As filed with the Securities and Exchange Commission on May 7, 2002
Securities Act Registration No. 333-
Investment Company Registration No. 811-21050
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. |_|
Post-Effective Amendment No. |_|
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 |X|
AMENDMENT NO. 3
BlackRock New Jersey Municipal Bond Trust
(Exact Name of Registrant as Specified In Declaration of Trust)
100 Bellevue Parkway
Wilmington, Delaware 19809
(Address of Principal Executive Offices)
(888) 825-2257
(Registrant's Telephone Number, including Area Code)
Ralph L. Schlosstein, President
BlackRock New Jersey Municipal Bond Trust
40 East 52nd Street
New York, New York 10022
(Name and Address of Agent for Service)
Copy to:
Michael K. Hoffman, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
Approximate Date of Proposed Public Offering: As soon as
practicable after the effective date of this Registration Statement.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Amount Proposed Proposed
Being Maximum Offering Maximum Aggregate Amount of
Title of Securities Being Registered Registered Price per Unit Offering Price Registration Fee
Preferred Shares, $.001 par value 40 $25,000 $1,000,000(1) $92
(1) Estimated solely for the purpose of calculating the registration fee.
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 the
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 dates as the Commission, acting
pursuant to said Section 8(a), may determine.
PM BLACKROCK NEW JERSEY MUNICIPAL BOND TRUST
CROSS REFERENCE SHEET
Part A--Prospectus
Items in Part A of Form N-2 Location in Prospectus
Item 1. Outside Front Cover Cover page
Item 2. Inside Front and Outside Back Cover Page Cover page
Item 3. Fee Table and Synopsis Prospectus Summary
Item 4. Financial Highlights Financial Highlights (unaudited)
Item 5. Plan of Distribution Cover Page; Prospectus Summary; Underwriting
Item 6. Selling Shareholders Not Applicable
Item 7. Use of Proceeds Use of Proceeds; The Trust's Investments
Item 8. General Description of the Registrant The Trust; The Trust's Investments; Risks;
Description of Preferred Shares; Certain
Provisions in the Agreement and Declaration of
Trust
Item 9. Management Management of the Trust; Custodian, Transfer
Agent and Auction Agent
Item 10. Capital Stock, Long-Term Debt,
and Other Securities Description of Preferred Shares; Description of
Common Shares; Certain Provisions in the
Agreement and Declaration of Trust; Tax
Matters
Item 11. Defaults and Arrears on Senior Securities. Not Applicable
Item 12. Legal Proceedings Legal Opinions
Item 13. Table of Contents of the Statement of Table of Contents for the Statement of Additional
Additional Information Information
Part B--Statement of Additional Information
Item 14. Cover Page Cover Page
Item 15. Table of Contents Cover Page
Item 16. General Information and History Not Applicable
Item 17. Investment Objective and Policies Investment Objective and Policies; Investment
Policies and Techniques; other Investment
Policies and Techniques; Portfolio Transactions
Item 18. Management Management of the Trust; Portfolio Transactions
and Brokerage
Item 19. Control Persons and Principal Holders of
Securities Management of the Trust
Item 20. Investment Advisory and Other Services Management of the Trust; Experts
Item 21. Brokerage Allocation and Other Practices Portfolio Transactions and Brokerage
Item 22. Tax Status Tax Matters
Item 23. Financial Statements Report of Independent Auditors; Financial
Highlights (unaudited)
Part C--Other Information
Items 24-33 have been answered in Part C of this Registration Statement
PROSPECTUS
LOGO
[$ ]
BlackRock New Jersey Municipal Bond Trust
Municipal Auction Rate Cumulative Preferred Shares
("Preferred Shares")
[ ] Shares, Series [ ]
Liquidation Preference $25,000 per share
Investment Objective. BlackRock New Jersey Municipal Bond Trust
(the "Trust") is a recently organized, non-diversified, closed-end
management investment company. The Trust's investment objective is to
provide current income exempt from regular Federal income tax and New
Jersey gross income tax.
Portfolio Contents. The Trust will invest primarily in municipal
bonds that pay interest that is exempt from regular Federal income tax and
New Jersey gross income tax. The Trust will invest in municipal bonds that,
in the opinion of the Trust's investment advisor and sub-advisor, are
underrated or undervalued. Under normal market conditions, the Trust
expects to be fully invested in these tax-exempt municipal bonds. The Trust
will invest at least 80% of its Managed Assets (as defined herein) in
municipal bonds that at the time of investment are investment grade
quality. Investment grade quality bonds are bonds rated within the four
highest grades (Baa or BBB or better by Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Ratings Group ("S&P") or Fitch IBCA, Inc.
("Fitch")) or bonds that are unrated but judged to be of comparable quality
by the Trust's investment advisor and/or sub-advisor. The Trust may invest
up to 20% of its Managed Assets in municipal bonds that at the time of
investment are rated Ba/BB or B by Moody's, S&P or Fitch or bonds that are
unrated but judged to be of comparable quality by the Trust's investment
advisor and/or sub-advisor. Bonds of below investment grade quality are
regarded as having predominately speculative characteristics with respect
to the issuer's capacity to pay interest and repay principal, and are
commonly referred to as "junk bonds." The Trust intends to invest primarily
in long-term bonds and expects bonds in its portfolio to have a dollar
weighted average maturity of 15 years or more under current market
conditions. The Trust cannot ensure that it will achieve its investment
objective.
Investing in the Preferred Shares involves certain risks. See
"Risks" beginning on page . The minimum purchase amount of the Preferred
Shares is $25,000.
Neither the Securities and Exchange Commission ("SEC") nor any
state securities commission has approved or disapproved these securities or
determined if this prospectus is truthful or complete. Any representation
to the contrary is a criminal offense.
Per Share Total
--------- -----
Public Offering Price. $25,000 $
Sales Load. $ $
Proceeds to Fund (before expenses)(1). $ $
(1) Not including offering expenses payable by the Trust estimated
to be $ . The Trust, its investment advisor, BlackRock Advisors, Inc., and
its investment sub-advisor, BlackRock Financial Management, Inc., have
agreed to indemnify the several Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended.
The underwriters are offering the Preferred Shares subject to
various conditions. The underwriters expect to deliver the Preferred Shares
to purchasers, in book-entry form, through the facilities of The Depository
Trust Company on or about .
You should read the prospectus, which contains important
information about the Trust, before deciding whether to invest in the
Preferred Shares and retain it for future reference. A Statement of
Additional Information, dated , containing additional information about the
Trust, has been filed with the Securities and Exchange Commission and is
incorporated by reference in its entirety into this prospectus. You may
request a free copy of the Statement of Additional Information, the table
of contents of which is on page of this prospectus, by calling (888)
825-2257 or by writing to the Trust, or obtain a copy (and other
information regarding the Trust) from the Securities and Exchange
Commission web site (http://www.sec.gov)
The Preferred Shares do not represent a deposit or obligation of,
and are not guaranteed or endorsed by, any bank or other insured depository
institution, and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other government agency.
The Trust is offering shares of Series Municipal Auction Rate
Cumulative Preferred Shares. The shares are referred to in this prospectus
as "Preferred Shares." The Preferred Shares have a liquidation preference
of $25,000 per share, plus any accumulated, unpaid dividends. The Preferred
Shares also have priority over the Trust's common shares as to distribution
of assets as described in this prospectus. It is a condition of closing
this offering that the Preferred Shares be offered with a rating of `Aaa"
from Moody's and "AAA" from S&P.
The dividend rate for the initial dividend rate period will be %.
The initial rate period is from the date of issuance through , 2002. For
subsequent rate periods, Preferred Shares pay dividends based on a rate set
at auction, usually held weekly. Prospective purchasers should carefully
review the auction procedures described in this prospectus and should note:
(1) a buy order (called a "bid order") or sell order is a commitment to buy
or sell Preferred Shares based on the results of an auction; (2) auctions
will be conducted by telephone; and (3) purchases and sales will be settled
on the next business day after the auction.
The Preferred Shares are redeemable, in whole or in part, at the
option of the Trust on any dividend payment date for the Preferred Shares,
and will be subject to mandatory redemption in certain circumstances at a
redemption price of $25,000 per share, plus accumulated but unpaid
dividends to date of the redemption, plus a premium in certain
circumstances.
Preferred Shares are not listed on an exchange. You may only buy
or sell Preferred Shares through an order placed at an auction with or
through a broker-dealer that has entered into an agreement with the auction
agent and the Trust or in a secondary market maintained by certain
broker-dealers. These broker-dealers are not required to maintain this
market, and it may not provide you with liquidity.
Dividends on Preferred Shares, to the extent payable from
tax-exempt income earned on the Trust's investments, will be exempt from
regular Federal income tax in the hands of owners of such shares. All or a
portion of the Trust's dividends may be subject to the Federal alternative
minimum tax. The Trust is required to allocate net capital gains and other
taxable income, if any, proportionately between common and preferred
shares, including the Preferred Shares, based on the percentage of total
dividends distributed to each class for that year. The Trust may at its
election give notice of the amount of any income subject to Federal income
tax to be included in a dividend on a Preferred Share in advance of the
related auction. If the Trust does not give such advance notice, whether or
not by reason of the fact that a taxable allocation was made retroactively
as a result of a redemption of all or part of the Preferred Shares or the
liquidation of the Trust, it generally will be required to pay additional
amounts to holders of Preferred Shares in order to adjust for their receipt
of income subject to regular Federal income tax.
You should rely only on the information contained or incorporated
by reference in this prospectus. We have not, and the Underwriters have
not, authorized any other person to provide you with different information.
If anyone provides you with different or inconsistent information, you
should not rely on it. We are not, and the Underwriters are not, making an
offer to sell these securities in any jurisdiction where the offer or sale
is not permitted. You should assume that the information in this prospectus
is accurate only as of the date of this prospectus. Our business, financial
condition and prospects may have changed since that date.
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY..........................................................5
FINANCIAL HIGHLIGHTS (Unaudited)...........................................10
THE TRUST..................................................................11
USE OF PROCEEDS............................................................11
CAPITALIZATION (Unaudited).................................................11
PORTFOLIO COMPOSITION......................................................12
THE TRUST'S INVESTMENTS....................................................12
RISKS......................................................................16
MANAGEMENT OF THE TRUST....................................................19
DESCRIPTION OF PREFERRED SHARES............................................22
THE AUCTION................................................................29
DESCRIPTION OF COMMON SHARES...............................................33
CERTAIN PROVISIONS IN THE AGREEMENT AND DECLARATION OF TRUST...............34
REPURCHASE OF COMMON SHARES................................................36
TAX MATTERS................................................................36
UNDERWRITING...............................................................38
CUSTODIAN, TRANSFER AGENT AND AUCTION AGENT................................38
LEGAL OPINIONS.............................................................39
AVAILABLE INFORMATION......................................................39
APPENDIX A TAXABLE EQUIVALENT YIELD TABLE................................A-1
PRIVACY PRINCIPLES OF THE TRUST
The Trust is committed to maintaining the privacy of its
shareholders and to safeguarding their non-public personal information. The
following information is provided to help you understand what personal
information the Trust collects, how the Trust protects that information and
why, in certain cases, the Trust may share information with select other
parties.
Generally, the Trust does not receive any non-public personal
information relating to its shareholders, although certain non-public
personal information of its shareholders may become available to the Trust.
The Trust does not disclose any non-public personal information about its
shareholders or former shareholders to anyone, except as permitted by law
or as is necessary in order to service shareholder accounts (for example,
to a transfer agent or third party administrator).
The Trust restricts access to non-public personal information
about its shareholders to employees of the Trust's investment advisor and
its affiliates with a legitimate business need for the information. The
Trust maintains physical, electronic and procedural safeguards designed to
protect the non-public personal information of its shareholders.
PROSPECTUS SUMMARY
This is only a summary. This summary may not contain all of the
information that you should consider before investing in our Preferred
Shares. You should read the more detailed information contained in this
prospectus, the Statement of Additional Information and the Fund's
Statement of Preferences of Municipal Auction Rate Cumulative Preferred
Shares (the "Statement") attached as Appendix A to the Statement of
Additional Information. Capitalized terms used but not defined in this
prospectus shall have the meanings given to such terms in the Statement.
The Trust................................... BlackRock New Jersey Municipal Bond Trust is a
recently organized, non-diversified, closed-end,
management investment company. Throughout the
prospectus, we refer to BlackRock New Jersey
Municipal Bond Trust simply as the "Trust" or as
"we," "us" or "our." See "The Trust." The Trust's
common shares are traded on the American Stock
Exchange under the symbol "BLJ ". See "Description of
Common Shares." As of , 2002, the Trust had common
shares outstanding and net assets of $ .
Investment Objective......................... The Trust's investment objective is to provide
current income exempt from regular Federal income tax
and New Jersey gross income tax.
Investment Policies.......................... The Trust will invest primarily in municipal bonds
that pay interest that is exempt from regular Federal
income tax and New Jersey gross income tax. The Trust
will invest in municipal bonds that, in the opinion
of BlackRock Advisors, Inc. ( "BlackRock Advisors" or
the "Advisor ") and/or BlackRock Financial
Management, Inc. ( "BlackRock Financial Management"
or the "Sub-Advisor ") are underrated or undervalued.
Underrated municipal bonds are those whose ratings do
not, in the Advisor's or Sub-Advisor's opinion,
reflect their true creditworthiness. Undervalued
municipal bonds are bonds that, in the Advisor's or
Sub-Advisor's opinion, are worth more than the value
assigned to them in the marketplace. Under normal
market conditions, the Trust expects to be fully
invested in these tax-exempt municipal bonds. The
Trust will invest at least 80% of its Managed Assets
in municipal bonds that at the time of investment are
investment grade quality. Investment grade quality
bonds are bonds rated within the four highest grades
(Baa or BBB or better by Moody's, S&P or Fitch) or
bonds that are unrated but judged to be of comparable
quality by the Advisor and/or the Sub-Advisor. The
Trust may invest up to 20% of its Managed Assets in
municipal bonds that at the time of investment are
rated Ba/BB or B by Moody's, S&P or Fitch or bonds
that are unrated but judged to be of comparable
quality by the Advisor and/or the Sub-Advisor. Bonds
of below investment grade quality are regarded as
having predominately speculative characteristics with
respect to the issuer's capacity to pay interest and
repay principal, and are commonly referred to as
"junk bonds." The Trust intends to invest primarily
in long-term bonds and expects bonds in its portfolio
to have a dollar weighted average maturity of 15
years or more under current market conditions. The
Trust cannot ensure that it will achieve its
investment objective. See "The Trust's Investments."
Investment Advisor........................... BlackRock Advisors will be the Trust's investment
advisor and BlackRock Advisors' affiliate, BlackRock
Financial Management, will provide certain day-to-day
investment management services to the Trust.
Throughout the prospectus, we sometimes refer to
BlackRock Advisors and BlackRock Financial Management
collectively as "BlackRock." BlackRock Advisors will
receive an annual fee, payable monthly.
The Offering................................. The Trust is offering shares of Series Preferred
Shares at a purchase price of $25,000 per share.
Preferred Shares are being offered by the
underwriters listed under "Underwriting."
Risk Factors Summary......................... Risk is inherent in all investing. Therefore, before
investing in the Preferred Shares you should consider
certain risks carefully. The primary risks of
investing in the Preferred Shares are:
o if an auction fails you may not be able to sell
some or all of your shares;
o because of the nature of the market for Preferred
Shares, you may receive less than the price you
paid for your shares if you sell them outside of
the auction, especially when market interest
rates are rising;
o a rating agency could downgrade the rating
assigned to the Preferred Shares, which could
affect liquidity;
o the Trust may be forced to redeem your shares to
meet regulatory or rating agency requirements or
may voluntarily redeem your shares in certain
circumstances;
o in extraordinary circumstances, the Trust may not
earn sufficient income from its investments to
pay dividends;
o if interest rates rise, the value of the Trust's
investment portfolio will decline, reducing the
asset coverage for the Preferred Shares;
o if an issuer of a municipal bond in which the
Trust invests experiences financial difficulty or
defaults, there may be a negative impact on the
income and net asset value of the Trust's
portfolio; and
o the Trust may invest up to 20% of its total
assets in securities that are below investment
grade quality which are regarded as having
predominately speculative characteristics with
respect to the issuer's capacity to pay interest
and principal.
o The Trust is a non-diversified management
investment company and therefore, may be more
susceptible to any single economic, political or
regulatory occurrence.
o Because the Trust invests primarily in New Jersey
municipal securities, the Trust is more
susceptible to political, economic, regulatory or
other factors affecting issuers of New Jersey
municipal securities than a Trust that does not
limit its investments to such issuers. Through
popular initiative and legislative activity, the
ability of the State of New Jersey and its local
governments to raise money through property taxes
and to increase spending has been the subject of
considerable debate and change in recent years.
For a discussion of economic and other
considerations in New Jersey, see "The Trust's
Investments - Municipal Bonds - Economic and
Other Considerations in New Jersey."
For additional risks of investing in the Trust, see
"Risks" below.
Trading Market............................... Preferred Shares are not listed on an exchange.
Instead, you may buy or sell the Preferred Shares at
an auction that normally is held weekly, by
submitting orders to a broker-dealer that has entered
into an agreement with the auction agent and the
Trust (a "Broker-Dealer "), or to a broker-dealer
that has entered into a separate agreement with a
Broker-Dealer. In addition to the auctions,
Broker-Dealers and other broker-dealers may maintain
a secondary trading market in Preferred Shares
outside of auctions, but may discontinue this
activity at any time. There is no assurance that a
secondary market will provide shareholders with
liquidity. You may transfer shares outside of
auctions only to or through a Broker-Dealer or a
broker-dealer that has entered into a separate
agreement with a Broker-Dealer.
The first auction date for the Preferred Shares will
be , the business day before the dividend payment
date for the initial rate period for the Preferred
Shares. Each subsequent auction for the Preferred
Shares will normally be held on . The start date for
subsequent rate periods will normally be the business
day following the auction date unless the
then-current rate period as a special rate period or
the first day of the subsequent rate period is not a
business day.
Dividends and Rate Periods................... The dividend rate for the initial rate period on the
Preferred Shares offered in this prospectus will be
%. For subsequent rate periods, the Preferred Shares
will pay dividends based on a rate set at auctions,
normally held weekly. In most instances, dividends
are also paid weekly, on the day following the end of
the rate period. The rate set at auction will not
exceed the maximum applicable rate. See "Description
of Preferred Shares - Dividends and Dividend
Periods."
Dividends on the Preferred Shares will accumulate at
the initial rate from , 2002. The dividend payment
date for the initial rate period will be , 2002.
Dividends will normally be paid on . If the day on
which dividends otherwise would be paid is not a
business day, then your dividends will be paid on the
first business day that falls after that day.
The initial rate period for the Preferred Shares will
be days. Subsequent rate periods generally will be
seven days. The dividend payment date for special
rate periods of more than seven days will be set out
in the notice designating a special rate period. See
"Description of Preferred Shares - Dividends and
Dividend Periods - Designation of Special Dividend
Periods."
* All Dates are 2002.
Special Tax Considerations................... Because under normal circumstances the Trust will
invest substantially all of its assets in municipal
bonds that pay interest that is exempt from regular
Federal income tax and New Jersey gross income tax,
the income you receive will ordinarily be exempt from
Federal income tax and New Jersey gross income tax.
Your income may be subject to state and local taxes.
All or a portion of the income from these bonds may
be subject to the Federal alternative minimum tax, so
Preferred Shares may not be a suitable investment if
you are subject to this tax or would become subject
to such tax by investing in Preferred Shares. Taxable
income or gain earned by the Trust will be allocated
proportionately to holders of Preferred Shares and
common shares, based on the percentage of total
dividends paid to each class for that year.
Accordingly, certain specified Preferred Shares
dividends may be subject to income tax on income or
gains attributed to the Trust. The Trust may at its
election give notice before any applicable auction of
the amount of any taxable income and gain included in
a dividend to be distributed for the period relating
to that auction. If the Trust does not give advance
notice whether or not by reason of the fact that a
taxable allocation was made retroactively as a result
of a redemption of all or part of the Preferred
Shares or the liquidation of the Trust, the Trust
will be required to pay additional amounts to holders
of Preferred Shares in order to offset the Federal
income tax effect of the taxable income so allocated.
See "Tax Matters" and "Description of Preferred
Shares--Dividends and Dividend Periods."
Ratings...................................... The Preferred Shares are expected to be issued with a
rating of "Aaa" from Moody's and "AAA" from S&P. In
order to maintain this rating, the Trust must own
portfolio securities of a sufficient value and with
adequate credit quality to meet the rating agencies'
guidelines. See "Description of Preferred
Shares--Rating Agency Guidelines and Asset Coverage."
Redemption................................... The Trust may be required to redeem shares if, for
example, the Trust does not meet an asset coverage
ratio required by law or to correct a failure to meet
a rating agency guideline in a timely manner. The
Trust voluntarily may redeem Preferred Shares under
certain conditions. See "Description of Preferred
Shares--Redemption" and "Description of Preferred
Shares--Rating Agency Guidelines and Asset Coverage."
Liquidation Preference....................... The liquidation preference for the Preferred Shares
will be $25,000 per share plus accumulated but unpaid
dividends. See "Description of Preferred
Shares--Liquidation."
Voting Rights................................ The holders of preferred shares, including Preferred
Shares, voting as a separate class, have the right to
elect at least two trustees of the Trust at all
times. Such holders also have the right to elect a
majority of the trustees in the event that two years'
dividends on the preferred shares are unpaid. In each
case, the remaining trustees will be elected by
holders of common shares and preferred shares,
including Preferred Shares, voting together as a
single class. The holders of preferred shares,
including Preferred Shares, will vote as a separate
class or classes on certain other matters as required
under the Trust's Agreement and Declaration of Trust,
the Investment Company Act of 1940 (the "Investment
Company Act ") and Delaware law. See "Description of
Preferred Shares--Voting Rights," and "Certain
Provisions in the Agreement and Declaration of
Trust."
FINANCIAL HIGHLIGHTS (Unaudited)
Information contained in the table below shows the unaudited
operating performance of the Trust from the commencement of the Trust's
investment operations on , 2002 through , 2002. Since the Trust was
recently organized and commenced investment operations on , 2002, the table
covers less than six weeks of operations, during which a substantial
portion of the Trust's portfolio was held in temporary investments pending
investment in municipal securities that meet the Trust's investment
objectives and policies. Accordingly, the information presented may not
provide a meaningful picture of the Trust's future operating performance.
For the Period
April 30, 2002(1)
Through
May , 2002
Per Common Share Operating Performance:
Net asset value, beginning of period(2)....................... $
-------------
Net investment income.......................................
Net unrealized gain on investments..........................
Net increase from investment operations.....................
Capital charge with respect to issuance of common shares.........
Net asset value, end of period(2).................................. $
=============
Market value, end of period(2)..................................... $
=============
Total Investment Return(4).........................................
Ratios To Average Net Assets Of Common Shareholders:
Expenses after fee waiver...................................
Expenses before fee waiver..................................
Net investment income after fee waiver......................
Net investment income before fee waiver.....................
Supplemental Data:
Average net assets of common shareholders (000)............. $
Portfolio turnover..........................................
Net assets of common shareholders, end of period (000)...... $
(1) Commencement of investment operations.
(2) Net asset value and market value are published in Barron's on Saturday
and The Wall Street Journal on Monday.
(3) Net asset value immediately after the closing of the first public
offering was $ .
(4) Total investment return is calculated assuming a purchase of common
shares at the current market price on the first day and a sale at the
current market price on the last day of the period reported. Total
investment return does reflect brokerage commissions. Total investment
returns for less than a full year are not annualized. Past performance
is not a guarantee of future results.
(5) Annualized
The information above represents the unaudited operation performance
for a common share outstanding, total investment return, ratios to average
net assets and other supplemental data for the periods indicated. This
information has been determined based upon financial information provided
in the financial statements and market value data for the Trust's common
shares.
THE TRUST
The Trust is a recently organized, non-diversified, closed-end,
management investment company registered under the Investment Company Act.
The Trust was organized as a Delaware business trust on March 14, 2002
pursuant to an Agreement and Declaration of Trust, governed by the laws of
the State of Delaware. On April 30, 2002, the Trust issued an aggregate of
2,000,000 common shares of beneficial interest, par value $.001 per share,
pursuant to the initial public offering and commenced its investment
operations. The Trust's common shares are traded on the American Stock
Exchange under the symbol "BLJ". The Trust is designed to provide tax
benefits to investors who are residents of New Jersey for tax purposes. The
Trust's principal office is located at 100 Bellevue Parkway, Wilmington,
Delaware 19809, and its telephone number is (888) 825-2257.
The following provides information about the Trust's outstanding
shares as of , 2002:
Amount held by
Amount the Trust or for Amount
Title of Class Authorized its Account Outstanding
-------------- ---------- ----------- -----------
Common Shares Unlimited 0
Preferred Shares Unlimited 0
Series
USE OF PROCEEDS
The net proceeds of this offering will be approximately $ after
payment of the sales load and estimated offering costs. The Trust will
invest the net proceeds of the offering in accordance with the Trust's
investment objective and policies as stated below. We currently anticipate
that the Trust will be able to invest primarily in tax exempt municipal
bonds that meet the Trust's investment objective and policies within six to
eight weeks after the completion of the offering. Pending such investment,
it is anticipated that the proceeds will be invested in short-term,
tax-exempt or taxable investment grade securities.
CAPITALIZATION (Unaudited)
The following table sets forth the capitalization of the Trust as of ,
2002, and as adjusted to give effect to the issuance of the Preferred
Shares offered hereby.
Actual As Adjusted
Shareholder's Equity
Preferred Shares, $.001 par value, $25,000 stated value per share,
at liquidation value; unlimited shares authorized (no shares
issued; shares issued, as adjusted) $
Common shares, $.001 par value per share; unlimited shares authorized,
shares outstanding*
Paid-in surplus
Balance of undistributed net investment income
Accumulated net realized gain/loss from investment transactions
Net unrealized appreciation/depreciation of investments Net assets
* None of these outstanding shares are held by or for the account of the
Trust.
PORTFOLIO COMPOSITION
As of , 2002, approximately % of the market value of the Trust's
portfolio was invested in long-term municipal securities and approximately
% of the market value of the Trust's portfolio was invested in short-term
municipal securities. The following table sets forth certain information
with respect to the composition of the Trust's investment portfolio as of
, 2002, based on the highest rating assigned.
Value
Credit Rating (000) Percent
------------- ----- -------
AAA/Aaa*
AA/Aa
A/A
BBB/Baa
BB/Ba
Unrated+
Short-Term
TOTAL
* Includes securities that are backed by an escrow or trust
containing sufficient U.S. Government Securities to ensure the
timely payment of principal and interest.
+ Refers to securities that have not been rated by Moody's, S&P or
Fitch, but that have been assessed by BlackRock Financial
Management being of comparable credit quality to rated securities
in which the Trust may invest. See "The Trust's
Investments--Investment Objective and Policies."
THE TRUST'S INVESTMENTS
Investment Objective and Policies
The Trust's investment objective is to provide current income
exempt from regular Federal income tax and New Jersey gross income tax.
The Trust will invest primarily in municipal bonds that pay
interest that is exempt from regular Federal income tax and New Jersey
gross income tax. Under normal market conditions, the Trust expects to be
fully invested in such tax-exempt municipal bonds. Under normal market
conditions, the Trust will invest at least 80% of its Managed Assets in
investment grade quality municipal bonds. Investment grade quality means
that such bonds are rated, at the time of investment, within the four
highest grades (Baa or BBB or better by Moody's, S&P or Fitch) or are
unrated but judged to be of comparable quality by BlackRock. Municipal
bonds rated Baa by Moody's are investment grade, but Moody's considers
municipal bonds rated Baa to have speculative characteristics. Changes in
economic conditions or other circumstances are more likely to lead to a
weakened capacity for municipal bonds that are rated BBB or Baa (or that
have equivalent ratings) to make principal and interest payments than is
the case for issues of higher grade municipal bonds. The Trust may invest
up to 20% of its Managed Assets in municipal bonds that are rated, at the
time of investment, Ba/BB or B by Moody's, S&P or Fitch or that are unrated
but judged to be of comparable quality by BlackRock. Bonds of below
investment grade quality (Ba/BB or below) are commonly referred to as "junk
bonds." Bonds of below investment grade quality are regarded as having
predominantly speculative characteristics with respect to the issuer's
capacity to pay interest and repay principal. These credit quality policies
apply only at the time a security is purchased, and the Trust is not
required to dispose of a security if a rating agency downgrades its
assessment of the credit characteristics of a particular issue. In
determining whether to retain or sell a security that a rating agency has
downgraded, BlackRock may consider such factors as BlackRock's assessment
of the credit quality of the issuer of the security, the price at which the
security could be sold and the rating, if any, assigned to the security by
other rating agencies. Appendix B to the Statement of Additional
Information contains a general description of Moody's, S&P's and Fitch's
ratings of municipal bonds. See "Risks" below for a general description of
the economic and credit characteristics of municipal issuers in New Jersey.
The Trust may also invest in securities of other open- or closed-end
investment companies that invest primarily in municipal bonds of the types
in which the Trust may invest directly and in tax-exempt preferred shares
that pay dividends exempt from regular Federal income tax. See "--Other
Investment Companies," and "--Tax-Exempt Preferred Shares." Subject to the
Trust's policy of investing at least 80% of its Managed Assets in exempt
from New Jersey gross income tax, the Trust may invest in securities that
pay interest that is not exempt from New Jersey gross income tax when, in
the judgment of BlackRock, the return to the shareholders after payment of
applicable New Jersey gross income tax would be higher than the return
available from comparable securities that pay interest that is, or make
other distributions that are, exempt from New Jersey gross income tax.
The Trust will invest in municipal bonds that, in BlackRock's
opinion, are underrated or undervalued. Underrated municipal bonds are
those whose ratings do not, in BlackRock's opinion, reflect their true
creditworthiness. Undervalued municipal bonds are bonds that, in the
opinion of BlackRock, are worth more than the value assigned to them in the
marketplace. BlackRock may at times believe that bonds associated with a
particular municipal market sector (for example, but not limited to,
electrical utilities), or issued by a particular municipal issuer, are
undervalued. BlackRock may purchase those bonds for the Trust's portfolio
because they represent a market sector or issuer that BlackRock considers
undervalued, even if the value of those particular bonds appears to be
consistent with the value of similar bonds. Municipal bonds of particular
types (for example, but not limited to hospital bonds, industrial revenue
bonds or bonds issued by a particular municipal issuer) may be undervalued
because there is a temporary excess of supply in that market sector, or
because of a general decline in the market price of municipal bonds of the
market sector for reasons that do not apply to the particular municipal
bonds that are considered undervalued. The Trust's investment in underrated
or undervalued municipal bonds will be based on BlackRock's belief that
their yield is higher than that available on bonds bearing equivalent
levels of interest rate risk, credit risk and other forms of risk, and that
their prices will ultimately rise, relative to the market, to reflect their
true value. Any capital appreciation realized by the Trust will generally
result in capital gains distributions subject to Federal capital gains
taxation.
