Business Day" means a day on which the New York Stock
Exchange, Inc. is open for trading and which is not a Saturday, Sunday or
other day on which banks in the City of New York are authorized or
obligated by law to close.
"Charter" means the Charter, as amended and supplemented
(including these Articles Supplementary), of the Corporation on file in the
State Department of Assessments and Taxation of Maryland.
"Closing Transaction" means the termination of a futures
contract or option position by taking a position opposite thereto.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commercial Paper Dealers" means Merrill Lynch, Pierce,
Fenner & Smith Incorporated and such other commercial paper dealer or
dealers as the Corporation may from time to time appoint, or, in lieu of
any thereof, their respective affiliates or successors.
"Common Stock" means the common stock, par value $.01 per
share, of the Corporation.
"Corporation" means The BlackRock Insured Municipal 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.
"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.
"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
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**
- ------------------------- ---- --- -- ---- -------
<C> <C> <C> <C> <C> <C>
7 weeks or less.................................... 151% 159% 168% 202% 229%
8 weeks or less but greater than seven weeks....... 154 164 173 205 235
9 weeks or less but greater than eight weeks....... 158 169 179 209 242
- --------------
* Moody's rating.
** Municipal Obligations not rated by Moody's but rated BBB-, BBB or BBB+
by S&P.
</TABLE>
; provided, however, in the event a Moody's Discount Factor applicable to a
Municipal Obligation is determined by reference to an insurance
claims-paying ability rating in accordance with clause (i)(B), such Moody's
Discount Factor shall be increased by an amount equal to 50% of the
difference between (a) the percentage set forth in the foregoing table
under the applicable rating category and (b) the percentage set forth in
the foregoing table under the rating category which is one category lower
than the applicable rating category. If a Municipal obligation is covered
by a Portfolio insurance policy which provides the Trust with an option to
obtain Permanent Insurance with respect to such Municipal Obligation and
such Portfolio Insurance policy has been approved in writing by Moody's,
the Moody's Discount Factor rating category shall be determined by
averaging the insurance claimspaying 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 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.
"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 Supplemen tary.
"Notice of Special Dividend Period" has the meaning set
forth in paragraph 2(c)(iii) of these Articles Supplementary.
"Optional Redemption Price" shall mean $50,000 per share
plus an amount equal to accumulated but unpaid dividends (whether or not
earned or declared) to the date fixed for redemption plus the premium, if
any, resulting from the designation of a Premium Call Period.
"Original Issue Insurance" means insurance guaranteeing the
timely payment of principal of, and interest on, a Municipal Obligation
purchased by the issuer of a Municipal Obligation or by a third party at
the time of issuance of such Municipal Obligation.
"Other Preferred Shares" means the Auction Rate Municipal
Preferred Stock of the Corporation, other than the Preferred Shares.
"Outstanding" means, as of any date (i) with respect to
Preferred Shares, Preferred Shares theretofore issued by the Corporation
except, without duplication, (A) any Preferred Shares theretofore cancelled
or delivered to the Auction Agent for cancellation, or redeemed by the
Corporation, or as to which a Notice of Redemption shall have been given
and moneys shall have been deposited in trust by the Corporation pursuant
to paragraph 4(c) and (B) any Preferred Shares as to which the Corporation
or any Affiliate thereof shall be an Existing Holder and (ii) with respect
to shares of Other Preferred Stock, has the equivalent meaning.
"Parity Stock" means the Preferred Shares and each other
outstanding series of Preferred Stock the holders of which, together with
the holders of the Preferred Shares, shall be entitled to the receipt of
dividends or of amounts distributable upon liquidation, dissolution or
winding up, as the case may be, in proportion to the full respective
preferential amounts to which they are entitled, without preference or
priority one over the other.
"Permanent Insurance" means insurance guaranteeing the
timely payment of principal of, and interest on, a Municipal Obligation
purchased by the Corporation upon payment of a single, predetermined
insurance premium pursuant to an irrevocable commitment of the issuer of
Portfolio Insurance covering such Municipal Obligation.
"Person" shall mean and include an individual, a
partnership, a corporation, a trust, an unincorporated association, a joint
venture or other entity or a government or any agency or political
subdivision thereof.
"Portfolio Insurance" means insurance guaranteeing the
timely payment of principal of, and interest on, a covered Municipal
Obligation only while such Municipal Obligation is owned by the
Corporation.
"Potential Holder" shall mean any Person, including any
Existing Holder, who may be interested in acquiring Preferred Shares (or,
in the case of an Existing Holder, additional Preferred Shares).
"Preferred Shares" means, as the case may be, Auction Rate
Municipal Preferred Stock, Series 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 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 holders of the Preferred Shares.
"Reference Rate" means the higher of the 30-day "AA"
Composite Commercial Paper Rate and the Taxable Equivalent of the
Short-Term Municipal Bond Rate, or, in the case of a Special Dividend
Period with a single Applicable Rate throughout such Special Dividend
Period, the Special Dividend Period Reference Rate or, in the case of a
Special Dividend Period with a varying Applicable Rate, the Reference Rate
specified in the definition of S&P Volatility Factor that most closely
approximates the length of the interval between periodic applications of
the Spread to the relevant Reference Index or Reference Security.
"Reference Security" shall mean, in the case of a debt
obligation, a particular debt obligation which is publicly traded, which is
non-callable prior to the termination of the Special Dividend Period with
respect to which such Reference Security is relevant and the outstanding
aggregate principal amount of which at the time of the Notice of Special
Dividend Period exceeds $100 million or, in the case of a preferred stock,
a preferred stock issue which is publicly traded, which is non-redeemable
prior to the termination of the Special Dividend Period with respect to
which such Reference Security is relevant and the outstanding liquidation
value of which at the time 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 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%
30-day "AA" Composite
Commercial Paper Rate........................228%
60-day "AA" Composite
Commercial Paper Rate........................228%
90-day "AA" Composite
Commercial Paper Rate........................222%
180-day "AA" Composite
Commercial Paper Rate........................217%
1-year U.S. Treasury
Bill Rate....................................198%
2-year U.S. Treasury
Note Rate....................................185%
3-year U.S. Treasury
Note Rate....................................178%
4-year U.S. Treasury
Note Rate....................................171%
5-year U.S. Treasury
Note Rate....................................169%
Notwithstanding the foregoing, the S&P Volatility Factor may mean such
other potential dividend rate increase factor as S&P advises the
Corporation in writing is applicable.
"Secondary Insurance" means insurance guaranteeing the
timely payment of principal of, and interest on, a Municipal Obligation
purchased by the Corporation or a third party subsequent to the original
issuance of such Municipal Obligation.
"Securities Depository" means The Depository Trust Company
or any successor company or other entity selected by the Corporation as
securities depository for the Preferred Shares that agrees to follow the
procedures required to be followed by such securities depository in
connection with the Preferred Shares.
"Series 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)).
"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 limitation, issuers of general
obligation bonds but shall exclude any bonds the interest on which is
subject to the Federal alternative minimum tax or similar tax under the
Code, unless all bonds the interest on which is so excludable for Federal
income tax purposes are subject to such tax and (B) divided by 1 minus the
Maximum Marginal Regular Federal individual income tax rate applicable to
the character of the income being distributed or the maximum marginal
regular Federal corporate income tax rate applicable to the character of
the income being distributed (in each case expressed as a decimal),
whichever is greater; or (ii) in lieu of the rate determined pursuant to
clause (i) above, a percentage, determined by the Corporation, of (A) the
per annum rate expressed on an interest equivalent basis equal to any
substitute index prepared by any person (other than an Affiliate of the
Corporation), selected from time to time by the Corporation, based on bonds
the interest on which is excludable from gross income for Federal income
tax purposes under the Code, and (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
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.
Govern ment 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 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
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 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.
(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.
(e) Each dividend shall consist of (i) cash at the
Applicable Rate and (ii) an uncertificated right (a "Right") to receive an
Additional Dividend (as defined below). Each Right shall thereafter be
independent of the share or Preferred Shares on which the dividend was
paid. The Corporation shall cause to be maintained a record of each Right
received by the respective Holders. The Corporation shall not be required
to recognize any transfer of a Right.
If, in the case of a Dividend Period of 28 days or
fewer, the Corporation retroactively allocates any net capital
gains or other taxable income to Preferred Shares without having
given advance notice thereof to the Auction Agent as described in
paragraph 2(f) hereof (the amount of such allocation referred to
herein as a "Retroactive Taxable Allocation") solely by reason of
the fact that such allocation is made as a result of the redemption
of all or a portion of the outstanding Preferred Shares or the
liquidation of the Corporation, the Corporation will, within 90
days (and generally within 60 days) after the end of the
Corporation's fiscal year for which a Retroactive Taxable
Allocation is made, provide notice thereof to the Auction Agent and
to each holder of a Right applicable to such Preferred Shares
(initially Cede & Co. as nominee of The Depository Trust Company)
during such fiscal year at such holder's address as the same
appears or last appeared on the Stock Books of the Corporation. The
Corporation will, within 30 days after such notice is given to the
Auction Agent, pay to the Auction Agent (who will then distribute
to such holders of Rights), out of funds legally available
therefor, an amount equal to the aggregate Additional Dividend with
respect to all Retroactive Taxable Allocations made to such holders
during the fiscal year in question.
If the Corporation, in the case of a Dividend Period of
35 days or more, makes a Retroactive Taxable Allocation to a
dividend paid on Preferred Shares, the Corporation will, within 90
days (and generally within 60 days) after the end of the
Corporation's fiscal year for which a Retroactive Taxable
Allocation is made, provide notice thereof to the Auction Agent and
to each holder of a Right applicable to such Preferred Shares
(initially Cede & Co. as nominee of The Depository Trust Company)
during such fiscal year at such holder's address as the same
appears or last appeared on the Stock Books of the Corporation. The
Corporation will, within 30 days after such notice is given to the
Auction Agent, pay to the Auction Agent (who will then distribute
to such holders of Rights), out of funds legally available
therefor, an amount equal to the aggregate Additional Dividend with
respect to all Retroactive Taxable Allocations made to such holders
during the fiscal year in question.
An "Additional Dividend" means payment to a holder of
Preferred Shares of an amount which, when taken together with the
aggregate amount of Retroactive Taxable Allocations allocated to
such holder with respect to the fiscal year in question, would
cause such holder's dividends from the aggregate of both the
Retroactive Taxable Allocations and the Additional Dividend to be
equal to the dollar amount of the dividends which would have been
received and retained by such holder if the Retroactive Taxable
Allocations had not been made. Such Additional Dividend shall be
calculated (i) without consideration being given to the time value
of money; (ii) assuming that no holder of Preferred Shares is
subject to the Federal alternative minimum tax with respect to
dividends received from the Corporation; and (iii) assuming that
each Retroactive Taxable Allocation would be taxable in the hands
of each holder of Preferred Shares at the maximum marginal combined
regular Federal income tax rate applicable to individuals or
corporations, whichever is greater, in effect during the fiscal
year in question.
(f) Whenever the Corporation intends to include any net
capital gains or other taxable income in any dividend on Preferred Shares
the Applicable Rate for which will be established at the next succeeding
Auction, the Corporation will, in the case of a Dividend Period of 28 days
or fewer, and may, in the case of a Dividend Period of 35 days or more,
notify the Auction Agent of the amount to be so included at least five
Business Days prior to the Auction Date on which the Applicable Rate for
such dividend is to be established. If, in the case of a Dividend Period of
28 days or fewer, the Corporation retroactively allocates any net capital
gains or other taxable income to 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 S&P Eligible Assets and Moody's Eligible
Assets each with an aggregate Discounted Value equal to the
Preferred Shares Basic Maintenance Amount.
(ii) The Corporation shall redeem, out of funds
legally available therefor, at the Mandatory Redemption Price per
share, Preferred Shares to the extent permitted under the 1940 Act
and Maryland law, on a date fixed by the Board of Directors, if the
Corporation fails to maintain Moody's Eligible Assets and S&P
Eligible Assets each with an aggregate Discounted Value equal to or
greater than the Preferred Shares Basic Maintenance Amount as
provided in paragraph 7(a) or to satisfy the 1940 Act Preferred
Shares Asset Coverage as provided in paragraph 6 and such failure
is not cured on or before the Preferred Shares Basic Maintenance
Cure Date or the 1940 Act Cure Date (herein respectively referred
to as the "Cure Date"), as the case may be. In addition, holders of
Preferred Shares so redeemed shall be entitled to receive
Additional Dividends to the extent provided herein. The number of
Preferred Shares to be redeemed shall be equal to the lesser of (i)
the minimum number of Preferred Shares the redemption of which, if
deemed to have occurred immediately prior to the opening of
business on the Cure Date, would together with all shares of Other
Preferred Stock subject to redemption or retirement, result in the
Corporation having S&P Eligible Assets and Moody's Eligible Assets
each with an aggregate Discounted Value equal to or greater than
the Preferred Shares Basic Maintenance Amount or satisfaction of
the 1940 Act Preferred Shares Asset Coverage, as the case may be,
on such Cure Date (provided that, if there is no such minimum
number of Preferred Shares and shares of Other Preferred Stock the
redemption of which would have such result, all Preferred Shares
and shares of Other Preferred Stock then outstanding shall be
redeemed), and (ii) the maximum number of Preferred Shares,
together with all shares of other Preferred Stock subject to
redemption or retirement, that can be redeemed out of funds
expected to be legally available therefor on such redemption date.
In determining the number of Preferred Shares required to be
redeemed in accordance with the foregoing, the Corporation shall
allocate the number required to be redeemed which would result in
the Corporation having Moody's Eligible Assets and S&P Eligible
Assets each with an aggregate Discounted Value equal to or greater
than the Preferred Shares Basic Maintenance Amount or satisfaction
of the 1940 Act Preferred Shares Asset Coverage, as the case may
be, pro rata among Preferred Shares, Other Preferred Shares and
other Preferred Stock subject to redemption pursuant to provisions
similar to those contained in this paragraph 4(a)(ii) provided
that, Preferred Shares which may not be redeemed at the option of
the Corporation (a) will be subject to mandatory redemption only to
the extent that other shares are not available to satisfy the
number of shares required to be redeemed and (b) will be selected
for redemption in an ascending order of outstanding number of days
in the Non-Call Period during which such shares are not subject to
optional redemption (with shares with the lowest number of days to
be redeemed first) and by lot in the event of shares having an
equal number of days in such period. The Corporation shall effect
such redemption on a Business Day which is not later than 30 days
after such Cure Date, except that if the Corporation does not have
funds legally available for the redemption of all of the required
number of Preferred Shares and shares of other Preferred Stock
which are subject to mandatory redemption or the Corporation
otherwise is unable to effect such redemption on or prior to 30
days after such Cure Date, the Corporation shall redeem those
Preferred Shares which it is unable to redeem on the earliest
practicable date on which it is able to effect such redemption out
of funds legally available therefor.
(b) Notwithstanding any other provision of this
paragraph 4, no Preferred Shares may be redeemed pursuant to paragraph
4(a)(i) of these Articles Supplementary unless all dividends in arrears on
all remaining outstanding shares of Parity Stock shall have been or are
being contemporaneously paid or declared and set apart for payment. In the
event that less than all the outstanding Preferred Shares are to be
redeemed and there is more than one Holder, the shares to be redeemed shall
be selected by lot or such other method as the Corporation shall deem fair
and equitable.
(c) Whenever Preferred Shares are to be redeemed, the
Corporation, not less than 20 or more than 60 days prior to the date fixed
for redemption, shall mail a notice ("Notice of Redemption") by first-class
mail, postage prepaid, to each Holder of Preferred Shares to be redeemed
and to the Auction Agent. The Corporation shall cause the Notice of
Redemption also to be published in the eastern and national editions of The
Wall Street Journal. The Notice of Redemption to set forth (i) the
redemption date, (ii) the amount of the redemption price, (iii) the
aggregate number of Preferred Shares to be redeemed, (iv) the place or
places where Preferred Shares are to be surrendered for payment of the
redemption price, (v) a statement that dividends on the shares to be
redeemed shall cease to accumulate on such redemption date (except that
holders may be entitled to Additional Dividends) and (vi) the provision of
these Articles Supplementary pursuant to which such shares are being
redeemed. No defect in the Notice of Redemption or in the mailing or
publication thereof shall affect the validity of the redemption
proceedings, except as required by applicable law.
If the Notice of Redemption shall have been given as
aforesaid and, concurrently or thereafter, the Corporation shall
have deposited in trust with the Auction Agent a cash amount equal
to the redemption payment for the Preferred Shares as to which such
Notice of Redemption has been given with irrevocable instructions
and authority to pay the redemption price to the Holders of such
shares, then upon the date of such deposit or, if no such deposit
is made, then upon such date fixed for redemption (unless the
Corporation shall default in making the redemption payment), all
rights of the Holders of such shares as shareholders of the
Corporation by reason of the ownership of such shares will cease
and terminate (except their right to receive the redemption price
in respect thereof and any additional dividends, but without
interest), and such shares shall no longer be deemed outstanding.
The Corporation shall be entitled to receive, from time to time,
from the Auction Agent the interest, if any, on such moneys
deposited with it and the Holders of any shares so redeemed shall
have no claim to any of such interest. In case the Holder of any
shares so called for redemption shall not claim the redemption
payment for his shares within one year after the date of
redemption, the Auction Agent shall, upon demand, pay over to the
Corporation such amount remaining on deposit and the Auction Agent
shall thereupon be relieved of all responsibility to the Holder of
such shares called for redemption and such Holder thereafter shall
look only to the Corporation for the redemption payment.
5. Voting Rights. (a) General. Except as otherwise provided
in the Charter, each Holder of Preferred Shares shall be entitled to one
vote for each share held on each matter submitted to a vote of stockholders
of the Corporation to which the stockholders are entitled to vote, and the
holders of outstanding shares of Preferred Stock, including Preferred
Shares, and of shares of Common Stock shall vote together as a single class
with respect to all matters on which all stockholders are entitled to vote.
Notwithstanding the preceding sentence, at the first annual meeting of
stockholders, the holders of outstanding shares of Preferred Stock,
including Preferred Shares, represented in person or by proxy shall be
entitled as a class, and to the exclusion of the holders of all other
securities and classes of capital stock of the Corporation, to elect one
Class I director and one Class II director and shall thereafter be so
entitled to elect any successors from time to time to the Class I and Class
II directors so elected at any meeting of shareholders in which successors
are elected. At each meeting of shareholders at which entire classes of
Class I and Class II directors are to be elected, or at any meeting at
which a successor to a director elected by the holders of Preferred Stock
in accordance with this Section is to be elected (including directors
elected pursuant to this sentence), the holders of outstanding shares of
Preferred Stock, including Preferred Shares, represented in person or by
proxy shall be entitled as a class and to the exclusion of the holders of
all other securities and classes of capital stock of the Corporation to
elect one Class I and one Class II director or to elect such successor. In
the event that the Charter is amended to eliminate the classification of
the Corporation's Board of Directors, the holders of outstanding shares of
Preferred Stock, including Preferred Shares, represented in person or by
proxy shall be entitled as a class, and to the exclusion of the holders of
all other securities and classes of capital stock of the Corporation, to
elect two directors. Subject to paragraph 5(b) hereof, the holders of
outstanding shares of capital stock of the Corporation, voting as a single
class, shall elect the balance of the directors.
(b) Right to Elect Majority of Board of Directors.
During any period in which any one or more of the conditions described
below shall exist (such period being referred to herein as a "Voting
Period"), the number of directors constituting the Board of Directors shall
be automatically increased by the smallest number that, when added to the
two directors elected exclusively by the holders of shares of Preferred
Stock, would constitute a majority of the Board of Directors as so
increased by such smallest number; and the holders of shares of Preferred
Stock shall be entitled, voting as a class on a one-vote-per-share basis
(to the exclusion of the holders of all other securities and classes of
capital stock of the Corporation), to elect such smallest number of
additional directors, together with the two directors that such holders are
in any event entitled to elect. A Voting Period shall commence:
(i) if at any time accumulated dividends (whether
or not earned or declared, and whether or not funds are then
legally available in an amount sufficient therefor) on the
outstanding Preferred Shares equal to at least two full years'
dividends shall be due and unpaid and sufficient cash or specified
securities shall not have been deposited with the Auction Agent for
the payment of such accumulated dividends; or
(ii) if at any time holders of any Preferred Stock
are entitled to elect a majority of the directors of the
Corporation under the 1940 Act.
Upon the termination of a Voting Period, the voting
rights described in this paragraph 5(b) shall cease, subject always,
however, to the revesting of such voting rights in the Holders upon the
further occurrence of any of the events described in this paragraph 5(b).
(c) Right to Vote with Respect to Certain Other
Matters. So long as any Preferred Shares are outstanding, the Corporation
shall not, without the affirmative vote of the holders of a majority of the
Outstanding shares of Preferred Stock outstanding at the time, in person or
by proxy, at a meeting (voting separately as one class) or by the unanimous
written consent of the holders of all Outstanding shares of Preferred
Stock: (i) authorize, create or issue, or increase the authorized or issued
amount of, any class or series of stock ranking prior to or on a parity
with any series of Preferred Stock with respect to payment of dividends or
the distribution of assets on liquidation, or increase the authorized
amount of Preferred Shares or any other Preferred Stock (except that,
notwithstanding the foregoing, but subject to the provisions of Section 13
of the 1940 Act, the Board of Directors, without the vote or consent of the
Holders of Preferred Shares, may from time to time authorize, create and
issue, and may increase the authorized or issued amount of, classes or
series of Preferred Stock, including Preferred Shares, ranking on a parity
with the Preferred Shares with respect to the payment of dividends and the
distribution of assets upon dissolution, liquidation or winding up of the
affairs of the Corporation, subject to continuing compliance by the
Corporation with 1940 Act Preferred Shares Asset Coverage and Preferred
Shares Basic Maintenance Amount requirements, provided that the Fund
obtains written confirmation from Moody's (if Moody's is then rating
Preferred Shares), S&P (if S&P is then rating Preferred Shares) or any
Substitute Rating Agency (if any such Substitute Rating Agency is then
rating Preferred Shares) that the issuance of such class or series would
not impair the rating then assigned by such rating agency to the Preferred
Shares), (ii) amend, alter or repeal the provisions of the Charter whether
by merger, consolidation or otherwise, so as to adversely affect any of the
contract rights expressly set forth in the Charter of holders of Preferred
Shares or any Other Preferred Stock, (iii) authorize the Corporation's
conversion from a closed-end to an open-end investment company as defined
in Section 5(a) of the 1940 Act, or (iv) amend the provisions of the
Charter which provide for the classification of the Board of Directors of
the Corporation into three classes, each with a term of office of three
years with only one class of directors standing for election in any year
(presently Article VI of the Charter). To the extent permitted under the
1940 Act, the Corporation shall not approve any of the actions set forth in
clause (i) or (ii) which adversely affects the contract rights expressly
set forth in the Charter of a Holder of shares of a series of Preferred
Shares differently than those of a Holder of shares of any other series of
Preferred Shares without the affirmative vote of the holders of at least a
majority of the Preferred Shares of each series adversely affected and
Outstanding at such time, in person or by proxy, at a meeting (each such
adversely affected series voting separately as a class) or by the unanimous
written consent of the holders of all Outstanding shares of Preferred
Stock. The Corporation shall notify Moody's and S&P 10 Business Days prior
to any such vote described in clauses (i) and (ii). Unless a higher
percentage is provided for under the Charter, the affirmative vote of the
holders of a majority of the Outstanding shares of Preferred Stock,
including Preferred Shares, voting together as a single class, will be
required to approve any plan of reorganization (including bankruptcy
proceedings) adversely affecting such shares or any action requiring a vote
of security holders under Section 13(a) of the 1940 Act. The class vote of
holders of shares of Preferred Stock, including Preferred Shares, described
above will in each case be in addition to a separate vote of the requisite
percentage of shares of Common Stock and shares of Preferred Stock,
including Preferred Shares, voting together as a single class necessary to
authorize the action in question. Notwithstanding the preceding sentence,
to the extent permitted by Maryland General Corporation Law, no vote of
holders of Common Stock, either separately or together with holders of
Preferred Shares as a single class, shall be necessary to take the actions
contemplated by clauses (i) and (ii) of the first sentence of this Section
5(c) and the holders of Common Stock shall not be entitled to vote in
respect of such matters, unless, in the case of the actions contemplated by
clause (ii) of the first sentence of this section 5(c), the action would
adversely affect the contract rights expressly set forth in the Charter of
the holders of Common Stock.
