BLACKROCK CALIFORNIA INVESTMENT QUALITY MUNICIPAL TRUST INC, N-14 8C, 1999-07-23

BLACKROCK CALIFORNIA INVESTMENT QUALITY MUNICIPAL TRUST INC
N-14 8C, 1999-07-23

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<PAGE>

As filed with the Securities and Exchange Commission on July 23, 1999
Registration No. 333-
811-7664

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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[_] Pre-Effective Amendment No. [_] Post-Effective Amendment No.
(Check Appropriate box or boxes)
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Exact Name of Registrant as Specified in Charter:
THE BLACKROCK CALIFORNIA INVESTMENT QUALITY MUNICIPAL TRUST INC. ("RAA")

Area Code and Telephone Number:
(212) 754-5560

Address of Principal Executive Offices:
Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102

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Name and Address of Agent for Service:
Ralph L. Schlosstein, President
345 Park Avenue
New York, New York 10154

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Copies to:
Richard T. Prins, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022

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Approximate Date of Proposed Public Offering:
As soon as practicable after this Registration Statement becomes effective.

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CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
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<CAPTION>
Proposed Proposed
Maximum Maximum
Title of Securities Amount Being Offering Price Aggregate Amount of
Being Registered Registered Per Unit Offering Price Registration Fee
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<S> <C> <C> <C> <C>
Common Stock ($.01 par
value)................. 67,476 $ 14.82(1) $1,000,000 $ 278
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Auction Rate Municipal
Preferred Stock, Series
W7, (liquidation
preference $25,000 per
share).................. 1 $25,000(2) $ 25,000 $7.00
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Auction Rate Municipal
Preferred Stock, Series
W28, (liquidation
preference $25,000 per
share).................. 1 $25,000(2) $ 25,000 $7.00
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Total................... N/A N/A $1,050,000 $ 292
</TABLE>
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(1) For the common stock, estimated solely for the purpose of calculating the
registration fee pursuant to Rule 457(f) under the Securities Act of
1933, as amended (the "1933 Act"), based upon the net asset value per
common share of RAA on July 9, 1999.
(2) For the preferred stock, estimated solely for the purpose of calculating
the registration fee pursuant to Rule 457(f) under the 1933 Act, based
upon $25,000, the liquidation preference, on July 9, 1999, of the
preferred shares of RAA.

--------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.

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<PAGE>

CROSS-REFERENCE SHEET

ITEMS REQUIRED BY FORM N-14

PART A

<TABLE>
<CAPTION>
Item
No. Item Caption Prospectus Caption
---- ------------ ------------------
<C> <S> <C>
1 Beginning of Registration Statement
and Outside Front Cover Page of Cover Page of Registration
Prospectus.......................... Statement; Cross-Reference Sheet;
Front Cover Page of Combined
Prospectus/Proxy Statement
2 Beginning and Outside Back Cover
Page of Prospectus.................. Table of Contents
3 Fee Table, Synopsis Information and Summary--Comparison of BFC and
Risk Factors........................ RAA; Summary--Proposed Merger;
Risks and Special Considerations
regarding the Merger
4 Information about the Transaction... Summary--The Proposed Merger
5 Information about the Registrant.... Comparison of BFC and RAA;
Additional Information about RAA
6 Information about the Company being Comparison of BFC and RAA;
acquired............................ Additional Information about BFC
7 Voting Information.................. Voting Matters
8 Interest of Certain Persons and Financial Statements; Legal
Experts............................. Matters
9 Additional Information Required for
Reoffering by Persons Deemed to be
Underwriters........................ Not Applicable

PART B

<CAPTION>
Item
No. Item Caption Prospectus Caption
---- ------------ ------------------
<C> <S> <C>
10 Cover Page.......................... Cover Page
11 Table of Contents................... Table of Contents
12 Additional Information about the Incorporation of Documents by
Registrants......................... Reference in Statement of
Additional Information
13 Additional Information about the
Company being acquired.............. Additional Information about BFC
14 Financial Statements................ Exhibits to Statement of
Additional Information

PART C

<CAPTION>
Item
No.
----
<C> <S> <C>
15-17 Information required to be included
in Part C is set forth under the
appropriate Item, so numbered, in
Part C of this Registration
Statement.
</TABLE>
<PAGE>

IMPORTANT NOTICE: PLEASE COMPLETE THE
ENCLOSED PROXY(IES) AND RETURN IT OR THEM AS SOON AS POSSIBLE.

FOR YOUR CONVENIENCE, YOU MAY ALSO VOTE BY CALLING TOLL-FREE AT 1-
800- FROM 6:00 A.M. TO 8:00 P.M. EASTERN STANDARD TIME OR BY FAXING
YOUR PROXY(IES) TO AT 1-800-227-7BFM (7236). A CONFIRMATION OF YOUR
TELEPHONE OR TELEFACSIMILE VOTE WILL BE MAILED TO YOU.

THE BLACKROCK CALIFORNIA INVESTMENT QUALITY MUNICIPAL TRUST INC. ("RAA")
GATEWAY CENTER THREE, 100 MULBERRY STREET
NEWARK, NEW JERSEY 07102
THE BLACKROCK CALIFORNIA INSURED MUNICIPAL 2008 TERM TRUST INC. ("BFC")
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536

, 1999
To the Shareholders
of BFC and RAA:

On behalf of the Boards of Directors of BFC and RAA, we are pleased to invite
you to a special meeting of shareholders on , 1999 to be held at .
At the meeting, you will be asked to consider the proposed merger of BFC into
RAA. In the proposed merger, each outstanding common share of BFC would be
exchanged on a net asset value for net asset value basis for common shares of
RAA and each outstanding preferred share of BFC would be exchanged for one
share of a substantially similar series of preferred shares of RAA. THE
DIRECTORS OF BFC AND RAA RECOMMEND THAT YOU VOTE TO APPROVE THE PROPOSED
MERGER.

This proposal is being sent to you because the investment adviser and the
Boards of Directors of BFC and RAA believe that the merger would benefit
shareholders of BFC by unlocking value in BFC and would also provide benefits
to shareholders of RAA. The merger may benefit shareholders of BFC and RAA by
providing (i) higher distribution rates on their common shares, (ii) a special
one-time tax-exempt dividend to shareholders of BFC, (iii) a potential
reduction in reinvestment risk for shareholders of BFC and (iv) an enhanced
likelihood that the common shares of RAA will trade at a lower or no discount
or premium to net asset value.

The investment adviser and the Boards of Directors believe that these
potential benefits outweigh (i) the fact that shareholders of BFC will no
longer have the likelihood of receiving a specified distribution on BFC's
scheduled termination date and instead will be dependent on trading prices of
RAA common shares available in the market for the sale of their shares and
(ii) the expenses associated with the merger.

These potential benefits and detriments, as well as other important
considerations, are described in more detail in the proxy statement
accompanying this notice.

1
<PAGE>

The merger should benefit shareholders as follows:

Higher Distribution Rates. Common shareholders of BFC and RAA are likely to
be paid dividends at a higher distribution rate after the merger, because
RAA is not required to retain a portion of its income each year to enable
it to return a fixed amount at the end of a specified term. Based on market
conditions as of April 30, 1999, we anticipate BFC's and RAA's distribution
rate to increase by approximately 20.5% for BFC and 6.1% for RAA.

Special Dividend. Shareholders of BFC would be paid a special tax-exempt
dividend immediately prior to the merger. The dividend will be paid out of
accumulated investment income of BFC that, but for the merger, would be
retained by BFC until the end of its term, to assure that BFC could return
to its shareholders upon liquidation the initial offering price of its
shares. Based on BFC's financial statements as of April 30, 1999, this
distribution is estimated to be: $0.4659 per share for BFC.

Reduced Investment Risk. The potential negative impact on shareholders of
BFC of portfolio securities of BFC being called by their issuers would be
reduced because RAA would be able to reinvest the proceeds from called
portfolio securities in longer maturity securities with higher rates of
interest (rather than securities with shorter maturities and lower rates of
interest required by the limited term of BFC).

Potential for Improved Stock Price Performance. The likelihood that the
common shares of RAA will trade at a lower or no discount to net asset
value would be improved due to the higher distribution rate. The market
value of common stocks issued by closed-end municipal bond funds
historically have had a high correlation with the distribution rates on
such stocks, and a higher distribution rate as a result of the merger may
produce positive stock price performance.

In considering these proposals, you should note:

Comparison of Investment Policies and Objectives. RAA and BFC invest
substantially all of their assets in California municipal obligations. RAA
invests substantially all of its assets in a portfolio of investment grade
California municipal obligations, and BFC invests substantially all of its
assets in a portfolio of California municipal obligations insured as to the
timely payment of both principal and interest by insurers with claims-
paying abilities rated Aaa by Moody's Investors Services, Inc. ("Moody's")
or AAA by Standard and Poor's, a division of The McGraw-Hill Companies,
Inc. ("Standard & Poor's") at the time of investment or which are
determined by BlackRock Financial Management Inc. ("the Investment
Adviser") to have equivalent claims-paying abilities. The primary
investment objective of RAA is to pay high current income, whereas the
primary investment objective of BFC is to pay current income, in all cases
exempt from regular Federal and California income tax. The secondary
investment objective of RAA is preservation of capital without a stated
termination date, whereas the secondary investment objective of BFC is to
return to its common shareholders $15 per share on or about December 31,
2008. The other investment policies and restrictions of RAA and BFC are
substantially similar.

No Increase in Expenses. The anticipated expense ratio for RAA after the
merger will be the same as the current expense ratio of BFC.

2
<PAGE>

Same Net Asset Value of Shares. The total net asset value of RAA common and
preferred shares that the common and preferred shareholders of BFC receive
in the merger will be the same as the total net asset value of BFC common
and preferred shares that such shareholders own immediately before the
merger. Holders of common shares of BFC will receive common shares of RAA,
and holders of preferred shares of BFC will receive preferred shares of
RAA.

Market Value of Shares. While the total net asset value of shares owned by
each shareholder after the merger will be the same, the market value of the
common shares that shareholders of BFC receive in the merger may be more or
less than the market value of the common shares that such shareholders own
immediately before the merger. There will be no difference in the pre-
merger and post-merger liquidation value of preferred shares.

Similar Investment Management Arrangements. Shareholders of BFC will enjoy
access to investment management arrangements that are substantially similar
to BFC's current arrangements.

The proposed merger and the reasons for the recommendation of the Boards of
BFC and RAA are discussed in detail in the enclosed materials, which you
should read carefully. If you have any questions about the merger, please do
not hesitate to call BlackRock at (800) 227-7BFM(7236)).

Very truly yours,

LAURENCE D. FINK
Chairman and Chief Executive Officer

RALPH L. SCHLOSSTEIN
President

New York, New York
, 1999

3
<PAGE>

NOTICE OF SPECIAL SHAREHOLDERS MEETING

To the Shareholders
of BFC and RAA:

NOTICE IS HEREBY GIVEN THAT a combined Special Meeting of the Shareholders of
BFC and RAA will be held at on , 1999 at a.m.
eastern standard time for the purpose of considering and voting upon:

ITEM 1. A proposal to approve an Agreement and Plan of Merger providing
for the merger of BFC into RAA upon shareholder approval in exchange for
newly issued common and preferred shares of RAA.

ITEM 2. Such other business as may properly come before the Special
Meeting or any adjournment(s).

We encourage you to contact BlackRock at (800) 227-7BFM (7236) if you have
any questions.

The stock transfer books will not be closed, but in lieu thereof, the
respective Boards of Directors have fixed the close of business on , 1999
as the record date for the determination of stockholders entitled to notice
of, and to vote at, the meeting.

By order of the respective Boards of
Directors

Karen H. Sabath, Secretary

New York, New York
, 1999

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IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING IN PERSON OR BY
PROXY; IF YOU DO NOT EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN
AND RETURN THE APPROPRIATE ENCLOSED PROXY OR PROXIES IN THE ACCOMPANYING
ENVELOPE PROVIDED FOR YOUR CONVENIENCE, WHICH REQUIRES NO POSTAGE IF MAILED IN
THE UNITED STATES.

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<PAGE>

Subject to Completion--Dated July 23, 1999

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+Information contained herein is subject to completion or amendment. A +
+registration statement relating to these securities has been filed with the +
+Securities and Exchange Commission. These securities may not be sold nor may +
+offers to buy be accepted prior to the time the Registration Statement +
+becomes effective. This Prospectus shall not constitute an offer to sell or +
+the solicitation of an offer to buy nor shall there be any sale of these +
+securities in any state in which such offer, solicitation or sale would be +
+unlawful prior to registration or qualification under the securities laws of +
+any such state. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

COMBINED PROXY STATEMENT/PROSPECTUS

THE BLACKROCK CALIFORNIA INVESTMENT QUALITY MUNICIPAL TRUST INC. ("RAA")
THE BLACKROCK CALIFORNIA INSURED MUNICIPAL 2008 TERM TRUST INC. ("BFC")

This Combined Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the Boards of Directors of BFC and RAA in connection
with a combined special meeting of shareholders to be held at a.m. eastern
standard time on , 1999 at . At the meeting,
shareholders of BFC and RAA will be asked to consider the proposed merger of
BFC into RAA.

BFC will be merged into RAA upon shareholder approval of BFC in exchange for
newly issued common and preferred shares of RAA. The number of RAA common
shares to be issued in respect of each common share of BFC will be that number
having an aggregate net asset value equal to the net asset value of a single
common share of BFC. Preferred shares of RAA will be issued to the shareholders
of BFC on the basis of one newly issued preferred share of RAA for each
outstanding preferred share of BFC. If the merger is approved, RAA will issue
approximately 12,230,023 common shares and 3,120 preferred shares to the common
shareholders and preferred shareholders, respectively, of BFC, based on the
number of shares outstanding and net asset value per share of BFC and RAA on
April 30, 1999. A copy of the merger agreement is attached hereto as Appendix
I.

BFC and RAA are closed-end, non-diversified investment companies that invest in
tax-exempt portfolios of California municipal obligations. The principal
executive offices of BFC are located at 800 Scudders Mill Road, Plainsboro, New
Jersey 08536 and the principal executive offices of RAA are located at Gateway
Center Three, 100 Mulberry Street, Newark, New Jersey 07102. The phone number
of RAA is (201) and the phone number of BFC is (201) .

This Combined Proxy Statement/Prospectus sets forth concisely the information
that a shareholder should know before voting, and should be retained for future
reference. A Statement of Additional Information, dated , 1999, relating
to this Combined Proxy Statement/Prospectus has been filed with the Securities
and Exchange Commission ("SEC") and is incorporated herein by reference. Copies
of the Statement of Additional Information may be obtained without charge by
calling or writing RAA or BFC at the telephone number or address shown above.
In addition, RAA and BFC will furnish, without charge, a copy of its most
recent annual report and subsequent semi-annual report, if any, to a
shareholder upon request.

The common stock of RAA is listed on the American Stock Exchange (the "AMEX")
under the symbol RAA. The common stock of BFC is listed on the New York Stock
Exchange (the "NYSE") under the symbol BFC. Subsequent to the merger, the
common stock of RAA will [continue to be listed on the AMEX under the symbol
"RAA."] Reports, proxy materials and other information concerning RAA may be
inspected at the offices of AMEX, [ ], New York, New York 10005, and
reports, proxy materials and other information concerning BFC may be inspected
at the offices of NYSE, 11 Wall Street, New York, New York 10005.

The securities of RAA offered hereby have not been approved or disapproved by
the Securities and Exchange Commission or any state securities commission nor
has the Securities and Exchange Commission or any state securities commission
passed upon the accuracy or adequacy of this Combined Proxy
Statement/Prospectus. Any representation to the contrary is a criminal offense.

No person has been authorized to give any information or to make any
representations other than those contained in this Combined Proxy
Statement/Prospectus and in the materials expressly incorporated herein by
reference and, if given or made, such other information or representations must
not be relied upon as having been authorized by RAA, BFC or their sponsors and
distributors.

The date of this Combined Proxy Statement/Prospectus is , 1999.
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
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<S> <C>
SUMMARY.................................................................... 4
Special Meetings......................................................... 4
Proposed Merger.......................................................... 4
Reasons for the Merger................................................... 5
Comparison of BFC and RAA................................................ 7
RISKS AND SPECIAL CONSIDERATIONS REGARDING THE MERGER...................... 12
THE PROPOSED MERGER........................................................ 15
Description of the Merger................................................ 16
Surrender and Exchange of BFC Share Certificates......................... 18
Appraisal Rights......................................................... 19
Reasons for the Merger; Board Consideration.............................. 19
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................... 23
VOTING MATTERS............................................................. 24
General.................................................................. 24
Voting Requirements of BFC............................................... 25
Voting Requirements of RAA............................................... 26
Quorum................................................................... 26
DESCRIPTION OF COMMON SHARES OF RAA AND BFC................................ 27
General.................................................................. 27
Distributions............................................................ 27
Comparison of Rights of Holders of Common Shares of RAA and BFC.......... 27
Certain Provisions in RAA's and BFC's Charter............................ 28
Dividend Reinvestment Plan............................................... 29
DESCRIPTION OF PREFERRED SHARES OF RAA AND BFC............................. 30
General.................................................................. 30
Dividends and Dividend Periods........................................... 31
Voting Rights............................................................ 32
Redemption............................................................... 33
Liquidation.............................................................. 33
Auctions................................................................. 34
Rating Agency Guidelines................................................. 34
Additional Preferred Shares.............................................. 35
COMPARISON OF BFC AND RAA.................................................. 36
General.................................................................. 36
Investment Objectives and Policies....................................... 36
California Municipal Obligations......................................... 38
SERVICE PROVIDERS FOR BFC AND RAA.......................................... 40
MANAGEMENT OF BFC AND RAA.................................................. 41
Boards of Directors and Officers......................................... 41
The Investment Adviser................................................... 44
ADDITIONAL INFORMATION ABOUT RAA........................................... 47
</TABLE>

2
<PAGE>

<TABLE>
<CAPTION>
Page
----
<S> <C>
ADDITIONAL INFORMATION ABOUT BFC........................................... 47
FINANCIAL STATEMENTS....................................................... 47
LEGAL MATTERS.............................................................. 48
OTHER BUSINESS............................................................. 48
STATEMENT OF ADDITIONAL INFORMATION........................................ 48
SHAREHOLDER INQUIRIES...................................................... 48
UNAUDITED PRO FORMA FINANCIAL STATEMENTS FOR RAA........................... F-1
Portfolio of Investments................................................. F-1
Statement of Assets and Liabilities...................................... F-5
Statement of Operations.................................................. F-7
CERTAIN PRO FORMA FINANCIAL INFORMATION.................................... F-9
COMPARATIVE PERFORMANCE INFORMATION........................................ F-9
APPENDIX I--AGREEMENT AND PLAN OF MERGER................................... I-1
</TABLE>

3
<PAGE>

SUMMARY

The following is a summary of certain information relating to the proposed
merger, and is qualified by reference to the more complete information
contained elsewhere in this Combined Proxy Statement/Prospectus and the
Appendix attached hereto.

Special Meetings This Combined Proxy Statement/Prospectus is being
furnished in connection with the solicitation of
proxies by the Boards of Directors of BFC and RAA for a
combined Special Meeting of Shareholders to be held at
on , 1999 at a.m. eastern
standard time. The special meeting and any
adjournment(s) thereof are referred to as the
"Meeting". At the Meeting, shareholders of BFC and RAA
will be asked to consider the proposed merger of BFC
into RAA, as described below. Only shareholders of
record at the close of business on , 1999 will be
entitled to vote at the Meeting. Each share of common
stock and preferred stock of BFC and RAA is entitled to
one vote. Shares represented by a properly executed
proxy will be voted in accordance with the instructions
thereon or, if no specification is made, the persons
named as proxies will vote in favor of each proposal
properly brought before the Meeting. Proxies may be
revoked at any time before they are exercised by
submitting to BFC or RAA, as applicable, a written
notice of revocation or a subsequently executed proxy
or by attending the Meeting and voting in person.

Proposed Merger The Directors of RAA and of BFC are proposing the
issuance of approximately 11,222,930 common shares and
3,120 preferred shares of RAA pursuant to an Agreement
and Plan of Merger, dated as of , 1999, by and
between BFC and RAA (the "Merger Agreement"), based on
the number of shares outstanding and the net asset
value per share of BFC and RAA on April 30, 1999. A
copy of the Merger Agreement is attached hereto as
Appendix I. The Merger Agreement provides for the
merger (the "Merger") of BFC, upon shareholder
approval, into RAA in exchange for newly issued common
and preferred shares of RAA. The number of RAA common
shares to be issued in respect of each common share of
BFC would be that number having an aggregate net asset
value equal to the net asset value of a single common
share of BFC. Preferred shares of RAA would be issued
to the preferred shareholders of BFC on the basis of
one newly issued RAA preferred share for each
outstanding preferred share of BFC. For this purpose,
the value of each of BFC's and RAA's net assets will be
calculated net of the liquidation preference (including
accumulated and unpaid dividends) of all its
outstanding preferred shares.

4
<PAGE>

The Merger is subject to a number of conditions,
including shareholder approval and confirmation of the
Aaa rating assigned by Moody's Investors Service, Inc.
("Moody's"), to the shares of RAA Preferred
(hereinafter defined). The Merger Agreement provides
that the Merger may be abandoned at any time prior to
the completion thereof (the "Closing") in the
discretion of RAA. For further information, see "The
Proposed Merger."

Reasons for the Merger The Merger should benefit shareholders as follows:

Higher Distribution Rate. Common shareholders of BFC
and RAA are likely to be paid dividends at a higher
distribution rate after the merger, because RAA is not
required to retain a portion of its income each year to
enable it to return a fixed amount at the end of a
specified term. Based on market conditions as of April
30, 1999, we anticipate BFC's and RAA's distribution
rate to increase by approximately 20.5% for BFC and
6.1% for RAA.

Special Dividend. Shareholders of BFC would be paid a
special tax-exempt dividend immediately prior to the
Merger. The dividend will be paid out of accumulated
investment income of BFC that, but for the Merger,
would be retained by BFC until the end of its term, to
assure that BFC could return to its shareholders upon
liquidation the initial offering price of its shares.
Based on BFC's financial statements as of April 30,
1999, this distribution is estimated to be: $0.4659 per
share for BFC.

Reduced Reinvestment Risk. The potential negative
income impact on shareholders of BFC of portfolio
securities of BFC are called by their issuers would be
reduced, because RAA would be able to reinvest the
proceeds from called portfolio securities in longer
maturity securities with higher rates of interest
(rather than securities with shorter maturities and
lower rates of interest required by the limited term of
BFC).

Potential for Improved Stock Price Performance. The
likelihood that the common shares of RAA will trade at
a lower or no discount to net asset value would be
improved due to the higher distribution rate. The
market value of common stocks issued by closed-end
municipal bond funds historically have had a high
correlation with the distribution rates on such stocks,
and a higher distribution rate as a result of the
merger may produce positive stock price performance.

5
<PAGE>

In considering these proposals, you should note:

Comparison of Investment Policies and Objectives. RAA
and BFC invest substantially all of their assets in
California municipal obligations. RAA invests
substantially all of its total assets in a portfolio of
investment grade California municipal obligations and
BFC invests substantially all of its total assets in a
portfolio of California 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 Standard and Poor's, a division of
The McGraw-Hill Companies, Inc. ("Standard & Poor's")
at the time of investment or which are determined by
the Investment Adviser to have equivalent claims-paying
abilities. The primary investment objective of RAA is
to pay high current income, whereas the primary
investment objective of BFC is pay current income, in
all cases exempt from regular Federal and California
income tax. The secondary investment objective of RAA
is preservation of capital without a stated termination
date, whereas the secondary investment objective of BFC
is to return to its common shareholders $15 per share
on or about December 31, 2008. The other investment
policies and restrictions of RAA and BFC are
substantially similar.

No Increase in Expenses. The anticipated expense ratio
for RAA after the merger will be the same as the
current expense ratio of BFC.

Same Net Asset Value of Shares. The total net asset
value of RAA common and preferred shares that the
common and preferred shareholders of BFC receive in the
Merger will be the same as the total net asset value of
BFC common and preferred shares that the shareholders
own immediately before the Merger. Holders of common
shares of BFC will receive common shares of RAA, and
holders of preferred shares of BFC will receive
preferred shares of RAA.

Market Value of Shares. While the total net asset value
of shares owned by each shareholder after the merger
will be the same, the market value of the common shares
that shareholders of BFC receive

6
<PAGE>

in the merger may be more or less than the market value
of the common shares that such shareholders own
immediately before the merger. There will be no
difference in the pre-merger and post-merger
liquidation value of preferred shares.

Similar Investment Management
Arrangements. Shareholders of BFC and RAA will enjoy
access to investment management arrangements that are
substantially similar to BFC's current arrangements.

Appraisal Rights. It is anticipated that holders of
common shares of BFC will not have appraisal rights
with respect to any of their shares in the Merger.
Holders of preferred shares of BFC will have appraisal
rights.

Comparison of BFC
and RAA BFC and RAA are non-diversified closed-end management
investment companies that invest in tax-exempt
portfolios of California municipal obligations. The
common shares of RAA are listed and trade on the AMEX
under the symbol RAA. The common shares of BFC are
listed and trade on the NYSE under the symbol BFC. BFC
and RAA are incorporated under the laws of the State of
Maryland. The common shares of BFC and RAA have equal
voting rights and equal rights with respect to the
payment of dividends and distribution of assets upon
liquidation and have no preemptive, conversion or
exchange rights or rights to cumulative voting. All
preferred shares of BFC are rated Aaa by Moody's and
all of the preferred shares of RAA are rated Aaa by
Moody's. The common shares and preferred shares of RAA
to be issued pursuant to the Merger will have rights
and preferences, including liquidation preferences,
that are substantially similar to those of the common
shares and preferred shares of BFC, except that RAA
does not have a fixed term.

Except as noted below, the investment objectives,
policies and restrictions of RAA are substantially
similar to those of BFC.

RAA's investment objective is to provide high current
income exempt from regular Federal and California
income tax consistent with the preservation of capital.
BFC's investment objective is to provide current income
exempt from regular Federal and California income tax
and to return $15 per common share to holders of common
shares on or about December 31, 2008. Unlike BFC, RAA
does not have any term to its existence and does not
seek to return any particular amount of money to its
common shareholders at any time.

7
<PAGE>

In seeking to provide income exempt from regular
Federal and California income tax, RAA invests
substantially all of its assets in a diversified
portfolio of investment grade California municipal
obligations and actively manages its assets in relation
to market conditions and interest rate changes. At
least 80% of RAA's assets will be invested in
securities rated investment grade by Moody's (including
those rated as low as Baa3, MIG-4 or P-3), Standard &
Poor's (including those rated as low as BBB-, SP-2 or
A-3), Fitch Investors Services, Inc. ("Fitch")
(including those rated as low as BBB- or F-3) or
another nationally recognized statistical rating
organization. In seeking to provide income exempt from
regular Federal and California income tax, BFC invests
at least 80% of its total assets in a non-diversified
portfolio of California 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 Standard
& Poor's or which are determined by the Investment
Adviser to have equivalent claims-paying abilities. For
further information on the differences in the
investment objectives and certain significant
investment policies and restrictions of BFC and RAA,
see "Comparison of BFC and RAA" below.

As discussed under "Comparison of BFC and RAA--
Investment Adviser and Other Service Providers," the
Investment Adviser currently serves as the investment
adviser to BFC and RAA, and will continue to serve as
the investment adviser to RAA after the Merger. The
following Table shows the actual and pro forma
investment advisory fees and other expenses paid by BFC
and RAA during their latest fiscal year (October 31,
1998 for RAA and December 31, 1998 for BFC) and the pro
forma investment advisory fees and other expenses that
would be paid by RAA after consummation of the Merger.

8
<PAGE>

COMPARATIVE EXPENSE TABLE

<TABLE>
<CAPTION>
RAA
Pro
Forma
For
The
RAA BFC Merger
---- ---- ------
<S> <C> <C> <C>
Annual Expenses
(as a percentage of net
assets attributable to
common shares)
Management Fees......... 0.52 0.50 0.56
Other Expenses.......... 0.84 0.47 0.41
Total Annual Expenses... 1.36 0.97 0.97
</TABLE>

Example:

The following table illustrates the expenses on a $1,000 investment based upon
the fees and expenses shown above and assuming a 5% annual return.

<TABLE>
<CAPTION>
10
1 Year 3 Years 5 Years Years
------- ------- ------- -------
<S> <C> <C> <C> <C>
RAA............................................. $ $ $ $
BFC.............................................
RAA Pro Forma for the Merger....................
</TABLE>
- --------
The purpose of the comparative expense table is to assist shareholders in
understanding the various costs and expenses of investing in shares of RAA and
BFC. The information in the table is based upon annualized expenses for the
fiscal years of RAA and BFC ended in 1998. The figures in the Example are not
necessarily indicative of past or future expenses, and actual expenses may be
greater or less than those shown. The actual rate of return of RAA and BFC may
be greater or less than the hypothetical 5% annual return above in the Example.

The administrators for RAA and BFC and the fees charged by each administrator
currently are as follows:

<TABLE>
<CAPTION>
Fund Administrator Fee*
---- ------------- ----
<S> <C> <C>
RAA...................... Prudential Investments Fund Management LLC 0.10%
BFC...................... Princeton Administrators L.P. 0.10%
</TABLE>
--------
* Payable monthly at an annual rate expressed as a percentage of
average weekly net investment assets.

After consummation of the Merger, BlackRock Financial Management, Inc. and
Prudential Investments Fund Management LLC will act as co-administrators of RAA
and receive an aggregate fee equal to [ ]% of RAA's weekly net assets.

9
<PAGE>

Dividends and Distributions. BFC and RAA have identical
dividend policies with respect to the payment of
dividends on their common shares. The present policy of
BFC and RAA, which may be changed by their Boards, is
to make regular monthly cash distributions to holders
of its common shares at a rate that reflects past and
projected performance and that may be changed by the
Boards of Directors at any time. BFC has experienced a
marginally lower distribution rate as a percentage of
net asset value attributable to common shares than RAA
due to the requirement that BFC retain income
sufficient over the life of BFC to return the initial
offering price of its common shares at the end of its
term and due to the fact that BFC also expects that its
distribution rate will decline over time as its
termination date becomes closer and it shortens the
maturities of its portfolio investments. Accordingly,
the Investment Adviser expects RAA's level of monthly
distributions to increase due to advantages gained from
the Merger and to be higher than the current
distribution rates of BFC and RAA as a percentage of
net asset value.

The dividend rates on the preferred shares of BFC and
RAA, including the RAA preferred shares to be issued
pursuant to the Merger, are determined on the basis of
auctions, which typically are held weekly. See
("Description of Preferred Shares of RAA--Auction
Procedures") and the Statement of Additional
Information.

Certain Federal Income Tax Consequences. The Merger is
conditioned upon, among other things, the receipt by
RAA and BFC of an opinion as of the closing of the
Merger (the "Closing") from Skadden, Arps, Slate,
Meagher & Flom LLP and its affiliates to the effect
that, on the basis of facts, representations and
assumptions set forth in such opinion, the Merger will
be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the
"Code"), and RAA and BFC will each be a party to such
reorganization within the meaning of Section 368(b) of
the Code. Accordingly, (i) no gain or loss will be
recognized by RAA or BFC as a result of the Merger, and
(ii) no gain or loss will be recognized by a
shareholder of BFC who receives RAA Shares (as
hereinafter defined) for shares of BFC exchanged
therefor (except with respect to any cash received in
lieu of a fractional interest in RAA Shares). For
additional Federal income tax consequences of the
Merger, see "Certain Federal Income Tax Consequences."

Board Consideration. In reviewing the proposed Merger,
the Boards of Directors of BFC and RAA considered the
potential impact

10
<PAGE>

of the Merger on its shareholders, including but not
limited to (i) the terms and conditions of the Merger
Agreement; (ii) the capabilities, practices and
resources of the organizations that provide investment
advisory and certain other services to BFC and RAA and
of the organizations that would provide such services
to RAA after the Merger, and the terms on which these
services are and would be provided; (iii) the
investment objectives, policies and restrictions of BFC
and RAA and their compatibility; (iv) the historical
investment performance of BFC and RAA and anticipated
future influences on such investment performance with
and without the Merger; (v) the historical and
projected operating expenses of BFC and RAA and the
projected pro forma operating expenses of RAA; (vi) the
terms of the preferred shares of BFC and RAA; (vii) the
anticipated tax consequences of the Merger; (viii) the
shift on the part of BFC's shareholders to a perpetual
fund rather than one having a stated term; (ix) the
trading history of the common shares of BFC and RAA and
the anticipated impact of the Merger on the market
price of such common shares; and (x) the costs
associated with the Merger. See "The Proposed Merger--
Reasons for the Merger; Board Consideration."

Based upon their evaluations of the information
presented to them, and in light of their fiduciary
duties under Federal and state law, the Boards of
Directors of BFC and RAA, including the non-interested
members of such Boards, have determined the proposed
Merger is advisable and have directed the proposed
Merger to be submitted for consideration by the
shareholders of BFC and RAA at the meeting.

Voting Matters. In order for the proposed Merger to be
completed, the Merger Agreement must be approved by (i)
a majority of the outstanding common shares of BFC
voting as a separate class, (ii) a majority of the
outstanding preferred shares of BFC voting as a
separate class and (iii) a majority of the outstanding
common shares and outstanding preferred shares of RAA
voting together as a single class. For additional
information, see "The Proposed Merger--Votes Required
For the Merger."

11
<PAGE>

RISKS AND SPECIAL CONSIDERATIONS REGARDING THE MERGER

The following risks and special considerations should be considered by
shareholders of BFC and RAA in their evaluation of the Merger.

The market prices of the municipal obligations in which BFC and RAA invest are
inversely affected by changes in interest rates and, therefore, are subject to
the risk of market price fluctuations. The values of fixed income municipal
obligations with longer remaining maturities typically fluctuate more than
those of similarly rated fixed income municipal obligations with shorter
remaining maturities. The market prices of zero coupon municipal obligations
of any particular maturity tend to be more volatile than current pay
obligations of the same maturity. The values of fixed income municipal
obligations also may be affected by changes in the credit ratings or financial
conditions of the issuing entities. BFC and RAA may also invest in floating
rate municipal obligations the yields of which will vary in accordance with
prevailing interest rates. The market value of floating rate municipal
obligations tends to be affected by changes in prevailing interest rates to a
lesser extent than fixed rate municipal obligations.

Effective duration reflects the sensitivity of a portfolio to interest rate
fluctuations. A portfolio with a longer effective duration reacts more
strongly to interest rate changes than a portfolio with a shorter effective
duration. Duration is the weighted present value of principal and interest
payments expressed in years. Duration may more accurately measure a
portfolio's sensitivity to incremental changes in interest rates than weighted
average maturity. For example, a portfolio with a duration of 5.0 years should
have half the interest rate sensitivity of a portfolio with a duration of 10.0
years, because the portfolio with the shorter duration will receive payments
(and can reinvest at prevailing interest rates) twice as quickly.

The following table sets forth the nominal yield and duration of RAA's and
BFC's portfolio of municipal obligations as of April 30, 1999 and for RAA on a
pro forma basis assuming the Merger had occurred on such date.

<TABLE>
<CAPTION>
BFC RAA Pro Forma RAA
---- ---- -------------
<S> <C> <C> <C>
Nominal Yield*........................................ 3.42% 4.03% 3.47%
Effective Duration**.................................. 6.95 9.08 7.13
</TABLE>
- --------
* The nominal yield provided for BFC and RAA represents the portfolio's
internal rate of return given the weighted average price of portfolio
securities and expected cash flows.
** Expressed in years.

12
<PAGE>

The following tables set forth the high and low market price, net asset value
and premium/discount to net asset value for RAA and for BFC for the periods
indicated.

PER SHARE DATA FOR RAA COMMON STOCK*
TRADED ON THE AMERICAN STOCK EXCHANGE

<TABLE>
<CAPTION>
Premium
(Discount) to
Net Asset
Market Price** Net Asset Value Value
--------------- --------------- --------------
Period High Low High Low High Low
------ ------- ------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter 1997............ 14.5000 13.8750 13.930 14.340 3.190 (2.700)
Second Quarter................ 14.6875 13.8750 14.480 13.850 3.410 (0.850)
Third Quarter................. 15.0000 14.6250 14.750 14.530 1.940 (1.050)
Fourth Quarter................ 15.7500 14.6250 15.090 14.580 5.070 (0.410)
First Quarter 1998............ 16.1250 15.0625 15.290 15.010 4.170 (0.640)
Second Quarter................ 15.3125 15.1250 15.210 14.980 5.560 1.890
Third Quarter................. 16.1250 15.4375 15.480 15.100 5.600 0.940
Fourth Quarter................ 16.7500 15.7500 15.710 15.360 9.050 1.830
First Quarter 1999............ 16.6250 16.0625 15.520 15.290 7.490 3.500
Second Quarter 1999........... 16.6250 15.8750 15.420 14.750 9.320 4.790
July 1, 1999 through July 16,
1999......................... 15.7500 15.6250 14.790 14.820 6.490 5.430
</TABLE>

PER SHARE DATA FOR BFC COMMON STOCK*
TRADED ON THE NEW YORK STOCK EXCHANGE

<TABLE>
<CAPTION>
Premium
(Discount) to
Net Asset
Market Price** Net Asset Value Value
--------------- --------------- ---------------
Period High Low High Low High Low
------ ------- ------- --------------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
First Quarter 1997........... 14.8750 14.0000 16.150 15.630 (6.510) (12.450)
Second Quarter............... 14.5000 13.6250 16.210 15.490 (9.400) (11.710)
Third Quarter................ 15.1250 14.5000 16.580 16.190 (7.650) (10.930)
Fourth Quarter............... 15.4375 14.7500 16.690 16.310 (7.100) (9.750)
First Quarter 1998........... 15.6875 15.1667 16.960 16.660 (6.590) (9.970)
Second Quarter............... 15.7500 15.0000 16.810 16.560 (6.020) (8.800)
Third Quarter................ 16.1250 15.3125 17.170 16.700 (6.810) (8.490)
Fourth Quarter............... 16.3750 15.7500 17.420 17.160 (6.320) (8.060)
First Quarter 1999........... 16.0000 15.4175 17.310 17.020 (6.730) (9.010)
Second Quarter 1999.......... 16.0000 15.2500 17.160 16.410 (6.310) (8.650)
July 1, 1999 through July 16,
1999........................ 15.8125 15.3125 16.560 16.450 (4.510) (6.160)
</TABLE>
- --------
* Calculations are based on common shares outstanding on the last day of each
period indicated.
** As reported in the consolidated transaction system.