The Trust may purchase municipal bonds that are additionally
secured by insurance, bank credit agreements or escrow accounts. The credit
quality of companies which provide these credit enhancements will affect
the value of those securities. Although the insurance feature reduces
certain financial risks, the premiums for insurance and the higher market
price paid for insured obligations may reduce the Trust's income. Insurance
generally will be obtained from insurers with a claims-paying ability rated
Aaa by Moody's or AAA by S&P or Fitch. The insurance feature does not
guarantee the market value of the insured obligations or the net asset
value of the common shares. The Trust may purchase insured bonds and may
purchase insurance for bonds in its portfolio.
During temporary defensive periods, including the period during
which the net proceeds of this offering are being invested, and in order to
keep the Trust's cash fully invested, the Trust may invest up to 100% of
its net assets in liquid, short-term investments, including high quality,
short-term securities that may be either tax-exempt or taxable. The Trust
may not achieve its investment objective under these circumstances. The
Trust intends to invest in taxable short-term investments only if suitable
tax-exempt short-term investments are not available at reasonable prices
and yields. If the Trust invests in taxable short term investments a
portion of your dividends would be subject to regular Federal income tax
and New Jersey gross income tax.
The Trust cannot change its investment objective without the
approval of the holders of a majority of the outstanding common shares and
the Preferred Shares voting together as a single class, and of the holders
of a majority of the outstanding Preferred Shares voting as a separate
class. A "majority of the outstanding" means (1) 67% or more of the shares
present at a meeting, if the holders of more than 50% of the shares are
present or represented by proxy, or (2) more than 50% of the shares,
whichever is less. See "Description of Preferred Shares--Voting Rights" for
additional information with respect to the voting rights of holders of
Preferred Shares.
Municipal Bonds
General. Municipal bonds are either general obligation or revenue
bonds and typically are issued to finance public projects, such as roads or
public buildings, to pay general operating expenses or to refinance
outstanding debt. Municipal bonds may also be issued for private
activities, such as housing, medical and educational facility construction
or for privately owned industrial development and pollution control
projects. General obligation bonds are backed by the full faith and credit,
or taxing authority, of the issuer and may be repaid from any revenue
source. Revenue bonds may be repaid only from the revenues of a specific
facility or source. The Trust also may purchase municipal bonds that
represent lease obligations. These carry special risks because the issuer
of the bonds may not be obligated to appropriate money annually to make
payments under the lease. In order to reduce this risk, the Trust will only
purchase municipal bonds representing lease obligations where BlackRock
believes the issuer has a strong incentive to continue making
appropriations until maturity.
The municipal bonds in which the Trust will invest pay interest
that, in the opinion of bond counsel to the issuer, or on the basis of
another authority believed by BlackRock to be reliable, is exempt from
regular Federal income tax and New Jersey gross income tax. BlackRock will
not conduct its own analysis of the tax status of the interest paid by
municipal bonds held by the Trust. The Trust may also invest in municipal
bonds issued by United States Territories (such as Puerto Rico or Guam)
that are exempt from regular Federal income tax and New Jersey gross income
tax. In addition to the types of municipal bonds described in the
prospectus, the Trust may invest in other securities that pay interest that
is, or make other distributions that are, exempt from regular Federal
income tax and/or state and local personal taxes, regardless of the
technical structure of the issuer of the instrument. The Trust treats all
of such tax-exempt securities as municipal bonds.
The yields on municipal bonds are dependent on a variety of
factors, including prevailing interest rates and the condition of the
general money market and the municipal bond market, the size of a
particular offering, the maturity of the obligation and the rating of the
issue. The market value of municipal bonds will vary with changes in
interest rate levels and as a result of changing evaluations of the ability
of bond issuers to meet interest and principal payments.
The Trust will invest primarily in municipal bonds with long-term
maturities in order to maintain a weighted average maturity of 15 or more
years, but the weighted average maturity of obligations held by the Trust
may be shortened, depending on market conditions.
Economic and Other Considerations in New Jersey. Except during
defensive periods, the Trust invests primarily in New Jersey municipal
obligations which are municipal securities, the interest on which, in the
opinion of bond counsel or other counsel to the issuers of such securities,
is, at the time of issuance, exempt from Federal and New Jersey gross
income taxes. Because the Trust invests primarily in New Jersey municipal
securities, the Trust is more susceptible to political, economic,
regulatory or other factors affecting issuers of New Jersey municipal
securities 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 securities. Economic, fiscal and
budgetary conditions throughout the state may also influence the Trust's
performance.
The following information is a summary of a more detailed
description of certain factors affecting New Jersey municipal securities
which is contained in the Trust's 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 New Jersey
published in connection with the issuance of specific New Jersey municipal
securities, as well as from other publicly available documents. Such
information has not been independently verified by the Trust and may not
apply to all New Jersey municipal securities acquired by the Trust. The
Trust 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 Trust cannot predict whether or to what extent such
factors or other factors may affect the issuers of New Jersey municipal
obligations, the market value or marketability of such obligations or the
ability of the respective issuers of such obligations acquired by the Trust
to pay interest on or principal of such obligations. The creditworthiness
of obligations issued by local New Jersey issuers may be unrelated to the
creditworthiness of obligations issued by the State of New Jersey, and
there is no responsibility on the part of the State of New Jersey 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 New Jersey and it is possible the Trust will 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 New Jersey municipal obligations.
The State of New Jersey benefits from a diverse economic base
which includes such factors as the State's proximity to New York and
Pennsylvania, extensive highway system, large white-collar labor force,
growing pharmaceutical industry, and various commercial and industrial
firms having headquarters and regional offices located within its borders.
The State's economic indicators at the end of 2000 showed an
employment decrease of 1.4%, personal income growth of 3.8%, construction
growth of 7.5%, sales growth of existing homes decreasing by 4%, and
unemployment rate decreasing to 3.8%. New Jersey's per capita income of
$36,983 in 2000 represented the third highest ranking for all states in the
nation. Although preliminary 2001 economic data indicated that the State's
average unemployment rate rose to 4.3%, the rate represented the lowest
annual average for the State since 1989, excluding 2000. Also, December of
2001 marked the twenty-fifth consecutive month that the State's
unemployment rate remained at or below the national average. Third quarter
personal income for 2001 increased 4.5% from the State's 2000 personal
income.
The State ended Fiscal Year 2001 with a balance of $3.21 billion
in its General Fund. For Fiscal 2002, New Jersey anticipates a revenue
shortfall of $2.9 billion. Cost savings and revenue generating measures are
being effectuated to close the gap, including enacting a State tax amnesty
program expected to generate an estimated $150 million, reducing
governmental agencies' operating costs by 5%, and freezing new
appropriations.
At the end of Fiscal 2000, New Jersey had approximately $14.5
billion in outstanding indebtedness, consisting of approximately $3.8
billion of general obligation bonds and $10.7 billion of
appropriation-backed debt obligations. Projects supported by general
obligation bonds are of economic, social and environmental importance,
including the construction of correctional and human services facilities,
transportation projects, and higher education improvements. The
appropriation backed debt obligations of the State included the 1997 New
Jersey Economic Development Authority's issuance of $2.75 billion of State
Pension Funding Bonds, the proceeds of which were used to fully fund the
State's unfunded accrued pension liability. As of the end of Fiscal 2000,
the State's debt ratio remained moderate at $1,755 per capita or 4.9% of
personal income and 4.5% of operating fund appropriations.
New Jersey state and local government obligations may be adversely
affected by political and economic conditions and developments within the
State of New Jersey and the nation as a whole. (For more information, see
"Investment Policies and Techniques--Factors Pertaining to New Jersey" in
the Statement of Additional Information.)
When-Issued and Forward Commitment Securities
The Trust may buy and sell municipal bonds on a when-issued basis
and may purchase or sell municipal bonds on a "forward commitment" basis.
When such transactions are negotiated, the price, which is generally
expressed in yield terms, is fixed at the time the commitment is made, but
delivery and payment for the securities takes place at a later date. This
type of transaction may involve an element of risk because no interest
accrues on the bonds prior to settlement and, because bonds are subject to
market fluctuations, the value of the bonds at the time of delivery may be
less or more than cost. The Trust will designated on its books and records
cash, or other liquid debt securities having a market value at all times,
at least equal to the amount of the commitment.
Other Investment Companies
The Trust may invest up to 10% of its total assets in securities
of other open- or closed-end investment companies that invest primarily in
municipal bonds of the types in which the Trust may invest directly. The
Trust generally expects to invest in other investment companies either
during periods when it has large amounts of uninvested cash, such as the
period shortly after the Trust receives the proceeds of the offering of its
Preferred Shares, or during periods when there is a shortage of attractive,
high-yielding municipal bonds available in the market. As a shareholder in
an investment company, the Trust will bear its ratable share of that
investment company's expenses, and will remain subject to payment of the
Trust's advisory and other fees and expenses with respect to assets so
invested. Holders of Preferred Shares will therefore be subject to
duplicative expenses to the extent the Trust invests in other investment
companies. BlackRock will take expenses into account when evaluating the
investment merits of an investment in an investment company relative to
available municipal bond investments. In addition, the securities of other
investment companies may also be leveraged and will therefore be subject to
the same leverage risks to which the Trust is subject. The net asset value
and market value of leveraged shares will be more volatile and the yield to
shareholders will tend to fluctuate more than the yield generated by
unleveraged shares. Investment companies may have investment policies that
differ from those of the Trust. In addition, to the extent the Trust
invests in other investment companies, the Trust will be dependent upon the
investment and research abilities of persons other than BlackRock. The
Trust treats its investments in such open- or closed-end investment
companies as investments in municipal bonds.
Tax-Exempt Preferred Shares
The Trust may also invest up to 10% of its total assets in
preferred interests of other investment funds that pay dividends that are
exempt from regular Federal income tax. A portion of such dividends may be
capital gain distributions subject to Federal capital gains tax. Such funds
in turn invest in municipal bonds and other assets that generally pay
interest or make distributions that are exempt from regular Federal income
tax, such as revenue bonds issued by state or local agencies to fund the
development of low-income, multi-family housing. Investment in such
tax-exempt preferred shares involves many of the same issues as investing
in other open- or closed-end investment companies as discussed above. These
investments also have additional risks, including liquidity risk, the
absence of regulation governing investment practices, capital structure and
leverage, affiliated transactions and other matters, and concentration of
investments in particular issuers or industries. Revenue bonds issued by
state or local agencies to finance the development of low-income,
multi-family housing involve special risks in addition to those associated
with municipal bonds generally, including that the underlying properties
may not generate sufficient income to pay expenses and interest costs. Such
bonds are generally non-recourse against the property owner, may be junior
to the rights of others with an interest in the properties, may pay
interest that changes based in part on the financial performance of the
property, may be prepayable without penalty and may be used to finance the
construction of housing developments which, until completed and rented, do
not generate income to pay interest. Increases in interest rates payable on
senior obligations may make it more difficult for issuers to meet payment
obligations on subordinated bonds. The Trust will treat investments in
tax-exempt preferred shares as investments in municipal bonds.
High Yield Securities
The Trust may invest up to 20% of its Managed Assets in securities
rated below investment grade such as those rated Ba or B by Moody's and BB
or B by S&P or securities comparably rated by other rating agencies or in
unrated securities determined by BlackRock to be of comparable quality.
These lower grade securities are commonly known as "junk bonds." Securities
rated below investment grade are judged to have speculative characteristics
with respect to their interest and principal payments. Such securities may
face 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.
Lower grade securities, though high yielding, are characterized by
high risk. They may be subject to certain risk with respect to the issuing
entity and to greater market fluctuations than certain lower yielding,
higher rated securities. The retail secondary market for lower grade
securities may be less liquid than that of higher rated securities; adverse
conditions could make it difficult at times for the Trust to sell certain
of these securities or could result in lower prices than those used in
calculating the Trust's net asset value.
RISKS
Risk is inherent in all investing. Investing in any investment
company security involves risk, including the risk that you may receive
little or no return on your investment or that you may lose part or all of
your investment. Therefore, before investing you should consider carefully
the following risks that you assume when you invest in Preferred Shares.
Recently Organized
The Trust is a recently organized, non-diversified, closed-end
management investment company and has a limited operating history.
Interest Rate Risk
Interest rate risk is the risk that bonds, and the Trust's net
assets, will decline in value because of changes in interest rates.
Generally, municipal bonds will decrease in value when interest rates rise
and increase in value when interest rates decline. The Trust issues
Preferred Shares, which pay dividends based on short-term interest rates.
The Trust then uses the proceeds from the sale of Preferred Shares to buy
municipal bonds, which pay interest based on long-term rates. Both
long-term and short-term interest rates may fluctuate. If short term
interest rates rise, the Preferred Shares dividend rates may rise so that
the amount of dividends paid to holders of Preferred Shares exceeds the
income from the portfolio securities purchased with the proceeds from the
sale of Preferred Shares. Because income from the Trust's entire investment
portfolio (not just the portion of the portfolio purchased with the
proceeds of the Preferred Shares offering) is available to pay Preferred
Share dividends, however, Preferred Share dividend rates would need to
greatly exceed the yield on the Trust's portfolio before the Trust's
ability to pay Preferred Share dividends would be impaired. If long-term
rates rise, the value of the Trust's investment portfolio will decline,
reducing the amount of assets serving as asset coverage for the Preferred
Shares.
Auction Risk
The dividend rate for the Preferred Shares normally is set through
an auction process. In the auction, holders of Preferred Shares may
indicate the dividend rate at which they would be willing to hold or sell
their Preferred Shares or purchase additional Preferred Shares. The auction
also provides liquidity for the sale of Preferred Shares. An auction fails
if there are more Preferred Shares offered for sale than there are buyers.
You may not be able to sell your Preferred Shares at an auction if the
auction fails. Also, if you place hold orders (orders to retain Preferred
Shares) at an auction only at a specified dividend rate, and that rate
exceeds the rate set at the auction, you will not retain your Preferred
Shares. Finally, if you buy shares or elect to retain shares without
specifying a dividend rate below which you would not wish to buy or
continue to hold those shares, you could receive a lower rate of return on
your shares than the market rate. See "Description of Preferred Shares" and
"The Auction--Auction Procedures."
Secondary Market Risk
If you try to sell your Preferred Shares between auctions you may
not be able to sell any or all of your shares or you may not be able to
sell them for $25,000 per share or $25,000 per share plus accumulated
dividends. If the Trust has designated a special rate period (a rate period
of more than seven days), changes in interest rates could affect the price
you would receive if you sold your shares in the secondary market.
Broker-dealers that maintain a secondary trading market for Preferred
Shares are not required to maintain this market, and the Trust is not
required to redeem shares either if an auction or an attempted secondary
market sale fails because of a lack of buyers. Preferred Shares are not
listed on a stock exchange or the NASDAQ stock market. If you sell your
Preferred Shares to a broker-dealer between auctions, you may receive less
than the price you paid for them, especially if market interest rates have
risen since the last auction.
Ratings and Asset Coverage Risk
It is expected that while Moody's will assign a rating of "Aaa" to
the Preferred Shares and S&P will assign a rating of "AAA" to the Preferred
Shares, such ratings do not eliminate or necessarily mitigate the risks of
investing in Preferred Shares. Moody's or S&P could downgrade Preferred
Shares, which may make your shares less liquid at an auction or in the
secondary market. If Moody's or S&P downgrades Preferred Shares, the Trust
may alter its portfolio or redeem Preferred Shares in an effort to improve
the rating, although there is no assurance that it will be able to do so to
the extent necessary to restore the prior rating. The Trust may voluntarily
redeem Preferred Shares under certain circumstances. See "Description of
Preferred Shares--Rating Agency Guidelines and Asset Coverage" for a
description of the asset maintenance tests the Trust must meet.
Credit Risk
Credit risk is the risk that an issuer of a municipal bond will
become unable to meet its obligation to make interest and principal
payments. In general, lower rated municipal bonds carry a greater degree of
risk that the issuer will lose its ability to make interest and principal
payments, which could have a negative impact on the Trust's net asset value
or dividends. The Trust may invest up to 20% of its Managed Assets in
municipal bonds that are rated Ba/BB or B by Moody's, S&P or Fitch or that
are unrated but judged to be of comparable quality by BlackRock. Bonds
rated Ba/BB or B are regarded as having predominately speculative
characteristics with respect to the issuer's capacity to pay interest and
repay principal, and these bonds are commonly referred to as junk bonds.
These securities are subject to a greater risk of default. The prices of
these lower grade bonds are more sensitive to negative developments, such
as a decline in the issuer's revenues or a general economic downturn, than
are the prices of higher grade securities. Lower grade securities tend to
be less liquid than investment grade securities. The market values of lower
grade securities tend to be more volatile than investment grade securities.
State Concentration Risk
Because the Trust primarily purchases municipal bonds issued by
the State of New Jersey or county or local government municipalities or
their agencies, districts, political subdivisions or other entities,
shareholders may be exposed to additional risks. In particular, the Trust
is susceptible to political, economic or regulatory factors affecting
issuers of New Jersey municipal bonds. There can be no assurance that New
Jersey will not experience a decline in economic conditions or that the New
Jersey municipal bonds purchased by the Trust will not be affected by such
a decline.
For a discussion of economic and other considerations in New
Jersey, see "The Trust's Investments-- Municipal Bonds--Economic and Other
Considerations in New Jersey."
Municipal Bond Market Risk
Investing in the municipal bond market involves certain risks. The
amount of public information available about the municipal bonds in the
Trust's portfolio is generally less than that for corporate equities or
bonds, and the investment performance of the Trust may therefore be more
dependent on the analytical abilities of BlackRock than would be a stock
fund or taxable bond fund. The secondary market for municipal bonds,
particularly the below investment grade bonds in which the Trust may
invest, also tends to be less well-developed or liquid than many other
securities markets, which may adversely affect the Trust's ability to sell
its bonds at attractive prices.
The ability of municipal issuers to make timely payments of
interest and principal may be diminished in general economic downturns and
as governmental cost burdens are reallocated among Federal, state and local
governments. In addition, laws enacted in the future by Congress or state
legislatures or referenda could extend the time for payment of principal
and/or interest, or impose other constraints on enforcement of such
obligations or on the ability of municipalities to levy taxes. Issuers of
municipal bonds might seek protection under the bankruptcy laws. In the
event of bankruptcy of such an issuer, the Trust could experience delays in
collecting principal and interest and the Trust may not, in all
circumstances, be able to collect all principal and interest to which it is
entitled. To enforce its rights in the event of a default in the payment of
interest or repayment of principal, or both, the Trust may take possession
of and manage the assets securing the issuer's obligations on such
securities, which may increase the Trust's operating expenses. Any income
derived from the Trust's ownership or operation of such assets may not be
tax-exempt.
Reinvestment Risk
Reinvestment risk is the risk that income from the Trust's bond
portfolio will decline if and when the Trust invests the proceeds from
matured, traded, prepaid or called bonds at market interest rates that are
below the portfolio's current earnings rate. A decline in income could
affect the Trust's ability to pay dividends on the Preferred Shares.
Inflation Risk
Inflation risk is the risk that the value of assets or income from
investment will be worth less in the future as inflation decreases the
value of money. As inflation increases, the real value of the Preferred
Shares and distributions on those shares can decline. In an inflationary
period, however, it is expected that, through the auction process, dividend
rates on the Preferred Shares would increase, tending to offset this risk.
Economic Sector and Geographic Risk
The Trust may invest 25% or more of its Managed Assets in
municipal obligations in the same economic sector, including without
limitation the following: lease rental obligations of state and local
authorities; obligations dependent on annual appropriations by a state's
legislature for payment; obligations of state and local housing finance
authorities; municipal utilities systems or public housing authorities;
obligations of hospitals or life care facilities; and industrial
development or pollution control bonds issued for electrical utility
systems, steel companies, paper companies or other purposes. This may make
the Trust more susceptible to adverse economic, political or regulatory
occurrences affecting a particular state or economic sector. For example,
health care related issuers are susceptible to Medicare, Medicaid and other
third party payor reimbursement policies, and national and state health
care legislation. As concentration increases, so does the potential for
fluctuation in the net asset value of the Trust's assets.
High Yield Risk
Investing in high yield bonds involves additional risks, including
credit risk. The value of high yield, lower quality bonds is affected by
the creditworthiness of the issuers of the securities and by general
economic and specific industry conditions. Issuers of high yield bonds are
not as strong financially as those with higher credit ratings, so their
bonds are usually considered speculative investments. These issuers are
more vulnerable to financial setbacks and recession than more creditworthy
issuers which may impair their ability to make interest and principal
payments. Investments in lower grade securities will expose the Trust to
greater risks than if the Trust owned only higher grade securities.
Non-Diversification.
The Trust has registered as a "non-diversified" investment company
under the Investment Company Act. For Federal income tax purposes, the
Trust, with respect to up to 50% of its total assets, will be able to
invest more than 5% (but not, with respect to securities other than United
States government securities and securities of other regulated investment
companies, more than 25%) of the value of its total assets in the
obligations of any single issuer. To the extent the Trust invests a
relatively high percentage of its assets in the obligations of a limited
number of issuers, the Trust may be more susceptible than a more widely
diversified investment company to any single economic, political or
regulatory occurrence.
MANAGEMENT OF THE TRUST
Trustees and Officers
The board of trustees is responsible for the overall management of
the Trust, including supervision of the duties performed by BlackRock.
There are eight trustees of the Trust. Two of the trustees are "interested
persons" (as defined in the Investment Company Act). The name and business
address of the trustees and officers of the Trust and their principal
occupations and other affiliations during the past five years are set forth
under "Management of the Trust" in the Statement of Additional Information.
Investment Advisor and Sub-Advisor
BlackRock Advisors act as the Trust's investment advisor.
BlackRock Financial Management acts as the Trust's sub-advisor. BlackRock
Advisors, located at 100 Bellevue Parkway, Wilmington, Delaware 19809, and
BlackRock Financial Management, located at 40 East 52nd Street, New York,
New York 10022, are wholly owned subsidiaries of B1ackRock, Inc., which is
one of the largest publicly traded investment management firms in the
United States with approximately $238 billion of assets under management as
of March 31, 2002. B1ackRock manages assets on behalf of institutional and
individual investors worldwide through a variety of equity, fixed income,
liquidity and alternative investment separate accounts and mutual funds,
including BlackRock Funds and BlackRock Provident Institutional Funds. In
addition, BlackRock provides risk management advice and investment system
services to institutional investors under the BlackRock Solutions name.
The BlackRock organization has over 13 years of experience
managing closed-end products and advised a closed-end family of 30 funds
with approximately $8.6 billion in assets as of March 31, 2002. BlackRock
has 21 leveraged municipal closed-end funds and six open-end municipal
funds under management and approximately $17 billion in municipal assets
firm wide. Clients are served from the company's headquarters in New York
City, as well as offices in Wilmington, San Francisco, Boston, Edinburgh,
Tokyo and Hong Kong. BIackRock, Inc. is a member of The PNC Financial
Services Group, Inc. ("PNC"), one of the largest diversified financial
services organizations in the United States, and is majority-owned by PNC
and by BlackRock employees.
Investment Philosophy. B1ackRock's investment decision-making
process for the municipal bond sector is subject to the same discipline,
oversight and investment philosophy that the firm applies to other sectors
of the fixed income market.
BlackRock uses a relative value strategy that evaluates the
trade-off between risk and return to seek to achieve the Trust's investment
objective of generating current income exempt from Federal income tax and
New Jersey gross income tax. This strategy is combined with disciplined
risk control techniques and applied in sector, sub-sector and individual
security selection decisions. BlackRock's extensive personnel and
technology resources are the key drivers of the investment philosophy.
B1ackRock's Municipal Bond Team. BlackRock uses a team approach in
managing municipal portfolios. BlackRock believes that this approach offers
substantial benefits over one that is dependent on the market wisdom or
investment expertise of only a few individuals.
B1ackRock's municipal bond team includes four portfolio managers
with an average experience of 17 years and 5 credit research analysts with
an average experience of 13 years. Kevin M. Klingert, senior portfolio
manager and head of municipal bonds at B1ackRock, leads the team, a
position he has held since joining BlackRock in 1991. A Managing Director
since 1996, Mr. Klingert was a Vice President from 1991 through 1993 and a
Director in 1994 and 1995. Mr. Klingert has over 18 years of experience in
the municipal market. Prior to joining BlackRock in 1991, Mr. Klingert was
an Assistant Vice President at Merrill Lynch, Pierce, Fenner & Smith
Incorporated, which he joined in 1985. The portfolio management team also
includes James McGinley, F. Howard Downs and Anthony Pino. Mr. McGinley has
been a portfolio manager and a member of the Investment Strategy Group at
BlackRock since 1999. Prior to joining BlackRock in 1999, Mr. McGinley was
Vice President of Municipal Trading from 1996 to 1999 and Manager of the
Municipal Strategy Group from 1995 to 1999 with Prudential Securities
Incorporated. Mr. McGinley joined Prudential Securities Incorporated in
1993 as an Associate in Municipal Research. F. Howard Downs has been a
portfolio manager since joining BlackRock in 1999. Prior to joining
BlackRock in 1999, Mr. Downs was a Vice President, Institutional Salesman
and Sales Manager from 1990 to 1999 at William E. Simon & Sons Municipal
Securities, Inc. Mr. Downs was one of the original employees of William E.
Simon & Sons Municipal Securities, Inc., founded in 1990, and was
responsible for sales of municipal bonds. Anthony Pino has been a portfolio
manager since joining BlackRock in 1999. Prior to joining B1ackRock in
1999, he was a Brokerage Coordinator at CPI Capital. From 1996 to 1999, Mr.
Pino was an Assistant Vice President and trader in the Municipal Strategy
Group at Prudential Securities Incorporated.
BlackRock's municipal bond portfolio managers are responsible for
over 85 municipal bond portfolios, valued at approximately $12 billion.
Municipal mandates include the management of open and closed-end mutual
funds, municipal-only separate accounts or municipal allocations within
larger institutional mandates. In addition BlackRock manages 13 municipal
liquidity accounts valued at approximately $5.2 billion. The team managed
21 closed-end municipal funds with approximately $5.9 billion in assets as
of March 31, 2002.
BlackRock's Investment Process. BlackRock has in-depth expertise
in the fixed income market. BlackRock applies the same risk-controlled,
active sector rotation style to the management process for all of its fixed
income portfolios. BlackRock believes that it is unique in its integration
of taxable and municipal bond specialists. Both taxable and municipal bond
portfolio managers share the same trading floor and interact frequently for
determining the firm's overall investment strategy. This interaction allows
each portfolio manager to access the combined experience and expertise of
the entire portfolio management group at BlackRock.
BlackRock's portfolio management process emphasizes research and
analysis of specific sectors and securities, not interest rate speculation.
BlackRock believes that market-timing strategies can be highly volatile and
potentially produce inconsistent results. Instead, BlackRock 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.
In the municipal market, BlackRock believes one of the most
important determinants of value is supply and demand. BlackRock's ability
to monitor investor flows and frequency and seasonality of issuance is
helpful in anticipating the supply and demand for sectors. BlackRock
believes that the breadth and expertise of its municipal bond team allow it
to anticipate issuance flows, forecast which sectors are likely to have the
most supply and plan its investment strategy accordingly.
BlackRock also believes that over the long-term, intense credit
analysis will add incremental value and avoid significant relative
performance impairments. The municipal credit team is led by Susan C.
Heide, Ph.D., who has been, since 1999, Managing Director, Head of
Municipal Credit Research and co-chair of BlackRock's Credit Committee.
From 1995 to 1999, Dr. Heide was a Director and Head of Municipal Credit
Research. Dr. Heide specializes in the credit analysis of municipal
securities and as such chairs the monthly municipal bond presentation to
the Credit Committee. In addition, Dr. Heide supervises the team of
municipal bond analysts that assists with the ongoing surveillance of
approximately $12 billion in municipal bonds managed by BlackRock.
Prior to joining BlackRock as a Vice President and Head of
Municipal Credit Research in 1993, Dr. Heide was Director of Research and a
portfolio manager at OFFITBANK. For eight years prior to this assignment
(1984 to 1992), Dr. Heide was with American Express Company's Investment
Division where she was the Vice President of Credit Research, responsible
for assessing the creditworthiness of $6 billion in municipal securities.
Dr. Heide began her investment career in 1983 at Moody's Investors Service,
Inc. where she was a municipal bond analyst.
Dr. Heide initiated the Disclosure Task Force of the National
Federation of Municipal Analysts in 1988 and was co-chairperson of this
committee from its inception through the completion of the Disclosure
Handbook for Municipal Securities--1992 Update, published in January 1993.
Dr. Heide has authored a number of articles on municipal finance and edited
The Handbook of Municipal Bonds published in the fall of 1994. Dr. Heide
was selected by the Bond Buyer as a first team All-American Municipal
Analyst in 1990 and was recognized in subsequent years.
BlackRock'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 (issuer-specific), bottom-up
detailed credit analysis of issuers and structures. The sector-based
approach focuses on rotating into sectors that are undervalued and exiting
sectors when fundamentals or technicals become unattractive. The
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. BlackRock's analytical
process focuses on anticipating change in credit trends before market
recognition. Credit research is a critical, independent element of
BlackRock's municipal process.
Investment Management Agreement
Pursuant to an investment management agreement between BlackRock
Advisors and the Trust, the Trust has agreed to pay for the investment
advisory services and facilities provided by BlackRock Advisors a fee
payable monthly in arrears at an annual rate equal to 0.65% of the average
weekly value of the Trust's Managed Assets (the "Management Fee").
BlackRock has voluntarily agreed to waive receipt of a portion of its
Management Fee in the amount of 0.30% of the average weekly value of the
Trust's Managed Assets for the first five years of the Trust's operations
(through April 30, 2007), and for a declining amount for an additional five
years (through April 30, 2012). The Trust will also reimburse BlackRock
Advisors for certain expenses BlackRock Advisors incurs in connection with
performing certain services for the Trust. In addition, with the approval
of the board of trustees, a pro rata portion of the salaries, bonuses,
health insurance, retirement benefits and similar employment costs for the
time spent on Trust operations (other than the provision of services
required under the investment management agreement) of all personnel
employed by BlackRock Advisors who devote substantial time to Trust
operations may be reimbursed to BlackRock Advisors. Managed Assets are the
total assets of the Trust, which includes any proceeds from the Preferred
Shares, minus the sum of accrued liabilities (other than indebtedness
attributable to leverage). This means that during periods in which the
Trust is using leverage, the fee paid to BlackRock Advisors will be higher
than if the Trust did not use leverage because the fee is calculated as a
percentage of the Trust's Managed Assets, which include those assets
purchased with leverage.
