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<SEC-DOCUMENT>0000950130-01-503257.txt : 20010726
<SEC-HEADER>0000950130-01-503257.hdr.sgml : 20010726
ACCESSION NUMBER:		0000950130-01-503257
CONFORMED SUBMISSION TYPE:	N-2/A
PUBLIC DOCUMENT COUNT:		5
FILED AS OF DATE:		20010725

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			BLACKROCK MUNICIPAL INCOME TRUST
		CENTRAL INDEX KEY:			0001137393
		STANDARD INDUSTRIAL CLASSIFICATION:	 []

	FILING VALUES:
		FORM TYPE:		N-2/A
		SEC ACT:		
		SEC FILE NUMBER:	333-58224
		FILM NUMBER:		1689205

	FILING VALUES:
		FORM TYPE:		N-2/A
		SEC ACT:		
		SEC FILE NUMBER:	811-10339
		FILM NUMBER:		1689206

	BUSINESS ADDRESS:	
		STREET 1:		345 PARK AVE
		CITY:			NEW YORK
		STATE:			NY
		ZIP:			10154
		BUSINESS PHONE:		2127545567

	MAIL ADDRESS:	
		STREET 1:		345 PARK AVE
		CITY:			NEW YORK
		STATE:			NY
		ZIP:			10154
</SEC-HEADER>
<DOCUMENT>
<TYPE>N-2/A
<SEQUENCE>1
<FILENAME>dn2a.txt
<DESCRIPTION>BLACKROCK MUNICIPAL INCOME TRUST
<TEXT>

<PAGE>


   As filed with the Securities and Exchange Commission on July 25, 2001

                                       Securities Act Registration No. 333-58224
                                   Investment Company Registration No. 811-10339

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

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM N-2

          REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933       [X]

                                                                        [X]
                       Pre-Effective Amendment No. 3

                         Post-Effective Amendment No.                   [_]
                                     and/or
                          REGISTRATION STATEMENT UNDER
                       THE INVESTMENT COMPANY ACT OF 1940               [X]

                                                                        [X]
                              AMENDMENT NO. 3


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

                        BlackRock Municipal Income 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 Municipal Income Trust
                                345 Park Avenue
                            New York, New York 10154
                    (Name and Address of Agent for Service)

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

                                   Copies to:

        Michael K. Hoffman, Esq.                Cynthia G. Cobden, Esq.
    Skadden, Arps, Slate, Meagher & Flom LLP   Simpson Thacher & Bartlett
           Four Times Square                      425 Lexington Avenue
        New York, New York 10036                New York, New York 10017


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

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

        CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

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

<TABLE>
<CAPTION>
                                                            Proposed         Proposed
                                        Amount Being    Maximum Offering Maximum Aggregate    Amount of
Title of Securities Being Registered     Registered      Price per Unit   Offering Price   Registration Fee
- -----------------------------------------------------------------------------------------------------------
<S>                                   <C>               <C>              <C>               <C>
Common Shares, $.001 par
 value..................              43,333,333 shares      $15.00         650,000,000     $162,500(/1/)

(/1/)$15,000 previously paid.
</TABLE>



   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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------


- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

                        BLACKROCK MUNICIPAL INCOME TRUST

                             CROSS REFERENCE SHEET

                               Part A--Prospectus


<TABLE>
<CAPTION>
               Items in Part A of Form N-2           Location in Prospectus
               ---------------------------           ----------------------
 <C>      <C>                                    <S>
 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; Summary
                                                  of Trust Expenses

 Item 4.  Financial Highlights.................. Not Applicable

 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             The Trust; The Trust's
           Registrant...........................  Investments; Risks;
                                                  Description of Shares;
                                                  Certain Provisions in the
                                                  Declaration of Trust

 Item 9.  Management............................ Management of the Trust;
                                                  Custodian and Transfer Agent

 Item 10. Capital Stock, Long-Term Debt, and
           Other Securities..................... Description of Shares;
                                                  Distributions; Dividend
                                                  Reinvestment Plan; Certain
                                                  Provisions in the
                                                  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
           Additional Information............... Table of Contents for the
                                                  Statement of Additional
                                                  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;
                                                  Portfolio Transactions

 Item 18. Management............................ Management of the Trust;
                                                  Portfolio Transactions

 Item 19. Control Persons and Principal Holders
           of Securities........................ Management of the Trust

 Item 20. Investment Advisory and Other          Management of the Trust;
           Services.............................  Experts

 Item 21.         Brokerage Allocation and Other
           Practices............................ Portfolio Transactions

 Item 22. Tax Status............................ Tax Matters; Distributions

 Item 23. Financial Statements.................. Report of Independent
                                                  Auditors
</TABLE>


                           Part C--Other Information

Items 24-33 have been answered in Part C of this Registration Statement

<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this Prospectus is not complete and may be changed. We may +
+not sell these securities until the Registration Statement filed with the     +
+Securities and Exchange Commission is effective. This Prospectus is not an    +
+offer to sell these securities and is not soliciting an offer to buy these    +
+securities in any state where the offer or sale is not permitted.             +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

                SUBJECT TO COMPLETION, DATED JULY 25, 2001


PROSPECTUS
                                                             [LOGO OF BLACKROCK]

                             4,000,000 Shares


                        BlackRock Municipal Income Trust

                                 Common Shares

                                $15.00 per share

                                  -----------

  Investment Objective. BlackRock Municipal Income Trust (the "Trust") is a
newly organized, diversified, closed-end management investment company. The
Trust's investment objective is to provide current income exempt from regular
Federal income tax.


  Portfolio Contents. The Trust will invest primarily in municipal bonds that
pay interest that is exempt from regular Federal 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 total 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 Investor Service, Inc. ("Moody's"), Standard &
Poors 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 sub-advisor. The Trust may invest up to 20% of its total 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 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.

  No Prior History. Because the Trust is newly organized, its shares have no
history of public trading. Shares of closed-end investment companies frequently
trade at a discount from their net asset value. This risk may be greater for
investors expecting to sell their shares in a relatively short period after
completion of the public offering. The Trust's common shares have been approved
for listing, subject to official notice of issuance, on the New York Stock
Exchange under the symbol "BFK".


  Preferred Shares. Within approximately one to three months after completion
of this offering of common shares, the Trust intends to offer preferred shares
representing approximately 38% of the Trust's capital immediately after the
issuance of such preferred shares. There can be no assurance, however, that
preferred shares representing such percentage of the Trust's capital will
actually be issued. The use of preferred shares to leverage the common shares
can create risks.


                                  -----------

  Investing in the common shares involves certain risks.
See "Risks" on page 17 of this prospectus.


  Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

                                  -----------


<TABLE>
<CAPTION>
                                                                Per Share Total
                                                                --------- -----
       <S>                                                      <C>       <C>
       Public Offering Price...................................  $15.00   $
       Sales Load..............................................  $ 0.675  $
       Proceeds, before expenses, to the Trust.................  $14.325  $
</TABLE>



  The underwriters expect to deliver the common shares to purchasers on or
about July    , 2001.

                                  -----------

Salomon Smith Barney                                    Merrill Lynch & Co.


A.G. Edwards & Sons, Inc.                             Prudential Securities


                                UBS Warburg


Dain Rauscher Wessels                                 Gruntal & Co., L.L.C.


J.J.B. Hilliard, W.L. Lyons, Inc.                             Raymond James


  A PNC Company





July   , 2001.
<PAGE>


   You should read the prospectus, which contains important information about
the Trust, before deciding whether to invest and retain it for future
reference. A Statement of Additional Information, dated July  , 2001,
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 36 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 Trust's common 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 underwriters named in this prospectus may purchase up to     additional
common shares at the public offering price within 45 days from the date of this
prospectus to cover over-allotments.


                                       2
<PAGE>


   You should rely only on the information contained or incorporated by
reference in this prospectus. The Trust has not authorized anyone to provide
you with different information. The Trust is not making an offer of these
securities in any state where the offer is not permitted. You should not assume
that the information contained in this prospectus is accurate as of any date
other than the date on the front of this prospectus.


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

                               TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
Prospectus Summary.........................................................   4
Summary of Trust Expenses..................................................  10
The Trust..................................................................  12
Use of Proceeds............................................................  12
The Trust's Investments....................................................  12
Preferred Shares and Leverage..............................................  15
Risks......................................................................  17
How the Trust Manages Risk.................................................  19
Management of the Trust....................................................  21
Net Asset Value............................................................  24
Distributions..............................................................  24
Dividend Reinvestment Plan.................................................  25
Description of Shares......................................................  26
Certain Provisions in the Agreement and Declaration of Trust...............  29
Closed-End Trust Structure.................................................  30
Repurchase of Shares.......................................................  31
Tax Matters................................................................  31
Underwriting...............................................................  33
Custodian and Transfer Agent...............................................  35
Legal Opinions.............................................................  35
Table of Contents for the Statement of Additional Information..............  36
</TABLE>


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

   Until August   , 2001 (25 days after the date of this prospectus), all
dealers that buy, sell or trade the common shares, whether or not participating
in this offering, may be required to deliver a prospectus. This is in addition
to the dealers' obligation to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.


                        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.


                                       3
<PAGE>

                               PROSPECTUS SUMMARY

   This is only a summary. This summary may not contain all of the information
that you should consider before investing in our common shares. You should
review the more detailed information contained in this prospectus and in the
Statement of Additional Information.


<TABLE>
 <C>                                <S>
 The Trust........................  BlackRock Municipal Income Trust is a newly
                                    organized, diversified, closed-end
                                    management investment company. Throughout
                                    the prospectus, we refer to BlackRock
                                    Municipal Income Trust simply as the
                                    "Trust" or as "we," "us" or "our." See "The
                                    Trust."

 The Offering.....................  The Trust is offering common shares of
                                    beneficial interest at $15.00 per share
                                    through a group of underwriters (the
                                    "Underwriters") led by Salomon Smith Barney
                                    Inc., Merrill Lynch, Pierce, Fenner & Smith
                                    Incorporated, A.G. Edwards & Sons, Inc.,
                                    Prudential Securities Incorporated, UBS
                                    Warburg LLC, Dain Rauscher Wessels, a
                                    division of Dain Rauscher Incorporated,
                                    Gruntal & Co., L.L.C., J.J.B. Hilliard,
                                    W.L. Lyons, Inc. and Raymond James &
                                    Associates, Inc. The common shares of
                                    beneficial interest are called "common
                                    shares" in the rest of this prospectus. You
                                    must purchase at least 100 common shares
                                    ($1,500). The Trust has given the
                                    Underwriters an option to purchase up to
                                         additional common shares to cover
                                    orders in excess of      common shares.
                                    BlackRock Advisors, Inc. has agreed to pay
                                    organizational expenses and offering costs
                                    (other than sales load) that exceed $0.03
                                    per share. See "Underwriting."

 Investment Objective.............  The Trust's investment objective is to
                                    provide current income exempt from regular
                                    Federal income tax.

 Investment Policies..............  The Trust will invest primarily in
                                    municipal bonds that pay interest that is
                                    exempt from regular Federal income tax. The
                                    Trust will invest in municipal bonds that,
                                    in the opinion of BlackRock Advisors, Inc.
                                    ("BlackRock Advisors" or the "Advisor") and
                                    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 total 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 the Sub-Advisor.
                                    The Trust may invest up to 20% of its total
                                    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
</TABLE>


                                       4
<PAGE>


<TABLE>
 <C>                                <S>
                                    comparable quality by the Advisor and 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."

 Special Tax Considerations.......  While exempt-interest dividends are
                                    excluded from gross income for Federal
                                    income tax purposes, they may be subject to
                                    the Federal alternative minimum tax in
                                    certain circumstances. Distributions of any
                                    capital gain or other taxable income will
                                    be taxable to shareholders. The Trust may
                                    not be a suitable investment for investors
                                    subject to the Federal alternative minimum
                                    tax or who would become subject to such tax
                                    by investing in the Trust. See "Tax
                                    Matters."

 Proposed Offering of Preferred     Approximately one to three months after
  Shares..........................  completion of this offering of the common
                                    shares (subject to market conditions), the
                                    Trust intends to offer preferred shares of
                                    beneficial interest ("Preferred Shares")
                                    that will represent approximately 38% of
                                    the Trust's capital after their issuance.
                                    The issuance of Preferred Shares will
                                    leverage the common shares. Leverage
                                    involves greater risks. The Trust's
                                    leveraging strategy may not be successful.
                                    See "Risks--Leverage Risk." The money the
                                    Trust obtains by selling the Preferred
                                    Shares will be invested in long-term
                                    municipal bonds that will generally pay
                                    fixed rates of interest over the life of
                                    the bonds.

                                    The Preferred Shares will pay adjustable
                                    rate dividends based on shorter-term
                                    interest rates. The adjustment period could
                                    be as short as a day or as long as a year
                                    or more. If the rate of return, after the
                                    payment of applicable expenses of the
                                    Trust, on the long-term bonds purchased by
                                    the Trust is greater than the dividends
                                    paid by the Trust on the Preferred Shares,
                                    the Trust will generate more income by
                                    investing the proceeds of the Preferred
                                    Shares than it will need to pay dividends
                                    on the Preferred Shares. If so, the excess
                                    income will be used to pay higher dividends
                                    to holders of common shares. However, the
                                    Trust cannot assure you that the issuance
                                    of Preferred Shares will result in a higher
                                    yield on the common shares. Once Preferred
                                    Shares are issued, the net asset value and
                                    market price of the common shares and the
                                    yield to holders of common shares will be
                                    more volatile. See "Preferred Shares and
                                    Leverage" and "Description of Shares--
                                    Preferred Shares."

 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
</TABLE>



                                       5
<PAGE>


<TABLE>
 <C>                                <S>
                                    collectively as "BlackRock." BlackRock
                                    Advisors will receive an annual fee,
                                    payable monthly, in a maximum amount equal
                                    to 0.60% of the average weekly value of the
                                    Trust's Managed Assets. "Managed Assets"
                                    means the total assets of the Trust
                                    (including any assets attributable to any
                                    Preferred Shares that may be outstanding)
                                    minus the sum of accrued liabilities (other
                                    than debt representing financial leverage).
                                    The liquidation preference of the Preferred
                                    Shares is not a liability. BlackRock
                                    Advisors has voluntarily agreed to waive
                                    receipt of a portion of the management fee
                                    or other expenses of the Trust in the
                                    amount of 0.25% of the average weekly
                                    values of the Trust's Managed Assets for
                                    the first five years of the Trust's
                                    operations (through July 31, 2006), and for
                                    a declining amount for an additional four
                                    years (through July 31, 2010). See
                                    "Management of the Trust."

 Distributions....................  The Trust intends to distribute monthly all
                                    or a portion of its net investment income
                                    to holders of common shares. We expect to
                                    declare the initial monthly dividend on the
                                    Trust's common shares approximately 45 days
                                    after completion of this offering and to
                                    pay that initial monthly dividend
                                    approximately 60 to 90 days after
                                    completion of this offering. Unless an
                                    election is made to receive dividends in
                                    cash, shareholders will automatically have
                                    all dividends and distributions reinvested
                                    in common shares through the receipt of
                                    additional unissued but authorized common
                                    shares from the Trust or by purchasing
                                    common shares in the open market through
                                    the Trust's Dividend Reinvestment Plan. See
                                    "Dividend Reinvestment Plan."

                                    The Trust will distribute to holders of its
                                    common shares monthly dividends of all or a
                                    portion of its tax-exempt interest income
                                    after payment of dividends on any Preferred
                                    Shares of the Trust which may be
                                    outstanding. If the Trust realizes a
                                    capital gain or other taxable income, it
                                    will be required to allocate such income
                                    between the common shares and the Preferred
                                    Shares in proportion to the total dividends
                                    paid to each class for the year in which
                                    the income is realized. See "Distributions"
                                    and "Preferred Shares and Leverage."

 Listing..........................  The common shares have been approved for
                                    listing on the New York Stock Exchange,
                                    subject to notice of issuance, under the
                                    trading or "ticker" symbol "BFK". See
                                    "Description of Shares--Common Shares."

 Custodian and Transfer Agent.....  State Street Bank and Trust Company will
                                    serve as the Trust's Custodian and
                                    EquiServe Trust Company, N.A. will serve as
                                    the Trust's Transfer Agent. See "Custodian
                                    and Transfer Agent."

 Market Price of Shares...........  Shares of closed-end investment companies
                                    frequently trade at prices lower than their
                                    net asset value. Shares of closed-end
                                    investment companies like the Trust that
                                    invest predominately in
</TABLE>


                                       6
<PAGE>


<TABLE>
 <C>                                <S>
                                    investment grade municipal bonds have
                                    during some periods traded at prices higher
                                    than their net asset value and during other
                                    periods traded at prices lower than their
                                    net asset value. The Trust cannot assure
                                    you that its common shares will trade at a
                                    price higher than or equal to net asset
                                    value. The Trust's net asset value will be
                                    reduced immediately following this offering
                                    by the sales load and the amount of the
                                    organization and offering expenses paid by
                                    the Trust. See "Use of Proceeds." In
                                    addition to net asset value, the market
                                    price of the Trust's common shares may be
                                    affected by such factors as dividend
                                    levels, which are in turn affected by
                                    expenses, call protection for portfolio
                                    securities, dividend stability, portfolio
                                    credit quality, liquidity and market supply
                                    and demand. See "Preferred Shares and
                                    Leverage," "Risks," "Description of Shares"
                                    and the section of the Statement of
                                    Additional Information with the heading
                                    "Repurchase of Common Shares." The common
                                    shares are designed primarily for long-term
                                    investors and you should not purchase
                                    common shares of the Trust if you intend to
                                    sell them shortly after purchase.

 Special Risk Considerations......  No Operating History. The Trust is a newly
                                    organized closed-end investment company
                                    with no history of operations.

                                    Market Discount Risk. Shares of closed-end
                                    management investment companies frequently
                                    trade at a discount from their net asset
                                    value.

                                    Interest Rate Risk. Generally, when market
                                    interest rates fall, bond prices rise, and
                                    vice versa. Interest rate risk is the risk
                                    that the municipal bonds in the Trust's
                                    portfolio will decline in value because of
                                    increases in market interest rates. The
                                    prices of longer-term bonds fluctuate more
                                    than prices of shorter-term bonds as
                                    interest rates change. Because the Trust
                                    will invest primarily in long-term bonds,
                                    net asset value and market price per share
                                    of the common shares will fluctuate more in
                                    response to changes in market interest
                                    rates than if the Trust invested primarily
                                    in shorter-term bonds. The Trust's use of
                                    leverage, as described below, will tend to
                                    increase common share interest rate risk.

                                    Credit Risk. Credit risk is the risk that
                                    one or more municipal bonds in the Trust's
                                    portfolio will decline in price, or fail to
                                    pay interest or principal when due, because
                                    the issuer of the bond experiences a
                                    decline in its financial status. Under
                                    normal market conditions, the Trust will
                                    invest at least 80% of its total assets in
                                    municipal bonds rated Baa/BBB or higher.
                                    The Trust may invest up to 20% (measured at
                                    the time of investment) of its total assets
                                    in municipal bonds that are rated Ba/BB or
                                    B or that are unrated but judged to be of
                                    comparable quality by BlackRock. 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.
                                    Municipal bonds of below investment grade
                                    quality are
</TABLE>


                                       7
<PAGE>


<TABLE>
 <C>                                <S>
                                    predominantly speculative with respect to
                                    the issuer's capacity to pay interest and
                                    repay principal when due and therefore
                                    involve a greater risk of default.

                                    Economic Sector Risk. The Trust may invest
                                    25% or more of its total assets in
                                    municipal obligations of issuers in the
                                    same economic sector, such as hospitals or
                                    life care facilities and transportation
                                    related issuers. This may make the Trust
                                    more susceptible to adverse economic,
                                    political or regulatory occurrences
                                    affecting a particular economic sector.

                                    Leverage Risk. The use of leverage through
                                    the issuance of Preferred Shares creates an
                                    opportunity for increased common share net
                                    income, but also creates risks for the
                                    holders of common shares. The Trust's
                                    leveraging strategy may not be successful.
                                    We anticipate that Preferred Shares will
                                    pay adjustable rate dividends based on
                                    shorter-term interest rates that would be
                                    periodically reset. The Trust will invest
                                    the proceeds of the Preferred Shares
                                    offering in long-term, typically fixed
                                    rate, municipal bonds. So long as the
                                    Trust's municipal bond portfolio provides a
                                    higher rate of return, net of Trust
                                    expenses, than the Preferred Share dividend
                                    rate, as reset periodically, the leverage
                                    will cause the holders of common shares to
                                    receive a higher current rate of return
                                    than if the Trust were not leveraged. If,
                                    however, long- and/or short-term rates
                                    rise, the Preferred Share dividend rate
                                    could exceed the rate of return on long-
                                    term bonds held by the Trust that were
                                    acquired during periods of generally lower
                                    interest rates, reducing return to the
                                    holders of common shares. Leverage creates
                                    two major types of risks for the holders of
                                    common shares:

                                    .  the likelihood of greater volatility of
                                       net asset value and market price of the
                                       common shares because changes in the
                                       value of the Trust's bond portfolio,
                                       including bonds bought with the proceeds
                                       of the Preferred Shares offering, are
                                       borne entirely by the holders of common
                                       shares; and

                                    .  the possibility either that common share
                                       income will fall if the Preferred Share
                                       dividend rate rises or that common share
                                       income will fluctuate because the
                                       Preferred Share dividend rate varies.

                                    Municipal Bond Market Risk. 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.
</TABLE>


                                       8
<PAGE>


<TABLE>
 <C>                                <S>
                                    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.

                                    Anti-Takeover Provisions. The Trust's
                                    Agreement and Declaration of Trust, as
                                    amended and restated, includes provisions
                                    that could limit the ability of other
                                    entities or persons to acquire control of
                                    the Trust or convert the Trust to open-end
                                    status. These provisions could deprive the
                                    holders of common shares of opportunities
                                    to sell their common shares at a premium
                                    over the then current market price of the
                                    common shares or at net asset value.
</TABLE>


                                       9
<PAGE>

                           SUMMARY OF TRUST EXPENSES

   The following table shows Trust expenses as a percentage of net assets
attributable to common shares.



<TABLE>
<S>                                                         <C>
Shareholder Transaction Expenses
  Sales Load Paid by You (as a percentage of offering
   price)..................................................        4.50%
  Dividend Reinvestment Plan Fees..........................        None*
<CAPTION>
                                                             Percentage of Net
                                                            Assets Attributable
                                                            to Common Shares**
                                                            -------------------
<S>                                                         <C>
Annual Expenses
Management Fees............................................        0.97%
Fees and Expense Waiver Years 1-5..........................       (0.40%)***
                                                                  ------
Net Management Fees Years 1-5..............................        0.57%***
Other Expenses.............................................        0.24%
                                                                  ------
Total Net Annual Expenses Years 1-5........................        0.81%***
                                                                  ======
</TABLE>

- --------

 * You will be charged a $2.50 service charge and pay brokerage charges if you
   direct the Plan Agent (as defined below) to sell your common shares held in
   a dividend reinvestment account.

 ** Stated as a percentage of the Trust's total Managed Assets assuming the
    issuance of Preferred Shares in an amount equal to 38% of the Trust's
    capital (after their issuance), the Trust's expenses would be estimated as
    set out in the table below. "Managed Assets" means the total assets of the
    Trust (including any assets attributable to any Preferred Shares that may
    be outstanding) minus the sum of accrued liabilities (other than debt
    representing financial leverage). The liquidation preference of the
    Preferred Shares is not a liability.


<TABLE>
<CAPTION>
                                                            Percentage of Total
                                                              Managed Assets
                                                            -------------------
   <S>                                                      <C>
   Annual Expenses
   Management Fees.........................................        0.60%
   Fee and Expense Waiver Years 1-5........................       (0.25%)***
                                                                  ------
   Net Management Fees Years 1-5...........................        0.35%***
   Other Expenses..........................................        0.15%
                                                                  ------
   Total Net Annual Expenses Years 1-5.....................        0.50%***
                                                                  ======
</TABLE>


*** BlackRock Advisors has voluntarily agreed to waive receipt of a portion of
    the management fee or other expenses of the Trust in the amount of 0.40%
    of average weekly net assets attributable to common shares (0.25% of
    average weekly Managed Assets) for the first 5 years of the Trust's
    operations, 0.32% (0.20%) in year 6, 0.24% (0.15%) in year 7, 0.16%
    (0.10%) in year 8, and 0.08% (0.05%) in year 9. Without the waiver, "Total
    Net Annual Expenses Years 1-5" would be estimated to be 1.21% of average
    weekly net assets attributable to common shares and 0.75% of average
    weekly Managed Assets. BlackRock Advisors has agreed to pay all
    organizational expenses and offering costs (other than sales load) that
    exceed $0.03 per common share (0.20% of the offering price).


   The purpose of the table above and the example below is to help you
understand all fees and expenses that you, as a holder of common shares, would
bear directly or indirectly. The expenses shown in the table under "Other
Expenses" and "Total Net Annual Expenses Years 1-5" are based on estimated
amounts for the Trust's first year of operations and assume that the Trust
issues 43,333,333 common shares. If the Trust issues fewer common shares, all
other things being equal, these expenses would increase. See "Management of
the Trust" and "Dividend Reinvestment Plan."


                                      10
<PAGE>


   The following example illustrates the expenses (including the sales load of
$45) that you would pay on a $1,000 investment in common shares, assuming (1)
total net annual expenses of 0.81% of net assets attributable to common shares
in years 1 through 5, increasing to 1.21%, in year 10 and (2) a 5% annual
return:(/1/)



<TABLE>
<CAPTION>
                                            1 Year 3 Years 5 Years 10 Years(/2/)
                                            ------ ------- ------- -------------
<S>                                         <C>    <C>     <C>     <C>
Total Expenses Incurred....................  $53     $71     $90       $165
</TABLE>

- --------

(/1/) The example should not be considered a representation of future
      expenses. The example assumes that the estimated "Other Expenses" set
      forth in the Annual Expenses table are accurate, that fees and expenses
      increase as described in note 2 below and that all dividends and
      distributions are reinvested at net asset value. Actual expenses may be
      greater or less than those assumed. Moreover, the Trust's actual rate of
      return may be greater or less than the hypothetical 5% return shown in
      the example.


(/2/) Assumes waiver of fees and expenses of 0.32% of average weekly net assets
      attributable to common shares in year 6 (0.20% of average weekly Managed
      Assets), 0.24% (0.15%) in year 7, 0.16% (0.10%) in year 8, and 0.08%
      (0.05%) in year 9 and assumes that Preferred Shares remain 38% of the
      Trust's capital throughout the periods reflected. BlackRock Advisors has
      not agreed to waive any portion of its fees and expenses beyond July 31,
      2010. See "Management of the Fund--Investment Management Agreement."


                                       11
<PAGE>

                                   THE TRUST

   The Trust is a newly organized, diversified, closed-end management
investment company registered under the Investment Company Act. The Trust was
organized as a Delaware business trust on March 30, 2001, pursuant to an
Agreement and Declaration of Trust, as later amended and restated, governed by
the laws of the State of Delaware. As a newly organized entity, the Trust has
no operating history. The Trust's principal office is located at 100 Bellevue
Parkway, Wilmington, Delaware 19809, and its telephone number is (888) 825-
2257.


                                USE OF PROCEEDS

   The net proceeds of the offering of common shares will be approximately
$    ($   if the Underwriters exercise the over-allotment option in full)
after payment of the estimated organization and 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 substantially all of the net proceeds in
municipal bonds that meet the Trust's investment objective and policies within
three months 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.


                            THE TRUST'S INVESTMENTS

Investment Objective and Policies

   The Trust's investment objective is to provide current income exempt from
regular Federal income tax.

   The Trust will invest primarily in municipal bonds that pay interest that
is exempt from regular Federal income tax. Under normal market conditions, the
Trust expects to be fully invested (at least 95% of its net assets) in such
tax-exempt municipal bonds. Under normal market conditions, the Trust will
invest at least 80% of its total 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 higher grade municipal bonds. The Trust may
invest up to 20% of its total 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 A to the
Statement of Additional Information contains a general description of Moody's,
S&P's and Fitch's ratings of municipal bonds. 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," "--Tax-Exempt
Preferred Shares" and "--Initial Portfolio Composition."


   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

                                      12
<PAGE>


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, 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, 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 tax.


   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.

   The Trust cannot change its investment objective without the approval of the
holders of a majority of the outstanding common shares and, once the Preferred
Shares are issued, 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 Shares--Preferred Shares--Voting Rights" and the
Statement of Additional Information under "Description of Shares--Preferred
Shares" for additional information with respect to the voting rights of holders
of Preferred Shares.


Municipal Bonds

   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.

                                       13
<PAGE>


   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. 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. 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.


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. A separate
account of the Trust will be established with its custodian consisting of cash,
or other liquid high grade 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 common shares or 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 would remain subject to payment of the Trust's advisory and other
fees and expenses with respect to assets so invested. Holders of common shares
would 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.
As described in this prospectus in the sections entitled "Risks" and "Preferred
Shares and Leverage," 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.



                                       14
<PAGE>

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.


Initial Portfolio Composition

   If current market conditions persist, the Trust expects that approximately
100% of its initial portfolio will consist of investment grade quality
municipal bonds, rated as such at the time of investment, meaning that such
bonds are rated by national rating agencies within the four highest grades or
are unrated but judged to be of comparable quality by BlackRock (approximately
60% in Aaa/AAA; 20% in A; and 20% in Baa/BBB). BlackRock generally expects to
select obligations that may not be redeemed at the option of the issuer for
approximately ten years from the date of purchase by the Trust. See "--
Investment Objective and Policies."


                         PREFERRED SHARES AND LEVERAGE

   Approximately one to three months after the completion of the offering of
the common shares, subject to market conditions, the Trust intends to offer
Preferred Shares representing approximately 38% of the Trust's capital
immediately after the issuance of the Preferred Shares. The Preferred Shares
will have complete priority upon distribution of assets over the common shares.
The issuance of Preferred Shares will leverage the common shares. Leverage
involves greater risks. The Trust's leveraging strategy may not be successful.
Although the timing and other terms of the offering of Preferred Shares and the
terms of the Preferred Shares will be determined by the Trust's board of
trustees, the Trust expects to invest the proceeds of the Preferred Shares
offering in long-term municipal bonds. The Preferred Shares will pay adjustable
rate dividends based on shorter-term interest rates, which would be
redetermined periodically by an auction process. The adjustment period for
Preferred Share dividends could be as short as one day or as long as a year or
more. So long as the Trust's portfolio is invested in securities that provide a
higher rate of return than the dividend rate of the Preferred Shares, after
taking expenses into consideration, the leverage will cause you to receive a
higher current rate of income than if the Trust were not leveraged.

   Changes in the value of the Trust's bond portfolio, including bonds bought
with the proceeds of the Preferred Shares offering, will be borne entirely by
the holders of common shares. If there is a net decrease, or increase, in the
value of the Trust's investment portfolio, the leverage will decrease, or
increase (as the case may be), the net asset value per common share to a
greater extent than if the Trust were not leveraged. During periods in which
the Trust is using leverage, the fees paid to BlackRock for advisory and sub-
advisory services


                                       15
<PAGE>

will be higher than if the Trust did not use leverage because the fees paid
will be calculated on the basis of the Trust's total assets, including the
gross proceeds from the issuance of Preferred Shares.

   For tax purposes, the Trust is currently required to allocate tax-exempt
interest income, net capital gain and other taxable income, if any, between the
common shares and Preferred Shares in proportion to total dividends paid to
each class for the year in which the net capital gain or other taxable income
is realized. If net capital gain or other taxable income is allocated to
Preferred Shares, instead of solely tax-exempt income, the Trust will likely
have to pay higher total dividends to Preferred Shareholders or make special
payments to Preferred Shareholders to compensate them for the increased tax
liability. This would reduce the total amount of dividends paid to the holders
of common shares, but would increase the portion of the dividend that is tax-
exempt. If the increase in dividend payments or the special payments to
Preferred Shareholders are not entirely offset by a reduction in the tax
liability of, and an increase in the tax-exempt dividends received by, the
holders of common shares, the advantage of the Trust's leveraged structure to
holders of common shares will be reduced.


   Under the Investment Company Act, the Trust is not permitted to issue
Preferred Shares unless immediately after such issuance the value of the
Trust's total assets is at least 200% of the liquidation value of the
outstanding Preferred Shares (i.e., the liquidation value may not exceed 50% of
the Trust's total assets). In addition, the Trust is not permitted to declare
any cash dividend or other distribution on its common shares unless, at the
time of such declaration, the value of the Trust's total assets is at least
200% of such liquidation value. If Preferred Shares are issued, the Trust
intends, to the extent possible, to purchase or redeem Preferred Shares from
time to time to the extent necessary in order to maintain coverage of any
Preferred Shares of at least 200%. In addition, as a condition to obtaining
ratings on the Preferred Shares, the terms of any Preferred Shares issued are
expected to include asset coverage maintenance provisions which will require
the redemption of the Preferred Shares in the event of non-compliance by the
Trust and may also prohibit dividends and other distributions on the common
shares in such circumstances. In order to meet redemption requirements, the
Trust may have to liquidate portfolio securities. Such liquidations and
redemptions would cause the Trust to incur related transaction costs and could
result in capital losses to the Trust. Prohibitions on dividends and other
distributions on the common shares could impair the Trust's ability to qualify
as a regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code"). If the Trust has Preferred Shares outstanding, two of the
Trust's trustees will be elected by the holders of Preferred Shares voting
separately as a class. The remaining trustees of the Trust will be elected by
holders of common shares and Preferred Shares voting together as a single
class. In the event the Trust failed to pay dividends on Preferred Shares for
two years, holders of Preferred Shares would be entitled to elect a majority of
the trustees of the Trust.

   The Trust will be subject to certain restrictions imposed by guidelines of
one or more rating agencies that may issue ratings for Preferred Shares issued
by the Trust. These guidelines are expected to impose asset coverage or
portfolio composition requirements that are more stringent than those imposed
on the Trust by the Investment Company Act. It is not anticipated that these
covenants or guidelines will impede BlackRock from managing the Trust's
portfolio in accordance with the Trust's investment objective and policies.

   The Trust may also borrow money as a temporary measure for extraordinary or
emergency purposes, including the payment of dividends and the settlement of
securities transactions which otherwise might require untimely dispositions of
Trust securities.

   Assuming that the Preferred Shares will represent approximately 38% of the
Trust's capital and pay dividends at an annual average rate of 3.25%, the
income generated by the Trust's portfolio (net of estimated expenses) must
exceed 1.24% in order to cover the dividend payments and other expenses
specifically related to the Preferred Shares. Of course, these numbers are
merely estimates used for illustration. Actual Preferred Share dividend rates
will vary frequently and may be significantly higher or lower than the rate
estimated above.



                                       16
<PAGE>


   The following table is furnished in response to requirements of the
Securities and Exchange Commission. It is designed to illustrate the effect of
leverage on common share total return, assuming investment portfolio total
returns (comprised of income and changes in the value of bonds held in the
Trust's portfolio) of -10%, -5%, 0%, 5% and 10%. These assumed investment
portfolio returns are hypothetical figures and are not necessarily indicative
of the investment portfolio returns experienced or expected to be experienced
by the Trust. See "Risks." The table further reflects the issuance of Preferred
Shares representing 38% of the Trust's total capital, a 5.38% yield on the
Trust's investment portfolio, net of expenses, and the Trust's currently
projected annual Preferred Share dividend rate of 3.25%.