BFC currently is scheduled to terminate on December 31 of 2008, whereas RAA
has no scheduled termination date and intends to continue operating
indefinitely. If the Merger of BFC is completed, the shareholders of BFC will
no longer have a likelihood of receiving a specified distribution of $15 on
BFC's scheduled termination date. RAA has no scheduled termination date and,
if the Merger of BFC is completed, common shareholders of BFC will be
dependent on the trading prices of RAA common shares available in the market
for the sale of their shares. Such market prices may be at, above or below the
amount they would have received upon termination of BFC.

13
<PAGE>

BFC and RAA utilize a leveraged capital structure through the issuance of
perpetual preferred stock whose dividend rates are reset weekly or monthly by
auction in relation to prevailing short-term municipal rates. Utilization of
leverage through the issuance of preferred stock is a speculative investment
technique and involves certain risks to the holders of common stock. These
include the possibility of higher volatility of the net asset value of the
common stock, potentially more volatility in the market value of the common
stock and fluctuations in the dividend rate on the preferred stock that may
affect the yield to holders of common stock. So long as BFC or RAA is able to
realize a higher net return on its investment portfolio than the then current
dividend rate of any preferred stock together with other related expenses, the
effect of the leverage will be to cause holders of common stock to realize a
higher current net investment income than if BFC or RAA were not so leveraged.
On the other hand, to the extent that the then current dividend rate on any
preferred stock approaches the net return on BFC's or RAA's investment
portfolio, the benefit of leverage to holders of common stock will be reduced,
and if the then current dividend rate on any preferred stock were to exceed
the net return on BFC's or RAA's portfolio, the leveraged capital structure
would result in a lower rate of return to holders of common stock than if BFC
or RAA were not so leveraged. Similarly, since any decline in the net asset
value of the investments will be borne entirely by holders of common stock,
the effect of leverage in a declining market would be a greater decrease in
net asset value applicable to the common stock than if BFC or RAA were not
leveraged. Any such decrease would likely be reflected in a decline in the
market price of the common stock. If BFC or RAA's current investment income
were not sufficient to meet dividend requirements on any preferred stock, it
could be necessary for BFC or RAA to liquidate certain of its investments,
thereby reducing the net asset value attributable to the common stock.
Moreover, while dividends on preferred stock, which will be cumulative, are
unpaid, no dividends would be permitted to be paid on common stock until BFC
became current in its payments of dividends on the preferred stock.

With respect to the outstanding preferred shares of BFC and RAA, as of April
30, 1999, the asset coverage was 306.3% for RAA and 327.3% for BFC. If the
Merger had occurred as of that date, the asset coverage of RAA would have been
319.6, which significantly exceeds the minimum asset coverage required by the
Investment Company Act of 1940, as amended (the "1940 Act") and rating agency
guidelines. If RAA issues additional preferred shares after the completion of
the Merger, as currently is contemplated, RAA anticipates that its asset
coverage would be approximately 265.8% immediately after such issuance. See
"Description of Preferred Shares of RAA and BFC--Additional Preferred Shares."

The following table sets forth for RAA and BFC as of April 30, 1999 and for
RAA on a pro forma basis assuming the Merger is completed the percentage of
its portfolio invested in securities rated in the four highest rating
categories by Moody's and Standard & Poor's.

<TABLE>
<CAPTION>
Ratings BFC RAA Pro Forma RAA
------- ---- ---- -------------
<S> <C> <C> <C>
Aaa/AAA.............................................. 96.9* 49.7** 93.0**
Aa/AA................................................ 3.1 19.4 4.4
A/A.................................................. 0 21.1 1.7
Baa/BBB.............................................. 0 9.9 0.8
</TABLE>
- --------
* Represents the claims paying ability of the insurance companies that insure
the municipal obligations in which BFC invests.
** Includes unrated securities deemed by the Investment Adviser to have a
credit quality equivalent to Aaa/AAA, and short-term securities rated A-1/P-
1. As of April 30, 1999, unrated securities comprised [ ]% of RAA's
portfolio and short-term securities comprised [ ]% of RAA's portfolio.

14
<PAGE>

See "Comparison of BFC and RAA--Investment Objectives and Policies" for a
discussion of the credit quality of the portfolio securities of BFC and RAA,
and see Annex A to the Statement of Additional Information for a general
description of Moody's and Standard & Poor's ratings of municipal obligations.

From time to time RAA and BFC may invest in municipal obligations the interest
on which would be subject to the alternative minimum tax ("AMT"). RAA and BFC
expects that no more than 20% of its respective assets will be invested in
municipal obligations subject to such tax at any time. As of April 30, 1999,
approximately 19.3% of RAA's portfolio securities were subject to the AMT. As
of April 30, 1999, [none] of BFC's portfolio securities were subject to the
AMT. Based on the foregoing, approximately 1.6% of RAA's portfolio securities
would have been subject to the AMT on a pro forma basis, assuming the Merger
was completed on such date. RAA may not be a suitable investment for investors
who are subject to the AMT.

BFC and RAA may purchase securities as to which no liquid trading market
exists. Such illiquid securities may include unrated securities and securities
such as lease obligations and small issues for which market quotations are not
readily available. Should BFC or RAA desire to sell such securities, BFC or
RAA would be subject to the risk that it may not be able to find a ready buyer
at the price which BFC or RAA believes reflects the value of these securities,
as dealers may not maintain daily markets in these securities and retail
secondary markets may not exist. In that case, BFC or RAA may be forced to
withdraw such securities from sale or accept a price which, in its opinion,
does not reflect the value of these securities. The value of BFC's net assets
could be adversely affected as a result. To the extent BFC invests in newer
types of municipal obligation products, it may be subject to the risk that
such assets may become illiquid even though they were considered to be liquid
at the time of investment.

From time to time, BFC and RAA's investments may include securities as to
which BFC or RAA, by itself or together with other funds or accounts managed
by the Investment Adviser, holds a major portion or all of an issue of
municipal obligations. Because relatively few potential purchasers may be
available for these investments and, in some cases, contractual restrictions
may apply on resales, BFC or RAA may find it more difficult to sell these
securities at a time when the Investment Adviser believes it is desirable to
do so.

The charters (each, a "Charter") of BFC and RAA include provisions that could
have the effect of limiting the ability of other entities or persons to
acquire control of BFC or RAA and which will require the vote of 75% of the
shares of Common Stock in addition to the favorable vote (which may entail
approval of a majority or up to 75%) of any other class of stock to convert
BFC to open-end status.

THE PROPOSED MERGER

The terms and conditions of the Merger are set forth in the Merger Agreement.
Significant provisions of the Merger Agreement are summarized below; however,
this summary is qualified in its entirety by reference to the Merger
Agreement, a copy of which is attached as Appendix I to this Combined Proxy
Statement/Prospectus.

15
<PAGE>

Description of the Merger. The Merger Agreement provides for the merger of BFC
into RAA. As a consequence, the separate existence of BFC would cease, RAA
would, by operation of law, own all of the assets and be subject to all of the
liabilities of BFC, each shareholder of BFC would become a shareholder of RAA
on the terms described below and the Charter, bylaws, directors and officers
of RAA immediately prior to the closing of the Merger would remain the
Charter, bylaws, directors and officers of RAA as the surviving company after
such Merger.

Upon completion of the Merger, (i) each of the outstanding common shares of
BFC will, without any action on the part of the holder thereof, be converted
into and exchangeable for that number of shares of common stock, par value
$.01 per share, of RAA ("RAA Common") having the same aggregate net asset
value on the last business day prior to the date of completion of the Merger
as such share of common stock of BFC and (ii) each of the outstanding
preferred shares of BFC will, without any action on the part of the holder
thereof, be converted into one share of a series of preferred stock,
liquidation value $25,000 per share, of RAA ("RAA Preferred" and together with
the RAA Common, the "RAA Shares") having the same terms, including auction
dates, dividend periods and dividend payment dates, as such series of
preferred stock of BFC, except that (x) the initial dividend rate of the newly
issued shares of RAA Preferred will be the same as that established in the
most recent auction of the corresponding series of preferred stock of BFC, (y)
dividends on the newly issued shares of RAA Preferred will, in effect, accrue
from the beginning of the dividend period for the corresponding series of
preferred stock of RAA to and including the last day of the dividend period
for the corresponding series of preferred stock of BFC and (z) the initial
auction for newly issued shares of RAA Preferred will be held on the day on
which the auction next succeeding the date of the Merger would have been held
for the corresponding series of preferred stock of BFC, but for the Merger.

In addition, BFC will declare a special dividend (a "Special Dividend"),
payable to holders of record of its common shares immediately prior to the
Merger, in an amount at least equal to the amount necessary for BFC to satisfy
the requirements of Section 852(a)(1) of the Code, the compliance with which
is necessary for BFC to qualify as a regulated investment company for Federal
income tax purposes for its taxable year ending on the day on which the
Closing occurs. Although the precise amount of the special dividend will not
be known until the time of the Merger, it is currently anticipated that the
amount of such dividend will be approximately $0.4659 per share in the case of
BFC. Such dividend will reduce the net asset value per common share of BFC for
purposes of determining the number of shares of RAA Common issuable in respect
of such common shares. Such dividend will be payable in the form of additional
common shares of BFC (which will convert into common shares of RAA by
operation of the Merger) or in cash, at the election of the stockholders. Such
dividend will be paid on or before , 1999 in shares of RAA Common unless
a holder of common shares of BFC elects to receive cash on or before ,
1999. Such election may be made by shareholders on a form that will be mailed
to them at least days prior to the election deadline or within 15 days
after the Merger.

The net asset value per share of the common stock of BFC and RAA Common shall
be computed as of the close of business on the last business day prior to the
date on which the Merger is completed by dividing the value of BFC and RAA's
total assets, less liabilities and less the aggregate liquidation preference
of all of their respective outstanding preferred shares and any accumulated
and unpaid dividends thereon, by the number of their respective common shares
outstanding. In determining the value of BFC and RAA's assets, State Street
Bank & Trust Company will utilize the valuations of

16
<PAGE>

portfolio securities furnished by a pricing service approved by the Boards of
Directors of BFC and RAA pursuant to procedures utilized by RAA to value its
own assets and to determine its own liabilities, which procedures are
substantially similar to those currently used by BFC. The pricing service
values portfolio securities at the mean between the quoted bid and asked price
or the yield equivalent when quotations are readily available. Securities for
which quotations are not readily available (which constitute a majority of the
securities held by BFC) are valued at fair value as determined by the pricing
service using methods which include consideration of yields or prices of
municipal bonds 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 or a
matrix system, or both, to determine valuations. The procedures of the pricing
service and its valuations are reviewed periodically by the officers of BFC
and RAA under the general supervision of the Boards of Directors of BFC or
RAA.

No fractional shares of RAA Common will be issued. In lieu thereof, RAA's
transfer agent will aggregate all fractional shares of RAA Common and sell the
resulting whole shares of RAA Common on the AMEX for the account of all
shareholders of fractional interests, and each such shareholder will be
entitled to his or her pro rata share of the proceeds of such sale upon
surrender of his or her BFC common share certificates.

Following the Merger, each preferred shareholder of BFC will own the same
number of shares of RAA Preferred as he or she held of preferred shares of
BFC, and the RAA Preferred shares will have rights and preferences the same as
those of the preferred shares of BFC. Dividends will accumulate on preferred
shares of each series of BFC up to and including the day on which the Closing
occurs and will be paid, together with the dividends then payable in respect
of the corresponding series of RAA Preferred, to the holders thereof on the
dividend payment date in respect of the Initial Dividend Period for such
corresponding series of RAA Preferred. The "Initial Dividend Period" for newly
issued shares of RAA Preferred will be the same dividend period in effect for
the corresponding series of preferred stock of BFC in effect immediately prior
to the Merger. The dividend rate for the newly issued shares of RAA Preferred
for such Initial Dividend Period thereof will be the dividend rate in effect
immediately prior to the Merger for the corresponding series of preferred
shares of BFC. The initial auction for the newly issued shares of RAA
Preferred issued pursuant to the Merger will be held on the day on which the
auction next succeeding the Merger would have been held for the preferred
shares of the corresponding series of preferred shares of BFC but for the
Merger.

Under the terms of the Merger Agreement, the Merger is conditioned upon (i)
approval by the shareholders of BFC and RAA, as described under "Votes
Required for the Merger" below, (ii) BFC's and RAA's receipt of written advice
from Moody's (a) confirming that consummation of the Merger will not impair
the Aaa ratings assigned to the outstanding preferred shares of RAA and (b)
assigning Aaa ratings to the shares of RAA Preferred to be issued pursuant to
the Merger, (iii) BFC's and RAA's receipt of an opinion to the effect that the
Merger will qualify as a tax-free reorganization under the Code, (iv) BFC's
and RAA's receipt of certain routine certificates and legal opinions, (v) BFC
not owning any assets or being subject to any liabilities that RAA is
prohibited from acquiring or assuming and (vi) the SEC not taking any action
to prohibit the Merger. Assuming satisfaction of the conditions in the Merger
Agreement, the Closing will be effective on November 30, 1999 or such other
date as agreed to by the parties.

17
<PAGE>

The Merger Agreement may be terminated before or after approval by
shareholders of BFC or RAA, at any time prior to the Closing (i) by RAA in its
sole discretion, (ii) by BFC if any condition to BFC's obligations under the
Merger Agreement has not been satisfied or waived, (iii) by the mutual consent
of the parties or (iv) by any party to the Merger if the Merger has not
occurred by December 31, 1999. The Merger Agreement provides further that at
any time before or (to the extent permitted by law) after approval of the
Merger Agreement by the shareholders of BFC (x) the parties may, by written
agreement authorized by their respective Boards of Directors and with or
without the approval of their shareholders, amend any of the provisions of the
Merger Agreement provided that such amendment does not materially adversely
affect the shareholders of the parties and (y) any party may waive any default
by another party or the failure to satisfy any of the conditions to its
obligations (the waiver to be in writing and authorized by the Board of
Directors of the waiving party with or without the approval of such party's
shareholders) if in the judgment of the Boards of Directors such action or
waiver would not have a material adverse effect on the benefits intended under
this Agreement.

Surrender and Exchange of BFC Share Certificates. After the Closing, each
holder of an outstanding certificate or certificates formerly representing
common shares of BFC will be entitled to receive, upon surrender of his or her
certificates, a certificate or certificates representing (i) the number of RAA
Common shares exchangeable for such holder's common shares, (ii) the number of
RAA Common shares payable as the special dividend declared by BFC prior to the
Merger, unless the shareholder has elected to receive cash in which case the
shareholder shall receive such dividend in cash and (iii) cash in lieu of any
fractional RAA Common shares. Promptly after the Closing, the transfer agent
will mail to each holder of certificates formerly representing BFC shares a
letter of transmittal for use in surrendering his or her certificates for
certificates representing RAA Common shares and cash in lieu of any fractional
RAA Common shares.

After the Closing, each holder of an outstanding certificate or certificates
formerly representing preferred shares of BFC will be entitled to receive,
upon surrender of his or her certificate or certificates, a certificate or
certificates representing the number of shares of RAA Preferred distributable
with respect to such holder's preferred shares of BFC. Promptly after the
Closing, the transfer agent for the RAA Preferred will mail to each holder of
certificates formerly representing preferred shares of BFC a letter of
transmittal for use in surrendering his or her certificates for certificates
representing preferred shares of BFC.

Shareholders should not send in any share certificates at this time. Upon
consummation of the Merger, holders of BFC shares will be furnished
instructions for exchanging their BFC share certificates for RAA share
certificates and, if applicable, cash in lieu of fractional RAA Common shares.

From and after the Closing, certificates formerly representing BFC shares will
be deemed for all purposes to evidence ownership of the number of RAA Shares
distributable with respect to BFC shares in the Merger, provided that until
BFC share certificates have been so surrendered, no dividends payable to the
holders of record of RAA Shares as of any date subsequent to 30 days after the
Merger are required to be paid to the holders of BFC share certificates.
Unpaid dividends on RAA shares to holders of record as of any date after such
30th day and prior to the exchange of certificates by a BFC shareholder will
be paid to such shareholder, without interest, at the time such shareholder
surrenders in proper form his or her BFC share certificates for exchange.

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<PAGE>

From and after the Closing, there will be no transfers on the record transfer
books of BFC. If, after the Closing, certificates representing BFC shares are
presented to BFC, they will be cancelled and exchanged for certificates
representing RAA shares and, if applicable, the cash in lieu of fractional RAA
common shares distributable with respect to such fractional RAA shares.

Appraisal Rights. Under Maryland law, stockholders of an investment company
whose shares are traded publicly on a national securities exchange, such as
BFC, are not entitled to demand the fair value of their shares in connection
with the Merger of BFC; therefore, the common shareholders of BFC will be
bound by the terms of the Merger, if approved at the special shareholders
meeting. However, any common shareholder of BFC may sell his or her common
shares at any time on the NYSE. Conversely, since the preferred shares of BFC
are not traded publicly on a national securities exchange, such preferred
shareholders will be entitled to demand and receive payment of the fair value
of such preferred shareholder's shares upon the consummation of the Merger. As
shareholders of the corporation acquiring BFC, neither holders of RAA Common
nor holders of RAA Preferred are entitled to appraisal rights under Maryland
law.

Under Maryland law, a preferred shareholder of BFC desiring to receive payment
of the fair value of his or her stock (an "objecting stockholder") (i) must
file with BFC a written objection to the Merger at or before the Meeting, (ii)
must not vote in favor of the Merger and (iii) must make written demand on RAA
for payment of his or her stock stating the number and class of shares for
which he or she demands payment, within 20 days after the Maryland Department
of Assessments and Taxation accepts for filing the Articles of Transfer with
respect to the Merger (RAA is required promptly to give written notice to all
objecting stockholders of the date that the Articles of Transfer are accepted
for record). An objecting stockholder who fails to adhere to this procedure
will be bound by the terms of the Merger. An objecting stockholder ceases to
have any rights of a stockholder except the right to receive fair value for
his or her shares and has no right to receive any dividends or distributions
payable to such holders on a record date after the close of business on the
date on which fair value is to be determined, which, for these purposes will
be the date of the Meetings. A demand for payment of fair market value may not
be withdrawn, except upon the consent of RAA. Within 50 days after the
Articles of Transfer have been accepted for filing, an objecting shareholder
who has not received payment for his or her shares may petition a court
located in Baltimore, Maryland for an appraisal to determine the fair market
value of his or her stock.

Reasons for the Merger; Board Consideration. At the August 12, 1998 meeting of
the Boards of Directors of BFC and RAA, each Board was advised that the
Investment Adviser was studying whether a merger of BFC with RAA would be in
the best interests of the shareholders. Following that meeting, the Investment
Adviser completed its studies and at a meeting of the Boards of Directors of
BFC held on May 13, 1999, the Investment Adviser presented a preliminary
proposal for the Merger. The preliminary proposal was discussed by the Boards
at such meeting, after which the Boards requested additional information from
the Investment Adviser. This additional information was considered in depth by
the Boards of Directors of BFC and RAA at a meeting held on July 12, 1999. At
that meeting, the Boards of Directors of BFC and RAA (the "Boards"), which
consist of the same individuals, concluded that the Merger is in the best
interests of the shareholders of BFC and RAA, approved the Merger Agreement
and approved the submission of the Merger Agreement to each of BFC's and RAA's
shareholders for approval.

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<PAGE>

Also on July 12, 1999, the Boards of Directors preliminarily approved the
filing of amended Articles Supplementary to RAA's Charter setting forth the
designation of and establishing the number of shares, powers, rights and
preferences of each series of RAA Preferred that may be issued to holders of
preferred shares of BFC as part of the Merger.

The Boards of Directors of BFC and RAA recommend that the shareholders of each
of BFC and RAA, respectively, vote FOR the proposal relating to the Merger
Agreement.

In reviewing the proposed Merger, the Boards of Directors of BFC and RAA
considered the potential impact of the Merger on its shareholders, including
but not limited to (i) the terms and conditions of the Merger Agreement; (ii)
the capabilities, practices and resources of the organizations that provide
investment advisory and certain other services to BFC and RAA and of the
organizations that would provide such services to RAA after the Merger, and
the terms on which these services are and would be provided; (iii) the
investment objectives, policies and restrictions of BFC and RAA and their
compatibility; (iv) the historical investment performance of BFC and RAA and
anticipated future influences on such investment performance with and without
the Merger; (v) the historical and projected operating expenses of BFC and RAA
and the projected pro forma operating expenses of RAA; (vi) the terms of the
preferred shares of BFC and RAA; (vii) the anticipated tax consequences of the
Merger; (viii) the shift on the part of BFC's shareholders to a perpetual fund
rather than one having a stated term; (ix) the trading history of the common
shares of BFC and RAA and the anticipated impact of the Merger on the market
price of such common shares; and (x) the costs associated with the Merger.

In approving the Merger, the Boards identified certain benefits that are
likely to result from merging BFC with RAA, including: higher distribution
rates; the payment of a special dividend to the common shareholders of BFC
immediately prior to the Merger; reducing the impact on shareholders of BFC of
having portfolio securities being called by their issuers, because RAA would
be able to reinvest the proceeds from called portfolio securities in
securities with longer maturities and higher rates of interest (rather than
securities with shorter maturities and lower rates of interest required by the
limited term of BFC); increased possibility of trading at a lower or at no
discount from net asset value; and a more liquid trading market for common
shares of BFC after being merged with RAA. The Boards also considered the
possible adverse effects and estimated costs of merging BFC with RAA. See
"Risks and Special Considerations Regarding the Merger."

Higher Distribution Rate. Based on data presented by the Investment Adviser
regarding BFC's and RAA's current distribution rate and the absence for RAA of
the requirement to retain income in order to be able to meet an objective of
distributing a specified amount at a specified termination time, the Boards of
Directors of BFC and RAA anticipates that the monthly distribution rate of RAA
will be higher per dollar of net assets attributable to a share of common
stock than would be the case for BFC by itself and for RAA by itself.

Special Dividend. BFC, as part of its investment objective, seeks to return to
its common shareholders $15 per share on or about December 31, 2008. In order
to assure that BFC will be able to achieve this portion of its investment
objective, BFC retains each year a portion of its net investment income and
holds such income until the expiration of BFC. In connection with the Merger,
BFC will pay its common shareholders immediately prior to the Merger a special
dividend out of such retained

20
<PAGE>

income. As of April 30, 1999, the Investment Adviser estimates this
distribution to be: $0.4659 per share for BFC. This distribution will be
exempt from regular Federal income tax.

Reduced Reinvestment Risk. The terms of municipal obligations often give
their issuers the right periodically to "call" or repay 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 BFC was formed, most of the municipal obligations available in the market
were subject to call provisions. Because interest rates have declined, the
Investment Adviser believes that many of the municipal obligations owned by
BFC will be called prior to the termination of BFC. The Investment Adviser
would then reinvest the proceeds from the called securities in other municipal
obligations but, because BFC has a limited term, the Investment Adviser would
be required to reinvest in municipal obligations maturing prior to the
expiration of BFC's term. The relatively short term remaining for BFC would
require the Investment Adviser to reinvest in shorter term municipal
obligations with relatively lower interest rates. The Merger would result in
the Investment Adviser being able to reinvest the proceeds from called
portfolio securities into municipal obligations with longer maturities and
relatively higher interest rates because RAA has an indefinite term.

Potential for Improved Stock Price Performance. Based on data presented by the
Investment Adviser regarding the trading patterns of BFC and RAA, as well as
other leveraged municipal bond funds, and regarding the potential impact of
higher distribution rates, the Boards of Directors of BFC and RAA believe that
the common shares of RAA may trade at a lower or no discount from net asset
value following the Merger. In this connection, the Boards of Directors noted
that the market value of common stocks issued by closed-end municipal bond
funds historically have had a high correlation with the distribution rates on
such stock, and that a higher distribution rate as a result of the Merger may
produce positive stock price performance.

Increased Liquidity. The Merger would result in RAA having a significantly
larger number of common shares outstanding, and a significantly larger number
of common shareholders, than RAA prior to the Merger. Market prices of common
shares of smaller investment companies are likely to experience greater
spreads between their bid and offer prices than market prices of common shares
of larger investment companies, and that increasing the size of RAA by merging
BFC with RAA should result in a higher average daily trading volume, a
narrower average spread between bid and offer prices and reduced price
volatility for its common shares. There can be no assurance that the Merger
will produce these anticipated benefits. However, the Boards of BFC and RAA
believe that these results, if obtained, would benefit holders of common
shares by affording them a more liquid trading market for their shares and the
opportunity for more favorable price execution in trading the common shares.

In approving the Merger, the Boards of BFC and RAA also considered a report of
the Investment Adviser indicating that the Merger should have a beneficial
overall effect on the financial status and ongoing performance of RAA, and
considered such measures as nominal yield, annual earnings, annual dividends,
dividend rates as a percentage of market price, management fees and
undistributed net investment income balances. The Boards of BFC and RAA also
examined the relative credit strength, maturity characteristics, preferred
share asset coverages and mix of type of securities of BFC and RAA's
portfolios of municipal obligations and the costs involved in the Merger. The
Boards noted the many similarities between BFC and RAA. Based on these
factors, the Boards determined that the

21
<PAGE>

Merger is likely to provide benefits to the shareholders of BFC, as discussed
above, that outweigh the possible adverse effects and the costs (including
legal, accounting and administrative costs, some of which have already been
incurred in evaluating and analyzing the Merger) presented by the Merger.

Expense Ratios. In evaluating the Merger, the Board of Directors of BFC
considered that the Merger is not expected to cause any increase in expense
ratios that will be experienced by common shareholders of BFC. The average
aggregate expense ratios for BFC's latest three fiscal years was 0.98%. The
anticipated aggregate pro forma expense ratio for RAA, assuming that the
Merger is completed, is 0.97%. The Boards of Directors also considered that
the anticipated aggregate pro forma expense ratio for RAA will be [less
than/approximately the same as] the average aggregate expense ratio for
closed-end national municipal bond funds as reported in information prepared
by Lipper and presented to the Boards by the Investment Adviser. The aggregate
expense ratio of RAA will be the same as the current expense ratio of BFC as a
result of the Merger, which will benefit the current shareholders of RAA.

Indefinite Term. BFC currently is scheduled to terminate on December 31 of
2008. As part of BFC's investment objective, it seeks to distribute to its
common shareholders $15 per common share, in connection with its termination.
RAA has no scheduled termination date and, if the Merger of BFC is completed,
common shareholders of BFC will be dependent on the trading prices available
in the market for the sale of their shares. Such market prices may be at,
above or below the amount they would have received upon termination of BFC. In
recommending that the common shareholders of BFC approve BFC's Merger into
RAA, the Board of Directors of BFC determined that the Merger is likely to
provide benefits to the shareholders of BFC, as discussed above, that outweigh
the possible market risks associated with the disposition of their common
shares following the Merger.

Expenses of the Merger. In evaluating the Merger, the Investment Adviser
estimated the amount of expenses BFC and RAA would incur to be $175,731, which
includes additional stock exchange listing fees, SEC registration fees, legal
and accounting fees and proxy and distribution costs. These estimates were
based on information provided by BFC's and RAA's service providers. The Merger
Agreement provides that BFC and RAA will each be responsible for that portion
of the expenses of the Merger equal to the proportion its total assets bears
to the combined total assets of BFC and RAA.

In approving the Merger, the Boards of Directors determined that the Merger
should result in no dilution of the interests of BFC's and RAA's existing
shareholders.

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<PAGE>

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The consummation of the Merger is conditioned upon, among other things, the
receipt by RAA and BFC of an opinion as of the Closing from Skadden, Arps,
Slate, Meagher & Flom LLP and its affiliates to the effect that, on the basis
of facts, representations and assumptions set forth in such opinion, the
Merger will be treated as a reorganization within the meaning of Section
368(a) of the Code, and RAA and BFC will each be a party to such
reorganization within the meaning of Section 368(b) of the Code. Accordingly,
no gain or loss will be recognized by RAA or BFC as a result of the Merger,
and no gain or loss will be recognized by a shareholder of BFC who receives
RAA Shares for shares of BFC exchanged therefor (except with respect to any
cash received in lieu of a fractional interest in RAA Shares and the Special
Dividend). The opinion referred to above has been filed as an exhibit to the
Registration Statement of which this Combined Proxy Statement/Prospectus is a
part.

The aggregate tax basis of the RAA Shares to be received by shareholders of
BFC will be the same as the aggregate tax basis in the shares of BFC
surrendered in exchange therefor (reduced by any amount allocable to a
fractional share interest for which cash is received), and the holding period
of the RAA Shares to be received by shareholders of BFC in connection with the
Merger will include the holding period of the shares of BFC surrendered in
exchange therefor, provided that the shares in BFC are held as a capital asset
at the Closing.

Cash received in lieu of a fractional RAA Share will be treated as received in
redemption for such fractional interest, and gain or loss will be recognized,
measured by the difference between the amount received and the portion of the
tax basis of a shareholder's shares in BFC allocable to such fractional
interest. Such gain or loss generally will constitute capital gain or loss if
the shares of BFC are held as a capital asset at the Closing, and will be
long-term capital gain or loss if the holding period of such shares is greater
than one year at the Closing.

It is intended that the Special Dividend constitute a distribution from BFC.
As such, each distribution will be treated as ordinary income (except to the
extent eligible for designation by BFC as an exempt-interest dividend or a
capital gain dividend), whether a shareholder receives the Special Dividend in
stock or elects to receive cash in lieu of stock.

No tax ruling has been or will be received from the Internal Revenue Service
("IRS") in connection with the Merger. An opinion of counsel is not binding on
the IRS, and there can be no assurance that the IRS would not adopt a contrary
position or that the IRS position would not be sustained by a court. THE ABOVE
DISCUSSION MAY NOT APPLY TO PARTICULAR CATEGORIES OF HOLDERS OF SHARES OF BFC
SUBJECT TO SPECIAL TREATMENT UNDER THE CODE, SUCH AS PREFERRED SHAREHOLDERS OF
BFC WHO ELECT APPRAISAL RIGHTS, FOREIGN HOLDERS OR HOLDERS WHOSE SHARES WERE
ACQUIRED PURSUANT TO THE EXERCISE OF AN EMPLOYEE STOCK OPTION OR OTHERWISE AS
COMPENSATION. SHAREHOLDERS OF BFC ARE URGED TO CONSULT THEIR TAX ADVISORS TO
DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO THEM, INCLUDING ANY
STATE, LOCAL OR OTHER TAX CONSEQUENCES OF THE MERGER.

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<PAGE>

VOTING MATTERS

General. This Combined Proxy Statement/Prospectus is furnished in connection
with the solicitation by the Boards of Directors of BFC and RAA of proxies to
be voted at the Meeting and at any adjournments thereof, for the purposes set
forth in the accompanying Notice of Special Meeting of Shareholders. Any such
adjournment will require the affirmative vote of a majority of the shares
present in person or by proxy to be voted at the Meeting. The persons named as
proxies will vote in favor of any such adjournment those proxies that instruct
them to vote in favor of any of the proposals. Conversely, they will vote
against any such adjournment any proxies that instruct them to vote against
the proposals.

The Meeting is scheduled as a joint meeting of the respective shareholders of
BFC and RAA because the shareholders of BFC and RAA are expected to consider
and vote on similar matters. The Boards of BFC and RAA have determined that
the use of a joint proxy statement/prospectus for the Meeting is in the best
interest of BFC's and RAA's shareholders. In the event that any shareholder
present at the Meeting objects to the holding of a joint meeting and moves for
an adjournment of BFC's meeting to a time immediately after the Meeting so
that BFC's meeting may be held separately, the persons named as proxies will
vote in favor of such adjournment. Shareholders of BFC and RAA will vote
separately on the proposal.

The cost of soliciting proxies will be borne by BFC and RAA in proportion to
the amount of proxies solicited on behalf of BFC and RAA. In addition, certain
officers, directors and employees of BFC, RAA, the Investment Adviser and the
administrator of BFC and RAA (none of whom will receive additional
compensation therefor) may solicit proxies in person or by telephone,
telegraph or mail. In addition, BFC and RAA may employ [Shareholder
Communications Corporation] pursuant to its standard contract as proxy
solicitor, the cost of which will be borne proportionately by BFC and RAA and
is estimated to be approximately [$3,500] for each of BFC and RAA.

All properly executed proxies received prior to the Meeting will be voted at
the Meeting in accordance with the instructions marked thereon or otherwise as
provided therein. Abstentions will be counted as present but not voting with
respect to those proposals from which a shareholder abstains. Broker non-votes
will be treated as shares that are not present. Unless instructions to the
contrary are marked, shares represented by all properly executed proxies will
be voted "FOR" all the proposals. Any proxy may be revoked at any time prior
to the exercise thereof by submitting another proxy bearing a later date or by
giving written notice to the Secretary at the address indicated above or by
voting in person at the Meeting.

The Boards of BFC and RAA know of no business other than that specifically
mentioned in the Notice of Meeting which will be presented for consideration
at the Meeting. If any other matters are properly presented, it is the
intention of the persons named in the enclosed proxy to vote thereon in
accordance with their best judgment.

The Boards of BFC and RAA have fixed the close of business on ,
1999, as the record date for the determination of stockholders of BFC and RAA
entitled to notice of and to vote at the Meeting or any adjournment thereof.

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<PAGE>

At the close of business on April 30, 1999, RAA and BFC had outstanding the
number of common shares and preferred shares set forth below:

<TABLE>
<CAPTION>
Amount Held Amount Outstanding
by Fund for Exclusive of
Amount its Own Amount Shown in
Fund Designation Authorized Account Previous Column
- ---- ----------- ----------- ----------- ------------------
<S> <C> <C> <C> <C>
RAA...................... Common 199,999,700 0 1,007,093
Preferred:
W7 300 0 300
BFC...................... Common 199,996,880 0 10,407,093
Preferred:
W7 1,560 0 1,560
W28 1,560 0 1,560
</TABLE>

For BFC and RAA, the class or classes of shares listed above are the only
authorized class or classes of shares.

The principal executive offices of BFC are located at 800 Scudders Mill Road,
Plainsboro, New Jersey 08536 and the principal executive offices of RAA are
located at Gateway Center Three, 100 Mulberry Street, Newark, New Jersey
07102. The enclosed proxy or proxies and this proxy statement are first being
sent to BFC's and RAA's shareholders on or about , 1999.

BFC and RAA will furnish, without charge, a copy of BFC's most recent Annual
Report and the most recent Semi-Annual Report succeeding the Annual Report, if
any, to any shareholder upon request, provided such Annual or Semi-Annual
Report is not enclosed herein. Requests should be directed to 345 Park Avenue,
New York, New York 10154 (telephone number (800) 227-7BFM(7236)).

As of February 26, 1999, none of BFC or RAA was aware of any beneficial or
record owner of 5% or more of any class of shares of BFC or RAA except that
242,000 of the outstanding Common Shares of RAA (or 24.07% of the outstanding
Common Shares) are jointly held by M.H. Whittier Corporation, James E. Greene,
Arto G., Michael J. Casey and Whittier Trust Company, all of whom are located
as 1600 Huntington Drive, South Pasadena, California 91030.

All proxies received will be voted in favor of the proposal, unless otherwise
directed therein.

If the accompanying proxy is or the accompanying proxies are executed and
returned in time for the Meeting, the shares covered thereby will be voted in
accordance with the proxy or proxies on all matters that may properly come
before the Meeting.

Voting Requirements of BFC

Votes of Common Shareholders as a Separate Class. Common shareholders of BFC
are being asked to approve the Merger Agreement pursuant to Maryland law and
under the Charter of BFC. Because of the separate class vote with respect to
the preferred stock of BFC described below, the Charter of BFC requires the
common stock of BFC to vote as a separate class with respect to the Merger and
the related Merger Agreement. The affirmative vote of shareholders
representing at least a majority of the outstanding common shares of BFC is
required to approve BFC's Merger and the Merger Agreement.

