<SEC-DOCUMENT>0000950131-01-503692.txt : 20011009
<SEC-HEADER>0000950131-01-503692.hdr.sgml : 20011009
ACCESSION NUMBER:		0000950131-01-503692
CONFORMED SUBMISSION TYPE:	N-2/A
PUBLIC DOCUMENT COUNT:		6
FILED AS OF DATE:		20011003

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			BLACKROCK NEW YORK MUNICIPAL INCOME TRUST
		CENTRAL INDEX KEY:			0001137390
		STANDARD INDUSTRIAL CLASSIFICATION:	 []

	FILING VALUES:
		FORM TYPE:		N-2/A
		SEC ACT:		1933 Act
		SEC FILE NUMBER:	333-67998
		FILM NUMBER:		1751048

	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

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			BLACKROCK NEW YORK MUNICIPAL INCOME TRUST
		CENTRAL INDEX KEY:			0001137390
		STANDARD INDUSTRIAL CLASSIFICATION:	 []

	FILING VALUES:
		FORM TYPE:		N-2/A
		SEC ACT:		1940 Act
		SEC FILE NUMBER:	811-10337
		FILM NUMBER:		1751049

	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>AMENDMENT #2 - NEW YORK
<TEXT>
<PAGE>


  As filed with the Securities and Exchange Commission on October 2, 2001

                                       Securities Act Registration No. 333-67998
                                   Investment Company Registration No. 811-10337

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

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM N-2

          REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]

                       Pre-Effective Amendment No. 2                    [X]

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

                              AMENDMENT NO. 6                           [X]


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

                   BlackRock New York 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 New York 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 &            Simpson Thacher & Bartlett
                Flom LLP                          425 Lexington Avenue
           Four Times Square                    New York, New York 10017
        New York, New York 10036

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

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

        CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

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

<TABLE>
<CAPTION>
                                        Amount       Proposed         Proposed
                                        Being    Maximum Offering Maximum Aggregate      Amount of
Title of Securities Being Registered  Registered  Price per Unit   Offering Price   Registration Fee(1)
-------------------------------------------------------------------------------------------------------
<S>                                   <C>        <C>              <C>               <C>
Preferred Shares, $.001
 par value.............                 4,390        $25,000        $109,750,000          $27,438
</TABLE>


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



(1)  $27,438 previously paid.


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

   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 NEW YORK 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

 Item 4.  Financial Highlights.................. Financial Highlights
                                                  (unaudited)

 Item 5.  Plan of Distribution.................. Cover Page; Prospectus
                                                  Summary; Underwriting

 Item 6.  Selling Shareholders.................. Not Applicable

 Item 7.  Use of Proceeds....................... Use of Proceeds; The Trust's
                                                  Investments

 Item 8.  General Description of the             The Trust; The Trust's
           Registrant...........................  Investments; Risks;
                                                  Description of Preferred
                                                  Shares; Certain Provisions
                                                  in the Agreement and
                                                  Declaration of Trust

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

 Item 10. Capital Stock, Long-Term Debt, and
           Other Securities..................... Description of Preferred
                                                  Shares; Description of
                                                  Common Shares; Certain
                                                  Provisions in the Agreement
                                                  and Declaration of Trust;
                                                  Tax Matters

 Item 11. Defaults and Arrears on Senior
           Securities........................... Not Applicable

 Item 12. Legal Proceedings..................... Legal Opinions

 Item 13. Table of Contents of the Statement of
           Additional Information............... Table of Contents for the
                                                  Statement of Additional
                                                  Information
</TABLE>
<PAGE>

                  Part B--Statement of Additional Information

<TABLE>
<CAPTION>
               Items in Part A of Form N-2          Location in Prospectus
               ---------------------------          ----------------------
 <C>      <C>                                    <S>
 Item 14. Cover Page............................ Cover Page

 Item 15. Table of Contents..................... Cover Page

 Item 16. General Information and History....... Not Applicable

 Item 17. Investment Objective and Policies..... Investment Objective and
                                                  Policies; Investment
                                                  Policies and Techniques;
                                                  other Investment Policies
                                                  and Techniques; Portfolio
                                                  Transactions

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

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

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

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

 Item 22. Tax Status............................ Tax Matters

 Item 23. Financial Statements.................. Report of Independent
                                                  Auditors; Financial
                                                  Highlights (unaudited)
</TABLE>

                           Part C--Other Information

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


               SUBJECT TO COMPLETION, DATED OCTOBER   , 2001


PROSPECTUS

                                  $109,750,000

                   BlackRock New York Municipal Income Trust
               Municipal Auction Rate Cumulative Preferred Shares
                              ("Preferred Shares")
                            2,195 Shares, Series W7
                            2,195 Shares, Series F7
                    Liquidation Preference $25,000 per share

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

   Investment Objective. BlackRock New York Municipal Income Trust (the
"Trust") is a recently organized, non-diversified, closed-end management
investment company. The Trust's investment objective is to provide current
income exempt from regular Federal income tax and New York State and New York
City personal income taxes.

   Portfolio Contents. The Trust will invest primarily in municipal bonds that
pay interest that is exempt from regular Federal income tax and New York State
and New York City personal income taxes. 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
Investors 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.

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

   Investing in the Preferred Shares involves certain risks. See "Risks"
beginning on page 16. The minimum purchase amount of the Preferred Shares is
$25,000.

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

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


<TABLE>
<CAPTION>
                                                         Per Share    Total
                                                         --------- ------------
       <S>                                               <C>       <C>
       Public Offering Price............................  $25,000  $109,750,000
       Sales Load.......................................  $   250  $  1,097,500
       Proceeds to Fund (before expenses)(/1/)..........  $24,750  $108,652,500
</TABLE>

--------

(/1/Not)including offering expenses payable by the Trust estimated to be
    $193,101. The Trust, its investment advisor, BlackRock Advisors, Inc., and
    its investment sub-advisor, BlackRock Financial Management, Inc., have
    agreed to indemnify the several Underwriters against certain liabilities,
    including liabilities under the Securities Act of 1933, as amended, and the
    Investment Company Act of 1940, as amended.


   The underwriters are offering the Preferred Shares subject to various
conditions. The underwriters expect to deliver the Preferred Shares to
purchasers, in book-entry form, through the facilities of The Depository Trust
Company on or about October 5, 2001.


                                ----------------
Salomon Smith Barney                                         Merrill Lynch & Co.
A.G. Edwards & Sons, Inc.                                  Prudential Securities
                                  UBS Warburg
Gruntal & Co., L.L.C.                          J.J.B. Hilliard, W.L. Lyons, Inc.
                                                         A PNC Company

October   , 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 October  , 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 40 of this
prospectus, by calling (888) 825-2257 or by writing to the Trust, or obtain a
copy (and other information regarding the Trust) from the Securities and
Exchange Commission web site (http://www.sec.gov)


   The Preferred Shares do not represent a deposit or obligation of, and are
not guaranteed or endorsed by, any bank or other insured depository
institution, and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other government agency.

   The Trust is offering 2,195 shares of Series W7 Municipal Auction Rate
Cumulative Preferred Shares and 2,195 shares of Series F7 Municipal Auction
Rate Cumulative Preferred Shares. The shares are referred to in this prospectus
as "Preferred Shares." The Preferred Shares have a liquidation preference of
$25,000 per share, plus any accumulated, unpaid dividends. The Preferred Shares
also have priority over the Trust's common shares as to distribution of assets
as described in this prospectus. It is a condition of closing this offering
that the Preferred Shares be offered with a rating of "aaa" from Moody's and
"AAA" from S&P.

   The dividend rate for the initial dividend rate period will be  % for Series
W7 and  % for Series F7. The initial rate period is from the date of issuance
through October 17, 2001 for Series W7 and October 21, 2001 for Series F7. For
subsequent rate periods, Preferred Shares pay dividends based on a rate set at
auction, usually held weekly. Prospective purchasers should carefully review
the auction procedures described in this prospectus and should note: (1) a buy
order (called a "bid order") or sell order is a commitment to buy or sell
Preferred Shares based on the results of an auction; (2) auctions will be
conducted by telephone; and (3) purchases and sales will be settled on the next
business day after the auction.

   The Preferred Shares are redeemable, in whole or in part, at the option of
the Trust on the second business day prior to any date dividends are paid on
the Preferred Shares, and will be subject to mandatory redemption in certain
circumstances at a redemption price of $25,000 per share, plus accumulated but
unpaid dividends to date of the redemption, plus a premium in certain
circumstances.


   Preferred Shares are not listed on an exchange. You may only buy or sell
Preferred Shares through an order placed at an auction with or through a
broker-dealer that has entered into an agreement with the auction agent and the
Trust or in a secondary market maintained by certain broker-dealers. These
broker-dealers are not required to maintain this market, and it may not provide
you with liquidity.

   Dividends on Preferred Shares, to the extent payable from tax-exempt income
earned on the Trust's investments, will be exempt from regular Federal income
tax in the hands of owners of such shares. All or a portion of the Trust's
dividends may be subject to the Federal alternative minimum tax. The Trust is
required to allocate net capital gains and other taxable income, if any,
proportionately between common and preferred shares, including the Preferred
Shares, based on the percentage of total dividends distributed to each class
for that year. The Trust may at its election give notice of the amount of any
income subject to Federal income tax to be included in a dividend on a
Preferred Share in advance of the related auction. If the Trust does not give
such advance notice, it generally will be required to pay additional amounts to
holders of Preferred Shares in order to adjust for their receipt of income
subject to regular Federal income tax.

                                       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 provided by 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
Financial Highlights (Unaudited)...........................................   9
The Trust..................................................................  10
Use of Proceeds............................................................  10
Capitalization (Unaudited).................................................  11
Portfolio Composition......................................................  11
The Trust's Investments....................................................  12
Risks......................................................................  16
Management of the Trust....................................................  19
Description of Preferred Shares............................................  22
The Auction................................................................  29
Description of Common Shares...............................................  34
Certain Provisions in the Agreement and Declaration of Trust...............  34
Repurchase of Common Shares................................................  35
Tax Matters................................................................  36
Underwriting...............................................................  38
Custodian and Transfer Agent; Auction Agent................................  39
Legal Opinions.............................................................  39
Available Information......................................................  39
Table of Contents for the Statement of Additional Information..............  40
Appendix A--Tax Equivalent Yield Table..................................... A-1
</TABLE>

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

                        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 Preferred Shares. You should
read the more detailed information contained in this prospectus, the Statement
of Additional Information and the Fund's Statement of Preferences of Municipal
Auction Rate Cumulative Preferred Shares (the "Statement") attached as Appendix
A to the Statement of Additional Information. Capitalized terms used but not
defined in this prospectus shall have the meanings given to such terms in the
Statement.

The Trust...................  BlackRock New York Municipal Income Trust is a
                              recently organized, non-diversified, closed-end,
                              management investment company. Throughout the
                              prospectus, we refer to BlackRock New York
                              Municipal Income Trust simply as the "Trust" or
                              as "we," "us" or "our." The Trust is designed to
                              provide tax benefits to investors who are
                              residents of New York. See "The Trust." The
                              Trust's common shares are traded on the New York
                              Stock Exchange under the symbol "BNY". See
                              "Description of Common Shares." As of September
                              21, 2001, the Trust had 12,428,028 common shares
                              outstanding and net assets of $179,060,457.

Investment Objective........  The Trust's investment objective is to provide
                              current income exempt from regular Federal income
                              tax and New York State and New York City personal
                              income taxes.

Investment Policies.........  The Trust will invest primarily in municipal
                              bonds that pay interest that is exempt from
                              regular Federal income tax and New York State and
                              New York City personal income taxes. 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
                              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

                                       4
<PAGE>

                              commonly referred to as "junk bonds." The Trust
                              intends to invest primarily in long-term bonds
                              and expects bonds in its portfolio to have a
                              dollar weighted average maturity of 15 years or
                              more under current market conditions. The Trust
                              cannot ensure that it will achieve its investment
                              objective. See "The Trust's Investments."

Investment Advisor..........  BlackRock Advisors will be the Trust's investment
                              advisor and BlackRock Advisors' affiliate,
                              BlackRock Financial Management, will provide
                              certain day-to-day investment management services
                              to the Trust. Throughout the prospectus, we
                              sometimes refer to BlackRock Advisors and
                              BlackRock Financial Management collectively as
                              "BlackRock."

The Offering................  The Trust is offering 2,195 shares of Series W7
                              Preferred Shares and 2,195 shares of Series F7
                              Preferred Shares, each at a purchase price of
                              $25,000 per share. Preferred Shares are being
                              offered by the underwriters listed under
                              "Underwriting."

Risk Factors Summary........  Risk is inherent in all investing. Therefore,
                              before investing in the Preferred Shares you
                              should consider certain risks carefully. The
                              primary risks of investing in the Preferred
                              Shares are:

                              .  if an auction fails you may not be able to
                                 sell some or all of your shares;

                              .  because of the nature of the market for
                                 Preferred Shares, you may receive less than
                                 the price you paid for your shares if you sell
                                 them outside of the auction, especially when
                                 market interest rates are rising;

                              .  a rating agency could downgrade the rating
                                 assigned to the Preferred Shares, which could
                                 affect liquidity;

                              .  the Trust may be forced to redeem your shares
                                 to meet regulatory or rating agency
                                 requirements or may voluntarily redeem your
                                 shares in certain circumstances;

                              .  in extraordinary circumstances, the Trust may
                                 not earn sufficient income from its
                                 investments to pay dividends;

                              .  if interest rates rise, the value of the
                                 Trust's investment portfolio will decline,
                                 reducing the asset coverage for the Preferred
                                 Shares;

                              .  if an issuer of a municipal bond in which the
                                 Trust invests experiences financial difficulty
                                 or defaults, there may be a negative impact on
                                 the income and net asset value of the Trust's
                                 portfolio;

                              .  the Trust may invest up to 20% of its total
                                 assets in securities that are below investment
                                 grade quality which are regarded as having
                                 predominately speculative characteristics with
                                 respect to the issuer's capacity to pay
                                 interest and principal;


                                       5
<PAGE>


                              .  the Trust is a non-diversified management
                                 investment company and therefore may be more
                                 susceptible to any single economic, political
                                 or regulatory occurrence; and

                              .  The Trust's policy of investing primarily in
                                 municipal obligations of issuers located in
                                 New York makes the Trust more susceptible to
                                 adverse economic, political or regulatory
                                 occurrences affecting those issuers. The New
                                 York state economy has a comparatively large
                                 share of the nation's finance, insurance,
                                 transportation, communications and services
                                 employment. To the extent that a particular
                                 industry sector represents a larger portion of
                                 the state's total economy, the greater the
                                 impact that a downturn in such sector is
                                 likely to have on the state's economy. The
                                 combined state and local taxes of residents of
                                 the state of New York, and particularly of
                                 residents of New York City, are among the
                                 highest in the country, which may limit the
                                 ability of the state and its localities to
                                 raise additional revenue. In addition, the
                                 combined state and local debt per capita is
                                 above the national average and debt service
                                 expenditures have represented an increasing
                                 claim on state and local budgets. For a
                                 discussion of economic and other conditions in
                                 New York, see "The Trust's Investments--
                                 Municipal Bonds--Economic and Other Conditions
                                 in New York." The terrorist attack on the
                                 World Trade Center on September 11, 2001 has
                                 disrupted a number of businesses, caused
                                 extensive property damage, is likely to reduce
                                 travel, tourism and leisure spending and has
                                 had and will have other adverse impacts on New
                                 York City and the State of New York.
                                 Additionally, many businesses located in and
                                 around the World Trade Center may locate to
                                 other cities and other states. Therefore the
                                 New York City and the State of New York is
                                 likely to suffer a decrease in revenue and an
                                 increase in expenditures related to the
                                 attack.

                              For additional risks of investing in the Trust,
                              see "Risks" below.

Trading Market..............  Preferred Shares are not listed on an exchange.
                              Instead, you may buy or sell the Preferred Shares
                              at an auction that normally is held weekly, by
                              submitting orders to a broker-dealer that has
                              entered into an agreement with the auction agent
                              and the Trust (a "Broker-Dealer"), or to a
                              broker-dealer that has entered into a separate
                              agreement with a Broker-Dealer. In addition to
                              the auctions, Broker-Dealers and other broker-
                              dealers may maintain a secondary trading market
                              in Preferred Shares outside of auctions, but may
                              discontinue this activity at any time. There is
                              no assurance that a secondary market will provide
                              shareholders with liquidity. You may transfer
                              shares outside of auctions only to or through a
                              Broker-Dealer or a broker-dealer that has entered
                              into a separate agreement with a Broker-dealer.

                              The table below shows the first auction date for
                              each series of Preferred Shares and the day on
                              which each subsequent auction

                                       6
<PAGE>

                              will normally be held for each series of
                              Preferred Shares. The first auction date for each
                              series of Preferred Shares will be the business
                              day before the dividend payment date for the
                              initial rate period for each series of Preferred
                              Shares. The start date for subsequent rate
                              periods will normally be the business day
                              following auction date unless the then-current
                              rate period is a special rate period or the first
                              day of the subsequent rate period is not a
                              business day.

<TABLE>
<CAPTION>
                   Series                         First Auction Date* Subsequent
                   ------                         ------------------- ----------
                   <S>                            <C>                 <C>
                   W7............................     October 17      Wednesday
                   F7............................     October 19      Friday
</TABLE>
                              --------
                              *All Dates are 2001.


Dividends and Rate
Periods.....................  The table below shows the dividend rate for the
                              initial rate period on the Preferred Shares
                              offered in this prospectus. For subsequent rate
                              periods, Preferred Shares will pay dividends
                              based on a rate set at auctions, normally held
                              weekly. In most instances, dividends are also
                              paid weekly, on the day following the end of the
                              rate period. The rate set at auction will not
                              exceed the maximum applicable rate. See
                              "Description of Preferred Shares--Dividends and
                              Dividend Periods."


                              The table below also shows the date from which
                              dividends on the Preferred Shares will accumulate
                              at the initial rate, the dividend payment date
                              for the initial rate period and the day on which
                              dividends will normally be paid. If the day on
                              which dividends otherwise would be paid is not a
                              business day, then your dividends will be paid on
                              the first business day that falls after that day.

                              Finally, the table below shows the number of days
                              of the initial rate period for the Preferred
                              Shares. Subsequent rate periods generally will be
                              seven days. The dividend payment date for special
                              rate periods of more than seven days will be set
                              out in the notice designating a special rate
                              period. See "Description of Preferred Shares--
                              Dividends and Dividend Periods--Designation of
                              Special Rate Periods."

<TABLE>
<CAPTION>
                                                   Dividend             Number
                                                   Payment              of Days
                                       Date of     Date for  Subsequent   of
                            Initial  Accumulation  Initial    Dividend  Initial
                            Dividend  at Initial     Rate     Payment    Rate
                              Rate      Rate*      Period*      Day     Period
                            -------- ------------ ---------- ---------- -------
                   <S>      <C>      <C>          <C>        <C>        <C>
                   W7......           October 5   October 18  Thursday     13
                   F7......           October 5   October 22  Monday       17
</TABLE>
                              --------
                              *  All Dates are 2001.