<TABLE>
<S>                                     <C>      <C>      <C>     <C>   <C>
Assumed Portfolio Total Return (Net of
 Expenses).............................    (10)%     (5)%     0%     5%    10%
Common Share Total Return.............. (18.12)% (10.06)% (1.99)% 6.07% 14.14%
</TABLE>


   Common share total return is composed of two elements--the common share
dividends paid by the Trust (the amount of which is largely determined by the
net investment income of the Trust after paying dividends on Preferred Shares)
and gains or losses on the value of the securities the Trust owns. As required
by Securities and Exchange Commission rules, the table assumes that the Trust
is more likely to suffer capital losses than to enjoy capital appreciation. For
example, to assume a total return of 0% the Trust must assume that the tax-
exempt interest it receives on its municipal bond investments is entirely
offset by losses in the value of those bonds.

   Unless and until Preferred Shares are issued, the common shares will not be
leveraged and this section will not apply.

                                     RISKS

   The net asset value of the common shares will fluctuate with and be affected
by, among other things, interest rate risk, credit risk, reinvestment risk and
leverage risk, and an investment in common shares will be subject to market
discount risk, inflation risk and municipal bond market risk, each of which is
more fully described below.

   Newly Organized. The Trust is a newly organized, diversified, closed-end
management investment company and has no operating history.

   Market Discount Risk. As with any stock, the price of the Trust's shares
will fluctuate with market conditions and other factors. If shares are sold,
the price received may be more or less than the original investment. Net asset
value will be reduced immediately following the initial offering by the amount
of the sales load and organizational and selling expenses paid by the Trust.
Common shares are designed for long-term investors and should not be treated as
trading vehicles. Shares of closed-end management investment companies
frequently trade at a discount from their net asset value. The Trust's shares
may trade at a price that is less than the initial offering price. This risk
may be greater for investors who sell their shares in a relatively short period
of time after completion of the initial offer. The Trust's initial net asset
value will be reduced by a 4.5% sales load charge.

   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. This means that the net asset
value of the common shares will fluctuate with interest rate changes and the
corresponding changes in the value of the Trust's municipal bond holdings. The
value of the longer-term bonds in which the Trust generally invests fluctuates
more in response to changes in interest rates than does the value of shorter-
term bonds. Because the Trust will invest primarily in long-term bonds, the net
asset value and market price per share of the common shares will fluctuate more
in response to changes in market interest rates than if the Trust invested
primarily in shorter-term bonds. The Trust's use of leverage, as described
below, will tend to increase common share interest rate risk.

                                       17
<PAGE>

   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 total 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 is the case for
investment grade securities.

   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 common shares' market price or their overall returns.

   Leverage Risk. Leverage risk is the risk associated with the issuance of the
Preferred Shares to leverage the common shares. There is no assurance that the
Trust's leveraging strategy will be successful. Once the Preferred Shares are
issued, the net asset value and market value of the common shares will be more
volatile, and the yield to the holders of common shares will tend to fluctuate
with changes in the shorter-term dividend rates on the Preferred Shares. If the
dividend rate on the Preferred Shares approaches the net rate of return on the
Trust's investment portfolio, the benefit of leverage to the holders of the
common shares would be reduced. If the dividend rate on the Preferred Shares
exceeds the net rate of return on the Trust's portfolio, the leverage will
result in a lower rate of return to the holders of common shares than if the
Trust were not leveraged. Because the long-term bonds included in the Trust's
portfolio will typically pay fixed rates of interest while the dividend rate on
the Preferred Shares will be adjusted periodically, this could occur even when
both long-term and short-term municipal rates rise. In addition, the Trust will
pay (and the holders of common shares will bear) any costs and expenses
relating to the issuance and ongoing maintenance of the Preferred Shares.
Accordingly, the Trust cannot assure you that the issuance of Preferred Shares
will result in a higher yield or return to the holders of the common shares.


                                       18
<PAGE>

   Similarly, any decline in the net asset value of the Trust's investments
will be borne entirely by the holders of common shares. Therefore, if the
market value of the Trust's portfolio declines, the leverage will result in a
greater decrease in net asset value to the holders of common shares than if the
Trust were not leveraged. This greater net asset value decrease will also tend
to cause a greater decline in the market price for the common shares. The Trust
might be in danger of failing to maintain the required 200% asset coverage or
of losing its ratings on the Preferred Shares or, in an extreme case, the
Trust's current investment income might not be sufficient to meet the dividend
requirements on the Preferred Shares. In order to counteract such an event, the
Trust might need to liquidate investments in order to fund a redemption of some
or all of the Preferred Shares. Liquidation at times of low municipal bond
prices may result in capital loss and may reduce returns to the holders of
common shares.

   While the Trust may from time to time consider reducing leverage in response
to actual or anticipated changes in interest rates in an effort to mitigate the
increased volatility of current income and net asset value associated with
leverage, there can be no assurance that the Trust will actually reduce
leverage in the future or that any reduction, if undertaken, will benefit the
holders of common shares. Changes in the future direction of interest rates are
very difficult to predict accurately. If the Trust were to reduce leverage
based on a prediction about future changes to interest rates, and that
prediction turns out to be incorrect, the reduction in leverage would likely
operate to reduce the income and/or total returns to holders of common shares
relative to the circumstance where the Trust had not reduced leverage. The
Trust may decide that this risk outweighs the likelihood of achieving the
desired reduction to volatility in income and share price if the prediction
were to turn out to be correct, and determine not to reduce leverage as
described above.

   The Trust may invest in the securities of other investment companies. Such
securities may also be leveraged and will therefore be subject to the leverage
risks described above. This additional leverage may in certain market
conditions reduce the net asset value of the Trust's common shares and the
returns to the holders of common 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 common shares
and distributions on those shares can decline. In addition, during any periods
of rising inflation, Preferred Share dividend rates would likely increase,
which would tend to further reduce returns to the holders of common shares.

   Economic Sector and Geographic Risk. The Trust may invest 25% or more of its
total assets in municipal obligations of issuers in the same state (or U.S.
territory) or 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 common shares.


                           HOW THE TRUST MANAGES RISK

Investment Limitations

   The Trust has adopted certain investment limitations designed to limit
investment risk. These limitations are fundamental and may not be changed
without the approval of the holders of a majority of the outstanding common
shares and, if issued, Preferred Shares voting together as a single class, and
the approval of the

                                       19
<PAGE>

holders of a majority of the Preferred Shares voting as a separate class. Among
other restrictions, the Trust may not invest more than 25% of total Trust
assets in securities of issuers in any one industry, except that this
limitation does not apply to municipal bonds backed by the assets and revenues
of governments or political subdivisions of governments.

   The Trust may become subject to guidelines which are more limiting than its
investment restrictions in order to obtain and maintain ratings from Moody's or
S&P on the Preferred Shares that it intends to issue. The Trust does not
anticipate that such guidelines would have a material adverse effect on the
Trust's common shareholders or the Trust's ability to achieve its investment
objective. See "Investment Objective and Policies" in the Statement of
Additional Information for a complete list of the fundamental and non-
fundamental investment policies of the Trust.


Quality Investments

   The Trust will invest at least 80% of its total assets in bonds of
investment grade quality at the time of investment. Investment grade quality
means that such bonds are rated by national rating agencies 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.


Limited Issuance of Preferred Shares

   Under the Investment Company Act, the Trust could issue Preferred Shares
having a total liquidation value (original purchase price of the shares being
liquidated plus any accrued and unpaid dividends) of up to one-half of the
value of the total net assets of the Trust. If the total liquidation value of
the Preferred Shares was ever more than one-half of the value of the Trust's
total net assets, the Trust would not be able to declare dividends on the
common shares until the liquidation value, as a percentage of the Trust's
assets, was reduced. The Trust intends to issue Preferred Shares representing
about 38% of the Trust's total net assets immediately after the time of
issuance if the Trust sells all common shares discussed in this prospectus.
This higher than required margin of net asset value provides a cushion against
later fluctuations in the value of the Trust's portfolio and will subject
common shareholders to less income and net asset value volatility than if the
Trust were more leveraged. The Trust intends to purchase or redeem Preferred
Shares, if necessary, to keep the liquidation value of the Preferred Shares
below one-half of the value of the Trust's total net assets.


Management of Investment Portfolio and Capital Structure to Limit Leverage Risk

   The Trust may take certain actions if short-term interest rates increase or
market conditions otherwise change (or the Trust anticipates such an increase
or change) and the Trust's leverage begins (or is expected) to adversely affect
common shareholders. In order to attempt to offset such a negative impact of
leverage on common shareholders, the Trust may shorten the average maturity of
its investment portfolio (by investing in short-term, high quality securities)
or may extend the maturity of outstanding Preferred Shares. The Trust may also
attempt to reduce the leverage by redeeming or otherwise purchasing Preferred
Shares. As explained above under "Risks--Leverage Risk," the success of any
such attempt to limit leverage risk depends on BlackRock's ability to
accurately predict interest rate or other market changes. Because of the
difficulty of making such predictions, the Trust may never attempt to manage
its capital structure in the manner described above.

   If market conditions suggest that additional leverage would be beneficial,
the Trust may sell previously unissued Preferred Shares or Preferred Shares
that the Trust previously issued but later repurchased.

   Currently, the Trust may not invest in inverse floating securities, which
are securities that pay interest at rates that vary inversely with changes in
prevailing short-term tax-exempt interest rates and which represent a leveraged
investment in an underlying municipal bond. This restriction is a non-
fundamental policy of the Trust that may be changed by vote of the Trust's
board of trustees.


                                       20
<PAGE>

Hedging Strategies

   The Trust may use various investment strategies designed to limit the risk
of bond price fluctuations and to preserve capital. These hedging strategies
include using financial futures contracts, options on financial futures or
options based on either an index of long-term municipal securities or on
taxable debt securities whose prices, in the opinion of BlackRock, correlate
with the prices of the Trust's investments. Successful implementation of most
hedging strategies would generate taxable income and the Trust has no present
intention to use these strategies.


                            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, Inc. acts as the Trust's investment advisor. BlackRock
Financial Management, Inc. acts as the Trust's sub-advisor. BlackRock Advisors
and BlackRock Financial Management both are wholly owned subsidiaries of
BlackRock, Inc., which is one of the largest publicly traded investment
management firms in the United States with $213 billion of assets under
management as of June 30, 2001. BlackRock, Inc. and its affiliates manage
assets on behalf of more than 3,300 institutions and 200,000 individuals
worldwide, including nine of the 10 largest companies in the U.S. as determined
by Fortune Magazine, through a variety of equity, fixed income, liquidity and
alternative investment separate accounts and mutual funds, including the
company's flagship fund families, BlackRock Funds and BlackRock Provident
Institutional Funds. BlackRock, Inc. is the nation's 26th largest asset
management firm according to Pensions & Investments, May 14, 2001.


   The BlackRock organization has over 12 years of experience managing closed-
end products and currently advises a closed-end family of 20 funds. BlackRock
has 13 leveraged municipal closed-end funds and six open-end municipal funds
under management and approximately $16 billion in municipal assets firm-wide.
Clients are served from the company's headquarters in New York City, as well as
offices in Wilmington, Delaware, San Francisco, California, Hong Kong,
Edinburgh, Scotland and Tokyo, Japan. 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.


   Investment Philosophy. BlackRock'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. 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.


   BlackRock's Municipal Bond Team. BlackRock uses a team approach to 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.

                                       21
<PAGE>


   BlackRock's municipal bond team includes five portfolio managers with an
average experience of 14 years and five credit research analysts with an
average experience of 11 years. Kevin M. Klingert, a managing director, senior
portfolio manager and head of municipal bonds at BlackRock, leads the team, a
position he has held since joining BlackRock in 1991. Mr. Klingert has over 17
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 Craig Kasap, James McGinley, F. Howard Downs and Anthony
Pino. Mr. Kasap, CFA, has been a portfolio manager at BlackRock for over four
years and is a member of BlackRock's Investment Strategy Group. Prior to
joining BlackRock in 1997, Mr. Kasap spent the previous three years as a
municipal bond trader with Keystone Investments Inc. in Boston where he was
involved in formulating the firm's municipal bond investment strategies. 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 BlackRock 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 70
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 14 municipal liquidity
accounts valued at approximately $4.2 billion. Currently, the team manages 13
closed-end municipal funds with approximately $3.5 billion in managed assets as
of March 31, 2001.


   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


                                       22
<PAGE>

presentation to the Credit Committee. In addition, Dr. Heide supervises the
team of municipal bond analysts that assists with the ongoing surveillance of
the $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. As a result of these
efforts, the SEC implemented primary and secondary disclosure regulations for
municipal bonds in July 1995. 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 and certain waivers relating thereto, 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 0.60% of
the average weekly value of the Trust's Managed Assets (the "management fee").
BlackRock Advisors has voluntarily agreed to waive receipt of a portion of the
management fee or other expenses of the Trust in the amount of 0.25% of the
average weekly value of the Trust's Managed Assets for the first five years of
the Trust's operations (through July 31, 2006), and for a declining amount for
an additional four years (through July 31, 2010). The Trust will also reimburse
BlackRock Advisors for all out-of-pocket expenses BlackRock Advisors incurs in
connection with performing administrative 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 or the
operations of other investment companies advised by the Advisor 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, rating agency
fees, 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.


                                       23
<PAGE>


   For the first nine years of the Trust's operation, BlackRock Advisors has
undertaken to waive its management fee and expenses payable by the Trust in the
amounts, and for the time periods, set forth below:



<TABLE>
<CAPTION>
        Twelve
        Month                                                 Percentage Waived
        Period                                                (as a percentage
        Ending                                                of average weekly
       July 31                                                Managed Assets*)
       -------                                                -----------------
      <S>                                                     <C>
        2002**...............................................       0.25%
        2003.................................................       0.25%
        2004.................................................       0.25%
        2005.................................................       0.25%
        2006.................................................       0.25%
        2007.................................................       0.20%
        2008.................................................       0.15%
        2009.................................................       0.10%
        2010.................................................       0.05%
</TABLE>

- --------

*Including net assets attributable to Preferred Shares.

**From the commencement of operations.

   BlackRock Advisors has not undertaken to waive any portion of the Trust's
fees and expenses beyond July 31, 2010 or after termination of the investment
management agreement.

                                NET ASSET VALUE

   The net asset value of the common shares of the Trust will be computed based
upon the value of the Trust's portfolio securities and other assets. Net asset
value per common share will be determined as of the close of the regular
trading session on the New York Stock Exchange no less frequently than on the
Friday of each week and on the last business day of each month. In the event
that any Friday is not a business day, the net asset value will be calculated
on a date determined by BlackRock Advisors. The Trust calculates net asset
value per common share by subtracting the Trust's liabilities (including
accrued expenses, dividends payable and any borrowings of the Trust) and the
liquidation value of any outstanding Preferred Shares of the Trust from the
Trust's total assets (the value of the securities the Trust holds plus cash or
other assets, including interest accrued but not yet received) and dividing the
result by the total number of common shares of the Trust outstanding.


   The Trust values its fixed income securities by using market quotations,
prices provided by market makers or estimates of market values obtained from
yield data relating to instruments or securities with similar characteristics
in accordance with procedures established by the board of trustees of the
Trust. A substantial portion of the Trust's fixed income investments will be
valued utilizing one or more pricing services approved by the Trust's board of
trustees. Debt securities having a remaining maturity of 60 days or less when
purchased and debt securities originally purchased with maturities in excess of
60 days but which currently have maturities of 60 days or less are valued at
cost adjusted for amortization of premiums and accretion of discounts. Any
securities or other assets for which current market quotations are not readily
available are valued at their fair value as determined in good faith under
procedures established by and under the general supervision and responsibility
of the Trust's board of trustees.

                                 DISTRIBUTIONS

   The Trust will distribute to holders of its common shares monthly dividends
of all or a portion of its tax-exempt interest income after payment of
dividends on any Preferred Shares of the Trust which may be outstanding. It is
expected that the initial monthly dividend on shares of the Trust's common
shares will be

                                       24
<PAGE>

declared approximately 45 days and paid approximately 60 to 90 days after
completion of this offering. The Trust expects that all or a portion of any
capital gain and other taxable income will be distributed at least annually.

   Various factors will affect the level of the Trust's income, including the
asset mix, the amount of leverage utilized by the Trust and the effects thereof
and the Trust's use of hedging. To permit the Trust to maintain a more stable
monthly distribution, the Trust may from time to time distribute less than the
entire amount of tax-exempt interest income earned in a particular period. The
undistributed tax-exempt interest income would be available to supplement
future distributions. As a result, the distributions paid by the Trust for any
particular monthly period may be more or less than the amount of tax-exempt
interest income actually earned by the Trust during the period. Undistributed
tax-exempt interest income will add to the Trust's net asset value and,
correspondingly, distributions from undistributed tax-exempt interest income
will deduct from the Trust's net asset value. Shareholders will automatically
have all dividends and distributions reinvested in common shares of the Trust
issued by the Trust or purchased in the open market in accordance with the
Trust's Dividend Reinvestment Plan unless an election is made to receive cash.
See "Dividend Reinvestment Plan."

                           DIVIDEND REINVESTMENT PLAN

   Unless you elect to receive cash by contacting the Plan Agent, all dividends
declared for your common shares of the Trust will be automatically reinvested
by EquiServe Trust Company, N.A. (the "Plan Agent"), agent for shareholders in
administering the Trust's Dividend Reinvestment Plan (the "Plan"), in
additional common shares of the Trust. If you elect not to participate in the
Plan, you will receive all dividends in cash paid by check mailed directly to
you (or, if the shares are held in street or other nominee name, then to such
nominee) by EquiServe Trust Company, N.A., as dividend disbursing agent. You
may elect not to participate in the Plan and to receive all dividends in cash
by sending written instructions or by contacting EquiServe Trust Company, N.A.,
as dividend disbursing agent, at the address set forth below. Participation in
the Plan is completely voluntary and may be terminated or resumed at any time
without penalty by contacting the Plan Agent before the dividend record date;
otherwise such termination or resumption will be effective with respect to any
subsequently declared dividend or other distribution.


   The Plan Agent will open an account for each common shareholder under the
Plan in the same name in which such common shareholder's common shares are
registered. Whenever the Trust declares a dividend or other capital gain
distribution (together, a "dividend") payable in cash, non-participants in the
Plan will receive cash and participants in the Plan will receive the equivalent
in common shares. The common shares will be acquired by the Plan Agent for the
participants' accounts, depending upon the circumstances described below,
either (i) through receipt of additional unissued but authorized common shares
from the Trust ("newly issued common shares") or (ii) by purchase of
outstanding common shares on the open market ("open-market purchases") on the
New York Stock Exchange or elsewhere. If, on the payment date for any dividend,
the net asset value per common share is equal to or less than the market price
per common share, the Plan Agent will invest the dividend amount in newly
issued common shares on behalf of the participants. The number of newly issued
common shares to be credited to each participant's account will be determined
by dividing the dollar amount of the dividend by the net asset value per common
share on the date the common shares are issued. If, on the payment date for any
dividend, the net asset value per common share is greater than the market
value, the Plan Agent will invest the dividend amount in common shares acquired
on behalf of the participants in open-market purchases. In the event of a
market discount on the payment date for any dividend, the Plan Agent will have
until the last business day before the next date on which the common shares
trade on an "ex-dividend" basis or 30 days after the payment date for such
dividend, whichever is sooner (the "last purchase date"), to invest the
dividend amount in common shares acquired in open-market purchases. It is
contemplated that the Trust will pay monthly income dividends. Therefore, the
period during which open-market purchases can be made will exist only from the
payment date of each dividend through the date before the next "ex-dividend"
date which typically will be approximately ten days. If, before the Plan Agent
has completed its open-market purchases, the market price per common share
exceeds the net asset value per common share,


                                       25
<PAGE>


the average per common share purchase price paid by the Plan Agent may exceed
the net asset value of the common shares, resulting in the acquisition of fewer
common shares than if the dividend had been paid in newly issued common shares
on the dividend payment date. Because of the foregoing difficulty with respect
to open-market purchases, the Plan provides that if the Plan Agent is unable to
invest the full dividend amount in open-market purchases during the purchase
period or if the market discount shifts to a market premium during the purchase
period, the Plan Agent may cease making open-market purchases and may invest
the uninvested portion of the dividend amount in newly issued common shares at
the net asset value per common share at the close of business on the last
purchase date.


   The Plan Agent maintains all shareholders' accounts in the Plan and
furnishes written confirmation of all transactions in the accounts, including
information needed by shareholders for tax records. Common shares in the
account of each Plan participant will be held by the Plan Agent on behalf of
the Plan participant, and each shareholder proxy will include those shares
purchased or received pursuant to the Plan. The Plan Agent will forward all
proxy solicitation materials to participants and vote proxies for shares held
under the Plan in accordance with the instructions of the participants.


   In the case of shareholders such as banks, brokers or nominees which hold
shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of common shares certified from time to
time by the record shareholder's name and held for the account of beneficial
owners who participate in the Plan.


   There will be no brokerage charges with respect to common shares issued
directly by the Trust. However, each participant will pay a pro rata share of
brokerage commissions incurred in connection with open-market purchases. The
automatic reinvestment of dividends will not relieve participants of any
Federal, state or local income tax that may be payable (or required to be
withheld) on such dividends. See "Tax Matters."

   The Trust reserves the right to amend or terminate the Plan. There is no
direct service charge to participants in the Plan; however, the Trust reserves
the right to amend the Plan to include a service charge payable by the
participants.


   All correspondence concerning the Plan should be directed to the Plan Agent
at 150 Royall Street, Canton, Massachusetts 02021.


                             DESCRIPTION OF SHARES

Common Shares

   The Trust is an unincorporated business trust organized under the laws of
Delaware pursuant to an Agreement and Declaration of Trust dated as of March
30, 2001, as later amended and restated. The Trust is authorized to issue an
unlimited number of common shares of beneficial interest, par value $.001 per
share. Each common share has one vote and, when issued and paid for in
accordance with the terms of this offering, will be 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 shareholders from
declared but unpaid dividends or distributions owed the shareholders and/or by
reducing the number of common shares owned by each respective shareholder.
Whenever 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. See "--Preferred Shares" below. All common shares are equal as to
dividends, assets and voting privileges and have no conversion, preemptive or
other subscription rights. The Trust will send annual and semi-annual reports,
including financial statements, to all holders of its shares.



                                       26
<PAGE>

   The Trust has no present intention of offering any additional shares other
than the Preferred Shares and common shares issued under the Trust's Dividend
Reinvestment Plan. Any additional offerings of shares will require approval by
the Trust's board of trustees. Any additional offering of common shares will be
subject to the requirements of the Investment Company Act, which requires that
shares may not be issued at a price below the then current net asset value,
exclusive of sales load, except in connection with an offering to existing
holders of common shares or with the consent of a majority of the Trust's
outstanding voting securities.

   The Trust has been approved for listing of the common shares on the New York
Stock Exchange, subject to official notice of issuance, under the symbol "BFK".

   The Trust's net asset value per share generally increases when interest
rates decline, and decreases when interest rates rise, and these changes are
likely to be greater because the Trust intends to have a leveraged capital
structure. Net asset value will be reduced immediately following the offering
of common shares by the amount of the sales load and organization and offering
expenses paid by the Trust. See "Use of Proceeds."

   Unlike open-end funds, closed-end funds like the Trust do not continuously
offer shares and do not provide daily redemptions. Rather, if a shareholder
determines to buy additional common shares or sell shares already held, the
shareholder may do so by trading on the New York Stock Exchange through a
broker or otherwise. Shares of closed-end investment companies frequently trade
on an exchange at prices lower than net asset value. Shares of closed-end
investment companies like the Trust that invest predominantly in investment
grade municipal bonds have during some periods traded at prices higher than net
asset value and during other periods have traded at prices lower than net asset
value. Because the market value of the common shares may be influenced by such
factors as dividend levels, which are in turn affected by expenses, call
protection, dividend stability, portfolio credit quality, net asset value,
relative demand for and supply of such shares in the market, general market and
economic conditions and other factors beyond the control of the Trust, the
Trust cannot assure you that common shares will trade at a price equal to or
higher than net asset value in the future. The common shares are designed
primarily for long-term investors and you should not purchase the common shares
if you intend to sell them soon after purchase. See "Preferred Shares and
Leverage" and the Statement of Additional Information under "Repurchase of
Common Shares."


Preferred Shares

   The Agreement and Declaration of Trust, as amended and restated, provides
that the Trust's board of trustees may authorize and issue Preferred Shares
with rights as determined by the board of trustees, by action of the board of
trustees without the approval of the holders of the common shares. Holders of
common shares have no preemptive right to purchase any Preferred Shares that
might be issued.


   The Trust's board of trustees has indicated its intention to authorize an
offering of Preferred Shares, representing approximately 38% of the Trust's
total assets immediately after the Preferred Shares are issued, within
approximately one to three months after completion of this offering of common
shares, subject to market conditions and to the board of trustees' continuing
belief that leveraging the Trust's capital structure through the issuance of
Preferred Shares is likely to achieve the potential benefits to the holders of
common shares described in this prospectus. The Trust may conduct other
offerings of Preferred Shares in the future subject to the same percentage
restriction, after giving effect to previously issued Preferred Shares. The
board of trustees also reserves the right to change the foregoing percentage
limitation and may issue Preferred Shares to the extent permitted by the
Investment Company Act, which currently limits the aggregate liquidation
preference of all outstanding Preferred Shares to 50% of the value of the
Trust's total assets. We cannot assure you, however, that any Preferred Shares
will be issued. Although the terms of any Preferred Shares, including dividend
rate, liquidation preference and redemption provisions, will be determined by
the board of trustees, subject to applicable law and the Agreement and
Declaration of Trust, as amended and restated, it is likely that the Preferred
Shares will be structured to carry a relatively short-term dividend rate
reflecting interest rates on


                                       27
<PAGE>

short-term tax-exempt debt securities, by providing for the periodic
redetermination of the dividend rate at relatively short intervals through an
auction, remarketing or other procedure. The Trust also believes that it is
likely that the liquidation preference, voting rights and redemption provisions
of the Preferred Shares will be similar to those stated below.

   Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Trust, the holders of Preferred
Shares will be entitled to receive a preferential liquidating distribution,
which is expected to equal the original purchase price per Preferred Share plus
accrued and unpaid dividends, whether or not declared, before any distribution
of assets is made to holders of common shares. After payment of the full amount
of the liquidating distribution to which they are entitled, the holders of
Preferred Shares will not be entitled to any further participation in any
distribution of assets by the Trust.

   Voting Rights. The Investment Company Act requires that the holders of any
Preferred Shares, voting separately as a single class, have the right to elect
at least two trustees at all times. In addition, subject to the prior rights,
if any, of the holders of any other class of senior securities outstanding, the
holders of any Preferred Shares have the right to elect a majority of the
trustees of the Trust at any time two years' dividends on any Preferred Shares
are unpaid. The Investment Company Act also requires that, in addition to any
approval by shareholders that might otherwise be required, the approval of the
holders of a majority of any outstanding Preferred Shares, voting separately as
a class, would be required to (1) adopt any plan of reorganization that would
adversely affect the Preferred Shares, and (2) take any action requiring a vote
of security holders under Section 13(a) of the Investment Company Act,
including, among other things, changes in the Trust's subclassification as a
closed-end investment company or changes in its fundamental investment
restrictions. See "Certain Provisions in the Agreement and Declaration of
Trust." As a result of these voting rights, the Trust's ability to take any
such actions may be impeded to the extent that there are any Preferred Shares
outstanding. The board of trustees presently intends that, except as otherwise
indicated in this prospectus and except as otherwise required by applicable
law, holders of Preferred Shares will have equal voting rights with holders of
common shares (one vote per share, unless otherwise required by the Investment
Company Act) and will vote together with holders of common shares as a single
class.


   It is presently required that in connection with the election of the Trust's
trustees, on and after issuance of any Preferred Shares, the holders of all
outstanding Preferred Shares, voting as a separate class, would be entitled to
elect two trustees of the Trust, and the remaining trustees would be elected by
holders of common shares and Preferred Shares, voting together as a single
class.

   The affirmative vote of the holders of a majority of the outstanding
Preferred Shares, voting as a separate class, will be required to amend, alter
or repeal any of the preferences, rights or powers of holders of Preferred
Shares so as to affect materially and adversely such preferences, rights or
powers, or to increase or decrease the authorized number of Preferred Shares.
The class vote of holders of Preferred Shares described above will in each case
be in addition to any other vote required to authorize the action in question.

   Redemption, Purchase and Sale of Preferred Shares by the Trust. The terms of
the Preferred Shares are expected to provide that (1) they are redeemable by
the Trust in whole or in part at the original purchase price per share plus
accrued dividends per share, (2) the Trust may tender for or purchase Preferred
Shares and (3) the Trust may subsequently resell any shares so tendered for or
purchased. Any redemption or purchase of Preferred Shares by the Trust will
reduce the leverage applicable to the common shares, while any resale of shares
by the Trust will increase that leverage.

   The discussion above describes the present intention of the board of
trustees with respect to an offering of Preferred Shares. If the board of
trustees determines to proceed with such an offering, the terms of the
Preferred Shares may be the same as, or different from, the terms described
above, subject to applicable law and the Trust's Agreement and Declaration of
Trust, as amended and restated. The board of trustees, without the approval of
the holders of common shares, may authorize an offering of Preferred Shares or
may determine not to authorize such an offering, and may fix the terms of the
Preferred Shares to be offered.



                                       28
<PAGE>

          CERTAIN PROVISIONS IN THE AGREEMENT AND DECLARATION OF TRUST

   The Agreement and Declaration of Trust, as amended and restated, 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, as amended and
restated, 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:

  .  the merger or consolidation of the Trust or any subsidiary of the Trust
     with or into any Principal Shareholder;

  .  the issuance of any securities of the Trust to any Principal Shareholder
     for cash, except pursuant to the Dividend Reinvestment Plan;

  .  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

  .  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, as amended and restated, 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 all
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


                                       29
<PAGE>

modified to assure sufficient portfolio liquidity. In the event of conversion,
the common shares would cease to be listed on the New York 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 intends to reserve 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 net 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, as
amended and restated, 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 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, as amended
and restated, each class and series of the Trust shall vote together as a
single class, except to the extent required by the 1940 Act or the Trust's
Agreement and Declaration of Trust, as amended and restated, with respect to
any class or series of shares. If a separate vote is required the applicable
proportion of shares of the class or series, voting as a separate, class 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, as amended and restated, on file with the Securities and
Exchange Commission for the full text of these provisions.


                           CLOSED-END TRUST STRUCTURE

   The Trust is a newly organized, diversified, closed-end management
investment company (commonly referred to as a closed-end fund). Closed-end
funds differ from open-end funds (which are generally referred to as mutual
funds) in that closed-end funds generally list their shares for trading on a
stock exchange and do not redeem their shares at the request of the
shareholder. This means that if you wish to sell your shares of a closed-end
fund you must trade them on the market like any other stock at the prevailing
market price at that time. In a mutual fund, if the shareholder wishes to sell
shares of the fund, the mutual fund will redeem or buy back the shares at "net
asset value." Also, mutual funds generally offer new shares on a continuous
basis to new investors, and closed-end funds generally do not. The continuous
inflows and outflows of assets in a mutual fund can make it difficult to manage
the fund's investments. By comparison, closed-end funds are generally able to
stay more fully invested in securities that are consistent with their
investment objectives, and also have greater flexibility to make certain types
of investments, and to use certain investment strategies, such as financial
leverage and investments in illiquid securities.


   Shares of closed-end funds frequently trade at a discount to their net asset
value. Because of this possibility and the recognition that any such discount
may not be in the interest of shareholders, the Trust's board of trustees might
consider from time to time engaging in open-market repurchases, tender offers
for shares or other programs intended to reduce the discount. We cannot
guarantee or assure, however, that the Trust's board of trustees will decide to
engage in any of these actions. Nor is there any guarantee or assurance that
such actions, if undertaken, would result in the shares trading at a price
equal or close to net asset value per share. The board of trustees might also
consider converting the Trust to an open-end mutual fund, which would also
require a vote of the shareholders of the Trust.


                                       30
<PAGE>

                              REPURCHASE OF 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, although it is possible that they may trade at a premium
above 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. See "Net Asset
Value." 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. This may
have the effect of reducing any market discount from net asset value.

   There is no assurance that, if action is undertaken to repurchase or tender
for common shares, such action will result in the common shares' trading at a
price which approximates their net asset value. Although share repurchases and
tenders could have a favorable effect on the market price of the Trust's common
shares, you should be aware that the acquisition of common shares by the Trust
will decrease the total assets of the Trust and, therefore, may have the effect
of increasing the Trust's expense ratio and decreasing the asset coverage with
respect to any Preferred Shares outstanding. Any share repurchases or tender
offers will be made in accordance with requirements of the Securities Exchange
Act of 1934 and the Investment Company Act.


                                  TAX MATTERS

Federal Income Tax Matters

   The discussion below and in the Statement of Additional Information provides
general tax information related to an investment in the common shares. 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 retroactively or
prospectively. Because tax laws are complex and often change, you should
consult your tax advisor about the tax consequences of an investment in the
Trust.

   The Trust primarily invests in municipal bonds whose income is otherwise
exempt from regular Federal income tax. Consequently, the regular monthly
dividends you receive will generally be exempt from regular Federal income tax.
A portion of these dividends, however, may be subject to the Federal
alternative minimum tax.


   Although the Trust does not seek to realize taxable income or capital gains,
the Trust may realize and distribute taxable income or capital gains from time
to time as a result of the Trust's normal investment activities. The Trust will
distribute at least annually any taxable income or realized capital gains.
Distributions of net short-term gains are taxable as ordinary income.
Distributions of net long-term capital gains are taxable to you as long-term
capital gains regardless of how long you have owned your common shares.
Dividends will not qualify for a dividends received deduction generally
available to corporate shareholders.

   Each year, you will receive a year-end statement designating the amounts of
tax-exempt dividends, capital gains income dividends and ordinary income
dividends paid to you during the preceding year, including the source of
investment income by state and the portion of income that is subject to the
Federal alternative minimum tax. You will receive this statement from the firm
where you purchased your common shares if you hold your investment in street
name; the Trust will send you this statement if you hold your shares in
registered form.

   The tax status of your dividends is not affected by whether you reinvest
your dividends or receive them in cash.

   In order to avoid corporate taxation of its taxable income and to be
permitted to pay tax-exempt dividends, the Trust must meet certain requirements
that govern the Trust's sources of income, diversification of assets and

                                       31
<PAGE>

distribution of earnings to shareholders. The Trust intends to meet these
requirements. If the Trust failed to do so, the Trust would be required to pay
corporate taxes on its taxable income and all the distributions would be
taxable as ordinary income to the extent of the Trust's earnings and profits.
In particular, in order for the Trust to pay tax-exempt dividends, at least 50%
of the value of the Trust's total assets must consist of tax-exempt
obligations. The Trust intends to meet this requirement. If the Trust failed to
do so, it would not be able to pay tax-exempt dividends and your distributions
attributable to interest received by the Trust from any source would be taxable
as ordinary income to the extent of the Trust's earnings and profits.

   The Trust may be required to withhold on certain of your dividends if you
have not provided the Trust with your correct taxpayer identification number
(if you are an individual, normally your Social Security number), or if you are
otherwise subject to back-up withholding. If you receive Social Security
benefits, you should be aware that tax-free income is taken into account in
calculating the amount of these benefits that may be subject to Federal income
tax. If you borrow money to buy Trust shares, you may not deduct the interest
on that loan. Under Federal income tax rules, Trust shares may be treated as
having been bought with borrowed money even if the purchase of the Trust shares
cannot be traced directly to borrowed money.


   If you are subject to the Federal alternative minimum tax, a portion of your
regular monthly dividends may be taxable.