In addition to the Management Fee of BlackRock Advisors, the Trust
pays all other costs and expenses of its operations, including compensation
of its trustees (other than those affiliated with BlackRock Advisors),
custodian, transfer and dividend disbursing agent expenses, legal fees,
leverage expenses, rating agency fees, listing fees and expenses, expenses
of independent auditors, expenses of repurchasing shares, expenses of
preparing, printing and distributing shareholder reports, notices, proxy
statements and reports to governmental agencies, and taxes, if any.
For the first 10 years of the Trust's operation, BlackRock
Advisors has undertaken to waive its investment advisory fees and expenses
payable by the Trust in the amounts, and for the time periods, set forth
below:
Percentage Waived
Twelve Month (as a percentage of
Period Ending average weekly
April 30 Managed Assets)*
2003** 0.30%
2004 0.30%
2005 0.30%
2006 0.30%
2007 0.30%
2008 0.25%
2009 0.20%
2010 0.15%
2011 0.10%
2012 0.05%
------------------
* Including net assets attributable to Preferred Shares.
** From the commencement of operations.
DESCRIPTION OF PREFERRED SHARES
The following is a brief description of the terms of the Preferred
Shares. For the complete terms of the Preferred Shares, please refer to the
detailed description of the Preferred Shares in the Statement of
Preferences (the "Statement") attached as Appendix A to the Statement of
Additional Information.
General
The Trust's Agreement and Declaration of Trust authorizes the
issuance of an unlimited number of preferred shares, par value $.001 per
share, in one or more classes or series with rights as determined by the
board of trustees without the approval of common shareholders. The
Statement currently authorizes the issuance of Preferred Shares, Series .
All Preferred Shares will have a liquidation preference of $25,000 per
share, plus an amount equal to accumulated but unpaid dividends (whether or
not earned or declared).
The Preferred Shares will rank on parity with any other series of
Preferred Shares and any other series of preferred shares of the Trust as
to the payment of dividends and the distribution of assets upon
liquidation. Each Preferred Share carries one vote on matters that
Preferred Shares can be voted. Preferred Shares, when issued, will be fully
paid and non-assessable and have no preemptive, conversion or cumulative
voting rights.
Dividends and Dividend Periods
The following is a general description of dividends and Rate
Periods.
Rate Periods. The Initial Rate Period for Preferred Shares will
be days:
Any subsequent Rate Periods Preferred Shares will generally be
seven days. The Trust, subject to certain conditions, may change the length
of Subsequent Rate Periods designating them as Special Rate Periods. See
"--Designation of Special Dividend Periods" below.
Dividend Payment Dates. Dividends on Preferred Shares will be
payable, when as and if declared by the board of trustees, out of legally
available funds in accordance with the Agreement and Declaration of Trust
the Statement and applicable law. The initial dividend payment date will be
.. Subsequent dividends are scheduled to be paid on each.
If dividends are payable on a day that is not a Business Day, then
dividends will be payable on the next business day. In addition, the Trust
may specify different Dividend Payment Dates for any Special Rate Period of
more than 28 Rate Period Days.
Dividends will be paid through the Securities Depository on each
Dividend Payment Date. The Securities Depository, in accordance with its
current procedures, is expected to distribute dividends received from the
Trust in next-day funds on each Dividend Payment Date to Agent Members.
These Agent Members are in turn expected to distribute such dividends to
the persons for whom they are acting as agents. However, each of the
current Broker-Dealers has indicated to the Trust that dividend payments
will be available in same-day funds on each Dividend Payment Date to
customers that use such Broker-Dealer or that Broker-Dealer's designee as
Agent Member.
Calculation of Dividend Payment. The Trust computes the dividends
per share payable on shares of Preferred Shares by multiplying the
applicable rate for shares of Preferred Shares in effect by a fraction. The
numerator of this fraction will normally be seven (i.e., the number of days
in the Dividend Period) and the denominator will normally be 365 if such
Rate Period consists of seven days, 360 for all other Rate Periods. In
either case, this rate is then multiplied by $25,000 to arrive at dividends
per share. If the Trust has designated a special dividend period, then the
numerator will be the number of days in the special dividend period, and
the denominator will be 360. In either case, this rate is then multiplied
by $25,000 to arrive at dividends per share.
Dividends on Preferred Shares will accumulate from the date of
their original issue. For each dividend payment period after the initial
dividend period, the dividend rate will be the dividend rate determined at
auction, except that the dividend rate that results from an auction will
not be greater than the maximum applicable rate described below.
The maximum applicable rate for any rate period for Preferred
Shares will be the applicable percentage (set forth in the Applicable
Percentage Payment Table below) of the reference rate (set forth in the
Reference Rate Table below) for the applicable rate period. The applicable
percentage for Preferred Shares is determined on the day that a notice of a
special dividend period is delivered if the notice specifies a maximum
applicable rate for a special dividend period. If Moody's or S&P or both
shall not make such rating available, the rate shall be determined by
reference to equivalent ratings issued by a substitute rating agency. If
the Trust has provided notification to the auction agent prior to an
auction establishing the applicable rate for a dividend period that net
capital gains or other taxable income will be included in the dividend
determined at such auction, the applicable percentage will be derived from
the column captioned "Applicable Percentage: Notification" in the
Applicable Percentage Table below:
Applicable Percentage Table
Credit Applicable Percentage Table
Ratings
Applicable Percentage: Applicable Percentage:
Moody's S&P No Notification Notification
------- --- --------------- ------------
"Aa3" or higher AA- or higher 110% 150%
"A3" to "A1" A- to A+ 125% 160%
"Baa3" to "Baa1" BBB- to BBB+ 150% 250%
"Ba3" to "Ba1" BB- to BB+ 200% 275%
Below "Ba3" Below BB- 250% 300%
The reference rate used to determine the maximum applicable rate
generally varies depending on the length of the applicable rate period, as
set forth in the Reference Rate Table below:
Reference Rate Table
--------------------
Rate Period Reference Rate
----------- --------------
28 days or less o Greater of:
`AA" Composite
Commercial Paper Rate
o Taxable Equivalent of the Short-
Term Municipal Bond Rate
29 days to 182 days "AA" Composite Commercial Paper Rate
183 days to 364 days Treasury Bill Rate
365 days or more Treasury Note Rate
The "AA Composite Commercial Paper Rate" is as set forth in the
table set forth below:
AA Composite Commercial Paper Rate Table.
AA Composite
Rate Period Special Rate Period Commercial Paper Rate*
7 days or less 48 days or fewer 30-day rate
49 days to 69 days 60-day rate
70 days to 84 days Average of 60-day and 90-day rates
85 days to 98 days 90-day rate
99 days to 119 days Average of 90-day and 120-day rates
120 Days to 140 days 120-day rate
141 days to 161 days Average of 120-day and 180-day rates
162 days to 182 days 180-day rate
* Rates stated on a discount basis
If the Federal Reserve Bank of New York does not make available
any such rate, the rate shall be the average rate quoted on a discount
basis by commercial paper dealers to the Auction Agent at the close of
business on the business day next preceding such date. If any commercial
paper dealer does not quote a rate, the rate shall be determined by quotes
provided by the remaining commercial paper dealers.
"Taxable Equivalent of the Short-Term Municipal Bond Rate" means
90% of an amount equal to the per annum rate payable on taxable bonds in
order for such rate, on an after-tax basis, to equal the per annum rate
payable on tax-exempt bonds issued by "high grade" issuers as determined in
accordance with the procedures set forth in the Statement.
Prior to each dividend payment date, the Trust is required to
deposit with the auction agent sufficient funds for the payment of declared
dividends. The failure to make such deposit will not result in the
cancellation of any auction. The Trust does not intend to establish any
reserves for the payment of dividends.
If an auction for Preferred Shares is not held when scheduled for
any reason, the dividend rate for the corresponding rate period will be the
maximum applicable rate on the date the auction was scheduled to be held.
Additional Dividends. If the Trust allocates any net capital gain
or other income taxable for Federal income tax purposes to a dividend paid
on Preferred Shares without having provided advance notice (a "Taxable
Allocation"), whether or not such allocation is mode retroactively as a
result of the redemption of all or a portion of the Preferred Shares or a
liquidation of the Trust, the Trust shall pay an additional dividend. The
additional dividend will be in an amount equal to the amount of taxes paid
by a holder of Preferred Shares on the Taxable Allocation, provided that
the additional dividend will be calculated:
o without consideration being given to the time value of money;
o assuming that no holder of Preferred Shares is subject to the
Federal alternative minimum tax with respect to dividends received
from the Trust; and
o assuming that each Taxable Allocation would be taxable in the
hands of each holder of Preferred Shares at the maximum marginal
combined regular Federal income tax rate applicable to individuals
or corporations, whichever is greater, in effect during the fiscal
year in question.
Although the Trust generally intends to designate any additional
dividend as an exempt-interest dividend to the extent permitted by
applicable law, it is possible that all or a portion of any additional
dividend will be taxable to the recipient thereof. See "Taxes." The Trust
will not pay a further additional dividend with respect to any taxable
portion of an additional dividend.
The Trust will, within 90 days (and generally within 60 days)
after the end of its fiscal year for which a Taxable Allocation is made,
provide notice thereof to the auction agent. The Trust will pay, out of
legally available funds, any additional dividend due on all Taxable
Allocations made during the fiscal year in question, within 30 days after
such notice is given to the auction agent.
Restrictions on Dividends and Other Distributions. While the
Preferred Shares are outstanding, the Trust generally may not declare, pay
or set apart for payment, any dividend or other distribution in respect of
its common shares. In addition, the Trust may not call for redemption or
redeem any of its common shares. However, the Trust is not confined by the
above restrictions if:
o immediately after such transaction, the Discounted Value of the
Trust's portfolio would be equal to or greater than the Preferred
Shares Basic Maintenance Amount and the 1940 Act Preferred Shares
Asset Coverage (see "--Rating Agency Guidelines and Asset
Coverage" below);
o full cumulative dividends on Preferred Shares due on or prior to
the date of the transaction have been declared and paid or shall
have been declared and sufficient funds for the payment thereof
deposited with the auction agent; and
o any additional dividend required to be paid on or before the date
of such transaction has been paid; and
o the Trust has redeemed the full number of Preferred Shares
required to be redeemed by any provision for mandatory redemption
contained in the Statement.
The Trust generally will not declare, pay or set apart for payment
any dividend on any class or series of shares of the Trust ranking, as to
the payment of dividends, on a parity with Preferred Shares unless the
Trust has declared and paid or contemporaneously declares and pays full
cumulative dividends on each series of the Preferred Shares through its
most recent dividend payment date. However, when the Trust has not paid
dividends in full upon the Preferred Shares through the most recent
dividend payment date or upon any other class or series of shares of the
Trust ranking, as to the payment of dividends, on a parity with Preferred
Shares through their most recent respective dividend payment dates, the
amount of dividends declared per share on Preferred Shares and such other
class or series of shares will in all cases bear to each other the same
ratio that accumulated dividends per share on the Preferred Shares and such
other class or series of shares bear to each other.
Designation of Special Rate Periods. The Trust may, at its sole
option, declare a special dividend period of Preferred Shares. To declare a
special rate period, the Trust will give notice (a "request for special
dividend period") to the auction agent and to each Broker-Dealer. The
notice will request that the next succeeding rate period for the Preferred
Shares be a number of days (other than seven) evenly divisible by seven as
specified in such notice and not more than 1,820 days long; provided,
however, that a special rate period may be a number of days not evenly
divisible by seven if all Preferred Shares are to be redeemed at the end of
such special rate period. The Trust may not request a special rate period
unless sufficient clearing bids for shares of such series were made in the
most recent auction.
Redemption
Mandatory Redemption. The Trust is required to maintain (a) a
Discounted Value of eligible portfolio securities equal to the Preferred
Shares Basic Maintenance Amount and (b) the Investment Company Act
Preferred Shares Asset Coverage. Eligible portfolio securities for these
purposes will be determined from time to time by the rating agencies then
rating the Preferred Shares. If the Trust fails to maintain such asset
coverage amounts and does not timely cure such failure in accordance with
the requirements of the rating agency that rates the Preferred Shares, the
Trust must redeem all or a portion of the Preferred Shares. This mandatory
redemption will take place on a date that the board of trustees specifies
out of legally available funds in accordance with the Agreement and
Declaration of Trust, as amended and restated, the Statement and applicable
law, at the redemption price of $25,000 per share plus accumulated but
unpaid dividends (whether or not earned or declared) to the date fixed for
redemption. The number of Preferred Shares that must be redeemed in order
to cure such failure will be allocated pro rata among the outstanding
Preferred Shares of the Trust. The mandatory redemption will be limited to
the number of Preferred Shares necessary to restore the required Discounted
Value or the Investment Company Act Preferred Shares Asset Coverage, as the
case may be.
Optional Redemption. The Trust, at its option, may redeem the
shares of each series of Preferred Shares, in whole or in part, out of
funds legally available therefore. Any optional redemption will occur on
any dividend payment date at the optional redemption price per share of
$25,000 per share plus an amount equal to accumulated but unpaid dividends
to the date fixed for redemption plus the premium, if any, specified in a
special redemption provision. No shares of a series of Preferred Shares may
be redeemed if the redemption would cause the Trust to violate the
Investment Company Act or applicable law. In addition, holders of Preferred
Shares may be entitled to receive additional dividends if the redemption
causes the Trust to make a Taxable Allocation without having given advance
notice to the auction agent. Preferred Shares may not be redeemed in part
if fewer than 300 Shares would remain outstanding after the redemption. The
Trust has the authority to redeem the Preferred Shares for any reason.
Liquidation
If the Trust is liquidated, the holders of any series of
outstanding Preferred Shares will receive the liquidation preference on
such series, plus all accumulated but unpaid dividends, plus any applicable
additional dividends payable before any payment is made to the common
shares. The holders of Preferred Shares will be entitled to receive these
amounts from the assets of the Trust available for distribution to its
shareholders. In addition, the rights of holders of Preferred Shares to
receive these amounts are subject to the rights of holders of any series or
class of shares, including other series of preferred shares, ranking on a
parity with the Preferred Shares with respect to the distribution of assets
upon liquidation of the Trust. After the payment to the holders of
Preferred Shares of the full preferential amounts as described, the holders
of Preferred Shares will have no right or claim to any of the remaining
assets of the Trust.
For purpose of the foregoing paragraph, a voluntary or involuntary
liquidation of the Trust does not include:
o the sale of all or substantially all the property or business of
the Trust;
o the merger or consolidation of the Trust into or with any other
business trust or corporation; or
o the merger or consolidation of any other business trust or
corporation into or with the Trust.
Rating Agency Guidelines and Asset Coverage
The Trust is required under guidelines of Moody's and S&P to
maintain assets having in the aggregate a Discounted Value at least equal
to the Preferred Shares Basic Maintenance Amount. Moody's and S&P have each
established separate guidelines for calculating Discounted Value. To the
extent any particular portfolio holding does not satisfy a rating agency's
guidelines, all or a portion of the holding's value will not be included in
the rating agency's calculation of Discounted Value. The Moody's and S&P
guidelines do not impose any limitations on the percentage of the Trust's
assets that may be invested in holdings not eligible for inclusion in the
calculation of the Discounted Value of the Trust's portfolio. The amount of
ineligible assets included in the Trust's portfolio at any time may vary
depending upon the rating, diversification and other characteristics of the
eligible assets included in the portfolio. The Preferred Shares Basic
Maintenance Amount includes the sum of (a) the aggregate liquidation
preference of the Preferred Shares then outstanding and (b) certain accrued
and projected payment obligations of the Trust.
The Trust is also required under the Investment Company Act to
maintain asset coverage of at least 200% with respect to senior securities
which are equity shares, including the Preferred Shares ("Investment
Company Act Preferred Shares Asset Coverage"). The Trust's Investment
Company Act Preferred Shares Asset Coverage is tested as of the last
business day of each month in which any senior equity securities are
outstanding. The minimum required Investment Act Preferred Shares Asset
Coverage amount of 200% may be increased or decreased if the Investment
Company Act is amended. Based on the composition of the portfolio of the
Trust and market conditions as of
, 2002, the Investment Company Act Preferred Shares Asset
Coverage with respect to all of the Trust's preferred shares, assuming the
issuance on that date of all Preferred Shares offered hereby and giving
effect to the deduction of related sales load and related offering costs
estimated at $ , would have been computed as follows:
Value of Trust assets less liabilities = = %
not constituting senior securities $__________
--------------------------------------
Senior securities representing indebtedness
plus
liquidation value of the preferred shares
In the event the Trust does not timely cure a failure to maintain
(a) a Discounted Value of its portfolio equal to the Preferred Shares Basic
Maintenance Amount or (b) the Investment Company Act Preferred Shares Asset
Coverage, in each case in accordance with the requirements of the rating
agency or agencies then rating the Preferred Shares, the Trust will be
required to redeem Preferred Shares as described under
"--Redemption--Mandatory Redemption" above.
The Trust may, but is not required to, adopt any modifications to
the guidelines that may be established by Moody's or S&P. Failure to adopt
any such modifications, however, may result in a change in the ratings
described above or a withdrawal of ratings altogether. In addition, any
rating agency providing a rating for the Preferred Shares may, at any time,
change or withdraw any such rating. The board of trustees may, without
shareholder approval, amend, alter or repeal any or all of the definitions
and related provisions which have been adopted by the Trust pursuant to the
rating agency guidelines in the event the Trust receives written
confirmation from Moody's or S&P, as the case may be, that any such
amendment, alteration or repeal would not impair the rating then assigned
to the Preferred Shares.
As recently described by Moody's and S&P, a preferred stock rating
is an assessment of the capacity and willingness of an issuer to pay
preferred stock obligations. The rating on the Preferred Shares is not a
recommendation to purchase, hold or sell those shares, inasmuch as the
rating does not comment as to market price or suitability for a particular
investor. The rating agency guidelines described above also do not address
the likelihood that an owner of Preferred Shares will be able to sell such
shares in an auction or otherwise. The rating is based on current
information furnished to Moody's and S&P by the Trust and the Advisor and
information obtained from other sources. The rating may be changed,
suspended or withdrawn as a result of changes in, or the unavailability of,
such information. The common shares have not been rated by a nationally
recognized statistical rating organization.
The rating agency's guidelines will apply to the Preferred Shares
only so long as the rating agency is rating the shares. The Trust will pay
certain fees to Moody's and S&P for rating the Preferred Shares.
Voting Rights
Except as otherwise provided in this prospectus and in the
Statement of Additional Information or as otherwise required by law,
holders of Preferred Shares will have equal voting rights with holders of
common shares and any other preferred shares (one vote per share) and will
vote together with holders of common shares and any preferred shares as a
single class.
Holders of outstanding preferred shares, including Preferred
Shares, voting as a separate class, are entitled to elect two of the
Trust's trustees. The remaining trustees are elected by holders of common
shares and preferred shares, including Preferred Shares, voting together as
a single class. In addition, if at any time dividends (whether or not
earned or declared) on outstanding preferred shares, including Preferred
Shares, are due and unpaid in an amount equal to two full years of
dividends, and sufficient cash or specified securities have not been
deposited with the auction agent for the payment of such dividends, then,
the sole remedy of holders of outstanding preferred shares, including
Preferred Shares, is that the number of trustees constituting the Board
will be automatically increased by the smallest number that, when added to
the two trustees elected exclusively by the holders of preferred shares
including Preferred Shares as described above, would constitute a majority
of the Board. The holders of preferred shares, including Preferred Shares,
will be entitled to elect that smallest number of additional trustees at a
special meeting of shareholders held as soon as possible and at all
subsequent meetings at which trustees are to be elected. The terms of
office of the persons who are trustees at the time of that election will
continue. If the Trust thereafter shall pay, or declare and set apart for
payment, in full, all dividends payable on all outstanding preferred
shares, including Preferred Shares, the special voting rights stated above
will cease, and the terms of office of the additional trustees elected by
the holders of preferred shares, including Preferred Shares, will
automatically terminate.
As long as any Preferred Shares are outstanding, the Trust will
not, without the affirmative vote or consent of the holders of at least a
majority of the Preferred Shares outstanding at the time (voting together
as a separate class):
(a) authorize, create or issue, or increase the authorized or
issued amount of, any class or series of stock ranking prior to or on a
parity with the Preferred Shares with respect to payment of dividends or
the distribution of assets on liquidation, authorize, create or issue
additional shares of or increase the authorized amount of the Preferred
Shares or any other preferred shares, unless, in the case of shares of
preferred stock on parity with the Preferred Shares, the Trust obtains
written confirmation from Moody's (if Moody's is then rating preferred
shares), S&P (if S&P is then rating preferred shares) or any substitute
rating agency (if any such substitute rating agency is then rating
preferred shares) that the issuance of a class or series would not impair
the rating then assigned by such rating agency to the Preferred Shares and
the Trust continues to comply with Section 13 of the Investment Company
Act, the Investment Company Act Preferred Shares Asset Coverage
requirements and the Preferred Shares Basic Maintenance Amount
requirements, in which case the vote or consent of the holders of the
Preferred Shares is not required;
(b) amend, alter or repeal the provisions of the Agreement and
Declaration of Trust or the Statement, by merger, consolidation or
otherwise, so as to adversely affect any preference, right or power of the
Preferred Shares or holders of Preferred Shares; provided, however, that
(i) none of the actions permitted by the exception to (a) above will be
deemed to affect such preferences, rights or powers, (ii) a division of
Preferred Shares will be deemed to affect such preferences, rights or
powers only if the terms of such division adversely affect the holders of
Preferred Shares and (iii) the authorization, creation and issuance of
classes or series of shares ranking junior to the Preferred Shares with
respect to the payment of dividends and the distribution of assets upon
dissolution, liquidation or winding up of the affairs of the Trust, will be
deemed to affect such preferences, rights or powers only if Moody's or S&P
is then rating the Preferred Shares and such issuance would, at the time
thereof, cause the Trust not to satisfy the Investment Company Act
Preferred Shares Asset Coverage or the Preferred Shares Basic Maintenance
Amount.
(c) authorize the Trust's conversion from a closed-end to an
open-end investment company; or
(d) amend the provisions of the Agreement and Declaration of
Trust, or the Statement, which provide for the classification of the board
of directors of the Trust into three classes, each with a term of office of
three years with only one class of directors standing for election in any
year.
(e) approve any reorganization (as such term is used in the
Investment Company Act) adversely affecting the Preferred Shares.
So long as any shares of the Preferred Shares are outstanding, the
Trust shall not, without the affirmative vote or consent of the Holders of
at least 66 2/3% of the Preferred Shares outstanding at the time, in person
or by proxy, either in writing or at a meeting, voting as a separate class,
file a voluntary application for relief under Federal bankruptcy law or any
similar application under state law for so long as the Trust is solvent and
does not foresee becoming insolvent.
To the extent permitted under the Investment Company Act, the
Trust will not approve any of the actions set forth in (a) or (b) above
which adversely affects the rights expressly set forth in the Agreement and
Declaration of Trust or the Statement, of a holder of shares of a series of
preferred shares differently than those of a holder of shares of any other
series of preferred shares without the affirmative vote or consent of the
holders of at least a majority of the shares of each series adversely
affected. Unless a higher percentage is provided for under the Agreement
and Declaration of Trust, or the Statement, the affirmative vote of the
holders of a majority of the outstanding Preferred Shares, voting together
as a single class, will be required to approve any plan of reorganization
(including bankruptcy proceedings) adversely affecting such shares of any
action requiring a vote of security holders under Section 13(a) of the
Investment Company Act. However, to the extent permitted by the Agreement
and Declaration of Trust, or the Statement, no vote of holders of common
shares, either separately or together with holders of preferred shares as a
single class, is necessary to take the actions contemplated by (a) and (b)
above. The holders of common shares will not be entitled to vote in respect
of such matters, unless, in the case of the actions contemplated by (b)
above, the action would adversely affect the contract rights of the holders
of common shares expressly set forth in the Trust's charter.
The foregoing voting provisions will not apply with respect to
Preferred Shares if, at or prior to the time when a vote is required, such
shares have been (i) redeemed or (ii) called for redemption and sufficient
funds have been deposited in trust to effect such redemption.
THE AUCTION
General
The Statement provides that, except as otherwise described in this
prospectus, the applicable rate for the Preferred Shares for each dividend
period after the initial dividend period will be the rate that results from
an auction conducted as set forth in the Statement and summarized below. In
such an auction, persons determine to hold or offer to sell or, based on
dividend rates bid by them, offer to purchase or sell Preferred Shares. See
the Statement included in the Statement of Additional Information for a
more complete description of the auction process.
Auction Agency Agreement. The Trust will enter into an auction
agency agreement with the auction agent [(currently, The Bank of New York)]
which provides, among other things, that the auction agent will follow the
auction procedures to determine the applicable rate for Preferred Shares,
so long as the applicable rate for the Preferred Shares is to be based on
the results of an auction.
The auction agent may terminate the auction agency agreement upon
60 days notice to the Trust. If the auction agent should resign, the Trust
will use its best efforts to enter into an agreement with a successor
auction agent containing substantially the same terms and conditions as the
auction agency agreement. The Trust may remove the auction agent provided
that, prior to removal, the Trust has entered into a replacement agreement
with a successor auction agent.
Broker-Dealer Agreements. Each auction requires the participation
of one or more Broker-Dealers. The auction agent will enter into agreements
with several Broker-Dealers selected by the Trust, which provide for the
participation of those Broker-Dealers in auctions for Preferred Shares.
The auction agent will pay to each Broker-Dealer after each
auction, from funds provided by the Trust, a service charge at the annual
rate of 1/4 of 1% in the case of any auction before a dividend period of
364 days or less, or a percentage agreed to by the Trust and the
Broker-Dealers, in the case of any auction before a dividend period of 365
days or longer, of the purchase price of Preferred Shares placed by a
Broker-Dealer at the auction.
The Trust may request the auction agent to terminate one or more
Broker-Dealer Agreements at any time upon five days' notice, provided that
at least one Broker-Dealer Agreement is in effect after termination of the
agreement.
Auction Procedures
Prior to the submission deadline on each auction date for
Preferred Shares, each customer of a Broker-Dealer who is listed on the
records of that Broker-Dealer (or, if applicable, the auction agent) as a
beneficial owner of such Preferred Shares may submit the following types of
orders with respect the Preferred Shares to that Broker-Dealer.
1. Hold order--indicating its desire to hold shares without regard
to the applicable rate for the next dividend period.
2. Bid--indicating its desire to sell shares at $25,000 per share
if the applicable rate for shares for the next dividend period is less than
the rate or spread specified in the bid.
3. Sell order--indicating its desire to sell shares at $25,000 per
share without regard to the applicable rate for shares for the next
dividend period.
A beneficial owner may submit different types of orders to its
Broker-Dealer with respect to Preferred Shares then held by the beneficial
owner. A beneficial owner for Preferred Shares that submits its bid to its
Broker-Dealer having a rate higher than the maximum applicable rate for
Preferred Shares on the auction date will be treated as having submitted a
sell order to its Broker-Dealer. A beneficial owner of Preferred Shares
that fails to submit an order to its Broker-Dealer with respect to
Preferred Shares will ordinarily be deemed to have submitted a hold order
with respect to such shares to its Broker-Dealer. However, if a beneficial
owner of Preferred Shares fails to submit an order with respect to such
shares to its Broker-Dealer for an auction relating to a dividend period of
more than 28 days such beneficial owner will be deemed to have submitted a
sell order to its Broker-Dealer. A sell order constitutes an irrevocable
offer to sell the Preferred Shares subject to the sell order. A beneficial
owner that offers to become the beneficial owner of additional Preferred
Shares is, for purposes of such offer, a potential holder as discussed
below.
A potential holder is either a customer of a Broker-Dealer that is
not a beneficial owner of Preferred Shares but that wishes to purchase
Preferred Shares or that is a beneficial owner of that wishes to purchase
additional Preferred Shares. A potential holder may submit bids to its
Broker-Dealer in which it offers to purchase Preferred Shares at $25,000
per share if the applicable rate for Preferred Shares for the next dividend
period is not less than the specified rate in such bid. A bid placed by a
potential holder of Preferred Shares specifying a rate higher than the
maximum applicable rate for Preferred Shares on the auction date will not
be accepted.
The Broker-Dealers in turn will submit the orders of their
respective customers who are beneficial owners and potential holders to the
auction agent. They will designate themselves (unless otherwise permitted
by the Trust) as existing holders of Preferred Shares subject to orders
submitted or deemed submitted to them by beneficial owners. They will
designate themselves as potential holders of Preferred Shares subject to
orders submitted to them by potential holders. However, neither the Trust
nor the auction agent will be responsible for a Broker-Dealer's failure to
comply with these procedures. Any order placed with the auction agent by a
Broker-Dealer as or on behalf of an existing holder or a potential holder
will be treated the same way as an order placed with a Broker-Dealer by a
beneficial owner or potential holder. Similarly, any failure by a
Broker-Dealer to submit to the auction agent an order for any Preferred
Shares held by it or customers who are beneficial owners will be treated as
a beneficial owner's failure to submit to its Broker-Dealer an order in
respect of Preferred Shares held by it. A Broker-Dealer may also submit
orders to the auction agent for its own account as an existing holder or
potential holder, provided it is not an affiliate of the Trust.
There are sufficient clearing bids for Preferred Shares in an
auction if the number of Preferred Shares subject to bids submitted or
deemed submitted to the auction agent by Broker-Dealers for potential
holders with rates or spreads equal to or lower than the maximum applicable
rate for Preferred Shares is at least equal to or exceeds the sum of the
number of Preferred Shares subject to sell orders and the number of
Preferred Shares subject to bids specifying rates or spreads higher than
the maximum applicable rate for such Preferred Shares submitted or deemed
submitted to the auction agent by Broker-Dealers for existing holders of
Preferred Shares. If there are sufficient clearing bids for Preferred
Shares, the applicable rate for Preferred Shares for the next succeeding
dividend period thereof will be the lowest rate specified in the submitted
bids which, taking into account such rate and all lower rates bid by
Broker-Dealers as or on behalf of existing holders and potential holders,
would result in existing holders and potential holders owning Preferred
Shares available for purchase in the auction.
If there are not sufficient clearing bids for Preferred Shares,
the applicable rate for the next dividend period will be the maximum
applicable rate for Preferred Shares on the auction date. If this happens,
beneficial owners of Preferred Shares that have submitted or are deemed to
have submitted sell orders may not be able to sell in the auction all
Preferred Shares subject to such sell orders. If all of the outstanding
Preferred Shares are the subject of submitted hold orders, then the
dividend period following the auction will automatically be the same length
as the preceding dividend period for Preferred Shares. The applicable rate
for the next dividend period will then be:
o (i) if the applicable rate period is less than 183 days, the "AA"
Composite Commercial Paper Rate, (ii) if the applicable rate
period is more than 182 days but fewer than 365 days, the Treasury
Bill Rate, and (iii) if the applicable rate period is more than
364 days, the Treasury Note Rate (the applicable rate being
referred to as the "Benchmark Rate"); multiplied by
o 1 minus the maximum marginal regular Federal individual income tax
rate applicable to ordinary income or the maximum marginal regular
Federal corporate income tax rate applicable to ordinary income,
whichever is greater.