(d) Voting Procedures.
(i) As soon as practicable after the accrual of
any right of the Holders of shares of Preferred Stock to elect
additional directors as described in paragraph 5(b) above, the
Corporation shall notify the Secretary of the Corporation and
instruct the Secretary to call a special meeting of such Holders,
by mailing a notice of such special meeting to such Holders, such
meeting to be held not less than 10 nor more than 20 days after the
date of mailing of such notice. If the Secretary of the Corporation
does not call such a special meeting, it may be called by Holders
of at least 25% of the votes entitled to be cast at such meeting on
like notice. The record date for determining the Holders entitled
to notice of and to vote at such special meeting shall be the close
of business on the fifth Business Day preceding the day on which
such notice is mailed. At any such special meeting and at each
meeting held during a Voting Period, such Holders, voting together
as a class (to the exclusion of the holders of all other securities
and classes of capital stock of the Corporation), shall be entitled
to elect the number of directors prescribed in paragraph 5(b) above
on a one-vote-per-share basis. At any such meeting or adjournment
thereof in the absence of a quorum, a majority of such holders
present in person or by proxy shall have the power to adjourn the
meeting without notice, other than by an announcement at the
meeting, to a date not more than 120 days after the original record
date.
(ii) For purposes of determining any rights of the
Holders to vote on any matter or the number of shares required to
constitute a quorum, whether such right is created by these
Articles Supplementary, by the other provisions of the Charter, by
statute or otherwise, a share of Preferred Shares which is not
outstanding shall not be counted.
(iii) The terms of office of all persons who are
directors of the Corporation at the time of a special meeting of
Holders and holders of other Preferred Stock to elect directors
shall continue, notwithstanding the election at such meeting by the
Holders and such other holders of the number of directors that they
are entitled to elect, and the persons so elected by the Holders
and such other holders, together with the two incumbent directors
elected by the Holders and such other holders of Preferred Stock
and the remaining incumbent directors elected by the holders of the
Common Stock and Preferred Stock, shall constitute the duly elected
directors of the Corporation.
(iv) The terms of office of the additional
directors elected by the Holders and holders of other Preferred
Stock pursuant to paragraph 5(b) above shall terminate on the
earliest date permitted by the Maryland General Corporation Law
following the termination of a Voting Period, the remaining
directors shall constitute the directors of the Corporation and the
voting rights of the Holders and such other holders to elect
additional directors pursuant to paragraph 5(b) above shall cease,
subject to the provisions of the last sentence of paragraph 5 (b)
(ii)
(e) Exclusive Remedy. Unless otherwise required by law,
the Holders of Preferred Shares shall not have any relative rights or
preferences or other special rights other than those specifically set forth
herein. The Holders of Preferred Shares shall have no preemptive rights or
rights to cumulative voting. In the event that the Corporation fails to pay
any dividends on the Preferred Shares, the exclusive remedy of the Holders
shall be the right to vote for directors pursuant to the provisions of this
paragraph 5.
(f) Notification to Moody's and S&P. In the event a
vote of Holders of Preferred Shares is required pursuant to the provisions
of Section 13(a) of the 1940 Act, the Corporation shall, not later than ten
business days prior to the date on which such vote is to be taken, notify
Moody's and S&P that such vote is to be taken and the nature of the action
with respect to which such vote is to be taken. Upon completion of any such
vote, the Corporation shall notify Moody's and S&P as to the result of such
vote.
6. 1940 Act Preferred Shares Asset Coverage. The Corporation
shall maintain, as of the last Business Day of each month in which any
share of Preferred Shares is outstanding, the 1940 Act Preferred Shares
Asset Coverage.
7. Preferred Shares Basic Maintenance Amount. (a) The
Corporation shall maintain, on each Valuation Date, and shall verify to its
satisfaction that it is maintaining on such Valuation Date, (i) Moody's
Eligible Assets having an aggregate Discounted Value equal to or greater
than the Preferred Shares Basic Maintenance Amount and (ii) S&P Eligible
Assets having an aggregate Discounted Value equal to or greater than the
Preferred Shares Basic Maintenance Amount. Upon any failure to maintain the
required Discounted Value, the Corporation will use its best efforts to
alter the composition of its portfolio to reattain the Preferred Shares
Basic Maintenance Amount on or prior to the Preferred Shares Basic
Maintenance Cure Date.
(b) On or before 5:00 p.m., New York City time, on the
third Business Day after a Valuation Date on which the Corporation fails to
satisfy the Preferred Shares Basic Maintenance Amount, the Corporation
shall complete and deliver to the Auction Agent, Moody's and S&P a complete
Preferred Shares Basic Maintenance Report as of the date of such failure,
which will be deemed to have been delivered to the Auction Agent if the
Auction Agent receives a copy or telecopy, telex or other electronic
transcription thereof and on the same day the Corporation mails to the
Auction Agent for delivery on the next Business Day the complete Preferred
Shares Basic Maintenance Report. The Corporation shall also give a notice
of cure of its failure to satisfy the Preferred Shares Basic Maintenance
Amount along with the complete Preferred Shares Basic Maintenance Report to
the Auction Agent, Moody's and S&P within three Business Days of its
determination that it has satisfied such requirement following any period
during which it has failed to satisfy such requirement. The Corporation
will also deliver a Preferred Shares Basic Maintenance Report of 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 Mainte nance 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
Valuation Date on which the Corporation failed to maintain S&P Eligible
Assets with an aggregate Discounted Value and Moody's Eligible Assets with
an aggregate Discounted Value equal to or greater than the Preferred Shares
Basic Maintenance Amount, and relating to the Preferred Shares Basic
Maintenance Cure Date with respect to such failure, the Independent
Accountant will provide to the Auction Agent, S&P and Moody's an
Accountant's Confirmation as to such Preferred Shares Basic Maintenance
Report.
(e) If any Accountant's Confirmation delivered pursuant
to subparagraph (c) or (d) of this paragraph 7 shows that an error was made
in the Preferred Shares Basic Maintenance Report for a particular Valuation
Date for which such Accountant's Confirmation was required to be delivered,
or shows that a lower aggregate Discounted Value for the aggregate of all
S&P Eligible Assets or Moody's Eligible Assets, as the case may be, of the
Corporation was determined by the Independent Accountant, the calculation
or determination made by such Independent Accountant shall be final and
conclusive and shall be binding on the Corporation, and the Corporation
shall accordingly amend and deliver the Preferred Shares Basic Maintenance
Report to the Auction Agent, S&P and Moody's promptly following receipt by
the Corporation of such Accountant's Confirmation.
(f) On or before 5:00 p.m., New York City time, on the
first Business Day after the Date of Original Issue of the Preferred
Shares, the Corporation will complete and deliver to S&P and Moody's a
Preferred Shares Basic Maintenance Report as of the close of business on
such Date of Original Issue. Within five business days of such Date of
Original Issue, the Corporation shall cause the Independent Accountant to
confirm in writing to S&P and Moody's (i) the mathematical accuracy of the
calculations reflected in such Report and (ii) that the aggregate
Discounted Value of S&P Eligible Assets and the aggregate Discounted Value
of Moody's Eligible Assets reflected thereon equals or exceeds the
Preferred Shares Basic Maintenance Amount reflected thereon.
(g) For so long as Preferred shares are rated by
Moody's, in managing the Corporation's portfolio, the Corporation shall
require that the Adviser will not alter the composition of the
Corporation's portfolio if, in the reasonable belief of the Adviser, the
effect of any such alteration would be to cause the Corporation to have
Moody's Eligible Assets with an aggregate Discounted Value, as of the
immediately preceding Valuation Date, less than the Preferred Shares Basic
Maintenance Amount as of such Valuation Date; provided, however, that in
the event that, as of the immediately preceding Valuation Date, the
aggregate Discounted Value of Moody's Eligible Assets exceeded the
Preferred Shares Basic Maintenance Amount by twenty-five percent or less
(or, in the event the Valuation Date is every day that is a Business Day,
five percent or less), the Adviser will not alter the composition of the
Corporation's portfolio in a manner reasonably expected to reduce the
aggregate Discounted Value of Moody's Eligible Assets unless the
Corporation shall have confirmed that, after giving effect to such
alteration, the aggregate Discounted Value of Moody's Eligible Assets would
exceed the Preferred Shares Basic Maintenance Amount.
8. Minimum Liquidity Level. (i) For so long as any Preferred
Shares are rated by S&P, the Corporation shall be required to have, as of
each Valuation Date, Dividend Coverage Assets having in the aggregate a
value not less than the Dividend Coverage Amount.
(ii) As of each Valuation Date as long as any
Preferred Shares are rated by S&P, the Corporation shall determine
(A) the Market Value of the Dividend Coverage Assets owned by the
Corporation as of that Valuation Date, (B) the Dividend Coverage
Amount on that Valuation Date, and (C) whether the Minimum
Liquidity Level is met as of that Valuation Date. The calculations
of the Dividend Coverage Assets, the Dividend Coverage Amount and
whether the Minimum Liquidity Level is met shall be set forth in a
certificate (a "Certificate of Minimum Liquidity") dated as of the
Valuation Date. The Preferred Shares Basic Maintenance Report and
the Certificate of Minimum Liquidity may be combined in one
certificate. The Corporation shall cause the Certificate of Minimum
Liquidity to be delivered to S&P not later than the close of
business on the third Business Day after the Valuation Date
applicable to such Certificate pursuant to paragraph 7(b). The
Minimum Liquidity Level shall be deemed to be met as of any date of
determination if the Corporation has timely delivered a Certificate
of Minimum Liquidity relating to such date which states that the
same has been met and which is not manifestly inaccurate. In the
event that a Certificate of Minimum Liquidity is not delivered to
S&P when required, the Minimum Liquidity Level shall be deemed not
to have been met as of the applicable date.
(iii) If the Minimum Liquidity Level is not met as
of any Valuation Date, then the Corporation shall purchase or
otherwise acquire Dividend Coverage Assets to the extent necessary
so that the Minimum Liquidity Level is met as of the fifth Business
Day following such Valuation Date. The Corporation shall, by such
fifth Business Day, provide to S&P a Certificate of Minimum
Liquidity setting forth the calculations of the Dividend Coverage
Assets and the Dividend Coverage Amount and showing that the
Minimum Liquidity Level is met as of such fifth Business Day
together with a report of the custodian of the Corporation's assets
confirming the amount of the Corporation's Dividend Coverage Assets
as of such fifth Business Day.
9. Certain Other Restrictions. (a) So long as there are
Preferred Shares Outstanding, the Corporation will enter into futures and
options transactions only for bona fide hedging purposes and not for
leveraging or speculative purposes. So long as Moody's and S&P are rating
the Preferred Shares, the Corporation will only engage in futures or
options transactions in accordance with the then-current guidelines of such
ratings agencies, only if it is valuing its assets daily and only after it
has received written confirmation from Moody's and S&P, as appropriate,
that such transactions would not impair the ratings then assigned by S&P
and Moody's to Preferred Shares. The S&P guidelines in effect as of the
Date of Original issue are set forth in their entirety in the following
paragraph. The Corporation may engage in futures and options transactions
in accordance therewith and such transactions shall have the consequences
included in such guidelines set forth therein (as such guidelines are
amended, modified and supplemented from time to time by S&P), provided,
however, that it may not engage in any such transactions unless it has
satisfied the relevant provisions of this paragraph relating to complying
with Moody's guidelines and obtaining written confirmation from Moody's and
S&P.
For so long as Preferred Shares are rated by S&P, the
Corporation will not, unless it has received written confirmation from S&P
that any such action would not impair the rating then assigned by S&P to
Preferred Shares, purchase or sell futures contracts or options thereon or
write uncovered put or uncovered call options on portfolio securities
except (provided that the Corporation has received such written
confirmation in advance from S&P) that (i) the Corporation may engage in
S&P Hedging Transactions based on the Municipal Index, provided that (A)
the Corporation shall not engage in any S&P Hedging Transaction based on
the Municipal Index (other than Closing Transactions) which would cause the
Corporation at the time of such transaction to own or have sold (1) more
than 1,000 outstanding futures contracts based on the Municipal Index, (2)
outstanding futures contracts based on Municipal Index exceeding in number
25% of the quotient of the fair market value of the Corporation's total
assets divided by 100,000 or (3) outstanding futures contracts based on the
Municipal Index exceeding in number 10% of the average number of daily
traded futures contracts based on the Municipal Index in the month prior to
the time of effecting such transaction as reported by The Wall Street
Journal and (ii) the Corporation may engage in S&P Hedging Transactions
based on Treasury Bonds, provided that (A) the Corporation shall not engage
in any S&P Hedging Transactions based on Treasury Bonds (other than Closing
Transactions) which would cause the Corporation at the time of such
transaction to own or have sold the lesser of (1) outstanding futures
contracts based on Treasury Bonds exceeding in number 25% of the quotient
of the fair market value of the Corporation's total assets divided by
100,000 or (2) outstanding futures contracts based on Treasury Bonds
exceeding in number 10% of the average number of daily traded futures
contracts based on Treasury Bonds in the month prior to the time of
effecting such transaction as reported by The Wall Street Journal. For so
long as Preferred Shares are rated by S&P, the Corporation will engage in
Closing Transactions to close out any outstanding futures contract which
the Corporation owns or has sold or any outstanding option thereon owned by
the Corporation in the event (i) the Corporation does not have S&P Eligible
Assets with an aggregate Discounted Value equal to or greater than the
Preferred Shares Basic Maintenance Amount on two consecutive Valuation
Dates and (ii) the Corporation is required to pay Variation Margin on the
second such Valuation Date. For so long as Preferred Shares are rated by
S&P, the Corporation will engage in a Closing Transaction to close out any
outstanding futures contract or option thereon in the month prior to the
delivery month under the terms of such futures contract or option thereon
unless the Corporation holds securities deliverable under such terms. For
purposes of calculating the Discounted Value of S&P Eligible Assets to
determine compliance with the Preferred Shares Basic Maintenance Amount,
such Discounted Value shall be reduced by an amount equal to (i) 30% of the
aggregate settlement value, as marked to market, of any outstanding futures
contracts based on the Municipal Index which are owned by the Trust plus
(ii) 25% of the aggregate settlement value, as marked to market, of any
outstanding futures contracts based on Treasury Bonds which contracts are
owned by the Corporation. For so long as Preferred Shares are rated by S&P,
when the Corporation writes a futures contract or option thereon, it will
maintain an amount of cash, cash equivalents or short-term, fixed-income
securities in a segregated account with the Corporation's custodian, so
that the amount so segregated plus the amount of Initial Margin and
Variation Margin held in the account of the Corporation's broker equals the
fair market value of the futures contract, except that in the event the
Corporation writes a futures contract or option thereon which requires
delivery of an underlying security, the Corporation shall hold such
underlying security.
(b) For so long as Preferred Shares are rated by
Moody's or S&P, the Corporation will not, unless it has received written
confirmation from Moody's and/or S&P, as the case may be, that such action
would not impair the ratings then assigned to Preferred Shares by Moody's
and/or S&P, as the case may be, (i) borrow money, (ii) engage in short
sales of securities, (iii) lend any securities, (iv) issue any class or
series of stock ranking prior to or on a parity with the Preferred Shares
with respect to the payment of dividends or the distribution of assets upon
dissolution, liquidation or winding up of the Corporation, (v) reissue any
Preferred Shares previously purchased or redeemed by the Corporation, (vi)
merge or consolidate into or with any other corporation, (vii) change the
Pricing Service or (viii) engage in reverse repurchase agreements.
10. Notice. All notices or communications, unless otherwise
specified in these Articles Supplemen tary, 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 (deter mined 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>
"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>
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:
(1) the number of Outstanding shares, if any,
of Preferred Shares held by such Existing Holder which such
Existing Holder desires to continue to hold without regard to the
Applicable Rate for the next succeeding Dividend Period;
(2) the number of Outstanding shares, if any,
of Preferred Shares held by such Existing Holder which such
Existing Holder desires to continue to hold, provided that the
Applicable Rate for the next succeeding Dividend Period shall not
be less than the rate per annum or, in the case of an Auction with
Bid Requirements including a Spread, the Spread specified by such
Existing Holder; and/or
(3) the number of Outstanding shares, if any,
of Preferred Shares held by such Existing Holder which such
Existing Holder offers to sell without regard to the Applicable
Rate for the next succeeding Dividend Period; and
(B) each Broker-Dealer, using a list of
Potential Holders that shall be maintained in good faith for
the purpose of conducting a competitive Auction, shall
contact Potential Holders, including Persons that are not
Existing Holders, on such list to determine the number of
Outstanding shares, if any, of Preferred Shares which each
such Potential Holder offers to purchase, provided that the
Applicable Rate for the next succeeding Dividend Period
shall not be less than the rate per annum or Spread
specified by such Potential Holder.
For the purposes hereof, the communication to a
Broker-Dealer of information referred to in clause (A) or (B) of this
paragraph 11(b)(i) is hereinafter referred to an "Order" and each Existing
Holder and each Potential Holder placing an Order is hereinafter referred
to as a "Bidder"; an Order containing the information referred to in clause
(A)(1) of this paragraph 11(b)(i) is hereinafter referred to as a "Hold
Order"; an order containing the information referred to in clause (A)(2) or
(B) of this paragraph 11(b)(i) is hereinafter referred to as a "Bid"; and
an Order containing the information referred to in clause (A)(3) of this
paragraph 11(b)(i) is hereinafter referred to as a "Sell Order".
(ii) (A) A Bid by an Existing Holder shall
constitute an irrevocable offer to sell:
(1) the number of Outstanding Preferred
Shares specified in such Bid if the Applicable Rate determined on
such Auction Date shall be less than the rate per annum or Spread
specified in such Bid; or
(2) such number of a lesser number of
Outstanding Preferred Shares to be determined as set forth in
paragraph 11(e)(i)(D) if the Applicable Rate determined on such
Auction Date shall be equal to the rate per annum or Spread
specified therein; or
(3) a lesser number of outstanding Preferred
Shares to be determined as set forth in paragraph 11(e)(ii)(C) if
such specified rate per annum shall be higher than the Maximum
Applicable Rate and Sufficient Clearing Bids do not exist.
(B) A Sell Order by an Existing Holder
shall constitute an irrevocable offer to sell:
(1) the number of Outstanding Preferred
Shares specified in such Sell Order; or
(2) such number or a lesser number of
Outstanding Preferred Shares to be determined as set forth in
paragraph 11(e)(ii)(C) if Sufficient Clearing Bids do not exist.
(C) A Bid by a Potential Holder shall
constitute an irrevocable offer to purchase:
(1) the number of Outstanding Preferred
Shares specified in such Bid if the Applicable Rate determined on
such Auction Date shall be higher than the rate per annum or Spread
specified in such Bid; or
(2) such number or a lesser number of
Outstanding Preferred Shares to be determined as set forth in
paragraph 11(e)(i)(E) if the Applicable Rate determined on such
Auction Date shall be equal to the rate per annum or Spread
specified therein.
(c) Submission of Orders by Broker-Dealers to Auction
Agent.
(i) Each Broker-Dealer shall submit in writing or
through the Auction Agent's Auction Processing System to the
Auction Agent prior to the Submission Deadline on each Auction Date
all Orders obtained by such Broker-Dealer and specifying with
respect to each Order:
(A) the name of the Bidder placing such
Order;
(B) the aggregate number of Outstanding
Preferred Shares that are the subject of such Order;
(C) to the extent that such Bidder is
an Existing Holder:
(1) the number of Outstanding shares, if any,
of Preferred Shares subject to any Hold Order placed by such
Existing Holder;
(2) the number of Outstanding shares, if any,
of Preferred Shares subject to any Bid placed by such Existing
Holder and the rate per annum or Spread specified in such Bid; and
(3) the number of Outstanding shares, if any,
of Preferred Shares subject to any Sell Order placed by such
Existing Holder; and
(D) (i) to the extent such Bidder is a
Potential Holder, the rate per annum or Spread specified in
such Potential Holder's Bid.
(ii) If any rate per annum or Spread specified in
any Bid contains more than three figures to the right of the
decimal point, the Auction Agent shall round such rate up to the
next highest one-thousandth (.001) of 1% and shall round such
Spread to the next highest one-thousandth (.001) of a basis point.
(iii) If an Order or Orders covering all of the
Outstanding Preferred Shares held by an Existing Holder is not
submitted to the Auction Agent prior to the Submission Deadline,
the Auction Agent shall deem a Hold order to have been submitted on
behalf of such Existing Holder covering the number of Outstanding
Preferred Shares held by such Existing Holder and not subject to
Orders submitted to the Auction Agent; provided, however, that with
respect to an Auction to establish a Special Dividend Period longer
than 91 days, the Auction Agent shall deem a Sell Order to have
been submitted on behalf of such Existing Holder covering such
number of Outstanding Preferred Shares.