State and Local Tax Matters

   The exemption from Federal income tax for exempt-interest dividends does not
necessarily result in exemption for such dividends under the income or other
tax laws of any state or local taxing authority. In some states, the portion of
any exempt-interest dividend that is derived from interest received by a
regulated investment company on its holdings of that state's securities and its
political subdivisions and instrumentalities is exempt from that state's income
tax. Therefore, the Trust will report annually to its shareholders the
percentage of interest income earned by the Trust during the preceding year on
tax-exempt obligations indicating, on a state-by-state basis, the source of
such income. Shareholders of the Trust are advised to consult with their own
tax advisors about state and local tax matters.


   Please refer to the Statement of Additional Information for more detailed
information. You are urged to consult your tax advisor.

                                       32
<PAGE>

                                  UNDERWRITING

   Subject to the terms and conditions stated in the underwriting agreement
dated the date of this prospectus, each Underwriter named below has agreed to
purchase, and the Trust has agreed to sell to such Underwriter, the number of
common shares set forth opposite the name of such Underwriter.


<TABLE>
<CAPTION>
                                                                      Number
     Underwriters                                                    of Shares
     ------------                                                    ---------
     <S>                                                             <C>
     Salomon Smith Barney Inc. .....................................
     Merrill Lynch, Pierce, Fenner & Smith
              Incorporated..........................................
     A.G. Edwards & Sons, Inc. .....................................
     Prudential Securities Incorporated.............................
     UBS Warburg LLC................................................
     Dain Rauscher Wessels, a division of Dain Rauscher
      Incorporated..................................................
     Gruntal & Co., L.L.C. .........................................
     J.J.B. Hilliard, W.L. Lyons, Inc. .............................
     Raymond James & Associates, Inc. ..............................
                                                                      -------
       Total........................................................
                                                                      =======
</TABLE>


   The underwriting agreement provides that the obligations of the several
Underwriters to purchase the common shares included in this offering are
subject to approval of certain legal matters by counsel and to certain other
conditions. The Underwriters are obligated to purchase all the common shares
(other than those covered by the over-allotment option described below) if they
purchase any of the common shares.


   The Underwriters, for whom Salomon Smith Barney Inc., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, A.G. Edwards & Sons, Inc., Prudential Securities
Incorporated, UBS Warburg LLC, Dain Rauscher Wessels, a division of Dain
Rauscher Incorporated, Gruntal & Co., L.L.C., J.J.B. Hilliard, W.L. Lyons, Inc.
and Raymond James & Associates, Inc. are acting as representatives, propose to
offer some of the common shares directly to the public at the public offering
price set forth on the cover page of this prospectus and some of the common
shares to certain dealers at the public offering price less a concession not in
excess of $0.    per common share. The sales load the Trust will pay of $0.675
per common share is equal to 4.5% of the initial offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $0.    per common share on sales to certain other dealers. If all of
the common shares are not sold at the initial offering price, the
representatives may change the public offering price and other selling terms.
The representatives have advised the Trust that the Underwriters do not intend
to confirm any sales to any accounts over which they exercise discretionary
authority. Investors must pay for any common shares purchased on or before July
  , 2001.


   The Trust has granted to the Underwriters an option, exercisable for 45 days
from the date of this prospectus, to purchase up to       additional common
shares at the public offering price less the underwriting discount. The
Underwriters may exercise such option solely for the purpose of covering over-
allotments, if any, in connection with this offering. To the extent such option
is exercised, each Underwriter will be obligated, subject to certain
conditions, to purchase a number of additional common shares approximately
proportionate to such Underwriter's initial purchase commitment.

   The Trust and BlackRock have agreed that, for a period of 180 days from the
date of this prospectus, they will not, without the prior written consent of
Salomon Smith Barney Inc., on behalf of the Underwriters, dispose of or hedge
any common shares of the Trust or any securities convertible into or
exchangeable for common shares of the Trust or grant any options or warrants to
purchase common shares of the Trust. Salomon Smith Barney Inc. in its sole
discretion may release any of the securities subject to the foregoing agreement
at any time without notice.


                                       33
<PAGE>


   Prior to this offering, there has been no public market for the common
shares. Consequently, the initial public offering price for the common shares
was determined by negotiation among the Trust, BlackRock and the
representatives. There can be no assurance, however, that the price at which
the common shares will sell in the public market after this offering will not
be lower than the price at which they are sold by the Underwriters or that an
active trading market in the common shares will develop and continue after this
offering. The common shares have been approved for listing on the New York
Stock Exchange, subject to official notice of issuance, under the trading or
"ticker" symbol "BFK".


   The Trust, BlackRock Advisors and BlackRock Financial Management have each
agreed to indemnify the several Underwriters or contribute to losses arising
out of certain liabilities, including liabilities under the Securities Act of
1933.


   The Trust has agreed to pay the Underwriters $50,000 as partial
reimbursement of expenses incurred in connection with the offering. BlackRock
Advisors has agreed to pay organizational expenses and offering costs (other
than sales load) that exceed $0.03 per share.


   In connection with the requirements for listing the Trust's common shares on
the New York Stock Exchange, the Underwriters have undertaken to sell lots of
100 or more common shares to a minimum of 2,000 beneficial owners in the United
States. The minimum investment requirement is 100 common shares. Certain
Underwriters may make a market in the common shares after trading in the common
shares has commenced on the New York Stock Exchange. No Underwriter is,
however, obligated to conduct market-making activities and any such activities
may be discontinued at any time without notice, at the sole discretion of the
Underwriter. No assurance can be given as to the liquidity of, or the trading
market for, the common shares as a result of any market-making activities
undertaken by any Underwriter. This prospectus is to be used by any Underwriter
in connection with the offering and, during the period in which a prospectus
must be delivered, with offers and sales of the common shares in market-making
transactions in the over-the-counter market at negotiated prices related to
prevailing market prices at the time of the sale.

   The Underwriters have advised the Trust that, pursuant to Regulation M under
the Securities and Exchange Act of 1934, as amended, certain persons
participating in the offering may engage in transactions, including stabilizing
bids, covering transactions or the imposition of penalty bids, which may have
the effect of stabilizing or maintaining the market price of the common shares
at a level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of common shares on behalf of an
Underwriter for the purpose of fixing or maintaining the price of the common
shares. A "covering transaction" is a bid for or purchase of the common shares
on behalf of an Underwriter to reduce a short position incurred by the
Underwriters in connection with the offering. A "penalty bid" is a contractual
arrangement whereby if, during a specified period after the issuance of the
common shares, the Underwriters purchase common shares in the open market for
the account of the underwriting syndicate and the common shares purchased can
be traced to a particular Underwriter or member of the selling group, the
underwriting syndicate may require the Underwriter or selling group member in
question to purchase the common shares in question at the cost to the syndicate
or may recover from (or decline to pay to) the Underwriter or selling group
member in question any or all compensation (including, with respect to a
representative, the applicable syndicate management fee) applicable to the
common shares in question. As a result, an Underwriter or selling group member
and, in turn, brokers may lose the fees that they otherwise would have earned
from a sale of common shares if their customer resells the common shares while
the penalty bid is in effect. The Underwriters are not required to engage in
any of these activities, and any such activities, if commenced, may be
discontinued at any time.

   The underwriting agreement provides that it may be terminated in the
absolute discretion of the representatives without liability on the part of any
Underwriter to the Trust, BlackRock Advisors or BlackRock Financial Management
by notice to the Trust, BlackRock Advisors or BlackRock Financial Management
if, prior to delivery of and payment for the common shares, (1) trading in the
common shares or securities generally on the New York Stock Exchange, American
Stock Exchange, Nasdaq National Market or the Nasdaq Stock Market shall have
been suspended or materially limited, (2) additional material governmental
restrictions


                                       34
<PAGE>


not in force on the date of the underwriting agreement have been imposed upon
trading in securities generally or a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or state
authorities, or (3) any outbreak or material escalation of hostilities or other
international or domestic calamity, crisis or change in political, financial or
economic conditions, occurs, the effect of which is such as to make it, in the
judgment of the representatives, impracticable or inadvisable to commence or
continue the offering of the common shares at the offering price to the public
set forth on the cover page of this prospectus or to enforce contracts for the
resale of the common shares by the Underwriters.


   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 while they are Underwriters.

   Prior to the public offering of common shares, BlackRock Advisors will
purchase common shares from the Trust in an amount satisfying the net worth
requirements of Section 14(a) of the Investment Company Act.

   J.J.B. Hilliard, W.L. Lyons, Inc., one of the Underwriters, is an affiliate
of BlackRock Advisors and BlackRock Financial Management.


   The principal business address of Salomon Smith Barney Inc. is 388 Greenwich
Street, New York, New York 10013. The principal business address of Merrill
Lynch, Pierce, Fenner & Smith Incorporated is 4 World Financial Center, New
York, New York 10080.

                          CUSTODIAN AND TRANSFER 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,
will serve as the Trust's Transfer Agent with respect to the common shares.



                                 LEGAL OPINIONS

   Certain legal matters in connection with the common shares will be passed
upon for the Trust by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New
York and for the Underwriters by Simpson Thacher & Bartlett, New York, New
York. Simpson Thacher & Bartlett may rely as to certain matters of Delaware law
on the opinion of Skadden, Arps, Slate, Meagher & Flom LLP.


                                       35
<PAGE>

                           TABLE OF CONTENTS FOR THE
                      STATEMENT OF ADDITIONAL INFORMATION


<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
Use of Proceeds............................................................ B-2
Investment Objective and Policies.......................................... B-2
Investment Policies and Techniques......................................... B-4
Other Investment Policies and Techniques................................... B-10
Management of the Trust.................................................... B-13
Portfolio Transactions and Brokerage....................................... B-19
Description of Shares...................................................... B-20
Repurchase of Common Shares................................................ B-20
Tax Matters................................................................ B-22
Performance Related and Comparative Information............................ B-26
Experts.................................................................... B-29
Additional Information..................................................... B-29
Financial Statements....................................................... F-1
Report of Independent Auditors............................................. F-1
APPENDIX A Ratings of Investments.......................................... A-1
APPENDIX B Taxable Equivalent Yield Table.................................. B-1
APPENDIX C General Characteristics and Risks of Hedging Strategies......... C-1
</TABLE>


                                       36
<PAGE>

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

                             4,000,000 Shares


                                   BlackRock

                             Municipal Income Trust

                                 Common Shares

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

                                   PROSPECTUS

                                  July  , 2001

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

                              Salomon Smith Barney

                              Merrill Lynch & Co.

                         A.G. Edwards & Sons, Inc.


                           Prudential Securities


                                UBS Warburg


                           Dain Rauscher Wessels


                           Gruntal & Co., L.L.C.


                     J.J.B. Hilliard, W.L. Lyons, Inc.


                               A PNC Company


                               Raymond James


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

                                                                     NA-PRO-6-01
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

+                                                                              +
+The information in this Statement of Additional Information is not complete   +
+and may be changed. We may not sell these securities until the Registration   +
+Statement filed with the Securities and Exchange Commission is effective.     +
+This Statement of Additional Information is not an offer to sell these        +
+securities and it is not soliciting an offer to buy these securities in any   +
+state where the offer or sale is not permitted.                               +

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++



                SUBJECT TO COMPLETION, DATED JULY 25, 2001


                        BlackRock Municipal Income Trust

                      STATEMENT OF ADDITIONAL INFORMATION

  BlackRock Municipal Income Trust (the "Trust") is a newly organized,
diversified, closed-end management investment company. This Statement of
Additional Information relating to common shares does not constitute a
prospectus, but should be read in conjunction with the prospectus relating
thereto dated July   , 2001. This Statement of Additional Information does not
include all information that a prospective investor should consider before
purchasing common 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.

                               TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
Use of Proceeds............................................................ B-2
Investment Objective and Policies.......................................... B-2
Investment Policies and Techniques......................................... B-4
Other Investment Policies and Techniques................................... B-10
Management of the Trust.................................................... B-13
Portfolio Transactions and Brokerage....................................... B-19
Description of Shares...................................................... B-20
Repurchase of Common Shares................................................ B-21
Tax Matters................................................................ B-22
Performance Related and Comparative Information............................ B-25
Experts.................................................................... B-28
Additional Information..................................................... B-28
Financial Statements....................................................... F-1
Report of Independent Auditors............................................. F-1
APPENDIX A Ratings of Investments.......................................... A-1
APPENDIX B Taxable Equivalent Yield Table.................................. B-1
APPENDIX C General Characteristics and Risks of Hedging Strategies......... C-1
</TABLE>



        This Statement of Additional Information is dated July   , 2001.
<PAGE>

                                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 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.
Common 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 common shares. The suitability of an
investment in common 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 total 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
  nongovernmental 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.

                                      B-2
<PAGE>


   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 total 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 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 govern- mental 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 would remain subject to payment of the Trust's advisory
fees and other expenses with respect to assets so invested. Holders of common
shares would 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.


   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 total assets and the Trust's aggregate
  short sales of a particular class of securities does not exceed 25% of the
  then outstanding securities of that class. The Trust 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.

                                      B-3
<PAGE>


   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 fiscal 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 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)
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 objective, 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.

   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 A hereto. The ratings of Moody's, S&P and Fitch
represent their opinions as to the quality of the municipal

                                      B-4
<PAGE>

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.


                                      B-5
<PAGE>


   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.

                                      B-6
<PAGE>

     (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.


                                      B-7
<PAGE>

   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.

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 segregated liquid assets 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 segregate with a custodian
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

                                      B-8
<PAGE>

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 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 assets would be
required to cover its potential obligations under its hedging and other
investment transactions.


                                      B-9
<PAGE>

   Appendix C 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 high grade liquid securities. The Trust will also be
required to segregate 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
total 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.

                                      B-10
<PAGE>

When-Issued and Forward Commitment Securities

   The Trust may purchase 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 take place at a later date. When-issued and forward
commitment securities may be sold prior to the settlement date, but the Trust
will enter into when-issued and forward commitment securities 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 can incur a gain or loss. At the time the Trust entered
into a transaction on a when-issued or forward commitment basis, it will
segregate with its custodian cash or other liquid high grade debt securities
with a value not less than the value of the when-issued or forward commitment
securities. The value of these assets will be monitored daily to ensure that
their marked to market value will at all times equal or exceed the
corresponding obligations of the Trust. There is always a risk that the
securities may not be delivered and that the Trust may incur a loss.
Settlements in the ordinary course 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 establish and maintain a segregated account with
the custodian containing liquid instruments having a value not less than the
repurchase price (including accrued interest). If the Trust establishes and
maintains such a segregated account, a reverse repurchase agreement will not be
considered a borrowing by the Trust; however, under 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.


                                      B-11
<PAGE>

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, if any. 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 brokers, dealers and other
financial institutions 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. 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.


                                      B-12
<PAGE>

   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.

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 and distributions to common shareholders. 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 waivers of management fees
were approved by the Trust's board of trustees on May 24, 2001, 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 0.70% of the average weekly value of the Trust's Managed
Assets. A related waiver letter from BlackRock Advisors provided for a
temporary fee waiver of 0.30% of the average weekly value of the Trust's total
Managed Assets in each of the first five years of the Trust's operations
(through July 31, 2006) and for a declining amount for an additional


                                      B-13
<PAGE>


five years. Subsequently, BlackRock Advisors unilaterally agreed to permanently
waive a portion of the management fee to which it is entitled equal to 0.10% of
the average weekly value of the Trust's total Managed Assets and adjusted the
temporary fee waiver so that BlackRock Advisors would waive 0.25% of the
average weekly value of the Trust's total Managed Assets in each of the first
five years and would waive a declining amount for an additional four years as
set forth in the prospectus under "Management of the Trust--Investment
Management Agreement." The net effect of the permanent fee waiver and the
adjusted temporary fee waiver schedule was to reduce the management fees paid
by the Trust by 0.05% of the Trust's total Managed Assets in each of the first
ten years of the Trust's operations and to reduce the management fees paid by
the Trust by 0.10% of the Trust's total Managed Assets in each year thereafter.


   The investment management agreement and the waivers of management fees were
approved by the sole common shareholder of the Trust as of July 19, 2001. 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 July 31, 2002, 38% of the monthly
management fees received by BlackRock Advisors, (ii) from August 1, 2002 to
July 31, 2003, 19% of the monthly management fees received by BlackRock
Advisors; and (iii) after July 31, 2003, 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 on May 24, 2001, 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). The sub-investment advisory
agreement was approved by the sole common shareholder of the Trust as of July
19, 2001. The sub-investment advisory agreement will continue in effect for a
period of two years from its effective date, and if not sooner terminated,


                                      B-14
<PAGE>


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 defined in the
Investment Company Act) and (2) by the vote of a majority of the trustees who
are not parties to such 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 sub-investment
advisory agreement may be terminated as a whole at any time by the Trust,
without the payment of any penalty, upon the vote of a majority of the Trust's
board of trustees or a majority of the outstanding voting securities of the
Trust, or by BlackRock Advisors or BlackRock Financial Management, on 60 days'
written notice by either party to the other. The sub-investment advisory
agreement will also terminate automatically in the event of its assignment (as
such term is defined in the Investment Company Act and the rules thereunder).

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 a brief statement of 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.



     Name and Address              Principal Occupation During the Past Five
                         Title            Years and Other Affiliations

Andrew F. Brimmer....... Trustee President of Brimmer & Company, Inc., a
 4400 MacArthur Blvd             Washington, D.C.-based economic and financial
N.W.                             consulting firm. Director of CarrAmerica
 Suite 302                       Realty Corporation and Borg-Warner
 Washington, DC 20007            Automotive. Formerly member of the Board of
 Age: 74                         Governors of the Federal Reserve System.
                                 Formerly Director of AirBorne Express,
                                 BankAmerica Corporation (Bank of America),
                                 Bell South Corporation, College Retirement
                                 Equities Fund (Trustee), Commodity Exchange,
                                 Inc. (Public Governor), Connecticut Mutual
                                 Life Insurance Company, E.I. Dupont de
                                 Nemours & Company, Equitable Life Assurance
                                 Society of the United States, Gannett
                                 Company, 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..... Trustee President and Chief Executive Officer of The
 845 Third Avenue                Conference Board, Inc., a leading global
 New York, NY 10022              business membership organization, from 1995-
 Age: 54                         present. Former Executive Dean of the John F.
                                 Kennedy School of Government at Harvard
                                 University from 1988-1995. Acting Director,
                                 Harvard Center for Business and Government
                                 (1991-1993). Formerly Partner (principal) of
                                 McKinsey & Company, Inc. (1980-1988). Former
                                 Executive Director of Federal Cash
                                 Management, White House Office of Management
                                 and Budget (1977-1979). Co-author, The
                                 Winning Performance (best selling management
                                 book published in 13 national

                                      B-15
<PAGE>

     Name and Address              Principal Occupation During the Past Five
                         Title            Years and Other Affiliations

                                 editions). Trustee Emeritus, Wesleyan
                                 University. Trustee, Drucker Foundation,
                                 Airplanes Group, Aircraft Finance Trust (AFT)
                                 and Educational Testing Service (ETS).
                                 Director, Arch Chemicals, Fremont Group and
                                 The Guardian Life Insurance Company of
                                 America.

Kent Dixon.............. Trustee Consultant/Investor. Former President and
 430 Sandy Hook Road             Chief Executive Officer of Empire Federal

                              Savings Bank of America and Banc PLUS Savings
 St. Petersburg, FL              Association, former Chairman of the Board,
33706                            President and Chief Executive Officer of

 Age: 63                         Northeast Savings. Former Director of ISFA
                                 (the owner of INVEST, a national securities
                                 brokerage service designed for banks and
                                 thrift institutions).


                      Trustee Consultant. Editor of The Journal of
Frank J. Fabozzi...              Portfolio Management and Adjunct Professor of

 858 Tower View Circle           Finance at the School of Management at Yale
 New Hope, PA 18938              University. Director, Guardian Mutual Funds
 Age: 52                         Group. Author and editor of several books on
                                 fixed income portfolio management. Visiting
                                 Professor of Finance and Accounting at the
                                 Sloan School of Management, Massachusetts
                                 Institute of Technology from 1986 to August
                                 1992.

Laurence D. Fink*....... Trustee Director, Chairman and Chief Executive
 Age: 48                         Officer of BlackRock, Inc. since its
                                 formation in 1998 and of BlackRock, Inc.'s
                                 predecessor entities since 1988. Chairman of
                                 the Management Committee of BlackRock, Inc.
                                 Formerly, Managing Director of the First
                                 Boston Corporation, Member of its Management
                                 Committee, Co-head of its Taxable Fixed
                                 Income Division and Head of its Mortgage and
                                 Real Estate Products Group. Currently,
                                 Chairman of the Board of each of the closed-
                                 end Trusts in which BlackRock Advisors, Inc.
                                 acts as investment advisor, President,
                                 Treasurer and a Trustee of the BlackRock
                                 Funds, Chairman of the Board and Director of
                                 Anthracite Capital, Inc., a Director of
                                 BlackRock's offshore funds and alternative
                                 products and Chairman of the Board of Nomura
                                 BlackRock Asset Management Co., Ltd.
                                 Currently, Vice Chairman of the Board of
                                 Trustees of Mount Sinai-New York University
                                 Medical Center and Health System and a Member
                                 of the Board of Phoenix House.

James Clayburn La        Trustee Dean Emeritus of The John E. Anderson
Force, Jr...............         Graduate School of Management, University of
 P.O. Box 1595                   California since July 1, 1993. Director,
 Pauma Valley, CA 92061          Jacobs Engineering Group, Inc., Payden &
 Age: 72                         Rygel Investment Trust, Provident Investment
                                 Counsel Funds, Timken Company, Motor Cargo
                                 Industries and Trust for Investment Managers.
                                 Acting Dean of The School of Business, Hong
                                 Kong University of Science and Technology
                                 1990-1993. From 1978 to September 1993, Dean
                                 of The John E. Anderson Graduate School of
                                 Management, University of California.

                                      B-16
<PAGE>

<TABLE>
<S>                                    <C>
     Name and Address                    Principal Occupation During the Past Five
                        Title                   Years and Other Affiliations


Walter F. Mondale...... Trustee         Partner, Dorsey & Whitney, a law firm
                                        (December 1996-present, September 1987-
 220 South Sixth Street                 August 1993). Formerly, U.S. Ambassador to
 Minneapolis, MN 55402                  Japan (1993-1996). Formerly Vice President
 Age: 73                                of the United States, U.S. Senator and
                                        Attorney General of the State of Minnesota.
                                        1984 Democratic Nominee for President of the
                                        United States. Director, Northwest Airlines
                                        Corporation, NWA Inc., Northwest Airlines,
                                        Inc. and UnitedHealth Group Corporation.


Ralph L.
Schlosstein*......      Trustee and     Director since 1999 and President of

 Age: 50                President       BlackRock, Inc. since its formation in 1998
                                        and of BlackRock, Inc.'s predecessor
                                        entities since 1988. Member of the
                                        Management Committee and Investment Strategy
                                        Group of BlackRock, Inc. Formerly, Managing
                                        Director of Lehman Brothers, Inc. and Co-
                                        head of its Mortgage and Savings
                                        Institutions Group. Currently, President of
                                        each of the closed-end Trusts in which
                                        BlackRock Advisors, Inc. acts as investment
                                        advisor and a Director and Officer of
                                        BlackRock's alternative products. Currently,
                                        a Member of the Visiting Board of Overseers
                                        of the John F. Kennedy School of Government
                                        at Harvard University, the Financial
                                        Institutions Center Board of the Wharton
                                        School of the University of Pennsylvania,
                                        and a Trustee of New Visions for Public
                                        Education in New York City. Formerly, a
                                        Director of Pulte Corporation and a Member
                                        of Fannie Mae's Advisory Council.


Anne F. Ackerley....... Secretary       Managing Director of BlackRock, Inc. since

                                    2000. Formerly First Vice President and
 Age: 39                                Chief Operating Officer, Mergers and
                                        Acquisitions 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 its

 Age: 53                                predecessor entities.



Robert S. Kapito....... Vice            Vice Chairman of BlackRock , Inc. and its

                    President       predecessor entities.
 Age: 44


Kevin Klingert......... Vice            Managing Director of BlackRock, Inc. and its
 Age: 38                President       predecessor entities.



James Kong........      Assistant       Managing Director of BlackRock, Inc. and its

 Age: 40                Treasurer       predecessor entities.




                     Vice
Richard Shea, Esq...... President/      Managing Director of BlackRock, Inc. since

                    Tax             2000; Chief Operating Officer and Chief
 Age: 41                                Financial Officer of Anthracite Capital,
                                        Inc. since 1998. Formerly, Director of
                                        BlackRock, Inc. and its predecessor
                                        entities.

</TABLE>

   Prior to this offering, all of the outstanding shares of the Trust were
owned by BlackRock Advisors.


                                      B-17
<PAGE>

   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, 2000, 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, 2001,
assuming the Trust had been in existence for the full calendar year.

<TABLE>
<CAPTION>
                                                        Total Compensation from
                                     Estimated            the Trust and Fund
                                    Compensation            Complex Paid to
Name of Board Member                 From Trust            Board Member(/1/)
- --------------------                ------------        -----------------------
<S>                                 <C>                 <C>
Andrew R. Brimmer..................    $6,000(/2/)(/3/)        $160,000(/4/)
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/)
</TABLE>
- --------

(/1/) Represents the total compensation earned by such persons during the
      calendar year ended December 31, 2000 from the twenty-two closed-end
      funds advised by the Advisor (the "Fund Complex"). Two of these funds,
      BlackRock Target Term Trust and the BlackRock 2001 Term Trust were
      terminated on December 29, 2000 and June 30, 2001 respectively.


(/2/) Of these amounts it is anticipated that Messrs. Brimmer, Cavanagh, La
      Force and Mondale will defer $1,500, $1,500, $3,750 and $1,500,
      respectively, pursuant to the Fund Complex's deferred compensation plan.


(/3/) At a meeting of the boards of directors/trustees of the Fund Complex held
      on August 24, 2000, Dr. Brimmer was appointed "lead director" for each
      board of trustees/directors in the Fund Complex. For his services as lead
      trustee/director, Dr. 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
      $12,000, $12,000, $77,500 and $31,000, respectively, pursuant to the Fund
      Complex's deferred compensation plan.


   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.


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.


Investment Advisor and Sub-Advisor


   BlackRock Advisors, Inc. acts as the Trust's investment advisor. BlackRock
Financial Management acts as the Trust's sub-advisor. BlackRock Advisors and
BlackRock Financial Management are both wholly owned subsidiaries of BlackRock,
Inc., which is one of the largest publicly traded investment management firms
in the


                                      B-18
<PAGE>


United States with $213 billion of assets under management as of June 30, 2001.
BlackRock Advisors is one of the nation's leading fixed income managers with
over $122 billion of fixed income assets under management. BlackRock, Inc. and
its affiliates manage assets on behalf of more than 3,300 institutions and
200,000 individuals worldwide, including nine of the 10 largest companies in
the U.S. as determined by Fortune Magazine, through a variety of equity, fixed
income, liquidity and alternative investment separate accounts and mutual
funds, including the company's flagship fund families, BlackRock Funds and
BlackRock Provident Institutional Funds. BlackRock, Inc. is the nation's 26th
largest asset management firm according to Pensions & Investments, May 14 ,
2001.


   The BlackRock organization has over 12 years of experience managing closed-
end products and currently advises a closed-end family of 20 funds. BlackRock
has 13 leveraged municipal closed-end funds under management and approximately
$16 billion in municipal assets firm-wide. As of June 30, 2001, BlackRock
managed over $5.4 billion in closed-end products. In March 2001, a Fortune
Magazine article entitled "The Hidden Beauty of Bonds" by Andy Serwer called
BlackRock "perhaps the greatest success story on Wall Street in the past half-
decade." In addition, BlackRock provides risk management and investment system
services to a growing number of institutional investors under the BlackRock
Solutions name. In January 2001, Risk Magazine named BlackRock "Asset
Management Risk Manager of the Year." Clients are served from the company's
headquarters in New York City, as well as offices in Wilmington, Delaware, San
Francisco, California, Hong Kong, Edinburgh, Scotland and Tokyo, Japan.
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

                                      B-19
<PAGE>


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.

                             DESCRIPTION OF SHARES

Common Shares

   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.

Preferred Shares

   Although the terms of the Preferred Shares, including their dividend rate,
voting rights, liquidation preference and redemption provisions, will be
determined by the board of trustees (subject to applicable law and the Trust's
Agreement and Declaration of Trust, as amended and restated) when it authorizes
a Preferred Shares offering, the Trust currently expects that the preference on
distributions, liquidation preference, voting rights and redemption provisions
of the Preferred Shares will likely be as stated in the prospectus.


   If the board of trustees determines to proceed with an offering of Preferred
Shares, the terms of the Preferred Shares may be the same as, or different
from, the terms described in the prospectus, subject to applicable law and the
Trust's Agreement and Declaration of Trust, as amended and restated. The board
of trustees, without the approval of the holders of common shares, may
authorize an offering of Preferred Shares or may determine not to authorize
such an offering, and may fix the terms of the Preferred Shares to be offered.


   The board of trustees (subject to applicable law and the Trust's Agreement
and Declaration of Trust as amended and restated) 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.


                                      B-20
<PAGE>

                          REPURCHASE OF COMMON SHARES

   The Trust is a closed-end investment 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 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 New York 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 and consistent with the Trust's
investment objective and policies in order to repurchase shares; or (3) there
is, in the board's judgment, any (a) material legal action or proceeding
instituted or threatened challenging such transactions or otherwise materially
adversely affecting the Trust, (b) general suspension of or limitation on
prices for trading securities on the 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 shares
trading at a price equal

                                      B-21
<PAGE>


to their net asset value. Nevertheless, the fact that the Trust's 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 total assets which would likely have the effect of increasing the
Trust's expense ratio. Any purchase by the Trust of its common shares at a time
when Preferred Shares are outstanding will increase the leverage applicable to
the outstanding common shares then remaining.

   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 common stock 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 retroactively or
prospectively.

   The Trust intends to qualify under Subchapter M of the Code for tax
treatment as a regulated investment company. In order to qualify 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 derive at least 90% of its
annual gross income (including tax-exempt interest) from dividends, interest,
payments with respect to 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"). Second, the Trust must
diversify its holdings so that, at the close of each quarter of its taxable
year, (i) at least 50% of the value of its total assets is comprised of cash,
cash items, United States government securities, securities of other regulated
investment companies and other securities limited in respect of any one issuer
to an amount not greater in value than 5% of the value 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 value of the total assets is invested
in the securities of any one issuer (other than United States government
securities and 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 will not be subject to Federal
income tax on its income that it distributes each taxable year to its
shareholders, provided that in such taxable year it distributes at least 90% of
the sum of (i) its "investment company taxable income" (which includes
dividends, taxable interest, taxable original issue discount and market
discount income, income from securities lending, net short-term capital gain in
excess of 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 income 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 undistributed capital
gains 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 for Federal
income tax purposes, as long-term capital gain, their share of such


                                      B-22
<PAGE>


undistributed amount and (ii) will be entitled to credit their proportionate
shares of the tax paid by the Trust against their Federal income tax
liabilities, if any, and to claim refunds to the extent the credit exceeds such
liabilities. 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 gains included in the gross income of the shareholder less the tax
deemed paid by the 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.


   Treasury regulations permit a regulated investment company, in determining
its investment company taxable income and net capital gain, to elect (unless it
has made a taxable year election for excise tax purposes as discussed below) to
treat all or part of any net capital loss, any net long-term capital loss or
any net foreign currency loss incurred after October 31 as if it had been
incurred in the succeeding year.

   Distributions by the Trust of investment company taxable income, if any,
will be taxable to shareholders as ordinary income whether received in cash or
additional shares. Net long-term capital gains realized by the Trust and
distributed to shareholders in cash or additional shares will be taxable to
shareholders as long-term capital gains regardless of the length of time
investors have owned shares of the Trust. Distributions by the Trust that do
not constitute ordinary income dividends, capital gain distributions or exempt-
interest dividends (as defined below) will be treated as a return of capital to
the extent of (and in reduction of) the shareholder's tax basis in his or her
shares. Any excess will be treated as gain from the sale of his or her shares,
as discussed below.


   If the Trust engages in hedging transactions involving financial futures and
options, these transactions will be subject to special tax rules, the effect of
which may be to accelerate income to the Trust, defer the Trust's losses, cause
adjustments in the holding periods of the Trust's securities, convert long-term
capital gains into short-term capital gains and convert short-term capital
losses into long-term capital losses. These rules could therefore affect the
amount, timing and character of distributions to holders of common shares.


   Prior to purchasing shares in the Trust, an investor should carefully
consider the impact of dividends which are expected to be or have been
declared, but not paid. Any dividend declared shortly after a purchase of such
shares prior to the record date will have the effect of reducing the per share
net asset value by the per share amount of the dividend.

   Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to holders of
common shares 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 holder of common shares) on December 31.

   Federal income tax law imposes an alternative minimum tax with respect to
both corporations and individuals based on certain items of tax preference. To
the extent the Trust receives income treated as tax preference items for
purposes of the alternative minimum tax, a portion of the dividends paid by it,
although otherwise exempt from Federal income tax, will be taxable to holders
of common shares to the extent that their tax liability is determined under the
alternative minimum tax. The Trust will annually supply holders of common
shares with reports indicating the amount and nature of all income distributed
to them as well as the percentage of Trust income attributable to tax
preference items subject to the alternative minimum tax.

   The Trust intends to invest in sufficient tax-exempt municipal bonds to
permit payment of "exempt-interest dividends" (as defined in the Code). Except
as provided below, exempt-interest dividends paid to holders of common shares
are not includable in the holder's gross income for Federal income tax
purposes.

   The Internal Revenue Service's position in a published revenue ruling
indicates that the Trust is required to designate distributions paid with
respect to its common shares and its Preferred Shares as consisting of a
portion of each type of income distributed by the Trust. The portion of each
type of income deemed received by the holders of each class of shares will be
equal to the portion of total Trust dividends received by such


                                      B-23
<PAGE>


class. Thus, the Trust will designate dividends paid as exempt-interest
dividends in a manner that allocates such dividends between the holders of the
common shares and the holders of Preferred Shares in proportion to the total
dividends paid to each such class during or with respect to the taxable year,
or otherwise as required by applicable law. Capital gain dividends and ordinary
income dividends will similarly be allocated between the two classes.


   Interest on certain "private-activity bonds" is an item of tax preference
subject to the alternative minimum tax on individuals and corporations. The
Trust may invest a portion of its assets in municipal bonds subject to this
provision so that a portion of its exempt-interest dividends is an item of tax
preference to the extent such dividends represent interest received from these
private-activity bonds. Accordingly, investment in the Trust could cause a
holder of common shares to be subject to, or result in an increased liability
under, the alternative minimum tax.

   Exempt-interest dividends are included in determining what portion, if any,
of a person's Social Security and railroad retirement benefits will be
includable in gross income subject to Federal income tax.


   Although exempt-interest dividends generally may be treated by holders of
common shares as items of interest excluded from their gross income, each
holder is advised to consult his tax advisor with respect to whether exempt-
interest dividends retain their exclusion if the shareholder would be treated
as a "substantial user," or a "related person" of a substantial user, of the
facilities financed with respect to any of the tax-exempt obligations held by
the Trust. "Substantial user" is defined under the Treasury Regulations to
include a non-exempt person who regularly uses in his trade or business a part
of the facilities financed with the tax-exempt obligations and whose gross
revenues derived from such facilities exceed 5% of the useable area of the
facilities or from whom the facilities or a part thereof were specifically
constructed, reconstructed or acquired. "Related persons" include certain
natural persons, affiliated corporations, a partnership and its partners and an
S corporation and its shareholders.

   For 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 bonds, and therefore all exempt-interest
dividends received from the Trust, are included in calculating adjusted current
earnings.