Votes of Preferred Shareholders as a Separate Class. Preferred shareholders of
BFC are being asked to approve the Merger Agreement pursuant to the Articles
Supplementary pertaining to each series of preferred shares, Maryland law and
as a "plan of reorganization" under the 1940 Act.

25
<PAGE>

Section 18(a)(2)(D) of the 1940 Act provides that the terms of preferred
shares issued by a registered closed-end investment company must contain
provisions requiring approval by the vote of a majority of such shares, voting
as a separate class, of any plan of reorganization adversely affecting such
shares. The 1940 Act makes no distinction between a plan of reorganization
that has an adverse effect as opposed to a materially adverse effect. While
the Board of Directors of BFC does not believe that the holders of preferred
shares of BFC would be materially adversely affected by the Merger, it is
possible that there may be insignificant adverse effects (such as where the
asset coverage with respect to the shares of the RAA Preferred issued pursuant
to the Merger is slightly more or less than the asset coverage with respect to
the preferred shares of BFC for which they are exchanged or such as the
absence of a fixed termination date for RAA). Accordingly, BFC is seeking
approval of the Merger Agreement by the holders of preferred shares of BFC.
Accordingly, the affirmative vote of shareholders representing at least a
majority of the outstanding preferred shares of BFC, with all the series of
preferred shares of BFC voting together as a single class, is required to
approve BFC's Merger and the Merger Agreement. Please note that the asset
coverage tests applicable to RAA Preferred under the 1940 Act and required by
the rating agencies will be satisfied following completion of the Merger.

Voting Requirement of RAA

Combined Vote of Common and Preferred Shareholders. A combined vote of the
common and preferred shareholders of RAA is required to approve the Merger.
Maryland law requires shareholder approval to effect the Merger. The
affirmative vote of shareholders representing at least a majority of the
outstanding shares of RAA Common and RAA Preferred, voting together as a
single class, is required to approve the Merger and the related Merger
Agreement.

Quorum

A quorum is constituted with respect to RAA and BFC by the presence in person
or by proxy of the holders of more than 50% of the outstanding shares of RAA
or BFC entitled to vote at the Meeting and with respect to a class vote of the
preferred shares or common shares of BFC by the presence in person or by proxy
of the holders of more than 50% of the outstanding shares of such class
entitled to vote at the Meeting. For purposes of determining the presence of a
quorum for transacting business at the Meeting, abstentions will be treated as
shares that are present at the Meeting but which have not been voted.
Abstentions will have the effect of a "no" vote for purposes of obtaining the
requisite approvals. Broker "non-votes" (that is, proxies from brokers or
nominees indicating that such persons have not received instructions from the
beneficial owners or other persons entitled to vote shares on a particular
matter with respect to which the brokers or nominees do not have discretionary
power) will not be treated as shares that are present at the Meeting and,
accordingly, could make it more difficult to obtain the requisite approvals.

In the event that a quorum is not present at the Meeting, or in the event that
a quorum is present at the Meeting but sufficient votes to approve the Merger
Agreement are not received with respect to RAA or BFC, the persons named as
proxies may propose one or more adjournments of the Meeting or a portion
thereof to permit further solicitation of proxies. Any such adjournment(s)
will require the affirmative vote of a majority of those shares affected by
the adjournment(s) that are represented at the Meeting at that time in person
or by proxy. If a quorum is not present on a particular matter, the persons
named as proxies will vote those proxies in favor of adjournment except to the
extent the

26
<PAGE>

proxy expressly states otherwise. If a quorum is present on a particular
matter, the persons named as proxies will vote in favor of such adjournment(s)
all proxies other than those proxies required to be voted AGAINST such
proposal, which will be voted against any adjournment(s). A shareholder vote
may be taken with respect to RAA or BFC on some or all matters before any such
adjournment(s) if sufficient votes have been received for approval.

DESCRIPTION OF COMMON SHARES OF RAA AND BFC

General. The Charter of RAA authorizes the issuance of 199,999,700 common
shares in a single class, par value $.01 per share. As of April 30, 1999,
there were issued and outstanding 1,007,093 shares of RAA Common. If the
Merger is approved, it is anticipated that RAA will be authorized to issue
approximately 199,996,580 shares of RAA Common immediately after the Merger
due to the increase in authorized shares of RAA Preferred. If the Merger is
approved, at the Closing, RAA will issue a number of additional shares of RAA
Common that, as described above, will be based on the relative aggregate per
share net asset values of RAA and BFC, as of the close of business on the last
business day prior to the closing. Based on the relative per share net asset
values as of April 30, 1999, RAA would have issued a maximum of approximately
11,222,930 additional shares of RAA Common if the Merger had occurred as of
the next business day, assuming that all common shareholders of BFC elect to
receive the special dividend paid to them in connection with the Merger in
additional common shares of BFC. Shares of RAA Common will be, when issued in
the Merger or against receipt of consideration therefor, at least equal to the
par value thereof, fully paid and nonassessable and will have one vote per
share in all matters on which such shares are entitled to vote.

The common shares of BFC and RAA have equal voting rights and equal rights
with respect to the payment of dividends and distribution of assets upon
liquidation and have no preemptive, conversion or exchange rights or rights to
cumulative voting.

Distributions. The common shares of RAA and BFC have equal rights with respect
to the payment of dividends and the distribution of assets upon liquidation.
Neither RAA nor BFC will be permitted to declare, pay or set apart for payment
any dividend or distribution on common shares (other than in additional common
shares), unless (a) cumulative dividends on its respective outstanding
preferred shares have been paid in full and (b) it meets the asset coverage
tests applicable to its preferred shares. This latter limitation on RAA's and
BFC's ability to make distributions on common shares could under certain
circumstances impair their ability to maintain their qualification for
taxation as a regulated investment company under the Code.

RAA currently distributes monthly all or a portion of its net investment
income to holders of RAA Common. Monthly distributions to holders of RAA
Common consist of net investment income remaining after the payment of
dividends on outstanding preferred shares. For Federal income tax purposes,
however, if RAA realizes net capital gains, a portion of RAA's distributions
will be required to be allocated pro rata among the holders of RAA Common and
holders of RAA Preferred.

Comparison of Rights of Holders of Common Shares of RAA AND BFC. The
provisions of the Charter of RAA are substantially the same as the provisions
of the Charter of BFC in all respects, except as described in this paragraph.
The full text of BFC's and RAA's Charter is on file with the

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<PAGE>

SEC and may be obtained as described under "Available Information." The
Charter of BFC provides for termination of its existence on a specific date,
which is December 31, 2008 in the case of BFC whereas RAA's Charter provides
for its perpetual existence. The Charter of BFC provides that the specific
termination provision of its Charter may not be amended or repealed without
the affirmative vote of at least 75% of the outstanding shares entitled to
vote thereon and the 1940 Act would require separate approval of any such
amendment or repeal by a majority of the outstanding preferred shares of BFC
or, if less, at least two-thirds of the preferred shares voting thereon if at
least 50% of the preferred shares are present and voting. RAA has no
termination provision and accordingly no provision requiring a supermajority
vote for amendment or repeal of such a provision.

Certain Provisions in RAA's and BFC's Charter. BFC and RAA have in their
Charters and by-laws ("By-Laws") certain substantially similar provisions
commonly referred to as "antitakeover" provisions, which may have the effect
of limiting the ability of other entities or persons to acquire control of BFC
or RAA, to cause them to engage in certain transactions or to modify their
structure.

First, a director may be removed from office only for cause by the vote of at
least 75% of the shares entitled to be voted on the matter. Second, the
affirmative vote of the holders of at least 75% of the shares will be required
to authorize BFC's or RAA's conversion from a closed-end to an open-end
investment company, which conversion would result in delisting from the AMEX
with respect to RAA and the NYSE with respect to BFC. Third, the present board
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 shares of capital stock
will be required to amend the Charter or By-Laws to change any of the
foregoing provisions.

In addition, under each of BFC's and RAA's Charter, BFC and RAA have elected
to be subject to provisions of the Maryland General Corporation Law that
generally provide that, unless an exemption is available, certain mergers,
consolidations, share exchanges, asset sales, stock issuances, liquidations or
dissolutions, recapitalizations, and other transactions ("Business
Combinations"), with a beneficial owner of 10% or more of the voting power of
a Maryland corporation (an "Interested Shareholder") or any affiliate of an
Interested Shareholder are prohibited for a period of five years following the
most recent date on which the Interested Shareholder became an Interested
Shareholder. Thereafter, such a Business Combination must be recommended by
the board of directors and approved by the affirmative vote of at least (i)
80% of the votes entitled to be cast by outstanding shares of voting stock of
the corporation and (ii) 66 2/3% of the votes entitled to be cast by holders
of voting stock other than voting stock held by the Interested Shareholder who
is (or whose affiliate is) a party to the Business Combination or an affiliate
or associate of the Interested Shareholder (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 for any amendment to the Charter to
change the provisions subjecting BFC and RAA 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 BFC's
or RAA's business or management and may have the effect of depriving
shareholders of an opportunity to sell shares at a premium over prevailing
market prices by

28
<PAGE>

discouraging a third party from seeking to obtain control of BFC or RAA in a
tender offer or similar transaction. Reference should be made to RAA's Charter
on file with the SEC for the full text of these provisions.

Dividend Reinvestment Plan. Pursuant to RAA's Dividend Reinvestment Plan (the
"Plan"), each RAA shareholder automatically has all distributions of dividends
and capital gains reinvested by State Street Bank & Trust Company (the "Plan
Agent") in shares of RAA pursuant to the Plan, unless an election is made to
receive cash. Pursuant to BFC's Plan, each shareholder of BFC automatically
has all distributions of dividends and capital gains paid in cash, unless the
shareholder elects to have such distributions reinvested by the Plan Agent in
shares of BFC. Shareholders of BFC, upon consummation of the Merger, will have
their election to receive dividends paid in cash or reinvested in shares
preserved following the Merger into RAA.

The Plan Agent effects purchases of shares under the Plans in the open market.
Shareholders who do not participate in the Plans receive all distributions in
cash paid by check in U.S. dollars mailed directly to the shareholder of
record (or if the shares are held in street or other nominee name, then to the
nominee) by the custodian, as dividend disbursing agent.

The Plan Agent serves as agent for the stockholders in administering the
Plans. After BFC or RAA declares a dividend or determines to make a capital
gain distribution, the Plan Agent, as agent for the participants, receives the
cash payment and uses it to buy shares in the open market, on the AMEX, the
NYSE or elsewhere, for the participants' accounts. New shares are not issued
in connection with the Plan.

Participants in the Plans may withdraw from the Plans upon written notice to
the Plan Agent. When a participant withdraws from a Plan or upon termination
of such Plan as provided below, certificates for whole shares credited to his
or her account under the Plan will be issued and a cash payment will be made
for any fraction of a share credited to such account.

The Plan Agent maintains each shareholder's account in each Plan and furnishes
monthly written confirmations of all transactions in the accounts, including
information needed by shareholders for personal and tax records. Shares in the
account of each Plan participant are held by the Plan Agent in non-
certificated form in the name of the participant, and each shareholder's proxy
will include those shares purchased pursuant to such Plan.

Shareholders whose common shares are held in the name of a broker or nominee
should contact such broker or nominee to determine whether and how they may
participate in a Plan.

In the case of shareholders, such as banks, brokers or nominees, that hold
shares for others who are the beneficial owners, the Plan Agent administers
the Plans on the basis of the number of shares certified from time to time by
the record shareholder as representing the total amount registered in the
record shareholder's name and held for the account of beneficial owners who
are participants in a Plan.

The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions are paid by BFC and RAA, as applicable. However, each
participant pays a pro rata share of brokerage commissions incurred with
respect to the Plan Agent's open market purchases in connection with the
reinvestment of dividends and distributions. There are no other charges to
participants for reinvesting dividends or capital gain distributions, except
for certain brokerage commissions, as described above.

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<PAGE>

The automatic reinvestment of dividends and distributions does not relieve
participants of any Federal income tax that may be payable or required to be
withheld on such dividends or distributions.

Experience under the Plans may indicate that changes are desirable.
Accordingly, BFC and RAA reserve the right to amend the Plans as applied to
any dividend or distribution paid subsequent to written notice of the change
sent to all participants in the Plans at least 90 days before the record date
for the dividend or distribution. The Plans also may be amended by the Plan
Agent by at least 90 days' written notice to all participants in the Plan. The
Plans may be terminated by the Plan Agent or BFC or RAA upon at least 30 days'
written notice to the participants in the Plan. All correspondence concerning
the Plan should be directed to the Plan Agent at P.O. Box 366, Boston,
Massachusetts 02101.

In connection with the Merger, a common shareholder of BFC might receive a
number of RAA common shares in the Merger which consists of or includes an
"odd lot" (i.e., less than 100 shares). Such odd lot holders may participate
in RAA's Dividend Reinvestment Plan for the limited purpose of purchasing a
sufficient number of RAA common shares to bring their odd lot shares up to a
100-share "round lot." Each such odd lot holder would send in the certificates
representing his or her odd lot shares and direct the Plan Agent to reinvest
dividends only until a sufficient number of RAA common shares have been
acquired to form a round lot. When this is accomplished, (a) certificates
representing the round lot of RAA common shares would be issued to the holder,
(b) any excess RAA common shares or fractional RAA common shares would be sold
and a check for the sale issued to the holder, and (c) dividend reinvestment
on behalf of such holder would be discontinued.

DESCRIPTION OF PREFERRED SHARES OF RAA AND BFC

General. RAA and BFC utilize a leveraged capital structure through the
issuance of perpetual preferred stock whose dividend rates are reset weekly or
monthly by auction in relation to prevailing short-term municipal rates. As of
the date of this Combined Proxy Statement/Prospectus, RAA had outstanding one
series of RAA Preferred with the designations, dividend periods, auction dates
and annual dividend rate as of April 30, 1999 set forth below:

<TABLE>
<CAPTION>
Annual
Dividend Rate
(as of
Dividend Auction April 30,
Designation Period Date 1999)
----------- -------- --------- -------------
<S> <C> <C> <C>
W7.......................................... 7 days Wednesday 3.25%
</TABLE>

As of the date of this Combined Proxy Statement/Prospectus, BFC had issued and
outstanding two series of preferred shares with the designations, dividend
periods, auction dates and annual dividend rate as of April 30, 1999 set forth
below:

30
<PAGE>

In connection with the Merger, the Board of Directors of RAA classified up to
3,120 authorized and unissued shares of RAA Common shares as new shares of RAA
Preferred, which may be issued in one or more series. Upon completion of the
Merger, each outstanding preferred share of each series of BFC will, without
any action on the part of the holder thereof, be converted into and
exchangeable for one share of a series of RAA Preferred having the same terms,
including the same auction dates, dividend periods and dividend payment dates,
as the shares of each respective series of preferred stock of BFC, except that
the initial dividend rate of the new series of RAA Preferred will be the same
as that established in the most recent auction of the corresponding series of
BFC and dividends on the new series of RAA Preferred will accrue from the date
of the Merger to and including the last day of the dividend period for the
corresponding series of BFC. After the initial dividend period, the dividend
rate for each series of RAA Preferred will be the dividend rate for such
series that results from the auction relating to such series.

Under the 1940 Act, RAA is permitted to have outstanding more than one series
of preferred shares as long as no single series has priority over another
series as to the distribution of assets or the payment of dividends. All
outstanding shares of RAA Preferred and all shares of RAA Preferred issued
pursuant to the Merger will rank on a parity with each other as to the payment
of dividends and the distribution of assets upon liquidation. Shares of RAA
Preferred issued pursuant to the Merger will be, when issued, fully paid and
nonassessable and have no preemptive, conversion or exchange rights or rights
to cumulative voting.

None of the RAA Preferred or any preferred shares of BFC are traded on any
stock exchange or over-the-counter. Shares of RAA Preferred and the preferred
shares of BFC can be purchased at auctions as described herein or through
broker-dealers, if any, who maintain a secondary market in such shares.

Dividends and Dividend Periods. The dividends and distributions policy of each
share of RAA Preferred issued in connection with the Merger will be the same
as those of the outstanding shares of RAA Preferred and those of the
outstanding preferred shares of BFC.

Holders of RAA Preferred and holders of preferred shares of BFC are entitled
to receive, when, as and if declared by the Board of Directors of RAA or BFC,
as the case may be, out of funds legally available therefore, cumulative cash
dividends on their shares. Dividends on RAA Preferred and on preferred shares
of BFC so declared and payable (i) are in preference to and have priority over
any dividends so declared and payable on RAA Common or common shares of BFC,
as the case may be, and (ii) to the extent permitted under the Code and to the
extent available, out of net tax-exempt income earned on RAA's or BFC's
investments. The dividend rate per annum for each series of RAA Preferred and
each series of preferred shares of BFC may vary from dividend period to
dividend period and is determined for each dividend period through an auction
of all of the outstanding shares of such series by an agent (the "Auction
Agent") of RAA or BFC, as the case may be. Dividends on the RAA Preferred and
on the preferred shares of BFC are paid through The Depository Trust Company
("DTC") (or a successor securities depository) on each dividend payment date.
DTC's normal procedures provide for it to distribute dividends in same-day
funds to agent members, who in turn are expected to distribute such dividends
to the person for whom they are acting as agent in accordance with the
instructions of such person. Prior to each dividend payment date, RAA and BFC
are required to deposit with the Auction Agent sufficient funds for the
payment of such declared dividends. None

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<PAGE>

of RAA or BFC has established a reserve for the payment of dividends, and no
interest is payable by RAA or BFC in respect of any dividend payment or
payment on RAA Preferred or preferred shares of BFC which may be in arrears.

Dividends paid by RAA and BFC, to the extent paid from tax-exempt income
earned on municipal obligations, are exempt from Federal income taxes, subject
to the possible application of the alternative minimum tax. However, RAA and
BFC are required to allocate net capital gains and other income subject to
regular Federal income taxes, if any, proportionally between shares of its
common stock and shares of its preferred stock in accordance with the current
position of the IRS. RAA and BFC notify the Auction Agent of the amounts of
any such dividends. The Auction Agent in turn notifies each broker-dealer
whenever it receives any such notice from RAA or BFC, and each broker-dealer
then notifies its customers who are holders of the RAA Preferred or the
preferred shares of BFC. RAA and BFC also may include such income in a
dividend on their preferred shares without giving advance notice thereof if
they increase the dividend by an additional amount to offset the tax effect
thereof.

If RAA or BFC retroactively allocate any net capital gains or other income
subject to regular Federal income taxes to shares of its preferred stock
without having given advance notice thereof as described above, which only may
happen when such allocation is made as a result of the redemption of all or a
portion of the outstanding shares of RAA Preferred or all of the preferred
shares of BFC or the liquidation of RAA or BFC, RAA or BFC will make certain
payments to holders of shares of its preferred stock to which such allocation
was made to offset substantially the tax effect thereof. In no other instances
will RAA or BFC be required to make payments to holders of shares of its
preferred stock to offset the tax effect of any reallocation of net capital
gains or other taxable income.

Neither RAA nor BFC is permitted to declare, pay or set apart for payment any
dividend or distribution on its common shares (other than in additional common
shares), unless (a) cumulative dividends on all its respective outstanding
shares of preferred stock have been paid in full and (b) RAA or BFC meets the
asset coverage tests required by the rating agencies and the 1940 Act. This
latter limitation on RAA's and BFC's ability to make distributions on common
shares could, under certain circumstances, impair the ability of RAA or BFC to
maintain its qualification for taxation as a regulated investment company
under the Code.

Voting Rights. The voting rights of the RAA Preferred to be issued in
connection with the Merger will be substantially similar to those of the
outstanding shares of RAA Preferred and the outstanding preferred shares of
BFC.

The provisions of the Charter of RAA are substantially the same as the
provisions of the Charter of BFC in all respects, except that the Charter of
BFC provides for a finite term. The 1940 Act requires separate approval of any
plan of reorganization that may adversely affect preferred shares by a
majority of the outstanding preferred shares of RAA or BFC or, if less, at
least two-thirds of the preferred shares voting thereon if at least 50% of the
preferred shares are present and voting. The 1940 Act requires that the
holders of RAA Preferred and the holders of preferred shares of BFC and any
other preferred stock issued by RAA or BFC, voting as a separate class, have
the right to elect at least two directors at all times and to elect a majority
of the directors at any time when two years' dividends on the preferred shares
or any other preferred stock are unpaid. The holders of RAA Preferred and the
holders of preferred shares of BFC also vote as a separate class on certain
other matters as required under their Charters, the 1940 Act and Maryland law.

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<PAGE>

Redemption. The redemption rights of the RAA Preferred to be issued in
connection with the Merger will be substantially similar to those of the
outstanding shares of RAA Preferred and the outstanding preferred shares of
BFC.

If a series of RAA Preferred or a series of preferred shares of BFC fails to
meet the asset coverage tests required by the rating agencies and the 1940
Act, the RAA Preferred or the preferred shares of BFC would be subject to
mandatory redemption, out of funds legally available therefor, at the
redemption price of $25,000 per share plus an amount equal to dividends
accumulated but unpaid thereon (whether or not earned or declared) to the date
fixed for redemption plus any premiums thereon. Any such redemption would be
limited to the number of preferred shares necessary to satisfy the asset
coverage tests applicable to the respective series of RAA Preferred or the
respective series of preferred shares of BFC. The ability of RAA and BFC to
make such a mandatory redemption may be restricted by the provisions of the
1940 Act. In addition, holders of preferred shares may be entitled to receive
additional dividends in the event of a mandatory redemption of such preferred
shares.

Shares of RAA Preferred and the preferred shares of BFC are redeemable at the
option of RAA or BFC, in whole or in part, on any dividend payment date
(except during certain excluded periods) for such series, at the redemption
price of $25,000 per share, plus an amount equal to dividends thereon
accumulated but unpaid to the date fixed for redemption (whether or not earned
or declared) plus any applicable premium. In addition, holders of preferred
shares may be entitled to receive additional dividends in the event of an
optional redemption of such preferred shares.

Liquidation. The terms of the liquidation preferences of the RAA Preferred to
be issued in connection with the Merger will be substantially similar to the
liquidation preference of the outstanding shares of RAA Preferred and the
outstanding preferred shares of BFC.

The liquidation preference of each share of RAA Preferred and each preferred
share of BFC is $25,000, plus an amount equal to accumulated but unpaid
dividends (whether or not earned or declared) plus any premium applicable
thereto. In addition, holders of RAA Preferred and holders of preferred shares
of BFC may be entitled to receive additional dividends in the event of
redemption of such preferred shares.

Upon any liquidation, dissolution or winding up of RAA or BFC, whether
voluntary or involuntary, the holders of shares of RAA Preferred or BFC's
preferred shares would be entitled to receive $25,000 per share together with
the amount of any dividends accumulated but unpaid (whether or not earned or
declared) thereon to the date of distribution. Such amount would be paid out
of the assets of RAA or BFC available for distribution to stockholders, before
any distribution or payment is made upon any shares of RAA Common or common
shares of BFC or any other capital stock of RAA or BFC ranking junior in right
of payment upon liquidation to RAA Preferred or BFC's preferred shares. If the
assets of RAA or BFC are insufficient to make the full liquidation payment on
its preferred stock and liquidation payments on any other outstanding class or
series of preferred stock of RAA or BFC ranking on a parity with RAA Preferred
or BFC's preferred shares as to payment upon liquidation, then such assets
will be distributed among the holders of shares of RAA Preferred or BFC's
preferred shares and the holders of shares of such other class or series
ratably in proportion to the respective preferential amounts to which they are
entitled. After payment of the full amount of any liquidation distribution to
which they are entitled, the holders of shares of RAA Preferred or BFC's
preferred

33
<PAGE>

shares would not be entitled to any further participation in any distribution
of assets by RAA or BFC except for any additional dividends. A consolidation,
merger or share exchange of RAA or BFC with or into any other entity or
entities or a sale, whether for cash, shares of stock, securities or
properties, of all or substantially all or any part of the assets of RAA or
BFC shall not be deemed or construed to be a liquidation, dissolution or
winding up of RAA or BFC.

Auctions. The dividend rate per annum for each series of RAA Preferred and for
each series of preferred shares of BFC is determined for each dividend period
through an auction of all of the outstanding shares of such series by the
Auction Agent. The Auction Agent for each series of RAA and for each series of
preferred shares of BFC is Bankers Trust Company. Following the Merger,
separate auctions will be conducted for each series of RAA Preferred, but the
auction dates for two or more series of RAA Preferred may from time to time
occur on the same date.

Rating Agency Guidelines. The rating agency guidelines applicable to the RAA
Preferred and the preferred shares of BFC are substantially similar, except
the preferred shares of BFC are rated by both Moody's and Standard & Poor's
and the RAA Preferred are rated only by Moody's. RAA intends that, so long as
shares of RAA Preferred are outstanding, the composition of its portfolio will
reflect guidelines established by Moody's in connection with RAA's receipt of
a rating for such shares on their date of original issue of "Aaa" from
Moody's. The Merger is conditioned upon RAA and BFC receiving written advice
from Moody's (i) confirming that consummation of the Merger will not impair
the Aaa ratings assigned to the outstanding shares of RAA Preferred and (ii)
assigning Aaa ratings to the shares of the RAA Preferred to be issued pursuant
to the Merger.

Moody's and Standard & Poor's, which are nationally recognized statistical
rating organizations, issue ratings for various securities reflecting the
perceived creditworthiness of such securities. The guidelines for rating RAA
Preferred and the preferred shares of BFC have been developed by Moody's and
Standard & Poor's in connection with issuances of asset-backed and similar
securities, including debt obligation and variable rate preferred stocks,
generally on a case-by-case basis through discussions with the issuers of
these securities. The guidelines are designed to ensure that assets underlying
outstanding debt or preferred stock will be varied sufficiently and will be of
sufficient quality and amount to justify investment-grade ratings. The
guidelines do not have the force of law but have been adopted by RAA and BFC
in order to satisfy current requirements necessary for Moody's to issue the
above-described ratings for shares of the RAA Preferred, which ratings
generally are relied upon by institutional investors in purchasing such
securities and the preferred shares of RAA and BFC. The guidelines provide a
set of tests for portfolio composition and asset coverage that supplement (and
in some cases are more restrictive than) the applicable requirements under the
1940 Act.

RAA and BFC may, but are not required to, adopt modifications to these
guidelines that hereafter may be established by Moody's or Standard & Poor's.
Failure to adopt any such modifications, however, may result in a change in
the ratings described above or a withdrawal of the ratings altogether. In
addition, any rating agency providing a rating for the shares of the RAA
Preferred and the preferred shares of BFC, at any time, may change or withdraw
any such rating. As set forth in the Articles Supplementary of RAA and BFC,
the Boards of Directors, without stockholder approval, may modify certain
definitions or restrictions that have been adopted by RAA and BFC pursuant to
the rating

34
<PAGE>

agency guidelines, provided the boards of directors have obtained written
confirmation from Moody's and Standard & Poor's that any such change would not
impair the ratings then assigned by Moody's and Standard & Poor's to the RAA
Preferred or the preferred shares of BFC.

For so long as any shares of RAA Preferred or the preferred shares of BFC are
rated by Moody's or Standard & Poor's, as the case may be, RAA's and BFC's use
of options and financial futures contracts and options thereon will be subject
to certain limitations mandated by the rating agencies.

Additional Preferred Shares. The RAA Preferred represented approximately 35%
of RAA's total assets immediately after RAA initially issued the RAA
Preferred. If the Merger is completed, RAA anticipates that the RAA Preferred
will represent approximately 31% of RAA's total assets. RAA's Board of
Directors has indicated its intention to authorize an offering of additional
shares of RAA Preferred such that, immediately after the offering of the
additional preferred, the RAA Preferred would represent approximately 37.5% of
RAA's total assets.

So long as RAA is able to realize a higher net return on its investment
portfolio than the dividend rate paid on the RAA Preferred, the effect of the
additional RAA Preferred will be to enhance the benefits of the Merger to the
holders of common shares of RAA and BFC, particularly the benefits of a higher
distribution rate and a greater likelihood of trading at little or no discount
to net asset value. On the other hand, to the extent that the then current
dividend rate on the additional RAA Preferred approaches the net return on
RAA's investment portfolio, the benefit of additional leverage will be
reduced, and if the then current dividend rate on any additional RAA Preferred
were to exceed the net return on RAA's portfolio, the additional leverage
would reduce the benefits of the Merger to holders of common shares of RAA and
BFC.

The offering of additional shares of RAA Preferred will be subject to market
conditions and to the Board of Director's of BFC continuing belief that adding
additional leverage to RAA's capital structure through the issuance of
additional RAA Preferred is likely to achieve the intended benefits for
holders of RAA's common shares. The Board of Directors reserves the right to
change the foregoing percentage limitation and may issue the additional RAA
Preferred to the extent that the aggregate liquidation preference of all
outstanding shares of RAA Preferred does not exceed 50% of the value of RAA's
total assets. Although the terms of any additional shares of RAA Preferred
will be determined by RAA's Board of Directors at the time of issuance, RAA
anticipates that such shares will be additional shares of the existing series
of RAA Preferred described in this Combined Proxy Statement/Prospectus or a
new series of RAA Preferred with provisions substantially similar to the
existing series of RAA Preferred.

The discussion above describes the present intention of RAA's Board of
Directors with respect to a potential offering of additional shares of RAA
Preferred. If the Board of Directors determines to proceed with such an
offering, the terms of the additional RAA Preferred may be the same as, or
different from, the terms described above, subject to applicable law and RAA's
Charter. The Board of Directors, without the approval of the holders of RAA
Common, may authorize an offering of RAA Preferred or may determine not to
authorize such an offering, and may fix the terms of the RAA Preferred to be
offered. We cannot assure you that any additional shares of RAA Preferred will
be issued.

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<PAGE>

COMPARISON OF BFC AND RAA

General. BFC and RAA are non-diversified, closed-end management investment
companies that invest in tax-exempt portfolios of California municipal
obligations. The common shares of RAA are listed and trade on the AMEX under
the symbol RAA and the common shares of BFC are listed and trade on the NYSE
under the symbol BFC. RAA and BFC are incorporated under the laws of the State
of Maryland.

Investment Objectives and Policies. Except as noted below, the investment
objectives, policies and restrictions of RAA are similar to those of BFC.
RAA's investment objective is to provide high current income exempt from
regular Federal and California income tax consistent with the preservation of
capital. In seeking to provide income exempt from regular Federal and
California income tax, RAA invests substantially all of its assets in a
portfolio of investment grade California municipal obligations and actively
manages its assets in relation to market conditions and interest rate changes.
Under normal circumstances, at least 80% of RAA's assets are invested in
securities rated investment grade by Moody's (including those rated as low as
Baa3, MIG-4 or P-3), Standard & Poor's (including those rated as low as BBB-,
SP-2 or A-3), Fitch (including those rated as low as BBB- or F-3) or another
nationally recognized statistical rating agency. Up to 20% of RAA's assets may
be invested in unrated securities that are deemed by the Investment Adviser to
be of equivalent credit quality. RAA emphasizes investments in California
municipal obligations with long-term maturities and maintains an average
portfolio maturity of 15-20 years, but the average maturity may be shortened
from time to time depending on market conditions.

In addition, RAA may utilize certain options, futures, interest rate swaps and
related transactions for hedging purposes. To the extent RAA utilizes such
hedging strategies or invests in taxable securities, RAA's ability to achieve
its investment objective of providing high current income exempt from regular
Federal and California income tax may be limited. Accordingly, under normal
circumstances, RAA's use of such practices is not significant.

For purposes of enhancing liquidity and/or preserving capital, on a temporary
defensive basis, RAA 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. RAA also may 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 will be more likely to approximate or
exceed the net rate of return on RAA's investment portfolio, with the result
that the leverage resulting from the preferred shares may become less
beneficial or adverse to the holders of shares of RAA Common.

BFC's investment objective is to provide current income exempt from regular
Federal and California income tax and to return $15 per common share to
holders of common shares on or about December 31, 2008. In seeking to provide
income exempt from regular Federal and California income tax, BFC invests at
least 80% of its total assets in a non-diversified portfolio of California
municipal obligations

36
<PAGE>

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 Standard & Poor's or which are determined by the Investment Adviser to
have equivalent claims-paying abilities. BFC may invest up to 20% of its total
assets in uninsured California municipal obligations which are (i) rated at
the time of investment Aaa by Moody's or AAA by Standard & Poor's, (ii)
guaranteed by an entity with an Aaa or AAA rating, (iii) 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 (iv)
determined by the Investment Adviser to be of triple-A credit quality at the
time of investment. Generally, California 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
California municipal obligation which is covered by insurance or a guarantee,
BFC 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.

The investment objective of RAA and BFC and the following investment
restrictions are fundamental and cannot be changed without the approval of the
holders of a majority of RAA's and BFC's outstanding voting securities
(defined in the 1940 Act as the lesser of (i) more than 50% of the outstanding
shares or (ii) 67% or more of the shares represented at a meeting at which
more than 50% of the outstanding shares are represented). All other investment
policies or practices are considered by RAA and BFC not to be fundamental and
accordingly may be changed without stockholder approval. If a percentage
restriction on investment or use of assets set forth below is adhered to at
the time a transaction is effected, later changes in percentage resulting from
changing market values will not be considered a deviation from such policy.
RAA and BFC may not:

(1) invest 25% or more of the value of its total assets in any one industry
provided that such limitation shall not be applicable to California
municipal obligations other than those California municipal obligations
backed only by assets and revenues of non-governmental users;

(2) issue senior securities other than (a) preferred stock not in excess of
50% of its total assets over any senior securities described in clause (b)
below that are outstanding, (b) senior securities other than preferred
stock (including borrowing money, including on margin if margin securities
are owned and through entering into reverse repurchase agreements) not in
excess of 33 1/3% of its total assets, and (c) borrowing up to 5% of its
total assets for temporary purposes without regard to the amount of senior
securities outstanding under clauses (a) and (b) above; provided, however,
that RAA's and BFC's obligations under interest rate swaps, when issued and
forward commitment transactions and similar transactions are not treated as
senior securities if covering assets are appropriately segregated; or
pledge its assets other than to secure such issuances or in connection with
hedging transactions, short sales, when-issued and forward commitment
transactions and similar investment strategies. For purposes of clauses
(a), (b) and (c) above, "total assets" shall be calculated after giving
effect to the net proceeds of any such issuance and net of any liabilities
and indebtedness that do not constitute senior securities except for such
liabilities and indebtedness as are excluded from treatment as senior
securities by the proviso to this item (2);

37
<PAGE>

(3) make loans of money or property to any person, except through loans of
portfolio securities, the purchase of fixed income securities consistent
with RAA's and BFC's investment objective and policies or the acquisition
of securities subject to repurchase agreements;

(4) underwrite the securities of other issuers, except to the extent that
in connection with the disposition of portfolio securities or the sale of
its own securities RAA and BFC may be deemed to be an underwriter;

(5) invest for the purpose of exercising control over any issuer;

(6) purchase or sell real estate or interests therein other than California
municipal obligations secured by real estate or interests therein;

(7) purchase or sell commodities or commodity contracts except for hedging
purposes or as permitted by applicable law without RAA or BFC becoming
subject to registration with the Commodities Futures Trading Commission as
a Commodity Pool; or

(8) make any short sale of securities except in conformity with applicable
laws, rules and regulations and unless, after giving effect to such sale,
the market value of all securities sold short does not exceed 25% of the
value of RAA's and BFC's total assets and RAA's and BFC's aggregate short
sales of a particular class of securities does not exceed 25% of the then
outstanding securities of that class.

Additional information with respect to the investment policies and
restrictions of BFC and RAA is included in their respective Prospectuses,
which have been filed with the SEC and may be obtained therefrom as provided
under "Additional Information."

California Municipal Obligations. BFC and RAA invest substantially all of
their assets in a portfolios of California municipal obligations, which are
municipal obligations the interest on which, in the opinion of bond counsel or
other counsel to the issuers of such obligations, is, at the time of issuance,
exempt from federal and California income taxes. Because BFC and RAA invest
substantially all of their assets in portfolios of California municipal
obligations, BFC and RAA are more susceptible to political, economic,
regulatory or other factors affecting issuers of California municipal
obligations than a fund which does not limit its investments to such issuers.
These risks include possible legislative, state constitutional or regulatory
amendments that may affect the ability of state and local governments or
regional governmental authorities to raise money to pay principal and interest
on their municipal obligations. Economic, fiscal and budgetary conditions
throughout the state may also influence BFC's and RAA's performance.

The following information is a summary of a more detailed description of
certain factors affecting California municipal obligations which is contained
in the Statement of Additional Information. Investors should obtain a copy of
the Statement of Additional Information for the more detailed discussion of
such factors. Such information is derived from certain official statements of
the State of California published in connection with the issuance of specific
California municipal obligations, as well as from other publicly available
documents. Such information has not been independently verified by BFC and RAA
and may not apply to all California municipal obligations acquired by BFC and
RAA. BFC and RAA assume no responsibility for the completeness or accuracy of
such information.

38
<PAGE>

California state and local government obligations may be adversely affected
by political and economic conditions and developments within the State of
California and the nation as a whole. With respect to an investment in BFC and
RAA, through popular initiative and legislative activity, the ability of the
State of California and its local governments to raise money through property
taxes and no increase spending has been the subject of considerable debate and
change in recent years. Various State Constitutional amendments, for example,
have been adopted which have the effect of limiting property tax and spending
increases, while legislation has sometimes added to these limitations and has
at other times sought to reduce their impact. To date, these Constitutional,
legislative and budget developments do not appear to have severely decreased
the ability of the State and local governments to pay principal and interest
on their obligations. It can be expected that similar types of State
legislation or Constitutional proposals will continue to be introduced. The
impact of future developments in these areas is unclear.