(iv) If one or more Orders on behalf of an
Existing Holder covering in the aggregate more than the number of
Outstanding Preferred Shares held by such Existing Holder are
submitted to the Auction Agent, such Orders shall be considered
valid as follows and in the following order of priority:
(A) any Hold Order submitted on behalf
of such Existing Holder shall be considered valid up to and
including the number of Outstanding Preferred Shares held by
such Existing Holder; provided that if more than one Hold
Order is submitted on behalf of such Existing Holder and the
number of Preferred Shares subject to such Hold Orders
exceeds the number of Outstanding Preferred Shares held by
such Existing Holder, the number of Preferred Shares subject
to each of such Hold Orders shall be reduced pro rata so
that such Hold Orders, in the aggregate, will cover exactly
the number of Outstanding Preferred Shares held by such
Existing Holder;
(B) any Bids submitted on behalf of
such Existing Holder shall be considered valid, in the
ascending order of their respective rates per annum or
Spread, if more than one Bid is submitted on behalf of such
Existing Holder, up to and including the excess of the
number of Outstanding Preferred Shares held by such Existing
Holder over the number of Preferred Shares subject to any
Hold Order referred to in paragraph 11(c)(iv)(A) above (and
if more than one Bid submitted on behalf of such Existing
Holder specifies the same rate per annum or Spread and
together they cover more than the remaining number of shares
that can be the subject of valid Bids after application of
paragraph 11(c)(iv)(A) above and of the foregoing portion of
this paragraph 11(c)(iv)(B) to any Bid or Bids specifying a
lower rate or rates per annum or Spread, the number of
shares subject to each of such Bids shall be reduced pro
rata so that such Bids, in the aggregate, cover exactly such
remaining number of shares); and the number of shares, if
any, subject to Bids not valid under this paragraph
11(c)(iv)(B) shall be treated as the subject of a Bid by a
Potential Holder; and
(C) any Sell Order shall be considered
valid up to and including the excess of the number of
Outstanding Preferred Shares held by such Existing Holder
over the number of Preferred Shares subject to Hold Orders
referred to in paragraph 11(c)(iv)(A) and Bids referred to
in paragraph 11(c)(iv)(B); provided that if more than one
Sell Order is submitted on behalf of any Existing Holder and
the number of Preferred Shares subject to such Sell Orders
is greater than such excess, the number of Preferred Shares
subject to each of such Sell Orders shall be reduced pro
rata so that such Sell Orders, in the aggregate, cover
exactly the number of Preferred Shares equal to such excess.
(v) If more than one Bid is submitted on behalf
of any Potential Holder, each Bid submitted shall be a separate Bid
with the rate per annum or Spread and number of Preferred Shares
specified.
(vi) Any Bid by an Existing Holder that specifies
a Spread, with respect to an Auction in which a Spread is not
included in any Bid Requirements or in which there are no Bid
Requirements and any Order that does not specify a Spread with
respect to an Auction in which a Spread is included in any Bid
Requirements shall be treated as a Sell Order.
(d) Determination of Sufficient Clearing Bids, Winning
Bid Rate and Applicable Rate.
(i) Not earlier than the Submission Deadline on
each Auction Date, the Auction Agent shall assemble all orders
submitted or deemed submitted to it by the Broker-Dealers (each
such order as submitted or deemed submitted by a Broker-Dealer
being hereinafter referred to individually as a "Submitted Hold
Order," a "Submitted Bid" or a "Submitted Sell Order," as the case
may be, or as a "Submitted Order") and shall determine:
(A) the excess of the total number of
Outstanding Preferred Shares over the number of outstanding
Preferred Shares that are the subject of submitted Hold
Orders (such excess being hereinafter referred to as the
"Available Preferred Shares");
(B) from the Submitted Orders whether
the number of Outstanding Preferred Shares that are the
subject of Submitted Bids by Potential Holders specifying
one or more rates per annum or Spreads that result in one or
more rates per annum on such date equal to or lower than the
Maximum Applicable Rate in effect for the first Dividend
Payment Period after the Auction Date exceeds or is equal to
the sum of:
(1) the number of Outstanding Preferred
Shares that are the subject of Submitted Bids by Existing Holders
specifying one or more rates per annum or Spreads that result in
one or more rates per annum on such date higher than such Maximum
Applicable Rate, and
(2) the number of Outstanding Preferred
Shares that are subject to Submitted Sell Orders (if such excess or
such equality exists (other than because the number of Outstanding
Preferred Shares in clauses (1) and (2) above are each zero because
all of the Outstanding Preferred Shares are the subject of
Submitted Hold Orders), such Submitted Bids by Potential Holders
being hereinafter referred to collectively as "Sufficient Clearing
Bids"); and
(C) if Sufficient Clearing Bids exist,
the lowest rate per annum or, in the case of an Auction with
Bid Requirements including a Spread, the lowest Spread
specified in the Submitted Bids (the "Winning Bid Rate")
that if:
(1) each Submitted Bid from Existing Holders
specifying the Winning Bid Rate and all other Submitted Bids from
Existing Holders specifying lower rates per annum or Spreads were
rejected, thus entitling such Existing Holders to continue to hold
the Preferred Shares that are the subject of such Submitted Bids,
and
(2) each Submitted Bid from Potential Holders
specifying the Winning Bid Rate and all other Submitted Bids from
Potential Holders specifying lower rates per annum or Spreads were
accepted, thus entitling the Potential Holders to purchase the
Preferred Shares that are the subject of such Submitted Bids, would
result in the number of shares subject to all Submitted Bids
specifying the Winning Bid Rate or a lower rate per annum or Spread
being at least equal to the Available Preferred Shares.
(D) For purposes of these Articles
Supplementary, a positive Spread shall be considered lower
than another positive Spread to the extent it is a lower
number, a Spread of zero shall be considered lower than a
positive Spread, a negative Spread shall be considered lower
than a Spread of zero and a negative Spread shall be
considered lower than another negative Spread to the extent
it is a higher number.
(ii) Promptly after the Auction Agent has made the
determinations pursuant to paragraph 11(d)(i), the Auction Agent
shall advise the Corporation of the Maximum Applicable Rate (or, in
the event the Corporation has specified a Maximum Applicable Rate
or Rates, or a Minimum Applicable Rate or Rates the Auction Agent
shall confirm to the Corporation the calculation of such Maximum
Applicable Rate or Rates or such Minimum Applicable Rate or Rates)
and, based on such determinations, the Applicable Rate for the next
succeeding Dividend Period as follows:
(A) if Sufficient Clearing Bids exist,
that the Applicable Rate for the next succeeding Dividend
Period shall be equal to the Winning Bid Rate, subject to
the effect of any applicable Minimum Applicable Rate and any
applicable Maximum Applicable Rate;
(B) if Sufficient Clearing Bids do not
exist (other than because all of the Outstanding Preferred
Shares are the subject of Submitted Hold Orders and other
than in the event the Auction is being conducted with
respect to a Special Dividend Period), that the Applicable
Rate for the next succeeding Dividend Period shall be equal
to the Maximum Applicable Rate;
(C) if all of the Outstanding Preferred
Shares are the subject of Submitted Hold Orders that the
Dividend Period next succeeding the Auction shall
automatically be the same length as the immediately
preceding Divi dend Period and the Applicable Rate for the
next succeeding Dividend Period will be the higher of the
30-day "AA" Composite Commercial Paper Rate and the Taxable
Equivalent of the Short-Term Municipal Bond Rate multiplied
by 1 minus the maximum marginal regular Federal individual
income tax rate then applicable to ordinary income or the
maximum marginal regular Federal corporate tax rate then
applicable, whichever is greater (or 90% of such rate if the
Corporation has provided notification to the Auction Agent
prior to the Auction establishing the Applicable Rate for
any dividend pursuant to paragraph 2(f) hereof that net
capital gains or other taxable income will be included in
such dividend on Preferred Shares) on the date of the
Auction; or
(D) If the Auction is being conducted
with respect to a Special Dividend Period and Sufficient
Clearing Bids do not exist, that the Dividend Period next
succeeding the Auction shall automatically be 28 days (in
the case of Series T28 Preferred Shares and Series R28
Preferred Shares) or 7 days (in the case of Series T7
Preferred Shares and Series R7 Preferred Shares) and the
Applicable Rate for the next succeeding Dividend Period will
be as set forth in paragraph 11(d)(ii)(C) above.
(e) Acceptance and Rejection of Submitted Bids and
Submitted Sell Orders and Allocation of Shares. Based on the determinations
made pursuant to paragraph 11(d)(i), the Submitted Bids and Submitted Sell
Orders shall be accepted or rejected and the Auction Agent shall take such
other action as set forth below:
(i) if Sufficient Clearing Bids have been made,
subject to the provisions of paragraph 11(e)(iii) and paragraph
11(e)(iv), Submitted Bids and Submitted Sell Orders shall be
accepted or rejected in the following order of priority and all
other Submitted Bids shall be rejected:
(A) the Submitted Sell Orders of
Existing Holders shall be accepted and the Submitted Bid of
each of the Existing Holders specifying any rate per annum
or Spread that is higher than the Winning Bid Rate shall be
accepted, thus requiring each such Existing Holder to sell
the Outstanding Preferred Shares that are the subject of
such Submitted Sell Order or Submitted Bid;
(B) the Submitted Bid of each of the
Existing Holders specifying any rate per annum or Spread
that is lower than the Winning Bid Rate shall be rejected,
thus entitling each such Existing Holder to continue to hold
the Outstanding Preferred Shares that are the subject of
such Submitted Bid;
(C) the Submitted Bid of each of the
Potential Holders specifying any rate per annum that is
lower than the Winning Bid Rate or Spread shall be accepted;
(D) the Submitted Bid of each of the
Existing Holders specifying a rate per annum or Spread that
is equal to the Winning Bid Rate shall be rejected, thus
entitling each such Existing Holder to continue to hold the
Outstanding Preferred Shares that are the subject of such
Submitted Bid, unless the number of Outstanding Preferred
Shares subject to all such Submitted Bids shall be greater
than the number of Outstanding Preferred Shares ("Remaining
Shares") equal to the excess of the Available Preferred
Shares over the number of outstanding Preferred Shares
subject to Submitted Bids described in paragraph 11(e)(i)(B)
and paragraph 11(e)(i)(C), in which event the Submitted Bids
of each such Existing Holder shall be accepted, and each
such Existing Holder shall be required to sell Outstanding
Preferred Shares, but only in an amount equal to the
difference between (1) the number of Outstanding Preferred
Shares then held by such Existing Holder subject to such
Submitted Bid and (2) the number of Preferred Shares
obtained by multiplying (x) the number of Remaining Shares
by (y) a fraction the numerator of which shall be the number
of Outstanding Preferred Shares held by such Existing Holder
subject to such Submitted Bid and the denominator of which
shall be the sum of the numbers of outstanding Preferred
Shares subject to such Submitted Bids made by all such
Existing Holders that specified a rate per annum equal or
Spread to the Winning Bid Rate; and
(E) the Submitted Bid of each of the
Potential Holders specifying a rate per annum or Spread that
is equal to the Winning Bid Rate shall be accepted but only
in an amount equal to the number of Outstanding Preferred
Shares obtained by multiplying (x) the difference between
the Available Preferred Shares and the number of Outstanding
Preferred Shares subject to Submitted Bids described in
paragraph 11(e)(i)(B), paragraph 11(e)(i)(C) and paragraph
11(e)(i)(D) by (y) a fraction the numerator of which shall
be the number of Outstanding Preferred Shares subject to
such Submitted Bid and the denominator of which shall be the
sum of the numbers of Outstanding Preferred Shares subject
to such Submitted Bids made by all such Potential Holders
that specified a rate per annum or Spread equal to the
Winning Bid Rate.
(ii) If Sufficient Clearing Bids have not been
made (other than because all of the outstanding Preferred Shares
are subject to Submitted Hold Orders), subject to the provisions of
paragraph 11(e)(iii), Submitted Orders shall be accepted or
rejected as follows in the following order of priority and all
other Submitted Bids shall be rejected:
(A) The Submitted Bid of each Existing
Holder specify ing any rate per annum or Spread that is
equal to or lower than the Maximum Applicable Rate (a Bid
specifying a Spread being converted to a rate per annum for
this purpose by applying the Spread to the most recently
available Reference index or Reference Security) shall be
rejected, thus entitling such Existing Holder to continue to
hold the outstanding Preferred Shares that are the subject
of such Submitted Bid;
(B) the Submitted Bid of each Potential
Holder specify ing any rate per annum or Spread that is
equal to or lower than the Maximum Applicable Rate (a Bid
specifying a Spread being converted to a rate per annum for
this purpose by applying the Spread to the most recently
available Reference Index or Reference Security) shall be
accepted, thus requiring such Potential Holder to purchase
the Outstanding Preferred Shares that are the subject of
such Submitted Bid; and
(C) the Submitted Bids of each Existing
Holder specify ing any rate per annum or Spread that is
higher than the Maximum Applicable Rate (a Bid specifying a
Spread being converted to a rate per annum for this purpose
by applying the Spread to the most recently available
Reference Index or Reference Security) shall be accepted and
the Submitted Sell Orders of each Existing Holder shall be
accepted, in both cases only in an amount equal to the
difference between (1) the number of Outstanding Preferred
Shares then held by such Existing Holder subject to such
Submitted Bid or Submitted Sell Order and (2) the number of
Pre ferred Shares obtained by multiplying (x) the difference
between the Available Preferred Shares and the aggregate
number of outstanding Preferred Shares subject to Submitted
Bids described in paragraph 11(e)(ii)(A) and paragraph
11(e)(ii)(B) by (y) a fraction the numerator of which shall
be the number of Outstanding Preferred Shares held by such
Existing Holder subject to such Submitted Bid or Submitted
Sell Order and the denominator of which shall be the number
of Outstanding Preferred Shares subject to all such
Submitted Bids and Submitted Sell Orders.
(iii) If, as a result of the procedures described
in paragraph 11(e)(i) or paragraph 11(e)(ii), any Existing Holder
would be entitled or required to sell, or any Potential Holder
would be entitled or required to purchase, a fraction of a share of
Preferred Shares on any Auction Date, the Auction Agent shall, in
such manner as in its sole discretion it shall determine, round up
or down the number of Preferred Shares to be purchased or sold by
any Existing Holder or Potential Holder on such Auction Date so
that each Outstanding share of Preferred Shares purchased or sold
by each Existing Holder or Potential Holder on such Auction Date
shall be a whole share of Preferred Shares.
(iv) If, as a result of the procedures described
in paragraph 11(e)(i), any Potential Holder would be entitled or
required to purchase less than a whole share of Preferred Shares on
any Auction Date, the Auction Agent shall, in such manner as in its
sole discretion it shall deter mine, allocate Preferred Shares for
purchase among Potential Holders so that only whole Preferred
Shares are purchased on such Auction Date by any Potential Holder,
even if such allocation results in one or more of such Potential
Holders not purchasing any Preferred Shares on such Auction Date.
(v) Based on the results of each Auction, the
Auction Agent shall determine, with respect to each Broker-Dealer
that submitted Bids or Sell Orders on behalf of Existing Holders or
Potential Holders, the aggregate number of Outstanding Preferred
Shares to be purchased and the aggregate number of Outstanding
Preferred Shares to be sold by such Potential Holders and Existing
Holders and, to the extent that such aggregate number of
Outstanding shares to be purchased and such aggregate number of
Outstanding shares to be sold differ, the Auction Agent shall
determine to which other Broker-Dealer or Broker-Dealers acting for
one or more purchasers such Broker-Dealer shall deliver, or from
which other Broker-Dealer or Broker-Dealers acting for one or more
sellers such Broker-Dealer shall receive, as the case may be,
Outstanding Preferred Shares.
(f) Miscellaneous. An Existing Holder (A) may sell,
transfer or otherwise dispose of Preferred shares only pursuant to a Bid or
Sell Order in accordance with the procedures described in this paragraph 11
or to or through a broker-dealer, provided that in the case of all
transfers other than pursuant to Auctions such Existing Holder, its
Broker-Dealer or its Agent Member advises the Auction Agent of such
transfer and (B) except as otherwise required by law, shall have the
ownership of the Preferred Shares held by it maintained in book entry form
by the Securities Depository in the account of its Agent Member, which in
turn will maintain records of such Existing Holder's beneficial ownership.
Neither the Corporation nor any Affiliate shall submit an order in any
Auction. Any Existing Holder that is an Affiliate shall not sell, transfer
or otherwise dispose of Preferred Shares to any Person other than the
Corporation. All of the outstanding Preferred Shares of each series shall
be represented by a single certificate registered in the name of the
nominee of the Securities Depository unless otherwise required by law or
unless there is no Securities Depository. If there is no Securities
Depository, at the Corporation's option and upon its receipt of such
documents as it deems appropriate, any Preferred Shares may be registered
in the Stock Register in the name of the Existing Holder thereof and such
Existing Holder thereupon will be entitled to receive certificates therefor
and required to deliver certificates therefor upon transfer or exchange
thereof.
12. Securities Depository; Stock Certificates. (a) If there
is a Securities Depository, one certificate for all of the Preferred Shares
of each series shall be issued to the Securities Depository and registered
in the name of the Securities Depository or its nominee. Additional
certificates may be issued as necessary to represent Preferred Shares. All
such certificates shall bear a legend to the effect that such certificates
are issued subject to the provisions restricting the transfer of Preferred
Shares contained in these Articles Supplementary. Unless the Corporation
shall have elected, during a Non-Payment Period, to waive this requirement,
the Corporation will also issue stop-transfer instructions to the Auction
Agent for the Preferred Shares. Except as provided in paragraph (b) below,
the Securities Depository or its nominee will be the Holder, and no
existing Holder shall receive certificates representing its ownership
interest in such shares.
(b) If the Applicable Rate applicable to all Preferred
Shares of a series shall be the Non-Payment Period Rate or there is no
Securities Depository, the Corporation may at its option issue one or more
new certificates with respect to such shares (without the legend referred
to in paragraph 12(a)) registered in the names of the Existing Holders or
their nominees and rescind the stop-transfer instructions referred to in
paragraph 12(a) with respect to such shares.
13. Interpretations. The Board of Directors may interpret
the provisions of these Articles Supplementary to resolve any inconsistency
or ambiguity, remedy any formal defect or make any other change or
modification that does not adversely affect the rights of Existing Holders
of Preferred Shares.
SECOND: The amendment to the charter of the Corporation set forth
in these Articles of Amendment was advised by the Board of Directors of the
Corporation and approved by the stockholders of the Corporation at a
special meeting of the stockholders of the Corporation held on July 13,
1994.
THIRD: The amendment to the charter of the Corporation set forth in
these Articles of Amendment does not increase the authorized capital stock
of the Corporation.
IN WITNESS WHEREOF, the Corporation has caused these
Articles of Amendment to be executed by its President and its corporate
seal to be affixed hereto and attested to by its Secretary as of the 13th
day of July, 1994.
THE BLACKROCK INSURED MUNICIPAL
(SEAL) 2008 TERM TRUST INC.
By /s/ Ralph L. Schlosstein
-------------------------------
Ralph L. Schlosstein
President
ATTEST:
/s/ Barbara G. Novick
- --------------------------
Barbara G. Novick
Secretary
The undersigned, the President of The BlackRock Insured Municipal
2008 Term Trust Inc., hereby acknowl edges the foregoing to be the
corporate act of such Corporation and that, to the best of his knowledge,
information and belief, the matters and facts set forth therein are true in
all material respects, and that this statement has been made under the
penalties for perjury.
/s/ Ralph L. Schlosstein
------------------------------
Ralph L. Schlosstein
President
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 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.
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."
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
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
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 Sections ___ and ___ of the Purchase Agreement filed as an Exhibit
herein.
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 expenses 0
Miscellaneous expenses 48,340
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.
ITEM 28: NUMBER OF HOLDERS OF SECURITIES
At December 31, 1999:
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
(1) Registrant undertakes to suspend the offering of its shares until it
amends its prospectus if (a) subsequent to the effective date of its
Registration Statement, the net assets value declines more than 10 percent
from its net asset value as of the effective date of the Registration
Statement, or (b) the net asset value increases to an amount greater than
its net proceeds as stated in the prospectus.
(2) Not applicable
(3) Not applicable
(4) Not applicable
(5) Registrant undertakes that:
(a) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form
of prospectus filed as a part of a registration statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by the Registrant under Rule 497(h) under the Securities
Act of 1933 shall be deemed to be a part of this Registration
Statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of the securities at that time shall
be deemed to be the initial bona fide offering thereof.
(6) Registrant undertakes to send by first class mail or other means
designed to ensure equally prompt delivery, within two business days of
receipt of a written or oral request, any Statement of Additional
Information.
(7) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person of
the Registrant in the successful defense of any action, suit or proceeding
(is asserted by such director, officer or controlling person in connection
with the securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, and State of New York,
on the 15th 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.
Signatures Title Date
- ---------- ----- -----
* President (Principal Executive
- --------------------- Officer) and Director February 15, 2000
Ralph L. Schlosstein
* Treasurer (Principal Financial
- --------------------- and Accounting Officer) February 15 2000
Henry Gabbay
* Director February 15, 2000
- ---------------------
Laurence D. Fink
* Director February 15, 2000
- ----------------------
Andrew F. Brimmer
* Director February 15, 2000
- ----------------------
Richard E. Cavanagh
* Director February 15, 2000
- ----------------------
Kent Dixon
* Director February 15, 2000
- -----------------------
Frank J. Fabozzi
* Director February 15, 2000
- ------------------------
James Clayburn LaForce, Jr.
* Director February 15, 2000
- -------------------------
Walter F. Mondale
- --------------
* Signed by Karen Sabath pursuant to power of attorney, dated January 3,
2000.
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER PAGE
a. (1) Articles of Incorporation*
(2) Articles of Amendment dated July 15, 1994 (for outstanding
preferred shares)+
(3) Articles of Amendment dated July 20, 1995 (for
outstanding preferred shares)*
(4) Form of Articles Supplementary (for New Preferred Shares)*
b. By-Laws*
c. None
d. (1) Specimen Stock Certificate Representing Shares of
Common Stock*
(2) Form of Specimen Stock Certificate Representing Series 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. Code of Ethics++
s. Powers of Attorney*
- --------------
* Previously filed.
+ Filed herewith.
++ To be filed by amendment.
Exhibit a.(2)
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:
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 different meaning or intent, in these Articles Supplementary the
following terms have the following meanings, whether used in the singular
or plural:
"'AA' Composite Commercial Paper Rate" for any period
less than 183 days as of any date means (i) the Interest Equivalent of the
rate on commercial paper for such period placed on behalf of issuers whose
corporate bonds are rated "AA" by S&P, or the equivalent of such rating by
S&P or another nationally recognized statistical rating organization, as
the rate for such period is made available on a discount basis or otherwise
by the Federal Reserve Bank of New York for the Business Day immediately
preceding such date, or (ii) in the event that the Federal Reserve Bank of
New York does not make available such a rate, then the arithmetic average
of the Interest Equivalent of the rate on commercial paper for such period
placed on behalf of such issuers, as quoted to the Auction Agent on a
discount basis or otherwise by the Commercial Paper Dealers for the close
of business on the Business Day immediately preceding such date. If a
Commercial Paper Dealer does not quote a rate required to determine the
"AA" Composite Commercial Paper Rate for such period, the "AA" Composite
Commercial Paper Rate for such period will be determined on the basis of
the quotation or quotations furnished by any Substitute Commercial Paper
Dealer or Substitute Commercial Paper Dealers selected by the Corporation
to provide such rate or rates not being supplied by the Commercial Paper
Dealer.
"Accountant's Confirmation" has the meaning set forth in
paragraph 7(c) of these Articles Supplementary.
"Additional Dividend" has the meaning set forth in
paragraph 2(e) of these Articles Supplementary.
"Adviser" means the Corporation's investment adviser,
BlackRock Financial Management L.P., formerly Blackstone Financial
Management L.P., and any successor thereto.
"Affiliate" shall mean any Person, known to the Auction
Agent to be controlled by, in control of, or under common control with, the
Corporation.