If the applicable rate period is less than 183 days and the Kenny
Index is less than the amount determined above for a rate period of less
than 183 days, then the applicable rate for an all hold period will be the
rate equal to the Kenny Index.
The "Kenny Index" is the Kenny S&P 30 day High Grade Index or any
successor index.
The "Treasury Bill Rate" is either (i) the bond equivalent yield,
calculated in accordance with prevailing industry convention, of the rate
on the most recently auctioned Treasury bill with a remaining maturity
closest to the length of such Rate Period, as quoted in The Wall Street
Journal on such date for the business day next preceding such date; or (ii)
in the event that any such rate is not published in The Wall Street
Journal, then the bond equivalent yield, calculated in accordance with
prevailing industry convention, as calculated by reference to the
arithmetic average of the bid price quotations of the most recently
auctioned Treasury bill with a remaining maturity closest to the length of
such Rate Period, as determined by bid price quotations as of the close of
business on the business day immediately preceding such date obtained by
the Auction Agent.
The "Treasury Note Rate" is on any date for any Rate Period, shall
mean (i) the yield on the most recently auctioned Treasury note with a
remaining maturity closest to the length of such Rate Period, as quoted in
The Wall Street Journal on such date for the business day next preceding
such date; or (ii) in the event that any such rate is not published in The
Wall Street Journal, then the yield as calculated by reference to the
arithmetic average of the bid price quotations of the most recently
auctioned Treasury note with a remaining maturity closest to the length of
such Rate Period, as determined by bid price quotations as of the close of
business on the business day immediately preceding such date obtained by
the Auction Agent.
If all the Preferred Shares are subject to hold orders and the
Trust has notified the Auction Agent of its intent to allocate to the
Preferred Shares any net capital gains or other income taxable for Federal
income tax purposes ("Taxable Income"), the applicable rate for the
Preferred Shares for the applicable rate period will be (i) if the Taxable
Yield Rate is greater than the Benchmark Rate, then the Benchmark Rate, or
(ii) if the Taxable Yield Rate is less than or equal to the Benchmark Rate,
then the rate equal to the sum of (x) the amount determined pursuant to the
two bullet points above, and (y) the product of the maximum marginal
regular Federal individual income tax rate applicable to ordinary income or
the maximum marginal regular Federal corporate income tax rate applicable
to ordinary income, whichever is greater, multiplied by the Taxable Yield
Rate.
The "Taxable Yield Rate" is the rate determined by (i) dividing
the amount of Taxable Income available for distribution on each Preferred
Share by the number of days in the Dividend Period in respect of which the
Taxable Income is contemplate to be distributed, (ii) multiplying the
amount determined in (i) by 365 (in the case of a Dividend Period of 7
days) or 360 (in the case of any other Dividend Period), and (iii) dividing
the amount determined in (ii) by $25,000.
The auction procedure includes a pro rata allocation of shares for
purchase and sale, which may result in an existing holder continuing to
hold or selling, or a potential holder purchasing, a number of Preferred
Shares that is different than the number of Preferred Shares specified in
its order. To the extent the allocation procedures have that result,
Broker-Dealers that have designated themselves as existing holders or
potential holders in respect of customer orders will be required to make
appropriate pro rata allocations among their respective customers.
Settlement of purchases and sales will be made on the next
business day (which is also a dividend payment date) after the auction date
through DTC. Purchasers will make payment through their Agent Members in
same-day funds to DTC against delivery to their respective Agent Members.
DTC will make payment to the sellers' Agent Members in accordance with
DTC's normal procedures, which now provide for payment against delivery by
their Agent Members in same-day funds.
The auctions for the Preferred Shares will normally be held every
, and each subsequent dividend period will normally begin on the following
..
If an Auction Date is not a business day because the New York
Stock Exchange is closed for business due to an act of God, natural
disaster, act of war, civil or military disturbance, act of terrorism,
sabotage, riots or a loss or malfunction of utilities or communications
services, or the auction agent is not able to conduct an Auction in
accordance with the Auction Procedures for any such reason, then the
Auction Rate for the next Dividend Period will be the Auction rate
determined on the previous Auction Date.
If a Dividend Payment Date is not a business day because the New
York Stock Exchange is closed for business due to an act of God, natural
disaster, act of war, civil or military disturbance, act of terrorism,
sabotage, riots or a loss or malfunction of utilities or communications
services, or the dividend payable on such date can not be paid for any such
reason, then:
The Dividend Payment Date for the affected Dividend Period will be
the next Business Day on which the Trust and its paying agent, if any, can
pay the dividend;
The affected Dividend Period will end on the day it otherwise
would have ended; and
The next Dividend Period will begin and end on the dates on which
it otherwise would have begun and ended.
Whenever the Trust intends to include any net capital gains or
other income taxable for Federal income tax purposes in any dividend on
Preferred Shares, the Trust may notify the auction agent of the amount to
be so included not later than the dividend payment date before the auction
date. Whenever, the auction agent receives such notice from the Trust, it
will be required in turn to notify each Broker-Dealer, who, on or prior to
such auction date, will be required to notify its customers who are
beneficial owners and potential holders believed by it to be interested in
submitting an order in the auction to be held on such auction date. In the
event of such notice, the Trust will not be required to pay an Additional
Dividend with respect to such dividend.
Secondary Market Trading and Transfers of Preferred Shares
The Broker-Dealers are expected to maintain a secondary trading
market in Preferred Shares outside of auctions, but are not obligated to do
so, and may discontinue such activity at any time. There can be no
assurance that any secondary trading market in Preferred Shares will
provide owners with liquidity of investment. The Preferred Shares will not
be registered on any stock exchange or on the Nasdaq Stock Market.
Investors who purchase shares in an auction for a special dividend period
in which the Bid Requirements, if any, do not require a bid to specify a
spread, should note that because the dividend rate on such shares will be
fixed for the length of such dividend period, the value of the shares may
fluctuate in response to changes in interest rates and may be more or less
than their original cost if sold on the open market in advance of the next
auction. Investors who purchase shares in an auction for a special dividend
period in which the Bid Requirements require a bid to specify a spread
should be aware that the value of their shares may also fluctuate and may
be more or less than their original cost if sold in the open market in
advance of the next auction, particularly if market spreads narrow or widen
in a manner unfavorable to such purchaser's position.
A beneficial owner or an existing holder may sell, transfer or
otherwise dispose of Preferred Shares only in whole shares and only:
o pursuant to a bid or sell order placed with the auction agent in
accordance with the auction procedures;
o to a Broker-Dealer; or
o to such other persons as may be permitted by the Trust;
provided, however, that
o a sale, transfer or other disposition of Preferred Shares from a
customer of Broker-Dealer who is listed on the records of that
Broker-Dealer as the holder of such shares to that Broker-Dealer
or another customer of that Broker-Dealer shall not be deemed to
be a sale, transfer or other disposition if such Broker-Dealer
remains the existing holder of the shares; and
o in the case of all transfers other than pursuant to auctions, the
Broker-Dealer (or other person, if permitted by the Trust) to whom
such transfer is made will advise the auction agent of such
transfer.
DESCRIPTION OF COMMON SHARES
In addition to the Preferred Shares, the Agreement and Declaration
of Trust dated as of March 14, 2002, authorizes the issuance of an
unlimited number of common shares of beneficial interest, par value $.001
per share. Each common share has one vote and is fully paid and
non-assessable, except that the trustees shall have the power to cause
shareholders to pay expenses of the Trust by setting off charges due from
common shareholders from declared but unpaid dividends or distributions
owed by the common shareholders and/or by reducing the number of common
shares owned by each respective common shareholder. So long as any
Preferred Shares are outstanding, the holders of common shares will not be
entitled to receive any distributions from the Trust unless all accrued
dividends on Preferred Shares have been paid, unless asset coverage (as
defined in the Investment Company Act) with respect to Preferred Shares
would be at least 200% after giving effect to the distributions and unless
certain other requirements imposed by any rating agencies rating the
Preferred Shares have been met. All common shares are equal as to
dividends, assets and voting privileges and have no conversion, preemptive
or other subscription rights.
The Trust's common shares are traded on the American Stock
Exchange under the symbol "BLJ".
CERTAIN PROVISIONS IN THE AGREEMENT AND DECLARATION OF TRUST
The Agreement and Declaration of Trust, includes provisions that
could have the effect of limiting the ability of other entities or persons
to acquire control of the Trust or to change the composition of its board
of trustees. This could have the effect of depriving shareholders of an
opportunity to sell their shares at a premium over prevailing market prices
by discouraging a third party from seeking to obtain control over the
Trust. Such attempts could have the effect of increasing the expenses of
the Trust and disrupting the normal operation of the Trust. The board of
trustees is divided into three classes, with the terms of one class
expiring at each annual meeting of shareholders. At each annual meeting,
one class of trustees is elected to a three-year term. This provision could
delay for up to two years the replacement of a majority of the board of
trustees. A trustee may be removed from office by the action of a majority
of the remaining trustees followed by a vote of the holders of at least 75%
of the shares then entitled to vote for the election of the respective
trustee.
In addition, the Trust's Agreement and Declaration of Trust
requires the favorable vote of a majority of the Trust's board of trustees
followed by the favorable vote of the holders of at least 75% of the
outstanding shares of each affected class or series of the Trust, voting
separately as a class or series, to approve, adopt or authorize certain
transactions with 5% or greater holders of a class or series of shares and
their associates, unless the transaction has been approved by at least 80%
of the trustees, in which case "a majority of the outstanding voting
securities" (as defined in the Investment Company Act) of the Trust shall
be required. For purposes of these provisions, a 5% or greater holder of a
class or series of shares (a "Principal Shareholder") refers to any person
who, whether directly or indirectly and whether alone or together with its
affiliates and associates, beneficially owns 5% or more of the outstanding
shares of any class or series of shares of beneficial interest of the
Trust.
The 5% holder transactions subject to these special approval
requirements are:
o the merger or consolidation of the Trust or any subsidiary of the
Trust with or into any Principal Shareholder;
o the issuance of any securities of the Trust to any Principal
Shareholder for cash, except pursuant to any automatic dividend
reinvestment plan;
o the sale, lease or exchange of all or any substantial part of the
assets of the Trust to any Principal Shareholder, except assets
having an aggregate fair market value of less than $1,000,000,
aggregating for the purpose of such computation all assets sold,
leased or exchanged in any series of similar transactions within a
twelve-month period; or
o the sale, lease or exchange to the Trust or any subsidiary of the
Trust, in exchange for securities of the Trust, of any assets of
any Principal Shareholder, except assets having an aggregate fair
market value of less than $1,000,000, aggregating for purposes of
such computation all assets sold, leased or exchanged in any
series of similar transactions within a twelve-month period.
To convert the Trust to an open-end investment company, the
Trust's Agreement and Declaration of Trust requires the favorable vote of a
majority of the board of the trustees followed by the favorable vote of the
holders of at least 75% of the outstanding shares of each affected class or
series of shares of the Trust, voting separately as a class or series,
unless such amendment has been approved by at least 80% of the trustees, in
which case "a majority of the outstanding voting securities" (as defined in
the Investment Company Act) of the Trust shall be required. The foregoing
vote would satisfy a separate requirement in the Investment Company Act
that any conversion of the Trust to an open-end investment company be
approved by the shareholders. If approved in the foregoing manner,
conversion of the Trust to an open-end investment company could not occur
until 90 days after the shareholders' meeting at which such conversion was
approved and would also require at least 30 days' prior notice to all
shareholders. Conversion of the Trust to an open-end investment company
would require the redemption of any outstanding Preferred Shares, which
could eliminate or alter the leveraged capital structure of the Trust with
respect to the common shares. Following any such conversion, it is also
possible that certain of the Trust's investment policies and strategies
would have to be modified to assure sufficient portfolio liquidity. In the
event of conversion, the common shares would cease to be listed on the
American Stock Exchange or other national securities exchanges or market
systems. Shareholders of an open-end investment company may require the
company to redeem their shares at any time, except in certain circumstances
as authorized by or under the Investment Company Act, at their net asset
value, less such redemption charge, if any, as might be in effect at the
time of a redemption. The Trust expects to pay all such redemption requests
in cash, but reserves the right to pay redemption requests in a combination
of cash or securities. If such partial payment in securities were made,
investors may incur brokerage costs in converting such securities to cash.
If the Trust were converted to an open-end fund, it is likely that new
shares would be sold at new asset value plus a sales load. The board of
trustees believes, however, that the closed-end structure is desirable in
light of the Trust's investment objective and policies. Therefore, you
should assume that it is not likely that the board of trustees would vote
to convert the Trust to an open-end fund.
To liquidate the Trust, the Trust's Agreement and Declaration of
Trust requires the favorable vote of a majority of the board of trustees
followed by the favorable vote of the holders of at least 75% of the
outstanding shares of each affected class or series of the Trust, voting
separately as a class or series, unless such amendment has been approved by
at least 80% of the trustees, in which case "a majority of the outstanding
voting securities" (as defined in the Investment Company Act) of the Trust
shall be required.
For the purposes of calculating "a majority of the outstanding
voting securities" under the Trust's Agreement and Declaration of Trust,
each class and series of the Trust shall vote together as a single class,
except to the extent required by the Investment Company Act or the Trust's
Agreement and Declaration of Trust with respect to any class or series of
shares. If a separate class vote is required, the applicable proportion of
shares of the class or series voting as a separate class or series, also
will be required.
The board of trustees has determined that provisions with respect
to the board of trustees and the shareholder voting requirements described
above, which voting requirements are greater than the minimum requirements
under Delaware law or the Investment Company Act, are in the best interest
of shareholders generally. Reference should be made to the Agreement and
Declaration of Trust on file with the Securities and Exchange Commission
for the full text of these provisions.
REPURCHASE OF COMMON SHARES
Shares of closed-end investment companies often trade at a
discount to their net asset values, and the Trust's common shares may also
trade at a discount to their net asset value. The market price of the
Trust's common shares will be determined by such factors as relative demand
for and supply of such common shares in the market, the Trust's net asset
value, general market and economic conditions and other factors beyond the
control of the Trust, Although the Trust's common shareholders will not
have the right to redeem their common shares, the Trust may take action to
repurchase common shares in the open market or make tender offers for its
common shares at their net asset value. This may have the effect of
reducing any market discount from net asset value. Any such repurchase may
cause the Trust to repurchase Preferred Shares to maintain asset coverage
requirements imposed by the Investment Company Act or any rating agency
rating the Preferred Shares at that time.
TAX MATTERS
Federal Tax Matters
The following is a description of certain U.S. federal income tax
consequences to a investor of acquiring, holding and disposing of Preferred
Shares of the Trust. The discussion reflects applicable tax laws of the
United States as of the date of this prospectus, which tax laws may be
changed or subject to new interpretations by the courts or the Internal
Revenue Service (the "IRS") retroactively or prospectively. No attempt is
made to present a detailed explanation of all U.S. federal, state, local
and foreign tax concerns affecting the Trust and its stockholders, and the
discussion set forth herein does not constitute tax advice. Investors are
urged to consult their own tax advisers to determine the tax consequences
to them of investing in the Trust.
The Trust intends to elect to be treated and to qualify to be
taxed as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code") and intends to distribute
substantially all of its net income and gains to its shareholders.
Therefore, it is not expected that the Trust will be subject to any U.S.
federal income tax. The Trust expects that substantially all of the
dividends it distributes to its common shareholders and Preferred
Shareholders will qualify as "exempt-interest dividends." A shareholder
treats an exempt-interest dividend as interest on state and local bonds
which is exempt from regular U.S. federal income tax. Some or all of an
exempt-interest dividend, however, may be subject to U.S. federal
alternative minimum tax imposed on the shareholder. Different U.S. federal
alternative minimum tax rules apply to individuals and to corporations. In
addition to exempt-interest dividends, the Trust also may distribute to its
shareholders amounts that are treated as long-term capital gain or ordinary
income. The Trust will allocate tax-exempt interest income, long-term
capital gain and other taxable income, if any, proportionately among the
common shares and the Preferred Shares in proportion to total dividends
paid to each class for the year. The Trust intends to notify Preferred
Shareholders in advance if it will allocate income to them that is not
exempt from regular U.S. federal income tax. In certain circumstances, the
Trust will make payments to Preferred Shareholders to offset the tax
effects of the taxable distribution. See "Description of Preferred
Shares--Dividends and Dividend Periods--Additional Dividends." The sale or
other disposition of common shares or Preferred Shares of the Trust will
normally result in capital gain or loss to shareholders. Both long-term and
short-term capital gains of corporations are taxed at the rates applicable
to ordinary income. For non-corporate taxpayers, short-term capital gains
and ordinary income are taxed currently at a maximum rate of 38.6%, while
long-term capital gains are generally taxed at a maximum rate of 20% (or
18% for capital assets that have been held for more than five years and the
holding period of which began after December 31, 2000).* Because of certain
limitations on itemized deductions and the deduction for personal
exemptions applicable to higher income taxpayers, the effective rate of tax
may be higher in certain circumstances. Losses realized by a shareholder on
the sale or exchange of shares of the Trust held for six months or less are
disallowed to the extent of any exempt-interest dividends received with
respect to such shares, and, if not disallowed, such losses are treated as
long-term capital losses to the extent of any capital gain dividends
received (or amounts credited as an undistributed capital gain) with
respect to such shares. A shareholder's holding period is suspended for any
periods during which the shareholder's risk of loss is diminished as a
result of holding one or more other positions in substantially similar or
related property, or through certain options or short sales. Any loss
realized on a sale or exchange of shares of the Trust will be disallowed to
the extent those shares of the Trust are replaced by other shares within a
period of 61 days beginning 30 days before and ending 30 days after the
date of disposition of the original shares. In that event, the basis of the
replacement shares of the Trust will be adjusted to reflect the disallowed
loss. This summary of tax consequences is intended for general
information.*
New Jersey Tax Matters
Individual shareholders of the Trust, including trusts and
estates, who are subject to the New Jersey gross income tax will not be
required to include in their New Jersey gross income distributions from the
Trust which the Trust clearly identifies as directly attributable to
interest or gains from New Jersey municipal securities, obligations of the
United States or any other obligations the interest and gain on which are
exempt from New Jersey gross income tax under New Jersey or Federal law,
provided that the Trust qualifies as a regulated investment company under
the Code and provided that the Trust satisfies New Jersey's statutory
requirements for treatment as a qualified investment fund under the
provisions of the New Jersey Gross Income Tax Act (N.J. Stat. Ann.
(S).54A:5-1 et seq.), as amended and supplemented, and any regulations
promulgated thereunder.
Under existing New Jersey law, gross income distributions to
individual shareholders from the Trust will not be subject to the New
Jersey gross income tax for any calendar year if, at the close of each
quarter of such calendar year, the Trust's portfolio consisted solely of
(1) notes, bonds and other obligations issued by the State of New Jersey or
its municipalities, counties and other taxing districts, or by the United
States government and its agencies, or by the governments of Puerto Rico or
Guam or (2) any other obligations which are exempt from inclusion in gross
income under the New Jersey Gross Income Tax Act.
The foregoing is a general and abbreviated summary of the
applicable provisions of the Code, Treasury Regulations and New Jersey tax
laws presently in effect. For the complete provisions, reference should be
made to the pertinent Code sections and the Treasury Regulations
promulgated thereunder. The Code and the Treasury Regulations, as well as
the New Jersey tax laws, are subject to change by legislative, judicial or
administrative action either prospectively or retroactively.
Shareholders are urged to consult their tax advisors regarding
specific questions as to Federal, foreign, state or local tax consequences
of an investment in the Trust.
Please refer to the Statement of Additional Information for more
detailed information.
-------------------
* The Economic Growth and Tax Relief Reconciliation Act of 2001, effective
for taxable years beginning after December 31, 2000, creates a new 10
percent income tax bracket and reduces the tax rates applicable to ordinary
income over a six year phase-in period. Beginning in the taxable year 2006,
ordinary income will be subject to a 35% maximum rate, with approximately
proportionate reductions in the other ordinary rates only. You should
consult a tax advisor concerning the tax consequences of your investment in
the Trust. The foregoing discussion is subject to and qualified in its
entirety by the discussion in "Tax Matters" in the Statement of Additional
Information below.
UNDERWRITING
is acting as representative of the underwriters
named below. Subject to the terms and conditions of the underwriting
agreement dated the date hereof, each underwriter named below has severally
agreed to purchase, and the Trust has agreed to sell to such underwriter,
the number of Preferred Shares set forth opposite the name of such
underwriter.
Name Number of Shares
---- ----------------
Series
------
Total
The underwriting agreement provides that the obligations of the
underwriters to purchase the shares included in this offering are subject
to the approval of certain legal matters by counsel and to certain other
conditions. The underwriters are obligated to purchase all the Preferred
Shares if they purchase any shares. In the underwriting agreement, the
Trust, BlackRock Advisors and BlackRock Financial Management have agreed to
indemnify the underwriters against certain liabilities, including
liabilities arising under the Securities Act of 1933, or to contribute
payments the underwriters may be required to make for any of those
liabilities.
The underwriters propose to initially offer some of the Preferred
Shares directly to the public at the public offering price set forth on the
cover page of this prospectus and some of the Preferred Shares to certain
dealers at the public offering price less a concession not in excess of $
per share. The sales load the Trust will pay of $ per share is equal to 1%
of the initial offering price. After the initial public offering, the
underwriters may change the public offering price and the concession.
Investors must pay for any Preferred Shares purchased in the initial public
offering on or before, 2002.
The Trust anticipates that from time to time the representatives
of the underwriters and certain other underwriters may act as brokers or
dealers in connection with the execution of the Trust's portfolio
transactions after they have ceased to be underwriters and, subject to
certain restrictions, may act as brokers. The underwriters are active
underwriters of, and dealers in, securities and act as market makers in a
number of such securities, and therefore can be expected to engage in
portfolio transactions with the Trust.
The Trust anticipates that the underwriters or one of their
respective affiliates may, from time to time, act in auctions as
Broker-Dealers and receive fees as set forth under "The Auction."
The principal business address of is
The settlement date for the purchase of the Preferred Shares will
be , 2002, as agreed upon by the underwriters, the Trust and BlackRock
Advisors pursuant to Rule 15c6-1 under the Securities Exchange Act of 1934.
CUSTODIAN, TRANSFER AGENT AND AUCTION AGENT
The Custodian of the assets of the Trust is State Street Bank and
Trust Company, 225 Franklin Street, Boston, Massachusetts 02110. The
Custodian performs custodial, fund accounting and portfolio accounting
services. EquiServe Trust Company, N.A., 150 Royall Street, Canton,
Massachusetts 02021, acts as the Trust's Transfer Agent with respect to the
common shares.
The [Bank of New York], [100 Church Street, New York, New York,
10286], a banking corporation organized under the laws of New York, is the
auction agent with respect to the Preferred Shares and acts as transfer
agent, registrar, dividend disbursing agent, and redemption agent with
respect to such shares.
LEGAL OPINIONS
Certain legal matters in connection with the Preferred Shares
offered hereby will be passed upon for the Trust by Skadden, Arps, Slate,
Meagher & Flom LLP, New York, New York and for the underwriters by . may
rely as to certain matters of Delaware law on the opinion of Skadden, Arps,
Slate, Meagher & Flom LLP. Skadden, Arps, Slate, Meagher & Flom LLP and may
rely on certain matters of New Jersey law on the opinion of .
AVAILABLE INFORMATION
The Trust is subject to the informational requirements of the
Securities Exchange Act of 1934 and the Investment Company Act and is
required to file reports, proxy statements and other information with the
Securities and Exchange Commission. These documents can be inspected and
copied for a fee at the SEC's public reference room, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the SEC's Chicago Regional Office,
Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661-2511. Reports, proxy statements, and other information about
the Trust can be inspected at the offices of the American Stock Exchange,
86 Trinity Place, New York, New York 10006-1872.
This prospectus does not contain all of the information in the
Trust's registration statement, including amendments, exhibits, and
schedules. Statements in this prospectus about the contents of any contact
or other document are not necessarily complete and in each instance
reference is made to the copy of the contact or other document filed as an
exhibit to the registration statement, each such statement being qualified
in all respects by this reference.
Additional information about the Trust and Preferred Shares can be
found in the Trust's registration statement (including amendments,
exhibits, and schedules) on Form N-2 filed with the SEC. The SEC maintains
a web site (http://www.sec.gov) that contains the Trust's registration
statement, other documents incorporated by reference, and other information
the Trust has filed electronically with the Commission, including proxy
statements and reports filed under the Securities Exchange Act of 1934.
APPENDIX A
TAXABLE EQUIVALENT YIELD TABLE
The taxable equivalent yield is the current yield you would need to earn on
a taxable investment in order to equal a stated tax-free yield on a
municipal investment. To assist you to more easily compare municipal
investments like the Trust with taxable alternative investments, the table
below presents the taxable equivalent yields for a range of hypothetical
tax-free yields assuming the stated marginal Federal tax rates for 2002
listed below:
2002-2003 FEDERAL TAXABLE VS. TAX-FREE YIELDS
FEDERAL
SINGLE JOINT TAX TAXABLE EQUIVALENT ESTIMATE CURRENT RETURN
RETURN RETURN BRACKET RATE 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
------ -------------- ------- ----- ----- ----- ----- ----- ----- -----
$0-6,000 $0-12,000 10.00% 4.44% 5.00% 5.56% 6.11% 6.67% 7.22% 7.78%
$6,001-27,950 $12,001-46,700 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
$27,951-67,700 $46,701-112,850 27.00% 5.48% 6.16% 6.85% 7.53% 8.22% 8.90% 9.59%
$67,701-141,250 $112,851-171,950 30.00% 5.71% 6.43% 7.14% 7.86% 8.57% 9.29% 10.00%
$141,251-307,050 $171,951-307,050 35.00% 6.15% 6.92% 7.69% 8.46% 9.23% 10.00% 10.77%
Over $307,050 Over $307,050 38.60% 6.51% 7.33% 8.14% 8.96% 9.77% 10.59% 11.40%
The following tables show the approximate taxable yields for individuals
that are equivalent to tax-free yields under combined Federal and New
Jersey state taxes, using published 2002 marginal Federal tax rates and
marginal New Jersey tax rates currently available and scheduled to be in
effect.
2002-2003
NEW JERSEY
FEDERAL STATE COMBINED
SINGLE JOINT TAX TAX TAX
RETURN RETURN BRACKET BRACKET* BRACKET*
------ ------ ------- -------- --------
$0-6,000 $0-12,000 10.00% 1.400% 11.26%
$6,001-20,000 $12,001-20,000 15.00% 1.400% 16.19%
$20,001-27,950 $20,001-46,700 15.00% 1.750% 16.49%
$46,701-50,000 27.00% 1.750% 28.28%
$27,951-35,000 $50,001-70,000 27.00% 1.750% 28.79%
$35,001-40,000 $70,001-80,000 27.00% 3.500% 29.56%
$40,001-67,700 $80,001-112,850 27.00% 5.525% 31.03%
$67,701-75,000 $112,851-150,000 30.00% 5.525% 33.87%
$75,001-141,250 $150,001-171,950 30.00% 6.370% 34.46%
$141,251-307,050 $171,951-307,050 35.00% 6.370% 39.14%
Over $307,050 Over $307,050 38.60% 6.370% 42.51%
TAXABLE EQUIVALENT ESTIMATED CURRENT RETURN
SINGLE
RETURN 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0%
------ ---- ---- ---- ---- ---- ---- ----
$0-6,000 4.51% 5.07% 5.63% 6.20% 6.76% 7.32% 7.89%
$6,001-20,000 4.77% 5.37% 5.97% 6.56% 7.16% 7.76% 8.35%
$20,001-27,950 4.79% 5.39% 5.99% 6.59% 7.18% 7.78% 8.38%
5.58% 6.27% 6.97% 7.67% 8.37% 9.06% 9.76%
$27,951-35,000 5.62% 6.32% 7.02% 7.72% 8.43% 9.13% 9.83%
$35,001-40,000 5.68% 6.39% 7.10% 7.81% 8.52% 9.23% 9.94%
$40,001-67,700 5.80% 6.52% 7.25% 7.97% 8.70% 9.42% 10.15%
$67,701-75,000 6.05% 6.80% 7.56% 8.32% 9.07% 9.83% 10.58%
$75,001-141,250 6.10% 6.87% 7.63% 8.39% 9.15% 9.92% 10.68%
$141,251-307,050 6.57% 7.39% 8.22% 9.04% 9.86% 10.68% 11.50%
Over $307,050 6.96% 7.83% 8.70% 9.57% 10.44% 11.31% 12.18%
* Tax rates shown reflect the fact that state tax payments are
currently deductible for Federal tax purposes. Please note that the
table does not reflect (i) any Federal or state limitations on the
amounts of allowable itemized deductions, phase-outs of personal or
dependent exemption credits or other allowable credits, (ii) any
local taxes imposed, or (iii) any alternative minimum taxes or any
taxes other than personal income taxes. The table assumes that
Federal taxable income is equal to state income subject to tax, and
in cases where more than one state rate falls within a Federal
bracket, the highest state rate corresponding to the highest income
within that Federal bracket is used. In particular, the table does
not reflect county income taxes. The numbers in the Combined Tax Rate
column are rounded to the nearest one-tenth of one percent.
$
BlackRock New Jersey
Municipal Bond Trust
Municipal Auction Rate Cumulative Preferred Shares
Shares, Series
PROSPECTUS
, 2002
BlackRock New Jersey Municipal Bond Trust
STATEMENT OF ADDITIONAL INFORMATION
BlackRock New Jersey Municipal Bond Trust (the "Trust") is a
recently organized, non-diversified, closed-end, management investment
company. This Statement of Additional Information relating to Preferred
Shares does not constitute a prospectus, but should be read in conjunction
with the prospectus relating hereto dated , 2002. This Statement of
Additional Information, which is not a prospectus, does not include all
information that a prospective investor should consider before purchasing
Preferred Shares, and investors should obtain and read the prospectus prior
to purchasing such shares. A copy of the prospectus may be obtained without
charge by calling (888) 825-2257. You may also obtain a copy of the
prospectus on the Securities and Exchange Commission's web site
(http://www.sec.gov). Capitalized terms used but not defined in this
Statement of Additional Information have the meanings ascribed to them in
the prospectus or the Statement attached as Appendix A.