   The redemption, sale or exchange of common shares normally will result in
capital gain or loss to the holders of common shares who hold their shares as
capital assets. Generally, a shareholder's gain or loss will be long-term
capital gain or loss if the shares have been held for more than one year even
though the increase in value in such common shares is attributable to tax-
exempt interest income. In addition, gain realized by the Trust from the
disposition of a tax-exempt municipal obligation that is attributable to
accrued market discount will be treated as ordinary income rather than capital
gain, and thus may increase the amount of ordinary income dividends received by
holders of common shares. Present law taxes both long- and short-term capital
gains of corporations at the rates applicable to ordinary income. For non-
corporate taxpayers, however, long-term capital gains will be taxed at a
maximum rate of 20% (or 18% for capital assets that have been held for more
than five years and whose ending periods began after December 31, 2001), while
short-term capital gains and other ordinary income will currently be taxed at a
maximum rate of 39.1%*. Because of the limitations on itemized deductions and
the deduction for personal exemptions applicable to higher income taxpayers,
the effective tax rate may be higher in certain circumstances.


   All or a portion of a sales charge paid in purchasing common shares cannot
be taken into account for purposes of determining gain or loss on the
redemption, sale or exchange of such shares within 90 days after

- --------

* 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 rate applicable to ordinary income
  over a six year phase-in period. Beginning in taxable year 2006, ordinary
  income will be subject to a 35% maximum rate.


                                      B-24
<PAGE>


their purchase to the extent common shares or shares of another fund are
subsequently acquired without payment of a sales charge pursuant to the
reinvestment or exchange privilege. Any disregarded portion of such charge will
result in an increase in the shareholder's tax basis in the shares subsequently
acquired. In addition, no loss will be allowed on the redemption, sale or
exchange of common shares if the shareholder purchases other common shares of
the Trust (whether through reinvestment of distributions or otherwise) or the
shareholder acquires or enters into a contract or option to acquire securities
that are substantially identical to common shares of the Trust within a period
of 61 days beginning 30 days before and ending 30 days after such redemption,
sale or exchange. If disallowed, the loss will be reflected in an adjustment to
the basis of the shares acquired. Further, any losses realized on the
redemption, sale or exchange of common shares held for six months or less will
be disallowed to the extent of any exempt-interest dividends received with
respect to such common shares and, if not disallowed, such losses will be
treated as long-term capital losses to the extent of any capital gain dividends
received (or credited as undistributed capital gain) with respect to such
common shares.


   In order to avoid a 4% Federal excise tax, the Trust must distribute or be
deemed to have distributed by December 31 of each calendar year at least 98% of
its taxable ordinary income for such year, at least 98% of its capital gain net
income (the excess of its realized capital gains over its realized capital
losses, generally computed on the basis of the one-year period ending on
October 31 of such year) and 100% of any taxable ordinary income and capital
gain net income for the prior year that was not distributed during such year
and on which the Trust paid no Federal income tax. For purposes of the excise
tax, a regulated investment company may reduce its capital gain net income (but
not below its net capital gain) by the amount of any net ordinary loss for the
calendar year. The Trust intends to make timely distributions in compliance
with these requirements and consequently it is anticipated that it generally
will not be required to pay the excise tax.


   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
corporate Federal income tax upon its income for that year, and distributions
to its shareholders would be taxable to shareholders as ordinary dividend
income for Federal income tax purposes to the extent of the Trust's earnings
and profits.

   The Trust is required to withhold on taxable dividends and certain other
payments paid to non-corporate shareholders who have not furnished to the Trust
their correct taxpayer identification number (in the case of individuals, their
Social Security number) and certain certifications, or who are otherwise
subject to backup withholding. Backup withholding is not an additional tax and
any amount withheld maybe credited against the shareholder's federal income tax
liability.


   The foregoing is a general and abbreviated summary of the provisions of the
Code and the Treasury Regulations presently in effect as they directly govern
the taxation of the Trust and its shareholders. For complete provisions,
reference should be made to the pertinent Code sections and Treasury
Regulations. The Code and the Treasury Regulations are subject to change by
legislative or administrative action, and any such change may be retroactive
with respect to Trust transactions. Holders of common shares are advised to
consult their own tax advisors for more detailed information concerning the
Federal taxation of the Trust and the income tax consequences to its holders of
common shares.



                PERFORMANCE RELATED AND COMPARATIVE INFORMATION

   Municipal bonds can provide tax-free income. Because the Trust expects that
a portion of its investments will pay interest that is taxable under the
Federal alternative minimum tax, the Trust may not be a suitable investment for
shareholders that are subject to the Federal alternative minimum tax.

   The Trust may quote certain performance-related information and may compare
certain aspects of its portfolio and structure to other substantially similar
closed-end funds as categorized by Lipper, Inc. ("Lipper"), Morningstar Inc. or
other independent services. Comparison of the Trust to an alternative
investment should be

                                      B-25
<PAGE>


made with consideration of differences in features and expected performance.
The Trust may obtain data from sources or reporting services, such as Bloomberg
Financial and Lipper, that the Trust believes to be generally accurate.


   Past performance is not indicative of future results. At the time common
shareholders sell their shares, they may be worth more or less than their
original investment.


   Keep in mind, that on April 30, 2001, the Lehman Brothers Aggregate Bond
Index*, which is considered to be a common measure of the taxable bond market,
yielded 6.14%.


Municipal bonds have had the best after-tax return when compared to any other
major fixed income category.


                      Tax Adjusted Returns vs. Volatility
                              Fixed Income Classes
                          Last 10 Years Ending 4/30/01


<TABLE>
<CAPTION>
10 year Period
<S>                                <C>    <C>       <C>      <C>    <C>        <C>       <C>    <C>        <C>
                                                                                         High               Global
4/30/91--4/30/01                   Muni   Aggregate Treasury Agency Corporates Mortgages Yield  Eurodollar Treasury
Annualized Return................  11.55%   7.82%     7.69%   7.81%    8.27%     7.70%   9.19%     7.71%     6.53%
Annualized Standard Devaluation..   4.28    3.76      4.16    3.85     4.72      3.05    5.62      3.56      5.84
</TABLE>


   The chart above shows that over the past 10 years, on a tax-adjusted basis,
municipal bonds have had higher annualized returns when compared to any other
major fixed income category.




Source: Lehman Brothers**

- --------

*  The Lehman Aggregate Index is an unmanaged index representative of
   intermediate-term government bonds, investment grade bonds, investment grade
   corporate debt securities and mortgage-backed securities. It is not possible
   to invest directly in an index.


** Past performance is no guarantee of future results. The tax equivalents
   return reflects an adjustment of 35% of the portion of the Lehman Brothers
   municipal Index attributable to coupon payment (to adjust for an assumed tax
   bracket of 35%) and no adjustment to the portion of the Lehman Brothers
   Municipal Index attributable to principal appreciation. Standard deviation
   measures performance fluctuations; generally the higher the standard
   deviation, the greater the expected volatility of returns. Standard
   deviation is not a complete measure of risk, and cannot predict future
   performance. Referenced Lehman Indices: Mortgage Back Securities, Euro-
   Aggregate Bond, Aggregate Bond, U.S. Agency, Credit Bond (Corporates),
   Global Treasury bond, Municipal Bond, High Yield and Treasury Bond.


                                      B-26
<PAGE>


     Municipal Bonds May Be Attractively Valued Relative to Treasuries



<TABLE>
<CAPTION>
                                                                      AAA
                                              AAA      30 Year   30 Year Muni/
Date                                      30 Year Muni Treasury 30 Year Treasury
- ----                                      ------------ -------- ----------------
<S>                                       <C>          <C>      <C>
2-Jan-90................................      6.80       8.03        84.70%
30-Mar-90...............................      7.10       8.67        81.92%
29-Jun-90...............................      7.00       8.43        83.04%
28-Sep-90...............................      7.40       8.95        82.65%
31-Dec-90...............................      6.90       8.26        83.57%
29-Mar-91...............................      6.80       8.27        82.25%
28-Jun-91...............................      6.90       8.45        81.64%
30-Sep-91...............................      6.30       7.85        80.28%
31-Dec-91...............................      6.20       7.45        83.19%
31-Mar-92...............................      6.50       7.99        81.37%
30-Jun-92...............................      6.30       7.81        80.66%
30-Sep-92...............................      6.20       7.43        83.45%
31-Dec-92...............................      6.10       7.43        82.11%
31-Mar-93...............................      5.65       7.00        80.68%
30-Jun-93...............................      5.40       6.70        80.55%
30-Sep-93...............................      5.10       6.21        82.07%
31-Dec-93...............................      5.20       6.49        80.12%
31-Mar-94...............................      6.00       7.24        82.83%
30-Jun-94...............................      6.15       7.68        80.05%
30-Sep-94...............................      6.30       7.93        79.48%
30-Dec-94...............................      6.60       7.92        83.37%
31-Mar-95...............................      5.90       7.48        78.89%
30-Jun-95...............................      5.90       6.66        88.59%
29-Sep-95...............................      5.90       6.59        89.47%
29-Dec-95...............................      5.35       6.00        89.10%
29-Mar-96...............................      5.75       6.76        85.00%
28-Jun-96...............................      5.90       6.95        84.88%
30-Sep-96...............................      5.65       6.97        81.03%
31-Dec-96...............................      5.55       6.69        83.00%
31-Mar-97...............................      5.80       7.15        81.15%
30-Jun-97...............................      5.45       6.82        79.88%
30-Sep-97...............................      5.25       6.44        81.50%
31-Dec-97...............................      5.15       5.98        86.16%
31-Mar-98...............................      5.15       5.97        86.29%
30-Jun-98...............................      5.15       5.68        90.65%
30-Sep-98...............................      4.82       5.11        94.28%
31-Dec-98...............................      4.94       5.19        95.27%
31-Mar-99...............................      5.04       5.72        88.15%
30-Jun-99...............................      5.33       6.09        87.57%
30-Sep-99...............................      5.70       6.18        92.22%
31-Dec-99...............................      5.93       6.59        90.00%
31-Mar-00...............................      5.69       5.97        95.24%
30-Jun-00...............................      5.72       6.05        94.62%
29-Sep-00...............................      5.61       5.97        94.04%
29-Dec-00...............................      5.16       5.51        93.65%
30-Mar-01...............................      5.13       5.56        92.23%
18-May-01...............................      5.28       5.78        91.35%
                                                                     ------
 10 year average percentage.............                             85.41%
                                                                     ======
</TABLE>


   The chart above shows that currently, municipal bonds are yielding over 90%
of what treasuries are yielding. Since yields move in the opposite direction of
price, BlackRock believes these higher yields are an indication that municipals
may be attractively valued relative to treasury securities.


Source: Municipal Market Data/Delphis Hanover/Bloomburg***

- --------

*** Past performance is no guarantee of future results. Chart shows the
    relationship between the 30 Year AAA Municipal Index and the 30 Year AAA
    Treasury Index. The yields quoted above are a simple unweighted average of
    the estimated yields of the bonds in the index if those bonds were sold at
    par value. It is not possible to invest directly in an index. The Trusts
    have the ability to invest in securities rated below AAA, and do not intend
    to invest in a portfolio of securities equivalent to the 30 Year AAA
    Municipal Index.


                                      B-27
<PAGE>

                                    EXPERTS

   The Statement of Net Assets of the Trust as of July 16, 2001 appearing in
this Statement of Additional Information has been audited by Deloitte & Touche
LLP, 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. Deloitte & Touche
LLP, located at 200 Berkley Street, Boston, Massachusetts 02116, 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.


                                      B-28
<PAGE>


                       Independent Auditors' Report


The Board of Trustees and Shareholder of


The BlackRock Municipal Income Trust


   We have audited the accompanying statement of assets and liabilities of The
BlackRock Municipal Income Trust (the "Trust") as of July 16, 2001 and the
related statement of operations and changes in net assets for the period March
30, 2001 (date of inception) to July 16, 2001. 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 July 16, 2001 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.


Boston, Massachusetts


July 18, 2001


                                      F-1
<PAGE>


                   THE BLACKROCK MUNICIPAL INCOME TRUST


                    STATEMENT OF ASSETS AND LIABILITIES


                               July 16, 2001



<TABLE>
<S>                                                                  <C>
ASSETS:
Cash................................................................ $115,001
LIABILITIES:
Payable for organization costs......................................   15,000
                                                                     --------
Net Assets.......................................................... $100,001
                                                                     ========
Net assets were comprised of:
  Common stock at par (Note 1)...................................... $      8
  Paid-in capital in excess of par..................................  114,993
                                                                     --------
                                                                      115,001
  Undistributed net investment loss.................................  (15,000)
                                                                     --------
Net assets, July 16, 2001........................................... $100,001
                                                                     ========
Net asset value per share:
Equivalent to 8,028 shares of common stock issued and outstanding,
 par value $0.001, unlimited shares authorized...................... $  12.46
                                                                     ========

                      THE BLACKROCK MUNICIPAL INCOME TRUST

                            STATEMENT OF OPERATIONS

       For the period March 30, 2001 (date of inception) to July 16, 2001

Investment income................................................... $    --
Expenses
  Organization expenses.............................................   15,000
                                                                     --------
Net investment loss................................................. $(15,000)
                                                                     ========

                      THE BLACKROCK MUNICIPAL INCOME TRUST

                       STATEMENT OF CHANGES IN NET ASSETS

       For the period March 30, 2001 (date of inception) to July 16, 2001

INCREASE (DECREASE) IN NET ASSETS
Operations:
  Net investment loss............................................... $(15,000)
                                                                     --------
  Net decrease in net assets resulting from operations..............  (15,000)
                                                                     --------
Capital Stock Transactions
  Net proceeds from the issuance of common shares...................  115,001
                                                                     --------
    Total increase..................................................  100,001
                                                                     --------
NET ASSETS
Beginning of year...................................................        0
                                                                     --------
End of year......................................................... $100,001
                                                                     ========
</TABLE>


                                      F-2
<PAGE>


NOTES TO FINANCIAL STATEMENTS


 Note 1. Organization


   The BlackRock Municipal Income Trust (the "Trust") was organized as a
Delaware business trust on March 30, 2001 and is registered as a diversified,
closed-end management investment company under the Investment Company Act of
1940. The Trust had no operations other than a sale to BlackRock Advisors, Inc.
of 8,028 shares of common stock for $115,001 ($14,325 per share).


 Note 2. Agreements


   The Trust has entered into an Investment Advisory Agreement with BlackRock
Advisors, Inc. The Trust will pay BlackRock Advisors, Inc. a monthly fee (the
"Investment Management Fee") at an annual rate of 0.60% of the average weekly
value of the Trust's Managed Assets. BlackRock Advisors has voluntarily agreed
to waive receipt of a portion of the Investment Management Fee or other
expenses of the trust in the amount of 0.25% of average weekly Managed Assets
for the first 5 years of the Trust's operations, 0.20% in year 6, 0.15% in year
7, 0.10% in year 8 and 0.05% in year 9.


 Note 3. Organization Expenses and Offering Costs


   Organization expenses of $15,000 have been expensed. Offering costs,
estimated to be approximately $491,200 will be charged to paid-in capital at
the time shares of beneficial interest are sold.


 Note 4. Cash & Cash Equivalents


   The Trust considers all highly liquid debt instruments with a maturity of
three months or less at time of purchase to be cash equivalents.


                                      F-3
<PAGE>

                                   APPENDIX A

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.

                                      A-1
<PAGE>

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

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

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

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

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

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

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

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

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

L     The letter "L" indicates that the rating pertains to the principal amount
      of those bonds to the extent that the underlying deposit collateral is
      Federally insured by the Federal Savings & Loan Insurance 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.

                                      A-2
<PAGE>

 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 as signed to short-term debt obligations with a doubtful
      capacity for payment.

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

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

                                      A-3
<PAGE>

   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.

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

                                      A-4
<PAGE>

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

 Short-Term Loans

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

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

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

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

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

 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.

                                      A-5
<PAGE>

   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.

                                      A-6
<PAGE>

 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. De notes 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.

                                      A-7
<PAGE>

                                   APPENDIX B

                         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 and tax
rates:

                    2001 Federal Taxable vs. Tax-Free Yields


<TABLE>
<CAPTION>
     Federal              Taxable Equivalent Estimate Current Return
       Tax         --------------------------------------------------------------------------------
     Bracket       4.00%         4.50%         5.00%         5.50%         6.00%         6.50%
     -------       -----         -----         -----         -----         -----         ------
     <S>           <C>           <C>           <C>           <C>           <C>           <C>
     15.0%         4.71%         5.29%         5.88%         6.47%         7.06%          7.65%
     27.5%         5.52%         6.21%         6.90%         7.59%         8.28%          8.97%
     30.5%         5.76%         6.47%         7.19%         7.91%         8.63%          9.35%
     35.5%         6.20%         6.98%         7.75%         8.53%         9.30%         10.08%
     39.1%         6.57%         7.39%         8.21%         9.03%         9.85%         10.67%
</TABLE>


               2002-2003 Federal Taxable vs. Tax-Free Yields


<TABLE>
<CAPTION>
     Federal              Taxable Equivalent Estimate Current Return
       Tax         --------------------------------------------------------------------------------
     Bracket       4.00%         4.50%         5.00%         5.50%         6.00%         6.50%
     -------       -----         -----         -----         -----         -----         ------
     <S>           <C>           <C>           <C>           <C>           <C>           <C>
     15.0%         4.71%         5.29%         5.88%         6.47%         7.06%          7.65%
     27.0%         5.48%         6.16%         6.85%         7.53%         8.22%          8.90%
     30.0%         5.71%         6.43%         7.14%         7.86%         8.57%          9.29%
     35.0%         6.15%         6.92%         7.69%         8.46%         9.23%         10.00%
     38.6%         6.51%         7.33%         8.14%         8.96%         9.77%         10.59%
</TABLE>

                 2004-2005 Federal Taxable vs. Tax-Free Yields

<TABLE>
<CAPTION>
     Federal              Taxable Equivalent Estimate Current Return
       Tax         --------------------------------------------------------------------------------
     Bracket       4.00%         4.50%         5.00%         5.50%         6.00%         6.50%
     -------       -----         -----         -----         -----         -----         ------
     <S>           <C>           <C>           <C>           <C>           <C>           <C>
     15.0%         4.71%         5.29%         5.88%         6.47%         7.06%          7.65%
     26.0%         5.41%         6.08%         6.76%         7.43%         8.11%          8.78%
     29.0%         5.63%         6.34%         7.04%         7.75%         8.45%          9.15%
     34.0%         6.06%         6.82%         7.58%         8.33%         9.09%          9.85%
     37.6%         6.41%         7.21%         8.01%         8.81%         9.62%         10.42%
</TABLE>

                    2006 Federal Taxable vs. Tax-Free Yields

<TABLE>
<CAPTION>
     Federal              Taxable Equivalent Estimate Current Return
       Tax         --------------------------------------------------------------------------------
     Bracket       4.00%         4.50%         5.00%         5.50%         6.00%         6.50%
     -------       -----         -----         -----         -----         -----         ------
     <S>           <C>           <C>           <C>           <C>           <C>           <C>
     15.0%         4.71%         5.29%         5.88%         6.47%         7.06%          7.65%
     25.0%         5.33%         6.00%         6.67%         7.33%         8.00%          8.67%
     28.0%         5.56%         6.25%         6.94%         7.64%         8.33%          9.03%
     33.0%         5.97%         6.72%         7.46%         8.21%         8.96%          9.70%
     35.0%         6.15%         6.92%         7.69%         8.46%         9.23%         10.00%
</TABLE>

                                      B-1
<PAGE>

                                   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,


                                      C-1
<PAGE>


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, a segregated account of cash
equivalents 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 segregation and coverage
requirements of either the

                                      C-2
<PAGE>

CFTC or the SEC, with the result that, if the Trust does not hold the security
or futures contract underlying the instrument, the T rust will be required to
segregate on an ongoing basis with its custodian, cash, U.S. government
securities, or other liquid high grade debt obligations in an amount at least
equal to the Trust's obligations with respect to such instruments. Such amounts
fluctuate as the obligations increase or decrease. The segregation 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.


                                      C-3
<PAGE>

                                     PART C

                               OTHER INFORMATION

Item 24. Financial Statements and Exhibits

(1) Financial Statements

  Part A-- None.




  Part B--Report of Independent Accountants.


  Statement of Assets and Liabilities.


(2)Exhibits


<TABLE>
   <C>    <S>
   (a)    Amended and Restated Agreement and Declaration of Trust./3/

   (b)    By-Laws./1/

   (c)    Inapplicable.

   (d)    Form of Specimen Certificate./2/

   (e)    Form of Dividend Reinvestment Plan./1/

   (f)    Inapplicable.

   (g)(1) Form of Investment Management Agreement./2/

   (g)(2) Form of Waiver Reliance Letter./2/

   (g)(3) Form of Sub-Investment Advisory Agreement./2/

   (h)    Form of Underwriting Agreement./2/

   (i)    Form of Deferred Compensation Plan for Independent Trustees./2/

   (j)    Form of Custodian Agreement./1/

   (k)    Form of Transfer Agency Agreement./2/

   (l)    Opinion and Consent of Counsel to the Trust./3/

   (m)    Inapplicable.

   (n)    Consent of Independent Public Accountants./3/

   (o)    Inapplicable.

   (p)    Form of Initial Subscription Agreement./1/

   (q)    Inapplicable.

   (r)(1) Code of Ethics of Trust./1/

   (r)(2) Code of Ethics of Advisor and Sub-Advisor./1/

   (r)(3) Code of Ethics of J.J.B. Hilliard, W.L. Lyons, Inc./3/

   (s)    Powers of Attorney/2/
</TABLE>

- --------

/1/Previously filed in the initial filing on April 3, 2001


/2/Previously filed with Pre-Effective Amendment No. 1 to the Registration
  Statement on June 4, 2001.


/3/Filed herewith.



                                      C-1
<PAGE>

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:


<TABLE>
     <S>                                                             <C>
     Registration fees.............................................. $   77,250
     New York Stock Exchange listing fee............................    125,000
     Printing (other than certificates).............................    377,405
     Engraving and printing certificates............................     21,126
     Accounting fees and expenses...................................      5,000
     Legal fees and expenses........................................    212,290
     NASD fee.......................................................     30,500
     Miscellaneous..................................................    276,080
       Total........................................................ $1,249,651
</TABLE>


Item 27. Persons Controlled by or under Common Control with the Registrant

   None.


Item 28. Number of Holders of Shares


<TABLE>
<CAPTION>
                                                                    Number of
     Title of Class                                               Record Holders
     --------------                                               --------------
     <S>                                                          <C>
     Shares of Beneficial Interest...............................        1
</TABLE>


Item 29. Indemnification

   Article V of the Registrant's Amended and Restated Agreement and Declaration
of Trust, as amended and restated, 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


                                      C-2
<PAGE>


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, 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 1940
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.


                                      C-3
<PAGE>


   (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. 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.




   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 attached as Exhibit (h), which is incorporated herein by
reference.


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.


                                      C-4
<PAGE>

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.

                                      C-5
<PAGE>

                                   SIGNATURES

   Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, and State of New York, on the 24th
day of July, 2001.



<TABLE>
<S>                                              <C>
                                                        /s/ Ralph L. Schlosstein
                                                  __________________________________________
                                                            Ralph L. Schlosstein
                                                   President, Chief Executive Officer and
                                                           Chief Financial Officer
</TABLE>


   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 24th day of July, 2001.



<TABLE>
<CAPTION>
                      Name                                      Title
                      ----                                      -----
   <C>                                         <S>
                       *                       Trustee, President,
   ___________________________________________ Chief Executive Officer and
              Ralph L. Schlosstein             Chief Financial Officer

                       *                       Treasurer
   ___________________________________________
                  Henry Gabbay

                       *                       Trustee
   ___________________________________________
                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

          /s/ Ralph L. Schlosstein
   *By: ______________________________________
              Ralph L. Schlosstein
                Attorney-in-fact
</TABLE>


                                      C-6
<PAGE>

                               INDEX TO EXHIBITS


<TABLE>
 <C>    <S>
 (a)    Amended and Restated Declaration of Trust

 (l)    Opinion and Consent of Counsel to the Trust

 (n)    Consent of Independent Accountants

 (r)(3) Code of Ethics of J.J.B. Hilliard, W.L. Lyons, Inc.
</TABLE>



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(A)
<SEQUENCE>2
<FILENAME>dex99a.txt
<DESCRIPTION>AMENDED AND RESTATED AGREEMENT
<TEXT>

<PAGE>

                       BLACKROCK MUNICIPAL INCOME TRUST








                             AMENDED AND RESTATED
                      AGREEMENT AND DECLARATION OF TRUST


















                            Dated as of May 31, 2001
<PAGE>

                               TABLE OF CONTENTS
                               -----------------

<TABLE>
<CAPTION>
                                                                                                        Page
                                                                                                        ----
<S>                                                                                                     <C>
ARTICLE I   The Trust..................................................................................   1

1.1         Name.......................................................................................   1
1.2         Definitions................................................................................   2


ARTICLE II  Trustees...................................................................................   3

2.1         Number and Qualification...................................................................   3
2.2         Term and Election..........................................................................   4
2.3         Resignation and Removal....................................................................   4
2.4         Vacancies..................................................................................   5
2.5         Meetings...................................................................................   5
2.6         Trustee Action by Written Consent..........................................................   6
2.7         Officers...................................................................................   6


ARTICLE III Powers and Duties of Trustees..............................................................   6

3.1         General....................................................................................   6
3.2         Investments................................................................................   7
3.3         Legal Title................................................................................   7
3.4         Issuance and Repurchase of Shares..........................................................   7
3.5         Borrow Money or Utilize Leverage...........................................................   8
3.6         Delegation; Committees.....................................................................   8
3.7         Collection and Payment.....................................................................   8
3.8         Expenses...................................................................................   9
3.9         By-Laws....................................................................................   9
3.10        Miscellaneous Powers.......................................................................   9
3.11        Further Powers.............................................................................  10


ARTICLE IV  Advisory, Management and Distribution Arrangements.........................................  10

4.1         Advisory and Management Arrangements......................................................   10
4.2         Distribution Arrangements.................................................................   11
4.3         Parties to Contract.......................................................................   11
</TABLE>

                                       i
<PAGE>

<TABLE>
<S>                                                                                                       <C>
ARTICLE V    Limitations of Liability and Indemnification..............................................   11

5.1          No Personal Liability of Shareholders, Trustees, etc......................................   11
5.2          Mandatory Indemnification.................................................................   12
5.3          No Bond Required of Trustees..............................................................   14
5.4          No Duty of Investigation; Notice in Trust Instruments, etc................................   14
5.5          Reliance on Experts, etc..................................................................   15


ARTICLE VI   Shares of Beneficial Interest.............................................................   15

6.1          Beneficial Interest.......................................................................   15
6.2          Other Securities..........................................................................   15
6.3          Rights of Shareholders....................................................................   16
6.4          Trust Only................................................................................   16
6.5          Issuance of Shares........................................................................   16
6.6          Register of Shares........................................................................   16
6.7          Transfer Agent and Registrar..............................................................   17
6.8          Transfer of Shares........................................................................   17
6.9          Notices...................................................................................   17


ARTICLE VII  Custodians................................................................................   18

7.1          Appointment and Duties....................................................................   18
7.2          Central Certificate System................................................................   19


ARTICLE VIII Redemption................................................................................   19

8.1          Redemptions...............................................................................   19
8.2          Disclosure of Holding.....................................................................   19


ARTICLE IX   Determination of Net Asset Value Income and Distributions.................................   19

9.1          Net Asset Value...........................................................................   19
9.2          Distributions to Shareholders.............................................................   20
9.3          Power to Modify Foregoing Procedures......................................................   20
</TABLE>

                                      ii
<PAGE>

<TABLE>
<S>                                                                                                        <C>
ARTICLE X   Shareholders..............................................................................     21

10.1        Meetings of Shareholders..................................................................     21
10.2        Voting....................................................................................     21
10.3        Notice of Meeting and Record Date.........................................................     21
10.4        Quorum and Required Vote..................................................................     22
10.5        Proxies, etc..............................................................................     22
10.6        Reports...................................................................................     23
10.7        Inspection of Records.....................................................................     23
10.8        Shareholder Action by Written Consent.....................................................     23


ARTICLE XI  Duration; Termination of Trust; Amendment; Mergers, Etc...................................     24

11.1        Duration..................................................................................     24
11.2        Termination...............................................................................     24
11.3        Amendment Procedure.......................................................................     25
11.4        Merger, Consolidation and Sale of Assets..................................................     26
11.5        Subsidiaries..............................................................................     26
11.6        Conversion................................................................................     27
11.7        Certain Transactions......................................................................     27


ARTICLE XII Miscellaneous.............................................................................     29

12.1        Filing....................................................................................     29
12.2        Resident Agent............................................................................     30
12.3        Governing Law.............................................................................     30
12.4        Counterparts..............................................................................     30
12.5        Reliance by Third Parties.................................................................     30
12.6        Provisions in Conflict with Law or Regulation.............................................     30
</TABLE>

                                      iii
<PAGE>

                       BLACKROCK MUNICIPAL INCOME TRUST
                       --------------------------------

                             AMENDED AND RESTATED
                             --------------------
                      AGREEMENT AND DECLARATION OF TRUST
                      ----------------------------------


          AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST made as of the
31st day of May, 2001, by the Trustees hereunder, and by the holders of shares
of beneficial interest issued hereunder as hereinafter provided.

          WHEREAS, this Trust has been formed to carry on business as set forth
more particularly hereinafter;

          WHEREAS, this Trust is authorized to issue an unlimited number of its
shares of beneficial interest all in accordance with the provisions hereinafter
set forth;

          WHEREAS, the Trustees have agreed to manage all property coming into
their hands as Trustees of a Delaware business trust in accordance with the
provisions hereinafter set forth; and

          WHEREAS, the parties hereto intend that the Trust created by this
Declaration and the Certificate of Trust filed with the Secretary of State of
the State of Delaware on March 30, 2001 shall constitute a business trust under
the Delaware Business Trust Act and that this Declaration shall constitute the
governing instrument of such business trust.

          NOW, THEREFORE, the Trustees hereby declare that they will hold all
cash, securities, and other assets which they may from time to time acquire in
any manner as Trustees hereunder IN TRUST to manage and dispose of the same upon
the following terms and conditions for the benefit of the holders from time to
time of shares of beneficial interest in this Trust as hereinafter set forth.


                                   ARTICLE I

                                   The Trust
                                   ---------

          1.1  Name.  This Trust shall be known as the "BlackRock Municipal
               ----
Income Trust" and the Trustees shall
<PAGE>

conduct the business of the Trust under that name or any other name or names as
they may from time to time determine.

          1.2  Definitions. As used in this Declaration, the following terms
               -----------
shall have the following meanings:

          The "1940 Act" refers to the Investment Company Act of 1940 and the
               --------
rules and regulations promulgated thereunder and exemptions granted therefrom,
as amended from time to time.

          The terms "Affiliated Person", "Assignment", "Commission", "Interested
                     -----------------    ----------    ----------    ----------
Person" and "Principal Underwriter" shall have the meanings given them in the
- ------       ---------------------
1940 Act.

          "By-Laws" shall mean the By-Laws of the Trust as amended from time to
           -------
time by the Trustees.

          "Code" shall mean the Internal Revenue Code of 1986, as amended, and
           ----
the regulations promulgated thereunder.

          "Commission" shall mean the Securities and Exchange Commission.
           ----------

          "Declaration" shall mean this Amended and Restated Agreement and
           -----------
Declaration of Trust, as amended, supplemented or amended and restated from time
to time.

          "Delaware Business Trust Statute" shall mean the provisions of the
           -------------------------------
Delaware Business Trust Act, 12 Del. C. (S)3801, et. seq., as such Act may be
                                ---- --          --- ----
amended from time to time.

          "Delaware General Corporation Law" means the Delaware General
           --------------------------------
Corporation Law, 8 Del. C. (S)100, et. seq., as amended from time to time.
                   ---  -          --  ---

          "Fundamental Policies" shall mean the investment policies and
           --------------------
restrictions as set forth from time to time in any Prospectus or contained in
any current Registration Statement of the Trust filed with the Commission or as
otherwise adopted by the Trustees and the Shareholders in accordance with the
requirements of the 1940 Act and designated as fundamental policies therein as
they may be amended from time to time in accordance with the requirements of the
1940 Act.
<PAGE>

          "Majority Shareholder Vote" shall mean a vote of  "a majority of the
           -------------------------
outstanding voting securities" (as such term is defined in the 1940 Act) of the
Trust with each class and series of Shares voting together as a single class,
except to the extent otherwise required by the 1940 Act or this Declaration with
respect to any one or more classes or series of Shares, in which case the
applicable proportion of such classes or series of Shares voting as a separate
class or series, as case may be, also will be required.

          "Person" shall mean and include individuals, corporations,
           ------
partnerships, trusts, limited liability companies, associations, joint ventures
and other entities, whether or not legal entities, and governments and agencies
and political subdivisions thereof.

          "Prospectus" shall mean the Prospectus of the Trust, if any, as in
           ----------
effect from time to time under the Securities Act of 1933, as amended.

          "Shareholders" shall mean as of any particular time the holders of
           ------------
record of outstanding Shares of the Trust, at such time.

          "Shares" shall mean the transferable units of beneficial interest into
           ------
which the beneficial interest in the Trust shall be divided from time to time
and includes fractions of Shares as well as whole Shares.  In addition, Shares
also means any preferred shares or preferred units of beneficial interest which
may be issued from time to time, as described herein.  All references to Shares
shall be deemed to be Shares of any or all series or classes as the context may
require.

          "Trust" shall mean the trust established by this Declaration, as
           -----
amended from time to time, inclusive of each such amendment.

          "Trust Property" shall mean as of any particular time any and all
           --------------
property, real or personal, tangible or intangible, which at such time is owned
or held by or for the account of the Trust or the Trustees in such capacity.

          "Trustees" shall mean the signatories to this Declaration, so long as
           --------
they shall continue in office in accordance with the terms hereof, and all other
persons

                                       3
<PAGE>

who at the time in question have been duly elected or appointed and have
qualified as trustees in accordance with the provisions hereof and are then in
office.


                                  ARTICLE II

                                   Trustees
                                   --------

          1.3  Number and Qualification. Prior to a public offering of Shares
               ------------------------
there may be a sole Trustee. Thereafter, the number of Trustees shall be
determined by a written instrument signed by a majority of the Trustees then in
office, provided that the number of Trustees shall be no less than two or more
than nine. No reduction in the number of Trustees shall have the effect of
removing any Trustee from office prior to the expiration of his term. An
individual nominated as a Trustee shall be at least 21 years of age and not
older than 80 years of age at the time of nomination and not under legal
disability. Trustees need not own Shares and may succeed themselves in office.

          1.4  Term and Election. The Board of Trustees shall be divided into
               -----------------
three classes, designated Class I, Class II and Class III. Each class shall
consist, as nearly as may be possible, of one-third of the total number of
trustees constituting the entire Board of Trustees. Within the limits above
specified, the number of the Trustees in each class shall be determined by
resolution of the Board of Trustees. The term of office of the first class shall
expire on the date of the first annual meeting of Shareholders or special
meeting in lieu thereof following the effective date of the Registration
Statement relating to the Shares under the Securities Act of 1933, as amended.
The term of office of the second class shall expire on the date of the second
annual meeting of Shareholders or special meeting in lieu thereof following the
effective date of the Registration Statement relating to the Shares under the
Securities Act of 1933, as amended. The term of office of the third class shall
expire on the date of the third annual meeting of Shareholders or special
meeting in lieu thereof following the effective date of the Registration
Statement relating to the Shares under the Securities Act of 1933, as amended.
Upon expiration of the term of office of each class as set forth above, the
number of Trustees in such class, as determined by the Board of Trustees, shall
be elected for a term expiring on the

                                       4
<PAGE>

date of the third annual meeting of Shareholders or special meeting in lieu
thereof following such expiration to succeed the Trustees whose terms of office
expire. The Trustees shall be elected at an annual meeting of the Shareholders
or special meeting in lieu thereof called for that purpose, except as provided
in Section 2.3 of this Article and each Trustee elected shall hold office until
his or her successor shall have been elected and shall have qualified. The term
of office of a Trustee shall terminate and a vacancy shall occur in the event of
the death, resignation, removal, bankruptcy, adjudicated incompetence or other
incapacity to perform the duties of the office, or removal, of a Trustee.