"Agent Member" means a member of the Securities
Depository that will act on behalf of an Existing Holder of one or more
Preferred Shares or a Potential Holder.
"Anticipation Notes" means the following Municipal
Obligations: tax anticipation notes, revenue anticipation notes and tax and
revenue anticipation notes.
"Applicable Percentage" has the meaning set forth in
paragraph 11(a)(vi) of these Articles Supplementary.
"Applicable Rate" means (i) for purposes of the Auction
Procedures, the rate per annum or, in connection with any Auction in which
Bid Requirements are imposed by the Corporation, the method by which one or
more such rates may be determined, at which cash dividends are payable (if
declared) on the Preferred Shares or Other Preferred Shares, as the case
may be, for any Dividend Period and any Dividend Payment Period included
therein and (ii) for purposes of determining the amount of cash dividends
payable (if declared) at any Dividend Payment Date, the rate per annum
(including in the case of any Applicable Rate expressed as a Spread the
rate per annum determined by periodic application of such Spread to the
applicable Reference Index or Reference Security at the frequency and
weighting, if any, specified in the related Bid Requirements, subject to
any Maximum Applicable Rate or Minimum Applicable Rate applicable to such
Dividend Payment Period) at which cash dividends are payable (if declared)
on the Preferred Shares, and includes, to the extent provided by paragraph
2(c)(i) of these Articles Supplementary, any late charge provided for by
such paragraph.
"Auction" means a periodic operation of the Auction
Procedures.
"Auction Agent" means Bankers Trust Company unless and
until another commercial bank, trust company or other financial institution
appointed by a resolution of the Board of Directors of the Corporation or a
duly authorized committee thereof enters into an agreement with the
Corporation to follow the Auction Procedures for the purpose of determining
the Applicable Rate and to act as transfer agent, registrar, dividend
disbursing agent and redemption agent for the Preferred Shares and Other
Preferred Shares.
"Auction Procedures" means the procedures for conducting
Auctions set forth in paragraph 11 of these Articles Supplementary.
"Bid Requirements" means (i) any requirement for a
Special Dividend Period longer than 91 days that Bids by Potential Holders
shall be expressed as a Spread below, at or above the rate of a specified
Reference Index or Reference Security, (ii) the Reference Index or
Reference Security, the most recently announced rate thereof and the
frequency with which the rate of Reference Index or the Reference Security,
as the case may be, shall be recalculated for purposes of determining rates
expressed as Spreads thereon in accordance with these Articles
Supplementary, which frequency shall be the same as the frequency with
which the person maintaining the Reference Index being utilized
recalculates such Reference Index, or the same as the frequency with which
the interest rate on the Reference Security being utilized changes or such
other frequency as the Corporation shall specify (which specification may
include a formula specified by the Corporation indicating the weighting to
be given to each recalculation of the Reference Index or change in the rate
of the Reference Security during a specified period), (iii) the frequency
of Dividend Payment Dates during such Special Dividend Period (which
shall not be more often than the frequency specified pursuant to clause
(ii) above), (iv) one or more Minimum Applicable Rate or Rates (the
Indicated Minimum Applicable Rate or Rates in the case of Bid Requirements
set forth in a Request for Special Dividend Period) and/or (v) one or more
Special Dividend Period Reference Rate or Rates and the Maximum Applicable
Rate or Rates (the Indicated Maximum Applicable Rate or Rates in the case
of Bid Requirements set forth in a Request for Special Dividend Period)
derivable from such Special Dividend Period Reference Rate or Rates, in
each case as set forth in the Notice of Special Dividend Period for such
Special Dividend Period.
"Broker-Dealer" shall mean any broker-dealer, or other
entity permitted by law to perform the functions required of a
Broker-Dealer in paragraph 11 of these Articles Supplementary, that has
been selected by the Corporation and has entered into a Broker-Dealer
Agreement with the Auction Agent that remains effective.
"Broker-Dealer Agreement" shall mean an agreement between
the Auction Agent and a Broker-Dealer pursuant to which such Broker-Dealer
agrees to follow the procedures specified in paragraph 11 of these Articles
Supplementary.
"Business Day" means a day on which the New York Stock
Exchange, Inc. is open for trading and which is not a Saturday, Sunday or
other day on which banks in the City of New York are authorized or
obligated by law to close.
"Charter" means the Charter, as amended and supplemented
(including these Articles Supplementary), of the Corporation on file in the
State Department of Assessments and Taxation of Maryland.
"Closing Transaction" means the termination of a futures
contract or option position by taking a position opposite thereto.
"Code" means the Internal Revenue Code of 1986, as
amended.
"Commercial Paper Dealers" means Merrill Lynch, Pierce,
Fenner & Smith Incorporated and such other commercial paper dealer or
dealers as the Corporation may from time to time appoint, or, in lieu of
any thereof, their respective affiliates or successors.
"Common Stock" means the common stock, par value $.01 per
share, of the Corporation.
"Corporation" means The BlackRock Insured Municipal 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.
"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.
"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 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 claimspaying 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 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.
"1940 Act Preferred Shares Asset Coverage" means asset
coverage, as defined in section 18(h) of the 1940 Act, of at least 200%
with respect to all outstanding senior securities of the Corporation which
are stock, including all outstanding Preferred Shares and Other Preferred
Shares (or such other asset coverage as may in the future be specified in
or under the 1940 Act as the minimum asset coverage for senior securities
which are stock of a closed-end investment company as a condition of paying
dividends on its common stock).
"1940 Act Cure Date," with respect to the failure by the
Corporation to maintain the 1940 Act Preferred Shares Asset Coverage (as
required by paragraph 6 of these Articles Supplementary) as of the last
Business Day of each month, means the last Business Day of the following
month.
"Non-Call Period" has the meaning set forth under
"Specific Redemption Provisions" below.
"Non-Payment Period," with respect to each series of
Preferred Shares, means any period commencing on and including the day on
which the Corporation shall fail to (i) declare, prior to the close of
business on the second Business Day preceding any Dividend Payment Date,
for payment on or (to the extent permitted by paragraph 2(c)(i) of these
Articles Supplementary) within three Business Days after such Dividend
Payment Date to the Holders as of 12:00 noon, New York City time, on the
Business Day preceding such Dividend Payment Date, the full amount of any
dividend on Preferred Shares payable on such Dividend Payment Date or (ii)
deposit, irrevocably in trust, in same-day funds, with the Auction Agent by
12:00 noon, New York City time, (A) on such Dividend Payment Date the full
amount of any cash dividend on such shares payable (if declared) on such
Dividend Payment Date or (B) on any redemption date for any Preferred
Shares called for redemption, the Mandatory Redemption Price per share of
such Preferred Shares or, in the case of an optional redemption, the
Optional Redemption Price per share, and ending on and including the
Business Day on which, by 12:00 noon, New York City time, all unpaid cash
dividends and unpaid redemption prices shall have been so deposited or
shall have otherwise been made available to Holders in same-day funds;
provided that, a Non-Payment Period shall not end unless the Corporation
shall have given at least five days' but no more than 30 days' written
notice of such deposit or availability to the Auction Agent, all Existing
Holders (at their addresses appearing in the Stock Books) and the
Securities Depository. Notwithstanding the foregoing, the failure by the
Corporation to deposit the funds provided for by clauses (ii)(A) and
(ii)(B) above within three Business Days after a Dividend Payment Date or
any Redemption Date, as the case may be, in each case to the extent
contemplated by paragraph 2(c)(i) of these Articles Supplementary, shall
not constitute a "Non-Payment Period."
"Non-Payment Period Rate" means, initially, 250% of the
30-day "AA" Composite Commercial Paper Rate (or 300% of such rate if the
Corporation has provided notification to the Auction Agent prior to the
Auction establishing the Applicable Rate for any dividend pursuant to
paragraph 2(f) hereof that net capital gains or other taxable income will
be included in such dividend on Preferred Shares). Such percentages will be
used to calculate the Applicable Rate for any Non-Payment Period which
occurs during a Special Dividend Period on either series of Preferred
Shares and will be applied to the applicable Special Dividend Period
Reference Rate then in effect with respect to such series. However, the
Board of Directors of the Corporation shall have the authority to adjust,
modify, alter or change from time to time the initial Non-Payment Period
Rate if the Board of Directors of the Corporation determines and Moody's
and S&P (and any Substitute Rating Agency in lieu of Moody's or S&P in the
event either of such parties shall not rate the Preferred Shares) advise
the Corporation in writing that such adjustment, modification,
alteration or change will not adversely affect their then-current ratings
on the Preferred Shares.
"Normal Dividend Payment Date" has the meaning set forth
in paragraph 2(b)(i) of these Articles Supplementary.
"Notice of Redemption" means any notice with respect to
the redemption of Preferred Shares pursuant to paragraph 4 of these
Articles Supplementary.
"Notice of Revocation" has the meaning set forth in
paragraph 2(c)(iii) of these Articles Supplementary.
"Notice of Special Dividend Period" has the meaning set
forth in paragraph 2(c)(iii) of these Articles Supplementary.
"Optional Redemption Price" shall mean $50,000 per share
plus an amount equal to accumulated but unpaid dividends (whether or not
earned or declared) to the date fixed for redemption plus the premium, if
any, resulting from the designation of a Premium Call Period.
"Original Issue Insurance" means insurance guaranteeing
the timely payment of principal of, and interest on, a Municipal Obligation
purchased by the issuer of a Municipal Obligation or by a third party at
the time of issuance of such Municipal Obligation.
"Other Preferred Shares" means the Auction Rate Municipal
Preferred Stock of the Corporation, other than the Preferred Shares.
"Outstanding" means, as of any date (i) with respect to
Preferred Shares, Preferred Shares theretofore issued by the Corporation
except, without duplication, (A) any Preferred Shares theretofore cancelled
or delivered to the Auction Agent for cancellation, or redeemed by the
Corporation, or as to which a Notice of Redemption shall have been given
and moneys shall have been deposited in trust by the Corporation pursuant
to paragraph 4(c) and (B) any Preferred Shares as to which the Corporation
or any Affiliate thereof shall be an Existing Holder and (ii) with respect
to shares of Other Preferred Stock, has the equivalent meaning.
"Parity Stock" means the Preferred Shares and each other
outstanding series of Preferred Stock the holders of which, together with
the holders of the Preferred Shares, shall be entitled to the receipt of
dividends or of amounts distributable upon liquidation, dissolution or
winding up, as the case may be, in proportion to the full respective
preferential amounts to which they are entitled, without preference or
priority one over the other.
"Permanent Insurance" means insurance guaranteeing the
timely payment of principal of, and interest on, a Municipal Obligation
purchased by the Corporation upon payment of a single, predetermined
insurance premium pursuant to an irrevocable commitment of the issuer of
Portfolio Insurance covering such Municipal Obligation.
"Person" shall mean and include an individual, a
partnership, a corporation, a trust, an unincorporated association, a joint
venture or other entity or a government or any agency or political
subdivision thereof.
"Portfolio Insurance" means insurance guaranteeing the
timely payment of principal of, and interest on, a covered Municipal
Obligation only while such Municipal Obligation is owned by the
Corporation.
"Potential Holder" shall mean any Person, including any
Existing Holder, who may be interested in acquiring Preferred Shares (or,
in the case of an Existing Holder, additional Preferred Shares).
"Preferred Shares" means, as the case may be, Auction
Rate Municipal Preferred Stock, Series 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 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 holders of the Preferred Shares.
"Reference Rate" means the higher of the 30-day "AA"
Composite Commercial Paper Rate and the Taxable Equivalent of the
Short-Term Municipal Bond Rate, or, in the case of a Special Dividend
Period with a single Applicable Rate throughout such Special Dividend
Period, the Special Dividend Period Reference Rate or, in the case of a
Special Dividend Period with a varying Applicable Rate, the Reference Rate
specified in the definition of S&P Volatility Factor that most closely
approximates the length of the interval between periodic applications of
the Spread to the relevant Reference Index or Reference Security.
"Reference Security" shall mean, in the case of a debt
obligation, a particular debt obligation which is publicly traded, which is
non-callable prior to the termination of the Special Dividend Period with
respect to which such Reference Security is relevant and the outstanding
aggregate principal amount of which at the time of the Notice of Special
Dividend Period exceeds $100 million or, in the case of a preferred stock,
a preferred stock issue which is publicly traded, which is non- redeemable
prior to the termination of the Special Dividend Period with respect to
which such Reference Security is relevant and the outstanding liquidation
value of which at the time 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 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%
30-day "AA" Composite
Commercial Paper Rate........................... 228%
60-day "AA" Composite
Commercial Paper Rate........................... 228%
90-day "AA" Composite
Commercial Paper Rate........................... 222%
180-day "AA" Composite
Commercial Paper Rate........................... 217%
1-year U.S. Treasury
Bill Rate....................................... 198%
2-year U.S. Treasury
Note Rate....................................... 185%
3-year U.S. Treasury
Note Rate....................................... 178%
4-year U.S. Treasury
Note Rate....................................... 171%
5-year U.S. Treasury
Note Rate....................................... 169%
Notwithstanding the foregoing, the S&P Volatility Factor may mean such
other potential dividend rate increase factor as S&P advises the
Corporation in writing is applicable.
"Secondary Insurance" means insurance guaranteeing the
timely payment of principal of, and interest on, a Municipal Obligation
purchased by the Corporation or a third party subsequent to the original
issuance of such Municipal Obligation.
"Securities Depository" means The Depository Trust
Company or any successor company or other entity selected by the
Corporation as securities depository for the Preferred Shares that agrees
to follow the procedures required to be followed by such securities
depository in connection with the Preferred Shares.
"Series 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)).
"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 limitation,
issuers of general obligation bonds but shall exclude any bonds the
interest on which is subject to the Federal alternative minimum tax or
similar tax under the Code, unless all bonds the interest on which is so
excludable for Federal income tax purposes are subject to such tax and (B)
divided by 1 minus the Maximum Marginal Regular Federal individual income
tax rate applicable to the character of the income being distributed or the
maximum marginal regular Federal corporate income tax rate applicable to
the character of the income being distributed (in each case expressed as a
decimal), whichever is greater; or (ii) in lieu of the rate determined
pursuant to clause (i) above, a percentage, determined by the Corporation,
of (A) the per annum rate expressed on an interest equivalent basis equal
to any substitute index prepared by any person (other than an Affiliate of
the Corporation), selected from time to time by the Corporation, based on
bonds the interest on which is excludable from gross income for Federal
income tax purposes under the Code, and (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 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 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 the 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 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 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.
(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.
(e) Each dividend shall consist of (i) cash at the
Applicable Rate and (ii) an uncertificated right (a "Right") to receive an
Additional Dividend (as defined below). Each Right shall thereafter be
independent of the share or Preferred Shares on which the dividend was
paid. The Corporation shall cause to be maintained a record of each Right
received by the respective Holders. The Corporation shall not be required
to recognize any transfer of a Right.
If, in the case of a Dividend Period of 28 days or
fewer, the Corporation retroactively allocates any net capital
gains or other taxable income to Preferred Shares without having
given advance notice thereof to the Auction Agent as described in
paragraph 2(f) hereof (the amount of such allocation referred to
herein as a "Retroactive Taxable Allocation") solely by reason of
the fact that such allocation is made as a result of the
redemption of all or a portion of the outstanding Preferred Shares
or the liquidation of the Corporation, the Corporation will,
within 90 days (and generally within 60 days) after the end of the
Corporation's fiscal year for which a Retroactive Taxable
Allocation is made, provide notice thereof to the Auction Agent
and to each holder of a Right applicable to such Preferred Shares
(initially Cede & Co. as nominee of The Depository Trust Company)
during such fiscal year at such holder's address as the same
appears or last appeared on the Stock Books of the Corporation.
The Corporation will, within 30 days after such notice is given to
the Auction Agent, pay to the Auction Agent (who will then
distribute to such holders of Rights), out of funds legally
available therefor, an amount equal to the aggregate Additional
Dividend with respect to all Retroactive Taxable Allocations made
to such holders during the fiscal year in question.
If the Corporation, in the case of a Dividend
Period of 35 days or more, makes a Retroactive Taxable Allocation
to a dividend paid on Preferred Shares, the Corporation will,
within 90 days (and generally within 60 days) after the end of the
Corporation's fiscal year for which a Retroactive Taxable
Allocation is made, provide notice thereof to the Auction Agent
and to each holder of a Right applicable to such Preferred Shares
(initially Cede & Co. as nominee of The Depository Trust Company)
during such fiscal year at such holder's address as the same
appears or last appeared on the Stock Books of the Corporation.
The Corporation will, within 30 days after such notice is given to
the Auction Agent, pay to the Auction Agent (who will then
distribute to such holders of Rights), out of funds legally
available therefor, an amount equal to the aggregate Additional
Dividend with respect to all Retroactive Taxable Allocations made
to such holders during the fiscal year in question.
An "Additional Dividend" means payment to a holder
of Preferred Shares of an amount which, when taken together with
the aggregate amount of Retroactive Taxable Allocations allocated
to such holder with respect to the fiscal year in question, would
cause such holder's dividends from the aggregate of both the
Retroactive Taxable Allocations and the Additional Dividend to be
equal to the dollar amount of the dividends which would have been
received and retained by such holder if the Retroactive Taxable
Allocations had not been made. Such Additional Dividend shall be
calculated (i) without consideration being given to the time value
of money; (ii) assuming that no holder of Preferred Shares is
subject to the Federal alternative minimum tax with respect to
dividends received from the Corporation; and (iii) assuming that
each Retroactive Taxable Allocation would be taxable in the hands
of each holder of Preferred Shares at the maximum marginal
combined regular Federal income tax rate applicable to individuals
or corporations, whichever is greater, in effect during the fiscal
year in question.
(f) Whenever the Corporation intends to include any
net capital gains or other taxable income in any dividend on Preferred Shares
the Applicable Rate for which will be established at the next succeeding
Auction, the Corporation will, in the case of a Dividend Period of 28 days
or fewer, and may, in the case of a Dividend Period of 35 days or more,
notify the Auction Agent of the amount to be so included at least five
Business Days prior to the Auction Date on which the Applicable Rate for
such dividend is to be established. If, in the case of a Dividend Period of
28 days or fewer, the Corporation retroactively allocates any net capital
gains or other taxable income to 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
S&P Eligible Assets and Moody's Eligible Assets each with an
aggregate Discounted Value equal to the Preferred Shares Basic
Maintenance Amount.
(ii) The Corporation shall redeem, out of funds
legally available therefor, at the Mandatory Redemption Price per
share, Preferred Shares to the extent permitted under the 1940 Act
and Maryland law, on a date fixed by the Board of Directors, if
the Corporation fails to maintain Moody's Eligible Assets and S&P
Eligible Assets each with an aggregate Discounted Value equal to
or greater than the Preferred Shares Basic Maintenance Amount as
provided in paragraph 7(a) or to satisfy the 1940 Act Preferred
Shares Asset Coverage as provided in paragraph 6 and such failure is
not cured on or before the Preferred Shares Basic Maintenance Cure
Date or the 1940 Act Cure Date (herein respectively referred to as
the "Cure Date"), as the case may be. In addition, holders of
Preferred Shares so redeemed shall be entitled to receive
Additional Dividends to the extent provided herein. The number of
Preferred Shares to be redeemed shall be equal to the lesser of
(i) the minimum number of Preferred Shares the redemption of
which, if deemed to have occurred immediately prior to the opening
of business on the Cure Date, would together with all shares of
Other Preferred Stock subject to redemption or retirement, result
in the Corporation having S&P Eligible Assets and Moody's Eligible
Assets each with an aggregate Discounted Value equal to or greater
than the Preferred Shares Basic Maintenance Amount or satisfaction
of the 1940 Act Preferred Shares Asset Coverage, as the case may
be, on such Cure Date (provided that, if there is no such minimum
number of Preferred Shares and shares of Other Preferred Stock the
redemption of which would have such result, all Preferred Shares
and shares of Other Preferred Stock then outstanding shall be
redeemed), and (ii) the maximum number of Preferred Shares,
together with all shares of other Preferred Stock subject to
redemption or retirement, that can be redeemed out of funds
expected to be legally available therefor on such redemption date.
In determining the number of Preferred Shares required to be
redeemed in accordance with the foregoing, the Corporation shall
allocate the number required to be redeemed which would result in
the Corporation having Moody's Eligible Assets and S&P Eligible
Assets each with an aggregate Discounted Value equal to or greater
than the Preferred Shares Basic Maintenance Amount or satisfaction
of the 1940 Act Preferred Shares Asset Coverage, as the case may
be, pro rata among Preferred Shares, Other Preferred Shares and
other Preferred Stock subject to redemption pursuant to provisions
similar to those contained in this paragraph 4(a)(ii) provided
that, Preferred Shares which may not be redeemed at the option of
the Corporation (a) will be subject to mandatory redemption only
to the extent that other shares are not available to satisfy the
number of shares required to be redeemed and (b) will be selected
for redemption in an ascending order of outstanding number of days
in the Non-Call Period during which such shares are not subject to
optional redemption (with shares with the lowest number of days to
be redeemed first) and by lot in the event of shares having an
equal number of days in such period. The Corporation shall effect
such redemption on a Business Day which is not later than 30 days
after such Cure Date, except that if the Corporation does not have
funds legally available for the redemption of all of the required
number of Preferred Shares and shares of other Preferred Stock
which are subject to mandatory redemption or the Corporation
otherwise is unable to effect such redemption on or prior to 30
days after such Cure Date, the Corporation shall redeem those
Preferred Shares which it is unable to redeem on the earliest
practicable date on which it is able to effect such redemption
out of funds legally available therefor.
(b) Notwithstanding any other provision of this
paragraph 4, no Preferred Shares may be redeemed pursuant to paragraph
4(a)(i) of these Articles Supplementary unless all dividends in arrears on
all remaining outstanding shares of Parity Stock shall have been or are
being contemporaneously paid or declared and set apart for payment. In the
event that less than all the outstanding Preferred Shares are to be
redeemed and there is more than one Holder, the shares to be redeemed shall
be selected by lot or such other method as the Corporation shall deem fair
and equitable.
(c) Whenever Preferred Shares are to be redeemed, the
Corporation, not less than 20 or more than 60 days prior to the date fixed
for redemption, shall mail a notice ("Notice of Redemption") by first-class
mail, postage prepaid, to each Holder of Preferred Shares to be redeemed
and to the Auction Agent. The Corporation shall cause the Notice of
Redemption also to be published in the eastern and national editions of The
Wall Street Journal. The Notice of Redemption to set forth (i) the
redemption date, (ii) the amount of the redemption price, (iii) the
aggregate number of Preferred Shares to be redeemed, (iv) the place or
places where Preferred Shares are to be surrendered for payment of the
redemption price, (v) a statement that dividends on the shares to be
redeemed shall cease to accumulate on such redemption date (except that
holders may be entitled to Additional Dividends) and (vi) the provision of
these Articles Supplementary pursuant to which such shares are being
redeemed. No defect in the Notice of Redemption or in the mailing or
publication thereof shall affect the validity of the redemption
proceedings, except as required by applicable law.