TABLE OF CONTENTS
Page
----
USE OF PROCEEDS.............................................................A-2
INVESTMENT OBJECTIVE AND POLICIES...........................................A-2
INVESTMENT POLICIES AND TECHNIQUES..........................................A-4
OTHER INVESTMENT POLICIES AND TECHNIQUES...................................A-11
MANAGEMENT OF THE TRUST....................................................A-14
PORTFOLIO TRANSACTIONS AND BROKERAGE.......................................A-20
ADDITIONAL INFORMATION CONCERNING THE AUCTIONS FOR PREFERRED SHARES.......A-21
DESCRIPTION OF COMMON SHARES...............................................A-23
REPURCHASE OF COMMON SHARES................................................A-23
TAX MATTERS................................................................A-24
EXPERTS....................................................................A-28
ADDITIONAL INFORMATION.....................................................A-29
INDEPENDENT AUDITORS' REPORT..................................................1
FINANCIAL STATEMENTS..........................................................4
APPENDIX A Statement of Preferences of Auction Market Preferred Shares.....A-1
APPENDIX B Ratings of Investments..........................................B-1
APPENDIX C General Characteristics and Risks of Hedging Strtegies..........C-1
This Statement of Additional Information is dated , 2002.
USE OF PROCEEDS
Pending investment in municipal bonds that meet the Trust's
investment objective and policies, the net proceeds of the offering will be
invested in high quality, short-term tax-exempt money market securities or
in high quality municipal bonds with relatively low volatility (such as
pre-refunded and intermediate-term bonds), to the extent such securities
are available. If necessary to invest fully the net proceeds of the
offering immediately, the Trust may also purchase, as temporary
investments, short-term taxable investments of the type described under
"Investment Policies and Techniques--Short-Term Taxable Fixed Income
Securities," the income on which is subject to regular Federal income tax
and New Jersey gross income tax and securities of other open- or closed-end
investment companies that invest primarily in municipal bonds of the type
in which the Trust may invest directly.
INVESTMENT OBJECTIVE AND POLICIES
The Trust has not established any limit on the percentage of its
portfolio that may be invested in municipal bonds subject to the
alternative minimum tax provisions of Federal tax law, and the Trust
expects that a portion of the income it produces will be includable in
alternative minimum taxable income. Preferred Shares therefore would not
ordinarily be a suitable investment for investors who are subject to the
Federal alternative minimum tax or who would become subject to such tax by
purchasing Preferred Shares. The suitability of an investment in Preferred
Shares will depend upon a comparison of the after-tax yield likely to be
provided from the Trust with that from comparable tax-exempt investments
not subject to the alternative minimum tax, and from comparable fully
taxable investments, in light of each such investor's tax position. Special
considerations apply to corporate investors. See "Tax Matters."
Investment Restrictions
Except as described below, the Trust, as a fundamental policy, may
not, without the approval of the holders of a majority of the outstanding
common shares and Preferred Shares, voting together as a single class, and
of the holders of a majority of the outstanding Preferred Shares voting as
a separate class:
(1) invest 25% or more of the value of its Managed Assets
in any one industry, provided that this limitation does not apply
to municipal bonds other than those municipal bonds backed only by
assets and revenues of non-governmental issuers;
(2) issue senior securities or borrow money other than as
permitted by the Investment Company Act 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;
(3) make loans of money or property to any person, except
through loans of portfolio securities, the purchase of fixed
income securities consistent with the Trust's investment objective
and policies or the entry into 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 the Trust may be
deemed to be an underwriter;
(5) purchase or sell real estate or interests therein
other than municipal bonds secured by real estate or interests
therein; provided that the Trust may hold and sell any real estate
acquired in connection with its investment in portfolio
securities; or
(6) purchase or sell commodities or commodity contracts
for any purposes except as, and to the extent, permitted by
applicable law without the Trust becoming subject to registration
with the Commodity Futures Trading Commission (the "CFTC") as a
commodity pool.
When used with respect to particular shares of the Trust,
"majority of the outstanding" means (i) 67% or more of the shares present
at a meeting, if the holders of more than 50% of the shares are present or
represented by proxy, or (ii) more than 50% of the shares, whichever is
less.
For purposes of applying the limitation set forth in subparagraph
(1) above, securities of the U.S. government, its agencies, or
instrumentalities, and securities backed by the credit of a governmental
entity are not considered to represent industries. However, obligations
backed only by the assets and revenues of non-governmental issuers may for
this purpose be deemed to be issued by such non-governmental issuers. Thus,
the 25% limitation would apply to such obligations. It is nonetheless
possible that the Trust may invest more than 25% of its Managed Assets in a
broader economic sector of the market for municipal obligations, such as
revenue obligations of hospitals and other health care facilities or
electrical utility revenue obligations. The Trust reserves the right to
invest more than 25% of its Managed Assets in industrial development bonds
and private activity securities.
For the purpose of applying the limitation set forth in
subparagraph (1) above, a non-governmental issuer shall be deemed the sole
issuer of a security when its assets and revenues are separate from other
governmental entities and its securities are backed only by its assets and
revenues. Similarly, in the case of a non-governmental issuer, such as an
industrial corporation or a privately owned or operated hospital, if the
security is backed only by the assets and revenues of the non-governmental
issuer, then such non-governmental issuer would be deemed to be the sole
issuer. Where a security is also backed by the enforceable obligation of a
superior or unrelated governmental or other entity (other than a bond
insurer), it shall also be included in the computation of securities owned
that are issued by such governmental or other entity. Where a security is
guaranteed by a governmental entity or some other facility, such as a bank
guarantee or letter of credit, such a guarantee or letter of credit would
be considered a separate security and would be treated as an issue of such
government, other entity or bank. When a municipal bond is insured by bond
insurance, it shall not be considered a security that is issued or
guaranteed by the insurer; instead, the issuer of such municipal bond will
be determined in accordance with the principles set forth above. The
foregoing restrictions do not limit the percentage of the Trust's assets
that may be invested in municipal bonds insured by any given insurer.
Under the Investment Company Act, the Trust may invest up to 10%
of its total assets in the aggregate in shares of other investment
companies and up to 5% of its total assets in any one investment company,
provided the investment does not represent more than 3% of the voting stock
of the acquired investment company at the time such shares are purchased.
As a shareholder in any investment company, the Trust will bear its ratable
share of that investment company's expenses, and will remain subject to
payment of the Trust's advisory fees and other expenses with respect to
assets so invested. Holders of common shares will therefore be subject to
duplicative expenses to the extent the Trust invests in other investment
companies. In addition, the securities of other investment companies may
also be leveraged and will therefore be subject to the same leverage risks
described herein and in the prospectus. As described in the prospectus in
the section entitled "Risks," the net asset value and market value of
leveraged shares will be more volatile and the yield to shareholders will
tend to fluctuate more than the yield generated by unleveraged shares.
As a fundamental policy, under normal market conditions, the Trust
will invest at least 80% of its Managed Assets in municipal bonds, the
interest of which is exempt from regular Federal income tax and New Jersey
gross income tax.
In addition to the foregoing fundamental investment policies, the
Trust is also subject to the following non-fundamental restrictions and
policies, which may be changed by the board of trustees. The Trust may not:
(1) 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 the
Trust's Managed Assets and the Trust's aggregate short sales of a
particular class of securities does not exceed 25% of the then
outstanding securities of that class. The Trust may also make
short sales "against the box" without respect to such limitations.
In this type of short sale, at the time of the sale, the Trust
owns or has the immediate and unconditional right to acquire at no
additional cost the identical security;
(2) purchase securities of open-end or closed-end
investment companies except in compliance with the Investment
Company Act or any exemptive relief obtained thereunder; or
(3) purchase securities of companies for the purpose of
exercising control.
The restrictions and other limitations set forth above will apply
only at the time of purchase of securities and will not be considered
violated unless an excess or deficiency occurs or exists immediately after
and as a result of the acquisition of securities.
In addition, to comply with Federal tax requirements for
qualification as a "regulated investment company," the Trust's investments
will be limited in a manner such that at the close of each quarter of each
taxable year, (a) no more than 25% of the value of the Trust's total assets
are invested in the securities (other than United States government
securities or securities of other regulated investment companies) of a
single issuer or two or more issuers controlled by the Trust and engaged in
the same, similar or related trades or businesses and (b) with regard to at
least 50% of the Trust's total assets, no more than 5% of its total assets
are invested in the securities (other than United States government
securities or securities of other regulated investment companies) of a
single issuer. These tax-related limitations may be changed by the Trustees
to the extent appropriate in light of changes to applicable tax
requirements.
The Trust intends to apply for ratings for the Preferred Shares
from Moody's and/or S&P. In order to obtain and maintain the required
ratings, the Trust will be required to comply with investment quality,
diversification and other guidelines established by Moody's and/or S&P.
Such guidelines will likely be more restrictive than the restrictions set
forth above. The Trust does not anticipate that such guidelines would have
a material adverse effect on the Trust's holders of common shares or its
ability to achieve its investment objective. The Trust presently
anticipates that any Preferred Shares that it intends to issue would be
initially given the highest ratings by Moody's (Aaa) and/or by S&P (AAA),
but no assurance can be given that such ratings will be obtained. No
minimum rating is required for the issuance of Preferred Shares by the
Trust. Moody's and S&P receive fees in connection with their ratings
issuances.
INVESTMENT POLICIES AND TECHNIQUES
The following information supplements the discussion of the
Trust's investment objectives, policies and techniques that are described
in the prospectus.
Portfolio Investments
The Trust will invest primarily in a portfolio of investment grade
municipal bonds that are exempt from regular Federal income tax and New
Jersey gross income tax.
Issuers of bonds rated Ba/BB or B are regarded as having current
capacity to make principal and interest payments but are subject to
business, financial or economic conditions which could adversely affect
such payment capacity. Municipal bonds rated Baa or BBB are considered
"investment grade" securities; municipal bonds rated Baa are considered
medium grade obligations which lack outstanding investment characteristics
and have speculative characteristics, while municipal bonds rated BBB are
regarded as having adequate capacity to pay principal and interest.
Municipal bonds rated AAA in which the Trust may invest may have been so
rated on the basis of the existence of insurance guaranteeing the timely
payment, when due, of all principal and interest. Municipal bonds rated
below investment grade quality are obligations of issuers that are
considered predominantly speculative with respect to the issuer's capacity
to pay interest and repay principal according to the terms of the
obligation and, therefore, carry greater investment risk, including the
possibility of issuer default and bankruptcy and increased market price
volatility. Municipal bonds rated below investment grade tend to be less
marketable than higher-quality bonds because the market for them is less
broad. The market for unrated municipal bonds is even narrower. During
periods of thin trading in these markets, the spread between bid and asked
prices is likely to increase significantly and the Trust may have greater
difficulty selling its portfolio securities. The Trust will be more
dependent on BlackRock's research and analysis when investing in these
securities.
A general description of Moody's, S&P's and Fitch's ratings of
municipal bonds is set forth in Appendix B hereto. The ratings of Moody's,
S&P and Fitch represent their opinions as to the quality of the municipal
bonds they rate. It should be emphasized, however, that ratings are general
and are not absolute standards of quality. Consequently, municipal bonds
with the same maturity, coupon and rating may have different yields while
obligations of the same maturity and coupon with different ratings may have
the same yield.
The Trust will primarily invest in municipal bonds with long-term
maturities in order to maintain a weighted average maturity of 15 or more
years, but the average weighted maturity may be shortened from time to time
depending on market conditions. As a result, the Trust's portfolio at any
given time may include both long-term and intermediate-term municipal
bonds. Moreover, during temporary defensive periods (e.g., times when, in
BlackRock's opinion, temporary imbalances of supply and demand or other
temporary dislocations in the tax-exempt bond market adversely affect the
price at which long-term or intermediate-term municipal bonds are
available), and in order to keep cash on hand fully invested, including the
period during which the net proceeds of the offering are being invested,
the Trust may invest any percentage of its assets in short-term investments
including high quality, short-term securities which may be either
tax-exempt or taxable and securities of other open- or closed-end
investment companies that invest primarily in municipal bonds of the type
in which the Trust may invest directly. The Trust intends to invest in
taxable short-term investments only in the event that suitable tax-exempt
temporary investments are not available at reasonable prices and yields.
Tax-exempt temporary investments include various obligations issued by
state and local governmental issuers, such as tax-exempt notes (bond
anticipation notes, tax anticipation notes and revenue anticipation notes
or other such municipal bonds maturing in three years or less from the date
of issuance) and municipal commercial paper. The Trust will invest only in
taxable temporary investments which are U.S. government securities or
securities rated within the highest grade by Moody's, S&P or Fitch, and
which mature within one year from the date of purchase or carry a variable
or floating rate of interest. Taxable temporary investments of the Trust
may include certificates of deposit issued by U.S. banks with assets of at
least $1 billion, commercial paper or corporate notes, bonds or debentures
with a remaining maturity of one year or less, or repurchase agreements.
See "Other Investment Policies and Techniques--Repurchase Agreements." To
the extent the Trust invests in taxable investments, the Trust will not at
such times be in a position to achieve its investment objective of
tax-exempt income.
The foregoing policies as to ratings of portfolio investments will
apply only at the time of the purchase of a security and the Trust will not
be required to dispose of securities in the event Moody's, S&P or Fitch
downgrades its assessment of the credit characteristics of a particular
issuer.
Also included within the general category of municipal bonds
described in the prospectus are participations in lease obligations or
installment purchase contract obligations (hereinafter collectively called
"Municipal Lease Obligations") of municipal authorities or entities.
Although a Municipal Lease Obligation does not constitute a general
obligation of the municipality for which the municipality's taxing power is
pledged, a Municipal Lease Obligation is ordinarily backed by the
municipality's covenant to budget for, appropriate and make the payments
due under the Municipal Lease Obligation. However, certain Municipal Lease
Obligations contain "non-appropriation" clauses which provide that the
municipality has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for such purpose on a
yearly basis. In the case of a "non-appropriation" lease, the Trust's
ability to recover under the lease in the event of non-appropriation or
default will be limited solely to the repossession of the leased property,
without recourse to the general credit of the lessee, and the disposition
or re-leasing of the property might prove difficult. In order to reduce
this risk, the Trust will only purchase Municipal Lease Obligations where
BlackRock believes the issuer has a strong incentive to continue making
appropriations until maturity.
Obligations of issuers of municipal bonds are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights
and remedies of creditors, such as the Bankruptcy Reform Act of 1978. In
addition, the obligations of such issuers may become subject to the laws
enacted in the future by Congress, state legislatures or referenda
extending the time for payment of principal or interest, or both, or
imposing other constraints upon enforcement of such obligations or upon
municipalities to levy taxes. There is also the possibility that, as a
result of legislation or other conditions, the power or ability of any
issuer to pay, when due, the principal of and interest on its municipal
bonds may be materially affected.
In addition to the types of municipal bonds described in the
prospectus, the Trust may invest in other securities that pay interest that
is, or make other distributions that are, exempt from regular Federal
income tax and/or state and local personal taxes, regardless of the
technical structure of the issuer of the instrument. The Trust treats all
such tax-exempt securities as municipal bonds.
Short-Term Taxable Fixed Income Securities
For temporary defensive purposes or to keep cash on hand fully
invested, the Trust may invest up to 100% of its total assets in cash
equivalents and short-term taxable fixed-income securities, although the
Trust intends to invest in taxable short-term investments only in the event
that suitable tax-exempt short-term investments are not available at
reasonable prices and yields. Short-term taxable fixed income investments
are defined to include, without limitation, the following:
(1) U.S. government securities, including bills, notes
and bonds differing as to maturity and rates of interest that are
either issued or guaranteed by the U.S. Treasury or by U.S.
government agencies or instrumentalities. U.S. government
securities include securities issued by (a) the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of
the United States, Small Business Administration, and the
Government National Mortgage Association, whose securities are
supported by the full faith and credit of the United States; (b)
the Federal Home Loan Banks, Federal Intermediate Credit Banks,
and the Tennessee Valley Authority, whose securities are supported
by the right of the agency to borrow from the U.S. Treasury; (c)
the Federal National Mortgage Association, whose securities are
supported by the discretionary authority of the U.S. government to
purchase certain obligations of the agency or instrumentality; and
(d) the Student Loan Marketing Association, whose securities are
supported only by its credit. While the U.S. government provides
financial support to such U.S. government-sponsored agencies or
instrumentalities, no assurance can be given that it always will
do so since it is not so obligated by law. The U.S. government,
its agencies and instrumentalities do not guarantee the market
value of their securities. Consequently, the value of such
securities may fluctuate.
(2) Certificates of deposit issued against funds
deposited in a bank or a savings and loan association. Such
certificates are for a definite period of time, earn a specified
rate of return, and are normally negotiable. The issuer of a
certificate of deposit agrees to pay the amount deposited plus
interest to the bearer of the certificate on the date specified
thereon. Certificates of deposit purchased by the Trust may not be
fully insured by the Federal Deposit Insurance Corporation.
(3) Repurchase agreements, which involve purchases of
debt securities. At the time the Trust purchases securities
pursuant to a repurchase agreement, it simultaneously agrees to
resell and redeliver such securities to the seller, who also
simultaneously agrees to buy back the securities at a fixed price
and time. This assures a predetermined yield for the Trust during
its holding period, since the resale price is always greater than
the purchase price and reflects an agreed-upon market rate. Such
actions afford an opportunity for the Trust to invest temporarily
available cash. The Trust may enter into repurchase agreements
only with respect to obligations of the U.S. government, its
agencies or instrumentalities; certificates of deposit; or
bankers' acceptances in which the Trust may invest. Repurchase
agreements may be considered loans to the seller, collateralized
by the underlying securities. The risk to the Trust is limited to
the ability of the seller to pay the agreed-upon sum on the
repurchase date; in the event of default, the repurchase agreement
provides that the Trust is entitled to sell the underlying
collateral. If the value of the collateral declines after the
agreement is entered into, and if the seller defaults under a
repurchase agreement when the value of the underlying collateral
is less than the repurchase price, the Trust could incur a loss of
both principal and interest. BlackRock monitors the value of the
collateral at the time the action is entered into and at all times
during the term of the repurchase agreement. BlackRock does so in
an effort to determine that the value of the collateral always
equals or exceeds the agreed-upon repurchase price to be paid to
the Trust. If the seller were to be subject to a Federal
bankruptcy proceeding, the ability of the Trust to liquidate the
collateral could be delayed or impaired because of certain
provisions of the bankruptcy laws.
(4) Commercial paper, which consists of short-term
unsecured promissory notes, including variable rate master demand
notes issued by corporations to finance their current operations.
Master demand notes are direct lending arrangements between the
Trust and a corporation. There is no secondary market for such
notes. However, they are redeemable by the Trust at any time.
BlackRock will consider the financial condition of the corporation
(e.g., earning power, cash flow and other liquidity ratios) and
will continuously monitor the corporation's ability to meet all of
its financial obligations, because the Trust's liquidity might be
impaired if the corporation were unable to pay principal and
interest on demand. Investments in commercial paper will be
limited to commercial paper rated in the highest categories by a
major rating agency and which mature within one year of the date
of purchase or carry a variable or floating rate of interest.
Short-Term Tax-Exempt Fixed Income Securities
Short-term tax-exempt fixed income securities are securities that
are exempt from regular Federal income tax and mature within three years or
less from the date of issuance. Short-term tax-exempt fixed income
securities are defined to include, without limitation, the following:
Bond Anticipation Notes ("BANs") are usually general obligations
of state and local governmental issuers which are sold to obtain interim
financing for projects that will eventually be funded through the sale of
long-term debt obligations or bonds. The ability of an issuer to meet its
obligations on its BANs is primarily dependent on the issuer's access to
the long-term municipal bond market and the likelihood that the proceeds of
such bond sales will be used to pay the principal and interest on the BANs.
Tax Anticipation Notes ("TANs") are issued by state and local
governments to finance the current operations of such governments.
Repayment is generally to be derived from specific future tax revenues.
TANs are usually general obligations of the issuer. A weakness in an
issuer's capacity to raise taxes due to, among other things, a decline in
its tax base or a rise in delinquencies could adversely affect the issuer's
ability to meet its obligations on outstanding TANs.
Revenue Anticipation Notes ("RANs") are issued by governments or
governmental bodies with the expectation that future revenues from a
designated source will be used to repay the notes. In general, they also
constitute general obligations of the issuer. A decline in the receipt of
projected revenues, such as anticipated revenues from another level of
government, could adversely affect an issuer's ability to meet its
obligations on outstanding RANs. In addition, the possibility that the
revenues would, when received, be used to meet other obligations could
affect the ability of the issuer to pay the principal and interest on RANs.
Construction Loan Notes are issued to provide construction
financing for specific projects. Frequently, these notes are redeemed with
funds obtained from the Federal Housing Administration.
Bank Notes are notes issued by local government bodies and
agencies as those described above to commercial banks as evidence of
borrowings. The purposes for which the notes are issued are varied but they
are frequently issued to meet short-term working capital or capital-project
needs. These notes may have risks similar to the risks associated with TANs
and RANs.
Tax-Exempt Commercial Paper ("municipal paper") represents very
short-term unsecured, negotiable promissory notes, issued by states,
municipalities and their agencies. Payment of principal and interest on
issues of municipal paper may be made from various sources, to the extent
the funds are available therefrom. Maturities on municipal paper generally
will be shorter than the maturities of TANs, BANs or RANs. There is a
limited secondary market for issues of municipal paper.
Certain municipal bonds may carry variable or floating rates of
interest whereby the rate of interest is not fixed but varies with changes
in specified market rates or indices, such as a bank prime rate or
tax-exempt money market indices.
While the various types of notes described above as a group
represent the major portion of the tax-exempt note market, other types of
notes are available in the marketplace and the Trust may invest in such
other types of notes to the extent permitted under its investment
objective, policies and limitations. Such notes may be issued for different
purposes and may be secured differently from those mentioned above.
Factors Pertaining To New Jersey
Individual shareholders of the Trust, including trusts and
estates, who are subject to the New Jersey gross income tax will not be
required to include in their New Jersey gross income distributions from the
Trust which the Trust clearly identifies as directly attributable to
interest or gains from New Jersey municipal securities, obligations of the
United States or any other obligations the interest and gain on which are
exempt from New Jersey gross income tax under New Jersey or Federal law,
provided that the Trust qualifies as a regulated investment company under
the Code and provided that the Trust satisfies New Jersey's statutory
requirements for treatment as a qualified investment fund under the
provisions of the New Jersey Gross Income Tax Act (N.J. Stat. Ann.
(S).54A:5-1 et seq.), as amended and any regulations promulgated
thereunder.
Under existing New Jersey law, gross income distributions to
individual shareholders from the Trust will not be subject to the New
Jersey gross income tax for any calendar year if, at the close of each
quarter of such calendar year, the Trust's portfolio consisted solely of
(1) notes, bonds and other obligations issued by the State of New Jersey or
its municipalities, counties and other taxing districts, or by the United
States government and its agencies, or by the governments of Puerto Rico,
Guam or the U.S. Virgin Islands, or (2) any other obligations which are
exempt from inclusion in gross income under the New Jersey Gross Income Tax
Act.
The foregoing is a general and abbreviated summary of the
applicable provisions of the Code, Treasury Regulations and New Jersey tax
laws presently in effect. For the complete provisions, reference should be
made to the pertinent Code sections and the Treasury Regulations
promulgated thereunder. The Code and the Treasury Regulations, as well as
the New Jersey tax laws, are subject to change by legislative, judicial or
administrative action either prospectively or retroactively.
Shareholders are urged to consult their tax advisors regarding
specific questions as to Federal, foreign, state or local tax consequences
of an investment in the Trust.
Duration Management and Other Management Techniques
The Trust may use a variety of other investment management
techniques and instruments. The Trust may purchase and sell futures
contracts, enter into various interest rate transactions and may purchase
and sell exchange-listed and over-the-counter put and call options on
securities, financial indices and futures contracts (collectively,
"Additional Investment Management Techniques"). These Additional Investment
Management Techniques may be used for duration management and other risk
management techniques in an attempt to protect against possible changes in
the market value of the Trust's portfolio resulting from trends in the debt
securities markets and changes in interest rates, to protect the Trust's
unrealized gains in the value of its portfolio securities, to facilitate
the sale of such securities for investment purposes, to establish a
position in the securities markets as a temporary substitute for purchasing
particular securities and to enhance income or gain. There is no particular
strategy that requires use of one technique rather than another as the
decision to use any particular strategy or instrument is a function of
market conditions and the composition of the portfolio. The Additional
Investment Management Techniques are described below. The ability of the
Trust to use them successfully will depend on BlackRock's ability to
predict pertinent market movements as well as sufficient correlation among
the instruments, which cannot be assured. Inasmuch as any obligations of
the Trust that arise from the use of Additional Investment Management
Techniques will be covered by designating liquid assets on the books and
records of the Trust or offsetting transactions, the Trust and BlackRock
believe such obligations do not constitute senior securities and,
accordingly, will not treat them as being subject to its borrowing
restrictions. Commodity options and futures contracts regulated by the CFTC
have specific margin requirements described below and are not treated as
senior securities. The use of certain Additional Investment Management
Techniques may give rise to taxable income and have certain other
consequences. See "Tax Matters."
Interest Rate Transactions. The Trust may enter into interest rate
swaps and the purchase or sale of interest rate caps and floors. The Trust
expects to enter into these transactions primarily to preserve a return or
spread on a particular investment or portion of its portfolio as a duration
management technique or to protect against any increase in the price of
securities the Trust anticipates purchasing at a later date. The Trust will
ordinarily use these transactions as a hedge or for duration or risk
management although it is permitted to enter into them to enhance income or
gain. The Trust will not sell interest rate caps or floors that it does not
own. Interest rate swaps involve the exchange by the Trust with another
party of their respective commitments to pay or receive interest, e.g., an
exchange of floating rate payments for fixed rate payments with respect to
a notional amount of principal. The purchase of an interest rate cap
entitles the purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payments of interest on a notional
principal amount from the party selling such interest rate cap. The
purchase of an interest rate floor entitles the purchaser, to the extent
that a specified index falls below a predetermined interest rate, to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor.
The Trust may enter into interest rate swaps, caps and floors on
either an asset-based or liability-based basis, and will usually enter into
interest rate swaps on a net basis, i.e., the two payment streams are
netted out, with the Trust receiving or paying, as the case may be, only
the net amount of the two payments on the payment dates. The Trust will
accrue the net amount of the excess, if any, of the Trust's obligations
over its entitlements with respect to each interest rate swap on a daily
basis and will designate on its books and records an amount of cash or
liquid high grade securities having an aggregate net asset value at all
times at least equal to the accrued excess. The Trust will not enter into
any interest rate swap, cap or floor transaction unless the unsecured
senior debt or the claims-paying ability of the other party thereto is
rated in the highest rating category of at least one nationally recognized
statistical rating organization at the time of entering into such
transaction. If there is a default by the other party to such a
transaction, the Trust will have contractual remedies pursuant to the
agreements related to the transaction.
Futures Contracts and Options on Futures Contracts. The Trust may
also enter into contracts for the purchase or sale for future delivery
("futures contracts") of debt securities, aggregates of debt securities or
indices or prices thereof, other financial indices and U.S. government debt
securities or options on the above. The Trust will ordinarily engage in
such transactions only for bona fide hedging, risk management (including
duration management) and other portfolio management purposes. However, the
Trust is also permitted to enter into such transactions for non-hedging
purposes to enhance income or gain, in accordance with the rules and
regulations of the CFTC, which currently provide that no such transaction
may be entered into if at such time more than 5% of the Trust's net assets
would be posted as initial margin and premiums with respect to such
non-hedging transactions.
Calls on Securities, Indices and Futures Contracts. The Trust may
sell or purchase call options ("calls") on municipal bonds and indices
based upon the prices of futures contracts and debt securities that are
traded on U.S. and foreign securities exchanges and in the over-the-counter
markets. A call gives the purchaser of the option the right to buy, and
obligates the seller to sell, the underlying security, futures contract or
index at the exercise price at any time or at a specified time during the
option period. All such calls sold by the Trust must be "covered" as long
as the call is outstanding (i.e., the Trust must own the securities or
futures contract subject to the call or other securities acceptable for
applicable escrow requirements). A call sold by the Trust exposes the Trust
during the term of the option to possible loss of opportunity to realize
appreciation in the market price of the underlying security, index or
futures contract and may require the Trust to hold a security or futures
contract which it might otherwise have sold. The purchase of a call gives
the Trust the right to buy a security, futures contract or index at a fixed
price. Calls on futures on municipal bonds must also be covered by
deliverable securities or the futures contract or by liquid high grade debt
securities segregated to satisfy the Trust's obligations pursuant to such
instruments.
Puts on Securities, Indices and Futures Contracts. The Trust may
purchase put options ("puts") that relate to municipal bonds (whether or
not it holds such securities in its portfolio), indices or futures
contracts. The Trust may also sell puts on municipal bonds, indices or
futures contracts on such securities if the Trust's contingent obligations
on such puts are secured by segregated assets consisting of cash or liquid
high grade debt securities having a value not less than the exercise price.
The Trust will not sell puts if, as a result, more than 50% of the Trust's
total assets would be required to cover its potential obligations under its
hedging and other investment transactions. In selling puts, there is a risk
that the Trust may be required to buy the underlying security at a price
higher than the current market price.
Municipal Market Data Rate Locks. The Trust may purchase and sell
Municipal Market Data Rate Locks ("MMD Rate Locks"). An MMD Rate Lock
permits the Trust to lock in a specified municipal interest rate for a
portion of its portfolio to preserve a return on a particular investment or
a portion of its portfolio as a duration management technique or to protect
against any increase in the price of securities to be purchased at a later
date. The Trust will ordinarily use these transactions as a hedge or for
duration or risk management although it is permitted to enter into them to
enhance income or gain. An MMD Rate Lock is a contract between the Trust
and an MMD Rate Lock provider pursuant to which the parties agree to make
payments to each other on a notional amount, contingent upon whether the
Municipal Market Data AAA General Obligation Scale is above or below a
specified level on the expiration date of the contract. For example, if the
Trust buys an MMD Rate Lock and the Municipal Market Data AAA General
Obligation Scale is below the specified level on the expiration date, the
counterparty to the contract will make a payment to the Trust equal to the
specified level minus the actual level, multiplied by the notional amount
of the contract. If the Municipal Market Data AAA General Obligation Scale
is above the specified level on the expiration date, the Trust will make a
payment to the counterparty equal to the actual level minus the specified
level multiplied by the notional amount of the contract. In entering into
MMD Rate Locks, there is a risk that municipal yields will move in the
direction opposite of the direction anticipated by the Trust. The Trust
will not enter into MMD Rate Locks if, as a result, more than 50% of its
total assets would be required to cover its potential obligations under its
hedging and other investment transactions.
Appendix D contains further information about the characteristics,
risks and possible benefits of Additional Investment Management Techniques
and the Trust's other policies and limitations (which are not fundamental
policies) relating to investment in futures contracts and options. The
principal risks relating to the use of futures contracts and other
Additional Investment Management Techniques are: (a) less than perfect
correlation between the prices of the instrument and the market value of
the securities in the Trust's portfolio; (b) possible lack of a liquid
secondary market for closing out a position in such instruments; (c) losses
resulting from interest rate or other market movements not anticipated by
BlackRock; and (d) the obligation to meet additional variation margin or
other payment requirements, all of which could result in the Trust being in
a worse position than if such techniques had not been used.
Certain provisions of the Code may restrict or affect the ability
of the Trust to engage in Additional Investment Management Techniques. See
"Tax Matters."