          1.5  Resignation and Removal. Any of the Trustees may resign their
               -----------------------
trust (without need for prior or subsequent accounting) by an instrument in
writing signed by such Trustee and delivered or mailed to the Trustees or the
Chairman, if any, the President or the Secretary and such resignation shall be
effective upon such delivery, or at a later date according to the terms of the
instrument. Any of the Trustees may be removed (provided the aggregate number of
Trustees after such removal shall not be less than the minimum number required
by Section 2.1 hereof) for cause only, and not without cause, and only by action
taken by a majority of the remaining Trustees followed by the holders of at
least seventy-five percent (75%) of the Shares then entitled to vote in an
election of such Trustee. Upon the resignation or removal of a Trustee, each
such resigning or removed Trustee shall execute and deliver such documents as
the remaining Trustees shall require for the purpose of conveying to the Trust
or the remaining Trustees any Trust Property held in the name of such resigning
or removed Trustee. Upon the incapacity or death of any Trustee, such Trustee's
legal representative shall execute and deliver on such Trustee's behalf such
documents as the remaining Trustees shall require as provided in the preceding
sentence.

          1.6  Vacancies. Whenever a vacancy in the Board of Trustees shall
               ---------
occur, the remaining Trustees may fill such vacancy by appointing an individual
having the qualifications described in this Article by a written instrument
signed by a majority of the Trustees then in office or may leave such vacancy
unfilled or may reduce the number of Trustees; provided the aggregate number of
Trustees after such reduction shall not be less than the minimum number required
by Section 2.1 hereof; provided,

                                       5
<PAGE>

further, that if the Shareholders of any class or series of Shares are entitled
separately to elect one or more Trustees, a majority of the remaining Trustees
or the sole remaining Trustee elected by that class or series may fill any
vacancy among the number of Trustees elected by that class or series. Any
vacancy created by an increase in Trustees may be filled by the appointment of
an individual having the qualifications described in this Article made by a
written instrument signed by a majority of the Trustees then in office. No
vacancy shall operate to annul this Declaration or to revoke any existing agency
created pursuant to the terms of this Declaration. Whenever a vacancy in the
number of Trustees shall occur, until such vacancy is filled as provided herein,
the Trustees in office, regardless of their number, shall have all the powers
granted to the Trustees and shall discharge all the duties imposed upon the
Trustees by this Declaration.

          1.7  Meetings. Meetings of the Trustees shall be held from time to
               --------
time upon the call of the Chairman, if any, or the President or any two
Trustees. Regular meetings of the Trustees may be held without call or notice at
a time and place fixed by the By-Laws or by resolution of the Trustees. Notice
of any other meeting shall be given by the Secretary and shall be delivered to
the Trustees orally not less than 24 hours, or in writing not less than 72
hours, before the meeting, but may be waived in writing by any Trustee either
before or after such meeting. The attendance of a Trustee at a meeting shall
constitute a waiver of notice of such meeting except where a Trustee attends a
meeting for the express purpose of objecting to the transaction of any business
on the ground that the meeting has not been properly called or convened. A
quorum for all meetings of the Trustees shall be one-third, but not less than
two, of the Trustees. Unless provided otherwise in this Declaration and except
as required under the 1940 Act, any action of the Trustees may be taken at a
meeting by vote of a majority of the Trustees present (a quorum being present)
or without a meeting by written consent of a majority of the Trustees.

          Any committee of the Trustees, including an executive committee, if
any, may act with or without a meeting.  A quorum for all meetings of any such
committee shall be one-third, but not less than two, of the members thereof.
Unless provided otherwise in this Declaration, any action of any such committee
may be taken at a

                                       6
<PAGE>

meeting by vote of a majority of the members present (a quorum being present) or
without a meeting by written consent of all of the members.

          With respect to actions of the Trustees and any committee of the
Trustees, Trustees who are Interested Persons in any action to be taken may be
counted for quorum purposes under this Section and shall be entitled to vote to
the extent not prohibited by the 1940 Act.

          All or any one or more Trustees may participate in a meeting of the
Trustees or any committee thereof by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other; participation in a meeting pursuant to any such
communications system shall constitute presence in person at such meeting.

          1.8  Trustee Action by Written Consent. Any action which may be taken
               ---------------------------------
by Trustees by vote may be taken without a meeting if that number of the
Trustees, or members of a committee, as the case may be, required for approval
of such action at a meeting of the Trustees or of such committee consent to the
action in writing and the written consents are filed with the records of the
meetings of Trustees. Such consent shall be treated for all purposes as a vote
taken at a meeting of Trustees.

          1.9  Officers. The Trustees shall elect a President, a Secretary and a
               --------
Treasurer and may elect a Chairman who shall serve at the pleasure of the
Trustees or until their successors are elected. The Trustees may elect or
appoint or may authorize the Chairman, if any, or President to appoint such
other officers or agents with such powers as the Trustees may deem to be
advisable. A Chairman shall, and the President, Secretary and Treasurer may, but
need not, be a Trustee.


                                  ARTICLE III

                         Powers and Duties of Trustees
                         -----------------------------

          1.10      General.  The Trustees shall owe to the Trust and its
                    -------
Shareholders the same fiduciary duties as owed by directors of corporations to
such corporations and their stockholders under the Delaware General Corporation
Law.  The Trustees shall have exclusive and absolute control over the Trust
Property and over the

                                       7
<PAGE>

business of the Trust to the same extent as if the Trustees were the sole owners
of the Trust Property and business in their own right, but with such powers of
delegation as may be permitted by this Declaration. The Trustees may perform
such acts as in their sole discretion are proper for conducting the business of
the Trust. The enumeration of any specific power herein shall not be construed
as limiting the aforesaid power. Such powers of the Trustees may be exercised
without order of or resort to any court.

          1.11        Investments. The Trustees shall have power, subject to the
                      -----------
Fundamental Policies in effect from time to time with respect to the Trust to:

                (1)   manage, conduct, operate and carry on the business of an
investment company;

                (2)   subscribe for, invest in, reinvest in, purchase or
otherwise acquire, hold, pledge, sell, assign, transfer, exchange, distribute or
otherwise deal in or dispose of any and all sorts of property, tangible or
intangible, including but not limited to securities of any type whatsoever,
whether equity or non-equity, of any issuer, evidences of indebtedness of any
person and any other rights, interests, instruments or property of any sort and
to exercise any and all rights, powers and privileges of ownership or interest
in respect of any and all such investments of every kind and description,
including, without limitation, the right to consent and otherwise act with
respect thereto, with power to designate one or more Persons to exercise any of
said rights, powers and privileges in respect of any of said investments. The
Trustees shall not be limited by any law limiting the investments which may be
made by fiduciaries.

          1.12        Legal Title. Legal title to all the Trust Property shall
                      -----------
be vested in the Trustees as joint tenants except that the Trustees shall have
power to cause legal title to any Trust Property to be held by or in the name of
one or more of the Trustees, or in the name of the Trust, or in the name of any
other Person as nominee, custodian or pledgee, on such terms as the Trustees may
determine, provided that the interest of the Trust therein is appropriately
protected.

          The right, title and interest of the Trustees in the Trust Property
shall vest automatically in each

                                       8
<PAGE>

person who may hereafter become a Trustee upon his due election and
qualification. Upon the ceasing of any person to be a Trustee for any reason,
such person shall automatically cease to have any right, title or interest in
any of the Trust Property, and the right, title and interest of such Trustee in
the Trust Property shall vest automatically in the remaining Trustees. Such
vesting and cessation of title shall be effective whether or not conveyancing
documents have been executed and delivered.

          1.13      Issuance and Repurchase of Shares.  The Trustees shall have
                    ---------------------------------
the power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold,
resell, reissue, dispose of, transfer, and otherwise deal in, Shares, including
Shares in fractional denominations, and, subject to the more detailed provisions
set forth in Articles VIII and IX, to apply to any such repurchase, redemption,
retirement, cancellation or acquisition of Shares any funds or property whether
capital or surplus or otherwise, to the full extent now or hereafter permitted
corporations formed under the Delaware General Corporation Law.

          1.14      Borrow Money or Utilize Leverage.  Subject to the
                    --------------------------------
Fundamental Policies in effect from time to time with respect to the Trust, the
Trustees shall have the power to borrow money or otherwise obtain credit or
utilize leverage to the maximum extent permitted by law or regulation as such
may be needed from time to time and to secure the same by mortgaging, pledging
or otherwise subjecting as security the assets of the Trust, including the
lending of portfolio securities, and to endorse, guarantee, or undertake the
performance of any obligation, contract or engagement of any other person, firm,
association or corporation.

          1.15      Delegation; Committees.  The Trustees shall have the power,
                    ----------------------
consistent with their continuing exclusive authority over the management of the
Trust and the Trust Property, to delegate from time to time to such of their
number or to officers, employees or agents of the Trust the doing of such things
and the execution of such instruments either in the name of the Trust or the
names of the Trustees or otherwise as the Trustees may deem expedient, to at
least the same extent as such delegation is permitted to directors of
corporations formed under the Delaware General Corporation Law and is permitted
by the 1940 Act, as well as any further delegations the Trustees may determine
to be desirable,

                                       9
<PAGE>

expedient or necessary in order to effect the purpose hereof. The Trustees may
designate an executive committee which shall have all authority of the entire
Board of Trustees except such committee cannot declare dividends except to the
extent specifically delegated by the Board of Trustees and cannot authorize
removal of a trustee or any merger, consolidation or sale of substantially all
of the assets of the Trust.

          1.16      Collection and Payment.  The Trustees shall have power to
                    ----------------------
collect all property due to the Trust; to pay all claims, including taxes,
against the Trust Property or the Trust, the Trustees or any officer, employee
or agent of the Trust; to prosecute, defend, compromise or abandon any claims
relating to the Trust Property or the Trust, or the Trustees or any officer,
employee or agent of the Trust; to foreclose any security interest securing any
obligations, by virtue of which any property is owed to the Trust; and to enter
into releases, agreements and other instruments.  Except to the extent required
for a corporation formed under the Delaware General Corporation Law, the
Shareholders shall have no power to vote as to whether or not a court action,
legal proceeding or claim should or should not be brought or maintained
derivatively or as a class action on behalf of the Trust or the Shareholders.

          1.17      Expenses.  The Trustees shall have power to incur and pay
                    --------
out of the assets or income of the Trust any expenses which in the opinion of
the Trustees are necessary or incidental to carry out any of the purposes of
this Declaration, and the business of the Trust, and to pay reasonable
compensation from the funds of the Trust to themselves as Trustees.  The
Trustees shall fix the compensation of all officers, employees and Trustees.
The Trustees may pay themselves such compensation for special services,
including legal, underwriting, syndicating and brokerage services, as they in
good faith may deem reasonable and reimbursement for expenses reasonably
incurred by themselves on behalf of the Trust.  The Trustees shall have the
power, as frequently as they may determine, to cause each Shareholder to pay
directly, in advance or arrears, for charges of distribution, of the custodian
or transfer, Shareholder servicing or similar agent, a pro rata amount as
defined from time to time by the Trustees, by setting off such charges due from
such Shareholder from declared but unpaid dividends or distributions owed such
Shareholder and/or by reducing the number of shares in the account of such
Shareholder

                                       10
<PAGE>

by that number of full and/or fractional Shares which represents the
outstanding amount of such charges due from such Shareholder.

          1.18      By-Laws.  The Trustees shall have the exclusive authority to
                    -------
adopt and from time to time amend or repeal By-Laws for the conduct of the
business of the Trust.

          1.19      Miscellaneous Powers.  The Trustees shall have the power to:
                    --------------------
(a) employ or contract with such Persons as the Trustees may deem desirable for
the transaction of the business of the Trust; (b) enter into joint ventures,
partnerships and any other combinations or associations; (c) purchase, and pay
for out of Trust Property, insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, investment advisors, distributors,
selected dealers or independent contractors of the Trust against all claims
arising by reason of holding any such position or by reason of any action taken
or omitted by any such Person in such capacity, whether or not constituting
negligence, or whether or not the Trust would have the power to indemnify such
Person against such liability; (d) establish pension, profit-sharing, share
purchase, and other retirement, incentive and benefit plans for any Trustees,
officers, employees and agents of the Trust; (e) make donations, irrespective of
benefit to the Trust, for charitable, religious, educational, scientific, civic
or similar purposes; (f) to the extent permitted by law, indemnify any Person
with whom the Trust has dealings, including without limitation any advisor,
administrator, manager, transfer agent, custodian, distributor or selected
dealer, or any other person as the Trustees may see fit to such extent as the
Trustees shall determine; (g) guarantee indebtedness or contractual obligations
of others; (h) determine and change the fiscal year of the Trust and the method
in which its accounts shall be kept; (i) notwithstanding the Fundamental
Policies of the Trust, convert the Trust to a master-feeder structure; provided,
however, the Trust obtains the approval of shareholders holding at least a
majority of the Trust's Shares present at a meeting of Shareholders at which a
quorum is present and (j) adopt a seal for the Trust but the absence of such
seal shall not impair the validity of any instrument executed on behalf of the
Trust.

          1.20      Further Powers.  The Trustees shall have the power to
                    --------------
conduct the business of the Trust and

                                       11
<PAGE>

carry on its operations in any and all of its branches and maintain offices both
within and without the State of Delaware, in any and all states of the United
States of America, in the District of Columbia, and in any and all
commonwealths, territories, dependencies, colonies, possessions, agencies or
instrumentalities of the United States of America and of foreign governments,
and to do all such other things and execute all such instruments as they deem
necessary, proper or desirable in order to promote the interests of the Trust
although such things are not herein specifically mentioned. Any determination as
to what is in the interests of the Trust made by the Trustees in good faith
shall be conclusive. In construing the provisions of this Declaration, the
presumption shall be in favor of a grant of power to the Trustees. The Trustees
will not be required to obtain any court order to deal with the Trust Property.


                                  ARTICLE IV

              Advisory, Management and Distribution Arrangements
              --------------------------------------------------

          1.21      Advisory and Management Arrangements.  Subject to the
                    ------------------------------------
requirements of applicable law as in effect from time to time, the Trustees may
in their discretion from time to time enter into advisory, administration or
management contracts (including, in each case, one or more sub-advisory, sub-
administration or sub-management contracts) whereby the other party to any such
contract shall undertake to furnish the Trustees such advisory, administrative
and management services, with respect to the Trust as the Trustees shall from
time to time consider desirable and all upon such terms and conditions as the
Trustees may in their discretion determine.  Notwithstanding any provisions of
this Declaration, the Trustees may authorize any advisor, administrator or
manager (subject to such general or specific instructions as the Trustees may
from time to time adopt) to effect investment transactions with respect to the
assets on behalf of the Trustees to the full extent of the power of the Trustees
to effect such transactions or may authorize any officer, employee or Trustee to
effect such transactions pursuant to recommendations of any such advisor,
administrator or manager (and all without further action by the Trustees).  Any
such investment transaction shall be deemed to have been authorized by all of
the Trustees.

                                       12
<PAGE>

          1.22      Distribution Arrangements.  Subject to compliance with the
                    -------------------------
1940 Act, the Trustees may retain underwriters and/or placement agents to sell
Trust Shares.  The Trustees may in their discretion from time to time enter into
one or more contracts, providing for the sale of the Shares of the Trust,
whereby the Trust may either agree to sell such Shares to the other party to the
contract or appoint such other party its sales agent for such Shares.  In either
case, the contract shall be on such terms and conditions as the Trustees may in
their discretion determine not inconsistent with the provisions of this Article
IV or the By-Laws; and such contract may also provide for the repurchase or sale
of Shares of the Trust by such other party as principal or as agent of the Trust
and may provide that such other party may enter into selected dealer agreements
with registered securities dealers and brokers and servicing and similar
agreements with persons who are not registered securities dealers to further the
purposes of the distribution or repurchase of the Shares of the Trust.

          1.23      Parties to Contract.  Any contract of the character
                    -------------------
described in Sections 4.1 and 4.2 of this Article IV or in Article VII hereof
may be entered into with any Person, although one or more of the Trustees,
officers or employees of the Trust may be an officer, director, trustee,
shareholder, or member of such other party to the contract, and no such contract
shall be invalidated or rendered voidable by reason of the existence of any such
relationship, nor shall any Person holding such relationship be liable merely by
reason of such relationship for any loss or expense to the Trust under or by
reason of said contract or accountable for any profit realized directly or
indirectly therefrom, provided that the contract when entered into was
reasonable and fair and not inconsistent with the provisions of this Article IV
or the By-Laws.  The same Person may be the other party to contracts entered
into pursuant to Sections 4.1 and 4.2 above or Article VII, and any individual
may be financially interested or otherwise affiliated with Persons who are
parties to any or all of the contracts mentioned in this Section 4.3.

                                       13
<PAGE>

                                   ARTICLE V

                           Limitations of Liability
                              and Indemnification
                              -------------------

          1.24      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.

          1.25      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

                                       14
<PAGE>

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, 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.

                    (1)   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
1940 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

                                       15
<PAGE>

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.

                    (2)   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.

                    (3)   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.

                    (4)   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.

                                       16
<PAGE>

          1.26      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.

          1.27      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.  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.

          1.28      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.

                                  ARTICLE VI

                         Shares of Beneficial Interest
                         -----------------------------

                                       17
<PAGE>

          1.29      Beneficial Interest.  The interest of the beneficiaries
                    -------------------
hereunder shall be divided into an unlimited number of transferable shares of
beneficial interest, par value $.001 per share.  All Shares issued in accordance
with the terms hereof, including, without limitation, Shares issued in
connection with a dividend in Shares or a split of Shares, shall be fully paid
and, except as provided in the last sentence of Section 3.8, nonassessable when
the consideration determined by the Trustees (if any) therefor shall have been
received by the Trust.

          1.30      Other Securities.  The Trustees may, subject to the
                    ----------------
Fundamental Policies and the requirements of the 1940 Act, authorize and issue
such other securities of the Trust as they determine to be necessary, desirable
or appropriate, having such terms, rights, preferences, privileges, limitations
and restrictions as the Trustees see fit, including preferred interests, debt
securities or other senior securities.  To the extent that the Trustees
authorize and issue preferred shares of any class or series, they are hereby
authorized and empowered to amend or supplement this Declaration as they deem
necessary or appropriate, including to comply with the requirements of the 1940
Act or requirements imposed by the rating agencies or other Persons, all without
the approval of Shareholders.  Any such supplement or amendment shall be filed
as is necessary.  The Trustees are also authorized to take such actions and
retain such persons as they see fit to offer and sell such securities.

          1.31      Rights of Shareholders.  The Shares shall be personal
                    ----------------------
property giving only the rights in this Declaration specifically set forth.  The
ownership of the Trust Property of every description and the right to conduct
any business herein before described are vested exclusively in the Trustees, and
the Shareholders shall have no interest therein other than the beneficial
interest conferred by their Shares, and they shall have no right to call for any
partition or division of any property, profits, rights or interests of the Trust
nor can they be called upon to share or assume any losses of the Trust or,
subject to the right of the Trustees to charge certain expenses directly to
Shareholders, as provided in the last sentence of Section 3.8, suffer an
assessment of any kind by virtue of their ownership of Shares.  The Shares shall
not entitle the holder to preference, preemptive, appraisal, conversion or
exchange

                                       18
<PAGE>

rights (except as specified in this Section 6.3, in Section 11.4 or as specified
by the Trustees when creating the Shares, as in preferred shares).

          1.32      Trust Only.  It is the intention of the Trustees to create
                    ----------
only the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time.  It is not the intention of the Trustees to
create a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in this Declaration shall be construed to make the Shareholders, either
by themselves or with the Trustees, partners or members of a joint stock
association.

          1.33      Issuance of Shares.  The Trustees, in their discretion, may
                    ------------------
from time to time without vote of the Shareholders issue Shares including
preferred shares that may have been established pursuant to Section 6.2, in
addition to the then issued and outstanding Shares and Shares held in the
treasury, to such party or parties and for such amount and type of
consideration, including cash or property, at such time or times, and on such
terms as the Trustees may determine, and may in such manner acquire other assets
(including the acquisition of assets subject to, and in connection with the
assumption of, liabilities) and businesses.  The Trustees may from time to time
divide or combine the Shares into a greater or lesser number without thereby
changing the proportionate beneficial interest in such Shares.  Issuances and
redemptions of Shares may be made in whole Shares and/or l/l,000ths of a Share
or multiples thereof as the Trustees may determine.

          1.34      Register of Shares.  A register shall be kept at the offices
                    ------------------
of the Trust or any transfer agent duly appointed by the Trustees under the
direction of the Trustees which shall contain the names and addresses of the
Shareholders and the number of Shares held by them respectively and a record of
all transfers thereof.  Separate registers shall be established and maintained
for each class or series of Shares.  Each such register shall be conclusive as
to who are the holders of the Shares of the applicable class or series of Shares
and who shall be entitled to receive dividends or distributions or otherwise to
exercise or enjoy the rights of Shareholders.  No Shareholder shall be entitled
to receive payment of any dividend or distribution, nor

                                       19
<PAGE>

to have notice given to him as herein provided, until he has given his address
to a transfer agent or such other officer or agent of the Trustees as shall keep
the register for entry thereon. It is not contemplated that certificates will be
issued for the Shares; however, the Trustees, in their discretion, may authorize
the issuance of share certificates and promulgate appropriate fees therefore and
rules and regulations as to their use.

          1.35      Transfer Agent and Registrar.  The Trustees shall have power
                    ----------------------------
to employ a transfer agent or transfer agents, and a registrar or registrars,
with respect to the Shares.  The transfer agent or transfer agents may keep the
applicable register and record therein, the original issues and transfers, if
any, of the said Shares.  Any such transfer agents and/or registrars shall
perform the duties usually performed by transfer agents and registrars of
certificates of stock in a corporation, as modified by the Trustees.

          1.36      Transfer of Shares.  Shares shall be transferable on the
                    ------------------
records of the Trust only by the record holder thereof or by its agent thereto
duly authorized in writing, upon delivery to the Trustees or a transfer agent of
the Trust of a duly executed instrument of transfer, together with such evidence
of the genuineness of each such execution and authorization and of other matters
as may reasonably be required.  Upon such delivery the transfer shall be
recorded on the applicable register of the Trust.  Until such record is made,
the Shareholder of record shall be deemed to be the holder of such Shares for
all purposes hereof and neither the Trustees nor any transfer agent or registrar
nor any officer, employee or agent of the Trust shall be affected by any notice
of the proposed transfer.

          Any person becoming entitled to any Shares in consequence of the
death, bankruptcy, or incompetence of any Shareholder, or otherwise by operation
of law, shall be recorded on the applicable register of Shares as the holder of
such Shares upon production of the proper evidence thereof to the Trustees or a
transfer agent of the Trust, but until such record is made, the Shareholder of
record shall be deemed to be the holder of such for all purposes hereof, and
neither the Trustees nor any transfer agent or registrar nor any officer or
agent of the Trust shall be affected by any notice of such death, bankruptcy or
incompetence, or other operation of law.

                                       20
<PAGE>

          1.37      Notices.  Any and all notices to which any Shareholder
                    -------
hereunder may be entitled and any and all communications shall be deemed duly
served or given if mailed, postage prepaid, addressed to any Shareholder of
record at his last known address as recorded on the applicable register of the
Trust.


                                  ARTICLE VII

                                  Custodians
                                  ----------

          1.38      Appointment and Duties.  The Trustees shall at all times
                    ----------------------
employ a custodian or custodians, meeting the qualifications for custodians for
portfolio securities of investment companies contained in the 1940 Act, as
custodian with respect to the assets of the Trust.  Any custodian shall have
authority as agent of the Trust with respect to which it is acting as determined
by the custodian agreement or agreements, but subject to such restrictions,
limitations and other requirements, if any, as may be contained in the By-Laws
of the Trust and the 1940 Act:

          (1)   to hold the securities owned by the Trust and deliver the same
     upon written order;

          (2)   to receive any receipt for any moneys due to the Trust and
     deposit the same in its own banking department (if a bank) or elsewhere as
     the Trustees may direct;

          (3)   to disburse such funds upon orders or vouchers;

          (4)   if authorized by the Trustees, to keep the books and accounts of
     the Trust and furnish clerical and accounting services; and

          (5)   if authorized to do so by the Trustees, to compute the net
     income or net asset value of the Trust;

all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian.

          The Trustees may also authorize each custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian

                                       21
<PAGE>

and upon such terms and conditions, as may be agreed upon between the custodian
and such sub-custodian and approved by the Trustees, provided that in every case
such sub-custodian shall meet the qualifications for custodians contained in the
1940 Act.

          1.39      Central Certificate System.  Subject to such rules,
                    --------------------------
regulations and orders as the Commission may adopt, the Trustees may direct the
custodian to deposit all or any part of the securities owned by the Trust in a
system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other Person as
may be permitted by the Commission, or otherwise in accordance with the 1940
Act, pursuant to which system all securities of any particular class of any
issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject to withdrawal only
upon the order of the Trust.


                                 ARTICLE VIII

                                  Redemption
                                  ----------

          1.40      Redemptions.  The Shares of the Trust are not redeemable by
                    -----------
the holders.

          1.41      Disclosure of Holding.  The holders of Shares or other
                    ---------------------
securities of the Trust shall upon demand disclose to the Trustees in writing
such information with respect to direct and indirect ownership of Shares or
other securities of the Trust as the Trustees deem necessary to comply with the
provisions of the Code, the 1940 or other applicable laws or regulations, or to
comply with the requirements of any other taxing or regulatory authority.


                                  ARTICLE IX

                       Determination of Net Asset Value
                         Net Income and Distributions
                       --------------------------------

          1.42      Net Asset Value.  The net asset value of each outstanding
                    ---------------
Share of the Trust shall be

                                       22
<PAGE>

determined at such time or times on such days as the Trustees may determine, in
accordance with the 1940 Act. The method of determination of net asset value
shall be determined by the Trustees and shall be as set forth in the Prospectus
or as may otherwise be determined by the Trustees. The power and duty to make
the net asset value calculations may be delegated by the Trustees and shall be
as generally set forth in the Prospectus or as may otherwise be determined by
the Trustees.

          1.43      Distributions to Shareholders.  (a)  The Trustees shall from
                    -----------------------------
time to time distribute ratably among the Shareholders of any class of Shares,
or any series of any such class, in accordance with the number of outstanding
full and fractional Shares of such class or any series of such class, such
proportion of the net profits, surplus (including paid-in surplus), capital, or
assets held by the Trustees as they may deem proper or as may otherwise be
determined in accordance with this Declaration.  Any such distribution may be
made in cash or property (including without limitation any type of obligations
of the Trust or any assets thereof) or Shares of any class or series or any
combination thereof, and the Trustees may distribute ratably among the
Shareholders of any class of shares or series of any such class, in accordance
with the number of outstanding full and fractional Shares of such class or any
series of such class, additional Shares of any class or series in such manner,
at such times, and on such terms as the Trustees may deem proper or as may
otherwise be determined in accordance with this Declaration.

              (1)   Distributions pursuant to this Section 9.2 may be among the
Shareholders of record of the applicable class or series of Shares at the time
of declaring a distribution or among the Shareholders of record at such later
date as the Trustees shall determine and specify.

              (2)   The Trustees may always retain from the net profits such
amount as they may deem necessary to pay the debts or expenses of the Trust or
to meet obligations of the Trust, or as they otherwise may deem desirable to use
in the conduct of its affairs or to retain for future requirements or extensions
of the business.

              (3)   Inasmuch as the computation of net income and gains for
Federal income tax purposes may vary

                                       23
<PAGE>

from the computation thereof on the books, the above provisions shall be
interpreted to give the Trustees the power in their discretion to distribute for
any fiscal year as ordinary dividends and as capital gains distributions,
respectively, additional amounts sufficient to enable the Trust to avoid or
reduce liability for taxes.

          1.44      Power to Modify Foregoing Procedures.   Notwithstanding any
                    ------------------------------------
of the foregoing provisions of this Article IX, the Trustees may prescribe, in
their absolute discretion except as may be required by the 1940 Act, such other
bases and times for determining the per share asset value of the Trust's Shares
or net income, or the declaration and payment of dividends and distributions as
they may deem necessary or desirable for any reason, including to enable the
Trust to comply with any provision of the 1940 Act, or any securities exchange
or association registered under the Securities Exchange Act of 1934, or any
order of exemption issued by the Commission, all as in effect now or hereafter
amended or modified.

                                   ARTICLE X

                                 Shareholders
                                 ------------

          1.45      Meetings of Shareholders.  The Trust shall hold annual
                    ------------------------
meetings of the Shareholders.  A special meeting of Shareholders may be called
at any time by a majority of the Trustees or the President and shall be called
by any Trustee for any proper purpose upon written request of Shareholders of
the Trust holding in the aggregate not less than 51% of the outstanding Shares
of the Trust or class or series of Shares having voting rights on the matter,
such request specifying the purpose or purposes for which such meeting is to be
called.  Any shareholder meeting, including a Special Meeting, shall be held
within or without the State of Delaware on such day and at such time as the
Trustees shall designate.

          1.46      Voting.  Shareholders shall have no power to vote on any
                    ------
matter except matters on which a vote of Shareholders is required by applicable
law, this Declaration or resolution of the Trustees.  Except as otherwise
provided herein, any matter required to be submitted to Shareholders and
affecting one or more classes or series of Shares shall require approval by the
required vote of all the affected classes and series of

                                       24
<PAGE>

Shares voting together as a single class; provided, however, that as to any
matter with respect to which a separate vote of any class or series of Shares is
required by the 1940 Act, such requirement as to a separate vote by that class
or series of Shares shall apply in addition to a vote of all the affected
classes and series voting together as a single class. Shareholders of a
particular class or series of Shares shall not be entitled to vote on any matter
that affects only one or more other classes or series of Shares. There shall be
no cumulative voting in the election or removal of Trustees.

          1.47      Notice of Meeting and Record Date.  Notice of all meetings
                    ---------------------------------
of Shareholders, stating the time, place and purposes of the meeting, shall be
given by the Trustees by mail to each Shareholder of record entitled to vote
thereat at its registered address, mailed at least 10 days and not more than 90
days before the meeting or otherwise in compliance with applicable law.  Only
the business stated in the notice of the meeting shall be considered at such
meeting.  Any adjourned meeting may be held as adjourned one or more times
without further notice not later than 120 days after the record date.  For the
purposes of determining the Shareholders who are entitled to notice of and to
vote at any meeting the Trustees may, without closing the transfer books, fix a
date not more than 90 nor less than 10 days prior to the date of such meeting of
Shareholders as a record date for the determination of the Persons to be treated
as Shareholders of record for such purposes.

          1.48      Quorum and Required Vote.  (a)  The holders of a majority of
                    ------------------------
the Shares entitled to vote on any matter at a meeting present in person or by
proxy shall constitute a quorum at such meeting of the Shareholders for purposes
of conducting business on such matter.  The absence from any meeting, in person
or by proxy, of a quorum of Shareholders for action upon any given matter shall
not prevent action at such meeting upon any other matter or matters which may
properly come before the meeting, if there shall be present thereat, in person
or by proxy, a quorum of Shareholders in respect of such other matters.

              (1)   Subject to any provision of applicable law, this Declaration
or a resolution of the Trustees specifying a greater or a lesser vote
requirement for the transaction of any item of business

                                       25
<PAGE>

at any meeting of Shareholders, (i) the affirmative vote of a majority of the
Shares present in person or represented by proxy and entitled to vote on the
subject matter shall be the act of the Shareholders with respect to such matter,
and (ii) where a separate vote of one or more classes or series of Shares is
required on any matter, the affirmative vote of a majority of the Shares of such
class or series of Shares present in person or represented by proxy at the
meeting shall be the act of the Shareholders of such class or series with
respect to such matter.

          1.49      Proxies, etc.  At any meeting of Shareholders, any holder of
                    -------------
Shares entitled to vote thereat may vote by properly executed proxy, provided
that no proxy shall be voted at any meeting unless it shall have been placed on
file with the Secretary, or with such other officer or agent of the Trust as the
Secretary may direct, for verification prior to the time at which such vote
shall be taken.  Pursuant to a resolution of a majority of the Trustees, proxies
may be solicited in the name of one or more Trustees or one or more of the
officers or employees of the Trust.  No proxy shall be valid after the
expiration of 11 months from the date thereof, unless otherwise provided in the
proxy.  Only Shareholders of record shall be entitled to vote.  Each full Share
shall be entitled to one vote and fractional Shares shall be entitled to a vote
of such fraction.  When any Share is held jointly by several persons, any one of
them may vote at any meeting in person or by proxy in respect of such Share, but
if more than one of them shall be present at such meeting in person or by proxy,
and such joint owners or their proxies so present disagree as to any vote to be
cast, such vote shall not be received in respect of such Share.  A proxy
purporting to be executed by or on behalf of a Shareholder shall be deemed valid
unless challenged at or prior to its exercise, and the burden of proving
invalidity shall rest on the challenger.  If the holder of any such Share is a
minor or a person of unsound mind, and subject to guardianship or to the legal
control of any other person as regards the charge or management of such Share,
he may vote by his guardian or such other person appointed or having such
control, and such vote may be given in person or by proxy.

          1.50      Reports.  The Trustees shall cause to be prepared at least
                    -------
annually and more frequently to the extent and in the form required by law,
regulation or any

                                       26
<PAGE>

exchange on which Trust Shares are listed a report of operations containing a
balance sheet and statement of income and undistributed income of the Trust
prepared in conformity with generally accepted accounting principles and an
opinion of an independent public accountant on such financial statements. Copies
of such reports shall be mailed to all Shareholders of record within the time
required by the 1940 Act, and in any event within a reasonable period preceding
the meeting of Shareholders. The Trustees shall, in addition, furnish to the
Shareholders at least semi-annually to the extent required by law, interim
reports containing an unaudited balance sheet of the Trust as of the end of such
period and an unaudited statement of income and surplus for the period from the
beginning of the current fiscal year to the end of such period.

          1.51      Inspection of Records.  The records of the Trust shall be
                    ---------------------
open to inspection by Shareholders to the same extent as is permitted
shareholders of a corporation formed under the Delaware General Corporation Law.

          1.52      Shareholder Action by Written Consent.  Any action which may
                    -------------------------------------
be taken by Shareholders by vote may be taken without a meeting if the holders
entitled to vote thereon of the proportion of Shares required for approval of
such action at a meeting of Shareholders pursuant to Section 10.4 consent to the
action in writing and the written consents are filed with the records of the
meetings of Shareholders.  Such consent shall be treated for all purposes as a
vote taken at a meeting of Shareholders.

                                  ARTICLE XI

                        Duration; Termination of Trust;
                           Amendment; Mergers, Etc.
                        ------------------------------

          1.53      Duration.  Subject to possible termination in accordance
                    --------
with the provisions of Section 11.2 hereof, the Trust created hereby shall have
perpetual existence.