If the Notice of Redemption shall have been given
as aforesaid and, concurrently or thereafter, the Corporation
shall have deposited in trust with the Auction Agent a cash amount
equal to the redemption payment for the Preferred Shares as to
which such Notice of Redemption has been given with irrevocable
instructions and authority to pay the redemption price to the
Holders of such shares, then upon the date of such deposit or, if
no such deposit is made, then upon such date fixed for redemption
(unless the Corporation shall default in making the redemption
payment), all rights of the Holders of such shares as
shareholders of the Corporation by reason of the ownership of
such shares will cease and terminate (except their right to
receive the redemption price in respect thereof and any
additional dividends, but without interest), and such shares
shall no longer be deemed outstanding. The Corporation shall be
entitled to receive, from time to time, from the Auction Agent
the interest, if any, on such moneys deposited with it and the
Holders of any shares so redeemed shall have no claim to any of
such interest. In case the Holder of any shares so called for
redemption shall not claim the redemption payment for his shares
within one year after the date of redemption, the Auction Agent
shall, upon demand, pay over to the Corporation such amount
remaining on deposit and the Auction Agent shall thereupon be
relieved of all responsibility to the Holder of such shares
called for redemption and such Holder thereafter shall look only
to the Corporation for the redemption payment.
5. Voting Rights. (a) General. Except as otherwise
provided in the Charter, each Holder of Preferred Shares shall be entitled
to one vote for each share held on each matter submitted to a vote of
stockholders of the Corporation to which the stockholders are entitled to
vote, and the holders of outstanding shares of Preferred Stock, including
Preferred Shares, and of shares of Common Stock shall vote together as a
single class with respect to all matters on which all stockholders are
entitled to vote. Notwithstanding the preceding sentence, at the first
annual meeting of stockholders, the holders of outstanding shares of
Preferred Stock, including Preferred Shares, represented in person or by
proxy shall be entitled as a class, and to the exclusion of the holders of
all other securities and classes of capital stock of the Corporation, to
elect one Class I director and one Class II director and shall thereafter
be so entitled to elect any successors from time to time to the Class I and
Class II directors so elected at any meeting of shareholders in which
successors are elected. At each meeting of shareholders at which entire
classes of Class I and Class II directors are to be elected, or at any
meeting at which a successor to a director elected by the holders of
Preferred Stock in accordance with this Section is to be elected (including
directors elected pursuant to this sentence), the holders of outstanding
shares of Preferred Stock, including Preferred Shares, represented in
person or by proxy shall be entitled as a class and to the exclusion of the
holders of all other securities and classes of capital stock of the
Corporation to elect one Class I and one Class II director or to elect such
successor. In the event that the Charter is amended to eliminate the
classification of the Corporation's Board of Directors, the holders of
outstanding shares of Preferred Stock, including Preferred Shares,
represented in person or by proxy shall be entitled as a class, and to the
exclusion of the holders of all other securities and classes of capital
stock of the Corporation, to elect two directors. Subject to paragraph 5(b)
hereof, the holders of outstanding shares of capital stock of the
Corporation, voting as a single class, shall elect the balance of the
directors.
(b) Right to Elect Majority of Board of Directors.
During any period in which any one or more of the conditions described
below shall exist (such period being referred to herein as a "Voting
Period"), the number of directors constituting the Board of Directors shall
be automatically increased by the smallest number that, when added to the
two directors elected exclusively by the holders of shares of Preferred
Stock, would constitute a majority of the Board of Directors as so
increased by such smallest number; and the holders of shares of Preferred
Stock shall be entitled, voting as a class on a one-vote-per-share basis
(to the exclusion of the holders of all other securities and classes of
capital stock of the Corporation), to elect such smallest number of
additional directors, together with the two directors that such holders are
in any event entitled to elect. A Voting Period shall commence:
(i) if at any time accumulated dividends
(whether or not earned or declared, and whether or not funds are
then legally available in an amount sufficient therefor) on the
outstanding Preferred Shares equal to at least two full years'
dividends shall be due and unpaid and sufficient cash or
specified securities shall not have been deposited with the
Auction Agent for the payment of such accumulated dividends; or
(ii) if at any time holders of any Preferred
Stock are entitled to elect a majority of the directors of the
Corporation under the 1940 Act.
Upon the termination of a Voting Period, the voting
rights described in this paragraph 5(b) shall cease, subject always,
however, to the revesting of such voting rights in the Holders upon the
further occurrence of any of the events described in this paragraph 5(b).
(c) Right to Vote with Respect to Certain Other
Matters. So long as any Preferred Shares are outstanding, the Corporation
shall not, without the affirmative vote of the holders of a majority of the
Outstanding shares of Preferred Stock outstanding at the time, in person or
by proxy, at a meeting (voting separately as one class) or by the unanimous
written consent of the holders of all Outstanding shares of Preferred
Stock: (i) authorize, create or issue, or increase the authorized or issued
amount of, any class or series of stock ranking prior to or on a parity
with any series of Preferred Stock with respect to payment of dividends or
the distribution of assets on liquidation, or increase the authorized
amount of Preferred Shares or any other Preferred Stock (except that,
notwithstanding the foregoing, but subject to the provisions of Section 13
of the 1940 Act, the Board of Directors, without the vote or consent of the
Holders of Preferred Shares, may from time to time authorize, create and
issue, and may increase the authorized or issued amount of, classes or
series of Preferred Stock, including Preferred Shares, ranking on a parity
with the Preferred Shares with respect to the payment of dividends and the
distribution of assets upon dissolution, liquidation or winding up of the
affairs of the Corporation, subject to continuing compliance by the
Corporation with 1940 Act Preferred Shares Asset Coverage and Preferred
Shares Basic Maintenance Amount requirements, provided that the Fund
obtains written confirmation from Moody's (if Moody's is then rating
Preferred Shares), S&P (if S&P is then rating Preferred Shares) or any
Substitute Rating Agency (if any such Substitute Rating Agency is then
rating Preferred Shares) that the issuance of such class or series would
not impair the rating then assigned by such rating agency to the Preferred
Shares), (ii) amend, alter or repeal the provisions of the Charter whether
by merger, consolidation or otherwise, so as to adversely affect any of the
contract rights expressly set forth in the Charter of holders of Preferred
Shares or any Other Preferred Stock, (iii) authorize the Corporation's
conversion from a closed-end to an open-end investment company as defined
in Section 5(a) of the 1940 Act, or (iv) amend the provisions of the
Charter which provide for the classification of the Board of Directors of
the Corporation into three classes, each with a term of office of three
years with only one class of directors standing for election in any year
(presently Article VI of the Charter). To the extent permitted under the
1940 Act, the Corporation shall not approve any of the actions set forth in
clause (i) or (ii) which adversely affects the contract rights expressly
set forth in the Charter of a Holder of shares of a series of Preferred
Shares differently than those of a Holder of shares of any other series of
Preferred Shares without the affirmative vote of the holders of at least a
majority of the Preferred Shares of each series adversely affected and
Outstanding at such time, in person or by proxy, at a meeting (each such
adversely affected series voting separately as a class) or by the unanimous
written consent of the holders of all Outstanding shares of Preferred
Stock. The Corporation shall notify Moody's and S&P 10 Business Days prior
to any such vote described in clauses (i) and (ii). Unless a higher
percentage is provided for under the Charter, the affirmative vote of the
holders of a majority of the Outstanding shares of Preferred Stock,
including Preferred Shares, voting together as a single class, will be
required to approve any plan of reorganization (including bankruptcy
proceedings) adversely affecting such shares or any action requiring a vote
of security holders under Section 13(a) of the 1940 Act. The class vote of
holders of shares of Preferred Stock, including Preferred Shares, described
above will in each case be in addition to a separate vote of the requisite
percentage of shares of Common Stock and shares of Preferred Stock,
including Preferred Shares, voting together as a single class necessary to
authorize the action in question. Notwithstanding the preceding sentence,
to the extent permitted by Maryland General Corporation Law, no vote of
holders of Common Stock, either separately or together with holders of
Preferred Shares as a single class, shall be necessary to take the actions
contemplated by clauses (i) and (ii) of the first sentence of this Section
5(c) and the holders of Common Stock shall not be entitled to vote in
respect of such matters, unless, in the case of the actions contemplated by
clause (ii) of the first sentence of this section 5(c), the action would
adversely affect the contract rights expressly set forth in the Charter of
the holders of Common Stock.
(d) Voting Procedures.
(i) As soon as practicable after the accrual
of any right of the Holders of shares of Preferred Stock to elect
additional directors as described in paragraph 5(b) above, the
Corporation shall notify the Secretary of the Corporation and
instruct the Secretary to call a special meeting of such Holders,
by mailing a notice of such special meeting to such Holders, such
meeting to be held not less than 10 nor more than 20 days after
the date of mailing of such notice. If the Secretary of the
Corporation does not call such a special meeting, it may be called
by Holders of at least 25% of the votes entitled to be cast at
such meeting on like notice. The record date for determining the
Holders entitled to notice of and to vote at such special meeting
shall be the close of business on the fifth Business Day preceding
the day on which such notice is mailed. At any such special
meeting and at each meeting held during a Voting Period, such
Holders, voting together as a class (to the exclusion of the
holders of all other securities and classes of capital stock of
the Corporation), shall be entitled to elect the number of
directors prescribed in paragraph 5(b) above on a
one-vote-per-share basis. At any such meeting or adjournment
thereof in the absence of a quorum, a majority of such holders
present in person or by proxy shall have the power to adjourn the
meeting without notice, other than by an announcement at the
meeting, to a date not more than 120 days after the original
record date.
(ii) For purposes of determining any rights
of the Holders to vote on any matter or the number of shares required
to constitute a quorum, whether such right is created by these
Articles Supplementary, by the other provisions of the Charter, by
statute or
otherwise, a share of Preferred Shares which is not outstanding shall
not be counted.
(iii) The terms of office of all persons who are
directors of the Corporation at the time of a special meeting of
Holders and holders of other Preferred Stock to elect directors
shall continue, notwithstanding the election at such meeting by
the Holders and such other holders of the number of directors that
they are entitled to elect, and the persons so elected by the
Holders and such other holders, together with the two incumbent
directors elected by the Holders and such other holders of
Preferred Stock and the remaining incumbent directors elected by
the holders of the Common Stock and Preferred Stock, shall
constitute the duly elected directors of the Corporation.
(iv) The terms of office of the additional
directors elected by the Holders and holders of other Preferred Stock
pursuant to paragraph 5(b) above shall terminate on the earliest
date permitted by the Maryland General Corporation Law following
the termination of a Voting Period, the remaining directors shall
constitute the directors of the Corporation and the voting rights
of the Holders and such other holders to elect additional
directors pursuant to paragraph 5(b) above shall cease, subject to
the provisions of the last sentence of paragraph 5 (b) (ii)
(e) Exclusive Remedy. Unless otherwise required by
law, the Holders of Preferred Shares shall not have any relative rights or
preferences or other special rights other than those specifically set forth
herein. The Holders of Preferred Shares shall have no preemptive rights or
rights to cumulative voting. In the event that the Corporation fails to pay
any dividends on the Preferred Shares, the exclusive remedy of the Holders
shall be the right to vote for directors pursuant to the provisions of this
paragraph 5.
(f) Notification to Moody's and S&P. In the event a
vote of Holders of Preferred Shares is required pursuant to the provisions
of Section 13(a) of the 1940 Act, the Corporation shall, not later than ten
business days prior to the date on which such vote is to be taken, notify
Moody's and S&P that such vote is to be taken and the nature of the action
with respect to which such vote is to be taken. Upon completion of any such
vote, the Corporation shall notify Moody's and S&P as to the result of such
vote.
6. 1940 Act Preferred Shares Asset Coverage. The
Corporation shall maintain, as of the last Business Day of each month in
which any share of Preferred Shares is outstanding, the 1940 Act Preferred
Shares Asset Coverage.
7. Preferred Shares Basic Maintenance Amount. (a) The
Corporation shall maintain, on each Valuation Date, and shall verify to its
satisfaction that it is maintaining on such Valuation Date, (i) Moody's
Eligible Assets having an aggregate Discounted Value equal to or greater
than the Preferred Shares Basic Maintenance Amount and (ii) S&P Eligible
Assets having an aggregate Discounted Value equal to or greater than the
Preferred Shares Basic Maintenance Amount. Upon any failure to maintain the
required Discounted Value, the Corporation will use its best efforts to
alter the composition of its portfolio to reattain the Preferred Shares
Basic Maintenance Amount on or prior to the Preferred Shares Basic
Maintenance Cure Date.
(b) On or before 5:00 p.m., New York City time, on
the third Business Day after a Valuation Date on which the Corporation
fails to satisfy the Preferred Shares Basic Maintenance Amount, the
Corporation shall complete and deliver to the Auction Agent, Moody's and
S&P a complete Preferred Shares Basic Maintenance Report as of the date of
such failure, which will be deemed to have been delivered to the Auction
Agent if the Auction Agent receives a copy or telecopy, telex or other
electronic transcription thereof and on the same day the Corporation mails
to the Auction Agent for delivery on the next Business Day the complete
Preferred Shares Basic Maintenance Report. The Corporation shall also give
a notice of cure of its failure to satisfy the Preferred Shares Basic
Maintenance Amount along with the complete Preferred Shares Basic
Maintenance Report to the Auction Agent, Moody's and S&P within three
Business Days of its determination that it has satisfied such requirement
following any period during which it has failed to satisfy such
requirement. The Corporation will also deliver a Preferred Shares Basic
Maintenance Report of 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
Valuation Date on which the Corporation failed to maintain S&P Eligible
Assets with an aggregate Discounted Value and Moody's Eligible Assets with
an aggregate Discounted Value equal to or greater than the Preferred Shares
Basic Maintenance Amount, and relating to the Preferred Shares Basic
Maintenance Cure Date with respect to such failure, the Independent
Accountant will provide to the Auction Agent, S&P and Moody's an
Accountant's Confirmation as to such Preferred Shares Basic Maintenance
Report.
(e) If any Accountant's Confirmation delivered
pursuant to subparagraph (c) or (d) of this paragraph 7 shows that an error
was made in the Preferred Shares Basic Maintenance Report for a particular
Valuation Date for which such Accountant's Confirmation was required to be
delivered, or shows that a lower aggregate Discounted Value for the
aggregate of all S&P Eligible Assets or Moody's Eligible Assets, as the
case may be, of the Corporation was determined by the Independent
Accountant, the calculation or determination made by such Independent
Accountant shall be final and conclusive and shall be binding on the
Corporation, and the Corporation shall accordingly amend and deliver the
Preferred Shares Basic Maintenance Report to the Auction Agent, S&P and
Moody's promptly following receipt by the Corporation of such Accountant's
Confirmation.
(f) On or before 5:00 p.m., New York City time, on
the first Business Day after the Date of Original Issue of the Preferred
Shares, the Corporation will complete and deliver to S&P and Moody's a
Preferred Shares Basic Maintenance Report as of the close of business on
such Date of Original Issue. Within five business days of such Date of
Original Issue, the Corporation shall cause the Independent Accountant to
confirm in writing to S&P and Moody's (i) the mathematical accuracy of the
calculations reflected in such Report and (ii) that the aggregate
Discounted Value of S&P Eligible Assets and the aggregate Discounted
Value of Moody's Eligible Assets reflected thereon equals or exceeds the
Preferred Shares Basic Maintenance Amount reflected thereon.
(g) For so long as Preferred shares are rated by
Moody's, in managing the Corporation's portfolio, the Corporation shall
require that the Adviser will not alter the composition of the
Corporation's portfolio if, in the reasonable belief of the Adviser, the
effect of any such alteration would be to cause the Corporation to have
Moody's Eligible Assets with an aggregate Discounted Value, as of the
immediately preceding Valuation Date, less than the Preferred Shares Basic
Maintenance Amount as of such Valuation Date; provided, however, that in
the event that, as of the immediately preceding Valuation Date, the
aggregate Discounted Value of Moody's Eligible Assets exceeded the
Preferred Shares Basic Maintenance Amount by twenty-five percent or less
(or, in the event the Valuation Date is every day that is a Business Day,
five percent or less), the Adviser will not alter the composition of the
Corporation's portfolio in a manner reasonably expected to reduce the
aggregate Discounted Value of Moody's Eligible Assets unless the
Corporation shall have confirmed that, after giving effect to such
alteration, the aggregate Discounted Value of Moody's Eligible Assets would
exceed the Preferred Shares Basic Maintenance Amount.
8. Minimum Liquidity Level. (i) For so long as any
Preferred Shares are rated by S&P, the Corporation shall be required to
have, as of each Valuation Date, Dividend Coverage Assets having in the
aggregate a value not less than the Dividend Coverage Amount.
(ii) As of each Valuation Date as long as any
Preferred Shares are rated by S&P, the Corporation shall determine
(A) the Market Value of the Dividend Coverage Assets owned by the
Corporation as of that Valuation Date, (B) the Dividend Coverage
Amount on that Valuation Date, and (C) whether the Minimum
Liquidity Level is met as of that Valuation Date. The calculations
of the Dividend Coverage Assets, the Dividend Coverage Amount and
whether the Minimum Liquidity Level is met shall be set forth in a
certificate (a "Certificate of Minimum Liquidity") dated as of the
Valuation Date. The Preferred Shares Basic Maintenance Report and
the Certificate of Minimum Liquidity may be combined in one
certificate. The Corporation shall cause the Certificate of
Minimum Liquidity to be delivered to S&P not later than the close
of business on the third Business Day after the Valuation Date
applicable to such Certificate pursuant to paragraph 7(b). The
Minimum Liquidity Level shall be deemed to be met as of any date
of determination if the Corporation has timely delivered a Certificate
of Minimum Liquidity relating to such date which states that the
same has been met and which is not manifestly inaccurate. In the
event that a Certificate of Minimum Liquidity is not delivered to
S&P when required, the Minimum Liquidity Level shall be deemed
not to have been met as of the applicable date.
(iii) If the Minimum Liquidity Level is not met
as of any Valuation Date, then the Corporation shall purchase or
otherwise acquire Dividend Coverage Assets to the extent
necessary so that the Minimum Liquidity Level is met as of the
fifth Business Day following such Valuation Date. The Corporation
shall, by such fifth Business Day, provide to S&P a Certificate
of Minimum Liquidity setting forth the calculations of the
Dividend Coverage Assets and the Dividend Coverage Amount and
showing that the Minimum Liquidity Level is met as of such fifth
Business Day together with a report of the custodian of the
Corporation's assets confirming the amount of the Corporation's
Dividend Coverage Assets as of such fifth Business Day.
9. Certain Other Restrictions. (a) So long as there are
Preferred Shares Outstanding, the Corporation will enter into futures and
options transactions only for bona fide hedging purposes and not for
leveraging or speculative purposes. So long as Moody's and S&P are rating
the Preferred Shares, the Corporation will only engage in futures or
options transactions in accordance with the then-current guidelines of such
ratings agencies, only if it is valuing its assets daily and only after it
has received written confirmation from Moody's and S&P, as appropriate,
that such transactions would not impair the ratings then assigned by S&P
and Moody's to Preferred Shares. The S&P guidelines in effect as of the
Date of Original issue are set forth in their entirety in the following
paragraph. The Corporation may engage in futures and options transactions
in accordance therewith and such transactions shall have the consequences
included in such guidelines set forth therein (as such guidelines are
amended, modified and supplemented from time to time by S&P), provided,
however, that it may not engage in any such transactions unless it has
satisfied the relevant provisions of this paragraph relating to complying
with Moody's guidelines and obtaining written confirmation from Moody's and
S&P.
For so long as Preferred Shares are rated by S&P, the
Corporation will not, unless it has received written confirmation from S&P
that any such action would not impair the rating then assigned by S&P to
Preferred Shares, purchase or sell futures contracts or options thereon or
write uncovered put or uncovered call options on portfolio securities
except (provided that the Corporation has received such written
confirmation in advance from S&P) that (i) the Corporation may engage in
S&P Hedging Transactions based on the Municipal Index, provided that (A)
the Corporation shall not engage in any S&P Hedging Transaction based on
the Municipal Index (other than Closing Transactions) which would cause the
Corporation at the time of such transaction to own or have sold (1) more
than 1,000 outstanding futures contracts based on the Municipal Index, (2)
outstanding futures contracts based on Municipal Index exceeding in number
25% of the quotient of the fair market value of the Corporation's total
assets divided by 100,000 or (3) outstanding futures contracts based on the
Municipal Index exceeding in number 10% of the average number of daily
traded futures contracts based on the Municipal Index in the month prior to
the time of effecting such transaction as reported by The Wall Street
Journal and (ii) the Corporation may engage in S&P Hedging Transactions
based on Treasury Bonds, provided that (A) the Corporation shall not engage
in any S&P Hedging Transactions based on Treasury Bonds (other than Closing
Transactions) which would cause the Corporation at the time of such
transaction to own or have sold the lesser of (1) outstanding futures
contracts based on Treasury Bonds exceeding in number 25% of the quotient
of the fair market value of the Corporation's total assets divided by
100,000 or (2) outstanding futures contracts based on Treasury Bonds
exceeding in number 10% of the average number of daily traded futures
contracts based on Treasury Bonds in the month prior to the time of
effecting such transaction as reported by The Wall Street Journal. For so
long as Preferred Shares are rated by S&P, the Corporation will engage in
Closing Transactions to close out any outstanding futures contract which
the Corporation owns or has sold or any outstanding option thereon owned by
the Corporation in the event (i) the Corporation does not have S&P Eligible
Assets with an aggregate Discounted Value equal to or greater than the
Preferred Shares Basic Maintenance Amount on two consecutive Valuation
Dates and (ii) the Corporation is required to pay Variation Margin on the
second such Valuation Date. For so long as Preferred Shares are rated by
S&P, the Corporation will engage in a Closing Transaction to close out any
outstanding futures contract or option thereon in the month prior to the
delivery month under the terms of such futures contract or option thereon
unless the Corporation holds securities deliverable under such terms. For
purposes of calculating the Discounted Value of S&P Eligible Assets to
determine compliance with the Preferred Shares Basic Maintenance Amount,
such Discounted Value shall be reduced by an amount equal to (i) 30% of the
aggregate settlement value, as marked to market, of any outstanding futures
contracts based on the Municipal Index which are owned by the Trust plus
(ii) 25% of the aggregate settlement value, as marked to market, of any
outstanding futures contracts based on Treasury Bonds which contracts are
owned by the Corporation. For so long as Preferred Shares are rated by S&P,
when the Corporation writes a futures contract or option thereon, it
will maintain an amount of cash, cash equivalents or short-term,
fixed-income securities in a segregated account with the Corporation's
custodian, so that the amount so segregated plus the amount of Initial
Margin and Variation Margin held in the account of the Corporation's broker
equals the fair market value of the futures contract, except that in the
event the Corporation writes a futures contract or option thereon which
requires delivery of an underlying security, the Corporation shall hold
such underlying security.