Special Tax                   Because under normal circumstances the Trust will
Considerations..............  invest substantially all of its assets in
                              municipal bonds that pay interest that is exempt
                              from regular Federal income tax and New York
                              State and New York City personal income taxes,
                              the income you receive will ordinarily be exempt
                              from Federal income tax and New York State and
                              New York City personal income taxes. Your income
                              may be subject to certain other local taxes. All
                              or a portion of the income from these bonds will
                              be subject to the Federal

                                       7
<PAGE>

                              alternative minimum tax, so Preferred Shares may
                              not be a suitable investment if you are subject
                              to this tax or would become subject to such tax
                              by investing in Preferred Shares. Taxable income
                              or gain earned by the Trust will be allocated
                              proportionately to holders of Preferred Shares
                              and common shares, based on the percentage of
                              total dividends paid to each class for that year.
                              Accordingly, certain specified Preferred Shares
                              dividends may be subject to income tax on income
                              or gains attributed to the Trust. The Trust may
                              at its election give notice before any applicable
                              auction of the amount of any taxable income and
                              gain to be distributed for the period relating to
                              that auction. If the Trust does not provide such
                              notice, the Trust generally will make
                              shareholders whole for taxes owing on dividends
                              paid to shareholders that include taxable income
                              and gain. See "Tax Matters" and "Description of
                              Preferred Shares--Dividends and Dividend
                              Periods--Gross-up Payments."

Ratings.....................  Shares of each series of Preferred Shares will be
                              issued with a rating of "aaa" from Moody's and
                              "AAA" from S&P. In order to maintain this rating,
                              the Trust must own portfolio securities of a
                              sufficient value and with adequate credit quality
                              to meet the rating agencies' guidelines. See
                              "Description of Preferred Shares--Rating Agency
                              Guidelines and Asset Coverage."

Redemption..................  The Trust may be required to redeem shares if,
                              for example, the Trust does not meet an asset
                              coverage ratio required by law or to correct a
                              failure to meet a rating agency guideline in a
                              timely manner. The Trust voluntarily may redeem
                              Preferred Shares under certain conditions. See
                              "Description of Preferred Shares-- Redemption"
                              and "Description of Preferred Shares--Rating
                              Agency Guidelines and Asset Coverage."

Liquidation Preference......  The liquidation preference for shares of each
                              series of Preferred Shares will be $25,000 per
                              share plus accumulated but unpaid dividends. See
                              "Description of Preferred Shares--Liquidation."

Voting Rights...............  The holders of preferred shares, including
                              Preferred Shares, voting as a separate class,
                              have the right to elect at least two trustees of
                              the Trust at all times. Such holders also have
                              the right to elect a majority of the trustees in
                              the event that two years' dividends on the
                              preferred shares are unpaid. In each case, the
                              remaining trustees will be elected by holders of
                              common shares and preferred shares, including
                              Preferred Shares, voting together as a single
                              class. The holders of preferred shares, including
                              Preferred Shares, will vote as a separate class
                              or classes on certain other matters as required
                              under the Trust's Agreement and Declaration of
                              Trust, as amended and restated, the Investment
                              Company Act of 1940 (the "Investment Company
                              Act") and Delaware law. See "Description of
                              Preferred Shares--Voting Rights," "Certain
                              Provisions in the Agreement and Declaration of
                              Trust" and "Conversion to Open-End Fund."

                                       8
<PAGE>

                        FINANCIAL HIGHLIGHTS (Unaudited)

   Information contained in the table below shows the unaudited operating
performance of the Trust from the commencement of the Trust's investment
operations on July 27, 2001 through August 31, 2001. Since the Trust was
recently organized and commenced investment operations on July 27, 2001, the
table covers less than six weeks of operations, during which a substantial
portion of the Trust's portfolio was held in temporary investments pending
investment in municipal securities that meet the Trust's investment objectives
and policies. Accordingly, the information presented may not provide a
meaningful picture of the Trust's future operating performance.



<TABLE>
<CAPTION>
                                                                 For the Period
                                                                 July 27, 2001*
                                                                     Through
                                                                 August 31, 2001
                                                                 ---------------
<S>                                                              <C>
Per Common Share Operating Performance:
Net asset value, beginning of period**..........................    $  14.33+
                                                                    --------
  Net investment income.........................................        0.03
  Net unrealized gain on investments............................        0.11
                                                                    --------
  Net increase from investment operations.......................        0.14
                                                                    --------
Capital charge with respect to issuance of common shares........       (0.03)
                                                                    --------
Net asset value, end of period**................................    $  14.44
                                                                    ========
Market value, end of period**...................................    $  15.32
                                                                    ========
Total Investment Return++                                               2.13%
                                                                    ========
Ratios to Average Net Assets of Common Shareholders:
Expenses after fee waiver.......................................        0.66%#
Expenses before fee waiver......................................        0.91%#
Net investment income after fee waiver..........................        1.74%#
Net investment income before fee waiver.........................        1.49%#
Supplemental Data:
Average net assets of common shareholders (000).................    $155,920
Portfolio turnover..............................................           0%
Net assets of common shareholders, end of period (000)..........    $155,920
</TABLE>
--------
*  Commencement of investment operations.
** Net asset value and market value are published in Barron's on Saturday and
   The Wall Street Journal on Monday.
+  Net asset value immediately after the closing of the first public offering
   was $14.30.
++ Total investment return is calculated assuming a purchase of common shares
   at the current market price on the first day and a sale at the current
   market price on the last day of the period reported. Periods of less than
   one year are not annualized.
#  Annualized

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

                                       9
<PAGE>

                                   THE TRUST

   The Trust is a recently organized, non-diversified, closed-end, management
investment company registered under the Investment Company Act. The Trust was
organized as a Delaware business trust on March 30, 2001 pursuant to an
Agreement and Declaration of Trust, as later amended and restated, governed by
the laws of the Stare of Delaware. On July 31, 2001, the Trust issued an
aggregate of 10,800,000 common shares of beneficial interest, par value $.001
per share, pursuant to the initial public offering and commenced its investment
operations. The Trust's common shares are traded on the New York Stock Exchange
under the symbol "BNY". The Trust's principal office is located at 100 Bellevue
Parkway, Wilmington, Delaware 19809, and its telephone number is (888) 825-
2257. The Trust is designed to provide tax benefits to investors who are
residents of New York for tax purposes.


   The following provides information about the Trust's outstanding shares as
of September 21, 2001:

<TABLE>
<CAPTION>
                                                      Amount held by
                                                       the Trust or
                                             Amount        for         Amount
   Title of Class                          Authorized  its Account   Outstanding
   --------------                          ---------- -------------- -----------
   <S>                                     <C>        <C>            <C>
   Common................................. Unlimited         0       12,428,028
   Preferred..............................                   0            0
   Series W7..............................                   0            0
   Series F7..............................                   0            0
</TABLE>

                                USE OF PROCEEDS

   The net proceeds of this offering will be approximately $108,459,399 after
payment of the sales load and estimated offering costs. The Trust will invest
the net proceeds of the offering in accordance with the Trust's investment
objective and policies as stated below. We currently anticipate that the Trust
will be able to invest substantially all of the net proceeds in municipal bonds
that meet the Trust's objective and policies at or shortly (within six to eight
weeks) after the completion of the offering. Pending such investment, it is
anticipated that the proceeds will be invested in short-term, tax-exempt or
taxable investment grade securities.


                                       10
<PAGE>

                           CAPITALIZATION (Unaudited)

   The following table sets forth the capitalization of the Trust as of
September 21, 2001, and as adjusted to give effect to the issuance of the
Preferred Shares offered hereby.


<TABLE>
<CAPTION>
                                                       Actual     As Adjusted
                                                    ------------  ------------
<S>                                                 <C>           <C>
Shareholder's Equity:
  Preferred Shares, $.001 par value, $25,000 stated
   value per share, at liquidation value; unlimited
   shares authorized (no shares issued; 4,390
   shares issued, as adjusted)..................... $        --   $109,750,000
  Common shares, $.001 par value per share;
   unlimited shares authorized, 12,428,028 shares
   outstanding*....................................       12,428        12,428
Paid-in surplus....................................  177,661,473   176,370,872
Balance of undistributed net investment income.....      657,047       657,047
  Accumulated net realized gain/loss from
   investment transactions.........................          (--)          (--)
  Net unrealized appreciation/depreciation of
   investments.....................................      729,509       729,509
                                                    ------------  ------------
  Net assets.......................................  179,060,457   287,519,856
                                                    ============  ============
</TABLE>


--------
*  None of these outstanding shares are held by or for the account of the
   Trust.

                             PORTFOLIO COMPOSITION

   As of September 21, 2001, approximately 91.69% of the market value of the
Trust's portfolio was invested in long-term municipal securities and
approximately 8.31% of the market value of the Trust's portfolio was invested
in short-term municipal securities. The following table sets forth certain
information with respect to the composition of the Trust's investment portfolio
as of September 21, 2001, based on the highest rating assigned.

<TABLE>
<CAPTION>
   Credit Rating                                              Value(000) Percent
   -------------                                              ---------- -------
   <S>                                                        <C>        <C>
   AAA/Aaa*..................................................  $ 48,058   26.84%
   AA/Aa.....................................................    65,055   36.33%
   A/A.......................................................    18,710   10.45%
   BBB/Baa...................................................    13,867    7.74%
   BB/Ba.....................................................       --      -- %
   Unrated+..................................................    18,500   10.33%
   Short-Term................................................    14,871    8.31%
                                                               --------   -----
       TOTAL.................................................   179,061   100.0%
                                                               ========   =====
</TABLE>
--------
*  Includes securities that are backed by an escrow or trust containing
   sufficient U.S. Government Securities to ensure the timely payment of
   principal and interest.
+  Refers to securities that have not been rated by Moody's, S&P or Fitch, but
   that have been assessed by BlackRock Financial Management as being of
   comparable credit quality to rated securities in which the Trust may invest.
   See "The Trust's Investments--Investment Objective and Policies."

                                       11
<PAGE>

                            THE TRUST'S INVESTMENTS

Investment Objective and Policies

   The Trust's investment objective is to provide current income exempt from
regular Federal income tax and New York State and New York City personal income
taxes.

   The Trust will invest primarily in municipal bonds that pay interest that is
exempt from regular Federal income tax and New York State and New York City
personal income taxes. Under normal market conditions, the Trust expects to be
fully invested (at least 95% of its net assets) in such tax-exempt municipal
bonds, in which the Trust generally will invest at least 80% of its total
assets. 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 B to the Statement of Additional Information
contains a general description of Moody's, S&P's and Fitch's ratings of
municipal bonds. See "Risks" below for a general description of the economic
and credit characteristics of municipal issuers in New York. 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. Subject to the Trust's policy of investing at least
80% of its total assets in municipal bonds exempt from New York State and New
York City personal income taxes, the Trust may invest in securities that pay
interest that is not exempt from New York State and New York City personal
income taxes when, in the judgement of BlackRock, the return to the
shareholders after payment of applicable New York State and New York City
personal income taxes would be higher than the return available from comparable
securities that pay interest that is, or make other distributions that are,
exempt from New York State and New York City personal income taxes. See "--
Other Investment Companies," and "--Tax-Exempt Preferred Shares."

   The Trust will invest in municipal bonds that, in BlackRock's opinion, are
underrated or undervalued. Underrated municipal bonds are those whose ratings
do not, in BlackRock's opinion, reflect their true creditworthiness.
Undervalued municipal bonds are bonds that, in the opinion of BlackRock, are
worth more than the value assigned to them in the marketplace. BlackRock may at
times believe that bonds associated with a particular municipal market sector
(for example, 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

                                       12
<PAGE>

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.

   The Trust cannot change its investment objective without the approval of the
holders of a majority of the outstanding common shares and the Preferred Shares
voting together as a single class, and of the holders of a majority of the
outstanding Preferred Shares voting as a separate class. A "majority of the
outstanding" means (1) 67% or more of the shares present at a meeting, if the
holders of more than 50% of the shares are present or represented by proxy, or
(2) more than 50% of the shares, whichever is less. See "Description of
Preferred Shares--Voting Rights" for additional information with respect to the
voting rights of holders of Preferred Shares.

Municipal Bonds

   General. Municipal bonds are either general obligation or revenue bonds and
typically are issued to finance public projects, such as roads or public
buildings, to pay general operating expenses or to refinance outstanding debt.
Municipal bonds may also be issued for private activities, such as housing,
medical and educational facility construction or for privately owned industrial
development and pollution control projects. General obligation bonds are backed
by the full faith and credit, or taxing authority, of the issuer and may be
repaid from any revenue source. Revenue bonds may be repaid only from the
revenues of a specific facility or source. The Trust also may purchase
municipal bonds that represent lease obligations. These carry special risks
because the issuer of the bonds may not be obligated to appropriate money
annually to make payments under the lease. In order to reduce this risk, the
Trust will only purchase municipal bonds representing lease obligations where
BlackRock believes the issuer has a strong incentive to continue making
appropriations until maturity.

   The municipal bonds in which the Trust will invest are generally issued by
the State of New York, political subdivisions of the State, and authorities or
other intermediaries of the State and such political subdivisions and pay
interest that, in the opinion of bond counsel to the issuer, or on the basis of
another authority believed by BlackRock to be reliable, is exempt from regular
Federal income tax and New York State and New York City personal taxes.
BlackRock will not conduct its own analysis of the tax status of the interest
paid by municipal bonds held by the Trust. The Trust may also invest in
municipal bonds issued by United States Territories (such as Puerto Rico or
Guam) that are exempt from regular Federal income tax and New York State and
New York City personal taxes. 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,

                                       13
<PAGE>

exempt from regular Federal income tax and/or state and local personal taxes,
regardless of the technical structure of the issuer of the instrument. The
Trust treats all of such tax-exempt securities as municipal bonds.

   The yields on municipal bonds are dependent on a variety of factors,
including prevailing interest rates and the condition of the general money
market and the municipal bond market, the size of a particular offering, the
maturity of the obligation and the rating of the issue. The market value of
municipal bonds will vary with changes in interest rate levels and as a result
of changing evaluations of the ability of bond issuers to meet interest and
principal payments.

   The Trust will invest primarily in municipal bonds with long-term maturities
in order to maintain a weighted average maturity of 15 or more years, but the
weighted average maturity of obligations held by the Trust may be shortened,
depending on market conditions.

   Economic and Other Conditions in New York. Except during temporary periods,
the Trust invests substantially all of its assets in New York municipal
obligations. The Trust is therefore susceptible to political, economic,
regulatory or other factors affecting issuers of New York municipal
obligations. In addition, the specific New York municipal obligations in which
the Trust invests are expected to change from time to time.

   The following information constitutes only a brief summary of some of the
complex factors which may have an impact on the financial situation of issuers
of New York municipal obligations, does not purport to be a complete or
exhaustive description of all adverse conditions to which issuers of New York
municipal obligations may be subject and is not applicable to "conduit"
obligations, such as industrial development revenue bonds, with respect to
which the public issuer itself has no financial responsibility. Investors
should obtain a copy of the Statement of Additional Information for the more
detailed discussion of such factors. Such information is derived from certain
of financial statements of the State of New York published in connection with
the issuance of specific State of New York obligations, as well as from other
publicly available documents. Such information has not been independently
verified by the Trust and may not apply to all New York municipal obligations
acquired by the Trust. Neither BlackRock nor the Trust assumes any
responsibility for the completeness or accuracy of such information.

   Investors should be aware of certain factors that might affect the financial
condition of the issuers of New York municipal bonds. The State of New York has
historically been one of the wealthiest states in the nation. For decades,
however, the economy of the State of New York has grown more slowly than that
of the nation as a whole, and the result has been a gradual erosion of the
State's relative economic affluence. New York City, for example, has faced
greater competition as other major cities have developed financial and business
capabilities which make them less dependent on the specialized services
traditionally available almost exclusively in New York City.

   The State of New York has for many years had a very high state and local tax
burden. The burden of state and local taxation, in combination with the many
other causes of regional economic dislocations, has contributed to the
decisions of some businesses and individuals to relocate outside, or not locate
within, the State of New York. There can be no assurance that the State of New
York and its political subdivisions will not face substantial potential budget
gaps in future years resulting from a significant disparity between tax
revenues projected from a lower recurring receipts base and the spending
required to maintain programs at current levels. To address any potential
budgetary imbalance, the State of New York and such subdivisions may need to
take significant actions to align recurring receipts and disbursements in
future fiscal years.

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

                                       14
<PAGE>

   The terrorist attack on the World Trade Center on September 11, 2001 has
disrupted a number of businesses, caused extensive property damage, is likely
to reduce travel, tourism and leisure spending and has had and will have other
adverse impacts on New York City and the State of New York. Additionally, many
businesses located in and around the World Trade Center may locate to other
cities and other states. Therefore the New York City and the State of New York
is likely to suffer a decrease in revenue and an increase in expenditures
related to the attack.

   For more information, see "Investment Policies and Techniques--Factors
Pertaining to New York" in the Statement of Additional Information.

When-Issued and Forward Commitment Securities

   The Trust may buy and sell municipal bonds on a when-issued basis and may
purchase or sell municipal bonds on a "forward commitment" basis. When such
transactions are negotiated, the price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but delivery and payment
for the securities takes place at a later date. This type of transaction may
involve an element of risk because no interest accrues on the bonds prior to
settlement and, because bonds are subject to market fluctuations, the value of
the bonds at the time of delivery may be less or more than cost. 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 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 Preferred 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
leverage 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. Investment companies may have
investment policies that differ from those of the Trust. In addition, to the
extent the Trust invests in other investment companies, the Trust will be
dependent upon the investment and research abilities of persons other than
BlackRock. The Trust treats its investments in such open- or closed-end
investment companies as investments in municipal bonds.

Tax-Exempt Preferred Shares

   The Trust may also invest up to 10% of its total assets in preferred
interests of other investment funds that pay dividends that are exempt from
regular Federal income tax. A portion of such dividends may be capital gain
distributions subject to Federal capital gains tax. Such funds in turn invest
in municipal bonds and other assets that generally pay interest or make
distributions that are exempt from regular Federal income tax, such as revenue
bonds issued by state or local agencies to fund the development of low-income,
multi-family housing. Investment in such tax-exempt preferred shares involves
many of the same issues as investing in other open- or closed-end investment
companies as discussed above. These investments also have additional risks,
including liquidity risk, the absence of regulation governing investment
practices, capital structure and leverage, affiliated transactions and other
matters, and concentration of investments in particular issuers or industries.
Revenue bonds issued by state or local agencies to finance the development of
low-income, multi-family housing involve special risks in addition to those
associated with municipal bonds generally, including that the underlying

                                       15
<PAGE>

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 treats investments in tax-exempt preferred
shares as investments in municipal bonds.

                                     RISKS

   Risk is inherent in all investing. Investing in any investment company
security involves risk, including the risk that you may receive little or no
return on your investment or that you may lose part or all of your investment.
Therefore, before investing you should consider carefully the following risks
that you assume when you invest in Preferred Shares.