          1.54      Termination.  (a)  The Trust may be dissolved, after a
                    -----------
majority of the Trustees have approved a resolution therefor, upon approval by
not less than 75% of the Shares of each class or series outstanding and entitled
to vote, voting as separate classes or series,

                                       27
<PAGE>

unless such resolution has been approved by 80% of the Trustees, in which case
approval by a Majority Shareholder Vote shall be required. Upon the dissolution
of the Trust:

                    (1)  The Trust shall carry on no business except for the
     purpose of winding up its affairs.

                    (2)  The Trustees shall proceed to wind up the affairs of
     the Trust and all of the powers of the Trustees under this Declaration
     shall continue until the affairs of the Trust shall have been wound up,
     including the power to fulfill or discharge the contracts of the Trust,
     collect its assets, sell, convey, assign, exchange, merge where the Trust
     is not the survivor, transfer or otherwise dispose of all or any part of
     the remaining Trust Property to one or more Persons at public or private
     sale for consideration which may consist in whole or in part in cash,
     securities or other property of any kind, discharge or pay its liabilities,
     and do all other acts appropriate to liquidate its business; provided that
     any sale, conveyance, assignment, exchange, merger in which the Trust is
     not the survivor, transfer or other disposition of all or substantially all
     the Trust Property of the Trust shall require approval of the principal
     terms of the transaction and the nature and amount of the consideration by
     Shareholders with the same vote as required to open-end the Trust.

                    (3)  After paying or adequately providing for the payment of
     all liabilities, and upon receipt of such releases, indemnities and
     refunding agreements, as they deem necessary for their protection, the
     Trustees may distribute the remaining Trust Property, in cash or in kind or
     partly each, among the Shareholders according to their respective rights.

               (2)  After the winding up and termination of the Trust and
distribution to the Shareholders as herein provided, a majority of the Trustees
shall execute and lodge among the records of the Trust an instrument in

                                       28
<PAGE>

writing setting forth the fact of such termination and shall execute and file a
certificate of cancellation with the Secretary of State of the State of
Delaware. Upon termination of the Trust, the Trustees shall thereupon be
discharged from all further liabilities and duties hereunder, and the rights and
interests of all Shareholders shall thereupon cease.

          1.55      Amendment Procedure.  (a)  Except as provided in subsection
                    -------------------
(b) of this Section 11.3, this Declaration may be amended, after a majority of
the Trustees have approved a resolution therefor, by the affirmative vote of the
holders of not less than a majority of the affected Shares.  The Trustees also
may amend this Declaration without any vote of Shareholders of any class of
series to divide the Shares of the Trust into one or more classes or additional
classes, or one or more series of any such class or classes, to change the name
of the Trust or any class or series of Shares, to make any change that does not
adversely affect the relative rights or  preferences of any Shareholder, as they
may deem necessary, or to conform this Declaration to the requirements of the
1940 Act or any other applicable federal laws or regulations including pursuant
to Section 6.2 or the requirements of the regulated investment company
provisions of the Code, but the Trustees shall not be liable for failing to do
so.

              (1)   No amendment may be made to Section 2.1, Section 2.2,
Section 2.3, Section 3.9, Section 5.1, Section 5.2, Section 11.2(a), this
Section 11.3, Section 11.4, Section 11.6 or Section 11.7 of this Declaration and
no amendment may be made to this Declaration which would change any rights with
respect to any Shares of the Trust by reducing the amount payable thereon upon
liquidation of the Trust or by diminishing or eliminating any voting rights
pertaining thereto (except that this provision shall not limit the ability of
the Trustees to authorize, and to cause the Trust to issue, other securities
pursuant to Section 6.2), except after a majority of the Trustees have approved
a resolution therefor, by the affirmative vote of the holders of not less than
seventy-five percent (75%) of the Shares of each affected class or series
outstanding, voting as separate classes or series, unless such amendment has
been approved by 80% of the Trustees, in which case approval by a Majority
Shareholder Vote shall be required. Nothing contained in this Declaration shall
permit the amendment of this Declaration to impair the

                                       29
<PAGE>

exemption from personal liability of the Shareholders, Trustees, officers,
employees and agents of the Trust or to permit assessments upon Shareholders.

              (2)   An amendment duly adopted by the requisite vote of the Board
of Trustees and, if required, the Shareholders as aforesaid, shall become
effective at the time of such adoption or at such other time as may be
designated by the Board of Trustees or Shareholders, as the case may be. A
certification in recordable form signed by a majority of the Trustees setting
forth an amendment and reciting that it was duly adopted by the Trustees and, if
required, the Shareholders as aforesaid, or a copy of the Declaration, as
amended, in recordable form, and executed by a majority of the Trustees, shall
be conclusive evidence of such amendment when lodged among the records of the
Trust or at such other time designated by the Board.

          Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of Shares of the Trust shall have become effective,
this Declaration may be terminated or amended in any respect by the affirmative
vote of a majority of the Trustees or by an instrument signed by a majority of
the Trustees.

          1.56      Merger, Consolidation and Sale of Assets.  Except as
                    ----------------------------------------
provided in Section 11.7, the Trust may merge or consolidate with any other
corporation, association, trust or other organization or may sell, lease or
exchange all or substantially all of the Trust Property or the property,
including its good will, upon such terms and conditions and for such
consideration when and as authorized by two-thirds of the Trustees and approved
by a Majority Shareholder Vote and any such merger, consolidation, sale, lease
or exchange shall be determined for all purposes to have been accomplished under
and pursuant to the statutes of the State of Delaware.

          1.57      Subsidiaries.  Without approval by Shareholders, the
                    ------------
Trustees may cause to be organized or assist in organizing one or more
corporations, trusts, partnerships, associations or other organizations to take
over all of the Trust Property or to carry on any business in which the Trust
shall directly or indirectly have any interest, and to sell, convey and transfer
all

                                       30
<PAGE>

or a portion of the Trust Property to any such corporation, trust, limited
liability company, association or organization in exchange for the shares or
securities thereof, or otherwise, and to lend money to, subscribe for the shares
or securities of, and enter into any contracts with any such corporation, trust,
limited liability company, partnership, association or organization, or any
corporation, partnership, trust, limited liability company, association or
organization in which the Trust holds or is about to acquire shares or any other
interests.

          1.58      Conversion.  Notwithstanding any other provisions of this
                    ----------
Declaration or the By-Laws of the Trust, a favorable vote of a majority of the
Trustees then in office followed by the favorable vote of the holders of not
less than seventy-five percent (75%) of the Shares of each affected class or
series outstanding, voting as separate classes or series, shall be required to
approve, adopt or authorize an amendment to this Declaration that makes the
Shares a "redeemable security" as that term is defined in the 1940 Act, unless
such amendment has been approved by 80% of the Trustees, in which case approval
by a Majority Shareholder Vote shall be required. Upon the adoption of a
proposal to convert the Trust from a "closed-end company" to an "open-end
company" as those terms are defined by the 1940 Act and the necessary amendments
to this Declaration to permit such a conversion of the Trust's outstanding
Shares entitled to vote, the Trust shall, upon complying with any requirements
of the 1940 Act and state law, become an "open-end" investment company. Such
affirmative vote or consent shall be in addition to the vote or consent of the
holders of the Shares otherwise required by law, or any agreement between the
Trust and any national securities exchange.

          1.59      Certain Transactions.  (a)  Notwithstanding any other
                    --------------------
provision of this Declaration and subject to the exceptions provided in
paragraph (d) of this Section, the types of transactions described in paragraph
(c) of this Section shall require the affirmative vote or consent of a majority
of the Trustees then in office followed by the affirmative vote of the holders
of not less than seventy-five percent (75%) of the Shares of each affected class
or series outstanding, voting as separate classes or series, when a Principal
Shareholder (as defined in paragraph (b) of this Section) is a party to the
transaction. Such affirmative vote or

                                       31
<PAGE>

consent shall be in addition to the vote or consent of the holders of Shares
otherwise required by law or by the terms of any class or series of preferred
stock, whether now or hereafter authorized, or any agreement between the Trust
and any national securities exchange.

          (1)   The term "Principal Shareholder" shall mean any corporation,
Person or other entity which is the beneficial owner, directly or indirectly, of
five percent (5%) or more of the outstanding Shares of any class or series and
shall include any affiliate or associate, as such terms are defined in clause
(ii) below, of a Principal Shareholder. For the purposes of this Section, in
addition to the Shares which a corporation, Person or other entity beneficially
owns directly, (a) any corporation, Person or other entity shall be deemed to be
the beneficial owner of any Shares (i) which it has the right to acquire
pursuant to any agreement or upon exercise of conversion rights or warrants, or
otherwise (but excluding share options granted by the Trust) or (ii) which are
beneficially owned, directly or indirectly (including Shares deemed owned
through application of clause (i) above), by any other corporation, Person or
entity with which its "affiliate" or "associate" (as defined below) has any
agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of Shares, or which is its "affiliate" or "associate" as
those terms are defined in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, and (b) the outstanding Shares shall
include Shares deemed owned through application of clauses (i) and (ii) above
but shall not include any other Shares which may be issuable pursuant to any
agreement, or upon exercise of conversion rights or warrants, or otherwise.

          (2)   This Section shall apply to the following transactions:

                (1)   The merger or consolidation of the Trust or any subsidiary
     of the Trust with or into any Principal Shareholder.

                (2)   The issuance of any securities of the Trust to any
     Principal Shareholder for cash (other than pursuant to any automatic
     dividend reinvestment plan).

                                       32
<PAGE>

                (3)   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.)

                (4)   The sale, lease or exchange to the Trust or any subsidiary
     thereof, 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 the purposes of such computation
     all assets sold, leased or exchanged in any series of similar transactions
     within a twelve-month period).

          (3)   The provisions of this Section shall not be applicable to (i)
any of the transactions described in paragraph (c) of this Section if 80% of the
Trustees shall by resolution have approved a memorandum of understanding with
such Principal Shareholder with respect to and substantially consistent with
such transaction, in which case approval by a Majority Shareholder Vote shall be
the only vote of Shareholders required by this Section, or (ii) any such
transaction with any entity of which a majority of the outstanding shares of all
classes and series of a stock normally entitled to vote in elections of
directors is owned of record or beneficially by the Trust and its subsidiaries.

          (4)   The Board of Trustees shall have the power and duty to determine
for the purposes of this Section on the basis of information known to the Trust
whether (i) a corporation, person or entity beneficially owns five percent (5%)
or more of the outstanding Shares of any class or series, (ii) a corporation,
person or entity is an "affiliate" or "associate" (as defined above) of another,
(iii) the assets being acquired or leased to or by the Trust or any subsidiary
thereof constitute a substantial part of the assets of the Trust and have an
aggregate fair market value of less than $1,000,000, and (iv) the memorandum of
understanding referred to in paragraph (d) hereof is substantially consistent
with the transaction covered thereby. Any such determination shall be conclusive
and binding for all purposes of this Section.

                                       33
<PAGE>

                                  ARTICLE XII

                                 Miscellaneous
                                 -------------

          1.60      Filing. (a)  This Declaration and any amendment or
                    ------
supplement hereto shall be filed in such places as may be required or as the
Trustees deem appropriate. Each amendment or supplement shall be accompanied by
a certificate signed and acknowledged by a Trustee stating that such action was
duly taken in a manner provided herein, and shall, upon insertion in the Trust's
minute book, be conclusive evidence of all amendments contained therein. A
restated Declaration, containing the original Declaration and all amendments and
supplements theretofore made, may be executed from time to time by a majority of
the Trustees and shall, upon insertion in the Trust's minute book, be conclusive
evidence of all amendments and supplements contained therein and may thereafter
be referred to in lieu of the original Declaration and the various amendments
and supplements thereto.

            (1)     The Trustees hereby authorize and direct a Certificate of
Trust, in the form attached hereto as Exhibit A, to be executed and filed with
the Office of the Secretary of State of the State of Delaware in accordance with
the Delaware Business Trust Act.

          1.61      Resident Agent.  The Trust shall maintain a resident agent
                    --------------
in the State of Delaware, which agent shall initially be The Corporation Trust
Company, 1209 Orange Street, Wilmington, Delaware 19801 The Trustees may
designate a successor resident agent, provided, however, that such appointment
shall not become effective until written notice thereof is delivered to the
office of the Secretary of the State.

          1.62      Governing Law.  This Declaration is executed by the Trustees
                    -------------
and delivered in the State of Delaware and with reference to the laws thereof,
and the rights of all parties and the validity and construction of every
provision hereof shall be subject to and construed according to laws of said
State and reference shall be specifically made to the Delaware General
Corporation Law as to the construction of matters not specifically covered
herein or as to which an ambiguity exists, although such law shall not be viewed
as limiting the powers otherwise granted to the Trustees hereunder

                                       34
<PAGE>

and any ambiguity shall be viewed in favor of such powers.

          1.63      Counterparts.  This Declaration may be simultaneously
                    ------------
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.

          1.64      Reliance by Third Parties.  Any certificate executed by an
                    -------------------------
individual who, according to the records of the Trust, or of any recording
office in which this Declaration may be recorded, appears to be a Trustee
hereunder, certifying to: (a) the number or identity of Trustees or
Shareholders, (b) the name of the Trust, (c) the due authorization of the
execution of any instrument or writing, (d) the form of any vote passed at a
meeting of Trustees or Shareholders, (e) the fact that the number of Trustees or
Shareholders present at any meeting or executing any written instrument
satisfies the requirements of this Declaration, (f) the form of any By Laws
adopted by or the identity of any officers elected by the Trustees, or (g) the
existence of any fact or facts which in any manner relate to the affairs of the
Trust, shall be conclusive evidence as to the matters so certified in favor of
any person dealing with the Trustees and their successors.

          1.65      Provisions in Conflict with Law or Regulation.  (a)  The
                    ---------------------------------------------
provisions of this Declaration are severable, and if the Trustees shall
determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the regulated investment company provisions of the
Internal Revenue Code or with other applicable laws and regulations, the
conflicting provision shall be deemed never to have constituted a part of this
Declaration; provided, however, that such determination shall not affect any of
the remaining provisions of this Declaration or render invalid or improper any
action taken or omitted prior to such determination.

             (1)    If any provision of this Declaration shall be held invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any

                                       35
<PAGE>

other jurisdiction or any other provision of this Declaration in any
jurisdiction.

                                       36
<PAGE>

          IN WITNESS WHEREOF, the undersigned have caused these presents to be
executed as of the day and year first above written.




         Dr. Andrew F. Brimmer                      Richard E. Cavanagh



         Kent Dixon                                 Frank J. Fabozzi



         Laurence D. Fink                           James Clayburn La Force, Jr.



         Walter F. Mondale                          Ralph L. Schlosstein



                                       37
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(L)
<SEQUENCE>3
<FILENAME>dex99l.txt
<DESCRIPTION>OPINION AND CONSENTS OF COUNSEL TO THE TRUST
<TEXT>

<PAGE>

                                 July 25, 2001



BlackRock
Municipal Income Trust
345 Park Avenue
New York, New York 10154

               Re:  BlackRock Municipal Income Trust
                    Registration Statement on Form N-2
                    ----------------------------------

Ladies and Gentlemen:

          We have acted as special counsel to BlackRock Municipal Income Trust,
a business trust formed under the Delaware Business Trust Act (the "Trust"), in
connection with the initial public offering by the Trust of up to 43,333,333
shares (including shares subject to an over-allotment option) (the "Shares") of
the Trust's common shares of beneficial interest, par value $0.001 per share
(the "Common Shares").

          This opinion is being furnished in accordance with the requirements of
Item 24 of the Form N-2 Registration Statement under the Securities Act of 1933,
as amended (the "1933 Act"), and the Investment Company Act of 1940, as amended
(the "1940 Act").

          In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Notification
of Registration of the Trust as an investment company under the 1940 Act, on
Form N-8A, dated April 3, 2001 as filed with the Securities and Exchange
Commission (the "Commission") on April 3, 2001, (ii) the Registration Statement
of the Trust on Form N-2 (File Nos. 333-58224 and 811-10339), as filed with the
Commission on April 3, 2001, and as amended by Pre-Effective Amendment No. 1 on
June 4, 2001, Pre-Effective Amendment No. 2 on June 20, 2001 and Pre-Effective
Amendment No. 3 on July 25 2001, under the 1933 Act (such Registration
Statement, as so amended and proposed to be amended, being hereinafter referred
to as the
<PAGE>

BlackRock
Municipal Income Trust
July 25, 2001
Page 2




"Registration Statement"); (iii) the form of the Underwriting Agreement (the
"Underwriting Agreement") proposed to be entered into between the Trust, as
issuer, and Salomon Smith Barney Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated as representatives of the several underwriters named therein (the
"Underwriters"), filed as an exhibit to the Registration Statement; (iv) a
specimen certificate representing the Common Shares; (v) the Certificate of
Trust and Amended and Restated Agreement and Declaration of Trust of the Trust,
as amended to dated and currently in effect; (vi) the By-Laws of the Trust, as
currently in effect; (vii) certain resolutions of the Board of Trustees of the
Trust relating to the issuance and sale of the Shares and related matters and
(viii) certain resolutions of the shareholders of the Trust relating to the
Amended and Restated Declaration of Trust. We also have examined originals or
copies, certified or otherwise identified to our satisfaction, of such records
of the Trust and such agreements, certificates of public officials, certificates
of officers or other representatives of the Trust and others, and such other
documents, certificates and records as we have deemed necessary or appropriate
as a basis for the opinions set forth herein.

          In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such latter documents.  In making our
examination of documents, we have assumed that the parties thereto, other than
the Trust, its directors and officers, had or will have the power, corporate or
other, to enter into and perform all obligations thereunder and have also
assumed the due authorization by all requisite action, corporate or other, and
execution and delivery by such parties of such documents and the validity and
binding effect thereof on such parties.  In rendering the opinion set forth
below, we have assumed that the share certificates representing the Shares will
conform to the specimen examined by us and will have been manually signed by an
authorized officer of the transfer agent and registrar for the Common Shares and
registered by such transfer agent and registrar.  As to any facts material to
the opinions expressed herein which we have not independently established or
verified, we have relied upon statements and representations of officers and
other representatives of the Trust and others.
<PAGE>

BlackRock
Municipal Income Trust
July 25, 2001
Page 3




          Members of our firm are admitted to the bar in the State of New York
and we do not express any opinion as to the laws of any jurisdiction other than
the Delaware Business Trust Act.

          Based upon and subject to the foregoing, we are of the opinion that
when (i) the Registration Statement becomes effective; (ii) the Underwriting
Agreement has been duly executed and delivered; (iii) certificates representing
the Shares in the form of the specimen certificate examined by us have been
manually signed by an authorized officer of the transfer agent and registrar for
the Shares and registered by such transfer agent and registrar; and (iv) the
Shares have been delivered to and paid for by the Underwriters at a price per
share not less than the per share par value of the Common Shares as contemplated
by the Underwriting Agreement, the issuance and sale of the Shares will have
been duly authorized, and the Shares will be validly issued, fully paid and
nonassessable (except as provided in the last sentence of Section 3.8 of the
Amended and Restated Agreement and Declaration of Trust).

          We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement.  We also consent to the reference to
our firm under the caption "Legal Opinions" in the Registration Statement.  In
giving this consent, we do not thereby admit that we are included in the
category of persons whose consent is required under Section 7 of the 1933 Act or
the rules and regulations of the Commission.

                              Very truly yours,

                              /s/ SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP

                              SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(N)
<SEQUENCE>4
<FILENAME>dex99n.txt
<DESCRIPTION>CONSENT OF INDEPENDENT ACCOUNTANTS'
<TEXT>

<PAGE>

                                                                     Exhibit (n)

INDEPENDENT AUDITORS' CONSENT


We consent to the incorporation in this Pre-Effective Amendment No. 3 to the
Registration Statement of the BlackRock Municipal Income Trust (Investment
Company Registration No. 811-10339) of our report dated July 16, 2001, relating
to the financial statements of the BlackRock Municipal Income Trust as of July
16, 2001 and for the period then ended in the Statement of Additional
Information which is part of such registration statement.

We also consent to the reference to our Firm under the heading "Experts" in the
Registration Statement.



Deloitte & Touche LLP
Boston, Massachusetts
July 23, 2001
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(R)(3)
<SEQUENCE>5
<FILENAME>dex99r3.txt
<DESCRIPTION>CODE OF ETHICS OF J.J.B. HILLIARD, W.L. LYONS, INC.
<TEXT>

<PAGE>

                                                                Exhibit (R)

J. J. B Hilliard, W. L. Lyons, Inc. is an affiliate of Black Rock. It has
adopted PNC Bank Corp.'s Code of Ethics


PNC Code of Ethics

Introduction

The PNC Bank Code of Ethics ("Code") conveys key information to assist you in
discharging your responsibilities on behalf of PNC Bank Corp. and its
subsidiaries ("PNC Bank" or "PNC") in an ethical and legally proper manner.

The PNC Code of Ethics (formerly known as the Guidelines for Corporate Conduct
at PNC Bank) is based on the principles that PNC Bank believes in:

        .  We conduct business with the highest ethical standards;

        .  We obey the law;

        .  We follow the policies and procedures of PNC Bank;

        .  We maintain confidentiality;

        .  We have a work environment that is fair and bias-free; and

        .  We are honest and trustworthy.

The Code applies to all employees and directors as well as to agents when acting
on behalf of PNC. Certain provisions of the Code also apply to others (such as
family members).

Supervisors and managers should help their staff understand and apply the above
principles and comply with the standards in the Code.

The conduct of each of us reflects on our organization and affects how we are
perceived. Whether inside or outside of work, your personal conduct should be an
asset to PNC Bank.

Use your good judgment, follow the standards set forth in the Code, and report
your concerns as provided in the Code. By doing so, we can ensure that PNC Bank
continues to stand for honesty, integrity and fairness.

Responsibilities and Standards of Conduct

1.00     RESPONSIBILITIES

As part of your responsibilities, you must:

        .  understand and comply with the Code, other PNC policies and
           procedures, and applicable laws and regulations;

        .  provide the required notifications and obtain the necessary approvals
           in accordance with the Code; and

        .  report any possible violations of the Code of which you are aware.
<PAGE>

You are not permitted to act in a way that violates the Code. Lines of business
or departments may have supplemental policies or procedures with which employees
also must comply.



1.01     Administration

The PNC Code of Ethics is administered by PNC's Director of Compliance or a
designee (referred to in the Code as "Director of Compliance"). A PNC Code of
Ethics Policy Committee ("Ethics Policy Committee") has been established to
determine policy issues relating to the Code, oversee resolution of major
ethical issues, and receive and review reports relating to the Code's
administration.


1.02     Notifications/Approvals

You should become familiar with the following situations in the Code that
require you to provide notification or obtain prior approval:

<TABLE>
<CAPTION>

<S>                                                                                     <C>
Situation                                                                               Code
                                                                                        Section
  Insider Trading                                                                        2.02
  Corporate Property                                                                     2.04
  Inventions                                                                             2.04
  Conflicts of Interest                                                                  2.05
  Gifts and Entertainment                                                                2.05.1
  Gifts to Public Officials                                                              2.05.2
  Inheritances; Fiduciary Compensation and Fees for Personal Services                    2.05.7
  Outside Activities                                                                     2.05.9
  Other Employment                                                                       2.05.9a
  Officer or Directorships                                                               2.05.9b/
                                                                                         Exhibit 7
                                                                                         2.05.10
  Public Office                                                                          2.05.11
  Expert Witnesses                                                                       2.07
  Antitrust                                                                              2.08
  Fair Competition                                                                       2.10
  Political Contributions
</TABLE>


You can provide notification or obtain approval either (i) by contacting the
Director of Compliance or (ii) through submission of the Code of Ethics
Notification/Approval Form ("Notification/Approval Form")to your supervisor and
market Human Resources ("HR") representative, as designated in the Code. A
sample of the Notification/Approval Form is attached as Exhibit 1; the form is
available from your Human Resources Department. If employees have any questions
regarding how to provide notification or obtain approval, they should contact
their market HR representative. Directors and agents should contact the Director
of Compliance regarding notifications or approvals, questions or any other
matters under the Code.



1.03     Reporting Procedures
<PAGE>

Reports of any possible violations of the Code, including dishonest or
fraudulent acts, or questions or concerns regarding matters covered by the Code,
should be made immediately to any of the following people:

        .  your supervisor;

        .  your market HR representative;

        .  the Security Services representative;

        .  the Director of Compliance; or

        .  the General Counsel.

You have been provided with several alternative people to whom you can report a
possible violation so that you can choose a person with whom you feel
comfortable. You may make an anonymous report if you wish.

Note: Any supervisor who receives a report of a possible violation should refer
it immediately to the market HR representative, the Security Services
representative, the Director of Compliance, or the General Counsel.

When you report a possible violation, you will be protected from any employment
discrimination, retaliation, or retribution for good faith reporting.


1.04    Key Contacts

Market HR representatives, the Security Services representative, the Director of
Compliance, the General Counsel and others referenced in the Code are Key
Contacts to assist you on Code matters for PNC Bank. Their telephone numbers can
be found in the Key Contacts and Reference Guide attached as an Addendum to the
Code or on the PNC intranet.


1.05    Exceptions/Questions

Exceptions to the Code and certain approvals will need to be made by the Ethics
Policy Committee. If you would like to ask for an exception or have a question
about any part of the Code, you should first discuss it with your supervisor and
your market HR representative who will process your request, or you may contact
the Director of Compliance. The Director of Compliance, as appropriate, will
present requests for exceptions or approvals to the Ethics Policy Committee.




1.06    Enforcement

If an employee violates the Code, PNC policies and procedures or any applicable
laws or regulations, the employee may be subject to disciplinary action, which
may include termination of employment. Violation of laws could also result in
legal proceedings and penalties, including, in some circumstances, criminal
penalties.
<PAGE>

        You are required to cooperate fully with investigations, audits,
        monitoring procedures, and other inquiries regarding Code matters,
        including requests to provide documentation. Refusal to comply may
        result in disciplinary action, which may include termination of
        employment.


        1.07  Written Acknowledgement

        When you are hired, and at certain times during your employment, you
        will be required to sign a written acknowledgment certifying that you
        have received, have read, understand, and will comply with the Code.
        Refusal to complete the acknowledgment may result in disciplinary
        action, which may include termination of employment.


2.00    STANDARDS OF CONDUCT

        The following are standards of conduct for some specific issues that may
        arise in our business. We may amend or change these standards from time
        to time.


2.01    Confidentiality

        Fundamental Principle
        Confidentiality is a fundamental principle in PNC Bank's business. You
        may deal with confidential, non-public information concerning PNC Bank,
        its clients, shareholders, employees and suppliers. You must protect all
        confidential information from unauthorized disclosure.

        Definitions
        The term "confidential information" includes, but is not limited to:

        .   PNC's business information, records, activities and plans;

        .   The identity, business information, records, activities and plans of
            clients and prospective clients;

        .   the identity of, or information relating to, merger and acquisition
            candidates;

        .   PNC's sources of supply, sales methods and sales proposals;

        .   PNC's computer programs, system documentation, special hardware,
            product hardware, software and technology developments;

        .   manuals, formulae, processes, methods, machines, compositions,
            ideas, improvements, inventions, or other confidential or
            proprietary information belonging to PNC or related to PNC's
            affairs;

        .   security information such as passwords, personal identification
            numbers (PIN's), and electronic keys;

        .   reports written to and by regulatory agencies; and

        .   any additional confidential information described in PNC's Insider
            Trading Policy (attached as Exhibit 2).
<PAGE>

Your Responsibilities
Your responsibilities with regard to confidential information are:

    []   You must not disclose confidential information to any person within
         PNC, unless that person has a need to know such information in
         connection with his or her employment responsibilities.

    []   You must not disclose confidential information to anyone outside of
         PNC, unless:

         .    such person is employed by an outside firm (i.e., a law,
              accounting or other firm) retained by PNC and that person needs to
              know the information in connection with the service to be provided
              by the firm to PNC;

         .    pursuant to proper legal process or regulation. (PNC's Legal
              Department has written guidelines for handling legal process. If
              you receive a request for confidential information, or subpoena or
              other legal process, you must immediately inform your supervisor
              who will contact the Legal Department.); or

         .    the individual or organization to which the information relates
              gives written consent, and release of the information is approved
              by the Legal Department.

    []   You must never use confidential information for personal financial gain
         or to compete with PNC.

    []   You must keep in a secure way all files, records, or inquiries
         regarding clients and employees, and other records that contain
         confidential information.

    []   You must keep all identification and access codes, security equipment,
         security programs, and security procedures confidential.

    []   You must avoid discussing confidential information in public places
         (for example, elevators, restaurants or at social events).

    []   You must avoid discussing confidential information on cellular or car
         phones.

    []   You must be sensitive to whether information is confidential when using
         E-mail, or facsimile machines.

    []   You must not disclose confidential information, whether it is in
         written form or in your memory, even after you leave your employment or
         position with PNC.

In addition, you must comply with all other PNC policies and procedures relating
to confidentiality, including those that have been adopted for your line of
business or department. All employees should also become familiar with and
follow the standards relating to confidentiality of information set forth in the
Information Security Policy Manual, available on the PNC Intranet and from
Information Security.




2.02     Insider Trading

         PNC has adopted an Insider Trading Policy which is attached as Exhibit
         2 to this Code. You should become familiar with the requirements of the
         Policy and must comply with its rules and standards.
<PAGE>

2.03     Clients' Property

         Fundamental Principle
         You must maintain the highest standards of honesty and integrity in
         handling clients' money and other property. You are not permitted to
         make unauthorized use of any client's money or property.


2.04     Corporate Property

         Fundamental Principle
         Corporate property may be used and removed from PNC premises only for
         business purposes, unless approved by your supervisor, or in accordance
         with policies adopted by the Board of Directors of PNC or a committee
         of the Board.

         Corporate property includes, but is not limited to:

            information;

            files;

            products;

            office supplies and furnishings;

            services;

            automobiles;

            technologies;

            concepts;

            client lists;

            policies and procedures manuals;

            computer and other equipment, such as facsimile machines;

            computer data bases, programs and software;

            data processing systems;

            voice mail;

            E-Mail; and

            any other electronic messaging systems or information about PNC's
            business.


Inspections
Corporate property and personal possessions that you may bring onto PNC premises
are subject to inspection.
<PAGE>

Inventions
If you invent something, make a discovery, improve something or write something
during your employment which is related to PNC's business or activities, you are
required to:

        .   disclose your work to your supervisor;

        .   assign any rights to the work to PNC, if appropriate; and

        .   assist PNC, either during or after your employment, in getting
            the use and benefits of the work, including anything necessary
            for PNC to get a patent or copyright or obtain other protection
            for the work.




2.05     Conflicts of Interest

         Fundamental Principle
         You owe PNC Bank and its clients undivided loyalty. You should not have
         an interest that conflicts with, or may reasonably appear to conflict
         with PNC Bank or its clients, unless approved as set forth in this
         Code.

         Definition
         A conflict of interest exists when:

        .   you engage in a personal activity or have a personal interest that
            may influence your decisions when acting for PNC or that may be at
            odds wiith PNC's interests; or

        .   you use your position with PNC or use PNC's confidential
            information to benefit yourself rather than PNC.

A conflict of interest may be based on your financial, business, family or other
personal relationships with clients, suppliers, competitors or others, or on
some other factor.

Appearance Of Conflict
The appearance of a conflict can be as damaging as an actual conflict and can
erode trust and confidence in PNC. When faced with a situation involving a
potential conflict of interest, you should ask yourself whether public
disclosure of the matter would embarrass PNC or lead an outside observer to
believe a conflict exists.

Disclosure Requirements
You must disclose in writing to your supervisor and your market HR
representative all known or potential conflicts of interest by submitting a
Notification/Approval Form. The Director of Compliance should be contacted on
how to handle a situation, if necessary.

Illustrations
Some illustrations of areas where potential conflicts of interests could occur
and PNC's policies are:




2.05.1   Gifts and Entertainment

Fundamental Principle
<PAGE>

You may not ask for or accept a gift or anything of value from anyone (before or
after a transaction is discussed or concluded or a business decision is made) if
you intend to be influenced or rewarded, or you believe the giver intends to
exert influence, in connection with any business decision or transaction
involving PNC. Where this is not the case, under certain circumstances, you may
accept gifts or something of value from someone doing or seeking to do business
with PNC. Examples of such circumstances are:

Permissible Gifts

        .  accepting a gift that is based on obvious family or personal
           relationships (such as between you and your parents, children, spouse
           or close friend) and it is clear that the gift is being accepted
           because of the relationship rather than any PNC business;

        .  letting someone else occasionally pay for meals, refreshments, travel
           arrangements, accommodations, or entertainment to discuss business or
           foster business relationships if the expense is of reasonable value.
           In general, such items are of "reasonable value" if they involve a
           level of expense that customarily would be reimbursed by PNC as a
           reasonable business expense if not paid for by the other party;

        .  accepting loans from other banks or financial institutions on normal
           terms to finance usual activities, such as home mortgage loans,
           except where prohibited by law;

        .  occasionally accepting advertising or promotional material having a
           value not in excess of $100, such as pens, pencils, note pads, key
           chains, calendars and similar items;

        .  accepting discounts or rebates on merchandise or services that is not
           more than those available to other clients;

        .  accepting gifts having a value not in excess of $100 that are related
           to commonly recognized events or occasions, such as a promotion, new
           job, wedding, retirement, holiday, birthday, or bar or bat mitzvah;
           and

        .  accepting civic, charitable, educational or religious organizational
           awards for recognition of service and accomplishment.

Disclosure Requirements
You must make every effort to refuse or return a gift or something of value that
goes beyond those permissible circumstances listed above. In the following
circumstances, you must promptly notify your supervisor and market HR
representative, or the Director of Compliance, to discuss how to handle the
situation:

        .  if you are offered a gift or something of value that goes beyond
           those permissible circumstances above and you cannot refuse or return
           it; or

        .  you have any doubts about whether it is permissible to accept a gift
           or something of value.

Only the Ethics Policy Committee can give approval to accept a gift or something
of value outside of the permissible circumstances listed above.

You can provide notification or obtain approval by submitting the Notification/
Approval Form to your supervisor and market HR representative, or you may
contact the Director of Compliance.

Giving Gifts
The above standards for accepting gifts also apply to giving gifts, except that
giving gifts to public officials is addressed separately in the next section.
<PAGE>

2.05.2   Gifts to Public Officials

Monetary Gifts Prohibited
You may not give a gift of money to a public official, except for legitimate
personal campaign contributions to candidates for public office. (Certain
employees must obtain prior written approval before making political
contributions. See Section 2.10)

Gifts Of Value To Influence Particular Acts Prohibited
You may not give anything of value (including, for example, gifts, meals,
recreation, entertainment, flowers, transportation, lodging or sporting event
tickets, which will be referred to in this section as "gifts") to a public
official for the purpose of influencing a particular act by the official or his
or her agency.

Limitations On Other Types Of Gifts
Limitations on giving items of value are discussed below with respect to
different types of public officials with whom PNC employees are likely to have
contact. These limitations, which should be interpreted as applying also to the
spouse or family members of the public official, do not apply to gifts based on
obvious family or close personal relationships.

Limitations for Different Types of Public Officials

        .   Federal Officials -- Gifts of over $20 in value may not be offered
            to officials in the executive branch of the federal government
            ("executive branch official"). For example, the value of an
            executive branch official's meal paid for by PNC may not be greater
            than $20. If all of the gifts to an executive branch official are
            added together in any calendar year, they may not be greater than
            $50. Any gift to an executive branch official must receive advance
            written approval from the Director of Compliance so that the $50
            limit can be monitored. Advance approval of each gift, regardless of
            amount, is important because gifts given by all PNC officers to one
            executive branch official will be aggregated.

            Members of Congress and Congressional staff are subject to
            restrictions on gifts they may accept. Any gift to a member of
            Congress or to Congressional staff members must receive advance
            written approval from the Director of Compliance.