(b) For so long as Preferred Shares are rated by
Moody's or S&P, the Corporation will not, unless it has received written
confirmation from Moody's and/or S&P, as the case may be, that such action
would not impair the ratings then assigned to Preferred Shares by Moody's
and/or S&P, as the case may be, (i) borrow money, (ii) engage in short
sales of securities, (iii) lend any securities, (iv) issue any class or
series of stock ranking prior to or on a parity with the Preferred Shares
with respect to the payment of dividends or the distribution of assets upon
dissolution, liquidation or winding up of the Corporation, (v) reissue any
Preferred Shares previously purchased or redeemed by the Corporation, (vi)
merge or consolidate into or with any other corporation, (vii) change the
Pricing Service or (viii) engage in reverse repurchase agreements.
10. Notice. All notices or communications, unless
otherwise specified in these Articles Supplementary, shall be sufficiently
given if in writing and delivered in person or mailed by first-class mail,
postage prepaid. Notice shall be deemed given on the earlier of the date
received or the date seven days after which such notice is mailed.
11. Auction Procedures. (a) Certain definitions. As
used in this paragraph 11, the following terms shall have the following
meanings, unless the context otherwise requires:
(i) "Auction Date" shall mean the first
Business Day preceding the first day of a Dividend Period.
(ii) "Available Preferred Shares" shall have
the meaning specified in paragraph 11(d)(i) below.
(iii) "Bid" shall have the meaning specified in
paragraph 11(b)(i) below.
(iv) "Bidder" shall have the meaning specified
in paragraph 11(b)(i) below.
(v) "Hold Order" shall have the meaning
specified in paragraph 11(b)(i) below.
(vi) "Maximum Applicable Rate," for any
Dividend Payment Period for the Preferred Shares will be the
Applicable Percentage of the higher of the 30-day "AA" Composite
Commercial Paper Rate and the Taxable Equivalent of the Short-Term
Municipal Bond Rate except in the case of a Special Dividend
Period in which case the Maximum Applicable Rate for any Dividend
Payment Period included in such Special Dividend Period will be
the Applicable Percentage (determined on the date of the Notice of
Special Dividend Period in the case of any such Notice that
specifies a Maximum Applicable Rate applicable to such Special
Dividend Payment Period) of the Special Dividend Period Reference
Rate for such Dividend Payment Period. The Applicable Percentage
will be determined based on (i) the lower of the credit rating or
ratings assigned on such date to such shares by Moody's and S&P
(or if Moody's or S&P or both shall not make such rating
available, the equivalent of either or both of such ratings by a
Substitute Rating Agency or two Substitute Rating Agencies or, in
the event that only one such rating shall be available, such
rating) and (ii) whether the Corporation has provided notification
to the Auction Agent prior to the Auction establishing the
Applicable Rate for any dividend pursuant to paragraph 2(f) hereof
that net capital gains or other taxable income will be included in
such dividend on Preferred Shares as follows:
Credit Ratings Applicable Applicable
Percentage Percentage
Moody's S&P's No Notification Notification
- ---------------- ------------------ --------------- ------------
"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%
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:
(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 without regard to the
Applicable Rate for the next succeeding Dividend Period;
(3) 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
(4) the number of Outstanding shares,
if any, of Preferred Shares held by such Existing Holder which such
Existing Holder offers to sell without regard to the Applicable
Rate for the next succeeding Dividend Period; and
(B) each Broker-Dealer, using a
list of Potential Holders that shall be maintained in
good faith for the purpose of conducting a competitive
Auction, shall contact Potential Holders, including
Persons that are not Existing Holders, on such list to
determine the number of Outstanding shares, if any, of
Preferred Shares which each such Potential Holder
offers to purchase, provided that the Applicable Rate
for the next succeeding Dividend Period shall not be
less than the rate per annum or Spread specified by
such Potential Holder.
For the purposes hereof, the communication to a
Broker-Dealer of information referred to in clause (A) or (B) of this
paragraph 11(b)(i) is hereinafter referred to an "Order" and each Existing
Holder and each Potential Holder placing an Order is hereinafter referred
to as a "Bidder"; an Order containing the information referred to in clause
(A)(1) of this paragraph 11(b)(i) is hereinafter referred to as a "Hold
Order"; an order containing the information referred to in clause (A)(2) or
(B) of this paragraph 11(b)(i) is hereinafter referred to as a "Bid"; and
an Order containing the information referred to in clause (A)(3) of this
paragraph 11(b)(i) is hereinafter referred to as a "Sell Order".
(ii) (A) A Bid by an Existing Holder shall
constitute an irrevocable offer to sell:
(1) the number of Outstanding Preferred
Shares specified in such Bid if the Applicable Rate determined on
such Auction Date shall be less than the rate per annum or Spread
specified in such Bid; or
(2) such number of a lesser number of
Outstanding Preferred Shares to be determined as set forth in
paragraph 11(e)(i)(D) if the Applicable Rate determined on such
Auction Date shall be equal to the rate per annum or Spread
specified therein; or
(3) a lesser number of outstanding
Preferred Shares to be determined as set forth in paragraph
11(e)(ii)(C) if such specified rate per annum shall be higher
than the Maximum Applicable Rate and Sufficient Clearing Bids do
not exist.
(B) A Sell Order by an Existing
Holder shall constitute an irrevocable offer to sell:
(1) the number of Outstanding Preferred
Shares specified in such Sell Order; or
(2) such number or a lesser number of
Outstanding Preferred Shares to be determined as set forth in
paragraph 11(e)(ii)(C) if Sufficient Clearing Bids do not exist.
(C) A Bid by a Potential Holder
shall constitute an irrevocable offer to purchase:
(1) the number of Outstanding Preferred
Shares specified in such Bid if the Applicable Rate determined on
such Auction Date shall be higher than the rate per annum or
Spread specified in such Bid; or
(2) such number or a lesser number of
Outstanding Preferred Shares to be determined as set forth in
paragraph 11(e)(i)(E) if the Applicable Rate determined on such
Auction Date shall be equal to the rate per annum or Spread
specified therein.
(c) Submission of Orders by Broker-Dealers to Auction
Agent.
(i) Each Broker-Dealer shall submit in writing
or through the Auction Agent's Auction Processing System to the
Auction Agent prior to the Submission Deadline on each Auction
Date all Orders obtained by such Broker-Dealer and specifying
with respect to each Order:
(A) the name of the Bidder placing
such Order;
(B) the aggregate number of
Outstanding Preferred Shares that are the subject of such
Order;
(C) to the extent that such Bidder
is an Existing Holder:
(2) the number of Outstanding shares,
if any, of Preferred Shares subject to any Hold Order placed by
such Existing Holder;
(3) the number of Outstanding shares,
if any, of Preferred Shares subject to any Bid placed by such
Existing Holder and the rate per annum or Spread specified in
such Bid; and
(4) the number of Outstanding shares, if
any, of Preferred Shares subject to any Sell Order placed by such
Existing Holder; and
(D) (i) to the extent such Bidder
is a Potential Holder, the rate per annum or Spread specified
in such Potential Holder's Bid.
(ii) If any rate per annum or Spread specified
in any Bid contains more than three figures to the right of the
decimal point, the Auction Agent shall round such rate up to the
next highest one-thousandth (.001) of 1% and shall round such
Spread to the next highest one-thousandth (.001) of a basis point.
(iii) If an Order or Orders covering all of the
Outstanding Preferred Shares held by an Existing Holder is not
submitted to the Auction Agent prior to the Submission Deadline,
the Auction Agent shall deem a Hold order to have been submitted
on behalf of such Existing Holder covering the number of
Outstanding Preferred Shares held by such Existing Holder and not
subject to Orders submitted to the Auction Agent; provided,
however, that with respect to an Auction to establish a Special
Dividend Period longer than 91 days, the Auction Agent shall deem
a Sell Order to have been submitted on behalf of such Existing
Holder covering such number of Outstanding Preferred Shares.
(iv) If one or more Orders on behalf of an
Existing Holder covering in the aggregate more than the number of
Outstanding Preferred Shares held by such Existing Holder are
submitted to the Auction Agent, such Orders shall be considered
valid as follows and in the following order of priority:
(A) any Hold Order submitted on
behalf of such Existing Holder shall be considered valid
up to and including the number of Outstanding Preferred
Shares held by such Existing Holder; provided that if
more than one Hold Order is submitted on behalf of such
Existing Holder and the number of Preferred Shares
subject to such Hold Orders exceeds the number of
Outstanding Preferred Shares held by such Existing
Holder, the number of Preferred Shares subject to each of
such Hold Orders shall be reduced pro rata so that such
Hold Orders, in the aggregate, will cover exactly the
number of Outstanding Preferred Shares held by such
Existing Holder;
(B) any Bids submitted on behalf of
such Existing Holder shall be considered valid, in the
ascending order of their respective rates per annum or
Spread, if more than one Bid is submitted on behalf of
such Existing Holder, up to and including the excess of
the number of Outstanding Preferred Shares held by such
Existing Holder over the number of Preferred Shares
subject to any Hold Order referred to in paragraph
11(c)(iv)(A) above (and if more than one Bid submitted on
behalf of such Existing Holder specifies the same rate
per annum or Spread and together they cover more than the
remaining number of shares that can be the subject of
valid Bids after application of paragraph 11(c)(iv)(A)
above and of the foregoing portion of this paragraph
11(c)(iv)(B) to any Bid or Bids specifying a lower rate
or rates per annum or Spread, the number of shares
subject to each of such Bids shall be reduced pro rata so
that such Bids, in the aggregate, cover exactly such
remaining number of shares); and the number of shares, if
any, subject to Bids not valid under this paragraph
11(c)(iv)(B) shall be treated as the subject of a Bid by
a Potential Holder; and
(C) any Sell Order shall be
considered valid up to and including the excess of the
number of Outstanding Preferred Shares held by such
Existing Holder over the number of Preferred Shares
subject to Hold Orders referred to in paragraph
11(c)(iv)(A) and Bids referred to in paragraph
11(c)(iv)(B); provided that if more than one Sell Order
is submitted on behalf of any Existing Holder and the
number of Preferred Shares subject to such Sell Orders
is greater than such excess, the number of Preferred
Shares subject to each of such Sell Orders shall be
reduced pro rata so that such Sell Orders, in the
aggregate, cover exactly the number of Preferred Shares
equal to such excess.
(v) If more than one Bid is submitted on
behalf of any Potential Holder, each Bid submitted shall be a separate
Bid with the rate per annum or Spread and number of Preferred Shares
specified.
(vi) Any Bid by an Existing Holder that
specifies a Spread, with respect to an Auction in which a Spread is
not included in any Bid Requirements or in which there are no Bid
Requirements and any Order that does not specify a Spread with
respect to an Auction in which a Spread is included in any Bid
Requirements shall be treated as a Sell Order.
(d) Determination of Sufficient Clearing Bids,
Winning Bid Rate and Applicable Rate.
(i) Not earlier than the Submission Deadline
on each Auction Date, the Auction Agent shall assemble all orders
submitted or deemed submitted to it by the Broker-Dealers (each
such order as submitted or deemed submitted by a Broker-Dealer
being hereinafter referred to individually as a "Submitted Hold
Order", a "Submitted Bid" or a "Submitted Sell Order", as the case
may be, or as a "Submitted Order") and shall determine:
(A) the excess of the total
number of Outstanding Preferred Shares over the number of
outstanding Preferred Shares that are the subject of
submitted Hold Orders (such excess being hereinafter
referred to as the "Available Preferred Shares");
(B) from the Submitted Orders
whether the number of Outstanding Preferred Shares that are
the subject of Submitted Bids by Potential Holders specifying
one or more rates per annum or Spreads that result in one
or more rates per annum on such date equal to or lower
than the Maximum Applicable Rate in effect for the first
Dividend Payment Period after the Auction Date exceeds or is
equal to the sum of:
(2) the number of Outstanding Preferred
Shares that are the subject of Submitted Bids by Existing Holders
specifying one or more rates per annum or Spreads that result in
one or more rates per annum on such date higher than such Maximum
Applicable Rate, and
(3) the number of Outstanding Preferred
Shares that are subject to Submitted Sell Orders (if such excess
or such equality exists (other than because the number of
Outstanding Preferred Shares in clauses (1) and (2) above are each
zero because all of the Outstanding Preferred Shares are the
subject of Submitted Hold Orders), such Submitted Bids by
Potential Holders being hereinafter referred to collectively as
"Sufficient Clearing Bids"); and
(C) if Sufficient Clearing Bids
exist, the lowest rate per annum or, in the case of an
Auction with Bid Requirements including a Spread, the lowest
Spread specified in the Submitted Bids (the "Winning Bid
Rate") that if:
(1) each Submitted Bid from Existing
Holders specifying the Winning Bid Rate and all other Submitted
Bids from Existing Holders specifying lower rates per annum or
Spreads were rejected, thus entitling such Existing Holders to
continue to hold the Preferred Shares that are the subject of such
Submitted Bids, and
(2) each Submitted Bid from Potential
Holders specifying the Winning Bid Rate and all other Submitted
Bids from Potential Holders specifying lower rates per annum or
Spreads were accepted,
thus entitling the Potential Holders to purchase the Preferred
Shares that are the subject of such Submitted Bids, would result
in the number of shares subject to all Submitted Bids specifying
the Winning Bid Rate or a lower rate per annum or Spread being at
least equal to the Available Preferred Shares.
(D) For purposes of these Articles
Supplementary, a positive Spread shall be considered
lower than another positive Spread to the extent it is a
lower number, a Spread of zero shall be considered lower
than a positive Spread, a negative Spread shall be
considered lower than a Spread of zero and a negative
Spread shall be considered lower than another negative
Spread to the extent it is a higher number.
(ii) Promptly after the Auction Agent has made
the determinations pursuant to paragraph 11(d)(i), the Auction
Agent shall advise the Corporation of the Maximum Applicable Rate
(or, in the event the Corporation has specified a Maximum
Applicable Rate or Rates, or a Minimum Applicable Rate or Rates
the Auction Agent shall confirm to the Corporation the calculation
of such Maximum Applicable Rate or Rates or such Minimum
Applicable Rate or Rates) and, based on such determinations, the
Applicable Rate for the next succeeding Dividend Period as
follows:
(A) if Sufficient Clearing Bids
exist, that the Applicable Rate for the next succeeding
Dividend Period shall be equal to the Winning Bid Rate,
subject to the effect of any applicable Minimum Applicable
Rate and any applicable Maximum Applicable Rate;
(B) if Sufficient Clearing Bids
do not exist (other than because all of the Outstanding
Preferred Shares are the subject of Submitted Hold Orders
and other than in the event the Auction is being
conducted with respect to a Special Dividend Period),
that the Applicable Rate for the next succeeding Dividend
Period shall be equal to the Maximum Applicable Rate;
(C) if all of the Outstanding
Preferred Shares are the subject of Submitted Hold Orders
that the Dividend Period next succeeding the Auction shall
automatically be the same length as the immediately
preceding Dividend Period and the Applicable Rate for the
next succeeding Dividend Period will be the higher of the
30-day "AA" Composite Commercial Paper Rate and the
Taxable Equivalent of the Short-Term Municipal Bond Rate
multiplied by 1 minus the maximum marginal regular
Federal individual income tax rate then applicable to
ordinary income or the maximum marginal regular Federal
corporate tax rate then applicable, whichever is
greater (or 90% of such rate if the Corporation has
provided notification to the Auction Agent prior to the
Auction establishing the Applicable Rate for any
dividend pursuant to paragraph 2(f) hereof that net
capital gains or other taxable income will be included
in such dividend on Preferred Shares) on the date of
the Auction; or
(D) If the Auction is being
conducted with respect to a Special Dividend Period and
Sufficient Clearing Bids do not exist, that the
Dividend Period next succeeding the Auction shall
automatically be 28 days (in the case of Series T28
Preferred Shares and Series R28 Preferred Shares) or 7
days (in the case of Series T7 Preferred Shares and
Series R7 Preferred Shares) and the Applicable Rate for
the next succeeding Dividend Period will be as set
forth in paragraph 11(d)(ii)(C) above.
(e) Acceptance and Rejection of Submitted Bids and
Submitted Sell Orders and Allocation of Shares. Based on the determinations
made pursuant to paragraph 11(d)(i), the Submitted Bids and Submitted Sell
Orders shall be accepted or rejected and the Auction Agent shall take such
other action as set forth below:
(i) if Sufficient Clearing Bids have been
made, subject to the provisions of paragraph 11(e)(iii) and paragraph
11(e)(iv), Submitted Bids and Submitted Sell Orders shall be
accepted or rejected in the following order of priority and all
other Submitted Bids shall be rejected:
(A) the Submitted Sell Orders of
Existing Holders shall be accepted and the Submitted Bid
of each of the Existing Holders specifying any rate per
annum or Spread that is higher than the Winning Bid Rate
shall be accepted, thus requiring each such Existing
Holder to sell the Outstanding Preferred Shares that are
the subject of such Submitted Sell Order or Submitted
Bid;
(B) the Submitted Bid of each of
the Existing Holders specifying any rate per annum or
Spread that is lower than the Winning Bid Rate shall be
rejected, thus entitling each such Existing Holder to
continue to hold the Outstanding Preferred Shares that
are the subject of such Submitted Bid;
(C) the Submitted Bid of each of
the Potential Holders specifying any rate per annum that is
lower than the Winning Bid Rate or Spread shall be
accepted;
(D) the Submitted Bid of each of
the Existing Holders specifying a rate per annum or
Spread that is equal to the Winning Bid Rate shall be
rejected, thus entitling each such Existing Holder to
continue to hold the Outstanding Preferred Shares that
are the subject of such Submitted Bid, unless the
number of Outstanding Preferred Shares subject to all
such Submitted Bids shall be greater than the number of
Outstanding Preferred Shares ("Remaining Shares") equal
to the excess of the Available Preferred Shares over
the number of outstanding Preferred Shares subject to
Submitted Bids described in paragraph 11(e)(i)(B) and
paragraph 11(e)(i)(C), in which event the Submitted
Bids of each such Existing Holder shall be accepted,
and each such Existing Holder shall be required to sell
Outstanding Preferred Shares, but only in an amount
equal to the difference between (1) the number of
Outstanding Preferred Shares then held by such Existing
Holder subject to such Submitted Bid and (2) the number
of Preferred Shares obtained by multiplying (x) the
number of Remaining Shares by (y) a fraction the
numerator of which shall be the number of Outstanding
Preferred Shares held by such Existing Holder subject
to such Submitted Bid and the denominator of which
shall be the sum of the numbers of outstanding
Preferred Shares subject to such Submitted Bids made by
all such Existing Holders that specified a rate per
annum equal or Spread to the Winning Bid Rate; and
(E) the Submitted Bid of each of
the Potential Holders specifying a rate per annum or
Spread that is equal to the Winning Bid Rate shall be
accepted but only in an amount equal to the number of
Outstanding Preferred Shares obtained by multiplying
(x) the difference between the Available Preferred
Shares and the number of Outstanding Preferred Shares
subject to Submitted Bids described in paragraph
11(e)(i)(B), paragraph 11(e)(i)(C) and paragraph
11(e)(i)(D) by (y) a fraction the numerator of which
shall be the number of Outstanding Preferred Shares
subject to such Submitted Bid and the denominator of
which shall be the sum of the numbers of Outstanding
Preferred Shares subject to such Submitted Bids made by
all such Potential Holders that specified a rate per
annum or Spread equal to the Winning Bid Rate.
(ii) If Sufficient Clearing Bids have not been
made (other than because all of the outstanding Preferred Shares are
subject to Submitted Hold Orders), subject to the provisions of
paragraph 11(e)(iii), Submitted Orders shall be accepted or
rejected as follows in the following order of priority and all
other Submitted Bids shall be rejected:
(A) The Submitted Bid of each
Existing Holder specifying any rate per annum or Spread
that is equal to or lower than the Maximum Applicable
Rate (a Bid specifying a Spread being converted to a rate
per annum for this purpose by applying the Spread to the
most recently available Reference index or Reference
Security) shall be rejected, thus entitling such Existing
Holder to continue to hold the outstanding Preferred
Shares that are the subject of such Submitted Bid;
(B) the Submitted Bid of each
Potential Holder specifying any rate per annum or
Spread that is equal to or lower than the Maximum
Applicable Rate (a Bid specifying a Spread being
converted to a rate per annum for this purpose by
applying the Spread to the most recently available
Reference Index or Reference Security) shall be
accepted, thus requiring such Potential Holder to
purchase the Outstanding Preferred Shares that are the
subject of such Submitted Bid; and
(C) the Submitted Bids of each
Existing Holder specifying any rate per annum or Spread
that is higher than the Maximum Applicable Rate (a Bid
specifying a Spread being converted to a rate per annum
for this purpose by applying the Spread to the most
recently available Reference Index or Reference
Security) shall be accepted and the Submitted Sell
Orders of each Existing Holder shall be accepted, in
both cases only in an amount equal to the difference
between (1) the number of Outstanding Preferred Shares
then held by such Existing Holder subject to such
Submitted Bid or Submitted Sell Order and (2) the
number of Preferred Shares obtained by multiplying (x)
the difference between the Available Preferred Shares
and the aggregate number of outstanding Preferred
Shares subject to Submitted Bids described in paragraph
11(e)(ii)(A) and paragraph 11(e)(ii)(B) by (y) a
fraction the numerator of which shall be the number of
Outstanding Preferred Shares held by such Existing
Holder subject to such Submitted Bid or Submitted Sell
Order and the denominator of which shall be the number
of Outstanding Preferred Shares subject to all such
Submitted Bids and Submitted Sell Orders.
(iii) If, as a result of the procedures
described in paragraph 11(e)(i) or paragraph 11(e)(ii), any Existing
Holder would be entitled or required to sell, or any Potential Holder
would be entitled or required to purchase, a fraction of a share
of Preferred Shares on any Auction Date, the Auction Agent shall,
in such manner as in its sole discretion it shall determine, round
up or down the number of Preferred Shares to be purchased or sold
by any Existing Holder or Potential Holder on such Auction Date so
that each Outstanding share of Preferred Shares purchased or sold
by each Existing Holder or Potential Holder on such Auction Date
shall be a whole share of Preferred Shares.
(iv) If, as a result of the procedures
described in paragraph 11(e)(i), any Potential Holder would be
entitled or required to purchase less than a whole share of Preferred
Shares on any Auction Date, the Auction Agent shall, in such manner
as in its sole discretion it shall determine, allocate Preferred
Shares for purchase among Potential Holders so that only whole
Preferred Shares are purchased on such Auction Date by any
Potential Holder, even if such allocation results in one or more
of such Potential Holders not purchasing any Preferred Shares on
such Auction Date.
(v) Based on the results of each Auction, the
Auction Agent shall determine, with respect to each Broker-Dealer
that submitted Bids or Sell Orders on behalf of Existing Holders
or Potential Holders, the aggregate number of Outstanding
Preferred Shares to be purchased and the aggregate number of
Outstanding Preferred Shares to be sold by such Potential Holders
and Existing Holders and, to the extent that such aggregate number
of Outstanding shares to be purchased and such aggregate number of
Outstanding shares to be sold differ, the Auction Agent shall
determine to which other Broker-Dealer or Broker-Dealers acting
for one or more purchasers such Broker-Dealer shall deliver, or
from which other Broker-Dealer or Broker-Dealers acting for one or
more sellers such Broker-Dealer shall receive, as the case may be,
Outstanding Preferred Shares.