Interest Rate Risk

   Interest rate risk is the risk that bonds, and the Trust's net assets, will
decline in value because of changes in interest rates. Generally, municipal
bonds will decrease in value when interest rates rise and increase in value
when interest rates decline. The Trust issues Preferred Shares, which pay
dividends based on short-term interest rates. The Trust then uses the proceeds
from the sale of Preferred Shares to buy municipal bonds, which pay interest
based on long-term rates. Both long-term and short-term interest rates may
fluctuate. If short term interest rates rise, the Preferred Shares dividend
rates may rise so that the amount of dividends paid to holders of Preferred
Shares exceeds the income from the portfolio securities purchased with the
proceeds from the sale of Preferred Shares. Because income from the Trust's
entire investment portfolio (not just the portion of the portfolio purchased
with the proceeds of the Preferred Shares offering) is available to pay
Preferred Share dividends, however, Preferred Share dividend rates would need
to greatly exceed the yield on the Trust's portfolio before the Trust's ability
to pay Preferred Share dividends would be impaired. If long-term rates rise,
the value of the Trust's investment portfolio will decline, reducing the amount
of assets serving as asset coverage for the Preferred Shares.

Auction Risk

   The dividend rate for the Preferred Shares normally is set through an
auction process. In the auction, holders of Preferred Shares may indicate the
dividend rate at which they would be willing to hold or sell their Preferred
Shares or purchase additional Preferred Shares. The auction also provides
liquidity for the sale of Preferred Shares. An auction fails if there are more
Preferred Shares offered for sale than there are buyers. You may not be able to
sell your Preferred Shares at an auction if the auction fails. Also, if you
place hold orders (orders to retain Preferred Shares) at an auction only at a
specified dividend rate, and that rate exceeds the rate set at the auction, you
will not retain your Preferred Shares. Finally, if you buy shares or elect to
retain shares without specifying a dividend rate below which you would not wish
to buy or continue to hold those shares, you could receive a lower rate of
return on your shares than the market rate. See "Description of Preferred
Shares" and "The Auction--Auction Procedures."

Secondary Market Risk

   If you try to sell your Preferred Shares between auctions you may not be
able to sell any or all of your shares or you may not be able to sell them for
$25,000 per share or $25,000 per share plus accumulated dividends. If the Trust
has designated a special rate period (a rate period of more than seven days),
changes in interest rates could affect the price you would receive if you sold
your shares in the secondary market. Broker-dealers that maintain a secondary
trading market for Preferred Shares are not required to maintain this market,
and the Trust is not required to redeem shares either if an auction or an
attempted secondary market sale fails because of a lack of buyers. Preferred
Shares are not listed on a stock exchange or the NASDAQ stock market. If you
sell your Preferred Shares to a broker-dealer between auctions, you may receive
less than the price you paid for them, especially if market interest rates have
risen since the last auction.


                                       16
<PAGE>

Ratings and Asset Coverage Risk

   While Moody's assigns a rating of "aaa" to the Preferred Shares and S&P
assigns a rating of "AAA" to the Preferred Shares, such ratings do not
eliminate or necessarily mitigate the risks of investing in Preferred Shares.
Moody's or S&P could downgrade Preferred Shares, which may make your shares
less liquid at an auction or in the secondary market. If Moody's or S&P
downgrades Preferred Shares, the Trust may alter its portfolio or redeem
Preferred Shares in an effort to improve the rating, although there is no
assurance that it will be able to do so to the extent necessary to restore the
prior rating. The Trust may voluntarily redeem Preferred Shares under certain
circumstances. See "Description of Preferred Shares--Rating Agency Guidelines
and Asset Coverage" for a description of the asset maintenance tests the Trust
must meet.

Credit Risk

   Credit risk is the risk that an issuer of a municipal bond will become
unable to meet its obligation to make interest and principal payments. In
general, lower rated municipal bonds carry a greater degree of risk that the
issuer will lose its ability to make interest and principal payments, which
could have a negative impact on the Trust's net asset value or dividends. The
Trust may invest up to 20% of its 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.

State Concentration Risk

   Because the Trust primarily purchases municipal bonds issued by the State of
New York or county or local government municipalities or their agencies,
districts, political subdivisions or other entities, shareholders may be
exposed to additional risks. In particular, the Trust is susceptible to
political, economic or regulatory factors affecting issuers of New York
municipal bonds. There can be no assurance that New York will not experience a
decline in economic conditions or that the New York municipal bonds purchased
by the Trust will not be affected by such a decline.

   For a discussion of economic and other conditions in New York, see "The
Trust's Investments--Municipal Bonds--Economic and Other Conditions in New
York."

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

                                       17
<PAGE>

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 interest rates that are below the portfolio's
current earnings rate. A decline in income could affect the Trust's ability to
pay dividends on the Preferred Shares.

Inflation Risk

   Inflation risk is the risk that the value of assets or income from
investment will be worth less in the future as inflation decreases the value of
money. As inflation occurs, the real value of the Preferred Shares and
distributions declines. In an inflationary period, however, it is expected
that, through the auction process, dividend rates on the Preferred Shares would
increase, tending to offset this risk.

Economic Sector Risk

   The Trust may invest 25% or more of its total assets in municipal
obligations in the same economic sector, including without limitation the
following: lease rental obligations of state and local authorities; obligations
dependent on annual appropriations by a state's legislature for payment;
obligations of state and local housing finance authorities; municipal utilities
systems or public housing authorities; obligations of hospitals or life care
facilities; and industrial development or pollution control bonds issued for
electrical utility systems, steel companies, paper companies or other purposes.
This may make the Trust more susceptible to adverse economic, political or
regulatory occurrences affecting an 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 value
of the Trust's assets.

Non-Diversification

   The Trust has registered as a "non-diversified" investment company under the
Investment Company Act. For Federal income tax purposes, the Trust, with
respect to up to 50% of its total assets, will be able to invest more than 5%
(but not more than 25%) of the value of its total assets in the obligations of
any single issuer. To the extent the Trust invests a relatively high percentage
of its assets in the obligations of a limited number of issuers, the Trust may
be more susceptible than a more widely diversified investment company to any
single economic, political or regulatory occurrence.

Recent Developments

   As a result of the terrorist attacks on the World Trade Center and the
Pentagon on September 11, 2001, the U.S. securities markets were closed for a
four-day period. These terrorist attacks and related events have led to
increased short-term market volatility and may have long-term effects on U.S.
and world economies and markets. A similar disruption of the financial markets
could impact interest rates, auctions, secondary trading, ratings, credit risk,
inflation and other factors affecting the Preferred Shares.

                                       18
<PAGE>

                            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., 345 Park Avenue, New York, New York, 10154, acts
as the Trust's investment advisor. BlackRock Financial Management, Inc., 345
Park Avenue, New York, New York, 10154, 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 $220 billion of assets
under management as of July 31, 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 13 years of experience managing closed-
end products and currently advises a closed-end family of 25 funds. BlackRock
has 18 leveraged municipal closed-end funds and six open-end municipal funds
under management and approximately $17.2 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 and New York State and
New York City personal income taxes. 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.

   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

                                       19
<PAGE>

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 $12.6 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 $4.6 billion. Currently, the team manages 18
closed-end municipal funds with approximately $4.6 billion in managed assets as
of July 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 presentation to the Credit Committee. In addition, Dr. Heide
supervises the team of municipal bond analysts that assists with the ongoing
surveillance of the $12.6 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.

                                       20
<PAGE>

   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.

                                       21
<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>
                                                               Percentage Waived
      Twelve Month                                             (as a percentage
      Period 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>
--------
*  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.

                        DESCRIPTION OF PREFERRED SHARES

   The following is a brief description of the terms of the Preferred Shares.
For the complete terms of the Preferred Shares, please refer to the detailed
description of the Preferred Shares in the Statement of Preferences (the
"Statement") attached as Appendix A to the Statement of Additional Information.

General

   The Trust's Agreement and Declaration of Trust, as amended and restated,
authorizes the issuance of an unlimited number of preferred shares, par value
$.001 per share, in one or more classes or series with rights as determined by
the board of trustees without the approval of common shareholders. The
Statement currently authorizes the issuance of        Preferred Shares, Series
W7 and       Preferred Shares, Series F7. All Preferred Shares will have a
liquidation preference of $25,000 per share, plus an amount equal to
accumulated but unpaid dividends (whether or not earned or declared).


   The Preferred Shares of each series will rank on parity with any other
series of Preferred Shares and any other series of preferred shares of the
Trust as to the payment of dividends and the distribution of assets upon
liquidation. Each Preferred Share carries one vote on matters that Preferred
Shares can be voted. Preferred Shares, when issued, will be fully paid and non-
assessable and have no preemptive, conversion or cumulative voting rights.

Dividends and Dividend Periods

   The following is a general description of dividends and Rate Periods.

   Rate Periods. The Initial Rate Period for each series is as set forth below:


<TABLE>
<CAPTION>
     Series   Initial Rate Period
     ------   -------------------
     <S>      <C>
     W7             13 Days
     F7             17 Days
</TABLE>


   Any subsequent Rate Periods of shares of a series of Preferred Shares will
generally be seven days. The Trust, subject to certain conditions, may change
the length of Subsequent Rate Periods designating them as Special Rate Periods.
See "--Designation of Special Dividend Periods" below.


                                       22
<PAGE>

   Dividend Payment Dates. Dividends on each series of Preferred Shares will be
payable, when as and if declared by the board of trustees, out of legally
available funds in accordance with the Agreement and Declaration of Trust, as
amended and restated, the Statement and applicable law. Dividends are scheduled
to be paid for each series of Preferred Shares as follows:

<TABLE>
<CAPTION>
                                                                         Subsequent Dividend
                            Initial Dividend                                Payment Dates
     Series                   Payment Date                                     on Each
     ------                 ----------------                             -------------------
     <S>                    <C>                                          <C>
     W7                     October 18, 2001                                  Thursday
     F7                     October 22, 2001                                    Monday
</TABLE>

If dividends are payable on a day that is not a Business Day, then dividends
will be payable on the next business day. In addition, the Trust may specify
different Dividend Payment Dates for any Special Rate Period of more than 28
Rate Period Days.


   Dividends will be paid through the Securities Depository on each Dividend
Payment Date. The Securities Depository, in accordance with its current
procedures, is expected to distribute dividends received from the Trust in
next-day funds on each Dividend Payment Date to Agent Members. These Agent
Members are in turn expected to distribute such dividends to the persons for
whom they are acting as agents. However, each of the current Broker-Dealers has
indicated to the Trust that dividend payments will be available in same-day
funds on each Dividend Payment Date to customers that use such Broker-Dealer or
that Broker-Dealer's designee as Agent Member.

   Calculation of Dividend Payment. The Trust computes the dividends per share
payable on shares of a series of Preferred Shares by multiplying the applicable
rate for shares of such series in effect by a fraction. The numerator of this
fraction will normally be seven (i.e., the number of days in the Dividend
Period) and the denominator will normally be 365. If the Trust has designated a
special dividend period, then the numerator will be the number of days in the
special dividend period, and the denominator will be 360. In either case, this
rate is then multiplied by $25,000 to arrive at dividends per share.

   Dividends on shares of each series of Preferred Shares will accumulate from
the date of their original issue. For each dividend payment period after the
initial dividend period, the dividend rate will be the dividend rate determined
at auction, except that the dividend rate that results from an auction will not
be greater than the maximum applicable rate described below.

   The maximum applicable rate for any rate period for a series of Preferred
Shares will be the applicable percentage (set forth in the Applicable
Percentage Payment Table below) of the reference rate (set forth in the
Reference Rate Table below) for the applicable rate period. The applicable
percentage for a series of Preferred Shares is determined on the day that a
notice of a special dividend period is delivered if the notice specifies a
maximum applicable rate for a special dividend period. If Moody's or S&P or
both shall not make such rating available, the rate shall be determined by
reference to equivalent ratings issued by a substitute rating agency. If the
Trust has provided notification to the auction agent prior to an auction
establishing the applicable rate for a dividend period that net capital gains
or other taxable income will be included in the dividend determined at such
auction, the applicable percentage will be derived from the column captioned
"Applicable Percentage: Notification" in the Applicable Percentage Table below:

                          Applicable Percentage Table
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
        Credit Ratings                   Applicable Percentage Table
------------------------------- ---------------------------------------------
                                Applicable Percentage: Applicable Percentage:
    Moody's            S&P         No Notification          Notification
----------------  ------------- ---------------------- ----------------------
<S>               <C>           <C>                    <C>
"aa3" or higher   AA- or higher          110%                   150%
"a3" to "a1"      A- to A+               125%                   160%
"baa3" to "baa1"  BBB- to BBB+           150%                   250%
"ba3" to "ba1"    BB- to BB+             200%                   275%
Below "Ba3"       Below BB-              250%                   300%
</TABLE>

                                       23
<PAGE>

   The reference rate used to determine the maximum applicable rate generally
varies depending on the length of the applicable rate period, as set forth in
the Reference Rate Table below:


<TABLE>
<CAPTION>
                         Reference Rate Table
      ------------------------------------------------------------
          Rate Period                   Reference Rate
      --------------------   ------------------------------------
     <S>                     <C>                                    <C>   <C>
      28 days or less        Greater of:
                             .""AA'' Composite
                             Commercial Paper Rate
                             .Taxable Equivalent of the
                             Short-Term Municipal Bond Rate
      29 days to 182 days    "AA" Composite Commercial Paper Rate
      183 days to 364 days   Treasury Bill Rate
      365 days or more       Treasury Note Rate
</TABLE>


   The "AA Composite Commercial Paper Rate" is as set forth in the table set
forth below:


                 AA Composite Commercial Paper Rate Table.


<TABLE>
<CAPTION>
      Rate Period    Special Rate Period              AA Composite
     --------------  -------------------- ------------------------------------
                                                 Commercial Paper Rate*
                                          ------------------------------------
     <S>             <C>                  <C>
     7 days or less  48 days or fewer     30-day rate
                     49 days to 69 days   60-day rate
                     70 days to 84 days   Average of 60-day and 90-day rates
                     85 days to 98 days   90-day rate
                     99 days to 119 days  Average of 90-day and 120-day rates
                     120 Days to 140 days 120-day rate
                     141 days to 161 days Average of 120-day and 180-day rates
                     162 days to 182 days 180-day rate
</TABLE>

--------

*  Rates stated on a discount basis


   If the Federal Reserve Bank of New York does not make available any such
rate, the average rate quoted on a discount basis by commercial paper dealers
to the Auction Agent at the close of business on the business day next
preceding such date. If any commercial paper dealer does not quote a rate, the
rate shall be determined by quotes provided by the remaining commercial paper
dealers.


   "Taxable Equivalent of the Short-Term Municipal Bond Rate" means 90% of an
amount equal to the per annum rate payable on taxable bonds in order for such
rate, on an after-tax basis, to equal the per annum rate payable on tax-exempt
bonds issued by "high grade" issuers as determined in accordance with the
procedures set forth in the Statement.

   Prior to each dividend payment date, the Trust is required to deposit with
the auction agent sufficient funds for the payment of declared dividends. The
failure to make such deposit will not result in the cancellation of any
auction. The Trust does not intend to establish any reserves for the payment of
dividends.

   If an auction for any series of Preferred Shares is not held when scheduled
for any reason, the dividend rate for the corresponding rate period will be the
maximum applicable rate on the date the auction was scheduled to be held.

   Additional Dividends. Under Federal income tax rules applicable to the
Trust, the Trust may, in certain circumstances, allocate net capital gains or
other taxable income to a dividend paid on Preferred Shares after the dividend
has been paid (a "Retroactive Taxable Allocation"). If the Trust makes a
Retroactive Taxable Allocation on the Preferred Shares without giving advance
notice thereof as described under "The Auction--Auction Proceeds", the Trust
will, in the circumstances below, pay to the holders of Preferred Shares, out
of

                                       24
<PAGE>

funds legally available therefore, an additional dividend. The additional
dividend will be in an amount equal to the amount of taxes paid by a holder of
Preferred Shares on the Retroactive Taxable Allocation, provided that the
additional dividend will be calculated:

  .  without consideration being given to the time value of money;

  .  assuming that no holder of Preferred Shares is subject to the Federal
     alternative minimum tax with respect to dividends received from the
     Trust; and

  .  assuming that each Retroactive Taxable Allocation would be taxable in
     the hands of each holder of Preferred Shares at the maximum marginal
     combined regular Federal, New York State and New York City income tax
     rate applicable to individuals or corporations, whichever is greater, in
     effect during the fiscal year in question.

   Although the Trust generally intends to designate any additional dividend as
an exempt-interest dividend to the extent permitted by applicable law, it is
possible that all or a portion of any additional dividend will be taxable to
the recipient thereof. See "Taxes." The Trust will not pay a further additional
dividend with respect to any taxable portion of an additional dividend.

   The Trust will, within 90 days (and generally within 60 days) after the end
of its fiscal year for which a Retroactive Taxable Allocation is made, provide
notice thereof to the auction agent. The Trust will pay, out of legally
available funds, any additional dividend due on all Retroactive Taxable
Allocations made during the fiscal year in question, within 30 days after such
notice is given to the auction agent.

   Restrictions on Dividends and Other Distributions.  While the Preferred
Shares are outstanding, the Trust generally may not declare, pay or set apart
for payment, any dividend or other distribution in respect of its common
shares. In addition, the Trust may not call for redemption or redeem any of its
common shares. However, the Trust is not confined by the above restrictions if:

  .  immediately after such transaction, the Discounted Value of the Trust's
     portfolio would be equal to or greater than the Preferred Shares Basic
     Maintenance Amount and the Investment Company Act Preferred Shares Asset
     Coverage (see "--Rating Agency Guidelines and Asset Coverage" below);

  .  full cumulative dividends on each series of Preferred Shares due on or
     prior to the date of the transaction have been declared and paid or
     shall have been declared and sufficient funds for the payment thereof
     deposited with the auction agent;

  .  any additional dividend required to be paid on or before the date of
     such transaction has been paid; and

  .  the Trust has redeemed the full number of Preferred Shares required to
     be redeemed by any provision for mandatory redemption contained in the
     Statement.

   The Trust generally will not declare, pay or set apart for payment any
dividend on any class or series of shares of the Trust ranking, as to the
payment of dividends, on a parity with Preferred Shares unless the Trust has
declared and paid or contemporaneously declares and pays full cumulative
dividends on each series of the Preferred Shares through its most recent
dividend payment date. However, when the Trust has not paid dividends in full
upon the shares of each series of Preferred Shares through the most recent
dividend payment date or upon any other class or series of shares of the Trust
ranking, as to the payment of dividends, on a parity with Preferred Shares
through their most recent respective dividend payment dates, the amount of
dividends declared per share on Preferred Shares and such other class or series
of shares will in all cases bear to each other the same ratio that accumulated
dividends per share on the Preferred Shares and such other class or series of
shares bear to each other.