From 1990 until 1994, the State experienced the worst economic, fiscal and
budget conditions since the 1930's. The recession seriously affected State tax
revenues and caused increased expenditures for health and welfare programs. As
a result, the State faced several budget imbalances and used up many of its
available cash resources. Accordingly, rating agencies have reduced the
State's credit ratings several times during recent years.

Although revenue obligations of the State of California or its political
subdivisions may be payable from a specific project or source, including lease
rentals, there can be no assurance that future economic difficulties and the
resulting impact on State and local government finances will not adversely
affect the market value of the portfolio of BFC and RAA or the ability of the
respective obligors to make timely payments of principal and interest on such
obligations.

The value of California municipal obligations may also be affected by
general conditions in the money markets and the municipal bond markets, the
levels of federal income tax rates, the supply of tax-exempt bonds, the credit
quality and rating of the issues and perceptions with respect to the level of
interest rates.

There can be no assurance that there will not be a decline in economic
conditions or that particular California municipal obligations in the
portfolio of BFC and RAA will not be adversely affected by any such changes.

More detailed information concerning California municipal securities and the
State of California is included in the Statement of Additional Information.

39
<PAGE>

SERVICE PROVIDERS FOR BFC AND RAA

The service providers for BFC and RAA are as set forth in the following table.

<TABLE>
<S> <C>
Administrator............... RAA*--Prudential Investments Fund Management LLC.
BFC--Princeton Administrators L.P.
Registrar/Transfer Agent/ State Street Bank & Trust Company
Distributor/Custodian...... One Heritage Drive, P2N
North Quincy, MA 02171
Independent Auditors........ Deloitte & Touche LLP
</TABLE>
- --------
* After the Merger, BlackRock Financial Management, Inc. will be a co-
administrator of RAA.

The locations of the Administrators are as follows: Prudential Investments
Fund Management LLC, One Seaport Plaza, New York, New York 10292 and Princeton
Administrators, L.P. is located at 800 Scudders Mill Road, Plainsboro, New
Jersey 08536. State Street Bank & Trust Company, which serves as registrar,
transfer agent, dividend disbursing agent and custodian, maintains offices at
225 Franklin Street, Boston, Massachusetts 02110. Deloitte & Touche LLP, the
independent auditors, maintains offices at Two World Financial Center, New
York, New York 10281.

Currently, for its services as administrator to RAA, Prudential Investments
Fund Management LLC receives a fee payable monthly at an annual rate of [ ]%
of RAA's average weekly net investment assets. After consummation of the
Merger, BlackRock Financial Management, Inc. and Prudential Investments LLC
Fund Management LLC will act as co-Administrators of RAA and will receive an
aggregate fee in the amount of [ ]% of RAA's weekly net assets. Under the
Administration Agreement with Blackrock Financial Management and Prudential
Investments Fund Management LLC (the "Administration Agreement"), the
Administrators will administer RAA's corporate affairs subject to the
supervision of RAA's Board of Directors and in connection therewith furnish
RAA 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. The Administrators also
may facilitate bank or other borrowing by RAA when the Investment Adviser
determines that leverage may be in the best interests of RAA's shareholders.
In connection with its administration of the corporate affairs of RAA, each
Administrator will bear the following expenses:

(a) salaries and expenses of all personnel of such Administrator; and

(b) all expenses incurred by such Administrator or by RAA in connection
with administering the ordinary course of RAA's business, other than those
assumed by RAA, as described below.

The Administration Agreement was approved by RAA's Board of Directors on
, 1999 and is effective until terminated. The Administration Agreement
terminates automatically if it is assigned (as defined in the Investment
Company Act and the rules thereunder) and is otherwise terminable on 60 days'
notice by either party to the other.

40
<PAGE>

MANAGEMENT OF BFC AND RAA

Boards of Directors and Officers. The following individuals are the current
Directors for BFC and RAA and have served in such capacity since BFC and RAA
commenced their respective operations except that Richard E. Cavanagh has
served as Director since his appointment by each of the Boards on August 11,
1994 to fill a vacancy and Walter F. Mondale, who was previously a Director of
BFC from inception to August 12, 1993, has served as Director since his
election at BFC's annual meeting of stockholders on April 15, 1997. Except as
indicated, each individual has held the office shown or other offices in the
same company for the last five years. The "interested" Directors (as defined
by Section 2(a)(19) of the 1940 Act) are indicated by an asterisk(*). Unless
specified otherwise below, the business address of the Directors and officers
of BFC, RAA and the Investment Adviser is 345 Park Avenue, New York, New York
10154.

<TABLE>
<CAPTION>
% of
Principal Occupations or Shares Shares
Name and Age Employment in Past 5 Years Owned Outstanding
------------ -------------------------- ------ -----------
<C> <S> <C> <C>
Andrew F. Brimmer President of Brimmer & Company, 0
4400 MacArthur Blvd N.W. Inc., a Washington, D.C.-based
Suite 302 economic and financial
Washington, DC 20007 consulting firm. Formerly member
Age: 72 of the Board of Governors of the
Federal Reserve System.
Director, Airborne Express, Borg
Warner Automotive and
CarrAmerica Realty Corporation.
Richard E. Cavanagh President and Chief Executive 0
845 Third Avenue Officer of The Conference Board,
New York, NY 10022 Inc., a leading global business
Age: 52 membership organization. Former
Executive Dean of the John F.
Kennedy School of Government at
Harvard University from 1988-
1995. Acting Director, Harvard
Center for Business and
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
and Educational Testing Service
(ETS). Director, Archer
Chemicals (chemicals), Fremont
Group (investments) and The
Guardian Life Insurance Company
of America (insurance).
Kent Dixon Consultant/Investor. Former 0
9495 Blind Pass Road President and Chief Executive
Unit #602 Officer of Empire Federal
St. Petersburg, FL 33706 Savings Bank of America and Banc
Age: 61 PLUS Savings Association, former
Chairman of the Board, President
and Chief Executive Officer of
Northeast Savings. Former
Director of ISFA (the owner of
INVEST, a national securities
brokerage service designed for
banks and thrift institutions).
</TABLE>

41
<PAGE>

<TABLE>
<CAPTION>
% of
Principal Occupations or Shares Shares
Name and Age Employment in Past 5 Years Owned Outstanding
------------ -------------------------- ------ -----------
<C> <S> <C> <C>
Frank J. Fabozzi Consultant. Editor of THE 0
858 Tower View Circle JOURNAL OF PORTFOLIO
New Hope, PA 18938 MANAGEMENT and Adjunct
Age: 50 Professor of Finance at the
School of Management at Yale
University. Director,
Guardian Mutual Funds 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* Chairman and Chief Executive 0
Age 46 Officer of BlackRock
Financial Management, 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. Currently,
Chairman of the Board and
Director of each of
BlackRock's Trusts and
Anthracite Capital, Inc. and
a Director of BlackRock Fund
Investors I, BlackRock Fund
Investors II, BlackRock Fund
Investors III, BlackRock
Asset Investors
(collectively, "BAI") and
BlackRock
MQE Investors, Trustee of
New York University Medical
Center, Dwight-Englewood
School, National Outdoor
Leadership School and
Phoenix House. A Director of
VIMRx Pharmaceuticals, Inc.
and Innovir Laboratories,
Inc.
James Grosfeld Consultant/Investor. 0
20500 Civic Center Drive Director of BAI and Copart,
Suite 3000 Inc. (retail automobile).
Southfield, MI 48076 Formerly Chairman of the
Age: 61 Board and Chief Executive
Officer of Pulte Corporation
(homebuilding and mortgage
banking and finance) from
May 1974-April 1990.
James Clayburn LaForce, Jr. Dean Emeritus of The John E. BFC 10 (1)
P.O. Box 1595 Anderson Graduate School of RAA 10 (1)
Pauma Valley, CA 92061 Management, University of
Age: 70 California since July 1,
1993. Director, Eli Lilly
and Company
(pharmaceuticals), Imperial
Credit Industries (mortgage
banking), Jacobs Engineering
Group, Inc., Rockwell
International Corporation,
Payden & Rygel Investment
Trust (mutual fund),
Provident Investment Counsel
Funds (investment
companies), Timken Company
(roller bearing and steel)
and Motor Cargo Industries
(transportation). Acting
Dean of The School of
Business, Hong Kong
University of Science and
Technology 1990-1993. From
1978 to September 1993, Dean
of The John E. Anderson
Graduate School of
Management, University of
California.
</TABLE>

42
<PAGE>

<TABLE>
<CAPTION>
% of
Principal Occupations or Shares Shares
Name and Age Employment in Past 5 Years Owned Outstanding
------------ -------------------------- ------ -----------
<C> <S> <C> <C>
Walter F. Mondale Partner, Dorsey & Whitney, a law 0
220 South Sixth Street firm (December 1996-present,
Minneapolis, MN 55402 September 1987-August 1993).
Age: 71 Formerly, U.S. Ambassador to Japan
(1993-1996). Formerly Vice
President of the United States,
U.S. Senator and Attorney General
of the State of Minnesota. 1984
Democratic Nominee for President
of the United States.
Ralph L. Schlosstein* President of BlackRock Financial 0
Age: 48 Management, the Investment
Adviser. Formerly, a Managing
Director of Lehman Brothers, Inc.
and co-head of its Mortgage and
Savings Institutional Group.
Currently, President of each of
BlackRock's Trusts. Trustee of
Denison University and New Visions
for Public Education in New York
City. A Director of the Pulte
Corporation and a member of the
Visiting Board of Overseers of the
John F. Kennedy School of
Government at Harvard University.
</TABLE>
- --------
(1) Less than 1%.

All Directors and officers as a group owned less than 1% of the shares of BFC
and RAA as of February 26, 1999. Each of BFC and RAA has an executive
committee composed of Messrs. Fink and Schlosstein.

Neither of BFC nor RAA has a compensation or nominating committee of the
Boards of Directors, or committees performing similar functions. BFC and RAA
have an audit committee composed of all the Directors who are not interested
persons of BFC or RAA or the Investment Adviser which is charged with
recommending a firm of independent accountants to BFC or RAA and reviewing
accounting matters with the accountants. With respect to BFC there was one
meeting of the audit committee held between January 1, 1998 and December 31,
1998. With respect to RAA, there were two meetings of the audit committee held
between November 1, 1997 and October 31, 1998. With respect to BFC and RAA,
all members attended at least 75% of the meetings.

Four meetings of the Board of Directors of RAA were held between November 1,
1997 and October 31, 1998. Four meetings of the Board of Directors of BFC were
held between January 1, 1998 and December 31, 1998. With respect to BFC and
RAA, all Directors attended at least 75% of the meetings.

In addition to Messrs. Fink and Schlosstein, all the executive officers hold
the same position with BFC and RAA.

<TABLE>
<CAPTION>
Name and Age Title Other Principal Occupations in Past 5 Years
------------ ----- -------------------------------------------
<C> <C> <S>
Keith T. Anderson Vice President Managing Director of the Investment Adviser.
Age: 39 From February 1987 to April 1988, Vice
President at The First Boston Corporation in
the Fixed Income Research Department.
Previously Vice President and Senior
Portfolio Manager at Criterion Investment
Management Company (now Nicholas-Applegate).
Henry Gabbay Treasurer Managing Director of the Investment Adviser.
Age: 51 From September 1984 to February 1989, Vice
President at The First Boston Corporation.
</TABLE>

43
<PAGE>

<TABLE>
<CAPTION>
Other Principal Occupations in Past 5
Name and Age Title Years
------------ ----- -------------------------------------
<C> <C> <S>
Michael C. Huebsch Vice President Managing Director of the Investment
Age: 40 Adviser. From July 1985 to January
1989, Vice President at The First
Boston Corporation in the Fixed Income
Research Department.
Robert S. Kapito Vice President Managing Director and Vice Chairman of
Age: 42 the Investment Adviser. From December
1985 to March 1988, Vice President at
The First Boston Corporation in the
Mortgage Products Group.
Kevin Klingert Vice President Managing Director of the Investment
Age: 36 Adviser. From March 1985 to October
1991, Assistant Vice President at
Merrill Lynch, Pierce, Fenner & Smith
in the Unit Investment Trust
Department.
James Kong Assistant Treasurer Managing Director of the Investment
Age: 38 Adviser. From April 1987 to April 1989,
Assistant Vice President at The First
Boston Corporation in the CMO-ABO
Administration Department. Previously
affiliated with Deloitte, Haskins &
Sells (now Deloitte & Touche LLP).
Karen H. Sabath Secretary Managing Director of the Investment
Age: 33 Adviser. 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 the Investment Adviser.
Richard Shea, Esq. Vice President/Tax Director of the Investment Adviser.
Age: 39 From December 1988 to February 1993,
Associate Vice President and Tax
Counsel at Prudential Securities, Inc.
From August 1984 to December 1988,
Senior Tax Specialist at Laventhol &
Horwath.
</TABLE>

Officers of RAA and BFC are elected by, and serve at the pleasure of, the
Boards of Directors of BFC and RAA. Officers receive no remuneration from each
issuer for their services in such capacities.

The Investment Adviser. The Investment Adviser to BFC and RAA is BlackRock
Financial Management, Inc. The Investment Adviser is responsible for the
investment strategy of BFC and RAA and focuses on investments in California
municipal obligations. The Investment Adviser also provides portfolio
administration and other administrative services to BFC and RAA. The
Investment Adviser is located at 345 Park Avenue, New York, New York 10154.
The investment professionals of the Investment Adviser who are responsible for
investment management are described below.

The Investment Adviser provides fixed income, liquidity, equity, alternative
investment, and risk management products for clients worldwide. The Investment
Adviser manages $80 billion in various fixed income sectors, including $10
billion in municipal securities. The Investment Adviser also manages
approximately $44 billion in cash or other short term, highly liquid
investments, including $4.4 billion in short term municipal securities. The
Investment Adviser has $62 billion in mutual fund assets under management,
including two open-end mutual fund families, BlackRock Funds and Provident
Institutional Funds, 21 publicly traded closed-end funds (including BFC and
RAA) and several short-term investment funds. Among these products, the
Investment Adviser manages 11 closed-end, 6 open-end and 6 money market
municipal funds. In addition to asset management services, the Investment
Adviser has become a significant provider of risk management and advisory
services that combine its capital markets expertise with the firm's
proprietary risk management systems and technology.

44
<PAGE>

Investment Philosophy. The Investment Adviser's investment decision-making
process for the municipal bond sector is subject to the same discipline,
oversight and investment philosophy that the firm applies to all other sectors
of the fixed income market.

The Investment Adviser uses a relative value strategy that determines the
trade-off between risk and return to achieve BFC's and RAA's investment
objectives. This strategy is combined with disciplined risk control techniques
and applied in every sector, sub-sector and individual security selection
decision. The Investment Adviser's extensive personnel and technology
resources are the key drivers of the investment philosophy.

The Investment Adviser's Municipal Bond Team. The Investment Adviser uses a
team approach to managing municipal portfolios. The Investment Adviser
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 Investment Adviser's municipal bond team includes two portfolio managers
and six credit research analysts. The team is lead by Kevin Klingert, a
Managing Director and portfolio manager at the Investment Adviser. Mr.
Klingert has over 15 years of experience in the municipal market. Prior to
joining the Investment Adviser in 1991, Mr. Klingert was an Assistant Vice
President in the Unit Investment Trust ("UIT") Department at Merrill Lynch,
Pierce, Fenner & Smith. Mr. Klingert joined Merrill Lynch in 1985 and was
responsible for investing over $1 billion annually for municipal UITs and for
supervising over $21 billion of existing municipal UITs. The portfolio
management team also includes Craig Kasap, Associate.

The Investment Adviser's municipal bond portfolio managers are responsible for
25 municipal bond portfolios, valued at approximately $5.5 billion, plus an
additional $2.5 billion in municipal bonds held across portfolios with broader
investment mandates. The team is responsible for portfolios with a variety of
investment objectives and constraints, including national funds, state-
specific funds, and portfolios with various indices. Currently, the team
manages 11 closed-end municipal funds with over $2 billion in assets,
including BFC and RAA.

The Investment Adviser's Investment Process. The Investment Adviser has in-
depth expertise in all sectors of the fixed income market. The Investment
Adviser applies the same risk-controlled, active sector rotation style to the
management process for all of its fixed income portfolios. The Investment
Adviser is unique in its integration of taxable and municipal bond
specialists. Both taxable and municipal bond portfolio managers share the same
trading floor and interact frequently for determining the firm's overall
investment strategy. This interaction allows each portfolio manager to
leverage the combined experience and expertise of the entire portfolio
management group at the Investment Adviser.

The Investment Adviser's portfolio management process emphasizes research and
analysis of specific sectors and securities, not interest rate speculation.
The Investment Adviser believes that market-timing strategies can be highly
volatile and potentially produce inconsistent results. Instead, the Investment
Adviser 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.

45
<PAGE>

In the municipal market, the Investment Adviser believes one of the most
important determinants of value is supply and demand. The Investment Adviser's
ability to monitor investor flows and frequency and seasonality of issuance is
helpful in anticipating which sectors will be most heavily impacted by the
supply/demand equation. The breadth and expertise of its municipal bond team
allows it to anticipate issuance flows, forecast which sectors will have the
most supply and plan its investment strategy accordingly.

The Investment Adviser also believes that over the long-term, intense credit
analysis will add substantial incremental value and avoid significant relative
performance impairments. The municipal credit team is led by Susan Heide,
Ph.D., who has been with the Investment Adviser since 1993 and is a managing
director responsible for our municipal credit research. She co-heads the
Credit Committee and Credit Research, and is assisted by five municipal
research analysts. The group averages 10 years of experience in municipal
credit research.

Given the nature of the municipal market (whereby supply is largely dependent
on new issues, as well as the secondary market; and each deal may be somewhat
unique), the credit analysts research potential new issues and closely monitor
our existing holdings. Diversification of sectors, issuers, geographic regions
and security structures is stressed. Communication and interaction with credit
resources throughout the Investment Adviser are facilitated in formal
investment strategy meetings and encouraged informally as well.

The Investment Adviser's approach to credit risk incorporates a combination of
sector-based top-down macro-analysis of industry sectors to determine relative
weightings with a name-specific bottom-up detailed credit analysis of issuers
and structures. The sector-based approach focuses on rotating into sectors
that are undervalued and exiting sectors when fundamentals or technicals
become unattractive. The name-specific approach focuses on identifying special
opportunities where the market undervalues a credit, and devoting concentrated
resources to research the credit and monitor the position. The Investment
Adviser's analytic process focuses on anticipating change in credit trends
before market recognition. Credit research is a critical, independent element
of our municipal process.

The Investment Adviser is a wholly-owned subsidiary of BlackRock Advisors
Inc., an indirect majority-owned subsidiary of PNC Bank N.A. ("PNC") and is a
global asset management firm with assets of $142 billion under management and
over 600 employees. The Investment Adviser currently is owned 80% by PNC and
20% by its senior professionals.

The Investment Adviser has advised BFC and RAA that it is not aware of any
financial condition that would be reasonably likely to impair the financial
ability of the Investment Adviser to fulfill its commitments to BFC under the
investment advisory agreements of BFC or RAA.

As of February 26, 1999, none of BFC or RAA was aware of any beneficial or
record owner of 5% or more of any class of shares of BFC or RAA except that
242,000 of the outstanding Common Shares of RAA (or 24.07% of the outstanding
Common Shares) are jointly held by M.H. Whittier Corporation, James E. Greene,
Arlo G. Sorenson, Michael J. Casey and Whittier Trust Company, all of whom are
located at 1600 Huntington Drive, South Pasadena, California 91030.

46
<PAGE>

ADDITIONAL INFORMATION ABOUT RAA

RAA is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, and the 1940 Act, and in accordance therewith it
files reports, proxy materials and other information with the SEC. Reports and
other information filed by RAA can be inspected and copied at the Public
Reference Facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, these materials can be inspected and
copied at the SEC's Regional Offices at 7 World Trade Center, Suite 1300, New
York, New York 10048, and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials also can be
obtained from the Public Reference Branch, Office of Consumer Affairs and
Information Services, Securities and Exchange Commission, Washington, D.C.
20549, at prescribed rates.

Information included in this Combined Proxy Statement/Prospectus concerning
RAA was provided by RAA.

ADDITIONAL INFORMATION ABOUT BFC

Reports and other information filed by BFC can be inspected and copied at the
Public Reference Facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the offices of BlackRock listed above. In
addition, these materials can be inspected and copied at the SEC's Regional
Offices at 7 World Trade Center, Suite 1300, New York, New York 10048, and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials also can be obtained from the Public
Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, Washington, D.C. 20549, at prescribed
rates.

Condensed financial information for RAA and BFC as of April 30, 1999 are
attached to this Combined Prospectus/Proxy Statement beginning at page F- .

Information included in this Combined Proxy Statement/Prospectus concerning
BFC was provided by BFC.

FINANCIAL STATEMENTS

The financial highlights included herein and the financial statements included
in the Statement of Additional Information, which is incorporated herein by
reference, with respect to RAA for the annual period ended October 31, 1998
have been audited by Deloitte & Touche LLP to the extent indicated in their
reports thereon and have been included herein or incorporated herein by
reference in reliance upon such reports given the authority of such firm in
accounting and auditing.

The financial highlights included herein and the financial statements included
in the Statement of Additional Information, which is incorporated herein by
reference, with respect to BFC for the annual period ended December 31, 1998,
have been audited by Deloitte & Touche LLP to the extent indicated in its
reports thereon and have been included herein or incorporated herein by
reference in reliance upon such reports given the authority of such firm in
accounting and auditing.

The pro forma financial information included herein or incorporated herein by
reference has not been audited.

47
<PAGE>

LEGAL MATTERS

Certain legal matters in connection with the shares of RAA Common and the RAA
Preferred to be issued pursuant to the Merger will be passed upon by Skadden,
Arps, Slate, Meagher & Flom LLP, New York, New York ("Skadden Arps"). Skadden
Arps will rely as to certain matters of Maryland law on the opinion of Miles &
Stockbridge, Baltimore, Maryland.

OTHER BUSINESS

The Boards of Directors of BFC and RAA knows of no other business to be
brought before the Meeting. However, if any other matters come before the
Meeting, it is the intention that proxies which do not contain specific
restrictions to the contrary will be voted on such matters in accordance with
the judgment of the persons named in the enclosed form of proxy.

STATEMENT OF ADDITIONAL INFORMATION

RAA has filed with the SEC a Statement of Additional Information, dated ,
1999, relating to this Combined Proxy Statement/Prospectus and which is
incorporated herein by reference. The Table of Contents of the Statement of
Additional Information is set forth below:

Statement of Additional Information
Table of Contents

<TABLE>
<CAPTION>
Page
----
<S> <C>
Audited Financial Statements for RAA for the annual period ended October
31, 1998................................................................
Unaudited Financial Statements for RAA for the six-month period ended
April 30, 1999..........................................................
Audited Financial Statements for BFC for the annual period ended December
31, 1998................................................................
Annex A: Description of Credit Ratings for Municipal Obligations.........
Annex B: Description of California Municipal Obligations.................
</TABLE>

RAA and BFC will provide, without charge, upon the written or oral request of
any person to whom this Combined Proxy Statement/Prospectus is delivered, a
copy of any and all documents that have been incorporated by reference in the
registration statement of which this Combined Proxy Statement/Prospectus is a
part.

SHAREHOLDER INQUIRIES

Shareholder inquiries may be addressed to BFC and RAA in writing at the
appropriate address on the cover page of this Combined Proxy
Statement/Prospectus or by telephoning BFC at 1-800-227-7BFM (7236).

* * *

SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING ARE REQUESTED TO
MARK, SIGN AND DATE THE ENCLOSED PROXY OR PROXIES AND

48
<PAGE>

RETURN IT OR THEM IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED
IN THE UNITED STATES. SHAREHOLDERS ALSO MAY RETURN PROXIES BY TELEFAX OR VOTE
BY TELEPHONE.

BFC AND RAA WILL FURNISH, WITHOUT CHARGE, COPIES OF ITS 1998 ANNUAL
SHAREHOLDERS REPORT AND ITS MOST RECENT SEMI-ANNUAL SHAREHOLDERS REPORT TO ANY
SHAREHOLDER UPON REQUEST ADDRESSED TO 345 PARK AVENUE, NEW YORK, NEW YORK
10154 OR BY TELEPHONE AT 1-800-227-7BFM (7236).

49
<PAGE>

UNAUDITED PRO FORMA FINANCIAL STATEMENTS FOR RAA(/1/)

PORTFOLIO OF INVESTMENTS
(As of April 30, 1999)

<TABLE>
<CAPTION>
Principal
Amount Option Call Value
Rating* (000) Description(a) Provisions+ (Note 1)
------- --------- -------------- ------------ ------------
<C> <C> <S> <C> <C>
LONG-TERM INVESTMENTS--145.5%
California Educational Fac. Auth.
Rev.,
AAA 760++ Santa Clara Univ., 5.00%,
9/01/06, ....................... N/A 820,169
AAA 240 Santa Clara Univ., 5.00%,
9/01/15, MBIA .................. 9/07 at 101 243,257
AAA 1,000 Student Loan Prog., Ser. A,
6.00%, 3/01/16, MBIA ........... 3/07 at 102 1,061,170
AAA 6,850 California Hlth. Fac. Fin. Auth.
Rev., Marin Gen. Hosp., Ser. A,
5.75%, 8/01/09, FSA ............ 8/03 @ 102 7,422,728
AAA 2,000 California Hlth. Facs. Fin. Auth.
Rev., Sutter Hlth. Care Sys.,
Ser. A, 5.70%, 8/15/09, MBIA ... 8/06 at 102 2,214,700
California St., G.O.,
AAA 3,000 5.50%, 4/01/09, MBIA ........... No Opt. Call 3,294,180
AAA 2,000 6.25%, 9/01/08, FGIC ........... No Opt. Call 2,309,260
AAA 15,000 6.30%, 9/01/08, MBIA ........... No Opt. Call 17,414,550
California St. G.O.,
A+ 960++ 5.75%, 3/01/19 ................. N/A 1,060,368
A+ 40 5.75%, 3/01/19 ................. 3/05 at 101 42,877
California St. Hsg. Fin. Agcy.
Rev., Home Mtge.,
Aa2 870 Ser. B-1, 6.45%, 2/01/11 ....... 8/04 at 102 914,944
Aa2 1,000 Ser. G, 7.20%, 8/01/14 ......... 8/04 at 102 1,075,610
California St. Pub. Wks. Brd.,
AAA 2,100 Energy Efficiency, Ser. A,
5.625%, 10/01/08, AMBAC ........ 10/05 at 102 2,309,727
AAA 10,255++ Lease Rev., 6.40%, 9/01/01, MBIA
................................ N/A 11,118,163
California St. Pub. Wks. Brd.
Lease Rev.,
AAA 1,000++ Dept. of Corrections., Ser. A,
6.875%, 11/01/04 ............... N/A 1,171,130
A1 1,000 St. Univ. Proj., Ser. A, 6.10%,
10/01/06 ....................... 10/04 at 102 1,114,990
AAA 1,000++ St. Univ. Proj., Ser. A, 6.40%,
12/01/02, AMBAC ................ N/A 1,113,860
AAA 9,165 California St. Wide Cmnty. Dev.
Auth., Lease Rev.,
6.00%, 10/01/10, AMBAC ......... 10/02 at 102 9,912,131
AAA 2,600 Castaic Lake Wtr. Agcy. C.O.P.,
Wtr. Sys. Impvt. Proj., Ser. A,
7.25%, 8/01/10, MBIA ........... No Opt. Call 3,237,494
AAA 5,515++ Central Coast Wtr. Auth. Rev.,
St. Wtr. Proj. Reg. Facs.,
6.40%, 10/01/02, AMBAC ......... N/A 6,120,161
AAA 5,500 Clovis Unified Sch. Dist., Ser.
B, Zero Coupon, 8/01/08, FGIC .. No Opt. Call 3,719,155
</TABLE>

F-1
<PAGE>

<TABLE>
<CAPTION>
Principal
Amount Option Call
Rating* (000) Description Provisions++ Value
------- --------- ----------- ------------ ------------
<C> <C> <S> <C> <C>
AAA 13,740 East Bay Mun. Utils. Dist.,
Wtr. Sys. Rev., 6.00%,
6/01/09, AMBAC ............... 6/02 at 102 14,815,567
AAA 4,025 Elsinore Valley Mun. Wtr.
Dist., C.O.P., Ser. A, 6.00%,
7/01/09, FGIC ................ No Opt. Call 4,563,746
BBB- 1,385 Foothill / Eastern. Trans.
Agcy., Ser. A, Zero Coupon,
1/01/04 ...................... No Opt. Call 1,129,246
Los Angeles Cnty.,
AAA 1,000 Met. Trans. Auth. Sales Tax
Rev., 6.00%, 7/01/26, MBIA ... 7/06 at 101 1,132,190
AAA 1,000 Special Tax, Ser. A, 5.50%,
9/01/14, FSA ................. 9/07 at 102 1,077,950
Los Angeles Cnty. Asset Leasing
Corp. Rev.,
AAA 8,090 6.00%, 12/01/08, AMBAC ....... No Opt. Call 9,224,542
AAA 8,600 6.05%, 12/01/09, AMBAC ....... No Opt. Call 9,864,630
AAA 2,910 Los Angeles Cnty. Leasing Corp.
Rev., 5.95%, 12/01/07, AMBAC
.............................. No Opt. Call 3,287,573
AAA 1,000 Los Angeles Elec. Rev., 5.75%,
9/01/12, FGIC ................ 9/03 at 102 1,078,140
AA 1,150 Los Angeles Harbor Dept. Rev.,
Ser. B, 6.00%, 8/01/13 ....... 8/06 at 101 1,269,129
AA 1,000++ Los Angeles Pub. Wks. Fin.
Auth. Rev., Regl. Park & Open
Space,
Dist. A, 6.00%, 10/01/04 ..... N/A 1,123,920
AAA 5,765++ Los Angeles Wastewtr. Sys.
Rev., Ser. B, 6.25%, 6/01/02,
AMBAC ........................ N/A 6,324,666
AAA 3,075++ Marysville Hosp. Rev., Fremont-
Rideout Hlth. Group, Ser. A,
6.20%, 1/01/03, AMBAC ........ N/A 3,399,259
AAA 8,000++ Modesto Irrig. Dist. Fin. Rev.,
Domestic Wtr. Proj., Ser. A,
6.00%, 9/01/02, AMBAC ........ N/A 8,761,600
Northern California Pwr. Agcy.
Rev., Multiple Cap. Facs,
MBIA,
AAA 430++ Ser. A, 6.40%, 8/01/02 ....... N/A 475,387
AAA 570 Ser. A, 6.40%, 8/01/07......... 8/02 at 102 623,899
AAA 1,280++ Ser. A, 6.50%, 8/01/02......... N/A 1,418,995
AAA 1,725 Ser. A, 6.50%, 8/01/08......... 8/02 at 102 1,889,427
AAA 1,000 Orange Cnty. Local Trans. Auth.
Sales Tax Rev., First Sr.
Measure M Mbia Ibc, 6.00%,
2/15/09, MBIA................. No Opt. Call 1,134,070
AAA 5,600 Pittsburg Redev. Agcy. Tax
Alloc. Rev., Los Medanos
Cmnty. Dev.
Proj., 5.50%, 8/01/07, FGIC... 8/02 at 102 5,947,424
AAA 3,075++ Riverside Cnty., Trans. Comn.
Sales Tax Rev., Ser. A, 6.50%,
6/01/01, MBIA................. N/A 3,321,431
BBB- 1,000 Sacramento Pwr. Auth.,
Cogeneration Proj. Rev.,
6.50%, 7/01/09................ 7/06 at 102 1,115,490
Sacramento Mun. Util. Dist.,
Elec. Rev., Ser. C,
AAA 2,500 5.75%, 11/15/07, MBIA......... 11/02 at 102 2,692,925
AAA 3,750 5.75%, 11/15/08, FGIC......... 11/02 at 102 4,102,162
AAA 2,500 5.75%, 11/15/08, FGIC......... 11/02 at 102 2,695,525
AAA 4,700 5.75%, 11/15/09, MBIA......... 11/02 at 102 5,051,419
AAA 5,700 San Bernardino Cnty. C.O.P.,
Arpt. Impvt., 6.00%, 7/01/07,
MBIA.......................... 7/02 at 102 6,158,052
AAA 5,000 San Bernardino Cnty. Trans.
Auth., Sales Tax Rev., Ser. A,
6.00%, 3/01/10, FGIC.......... No Opt. Call 5,408,000
</TABLE>

F-2
<PAGE>

<TABLE>
<CAPTION>
Principal
Amount Option Call
Rating* (000) Description Provisions++ Value
------- --------- ----------- ------------- -----------
<C> <C> <S> <C> <C>
AAA 1,000 San Diego Ind. Dev. Rev., Ser.
A, 5.90%, 6/01/18, AMBAC...... 6/03 at 102 1,081,370
San Diego Cnty. Regl. Trans.
Cmnty. Sales Tax Rev., Ser. A,
AAA 7,830 6.00%, 4/01/08, MBIA........... 4/01 at 102 8,716,356
AAA 2,500 6.00%, 4/01/08, FGIC........... No Opt. Call 2,783,000
AAA 7,650 San Diego Redev. Agcy. Rev., Tax
Allocation-Centre City Proj.,
6.00%, 9/01/08, AMBAC
San Francisco City & Cnty., 9/02 at 102 8,270,185
AAA 1,000 Arpt. Comn. Rev., Intl. Arpt.,
Ser. 6, 6.125%, 5/01/09,
AMBAC.......................... 5/04 at 102 1,103,690
AAA 1,000 Sewer Rev., Ser. A, 5.95%,
10/01/25, FGIC ................ 10/03 at 102 1,083,390
San Jose Arpt. Rev., MBIA,
AAA 8,010 6.00%, 3/01/09................. 3/03 at 102 8,697,818
AAA 3,000 6.00%, 3/01/10................. 3/03 at 102 3,259,860
AAA 3,755 6.10%, 3/01/07................. 3/03 at 102 4,114,504
AAA 2,865++ Santa Clara Cnty. Fin. Auth.,
Fac. Replacement, Proj. A,
6.50%,
11/15/04, AMBAC ............... N/A 3,304,806
AAA 2,820 Santa Rosa Wtr. Rev., Ser. B,
6.20%, 9/01/09, FGIC........... 9/02 at 101.5 3,053,609
AAA 5,000 So. California Rapid Trans. Dist
Rev., Workers Comp. Fund,
6.00%, 7/01/10, MBIA .......... 1/01 at 102.5 5,286,200
So. California Rapid Trans.
Dist. Rev., Spec. Benefit
Assmt. Dist. A1, AMBAC,
AAA 5,750 5.50%, 9/01/09................. 9/02 at 100 5,999,090
AAA 5,500 6.00%, 9/01/08................. 9/02 at 102 5,945,885
AAA 8,500 Sonoma Cnty. C.O.P., Cap. Rites-
Detention Fac., 6.00%,
11/15/10,
AMBAC ......................... 11/02 at 102 9,210,685
AAA 1,000 Southern California Pub. Pwr.
Auth. Transmission Proj. Rev.,
5.50%, 7/01/20, MBIA
Univ. of California Rev., 7/02 at 100 1,022,550
Aaa 1,135++ Ser. B, 6.30%, 9/01/03......... N/A 1,275,547
AAA 1,000++ Ser. D, 6.10%, 9/01/02, MBIA... N/A 1,098,310
AAA 2,000 Multi Purp Projs Ser F, 5.00%,
9/01/11, FGIC................. 9/06 at 101 2,069,740
AAA 2,000++ Multi-Purpose Projs., Ser. B-
1989, 6.80%, 9/01/99, AMBAC N/A 2,063,300
West and Central Basin Fin.
Auth. Rev.,
AAA 3,460++ 6.125%, 8/01/02, AMBAC......... N/A 3,796,347
AAA 370 West Basin Municipal Water Dist.
Rev. C.O.P.,
Ser. A, 5.50%, 8/01/22, AMBAC.. 8/07 at 101 386,635
AAA 2,160 West Sacramento Fin. Auth. Rev.,
Wtr. Sys. Impvt.,
5.25%, 8/01/08, FGIC........... 8/02 at 102 2,269,663
Total Long-Term Investments
(cost $244,959,580)............ 272,669,528
</TABLE>

F-3
<PAGE>

<TABLE>
<CAPTION>
Principal
Amount Option Call
Rating* (000) Description Provisions++ Value
------- --------- ----------- ------------ -------------
<C> <C> <S> <C> <C>
SHORT-TERM INVESTMENTS**--1.1%
A1+ 500 California Poll. Ctrl. Fin.
Auth. Rev., Shell Oil Co. Proj.,
Ser. A, 3.15%, 10/01/10 FRDD... N/A 500,000
A1- 100 Irvine Ranch Wtr. Dist., Cons.
Dist., 2.85%, 8/01/16, FRDD..... N/A 100,000
A1+ 1,400 Irvine Ranch Wtr. Dist., Dates
Cons. Bds Ser. C S&p Lt. Rtg Nr,
4.20%, 10/01/10................. N/A 1,400,000
Total Short-Term Investments
(cost $2,000,000)............... 2,000,000
Total Investments--146.6% (cost
$246,959,580)................... 274,669,528
Assets in excess of other
liabilities--( )%............. 25,659,903
Liquidation value of preferred
stock--( )%................... (113,000,000)
Net Assets Applicable to Common
Shareholders--100%.............. 187,329,431
</TABLE>
- ----

(a) The following abbreviations are used in portfolio descriptions:

AMBAC--American Municipal Bond Assurance Corporation
BIGI--Bond Investors Guaranty Insurance Company
CGIC--Capital Guaranteed Insurance Company
C.O.P.--Certificate of Participation
CONNIE LEE--College Construction Loan Insurance Association
FHA--Federal Housing Administration
FNMA--Federal National Mortgage Association
FGIC--Financial Guaranty Insurance Company
FSA--Financial Security Assurance
F.R.D.D.--Floating Rate Daily Demand**
F.R.W.D--Floating Rate Weekly Demand**
G.O.--General Obligation Bond
MBIA--Municipal Bond Insurance Association
PSFG--Permanent School Fund Guaranty

* Rating: Using the higher of Standard & Poor's, Moody's or Fitch's rating.
** For purposes of amortized cost valuation, the maturity date of these
instruments is considered to be the earlier of the next date on which the
security can be redeemed at par, or the next date on which the rate of
interest is adjusted.
+ Option call provisions: Date (month/year) and prices of the earliest
optional call or redemption. There may be other call provisions at varying
prices at later dates.
++ This bond is prefunded. See Glossary for definition.