        .   Pennsylvania State Officials -- Gifts of more than nominal value may
            not be offered to officials in the executive branch of Pennsylvania
            government. Although nominal value does not have a specific dollar
            limit, you should be guided by the principles set forth in Section
            2.05.1 above concerning PNC employees' receipt of gifts. Any gift to
            a Pennsylvania State official must receive advance written approval
            from the Director of Compliance so that reporting requirements
            imposed by the Lobbying Disclosure Act may be satisfied.

        .   Pennsylvania County Officials -- In counties in which PNC employees
            are likely to have significant activity, the rules for Pennsylvania
            state officials apply, except as follows. In Erie County, all
            gifts -D even of nominal value -D are prohibited. In Philadelphia
            County, the aggregate value of gifts may not exceed $100 annually.
            However, in Philadelphia County, gifts of food and beverage consumed
            at an event or meeting at which the official is attending are not
            restricted as to dollar amount and do not count against the
            aggregate annual limit.

        .   Kentucky State and Jefferson County Officials -- Gifts, even of
            nominal value, may not be given to Kentucky state officials. Gifts
            to Jefferson County officials are prohibited if they are
<PAGE>

            based on an understanding that they are given for the purpose of
            influencing the officer, directly or indirectly, in the discharge of
            his/her official duties.

        .   Ohio State and County Officials -- Gifts of more than $20 in value
            may not be offered to Ohio state or county officials. Gifts of $20
            or less in value (for example, business lunches) may not be offered
            on a regular basis.

        .   Delaware State and New Castle County Officials -- Gifts of more than
            nominal value may not be offered to officials in the executive
            branch of Delaware government. Although nominal value does not have
            a specific dollar limit, you should be guided by the principles set
            forth in Section 2.05.1 above concerning PNC employees' receipt of
            gifts.

        .   Massachusetts State and County Officials -- Gifts of $50 or more may
            not be offered to Massachusetts state, county or municipal
            officials. Gifts of less than $50 in value (for example, business
            lunches) may not be offered on a regular basis or in a pattern.

        .   New Jersey State Officials -- Gifts, even of nominal value, may not
            be given to officials in the executive branch of New Jersey
            government.

        .   Indiana State Officials -- Gifts of more than $25 in value may not
            be offered to officials in the executive branch of Indiana
            government; in certain cases, the official may be required to obtain
            written approval from a designated state official before accepting
            the gift.

In preparing this section, the laws and regulations of only the states and
counties which are referred to above were reviewed. Check with the Director of
Compliance before offering gifts to other public officials.

The restrictions discussed above apply to gifts given to public officials
directly or indirectly (for example, through another person).

Questions
If you have doubts about whether a gift to a public official is allowed under
the Code, you should either not give the gift or you should contact the Director
of Compliance for an interpretation or to obtain approval from the Ethics Policy
Committee.




2.05.3   Borrowing from Clients or Suppliers/Lending

Fundamental Principle
Employees cannot accept a loan from clients, suppliers or any other business
contact of PNC unless the client, supplier or business contact is an immediate
family member, or:

        .   the loan is given by those who lend money in the usual course of
            their business; and

        .   then only in accordance with the law and on terms offered to
            others who have similar credit standing, without special
            arrangements on interest rates, security, repayment terms and
            other conditions.

Additional Restrictions
Employees must not lend personal funds to, or cosign, endorse, or guarantee, or
otherwise assume responsibility for the borrowing of any client, supplier or any
other business contact of PNC unless the client, supplier or business contact is
an immediate family member.
<PAGE>

2.05.4   Self-Dealing

Self-dealing means using your employment or position for personal gain. Whether
you are acting individually, through a business, or in a fiduciary capacity (a
position of trust for another person), you are prohibited from self-dealing.

Prohibitions

        .   You may not accept from someone either doing business or trying to
            do business with PNC a business opportunity that is not available to
            other people on similar terms, or that is made available to you
            because of your position with PNC.

        .   You may not take for yourself a business opportunity that belongs to
            PNC Bank. An opportunity belongs to PNC when the company has pursued
            the opportunity, it has been offered to PNC, it is the kind of
            business PNC competes in, PNC has funded it, or PNC has devoted
            time, facilities, personnel, or other corporate resources to develop
            it.





2.05.5   Sales/Purchases of Property Services to/from Employees

You may not purchase property or services from PNC other than products or
services offered:

        .   to the general public; and

        .   on terms that are available to all employees or similarly
            situated clients.

Further, you may not sell any property or services to PNC.





2.05.6   Dealing with Suppliers

Merit Based Awards
Awards of orders, contracts and commitments for goods and services should always
be made in the best interests of PNC. In your dealings with suppliers, you may
not request or accept any kick-backs or other inducements.


2.05.7   Inheritances; Fiduciary Compensation and Fees for Personal Services

Fundamental Principle
Neither you nor any member of your immediate family may accept any inheritance
from any PNC client or the immediate family of any PNC client, unless the person
giving you the inheritance is your relative or a relative of someone in your
immediate family (through blood, marriage or adoption).

Application of Rule
<PAGE>

This rule applies only if the relationship between the client and you or your
immediate family was established through your employment or position with PNC.

Prohibited Appointments
Also, neither you nor any member of your immediate family may accept appointment
as:

        .   executor;

        .   administrator;

        .   personal representative;

        .   attorney-in-fact;

        .   guardian;

        .   custodian under any Uniform Transfer or Gifts to Minors Act; or

        .   Trustee

for any PNC client or the immediate family of any PNC client if the relationship
between that person and you or your immediate family was established through
your employment or position with PNC and you are to be compensated for the
appointment through payment of fees or otherwise.

If the appointment is to be uncompensated, you must receive prior approval from
the Ethics Policy Committee. You should contact the Director of Compliance to
obtain approval.

Client Relations
If you have advance knowledge of any inheritance or appointment that may violate
this rule, you must try to discourage the client from making the gift or
appointment. You must also notify the Director of Compliance.





2.05.8   Use of Position or Authority

Fundamental Principles
You may not act on behalf of PNC in any transaction involving a member of your
immediate family or in any situation where you or a member of your immediate
family has a personal or financial interest. You also may not act on behalf of
PNC in connection with an organization with which you or a member of your
immediate family is associated or has a personal or financial interest.

Note: This section does not apply to your actions related to publicly held PNC
subsidiaries in which you own stock where your acquisition of the stock was
approved by the Ethics Policy Committee or PNC's Board of Directors and you
comply with the Stock Ownership Policy adopted by the Ethics Policy Committee
which is attached to this policy as exhibit #6.





2.05.9   Outside Activities
<PAGE>

Limits on Outside Activities
PNC encourages employees to participate in charitable or community activities
outside of the company. These activities must not interfere with your ability to
meet your employment responsibilities nor cause harm to PNC's reputation in the
community or business interests.

Some typical examples of outside activities are described below:

A.       Other Employment

         Restrictions on Outside Employment/Positions
         You may not have any outside employment with a competitor or hold a
         position with a competitor while an employee of PNC. Nor may you be
         self-employed in competition with PNC.

         In addition, you may not engage in any outside employment (including
         self-employment) or hold any position which PNC determines may
         interfere with your PNC employment responsibilities. PNC may also
         determine that you are legally prohibited from or restricted in such
         outside employment while an employee of PNC, such as in the securities
         industry. You should be aware of your department's supplemental
         policies and procedures in this regard, if any.


         Notification/Approval
         All outside employment (including self-employment) for PNC employees
         must be approved in advance and in writing by submitting the
         Notification/Approval form to your supervisor and your market HR
         representative.

         In some instances where approval to engage in outside employment has
         been given, it may be necessary to revisit the issue. In particular,
         where PNC determines that the outside activity is interfering with your
         PNC responsibilities, or where PNC determines that the outside activity
         or position is in competition with PNC, authorization to continue such
         outside employment or in such position may be withdrawn.

B.       Officer or Directorships
         Importance to PNC
         PNC has adopted a Policy for Employees Holding Director and Officer
         Positions in Outside Profit and Non-Profit Organizations which is
         attached as Exhibit #7 to the Code. You must become familiar and comply
         with this Policy.






2.05.10  Public Office

Guidelines
PNC has adopted a Public Office Policy which is attached as Exhibit #8 to this
Code. You must become familiar and comply with this Policy.

Except for lobbyists and other officers authorized to act on behalf of PNC,
employees participating in political activities do so as individuals and not at
the request of or as representatives of PNC.
<PAGE>

2.05.11  Expert Witnesses

Handling Request To Serve
You may be asked to serve as an expert witness or to provide technical
assistance in litigation or other proceedings not involving PNC. These
activities generally take a lot of time and may be in conflict with PNC's
policies and practices or with positions PNC has taken in other lawsuits. For
these reasons, if you are asked to serve as an expert witness or provide
technical assistance for a party other than PNC, you must receive advance
written approval. You should submit the Notification/Approval Form to your
supervisor and market HR representative to request such approval.




2.05.12  Insider Lending

Regulatory Requirements
No PNC bank, under the requirements of Regulation O, may extend credit on
preferential terms to:

        .   any of PNC's directors or executive officers; or

        .   any related interest of these individuals.

Reviewing Regulation O Policy
PNC has adopted a Regulation O Policy to implement the provisions of the
regulation in all PNC markets. You should contact your Compliance Department
representative to obtain a copy of the policy if applicable to your line of
business or department.





2.05.13  Interest on Deposits of Directors, Officers, Attorneys and Employees

Fundamental Principle
PNC Banks are not permitted to pay any of their directors, officers, attorneys
or employees a greater rate of interest on their deposits than that paid to
other depositors on similar deposits with such bank.





2.05.14  Sales/Purchases of Property and Services to/from Non-Officer Directors

Unless pre-approved by a majority of disinterested members of the Board of
Directors of PNC Bank Corp. or the appropriate subsidiary PNC Bank, non- officer
directors and their firms may not:

        .   purchase property or services from PNC unless such property or
            services are offered in the regular course of PNC's business, and on
            terms not more favorable to the director or his or her firm than
            those offered to other similarly situated clients who are not
            directors; or
<PAGE>

        .   sell any property or services to PNC other than property or services
            that are sold in the regular course of the director's (or firm's)
            business and are sold upon terms not less favorable to PNC than
            those offered to similarly situated clients of the director (or
            firm).





2.06     Discrimination,  Bias and Harassment


         2.06.1   Equal Employment Opportunity Policy

         It is the policy of PNC affirmatively to implement equal opportunity
         for all qualified applicants and existing employees without regard to
         race, religion, color, national origin, sex, age (over 40), disability,
         status as a Vietnam-era veteran or any other basis which would be in
         violation of any applicable ordinance or law. All personnel actions,
         including recruitment, selection, hiring, training, transfer,
         promotion, termination, compensation and benefits conform to this
         policy.

         A copy of the full Equal Employment Opportunity (EEO) policy may be
         obtained from your market HR representative.

         What To Do
         If you believe you have been denied equal employment opportunity
         because of discrimination, bias or harassment, you should report it to
         your supervisor or market HR representative or you may contact the
         Director of Compliance or the General Counsel. You will be protected
         from any employment discrimination, retaliation or retribution for good
         faith reporting.





         2.06.2   Bias and Harassment

         You are entitled to a work environment free of racial, sexual, ethnic,
         and religious bias and harassment. Racial, sexual, ethnic or religious
         jokes or comments are subject to individual interpretation and may be
         offensive to some employees. Intimidation, coercion and threats, or
         actions leading to bodily harm are also unacceptable.





         2.06.3   Sexual Harassment

         Definition
         Sexual harassment is any unwelcome conduct of a sexual nature that is
         sufficiently severe or pervasive so as to unreasonably interfere with
         an individual's work performance or create an intimidating, hostile or
         offensive working environment.

         Forms Of Sexual Harassment
         Sexual harassment can take various forms, including:
<PAGE>

      .  verbal (for example, sexual innuendo, sexual propositions, threats,
         suggestive or insulting comments or sounds and jokes of a sexual
         nature);

      .  non-verbal (sexually suggestive pictures or objects, graphic
         commentaries and obscene gestures); and

      .  physical (unwelcome physical contact).

Criteria Of Sexual Harassment
Any one or a combination of three basic criteria determines whether conduct is
sexual harassment:

      .  If you are required to submit to the conduct as either an express or
         implied qualification for a job or a requirement of your employment
         relationship;

      .  If submission to, or rejection of, the conduct is used as a basis for
         employment decisions affecting you; or

      .  If the conduct has the purpose or effect of unreasonably interfering
         with your work performance, or creating an intimidating, hostile or
         offensive working environment.

Compliance Requirement
Sexual harassment by a manager/supervisor, or other employee, or client,
supplier or visitor will not be tolerated within PNC. All employees must comply
with this policy and take appropriate measures to ensure that sexual harassment
does not occur.


What To Do
If you are confronted with actions that may be sexual harassment, you should
report it to your supervisor or your market HR representative, or you may
contact the Director of Compliance or the General Counsel.





2.07     Antitrust

What are the Antitrust Laws?
You must obey the antitrust laws. The antitrust laws, which contain criminal and
civil penalties, prohibit unfair methods of competition and agreements that
restrain the way companies compete. The antitrust laws are most often enforced
against agreements between separate businesses (for example, agreements between
PNC and other companies) that limit competition. These agreements need not be in
writing to raise a concern.

As a general matter, all of PNC strategies and other decisions should be made
independently, without consultation with PNC's competitors. You may not enter
into any of the following three types of arrangements or agreements:

Types of Arrangements

      .  Price-Fixing Agreements are agreements with competitors about the
         prices, terms, or conditions to be charged clients. To avoid even an
         allegation of price fixing, you should not discuss our prices, terms or
         conditions with a competitor, except as noted below.
<PAGE>

     Note: Where we are openly working jointly with our competitors to provide a
     loan or other product or service to a client (for example, loan
     syndications), agreements with such competitors on the price to be charged
     to the client generally do not constitute price fixing. You should only
     enter into such agreements if we have legitimate business reasons for
     working jointly with our competitors rather than providing the product or
     service on our own (for example, in loan syndications, because of undue
     credit risk to PNC).

 .    Group Boycott Agreements are agreements among two or more companies to
     "boycott" or otherwise not do business with another company.

 .    Market, Client, Territory or Location Allocation Agreements Among
     Competitors are agreements with competitors not to compete in a particular
     line of business or product, not to "poach" competitors' clients, or not to
     compete in a particular geographic area.

Because the following arrangements may raise antitrust concerns under certain
circumstances, you should consult with the General Counsel before entering into
any of them:

 .    Tying Arrangements arise when a seller has a product or service buyers
     need, and requires buyers of that product or service to purchase a second
     product or service from the seller.

         .    Banking laws also prohibit certain ties. PNC Bank has adopted a
              Policy Statement on Product Tying Restrictions that you can obtain
              from your Compliance Department representative.

              Note: Most tying arrangements that are long established in banking
              (such as compensating balances) that facilitate reasonable
              arrangements intended to assure the soundness of credit do not
              pose a problem under either the banking or antitrust laws.


         .    Predatory pricing is pricing at an unfairly low price for the
              purpose of driving all competitors out of the marketplace to reap
              the benefits of higher prices after the competitors are gone.

         .    Exclusive Dealing involves agreements to do business with one
              supplier or client that preclude PNC from doing business with
              other suppliers or clients. You should consult with the Director
              of Compliance if PNC's purchases or sales account for a
              substantial portion of the market for the product or service being
              purchased or sold.

         .    Reciprocity involves a company conditioning the purchase of
              products or services from suppliers on those suppliers' purchases
              of services from the company.

Other Instances in Which You Should Consult With The General Counsel You should
always consult the General Counsel:

         .    before a PNC unit that you manage merges with or acquires another
              company (including a division of another company or substantial
              assets of another company outside of the ordinary course of
              business); or

         .    if you believe that any activity that may be undertaken by PNC
              could be viewed as restraining fair or open competition, or if you
              have any questions about whether any such activities may fall
              within any of the categories of conduct described above.
<PAGE>

2.08     Fair Competition

Fundamental Principle
PNC Bank expects you to engage in vigorous, but fair competition with our
competitors. Unfair ways to compete are not permitted. For example, you must
never direct or encourage any applicant or new employee to violate any
contractual or legal obligations to a former employer, such as a responsibility
to protect confidential business information, technical information or trade
secrets.

Requirements
Also, you are required to notify your supervisor and market HR representative by
submitting a Notification/Approval Form if you have any obligations that may
interfere with your ability to perform your job duties at PNC Bank. These
obligations may include an agreement with a former employer, business partner or
other person or entity that says:

        .    you may not compete with them for a certain time or in a specific
             location;

        .    you may not ask their employees if they are interested in working
             for PNC;

        .    you may not ask their clients to do business with PNC;

        .    you may not take work-related inventions, developments, or writings
             to use at another business or place of employment;

        .    you may be limited in your use of trade secrets, business
             information, materials, training or techniques that you learned
             there; or

        .    you may have to notify them of any new employment or business
             venture.



2.09     Personal Responsibilities of Employees


         2.09.1   Drug Abuse

         Drug-Free Workplace
         PNC Bank is committed to promoting and maintaining a drug-free
         workplace. The illegal use of drugs interferes with effective and safe
         job performance. For this reason, PNC Bank has adopted a Drug Abuse
         Policy to prohibit employees from illegally using, possessing,
         distributing, or manufacturing drugs, or being under the illegal
         influence of drugs, while working or while on PNC property.

         Consequence of violation Employees who violate the Drug Abuse Policy
         (including the refusal to take a drug screening test) will be subject
         to disciplinary action.

         A summary of the Drug Abuse Policy is attached as Exhibit 3. PNC's Drug
         Abuse Policy is available from your market HR representative.





         2.09.2   Alcohol Abuse
<PAGE>

         Fundamental Principle
         The use of alcohol can have wide-ranging effects in the workplace,
         including declining job performance and diminished safety of co-workers
         and clients. For this reason, PNC prohibits any use of alcohol that may
         affect your fitness for work, the safety of co-workers or the public,
         your job performance or any operation of PNC.


         2.09.3   Personal Finances

         Employee Responsibilities
         Because one of the primary functions of PNC Bank is the efficient and
         effective management of money, you must demonstrate trustworthiness and
         financial responsibility. You are expected to maintain your personal
         account relationships and financial affairs in the same responsible
         manner that is expected of clients and to manage debts in relation to
         income and net worth. Abuse of employee checking accounts, credit cards
         or loans obtained through PNC Bank is not in the best interest of PNC
         Bank and may result in revocation of these privileges.

         In addition, you must use your expense account in accordance with the
         guidelines set forth in the Employee Expense Reimbursement Guide,
         available from your market HR representative, as well as the standards
         set forth in the Code.




         2.09.4   Solicitation

         Fundamental Principle
         You are prohibited from soliciting other employees on behalf of any
         cause or organization during working time (that is, when the soliciting
         employee or the receiving employee is required to be performing work
         duties) or in client areas. Examples of prohibited solicitation include
         raffles, lotteries or memberships. You are also prohibited from
         distributing advertising materials, handbills, literature or other
         materials which are not prepared, supplied or approved by PNC, on PNC
         premises during working time or in any work area or any area where
         clients are routinely present to transact any business with PNC.

         It will not be a violation of this policy, however, if the solicitation
         or distribution is part of a campaign officially approved or sponsored
         by PNC, such as United Way.

         Non-employees of PNC are prohibited from soliciting or distributing
         literature on behalf of any cause or organization at any time on any of
         PNC's premises.





         2.10     Political Contributions

         Prohibitions
         PNC cannot make direct or indirect contributions to political
         candidates or office holders.

         You should abide by the following:
<PAGE>

        .     no payment or thing of value may be made or given by or on behalf
              of PNC to any political party, candidate for public office in
              relation to his or her candidacy, or to any committee or group
              formed to support a party or candidate.

        .     PNC will not reimburse you for personal political contributions.

        .     you may not use PNC facilities or equipment in connection with any
              federal, state, or local election.

        .     you may not participate in political activities during your
              working hours or on PNC property. For example, branch offices may
              not be used by candidates running for election for fund raisers or
              other activities related to running for office.

        .     if you are a foreign national, you may not make a contribution in
              connection with any election (federal, state or local) or make a
              contribution to a PNC-affiliated political action committee. This
              prohibition does not apply to U.S. citizens living outside the
              United States. If you are not a U.S. citizen and if you have not
              been lawfully admitted for permanent residence in the United
              States, you should not make any political contributions, directly
              or indirectly, without first checking with the Director of
              Compliance.

Permitted Activities
Except as prohibited by Rule G-37 of the Municipal Securities Rulemaking Board
("MSRB") and other related policies of PNC discussed below, the following
activities are permissible:

        .     you may use your own funds to make contributions to political
              parties, candidates, or political action committees;

        .     you may participate in volunteer political activities during non-
              working time and away from PNC premises, as long as you do not use
              any PNC resources in connection with your activities; and

        .     PNC may make its facilities available to an affiliated political
              action committee ("PAC") for PAC-related functions, including
              speeches by political candidates. In addition, PNC may absorb
              administrative or other expenses incurred by an affiliated PAC.

Additional Rules For Certain Employees
Employees of PNC Securities Corp, PNC Brokerage Corp, and certain other PNC
employees associated with municipal securities or municipal finance, are subject
to the following rules by MSRB Rule G-37 and PNC policies:

        .     you may not make contributions to PACs affiliated with PNC or PACs
              controlled by any municipal finance professional.

        .     you may not participate in the management of any PACs affiliated
              with PNC.

        .     you must obtain prior written approval for any political
              contributions to candidates or PACs. Contact your Compliance
              Department or consult the PNC policy implementing Rule G-37 for
              more information on obtaining approval.

        .     you must limit any contributions to $250 per election and per
              candidate, and you may only make contributions to candidates for
              whom you are eligible to vote.

        .     you may not make any direct or indirect political contribution for
              the purpose of influencing the award of municipal securities
              business to PNC.
<PAGE>

A copy of the PNC policy implementing MSRB Rule G-37 is located in the PNC
Securities Corp and PNC Brokerage Corp Compliance Manuals.





2.11     Lobbying

Specific laws apply to lobbying activities undertaken on behalf of PNC. You may
obtain a summary of these laws and a copy of PNC's lobbying policy from the
Director of Compliance.


2.12     Other Matters

Crimes, Suspected Crimes, and Dishonest Acts Reporting Requirements
PNC Bank must file information with law enforcement agencies under certain
circumstances when criminal acts involving PNC Bank have occurred or are
suspected. If you have knowledge of a mysterious disappearance or loss or an
unexplained shortage, or know or suspect that any criminal, dishonest, or
fraudulent act has occurred that may affect PNC, its employees, officers or
clients, you should immediately use any of the Reporting Procedures set forth in
Section 1.03 of the Code.

Fidelity Bond Coverage
PNC holds a fidelity bond that covers all employees of PNC. The bond coverage
for any employee may end as soon as PNC learns of any dishonest or fraudulent
act that was or may have been committed by the employee at any time, whether or
not the act was committed while in PNC's employment.

Bonding Requirement
If an employee does not meet the standard for bonding, employment usually must
be terminated. To comply with the bonding requirements and other requirements
imposed by law, PNC reserves the right to investigate the personal history of
any applicant or employee, including any law enforcement records.

Convictions Involving Dishonesty or Breach of Trust Any person who at any time:

        .    has been convicted of or plead guilty to any criminal offense
             involving dishonesty or breach of trust or money laundering; or

        .    has agreed to enter into a pretrial diversion or similar program in
             connection with a prosecution for such an offense is prohibited
             from participating, directly or indirectly, in any manner in the
             conduct of the affairs of any PNC bank without prior written
             consent from the appropriate regulatory agency.

Consequences Of Violation
If any employee or officer of a PNC Bank is convicted of or pleads guilty to
such an offense or enters into a pretrial diversion or similar program to avoid
such a conviction, employment will be terminated in the absence of consent from
the appropriate regulatory agency.




2.13     Media Inquiries

Media Inquiries
<PAGE>

You may be contacted by the media for information concerning PNC's position on
various matters. You must always direct these inquiries to the Public Relations
Department.

Prohibitions
You also may not give information to the media about PNC activities, the
activities of other employees, PNC clients or suppliers without the consent of
the Public Relations Department. PNC (through the Public Relations Department)
will speak out on issues of importance to PNC when appropriate. PNC will not,
nor should you, without the consent of the Public Relations Department, identify
clients or provide client information or do the following:

        .   comment on actions of any other company, entity or person;

        .   comment on issues that are in litigation or under governmental
            review;

        .   discuss financial projections;

        .   discuss plans, programs, products, or operations that have not
            been announced publicly;

        .   provide testimonials or endorsements; or

        .   describe the content of regulatory examination reports.




2.14     Recordkeeping Policy

PNC maintains a record retention policy in accordance with legal, regulatory,
and appropriate business requirements.

Prohibitions
You may not dispose of or destroy any records that document or record the
business of PNC, except in accordance with PNC's record retention policy.


If there is threatened or pending litigation, an administrative charge, a
subpoena or other legal process, or if a government audit or review is in
process, you must not dispose of or destroy any relevant records.

Intentional destruction of records to avoid disclosure is prohibited.

Questions
If you have questions about record retention, ask your supervisor. Supervisors
may direct their questions to the Corporate Records Retention Coordinator.





2.15     Accounting Practices/Foreign Corrupt Practices Act

Requirements
PNC has established internal accounting controls and recordkeeping policies to
meet legal and business requirements, including the following:
<PAGE>

        .    all business transactions and payments will be recorded accurately
             in supporting records;

        .    no unrecorded fund or asset of PNC will be established or
             maintained for any reason;

        .    the use or transfer of PNC funds for any purpose that would be in
             violation of any law or regulation or that would be improper is
             prohibited; and

        .    the accounting records of PNC, and any public record, must be
             complete, accurate, and in reasonable detail, and no false,
             artificial, or misleading entries will be made for any reason.

Foreign Corrupt Practices Act of 1977
Any dealings that you may have with an official of a foreign government, a
foreign political party or party official, or candidate for foreign political
office, must comply with the requirements of the Foreign Corrupt Practices Act
of 1977, as amended. The Act also applies to officials of public international
organizations.

        .    This law requires the use of proper accounting procedures.

        .    You are prohibited from giving or promising anything of value to
             such foreign officials for the purpose of influencing any act or
             decision of the official in his/her official capacity, or to obtain
             or retain business, or direct business to, any person. Violations
             may result in criminal penalties.

All laws of the applicable foreign country must be obeyed.




2.16     Bank Secrecy/Money Laundering Control Act

Policy
It is the policy of PNC Bank to have an effective Bank Secrecy Act (BSA) and
anti-money laundering program. You are responsible for knowing and carrying out
your responsibilities under the company's BSA polices and procedures. In
particular, you must be aware of your responsibility regarding:

        .    requirements to report cash transactions on Currency Transaction
             Reports (CTRs);

        .    the company's systems and procedures to avoid being used by persons
             who are laundering money through the bank from drug activities and
             other illegal activities;

        .    "Know Your Customer" procedures; and

        .    the procedures to identify a client's suspicious activities and
             transactions and to report such matters to Security Services.

Your market's BSA Compliance Officer should be contacted regarding any BSA
questions or concerns.



2.17     Community Reinvestment Act/Fair Lending

Policy
It is the policy of PNC to respond to the credit needs of the communities in
which it has facilities, including those of low and moderate income
neighbor-hoods. In addition, each PNC Bank is expected to devote human and
financial resources, consistent with safe and sound banking practices, to the
solution of community problems.
<PAGE>

It is the policy of PNC Bank to conduct its business in accordance with fair
lending laws. It is your responsibility to treat all clients fairly.

A copy of the Corporate Community Reinvestment Act (CRA) and Fair Lending
Compliance Statements may be obtained from your Compliance Department
representative or market CRA Officer.



2.18     Safety, Health and Environment

Compliance Requirement
You must comply with safety and health requirements governed by federal, state,
and local laws. You have a responsibility:

   .     to follow safe operating procedures;

   .     to promote your own and your co-workers' health; and

   .     to encourage regard for the environment among fellow employees and in
         the community.

Firearms Prohibition
You are not permitted to possess firearms or other dangerous weapons on PNC
premises, in PNC-owned vehicles or on work time, unless this is required as part
of your job.

How To Report
Reports of any actual or potential safety, health, or environmental problems
should be reported using the Reporting Procedures set forth in Section 1.03 of
the Code.

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

This Code reflects principles PNC intends to abide by. It is not necessarily a
statement of the law and in many instances may go beyond what the law and
industry practice require. This Code is not intended to result in the imposition
of legal liability on PNC, or on any employee or any person who becomes subject
to provisions of the Code, if such liability would not exist under law or
regulations in the absence of the Code.

You are responsible for complying with the Code. This Code, however, does not,
nor should it be construed to, imply an employment contract between you and PNC.


Exhibit 1: Forms

Copy of the Notification/Approval Form


Exhibit 2: Insider Trading

SUMMARY OF REQUIREMENTS

This chart summarizes certain rules described in PNC Financial Services Group,
Inc.'s Insider Trading Policy (the "Policy"). It is intended to be used as a
reference to help you in your compliance with the Policy. However, you should
not use this summary in place of the Policy because, in addition to
<PAGE>

containing more detailed information on the rules summarized below, the Policy
contains other rules and standards on topics that are not included in the
summary. The Policy also applies to the following members of your immediate
family: your spouse, minor children, older children who live in your household
or who rely primarily on you for financial support, and any other relatives (by
blood, marriage, or otherwise) living in your household. You are responsible for
these family members' compliance with the Policy, and you must seek approval of
and report their personal securities transactions in accordance with this Policy
as if such transactions were for your own account.


- --------------------------------------------------------------------------------
Securities Transactions Restrictions for All Employees, Directors and Family
Members:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
 .    If you are aware of material, non-public information concerning any issuer
     or its securities, including but not limited to PNC, you are prohibited
     from buying, selling, or recommending securities of that issuer. Nor may
     you disclose such information to others except as set forth in this Policy.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
 .        You are prohibited from conducting the following activities regarding
         PNC securities:

         []   transactions in any derivative of a PNC security, including but
              not limited to puts, calls, and options (other than stock options
              granted by PNC), subject to certain exceptions for employees who
              received PNC securities in connection with an acquisition day
              trading (buying and selling the same security during one calendar
              day)

         []   short selling (selling the securities at a specified price and on
              a specified date without owning the securities on the trade date)
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
Pre-Clearance Approval/Reporting Requirements for Restricted Employees and Their
Family Members:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
 .    Restricted Employees include members of the senior officer committee (as of
     the date of this Policy, the Marketing Committee), Section 16 officers,
     designated employees of Mergers and Acquisitions, and other employees
     designated by the Director of Corporate Compliance.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
 .    If you are a Restricted Employee, you must obtain the approval of the
     Corporate Secretary or designate before buying or selling PNC securities
     (including securities issued by PNC affiliates that are publicly traded),
     changing elections or making intra-plan transfers involving PNC securities
     or phantom shares, using PNC securities to secure a loan (including a
     margin account), or making a gift of PNC securities. Subject to certain
     exceptions, before buying or selling any publicly traded security other
     than securities issued by PNC or a PNC affiliate you must pre-clear through
     the Insider Transaction Authorization System. You also must provide to
     Corporate Compliance periodic statements at least quarterly of purchases or
     sales of any publicly traded securities.
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
Pre-Clearance Approval/Reporting Requirements for Outside Directors and Their
Family Members:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
 .    Members of the Boards of Directors of PNC and PNC Bank, National
     Association must obtain the approval of the Corporate Secretary or
     designate before buying or selling PNC securities (including securities
     issued by PNC affiliates that are publicly traded), using PNC securities to
     secure a loan (including a margin account), making a gift of PNC
     securities, or reallocating investments within the Directors Deferred
     Compensation Plan. You must also have your broker(s) send duplicate copies
     of confirmations of all your purchases and sales of PNC securities
     (including securities issued by PNC affiliates) to the Corporate Secretary,
     and report to the Corporate Secretary within 7 calendar days any trade in
     PNC securities that was made other than through a broker.
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
Other Pre-Clearance Approval/Reporting Requirements:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
 .    As a supplement to this Policy, there are special policies and procedures
     on personal securities transactions that are applicable to certain business
     units within PNC. Employees of these business units are subject to
     additional requirements as set forth in the special policies for their
     business unit, which may include pre-clearance and/or reporting
     requirements. You will be informed if you are in a business unit that has
     special policies applicable to you.
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
Securities of Clients
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
 .    Employees of "Designated Units" are prohibited from purchasing or selling
     client securities. You will be informed if you are in a Designated Unit.
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
Securities of Affiliates:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
 .    Certain PNC employees may be subject to different or additional
     restrictions with respect to their transactions in securities issued by PNC
     affiliates that are publicly traded companies. You will be informed of any
     such restrictions if they are applicable to you.
- --------------------------------------------------------------------------------




PNC INSIDER TRADING POLICY

Introduction

The purpose of this Insider Trading Policy ("Policy") is to further compliance
by PNC Financial Services Group, Inc. ("PNC") and its subsidiaries, employees,
and directors with the federal securities laws and regulations. The Policy is
designed not only to protect us from civil or criminal liability under these
laws, but also to protect our reputation for integrity.

The Code of Ethics contains additional standards with respect to confidential
information, and should be read in conjunction with this Policy. Further, your
business unit may impose additional requirements. You may also be subject to
Office of the Comptroller of the Currency requirements for fiduciary activities,
Securities and Exchange Commission requirements, and other requirements of
various self-regulatory organizations.

Certain of the following standards and rules are, of necessity, general in
nature. In practice, there may be situations that warrant exceptions or
interpretations that must be approved by the General Counsel's office of PNC
("General Counsel").

If you have questions regarding the Policy, you should contact the Director of
Corporate Compliance or the General Counsel. Further, if you suspect a violation
of this Policy, you should contact the Director of Corporate Compliance or the
General Counsel, or use any of the reporting procedures set forth in the PNC
Code of Ethics.

You are required to be familiar with and abide by this Policy. You must read it
carefully and retain it. New employees will be required to certify in writing
that they understand and will comply with the Policy. From time to time
employees may also be asked to re-certify in writing that they have followed the
Policy.

References to "PNC" apply to PNC Financial Services Group, Inc. and all
organizations directly or indirectly under its control. References to an
"affiliate" apply to the organization under the control of PNC with which an
employee or director is associated.
<PAGE>

What is "Insider Trading"?

"Insider trading" generally involves the purchase or sale of securities while
aware of material, non-public information ("inside information"). A person who
communicates inside information (a "tipper") to another person (a "tippee") may
also be liable if the tippee purchases or sells a security while aware of such
information.

Penalties for insider trading violations are substantial. Civil penalties may be
as high as three times the profit gained or loss avoided as a result of an
unlawful purchase or sale of a security. For controlling persons who knowingly
or recklessly fail to take appropriate measures designed to prevent the
occurrence of insider trading violations, civil penalties of up to the greater
of three times the profit gained or loss avoided or $1,000,000 may be imposed.
In addition, criminal fines and jail terms may be imposed.


What is "Material Information"?

Material information generally means information relating to a company that
issues securities (an "issuer"), such as information about its business
operations or securities, the public dissemination of which would likely affect
the market price of any of its securities, or which would likely be considered
important by a reasonable investor in determining whether to buy, sell, or hold
such securities.


What is "Non-Public Information"?

Information that has not been disclosed to the public is generally non-public.
To show that information is public, there must be evidence that it is widely
disseminated. Information would generally be considered widely disseminated if
it has been disclosed, for example on the Dow Jones broad tape, news wire
services such as AP or Reuters, radio or television; or in newspapers or
magazines, or public disclosure documents filed with the Securities and Exchange
Commission, such as prospectuses, proxy statements, and periodic reports.