   Designation of Special Dividend Periods. The Trust may, at its sole option,
declare a special dividend period of shares of a particular series of Preferred
Shares. To declare a special dividend period, the Trust will

                                       25
<PAGE>

give notice (a "request for special dividend period") to the auction agent and
to each Broker-Dealer. The notice will request that the next succeeding
dividend period for the series of Preferred Shares be a number of days (other
than seven) evenly divisible by seven as specified in such notice and not more
than 1,820 days long. The Trust may not request a special dividend period
unless sufficient clearing bids for shares of such series were made in the most
recent auction. In addition, full cumulative dividends, any amounts with
respect to mandatory redemptions and any additional dividends payable on shares
of such series prior to such date must be paid in full.

Redemption

   Mandatory Redemption. The Trust is required to maintain (a) a Discounted
Value of eligible portfolio securities equal to the Preferred Shares Basic
Maintenance Amount and (b) the Investment Company Act Preferred Shares Asset
Coverage. Eligible portfolio securities for these purposes will be determined
from time to time by the rating agencies then rating the Preferred Shares. If
the Trust fails to maintain such asset coverage amounts and does not timely
cure such failure in accordance with the requirements of the rating agency that
rates the Preferred Shares, the Trust must redeem all or a portion of the
Preferred Shares. This mandatory redemption will take place on a date that the
board of trustees specifies out of legally available funds in accordance with
the Agreement and Declaration of Trust, as amended and restated, the Statement
and applicable law, at the redemption price of $25,000 per share plus
accumulated but unpaid dividends (whether or not earned or declared) to the
date fixed for redemption. The number of Preferred Shares that must be redeemed
in order to cure such failure will be allocated pro rata among the outstanding
Preferred Shares of the Trust. The mandatory redemption will be limited to the
number of Preferred Shares necessary to restore the required Discounted Value
or the Investment Company Act Preferred Shares Asset Coverage, as the case
may be.

   Optional Redemption. The Trust, at its option, may redeem the shares of each
series of Preferred Shares, in whole or in part, out of funds legally available
therefore. Any optional redemption will occur on the second business day prior
to any dividend payment date at the optional redemption price per share of
$25,000 per share plus an amount equal to accumulated but unpaid dividends to
the date fixed for redemption. No shares of a series of Preferred Shares may be
redeemed if the redemption would cause the Trust to violate the Investment
Company Act or applicable law. In addition, holders of a series of Preferred
Shares may be entitled to receive additional dividends if the redemption causes
the Trust to make a Retroactive Taxable Allocation. Shares of a series of
Preferred Shares may not be redeemed in part if fewer than 300 Shares would
remain outstanding after the redemption. The Trust has the authority to redeem
the series of Preferred Shares for any reason.


Liquidation

   If the Trust is liquidated, the holders of any series of outstanding
Preferred Shares will receive the liquidation preference on such series, plus
all accumulated but unpaid dividends, plus any applicable additional dividends
payable before any payment is made to the common shares. The holders of
Preferred Shares will be entitled to receive these amounts from the assets of
the Trust available for distribution to its shareholders. In addition, the
rights of holders of Preferred Shares to receive these amounts are subject to
the rights of holders of any series or class of shares, including other series
of preferred shares, ranking on a parity with the Preferred Shares with respect
to the distribution of assets upon liquidation of the Trust. After the payment
to the holders of Preferred Shares of the full preferential amounts as
described, the holders of Preferred Shares will have no right or claim to any
of the remaining assets of the Trust.

   For purpose of the foregoing paragraph, a voluntary or involuntary
liquidation of the Trust does not include:

  .  the sale of all or substantially all the property or business of the
     Trust;

                                       26
<PAGE>

  .  the merger or consolidation of the Trust into or with any other
     corporation; or

  .  the merger or consolidation of any other corporation into or with the
     Trust.

Rating Agency Guidelines and Asset Coverage

   The Trust is required under guidelines of Moody's and S&P to maintain assets
having in the aggregate a Discounted Value at least equal to the Preferred
Shares Basic Maintenance Amount. Moody's and S&P have each established separate
guidelines for calculating Discounted Value. To the extent any particular
portfolio holding does not satisfy a rating agency's guidelines, all or a
portion of the holding's value will not be included in the rating agency's
calculation of Discounted Value. The Moody's and S&P guidelines do not impose
any limitations on the percentage of the Trust's assets that may be invested in
holdings not eligible for inclusion in the calculation of the Discounted Value
of the Trust's portfolio. The amount of ineligible assets included in the
Trust's portfolio at any time may vary depending upon the rating,
diversification and other characteristics of the eligible assets included in
the portfolio. The Preferred Shares Basic Maintenance Amount includes the sum
of (a) the aggregate liquidation preference of the Preferred Shares then
outstanding and (b) certain accrued and projected payment obligations of the
Trust.

   The Trust is also required under the Investment Company Act to maintain
asset coverage of at least 200% with respect to senior securities which are
equity shares, including the Preferred Shares ("Investment Company Act
Preferred Shares Asset Coverage"). The Trust's Investment Company Act Preferred
Shares Asset Coverage is tested as of the last business day of each month in
which any senior equity securities are outstanding. The minimum required
Investment Act Preferred Shares Asset Coverage amount of 200% may be increased
or decreased if the Investment Company Act is amended. Based on the composition
of the portfolio of the Trust and market conditions as of September 21, 2001,
the Investment Company Act Preferred Shares Asset Coverage with respect to all
of the Trust's preferred shares, assuming the issuance on that date of all
Preferred Shares offered hereby and giving effect to the deduction of related
sales load and related offering costs estimated at $1,234,064, would have been
computed as follows:

     Value of Trust assets less liabilities

       not constituting senior securities       =
                                                    $287,519,856

                                                                =  262%
    ----------------------------------------        ----------
         Senior securities representing             $109,750,000
                  indebtedness
                      plus
       liquidation value of the preferred
                     shares

   In the event the Trust does not timely cure a failure to maintain (a) a
Discounted Value of its portfolio equal to the Preferred Shares Basic
Maintenance Amount or (b) the Investment Company Act Preferred Shares Asset
Coverage, in each case in accordance with the requirements of the rating agency
or agencies then rating the Preferred Shares, the Trust will be required to
redeem Preferred Shares as described under
"--Redemption--Mandatory Redemption" above.

   The Trust may, but is not required to, adopt any modifications to the
guidelines that may be established by Moody's or S&P. Failure to adopt any such
modifications, however, may result in a change in the ratings described above
or a withdrawal of ratings altogether. In addition, any rating agency providing
a rating for the Preferred Shares may, at any time, change or withdraw any such
rating. The board of trustees may, without shareholder approval, amend, alter
or repeal any or all of the definitions and related provisions which have been
adopted by the Trust pursuant to the rating agency guidelines in the event the
Trust receives written confirmation from Moody's or S&P, as the case may be,
that any such amendment, alteration or repeal would not impair the rating then
assigned to the Preferred Shares.


   As recently described by Moody's and S&P, a preferred stock rating is an
assessment of the capacity and willingness of an issuer to pay preferred stock
obligations. The rating on the Preferred Shares is not a

                                       27
<PAGE>

recommendation to purchase, hold or sell those shares, inasmuch as the rating
does not comment as to market price or suitability for a particular investor.
The rating agency guidelines described above also do not address the likelihood
that an owner of Preferred Shares will be able to sell such shares in an
auction or otherwise. The rating is based on current information furnished to
Moody's and S&P by the Trust and the Advisor and information obtained from
other sources. The rating may be changed, suspended or withdrawn as a result of
changes in, or the unavailability of, such information. The common shares have
not been rated by a nationally recognized statistical rating organization.

   The rating agency's guidelines will apply to the Preferred Shares only so
long as the rating agency is rating the shares. The Trust will pay certain fees
to Moody's and S&P for rating the Preferred Shares.

Voting Rights

   Except as otherwise provided in this prospectus and in the Statement of
Additional Information or as otherwise required by law, holders of Preferred
Shares will have equal voting rights with holders of common shares and any
other preferred shares (one vote per share) and will vote together with holders
of common shares and any preferred shares as a single class.

   Holders of outstanding preferred shares, including Preferred Shares, voting
as a separate class, are entitled to elect two of the Trust's trustees. The
remaining trustees are elected by holders of common shares and preferred
shares, including Preferred Shares, voting together as a single class. In
addition, if at any time dividends (whether or not earned or declared) on
outstanding preferred shares, including Preferred Shares, are due and unpaid in
an amount equal to two full years of dividends, and sufficient cash or
specified securities have not been deposited with the auction agent for the
payment of such dividends, then, the sole remedy of holders of outstanding
preferred shares, including Preferred Shares, is that the number of trustees
constituting the Board will be automatically increased by the smallest number
that, when added to the two trustees elected exclusively by the holders of
preferred shares including Preferred Shares as described above, would
constitute a majority of the Board. The holders of preferred shares, including
Preferred Shares, will be entitled to elect that smallest number of additional
trustees at a special meeting of shareholders held as soon as possible and at
all subsequent meetings at which trustees are to be elected. The terms of
office of the persons who are trustees at the time of that election will
continue. If the Trust thereafter shall pay, or declare and set apart for
payment, in full, all dividends payable on all outstanding preferred shares,
including Preferred Shares, the special voting rights stated above will cease,
and the terms of office of the additional trustees elected by the holders of
preferred shares, including Preferred Shares, will automatically terminate.

   As long as any Preferred Shares are outstanding, the Trust will not, without
the affirmative vote or consent of the holders of at least a majority of the
Preferred Shares outstanding at the time (voting together as a separate class):


     (a) authorize, create or issue, or increase the authorized or issued
  amount of, any class or series of stock ranking prior to or on a parity
  with the Preferred Shares with respect to payment of dividends or the
  distribution of assets on liquidation, or increase the authorized amount of
  the Preferred Shares or any other preferred shares, unless, in the case of
  shares of preferred stock on parity with the Preferred Shares, the Trust
  obtains written confirmation from Moody's (if Moody's is then rating
  preferred shares), S&P (if S&P is then rating preferred shares) or any
  substitute rating agency (if any such substitute rating agency is then
  rating preferred shares) that the issuance of a class or series would not
  impair the rating then assigned by such rating agency to the Preferred
  Shares and the Trust continues to comply with Section 13 of the Investment
  Company Act, the Investment Company Act Preferred Shares Asset Coverage
  requirements and the Preferred Shares Basic Maintenance Amount
  requirements, in which case the vote or consent of the holders of the
  Preferred Shares is not required;


     (b) amend, alter or repeal the provisions of the Agreement and
  Declaration of Trust, as amended and restated, or the Statement, by merger,
  consolidation or otherwise, so as to adversely affect any preference,

                                       28
<PAGE>

  right or power of the Preferred Shares or holders of Preferred Shares;
  provided, however, that (i) none of the actions permitted by the exception
  to (a) above will be deemed to affect such preferences, rights or powers,
  (ii) a division of Preferred Shares will be deemed to affect such
  preferences, rights or powers only if the terms of such division adversely
  affect the holders of Preferred Shares and (iii) the authorization,
  creation and issuance of classes or series of shares ranking junior to the
  Preferred Shares with respect to the payment of dividends and the
  distribution of assets upon dissolution, liquidation or winding up of the
  affairs of the Trust, will be deemed to affect such preferences, rights or
  powers only if Moody's or S&P is then rating the Preferred Shares and such
  issuance would, at the time thereof, cause the Trust not to satisfy the
  Investment Company Act Preferred Shares Asset Coverage or the Preferred
  Shares Basic Maintenance Amount.

     (c) authorize the Trust's conversion from a closed-end to an open-end
  investment company; or

     (d) amend the provisions of the Agreement and Declaration of Trust, as
  amended and restated, or the Statement, which provide for the
  classification of the board of directors of the Trust into three classes,
  each with a term of office of three years with only one class of directors
  standing for election in any year.

   So long as any shares of the Preferred Shares are outstanding, the Trust
shall not, without the affirmative vote or consent of the Holders of at least
66 2/3% of the Preferred Shares outstanding at the time, in person or by proxy,
either in writing or at a meeting, voting as a separate class, file a voluntary
application for relief under Federal bankruptcy law or any similar application
under state law for so long as the Trust is solvent and does not foresee
becoming insolvent.

   To the extent permitted under the Investment Company Act, the Trust will not
approve any of the actions set forth in (a) or (b) above which adversely
affects the rights expressly set forth in the Agreement and Declaration of
Trust, as amended and restated, or the Statement, of a holder of shares of a
series of preferred shares differently than those of a holder of shares of any
other series of preferred shares without the affirmative vote or consent of the
holders of at least a majority of the shares of each series adversely affected.
Unless a higher percentage is provided for under the Agreement and Declaration
of Trust, as amended and restated, or the Statement, the affirmative vote of
the holders of a majority of the outstanding Preferred Shares, voting together
as a single class, will be required to approve any plan of reorganization
(including bankruptcy proceedings) adversely affecting such shares of any
action requiring a vote of security holders under Section 13(a) of the 1940
Act. However, to the extent permitted by the Agreement and Declaration of
Trust, as amended and restated, or the Statement, no vote of holders of common
stock, either separately or together with holders of preferred shares as a
single class, is necessary to take the actions contemplated by (a) and (b)
above. The holders of common shares will not be entitled to vote in respect of
such matters, unless, in the case of the actions contemplated by (b) above, the
action would adversely affect the contract rights of the holders of common
shares expressly set forth in the Trust's charter.

   The foregoing voting provisions will not apply with respect to Preferred
Shares if, at or prior to the time when a vote is required, such shares have
been (i) redeemed or (ii) called for redemption and sufficient funds have been
deposited in trust to effect such redemption.

                                  THE AUCTION

General

   The Statement provides that, except as otherwise described in this
prospectus, the applicable rate for the shares of each series of Preferred
Shares for each dividend period after the initial dividend period will be the
rate that results from an auction conducted as set forth in the Statement and
summarized below. In such an auction, persons determine to hold or offer to
sell or, based on dividend rates bid by them, offer to purchase or sell shares
of a series of Preferred Shares. See the Statement included in the Statement of
Additional Information for a more complete description of the auction process.

                                       29
<PAGE>


   Auction Agency Agreement. The Trust will enter into an auction agency
agreement with the auction agent (currently, The Bank of New York) which
provides, among other things, that the auction agent will follow the auction
procedures to determine the applicable rate for shares of each series of
Preferred Shares, so long as the applicable rate for shares of such series of
Preferred Shares is to be based on the results of an auction.


   The auction agent may terminate the auction agency agreement upon 60 days
notice to the Trust. If the auction agent should resign, the Trust will use its
best efforts to enter into an agreement with a successor auction agent
containing substantially the same terms and conditions as the auction agency
agreement. The Trust may remove the auction agent provided that, prior to
removal, the Trust has entered into a replacement agreement with a successor
auction agent.

   Broker-Dealer Agreements. Each auction requires the participation of one or
more Broker-Dealers. The auction agent will enter into agreements with several
Broker-Dealers selected by the Trust, which provide for the participation of
those Broker-Dealers in auctions for Preferred Shares.

   The auction agent will pay to each Broker-Dealer after each auction, from
funds provided by the Trust, a service charge at the annual rate of 1/4 of 1%
in the case of any auction before a dividend period of 364 days or less, or a
percentage agreed to by the Trust and the Broker-Dealers, in the case of any
auction before a dividend period of 365 days or longer, of the purchase price
of Preferred Shares placed by a Broker-Dealer at the auction.


   The Trust may request the auction agent to terminate one or more Broker-
Dealer Agreements at any time upon five days' notice, provided that at least
one Broker-Dealer Agreement is in effect after termination of the agreement.

Auction Procedures

   Prior to the submission deadline on each auction date for shares of a series
of Preferred Shares, each customer of a Broker-Dealer who is listed on the
records of that Broker-Dealer (or, if applicable, the auction agent) as a
beneficial owner of such series of Preferred Shares may submit the following
types of orders with respect to shares of such series of Preferred Shares to
that Broker-Dealer.

  1. Hold order--indicating its desire to hold shares of such series without
     regard to the applicable rate for the next dividend period.

  2. Bid--indicating its desire to sell shares of such series at $25,000 per
     share if the applicable rate for shares of such series for the next
     dividend period is less than the rate or spread specified in the bid.

  3. Sell order--indicating its desire to sell shares of such series at
     $25,000 per share without regard to the applicable rate for shares of
     such series for the next dividend period.

   A beneficial owner may submit different types of orders to its Broker-Dealer
with respect to shares of a series of Preferred Shares then held by the
beneficial owner. A beneficial owner for shares of such series that submits its
bid with respect to shares of such series to its Broker-Dealer having a rate
higher than the maximum applicable rate for shares of such series on the
auction date will be treated as having submitted a sell order to its Broker-
Dealer. A beneficial owner of shares of such series that fails to submit an
order to its Broker-Dealer with respect to such shares will ordinarily be
deemed to have submitted a hold order with respect to such shares of such
series to its Broker-Dealer. However, if a beneficial owner of shares of such
series fails to submit an order with respect to such shares of such series to
its Broker-Dealer for an auction relating to a dividend period of more than 28
days, such beneficial owner will be deemed to have submitted a sell order to
its Broker-Dealer. A sell order constitutes an irrevocable offer to sell the
Preferred Shares subject to the sell order. A beneficial owner that offers to
become the beneficial owner of additional Preferred Shares is, for purposes of
such offer, a potential holder as discussed below.

                                       30
<PAGE>

   A potential holder is either a customer of a Broker-Dealer that is not a
beneficial owner of a series of Preferred Shares but that wishes to purchase
shares of such series or that is a beneficial owner of shares of such series
that wishes to purchase additional shares of such series. A potential holder
may submit bids to its Broker-Dealer in which it offers to purchase shares of
such series at $25,000 per share if the applicable rate for shares of such
series for the next dividend period is not less than the specified in such bid.
A bid placed by a potential holder of shares of such series specifying a rate
higher than the maximum applicable rate for shares of such series on the
auction date will not be accepted.

   The Broker-Dealers in turn will submit the orders of their respective
customers who are beneficial owners and potential holders to the auction agent.
They will designate themselves (unless otherwise permitted by the Trust) as
existing holders of shares subject to orders submitted or deemed submitted to
them by beneficial owners. They will designate themselves as potential holders
of shares subject to orders submitted to them by potential holders. However,
neither the Trust nor the auction agent will be responsible for a Broker-
Dealer's failure to comply with these procedures. Any order placed with the
auction agent by a Broker-Dealer as or on behalf of an existing holder or a
potential holder will be treated the same way as an order placed with a Broker-
Dealer by a beneficial owner or potential holder. Similarly, any failure by a
Broker-Dealer to submit to the auction agent an order for any Preferred Shares
held by it or customers who are beneficial owners will be treated as a
beneficial owner's failure to submit to its Broker-Dealer an order in respect
of Preferred Shares held by it. A Broker-Dealer may also submit orders to the
auction agent for its own account as an existing holder or potential holder,
provided it is not an affiliate of the Trust.