F-4
<PAGE>

STATEMENT OF ASSETS AND LIABILITIES

The following table sets forth, as of April 30, 1999, (i) the Statement of
Assets and Liabilities of BFC; (ii) the Statement of Assets and Liabilities of
RAA; and (iii) the pro forma Statement of Assets and Liabilities of RAA as
adjusted to give effect to the Merger. The Statement of Assets and Liabilities
of BFC and RAA is likely to be different at the Closing as a result of the
effects of BFC's and RAA's ongoing operations.

<TABLE>
<CAPTION>
Pro Forma
Statements of Assets and
Liabilities Pro Forma
April 30, 1999 (Unaudited) RAA BFC Adjustments Pro Forma
- -------------------------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Assets
Investments, at value (cost
$20,280,051, $226,679,529
and $246,959,580
respectively)............... $22,617,792 $252,051,737 $274,669,529
Cash........................ 77,251 10,260 87,511
Receivable for shares sold.. 27,500,000(3) 27,500,000
Interest receivable......... 305,066 3,492,593 3,797,659
Other assets................ 0 11,144 11,144
----------- ------------ ---------- ------------
23,000,109 255,565,734 27,500,000 306,065,843
----------- ------------ ---------- ------------
Liabilities
Payable for investments
purchased...................
Dividends payable-common
stock....................... 0 4,848,153(1) 4,848,153
Preferred share issuance
cost payable................ 411,395(4) 411,395
Merger cost payable......... 0 0 175,732(2) 175,732
Investment advisory fee
payable..................... 6,624 73,953 80,577
Administration fee payable.. 1,893 21,129 23,022
Dividends payable-preferred
stock....................... 1,438 70,194 71,632
Other accrued expenses...... 15,984 109,917 125,901
----------- ------------ ---------- ------------
25,939 275,193 5,435,280 5,736,412
----------- ------------ ---------- ------------
Net Investment Assets....... $22,974,170 $255,290,541 $5,611,013 $300,329,431
=========== ============ ========== ============
Net investment assets were
comprised of Common Stock:
Par value................. $ 10,071 $ 104,071 8,158(6) $ 122,300
Paid-in capital in excess
of par.................... 13,897,103 144,619,829 (595,285)(2) 157,921,647
Preferred stock............. 7,500,000 78,000,000 27,500,000(3) 113,000,000
----------- ------------ ---------- ------------
21,407,174 222,723,900 26,912,873 271,043,947
</TABLE>

(continued on next page)

F-5
<PAGE>

<TABLE>
<CAPTION>
Pro Forma
Statements of Assets and
Liabilities
April 30, 1999 Pro Forma
(Unaudited) RAA BFC Adjustments Pro Forma
- ------------------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Undistributed net
investment income....... 47,974 7,194,433 (4,848,153)(1) 2,394,254
Accumulated net realized
loss.................... (818,705) 0 (818,705)
Net unrealized
appreciation............ 2,337,727 25,372,208 27,709,935
----------- ------------ ----------- ------------
Net investment assets,
April 30, 1999.......... $22,974,170 $255,290,541 $22,064,720 $300,329,431
=========== ============ =========== ============
Net assets applicable to
common shareholders..... $15,474,170 $177,290,541 $187,329,431
=========== ============ =========== ============
Net Asset value per
common share............ $ 15.37 $ 17.04 $ 15.32
=========== ============ ============
COMMON SHARES
OUTSTANDING............. 1,007,093 10,407,093 12,230,023
Adjustment 1 Special
Dividend(2)............. 4,848,153 4,848,153
Adjustment 2 Merger
Cost(3)................. 14,471 161,261 175,732
Adjustment 3 New
Preferred Issuance(4)... 27,500,000
Adjustment 4 Preferred
Issuance Cost(5)........ 411,395
Adjustment 5 Reclass
Between Par Value And
Paid-In Capital In
Excess Of Par(6)........ 8,158
</TABLE>
- -------------
/1/Assumes that the Merger is consummated.
/2/Represents the special dividend to be declared by BFC prior to the merger
date.
/3/Represents the estimated cost of the merger. The cost of the merger will be
prorated to BFC and RAA ratably and booked prior to the merger date.
/4/Represents the estimated gross proceeds from the issuance of new preferred
shares.
/5/Represents the estimated cost of the issuance of the new preferred shares.
/6/Represents a reclass based on $0.01 par value of new RAA shares
outstanding.

F-6
<PAGE>

STATEMENT OF OPERATIONS

The following table sets forth for the six months ended April 30, 1999 and for
the year ended October 31, 1998, the statement of operations for BFC and the
pro forma statement of operations as adjusted to give effect to the Merger.

<TABLE>
<CAPTION>
Pro Forma
Statement of Operations
For the Six Months Ended Pro Forma Pro Forma
April 30, 1999 (Unaudited) RAA BFC Adjustments* Combined
- -------------------------- -------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Net Investment Income
Income
Interest and discount earned..... $631,539 $6,944,473 $ 0 $7,576,012
-------- ---------- ------- ----------
Expenses
Investment advisory.............. 40,076 444,592 0 484,668
Administration................... 11,450 127,026 0 138,476
Auction agent.................... 9,300 107,500 (2,000) 114,800
Custodian........................ 1,500 44,000 0 45,500
Reports to shareholders.......... 15,000 22,250 (10,500) 26,750
Directors........................ 9,000 20,588 12,412 42,000
Audit............................ 4,000 15,250 (1,750) 17,500
Transfer agent................... 5,000 8,750 0 13,750
Legal............................ 6,000 5,500 (6,500) 5,000
Miscellaneous.................... 6,165 41,648 (3,665) 44,148
-------- ---------- ------- ----------
Total expenses................... 107,491 837,103 (12,003) 932,591
-------- ---------- ------- ----------
Net investment income.............. 524,048 6,107,370 (12,003) 6,643,421
-------- ---------- ------- ----------
Realized and Unrealized Gain (Loss)
on Investments
Net change in unrealized
appreciation on investments........ 92,566 (2,794,947) 0 2,887,513
-------- ---------- ------- ----------
Net loss on investments............
Net Increase in Net Assets
Resulting from Operations ......... $431,482 $3,312,423 $ 0 $3,755,908
======== ========== ======= ==========
</TABLE>
- ----
* Adjustments to reflect anticipated expenses based on historical information
and Pro Forma Combined Net Assets.

Continued on next page

F-7
<PAGE>

<TABLE>
<CAPTION>
Pro Forma
Statement of Operations
For the Year Ended Pro Forma Pro Forma
October 31, 1998 (Unaudited) RAA BFC Adjustments* Combined
- ---------------------------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net Investment Income
Income
Interest and discount
earned..................... $1,265,828 $13,817,920 $ 0 $15,083,748
---------- ----------- -------- -----------
Expenses
Investment advisory......... 79,422 882,453 0 961,875
Administration.............. 22,692 252,129 0 274,821
Auction agent............... 19,000 215,000 (4,000) 230,000
Custodian................... 3,000 88,000 0 91,000
Reports to shareholders..... 24,000 44,500 (15,000) 53,500
Directors................... 12,000 41,175 30,825 84,000
Audit....................... 8,000 30,500 (3,500) 35,000
Transfer agent.............. 9,500 17,500 0 27,000
Legal....................... 10,000 11,000 (11,000) 10,000
Miscellaneous............... 19,885 83,295 (14,885) 88,295
---------- ----------- -------- -----------
Total expenses.............. 207,499 1,665,552 (17,560) 1,855,491
---------- ----------- -------- -----------
Net investment income......... 1,058,329 12,152,368 (17,560) 13,228,257
---------- ----------- -------- -----------
Realized and Unrealized Gain
(Loss) on Investments
Net realized gain (loss) on
investments..................
Net change in unrealized
appreciation on investments.. 791,797 6,013,230 0 6,805,027
---------- ----------- -------- -----------
Net gain on investments.......
---------- ----------- -------- -----------
Net Increase in Net Investment
Assets
Resulting from Operations ... $1,850,126 $18,165,598 $ 0 $20,033,284
========== =========== ======== ===========
</TABLE>
- -----
* Adjustments to reflect anticipated expenses based on historical information
and Pro Forma Combined Net Assets.

F-8
<PAGE>

CERTAIN PRO FORMA FINANCIAL INFORMATION

The following tables present other pro-forma financial information for the
periods indicated as adjusted to give effect to the potential Merger.

<TABLE>
<CAPTION>
Pro-
Pro-forma Total Returns Pro-forma Average Net Assets forma Operating Expense Ratios
Period RAA & BFC RAA & BFC RAA & BFC
- ------ --------- --------- ---------
<S> <C> <C> <C>
Six months ended April
30, 1999................ 5.61% $193,880 0.97%*
Year ended October 31,
1998.................... 13.70% 189,947 0.98%
Year ended October 31,
1997.................... 17.98% 181,248 0.99%
Year ended October 31,
1996.................... 13.80% 175,610 1.00%
</TABLE>

- ----
* annualized
COMPARATIVE PERFORMANCE INFORMATION

Comparative investment performance for RAA and BFC for certain periods ended
April 30, 1999 are shown below.

<TABLE>
<CAPTION>
Average Annual
Total Investment Average Annual Total
Return on Market Return
Value On Net Asset Value
---------------------- ------------------------
1 3 5 1 3 5
---- ---- ---- ---- ---- ----- ----- ----
Year Yrs. Yrs. Life Year Yrs. Yrs. Life
---- ---- ---- ---- ---- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RAA............................... % % % % 8.86% 10.54% 10.50% 7.59%
BFC............................... % % % % 7.87% 8.80% 8.70% 8.29%
</TABLE>

Total Investment Return on Market Value is the average annual combination of
reinvested dividend income, reinvested capital gains distributions, if any,
and changes in price per share. Total Return on Net Asset Value is the average
annual combination of reinvested dividend income, reinvested capital gains
distributions, if any, and changes in net asset value per common share. [The
life of RAA and BFC is calculated from April 30, 1999 to April 12, 1993 for
RAA and November 19, 1992 for BFC.] Past performance information is not
necessarily indicative of future results.

F-9
<PAGE>

APPENDIX I

FORM OF
AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made as of the day
of , 1999, by and among The BlackRock California Insured Municipal 2008
Term Trust Inc. ("BFC") and The BlackRock California Investment Quality
Municipal Trust Inc. ("RAA" and, together with BFC, the "Funds"), each a
Maryland corporation.

PLAN OF MERGER

The merger of BFC with and into RAA will comprise the following: (i) BFC will
be merged with and into RAA in accordance with the Maryland General
Corporation Law ("Maryland Law"); (ii) the separate existence of BFC will
cease; (iii) RAA will be the surviving corporation; (iv) each share of common
stock, par value $.01 per share, of BFC ("BFC Common Stock") will be converted
into and exchangeable for an equivalent dollar amount (to the nearest one ten-
thousandth of one cent) of full shares of common stock, par value $.01 per
share, of RAA ("RAA Common Stock" and together with the BFC Common Stock, the
"Common Stock") and the right to receive cash in lieu of any fractional shares
of RAA Common Stock, computed based on the relative net asset value per share
of the Funds on the last business day prior to the Effective Date (as defined
in Section 7(a) of this Agreement) of the Merger and (v) each share of
preferred stock of BFC (the "BFC Preferred Stock") will be converted into and
exchangeable for one newly issued share of preferred stock of RAA (the "RAA
Preferred Stock" and together with the BFC Preferred Stock, the "Preferred
Stock") as set forth in Section 4(b) of this Agreement, all upon and subject
to the terms hereinafter set forth (the "Merger").

As soon as practicable after satisfaction of all conditions to the Merger, the
Funds will jointly file executed articles of merger (the "Articles of Merger")
with the Department of Assessments and Taxation of the State of Maryland and
make all other filings or recordings required by Maryland Law in connection
with the Merger. The Merger will become effective at such time as the Articles
of Merger are filed with and accepted for recording by the Department of
Assessments and Taxation of the State of Maryland or at such later time as is
specified in the Articles of Merger (the "Effective Date").

From and after the Effective Date, RAA will possess all of the rights,
privileges, purposes, powers and franchises and be subject to all of the
restrictions, liabilities, obligations, disabilities and duties of RAA and
BFC, all as provided under Maryland Law.

The parties intend that the Merger shall qualify as a reorganization under
Section 368(a) of the Internal Revenue Code of 1986, as amended ("Code").

As promptly as practicable after the Merger, the registration of BFC under the
Investment Company Act of 1940, as amended (the "1940 Act") shall be
terminated.

I-1
<PAGE>

AGREEMENT

In consideration of the covenants and agreements hereinafter set forth, and
intending to be legally bound, the Funds hereby agree as follows:

1. Representations and Warranties of RAA.

RAA represents and warrants to, and agrees with BFC that:

a. RAA is a corporation duly organized, validly existing and in good
standing in conformity with Maryland Law, and has the power to own all of
its assets and to carry out this Agreement. RAA has all necessary federal,
state and local authorizations to carry on its business as it is now being
conducted and to carry out this Agreement.

b. RAA is duly registered under the 1940 Act as a diversified, closed-end
management investment company and such registration has not been revoked or
rescinded and is in full force and effect. RAA has elected and qualified
for the special tax treatment afforded regulated investment companies
("RICs") under Sections 851-855 of the Code at all times since its
inception, and intends to continue to so qualify until consummation of the
Merger and thereafter.

c. RAA has full power and authority to enter into and perform its
obligations under this Agreement. The execution, delivery and performance
of this Agreement has been duly authorized by all necessary action of its
Board of Directors, and this Agreement constitutes a valid and binding
contract enforceable in accordance with its terms, subject to the effects
of bankruptcy, insolvency, moratorium, fraudulent conveyance and similar
laws relating to or affecting creditors' rights generally and court
decisions with respect thereto.

d. There are no material legal, administrative or other proceedings pending
or, to the knowledge of RAA, threatened against RAA which assert liability
on the part of RAA or which materially affect its financial condition or
its ability to consummate the Merger. RAA is not charged with or, to the
best of its knowledge, threatened with any violation or investigation of
any possible violation of any provisions of any Federal, state or local law
or regulation or administrative ruling relating to any aspect of its
business.

e. RAA is not a party to or obligated under any provision of its Articles
of Incorporation, as amended, its Articles Supplementary, as amended, or
its by-laws, as amended, or any contract or other commitment or obligation,
and is not subject to any order or decree, which would be violated by its
execution of or performance under this Agreement, except for those that
will be complied with, satisfied, amended or waived to cure any potential
violation as a condition precedent to the Merger.

f. BFC has been furnished with a statement of assets, liabilities and
capital and a schedule of investments of RAA, each as of the end of RAA's
most recently completed fiscal year, said financial statements having been
audited by Deloitte & Touche LLP, independent public accountants.

g. BFC has been furnished with RAA's Annual Report to Stockholders for its
most recently completed fiscal year, and the audited financial statements
appearing therein fairly present the financial position of RAA as of the
dates indicated therein, in conformity with generally accepted accounting
principles applied on a consistent basis.

I-2
<PAGE>

h. There are no material contracts outstanding to which RAA is a party that
have not been disclosed in the N-14 Registration Statement (as defined in
Section l(1) below) or will not otherwise be disclosed to BFC prior to the
Effective Date.

i. RAA has no known liabilities of a material amount, contingent or
otherwise, other than those shown on RAA's statements of assets,
liabilities and capital referred to above, those incurred in the ordinary
course of its business as an investment company since the end of RAA's most
recently completed fiscal year and those incurred in connection with the
Merger. Prior to the Effective Date, RAA will advise BFC in writing of all
known liabilities, contingent or otherwise, whether or not incurred in the
ordinary course of business, existing or accrued.

j. RAA has filed, or has obtained extensions to file, all Federal, state
and local tax returns which are required to be filed by it, and has paid
all Federal, state and local taxes shown on said returns to be due and
owing and all assessments received by it, up to and including the taxable
year in which the Effective Date occurs. All tax liabilities of RAA have
been adequately provided for on its books, and no tax deficiency or
liability of RAA has been asserted and no question with respect thereto has
been raised by the Internal Revenue Service or by any state or local tax
authority for taxes in excess of those already paid, up to and including
the taxable year in which the Effective Date occurs.

k. No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by RAA of the
Merger, except such as may be required under the Securities Act of 1933, as
amended (the "1933 Act"), the Securities Exchange Act of 1934, as amended
(the "1934 Act"), the 1940 Act, the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act") and the laws of the State of
Maryland.

l. The registration statement filed by RAA on Form N-14 relating to the RAA
Common Stock and RAA Preferred Stock to be issued pursuant to this
Agreement, and any supplement or amendment thereto or to the documents
therein (as amended, the "N-14 Registration Statement"), on the effective
date of the N-14 Registration Statement, at the time of the stockholders'
meeting referred to in Section 6(a) of this Agreement and at the Effective
Date, insofar as it relates to RAA (i) will comply in all material respects
with the provisions of the 1933 Act, the 1934 Act and the 1940 Act and the
rules and regulations thereunder and (ii) will not contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading; and the prospectus included therein will not contain any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that the
representations and warranties in this subsection only shall apply to
statements in or omissions from the N-14 Registration Statement made in
reliance upon and in conformity with information furnished by RAA for use
in the N-14 Registration Statement as provided in Section 6 of this
Agreement.

m. RAA is authorized to issue 200,000,000 shares of capital stock, par
value $.01 per share, 199,999,700 of which shares are designated RAA Common
Stock, 300 of which are designated Auction Rate Municipal Preferred Stock,
Series W7. Each outstanding share of capital stock is fully paid,
nonassessable and has full voting rights.

I-3
<PAGE>

n. All of the issued and outstanding shares of RAA Common Stock and RAA
Preferred Stock have been offered for sale and sold in conformity with all
applicable Federal and state securities laws.

o. The RAA Common Stock and the RAA Preferred Stock to be issued pursuant
to this Agreement will have been duly authorized and, when issued and
delivered pursuant to this Agreement, will be legally and validly issued
and will be fully paid and nonassessable and will have full voting rights,
and no stockholder of RAA will have any preemptive right of subscription or
purchase in respect thereof.

p. At or prior to the Effective Date, the RAA Common Stock and the RAA
Preferred Stock to be issued pursuant to this Agreement will be duly
qualified for offering to the public in conformity with all applicable
federal and sate securities laws, and there are a sufficient number of such
shares registered under the 1933 Act to permit the issuance contemplated by
this Agreement.

q. At or prior to the Effective Date, RAA will have obtained any and all
regulatory, rating agency, director and stockholder approvals necessary to
issue the RAA Common Stock and the RAA Preferred Stock in connection with
the Merger.

r. The books and records of RAA made available to BFC and/or its counsel
are substantially true and correct and contain no material misstatements or
omissions with respect to the operations of RAA.

2. Representations and Warranties of BFC.

BFC represents and warrants to, and agrees with, RAA that:

a. BFC is a corporation duly organized, validly existing and in good
standing in conformity with Maryland Law, and has the power to own all of
its assets and to carry out this Agreement. BFC has all necessary Federal,
state and local authorizations to carry on its business as it is now being
conducted and to carry out this Agreement.

b. BFC is duly registered under the 1940 Act as a diversified, closed-end
management investment company, and such registration has not been revoked
or rescinded and is in full force and effect. BFC has elected and qualified
for the special tax treatment afforded RICs under Sections 851-855 of the
Code at all times since its inception and intends to continue to so qualify
for its taxable year ending upon the termination of BFC.

c. BFC has full power and authority to enter into and perform its
obligations under this Agreement. The execution, delivery and performance
of this Agreement has been duly authorized by all necessary action of BFC's
Board of Directors, and this Agreement constitutes a valid and binding
contract enforceable in accordance with its terms, subject to the effects
of bankruptcy, insolvency, moratorium, fraudulent conveyance and similar
laws relating to or affecting creditors' rights generally and court
decisions with respect thereto.

d. There are no material legal, administrative or other proceedings pending
or, to the knowledge of BFC, threatened against BFC which assert liability
on the part of BFC or which materially affect its financial condition or
its ability to consummate the Merger. BFC is not charged with or, to the
best of its knowledge, threatened with any violation or investigation of
any possible

I-4
<PAGE>

violation of any provisions of any Federal, state or local law or
regulation or administrative ruling relating to any aspect of its business.

e. BFC is not a party to or obligated under any provision of its Articles
of Incorporation, as amended, Articles Supplementary, as amended, or its
by-laws, as amended, or any contract or other commitment or obligation, and
is not subject to any order or decree which would be violated by its
execution of or performance under this Agreement, except for those that
will be complied with, satisfied, amended or waived to cure any potential
violation as a condition precedent to the Merger.

f. RAA has been furnished with a statement of assets, liabilities and
capital and a schedule of investments of BFC, each as of the end of BFC's
most recently completed fiscal year, said financial statements having been
audited by Deloitte & Touche LLP, independent public accountants.

g. RAA has been furnished with BFC's Annual Report to Stockholders for
BFC's most recently completed fiscal year, and the audited financial
statements appearing therein fairly present the financial position of BFC
as of the date thereof, in conformity with generally accepted accounting
principles applied on a consistent basis.

h. There are no material contracts outstanding to which BFC is a party that
have not been disclosed in the N-14 Registration Statement or will not
otherwise be disclosed to RAA prior to the Effective Date.

i. BFC has no known liabilities of a material amount, contingent or
otherwise, other than those shown on its statements of assets, liabilities
and capital referred to above, those incurred in the ordinary course of its
business as an investment company since the date of such statements, and
those incurred in connection with the Merger. Prior to the Effective Date,
BFC will advise RAA in writing of all known liabilities, contingent or
otherwise, whether or not incurred in the ordinary course of business,
existing or accrued.

j. BFC has filed, or has obtained extensions to file, all Federal, state
and local tax returns which are required to be filed by it, and has paid
all Federal, state and local taxes shown on said returns to be due and
owing and all assessments received by it, up to and including the taxable
year in which the Effective Date occurs. All tax liabilities of BFC have
adequately been provided for on its books, and no tax deficiency or
liability of BFC has been asserted and no question with respect thereto has
been raised by the Internal Revenue Service or by any state or local tax
authority for taxes in excess of those already paid, up to and including
the taxable year in which the Effective Date.

k. No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by BFC of the
Merger, except such as may be required under the 1933 Act, the 1934 Act,
the 1940 Act, the HSR Act and the laws of the State of Maryland.

l. The N-14 Registration Statement, on its effective date, at the time of
the stockholders' meetings referred to in Section 6(a) of this Agreement
and on the Effective Date, insofar as it relates to BFC (i) will comply in
all material respects with the provisions of the 1933 Act, the 1934 Act and
the 1940 Act and the rules and regulations thereunder, and (ii) will not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein

I-5
<PAGE>

or necessary to make the statements therein not misleading; and the
prospectus included therein will not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the representations and
warranties in this subsection shall apply only to statements in or
omissions from the N-14 Registration Statement made in reliance upon and in
conformity with information furnished by BFC for use in the N-14
Registration Statement as provided in Section 6 of this Agreement.

m. BFC is authorized to issue 200,000,000 shares of capital stock, par
value $.01 per share, 199,996,880 of which are designated BFC Common Stock,
1,560 of which are designated Auction Rate Municipal Preferred Stock,
Series W7 and 1,560 of which are designated Auction Rate Municipal
Preferred Stock, Series W28. Each outstanding share of capital stock is
fully paid, nonassessable and has full voting rights.

n. All of the issued and outstanding shares of BFC Common Stock and BFC
Preferred Stock have been offered for sale and sold in conformity with all
applicable Federal and state securities laws.

o. The books and records of BFC made available to RAA and/or its counsel
are substantially true and correct and contain no material misstatements or
omissions with respect to the operations of BFC.

3. The Merger.

a. Subject to the requisite approvals of the stockholders of RAA and BFC
being given, and to the other terms and conditions contained herein, the
Funds agree that (i) BFC will be merged with and into RAA in accordance
with Maryland Law, (ii) the separate existence of BFC will cease, (iii) RAA
will be the surviving corporation, (iv) each share of BFC Common Stock
outstanding at the Effective Date will be converted into and exchangeable
for an equivalent dollar amount (to the nearest one ten-thousandth of one
cent) of full shares of RAA Common Stock and cash in lieu of any fractional
shares of RAA Common Stock, computed based on the net asset value per share
of the Funds on the last business day prior to the Effective Date, and (v)
each share of BFC Preferred Stock will be converted into and exchangeable
for one newly issued share of RAA Preferred Stock as set forth in Section
4(b) of this Agreement.

b. Prior to the Effective Date, BFC shall declare a dividend or dividends
which, together with all previous dividends, shall have the effect of
distributing to its stockholders all of its net investment company taxable
income for the period from the beginning of its current fiscal year to and
including the Closing Date, if any, and all of its net capital gain, if
any, realized for such period. In this regard, the last dividend period for
each series of BFC Preferred Stock prior to the Closing Date may be shorter
than the dividend period for each such series determined as set forth in
the applicable Articles Supplementary.

c. As soon as practicable after satisfaction of all conditions to the
Merger, the Funds will jointly file the Articles of Merger with the
Department of Assessments and Taxation of the State of Maryland and make
all other filings or recordings required by Maryland Law in connection with
the Merger.

I-6
<PAGE>

d. From and after the Effective Date, RAA will possess all of the rights,
privileges, purposes, powers and franchises and be subject to all of the
restrictions, liabilities, obligations, disabilities and duties of RAA and
BFC, all as provided under Maryland Law.

4. Conversion to RAA Stock.

a. At the Effective Date, each share of BFC Common Stock will be converted
into and exchangeable for an equivalent dollar amount (to the nearest one
ten-thousandth of one cent) of full shares of RAA Common Stock and the
right to receive cash in lieu of any fractional shares of RAA Common Stock,
computed based on the net asset value per share of RAA and BFC on the last
business day prior to the Effective Date. The net asset value per share of
RAA and BFC shall be determined as of the last business day prior to the
Effective Date, and no formula will be used to adjust the net asset value
so determined of RAA or BFC to take into account differences in realized
and unrealized gains and losses. The value of the assets of RAA and of BFC
shall be determined by RAA for purposes of the Merger pursuant to the
procedures utilized by RAA in valuing its own assets and determining its
own liabilities. Such valuation and determination shall be made by RAA in
cooperation with BFC and shall be confirmed in writing by RAA to BFC. RAA
shall issue to the stockholders of BFC separate certificates or share
deposit receipts for the RAA Common Stock by delivering the certificates or
share deposit receipts evidencing ownership of the RAA Common Stock to
State Street Bank & Trust Company, as the transfer agent and registrar for
RAA Common Stock. With respect to any stockholder of BFC holding
certificates evidencing ownership of BFC Common Stock as of the Effective
Date, and subject to RAA being informed thereof in writing by BFC, RAA will
not permit such stockholder to receive new certificates evidencing
ownership of the RAA Common Stock or pledge or redeem such RAA Common
Stock, in any case, until such stockholder has surrendered his or her
outstanding certificates evidencing ownership of BFC Common Stock or, in
the event of lost certificates, posted adequate bond. BFC, at its own
expense, will request its stockholders to surrender their outstanding
certificates evidencing ownership of BFC Common Stock or post adequate bond
therefor. Dividends payable to holders of record of shares of RAA Common
Stock as of any date after the Effective Date and prior to the exchange of
certificates by any stockholder of BFC shall be paid to such stockholder,
without interest; however, such dividends shall not be paid unless and
until such stockholder surrenders his or her stock certificates for
exchange. No fractional shares of RAA Common Stock will be issued to BFC
stockholders. In lieu thereof, RAA's transfer agent, State Street Bank &
Trust Company, will aggregate all fractional shares of RAA Common Stock and
sell the resulting full shares on the American Stock Exchange at the
current market price for shares of RAA Common Stock for the account of all
holders of fractional interests, and each such holder will receive such
holder's pro rata share of the proceeds of such sale, without interest,
upon surrender of such holder's RAA Common Stock certificates.

b. At the Effective Date, each outstanding share of BFC Preferred Stock
will be converted into and exchangeable for one share of RAA Preferred
Stock having the same terms, except as set forth herein. The initial
dividend rate of each new share of RAA Preferred Stock will be the same as
that established in the most recent auction of the corresponding share of
BFC Preferred Stock. Dividends will accumulate on BFC Preferred Shares up
to and including the Closing Date and will be paid, together with the
dividends then payable in respect of the newly issued

I-7
<PAGE>

corresponding shares of RAA Preferred Stock, to the holders thereof on the
dividend payment date in respect of the Initial Dividend Period of such
newly issued shares. The "Initial Dividend Period" of the shares of RAA
Preferred Stock issued in connection with the Merger will be a period
consisting of the number of days following the day on which the Merger is
completed that would have remained in the dividend period for the
corresponding series of BFC Preferred Stock in effect immediately prior to
the Closing Date. The dividend rate for the shares of each new share of RAA
Preferred Stock issued in connection with the Merger for such Initial
Dividend Period thereof will be the dividend rate in effect immediately
prior to the Closing Date for the corresponding share of BFC Preferred
Stock. The initial auction for each share of RAA Preferred Stock issued
pursuant to the Merger will be held on the day on which the auction next
succeeding the Closing Date would have been held for the corresponding
share of BFC Preferred Stock but for the Merger.

5. Payment of Expenses.

a. RAA and BFC shall each pay, immediately prior to the Effective Date, a
pro rata portion of all expenses incurred in connection with the Merger.
Such fees and expenses shall include legal, accounting and state securities
or blue sky fees (if any), printing costs, filing fees, stock exchange
fees, rating agency fees, portfolio transfer taxes (if any), and any
similar expenses incurred in connection with the Merger. Neither RAA nor
BFC shall pay any expenses of its respective stockholders arising out of or
in connection with the Merger.

6. Covenants of the Funds.

a. Each Fund agrees to call a special meeting of its respective
stockholders to be held as soon as is practicable after the effective date
of the N-14 Registration Statement for the purpose of considering the
Merger as described in this Agreement.

b. Each Fund covenants to operate its respective business as presently
conducted between the date hereof and the Effective Date.

c. Each Fund agrees that, as soon as practicable after satisfaction of all
conditions to the Merger, they will jointly file executed Articles of
Merger with the Department of Assessments and Taxation of the State of
Maryland and make all other filings or recordings required by Maryland Law
in connection with the Merger.

d. RAA undertakes that it will file, or cause its agents to file, an
application pursuant to Section 8(f) of the 1940 Act for an order declaring
that BFC has ceased to be a registered investment company.

e. RAA will file the N-14 Registration Statement with the Securities and
Exchange Commission (the "Commission") and will use its best efforts to
provide that the N-14 Registration Statement becomes effective as promptly
as practicable. BFC agrees to cooperate fully with RAA and will furnish to
RAA the information relating to itself to be set forth in the N-14
Registration Statement as required by the 1933 Act, the 1934 Act, the 1940
Act, and the rules and regulations thereunder.

I-8
<PAGE>

f. Each Fund agrees to proceed as promptly as possible to cause to be made
all necessary filings under the HSR Act with respect to the transactions
contemplated by this Agreement and to ensure that the related waiting
period expires or is otherwise terminated at the earliest possible time.

g. RAA agrees that it has no plan or intention to sell or otherwise dispose
of the assets of BFC to be acquired in the Merger, except for dispositions
made in the ordinary course of business.

h. Each Fund agrees that, on or before the Effective Date, all of BFC's
Federal and other tax returns and reports required to be filed on or before
such date shall have been filed and all taxes shown as due on said returns
either shall have been paid or adequate liability reserves shall have been
provided for the payment of such taxes. In connection with this covenant,
each Fund agrees to cooperate with the other Fund in filing any tax return,
amended return or claim for refund, determining a liability for taxes or a
right to a refund of taxes or participating in or conducting any audit or
other proceeding in respect of taxes. RAA agrees to retain for a period of
ten (10) years following the Effective Date all returns, schedules and work
papers and all material records or other documents relating to tax matters
of BFC for its taxable periods first ending after such Effective Date and
for all prior taxable periods. Any information obtained under this
subsection shall be kept confidential except as otherwise may be necessary
in connection with the filing of returns or claims for refund or in
conducting an audit or other proceeding. After the Effective Date, RAA
shall prepare, or cause its agents to prepare, any Federal, state or local
tax returns, including any Forms 1099, required to be filed by BFC with
respect to its final taxable years ending with the Effective Date and for
any prior periods or taxable years and further shall cause such tax returns
and Forms 1099 to be duly filed with the appropriate taxing authorities.
Notwithstanding the aforementioned provisions of this subsection, any
expenses incurred by RAA or BFC (other than for payment of taxes) in
connection with the preparation and filing of said tax returns and Forms
1099 after the Effective Date shall be borne by RAA.

i. Each Fund agrees to mail to each of its respective stockholders of
record entitled to vote at the special meeting of stockholders at which
action is to be considered regarding this Agreement, in sufficient time to
comply with requirements as to notice thereof, a combined Proxy Statement
and Prospectus which complies in all material respects with the applicable
provisions of Section 14(a) of the 1934 Act and Section 20(a) of the 1940
Act, and the rules and regulations, respectively, thereunder.

j. Following the consummation of the Merger, RAA expects to stay in
existence and continue its business as a closed-end management investment
company registered under the 1940 Act.

k. Except as contemplated herein, each Fund agrees that, during the period
from the date hereof to and including the Effective Date, it will declare
and pay dividends consistent with past practices and the terms of the
Common Stock and Preferred Stock issued by each such Fund.

7. Effective Date.

a. The Merger shall become effective at such time as the Articles of Merger
are accepted for filing by the Department of Assessments and Taxation of
the State of Maryland or at such later time as is specified in the Articles
of Merger (the "Effective Date").

I-9
<PAGE>

b. Prior to the Effective Date, BFC shall have made arrangements with its
transfer agent to deliver to RAA, as soon as practicable after the
Effective Date, a list of the names and addresses of all of the
stockholders of record of BFC on the Effective Date and the number of
shares of BFC Common Stock and BFC Preferred Stock owned by each such
stockholder, certified by its transfer agent or by its President to the
best of their knowledge and belief.

8. RAA Conditions.

The obligation of RAA to consummate the Merger shall be subject to the
satisfaction or waiver of the following conditions, provided:

a. This Agreement shall have been adopted, and the Merger shall have been
approved, by the affirmative vote of a majority of the shares of the RAA
Common Stock and the RAA Preferred Stock outstanding on the record date for
the Special Meeting of RAA stockholders voting together as a single class;
and BFC shall have delivered to RAA a copy of the resolutions approving
this Agreement and the Merger adopted by its Board of Directors and
stockholders and certified by its respective Secretary.

b. BFC shall have furnished to RAA a statement of assets, liabilities and
capital, together with a schedule of investments with their respective
dates of acquisition and tax costs, certified on its behalf by its
President (or any Vice President) and its Treasurer, and a certificate of
both such officers, dated as of the Effective Date, certifying that there
has been no material adverse change in its respective financial position
since the date of BFC's most recent financial statements provided to RAA,
other than changes in its portfolio securities since that date or changes
in the market value of its portfolio securities.

c. BFC shall have furnished to RAA a certificate signed by its President
(or any Vice President) and its Treasurer, dated the Effective Date,
certifying that as of such Effective Date all representations and
warranties made in this Agreement are true and correct in all material
respects as if made at and as of such date and it has complied with all of
the agreements and satisfied all of the conditions on its part to be
performed or satisfied at or prior to such date.

d. BFC shall have delivered to RAA a letter from Deloitte & Touche LLP,
dated the Effective Date, stating that such firm has performed a limited
review of the Federal, state and local income tax returns for BFC's most
recently completed fiscal year, and that based on such limited review,
nothing came to their attention which caused them to believe that such
returns did not properly reflect, in all material respects, the Federal,
state and local income taxes of BFC for the period covered thereby; and
that for the period from such date, to and including such Effective Date
and for any taxable year ending upon its dissolution, such firm has
performed a limited review to ascertain the amount of applicable Federal,
state and local taxes, and has determined that either such amount has been
paid or reserves have been established for payment of such taxes, this
review to be based on unaudited financial data; and that based on such
limited review, nothing has come to their attention which caused them to
believe that the taxes paid or reserves set aside for payment of such taxes
were not adequate in all material respects for the satisfaction of Federal,
state and local taxes for the period from such date, to and including such
Effective Date and for any taxable year ending upon its dissolution or that
BFC would not continue to qualify as a regulated investment company for
Federal income tax purposes.