Short Sales
The Trust may make short sales of municipal bonds. A short sale is
a transaction in which the Trust sells a security it does not own in
anticipation that the market price of that security will decline. The Trust
may make short sales to hedge positions, for duration and risk management,
in order to maintain portfolio flexibility or to enhance income or gain.
When the Trust makes a short sale, it must borrow the security
sold short and deliver it to the broker-dealer through which it made the
short sale as collateral for its obligation to deliver the security upon
conclusion of the sale. The Trust may have to pay a fee to borrow
particular securities and is often obligated to pay over any payments
received on such borrowed securities.
The Trust's obligation to replace the borrowed security will be
secured by collateral deposited with the broker-dealer, usually cash, U.S.
government securities or other liquid securities. The Trust will also be
required to earmark similar collateral with its custodian to the extent, if
any, necessary so that the aggregate collateral value is at all times at
least equal to the current market value of the security sold short.
Depending on arrangements made with the broker-dealer from which it
borrowed the security regarding payment over of any payments received by
the Trust on such security, the Trust may not receive any payments
(including interest) on its collateral deposited with such broker-dealer.
If the price of the security sold short increases between the time
of the short sale and the time the Trust replaces the borrowed security,
the Trust will incur a loss; conversely, if the price declines, the Trust
will realize a gain. Any gain will be decreased, and any loss increased, by
the transaction costs described above. Although the Trust's gain is limited
to the price at which it sold the security short, its potential loss is
theoretically unlimited.
The Trust will not make a short sale if, after giving effect to
such sale, the market value of all securities sold short exceeds 25% of the
value of its Managed Assets or the Trust's aggregate short sales of a
particular class of securities exceeds 25% of the outstanding securities of
that class. The Trust may also make short sales "against the box" without
respect to such limitations. In this type of short sale, at the time of the
sale, the Trust owns or has the immediate and unconditional right to
acquire at no additional cost the identical security.
OTHER INVESTMENT POLICIES AND TECHNIQUES
Restricted and Illiquid Securities
Certain of the Trust's investments may be illiquid. Illiquid
securities are subject to legal or contractual restrictions on disposition
or lack an established secondary trading market. The sale of restricted and
illiquid securities often requires more time and results in higher
brokerage charges or dealer discounts and other selling expenses than does
the sale of securities eligible for trading on national securities
exchanges or in the over-the-counter markets. Restricted securities may
sell at a price lower than similar securities that are not subject to
restrictions on resale.
When-Issued and Forward Commitment Securities
The Trust may purchase Securities on a "when-issued" basis and may
purchase or sell Securities on a "forward commitment" basis in order to
acquire the security or to hedge against anticipated changes in interest
rates and prices. When such transactions are negotiated, the price, which
is generally expressed in yield terms, is fixed at the time the commitment
is made, but delivery and payment for the securities take place at a later
date. When-issued securities and forward commitments may be sold prior to
the settlement date, but the Trust will enter into when-issued and forward
commitments only with the intention of actually receiving or delivering the
securities, as the case may be. If the Trust disposes of the right to
acquire a when-issued security prior to its acquisition or disposes of its
right to deliver or receive against a forward commitment, it might incur a
gain or loss. At the time the Trust enters into a transaction on a
when-issued or forward commitment basis, it will designate on its books and
records cash or liquid debt securities equal to at least the value of the
when-issued or forward commitment securities. The value of these assets
will be monitored daily to ensure that their marked to market value will at
all times equal or exceed the corresponding obligations of the Trust. There
is always a risk that the securities may not be delivered and that the
Trust may incur a loss. Settlements in the ordinary course, which may take
substantially more than five business days, are not treated by the Trust as
when-issued or forward commitment transactions and accordingly are not
subject to the foregoing restrictions.
Borrowing
Although it has no present intention of doing so, the Trust
reserves the right to borrow funds to the extent permitted as described
under the caption "Investment Objective and Policies--Investment
Restrictions." The proceeds of borrowings may be used for any valid purpose
including, without limitation, liquidity, investments and repurchases of
shares of the Trust. Borrowing is a form of leverage and, in that respect,
entails risks comparable to those associated with the issuance of Preferred
Shares.
Reverse Repurchase Agreements
The Trust may enter into reverse repurchase agreements with
respect to its portfolio investments subject to the investment restrictions
set forth herein. Reverse repurchase agreements involve the sale of
securities held by the Trust with an agreement by the Trust to repurchase
the securities at an agreed upon price, date and interest payment. At the
time the Trust enters into a reverse repurchase agreement, it may designate
on its books and records liquid instruments having a value not less than
the repurchase price (including accrued interest). If the Trust establishes
and maintains such a segregated account, a reverse repurchase agreement
will not be considered a borrowing by the Trust; however, under certain
circumstances in which the Trust does not establish and maintain such a
segregated account, such reverse repurchase agreement will be considered a
borrowing for the purpose of the Trust's limitation on borrowings. The use
by the Trust of reverse repurchase agreements involves many of the same
risks of leverage since the proceeds derived from such reverse repurchase
agreements may be invested in additional securities. Reverse repurchase
agreements involve the risk that the market value of the securities
acquired in connection with the reverse repurchase agreement may decline
below the price of the securities the Trust has sold but is obligated to
repurchase. Also, reverse repurchase agreements involve the risk that the
market value of the securities retained in lieu of sale by the Trust in
connection with the reverse repurchase agreement may decline in price.
If the buyer of securities under a reverse repurchase agreement
files for bankruptcy or becomes insolvent, such buyer or its trustee or
receiver may receive an extension of time to determine whether to enforce
the Trust's obligation to repurchase the securities, and the Trust's use of
the proceeds of the reverse repurchase agreement may effectively be
restricted pending such decision. Also, the Trust would bear the risk of
loss to the extent that the proceeds of the reverse repurchase agreement
are less than the value of the securities subject to such agreement.
Repurchase Agreements
As temporary investments, the Trust may invest in repurchase
agreements. A repurchase agreement is a contractual agreement whereby the
seller of securities (U.S. government securities or municipal bonds) agrees
to repurchase the same security at a specified price on a future date
agreed upon by the parties. The agreed-upon repurchase price determines the
yield during the Trust's holding period. Repurchase agreements are
considered to be loans collateralized by the underlying security that is
the subject of the repurchase contract. Income generated from transactions
in repurchase agreements will be taxable. See "Tax Matters" for information
relating to the allocation of taxable income between common shares and
Preferred Shares. The Trust will only enter into repurchase agreements with
registered securities dealers or domestic banks that, in the opinion of
BlackRock, present minimal credit risk. The risk to the Trust is limited to
the ability of the issuer to pay the agreed-upon repurchase price on the
delivery date; however, although the value of the underlying collateral at
the time the transaction is entered into always equals or exceeds the
agreed-upon repurchase price, if the value of the collateral declines there
is a risk of loss of both principal and interest. In the event of default,
the collateral may be sold but the Trust might incur a loss if the value of
the collateral declines, and might incur disposition costs or experience
delays in connection with liquidating the collateral. In addition, if
bankruptcy proceedings are commenced with respect to the seller of the
security, realization upon the collateral by the Trust may be delayed or
limited. BlackRock will monitor the value of the collateral at the time the
transaction is entered into and at all times subsequent during the term of
the repurchase agreement in an effort to determine that such value always
equals or exceeds the agreed-upon repurchase price. In the event the value
of the collateral declines below the repurchase price, BlackRock will
demand additional collateral from the issuer to increase the value of the
collateral to at least that of the repurchase price, including interest.
Zero Coupon Bonds
The Trust may invest in zero coupon bonds. A zero coupon bond is a
bond that does not pay interest for its entire life. The market prices of
zero coupon bonds are affected to a greater extent by changes in prevailing
levels of interest rates and thereby tend to be more volatile in price than
securities that pay interest periodically. In addition, because the Trust
accrues income with respect to these securities prior to the receipt of
such interest, it may have to dispose of portfolio securities under
disadvantageous circumstances in order to obtain cash needed to pay income
dividends in amounts necessary to avoid unfavorable tax consequences.
Lending of Securities
The Trust may lend its portfolio securities to banks or dealers
which meet the creditworthiness standards established by the board of
trustees of the Trust ("Qualified Institutions"). By lending its portfolio
securities, the Trust attempts to increase its income through the receipt
of interest on the loan. Any gain or loss in the market price of the
securities loaned that may occur during the term of the loan will be for
the account of the Trust. The Trust may lend its portfolio securities so
long as the terms and the structure of such loans are not inconsistent with
the requirements of the Investment Company Act, which currently require
that (a) the borrower pledge and maintain with the Trust collateral
consisting of cash, a letter of credit issued by a U.S. bank, or securities
issued or guaranteed by the U.S. government having a value at all times not
less than 100% of the value of the securities loaned, (b) the borrower add
to such collateral whenever the price of the securities loaned rises (i.e.,
the value of the loan is "marked to the market" on a daily basis), (c) the
loan be made subject to termination by the Trust at any time and (d) the
Trust receive reasonable interest on the loan (which may include the
Trust's investing any cash collateral in interest bearing short-term
investments), any distributions on the loaned securities and any increase
in their market value. The Trust will not lend portfolio securities if, as
a result, the aggregate value of such loans exceeds 33-1/3% of the value of
the Trust's total assets (including such loans). Loan arrangements made by
the Trust will comply with all other applicable regulatory requirements,
including the rules of the New York Stock Exchange, which rules presently
require the borrower, after notice, to redeliver the securities within the
normal settlement time of five business days. All relevant facts and
circumstances, including the creditworthiness of the Qualified Institution,
will be monitored by BlackRock and will be considered in making decisions
with respect to lending of securities, subject to review by the Trust's
board of trustees.
The Trust may pay reasonable negotiated fees in connection with
loaned securities, so long as such fees are set forth in a written contract
and approved by the Trust's board of trustees. In addition, voting rights
may pass with the loaned securities, but if a material event were to occur
affecting such a loan, the loan must be called and the securities voted.
High Yield Securities
The Trust may invest up to 20% of its Managed Assets in securities
rated below investment grade such as those rated Ba or B by Moody's and BB
or B by S&P or securities comparably rated by other rating agencies or in
unrated securities determined by BlackRock to be of comparable quality.
Securities rated Ba by Moody's are judged to have speculative elements;
their future cannot be considered as well assured and often the protection
of interest and principle payments may be very moderate. Securities rated
BB by S&P are regarded as having predominantly speculative characteristics
and, while such obligations have less near-term vulnerability to default
than other speculative grade debt, they face 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 lowest rated security that the Trust will invest in is one rated B by
either Moody's or S&P.
Lower grade securities, though high yielding, are characterized by
high risk. They may be subject to certain risk with respect to the issuing
entity and to greater market fluctuations than certain lower yielding,
higher rated securities. The retail secondary market for lower grade
securities may be less liquid than that of higher rated securities; adverse
conditions could make it difficult at times for the Trust to sell certain
of these securities or could result in lower prices than those used in
calculating the Trust's net asset value.
The prices of debt securities generally are inversely related to
interest rate changes; however, the price volatility caused by fluctuating
interest rates of securities also is inversely related to the coupons of
such securities. Accordingly, below investment grade securities may be
relatively less sensitive to interest rate changes than higher quality
securities of comparable maturity because of their higher coupon. This
higher coupon is what the investor receives in return for bearing greater
credit risk. The higher credit risk associated with below investment grade
securities potentially can have a greater effect on the value of such
securities than may be the case with higher quality issues of comparable
maturity.
Lower grade securities may be particularly susceptible to economic
downturns. It is likely that an economic recession could severely disrupt
the market for such securities and may have an adverse impact on the value
of such securities. In addition, it is likely that any such economic
downturn could adversely affect the ability of the issuers of such
securities to repay principle and pay interest thereon and increase the
incidence of default for such securities.
The ratings of Moody's, S&P and other rating agencies represent
their opinions as to the quality of the obligations which they undertake to
rate. Ratings are relative and subjective and, although ratings may be
useful in evaluating the safety of interest and principle payments, they do
not evaluate the market value risk of such obligations. Although these
ratings may be an initial criterion for selection of portfolio investments,
BlackRock also will independently evaluate these securities and the ability
for the issuers of such securities to pay interest and principal. The
extent that the Trust invests in lower grade securities that have not been
rated by a rating agency, the Trust's ability to achieve its investment
objectives will be more dependent on BlackRock's credit analysis than would
be the case when the Trust invests in rated securities.
Residual Interest Municipal Bonds
The Trust currently does not intend to invest in residual interest
municipal bonds. Residual interest municipal bonds pay interest at rates
that bear an inverse relationship to the interest rate on another security
or the value of an index ("inverse floaters"). An investment in inverse
floaters may involve greater risk than an investment in a fixed-rate bond.
Because changes in the interest rate on the other security or index
inversely affect the residual interest paid on the inverse floater, the
value of an inverse floater is generally more volatile than that of a
fixed-rate bond. Inverse floaters have interest rate adjustment formulas
which generally reduce or, in the extreme, eliminate the interest paid to
the Trust when short-term interest rates rise, and increase the interest
paid to the Trust when short-term interest rates fall. Inverse floaters
have varying degrees of liquidity, and the market for these securities is
relatively volatile. These securities tend to underperform the market for
fixed-rate bonds in a rising interest rate environment, but tend to
outperform the market for fixed-rate bonds when interest rates decline.
Shifts in long-term interest rates may, however, alter this tendency.
Although volatile, inverse floaters typically offer the potential for
yields exceeding the yields available on fixed-rate bonds with comparable
credit quality, coupon, call provisions and maturity. These securities
usually permit the investor to convert the floating rate to a fixed rate
(normally adjusted downward), and this optional conversion feature may
provide a partial hedge against rising rates if exercised at an opportune
time. Investment in inverse floaters may amplify the effects of the Trust's
use of leverage. Should short-term interest rates rise, the combination of
the Trust's investment in inverse floaters and the use of leverage likely
will adversely affect the Trust's income. Although the Trust does not
intend initially to invest in inverse floaters, the Trust may do so at some
point in the future. The Trust will provide shareholders 30 days' written
notice prior to any change in its policy of not investing in inverse
floaters.
MANAGEMENT OF THE TRUST
Investment Management Agreement
Although BlackRock Advisors intends to devote such time and effort
to the business of the Trust as is reasonably necessary to perform its
duties to the Trust, the services of BlackRock Advisors are not exclusive
and BlackRock Advisors provides similar services to other investment
companies and other clients and may engage in other activities.
The investment management agreement also provides that in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations thereunder, BlackRock Advisors is not liable
to the Trust or any of the Trust's shareholders for any act or omission by
BlackRock Advisors in the supervision or management of its respective
investment activities or for any loss sustained by the Trust or the Trust's
shareholders and provides for indemnification by the Trust of BlackRock
Advisors, its directors, officers, employees, agents and control persons
for liabilities incurred by them in connection with their services to the
Trust, subject to certain limitations and conditions.
The investment management agreement and certain scheduled waivers
of investment advisory fees were approved by the Trust's board of trustees
at an in person meeting of the board of trustees held on April 8, 2002,
including a majority of the trustees who are not parties to the agreement
or interested persons of any such party (as such term is defined in the
Investment Company Act). This agreement provides for the Trust to pay a
management fee at an annual rate equal to 0.65% of the average weekly value
of the Trust's Managed Assets. A related waiver letter from BlackRock
Advisors provided for temporary fee waiver of 0.30% the average weekly
value of the Trust's Managed Assets in each of the first five years of the
Trust's operations (through April 30, 2007) and for a declining amount for
an additional five years (through April 30, 2012). In approving this
agreement the board of trustees considered, among other things, the nature
and quality of services to be provided by BlackRock Advisors, the
profitability of BlackRock Advisors of its relationship with the Trust,
economies of scale and comparative fees and expense ratios.
The investment management agreement and the waivers of management
fees were approved by the sole common shareholder of the Trust as of April
23, 2002. The investment management agreement will continue in effect for a
period of two years from its effective date, and if not sooner terminated,
will continue in effect for successive periods of 12 months thereafter,
provided that each continuance is specifically approved at least annually
by both (1) the vote of a majority of the Trust's board of trustees or the
vote of a majority of the outstanding voting securities of the Trust (as
such term is defined in the Investment Company Act) and (2) by the vote of
a majority of the trustees who are not parties to the investment management
agreement or interested persons (as such term is defined in the Investment
Company Act) of any such party, cast in person at a meeting called for the
purpose of voting on such approval. The investment management agreement may
be terminated as a whole at any time by the Trust, without the payment of
any penalty, upon the vote of a majority of the Trust's board of trustees
or a majority of the outstanding voting securities of the Trust or by
BlackRock Advisors, on 60 days' written notice by either party to the
other. The investment management agreement will terminate automatically in
the event of its assignment (as such term is defined in the Investment
Company Act and the rules thereunder).
Sub-Investment Advisory Agreement
BlackRock Financial Management, the Sub-Advisor, is a wholly owned
subsidiary of BlackRock, Inc. Pursuant to the sub-investment advisory
agreement, BlackRock Advisors has appointed BlackRock Financial Management,
one of its affiliates, to perform certain of the day-to-day investment
management of the Trust. BlackRock Financial Management will receive a
portion of the management fee paid by the Trust to BlackRock Advisors. From
the management fees, BlackRock Advisors will pay BlackRock Financial
Management, for serving as Sub-Advisor, a fee equal to: (i) prior to April
30, 2003, 38% of the monthly management fees received by BlackRock
Advisors, (ii) from May 1, 2003 to April 30, 2004, 19% of the monthly
management fees received by BlackRock Advisors; and (iii) after April 30,
2004, 0% of the management fees received by BlackRock Advisors; provided
thereafter that the Sub-Advisor may be compensated at cost for any services
rendered to the Trust at the request of BlackRock Advisors and approved of
by the board of trustees.
The sub-investment advisory agreement also provides that, in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations thereunder, the Trust will indemnify BlackRock
Financial Management, its directors, officers, employees, agents,
associates and control persons for liabilities incurred by them in
connection with their services to the Trust, subject to certain
limitations.
Although BlackRock Financial Management intends to devote such
time and effort to the business of the Trust as is reasonably necessary to
perform its duties to the Trust, the services of BlackRock Financial
Management are not exclusive and BlackRock Financial Management provides
similar services to other investment companies and other clients and may
engage in other activities.
The sub-investment advisory agreement was approved by the Trust's
board of trustees at an in person meeting held on April 8, 2002, including
a majority of the trustees who are not parties to the agreement or
interested persons of any such party (as such term is defined in the
Investment Company Act). In approving this agreement the board of trustees
considered, among other things, the nature and quality of services to be
provided by BlackRock Financial Management, the profitability to BlackRock
Financial Management of its relationship with the Trust, economies of scale
and comparative fees and expense ratios.
Trustees and Officers
The officers of the Trust manage its day-to-day operations. The
officers are directly responsible to the Trust's board of trustees which
sets broad policies for the Trust and chooses its officers. The following
is a list of the trustees and officers of the Trust and their present
positions and principal occupations during the past five years. Trustees
who are interested persons of the Trust (as defined in the Investment
Company Act) are denoted by an asterisk (*). Trustees who are independent
trustees (as defined in the Investment Company Act) (the "Independent
Trustees") are denoted without an asterisk. The business address of the
Trust, BlackRock Advisors and their board members and officers is 100
Bellevue Parkway, Wilmington, Delaware 19809, unless specified otherwise
below. The trustees listed below are either trustees or directors of other
closed-end funds in which BlackRock Advisors acts as investment advisor.
Number of
Portfolios in
Fund Complex
Term of Overseen by
Name, Address, Age Office and Principal Occupation During Trustee or
and Position(s) Held Length of The Past Five Years and Nominee for Other Directorships
with Registrant Time Served Other Affiliations Trustee held by Trustee
INDEPENDENT TRUSTEES:
Andrew F. Brimmer 3 years(1)(2) President of Brimmer & 37 Director of CarrAmerica Realty
P.O. Box 4546 Company, Inc., a Corporation and Borg-Warner
New York, NY 10163 Washington, D.C.-based Automotive. Formerly member of the
Age: 75 economic and financial Board of Governors of the Federal
Trustee consulting firm. Lead Reserve System. Formerly Director
Director and Chairman of of AirBorne Express, BankAmerica
the Audit Committee of each Corporation (Bank of America),
of the closed-end Trusts in Bell South Corporation, College
which BlackRock Advisors Retirement Equities Fund
Inc. acts as investment (Trustee), Commodity Exchange,
advisor. Inc. (Public Governor), Connecticut
Mutual Life Insurance Company E.I.
Dupont de Nemours & Company,
Equitable Life Assurance Society of
the United States, Gannett Company,
Mercedes-Benz of North America, MNC
Financial Corporation (American
Security Bank), NMC Capital
Management, Navistar International
Corporation, PHH Corp. and UAL
Corporation(United Airlines).
Richard E. Cavanagh 3 years(1)(2) President and Chief 37 Trustee Emeritus, Wesleyan
P.O. Box 4546 Executive Officer of The University, Trustee: Drucker
New York, NY 10163 Conference Board, Inc., a Foundation, Airplanes Group,
Age: 55 leading global business Aircraft Finance Trust (AFT) and
Trustee membership organization, Education Testing Service(ETS).
from 1995-present. Former Director, Arch Chemicals, Fremont
Executive Dean of the John Group and The Guardian Life
F. Kennedy School of Insurance Company of America.
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).
Kent Dixon 3 years(1)(2) Consultant/Investor. Former 37 Former Director of ISFA (the owner
P.O. Box 4546 President and Chief of INVEST, a national securities
New York, NY 10163 Executive Officer of Empire brokerage service designed for
Age: 64 Federal Savings Bank of banks and thrift institutions).
Trustee America and Banc PLUS Savings
Association, former Chairman of the
Board, President and Chief Executive
Officer of Northeast Savings.
Frank J. Fabozzi 3 years(1)(2) Consultant. Editor of THE 37 Director, Guardian Mutual Funds
P.O. Box 4546 JOURNAL OF PORTFOLIO Group.
New York, NY 10163 MANAGEMENT and Adjunct
Age: 53 Professor of Finance at the
Trustee School of Management at
Yale University. 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
James Clayburn 3 years(1)(2) Dean Emeritus of The John 37 Director, Jacobs Engineering
LaForce, Jr. E. Anderson Graduate School Group, Inc., Payden & Rygel
P.O. Box 4546 of Management, University Investment Trust, Provident
New York, NY 10163 of California since July 1, Investment Counsel Funds, Timken
Age: 73 1993. Acting Dean of The Company and Trust for Investment
Trustee School of Business, Hong Managers.
Kong University of Science
and Technology 1990-1993.
from 1978 to September
1993, Dean of The John E.
Anderson Graduate School of
Management, University of
California.
Walter F. Mondale 3 years(1)(2) Partner, Dorsey & Whitney, 37 Director, Northwest Airlines
P.O. Box 4546 a law firm (December Corp., UnitedHealth Group,
New York, NY 10163 1996-present, September Formerly, Director, RBC Dain
Age: 74 1987-August 1993). Formerly Rauscher, Inc.
Trustee 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.
INTERESTED
TRUSTEES
Laurence D. Fink* 3 years(1)(2) Chairman and Chief 37 President, Treasurer and a Trustee
Age: 49 Executive Officer of of the BlackRock Funds, Chairman
Chairman BlackRock, Inc. since its of the Board and Director of
formation in 1998 and of Anthracite Capital, Inc., a
BlackRock, Inc.'s Director of BlackRock's offshore
predecessor entities since funds and alternative investment
1988. Chairman of the vehicles and Chairman of the Board
Management Committee. of Nomura BlackRock Asset
Formerly, Managing Director Management Co., Ltd. Currently,
of the First Boston Co-Chairman of the Board of
Corporation, Member of its Trustees of Mount Sinai New York
Management Committee, University Medical Center and
Co-head of its Taxable Health System and a Member of the
Fixed Income Division and Board of Phoenix House.
Head of its Mortgage and
Real Estate Products Group.
Currently, Chairman of the
Board of each of the
closed-end Trusts in which
BlackRock Advisors, Inc.
acts as investment advisor.
Ralph L. Schlosstein* 3 years Director since 1999 and 37 Chairman and President of the
Age: 51 President of BlackRock, BlackRock Provident Institutional
Trustee and President Inc. since its formation in Funds. Director of several of
1998 and of BlackRock, BlackRock's alternative investment
Inc.'s predecessor entities vehicles. Currently, a Member of
since 1988. Member of the the Visiting Board of Overseers of
Management Committee and the John F. Kennedy School of
Investment Strategy Group Government at Harvard University,
of BlackRock, Inc. the Financial Institutions Center
Formerly, Managing Director Board of the Wharton School of the
of LehmanBrothers, Inc. and University of Pennsylvania, a
Co-head of its Mortgage and trustee of Trinity School in New
Savings Institutions York City and a Trustee of New
Group. Currently, Visions for Public Education in
President and Director of New York Council.
each of the closed-end
Trusts in which BlackRock
Advisors, Inc. acts as
investment advisor. City.
Formerly, a Director of
Pulte Corporation and a
Member of Fannie Mae's
Advisory
(1) After a Trustee's initial term, each Trustee is expected to serve
a three year term concurrent with the class of trustees for which
he serves:
-- Messrs. Cavanagh and La Force, as Class I trustees, are
expected to stand for re-election at the Trust's 2003
annual meeting of shareholders
-- Messrs. Schlosstein, Fabbozzi and Mondale, as Class II
trustees, are expected to stand for re-election at the
Trust's 2004 annual meeting of shareholders
-- Messrs. Fink, Brimmer and Dixon, as Class III Trustees,
are expected to stand for re-election at the Trust's 2005
annual meeting of shareholders
(2) Each Trustee has served in such capacity since the Trust's inception.
Principal Occupation During the
Name and Age Title Past five Years and Other Affiliations
OFFICERS:
Anne F. Ackerley Secretary Managing Director of BlackRock, Inc.
Age: 40 since 2000. Formerly First Vice President
and Chief Operating Officer, Mergers and
Acquisition Group at Merrill Lynch & Co.
from 1997 to 2000; First Vice President
and Chief Operating Officer, Public
Finance Group at Merrill Lynch & Co. from
1995 to 1997; First Vice President,
Emerging Markets Fixed Income Research at
Merrill Lynch & Co. prior thereto.
Henry Gabbay Treasurer Managing Director of BlackRock, Inc. and
Age: 54 its predecessor entities.
Robert S. Kapito Vice President Vice Chairman of BlackRock, Inc. and its
Age: 45 predecessor entities.
Kevin Klingert Vice President Managing Director of BlackRock, Inc. and
Age: 39 its predecessor entities.
James Kong Assistant Treasurer Managing Director of BlackRock, Inc. and
Age: 41 its predecessor entities.
Richard Shea, Esq. Vice President/Tax Managing Director of BlackRock, Inc.
Age: 42 since 2000; Chief Operating Officer and
Chief Financial Officer of Anthracite
Capital, Inc. since 1998. Formerly,
Director of BlackRock, Inc. and its
predecessor entities.
Prior to this offering, all of the outstanding shares of the Trust were
owned by BlackRock Advisors.
Aggregate Dollar Range of Equity
Securities in all Registered
Investment Companies Overseen by
Dollar Range of Equity Directors in the Family Investment
Name of Director Securities in the Fund Companies
Andrew F. Brimmer $ $1-$10,000
Richard E. Cavanagh $ $50,001-$100,000
Kent Dixon $ over $100,000
Frank J. Fabozzi $ $1-$10,000
James Clayburn La Force, Jr $ $50,001--$100,000
Laurence D. Fink $ over $100,000
Walter F. Mondale $ $50,001-$100,000
Ralph L. Schlosstein $ $50,001-$100,000
The fees and expenses of the Independent Trustees of the Trust are
paid by the Trust. The trustees who are members of the BlackRock
organization receive no compensation from the Trust. During the year ended
December 31, 2001, the Independent Trustees/Directors earned the
compensation set forth below in their capacities as trustees/directors of
the funds in the BlackRock Family of Funds. It is estimated that the
Independent Trustees will receive from the Trust the amounts set forth
below for the Trust's calendar year ending December 31, 2002, assuming the
Trust had been in existence for the full calendar year.
Total Compensation from the
Estimated Compensation Trust and Fund Complex Paid to
Name of Board Member From Trust Board Member(1)
Andrew F. Brimmer................................ $6,000(2) $195,000(3),(4),(5)
Richard E. Cavanagh.............................. $6,000(2) $160,000(4)
Kent Dixon....................................... $6,000(2) $160,000(4)
Frank J. Fabozzi................................. $6,000(2) $160,000(4)
James Clayburn La Force, Jr...................... $6,000(2) $160,000(4)
Walter F. Mondale................................ $6,000(2) $160,000(4)
(1) Represents the total compensation earned by such person during the
calendar year ended December 31, 2001 from the thirty closed-end
funds advised by a the Advisor (the "Fund Complex"). One of these
funds, The BlackRock 2001 Term Trust, was terminated on June 30,
2001. On February 28, 2002, one additional fund was added to the
Fund Complex.
(2) Of these amounts it is anticipated that Messrs. Brimmer, Cavanagh,
Dixon, Fabozzi, La Force and Mondale may defer $0, $0, $0, $0,
$6,000 and $3,000, respectively, pursuant to the Fund Complex's
deferred compensation plan.
(3) Andrew F. Brimmer serves as "lead director" for each board of
trustees/directors in the Fund Complex. For his services as lead
trustee/director, Andrew F. Brimmer will be compensated in the
amount of $40,000 per annum by the Fund Complex to be allocated
among the funds in the Fund Complex based on each fund's relative
net assets.
(4) Of this amount, Messrs. Brimmer, Cavanagh, La Force and Mondale
deferred $24,000, $24,000, $139,000 and $68,000, respectively,
pursuant to the Fund Complex's deferred compensation plan.
(5) In 2002, it is anticipated that Dr. Brimmer's compensation will be
$200,000.
Each Independent Trustee/Director receives an annual fee
calculated as follows: (i) $6,000 from each fund/trust in the Fund Complex
and (ii) $1,500 for each meeting of each board in the Fund Complex attended
by such Independent Trustee/Director. The total annual aggregate
compensation for each Independent Trustee/Director is capped at $160,000
per annum, except that Dr. Brimmer receives an additional $40,000 from the
Fund Complex for acting as the lead trustee/director for each board of
trustees/directors in the Fund Complex. In the event that the $160,000 cap
is met with respect to an Independent Trustee/Director, the amount of the
Independent Trustee/Director's fee borne by each fund in the Fund Complex
is reduced by reference to the net assets of the Trust relative to the
other funds in the Fund Complex. In addition, the attendance fees of each
Independent Trustee/Director of the funds/trusts are reduced
proportionately, based on each respective fund's/trust's net assets, so
that the aggregate per meeting fee for all meetings of the boards of
trustees/directors of the funds/trusts held on a single day does not exceed
$20,000 for any Independent Trustee/Director.