   There are sufficient clearing bids for shares of a series in an auction if
the number of shares of such series subject to bids submitted or deemed
submitted to the auction agent by Broker-Dealers for potential holders with
rates or spreads equal to or lower than the maximum applicable rate for such
series is at least equal to the number of shares of such series subject to sell
orders submitted or deemed submitted to the auction agent by Broker-Dealers for
existing holders of such series. If there are sufficient clearing bids for
shares of a series, the applicable rate for shares of such series for the next
succeeding dividend period thereof will be the lowest rate specified in the
submitted bids which, taking into account such rate and all lower rates bid by
Broker-Dealers as or on behalf of existing holders and potential holders, would
result in existing holders and potential holders owning the shares of such
series available for purchase in the auction.

   If there are not sufficient clearing bids for shares of such series, the
applicable rate for the next dividend period will be the maximum applicable
rate for shares of such series on the auction date. If this happens, beneficial
owners of shares of such series that have submitted or are deemed to have
submitted sell orders may not be able to sell in the auction all shares of such
series subject to such sell orders. If all of the outstanding shares of such
series are the subject of submitted hold orders, then the dividend period
following the auction will automatically be the same length as the preceding
dividend period for such series. The applicable rate for the next dividend
period will then be:

  .  (i) if the applicable rate period is less than 183 days, the "AA"
     Composite Commercial Paper Rate, (ii) if the applicable rate period is
     more than 182 days but fewer than 365 days, the Treasury Bill
     Rate, and (iii) if the applicable rate period is more than 364 days, the
     Treasury Note Rate (the applicable rate being referred to as the
     "Benchmark Rate"); multiplied by

  .  1 minus the maximum marginal regular Federal individual income tax rate
     applicable to ordinary income or the maximum marginal regular Federal
     corporate income tax rate applicable to ordinary income, whichever is
     greater.

If the applicable rate period is less than 183 days and the Kenny Index is less
than amount determined above for a rate period of less than 183 days, then the
applicable rate for an all hold period will be the rate equal to the Kenny
Index.


   The "Kenny Index" is the Kenny S&P 30 day High Grade Index or any successor
index.

                                       31
<PAGE>

   The "Treasury Bill Rate" is either (i) the bond equivalent yield, calculated
in accordance with prevailing industry convention, of the rate on the most
recently auctioned Treasury bill with a remaining maturity closest to the
length of such Rate Period, as quoted in The Wall Street Journal on such date
for the business day next preceding such date; or (ii) in the event that any
such rate is not published in The Wall Street Journal, then the bond equivalent
yield, calculated in accordance with prevailing industry convention, as
calculated by reference to the arithmetic average of the bid price quotations
of the most recently auctioned Treasury bill with a remaining maturity closest
to the length of such Rate Period, as determined by bid price quotations as of
the close of business on the business day immediately preceding such date
obtained by the Auction Agent.

   The "Treasury Note Rate" is on any date for any Rate Period, shall mean (i)
the yield on the most recently auctioned Treasury note with a remaining
maturity closest to the length of such Rate Period, as quoted in The Wall
Street Journal on such date for the business day next preceding such date; or
(ii) in the event that any such rate is not published in The Wall Street
Journal, then the yield as calculated by reference to the arithmetic average of
the bid price quotations of the most recently auctioned Treasury note with a
remaining maturity closest to the length of such Rate Period, as determined by
bid price quotations as of the close of business on the business day
immediately preceding such date obtained by the Auction Agent.

   If all the shares of a series are subject to hold orders and the Trust has
notified the Auction Agent of its intent to allocate to a series of Preferred
Shares any net capital gains or other income taxable for Federal income tax
purposes ("Taxable Income"), the applicable rate for the series of Preferred
Shares for the applicable rate period will be (i) if the Taxable Yield Rate is
greater than the Benchmark Rate, then the Benchmark Rate, or (ii) if the
Taxable Yield Rate is less than or equal to the Benchmark Rate, then the rate
equal to the sum of (x) the amount determined pursuant to the two bullet points
above, and (y) the product of the maximum marginal regular Federal individual
income tax rate applicable to ordinary income or the maximum marginal regular
Federal corporate income tax rate applicable to ordinary income, whichever is
greater, multiplied by the Taxable Yield Rate.

   The "Taxable Yield Rate" is the rate determined by (i) dividing the amount
of Taxable Income available for distribution on each Preferred Share in the
affected series by the number of days in the Dividend Period in respect of
which the Taxable Income is contemplated to be distributed, (ii) multiplying
the amount determined in (i) by 365 (in the case of a Dividend Period of 7
days) or 360 (in the case of any other Dividend Period), and (iii) dividing the
amount determined in (ii) by $25,000.

   The auction procedure includes a pro rata allocation of shares for purchase
and sale, which may result in an existing holder continuing to hold or selling,
or a potential holder purchasing, a number of shares of a series of Preferred
Shares that is different than the number of shares of such series specified in
its order. To the extent the allocation procedures have that result, Broker-
Dealers that have designated themselves as existing holders or potential
holders in respect of customer orders will be required to make appropriate pro
rata allocations among their respective customers.

   Settlement of purchases and sales will be made on the next business day
(which is also a dividend payment date) after the auction date through DTC.
Purchasers will make payment through their Agent Members in same-day funds to
DTC against delivery to their respective Agent Members. DTC will make payment
to the sellers' Agent Members in accordance with DTC's normal procedures, which
now provide for payment against delivery by their Agent Members in same-day
funds.

   The auctions for Series W7 will normally be held every Wednesday, and each
subsequent dividend period will normally begin on the following Thursday. The
auctions for Series F7 will normally be held every Friday, and each subsequent
dividend period will normally begin on the following Monday.

   Whenever the Trust intends to include any net capital gains or other income
taxable for Federal income tax purposes in any dividend on Preferred Shares,
the Trust may notify the auction agent of the amount to be so included not
later than the dividend payment date before the auction date. Whenever the
auction agent receives

                                       32
<PAGE>

such notice from the Trust, it will be required in turn to notify each Broker-
Dealer, who, on or prior to such auction date, will be required to notify its
customers who are beneficial owners and potential holders believed by it to be
interested in submitting an order in the auction to be held on such auction
date. In the event of such notice, the Trust will not be required to pay an
Additional Dividend with respect to such dividend.

Secondary Market Trading and Transfers of Preferred Shares

   The Broker-Dealers are expected to maintain a secondary trading market in
Preferred Shares outside of auctions, but are not obligated to do so, and may
discontinue such activity at any time. There can be no assurance than any
secondary trading market in Preferred Shares will provide owners with liquidity
of investment. The Preferred Shares are not registered on any stock exchange or
on the Nasdaq Stock Market. Investors who purchase shares in an auction for a
special dividend period in which the Bid Requirements, if any, do not require a
bid to specify a spread, should note that because the dividend rate on such
shares will be fixed for the length of such dividend period, the value of the
shares may fluctuate in response to changes in interest rates and may be more
or less than their original cost if sold on the open market in advance of the
next auction. Investors who purchase shares in an auction for a special
dividend period in which the Bid Requirements require a bid to specify a spread
should be aware that the value of their shares may also fluctuate and may be
more or less than their original cost if sold in the open market in advance of
the next auction, particularly if market spreads narrow or widen in a manner
unfavorable to such purchaser's position.

   A beneficial owner or an existing holder may sell, transfer or otherwise
dispose of Preferred Shares only in whole shares and only:

  .  pursuant to a bid or sell order placed with the auction agent in
     accordance with the auction procedures;

  .  to a Broker-Dealer; or

  .  to such other persons as may be permitted by the Trust;

provided, however, that

  .  a sale, transfer or other disposition of Preferred Shares from a
     customer of Broker-Dealer who is listed on the records of that Broker-
     Dealer as the holder of such shares to that Broker-Dealer or another
     customer of that Broker-Dealer shall not be deemed to be a sale,
     transfer or other disposition if such Broker-Dealer remains the existing
     holder of the shares; and

  .  in the case of all transfers other than pursuant to auctions, the
     Broker-Dealer (or other person, if permitted by the Trust) to whom such
     transfer is made will advise the auction agent of such transfer.

                          DESCRIPTION OF COMMON SHARES

   In addition to the Preferred Shares, the Agreement and Declaration of Trust,
as amended and restated, authorizes the issuance of an unlimited number of
common shares of beneficial interest, par value $.001 per share. Each common
share has one vote and is fully paid and non-assessable, except that the
trustees shall have the power to cause shareholders to pay expenses of the
Trust by setting off charges due from common shareholders from declared but
unpaid dividends or distributions owed the common shareholders and/or by
reducing the number of common shares owned by each respective common
shareholder. So long as any Preferred Shares are outstanding, the holders of
common shares will not be entitled to receive any distributions from the Trust
unless all accrued dividends on Preferred Shares have been paid, unless asset
coverage (as defined in the Investment Company Act) with respect to Preferred
Shares would be at least 200% after giving effect to the distributions and
unless certain other requirements imposed by any rating agencies rating the
Preferred Shares have been met. All common shares are equal as to dividends,
assets and voting privileges and have no conversion, preemptive or other
subscription rights.

   The Trust's common shares are traded on the New York Stock Exchange under
the symbol "BNY".

                                       33
<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. The board of trustees

                                       34
<PAGE>

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 the trustees, in which case a majority of the outstanding voting
securities" (as defined in the Investment Company Act) of the Trust shall be
required.

   For the purposes of calculating "a majority of the outstanding voting
securities" under the Trust's Agreement and Declaration of Trust, as amended
and restated, each class or 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 class vote is required, the applicable
proportion of shares of the class or series voting as a separate class or
series, also will be required.

   The board of trustees has determined that provisions with respect to the
board of trustees and the shareholder voting requirements described above,
which voting requirements are greater than the minimum requirements under
Delaware law or the Investment Company Act, are in the best interest of
shareholders generally. Reference should be made to the Agreement and
Declaration of Trust, as amended and restated, on file with the Securities and
Exchange Commission for the full text of these provisions.

                          REPURCHASE OF COMMON SHARES

   Shares of closed-end investment companies often trade at a discount to their
net asset values, and the Trust's common shares may also trade at a discount to
their net asset value. The market price of the Trust's common shares will be
determined by such factors as relative demand for and supply of such common
shares in the market, the Trust's net asset value, general market and economic
conditions and other factors beyond the control of the Trust, Although the
Trust's common shareholders will not have the right to redeem their common
shares, the Trust may take action to repurchase common shares in the open
market or make tender offers for its common shares at their net asset value,
This may have the effect of reducing any market discount from net asset value.
Any such repurchase may cause the Trust to repurchase Preferred Shares to
maintain asset coverage requirements imposed by the Investment Company Act or
any rating agency rating the Preferred Shares at that time.


                                       35
<PAGE>

                                  TAX MATTERS

Federal Income Tax Matters

   The following is a description of certain U.S. federal income tax
consequences to a stockholder of acquiring, holding and disposing of Preferred
Shares of the Trust. The discussion reflects applicable tax laws of the United
States as of the date of this prospectus, which tax laws may be changed or
subject to new interpretations by the courts or the Internal Revenue Service
(the "IRS") retroactively or prospectively. No attempt is made to present a
detailed explanation of all U.S. federal, state, local and foreign tax concerns
affecting the Trust and its stockholders, and the discussion set forth herein
does not constitute tax advice. Investors are urged to consult their own tax
advisers to determine the tax consequences to them of investing in the Trust.

   The Trust intends to elect to be treated and to qualify to be taxed as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code") and intends to distribute substantially all of
its net income and gains to its shareholders. Therefore, it is not expected
that the Trust will be subject to any U.S. federal income tax. The Trust
expects that substantially all of the dividends it distributes to its common
shareholders and Preferred Shareholders will qualify as "exempt-interest
dividends." A shareholder treats an exempt-interest dividend as interest on
state and local bonds which is exempt from regular U.S. federal income tax.
Some or all of an exempt-interest dividend, however, may be subject to U.S.
federal alternative minimum tax imposed on the shareholder. Different U.S.
federal alternative minimum tax rules apply to individuals and to corporations.
In addition to exempt-interest dividends, the Trust also may distribute to its
shareholders amounts that are treated as long-term capital gain or ordinary
income. The Trust will allocate tax-exempt interest income, long-term capital
gain and other taxable income, if any, proportionately among the common shares
and the Preferred Shares in proportion to total dividends paid to each class
for the year. The Trust intends to notify Preferred Shareholders in advance if
it will allocate income to them that is not exempt from regular U.S. federal
income tax. In certain circumstances, the Trust will make payments to Preferred
Shareholders to offset the tax effects of the taxable distribution. See
"Description of Preferred Shares--Dividends and Dividend Periods--Additional
Dividends." The sale or other disposition of common shares or Preferred Shares
of the Trust will normally result in capital gain or loss to shareholders. Both
long-term and short-term capital gains of corporations are taxed at the rates
applicable to ordinary income. For non-corporate taxpayers, short-term capital
gains and ordinary income are taxed currently at a maximum rate of 39.1%, while
long-term capital gains are generally taxed at a maximum rate of 20% (or 18%
for capital assets that have been held for more than five years and the holding
period of which began after December 31, 2000).* Because of certain limitations
on itemized deductions and the deduction for personal exemptions applicable to
higher income taxpayers, the effective rate of tax may be higher in certain
circumstances. Losses realized by a shareholder on the sale or exchange of
shares of the Trust held for six months or less are disallowed to the extent of
any exempt-interest dividends received with respect to such shares, and, if not
disallowed, such losses are treated as long-term capital losses to the extent
of any capital gain dividends received (or amounts credited as an undistributed
capital gain) with respect to such shares. A shareholder's holding period is
suspended for any periods during which the shareholder's risk of loss is
diminished as a result of holding one or more other positions in substantially
similar or related property, or through certain options or short sales. Any
loss realized on a sale or exchange of shares of the Trust will be disallowed
to the extent those shares of the Trust are replaced by other shares within a
period of 61 days beginning 30 days before and ending 30 days after the date of
disposition of the original shares. In that event, the basis of the replacement
shares of the Trust will be adjusted to reflect the disallowed loss.

--------
*  The Economic Growth and Tax Relief Reconciliation Act of 2001, effective for
   taxable years beginning after December 31, 2000, creates a new 10 percent
   income tax bracket and reduces the tax rates applicable to ordinary income
   over a six year phase-in period. Beginning in the taxable year 2006,
   ordinary income will be subject to a 35% maximum rate, with approximately
   proportionate reductions in the other ordinary rates.

                                       36
<PAGE>

   This summary of tax consequences is intended for general information only.
You should consult a tax advisor concerning the tax consequences of your
investment in the Trust. The foregoing discussion is subject to and qualified
in its entirety by the discussion in "Tax Matters" in the Statement of
Additional Information below.

New York Tax Matters

   The discussion under this heading applies only to shareholders of the Trust
that are residents of New York for New York tax purposes. Individual
shareholders will not be subject to New York State or New York City personal
income tax on distributions attributable to interest on New York municipal
bonds. Individual shareholders will be subject to New York State or New York
City personal income tax on distributions attributable to other income of the
Trust (including net capital gain),and gain on the sale of shares of the Trust.
Corporations should note that all or a part of any distribution from the Trust,
and gain on the sale of shares of the Trust, may be subject to the New York
State corporate franchise tax and the New York City general corporation tax.

   Under currently applicable New York State law, the highest marginal New York
State income tax rate imposed on individuals for taxable years beginning after
1996 is 6.85%.The highest marginal New York City income tax rate currently
imposed on individuals is 3.78%.In addition, individual taxpayers with New York
adjusted gross income in excess of $100,000 must pay a supplemental tax to
recognize the benefit of graduated tax rates. Shareholders subject to taxation
in a state other than New York will realize a lower after-tax rate of return if
distributions from the Trust are not exempt from taxation in such other state.

   The foregoing is a general and abbreviated summary of the applicable
provisions of the Code, Treasury Regulations and New York State and New York
City tax laws presently in effect. For the complete provisions, reference
should be made to the pertinent Code sections and the Treasury Regulations
promulgated thereunder. The Code and the Treasury Regulations, as well as the
New York State and New York City tax laws, are subject to change by
legislative, judicial or administrative action either prospectively or
retroactively.

   Shareholders are urged to consult their tax advisors regarding specific
questions as to U.S. federal, foreign, state or local tax consequences of an
investment in the Trust.

                                       37
<PAGE>

                                  UNDERWRITING

   Salomon Smith Barney Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated are acting as representatives of the underwriters named below.
Subject to the terms and conditions of the underwriting agreement dated the
date hereof, each underwriter named below has severally agreed to purchase, and
the Trust has agreed to sell to such underwriter, the number of Preferred
Shares set forth opposite the name of such underwriter.


<TABLE>
<CAPTION>
                                                              Number of Shares
                                                             -------------------
     Name                                                    Series W7 Series F7
     ----                                                    --------- ---------
     <S>                                                     <C>       <C>
     Salomon Smith Barney Inc. .............................     889       889
     Merrill Lynch, Pierce, Fenner & Smith
              Incorporated..................................     780       780
     Prudential Securities Incorporated.....................     197       197
     UBS Warburg LLC........................................     197       197
     A.G. Edwards & Sons, Inc. .............................      66        66
     Gruntal & Co., L.L.C. .................................      44        44
     J.J.B. Hilliard, W.L. Lyons, Inc. .....................      22        22
                                                               -----     -----
       Total................................................   2,195     2,195
                                                               =====     =====
</TABLE>


   The underwriting agreement provides that the obligations of the underwriters
to purchase the shares included in this offering are subject to the approval of
certain legal matters by counsel and to certain other conditions. The
underwriters are obligated to purchase all the Preferred Shares if they
purchase any shares. In the underwriting agreement, the Trust, BlackRock
Advisors and BlackRock Financial Management have agreed to indemnify the
underwriters against certain liabilities, including liabilities arising under
the Securities Act of 1933, or to contribute payments the underwriters may be
required to make for any of those liabilities.

   The underwriters propose to initially offer some of the Preferred Shares
directly to the public at the public offering price set forth on the cover page
of this prospectus and some of the Preferred Shares to certain dealers at the
public offering price less a concession not in excess of $21.875 per share. The
sales load the Trust will pay of $ 250 per share is equal to 1% of the initial
offering price. After the initial public offering, the underwriters may change
the public offering price and the concession. Investors must pay for any
Preferred Shares purchased in the initial public offering on or before October
5, 2001.


   The Trust anticipates that the underwriters may from time to time act as
brokers or dealers in executing the Trust's portfolio transactions after they
have ceased to be underwriters. The underwriters are active underwriters of,
and dealers in, securities and act as market makers in a number of such
securities, and therefore can be expected to engage in portfolio transactions
with the Trust.

   The Trust anticipates that the underwriters or one of their respective
affiliates may, from time to time, act in auctions as Broker-Dealers and
receive fees as set forth under "The Auction."

   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 Four World Financial Center, New
York, New York 10080.

   The settlement date for the purchase of the Preferred Shares will be October
5, 2001, as agreed upon by the underwriters, the Trust and BlackRock Advisors
pursuant to Rule 15c6-1 under the Securities Exchange Act of 1934.