I-10
<PAGE>

e. RAA shall have received an opinion of Miles & Stockbridge P.C., as
special counsel to each Fund, in form and substance satisfactory to RAA and
dated the Effective Date, to the effect that (i) each Fund is a corporation
duly organized, validly existing and in good standing in conformity with
Maryland Law; (ii) all corporate actions required to be taken by each Fund
to authorize this Agreement and to effect the Merger have been duly
authorized by all necessary corporate actions thereof; (iii) the execution
and delivery of this Agreement does not, and the consummation of the Merger
will not, violate any material provision of the Articles of Incorporation,
as amended, the Articles Supplementary, as amended, or the by-laws, as
amended, or any agreement (known to such counsel) to which RAA or BFC is a
party or by which RAA or BFC is bound, except insofar as the parties have
agreed to amend such provision as a condition precedent to the Merger; (iv)
to the best of such counsel's knowledge, no consent, approval,
authorization or order of any Maryland state court or governmental
authority is required for the consummation by either Fund of the Merger,
except such as have been obtained under Maryland Law and under state
securities or blue sky laws; (v) this Agreement has been duly authorized,
executed and delivered by each Fund and represents a valid and binding
contract, enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization or
other similar laws pertaining to the enforcement of creditors' rights
generally and by equitable principles; and (vi) the RAA Common Stock and
RAA Preferred Stock to be issued pursuant to the Merger are duly authorized
and, upon delivery and the consummation of the Merger, will be validly
issued and outstanding and fully paid and nonassessable, and no stockholder
of RAA has any preemptive right to subscription or purchase in respect
thereof (pursuant to the Articles of Incorporation, as amended, Articles
Supplementary, as amended, or the by-laws of RAA or as a matter of Maryland
Law). In giving the opinion set forth above, Miles & Stockbridge P.C. may
state that it is relying on certificates of officers of RAA and BFC with
regard to matters of fact and certificates and written statements of
governmental officials with respect to factual matters.

f. RAA shall have received an opinion from Skadden, Arps, Slate, Meagher &
Flom LLP (together with its affiliates, "Skadden"), as special counsel to
RAA, in form and substance satisfactory to RAA and dated the Effective
Date, to the effect that (i) each Fund is registered as a diversified,
closed-end management investment company under the 1940 Act, (ii) to the
best of such counsel's knowledge, no consent, approval, authorization or
order of any United States federal governmental authority is required for
the consummation of the Merger by either Fund, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act and the
published rules and regulations of the Commission thereunder and such as
may be required under state securities or blue sky laws; (iii) the N-14
Registration Statement has become effective under the 1933 Act, no stop
order suspending the effectiveness of the N-14 Registration Statement has
been issued and no proceedings for that purpose have been instituted or are
pending or contemplated under the 1933 Act, and the N-14 Registration
Statement, and each amendment or supplement thereto, as of their respective
effective dates, appear on their face to be appropriately responsive in all
material respects to the requirements of the 1933 Act, the 1934 Act and the
1940 Act and the published rules and regulations of the Commission
thereunder, except that such counsel need not opine with respect to
financial statements and schedules and other financial and statistical data
included or incorporated by reference in the N-14 Registration Statement or
to schedules, exhibits or appendices included or incorporated by reference
in the N-14 Registration Statement; and (iv) to the best of such counsel's
knowledge, no material suit, action or legal or

I-11
<PAGE>

administrative proceeding is pending or threatened against either Fund, the
unfavorable outcome of which would materially adversely affect such Fund.
Such opinion also shall state that (A) while such counsel cannot make any
representation as to the accuracy or completeness of statements of fact in
the N-14 Registration Statement or any amendment or supplement thereto,
nothing has come to their attention that would lead them to believe that,
on the respective effective dates of the N-14 Registration Statement and
any amendment or supplement thereto, (1) the N-14 Registration Statement or
any amendment or supplement thereto contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading; and (2)
the prospectus included in the N-14 Registration Statement contained any
untrue statement of a material fact or omitted to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and (B) such counsel does not
express any opinion or belief as to financial statements and schedules and
other financial and statistical data included or incorporated by reference
in the N-14 Registration Statement or to schedules, exhibits or appendices
included or incorporated by reference in the N-14 Registration Statement.
In giving the opinion set forth above, Skadden may state that it is relying
on certificates of officers of RAA and BFC with regard to matters of fact
and certificates and written statements of government officials with
respect to factual matters.

g. RAA shall have received an opinion from Skadden, as counsel to RAA, in
form and substance satisfactory to RAA and dated the Effective Date, to the
effect that for Federal income tax purposes the Merger will constitute a
"reorganization" within the meaning of Section 368(a) of the Code and each
Fund will be deemed a "party" to such reorganization within the meaning of
Section 368(b) of the Code. In giving the opinion set forth above, Skadden
may state that it is relying on certificates of officers of RAA and BFC
with regard to factual and other matters.

h. The assets or liabilities of BFC to be transferred to RAA shall not
include any assets or liabilities which RAA, by reason of charter
limitations or otherwise, may not properly acquire or assume.

i. The N-14 Registration Statement shall have become effective under the
1933 Act and no stop order suspending such effectiveness shall have been
instituted or, to the knowledge of BFC, shall be contemplated by the
Commission.

j. The Commission shall not have issued an unfavorable advisory report
under Section 25(b) of the 1940 Act, nor instituted or threatened to
institute any proceeding seeking to enjoin consummation of the Merger under
Section 25(c) of the 1940 Act and no other legal, administrative or other
proceeding shall be instituted or threatened which would materially affect
the financial condition of BFC or would prohibit the Merger.

k. All proceedings taken by BFC and its counsel in connection with the
Merger and all documents incidental thereto shall be satisfactory in form
and substance to RAA.

l. Prior to the Effective Date, BFC shall have declared a dividend or
dividends which, together with all such previous dividends, shall have the
effect of distributing to its stockholders all of its net investment
company taxable income, if any, for the tax year of BFC ending on the
Effective Date, and all of its net capital gain, if any, realized for the
tax year of BFC ending on the Effective Date.

I-12
<PAGE>

m. On or before the Effective Date, RAA shall have received from Standard &
Poor's Ratings Group and Moody's Investors Service written evidence
confirming that consummation of the Merger will not impair the Aaa and AAA
ratings assigned to the outstanding shares of RAA Preferred Stock and
assigning Aaa or AAA ratings to the shares of RAA Preferred Stock issued in
connection with the Merger.

9. BFC's Conditions.

The obligations of BFC hereunder shall be subject to the following conditions:

a. This Agreement shall have been adopted, and the Merger shall have been
approved, by the affirmative vote of a majority of the shares of BFC Common
Stock and of a majority of the shares of BFC Preferred Stock outstanding on
the record date for the special meeting of BFC's stockholders, each voting
as a separate class; and RAA shall have delivered to BFC a copy of the
resolutions approving this Agreement and the Merger adopted by its Board of
Directors and stockholders and certified by its Secretary.

b. RAA shall have furnished to BFC, a statement of assets, liabilities and
capital, together with a schedule of its investments, certified on its
behalf by its President (or any Vice President) and its Treasurer, and a
certificate of both such officers, dated as of the Effective Date,
certifying that as of the Effective Date there has been no material adverse
change in its financial position since the date of RAA's most recent
financial statements provided to BFC, other than changes in its portfolio
securities since that date or changes in the market value of its portfolio
securities.

c. RAA shall have furnished to BFC a certificate signed by its President
(or any Vice President) and its Treasurer, dated as of the Effective Date,
certifying that (i) all representations and warranties of RAA made in this
Agreement are true and correct in all material respects with the same
effect as if made at and as of such Effective Date, and that RAA has
complied with all of the agreements and satisfied all of the conditions on
its part to be performed or satisfied at or prior to such date and (ii)
immediately after the Effective Date, RAA will be in compliance with all
asset coverage tests applicable to the RAA Preferred Stock.

d. BFC shall have received the opinion or opinions of Miles & Stockbridge
P.C. and Skadden, as counsel to BFC, in form and substance satisfactory to
BFC and dated the Effective Date, with respect to the matters specified in
Sections 9(e), (f) and (g) of this Agreement and such other matters as BFC
reasonably may deem necessary or desirable.

e. All proceedings taken by RAA and its counsel in connection with the
Merger and all documents incidental thereto shall be satisfactory in form
and substance to BFC.

f. The N-14 Registration Statement shall have become effective under the
1933 Act, and no stop order suspending such effectiveness shall have been
instituted or, to the knowledge of RAA, shall be contemplated by the
Commission.

g. The Commission shall not have issued an unfavorable advisory report
under Section 25(b) of the 1940 Act, nor instituted or threatened to
institute any proceeding seeking to enjoin consummation of the Merger under
Section 25(c) of the 1940 Act, no other legal, administrative or other
proceeding shall be instituted or threatened which would materially affect
the financial condition of RAA or would prohibit the Merger.

I-13
<PAGE>

h. On or before the Closing Date, the Board of Directors of RAA shall have
classified authorized and unissued shares of RAA Common Stock as a series
of RAA Preferred Stock with, and shall have filed Amended Articles
Supplementary to its Articles of Incorporation describing, powers, rights
and preferences of series of RAA Preferred Stock which are the same as the
powers, rights and preferences of the series of BFC Preferred Stock
described in Section 3(m) of this Agreement, except as set forth in Section
4(b) of this Agreement.

i. On or before the Effective Date, RAA shall have received from [Standard
& Poor's Ratings Group and] Moody's Investors Service written evidence
confirming that consummation of the Merger will not impair the Aaa and AAA
ratings assigned to the outstanding shares of RAA Preferred Stock and
assigning Aaa or AAA ratings to shares of RAA Preferred Stock to be issued
in connection with the Merger.

10. Termination, Postponement and Waivers.

a. Notwithstanding anything contained in this Agreement to the contrary,
this Agreement may be terminated and the Merger abandoned at any time
(whether before or after adoption thereof by the stockholders of the Funds)
prior to the Effective Date, or such Effective Date may be postponed, (i)
by mutual consent of the Boards of Directors of the Funds; (ii) by the
Board of Directors of BFC if any condition of BFC's obligations set forth
in Section 9 of this Agreement has not been fulfilled or waived and (iii)
by the Board of Directors of RAA in its sole discretion.

b. If the transactions contemplated by this Agreement have not been
consummated by December 31, 1999, either Fund may terminate this Agreement
by action of its Board of Directors.

c. In the event of termination of this Agreement pursuant to the provisions
hereof, the same shall become void and have no further effect, and there
shall not be any liability on the part of either Fund or persons who are
their directors, trustees, officers, agents or stockholders in respect of
this Agreement.

d. At any time prior to the Effective Date, the Board of Directors of
either Fund may, by written instrument signed by its (i) extend the time
for the performance of any of the obligations or other acts of the other,
(ii) waive any inaccuracies in the representations and warranties of the
other contained herein, (iii) waive compliance with any of the agreements
of the other or conditions to its obligations contained herein and (iv)
amend this Agreement; provided in each case that, in the judgment of the
Board of Directors of such Fund, after consultation with its counsel, such
action or waiver will not have a material adverse effect on the benefits
intended under this Agreement to the stockholders of such Fund. This
Agreement may not be amended except by an instrument in writing executed by
the parties affected by any such amendment.

e. The respective representations and warranties contained in Sections 1
and 2 of this Agreement shall expire with, and be terminated by, the
consummation of the Merger, and none of RAA, BFC or any of their officers,
directors or trustees, agents or stockholders shall have any liability with
respect to such representations or warranties after the Effective Date.
This provision shall not protect any officer, director or trustee, agent or
stockholder of RAA or BFC against any liability to the entity for which
that officer, director or trustee, agent or stockholder so acts or to its
stockholders to which that officer, director or trustee, agent or
stockholder otherwise would be subject by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties in the
conduct of such office.

I-14
<PAGE>

f. If any order or orders of the Commission with respect to this Agreement
shall be issued prior to the Effective Date and shall impose any terms or
conditions which are determined by action of the Boards of Directors of RAA
or BFC to be acceptable, such terms and conditions shall be binding as if a
part of this Agreement without further vote or approval of the stockholders
of such Fund, unless such terms and conditions shall result in a change in
the method of computing the number of shares of RAA Common Stock or RAA
Preferred Stock to be issued pursuant to this Agreement in which event,
unless such terms and conditions shall have been included in the proxy
solicitation materials furnished to the stockholders of the Funds prior to
the meetings at which the Merger shall have been approved, this Agreement
shall not be consummated and shall terminate, unless the Funds promptly
shall call special meetings of stockholders at which such conditions so
imposed shall be submitted for approval.

11. Other Matters.

a. Pursuant to Rule 145 under the 1933 Act, and in connection with the
issuance of any shares to any person who at the time of the Merger is, to
its knowledge, an affiliate of a party to the Merger pursuant to Rule
145(c), RAA will cause to be affixed upon the certificate(s) issued to such
person (if any) a legend as follows:

THESE SHARES ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER THE
SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
EXCEPT TO BFC (OR ITS STATUTORY SUCCESSOR) OR ITS PRINCIPAL UNDERWRITER
UNLESS (I) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE
UNDER THE SECURITIES ACT OF 1933 OR (II) IN THE OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE FUND, SUCH REGISTRATION IS NOT REQUIRED

and, further, that stop transfer instructions will be issued to RAA's
transfer agent with respect to such shares. BFC will provide RAA on the
Effective Date with the name of any BFC stockholder who is to the knowledge
of BFC an affiliate of it on such date.

b. Any notice, report or demand required or permitted by any provision of
this Agreement shall be in writing and shall be deemed to have been given
if delivered or mailed, first class postage prepaid, addressed to RAA or
any BFC in either case at 345 Park Avenue, New York, New York, 10154, Attn:
Ralph L. Schlosstein, President.

c. This Agreement supersedes all previous correspondence and oral
communications between the parties regarding the Merger, constitutes the
only understanding with respect to the Merger, may not be changed except by
a letter of agreement signed by each party and shall be governed by and
construed in accordance with the laws of the State of Maryland applicable
to agreements made and to be performed in said state.

d. Copies of the Articles of Incorporation and Articles Supplementary, and
all amendments, if any, of RAA and BFC are on file with the State
Department of Assessments and Taxation of Maryland, and notice is hereby
given that this instrument is executed on behalf of the Directors of RAA
and BFC. This Agreement may be executed in any number of counterparts, each
of which, when executed and delivered, shall be deemed to be an original
but all such counterparts together shall constitute but one instrument.

I-15
<PAGE>

IN WITNESS WHEREOF, each of the undersigned has executed and delivered this
Agreement and Plan of Merger as of the date first written above.

The BlackRock California Investment
Quality Municipal Trust Inc.

By: _________________________________
Name: Ralph L. Schlosstein
Title: President

The BlackRock California Insured
Municipal 2008 Term Trust Inc.

By: _________________________________
Name: Ralph L. Schlosstein
Title: President

I-16

SUBJECT TO COMPLETION--DATED July 23, 1999

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE
OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.

THE BLACKROCK CALIFORNIA INVESTMENT QUALITY MUNICIPAL TRUST, INC.
345 Park Avenue
New York, New York 10154
(212) 754-5560

--------------

STATEMENT OF ADDITIONAL INFORMATION

Relating to the Merger of:

THE BLACKROCK CALIFORNIA MUNICIPAL 2008 TERM TRUST INC. ("BFC")

with and into:

THE BLACKROCK CALIFORNIA INVESTMENT QUALITY MUNICIPAL TRUST INC. ("RAA")

Dated __________, 1999

-----------------

This Statement of Additional Information provides information about RAA, a
closed-end management investment company organized as a Maryland corporation, in
addition to information contained in the Combined Proxy Statement/Prospectus of
RAA, dated ________, 1999, which also serves as the proxy statement of BFC a
closed-end management investment company organized as a Maryland corporation
(the "Trust"), in connection with the issuance of common shares and preferred
shares of RAA to shareholders of BFC. This Statement of Additional Information
is not a prospectus. It should be read in conjunction with the Combined Proxy
Statement/Prospectus, into which it has been incorporated by reference and which
may be obtained by contacting RAA or BFC at the address and telephone number set
forth above.

<PAGE>

TABLE OF CONTENTS

Page
----

Audited Financial Statements for RAA for the annual period ended
October 31, 1998 1

Unaudited Financial Statements for RAA for the six-month period ended
April 30, 1999 7

Audited Financial Statements for BFC for the annual period ended
December 31, 1998 14

Annex A: Description of Credit Ratings for Municipal Obligations A-1

Annex B: Description of California Municipal Securities B-1

RAA and BFC will provide, without charge, upon the written or oral request
of any person to whom the Combined Proxy Statement/Prospectus is delivered, a
copy of this Statement of Additional Information.

<PAGE>

- --------------------------------------------------------------------------------
THE BLACKROCK CALIFORNIA INVESTMENT QUALITY MUNICIPAL TRUST INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRINCIPAL OPTION CALL
RATING* AMOUNT PROVISIONS+ VALUE
(UNAUDITED) (000) DESCRIPTION (UNAUDITED) (NOTE 1)
============= ========= ============================================================================ ================ ==============
<S> C> <C> <C> <C>
LONG-TERM INVESTMENTS-145.0%
California Educational Fac. Auth. Rev.,
AAA $1,000 Santa Clara Univ., 5.00%, 9/01/15, MBIA ................................... 9/06 at 102 $ 1,014,200
AAA 1,000 Student Loan Program, Ser. A, 6.00%, 3/01/16, MBIA ........................ 3/07 at 102 1,069,390
A+ 40 California St. G.O., 5.75%, 3/01/19 ........................................ 3/05 at 101 43,066
A+ 960 California St. G.O., 5.75%, 3/01/05++ ...................................... N/A 1,069,018
California St. Hsg. Fin. Agcy. Rev., Home Mtge.,
AA- 910 Ser. B-1, 6.45%, 2/01/11 .................................................. 8/04 at 102 966,256
AA- 1,000 Ser. G, 7.20%, 8/01/14 .................................................... 8/04 at 102 1,091,130
California St. Pub. Wks. Brd. Lease Rev.,
AAA 1,000 Dept. of Corrections, Ser. A, 6.875%, 11/01/04++ .......................... N/A 1,179,350
A 1,000 St. Univ. Proj., Ser. A, 6.10%, 10/01/06 .................................. 10/04 at 102 1,134,280
AAA 1,000 St. Univ. Proj., Ser. A, 6.40%, 12/01/02, AMBAC++ ......................... N/A 1,122,510
Baa 1,385 Foothill / Eastern Trans. Agcy., Ser. A, Zero Coupon, 1/01/04 .............. No Opt. Call 1,092,543
AAA 1,000 Los Angeles Cnty., Special Tax, Ser. A, 5.50%, 9/01/14, FSA ................ 9/07 at 102 1,082,740
AA 1,150 Los Angeles Harbor Dept. Rev., Ser. B, 6.00%, 8/01/13 ...................... 8/06 at 101 1,287,551
AAA 1,000 Los Angeles Met. Trans. Auth. Sales Tax Rev., 6.00%, 7/01/26, MBIA ......... 7/06 at 101 1,108,230
AA 1,000 Los Angeles Pub. Wks. Fin. Auth. Rev., Regl. Park & Open Space,
1,000 Dist. A, 6.00%, 10/01/04++ ................................................. N/A 1,128,580
BBB- 1,000 Sacramento Pwr. Auth., Cogeneration Proj. Rev., 6.50%, 7/01/09 ............. 7/06 at 102 1,134,270
AAA San Diego Ind. Dev. Rev., Ser. A, 5.90%, 6/01/18, AMBAC .................... 6/03 at 102 1,079,250
1,000 San Francisco City & Cnty.,
AAA 1,000 Arpt. Comn. Rev., Intl. Arpt., Ser. 6, 6.125%, 5/01/09, AMBAC ............. 5/04 at 102 1,123,960
AAA 1,000 Sewer Rev., Ser. A, 5.95%, 10/01/25, FGIC ................................. 10/03 at 102 1,084,470
AAA Southern California Pub. Pwr. Auth. Transmission. Proj. Rev.,
1,000 5.50%, 7/01/20, MBIA ....................................................... 7/02 at 100 1,026,200
1,135 Univ. of California Rev.,
AAA 370 Ser. D, 6.10%, 9/01/02++, MBIA ............................................ N/A 1,105,980
AAA Ser. B, 6.30%, 9/01/03++ .................................................. N/A 1,280,564
AAA West Basin Municipal Water Dist. Rev. C.O.P., Ser. A, 5.50%, 391,353
200 8/01/22, AMBAC .................. ........................................ 8/07 at 101 ------------
Total long-term investments (cost $20,184,598)....................... 22,614,891
SHORT-TERM INVESTMENTS**-1.3% ------------
A1+ California Poll. Ctrl. Fin. Auth. Rev., Shell Oil Co. Proj., Ser. C, 3.45%,
11/02/98, FRDD
(cost $200,000)............................................................. 200,000
------------
TOTAL INVESTMENTS-146.3% (COST $20,384,598) ................................ 22,814,891
Other assets in excess of liabilities-1.8% ................................. 280,308
Liquidation value of preferred stock-(48.1) ................................ (7,500,000)
-------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS-100% .......................... $ 15,595,199
============

</TABLE>

- --------
* Rating: using the higher of Standard & Poor's, Moody's or Fitch's rating.
** For purposes of amortized cost valuation, the maturity date of these
instruments is considered to be the earlier of the next date on which the
security can be redeemed at par, or the next date on which the rate of
interest is adjusted.
+ Option call provisions: date (month/year) and prices of the earliest
optional call on redemption. There may be other call provisions at varying
prices at later dates.
++ This bond is prerefunded. See Glossary for definitions.

<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
KEY TO ABBREVIATIONS
AMBAC - American Municipal Bond Assurance Corporation FSA - Financial Security Assurance
C.O.P. - Certificate of Participation G.O. - General Obligation Bond
FGIC - Financial Guaranty Insurance Company MBIA - Municipal Bond Insurance Association
FRDD - Floating Rate Daily Demand
- ------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Financial Statements.
1

<PAGE>

- --------------------------------------------------------------------------------
THE BLACKROCK CALIFORNIA INVESTMENT
QUALITY MUNICIPAL TRUST INC.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $20,384,598) (Note 1)......... $22,814,891
Interest receivable ...................................... 305,975
-----------
23,120,866
-----------
LIABILITIES
Due to custodian ......................................... 11,576
Advisory fee payable (Note 2) ............................ 6,691
Dividends payable-preferred stock ........................ 1,941
Administration fee payable (Note 2) ...................... 1,912
Other accrued expenses ................................... 3,547
-----------
25,667
-----------
NET INVESTMENT ASSETS .................................... $23,095,199
===========
Net investment assets were comprised of:
Common stock:
Par value (Note 4) ..................................... $ 10,071
Paid-in capital in excess of par ....................... 13,897,103
Preferred stock (Note 4) ................................ 7,500,000
-----------
21,407,174
Undistributed net investment income ..................... 76,437
Accumulated net realized loss ........................... (818,705)
Net unrealized appreciation ............................. 2,430,293
-----------
Net investment assets, October 31, 1998 .................. $23,095,199
===========
Net assets applicable to common shareholders ............. $15,595,199
===========
Net asset value per share:
($15,595,199 [div] 1,007,093 shares of common
stock issued and outstanding) .......................... $ 15.49
===========
</TABLE>

- --------------------------------------------------------------------------------
THE BLACKROCK CALIFORNIA INVESTMENT
QUALITY MUNICIPAL TRUST INC.
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
NET INVESTMENT INCOME
Income
Interest and discount earned ........... $1,265,828
----------

Expenses
Investment advisory .................... 79,422
Reports to shareholders ................ 24,000
Administration ......................... 22,692
Auction agent .......................... 19,000
Directors .............................. 12,000
Legal .................................. 10,000
Transfer agent ......................... 9,500
Audit .................................. 8,000
Custodian .............................. 3,000
Miscellaneous .......................... 19,885
----------
Total expenses ......................... 207,499
----------
Net investment income ..................... 1,058,329
----------

UNREALIZED GAIN
ON INVESTMENTS (NOTE 3)
Net change in unrealized appreciation on
investments .............................. 791,797
----------

NET INCREASE IN NET INVESTMENT
ASSETS RESULTING FROM OPERATIONS ......... $1,850,126
==========
</TABLE>

See Notes to Financial Statements.
2

<PAGE>

- --------------------------------------------------------------------------------
THE BLACKROCK CALIFORNIA INVESTMENT QUALITY MUNICIPAL TRUST INC.
STATEMENTS OF CHANGES IN NET INVESTMENT ASSETS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------
1998 1997
INCREASE (DECREASE) IN INVESTMENT ASSETS --------------- --------------
<S> <C> <C>
Operations:
Net investment income ........................................................ $ 1,058,329 $ 1,080,949
Net realized gain on investments ............................................. -- 1,100
Net change in unrealized appreciation on investments ......................... 791,797 618,624
------------ ------------
Net increase in net investment assets resulting from operations .............. 1,850,126 1,700,673
Dividends and distributions:
To common shareholders from net investment income ............................ (883,641) (876,796)
To preferred shareholders from net investment income ......................... (244,760) (245,735)
To common shareholders in excess of net realized gains on investments ........ -- (564)
To preferred shareholders in excess of net realized gains on investments ..... -- (186)
------------ ------------
Total dividends and distributions ............................................ (1,128,401) (1,123,281)
------------ ------------
Total increase .............................................................. 721,725 577,392
NET INVESTMENT ASSETS
Beginning of year ............................................................. 22,373,474 21,796,082
------------ ------------
End of year ................................................................... $ 23,095,199 $ 22,373,474
============ ============
</TABLE>

See Notes to Financial Statements.
3

<PAGE>

- --------------------------------------------------------------------------------
THE BLACKROCK CALIFORNIA INVESTMENT QUALITY MUNICIPAL TRUST INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------
1998 1997
PER SHARE OPERATING PERFORMANCE: ------------- ------------
<S> <C> <C>
Net asset value, beginning of year ................................ $ 14.77 $ 14.20
-------- --------
Net investment income ............................................ 1.05 1.07
Net realized and unrealized gain (loss) on investments ........... .79 .61
-------- --------
Net increase (decrease) from investment operations ................ 1.84 1.68
-------- --------
Dividends and Distributions:
Dividends from net investment income to:
Common shareholders ............................................ (.88) (.87)
Preferred shareholders ......................................... (.24) (.24)
Distributions from capital gains to:
Common shareholders ............................................ - -
Preferred shareholders .......................................... - -
Distributions in excess of net realized gains
on investments to:
Common shareholders ............................................. - **
Preferred shareholders .......................................... - **
--------- ---------
Total dividends and distributions ................................ (1.12) (1.11)
--------- --------
Capital charge with respect to issuance of
common and preferred stock ....................................... - -
--------- --------
Net asset value, end of year* ..................................... $ 15.49 $ 14.77
========= ========
Per share market value, end of year* .............................. $ 16.125 $ 15.00
========= ========
TOTAL INVESTMENT RETURN\^: ........................................ 13.70% 17.98%
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS\^\^:
Expenses .......................................................... 1.36% 1.32%
Net investment income before preferred stock dividends ............ 6.93% 7.48%
Preferred stock dividends ......................................... 1.60% 1.70%
Net investment income available to common shareholders ............ 5.33% 5.78%
SUPPLEMENTAL DATA:
Average net assets of common shareholders (in thousands) .......... $ 15,265 $ 14,445
Portfolio turnover rate ........................................... 0% 28%
Net assets of common shareholders, end of year (in thousands) ..... $ 15,595 $ 14,873
Asset coverage per share of preferred stock, end of year## ........ $ 76,990 $ 74,583
Preferred stock outstanding (in thousands) ........................ $ 7,500 $ 7,500

<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------
1996 1995 1994
PER SHARE OPERATING PERFORMANCE: ----------- -------------- -------------
<S> <C> <C> <C>
Net asset value, beginning of year ................................ $ 13.85 $ 11.74 $ 14.73
-------- --------- --------
Net investment income ............................................ 1.08 1.05 1.04
Net realized and unrealized gain (loss) on investments ........... .33 2.12 (3.01)
-------- --------- --------
Net increase (decrease) from investment operations ................ 1.41 3.17 (1.97)
-------- --------- --------
Dividends and Distributions:
Dividends from net investment income to:
Common shareholders ............................................ (.80) (.79) (.79)
Preferred shareholders ......................................... (.25) (.27) (.18)
Distributions from capital gains to:
Common shareholders ............................................ - - (.03)
Preferred shareholders .......................................... - - (.01)
Distributions in excess of net realized gains
on investments to:
Common shareholders ............................................. (.01) - -
Preferred shareholders .......................................... ** - -
--------- ---------- --------
Total dividends and distributions ................................ (1.06) (1.06) (1.01)
-------- ---------- --------
Capital charge with respect to issuance of
common and preferred stock ....................................... - - (.01)
-------- ---------- --------
Net asset value, end of year* ..................................... $ 14.20 $ 13.85 $ 11.74
======= ========== ========
Per share market value, end of year* .............................. $ 13.50 $ 12.625 $ 10.625
======= ========== ========
TOTAL INVESTMENT RETURN\^: ........................................ 13.80% 26.86% (18.85%)
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS\^\^:
Expenses .......................................................... 1.42% 1.52% 1.25%
Net investment income before preferred stock dividends ............ 7.78% 8.24% 7.81%
Preferred stock dividends ......................................... 1.82% 2.09% 1.36%
Net investment income available to common shareholders ............ 5.96% 6.15% 6.45%
SUPPLEMENTAL DATA:
Average net assets of common shareholders (in thousands) .......... $ 13,996 $ 12,892 $ 13,362
Portfolio turnover rate ........................................... 72% 149% 184%
Net assets of common shareholders, end of year (in thousands) ..... $ 14,296 $ 13,946 $ 11,826
Asset coverage per share of preferred stock, end of year## ........ $ 72,654 $ 71,485 $ 128,837
Preferred stock outstanding (in thousands) ........................ $ 7,500 $ 7,500 $ 7,500
</TABLE>

- ----------
* Net asset value and market value are published in The Wall Street Journal
each Monday.
**Actual amount paid for the year ended October 31, 1997 to common shareholders
was $0.00056 per share and to preferred shareholders was $0.00018 per common
share. Actual amount paid to preferred shareholders for the year ended
October 31, 1996 was $0.0048 per common share.
##A stock split occurred on July 24, 1995 (Note 4). +
+Total investment return is calculated assuming a purchase of common stock at
the current market value on the first day and a sale at the current market
price on the last day of each year reported. Dividends and distributions are
assumed for purposes of this calculation to be reinvested at prices obtained
under the Trust's dividend reinvestment plan. This calculation does not
reflect brokerage commissions.
++Ratios are calculated on the basis of income, expenses and preferred stock
dividends applicable to both the common and preferred shares relative to the
average net assets of common shareholders.
The information above represents the audited operating performance data for a
share of common stock outstanding, total investment return, ratio to average
net assets and other supplemental data for the years indicated. This
information has been determined based upon financial information provided in
the financial statements and market value data for the Trust's common stock.

See Notes to Financial Statements.
4

<PAGE>

- --------------------------------------------------------------------------------
THE BLACKROCK CALIFORNIA INVESTMENT
QUALITY MUNICIPAL TRUST INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

NOTE 1. ORGANIZATION & ACCOUNTING POLICIES

The BlackRock California Investment Quality Municipal Trust Inc. (the
"Trust") was organized in Maryland on April 12, 1993 as a non-diversified
closed-end management investment company. The Trust's investment objective is to
manage a diversified portfolio of high quality securities while providing high
current income exempt from regular federal and California state income taxes
consistent with the preservation of capital. The ability of issuers of debt
securities held by the Trust to meet their obligations may be affected by
economic developments in the state, a specific industry or region. No assurance
can be given that the Trust's investment objective will be achieved.

The following is a summary of significant accounting policies followed by
the Trust.

SECURITIES VALUATION: Municipal securities (including commitments to purchase
such securities on a "when-issued" basis) are valued on the basis of prices
provided by a pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities in
determining values. Any securities or other assets for which such current
market quotations are not readily available are valued at 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.

Short-term securities which mature in more than 60 days are valued at
current market quotations. Short-term securities which mature in 60 days or
less are valued at amortized cost, if their term to maturity from date of
purchase is 60 days or less, or, by amortizing their value on the 61st day
prior to maturity, if their original term to maturity from date of purchase
exceeded 60 days.

Securities Transactions and Investment Income: Securities transactions
are recorded on the trade date. Realized and unrealized gains and losses are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis and the Trust accretes original issue discounts or amortizes
premium on securities purchased using the interest method.

FEDERAL INCOME TAXES: For federal income tax purposes, the Trust is treated as
a separate taxpaying entity. It is the intent of the Trust to continue to meet
the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its net income to shareholders.
For this reason and because substantially all of the Trust's gross income
consists of tax-exempt interest, no federal income tax provision is required.

DIVIDENDS AND DISTRIBUTIONS: The Trust declares and pays dividends and
distributions to common shareholders monthly from net investment income, net
realized short-term capital gains and other sources, if necessary. Net
long-term capital gains, if any, in excess of loss carryforwards may be
distributed annually. Dividends and distributions are recorded on the
ex-dividend date. Dividends and distributions to preferred shareholders are
accrued and determined as described in Note 4.

DEFERRED ORGANIZATION EXPENSES: A total of $16,000 was incurred in connection
with the organization of the Trust. These costs were deferred and have been
amortized ratably over a period of sixty months from the date the Trust
commenced investment operations.

ESTIMATES: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

NOTE 2. AGREEMENTS

The Trust has an Investment Advisory Agreement with BlackRock Financial
Management, Inc., (the "Adviser"), a wholly-owned corporate subsidiary of
BlackRock Advisors, Inc., which is an indirect majority-owned subsidiary of PNC
Bank, N.A., and an Administration Agreement with Prudential Investments Fund
Management LLC ("PIFM"), an indirect, wholly-owned subsidiary of The Prudential
Insurance Company of America.

The investment fee paid to the Adviser is computed weekly and payable
monthly at an annual rate of 0.35% of the Trust's average weekly net investment
assets. The administration fee paid to PIFM is also computed weekly and payable
monthly at an annual rate of 0.10% of the Trust's average weekly net investment
assets.

Pursuant to the agreements, the Adviser provides continuous supervision
of the investment portfolio and pays the compensation of officers of the Trust
who are affiliated persons of the Adviser. PIFM pays occupancy and certain
clerical and accounting costs of the Trust. The Trust bears all other costs and
expenses.

<PAGE>

NOTE 3. PORTFOLIO SECURITIES

There were no purchases and sales of investment securities, other than
short-term investments, for the year ended October 31, 1998.

The federal income tax basis of the Trust's investments at October 31,
1998 was substantially the same as the basis for financial reporting purposes
and, accordingly, net and gross unrealized appreciation was $2,430,293.

For federal income tax purposes, the Trust had a capital loss
carryforward at October 31, 1998 of approximately $816,000 which will expire in
2002. Accordingly, no capital gain distribution is expected to be paid to
shareholders until net gains have been realized in excess of such amount.

NOTE 4. CAPITAL

There are 200 million shares of $.01 par value common stock authorized. Of
the 1,007,093 shares outstanding at October 31, 1998, the Adviser owned 7,093
shares. As of October 31, 1998 there were 300 shares of Preferred Stock Series
W7 outstanding.

The Trust may classify or reclassify any unissued shares of common stock
into one or more series of preferred stock. On July 29, 1993 the Trust
reclassified 150 shares of common stock and issued a series of Auction Market
Preferred Stock ("Preferred Stock") Series W7. The Preferred Stock had a
liquidation value of $50,000 per share plus any accumulated but unpaid
dividends. On May 16, 1995 shareholders approved a proposal to split each share
of Preferred Stock into two shares and simultaneously reduce each share's
liquidation preference from $50,000 to $25,000 plus any accumulated but unpaid
dividends. The stock split occurred on July 24, 1995.

Dividends on Series W7 are cumulative at a rate which is reset every 7
days based on the results of an auction. Dividend rates ranged from 3.00% to
3.76% during the year ended October 31, 1998.

The Trust may not declare dividends or make other distributions on shares
of common stock or purchase any such shares if, at the time of the declaration,
distribution, or purchase, asset coverage with respect to the outstanding
Preferred Stock would be less than 200%.

The Preferred Stock is redeemable at the option of the Trust, in whole or
in part, on any dividend payment date at $25,000 per share plus any accumulated
or unpaid dividends whether or not declared. The Preferred Stock is also
subject to mandatory redemption at $25,000 per share plus any accumulated or
unpaid dividends, whether or not declared if certain requirements relating to
the composition of the assets and liabilities of the Trust as set forth in the
Articles of Incorporation are not satisfied.