The Board of Trustees of the Trust currently has three committees:
an Executive Committee, an Audit Committee and a Governance Committee.
The Executive Committee consists of Laurence D. Fink and Ralph L.
Schlosstein and acts in accordance with the powers permitted to such a
committee under the Agreement and Declaration of Trust and By-Laws of the
Trust. The Executive Committee, subject to the Trust's Agreement and
Declaration of Trust, By-Laws and applicable law, acts on behalf of the
full Board of Trustees in the intervals between meetings of the Board.
The Audit Committee consists of Richard E. Cavanagh, Walter F.
Mondale, Dr. Andrew F. Brimmer, Kent Dixon, Frank J. Fabozzi and James
Clayburn La Force, Jr. The Audit Committee acts according to the Audit
Committee charter. Dr. Andrew F. Brimmer has been appointed as Chairman of
the Audit Committee. The Audit Committee is responsible for reviewing and
evaluating issues related to the accounting and financial reporting
policies of the Trust, overseeing the quality and objectivity of the
Trust's financial statements and the audit thereof and to act as a liaison
between the Board of Trustees and the Trust's independent accountants.
The governance committee consists of Dr. Andrew F. Brimmer,
Richard E. Cavanagh, Kent Dixon, Frank J. Fabozzi, James Clayburn La Force,
Jr. and Walter F. Mondale. The Governance committee acts in accordance with
the Governance Committee charter. Dr. Andrew F. Brimmer has been appointed
as Chairman of the Governance Committee. The Governance Committee consists
of the independent Trustees and performs those functions enumerated in the
Governance Committee Charter including, but not limited to, making
nominations for the appointment or election of independent Trustees,
reviewing independent Trustee compensation, retirement policies and
personnel training policies and administrating the provisions of the Code
of Ethics applicable to the independent Trustees.
As the Trust is a newly organized closed-end investment company,
no meetings of the above committees have been held in the current fiscal
year.
No Trustee who is not an interested person of the Trust owns
beneficially or of record, any security of BlackRock Advisors or any person
(other than a registered investment company) directly or indirectly
controlling, controlled by or under common control with BlackRock Advisors.
Codes Of Ethics
The Trust, the Advisor, the Sub-Advisor and the Trust's principal
underwriters have adopted codes of ethics under Rule 17j-1 of the
Investment Company Act. These codes permit personnel subject to the codes
to invest in securities, including securities that may be purchased or held
by the Trust. These codes can be reviewed and copied at the Security and
Exchange Commission's Public Reference Room in Washington, D.C. Information
on the operation of the Public Reference Room may be obtained by calling
the Security and Exchange Commission at 1-202-942-8090. The code of ethics
are available on the EDGAR Database on the Security and Exchange
Commission's web site (http://www.sec.gov), and copies of these codes may
be obtained, after paying a duplicating fee, by electronic request at the
following e-mail address: publicinfo@sec.gov, or by writing the Security
and Exchange Commission's Public Reference Section, Washington, D.C.
20549-0102.
Investment Advisor And Sub-Advisor
BlackRock Advisors acts as the Trust's investment advisor.
BlackRock Financial Management acts as the Trust's sub-advisor. BlackRock
Advisors, located at 100 Bellevue Parkway, Wilmington, Delaware, 19809, and
BlackRock Financial Management, located at 40 East 52nd Street, New York,
New York 10022, are wholly owned subsidiaries of BlackRock, Inc., which is
one of the largest publicly traded investment management firms in the
United States with approximately $238 billion of assets under management as
of March 31, 2002. BlackRock manages assets on behalf of institutional and
individual investors worldwide through a variety of equity, fixed income,
liquidity and alternative investment separate accounts and mutual funds,
including BlackRock Funds and BlackRock Provident Institutional Funds. In
addition, BlackRock provides risk management advice and investment system
services to institutional investors under the BlackRock Solutions name.
The BlackRock organization has over 13 years of experience
managing closed-end products and advised a closed-end family of 30 funds
with approximately $8.6 billion in assets as of March 31, 2002. BlackRock
has 21 leveraged municipal closed-end funds and six open-end municipal
funds under management and approximately $17 billion in municipal assets
firm-wide. Clients are served from the company's headquarters in New York
City, as well as offices in Wilmington, San Francisco, Boston, Edinburgh,
Tokyo and Hong Kong. BlackRock, Inc. is a member of The PNC Financial
Services Group, Inc. ("PNC"), one of the largest diversified financial
services organizations in the United States, and is majority-owned by PNC
and by BlackRock employees.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Advisor and the Sub-Advisor are responsible for decisions to
buy and sell securities for the Trust, the selection of brokers and dealers
to effect the transactions and the negotiation of prices and any brokerage
commissions. The securities in which the Trust invests are traded
principally in the over-the-counter market. In the over-the-counter market,
securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the
price of such securities usually includes a mark-up to the dealer.
Securities purchased in underwritten offerings generally include, in the
price, a fixed amount of compensation for the manager(s), underwriter(s)
and dealer(s). The Trust may also purchase certain money market instruments
directly from an issuer, in which case no commissions or discounts are
paid. Purchases and sales of debt securities on a stock exchange are
effected through brokers who charge a commission for their services.
The Advisor and the Sub-Advisor are responsible for effecting
securities transactions of the Trust and will do so in a manner deemed fair
and reasonable to shareholders of the Trust and not according to any
formula. The Advisor's and the Sub-Advisor's primary considerations in
selecting the manner of executing securities transactions for the Trust
will be prompt execution of orders, the size and breadth of the market for
the security, the reliability, integrity and financial condition and
execution capability of the firm, the difficulty in executing the order,
and the best net price. There are many instances when, in the judgment of
the Advisor or the Sub-Advisor, more than one firm can offer comparable
execution services. In selecting among such firms, consideration is given
to those firms which supply research and other services in addition to
execution services. Consideration may also be given to the sale of shares
of the Trust. However, it is not the policy of BlackRock, absent special
circumstances, to pay higher commissions to a firm because it has supplied
such research or other services.
The Advisor and the Sub-Advisor are able to fulfill their
obligation to furnish a continuous investment program to the Trust without
receiving research or other information from brokers; however, each
considers access to such information to be an important element of
financial management. Although such information is considered useful, its
value is not determinable, as it must be reviewed and assimilated by the
Advisor and/or the Sub-Advisor, and does not reduce the Advisor's and/or
the Sub-Advisor's normal research activities in rendering investment advice
under the investment management agreement or the sub-investment advisory
agreement. It is possible that the Advisor's and/or the Sub-Advisor's
expenses could be materially increased if it attempted to purchase this
type of information or generate it through its own staff.
One or more of the other investment companies or accounts which
the Advisor and/or the Sub-Advisor manages may own from time to time some
of the same investments as the Trust. Investment decisions for the Trust
are made independently from those of such other investment companies or
accounts; however, from time to time, the same investment decision may be
made for more than one company or account. When two or more companies or
accounts seek to purchase or sell the same securities, the securities
actually purchased or sold will be allocated among the companies and
accounts on a good faith equitable basis by the Advisor and/or the
Sub-Advisor in their discretion in accordance with the accounts' various
investment objectives. In some cases, this system may adversely affect the
price or size of the position obtainable for the Trust. In other cases,
however, the ability of the Trust to participate in volume transactions may
produce better execution for the Trust. It is the opinion of the Trust's
board of trustees that this advantage, when combined with the other
benefits available due to the Advisor's or the Sub-Advisor's organization,
outweighs any disadvantages that may be said to exist from exposure to
simultaneous transactions.
It is not the Trust's policy to engage in transactions with the
objective of seeking profits from short-term trading. It is expected that
the annual portfolio turnover rate of the Trust will be approximately 100%
excluding securities having a maturity of one year or less. Because it is
difficult to predict accurately portfolio turnover rates, actual turnover
may be higher or lower. Higher portfolio turnover results in increased
Trust costs, including brokerage commissions, dealer mark-ups and other
transaction costs on the sale of securities and on the reinvestment in
other securities.
ADDITIONAL INFORMATION CONCERNING
THE AUCTIONS FOR PREFERRED SHARES
General
Securities Depository. The Depository Trust Company ("DTC") will
act as the Securities Depository with respect the Preferred Shares. One
certificate for all of the Preferred Shares will be registered in the name
of The Bank of New York, as nominee of the Securities Depository. Such
certificate will bear a legend to the effect that such certificate is
issued subject to the provisions restricting transfers of shares of
Preferred Shares contained in the Statement. The Trust will also issue
stop-transfer instructions to the transfer agent for Preferred Shares.
Prior to the commencement of the right of holders of Preferred Shares to
elect a majority of the Trust's trustees, as described under "Description
of Preferred Shares--Voting Rights" in the prospectus, The Bank of New York
will be the holder of record of the Preferred Shares and owners of such
shares will not be entitled to receive certificates representing their
ownership interest in such shares.
DTC, a New York-chartered limited purpose trust company, performs
services for its participants, some of whom (and/or their representatives)
own DTC. DTC maintains lists of its participants and will maintain the
positions (ownership interests) held by each such participant in shares of
Preferred Shares, whether for its own account or as a nominee for another
person. Additional information concerning DTC and the DTC depository system
is included as an Exhibit to the Registration Statement of which this
statement of additional information forms a part.
Concerning the Auction Agent
The auction agent will act as agent for the Trust in connection
with Auctions. In the absence of bad faith or negligence on its part, the
auction agent will not be liable for any action taken, suffered, or omitted
or for any error of judgment made by it in the performance of its duties
under the auction agency agreement between the Trust and the auction agent
and will not be liable for any error of judgment made in good faith unless
the auction agent will have been negligent in ascertaining the pertinent
facts.
The auction agent may rely upon, as evidence of the identities of
the holders of Preferred Shares, the auction agent's registry of holders,
the results of auctions and notices from any Broker-Dealer (or other
person, if permitted by the Trust) with respect to transfers described
under "The Auction--Secondary Market Trading and Transfers of Preferred
Shares" in the prospectus and notices from the Trust. The auction agent is
not required to accept any such notice for an auction unless it is received
by the auction agent by 3:00 p.m., New York City time, on the business day
preceding such auction.
The auction agent may terminate its auction agency agreement with
the Trust upon notice to the Trust on a date no earlier than 45 days after
such notice. If the auction agent should resign, the Trust will use its
best efforts to enter into an agreement with a successor auction agent
containing substantially the same terms and conditions as the auction
agency agreement. The Trust may remove the auction agent provided that
prior to such removal the Trust shall have entered into such an agreement
with a successor auction agent.
Broker-Dealers
The auction agent after each auction for the Preferred Shares will
pay to each Broker-Dealer, from funds provided by the Trust, a service
charge at the annual rate of 1/4 of 1% in the case of any auction
immediately preceding a dividend period of less than one year, or a
percentage agreed to by the Trust and the Broker-Dealers in the case of any
auction immediately preceding a dividend period of one year or longer, of
the purchase price of the Preferred Shares placed by such Broker-Dealer at
such auction. For the purposes of the preceding sentence, Preferred Shares
will be placed by a Broker-Dealer if such shares were (a) the subject of
hold orders deemed to have been submitted to the auction agent by the
Broker-Dealer and were acquired by such Broker-Dealer for its own account
or were acquired by such Broker-Dealer for its customers who are beneficial
owners or (b) the subject of an order submitted by such Broker-Dealer that
is (i) a submitted bid of an existing holder that resulted in the existing
holder continuing to hold such shares as a result of the auction or (ii) a
submitted bid of a potential holder that resulted in the potential holder
purchasing such shares as a result of the auction or (iii) a valid hold
order.
The Trust may request the auction agent to terminate one or more
Broker-Dealer agreements at any time, provided that at least one
Broker-Dealer agreement is in effect after such termination.
The Broker-Dealer agreement provides that a Broker-Dealer (other
than an affiliate of the Trust) may submit orders in auctions for its own
account, unless the Trust notifies all Broker-Dealers that they may no
longer do so, in which case Broker-Dealers may continue to submit hold
orders and sell orders for their own accounts. Any Broker-Dealer that is an
affiliate of the Trust may submit orders in auctions, but only if such
orders are not for its own account. If a Broker-Dealer submits an order for
its own account in any auction, it might have an advantage over other
bidders because it would have knowledge of all orders submitted by it in
that auction; such Broker-Dealer, however, would not have knowledge of
orders submitted by other Broker-Dealers in that auction.
DESCRIPTION OF COMMON SHARES
A description of common shares is contained in the prospectus. The
Trust intends to hold annual meetings of shareholders so long as the common
shares are listed on a national securities exchange and such meetings are
required as a condition to such listing.
OTHER SHARES
The board of trustees (subject to applicable law and the Trust's
Agreement and Declaration of Trust) may authorize an offering, without the
approval of the holders of either common shares or Preferred Shares, of
other classes of shares, or other classes or series of shares, as they
determine to be necessary, desirable or appropriate, having such terms,
rights, preferences, privileges, limitations and restrictions as the board
of trustees see fit. The Trust currently does not expect to issue any other
classes of shares, or series of shares, except for the common shares and
the Preferred Shares.
REPURCHASE OF COMMON SHARES
The Trust is a closed-end investment management company and as
such its shareholders will not have the right to cause the Trust to redeem
their shares. Instead, the Trust's common shares will trade in the open
market at a price that will be a function of several factors, including
dividend levels (which are in turn affected by expenses), net asset value,
call protection, dividend stability, relative demand for and supply of such
shares in the market, general market and economic conditions and other
factors. Because shares of a closed-end investment company may frequently
trade at prices lower than net asset value, the Trust's board of trustees
may consider action that might be taken to reduce or eliminate any material
discount from net asset value in respect of common shares, which may
include the repurchase of such shares in the open market or in private
transactions, the making of a tender offer for such shares, or the
conversion of the Trust to an open-end investment company. The board of
trustees may decide not to take any of these actions. In addition, there
can be no assurance that share repurchases or tender offers, if undertaken,
will reduce market discount.
Notwithstanding the foregoing, at any time when the Trust's
Preferred Shares are outstanding, the Trust may not purchase, redeem or
otherwise acquire any of its common shares unless (1) all accrued Preferred
Shares dividends have been paid and (2) at the time of such purchase,
redemption or acquisition, the net asset value of the Trust's portfolio
(determined after deducting the acquisition price of the common shares) is
at least 200% of the liquidation value of the outstanding Preferred Shares
(expected to equal the original purchase price per share plus any accrued
and unpaid dividends thereon). Any service fees incurred in connection with
any tender offer made by the Trust will be borne by the Trust and will not
reduce the stated consideration to be paid to tendering shareholders.
Subject to its investment restrictions, the Trust may borrow to
finance the repurchase of common shares or to make a tender offer. Interest
on any borrowings to finance share repurchase transactions or the
accumulation of cash by the Trust in anticipation of share repurchases or
tenders will reduce the Trust's net income. Any share repurchase, tender
offer or borrowing that might be approved by the Trust's board of trustees
would have to comply with the Securities Exchange Act of 1934, as amended,
the Investment Company Act and the rules and regulations thereunder.
Although the decision to take action in response to a discount
from net asset value will be made by the board of trustees at the time it
considers such issue, it is the board's present policy, which may be
changed by the board of trustees, not to authorize repurchases of common
shares or a tender offer for such shares if: (1) such transactions, if
consummated, would (a) result in the delisting of the common shares from
the American Stock Exchange, or (b) impair the Trust's status as a
regulated investment company under the Code, (which would make the Trust a
taxable entity, causing the Trust's income to be taxed at the corporate
level in addition to the taxation of shareholders who receive dividends
from the Trust) or as a registered closed-end investment company under the
Investment Company Act; (2) the Trust would not be able to liquidate
portfolio securities in an orderly manner consistent with the Trust's
investment objective and policies in order to repurchase shares; or (3)
there is, in the board's judgment, any (a) material legal action or
proceeding instituted or threatened challenging such transactions or
otherwise materially adversely affecting the Trust, (b) general suspension
of or limitation on prices for trading securities on the New York Stock
Exchange, (c) declaration of a banking moratorium by Federal or state
authorities or any suspension of payment by United States or New York
banks, (d) material limitation affecting the Trust or the issuers of its
portfolio securities by Federal or state authorities on the extension of
credit by lending institutions or on the exchange of foreign currency, (e)
commencement of war, armed hostilities or other international or national
calamity directly or indirectly involving the United States, or (f) other
event or condition which would have a material adverse effect (including
any adverse tax effect) on the Trust or its shareholders if shares were
repurchased. The board of trustees may in the future modify these
conditions in light of experience.
The repurchase by the Trust of its shares at prices below net
asset value will result in an increase in the net asset value of those
shares that remain outstanding. However, there can be no assurance that
share repurchases or tender offers at or below net asset value will result
in the Trust's common shares trading at a price equal to their net asset
value. Nevertheless, the fact that the Trust's common shares may be the
subject of repurchase or tender offers from time to time, or that the Trust
may be converted to an open-end investment company, may reduce any spread
between market price and net asset value that might otherwise exist.
In addition, a purchase by the Trust of its common shares will
decrease the Trust's Managed Assets which would likely have the effect of
increasing the Trust's expense ratio. Any purchase by the Trust of its
common shares at a time when Preferred Shares are outstanding will increase
the leverage applicable to the outstanding common shares then remaining.
Before deciding whether to take any action if the common shares
trade below net asset value, the Trust's board of trustees would likely
consider all relevant factors, including the extent and duration of the
discount, the liquidity of the Trust's portfolio, the impact of any action
that might be taken on the Trust or its shareholders and market
considerations. Based on these considerations, even if the Trust's shares
should trade at a discount, the board of trustees may determine that, in
the interest of the Trust and its shareholders, no action should be taken.
TAX MATTERS
The following is a description of certain Federal income tax
consequences to a shareholder of acquiring, holding and disposing of
Preferred Shares of the Trust. The discussion reflects applicable tax laws
of the United States as of the date of this prospectus, which tax laws may
be changed or subject to new interpretations by the courts or the Internal
Revenue Service (the "IRS") retroactively or prospectively.
The Trust intends to elect to be treated and to qualify to be
taxed as a regulated investment company under subchapter M of the Code, and
to satisfy conditions which will enable dividends on common shares or
Preferred Shares which are attributable to interest on tax-exempt municipal
securities to be exempt from Federal income tax in the hands of its
shareholders, subject to the possible application of the Federal
alternative minimum tax.
In order to qualify to be taxed as a regulated investment company,
the Trust must satisfy certain requirements relating to the source of its
income, diversification of its assets, and distributions of its income to
its shareholders. First, the Trust must among other things: (a) derive at
least 90% of its annual gross income (including tax-exempt interest) from
dividends, interest, payments with respect to certain securities loans,
gains from the sale or other disposition of stock or securities or foreign
currencies, or other income (including but not limited to gains from
options, futures and forward contracts) derived with respect to its
business of investing in such stock, securities or currencies (the "90%
gross income test"), and (b) diversify its holdings so that, at the end of
each quarter of its taxable year (i) at least 50% of the market value of
its total assets is represented by cash, cash items, U.S. government
securities, securities of other regulated investment companies, and other
securities, with these other securities limited, with respect to any one
issuer, to an amount not greater in value than 5% of the Trust's total
assets, and to not more than 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the market value of the total
assets is invested in the securities of any one issuer (other than U.S.
government securities or securities of other regulated investment
companies) or two or more issuers controlled by the Trust and engaged in
the same, similar or related trades or businesses.
As a regulated investment company, the Trust generally is not
subject to U.S. federal income tax on income and gains that it distributes
each taxable year to its shareholders, provided that in such taxable year
it distributes at least 90% of the sum of its (i) "investment company
taxable income" (which includes, among other items, dividends, taxable
interest, taxable original issue discount and market discount income,
income from securities lending, the excess of any net short-term capital
gain in excess net long-term capital loss, and any other taxable income
other than net capital gain (as defined below) and is reduced by deductible
expenses) determined without regard to the deduction for dividends paid and
(ii) its net tax-exempt interest (the excess of its gross tax-exempt
interest over certain disallowed deductions). The Trust may retain for
investment its net capital gain (which consists of the excess of its net
long-term capital gain over its net short-term capital loss). However, if
the Trust retains any net capital gain or any investment company taxable
income, it will be subject to tax at regular corporate rates on the amount
retained. If the Trust retains any net capital gain, it may designate the
retained amount as an undistributed capital gains dividend in a notice to
its shareholders who, if subject to Federal income tax on long-term capital
gains (i) will be required to include in income their share of such
undistributed long-term capital gain and (ii) will be entitled to credit
their proportionate share of the tax paid by the Trust against their
Federal tax liability, if any, and to claim refunds to the extent the
credit exceeds such liability. For Federal income tax purposes, the tax
basis of shares owned by a shareholder of the Trust will be increased by
the amount of undistributed capital gain included in the gross income of
such shareholder less the tax deemed paid by such shareholder under clause
(ii) of the preceding sentence. The Trust intends to distribute at least
annually to its shareholders all or substantially all of its net tax exempt
interest and any investment company taxable income and net capital gain. In
meeting these requirements of subchapter M of the Code, the Trust may be
restricted in the utilization of certain of the investment techniques
described above and in the prospectus.
If in any year the Trust should fail to qualify under Subchapter M
for tax treatment as a regulated investment company, the Trust would incur
a regular federal corporate income tax upon its taxable income for that
year, and distributions to its shareholders would be taxable to such
holders as ordinary income to the extent of the earnings and profits of the
Trust. In addition, a regulated investment company that fails to
distribute, by the close of each calendar year, at least an amount equal to
the sum of 98% of its ordinary taxable income for such year and 98% of its
capital gain net income (adjusted for certain ordinary losses) for a one
year period generally ending October 31 in the calendar year, and 100% of
all ordinary income and capital gains for previous years that were not
distributed during such years and on which the Trust paid no federal income
tax, is liable for a 4% excise tax on the portion of the undistributed
amount of such income that is less than the required amount for such
distributions. To avoid the imposition of this excise tax, the Trust
intends, to the extent possible, to make the required distributions of its
ordinary taxable income, if any, and its capital gain net income, by the
close of each calendar year.
Certain of the Trust's investment practices are subject to special
provisions of the Code that, among other things, may defer the use of
certain deductions or losses of the Trust and affect the holding period of
securities held by the Trust and the character of the gains or losses
realized by the Trust. These provisions may also require the Trust to
recognize income or gain without receiving cash with which to make
distributions in the amounts necessary to satisfy the requirements for
maintaining regulated investment company status and for avoiding income and
excise taxes. The Trust will monitor its transactions and may make certain
tax elections in order to mitigate the effect of these rules and prevent
disqualification of the Trust as a regulated investment company.
The Trust intends to invest a sufficient amount of its assets in
tax-exempt municipal bonds to permit payment of "exempt-interest"
dividends, as defined in the Code, on its common shares and Preferred
Shares. Under the Code, if at the close of each quarter of its taxable
year, if at least 50% of the value of the total assets of the Trust
consists of municipal bonds, the Trust will be qualified to pay
exempt-interest dividends to its shareholders. Exempt-interest dividends
are dividends or any part thereof (other than a capital gain dividend) paid
by the Trust which are attributable to interest on municipal bonds and are
so designated by the Trust. Exempt-interest dividends will be exempt from
federal income tax, subject to the possible application of the U.S. federal
alternative minimum tax. Insurance proceeds received by the Trust under any
insurance policies in respect of scheduled interest payments on defaulted
municipal bonds, as described herein, will generally be excludable from
gross income under Section 103(a) of the Code. See "Investment Policies and
Techniques" above. Gains of the Trust that are attributable to market
discount on certain municipal obligations are treated as ordinary income.
Distributions by the Trust of investment company taxable income, if any,
will be taxable to its shareholders as ordinary income whether received in
cash or additional shares. Distributions by the Trust of net capital gain,
if any, are taxable as long-term capital gain, regardless of the length of
time the shareholder has owned common shares or Preferred Shares and
whether such distributions are made in cash or additional shares. The
amount of taxable income allocable to the Trust's Preferred Shares will
depend upon the amount of such income realized by the Trust, but is not
generally expected to be significant. Except for dividends paid on
Preferred Shares which include an allocable portion of any net capital gain
or other taxable income, the Trust anticipates that all other dividends
paid on its Preferred Shares will constitute exempt-interest dividends for
U.S. federal income tax purposes. Distributions, if any, in excess of the
Trust's earnings and profits will first reduce the adjusted tax basis of a
shareholder's shares, and after the basis has been reduced to zero, will
constitute capital gains to the shareholder (assuming the shares are held
as a capital asset). As long as the Trust qualifies as a regulated
investment company under the Code, no part of its distributions to
shareholders will qualify for the dividends received deduction for
corporations. The interest on private activity bonds in most instances is
not tax-exempt to a person who is a "substantial user" of a facility
financed by such bonds or a "related person" of such "substantial user." As
a result, the Trust may not be an appropriate investment for shareholders
who are considered either a "substantial user" or a "related person" within
the meaning of the Code. In general, a "substantial user" includes a
non-exempt person who regularly uses a part of such facility in his trade
or business. "Related persons" include certain natural persons, affiliated
corporations, a partnership and its partners and an S corporation and its
shareholders. The foregoing is not a complete description of all of the
provisions of the Code covering the definitions of "substantial user" and
"related person."
U.S. Federal tax law imposes an alternative minimum tax with
respect to both corporations and individuals. Interest on certain municipal
obligations, such as bonds issued to make loans for housing purposes or to
private entities (but not to certain tax-exempt organizations such as
universities and non-profit hospitals) is included as an item of tax
preference in determining the amount of a taxpayer's alternative minimum
taxable income. To the extent that the Trust receives income from municipal
obligations subject to the U.S. federal alternative minimum tax, a portion
of the dividends paid by it, although otherwise exempt from U.S. federal
income tax, will be taxable to its shareholders to the extent that their
tax liability is determined under the alternative minimum tax. The Trust
will annually supply a report indicating the percentage of the Trust's
income attributable to municipal obligations subject to the alternative
minimum tax. In addition, for certain corporations, alternative minimum
taxable income is increased by 75% of the difference between an alternative
measure of income ("adjusted current earnings") and the amount otherwise
determined to be the alternative minimum taxable income. Interest on
municipal obligations, and therefore on all exempt-interest dividends
received from the Trust, are included in calculating a corporation's
adjusted current earnings. Certain small corporations are not subject to
the alternative minimum tax.
Tax-exempt income, including exempt-interest dividends paid by the
Trust, is taken into account in calculating the amount of Social Security
and railroad retirement benefits that may be subject to federal income tax.
The IRS requires that a regulated investment company that has two
or more classes of shares must designate to each such class proportionate
amounts of each type of its income for each tax year based upon the
percentage of total dividends distributed to each class for such year. The
Trust intends each year to allocate, to the fullest extent practicable, net
tax-exempt interest, net capital gain and other taxable income, if any,
between its common shares and preferred shares, including the Preferred
Shares, in proportion to the total dividends paid to each class with
respect to such year. To the extent permitted under applicable law, the
Trust reserves the right to make special allocations of income within a
class, consistent with the objectives of the Trust. The Trust may, at its
election, notify the Auction Agent of the amount of any net capital gain or
other income taxable for federal income tax purposes to be included in any
dividend on shares of its Preferred Shares prior to the Auction
establishing the Applicable Rate for such dividend. If the Trust allocates
any net capital gain or other taxable income for federal income tax
purposes to its Preferred Shares without having given advance notice
thereof as described above, the Trust generally will be required to make
payments to owners of its Preferred Shares to which such allocation was
made in order to offset the U.S. federal income tax effect of the taxable
income so allocated as described under "Description of Preferred
Shares--Dividends and Dividend Periods--Additional Dividends" in the
prospectus.
If at any time when the Trust's Preferred Shares are outstanding,
the Trust fails to meet the Preferred Shares Basic Maintenance Amount or
the Investment Company Act Preferred Shares Asset Coverage, the Trust will
be required to suspend distributions to holders of its common shares until
such maintenance amount or asset coverage, as the case may be, is restored.
See "Description of Preferred Shares--Dividends and Dividend
Periods--Restrictions on Dividends and Other Distributions" in the
prospectus. This may prevent the Trust from distributing at least an amount
equal to the sum of 90% of its investment company taxable income
(determined without regard to dividends paid) and 90% of its net tax-exempt
income, and may therefore jeopardize the Trust's qualification for taxation
as a regulated investment company or cause the Trust to incur a tax
liability or a non-deductible 4% excise tax on the undistributed taxable
income (including net capital gain), or both. Upon failure to meet the
Preferred Shares Basic Maintenance Amount or the Investment Company Act
Preferred Shares Asset Coverage, the Trust will be required to redeem
Preferred Shares in order to maintain or restore such maintenance amount or
asset coverage and avoid the adverse consequences to the Trust and its
shareholders of failing to qualify as a regulated investment company. There
can be no assurance, however, that any such redemption would achieve such
objectives.
The Trust may, at its option, redeem Preferred Shares in whole or
in part, and is required to redeem Preferred Shares to the extent required
to maintain the Preferred Shares Basic Maintenance Amount and the
Investment Company Act Preferred Shares Asset Coverage. Gain or loss, if
any, resulting from a redemption of Preferred Shares will be taxed as gain
or loss from the sale or exchange of Preferred Shares under Section 302 of
the Code rather than as a dividend, but only if the redemption distribution
(a) is deemed not to be essentially equivalent to a dividend, (b) is in
complete redemption of an shareholder's interest in the Trust, (c) is
substantially disproportionate with respect to the shareholder, or (d) with
respect to a non-corporate shareholder, is in partial liquidation of the
shareholder's interest in the Trust. For purposes of (a), (b) and (c)
above, a Preferred Shareholder's ownership of common shares will be taken
into account.
The Code provides that interest on indebtedness incurred or
continued to purchase or carry the Trust's shares to which exempt-interest
dividends are allocated is not deductible. Under rules used by the IRS for
determining when borrowed funds are considered used for the purpose of
purchasing or carrying particular assets, the purchase or ownership of
shares may be considered to have been made with borrowed funds even though
such funds are not directly used for the purchase or ownership of such
shares.
Nonresident alien individuals and certain foreign corporations and
other entities ("foreign investors") generally are subject to U.S.
withholding tax at the rate of 30% (or possibly a lower rate provided by an
applicable tax treaty) on distributions of taxable net investment income
(which includes net short-term capital gains). To the extent received by
foreign investors, exempt-interest dividends, distributions of net capital
gains and gain from the sale or other disposition of Preferred Shares
generally are exempt from federal income taxation. Different tax
consequences may result if the shareholder is engaged in a trade or
business in the United States or, in the case of an individual, is present
in the United States for 183 or more days during a taxable year and certain
other conditions are met.
Although dividends generally will be treated as distributed when
paid, dividends declared in October, November or December, payable to
shareholders of record on a specified date in one of those months and paid
during the following January will be treated as having been distributed by
the Trust (and received by the shareholders) on December 31 of the year
declared.