                                       38
<PAGE>

                  CUSTODIAN AND TRANSFER AGENT; AUCTION AGENT

   The Custodian of the assets of the Trust is State Street Bank and Trust
Company, 225 Franklin Street, Boston, Massachusetts 02110. The Custodian
performs custodial, fund accounting and portfolio accounting services.
EquiServe Trust Company, N.A., 150 Royall Street, Canton, Massachusetts 02021,
acts as the Trust's Transfer Agent with respect to the common shares.

   The Bank of New York, 100 Church Street, New York, New York, 10286, a
banking corporation organized under the laws of New York, is the auction agent
with respect to the Preferred Shares and acts as transfer agent, registrar,
dividend disbursing agent, and redemption agent with respect to such shares.

                                 LEGAL OPINIONS

   Certain legal matters in connection with the Preferred Shares offered hereby
will be passed upon for the Trust by Skadden, Arps, Slate, Meagher & Flom LLP,
New York, 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.

                             AVAILABLE INFORMATION

   The Trust is subject to the informational requirements of the Securities
Exchange Act of 1934 and the Investment Company Act and is required to file
reports, proxy statements and other information with the Securities and
Exchange Commission. These documents can be inspected and copied for a fee at
the SEC's public reference room, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the SEC's Chicago Regional Office, Suite 1400, Northwestern
Atrium Center, 500 West Madison Street, Chicago, Illinois 60661-2511. Reports,
proxy statements, and other information about the Trust can be inspected at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.


   This prospectus does not contain all of the information in the Trust's
registration statement, including amendments, exhibits, and schedules.
Statements in this prospectus about the contents of any contact or other
document are not necessarily complete and in each instance reference is made to
the copy of the contact or other document filed as an exhibit to the
registration statement, each such statement being qualified in all respects by
this reference.

   Additional information about the Trust and Preferred Shares can be found in
the Trust's registration statement (including amendments, exhibits, and
schedules) on Form N-2 filed with the SEC. The SEC maintains a web site
(http://www.sec.gov) that contains the Trust's registration statement, other
documents incorporated by reference, and other information the Trust has filed
electronically with the Commission, including proxy statements and reports
filed under the Securities Exchange Act of 1934.

                                       39
<PAGE>

                           TABLE OF CONTENTS FOR THE
                      STATEMENT OF ADDITIONAL INFORMATION

<TABLE>
<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-15
Management of the Trust..................................................  B-18
Portfolio Transactions and Brokerage.....................................  B-24
Additional Information Concerning the Auctions for Preferred Shares......  B-25
Description of Common Shares.............................................  B-26
Repurchase of Common Shares..............................................  B-26
Tax Matters..............................................................  B-28
Experts..................................................................  B-32
Additional Information...................................................  B-32
Independent Auditors' Report.............................................   F-1
Financial Statements.....................................................   F-2
APPENDIX A--Statement of Preferences of Municipal Auction Rate Cumulative
 Preferred Shares........................................................  AA-1
APPENDIX B--Ratings of Investments.......................................  BB-1
APPENDIX C--General Characteristics and Risks of Hedging Transactions....  CC-1
</TABLE>


                                       40
<PAGE>

                                   APPENDIX A

                         TAXABLE EQUIVALENT YIELD TABLE

   The taxable equivalent yield is the current yield you would need to earn on
a taxable investment in order to equal a stated tax-free yield on a municipal
investment. To assist you to more easily compare municipal investments like the
Trust with taxable alternative investments, the table below presents the
taxable equivalent yields for a range of hypothetical tax-free yields and tax
rates:

<TABLE>
<CAPTION>
                                    Tax-Free Yields
   Tax        ------------------------------------------------------------------------------------------
  Rate        1.50%           2.00%           2.50%           3.00%           3.50%           4.00%
  ----        -----           -----           -----           -----           -----           -----
  <S>         <C>             <C>             <C>             <C>             <C>             <C>
  15.0%       1.76%           2.35%           2.94%           3.53%           4.12%           4.71%
  27.5%       2.05%           2.74%           3.42%           4.11%           4.79%           5.52%
  30.5%       2.14%           2.86%           3.57%           4.29%           5.07%           5.76%
  35.5%       2.31%           3.08%           3.85%           4.62%           5.38%           6.20%
  39.1%       2.44%           3.26%           4.07%           4.89%           5.70%           6.57%
</TABLE>

   The following tables show the approximate taxable yields for individuals
that are equivalent to tax-free yields under combined New York State and New
York City taxes, using published 2001 marginal Federal tax rates and marginal
New York State and New York City tax rates currently available and scheduled to
be in effect.

                                      2001

<TABLE>
<CAPTION>
                                         Federal, State and     Taxable Equivalent Estimated
                                              Combined                 Current Return
                                     -------------------------- ----------------------------------
                                             State and
                                       Tax   City Tax    Tax
  Single Return      Joint Return    Bracket  Bracket  Bracket* 1.5%  2.0%  2.5%  3.0%  3.5%  4.0%
  -------------    ----------------- ------- --------- -------- ----  ----  ----  ----  ----  ----
<S>                <C>               <C>     <C>       <C>      <C>   <C>   <C>   <C>   <C>   <C>
$      0-- 27,050  $      0-- 45,200  15.00%  10.221%    23.7%  1.97% 2.62% 3.28% 3.93% 4.50% 5.24%
  27,050-- 65,550    45,200--109,250  27.50   10.498     35.1   2.31  3.08  3.85  4.62  5.39  6.16
  65,550--136,750   109,250--166,500  30.50   10.498     37.8   2.41  3.22  4.02  4.82  5.63  6.43
 136,750--297,350   166,500--297,350  35.50   10.498     42.3   2.60  3.46  4.33  5.20  6.06  6.93
  Over 297,350       Over 297,350     39.10   10.498     45.5   2.75  3.67  4.59  5.50  6.42  7.34
</TABLE>
--------
*  Combined Tax Bracket includes Federal, state and New York City income taxes.
   Please note that the table does not reflect (i) any Federal or state
   limitations on the amounts of allowable itemized deductions, phase-outs of
   personal or dependent exemption credits or other allowable credits, (ii) any
   local taxes imposed (other than New York City), or (iii) any taxes other
   than personal income taxes. The table assumes that Federal taxable income is
   equal to state income subject to tax, and in cases where more than one state
   rate falls within a Federal bracket, the highest state rate corresponding to
   the highest income within that Federal bracket is used. Further, the table
   does not reflect the New York State supplemental income tax based upon a
   taxpayer's New York State taxable income and New York State adjusted gross
   income. This supplemental tax results in an increased marginal State income
   tax rate to the extent a taxpayer's New York State adjusted gross income
   ranges between $100,000 and $150,000.

                                      A-1
<PAGE>

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

                                  $109,750,000

                                   BlackRock

                        New York Municipal Income Trust

               Municipal Auction Rate Cumulative Preferred Shares
                            2,195 Shares, Series W7
                            2,195 Shares, Series F7

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

                                   PROSPECTUS

                              October  , 2001


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

                              Salomon Smith Barney
                              Merrill Lynch & Co.
                           A.G. Edwards & Sons, Inc.
                             Prudential Securities
                                  UBS Warburg
                             Gruntal & Co., L.L.C.
                       J.J.B. Hilliard, W.L. Lyons, Inc.
                                 A PNC Company

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


              SUBJECT TO COMPLETION, DATED OCTOBER    , 2001


                   BLACKROCK NEW YORK MUNICIPAL INCOME TRUST

                      STATEMENT OF ADDITIONAL INFORMATION

   BlackRock New York Municipal Income Trust (the "Trust") is a recently
organized, non-diversified, closed-end, management investment company. This
Statement of Additional Information relating to Preferred Shares does not
constitute a prospectus, but should be read in conjunction with the prospectus
relating hereto dated October 2, 2001. This Statement of Additional Information
does not include all information that a prospective investor should consider
before purchasing Preferred Shares, and investors should obtain and read the
prospectus prior to purchasing such shares. A copy of the prospectus may be
obtained without charge by calling (888) 825-2257. You may also obtain a copy
of the prospectus on the Securities and Exchange Commission's web site
(http://www.sec.gov). Capitalized terms used but not defined in this Statement
of Additional Information have the meanings ascribed to them in the prospectus
or the Statement attached as Appendix A.


                               TABLE OF CONTENTS

<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-15
Management of the Trust..................................................  B-18
Portfolio Transactions and Brokerage.....................................  B-24
Additional Information Concerning the Auctions for Preferred Shares......  B-25
Description of Common Shares.............................................  B-26
Repurchase of Common Shares..............................................  B-26
Tax Matters..............................................................  B-28
Experts..................................................................  B-32
Additional Information...................................................  B-32
Independent Auditors' Report.............................................   F-1
Financial Statements.....................................................   F-2
APPENDIX A--Statement of Preferences of Municipal Auction Rate Cumulative
 Preferred Shares........................................................  AA-1
APPENDIX B--Ratings of Investments.......................................  BB-1
APPENDIX C--General Characteristics and Risks of Hedging Transactions....  CC-1
</TABLE>

    This Statement of Additional Information is dated October   , 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 New York State and New York City personal income
taxes and securities of other open- or closed-end investment companies that
invest primarily in municipal bonds of the type in which the Trust may invest
directly.

                       INVESTMENT OBJECTIVE AND POLICIES

   The Trust has not established any limit on the percentage of its portfolio
that may be invested in municipal bonds subject to the alternative minimum tax
provisions of Federal tax law, and the Trust expects that a portion of the
income it produces will be includable in alternative minimum taxable income.
Preferred Shares therefore would not ordinarily be a suitable investment for
investors who are subject to the Federal alternative minimum tax or who would
become subject to such tax by purchasing Preferred Shares. The suitability of
an investment in Preferred Shares will depend upon a comparison of the after-
tax yield likely to be provided from the Trust with that from comparable tax-
exempt investments not subject to the alternative minimum tax, and from
comparable fully taxable investments, in light of each such investor's tax
position. Special considerations apply to corporate investors. See "Tax
Matters."

Investment Restrictions

   Except as described below, the Trust, as a fundamental policy, may not,
without the approval of the holders of a majority of the outstanding common
shares and Preferred Shares, voting together as a single class, and of the
holders of a majority of the outstanding Preferred Shares voting as a separate
class:

     (1) invest 25% or more of the value of its 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 non-
  governmental users;

     (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.


                                      B-2
<PAGE>

   When used with respect to particular shares of the Trust, "majority of the
outstanding" means (i) 67% or more of the shares present at a meeting, if the
holders of more than 50% of the shares are present or represented by proxy, or
(ii) more than 50% of the shares, whichever is less.

   For purposes of applying the limitation set forth in subparagraph (1) above,
securities of the U.S. government, its agencies, or instrumentalities, and
securities backed by the credit of a governmental entity are not considered to
represent industries. However, obligations backed only by the assets and
revenues of non-governmental issuers may for this purpose be deemed to be
issued by such non-governmental issuers. Thus, the 25% limitation would apply
to such obligations. It is nonetheless possible that the Trust may invest more
than 25% of its 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 governmental entities and
its securities are backed only by its assets and revenues. Similarly, in the
case of a non-governmental issuer, such as an industrial corporation or a
privately owned or operated hospital, if the security is backed only by the
assets and revenues of the non-governmental issuer, then such non-governmental
issuer would be deemed to be the sole issuer. Where a security is also backed
by the enforceable obligation of a superior or unrelated governmental or other
entity (other than a bond insurer), it shall also be included in the
computation of securities owned that are issued by such governmental or other
entity. Where a security is guaranteed by a governmental entity or some other
facility, such as a bank guarantee or letter of credit, such a guarantee or
letter of credit would be considered a separate security and would be treated
as an issue of such government, other entity or bank. When a municipal bond is
insured by bond insurance, it shall not be considered a security that is issued
or guaranteed by the insurer; instead, the issuer of such municipal bond will
be determined in accordance with the principles set forth above. The foregoing
restrictions do not limit the percentage of the Trust's assets that may be
invested in municipal bonds insured by any given insurer.

   Under the Investment Company Act, the Trust may invest up to 10% of its
total assets in the aggregate in shares of other investment companies and up to
5% of its total assets in any one investment company, provided the investment
does not represent more than 3% of the voting stock of the acquired investment
company at the time such shares are purchased. As a shareholder in any
investment company, the Trust will bear its ratable share of that investment
company's expenses, and 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;

                                      B-3
<PAGE>

     (2) purchase securities of open-end or closed-end investment companies
  except in compliance with the Investment Company Act or any exemptive
  relief obtained thereunder; or

     (3) Purchase securities of companies for the purpose of exercising
  control.

   The restrictions and other limitations set forth above will apply only at
the time of purchase of securities and will not be considered violated unless
an excess or deficiency occurs or exists immediately after and as a result of
the acquisition of securities.

   In addition, to comply with Federal tax requirements for qualification as a
"regulated investment company," the Trust's investments will be limited in a
manner such that at the close of each quarter of its taxable year, (a) no more
than 25% of the value of the Trust's total assets are invested in the
securities (other than United States government securities or securities of
other regulated investment companies) of a single issuer or two or more issuers
controlled by the Trust and engaged in the same, similar or related trades or
businesses and (b) with regard to at least 50% of the Trust's total assets, no
more than 5% of its total assets are invested in the securities (other than
United States government securities or securities of other regulated investment
companies) of a single issuer. These tax-related limitations may be changed by
the Trustees to the extent appropriate in light of changes to applicable tax
requirements.

   The Trust intends to apply for ratings for the Preferred Shares from Moody's
and S&P. In order to obtain and maintain the required ratings, the Trust will
be required to comply with investment quality, diversification and other
guidelines established by Moody's and S&P. Such guidelines will likely be more
restrictive than the restrictions set forth above. The Trust does not
anticipate that such guidelines would have a material adverse effect on the
Trust's holders of common shares or its ability to achieve its investment
objective. The Trust presently anticipates that any Preferred Shares that it
intends to issue would be initially given the highest ratings by Moody's (aaa)
and by S&P (AAA), but no assurance can be given that such ratings will be
obtained. No minimum rating is required for the issuance of Preferred Shares by
the Trust. Moody's and S&P receive fees in connection with their ratings
issuances.

                       INVESTMENT POLICIES AND TECHNIQUES

   The following information supplements the discussion of the Trust's
investment objectives, policies and techniques that are described in the
prospectus.

Portfolio Investments

   The Trust will invest primarily in a portfolio of investment grade municipal
bonds that are exempt from regular Federal income tax and New York State and
New York City personal income taxes.

   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.

                                      B-4
<PAGE>

   A general description of Moody's, S&P's and Fitch's ratings of municipal
bonds is set forth in Appendix B hereto. The ratings of Moody's, S&P and Fitch
represent their opinions as to the quality of the municipal bonds they rate. It
should be emphasized, however, that ratings are general and are not absolute
standards of quality. Consequently, municipal bonds with the same maturity,
coupon and rating may have different yields while obligations of the same
maturity and coupon with different ratings may have the same yield.

   The Trust will primarily invest in municipal bonds with long-term maturities
in order to maintain a weighted average maturity of 15 or more years, but the
average weighted maturity may be shortened from time to time depending on
market conditions. As a result, the Trust's portfolio at any given time may
include both long-term and intermediate-term municipal bonds. Moreover, during
temporary defensive periods (e.g., times when, in BlackRock's opinion,
temporary imbalances of supply and demand or other temporary dislocations in
the tax-exempt bond market adversely affect the price at which long-term or
intermediate-term municipal bonds are available), and in order to keep cash on
hand fully invested, including the period during which the net proceeds of the
offering are being invested, the Trust may invest any percentage of its assets
in short-term investments including high quality, short-term securities which
may be either tax-exempt or taxable and securities of other open- or closed-end
investment companies that invest primarily in municipal bonds of the type in
which the Trust may invest directly. The Trust intends to invest in taxable
short-term investments only in the event that suitable tax-exempt temporary
investments are not available at reasonable prices and yields. Tax-exempt
temporary investments include various obligations issued by state and local
governmental issuers, such as tax-exempt notes (bond anticipation notes, tax
anticipation notes and revenue anticipation notes or other such municipal bonds
maturing in three years or less from the date of issuance) and municipal
commercial paper. The Trust will invest only in taxable temporary investments
which are U.S. government securities or securities rated within the highest
grade by Moody's, S&P or Fitch, and which mature within one year from the date
of purchase or carry a variable or floating rate of interest. Taxable temporary
investments of the Trust may include certificates of deposit issued by U.S.
banks with assets of at least $1 billion, commercial paper or corporate notes,
bonds or debentures with a remaining maturity of one year or less, or
repurchase agreements. See "Other Investment Policies and Techniques--
Repurchase Agreements." To the extent the Trust invests in taxable investments,
the Trust will not at such times be in a position to achieve its investment
objective of tax-exempt income.

   The foregoing policies as to ratings of portfolio investments will apply
only at the time of the purchase of a security and the Trust will not be
required to dispose of securities in the event Moody's, S&P or Fitch downgrades
its assessment of the credit characteristics of a particular issuer.

   Also included within the general category of municipal bonds described in
the prospectus are participations in lease obligations or installment purchase
contract obligations (hereinafter collectively called "Municipal Lease
Obligations") of municipal authorities or entities. Although a Municipal Lease
Obligation does not constitute a general obligation of the municipality for
which the municipality's taxing power is pledged, a Municipal Lease Obligation
is ordinarily backed by the municipality's covenant to budget for, appropriate
and make the payments due under the Municipal Lease Obligation. However,
certain Municipal Lease Obligations contain "non-appropriation" clauses which
provide that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such purpose
on a yearly basis. In the case of a "non-appropriation" lease, the Trust's
ability to recover under the lease in the event of non-appropriation or default
will be limited solely to the repossession of the leased property, without
recourse to the general credit of the lessee, and the disposition or re-leasing
of the property might prove difficult. In order to reduce this risk, the Trust
will only purchase Municipal Lease Obligations where BlackRock believes the
issuer has a strong incentive to continue making appropriations until maturity.

   Obligations of issuers of municipal bonds are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Bankruptcy Reform Act of 1978. In addition, the
obligations of such issuers may become subject to the laws enacted in the
future by Congress, state legislatures or referenda extending the time for
payment of principal or interest, or both, or imposing other

                                      B-5
<PAGE>

constraints upon enforcement of such obligations or up on municipalities to
levy taxes. There is also the possibility that, as a result of legislation or
other conditions, the power or ability of any issuer to pay, when due, the
principal of and interest on its municipal bonds may be materially affected.

   In addition to the types of municipal bonds described in the prospectus, the
Trust may invest in other securities that pay interest that is, or make other
distributions that are, exempt from regular Federal income tax and/or state and
local personal taxes, regardless of the technical structure of the issuer of
the instrument. The Trust treats all such tax-exempt securities as municipal
bonds.