The holders of Preferred Stock have voting rights equal to the holders of
common stock (one vote per share) and will vote together with holders of shares
of common stock as a single class. However, holders of Preferred Stock are also
entitled to elect two of the Trust's directors. In addition, the Investment
Company Act of 1940 requires that along with approval by stockholders that
might otherwise be required, the approval of the holders of a majority of any
outstanding preferred shares, voting separately as a class would be required to
(a) adopt any plan of reorganization that would adversely affect the preferred
shares and (b) take any action requiring a vote of security holders, including,
among other things, changes in the Trust's subclassification as a closed-end
investment company or changes in its fundamental investment restrictions.

NOTE 5. DIVIDENDS

Subsequent to October 31, 1998, the Board of Directors of the Trust
declared a dividend from undistributed earnings of $.073125 per common share
payable November 30, 1998 to shareholders of record on November 16, 1998.

For the period November 1, 1998 to November 30, 1998, dividends declared
on Preferred Stock totalled $18,453 in aggregate for the outstanding Preferred
Stock.

<PAGE>

- --------------------------------------------------------------------------------
THE BLACKROCK CALIFORNIA INVESTMENT QUALITY MUNICIPAL TRUST INC.
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors of
The BlackRock California Investment Quality Municipal Trust Inc.:

We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of The BlackRock California Investment
Quality Municipal Trust Inc. as of October 31, 1998 and the related statements
of operations for the year then ended and of changes in net investment assets
for each of the two years in the period then ended and the financial highlights
for each of the five years in the period then ended. These financial statements
and financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at October
31, 1998, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of The BlackRock
California Investment Quality Municipal Trust Inc. at October 31, 1998, and the
results of its operations, the changes in its net investment assets and its
financial highlights for the respective stated periods in conformity with
generally accepted accounting principles.

[GRAPHIC OMITTED]

Deloitte & Touche LLP
New York, New York
December 11, 1998

7
<PAGE>

- --------------------------------------------------------------------------------
THE BLACKROCK CALIFORNIA INVESTMENT QUALITY MUNICIPAL TRUST INC.
PORTFOLIO OF INVESTMENTS APRIL 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------

(TO COME)

See Notes to Financial Statements.

8
<PAGE>

- ---------------------------------------------------------
THE BLACKROCK CALIFORNIA INVESTMENT
QUALITY MUNICIPAL TRUST INC.
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1999 (UNAUDITED)
- ---------------------------------------------------------

(TO COME)

See Notes to Financial Statements.

9
<PAGE>

- --------------------------------------------------------------------------------
THE BLACKROCK CALIFORNIA INVESTMENT QUALITY MUNICIPAL TRUST INC.
STATEMENTS OF CHANGES IN NET INVESTMENT ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------

(TO COME)

See Notes to Financial Statements.

10
<PAGE>

- --------------------------------------------------------------------------------
THE BLACKROCK CALIFORNIA INVESTMENT QUALITY MUNICIPAL TRUST INC.
FINANCIAL HIGHLIGHTS (UNAUDITED)
- --------------------------------------------------------------------------------

(TO COME)
See Notes to Financial Statements.

11
<PAGE>

- --------------------------------------------------------------------------------
THE BLACKROCK CALIFORNIA INVESTMENT
QUALITY MUNICIPAL TRUST INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------

(TOCOME)

12
<PAGE>

(TO COME)
13

<PAGE>

- --------------------------------------------------------------------------------
The BlackRock California Insured Municipal 2008 Term Trust Inc.
Portfolio of Investments December 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Option
Principal Call
Rating* Amount Provisions++ Value
(Unaudited) (000) Description (Unaudited) (Note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG-TERM INVESTMENTS--141.2%
California Hlth. Fac. Fin. Auth. Rev.,
AAA $ 6,850 Marin Gen. Hosp., Ser. A, 5.75%, 8/01/09, FSA ............................ 8/03 at 102 $ 7,457,664
AAA 2,000 Sutter Hlth. Care Sys., 5.70%, 8/15/09, MBIA ............................. 8/06 at 102 2,229,940
California St., G.O.,
AAA 3,000 5.50%, 4/01/09, MBIA ..................................................... No Opt. Call 3,317,820
AAA 2,000 6.25%, 9/01/08, FGIC ..................................................... No Opt. Call 2,328,640
AAA 15,000 6.30%, 9/01/08, MBIA ..................................................... No Opt. Call 17,563,050
California St. Pub. Wks. Brd.,
AAA 2,100 Energy Efficiency, Ser. A, 5.625%, 10/01/08, AMBAC ....................... 10/05 at 102 2,325,204
AAA 10,255 Lease Rev., 6.40%, 9/01/01+, MBIA ........................................ N/A 11,174,976
AAA 9,165 California St. Wide Cmnty. Dev. Auth., Lease Rev., 6.00%, 10/01/10, AMBAC .... 10/02 at 102 9,959,422
AAA 2,600 Castaic Lake Wtr. Agcy. C.O.P., Wtr. Sys. Impvt. Proj., Ser. A, 7.25%,
8/01/10, MBIA ............................................................... No Opt. Call 3,281,850
AAA 5,515 Central Coast Wtr. Auth. Rev., St. Wtr. Proj. Reg. Fac., 6.40%, 10/01/02+,
AMBAC ....................................................................... N/A 6,136,210
AAA 5,500 Clovis Unified Sch. Dist., Ser. B, Zero Coupon, 8/01/08, FGIC ................ No Opt. Call 3,684,670
AAA 13,740 East Bay Mun. Utils. Dist., Wtr. Sys. Rev., 6.00%, 6/01/09, AMBAC ............ 6/02 at 102 14,900,755
AAA 4,025 Elsinore Valley Mun. Wtr. Dist., C.O.P., Ser. A, 6.00%, 7/01/09, FGIC ........ No Opt. Call 4,599,931
Los Angeles Cnty. Asset Leasing Corp. Rev., AMBAC,
AAA 2,910 5.95%, 12/01/07 .......................................................... No Opt. Call 3,316,061
AAA 8,090 6.00%, 12/01/08 .......................................................... No Opt. Call 9,298,970
AAA 8,600 6.05%, 12/01/09 .......................................................... No Opt. Call 9,944,696
AAA 1,000 Los Angeles Elec. Rev., 5.75%, 9/01/12, FGIC ................................. 9/03 at 102 1,080,950
AAA 5,765 Los Angeles Wastewtr. Sys. Rev., Ser. B, 6.25%, 6/01/02+, AMBAC .............. N/A 6,342,249
AAA 3,075 Marysville Hosp. Rev., Fremont-Rideout Hlth. Group, Ser. A, 6.20%, 1/01/03+,
AMBAC ....................................................................... N/A 3,404,548
AAA 8,000 Modesto Irrig. Dist. Fin. Rev., Domestic Wtr. Proj., Ser. A, 6.00%, 9/01/02+,
AMBAC ....................................................................... N/A 8,777,200
Northern California Pwr. Agcy., Multiple Cap. Fac. Rev., Ser. A, MBIA,
AAA 430 6.40%, 8/01/02+ .......................................................... N/A 476,784
AAA 570 6.40%, 8/01/07 ........................................................... 8/02 at 102 628,984
AAA 1,280 6.50%, 8/01/02+ .......................................................... N/A 1,423,514
AAA 1,725 6.50%, 8/01/08 ........................................................... 8/02 at 102 1,904,314
AAA 1,000 Orange Cnty. Local Trans. Auth. Sales Tax Rev., 6.00%, 2/15/09, MBIA ......... No Opt. Call 1,143,060
AAA 5,600 Pittsburg Redev. Agcy. Tax Alloc. Rev., Los Medanos Cmnty. Dev. Proj.,
5.50%, 8/01/07, FGIC ..................................................... 8/02 at 102 5,973,912
AAA 3,075 Riverside Cnty. Trans. Comm. Sales Tax Rev., Ser. A, 6.50%, 6/01/01+, MBIA ... N/A 3,338,558
Sacramento Mun. Utils. Dist., Elec. Rev., Ser. C,
AAA 2,500 5.75%, 11/15/07, MBIA .................................................... 11/02 at 102 2,707,125
AAA 6,250 5.75%, 11/15/08, FGIC .................................................... 11/02 at 102 6,864,975
AAA 4,700 5.75%, 11/15/09, MBIA .................................................... 11/02 at 102 5,075,295
AAA 5,700 San Bernardino Cnty. C.O.P., Arpt. Impvt., 6.00%, 7/01/07, MBIA .............. 7/02 at 102 6,196,014
AAA 5,000 San Bernardino Cnty. Trans. Auth., Sales Tax Rev., 6.00%, 3/01/10, FGIC ...... No Opt. Call 5,414,000
San Diego Cnty. Regl. Trans. Cmnty. Sales Tax Rev., Ser. A,
AAA 2,500 6.00%, 4/01/08, FGIC ..................................................... No Opt. Call 2,819,875
AAA 7,830 6.00%, 4/01/08, MBIA ..................................................... 4/01 at 102 8,831,848
AAA 7,650 San Diego Redev. Agcy. Rev., Tax Allocation-Centre City Proj., 6.00%,
9/01/08, AMBAC .............................................................. 9/02 at 102 8,316,238
</TABLE>

14
<PAGE>

- --------------------------------------------------------------------------------

SHORT-TERM INVESTMENTS**--0.6%
A-1+ 1,000 Irvine Ranch Wtr. Dist., 5.10%, 1/04/99, FRDD ................................ N/A 1,000,000
------------
Total Short-Term Investments (cost $1,000,000) ............................... 1,000,000
------------

Total Investments--141.8% (cost $225,676,021) ................................ 252,615,455
Other assets in excess of liabilities--2.0% .................................. 3,518,502
Liquidation value of preferred stock--(43.8%) ................................ (78,000,000)
------------

Net Assets Applicable to Common Shareholders--100% ........................... $178,133,957
============
</TABLE>

- ----------
* Using the higher of Standard & Poor's, Moody's or Fitch's rating.
** For purposes of amortized cost valuation, the maturity date of these
instruments is considered to be the later of the next date or which the
security can be redeemed at par or the next date on thich the rate of
interest is adjusted.
+ This bond is prerefunded. See glossary for definition.
++ Option call provisions: date (month/year) and price of the earliest
optional call or redemption. There may be other call provisions at varying
prices at later dates.

- --------------------------------------------------------------------------------
THE FOLLOWING ABBREVIATIONS ARE USED IN PORTFOLIO DESCRIPTIONS:

AMBAC -- American Municipal Bond Assurance Corporation
C.O.P. -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FRDD -- Floating Rate Daily Demand
FSA -- Financial Security Assurance
G.O. -- General Obligation Bond
MBIA -- Municipal Bond Insurance Association
- --------------------------------------------------------------------------------

See Notes to Financial Statements.

15
<PAGE>

- --------------------------------------------------------------------------------
The BlackRock California Insured
Municipal 2008 Term Trust Inc.
Statement of Assets and Liabilities
December 31, 1998
- --------------------------------------------------------------------------------

Assets
Investments, at value (cost $225,676,021)
(Note 1) ....................................................... $252,615,455
Cash ............................................................. 52,239
Interest receivable .............................................. 3,750,528
Other assets ..................................................... 11,144
------------
................................................................. 256,429,366
------------

Liabilities
Investment advisory fee payable (Note 2) ......................... 75,608
Dividends payable-preferred stock ................................ 51,183
Administration fee payable (Note 2) .............................. 21,602
Other accrued expenses ........................................... 147,016
------------
295,409
------------
Net Investment Assets ............................................ $256,133,957
============
Net investment assets were comprised of:
Common Stock:
Par value (Note 4) ........................................... $ 104,071
Paid-in capital in excess of par ............................. 144,619,829
Preferred Stock (Note 4) ....................................... 78,000,000
------------
222,723,900
Undistributed net investment income .............................. 6,470,623
Net unrealized appreciation ...................................... 26,939,434
------------
Net investment assets, December 31, 1998 ......................... $256,133,957
============
Net assets applicable to common
shareholders ................................................... $178,133,957
============
Net asset value per common share:
($178,133,957 / 10,407,093 shares of
common stock issued and outstanding) ........................... $ 17.12
============

- --------------------------------------------------------------------------------
The BlackRock California Insured
Municipal 2008 Term Trust Inc.
Statement of Operations
Year Ended December 31, 1998
- --------------------------------------------------------------------------------

Net Investment Income
Income
Interest and discount earned ................................... $13,841,246
-----------
Expenses
Investment advisory ............................................ 887,109
Administration ................................................. 253,460
Auction agent .................................................. 215,000
Custodian ...................................................... 88,000
Reports to shareholders ........................................ 49,000
Directors ...................................................... 39,000
Audit .......................................................... 32,000
Transfer agent ................................................. 19,000
Legal .......................................................... 14,000
Miscellaneous .................................................. 10,010
-----------
Total expenses ................................................. 1,606,579
-----------
Net investment income ............................................ 12,234,667
-----------

Unrealized Gain on Investments (Note 3)
Net change in unrealized appreciation on
investments .................................................. 2,624,041
-----------

Net Increase in Net Investment
Assets Resulting from Operations ................................ $14,858,708
===========

See Notes to Financial Statements.

16
<PAGE>

- --------------------------------------------------------------------------------
The BlackRock California Insured Municipal 2008 Term Trust Inc.
Statements of Changes in Net Investment Assets
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Increase in Net Investment Assets
Operations:
Net investment income ........................................... $ 12,234,667 $ 11,943,375
Net change in unrealized appreciation on investments ............ 2,624,041 7,258,145
------------- -------------
Net increase in net investment assets resulting from operations 14,858,708 19,201,520
------------- -------------
Dividends and distributions:
To common shareholders from net investment income ............... (8,039,335) (8,039,350)
To preferred shareholders from net investment income ............ (2,396,026) (2,490,040)
------------- -------------

Total dividends and distributions ............................. (10,435,361) (10,529,390)
------------- -------------

Total increase ............................................ 4,423,347 8,672,130

Net Investment Assets
Beginning of year ................................................. 251,710,610 243,038,480
------------- -------------
End of year ....................................................... $ 256,133,957 $ 251,710,610
============= =============
</TABLE>

See Notes to Financial Statements.

17
<PAGE>

- --------------------------------------------------------------------------------
The BlackRock California Insured Municipal 2008 Term Trust Inc.
Financial Highlights
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PER COMMON SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of the year ...................... $ 16.69 $ 15.86 $ 15.92 $ 13.66 $ 16.09
----------- ----------- ----------- ----------- -----------
Net investment income ..................................... 1.18 1.15 1.11 1.12 1.12
Net realized and unrealized gain (loss) on investments .... 0.25 0.69 (0.16) 2.27 (2.48)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) from investment operations .......... 1.43 1.84 0.95 3.39 (1.36)
----------- ----------- ----------- ----------- -----------
Dividends from net investment income to:
Common shareholders ....................................... (0.77) (0.77) (0.77) (0.85) (0.86)
Preferred shareholders .................................... (0.23) (0.24) (0.24) (0.28) (0.21)
Distributions from net realized gain on investments to:
Common shareholders ....................................... -- -- ** -- --
Preferred shareholders .................................... -- -- ** -- --
Distributions in excess of net realized
gain on investments to:
Common shareholders ....................................... -- -- ** ** --
Preferred shareholders .................................... -- -- ** ** --
----------- ----------- ----------- ----------- -----------
Total dividends and distributions ........................... (1.00) (1.01) (1.01) (1.13) (1.07)
----------- ----------- ----------- ----------- -----------
Capital charge with respect to issuance of shares ........... -- -- -- -- ***
----------- ----------- ----------- ----------- -----------
Net asset value, end of year* ............................... $ 17.12 $ 16.69 $ 15.86 $ 15.92 $ 13.66
=========== =========== =========== =========== ===========
Market value, end of year* .................................. $ 15.94 $ 15.25 $ 14.63 $ 13.63 $ 12.00
=========== =========== =========== =========== ===========
TOTAL INVESTMENT RETURN+ .................................... 9.77% 9.90% 13.67% 20.57% (15.59%)
=========== =========== =========== =========== ===========
RATIOS TO AVERAGE NET ASSETS OF
COMMON SHAREHOLDERS:++
Expenses .................................................... 0.91% 0.98% 1.03% 1.02% 1.08%
Net investment income before preferred stock dividends ...... 6.96% 7.11% 7.11% 7.46% 7.70%
Preferred stock dividends ................................... 1.36% 1.48% 1.56% 1.85% 1.46%
Net investment income available to common shareholders ...... 5.60% 5.63% 5.55% 5.61% 6.24%
SUPPLEMENTAL DATA:
Average net assets of common shareholders (in thousands) .... $ 175,760 $ 167,984 $ 161,839 $ 156,774 $ 151,669
Portfolio turnover .......................................... 0% 0% 3% 13% 17%
Net assets of common shareholders, end of year (in thousands) $ 178,134 $ 173,711 $ 165,038 $ 165,719 $ 142,165
Preferred stock outstanding (in thousands) .................. $ 78,000 $ 78,000 $ 78,000 $ 78,000 $ 78,000
Asset coverage per share of preferred stock, end of year#.... $ 82,094 $ 80,677 $ 77,897 $ 78,115 $ 141,131
</TABLE>

- ----------
* Net asset value and market value are published in The Wall Street Journal
each Monday.
** Actual amount paid to preferred shareholders was $0.00136 per common share
for the year ended December 31, 1996, and to common shareholders was
$0.004363 per share for the year ended December 31, 1996. Actual amount
paid in excess of net realized gain on investments to preferred
shareholders was $0.0004 and $0.0007 per common share for the years ended
December 31, 1996 and 1995, respectively, and to common shareholders was
$0.0013 and $0.0021 per share for the years ended December 31, 1996 and
1995, respectively.
*** Actual amount was $0.00006 per common share.
# A stock split occurred on July 24, 1995 (Note 4).
+ 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 year 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.
++ Ratios calculated on the basis of income and expenses applicable to both
the common and preferred shares, and preferred stock dividends, relative
to the average net assets of common shareholders.

The information above represents the audited operating performance data for a
share of common stock outstanding, total investment return, ratios to average
net assets and other supplemental data for the years indicated. This information
has been determined based upon financial information provided in the financial
statements and market value data for Trust's shares.

See Notes to Financial Statements.

18
<PAGE>

- --------------------------------------------------------------------------------
The BlackRock California Insured
Municipal 2008 Term Trust Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------

Note 1. Organization & Accounting Policies

The BlackRock California Insured Municipal 2008 Term Trust Inc. (the "Trust")
was organized in Maryland on August 7, 1992 as a non-diversified closed-end
management investment company. The Trust's investment objective is to manage a
non-diversified portfolio of high quality securities that will return $15 per
share to investors on or about December 31, 2008 while providing current income
exempt from regular federal and California State income taxes. The ability of
issuers of debt securities held by the Trust to meet their obligations may be
affected by economic developments in the state, a specific industry or region.
No assurance can be given that the Trust's investment objective will be
achieved.

The following is a summary of significant accounting policies followed by
the Trust.

Securities Valuation: Municipal securities (including commitments to purchase
such securities on a "when-issued" basis) are valued on the basis of prices
provided by a pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities in
determining values. Any securities or other assets for which such current market
quotations are not readily available are valued at 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.

Short-term securities which mature in 60 days are valued at current market
quotations. Short-term securities which mature in 60 days or less are valued at
amortized cost, if their term to maturity from date of purchase is 60 days or
less or by amortizing their value on the 61st day prior to maturity, if their
original term to maturity from date of purchase exceeded 60 days.

Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized and unrealized gains and losses are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis and the Trust amortizes premium and accretes original issue
discount on securities purchased using the interest method.

Federal Income Taxes: It is the Trust's intention to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute sufficient net income to shareholders. For this
reason and because substantially all of the Trust's gross income consists of
tax-exempt interest, no Federal income tax provision is required.

Dividends and Distributions: The Trust declares and pays dividends and
distributions to common shareholders monthly from net investment income, net
realized short-term capital gains and other sources, if necessary. Net long-term
capital gains, if any, in excess of loss carryforwards may be distributed
annually. Dividends and distributions are recorded on the ex-dividend date.
Dividends and distributions to preferred shareholders are accrued and determined
as described in Note 4.

Reclassification of Capital Accounts: Effective January 1, 1994, the Trust began
accounting and reporting for permanent differences between financial and tax
reporting in accordance with the American Institute of Certified Public
Accountants' Statements of Position 93-2: Determination, Disclosure and
Financial Statement of Income, Capital Gain and Return of Capital Distributions
by Investment Companies. The effect of adopting the statement for the year ended
December 31, 1998 was to decrease accumulated net realized gain and increase
undistributed net investment income by $2,499. Net investment income, net
realized and unrealized gains on investments and net assets were not affected by
this change.

Estimates: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Note 2. Agreements

The Trust has an Investment Advisory Agreement with BlackRock Financial
Management, Inc. (the "Adviser"), a wholly-owned corporate subsidiary of
BlackRock Advisors, Inc., which is an indirect majority-owned subsidiary of PNC
Bank, N.A., and an Administration Agreement with Princeton Administrators, L.P.
(the "Administrator"), an indirect wholly-owned subsidiary of Merrill Lynch &
Co., Inc.

The investment advisory fee paid to the Adviser is computed weekly and
payable monthly at an annual rate of 0.35% of the Trust's average weekly net
investment assets. The administration fee paid to the Administrator is also

19
<PAGE>

computed weekly and payable monthly at an annual rate of 0.10% of the Trust's
average weekly net investment assets.

Pursuant to the agreements, the Adviser provides continuous supervision of
the investment portfolio and pays the compensation of officers of the Trust who
are affiliated persons of the Adviser. The Administrator pays occupancy and
certain clerical and accounting costs of the Trust. The Trust bears all other
costs and expenses.

Note 3. Portfolio Securities

Purchases of investment securities other than short- term investments for the
year ended December 31, 1998 aggregated $2,031,700. There were no sales, other
than short-term investments, during the year ended December 31, 1998.

The federal income tax basis of the Trust's investments at December 31,
1998 was substantially the same as the basis for financial reporting, and
accordingly, gross and net unrealized appreciation for federal income tax
purposes was $26,939,434.

Note 4. Capital

There are 200 million shares of $.01 par value common stock authorized. Of the
10,407,093 common shares outstanding at December 31, 1998, the Adviser owned
7,093 shares. As of December 31, 1998, there were 3,120 preferred shares
outstanding as follows: Series W28--1,560 and Series W7--1,560.

The Trust may classify or reclassify any unissued shares of common stock
into one or more series of preferred stock. On November 23, 1992, the Trust
reclassified 1,560 shares of common stock and issued 2 series of Auction Market
Preferred Stock ("Preferred Stock") as follows: Series W28--780 shares, Series
W7--780 shares. The Preferred Stock has a liquidation value of $25,000 per share
plus any accumulated but unpaid dividends. On May 16, 1995 shareholders approved
a proposal to split each share of the Trust's Auction Rate Municipal Preferred
Stock into two shares and simultaneously reduce each share's liquidation
preference from $50,000 to $25,000 plus any accumulated but unpaid dividends.
The stock split occurred on July 24, 1995.

Dividends on Series W7 are cumulative at a rate which is reset every 7
days based on the results of an auction. Dividends on Series W28 are also
cumulative at a rate which is reset every 28 days based on the results of an
auction. Dividend rates ranged from 2.35% to 4.00% during the year ended
December 31, 1998.

The Trust may not declare dividends or make other distributions on shares
of common stock or purchase any such shares if, at the time of the declaration,
distribution or purchase, asset coverage with respect to the outstanding
Preferred Stock would be less than 200%.

The Preferred Stock is redeemable at the option of the Trust, in whole or
in part, on any dividend payment date at $25,000 per share plus any accumulated
or unpaid dividends whether or not declared. The Preferred Stock is also subject
to mandatory redemption at $25,000 per share plus any accumulated or unpaid
dividends, whether or not declared if certain requirements relating to the
composition of the assets and liabilities of the Trust as set forth in the
Articles of Incorporation are not satisfied.

The holders of Preferred Stock have voting rights equal to the holders of
common stock (one vote per share) and will vote together with holders of shares
of common stock as a single class. However, holders of Preferred Stock are also
entitled to elect two of the Trust's directors. In addition, the Investment
Company Act of 1940 requires that along with approval by stockholders that might
otherwise be required, the approval of the holders of a majority of any
outstanding preferred shares, voting separately as a class would be required to
(a) adopt any plan of reorganization that would adversely affect the Preferred
Stock, and (b) take any action requiring a vote of security holders, including,
among other things, changes in the Trust's subclassification as a closed-end
investment company or changes in its fundamental investment restrictions.

Note 5. Dividends

Subsequent to December 31, 1998, the Board of Directors of the Trust declared a
dividend from undistributed earnings of $0.064375 per common share payable
January 29, 1999 to shareholders of record on January 15, 1999.

For the period January 1, 1999 to January 31, 1999, dividends declared on
Preferred Stock totalled $179,327 in aggregate for the two outstanding Preferred
Stock series.

20
<PAGE>

ANNEX A

DESCRIPTION OF CREDIT RATINGS FOR MUNICIPAL OBLIGATIONS
Standard & Poor's Corporation--A brief description of the applicable Standard &
Poor's Corporation ("S&P") rating symbols and their meanings (as published by
S&P) follows:

LONG TERM DEBT
An S&P corporate or municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.

The debt rating is not a recommendation to purchase, sell, or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.

The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
an audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or based on other
circumstances.

The ratings are based, in varying degrees, on the following considerations:

1. Likelihood of default--capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with
the terms of the obligation;

2. Nature of and provisions of the obligation;

3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.

INVESTMENT GRADE

AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.

AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in
small degree.

A Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.

BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.

SPECULATIVE GRADE RATING

Debt rated "BB", "B", "CCC", "CC" and "C" is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. "BB" indicates the least degree of speculation and "C" the highest.
While such debt will likely have some quality and protective characteristics
these are outweighed by major uncertainties or major exposures to adverse
conditions.

A-1
<PAGE>

BB Debt rated "BB" has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely
interest and principal payments. The "BB" rating category is also
used for debt subordinated to senior debt that is assigned an actual
or implied "BBB--" rating.

B Debt rated "B" has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely
impair capacity or willingness to pay interest and repay principal.
The "B" rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied "BB" or "BB--" rating.

CCC Debt rated "CCC" has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and
economic conditions to meet timely payment of interest and repayment
of principal. In the event of adverse business, financial, or
economic conditions, it is not likely to have the capacity to pay
interest and repay principal.

The "CCC" rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied "B" or "B--"
rating.

CC The rating "CC" typically is applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" debt rating.

C The rating "C" typically is applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC--" debt rating. The
"C" rating may be used to cover a situation where a bankruptcy
petition has been filed, but debt service payments are continued.

CI The rating "CI" is reserved for income bonds on which no interest is
being paid.

D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period.
The "D" rating also will be used upon the filing of a bankruptcy
petition if debt service payments are jeopardized.

Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.

Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project financed by the debt being rated and indicates that payment of debt
service requirements is largely or entirely dependent upon the successful and
timely completion of the project. This rating, however, while addressing credit
quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise judgment with respect to such likelihood and risk.

L The letter "L" indicates that the rating pertains to the principal
amount of those bonds to the extent that the underlying deposit
collateral is federally insured by the Federal Savings & Loan
Insurance Corp. or the Federal Deposit Insurance Corp.* and interest
is adequately collateralized. In the case of certificates of deposit
the letter "L" indicates that the deposit, combined with other
deposits being held in the same right and capacity will be honored
for principal and accrued pre-default interest up to the Federal
insurance

A-2
<PAGE>

limits within 30 days after closing of the insured institution or, in
the event that the deposit is assumed by a successor insured
institution, upon maturity.

* Continuance of the rating is contingent upon S&P's receipt of an
executed copy of the escrow agreement or closing documentation
confirming investments and cash flow.

NR Indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.

Municipal Notes

An S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in 3 years or less will likely receive a note rating.
Notes maturing beyond 3 years will most likely receive a long-term debt rating.
The following criteria will be used in making that assessment:

-- Amortization schedule (the larger the final maturity
relative to other maturities, the more likely it will
be treated as a note).

-- Source of payment (the more dependent the issue is on
the market for its refinancing, the more likely it will
be treated as a note).

Note rating symbols are as follows:

SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics
will be given a plus (+) designation.

SP-2 Satisfactory capacity to pay principal and interest.

SP-3 Speculative capacity to pay principal and interest.

A note rating is not a recommendation to purchase, sell, or hold a security
inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in or unavailability of such
information or based on other circumstances.

COMMERCIAL PAPER
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.

Ratings are graded into several categories, ranging from "A-1" for the
highest quality obligations to "D" for the lowest. These categories are as
follows:

A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus
sign(+) designation.

A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high
as for issues designated "A-1."

A-3
<PAGE>

A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the
higher designations.

B Issues rated "B" are regarded as having only speculative capacity
for timely payment.

C This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.

D Debt rated "D" is in payment default. The "D" rating category is
used when interest payments or principal payments are not made on
the date due, even if the applicable grace period has not expired,
unless S&P believes that such payments will be made during such
grace period.

A commercial rating is not a recommendation to purchase, sell, or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in or unavailability of such
information or based on other circumstances.

Moody's Investors Service, Inc.--A brief description of the applicable
Moody's Investors Service, Inc. ("Moody's") rating symbols and their meanings
(as published by Moody's) follows:

MUNICIPAL BONDS

Aaa Bonds which are rated Aaa are judged to be of the best quality.They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.

A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.

Baa Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact
have speculative characteristics as well.

Ba Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may

A-4
<PAGE>

be very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long
period of time may be small.

Caa Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect
to principal or interest.

Ca Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.

C Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.

Con(...) Bonds for which the security depends upon the completion of some
act or the fulfillment of some condition are rated conditionally.
These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation
experience, (c) rentals which begin when facilities are completed,
or (d) payments to which some other limiting condition attaches.
Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.

Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
category from Aa to B in the public finance sectors. The modifier 1 indicates
that the issuer is in the higher end of its letter rating category; the modifier
2 indicates a mid-range ranking; the modifier 3 indicates that the issuer is in
the lower end of the letter ranking category.

SHORT-TERM LOANS
MIG 1/VMIG 1 This designation denotes best quality. There is
present strong protection by established cash flows, superior
liquidity support or demonstrated broadbased access to the market
for refinancing.

MIG 2/VMIG 2 This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.

MIG 3/VMIG 3 This designation denotes favorable quality. All security elements
are accounted for but there is lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less
well-established.

MIG 4/VMIG 4 This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and
although not distinctly or predominantly speculative, there is
specific risk.

S.G. This designation denotes speculative quality. Debt instruments in
this category lack margins of protection.

A-5
<PAGE>

COMMERCIAL PAPER
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:

-- Leading market positions in well-established industries.

-- High rates of return on funds employed.

-- Conservative capitalization structures with moderate
reliance on debt and ample asset protection.

-- Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.

-- Well-established access to a range of financial markets and
assured sources of alternate liquidity.

Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.

Issuers rated Not Prime do not fall within any of the Prime rating
categories.

Fitch IBCA, Inc.--A brief description of the applicable Fitch IBCA, Inc.

("Fitch") ratings symbols and meanings (as published by Fitch) follows:

LONG-TERM CREDIT RATINGS

INVESTMENT GRADE
AAA Highest credit quality. `AAA' ratings denote the lowest
expectation of credit risk. They are assigned only in case of
exceptionally strong capacity for timely payment of financial
commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.

AA Very high credit quality. `AA' ratings denote a very low
expectation of credit risk. They indicate very strong
capacity for timely payment of financial commitments. This
capacity is not significantly vulnerable to foreseeable
events.

A High credit quality. `A' ratings denote a low expectation of
credit risk. The capacity for timely payment of financial
commitments is considered strong. This capacity may, nev-

A-6
<PAGE>

ertheless, be more vulnerable to changes in circumstances or
in economic conditions than is the case for higher
ratings.

BBB Good credit quality. `BBB' ratings indicate that there is currently
a low expectation of credit risk. The capacity for timely payment
of financial commitments is considered adequate, but adverse
changes in circumstances and in economic conditions are more likely
to impair this capacity. This is the lowest investment-grade
category.

SPECULATIVE GRADE
BB Speculative. `BB' ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse
economic change over time; however, business or financial
alternatives may be available to allow financial commitments to be
met. Securities rated in this category are not investment grade.

B Highly speculative. `B' ratings indicate that significant credit
risk is present, but a limited margin of safety remains. Financial
commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable
business and economic environment.

CCC, CC, C High default risk. Default is a real possibility. Capacity
for meeting financial commitments is solely reliant upon sustained,
favorable business or economic developments. A `CC' rating
indicates that default of some kind appears probable. `C' ratings
signal imminent default.

DDD, DD,
and D Default. The ratings of obligations in this category are based on
their prospects for achieving partial or full recovery in a
reorganization or liquidation of the obligor. While expected
recovery values are highly speculative and cannot be estimated with
any precision, the following serve as general guidelines. `DDD'
obligations have the highest potential for recovery, around
90%-100% of outstanding amounts and accrued interest. `DD'
indicates potential recoveries in the range of 50%-90%, and `D' the
lowest recovery potential, i.e., below 50%.

Entities rated in this category have defaulted on some or all of their
obligations. Entities rated `DDD' have the highest prospect for resumption of
performance or continued operation with or without a formal reorganization
process. Entities rated `DD' and `D' are generally undergoing a formal
reorganization or liquidation process; those rated `DD' are likely to satisfy a
higher portion of their outstanding obligations, while entities rated `D' have a
poor prospect for repaying all obligations.

SHORT-TERM CREDIT RATINGS
A short-term rating has a time horizon of less than 12 months for most
obligations, or up to three years for U.S. public finance securities, and thus
places greater emphasis on the liquidity necessary to meet financial commitments
in a timely manner.

F1 Highest credit quality. Indicates the strongest capacity for timely
payment of financial commitments; may have an added "+" to denote
any exceptionally strong credit feature.

F2 Good credit quality. A satisfactory capacity for timely payment of
financial commitments, but the margin of safety is not as great as
in the case of the higher ratings.

F3 Fair credit quality. The capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could
result in a reduction to non-investment grade.

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B Speculative. Minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in
financial and economic conditions.

C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon a sustained,
favorable business and economic environment.

D Default. Denotes actual or imminent payment default.

Notes:
"+" or "-" may be appended to a rating to denote relative status within major
rating categories. Such suffixes are not added to the `AAA' long-term rating
category, to categories below `CCC', or to short-term ratings other than `F1'.

`NR' indicates that Fitch IBCA does not rate the issuer or issue in question.

`Withdrawn': A rating is withdrawn when Fitch IBCA deems the amount of
information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.

Rating Alert: Ratings are placed on Rating Alert to notify investors that there
is a reasonable probability of a rating change and the likely direction of such
change. These are designated as "Positive", indicating a potential upgrade,
"Negative", for a potential downgrade, or "Evolving", if ratings may be raised,
lowered or maintained. RatingAlert is typically resolved over a relatively short
period.

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ANNEX B

DESCRIPTION OF CALIFORNIA MUNICIPAL SECURITIES. As described in the Prospectus,
except during temporary periods, the Funds invest substantially all of their
assets in California municipal securities. The portfolio of the Funds may
include securities issued by the State of California (the "State"), by its
various public bodies (the "Agencies") and/or by other municipal entities
located within the State (securities of all such entities are referred to herein
as "California municipal securities").

In addition, the specific California municipal securities in which the
Funds invest will change from time to time. The Funds are therefore susceptible
to political, economic, regulatory or other factors affecting issuers of
California municipal securities. The following information constitutes only a
brief summary of a number of the complex factors which may impact issuers of
California municipal securities and does not purport to be a complete or
exhaustive description of all adverse conditions to which issuers of California
municipal securities may be subject. Such information is derived from official
statements utilized in connection with the issuance of California municipal
securities, as well as from other publicly available documents. Such information
has not been independently verified by the Funds and the Funds assumes no
responsibility for the completeness or accuracy of such information.
Additionally, many factors, including national, economic, social and
environmental policies and conditions, which are not within the control of such
issuers, could have an adverse impact on the financial condition of such
issuers. The Funds cannot predict whether or to what extent such factors or
other factors may affect the issuers of California municipal securities, the
market value or marketability of such securities or the ability of the
respective issuers of such securities acquired by the Funds to pay interest on
or principal of such securities. The creditworthiness of obligations issued by
local California issuers may be unrelated to the creditworthiness of obligations
issued by the State of California, and there is no assurance on the part of the
State of California to make payments on such local obligations. There may be
specific factors that are applicable in connection with investment in the
obligations of particular issuers located within California, and it is possible
the Funds may invest in obligations of particular issuers as to which such
specific factors are applicable. However, the information set forth below is
intended only as a general summary and not as a discussion of any specific
factors that may affect any particular issuer of California municipal
securities.

CONSTITUTIONAL LIMITS ON SPENDING AND TAXES. Certain California municipal
securities may be obligations of issuers which rely in whole or in part,
directly or indirectly, on ad valorem real property taxes as a source of
revenue. In 1978, California voters approved an amendment to the California
Constitution known as Proposition 13, the Jarvis/Gann Initiative, which added
Article XIIIA to the California Constitution. The effect of Article XIIIA is to
limit ad valorem taxes on real property and to restrict the ability of taxing
entities to increase real property tax revenues. On June 18, 1992, the United
States Supreme Court upheld the constitutionality of Article XIIIA.