The sale or other disposition of common shares or Preferred Shares
of the Trust will result in capital gain or loss to shareholders who hold
their shares as capital assets. Generally, a shareholder gain or loss will
be long-term gain or loss if the shares have been held for more than one
year. Present law taxes both long-term and short-term capital gains of
corporations at the rates applicable to ordinary income. For non-corporate
taxpayers, however, short-term capital gains and ordinary income will
currently be taxed at a maximum rate of 38.6% while long-term capital gains
generally will be taxed at a maximum rate of 20% (or 18% for capital assets
that have been held for more than five years and the holding period of
which began after December 31, 2000).** However, because of the limitations
on itemized deductions and the deduction for personal exemptions applicable
to higher income taxpayers, the effective rate of tax may be higher in
certain circumstances. Losses realized by a shareholder on the sale or
exchange of shares of the Trust held for six months or less are disallowed
to the extent of any distribution of exempt-interest dividends received
with respect to such shares, and, if not disallowed, such losses are
treated as long-term capital losses to the extent of any distribution of
net capital gain received (or amounts credited as undistributed capital
gain) with respect to such shares. A shareholder's holding period is
suspended for any periods during which the shareholder's risk of loss is
diminished as a result of holding one or more other positions in
substantially similar or related property, or through certain options or
short sales. Any loss realized on a sale or exchange of shares of the Trust
will be disallowed to the extent those shares of the Trust are replaced by
other shares within a period of 61 days beginning 30 days before and ending
30 days after the date of disposition of the original shares. In that
event, the basis of the replacement shares of the Trust will be adjusted to
reflect the disallowed loss.
-------------------
** The Economic Growth and Tax Relief Reconciliation Act of 2001, effective
for taxable years beginning after December 31, 2000, creates a new 10
percent income tax bracket and reduces the tax rates applicable to ordinary
income over a six year phase-in period. Beginning in the taxable year 2006,
ordinary income will be subject to a 35% maximum rate, with approximately
proportionate reductions in the other ordinary rates.
The Trust is required in certain circumstances to backup withhold
on taxable dividends and certain other payments paid to non-corporate
holders of the Trust's shares who do not furnish the Trust with their
correct taxpayer identification number (in the case of individuals, their
Social Security number) and certain certifications, or who are otherwise
subject to backup withholding. Backup withholding is not an additional tax.
Any amounts withheld from payments made to a shareholder may be refunded or
credited against such shareholder's U.S. federal income tax liability, if
any, provided that the required information is furnished to the IRS.
The foregoing is a general summary of the provisions of the Code
and the Treasury Regulations in effect as they directly govern the taxation
of the Trust and its shareholders. These provisions are subject to change
by legislative or administrative action, and any such change may be
retroactive. Moreover, the foregoing does not address many of the factors
that may be determinative of whether an investor will be liable for the
alternative minimum tax. Shareholders are advised to consult their own tax
advisers for more detailed information concerning the U.S. federal, state,
local, foreign and other income tax consequences to them of purchasing,
holding and disposing of Trust shares.
New Jersey Tax Matters
Individual shareholders of the Trust, including trusts and
estates, who are subject to the New Jersey gross income tax will not be
required to include in their New Jersey gross income distributions from the
Trust which the Trust clearly identifies as directly attributable to
interest or gains from New Jersey municipal securities, obligations of the
United States or any other obligations the interest and gain on which are
exempt from New Jersey gross income tax under New Jersey or Federal law,
provided that the Trust qualifies as a regulated investment company under
the Code and provided that the Trust satisfies New Jersey's statutory
requirements for treatment as a qualified investment fund under the
provisions of the New Jersey Gross Income Tax Act (N.J. Stat. Ann.
(S).54A:5-1 et seq.), as amended and supplemented, and any regulations
promulgated thereunder.
Under existing New Jersey law, gross income distributions to
individual shareholders from the Trust will not be subject to the New
Jersey gross income tax for any calendar year if, at the close of each
quarter of such calendar year, the Trust's portfolio consisted solely of
(1) notes, bonds and other obligations issued by the State of New Jersey or
its municipalities, counties and other taxing districts, or by the United
States government and its agencies, or by the governments of Puerto Rico,
Guam or the U.S. Virgin Islands, or (2) any other obligations which are
exempt from inclusion in gross income under the New Jersey Gross Income Tax
Act.
The foregoing is a general and abbreviated summary of the
applicable provisions of the Code, Treasury Regulations and New Jersey tax
laws presently in effect. For the complete provisions, reference should be
made to the pertinent Code sections and the Treasury Regulations
promulgated thereunder. The Code and the Treasury Regulations, as well as
the New Jersey tax laws, are subject to change by legislative, judicial or
administrative action either prospectively or retroactively.
Shareholders are urged to consult their tax advisors regarding
specific questions as to Federal, foreign, state or local tax consequences
of an investment in the Trust.
EXPERTS
The statement of Assets and Liabilities of the Trust as of , 2002
and statement of operations for the period then ended appearing in this
Statement of Additional Information has been audited by independent
auditors, as set forth in their report thereon appearing elsewhere herein,
and is included in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing. , located at , , provides
accounting and auditing services to the Trust.
ADDITIONAL INFORMATION
A Registration Statement on Form N-2, including amendments
thereto, relating to the shares offered hereby, has been filed by the Trust
with the Securities and Exchange Commission (the "Commission"), Washington,
D.C. The prospectus and this Statement of Additional Information do not
contain all of the information set forth in the Registration Statement,
including any exhibits and schedules thereto. For further information with
respect to the Trust and the shares offered hereby, reference is made to
the Registration Statement. Statements contained in the prospectus and this
Statement of Additional Information as to the contents of any contract or
other document referred to are not necessarily complete and in each
instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. A copy of the
Registration Statement may be inspected without charge at the Commission's
principal office in Washington, D.C., and copies of all or any part thereof
may be obtained from the Commission upon the payment of certain fees
prescribed by the Commission.
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholder of
The BlackRock New Jersey Municipal Bond Trust
We have audited the accompanying statement of assets and
liabilities of BlackRock New Jersey Municipal Bond Trust (the "Trust") as
of , 2002 and the related statement of operations and changes in net assets
for the period , 2002 (date of inception) to , 2002. These financial
statements are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. 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 audit provides a reasonable basis for our
opinion.
In our opinion, such financial statements presents fairly, in all
material respects, the financial position of the Trust at , 2002 and the
results of its operations and changes in its net assets for the period then
ended, in conformity with accounting principles generally accepted in the
United States of America.
, 2002
THE BLACKROCK NEW JERSEY MUNICIPAL BOND TRUST
STATEMENT OF ASSETS AND LIABILITIES
, 2002
[TO BE INSERTED]
THE BLACKROCK NEW JERSEY MUNICIPAL BOND TRUST
STATEMENT OF CHANGES IN NET ASSETS
For the period April , 2002 (date of inception) , 2002
[TO BE INSERTED]
FINANCIAL STATEMENTS
THE BLACKROCK NEW JERSEY MUNICIPAL BOND TRUST
STATEMENT OF ASSETS AND LIABILITIES
, 2002
(Unaudited)
[TO BE INSERTED]
THE BLACKROCK NEW JERSEY MUNICIPAL BOND TRUST
STATEMENT OF OPERATIONS
For the period April , 2002 (date of inception) to , 2002 (Unaudited)
[TO BE INSERTED]
THE BLACKROCK NEW JERSEY MUNICIPAL BOND TRUST
STATEMENT OF CHANGES IN NET ASSETS
For the period April , 2002 (date of inception) to , 2002 (Unaudited)
[TO BE INSERTED]
THE BLACKROCK NEW JERSEY MUNICIPAL BOND TRUST
FINANCIAL HIGHLIGHTS (Unaudited)
[TO BE INSERTED]
For the Period
April , 2002*
Through
, 2002
*
--
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
[TO BE INSERTED]
BLACKROCK NEW JERSEY MUNICIPAL BOND TRUST
PORTFOLIO OF INVESTMENTS , 2002 (Unaudited)
[TO BE INSERTED]
APPENDIX A
BLACKROCK NEW JERSEY MUNICIPAL BOND TRUST
STATEMENT OF PREFERENCES OF
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED SHARES
("PREFERRED SHARES")
[TO BE INSERTED]
APPENDIX B
Ratings of Investments
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; and
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.
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 Debt rated "CC" has a currently identifiable high vulnerability to
default. It typically is applied to debt subordinated to senior
debt that is assigned on actual or implied "CCC" debt rating.
C Debt rated "C" is currently vulnerable to nonpayment and is
dependent upon business, financial and economic conditions for the
obligor to meet its financial commitment or obligation. It
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 Corporation or the Federal Deposit Insurance
Corporation* 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 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 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
currently high vulnerability for nonpayment.
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 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. 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 superior credit
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 strong credit quality.
Margins of protection are ample although not so large as
in the preceding group.
MIG 3/VMIG 3 This designation denotes acceptable credit
quality. 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.
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
exception ally 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, nevertheless,
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.
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 does not rate the issuer or issue in
question.
`Withdrawn': A rating is withdrawn when Fitch 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. Rating alert
is typically resolved over a relatively short period.
APPENDIX C
GENERAL CHARACTERISTICS AND RISKS
OF HEDGING TRANSACTIONS
In order to manage the risk of its securities portfolio, or to
enhance income or gain as described in the prospectus, the Trust will
engage in Additional Investment Management Techniques. The Trust will
engage in such activities in the Advisor's or Sub-Advisor's discretion, and
may not necessarily be engaging in such activities when movements in
interest rates that could affect the value of the assets of the Trust
occur. The Trust's ability to pursue certain of these strategies may be
limited by applicable regulations of the CFTC. Certain Additional
Investment Management Techniques may give rise to taxable income.
Put and Call Options on Securities and Indices
The Trust may purchase and sell put and call options on securities
and indices. A put option gives the purchaser of the option the right to
sell and the writer the obligation to buy the underlying security at the
exercise price during the option period. The Trust may also purchase and
sell options on bond indices ("index options"). Index options are similar
to options on securities except that, rather than taking or making delivery
of securities underlying the option at a specified price upon exercise, an
index option gives the holder the right to receive cash upon exercise of
the option if the level of the bond index upon which the option is based is
greater, in the case of a call, or less, in the case of a put, than the
exercise price of the option. The purchase of a put option on a debt
security could protect the Trust's holdings in a security or a number of
securities against a substantial decline in the market value. A call option
gives the purchaser of the option the right to buy and the seller the
obligation to sell the underlying security or index at the exercise price
during the option period or for a specified period prior to a fixed date.
The purchase of a call option on a security could protect the Trust against
an increase in the price of a security that it intended to purchase in the
future. In the case of either put or call options that it has purchased, if
the option expires without being sold or exercised, the Trust will
experience a loss in the amount of the option premium plus any related
commissions. When the Trust sells put and call options, it receives a
premium as the seller of the option. The premium that the Trust receives
for selling the option will serve as a partial hedge, in the amount of the
option premium, against changes in the value of the securities in its
portfolio. During the term of the option, however, a covered call seller
has, in return for the premium on the option, given up the opportunity for
capital appreciation above the exercise price of the option if the value of
the underlying security increases, but has retained the risk of loss should
the price of the underlying security decline. Conversely, a secured put
seller retains the risk of loss should the market value of the underlying
security decline be low the exercise price of the option, less the premium
received on the sale of the option. The Trust is authorized to purchase and
sell exchange listed options and over-the-counter options ("OTC Options")
which are privately negotiated with the counterparty. Listed options are
issued by the Options Clearing Corporation ("OCC") which guarantees the
performance of the obligations of the parties to such options.
The Trust's ability to close out its position as a purchaser or
seller of an exchange-listed put or call option is dependent upon the
existence of a liquid secondary market on option exchanges. Among the
possible reasons for the absence of a liquid secondary market on an
exchange are: (i) insufficient trading interest in certain options; (ii)
restrictions on transactions imposed by an exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular
classes or series of options or underlying securities; (iv) interruption of
the normal operations on an exchange; (v) inadequacy of the facilities of
an exchange or OCC to handle current trading volume; or (vi) a decision by
one or more exchanges to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market
on that exchange (or in that class or series of options) would cease to
exist, although outstanding options on that exchange that had been listed
by the OCC as a result of trades on that exchange would generally continue
to be exercisable in accordance with their terms. OTC Options are purchased
from or sold to dealers, financial institutions or other counterparties
which have entered into direct agreements with the Trust. With OTC Options,
such variables as expiration date, exercise price and premium will be
agreed upon between the Trust and the counterparty, without the
intermediation of a third party such as the OCC. If the counterparty fails
to make or take delivery of the securities underlying an option it has
written, or otherwise settle the transaction in accordance with the terms
of that option as written, the Trust would lose the premium paid for the
option as well as any anticipated benefit of the transaction. As the Trust
must rely on the credit quality of the counterparty rather than the
guarantee of the OCC, it will only enter into OTC Options with
counterparties with the highest long-term credit ratings, and with primary
United States government securities dealers recognized by the Federal
Reserve Bank of New York.
The hours of trading for options on debt securities may not
conform to the hours during which the underlying securities are traded. To
the extent that the option markets close before the markets for the
underlying securities, significant price and rate movements can take place
in the underlying markets that cannot be reflected in the option markets.
Futures Contracts and Related Options
Characteristics. The Trust may sell financial futures contracts or
purchase put and call options on such futures as a hedge against
anticipated interest rate changes or other market movements. The sale of a
futures contract creates an obligation by the Trust, as seller, to deliver
the specific type of financial instrument called for in the contract at a
specified future time for a specified price. Options on futures contracts
are similar to options on securities except that an option on a futures
contract gives the purchaser the right in return for the premium paid to
assume a position in a futures contract (a long position if the option is a
call and a short position if the option is a put).
Margin Requirements. At the time a futures contract is purchased
or sold, the Trust must allocate cash or securities as a deposit payment
("initial margin"). It is expected that the initial margin that the Trust
will pay may range from approximately 1% to approximately 5% of the value
of the securities or commodities underlying the contract. In certain
circumstances, however, such as periods of high volatility, the Trust may
be required by an exchange to increase the level of its initial margin
payment. Additionally, initial margin requirements may be increased
generally in the future by regulatory action. An outstanding futures
contract is valued daily and the payment in case of "variation margin" may
be required, a process known as "marking to the market." Transactions in
listed options and futures are usually settled by entering into an
offsetting transaction, and are subject to the risk that the position may
not be able to be closed if no offsetting transaction can be arranged.
Limitations on Use of Futures and Options on Futures. The Trust's
use of futures and options on futures will in all cases be consistent with
applicable regulatory requirements and in particular the rules and
regulations of the CFTC. Under such regulations the Trust currently may
enter into such transactions without limit for bona fide hedging purposes,
including risk management and duration management and other portfolio
strategies. The Trust may also engage in transactions in futures contracts
or related options for non-hedging purposes to enhance income or gain
provided that the Trust will not enter into a futures contract or related
option (except for closing transactions) for purposes other than bona fide
hedging, or risk management including duration management if, immediately
thereafter, the sum of the amount of its initial deposits and premiums on
open contracts and options would exceed 5% of the Trust's liquidation
value, i.e., net assets (taken at current value); provided, however, that
in the case of an option that is in-the-money at the time of the purchase,
the in-the-money amount may be excluded in calculating the 5% limitation.
Also, when required, an account of cash equivalents designated on the books
and records will be maintained and marked to market on a daily basis in an
amount equal to the market value of the contract. The Trust reserves the
right to comply with such different standard as may be established from
time to time by CFTC rules and regulations with respect to the purchase or
sale of futures contracts or options thereon.
Segregation and Cover Requirements. Futures contracts, interest
rate swaps, caps, floors and collars, short sales, reverse repurchase
agreements and dollar rolls, and listed or OTC options on securities,
indices and futures contracts sold by the Trust are generally subject to
earmarking and coverage requirements of either the CFTC or the SEC, with
the result that, if the Trust does not hold the security or futures
contract underlying the instrument, the Trust will be required to designate
on its books and records an ongoing basis, cash, U.S. government
securities, or other liquid high grade debt obligations in an amount at
least equal to the Trust's obligations with respect to such instruments.
Such amounts fluctuate as the obligations increase or decrease. The
earmarking requirement can result in the Trust maintaining securities
positions it would otherwise liquidate, segregating assets at a time when
it might be disadvantageous to do so or otherwise restrict portfolio
management.
Additional Investment Management Techniques present certain risks.
With respect to hedging and risk management, the variable degree of
correlation between price movements of hedging instruments and price
movements in the position being hedged create the possibility that losses
on the hedge may be greater than gains in the value of the Trust's
position. The same is true for such instruments entered into for income or
gain. In addition, certain instruments and markets may not be liquid in all
circumstances. As a result, in volatile markets, the Trust may not be able
to close out a transaction without incurring losses substantially greater
than the initial deposit. Although the contemplated use of these
instruments predominantly for hedging should tend to minimize the risk of
loss due to a decline in the value of the position, at the same time they
tend to limit any potential gain which might result from an increase in the
value of such position. The ability of the Trust to successfully utilize
Additional Investment Management Techniques will depend on the Advisor's
and the Sub-Advisor's ability to predict pertinent market movements and
sufficient correlations, which cannot be assured. Finally, the daily
deposit requirements in futures contracts that the Trust has sold create an
on going greater potential financial risk than do options transactions,
where the exposure is limited to the cost of the initial premium. Losses
due to the use of Additional Investment Management Techniques will reduce
net asset value.
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(1) Financial Statements
Part A--Financial Highlights (unaudited).
Part B--Report of Independent Accountants.
Statement of Assets and Liabilities.
Statement of Operations.
Financial Statements (Unaudited)
(2) Exhibits
(a) Agreement and Declaration of Trust.1
(b) By-Laws.1
(c) Inapplicable.
(d)(1) Statement of Preferences of Municipal Auction
Rate Cumulative Preferred Shares.3
(d)(2) Form of Specimen Stock Certificate.2
(e) Dividend Reinvestment Plan.2
(f) Inapplicable.
(g)(1) Investment Management Agreement.2
(g)(2) Waiver Reliance Letter.2
(g)(3) Sub-Investment Advisory Agreement.2
(h) Form of Underwriting Agreement.2
(i) Deferred Compensation Plan for Independent
Trustees.2
(j) Custodian Agreement.2
(k)(1) Transfer Agency Agreement.2
(k)(2) Auction Agency Agreement.3
(k)(3) Broker-Dealer Agreement.3
(k)(4) Form of DTC Agreement.3
(l) Opinion and Consent of Counsel to the Trust.2
(m) Inapplicable.
(n) Consent of Independent Public Accountants.3
(o) Inapplicable.
(p) Initial Subscription Agreement.2
(q) Inapplicable.
(r)(1) Code of Ethics of Trust.2
(r)(2) Code of Ethics of Advisor and Sub-Advisor.2
(r)(3) Code of Ethics of J.J.B. Hilliard, W.L. Lyons,
Inc.2
(s) Powers of Attorney1
1 Previously filed in the initial filing on March 20, 2002
2 Previously filed with Pre-Effective Amendment No. 2 to the
Registration Statement of the Common Shares on April 25, 2001.
3 To be filed by amendment.
Item 25. Marketing Arrangements
Reference is made to the Form of Underwriting Agreement for the
Registrant's shares of beneficial interest filed herewith.
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses to be
incurred in connection with the offering described in this registration
statement:
Registration fees............................ $
Rating fees..................................
Printing (other than certificates)...........
Accounting fees and expenses.................
Legal fees and expenses......................
Miscellaneous................................
Total...................................
* To be furnished by amendment.
Item 27. Persons Controlled by or under Common Control with the Registrant
None.
Item 28. Number of Holders of Shares
As of April 19, 2002 Number of
---------
Title of Class Record Holders
-------------- --------------
Common Shares of Beneficial Interest....... 1
Preferred Shares........................... 0
Item 29. Indemnification
Article V of the Registrant's Agreement and Declaration of Trust
provides as follows:
5.1 No Personal Liability of Shareholders, Trustees, etc. No
Shareholder of the Trust shall be subject in such capacity to any personal
liability whatsoever to any Person in connection with Trust Property or the
acts, obligations or affairs of the Trust. Shareholders shall have the same
limitation of personal liability as is extended to stockholders of a
private corporation for profit incorporated under the Delaware General
Corporation Law. No Trustee or officer of the Trust shall be subject in
such capacity to any personal liability whatsoever to any Person, save only
liability to the Trust or its Shareholders arising from bad faith, willful
misfeasance, gross negligence or reckless disregard for his duty to such
Person; and, subject to the foregoing exception, all such Persons shall
look solely to the Trust Property for satisfaction of claims of any nature
arising in connection with the affairs of the Trust. If any Shareholder,
Trustee or officer, as such, of the Trust, is made a party to any suit or
proceeding to enforce any such liability, subject to the foregoing
exception, he shall not, on account thereof, be held to any personal
liability. Any repeal or modification of this Section 5.1 shall not
adversely affect any right or protection of a Trustee or officer of the
Trust existing at the time of such repeal or modification with respect to
acts or omissions occurring prior to such repeal or modification.
5.2 Mandatory Indemnification. (a) The Trust hereby agrees to
indemnify each person who at any time serves as a Trustee or officer of the
Trust (each such person being an "indemnitee") against any liabilities and
expenses, including amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and reasonable counsel fees
reasonably incurred by such indemnitee in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or
criminal, before any court or administrative or investigative body in which
he may be or may have been involved as a party or otherwise or with which
he may be or may have been threatened, while acting in any capacity set
forth in this Article V by reason of his having acted in any such capacity,
except with respect to any matter as to which he shall not have acted in
good faith in the reasonable belief that his action was in the best
interest of the Trust or, in the case of any criminal proceeding, as to
which he shall have had reasonable cause to believe that the conduct was
unlawful, provided, however, that no indemnitee shall be indemnified
hereunder against any liability to any person or any expense of such
indemnitee arising by reason of (i) willful misfeasance, (ii) bad faith,
(iii) gross negligence (negligence in the case of Affiliated Indemnitees),
or (iv) reckless disregard of the duties involved in the conduct of his
position (the conduct referred to in such clauses (i) through (iv) being
sometimes referred to herein as "disabling conduct"). Notwithstanding the
foregoing, with respect to any action, suit or other proceeding voluntarily
prosecuted by any indemnitee as plaintiff, indemnification shall be
mandatory only if the prosecution of such action, suit or other proceeding
by such indemnitee (1) was authorized by a majority of the Trustees or (2)
was instituted by the indemnitee to enforce his or her rights to
indemnification hereunder in a case in which the indemnitee is found to be
entitled to such indemnification. The rights to indemnification set forth
in this Declaration shall continue as to a person who has ceased to be a
Trustee or officer of the Trust and shall inure to the benefit of his or
her heirs, executors and personal and legal representatives. No amendment
or restatement of this Declaration or repeal of any of its provisions shall
limit or eliminate any of the benefits provided to any person who at any
time is or was a Trustee or officer of the Trust or otherwise entitled to
indemnification hereunder in respect of any act or omission that occurred
prior to such amendment, restatement or repeal.
(b) Notwithstanding the foregoing, no indemnification shall be
made hereunder unless there has been a determination (i) by a final
decision on the merits by a court or other body of competent jurisdiction
before whom the issue of entitlement to indemnification hereunder was
brought that such indemnitee is entitled to indemnification hereunder or,
(ii) in the absence of such a decision, by (1) a majority vote of a quorum
of those Trustees who are neither "interested persons" of the Trust (as
defined in Section 2(a)(19) of the Investment Company Act) nor parties to
the proceeding ("Disinterested Non-Party Trustees"), that the indemnitee is
entitled to indemnification hereunder, or (2) if such quorum is not
obtainable or even if obtainable, if such majority so directs, independent
legal counsel in a written opinion concludes that the indemnitee should be
entitled to indemnification hereunder. All determinations to make advance
payments in connection with the expense of defending any proceeding shall
be authorized and made in accordance with the immediately succeeding
paragraph (c) below.
(c) The Trust shall make advance payments in connection with the
expenses of defending any action with respect to which indemnification
might be sought hereunder if the Trust receives a written affirmation by
the indemnitee of the indemnitee's good faith belief that the standards of
conduct necessary for indemnification have been met and a written
undertaking to reimburse the Trust unless it is subsequently determined
that the indemnitee is entitled to such indemnification and if a majority
of the Trustees determine that the applicable standards of conduct
necessary for indemnification appear to have been met. In addition, at
least one of the following conditions must be met: (i) the indemnitee shall
provide adequate security for his undertaking, (ii) the Trust shall be
insured against losses arising by reason of any lawful advances, or (iii) a
majority of a quorum of the Disinterested Non-Party Trustees, or if a
majority vote of such quorum so direct, independent legal counsel in a
written opinion, shall conclude, based on a review of readily available
facts (as opposed to a full trial-type inquiry), that there is substantial
reason to believe that the indemnitee ultimately will be found entitled to
indemnification.
(d) The rights accruing to any indemnitee under these provisions
shall not exclude any other right which any person may have or hereafter
acquire under this Declaration, the By-Laws of the Trust, any statute,
agreement, vote of stockholders or Trustees who are "disinterested persons"
(as defined in Section 2(a)(19) of the 1940 Act) or any other right to
which he or she may be lawfully entitled.
(e) Subject to any limitations provided by the 1940 Act and this
Declaration, the Trust shall have the power and authority to indemnify and
provide for the advance payment of expenses to employees, agents and other
Persons providing services to the Trust or serving in any capacity at the
request of the Trust to the full extent corporations organized under the
Delaware General Corporation Law may indemnify or provide for the advance
payment of expenses for such Persons, provided that such indemnification
has been approved by a majority of the Trustees.
5.3 No Bond Required of Trustees. No Trustee shall, as such, be
obligated to give any bond or other security for the performance of any of
his duties hereunder.
5.4 No Duty of Investigation; Notice in Trust Instruments, etc. No
purchaser, lender, transfer agent or other person dealing with the Trustees
or with any officer, employee or agent of the Trust shall be bound to make
any inquiry concerning the validity of any transaction purporting to be
made by the Trustees or by said officer, employee or agent or be liable for
the application of money or property paid, loaned, or delivered to or on
the order of the Trustees or of said officer, employee or agent. Every
obligation, contract, undertaking, instrument, certificate, Share, other
security of the Trust, and every other act or thing whatsoever executed in
connection with the Trust shall be conclusively taken to have been executed
or done by the executors thereof only in their capacity as Trustees under
this Declaration or in their capacity as officers, employees or agents of
the Trust. Every written obligation, contract, undertaking, instrument,
certificate, Share, other security of the Trust made or issued by the
Trustees or by any officers, employees or agents of the Trust in their
capacity as such, shall contain an appropriate recital to the effect that
the Shareholders, Trustees, officers, employees or agents of the Trust
shall not personally be bound by or liable thereunder, nor shall resort be
had to their private property for the satisfaction of any obligation or
claim thereunder, and appropriate references shall be made therein to this
Declaration, and may contain any further recital which they may deem
appropriate, but the omission of such recital shall not operate to impose
personal liability on any of the Trustees, Shareholders, officers,
employees or agents of the Trust. The Trustees may maintain insurance for
the protection of the Trust Property, its Shareholders, Trustees, officers,
employees and agents in such amount as the Trustees shall deem adequate to
cover possible tort liability, and such other insurance as the Trustees in
their sole judgment shall deem advisable or is required by the 1940 Act.
5.5 Reliance on Experts, etc. Each Trustee and officer or employee
of the Trust shall, in the performance of its duties, be fully and
completely justified and protected with regard to any act or any failure to
act resulting from reliance in good faith upon the books of account or
other records of the Trust, upon an opinion of counsel, or upon reports
made to the Trust by any of the Trust's officers or employees or by any
advisor, administrator, manager, distributor, selected dealer, accountant,
appraiser or other expert or consultant selected with reasonable care by
the Trustees, officers or employees of the Trust, regardless of whether
such counsel or expert may also be a Trustee.
5.6 Indemnification of Shareholders. If any Shareholder or former
Shareholder shall be held personally liable solely by reason of its being
or having been a Shareholder and not because of its acts or omissions or
for some other reason, the Shareholder or former Shareholder (or its heirs,
executors, administrators or other legal representatives or in the case of
any entity, its general successor) shall be entitled out of the assets
belonging to the Trust to be held harmless from and indemnified to the
maximum extent permitted by law against all loss and expense arising from
such liability. The Trust shall, upon request by such Shareholder, assume
the defense of any claim made against such Shareholder for any act or
obligation of the Trust and satisfy any judgment thereon from the assets of
the Trust.
Insofar as indemnification for liabilities arising under the Act,
may be terminated to Trustees, officers and controlling persons of the
Trust, pursuant to the foregoing provisions or otherwise, the Trust has
been advised that in the opinion of the Securities and Exchange Commission
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
Registrant of expenses incurred or paid by a Trustee, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such Trustee, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue. Reference is made to Article 8 of the
underwriting agreement to be attached as Exhibit (h).
Item 30. Business and Other Connections of Investment Advisor
Not Applicable
Item 31. Location of Accounts and Records
The Registrant's accounts, books and other documents are currently
located at the offices of the Registrant, c/o BlackRock Advisors, Inc., 100
Bellevue Parkway, Wilmington, Delaware 19809 and at the offices of State
Street Bank and Trust Company, the Registrant's Custodian, and EquiServe
Trust Company, N.A., the Registrant's Transfer Agent and Dividend
Disbursing Agent.
Item 32. Management Services
Not Applicable
Item 33. Undertakings
(1) The Registrant hereby undertakes to suspend the offering of
its units until it amends its prospectus if (a) subsequent to the effective
date of its registration statement, the net asset value declines more than
10 percent from its net asset value as of the effective date of the
Registration Statement or (b) the net asset value increases to an amount
greater than its net proceeds as stated in the prospectus.
(2) Not applicable
(3) Not applicable
(4) Not applicable
(5) (a) For the purposes of determining any liability under the
Securities Act of 1933, the information omitted form 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 under Rule 497
(h) under the Securities Act of 1933 shall be deemed to be part of the
Registration Statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of the securities at
that time shall be deemed to be the initial bona fide offering thereof.
(6) The Registrant undertakes to send by first class mail or other
means designed to ensure equally prompt delivery within two business days
of receipt of a written or oral request, any Statement of Additional
Information.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, and State of New York,
on the 7th day of May, 2002.
/s/ Ralph L. Schlosstein
Ralph L. Schlosstein
President, Chief Executive Officer and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities set forth below on the 7th day of May, 2002.
Name Title
*Ralph L. Schlosstein Trustee, President, Chief
Executive Officer and Chief
Financial Officer
*Henry Gabbay Treasurer
*Andrew F. Brimmer Trustee
*Richard E. Cavanagh Trustee
*Kent Dixon Trustee
*Frank J. Fabozzi Trustee
*Laurence D. Fink Trustee
*James Clayburn La Force, Jr. Trustee
*Walter F. Mondale Trustee
*By: /s/ Ralph L. Schlosstein
Attorney-in-fact
INDEX TO EXHIBITS
None