Short-Term Taxable Fixed Income Securities

   For temporary defensive purposes or to keep cash on hand fully invested, the
Trust may invest up to 100% of its total assets in cash equivalents and short-
term taxable fixed-income securities, although the Trust intends to invest in
taxable short-term investments only in the event that suitable tax-exempt
short-term investments are not available at reasonable prices and yields.
Short-term taxable fixed income investments are defined to include, without
limitation, the following:

     (1) U.S. government securities, including bills, notes and bonds
  differing as to maturity and rates of interest that are either issued or
  guaranteed by the U.S. Treasury or by U.S. government agencies or
  instrumentalities. U.S. government securities include securities issued by
  (a) the Federal Housing Administration, Farmers Home Administration,
  Export-Import Bank of the United States, Small Business Administration, and
  the Government National Mortgage Association, whose securities are
  supported by the full faith and credit of the United States; (b) the
  Federal Home Loan Banks, Federal Intermediate Credit Banks, and the
  Tennessee Valley Authority, whose securities are supported by the right of
  the agency to borrow from the U.S. Treasury; (c) the Federal National
  Mortgage Association, whose securities are supported by the discretionary
  authority of the U.S. government to purchase certain obligations of the
  agency or instrumentality; and (d) the Student Loan Marketing Association,
  whose securities are supported only by its credit. While the U.S.
  government provides financial support to such U.S. government-sponsored
  agencies or instrumentalities, no assurance can be given that it always
  will do so since it is not so obligated by law. The U.S. government, its
  agencies and instrumentalities do not guarantee the market value of their
  securities. Consequently, the value of such securities may fluctuate.

     (2) Certificates of deposit issued against funds deposited in a bank or
  a savings and loan association. Such certificates are for a definite period
  of time, earn a specified rate of return, and are normally negotiable. The
  issuer of a certificate of deposit agrees to pay the amount deposited plus
  interest to the bearer of the certificate on the date specified thereon.
  Certificates of deposit purchased by the Trust may not be fully insured by
  the Federal Deposit Insurance Corporation.

     (3) Repurchase agreements, which involve purchases of debt securities.
  At the time the Trust purchases securities pursuant to a repurchase
  agreement, it simultaneously agrees to resell and redeliver such securities
  to the seller, who also simultaneously agrees to buy back the securities at
  a fixed price and time. This assures a predetermined yield for the Trust
  during its holding period, since the resale price is always greater than
  the purchase price and reflects an agreed-upon market rate. Such actions
  afford an opportunity for the Trust to invest temporarily available cash.
  The Trust may enter into repurchase agreements only with respect to
  obligations of the U.S. government, its agencies or instrumentalities;
  certificates of deposit; or bankers' acceptances in which the Trust may
  invest. Repurchase agreements may be considered loans to the seller,
  collateralized by the underlying securities. The risk to the Trust is
  limited to the ability of the seller to pay the agreed-upon sum on the
  repurchase date; in the event of default, the repurchase agreement provides
  that the Trust is entitled to sell the underlying collateral. If the value
  of the collateral declines after the agreement is entered into, and if the
  seller defaults under a repurchase agreement when the value of the
  underlying collateral is less than the repurchase price, the Trust could
  incur a loss of both principal and interest. BlackRock monitors the value
  of the collateral at the time the action is entered into and at all times
  during the term of the repurchase agreement. BlackRock does so in an effort
  to determine that the value of the collateral always equals or exceeds the
  agreed-upon repurchase

                                      B-6
<PAGE>

  price to be paid to the Trust. If the seller were to be subject to a
  Federal bankruptcy proceeding, the ability of the Trust to liquidate the
  collateral could be delayed or impaired because of certain provisions of
  the bankruptcy laws.

     (4) Commercial paper, which consists of short-term unsecured promissory
  notes, including variable rate master demand notes issued by corporations
  to finance their current operations. Master demand notes are direct lending
  arrangements between the Trust and a corporation. There is no secondary
  market for such notes. However, they are redeemable by the Trust at any
  time. BlackRock will consider the financial condition of the corporation
  (e.g., earning power, cash flow and other liquidity ratios) and will
  continuously monitor the corporation's ability to meet all of its financial
  obligations, because the Trust's liquidity might be impaired if the
  corporation were unable to pay principal and interest on demand.
  Investments in commercial paper will be limited to commercial paper rated
  in the highest categories by a major rating agency and which mature within
  one year of the date of purchase or carry a variable or floating rate of
  interest.

Short-Term Tax-Exempt Fixed Income Securities

   Short-term tax-exempt fixed income securities are securities that are exempt
from regular Federal income tax and mature within three years or less from the
date of issuance. Short-term tax-exempt fixed income securities are defined to
include, without limitation, the following:

   Bond Anticipation Notes ("BANs") are usually general obligations of state
and local governmental issuers which are sold to obtain interim financing for
projects that will eventually be funded through the sale of long-term debt
obligations or bonds. The ability of an issuer to meet its obligations on its
BANs is primarily dependent on the issuer's access to the long-term municipal
bond market and the likelihood that the proceeds of such bond sales will be
used to pay the principal and interest on the BANs.

   Tax Anticipation Notes ("TANs") are issued by state and local governments to
finance the current operations of such governments. Repayment is generally to
be derived from specific future tax revenues. TANs are usually general
obligations of the issuer. A weakness in an issuer's capacity to raise taxes
due to, among other things, a decline in its tax base or a rise in
delinquencies could adversely affect the issuer's ability to meet its
obligations on outstanding TANs.

   Revenue Anticipation Notes ("RANs") are issued by governments or
governmental bodies with the expectation that future revenues from a designated
source will be used to repay the notes. In general, they also constitute
general obligations of the issuer. A decline in the receipt of projected
revenues, such as anticipated revenues from another level of government, could
adversely affect an issuer's ability to meet its obligations on outstanding
RANs. In addition, the possibility that the revenues would, when received, be
used to meet other obligations could affect the ability of the issuer to pay
the principal and interest on RANs.

   Construction Loan Notes are issued to provide construction financing for
specific projects. Frequently, these notes are redeemed with funds obtained
from the Federal Housing Administration.

   Bank Notes are notes issued by local government bodies and agencies as those
described above to commercial banks as evidence of borrowings. The purposes for
which the notes are issued are varied but they are frequently issued to meet
short-term working capital or capital-project needs. These notes may have risks
similar to the risks associated with TANs and RANs.

   Tax-Exempt Commercial Paper ("municipal paper") represents very short-term
unsecured, negotiable promissory notes, issued by states, municipalities and
their agencies. Payment of principal and interest on issues of municipal paper
may be made from various sources, to the extent the funds are available
therefrom. Maturities on municipal paper generally will be shorter than the
maturities of TANs, BANs or RANs. There is a limited secondary market for
issues of municipal paper.


                                      B-7
<PAGE>

   Certain municipal bonds may carry variable or floating rates of interest
whereby the rate of interest is not fixed but varies with changes in specified
market rates or indices, such as a bank prime rate or tax-exempt money market
indices.

   While the various types of notes described above as a group represent the
major portion of the tax-exempt note market, other types of notes are available
in the marketplace and the Trust may invest in such other types of notes to the
extent permitted under its investment objective, policies and limitations. Such
notes may be issued for different purposes and may be secured differently from
those mentioned above.

Factors Pertaining to New York

   As described in the prospectus, except during temporary periods, the Trust
will invest primarily in New York municipal bonds. In addition, the specific
New York municipal bonds in which the Trust will invest will change from time
to time. The Trust is therefore susceptible to political, economic, regulatory
or other factors affecting issuers of New York municipal bonds. The following
information constitutes only a brief summary of a number of the complex factors
which may impact issuers of New York municipal bonds and does not purport to be
a complete or exhaustive description of all adverse conditions to which issuers
of New York municipal bonds may be subject. Such information is derived from of
fiscal statements utilized in connection with the issuance of New York
municipal bonds, as well as from other publicly available documents. Such
information has not been independently verified by the Trust, and the Trust
assumes no responsibility for the completeness or accuracy of such information.
The summary below does not include all of the information pertaining to the
budget, receipts and disbursements of the State of New York that would
ordinarily be included in various public documents issued thereby, such as an
Official Statement prepared in connection with the issuance of general
obligation bonds of the State of New York. Such an Official Statement, together
with any updates or supplements thereto, may generally be obtained upon request
to the Budget Office of the State of New York.

   The New York State Economy. New York is the third most populous state in the
nation and has a relatively high level of personal wealth. The state's economy
is diverse, with a comparatively large share of the nation's finance,
insurance, transportation, communications and services employment, and a very
small share of the nation's farming and mining activity. Travel and tourism
constitute an important part of the state's economy. However, the terrorist
attack on the World Trade Center on September 11, 2001 is likely to have an
adverse effect on travel and tourism. As in most states, New York has a
declining proportion of its workforce engaged in manufacturing, and an
increasing proportion engaged in service industries. To the extent that a
particular industry sector represents a larger portion of the state's total
economy, the greater impact that a downturn in such sector is likely to have on
the state's economy.

   The service sector, which includes entertainment, personal services, such as
health care and auto repairs, and business-related services, such as
information processing, law and accounting, is the state's leading economic
sector. The services sector accounts for more than three of every ten
nonagricultural jobs in New York and has a noticeably higher proportion of
total jobs than does the rest of the nation. In recent years, many industries
in the services sector, especially high-technology firms, have been prospering.
Manufacturing employment continues to decline in importance in New York, as in
most other states, and New York's economy is less reliant on this sector than
in the past. However, it remains an important sector of the state economy,
particularly for the upstate economy, as high concentrations of manufacturing
industries for transportation equipment, optics and imaging, materials
processing, and refrigeration, heating and electrical equipment products are
located in the upstate region. Wholesale and retail trade is the second largest
sector in terms of nonagricultural jobs in New York but is considerably smaller
when measured by income share. Trade consists of wholesale businesses and
retail businesses, such as department stores and eating and drinking
establishments.

   New York City is the nation's leading center of banking and finance and, as
a result, this is a far more important sector in the state than in the nation
as a whole. Although the sector accounts for under one-tenth of all
nonagricultural jobs in the state, it contributes about one-fifth of total
wages. In addition, the terrorist attack on the World Trade Center on September
11, 2001 is likely to have an adverse effect on the banking and

                                      B-8
<PAGE>

financial industry in New York. Farming is an important part of the economy in
rural areas, although it constitutes a very minor part of total state output.
Principal agricultural products of the state include milk and dairy products,
greenhouse and nursery products, apples and other fruits, and fresh vegetables.
New York ranks among the nation's leaders in the production of these
commodities.

   Federal, state and local government together are the third largest sector in
terms of nonagricultural jobs, with the bulk of the employment accounted for by
local governments. Public education is the source of nearly one-half of total
state and local government employment.

   State Budgetary Outlook. The State has not yet enacted a budget for the
2001-02 fiscal year, which began on April 1, 2001, but did enact appropriations
for State-supported, contingent contractual, and certain other debt service
obligations for the entire 2001-02 fiscal year on March 29, 2001. The State has
also passed legislation that extends certain revenue-raising authority and
makes interim appropriations for State personal service costs, various grants
to local governments, and certain other items through August 2, 2001. In prior
years, the State enacted similar interim appropriations to permit the State to
continue operations until final action on the Executive Budget. Upon enactment
of a budget for the 2001-02 fiscal year, the State will produce a revised
economic forecast and a 2001-02 Financial Plan. There can be no assurance that
the Legislature will enact the Governor's Executive Budget, as amended, into
law, or that the State's adopted budget projections will not differ materially
and adversely from the projections set forth at this time.

   On February 13, 2001 the Division of the Budget ("DOB") issued a revised
Financial Plan (the "February Final Plan") that incorporated the Governor's
amendments to his 2001-02 Executive Budget. The February Financial Plan
projected total General Fund receipts, including transfers from other funds, of
$42.66 billion in the 2001-02 fiscal year, an increase of $200 million over the
Executive Budget forecast. The February Financial Plan also added $250 million
in income tax receipts to the State's Debt Reduction Reserve Fund. Total
disbursements, including transfers to other funds, remained unchanged at $41.34
billion. The Governor proposed retaining the additional receipts as a reserve,
consistent with his recommendations in the Executive Budget for the use of the
2000-01 cash surplus projected at that time. The February outyear gap
projections remained essentially unchanged from the Executive Budget forecast,
with potential budget gaps of $2.48 billion in the 2002-03 fiscal year and
$2.93 billion in the 2003-04 fiscal year. The gap projections assume the
Legislature will enact the 2001-02 Executive Budget in its entirety. The
projections do not include possible spending efficiencies, and do not assume
the use of any of the reserves the Governor is proposing to set aside for
economic uncertainties. If the projected budget gap for 2002-03 is closed with
recurring actions, the 2003-04 budget gap would be reduced to approximately
$450 million. In recent years, the State has closed projected budget gaps which
DOB estimated at $5.0 billion (1995-96), $3.9 billion (1996-97), $2.3 billion
(1997-98), and less than $1.0 billion (in each of fiscal years 1998-99 through
2000-01).

   The State ended its 2000-01 fiscal year on March 31, 2001 with a General
Fund surplus of $2.73 billion as reported by DOB. After year-end adjustments
described below, the closing balance in the General Fund was $1.10 billion. Of
this balance, $627 million was held in the Tax Stabilization Reserve Fund
(after a deposit of $80 million in fiscal year 2000-01), $150 million in the
Contingency Reserve Fund, $292 million in the Community Projects Fund, and $29
million in the Universal Pre-Kindergarten Fund. In addition to the General Fund
closing balance of $1.10 billion, the State had $3.52 billion on deposit in the
tax refund reserve account at the end of the 2000-01 fiscal year. The tax
refund reserve account is used to adjust personal income tax collections across
fiscal years to pay for tax refunds, as well as to accomplish other Financial
Plan objectives. The Governor has proposed retaining $1.73 billion of the $3.52
billion balance for reserves, with $1.48 billion to be set aside for economic
uncertainties and $250 million to be deposited into the Debt Reduction Reserve
Fund.

   Through the first quarter of the 2001-02 fiscal year, General Fund receipts
and transfers from other funds totaled $15.32 billion, an increase of $387
million over the same period last year. General Fund disbursements and
transfers to other funds totaled $10.29 billion, an increase of $940 million
over the first quarter of the 2000-01 fiscal year.

                                      B-9
<PAGE>

   Since the submission of amendments to the Executive Budget, discussions
between the Governor and the Legislature have focused on the levels of
resources available to finance changes to the February Financial Plan within
the constraints of a weakening economy and a balanced Financial Plan. At such
time DOB estimated that the State will have to finance certain costs that were
not budgeted in the February Financial Plan. The estimated significant new
costs include: $114 million resulting from an adverse decision in Tennessee Gas
Pipeline v. NYS Department of Taxation and Finance; higher-than projected costs
for child protective and preventive services ($60 million); the loss of
Medicaid cost containment through the first quarter of 2001-02 ($33 million);
costs associated with the failure to enact a proposed Powerball-type lottery
game through the first five months of 2001-02 ($60 million); higher
contributions to the State retirement system ($44 million); and provision of
Medicaid benefits to immigrants pursuant to a court case ($15 million).
Revenues associated with the April 2001 settlement of calendar 2000 tax
liabilities exceeded projections in the February Financial Plan due primarily
to strong activity in capital gains and financial sector bonuses that is not
expected to recur in calendar 2001. However, DOB at such time believed that
receipts for the entire 2001-02 fiscal year may fall below the estimates
contained in the February Financial Plan due to weakness in the economy and a
slowdown in withholding and sales tax receipts growth.

   Many complex political, social and economic forces influence the State's
economy and finances, which may in turn affect the State's Financial Plan.
These forces may affect the State unpredictably from fiscal year to fiscal year
and are influenced by governments, institutions, and events that are not
subject to the State's control. The Financial Plan is also necessarily based
upon forecasts of national and State economic activity. Economic forecasts have
frequently failed to predict accurately the timing and magnitude of changes in
the national and State economies. The projections assume no further changes in
federal tax law, which could substantially alter the current receipts forecast.

   The February Financial Plan's projected budget gaps of $2.48 billion in
2002-03 and $2.93 billion in 2003-04 may change substantially as the budget
process for 2001-02 continues. For example, the Legislature may not enact the
Executive Budget as proposed by the Governor. Also, the State's actions during
the current fiscal year may be insufficient to preserve budgetary balance in
2001-02 or may add to the budget gaps projected for future fiscal years. Actual
results for the current fiscal year may also differ materially and adversely
from the projections set forth herein. The Governor is required by law to
propose a balanced budget each year and is to propose steps necessary to
address any potential budget gaps in subsequent budgets.

   Over the long-term, uncertainties with regard to the economy present the
largest potential risk to future budget balance in New York State. Many
uncertainties exist in any forecast of the national and State economies. Given
the recent volatility in financial markets, such uncertainties are more
pronounced at this time. For example, a sustained downturn in the financial
markets is possible. The securities industry is more important to the New York
economy than the national economy as a whole, potentially amplifying the impact
of such a downturn. A large change in stock market performance during the
forecast horizon could result in wage and unemployment levels that are
significantly different from those embodied in the current forecast.

   Two variables which stand out as being particularly vulnerable to financial
market volatility, and which are closely associated with the recent strength of
State personal income tax receipts, are finance sector bonus income and capital
gains realizations. Historically, financial sector bonus income has been
closely tied to security firm profits. With many Wall Street profit-making
activities (such as initial public offerings and mergers and acquisitions) now
significantly below 2000 levels, DOB is forecasting a significant decline in
financial sector profits for 2001. DOB also expects that the decline in equity
values observed since early 2000, combined with the recent decline in the
average holding period for equities, will produce a decline in capital gains
realizations for this year. However, both bonus income and capital gains
realizations have historically been subject to a large degree of variation and
could easily fall below (or rise above) expectations.

   An ongoing risk to the State Financial Plan arises from the potential impact
of certain litigation and federal disallowances now pending against the State,
which could produce adverse effects on the State's

                                      B-10
<PAGE>

projections of receipts and disbursements. The Financial Plan contains
projected reserves of $150 million in 2001-02 for such events, but assumes no
significant federal disallowances or other federal actions that could affect
State finances.

   At the time they were issued The Division of the Budget believed that its
projections of receipts and disbursements relating to the proposed State
Financial Plan, and the assumptions on which they were based, were reasonable.
Actual results, however, could differ materially and adversely from the
projections set forth herein. In the past, the State has taken management
actions to address potential financial plan shortfalls, and DOB believes it
could take similar actions should adverse variances occur in its projections
for the current fiscal year. To help guard against such risks, the Governor
proposed in the 2001-02 Executive Budget setting aside $1.48 billion from the
2000-01 fiscal year surplus to guard against economic uncertainties. He
subsequently recommended reserving an additional $925 million from the 2000-01
surplus. In addition, the State has $627 million available in the Tax
Stabilization Reserve Fund.

   New York City. New York City, with a population of approximately 8 million,
is an international center of business and culture. Its non-manufacturing
economy is broadly based, with the banking and securities, life insurance,
communications, publishing, fashion design, retailing and construction
industries accounting for a significant portion of the city's total employment
earnings. Additionally, the city is the nation's leading tourist destination.
Manufacturing activity in the city is conducted primarily in apparel and
printing.