In 1979, the voters of California passed an amendment adding Article XIIIB
to the California Constitution, the effect of which is to significantly limit
spending by State government and by "local government" (defined as "any city,
county, city and county, school district, special district, authority, or other
political subdivision of or within the state"). Excluded from these limitations
on government entities is "debt service" (defined as "appropriations required to
pay the cost of interest and redemption charges, including the funding of any
reserve or sinking fund required in connection therewith, on indebtedness
existing or legally authorized as of January 1, 1979 or on bonded indebtedness
thereafter approved" by the voters of the issuing entity).

In November 1986, California voters approved an amendment to the California
Government Code known as Proposition 62 which added Article 3.7 to Title 5,
Division 2, Chapter 4 of the California Government Code. The effect of Article
3.7 is to limit the abilities of local governments to impose new taxes or
increase existing taxes by requiring certain legislative and voter approvals
prior to the imposition of certain taxes by any local government (defined as any
county, city, city and county, including a char-

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tered city or county, or any public or municipal corporation) or district
(defined as any agency of the state, formed pursuant to general law or special
act, for the local performance of governmental or proprietary functions within
limited boundaries). Article 3.7 can be amended only by a vote of the electorate
of the State of California. In particular, Article 3.7, among other things,
requires (i) two-thirds approval of all members of the applicable legislative
body followed by majority approval of the voters voting in an election in order
for a local government or district to impose any general tax (defined as any tax
imposed for general governmental purposes), and (ii) two-thirds approval of the
voters voting in an election in order for a local government or district to
impose any special tax (defined as any tax imposed for a specific purpose).
Those voting requirements do not apply to ad valorem taxes to pay interest and
redemption charges on any indebtedness approved by the voters prior to the
effective date of Article XIIIA of the California Constitution. Article 3.7
requires (1) that the revenues from a special tax be used only for the purpose
or service for which the tax was imposed, and (2) any tax subject to the measure
imposed by any local government or district on or after August 1, 1985 be
ratified by majority vote of the voters voting in an election held within two
years after the effective date of the measure in order for the tax to continue
to be imposed on and after November 15, 1988. Article 3.7 contains a provision
which diminishes the property tax revenues allocated to a local government or
district to the extent that the local government or district imposed any tax not
in compliance with Article 3.7. Article 3.7 also provides that no local
government or district may impose any ad valorem tax on real property other than
as permitted by Section I of Article XIIIA of the California Constitution, and
that no local government or district may impose any transaction tax or sales tax
on the sale of real property within the city, county or district. A 1988
decision of the Fourth Appellate District of the California Court of Appeals
declared that the requirement of local voter ratification provided for in
Article 3.7 violated the California Constitution. An initiative proposed to
re-enact the ratification provisions of Article 3.7 as a constitutional
amendment was defeated by the voters in November 1990, but such a proposal may
be renewed in the future.

On December 19, 1991, the California Supreme Court declared a 1988 San
Diego County Ballot measure that raised sales taxes for the purpose of financing
construction of criminal detention and courthouse facilities unconstitutional
because it was not passed with two-thirds voter approval. The court concluded
that the agency established to finance the facilities is a special district
created to circumvent Article XIIIA. However in May 1992, the California Supreme
Court let stand two lower court decisions involving sales tax increases passed
by a majority vote. The lower courts had held that the Los Angeles County
Transportation Commission and the Orange County Transportation Authority, the
agencies entitled to collect the taxes, were not formed to circumvent Article
XIIIA, and that, therefore, the taxes were validly passed. On November 10, 1993,
in a closely watched case involving a Santa Clara County transportation
authority created with the parameters of the California Supreme Court's 1991
decision in mind, a California Court of Appeals overturned a sales tax approved
by less than two-thirds of the voters. In a September 1995 decision, the State
Supreme Court affirmed the Court of Appeals, declaring Proposition 62
constitutional under the California Constitution. The decision limited itself to
cities organized by the State and left unresolved whether Proposition 62 is
constitutional as applied to cities organized under a charter. Approximately
half the population of the State resides in charter cities. In March 1996, a
Superior Court held that charter cities do not have to submit taxes to voter
approval despite the State Supreme Court's Proposition 62 ruling. These
decisions may continue to cast doubt on other projects around the State that
have been financed with sales tax increases imposed without two-thirds voter
approval. Soon after the State Supreme Court decision, Moody's Investors
Services, Inc. indicated that the ruling has broad negative implications on the
ability of the State's cities and counties to raise revenue and issue debt
supported by general fund revenues.

On November 5, 1996, voters approved Proposition 218, entitled the "Right
to Vote on Taxes Act," which incorporates new Articles XIIIC and XIIID into the
California Constitution. These new provisions enact limitations on the ability
of local government agencies to impose or raise various taxes, fees, charges and
assessments without voter approval. Certain "general taxes" imposed after
January 1, 1995

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<PAGE>

must be approved by voters in order to remain in effect. In addition, Article
XIIIC clarifies the right of local voters to reduce taxes, fees, assessments or
charges through local initiatives.

Proposition 218 does not affect the State or its ability to levy or collect
taxes. There are a number of ambiguities concerning Proposition 218, its impact
on local governments and such governments bonded debt which will require
interpretation by the courts or the Legislature. The Legislative Analyst
estimated that enactment of Proposition 218 would reduce local government
revenues statewide by over $100 million a year, and that over time revenues to
local government would be reduced by several hundred million dollars a year
under Proposition 218.

Because of the complex nature of Articles XIIIA-D, the ambiguities and
possible inconsistencies in their respective terms, and the applicability of
their respective exemptions and exceptions and the impossibility of predicting
future appropriations, it is not presently possible to determine the impact of
Article XIIIA-D, any implementing or related legislation on the California
municipal securities in which the Funds may invest, or the abilities of State or
local governments to pay the interest on, or repay the principal of such
California municipal securities.

PROPOSITION 98. On November 8, 1988, voters approved Proposition 98, a
combined initiative constitutional amendment and statute called the "Classroom
Instructional Improvement and Accountability Act" (the "Act"). The Act changes
State funding of public education below the university level and the operation
of the State's Appropriations Limit. The Act, as amended, guarantees State
funding for K-12 school districts and community college districts at a level
equal to the greater of (a) in general, a fixed percentage of General Fund
revenues, (b) the amount actually appropriated to such districts from the
General Fund in the previous fiscal year, adjusted for either changes in the
cost of living, or (c) a third test which would replace the test in (b) if the
percentage growth in per capita of General Fund revenues in the prior year plus
one half of one percent is less than the percentage growth in California per
capita personal income. Under the test in (c), the schools would receive the
amount appropriated in the prior year adjusted for changes in enrollment and
General Fund revenues. The Act permits the legislature, by two-thirds vote of
both houses, with the Governor's concurrence, to suspend this formula for a
one-year period. The Act could cause increasing pressure on the State's budget
over future years, potentially reducing resources available for other State
Programs, especially to the extent the Article XIIIB spending limit would
restrain the State's ability to fund such other programs by raising taxes. The
Act also changes how tax revenues in excess of the State's Appropriations Limit
are distributed. Any excess State tax revenues up to a specified amount would,
instead of being returned to taxpayers, be transferred to K-12 school and
community college districts. Such transfers would be excluded from the
Appropriations Limit for K-14 school districts, and the K-14 school
Appropriations Limits for the next year would be automatically increased by the
amount of such transfer. These additional moneys would enter the base funding
calculation for K-14 schools for subsequent years, creating further pressure on
other portions of the state budget, particularly if revenues decline in a year
following such a transfer.

During the recent recession, General Fund revenues for several years were
less than originally projected, so that the original Proposition 98
appropriations turned out to be higher than the minimum percentage provided in
the law. The Legislature responded to these developments by designating the
"extra" Proposition 98 payments in one year as a "loan" from future years'
Proposition 98 entitlements, and also intended that the "extra" payments would
not be included in the Proposition 98 "base" for calculating future years'
entitlements.

In 1992, a lawsuit was filed, called California Teachers' Association v.
Gould., which challenged the validity of these off-budget loans. The settlement
of this case, finalized in July, 1996, provides, among other things, that both
the State and K-14 schools share in the repayment of prior years' emergency
loans to schools. Of the total $1.76 billion in loans, the State will repay $935
million by forgiveness of the amount owed, while schools will repay $825
million. The State share of the repayment will be reflected

B-3
<PAGE>

as an appropriation above the current Proposition 98 base calculation. The
schools' share of the repayment will count as appropriations that count toward
satisfying the Proposition 98 guarantee, or from "below" the current base.
Repayments are spread over the eight-year period of 1994-95 through 2001-02 to
mitigate any adverse fiscal impact. Substantially increased General Fund
revenues, above initial budget projections, in the fiscal years 1994-95 and
thereafter have resulted or will result in retroactive increases in Proposition
98 appropriations from subsequent fiscal years' budgets.

LOCAL GOVERNMENTS. The fiscal condition of local governments has been
constrained since the enactment of "Proposition 13" in 1978, which reduced and
limited the future growth of property taxes, and limited the ability of local
government to impose "special taxes" (those devoted to a specific purpose)
without two-thirds voter approval.

Counties, in particular, have had fewer options to raise revenues than many
other local government entities, and have been required to maintain many
services. The entire statewide welfare system was changed in response to the
change in federal welfare law enacted in 1996. California's response to the
federal welfare reforms is embodied in Chapter 270, Statutes of 1997. This new
basic State welfare program is called California Work Opportunity and
Responsibility to Kids Act ("CalWORKs"), which replaced the former Aid to
Families with Dependent Children (AFDC) and Greater Avenues to Independence
(GAIN) programs effective January 1, 1998. Consistent with the federal law,
CalWORKs contains new time limits on receipt of welfare aid, both lifetime as
well as for any current period on aid. The centerpiece of CalWORKs is the
linkage of eligibility to work participation requirements. Administration of the
new CalWORKS program largely at the county level and counties are given
financial incentives for success in this program.

Although the long term impact of the new federal Law and CalWORKs cannot be
determined until there has been more experience, the State does not presently
anticipate that these new programs will have an adverse financial impact on the
General Fund. Overall Temporary Assistance for Needy Families (TANF) grants from
the federal government are expected to equal or exceed the amounts the State
would have received under the old AFDC program.

Under current law, counties are required to provide "general assistance"
aid to certain persons who cannot obtain welfare from other programs, but this
mandate may be eliminated as part of the overhaul.

In the aftermath of Proposition 13, the State provided aid from the General
Fund to make up some of the loss of property tax moneys, including taking over
the principal responsibility for funding local K-12 schools and community
colleges. Under the pressure of the recent recession, the Legislature has
eliminated the remnants of this post-Proposition 13 aid to entities other than
K-14 education districts, although it has also provided additional funding
sources (such as sales taxes) and reduced mandates for local services. Many
counties continue to be under severe fiscal stress. While such stress has in
recent years most often been experienced by smaller, rural counties, larger
urban counties, such as Los Angeles, have also been affected.

In November of 1994, Standard & Poor's, a division of The McGraw-Hill
Companies, Inc. ("Standard & Poor's") downgraded the credit rating of several
California counties, including San Francisco, San Diego, Marin, Los Angeles and
San Bernardino. In December of 1994 and January of 1995, Standard & Poor's and
Moody's Investors Services, Inc. ("Moody's"), respectively, downgraded Orange
County to below investment grade as a result of its bankruptcy filing (see
discussion below). In August of 1995, Standard & Poor's again downgraded the
credit rating of Los Angeles County and placed it on CreditWatch. Moody's also
downgraded Los Angeles County. In October of 1995, Standard & Poor's placed San
Diego County's $449.3 million in general fund-supported debt issues on
CreditWatch. During the two-month period following the passage of Proposition
218 in November 1996, five of the seven California cities reviewed by the major
rating agencies during such two-month period had been down-

B-4
<PAGE>

graded (Los Angeles, Sacramento, San Diego, Fresno and Anaheim). In June 1998,
Standard & Poor's downgraded Fresno's municipal bonds, citing the County's
reduced financial flexibility due to several years of budget deficit. In April
1998, each of the three major rating agencies upgraded San Diego County's credit
rating, citing the County's successful sale of its troubled trash plant as a key
factor in improving the County's fiscal outlook. However, in August 1998,
Standard & Poor's announced that San Diego County's rising debt, absent new
sources of revenue, was becoming a concern, signaling a greater likelihood in
the next three years of a downgrade in the County's strong credit rating.

On December 6, 1994, Orange County, California (the "County"), together
with its pooled investment funds (the "Investment Funds"), filed for protection
under Chapter 9 of the federal Bankruptcy Code, after reports that the
Investment Funds had suffered significant market losses in their investments,
causing a liquidity crisis for the Investment Funds and the County. More than
200 other public entities, most of which, but not all, are located in the
County, were also depositors in the Investment Funds. As of mid-January, 1995,
following a restructuring of most of the Investments Funds' assets to increase
their liquidity and reduce their exposure to interest rate increases, the County
estimated the Investment Funds' loss at about $1.69 billion, or 23% of their
initial deposits of approximately $7.5 billion. Many of the entities which
deposited moneys in the Investment Funds, including the County, are facing cash
flow difficulties because of the bankruptcy filing and may be required to reduce
programs or capital projects. This may also affect their ability to meet their
outstanding obligations. In June, 1996, Orange County emerged from bankruptcy
protection as part of a fiscal recovery plan that included the issuance of new
recovery bonds and sharp reductions in services and personnel. Moody's gave the
insured recovery bonds an underlying rating of Baa and the county's general
obligation bonds a Ba rating. Standard & Poor's gave the recovery bonds a B
underlying rating and, in February 1998, Fitch Investors Services, Inc.
("Fitch") assigned the bonds as underlying rating of BBB.

STATE FINANCES. From 1990 until 1994 the State experienced the worst
economic fiscal, and budget conditions since the 1930's. Construction,
manufacturing (especially aerospace), and financial services, among others, have
all been severely affected. Job losses were the worst of any post-war recession.

The recession seriously affected State tax revenues, which basically mirror
economic conditions. It also caused increased expenditures for health and
welfare programs. The State has also been facing a structural imbalance in its
budget with the largest programs supported by the General Fund -- K-14
education, health, welfare and corrections -- growing at rates significantly
higher than the growth rates for the principal revenue sources of the General
Fund. As a result, the State entered a period of chronic budget imbalance. By
the 1993-94 Fiscal Year, the accumulated deficit was so large that it was
impractical to budget to retire it in one year, so a two-year program was
implemented, using the issuance of revenue anticipation warrants to carry a
portion of the deficit over the end of the fiscal year. When the economy failed
to recover sufficiently in 1993-94, a second two-year plan was implemented in
1994-95, again using cross-fiscal year revenue anticipation warrants to partly
finance the deficit into the 1995-96 fiscal year.

Another consequence of the accumulated budget deficits, together with other
factors such as disbursement of funds to local school districts "borrowed" from
future fiscal years and hence not shown in the annual budget, was to
significantly reduce the State's cash resources available to pay its ongoing
obligations. When the Legislature and the Governor failed to adopt a budget for
the 1992-93 Fiscal Year by July 1, 1992, which would have allowed the State to
carry out its normal annual cash flow borrowing to replenish its cash reserves,
the State Controller issued registered warrants to pay a variety of obligations
representing prior years' or continuing appropriations, and mandates from court
orders. Available funds were used to make constitutionally-mandated payments,
such as debt service on bonds and warrants. Between July 1 and September 4,
1992, when the budget was adopted, the State Controller issued a total of
approximately $3.8 billion of registered warrants.

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For several fiscal years during the recession, the State was forced to rely
on external debt markets to meet its cash needs, as a succession of notes and
revenue anticipation warrants were issued in the period from June 1992 to July
1994, often needed to pay previously maturing notes or warrants. These
borrowings were used also in part to spread out the repayment of the accumulated
budget deficit over the end of a fiscal year, as noted earlier. The last and
largest of these borrowings was $4.0 billion of revenue anticipation warrants
which were issued in July, 1994 and matured on April 25, 1996.

The State's financial condition improved markedly during the 1995-96,
1996-97 and 1997-98 fiscal years, with a combination of better than expected
revenues, slowdown in growth of social welfare programs, and continued spending
restraint based on the actions taken in earlier years. The State's cash position
also improved, and no external deficit borrowing has occurred over the end of
these three fiscal years.

The economy grew strongly during these fiscal years, and as a result, the
General Fund took in substantially greater tax revenues (around $2.2 billion in
1995-96, $1.6 billion in 1996-97 and $2.2 billion in 1997-98) than were
initially planned when the budgets were enacted. These additional funds were
largely directed to school spending as mandated by Proposition 98, and to make
up shortfalls from reduced federal health and welfare aid. The accumulated
budget deficit from the recession years was finally eliminated. The Department
of Finance estimates that the State's budget reserve (the SFEU) totaled $639.8
million as of June 30, 1997 and $1.782 billion at June 30, 1998.

As a result of the deterioration in the State's budget and cash situation
during the early 1990, rating agencies reduced the State's credit rating.
Between October 1991 and October 1992, the rating on the general obligation
bonds was reduced by Standard & Poor's from "AAA" to "A+", by Moody's from "Aaa"
to "Aa" and by Fitch from "AAA" to "AA". On July 15, 1994, all three of the
rating agencies rating the State's long-term debt again lowered their ratings of
the State's general obligation bonds. Moody's lowered its rating from "Aa" to
"Al", Standard & Poor's lowered its rating from "A+" to "A", and Fitch lowered
its rating from "AA" to "A". In July 1996, Standard & Poor's raised its rating
to A+ from A. In 1997, Fitch raised its rating to "AA-" from "A+". In October
1998, Moody's Investors Service raised its rating to Aa3 from Al. There can be
no assurance that such ratings will continue for any given period of time or
that they will not in the future be further revised or withdrawn. It should be
noted that the creditworthiness of obligations issued by local California
issuers may be unrelated to the creditworthiness of obligations issued by the
State of California, and there is no obligation on the part of the State to make
payment on such obligations in the event of default.

When the Governor released his proposed 1998-99 Fiscal Year Budget on
January 9, 1998, he projected General Fund revenues for the 1998-99 Fiscal Year
of $55.4 billion, and proposed expenditures in the same amount. By the time the
Governor released the May Revision of the 1998-99 Budget ("May Revisions") on
May 14,1998, the Administration projected that revenues for the 1997-98 and
1998-99 Fiscal Years combined would be more than $4.2 billion higher than was
projected in January. The Governor proposed that most of this increased revenue
be dedicated to fund a 75% cut in the Vehicle License Fee ("VLF").

The Legislature passed the 1998-99 Budget Bill on August 11, 1998, and the
Governor signed it on August 21, 1998. Some 33 companion bills necessary to
implement the budget were also signed. In signing the 1998-99 Budget Bill, the
Governor used his line-item veto power to reduce expenditures by $1.360 billion
from the General Fund, and $160 million from Special Funds. Of this total, the
Governor indicated that about $250 million of vetoed funds were "set aside" to
fund programs for education. Vetoed items included education funds, salary
increases and many individual resources and capital projects.

The 1998-99 Budget Act is based on projected General Fund revenues and
transfers of $57.0 billion (after giving effect to various tax reductions
enacted in 1997 and 1998), a 4.2% increase from the revised 1997-98 figures.
Special Fund revenues were estimated at $14.3 billion. The revenue projections
were

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based on the May Revisions. International economic problems, such as the soaring
trade deficit, continuing weakness in Asia, initial signs of economic weakness
in Canada and Latin America (which have been California's largest trading
partners), and the fall in stock prices worldwide, since that time may affect
the May Revision projections.

After giving effect to the Governor's vetoes, the 1998-99 Budget Act
provides authority for expenditures of $57.3 billion from the General Fund (a
7.3% increase from 1997-98), $14.7 billion from Special Funds, and $3.4 billion
from bond funds. The 1998-99 Budget Act projects a balance, in the SFEU at June
30, 1999 (but without including the "set aside" veto amount) of $1.255 billion,
a little more than 2% of General Fund revenues. The 1998-99 Budget Act assumes
the State will carry out its normal intra-year cash flow borrowing in the amount
of $1.7 billion of revenue anticipation notes, which were issued on October 1,
1998.

Based solely on the legislation enacted, on a net basis, reserve for June
30, 1999, was reduced by $256 million. On the other hand, 1997-98 revenues have
been increased by $160 million. The revised June 30, 1999, reserve is projected
to be $1,159 million or $96 million below the level projected at the 1998-99
Budget Act. The reserve projected in the 1998-99 Budget Act was $1,255 million.
It is important to emphasize that the new reserve level is based on 1998-99
revenue and expenditure assumptions as of the 1998-99 Budget Act except to
augment for legislation signed after the budget enactment. In November, 1998,
the Legislative Analyst's Office released a report predicting that General Fund
revenues for 1998-99 would be somewhat lower, and expenditures somewhat higher,
than the 1998-99 Budget Act forecasts, but the net variance would be within the
projected $1.2 billion year-end reserve amount.

It is not presently possible (1) to know whether, and to what extent, the
State General Fund or any Special Funds will have surplus or deficit balances in
the 1998-1999 fiscal year or in any subsequent fiscal year, and (2) to determine
the overall impact of any deficits on future allocations of the State revenues
to local governments or on the abilities of State or local governments to pay
the interest on, or repay the principal of, any California municipal securities
in which the Funds may invest.

In November 1998, California voters approved Proposition 1A, the largest
bond measure ever to be passed in U.S. history and which authorized the State to
issue up to $9.2 billion in school expansion bonds. Although Moody's recently
upgraded the State's credit rating, the State's willingness to take on such debt
could threaten its ability to do so in the future.

LITIGATION. At any given time, including the present, there are numerous
civil actions pending against the State (including, but not limited to, those
discussed in the preceding paragraphs and below), which could, if determined
adversely to the State, affect the State's expenditures and, in some cases, its
revenues. The following are certain of the more significant lawsuits pending
against the State.

Northern California 1997 Flood Litigation: In January of 1997, California
experienced major flooding in six different areas with current estimates of
property damage to be approximately $1.6 to $2 billion. To date, one lawsuit has
been filed by 500 homeowners, but more lawsuits are expected. Exposure from all
of the anticipated cases arising from these floods could total approximately $2
billion.

The State is a defendant in several related cases, mainly California
Ambulance Association v. Shalala et al., in which the plaintiffs are seeking
action to compel the Department of Health Services to pay Part B ambulance and
physician services co-payments under the Medicare and Medicaid Acts. In 1998, a
judgment was entered for the plaintiff. The Ninth Circuit Court of Appeals,
however, reversed the trial court's decision. Plaintiffs filed petition for
certiorari at the United States Supreme Court, which the State opposed. The
petition is currently pending at the Supreme Court. Should the plaintiffs
prevail, the liability for retroactive payments is estimated to be $490 million,
and the liability for future payments can be in excess of $130 million annually.
The General Fund and the federal government will share the liability equally.

B-7
<PAGE>

The State is a defendant in Ceridian Corporation v. Franchise Tax Board, a
suit which challenges the validity of two sections of the California Tax laws.
The first relates to deduction from corporate taxes for dividends received from
insurance companies to the extent the insurance companies have California
activities. The second relates to corporate deduction of dividends to the extent
the earnings of the dividend paying corporation have already been included in
the measure of their California tax. In August 1998, a judgment was entered for
the plaintiffs. The State will appeal. If both sections of the California Tax
law are invalidated, and all dividends become deductible, then the General Fund
can become liable for approximately $200-$250 million annually.

The State is involved in a lawsuit. Thomas Hayes v. Commission on State
Mandates, related to state mandated costs. The action involves an appeal by the
Director of Finance from a 1984 decision by the State Board of Control (now
succeeded by the Commission on State Mandates (the "Commission")). The Board of
Control decided in favor of local school districts' claims for reimbursement for
special education programs for handicapped students. The case was then brought
to the trial court by the State and later remanded to the Commission for
redetermination. The Commission has since expanded the claim to include
supplemental claims filed by seven other educational institutions; the issuance
of a final consolidated decision is anticipated sometime in late 1998. To date,
the Legislature has not appropriated funds. The liability to the State, if all
potential eligible school districts pursue timely claims, has been estimated by
the Department of Finance at more than $1 billion.

The State is involved in a lawsuit related to contamination at the
Stringfellow toxic waste site. In United States, People of the State of
California v. J. B. Stringfellow, Jr., et al., the State is seeking recovery for
past costs of cleanup of the site, a declaration that the defendants are jointly
and severally liable for future costs, and an injunction ordering completion of
the cleanup. However, the defendants have filed a counterclaim against the State
for alleged negligent acts. Because the State is the present owner of the site,
the State may be found liable. Present estimates of the cleanup range from $300
million to $800 million.

The State is a defendant in a coordinated action involving 3,000 plaintiffs
seeking recovery for damages caused by the Yuba River flood of February 1986.
The trial court has found liability in inverse condemnation and awarded damages
of $500,000 to a sample of plaintiffs. The State's potential liability to the
remaining plaintiffs ranges from $800 million to $1.5 billion. An appeal has
been filed.

The State is a defendant in California State Employees Association v.
Wilson, where the petitioners are challenging several budget appropriations in
the 1994 and 1995 Budget Acts. The appropriations mandate the transfer of funds
from the State Highway Account to the General Fund to reimburse the General Fund
for debt service costs on two rail bond measures. The petitioners contend that
the transfers violate the bond acts themselves and are requesting the monies be
returned. In February 1998, the Court of Appeal modified, then affirmed, a
judgment in favor of the plaintiffs invalidating the transfer of $12,290,000
from the State Highway Account to the General Fund.

In a similar case, Professional Engineers in California Government v.
Wilson, the petitioners are challenging several appropriations in the 1993,
1994, and 1995 Budget Acts. The appropriations mandate the transfer of
approximately $262 million from the State Highway Account and $113 million from
the Motor Vehicle Account to the General Fund and appropriate approximately $6
million from the State Highway Account to fund a highway-grade crossing program
administered by the Public Utilities Commission. Petitioners contend that the
transfers violate several constitutional provisions and request that the moneys
be returned to the State Highway Account and Motor Vehicle Account.

The State is a defendant in JUST SAY NO TO TOBACCO DOUGH CAMPAIGN V. STATE
OF CALIFORNIA, where the petitioners challenge the appropriation of
approximately $166 million of Proposition 99 funds in the Cigarette and Tobacco
Products Surtax Fund for years ended June 30, 1990, through June 30, 1995 for
programs which were allegedly not health education or tobacco-related disease
research. If the State

B-8
<PAGE>

loses, the General Fund and funds from other sources would be used to reimburse
the Cigarette and Tobacco Products Surtax Fund for approximately $166 million.

The State is a defendant in the case of Howard Jarvis Taxpayers Association
et al. v. Kathleen Connell. On June 24 1998, plaintiffs filed a complaint for
certain declaratory and injunctive relief challenging the authority of the State
Controller to make payments from the State Treasury in the absence of a state
budget. On July 21, 1998, the trial court issued a preliminary injunction
prohibiting the State Controller from paying moneys from the State Treasury for
fiscal year 1998-99, with certain limited exceptions, in the absence of a state
budget. The preliminary injunction, among other things, prohibited the State
Controller from making any payments pursuant to any continuing appropriations.

On July 22 and 27, 1998, various employee unions which had intervened in
the case appealed the trial court's preliminary injunction and asked the Court
of Appeal to stay the preliminary injunction. On July 28, 1998, the Court of
Appeal granted the unions' requests and stayed the preliminary injunction
pending the Court of Appeal's decision on the merits of the appeal. On August 5,
1998, the Court of Appeal denied the plaintiffs' request to reconsider the stay.
Also on July 22, 1998, the State Controller asked the California Supreme Court
to immediately stay the trial court's preliminary injunction and to overrule the
order granting the preliminary injunction on the merits. On July 29, 1998, the
Supreme Court transferred the State Controller's request to the Court of Appeal.
The matters are now pending before the Court of Appeal.

The State is a defendant in the case of Jordan v. Department of Motor
Vehicles, where the plaintiff challenged the validity and constitutionality of
the State's smog impact fee and requested a refund of the fee. In October 1997,
the trial court ruled in favor of plaintiff and, in addition ordered the State
to provide refunds to all persons who paid the smog impact fee from three years
before the filing of the lawsuit in 1995 to the present. Plaintiff asserts that
the total amount required to be refunded will exceed $350 million. The State has
appealed.

Year 2000 Issue. The year 2000 issue is the result of computer programs
being written using two digits rather than four digits to define the applicable
year. Computer programs or hardware that have date-sensitive software or
embedded chips may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations. At this time, the Funds cannot determine what impact
the year 2000-related issue may have on the State or any of its municipalities
or other issuers of securities owned by the Funds if not completely addressed
prior to the year 2000, but such impact could be significant.

Legislation has been or may be introduced which would create new regional
agencies with the ability to tax and issue debt, alter the definition of
ownership changes that trigger reassessment of business property under Article
XIIIA, modify existing taxes or other revenue-raising measures or which either
would further limit or, alternatively would increase the abilities of State and
local governments to impose new taxes, increase existing taxes (including sales
tax increases to fund earthquake relief), issue bonds or other debt instruments,
or adopt State budgets with only a majority vote of the legislature. It is not
currently possible to predict the extent to which any such legislation will be
enacted. Furthermore, other measures affecting the taxing or spending authority
of California or its political subdivisions may be approved or enacted in the
future. Nor is it currently possible to determine the impact of any recently
enacted or proposed legislation on California municipal securities in which the
Funds may invest or future allocations of State revenues to local governments.

B-9

<PAGE>

PART C

OTHER INFORMATION

Item 15. Indemnification.

Reference is made to Article VI of RAA's By-laws.

Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions or
otherwise, the Company has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Company of expense incurred or paid by the director, officer, or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the shares being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.

16. Exhibits

(1) Articles of Incorporation+
(1)(a) Articles of Amendment+
(2) By-Laws+
(3) INAPPLICABLE
(4) Agreement of Merger**
(5) Articles Supplementary+
(6) Investment Advisory Contract+
(7) INAPPLICABLE
(8) INAPPLICABLE
(9) Custodian Contract+
(10) INAPPLICABLE
(11) Opinion of Counsel+
(12) Consent of Skadden, Arps, Slate, Meagher & Flom LLP+
(13)(a) Transfer Agency Agreement between the Registrant and State Street Bank
& Trust Company+
(b)Form of Auction Agent Agreement+
(c)Form of Broker-Dealer Agreement+
(d)Form of Letter of Representations
(14) Consent of Deloitte & Touche LLP, independent auditors for the
Applicant*
(15) INAPPLICABLE
(16) Power of Attorney*
(17) INAPPLICABLE
- --------
* filed herewith
** Included as Appendix I to Proxy Statement/Prospectus
+ To be filed by Amendment

C-1
<PAGE>

Item 17. Undertakings.

(a) The Registrant undertakes to suspend offering of the shares of Common
Stock covered hereby until it amends its Prospectus contained herein if (1)
subsequent to the effective date of this Registration Statement, its net asset
value per share of Common Stock declines more than 10 percent from its net
asset value per share of Common Stock as of the effective date of this
Registration Statement, or (2) its net asset value per share of Common Stock
increases to an amount greater than its net proceeds as stated in the
Prospectus contained herein.

(b) The Registrant undertakes that: (1) For the purpose of determining any
liability under the Securities Act, the information omitted from the form of
prospectus filed as part of a registration statement in reliance upon Rule
430A and contained in the form of prospectus filed by the Registrant pursuant
to Rule 497(h) under the Securities Act shall be deemed to be a part of the
registration statement as of the time it was declared effective. (2) For the
purpose of determining any liability under the Securities Act, each post-
effective amendment that contains a form of prospectus shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
<PAGE>

SIGNATURE

As required by the Securities Act of 1933, this registration statement has
been signed on behalf by the registrant, in the City of New York, and State of
New York, on the 23rd day of July, 1999.

THE BLACKROCK CALIFORNIA INVESTMENT
QUALITY MUNICIPAL TRUST INC.

/s/ Ralph L. Schlosstein
By___________________________________
Ralph L. Schlosstein President

Each person whose signature appears below hereby authorizes Ralph L.
Schlosstein, Laurence D. Fink and Karen H. Sabath, or any of them, as
attorney-in-fact, to sign on his behalf, individually and in each capacity
stated below, any amendments to this Registration Statement (including post-
effective amendments) and to file the same, with all exhibits thereto, with
the Securities and Exchange Commission.

As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.

<TABLE>
<S> <C> <C>
</TABLE>
Signatures Title Date

* President (Principal July 23, 1999
- ------------------------------------- Executive Officer)
Laurence D. Fink and Director

/s/ Henry Gabbay
- ------------------------------------- Treasurer (Principal July 23, 1999
Henry Gabbay Financial and
Accounting Officer)

/s/ Ralph L. Schlosstein
- ------------------------------------- President and July 23, 1999
Ralph L. Schlosstein Director

*
- ------------------------------------- Director July 23, 1999
Andrew F. Brimmer

Director
- -------------------------------------
Richard E. Cavanagh
<TABLE>
<S> <C> <C>
</TABLE>
<PAGE>

<TABLE>
<S> <C> <C>
</TABLE>
Signatures Title Date

* Director July 23, 1999
- -------------------------------------
Kent Dixon

* Director July 23, 1999
- -------------------------------------
Frank J. Fabozzi

Director
- -------------------------------------
James Grosfeld

* Director July 23, 1999
- -------------------------------------
James Clayburn LaForce, Jr.

* Director July 23, 1999
- -------------------------------------
<TABLE>
<S> <C> <C>
</TABLE>
Walter F. Mondale

- --------
* Signed by Ralph L. Schlosstein pursuant to power of attorney, dated July 22,
1999.

/s/ Ralph L. Schlosstein
- -------------------------------------
Ralph L. Schlosstein
<PAGE>

THE BLACKROCK CALIFORNIA INVESTMENT
QUALITY MUNICIPAL TRUST INC. ("RAA")

EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
Consent of Deloitte & Touche LLP, independent auditors for the
(14) Applicant
(16) Power of Attorney
</TABLE>

<PAGE>

INDEPENDENT AUDITORS' CONSENT

We hereby consent to the incorporation by reference in the Statement of
Additional Information constituting part of this Registration Statement on Form
N-14 (the "Registration Statement") of our report dated December 11, 1998
relating to the financial statements and financial highlights appearing in the
October 31, 1998 Annual Report to Shareholders of The Blackrock California
Investment Quality Municipal Term Trust Inc. ("RAA") and of our reports dated
February 12, 1999 relating to the financial statements and financial highlights
appearing in the December 31, 1998 Annual Reports to Shareholders of The
Blackrock California Insured Municipal 2008 Term Trust Inc. ("BFC"), which is
alos incorporated by reference into the Statement of Additional information.

We also consent to the references to us under the headings "Service Providers
For The Trusts and RAA" and "Financial Highlights for RAA" in the combined Proxy
Statement/Prospectus, constituting part of this Registration Statement.

/s/ DELOITTE & TOUCHE LLP
New York, New York
July 23, 1999

<PAGE>

POWER OF ATTORNEY

That each of the undersigned officers and directors of The BlackRock
California Investment Quality Municipal Trust, a corporation formed under the
laws of the State of Maryland (the "Trust"), do constitute and appoint Ralph L.
Schlosstein, Laurance D. Fink and Karen H. Sabath, and each of them, his or her
true and lawful attorneys and agents, each with full power and authority (acting
alone and without the other) to execute in the name and on behalf of each of the
undersigned as such officer or director, a Registration Statement on Form N-14,
including any pre-effective amendments and/or any post-effective amendments
hereto and any subsequent Registration Statement of the Trust pursuant to Rule
462(b) of the Securities Act of 1933, as amended (the "1933 Act") and any other
filings in connection therewith, and to file the same under the 1933 Act or the
Investment Company Act of 1940, as amended, or otherwise, with respect to the
registration and offering by the Trust of its common stock, par value $.01 per
share, and its preferred stock, liquidation preference $25,000 per share,
granting to such attorneys and agents and each of them, full power of
substitution and revocation in the premises; and ratifying and confirming all
that such attorneys and agents or any of them, may do or cause to be done by
virtue of these presents.

This Power of Attorney may be executed in multiple counterparts, each of
which shall be deemed an original, but which taken together shall constitute one
instrument.

<PAGE>

IN WITNESS WHEREOF, each of the undersigned has executed this power of
Attorney this 22nd day of July, 1999.

/s/ Andrew F. Brimmer
______________________________________________
Dr. Andrew F. Brimmer
Director

______________________________________________
Richard E. Cavanagh
Director

/s/ Kent Dixon
______________________________________________
Kent Dixon
Director

/s/ Frank J. Fabozzi
______________________________________________
Frank J. Fabozzi
Director

______________________________________________
James Grosfeld
Director

/s/ James Clayburn LaForce, Jr.
______________________________________________
James Clayburn LaForce, Jr.
Director

/s/ Walter F. Mondale
______________________________________________
Walter F. Mondale
Director

/s/ Ralph L. Schlosstein
______________________________________________
Ralph L. Schlosstein
Director and President

<PAGE>

/s/ Laurence D. Fink
______________________________________________
Laurence D. Fink
Trustee

/s/ Henry Gabbay
______________________________________________
Henry Gabbay
Treasurer