(f) Miscellaneous. An Existing Holder (A) may sell,
transfer or otherwise dispose of Preferred shares only pursuant to a Bid or
Sell Order in accordance with the procedures described in this paragraph 11
or to or through a broker-dealer, provided that in the case of all
transfers other than pursuant to Auctions such Existing Holder, its
Broker-Dealer or its Agent Member advises the Auction Agent of such
transfer and (B) except as otherwise required by law, shall have the
ownership of the Preferred Shares held by it maintained in book entry form
by the Securities Depository in the account of its Agent Member, which in
turn will maintain records of such Existing Holder's beneficial ownership.
Neither the Corporation nor any Affiliate shall submit an order in any
Auction. Any Existing Holder that is an Affiliate shall not sell, transfer
or otherwise dispose of Preferred Shares to any Person other than the
Corporation. All of the outstanding Preferred Shares of each series shall
be represented by a single certificate registered in the name of the
nominee of the Securities Depository unless otherwise required by law or
unless there is no Securities Depository. If there is no Securities
Depository, at the Corporation's option and upon its receipt of such
documents as it deems appropriate, any Preferred Shares may be registered
in the Stock Register in the name of the Existing Holder thereof and such
Existing Holder thereupon will be entitled to receive certificates therefor
and required to deliver certificates therefor upon transfer or exchange
thereof.
12. Securities Depository; Stock Certificates. (a)
If there is a Securities Depository, one certificate for all of the
Preferred Shares of each series shall be issued to the Securities
Depository and registered in the name of the Securities Depository or its
nominee. Additional certificates may be issued as necessary to represent
Preferred Shares. All such certificates shall bear a legend to the effect
that such certificates are issued subject to the provisions restricting the
transfer of Preferred Shares contained in these Articles Supplementary.
Unless the Corporation shall have elected, during a Non-Payment Period, to
waive this requirement, the Corporation will also issue stop-transfer
instructions to the Auction Agent for the Preferred Shares. Except as
provided in paragraph (b) below, the Securities Depository or its nominee
will be the Holder, and no existing Holder shall receive certificates
representing its ownership interest in such shares.
(b) If the Applicable Rate applicable to all
Preferred Shares of a series shall be the Non-Payment Period Rate or there
is no Securities Depository, the Corporation may at its option issue one or
more new certificates with respect to such shares (without the legend
referred to in paragraph 12(a)) registered in the names of the Existing
Holders or their nominees and rescind the stop-transfer instructions
referred to in paragraph 12(a) with respect to such shares.
13. Interpretations. The Board of Directors may interpret
the provisions of these Articles Supplementary to resolve any inconsistency
or ambiguity, remedy any formal defect or make any other change or
modification that does not adversely affect the rights of Existing Holders
of Preferred Shares.
SECOND: The amendment to the charter of the Corporation set forth
in these Articles of Amendment was advised by the Board of Directors of the
Corporation and approved by the stockholders of the Corporation at a
special meeting of the stockholders of the Corporation held on July 13,
1994.
THIRD: The amendment to the charter of the Corporation set forth in
these Articles of Amendment does not increase the authorized capital stock of
the Corporation.
IN WITNESS WHEREOF, the Corporation has caused these
Articles of Amendment to be executed by its President and its corporate
seal to be affixed hereto and attested to by its Secretary as of the 13th
day of July, 1994.
THE BLACKROCK INSURED MUNICIPAL
(SEAL) 2008 TERM TRUST INC.
By_____________________________________
Ralph L. Schlosstein
President
ATTEST:
_________________________________
Barbara G. Novick
Secretary
The undersigned, the President of The BlackRock Insured Municipal
2008 Term Trust Inc., hereby acknowledges the foregoing to be the corporate
act of such Corporation and that, to the best of his knowledge, information
and belief, the matters and facts set forth therein are true in all
material respects, and that this statement has been made under the
penalties for perjury.
_______________________________
Ralph L. Schlosstein
President
FORM OF BROKER-DEALER AGREEMENT
Dated as of
Relating to
AUCTION RATE MUNICIPAL PREFERRED STOCK
(the "Preferred Shares")
SERIES T7, SERIES T28, SERIES R7 and SERIES R28
of
THE BLACKROCK INSURED MUNICIPAL 2008 TERM TRUST INC.
BROKER-DEALER AGREEMENT dated as of November 23, 1992, between
Deutsche Bank, a New York banking corporation (the "Auction Agent") (not in
its individual capacity but solely as agent of The BlackRock Insured
Municipal 2008 Term Trust Inc., a Maryland corporation (the "Company"),
pursuant to authority granted to it in the Auction Agent Agreement dated as
of November 23, 1992, between the Company and the Auction Agent (the
"Auction Agent Agreement")) and ______________ (together with its
successors and assigns hereinafter referred to as "BD").
The Company has duly authorized and issued 5600 shares of Auction
Rate Municipal Preferred Stock, Series T7, with a par value of $.0l per
share and a liquidation preference of $50,000 per share plus an amount
equal to accumulated but unpaid dividends (whether or not earned or
declared) plus the premium, if any, resulting from the designation of a
Premium Call Period ("Series T7 Preferred Shares"), 5600 shares of Auction
Rate Municipal Preferred Stock, Series T28, with a par value of $.0l per
share and a liquidation preference of $50,000 per share plus an amount
equal to accumulated but unpaid dividends (whether or not earned or
declared) plus the premium, if any, resulting from the designation of a
Premium Call Period ("Series T28 Preferred Shares"), 5600 shares of Auction
Rate Municipal Preferred Stock, Series R7, with a par value of $.0l per
share and a liquidation preference of $50,000 per share plus an amount
equal to accumulated but unpaid dividends (whether or not earned or
declared) plus the premium, if any, resulting from the designation of a
Premium Call Period ("Series R7 Preferred Shares") and 5600 shares of
Auction Rate Municipal Preferred Stock, Series R28, with a par value of
$.0l per share and a liquidation preference of $50,000 per share plus an
amount equal to accumulated but unpaid dividends (whether or not earned or
declared) plus the premium, if any, resulting from the designation of a
Premium Call Period ("Series R28 Preferred Shares") each pursuant to the
Company's Articles Supplementary (as defined below). The Series T7
Preferred Shares, the Series T28 Preferred Shares, the Series R7 Preferred
Shares and the Series R28 Preferred Shares are sometimes herein together
referred to as the "Preferred Shares".
The Company's Articles Supplementary provide that the dividend
rate on the Series T7 Preferred Shares, the Series T28 Preferred Shares,
the Series R7 Preferred Shares and the Series R28 Preferred Shares for each
Dividend Period therefor after the Initial Dividend Period shall be the
Applicable Rate therefor, which in each case, in general, shall be the rate
per annum that a commercial bank, trust company or other financial
institution appointed by the Company advises results from implementation of
the Auction Procedures (as defined below). The Board of Directors of the
Company has adopted a resolution appointing Deutsche Bank as Auction Agent
for purposes of the Auction Procedures, and pursuant to Section 2.5(d) of
the Auction Agent Agreement, the Company has authorized and directed the
Auction Agent to execute and deliver this Agreement.
The Auction Procedures require the participation of one or more
Broker-Dealers.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the Auction Agent and BD agree as follows:
1. Definitions and Rules of Construction.
-------------------------------------
1.1 Terms Defined by Reference to the Articles
Supplementary. Capitalized terms not defined herein shall have the respective
meanings specified in the Articles Supplementary of the Company.
1.2 Terms Defined Herein. As used herein and in the
Settlement Procedures (as defined below), the following terms shall have
the following meanings, unless the context otherwise requires:
(a) "Articles Supplementary" shall mean the Articles
Supplementary of the Company, establishing the powers, preferences and
rights of the Series T7 Preferred Shares, the Series T28 Preferred Shares,
the Series R7 Preferred Shares and the Series R28 Preferred Shares filed on
November 18, 1992 in the office of the State Department of Assessments and
Taxation of the State of Maryland.
(b) "Auction" shall have the meaning specified in
Section 3.1 hereof.
(c) "Auction Procedures" shall mean the Auction
Procedures that are set forth in Paragraph 11 of the Articles Supplementary.
(d) "Authorized Officer" shall mean each Senior
Vice President, Vice President, Assistant Vice President, Trust Officer,
Assistant Secretary and Assistant Treasurer of the Auction Agent assigned
to its Corporate Trust and Agency Group and every other officer or employee
of the Auction Agent designated as an "Authorized Officer" for purposes of
this Agreement in a communication to BD.
(e) "BD Officer" shall mean each officer or employee
of BD designated as a "BD Officer" for purposes of this Agreement in a
communication to the Auction Agent.
(f) "Broker-Dealer Agreement" shall mean this
Agreement and any substantially similar agreement between the Auction Agent
and a Broker-Dealer.
(g) "Purchaser's Letter" shall mean a letter
addressed to the Company, the Auction Agent and a Broker-Dealer,
substantially in the form attached hereto as Exhibit A.
(h) "Settlement Procedures" shall mean the
Settlement Procedures attached hereto as Exhibit B.
1.3 Rules of Construction. Unless the context or use
indicates another or different meaning or intent, the following rules shall
apply to the construction of this Agreement:
(a) Words importing the singular number shall
include the plural number and vice versa.
(b) The captions and headings herein are solely for
convenience of reference and shall not constitute a part of this Agreement
nor shall they affect its meaning, construction or effect.
(c) The words "hereof," "herein," "hereto," and
other words of similar import refer to this Agreement as a whole.
(d) All references herein to a particular time of
day shall be to New York City time.
2. Notification of Dividend Period and Advance Notice of
Allocation of Taxable Income.
(a) The provisions contained in paragraph 2 of the
Articles Supplementary concerning the notification of a Special Dividend
Period will be followed by the Auction Agent and BD and the provisions
contained therein are incorporated herein by reference in their entirety
and shall be deemed to be a part of this Agreement to the same extent as if
such provisions were fully set forth herein.
(b) Whenever the Company intends to include any net
capital gains or other taxable income in any dividend on Preferred Shares,
the Company will notify the Auction Agent of the amount to be so included
at least five Business Days prior to the Auction Date on which the
Applicable Rate for such dividend is to be established. Whenever the
Auction Agent receives such notice from the Company, it will in turn notify
BD, who, on or prior to such Auction Date, will notify its Existing Holders
and Potential Holders believed to be interested in submitting an Order in
the Auction to be held on such Auction Date.
3. The Auction.
3.1 Purpose; Incorporation by Reference of Auction
Procedures and Settlement Procedures.
(a) On each Auction Date, the provisions of the
Auction Procedures will be followed by the Auction Agent for the purpose of
determining the Applicable Rate for the Series T7 Preferred Shares, the
Series T28 Preferred Shares, the Series R7 Preferred Shares or the Series
R28 Preferred Shares, as the case may be, for the next Dividend Period
therefor. Each periodic operation of such procedures is hereinafter
referred to as an "Auction."
(b) All of the provisions contained in the Auction
Procedures and the Settlement Procedures are incorporated herein by
reference in their entirety and shall be deemed to be a part of this
Agreement to the same extent as if such provisions were fully set forth
herein.
(c) BD is delivering herewith a Purchaser's Letter
executed by BD and, in the case of _______________ , a list of persons to
whom BD will initially sell the Series T7 Preferred Shares, the Series T28
Preferred Shares, the Series R7 Preferred Snares and the Series R28
Preferred Shares, the number of shares of each such series of Preferred
Shares BD will sell to each such person and the number of shares of each
such series of Preferred Shares BD will hold for its own account. BD agrees
to act as, and assumes the obligations of and limitations and restrictions
placed upon, a Broker-Dealer under this Agreement. BD understands that
other Persons meeting the requirements specified in the definition of
"Broker-Dealer" contained in Paragraph 1 of the Articles Supplementary may
execute a Broker-Dealer Agreement and a Purchaser's Letter and participate
as Broker-Dealers in Auctions.
(d) BD and other Broker-Dealers may participate in
Auctions for their own accounts, provided that BD or such other
Broker-Dealers, as the case may be, has executed a Purchaser's Letter.
However, the Company may by notice to BD and all other Broker-Dealers
prohibit all Broker-Dealers from submitting Bids in Auctions for their own
accounts, provided that Broker-Dealers may continue to submit Hold Orders
and Sell Orders.
3.2 Preparation for Each Auction.
(a) Not later than 9:30 A.M. on each Auction Date for
both series of Preferred Shares, the Auction Agent shall advise BD by
telephone of the Maximum Applicable Rate in effect on such Auction Date as
determined from the higher of the 30- day "AA" Composite Commercial Paper
Rate and the Taxable Equivalent of the Short- Term Municipal Bond Rate
(except in the case of a Special Dividend Period in which case the Maximum
Applicable Rate shall be determined from the higher of the Special Dividend
Period Reference Rate and the Taxable Equivalent of the Short-Term
Municipal Bond Rate.
(b) In the event that the Auction Date for any
Auction shall be changed after the Auction Agent has given the notice
referred to in clause (vii) of paragraph (a) of the Settlement Procedures,
the Auction Agent, by such means as the Auction Agent deems practicable,
shall give notice of such change to BD not later than the earlier of 9:15
A.M. on the new Auction Date or 9:15 A.M. on the old Auction Date.
Thereafter, BD shall promptly notify customers of BD that BD believes are
Existing Holders of Series T7 Preferred Shares, Series T28 Preferred
Shares, Series R7 Preferred Shares or Series R28 Preferred Shares, as the
case may be, of such change in the Auction Date.
(c) The Auction Agent from time to time may request
BD to provide it with a list of the respective customers BD believes are
Existing Holders of shares of Series T7 Preferred Shares, Series T28
Preferred Shares, Series R7 Preferred Shares or Series R28 Preferred
Shares. BD shall comply with any such request, and the Auction Agent shall
keep confidential any such information, including information received as
to the identity of Bidders in any Auction, and shall not disclose any such
information so provided to any Person other than the Company; and such
information shall not be used by the Auction Agent or its officers,
employees, agents or representatives for any purpose other than such
purposes as are described herein. The Auction Agent shall transmit any list
of customers BD believes are Existing Holders of Series T7 Preferred
Shares, Series T28 Preferred Shares, Series R7 Preferred Shares or Series
R28 Preferred Shares and information related thereto only to its officers,
employees, agents or representatives in the Corporate Trust and Agency
Group who need to know such information for the purposes of acting in
accordance with this Agreement and shall prevent the transmission of such
information to others and shall cause its officers, employees, agents and
representatives to abide by the foregoing confidentiality restrictions;
provided, however, that the Auction Agent shall have no responsibility or
liability for the actions of any of its officers, employees, agents or
representatives after they have left the employ of the Auction Agent.
(d) The Auction Agent is not required to accept the
Purchaser's Letter for any Potential Holder for an Auction unless it is
received by the Auction Agent by 3:00 P.M. on the Business Day next
preceding such Auction.
3.3 Auction Schedule; Method of Submission of Orders.
(a) The Company and the Auction Agent shall conduct
Auctions for both series of Preferred Shares in accordance with the
schedule set forth below. Such schedule may be changed at any time by the
Auction Agent with the consent of the Company, which consent shall not be
unreasonably withheld. The Auction Agent shall give notice of any such
change to BD. Such notice shall be received prior to the first Auction Date
on which any such change shall be effective.
Time Event
By 9:30 A.M. Auction Agent advises the Company and Broker-
Dealers of the Maximum Applicable Rate as
determined from the higher of the 30-day "AA"
Composite Commercial Paper Rate and the
Taxable Equivalent of the Short-Term Municipal
Bond Rate (except in the case of a Special
Dividend Period in which case the Maximum
Applicable Rate shall be the higher of the Special
Dividend Period Reference Rate and the Taxable
Equivalent of the Short-Term Municipal Bond
Rate) as set forth in Section 3.2(a) hereof.
9:30 A.M. - 1:00 P.M. Auction Agent assembles information
communicated to it by Broker-Dealers as provided
in Paragraph 11(c)(i) of the Articles
Supplementary. Submission Deadline is 1:00 P.M.
Not earlier than 1:00 P.M. Auction Agent makes determinations pursuant to
Paragraph 11(d)(i) of the Articles
Supplementary.
By approximately 3:00 P.M. Auction Agent advises Company of results of
Auction as provided in Paragraph 11(d)(ii) of the
Articles Supplementary.
Submitted Bids and Submitted Sell Orders are
accepted and rejected in whole or in part and
shares of Preferred Shares are allocated as
provided in Paragraph 11(e) of the Articles
Supplementary.
Auction Agent gives notice of Auction
results as set forth in Section
3.4(a) hereof.
(b) BD agrees to maintain a list of Potential Holders
and to contact the Potential Holders on such list on or prior to each
Auction Date for the purposes set forth in Paragraph 11 of the Articles
Supplementary.
(c) BD agrees not to sell, assign or dispose of any
Series T7 Preferred Shares, Series T28 Preferred Shares, Series R7
Preferred Shares or Series R28 Preferred Shares to any Person who has not
delivered a signed Purchaser's Letter to the Auction Agent.
(d) BD shall submit Orders to the Auction Agent in
writing in substantially the form attached hereto as Exhibit C. BD shall
submit separate Orders to the Auction Agent for each Potential Holder or
Existing Holder on whose behalf BD is submitting an Order and shall not net
or aggregate the Orders of Potential Holders or Existing Holders on whose
behalf BD is submitting Orders.
(e) BD shall deliver to the Auction Agent (i) a
written notice, substantially in the form attached hereto as Exhibit D, of
transfers of Series T7 Preferred Shares, Series T28 Preferred Shares,
Series R7 Preferred Shares or Series R28 Preferred Shares made through BD
by an Existing Holder to another Person other than pursuant to an Auction,
and (ii) a written notice, substantially in the form attached hereto as
Exhibit E, of the failure of any Series T7 Preferred Shares, Series T28
Preferred Shares, Series R7 Preferred Shares or Series R28 Preferred Shares
to be transferred to or by any Person that purchased or sold Series T7
Preferred Shares, Series T28 Preferred Shares, Series R7 Preferred Shares,
Series R28 Preferred Shares or through BD pursuant to an Auction. The
Auction Agent is not required to accept any notice delivered pursuant to
the terms of the foregoing sentence with respect to an Auction unless it is
received by the Auction Agent by 3:00 P.M. on the Business Day next
preceding the applicable Auction Date.
3.4 Notice of Auction Results.
(a) On each Auction Date, the Auction Agent shall
notify BD by telephone as set forth in paragraph (a) of the Settlement
Procedures. On the Business Day next succeeding such Auction Date, the
Auction Agent shall notify BD in writing of the disposition of all Orders
submitted by BD in the Auction held on such Auction Date.
(b) BD shall notify each Existing Holder or Potential
Holder on whose behalf BD has submitted an Order as set forth in paragraph
(b) of the Settlement Procedures and take such other action as is required
of BD pursuant to the Settlement Procedures.
If any Existing Holder selling Preferred Shares in an
Auction fails to deliver such shares, the BD of any Person that was to have
purchased Series T7 Preferred Shares, Series T28 Preferred Shares, Series
R7 Preferred Shares or Series R28 Preferred Shares in such Auction may
deliver to such Person a number of whole shares of such Series T7 Preferred
Shares, Series T28 Preferred Shares, Series R7 Preferred Shares or Series
R28 Preferred Shares, as the case may be, that is less than the number of
shares that otherwise was to be purchased by such Person. In such event,
the number of such Series T7 Preferred Shares, Series T28 Preferred Shares,
Series R7 Preferred Shares or Series R28 Preferred Shares to be so
delivered shall be determined by such BD. Delivery of such lesser number of
shares shall constitute good delivery. Upon the occurrence of any such
failure to deliver shares, such BD shall deliver to the Auction Agent the
notice required by Section 3.3(e)(ii) hereof. Notwithstanding the foregoing
terms of this Section 3.4(b), any delivery or non-delivery of Series T7
Preferred Shares, Series T28 Preferred Shares, Series R7 Preferred Shares
or Series R28 Preferred Shares which represents any departure from the
results of an Auction, as determined by the Auction Agent, shall be of no
effect unless and until the Auction Agent shall have been notified of such
delivery or non-delivery in accordance with the terms of Section 3.3(e)(ii)
hereof. The Auction Agent shall have no duty or liability with respect to
enforcement of this Section 3.4(b).
3.5 Service Charge to Be Paid to BD. On the Business Day
nextsucceeding each Auction Date for each series of Preferred Shares, the
Auction Agent shall pay to BD from moneys received from the Company an
amount equal to, (a) in the case of any Auction Date immediately preceding
any Dividend Period of 28 days or less, the product of (i) a fraction the
numerator of which is the number of days in such Dividend Period
(calculated by counting the first day of such Dividend Period but excluding
the last day thereof) and the denominator of which is 365, times (ii) 1/4
of 1%, times (iii) $50,000, times (iv) the sum of (A) the aggregate number
of shares of such series of Preferred Shares placed by BD in the applicable
Auction that were (x) the subject of a Submitted Bid of an Existing Holder
submitted by BD and continued to be held as a result of such submission and
(y) the subject of a Submitted Bid of a Potential Holder submitted by BD
and were purchased as a result of such submission plus (B) the aggregate
number of shares of such series of Preferred Shares subject to valid Hold
Orders (determined in accordance with Paragraph 11 of the Articles
Supplementary) submitted to the Auction Agent by BD plus (C) the number of
shares of such series of Preferred Shares deemed to be subject to Hold
Orders by Existing Holders pursuant to Paragraph 11 of the Articles
Supplementary that were acquired by such Existing Holders through BD and
(b) in the case of any Auction Date immediately preceding any Dividend
Period of 35 days or more, that amount as mutually agreed on by the Company
and BD, based on a selling concession that would be applicable to an
underwriting of fixed or variable rate preferred shares with a similar
final maturity or variable rate dividend period, respectively, at the
commencement of the Dividend Period with respect to such Auction. For the
purposes of calculating any such fee, Preferred Shares will be placed
by a Broker-Dealer if such shares were (i) the subject of Hold Orders
deemed to have been made by Existing Holders that were acquired by such
Existing Holders through such Broker-Dealer or (ii) the subject of the
following Orders submitted by such Broker- Dealer: (A) a Submitted Bid of
an Existing Holder that resulted in such Existing Holder continuing to hold
such shares as a result of the Auction, (B) a Submitted Bid of a Potential
Holder that resulted in such Potential Holder purchasing such shares as a
result of the Auction or (C) a Submitted Hold Order.
For purposes of subclause (iv) (C) of the foregoing
sentence, if any Existing Holder who acquired Series T7 Preferred Shares,
Series T28 Preferred Shares, Series R7 Preferred Shares or Series R28
Preferred Shares through BD transfers those shares to another Person other
than pursuant to an Auction, then the Broker-Dealer for the shares so
transferred shall continue to be BD, provided, however, that if the
transfer was effected by, or if the transferee is, a Broker-Dealer other
than BD, then such Broker- Dealer shall be the Broker-Dealer for such
shares.
4. The Auction Agent.
4.1 Duties and Responsibilities.
(a) The Auction Agent is acting solely as agent for
the Company hereunder and owes no fiduciary duties to any other Person by
reason of this Agreement.