Examples of Inside Information

It is impossible to provide a complete list of information that may constitute
inside information, but it may include:

        .     Unpublished financial reports or projections;

        .     Information about current, proposed, or contemplated transactions,
              business plans, financial restructurings, or acquisition targets;

        .     Dividend increases or decreases;

        .     Extraordinary borrowings or liquidity problems;

        .     Material defaults under agreements or actions by creditors,
              clients, or suppliers relating to a company's credit standing;

        .     Proposed or contemplated issuance, redemption, or repurchase of
              securities or stock splits;

        .     Significant expansions or contractions of operations, including
              acquisitions, mergers, divestitures, and joint ventures, and
              purchases or sales of substantial assets;
<PAGE>

        .     Major new product developments;

        .     Significant increase or decrease in business or information about
              major contracts;

        .     Institution of, or developments in, major litigation,
              investigations, or regulatory actions or proceedings; and

        .     Developments regarding a company's senior management.


        Statement of General Policy Applicable to All Employees and Directors

        The following rules relate to your personal securities transactions. For
        purposes of these rules, your personal securities transactions include
        the securities transactions of your immediate family members, and the
        securities transactions of accounts in which you or your immediate
        family members have a beneficial interest or over which you or your
        immediate family members exercise investment discretion or control. If
        you or an immediate family member exercises investment discretion or
        control over non-related customer accounts in the normal course of
        employment responsibilities, those accounts are not subject to the pre-
        clearance and reporting requirements described below. However,
        transactions in such accounts may be subject to review by audit or
        compliance personnel.

        Immediate family members consist of your spouse, any minor children,
        older children living in your household, older children who rely
        primarily on you for financial support, and any other relatives (by
        blood, marriage, or otherwise) living in your household. The personal
        securities transactions of your immediate family members are subject to
        this Policy. You are responsible for their transactions being in
        compliance with these rules, and you must pre-clear and report their
        personal securities transactions as if such transactions were for your
        own account.

        1. General prohibition on insider trading:

           .   If you are aware of inside information concerning an issuer or
               its securities, including but not limited to PNC, you are
               prohibited from buying, selling, or recommending securities of
               that issuer. You also may not disclose such information to any
               other person, unless:

                  []    that person is employed by PNC and has a need to know
                        such information in connection with his or her
                        employment or supervisory responsibilities;

                  []    that person is employed by an outside firm (such as a
                        law, accounting, or investment banking firm) retained by
                        PNC and needs to know the information in connection with
                        the service to be provided by the firm to PNC; or

                  []    disclosure is otherwise authorized by the General
                        Counsel.

           .   Once the inside information is released to the public and has
               been widely disseminated, then you may buy, sell, or recommend
               securities of that issuer unless otherwise restricted in this
               Policy.

           .   Unless you are sure that information is not inside information,
               you should presume that it is or consult with the General
               Counsel.

2. Special rules regarding PNC Financial Services Group, Inc. securities:

           .   You are prohibited from purchasing or selling PNC securities
               beginning 15 days before the end of a calendar quarter until the
               second business day after PNC releases its earnings results for
               that
<PAGE>

        quarter (the "Blackout Period"). This prohibition does not include
        exercising with cash or already-owned PNC securities an option on PNC
        securities granted by PNC and holding the underlying securities received
        as a result of the option exercise. All pending purchase and sale orders
        regarding PNC securities that could be executed during a Blackout Period
        must be canceled before the beginning of the Blackout Period.

   .    You are prohibited from engaging in transactions in any derivative of
        PNC securities, including but not limited to puts, calls, and options.
        You are also prohibited from day trading (buying and selling the same
        securities during one calendar day) and short selling (selling the
        securities at a specified price on a specified date without owning the
        securities on the trade date) PNC securities. The receipt or exercise of
        an option grant or other derivative security pursuant to a PNC
        compensation plan is not a violation of the Policy.

        Note: There is a limited exception to the prohibition on derivative
        transactions for employees who have received PNC securities in
        connection with an acquisition. This exception is not available to PNC
        executive officers who are subject to Section 16 of the Securities
        Exchange Act of 1934. You will be informed if this exception applies to
        you. If this exception applies:

        []   You may sell or "write" covered call options, or purchase
             protective puts (either alone or in combination, as, for example,
             in establishing a collar), provided that such derivative
             instruments relate only to the number of PNC shares you originally
             acquired in connection with the acquisition.

        []   You may not enter into these transactions during a Blackout Period
             or at any time when you are aware of inside information regarding
             PNC.

        []   You must remain "covered" (that is, you must not sell the
             underlying PNC shares with respect to which you have entered into
             the derivative transaction) at all times during the term of the
             derivative instrument.

        []   You may not exercise any such instrument during a Blackout Period
             or at any time when you are aware of inside information regarding
             PNC. (The exercise by a counterparty to such a derivative
             transaction would not be deemed to violate this restriction.)

   .    If you fail to meet a margin call or otherwise default on a loan secured
        by PNC securities, and the PNC securities are liquidated during a
        Blackout Period or while you are aware of inside information, you may be
        deemed to be in violation of this Policy.


Pre-Clearance and Reporting Requirements

Restricted Employees and Directors (each as defined below) are subject to
additional pre-clearance and reporting requirements. If you are subject to these
requirements, under no circumstance may you effect a transaction in any
securities while you are aware of inside information, even if you have received
pre-clearance. The ultimate responsibility for determining whether you have
inside information rests with you. Pre-clearance of any particular transaction
under this Policy will not necessarily protect you from liability under the laws
prohibiting insider trading.

Restricted Employees
- --------------------

Restricted Employees include members of PNC's senior officer committee (the
Marketing Committee, as of the effective date of this Policy), executive
officers who are subject to the reporting requirements of Section 16 of the
Securities Exchange Act of 1934, designated employees of Mergers and
Acquisitions,
<PAGE>

and other employees designated by the Director of Corporate Compliance. You will
be informed if you have been designated a Restricted Employee.

If you are a Restricted Employee, you must obtain the approval of the Corporate
Secretary or designate before:

            .    buying or selling PNC securities and securities issued by PNC
                 affiliates that are publicly traded companies,

            .    making changes in elections or intra-plan transfers involving
                 PNC securities or phantom shares under any PNC compensation or
                 benefit plan,

            .    using PNC securities to secure a loan (including a margin
                 account), or

            .    making a gift of PNC securities.

You must also pre-clear through the Insider Transaction Authorization System
before buying or selling any publicly traded security other than securities
issued by PNC or a PNC affiliate.

If you are a Restricted Employee, you must have your broker(s) send periodic
statements at least quarterly of all of your purchases and sales of publicly
traded securities to Corporate Compliance at the same time the broker sends such
statements to you. In addition, you must provide periodic statements at least
quarterly to Corporate Compliance of all of your purchases and sales of publicly
traded securities other than through a broker-dealer.

The pre-clearance and reporting requirements do not apply to security
transactions involving open-end mutual funds (such as money market funds), unit
investment trusts, and U.S. government or federal agency obligations;
reinvestment of dividends pursuant to an issuer's dividend reinvestment plan
(but do apply to additional voluntary purchases or sales effected through such a
plan); purchases of PNC securities under the Employee Stock Purchase Plan; or
other situations where the Director of Corporate Compliance determines that
pre-clearance or reporting is not necessary.

Outside Directors
- -----------------

Members of the Boards of Directors of PNC and PNC Bank, National Association
must obtain the approval of the Corporate Secretary before:

            .    buying or selling PNC securities and securities issued by PNC
                 affiliates that are publicly traded companies,

            .    using PNC securities to secure a loan (including a margin
                 account),

            .    making a gift of PNC securities, or

            .    reallocating investments within the Directors Deferred
                 Compensation Plan.

If you are a director, you must have your broker(s) send duplicate copies of
trade confirmations of all of your purchases and sales of PNC securities (and
PNC affiliates' publicly traded securities) to the Corporate Secretary at the
same time the broker sends confirmations to you. In addition, you must report to
the Corporate Secretary any transaction in PNC securities other than through a
broker-dealer not later than 7 calendar days after such transaction.
<PAGE>

The pre-clearance and reporting requirements do not apply to the reinvestment of
dividends pursuant to PNC's dividend reinvestment plan (but do apply to
additional voluntary purchases or sales effected through the plan).



Other Pre-clearance and Reporting Requirements

A business unit may have or adopt policies governing the personal securities
transactions of some or all of the employees of that business unit. For example,
certain fiduciary, investment advisory, securities brokerage, and similar
business units have supplemental policies governing the personal securities
transactions of their employees. Such additional restrictions may include the
pre-clearance of securities transactions or reporting requirements. You will be
informed if you are in a business unit that has special policies applicable to
you, and you will be required to be familiar with and abide by these policies.


Securities of Clients

Employees of certain business units ("Designated Units") are prohibited from
purchasing or selling securities of their clients. Employees will be informed if
they are in a Designated Unit to which this restriction applies.

If you are in a designated unit and acquired securities of a client in a
transaction permitted by the Insider Trading Policy in effect before this
Policy, or before commencing employment in your business unit, you may continue
to hold such securities, but may not acquire any additional securities of that
client. You must disclose this investment to your business unit manager and
Corporate Compliance, and must obtain clearance from your business unit manager
and Corporate Compliance before selling any such client securities.


Securities of Affiliates

Certain PNC employees may be subject to different or additional restrictions
with respect to their transactions in securities issued by PNC affiliates that
are publicly-traded companies. You will be informed of any such restrictions if
they are applicable to you.


Information Barriers

Because PNC is a diversified financial institution, one business unit may have
inside information about an issuer while another business unit that does not
have such information may wish to buy or sell that issuer's securities or
recommend a purchase or sale of such securities. Information Barriers are
policies and procedures designed to separate business units that are likely to
receive inside information from business units that purchase, sell, or recommend
the purchase or sale of securities. Information Barrier policies and procedures
will be implemented for each applicable business unit.



Policy Presentation

A video tape that includes a summary of insider trading laws and review of this
Policy will be shown to each new employee of PNC. All new employees will be
required to certify in writing that they have seen or listened to the video
tape, understand this Policy, and will comply with the rules and standards set
forth in this Policy. Existing employees may from time to time also be required
to provide a written certification
<PAGE>

that they have followed this Policy. Periodically, the rules set forth in this
Policy will be reviewed with all employees through meetings, internal
communications and publications, or other means.


Audit

The General Auditor of PNC has the authority to audit compliance with this
Policy and the policies of the business units. Each employee must cooperate with
such an audit, including requests to provide documentation.


Noncompliance

If you fail to comply with this Policy (including the refusal to re-certify
compliance with it upon request or cooperate with an audit), you will be subject
to disciplinary action, which could include termination of employment. In
addition, apparent or suspected violations of laws applicable to PNC's business
may be reported to appropriate authorities.

This Policy is not intended to result in the imposition of legal liability that
would not exist in the absence of the Policy.


Exhibit 3: Drug Abuse Policy Summary

Summary
We are committed to promoting and maintaining a drug-free workplace. An
employee's illegal use of drugs interferes with effective and safe job
performance, which is a matter of company concern. For this reason, it is our
policy to prohibit employees from illegally using, possessing, distributing,
selling or manufacturing, or being under the illegal influence of drugs while
working or while on company property.

"Drugs" refer to, but are not limited to, controlled substances and any
potentially mind-altering chemicals. This includes, but is not limited to,
depressants (barbiturates); stimulants (amphetamines); cocaine; narcotics
(opiates, such as heroin, morphine and codeine); hallucinogens (PCP, LSD);
methadone, marijuana and other cannabinoids; legally obtainable drugs, with
prescriptions (Darvon, Valium, Librium); and over-the-counter drugs.

According to the PNC Bank Drug Abuse Policy, a job applicant who is offered
employment must successfully pass a drug screening test as a condition of
employment. Failure to pass the test will render the offer null and void. In
addition, an employee may be asked to submit to a drug screening test where
there is reason to believe that he or she may have violated the Drug Abuse
Policy. Further, in the future, drug screening tests may be conducted on those
employees whose jobs are of a sensitive nature and whose use of drugs,
therefore, would pose a risk to the company or the security or safety of
co-workers and the public.

We have developed procedures and guidelines for determining whether to require
an employee to take a drug test. The procedures include possible consultation
with designated legal and Human Resources personnel and/or a medical evaluation.
Because employees will only be required to take a test when there is reasonable
cause to believe that the employee may have violated the Drug Abuse Policy, and
after specified procedures have been followed, the employment of an employee who
refuses to take a drug test will be terminated.

All drug screening tests will be conducted by an independent, certified
toxicology laboratory, and all test results will be reviewed by an independent
Medical Review Officer.
<PAGE>

We have the right to search all company property assigned to employees and
personal possessions brought onto company property or premises. The privacy of
employees will be preserved to the extent possible.

Employees who violate the Drug Abuse Policy will be subject to disciplinary
action up to and including employment termination.


Employees are encouraged to seek help with any drug abuse problem and are
reminded of the availability of the various corporate benefit programs. Any
eligible employee may voluntarily participate in a recognized drug
rehabilitation and/or other appropriate counseling program to treat an existing
drug use problem provided that he or she has not previously violated the Drug
Abuse Policy. In that event, admitting to drug use and participating in a drug
rehabilitation and/or other appropriate counseling program will not be
considered a violation of the Drug Abuse Policy as long as the employee
successfully completes the program and agrees to be subject to random drug
screening tests for a period of two years and one month following initiation of
the program.

Any employee who participates in a drug rehabilitation and/or counseling
program, whether voluntarily or as a result of disciplinary action, will be
subject to random drug screening tests for a period of two years and one month
following initiation of the program.

Employees who are convicted in a court of law or plead guilty to the use,
possession, manufacture, distribution and/or sale of drugs occurring on company
premises are required to notify us in writing within five days of such
conviction or plea.

Notwithstanding the foregoing, management has the right to take whatever
disciplinary action it deems advisable, and deny any or all benefits under the
Drug Abuse Policy, if such employee has violated any other PNC Bank and/or
company policy or procedure.

Any employee who wishes to review the PNC Bank Drug Abuse Policy should contact
his or her market Human Resources representative.


Exhibit 4: PNC Bank Electronic Media Policy

Introduction

PNC Bank ("PNC") employees have access to and use one or more forms of
electronic media, for example, e-mail products such as OfficeVision and Lotus
Notes, online services, the Internet, the World Wide Web, PNC Intranet, and
electronic devices such as cellular phones and facsimile machines. PNC
encourages proper use of these media because they make communication more
efficient and effective and because they are valuable sources of information.

The purpose of this Electronic Media Policy ("Policy") is to summarize key
elements of what constitutes the proper use of electronic media by PNC
employees. The Policy applies to your use of all electronic media and services
when:

        .   accessed on, or from, company premises;

        .   accessed using company computers, facsimile machines or other
            equipment;
<PAGE>

        .   using PNC's leased or purchased services (e.g., the PNC
            corporate network, the company's Internet connection or
            external service providers); or

        .   the media is used in a manner that identifies the employee with
            PNC Bank (e.g., you join a chat room or publish a comment on
            the Internet referencing PNC).

You should be aware that the Policy applies even when using your own personal
computer, cellular phone or other resources, if one of the above factors
applies.

This Policy is part of the PNC Bank Code of Ethics. Other PNC policies and
procedures may also be applicable and should be considered.


Electronic Media:  Company Property and Business Use

Electronic media and services are resources provided by the company to
facilitate company-related business. Employees need to demonstrate a sense of
responsibility and good judgment, just as with any company resource.

        .   You may not create, scan, fax, download, copy, or send articles,
            jokes, stories, chain letters and other similar items of personal
            interest to another employee, person or entity.

        .   You may not use e-mail products for any purpose unrelated to
            performance of your job duties, such as to sell raffle tickets or
            tickets to personal dinner events, unless directed by your
            supervisor or manager. Solicitations are governed by PNC's
            solicitation policy (ss.2.09.4, Code of Ethics)

        .   You may never use electronic (or any other) media to communicate
            offensive, harassing, pornographic or other inappropriate material.

Should you have questions on what is appropriate business use of electronic
media, please contact your supervisor, your Human Resources representative or
any other Key Contact as set forth in the Addendum to PNC's Code of Ethics.

Software and Copyrights

Only software developed, owned or licensed by PNC Bank may be installed on PNC
computing resources and used for the purpose of promoting PNC's business. All
employees are required to comply with software copyright laws and licensing
agreements. Unauthorized duplication of licensed software and documentation is
strictly prohibited.


Electronic Media Privacy

PNC Bank does not guarantee the privacy of communications transmitted over
company established electronic media links. You should assume such
communications are not private, and you should observe the Confidentiality
section of the PNC Bank Code of Ethics (ss. 2.01). Especially with cellular
phones, you should assume that a third party may have the opportunity to
overhear your conversation. Your use of electronic media, and the content of
your communications, is subject to monitoring by PNC for operational,
maintenance, security, business, legal or regulatory reasons.


System Security
<PAGE>

PNC policies regarding system security are set forth in PNC's Information
Security Policy Manual; detailed Internet security controls and design
requirements are provided at ss.1100, No. 1104. Important considerations you
should be aware of:

        .     Any business requirement resulting in file transfers over the
              Internet must be approved by your cost center manager. All files
              downloaded from the Internet must be from "known" reliable sources
              and must be scanned with PNC Bank standard anti-virus software.

        .     You may not use the Internet to communicate sensitive or
              confidential information unless management approved encryption
              standards are implemented. The Confidentiality section of the Code
              of Ethics (ss.2.01) should be observed in any communications using
              electronic media.

        .     Access to the Internet from company resources (i.e., from PNC
              equipment or through PNC employees) must be approved through
              secured corporate gateways, approved and configured in accordance
              with PNC Information Technology Services standards. Passwords
              maintained on Internet-based systems must be different from
              passwords used on PNC Bank systems.

        .     Certain Internet browsers and other similar technologies which are
              used to access World Wide Web-based resources and services,
              include the ability to store information locally in files that can
              be retained for an indefinite period. Browsers must be configured
              to ensure that any "temporary" information used during online
              sessions is not permanently stored on local user computers.

You should be aware that the network services and World Wide Web sites can
identify individuals and companies accessing their services, and can and do
monitor access and usage.


PNC Products and Services:  Public Relations and Customer Interaction

Products and services provided by PNC, regardless of the media used, are subject
to a variety of legal and regulatory restrictions applicable to such matters as
advertising, product and service availability, costs and fees, and disclosures
and descriptions. Existing guidelines regarding product functions and features
need to be complied with by all employees. The policies and procedures that
govern employee behavior regarding customer contact are applicable to all
interactions via electronic media.

        .     Employees should not use their status as PNC employees to set
              forth opinions, comments or information that may be contrary to
              PNC's interests. Therefore, participation in online chat rooms and
              publication of information involving PNC must be conducted with
              care. You may not use company resources to create your own pesonal
              Web site.

        .     Any negative or misleading information found on electronic media
              concerning PNC Bank should be referred to Public Relations
              immediately. Individual employees should not respond to such
              items.

        .     The standards for the Internet apply the same basic, corporate
              identity standards as those used in print which meet the
              objectives of visual clarity and consistency.

        .     Lines of business creating a PNC Intranet must observe corporate
              standards, including those defined for the PNC logo.

The Public Relations Department should be consulted if you have any questions.
<PAGE>

Enforcement

In today's business environment, electronically distributed information can be
transmitted much more quickly than in the past, so it is important to use
caution and abide by the above principles in all stages of the use of electronic
media.

Any employee found to be abusing the privilege of company-facilitated access to
electronic media or devices is subject to disciplinary action, which may include
termination of employment. Please speak to your supervisor or manager if you
have any questions or contact the resources identified above. You may also use
your Key Contacts and Reference Guide in your Code of Ethics Addendum to help
you reach the appropriate person at PNC to assist you.


(Note - there is no Exhibit 5)

Exhibit 6: PNC Stock Ownership Policy


      (POLICY REGARDING OWNERSHIP OF STOCK IN PUBLICLY HELD SUBSIDIARIES)

Purpose

This is the stock ownership policy contemplated by Section 2.05.8 of the PNC
Code of Ethics. The purpose of this policy is to avoid conflicts of interest or
the appearance of conflicts of interest on the part of PNC personnel who are
responsible for the relationship or transactions between PNC and its publicly
held subsidiaries, while promoting ownership of stock in PNC and its publicly
held subsidiaries.


Scope

This policy applies to PNC personnel who act, and exercise decision-making
authority, on behalf of PNC with respect to the relationship or transactions
between PNC and its publicly held subsidiaries. This policy does not apply to
directors, officers and employees of a publicly held subsidiary whose principal
employment or relationship is with that subsidiary.


Definitions

1.   For purposes of this policy, PNC includes PNC Financial Services Group,
     Inc. and its subsidiaries other than the publicly held subsidiary in
     question.
2.   PNC personnel includes directors, officers and employees of PNC Financial
     Services Group, Inc. and any of its subsidiaries other than persons whose
     principal employment or relationship is with the publicly held subsidiary
     in question.
3.   Publicly held subsidiary means any entity in which PNC Financial Services
     Group, Inc. directly or indirectly owns at least 25% of the outstanding
     capital stock or other equity interest and that is subject to periodic
     reporting requirements under the federal securities laws.


Relative Ownership Requirement

PNC personnel within the scope of this policy shall not acquire or hold an
equity interest in a publicly held subsidiary of PNC that materially exceeds in
value such person's equity interest in PNC Financial Services Group, Inc.
<PAGE>

Your equity interest will be based for this purpose on the fair market value of
securities (including phantom stock units) owned directly or indirectly through
employee benefit or deferred compensation plans, owned beneficially through
trusts or other vehicles, or that may be acquired upon exercise of stock
options, whether exercisable or not.

Your equity interest includes securities owned by your spouse, any minor
children, older children living in your household, older children who rely
primarily on you for financial support, and other relatives (by marriage or
otherwise) living in your household.


Monitoring Requirements

PNC personnel within the scope of this policy should monitor their compliance
with this Policy.

PNC personnel subject to this policy have 90 days from discovering an instance
of noncompliance to reestablish compliance with this policy, unless an exception
is granted or, under applicable insider trading policy or law, securities
transactions to reestablish compliance are restricted in this time frame. In the
latter event, compliance must be reestablished promptly after such restriction
lapses.


Questions

Questions regarding this policy should be directed to PNC's General Counsel or
Corporate Secretary.



Exhibit 7: PNC Policy for Employees Holding Director and Officer Positions
in Outside Profit and Non-Profit Organizations

Introduction

The purpose of the PNC Policy for Employees Holding Director and Officer
Positions in Outside Profit and Non-Profit Organizations ("Policy") is to
establish certain rules and procedures for employees who hold or are considering
taking a position as a director, trustee, officer or other similar position in a
for-profit or non-profit corporation or other organization outside of PNC
("director/officer positions"). This Policy applies to all outside
director/officer positions you currently hold as well as to any future positions
and should be read together with the entire PNC Code of Ethics. It is your
responsibility to understand and comply with this Policy and the PNC Code of
Ethics.

If you have any questions regarding this Policy, you should contact your
manager, your Human Resources (HR) representative, the Corporate Ethics Office,
or any of the Key Contacts identified in the Addendum to the PNC Code of Ethics.
References to "PNC" apply to The PNC Financial Services Group, Inc. and/or its
subsidiaries.

Serving at the Request of PNC

Employees will be deemed to be serving in a director/officer position in an
organization outside of PNC at the request of PNC only if they obtain written
approval from the CEO or the Vice Chairman of The PNC Financial Services Group,
Inc. (or in the case of the CEO or the Vice Chairman, from the Board of
Directors or its Corporate Governance Committee).
<PAGE>

Note: "At the request of PNC" means at the request of the PNC entity by which
the employee is employed unless otherwise specified on the written approval
form.


Approval Requirements if You are Serving at the Request of PNC

Employees who are asked to serve in a director/officer position in an outside
organization at the request of PNC must submit the "Form for Approval to Serve
at the Request of PNC" to the Corporate Ethics Office. Prior to submission for
final approval by the CEO or the Vice Chairman, the request must first be
approved by the employee's Manager, Business CEO or Director of Staff Function,
and Business HR Manager (as applicable). You can obtain a copy of this Form from
PNC's internal website, from your HR representative, or from the Corporate
Ethics Office.

The CEO or the Vice Chairman will be deemed to be serving at the request of PNC
if the outside director/officer position is approved by The PNC Financial
Services Group, Inc. Board of Directors or its Corporate Governance Committee.

Approvals for all such requests will be based on the best interest of PNC.
Approvals will be reviewed annually by the CEO or Vice Chairman or, in the case
of the CEO or the Vice Chairman, by the Corporate Governance Committee, and may
be modified or withdrawn at any time.

Employees will be considered for possible coverage in their capacity as outside
directors/officers under PNC's directors and officers liability insurance policy
and for possible indemnification by the applicable PNC entity only with respect
to outside director/officer positions approved as being at the request of PNC in
accordance with this Policy, subject in each case to applicable law and
governing documents. Any exceptions must be approved by the CEO or the Vice
Chairman of The PNC Financial Services Group, Inc. (or, in the case of the CEO
or the Vice Chairman, by the Board of Directors or its Corporate Governance
Committee).

Public Office Directors/Officers

Employees considering or accepting a director/officer position that is also a
public office position (such as school board director) must comply with the PNC
Public Office Policy, which is Exhibit 8 to the PNC Code of Ethics.


All Other Outside Director/Officer Positions

Employees otherwise wishing to serve in a director/officer position in an
outside organization are not required to provide notification or to obtain
approval from PNC. However, the following rules apply:

1.   You may not serve if the outside organization is a PNC competitor.

Note: For purposes of this Policy, a competitor means any organization, wherever
located, that engages in any of the same businesses as PNC. Further, if an
outside organization is or has a bank, thrift or other depository organization
anywhere within its group of affiliates, all members of that group are
considered competitors.

2. You may not serve if your involvement with the outside organization would
interfere with or impede your ability to perform your job duties and
responsibilities at PNC.

3. You may not serve if your involvement with the outside organization would
create a conflict with, or be reasonably perceived as conflicting with, the
interests of PNC. If you accept a director/officer position in
<PAGE>

an outside organization and a conflict of interest (actual or perceived)
develops, you may be required to leave the outside organization or to resign
your position with PNC.

4. Under certain circumstances, you may not serve if PNC holds an equity
interest in the outside organization. It is your responsibility to ask the
outside organization if PNC holds such an interest. If so, you must contact the
Corporate Ethics Office to determine whether or not you may accept the
director/officer position.

Note: Equity held by PNC includes equity held for PNC's own account and equity
PNC holds as a trustee or other fiduciary. Equity interests may also include
options, convertible debt and other instruments.

Certain Additional Responsibilities

By serving as a director/officer in an outside organization, you will also have
certain responsibilities to that organization. You should be sure that you
understand and comply with those responsibilities.

There may be occasions where contracts or transactions involving PNC are
discussed or decided by that outside organization (e.g., the outside
organization is interested in obtaining a loan from PNC or in engaging PNC as a
trustee of a plan, program or fund, such as a pension plan or an endowment
fund). In these instances, after disclosing your relationship with PNC, you
should not participate in such discussions or in the decision-making process. If
you are a director of the outside organization, you should ask the Board
secretary to reflect in the meeting minutes that you did not participate in the
discussions and did not vote on that matter because of your relationship with
PNC.

Data Collection

PNC may collect information related to director/officer positions held by PNC
employees in outside organizations from you for marketing or other business
purposes. Neither a request for information related to outside director/officer
positions nor an employee response to such a request will mean or imply that the
employee is serving in such position(s) at the request of PNC.

Exceptions

Any exceptions or amendments to this Policy must be approved by the PNC Ethics
Policy Committee or the Director of Compliance or as otherwise provided in this
Policy.


Exhibit 8: PNC Public Office Policy


Introduction

The purpose of the PNC Public Office Policy ("Policy") is to establish certain
rules for employees who campaign for or seek appointment to a public office, who
serve as public officials, or who serve as members of another candidate's
political campaign committee ("public office positions"). This Policy applies to
all public office positions you currently hold as well as to any future
positions and should be read together with the entire PNC Code of Ethics. It is
your responsibility to understand and comply with this Policy and the PNC Code
of Ethics.

If you have any questions regarding this Policy, you should contact your
manager, your Human Resources (HR) representative, the Corporate Ethics Office,
or any of the Key Contacts identified in the Addendum to the PNC Code of Ethics.
References to "PNC" apply to The PNC Financial Services Group, Inc. and/or its
subsidiaries.
<PAGE>

General Rules

Service in a public office position is not at the request of PNC. Employees
wishing to serve in a public office position are not required to provide
notification to or obtain approval from PNC. However, the following rules apply.

    .    General

         []  You may not serve if your involvement would interfere with or
             impede your ability to perform your job duties and responsibilities
             at PNC.

         []  You may not serve if your involvement would create a conflict with,
             or be reasonably perceived as conflicting with, the interests of
             PNC. If you accept a public office position and a conflict of
             interest (actual or perceived) develops, you may be required to
             leave your public office position or to resign your position with
             PNC.

         []  You may not represent or act on behalf of PNC in connection with
             any matter or transaction between PNC and your campaign, the
             governmental entity you serve, or the campaign of any other
             political candidate for which you are a member of the political
             campaign committee.


    .    While You are Campaigning for or Seeking Appointment To a Public Office
         or Serving as a Member Of Another Candidate's Political Campaign
         Committee

         Before beginning a campaign for public office or accepting such
         position, you must receive confirmation from the solicitor or other
         counsel for the governmental entity that your service as a public
         official would not prevent PNC from doing business with that
         governmental entity. All correspondence concerning campaign business,
         including but not limited to, campaign fundraising, must be on campaign
         letterhead exclusively and may not contain any reference to your status
         as a PNC employee other than to factually state your employment
         history.

         []  You may not engage in campaign business during working hours. To
             avoid any appearance of sponsorship or endorsement, PNC's name may
             not be used in any campaign material or in any fundraising
             activities, other than to factually state your employment history.

         []  You may not take a paid leave of absence to work on your or another
             candidate's campaign, except earned vacation time. If you take an
             unpaid leave of absence, either you or the campaign must promptly
             reimburse PNC for any benefits (e.g., insurance) provided by PNC to
             you during that leave of absence.

         []  You may not solicit contributions from any employee of PNC Capital
             Markets or any other PNC employee without first obtaining
             preclearance from the PNC Legal Department.

         []  Your campaign (or the campaign you are serving) may not use PNC's
             facilities, equipment, supplies or personnel in connection with the
             campaign effort. Volunteer efforts conducted after working hours
             off PNC premises are permitted, but PNC equipment and supplies may
             not be used in such efforts.

         []  You may not direct or coerce any PNC employee to provide services
             to a campaign, or make the provision of such services a condition
             of employment. You may not ask PNC employees to work on your or
             another candidate's campaign, even on a volunteer basis, unless you
             have obtained preclearance from the PNC Legal Department.
<PAGE>

         []   PNC does not make political contributions to any candidate or
              campaign committee. You must therefore avoid any circumstance
              involving the use of PNC facilities or personnel that could be
              interpreted as an in-kind corporate contribution to the campaign.

    .    While Serving as a Public Official

         []   You may not solicit business between PNC and any governmental
              entity of which you are a public official.

         []   If at any time you are contemplating a change in your PNC duties
              that would involve the municipal securities business undertaken by
              a PNC affiliate, you must have your situation reviewed by the PNC
              Legal Department before accepting any such position.

Certain Additional Responsibilities

By serving as a public official, you will also have certain responsibilities to
the governmental entity you serve. You should be sure that you understand and
comply with those responsibilities.

There may be occasions where contracts or transactions involving PNC are
discussed or decided by the governmental entity you serve. In these instances,
after disclosing your relationship with PNC, you should not participate in such
discussions or in the decision making process.

Data Collection

PNC may collect information related to public office positions held by PNC
employees from you for various business purposes. Neither a request for
information related to public office positions nor an employee response to such
a request will mean or imply that the employee is serving in such position(s) at
the request of PNC.

Exceptions

Any exceptions or amendments to this Policy must be approved by the PNC Ethics
Policy Committee or the Director of Compliance.


Key Contacts and Reference Guide


Under the PNC Bank Code of Ethics, the Reporting Procedures outlined in the Code
provide a number of individuals to contact to assist you regarding
notifications, prior approvals, report a potential Code violation or a concern,
or any questions regarding the Code. The Key Contacts and Reference Guide lists
those persons you will be dealing with most frequently regarding Code matters
and how to contact them, as well as resource materials and how to obtain them.
You are encouraged to call anyone with whom you feel comfortable.

KEY CONTACTS
<PAGE>

<TABLE>
<CAPTION>

<S>                           <C>                  <C>                  <C>                  <C>
- ---------------------------------------------------------------------------------------------------------------
 BUSINESS                         NAME                 PHONE                 FAX                MAILSTOP
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Human Resources/ Employee Relations Representatives
Employees working in:
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
 BlackRock                 Robert P. Connolly      (212) 409-3743       (212) 409-3744        XX-R345-30-1
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
 Corporate                      Jim Popp           (412) 768-2378       (412) 762-3985        P2-PTPP-02-1
 Bank/Treasury
 Management
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
 Employees in Other        Linda K. Williamson     (412) 762-5413       (412) 762-2256        P2-PTPP-02-1
 Areas
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
 Regional Community Bank     Theresa Kiwior         570-961-6174         570-961-6340         N1-NADM-04-A
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
 PNC Advisors                  Vic Orriola          412-768-5983         412-762-3142         P1-POPP-29-1
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
 TPS
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
 Staff Services               Marilyn Crump        (412) 762-2193       (412) 762-2256        P2-PTPP-02-1
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
SECURITY SERVICES
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
 PNC Bank Helpline:       1-800-937-4445 When calling, select option #2 (Security Services), then select #4
                          (Incident Reporting)
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
 Director of Corporate       John P.Ericksen       (412) 762-7761       (412) 762-0726        P2-PTPP-06-1
 Security Services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
CORPORATE COMPLIANCE:  For Any Matter Under the Code
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
 Director, Corporate
 Compliance/Risk               Eva T. Blum         (412) 762-2748       (412) 705-0829        P1-POPP-22-2
 Management &
 Administrator
 of the Code
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
 Senior Compliance         Michelle O. Manning     (412) 762-8234       (412) 705-0829        P1-POPP-22-2
 Manager
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
 Code of Ethics Manager        Peg Holmes          (412) 762-8205       (412) 705-0829        P1-POPP-22-2
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
  GENERAL COUNSEL: For Any Matter Under the Code
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
     General Counsel         Helen P. Pudlin       (412) 762-7987       (412) 762-5920        P1-POPP-21-1
                                                   (215) 585-5174       (215) 585-8564        F5-F012-02-7
- ---------------------------------------------------------------------------------------------------------------
</TABLE>


REFERENCE GUIDE

PNC Bank Code of Ethics Forms

All Code Forms are available on PNC's Intraweb, Lotus Notes, or from your Human
Resources Department. Sample copies of the Forms are attached as Exhibit 1 to
the Code.

<TABLE>
<CAPTION>

<S>                                             <C>
- ---------------------------------------------------------------------------------------------------------------
 Form                                              Description
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
 Notification/Approval Form                        This Form is used to provide notification or obtain
 (Exhibit 1A)                                      approval under the Code. You should follow the
                                                   instructions on the reverse side. Matters which require
                                                   notification or prior approval are summarized in Section
                                                   1.02 of the Code.
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
 Form for Approval to Serve at the Request of     This Form is used to obtain all necessary approvals in
 necessary approvals in PNC (Exhibit 1-B)         accordance with the PNC Policy for Employees Holding Director
                                                  and Officer Positions in Outside Profit and Non-Profit
                                                  Organizations (attached as Exhibit 7 to the Code).
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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