(b) The Auction Agent undertakes to perform such
duties and only such duties as are specifically set forth in this
Agreement, and no implied covenants or obligations shall be read into this
Agreement against the Auction Agent.
(c) In the absence of bad faith or negligence on its
part, the Auction Agent shall not be liable for any action taken, suffered,
or omitted or for any error of judgment made by it in the performance of
its duties under this Agreement. The Auction Agent shall not be liable for
any error of judgment made in good faith unless the Auction Agent shall
have been negligent in ascertaining (or failing to ascertain) the pertinent
facts.
4.2 Rights of the Auction Agent.
(a) The Auction Agent may rely and shall be
protected in acting or refraining from acting upon any communication
authorized by this Agreement and upon any written instruction, notice,
request, direction, consent, report, certificate, share certificate or
other instrument, paper or document believed by it to be genuine. The
Auction Agent shall not be liable for acting upon any telephone
communication authorized by this Agreement which the Auction Agent believes
in good faith to have been given by the Company or by BD. The Auction Agent
may record telephone communications with BD.
(b) The Auction Agent may consult with counsel of
its own choice, and the advice of such counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon.
(c) The Auction Agent shall not be required to
advance, expend or risk its own funds or otherwise incur or become exposed
to financial liability in the performance of its duties hereunder.
(d) The Auction Agent may perform its duties and
exercise its rights hereunder either directly or by or through agents or
attorneys.
4.3 Auction Agent's Disclaimer. The Auction Agent makes
no representation as to the validity or adequacy of this Agreement or the
Series T7 Preferred Shares, the Series T28 Preferred Shares, the Series R7
Preferred Shares or the Series R28 Preferred Shares.
5. Miscellaneous.
5.1 Termination. Any party may terminate this Agreement
at any time upon five days' prior notice to the other party.
5.2 Agent Member. At the date hereof, BD is a
participant of the Securities Depository.
5.3 Communications. Except for (i) communications
authorized to be made by telephone pursuant to this Agreement or the
Auction Procedures and (ii) communications in connection with the Auctions
(other than those expressly required to be in writing), all notices,
requests and other communications to any party hereunder shall be in
writing (including telecopy or similar writing) and shall be given to such
party, addressed to it, at its address or telecopy number set forth below:
If to BD addressed: ___________________
___________________
___________________
___________________
Attention: ___________________
Telecopier No.: ___________________
Telephone No.: ___________________
If to the Auction Agent, addressed: Deutsche Bank
4 Albany Street
New York, New York 10006
Attention: Auction Rate Securities
Telecopier No.: (212) 250-6850
Telephone No.:(212) 250-6215
or such other address or telecopy number as such party may hereafter
specify for such purpose by notice to the other party. Each such notice,
request or communication shall be effective when delivered at the address
specified herein. Communications shall be given on behalf of BD by a BD
Officer and on behalf of the Auction Agent by an Authorized Officer. BD may
record telephone communications with the Auction Agent.
5.4 Entire Agreement. This Agreement contains the entire
agreement between the parties relating to the subject matter hereof, and
there are no other representations, endorsements, promises, agreements or
understandings, oral, written or inferred, between the parties relating to
the subject matter hereof.
5.5 Benefits. Nothing in this Agreement, express or
implied, shall give to any person, other than the Company, the Auction
Agent and BD and their respective successors and assigns, any benefit of
any legal or equitable right, remedy or claim under this Agreement.
5.6 Amendment; Waiver.
(a) This Agreement shall not be deemed or construed
to be modified, amended, rescinded, cancelled or waived, in whole or in
part, except by a written instrument signed by a duly authorized
representative of the party to be charged.
(b) Failure of either party to this Agreement to
exercise any right or remedy hereunder in the event of a breach of this
Agreement by the other party shall not constitute a waiver of any such
right or remedy with respect to any subsequent breach.
5.7 Successors and Assigns. This Agreement shall be
binding upon, inure to the benefit of, and be enforceable by, the
respective successors and permitted assigns of each of BD and the Auction
Agent. This Agreement may not be assigned by either party hereto absent the
prior written consent of the other party; provided, however, that this
Agreement may be assigned by the Auction Agent to a successor Auction Agent
selected by the Company without the consent of BD.
5.8 Severability. If any clause, provision or section of
this Agreement shall be ruled invalid or unenforceable by any court of
competent jurisdiction, the invalidity or unenforceability of such clause,
provision or section shall not affect any remaining clause, provision or
section hereof.
5.9 Execution in Counterparts. This Agreement may be
executed in several counterparts, each of which shall be an original and
all of which shall constitute but one and the same instrument.
5.10 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York
applicable to agreements made and to be performed in said State.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered by their proper and duly authorized
officers as of the date first above written.
DEUTSCHE BANK
By:_______________________________
Title:
By:_______________________________
Title:
EXHIBIT A
TO BE SUBMITTED TO YOUR BROKER-DEALER WHO WILL
THEN DELIVER COPIES ON YOUR BEHALF TO THE
RESPECTIVE TRUST COMPANY OR REMARKETING AGENT.
MASTER PURCHASER'S LETTER
Relating to Securities Involving Rate Settings Through Auctions or Remarketings
The Company A Remarketing Agent
The Trust Company A Broker-dealer
An Agent Member Other Persons
Dear Sirs:
1. This letter is designed to apply to publicly or privately
offered debt or equity securities ("Securities") of any issuer ("Company")
which are described in any final prospectus or other offering materials
relating to such Securities as the same may be amended or supplemented
(collectively, with respect to the particular Securities concerned, the
"Prospectus") and which involve periodic rate settings through auctions
("Auctions") or remarketing procedures ("Remarketings"). This letter shall
be for the benefit of any Company and of any trust company, auction agent,
paying agent (collectively, "trust company"), remarketing agent,
broker-dealer, agent member, securities depository or other interested
person in connection with any Securities and related Auctions or
Remarketings (it being understood that such persons may be required to
execute specified agreements and nothing herein shall alter such
requirements). The terminology used herein is intended to be general in its
application and not to exclude any Securities in respect of which (in the
Prospectus or otherwise) alternative terminology is used.
2. We may from time to time offer to purchase, purchase, offer to
sell and/or sell Securities of any Company as described in the Prospectus
relating thereto. We agree that this letter shall apply to all such
purchases, sales and offers and to Securities owned by us. We understand
that the dividend/interest rate on Securities may be based from time to
time on the results of Auctions or Remarketings as set forth in the
Prospectus.
3. We agree that any bid or sell order placed by us in an Auction
or a Remarketing shall constitute an irrevocable offer (except as otherwise
described in the Prospectus) by us to purchase or sell the Securities
subject to such bid or sell order, or such lesser amount of Securities as
we shall be required to sell or purchase as a result of such Auction or
Remarketing, at the applicable price, all as set forth in the Prospectus,
and that if we fail to place a bid or sell order with respect to Securities
owned by us with a broker-dealer on any Auction or Remarketing date, or a
broker-dealer to which we communicate a bid or sell order fails to submit
such bid or sell order to the trust company or remarketing agent concerned,
we shall be deemed to have placed a hold order with respect to such
Securities as described in the Prospectus. We authorize any broker-dealer
that submits a bid or sell order as our agent in Auctions or Remarketings
to execute contracts for the sale of Securities covered by such bid or sell
order. We recognize that the payment by such broker-dealer for Securities
purchased on our behalf shall not relieve us of any liability to such
broker-dealer for payment for such Securities.
4. We understand that in a Remarketing, the dividend or interest
rate or rates on the Securities and the allocation of Securities tendered
for sale between dividend or interest periods of different lengths will be
based from time to time on the determinations of one or more remarketing
agents, and we agree to be conclusively bound by such determinations. We
further agree to the payment of different dividend or interest rates to
different holders of Securities depending on the length of the dividend or
interest period elected by such holders. We agree that any notice given by
us to a remarketing agent (or to a broker-dealer for transmission to a
remarketing agent) of our desire to tender Securities in a Remarketing
shall constitute an irrevocable (except to the limited extent set forth in
the Prospectus) offer by us to sell the Securities specified in such
notice, or such lesser number of Securities as we shall be required to sell
as a result of such Remarketing in accordance with the terms set forth in
the Prospectus, and we authorize the remarketing agent to sell, transfer or
otherwise dispose of such Securities as set forth in the Prospectus.
5. We agree that, during the applicable period as described in the
Prospectus, dispositions of Securities can be made only in the
denominations set forth in the Prospectus and we will sell, transfer or
otherwise dispose of any Securities held by us from time to time only
pursuant to a bid or sell order placed in an Auction, in a Remarketing, to
or through a broker-dealer or, when permitted in the Prospectus, to a
person that has signed and delivered to the applicable trust company or a
remarketing agent a letter substantially in the form of this letter (or
other applicable purchaser's letter) provided that in the case of all
transfers other than pursuant to Auctions or Remarketings we or our
broker-dealer or our agent member shall advise such trust company or a
remarketing agent of such transfer. We understand that a restrictive legend
will be placed on certificates representing the Securities and
stop-transfer instructions will be issued to the transfer agent and/or
registrar, all as set forth in the Prospectus.
6. We agree that, during the applicable period as described in the
Prospectus, ownership of Securities shall be represented by one or more
global certificates registered in the name of the applicable securities
depository or its nominee that we will not be entitled to receive any
certificate representing the Securities and that our ownership of any
Securities will be maintained in book entry form by the securities
depository for the account of our agent member, which in turn will maintain
records of our beneficial ownership. We authorize and instruct our agent
member to disclose to the applicable trust company or remarketing agent
such information concerning our beneficial ownership of Securities as such
trust company or remarketing agent shall request.
7. We acknowledge that partial deliveries of Securities purchased
in Auctions or Remarketings may be made to us and such deliveries shall
constitute good delivery as set forth in the Prospectus.
8. This letter is not a commitment by us to purchase any Securities.
9. This letter supersedes any prior-dated version of this master
purchaser's letter, and supplements any prior or post-dated purchaser's
letter specific to particular Securities, and this letter may only be
revoked by a signed writing delivered to the original recipients hereof.
10. The descriptions of Auction or Remarketing procedures set
forth in each applicable Prospectus are incorporated by reference herein
and in case of any conflict between this letter, any purchaser's letter
specific to particular Securities and any such description, such
description shall control.
11. Any xerographic or other copy of this letter shall be deemed of
equal effect as a signed original.
12. Our agent member of The Depository Trust Company currently is
.
13. Our personnel authorized to place orders with broker-dealers
for the purposes set forth in the Prospectus in Auctions or Remarketings
currently is/are , telephone number ( ) - .
14. Our taxpayer identification number is .
15. In the case of each offer to purchase, purchase, offer to sell
or sale by us of Securities not registered under the Securities Act of
1933, as amended (the "Act"), we represent and agree as follows:
A. We understand and expressly acknowledge that the
Securities have not been and will not be registered under the Act
and, accordingly, that the Securities may not be reoffered, resold
or otherwise pledged, hypothecated or transferred unless an
applicable exemption from the registration requirements of the Act
is available.
B. We hereby confirm that any purchase of Securities made
by us will be for our own account, or for the account of one or
more parties for which we are acting as trustee or agent with
complete investment discretion and with authority to bind such
parties, and not with a view to any public resale or distribution
thereof. We and each other party for which we are acting which
will acquire Securities will be "accredited investors" within the
meaning of Regulation D under the Act with respect to the
Securities to be purchased by us or such party, as the case may
be, will have previously invested in similar types of instruments
and will be able and prepared to bear the economic risk of
investing in and holding such Securities.
C. We acknowledge that prior to purchasing any Securities
we shall have received a Prospectus (or private placement
memorandum) with respect thereto and acknowledge that we will have
had access to such financial and other information, and have been
afforded the opportunity to ask such questions of representatives
of the Company and receive answers thereto, as we deem necessary
in connection with our decision to purchase Securities.
D. We recognize that the Company and broker-dealers will
rely upon the truth and accuracy of the foregoing investment
representations and agreements, and we agree that each of our
purchases of Securities now or in the future shall be deemed to
constitute our concurrence in all of the foregoing which shall be
binding on us and each party for which we are acting as set forth
in Subparagraph B above.
___________________________________
(Name of Purchaser)
By_________________________________
Printed Name:
Title:
Dated: _____________________
Mailing Address of Purchaser
____________________________
____________________________
____________________________
EXHIBIT B
SETTLEMENT PROCEDURES
The following summary of Settlement Procedures sets forth the
procedures expected to be followed in connection with the settlement of
each Auction and will be incorporated by reference in the Auction Agent
Agreement and each Broker-Dealer Agreement. Nothing contained in this
Appendix constitutes a representation by the Trust that in each Auction
each party referred to herein will actually perform the procedures
described herein to be performed by such party. Capitalized terms used
herein shall have the respective meanings specified in the Articles
Supplementary.
(a) On each Auction Date, the Auction Agent shall notify
by telephone the Broker-Dealers that participated in the Auction
held on such Auction Date and submitted an Order on behalf of any
Existing Holder or Potential Holder of:
(i) the Applicable Rate fixed for the next
succeeding Dividend Period;
(ii) whether Sufficient Clearing Bids existed
for the determination of the Applicable Rate;
(iii) if such Broker-Dealer (a "Seller's
Broker-Dealer") submitted a Bid or Sell Order on behalf
of an Existing Holder, the number of shares, if any, of
Preferred Shares to be sold by such Existing Holder;
(iv) if such Broker-Dealer (a "Buyer's
Broker-Dealer") submitted a Bid on behalf of a Potential
Holder, the number of shares, if any, of Preferred Shares
to be purchased by such Potential Holder;
(v) if the aggregate number of Preferred Shares
to be sold by all Existing Holders on whose behalf such
Broker-Dealer submitted a Bid or a Sell Order exceeds the
aggregate number of Preferred Shares to be purchased by
all potential Holders on whose behalf such Broker-Dealer
submitted a Bid, the name or names of one or more Buyer's
Broker- Dealers (and the name of the Agent Member, if
any, of each such Buyer's Broker-Dealer) acting for one
or more purchasers of such excess number of Preferred
Shares and the number of such shares to be purchased from
one or more Existing Holders on whose behalf such
Broker-Dealer acted by one or more Potential Holders on
whose behalf each of such Buyer's Broker-Dealers acted;
(vi) if the aggregate number of Preferred Shares
to be purchased by all Potential Holders on whose behalf
such Broker-Dealer submitted a Bid exceeds the aggregate
number of Preferred Shares to be sold by all Existing
Holders on whose behalf such Broker-Dealer submitted a
Bid or a Sell Order, the name or names of one or more
Seller's Broker-Dealers (and the name of the Agent
Member, if any, of each such Seller's Broker-Dealer)
acting for one or more sellers of such excess number of
Preferred Shares and the number of such shares to be sold
to one or more Potential Holders on whose behalf such
Broker- Dealer acted by one or more Existing Holders on
whose behalf each of such Seller's Broker-Dealers acted;
and
(vii) the Auction Date of the next succeeding
Auction with respect to the Preferred Shares.
(b) On each Auction Date, each Broker-Dealer that
submitted an Order on behalf of any Existing Holder or Potential
Holder shall:
(i) in the case of a Broker-Dealer that is a
Buyer's Broker- Dealer, instruct each Potential Holder on
whose behalf such Broker- Dealer submitted a Bid that was
accepted, in whole or in part, to instruct such Potential
Holder's Agent Member to pay to such Broker-Dealer (or
its Agent Member) through the Securities Depository the
amount necessary to purchase the number of Preferred
Shares to be purchased pursuant to such Bid against
receipt of such shares and advise such Potential Holder
of the Applicable Rate for the next succeeding Dividend
Period;
(ii) in the case of a Broker-Dealer that is a
Seller's Broker- Dealer, instruct each Existing Holder on
whose behalf such Broker- Dealer submitted a Sell Order
that was accepted, in whole or in part, or a Bid that was
accepted, in whole or in part, to instruct such Existing
Holder's Agent Member to deliver to such Broker-Dealer
(or its Agent Member) through the Securities Depository
the number of Preferred Shares to be sold pursuant to
such Order against payment therefor and advise any such
Existing Holder that will continue to hold Preferred
Shares of the Applicable Rate for the next succeeding
Dividend Period;
(iii) advise each Existing Holder on whose
behalf such Broker- Dealer submitted a Hold Order of the
Applicable Rate for the next succeeding Dividend Period;
(iv) advise each Existing Holder on whose
behalf such Brokerer-Dealer submitted an Order of the
Auction Date for the next succeeding Auction; and
(v) advise each Potential Holder on whose behalf
such Broker-Dealer submitted a Bid that was accepted, in
whole or in part, of the Auction Date for the next
succeeding Auction.
(c) On the basis of the information provided to it
pursuant to (a) above, each Broker-Dealer that submitted a Bid or
a Sell Order on behalf of a Potential Holder or an Existing Holder
shall, in such manner and at such time or times as in its sole
discretion it may determine, allocated any funds received by it
pursuant to (b)(i) above and any Preferred Shares received by it
pursuant to (b)(ii) above among the Potential Holders, if any, on
whose behalf such Broker- Dealer submitted Bids, the Existing
Holders, if any, on whose behalf such Broker-Dealer submitted Bids
that were accepted or Sell Orders, and any Broker- Dealer or
Broker-Dealers identified to it by the Auction Agent pursuant to
(a)(v) or (a)(vi) above.
(d) On each Auction Date:
(i) each Potential Holder and Existing Holder shall
instruct its Agent Member as provided in (b)(i) or (ii)
above, as the case may be;
(ii) each Seller's Broker-Dealer which is not an
Agent Member of the Securities Depository shall instruct
its Agent Member to (A) pay through the Securities
Depository to the Agent Member of the Existing Holder
delivering shares to such Broker-Dealer pursuant to
(b)(ii) above the amount necessary to purchase such
shares against receipt of such shares, and (B) deliver
such shares through the Securities Depository to a
Buyer's Broker-Dealer (or its Agent Member) identified to
such Seller's Broker-Dealer pursuant to (a)(v) above
against payment therefor; and
(iii) each Buyer's Broker-Dealer which is not an
Agent Member of the Securities Depository shall instruct
its Agent Member to (A) pay through the Securities
Depository to a Seller's Broker-Dealer (or its Agent
Member) identified pursuant to (a)(vi) above the amount
necessary to purchase the shares to be purchased pursuant
to (b)(i) above against receipt of such shares, and (B)
deliver such shares through the Securities Depository to
the Agent Member of the purchaser thereof against payment
therefor.
(e) On the day after the Auction Date:
(i) each Bidder's Agent Member referred to in
(d)(i) above shall instruct the Securities Depository to
execute the transactions described under (b)(i) or (ii)
above, and the Securities Depository shall execute such
transactions;
(ii) each Seller's Broker-Dealer or its Agent
Member shall instruct the Securities Depository to
execute the transactions described in (d)(ii) above, and
the Securities Depository shall execute such
transactions; and
(iii) each Buyer's Broker-Dealer or its Agent
Member shall instruct the Securities Depository to
execute the transactions described in (d)(iii) above, and
the Securities Depository shall execute such
transactions.
(f) If an Existing Holder selling Preferred Shares in an
Auction fails to deliver such shares (by authorized book-entry), a
Broker-Dealer may deliver to the Potential Holder on behalf of
which it submitted a Bid that was accepted a number of whole
Preferred Shares that is less than the number of shares that
otherwise was to be purchased by such Potential Holder. In such
event, the number of Preferred Shares to be so delivered shall be
determined solely by such Broker-Dealer. Delivery of such lesser
number of shares shall constitute good delivery. Notwithstanding
the foregoing terms of this paragraph (f), any delivery or
non-delivery of shares which shall represent any departure from
the results of an Auction, as determined by the Auction Agent,
shall be of no effect unless and until the Auction Agent shall
have been notified of such delivery or non-delivery in accordance
with the provisions of the Auction Agent Agreement and the
Broker-Dealer Agreements.
EXHIBIT C
DEUTSCHE BANK AUCTION BID FORM
Submit To: Deutsche Bank Issue: The BlackRock
4 Albany Street Insured Municipal 2008
New York, New York 10006 Term Trust Inc.
Series:_________________________
Auction Date:___________________
Attention: Auction Rate Securities Telephone (212) 250-6215
Facsimile (212) 250-6850
The undersigned Broker-Dealer submits the following Order on
behalf of the Bidder listed below:
Name of Bidder: _________________________
EXISTING HOLDER
Shares now held __________________________ HOLD ________________
BID at rate of ________________
SELL ________________
POTENTIAL HOLDER
# of shares bid ________________
BID at rate of ________________
Notes:
(1) If submitting more than one Bid for one Bidder, use additional Auction
Bid Forms.
(2) If one or more Bids covering in the aggregate more than the number of
outstanding shares held by any Existing Holder are submitted, such
Bids shall be considered valid in the order of priority set forth in
the Auction Procedures on the above issue.
(3) A Hold or Sell may be placed only by an Existing Holder covering a
number of shares not greater than the number of shares currently held.
(4) Potential Holders may make only Bids, each of which must specify a
rate. If more than one Bid is submitted on behalf of any Potential
Holder, each Bid submitted shall be a separate Bid with the rate
specified.
(5) Bids may contain no more than three figures to the right of the
decimal point (.001 of 1%). Fractions will not accepted.
NAME OF BROKER-DEALER______________________________
Authorized Signature ______________________________
EXHIBIT D
(To be used only for transfers made other than pursuant to
an Auction).
TRANSFER FORM
Re: The BlackRock Insured Municipal 2008 Term Trust Inc. Series [T7] [T28]
[R7] [R28] Preferred Shares (the "Preferred Shares")
We are (check one):
|_| the Existing Holder named below;
|_| the Broker-Dealer for such Existing Holder; or
|_| the Agent Member for such Existing Holder.
We hereby notify you that such Existing Holder has transferred
_____ shares of [Series T7] [Series T28] [Series R7] [Series R28] Preferred
Shares to __________.
___________________________________
(Name of Existing Holder)
___________________________________
(Name of Broker-Dealer)
___________________________________
(Name of Agent Member)
By:________________________________
Printed Name:
Title:
EXHIBIT E
(To be used only for failures to deliver Preferred Shares sold pursuant to
an Auction)
NOTICE OF A FAILURE TO DELIVER
Complete either I or II
I. We are a Broker-Dealer for _________________ (the "Purchaser"),
which purchased _______ Series [T7][T28][R7][R28] Preferred Shares
of The BlackRock Insured Municipal 2008 Term Trust Inc. in the
Auction held on ___________ from the seller of such shares.
II. We are a Broker-Dealer for _________________ (the "Seller"), which
sold _______ Series [T7][T28][R7][R28] Preferred Shares of The
BlackRock Insured Municipal 2008 Term Trust Inc. in the Auction
held on ____________ to the Purchaser of such shares.
We hereby notify you that (check one) --
_________ the Seller failed to deliver such shares to the Purchaser
_________ the Purchaser failed to make payment to the Seller upon
delivery of such shares
Name:______________________________
(Name of Broker-Dealer
By:________________________________
Printed Name:
Title:
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective
Amendment No. 7 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
February 15, 2000