   The fiscal health of the state may also be affected by the fiscal health of
New York City, which continues to receive significant financial assistance from
the state. State aid contributes to the city's ability to balance its budget
and meet its cash requirements. The state may also be affected by the ability
of the city and certain entities issuing debt for the benefit of the city to
market their securities successfully in the public credit markets. The city has
achieved balanced operating results for each of its fiscal years since 1981 as
measured by the GAAP standards in force at that time. The city prepares a four-
year financial plan annually and updates it periodically, and prepares a
comprehensive annual financial report each October describing its most recent
fiscal year.

   In response to the city's fiscal crisis in 1975, the state took action to
assist the city in returning to fiscal stability. Among those actions, the
state established the Municipal Assistance Corporation for the City of New York
to provide financing assistance to the city; the New York State Financial
Control Board (the Control Board) to oversee the city's financial affairs; and
the Office of the State Deputy Comptroller for the City of New York to assist
the Control Board in exercising its powers and responsibilities. A "control
period" existed from 1975 to 1986, during which the city was subject to certain
statutorily-prescribed fiscal controls. The Control Board terminated the
control period in 1986 when certain statutory conditions were met. State law
requires the Control Board to reimpose a control period upon the occurrence, or
"substantial likelihood and imminence" of the occurrence, of certain events,
including (but not limited to) a city operating budget deficit of more than
$100 million or impaired access to the public credit markets.

   To successfully implement its financial plan, the city and certain entities
issuing debt for the benefit of the city must market their securities
successfully. This debt is issued to finance the rehabilitation of the city's
infrastructure and other capital needs and to refinance existing debt, as well
as to finance seasonal needs. In the city's fiscal years 1997-98, 1998-99 and
1999-2000, the state constitutional debt limit would have prevented the city
from entering into new capital contracts. To prevent disruptions in the capital
program, two actions were taken to increase the city's capital financing
capacity: (i) the state legislature created the New York City Transitional
Finance Authority (TFA) in 1997, and (ii) in 1999, the city created TSASC,
Inc., a not-for-profit corporation empowered to issue tax-exempt debt backed by
tobacco settlement revenues. Despite these actions, the city, in order to
continue its capital program, will need additional financing capacity beginning
in the city's fiscal year 2000-01,which could be provided through increasing
the borrowing authority of the TFA or amending the state constitutional debt
limit for the city's fiscal year 2001-02 and thereafter.

   The terrorist attack on the World Trade Center on September 11, 2001 has
disrupted a number of businesses, caused extensive property damage, is likely
to reduce travel, tourism and leisure spending and has and will have other
adverse impacts on New York City and the State of New York. Additionally, many

                                      B-11
<PAGE>

businesses located in and around the World Trade Center may locate to other
cities and other states. Therefore the New York City and the State of New York
is likely to suffer a decrease in revenue and an increase in expenditures
related to the attack.

   Other New York Risk Factors. When compared with the average ratings among
other states of full faith and credit state debt obligations, the credit risk
associated with obligations of the State of New York and its agencies and
authorities, including general obligation and revenue bonds, "moral obligation"
bonds, lease debt, appropriation debt and notes is somewhat higher than
average. Moreover, the credit quality of such obligations may be more volatile
insofar as the state's credit rating has historically been upgraded and
downgraded much more frequently than most other states.

   The combined state and local taxes of residents of the State of New York,
and particularly of residents of New York City, are among the highest in the
country, which may limit the ability of the state and its localities to raise
additional revenue. In addition, combined state and local debt per capita in
the state is significantly above the national average and debt service
expenditures have represented an increasing claim on state and local budgets.

   The terrorist attack on the World Trade Center on September 11, 2001 is
likely to have an adverse effect on the New York economy. Expenses related to
the disaster will likely have a significant adverse impact on the finances and
budgets of the City and State of New York. It is impossible at this time
accurately to forecast the scope and extent of such adverse effects.

   Additionally, many factors, including national, economic, social and
environmental policies and conditions, which are not within the control of such
issuers, could have an adverse impact on the financial conditions of such
issuers. The Trust cannot predict whether or to what extent such factors or
other factors may affect the issuers of New York municipal bonds, the market
value or marketability of such securities or the ability of the respective
issuers of such securities acquired by the Trust to pay interest on or
principal of such securities. The creditworthiness of obligations issued by
local New York issuers may be unrelated to the creditworthiness of obligations
issued by the State of New York, and there is no responsibility of the part of
the State of New York to make payments on such local obligations. There may be
specific factors that are applicable in connection with investment in the
obligations of particular issuers located within New York, and it is possible
the Trust will invest in obligations of particular issuers as to which such
specific facts are applicable. However, the information set forth above is
intended only as a general summary and not a discussion of any specific factors
that may affect any particular issuer of New York municipal bonds.

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

                                      B-12
<PAGE>

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 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.

                                      B-13
<PAGE>

   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.

   Appendix D contains further information about the characteristics, risks and
possible benefits of Additional Investment Management Techniques and the
Trust's other policies and limitations (which are not fundamental policies)
relating to investment in futures contracts and options. The principal risks
relating to the use of futures contracts and other Additional Investment
Management Techniques are: (a) less than perfect correlation between the prices
of the instrument and the market value of the securities in the Trust's
portfolio; (b) possible lack of a liquid secondary market for closing out a
position in such instruments; (c) losses resulting from interest rate or other
market movements not anticipated by BlackRock; and (d) the obligation to meet
additional variation margin or other payment requirements, all of which could
result in the Trust being in a worse position than if such techniques had not
been used.

   Certain provisions of the Code may restrict or affect the ability of the
Trust to engage in Additional Investment Management Techniques. See "Tax
Matters."

Short Sales

   The Trust may make short sales of municipal bonds. A short sale is a
transaction in which the Trust sells a security it does not own in anticipation
that the market price of that security will decline. The Trust may make short
sales to hedge positions, for duration and risk management, in order to
maintain portfolio flexibility or to enhance income or gain.

   When the Trust makes a short sale, it must borrow the security sold short
and deliver it to the broker-dealer through which it made the short sale as
collateral for its obligation to deliver the security upon conclusion of the
sale. The Trust may have to pay a fee to borrow particular securities and is
often obligated to pay over any payments received on such borrowed securities.

                                      B-14
<PAGE>

   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.

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 including volatility in
net asset value, market value and income available for distribution.


                                      B-15
<PAGE>

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.

Repurchase Agreements

   As temporary investments, the Trust may invest in repurchase agreements. A
repurchase agreement is a contractual agreement whereby the seller of
securities (U.S. government securities or municipal bonds) agrees to repurchase
the same security at a specified price on a future date agreed upon by the
parties. The agreed-upon repurchase price determines the yield during the
Trust's holding period. Repurchase agreements are considered to be loans
collateralized by the underlying security that is the subject of the repurchase
contract. Income generated from transactions in repurchase agreements will be
taxable. See "Tax Matters" for information relating to the allocation of
taxable income between common shares and Preferred Shares. The Trust will only
enter into repurchase agreements with registered securities dealers or domestic
banks that, in the opinion of BlackRock, present minimal credit risk. The risk
to the Trust is limited to the ability of the issuer to pay the agreed-upon
repurchase price on the delivery date; however, although the value of the
underlying collateral at the time the transaction is entered into always equals
or exceeds the agreed-upon repurchase price, if the value of the collateral
declines there is a risk of loss of both principal and interest. In the event
of default, the collateral may be sold but the Trust might incur a loss if the
value of the collateral declines, and might incur disposition costs or
experience delays in connection with liquidating the collateral. In addition,
if bankruptcy proceedings are commenced with respect to the seller of the
security, realization upon the collateral by the Trust may be delayed or
limited. BlackRock will monitor the value of the collateral at the time the
transaction is entered into and at all times subsequent during the term of the
repurchase agreement in an effort to determine that such value always equals or
exceeds the agreed-upon repurchase price. In the event the value of the
collateral declines below the repurchase price, BlackRock will demand
additional collateral from the issuer to increase the value of the collateral
to at least that of the repurchase price, including interest.

Zero Coupon Bonds

   The Trust may invest in zero coupon bonds. A zero coupon bond is a bond that
does not pay interest for its entire life. The market prices of zero coupon
bonds are affected to a greater extent by changes in prevailing

                                      B-16
<PAGE>

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.

   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

                                      B-17
<PAGE>

Trust's income. Although the Trust does not intend initially to invest in
inverse floaters, the Trust may do so at some point in the future. The Trust
will provide shareholders 30 days' written notice prior to any change in its
policy of not investing in inverse floaters.

                            MANAGEMENT OF THE TRUST

Investment Management Agreement

   Although BlackRock Advisors intends to devote such time and effort to the
business of the Trust as is reasonably necessary to perform its duties to the
Trust, the services of BlackRock Advisors are not exclusive and BlackRock
Advisors provides similar services to other investment companies and other
clients and may engage in other activities.

   The investment management agreement also provides that in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, BlackRock Advisors is not liable to the Trust or any of
the Trust's shareholders for any act or omission by BlackRock Advisors in the
supervision or management of its respective investment activities or for any
loss sustained by the Trust or the Trust's shareholders and provides for
indemnification by the Trust of BlackRock Advisors, its directors, officers,
employees, agents and control persons for liabilities incurred by them in
connection with their services to the Trust, subject to certain limitations and
conditions.

   The investment management agreement and certain waivers of the 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 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).


                                      B-18
<PAGE>

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, 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.


                                      B-19
<PAGE>

<TABLE>
<CAPTION>
                                            Principal Occupation During The
       Name and Address         Title   Past Five Years and Other Affiliations
       ----------------         -----   --------------------------------------

 <C>                           <C>     <S>
 Andrew F. Brimmer...........  Trustee President of Brimmer & Company, Inc., a
  4400 MacArthur Blvd., N.W.           Washington, D.C.-based economic and
  Suite 302                            financial consulting firm. Director of
  Washington, DC 20007                 CarrAmerica Realty Corporation and Borg-
  Age: 74                              Warner Automotive. Formerly member of
                                       the Board of 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
  845 Third Avenue                     The Conference Board, Inc., a leading
  New York, NY 10022                   global business membership organization,
  Age: 54                              from 1995-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 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
  430 Sandy Hook Road                  and Chief Executive Officer of Empire
  St. Petersburg, FL 33706             Federal Savings Bank of America and Banc
  Age: 63                              PLUS Savings Association, former
                                       Chairman of the Board, President and
                                       Chief Executive Officer of Northeast
                                       Savings. Former Director of ISFA (the
                                       owner of INVEST, a national securities
                                       brokerage service designed for banks and
                                       thrift institutions).

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

 Laurence D. Fink*...........  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
</TABLE>

                                      B-20
<PAGE>

<TABLE>
<CAPTION>
                                             Principal Occupation During The
       Name and Address          Title   Past Five Years and Other Affiliations
       ----------------          -----   --------------------------------------

 <C>                           <C>       <S>
                                         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 LaForce, Jr.   Trustee   Dean Emeritus of The John E. Anderson
  ...........................            Graduate School of Management,
  P.O. Box 1595                          University of California since July 1,
  Pauma Valley, CA 92061                 1993. Director, Jacobs Engineering
  Age: 72                                Group, Inc., Payden & 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.

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

 Ralph L. Schlosstein* ......  Trustee   Director since 1999 and President of
  Age: 50                      and       BlackRock, Inc. since its formation in
                               President 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.
</TABLE>

                                      B-21
<PAGE>

<TABLE>
<CAPTION>
                                             Principal Occupation During The
                                                Past Five Years and Other
       Name and Address          Title                 Affiliations
       ----------------          -----       -------------------------------

 <C>                           <C>        <S>
 Anne F. Ackerley............  Secretary  Managing Director of BlackRock, Inc.
  Age: 39                                 since 2000. Formerly First Vice
                                          President and 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.
  Age: 53                                 and its predecessor entities.

 Robert S. Kapito............  Vice       Vice Chairman of BlackRock, Inc. and
  Age: 44                      President  its predecessor entities.

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

 James Kong..................  Assistant  Managing Director of BlackRock, Inc.
  Age: 38                      Treasurer  and its predecessor entities.

 Richard Shea, Esq. .........  Vice       Managing Director of BlackRock, Inc.
  Age: 41                      President/ since 2000; Chief Operating Officer
                               Tax        and Chief Financial Officer of
                                          Anthracite Capital, Inc. since 1998.
                                          Formerly, Director of BlackRock, Inc.
                                          and its predecessor entities.
</TABLE>

   As of October 1, 2001, no person is known to the Trust to own of record or
beneficially 5% or more of the outstanding common shares or Preferred Shares
except Salomon Smith Barney who own 33.86% as of record; Merrill Lynch, Pierce,
Fenner & Smith Incorporated who own 18.75% as of record; Prudential Securities
Incorporated who own 18.62% as of record; and UBS Warburg LLC who own 10.66% of
record of the common shares outstanding.


   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.

                                      B-22
<PAGE>


<TABLE>
<CAPTION>
                                                            Total Compensation
                                                            from the Trust and
                                         Estimated             Fund Complex
                                        Compensation           Paid to Board
Name of Board Member                     From Trust             Member(/1/)
--------------------                    ------------        -------------------
<S>                                     <C>                 <C>
Andrew F. 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 United States with $220 billion of assets under management as of July
31, 2001. BlackRock Advisors is one of the nation's leading fixed income
managers with over $129 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

                                      B-23
<PAGE>

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 13 years of experience managing closed-
end products and currently advises a closed-end family of 25 funds. BlackRock
has 18 leveraged municipal closed-end funds under management and approximately
$16 billion in municipal assets firm-wide. As of July 31, 2001, BlackRock
managed over $6.6 billion in closed-end products. In addition, BlackRock
provides risk management and investment system services to a growing number of
institutional investors under the BlackRock Solutions name. 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
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.


                                      B-24
<PAGE>

   One or more of the other investment companies or accounts which the Advisor
and/or the Sub-Advisor manages may own from time to time some of the same
investments as the Trust. Investment decisions for the Trust are made
independently from those of such other investment companies or accounts;
however, from time to time, the same investment decision may be made for more
than one company or account. When two or more companies or accounts seek to
purchase or sell the same securities, the securities actually purchased or sold
will be allocated among the companies and accounts on a good faith equitable
basis by the Advisor and/or the Sub-Advisor in their discretion in accordance
with the accounts' various investment objectives. In some cases, this system
may adversely affect the price or size of the position obtainable for the
Trust. In other cases, however, the ability of the Trust to participate in
volume transactions may produce better execution for the Trust. It is the
opinion of the Trust's board of trustees that this advantage, when combined
with the other benefits available due to the Advisor's or the Sub-Advisor's
organization, outweighs any disadvantages that may be said to exist from
exposure to simultaneous transactions.

   It is not the Trust's policy to engage in transactions with the objective of
seeking profits from short-term trading. It is expected that the annual
portfolio turnover rate of the Trust will be approximately 100% excluding
securities having a maturity of one year or less. Because it is difficult to
predict accurately portfolio turnover rates, actual turnover may be higher or
lower. Higher portfolio turnover results in increased Trust costs, including
brokerage commissions, dealer mark-ups and other transaction costs on the sale
of securities and on the reinvestment in other securities.

                       ADDITIONAL INFORMATION CONCERNING
                       THE AUCTIONS FOR PREFERRED SHARES

General

   Securities Depository. The Depository Trust Company ("DTC") will act as the
Securities Depository with respect to each series of Preferred Shares. One
certificate for all of the shares of each series will be registered in the name
of Bankers Trust Company, as nominee of the Securities Depository. Such
certificate will bear a legend to the effect that such certificate is issued
subject to the provisions restricting transfers of shares of Preferred Shares
contained in the Statement. The Trust will also issue stop-transfer
instructions to the transfer agent for Preferred Shares. Prior to the
commencement of the right of holders of Preferred Shares to elect a majority of
the Trust's trustees, as described under "Description of Preferred Shares--
Voting Rights" in the prospectus, Bankers Trust Company will be the holder of
record of each series of Preferred Shares and owners of such shares will not be
entitled to receive certificates representing their ownership interest in such
shares.

   DTC, a New York-chartered limited purpose trust company, performs services
for its participants, some of whom (and/or their representatives) own DTC. DTC
maintains lists of its participants and will maintain the positions (ownership
interests) held by each such participant in shares of Preferred Shares, whether
for its own account or as a nominee for another person. Additional information
concerning DTC and the DTC depository system is included as an Exhibit to the
Registration Statement of which this statement of additional information forms
a part.

Concerning the Auction Agent

   The auction agent will act as agent for the Trust in connection with
Auctions. In the absence of bad faith or negligence on its part, the auction
agent will not be liable for any action taken, suffered, or omitted or for any
error of judgment made by it in the performance of its duties under the auction
agency agreement between the Trust and the auction agent and will not be liable
any error of judgment made in good faith unless the auction agent will have
been negligent in ascertaining the pertinent facts.

   The auction agent may rely upon, as evidence of the identities of the
holders of Preferred Shares, the auction agent's registry of holders, the
results of auctions and notices from any Broker-Dealer (or other person,

                                      B-25
<PAGE>

if permitted by the Trust) with respect to transfers described under "The
Auction--Secondary Market Trading and Transfers of Preferred Shares" in the
prospectus and notices from the Trust. The auction agent is not required to
accept any such notice for an auction unless it is received by the auction
agent by 3:00 p.m., New York City time, on the business day preceding such
auction.

   The auction agent may terminate its auction agency agreement with the Trust
upon notice to the Trust on a date no earlier than 45 days after such notice.
If the auction agent should resign, the Trust will use its best efforts to
enter into an agreement with a successor auction agent containing substantially
the same terms and conditions as the auction agency agreement. The Trust may
remove the auction agent provided that prior to such removal the Trust shall
have entered into such an agreement with a successor auction agent.

Broker-Dealers

   The auction agent after each auction for shares of each series of Preferred
Shares will pay to each Broker-Dealer, from funds provided by the Trust, a
service charge at the annual rate of 1/4 of 1% in the case of any auction
immediately preceding a dividend period of less than one year, or a percentage
agreed to by the Trust and the Broker-Dealers in the case of any auction
immediately preceding a dividend period of one year or longer, of the purchase
price of the series of Preferred Shares placed by such Broker-Dealer at such
auction. For the purposes of the preceding sentence, Preferred Shares will be
placed by a Broker-Dealer if such shares were (a) the subject of hold orders
deemed to have been submitted to the auction agent by the Broker-Dealer and
were acquired by such Broker-Dealer for its own account or were acquired by
such Broker-Dealer for its customers who are beneficial owners or (b) the
subject of an order submitted by such Broker-Dealer that is (i) a submitted bid
of an existing holder that resulted in the existing holder continuing to hold
such shares as a result of the auction or (ii) a submitted bid of a potential
holder that resulted in the potential holder purchasing such shares as a result
of the auction or (iii) a valid hold order.

   The Trust may request the auction agent to terminate one or more Broker-
Dealer agreements at any time, provided that at least one Broker-Dealer
agreement is in effect after such termination.

   The Broker-Dealer agreement provides that a Broker-Dealer (other than an
affiliate of the Trust) may submit orders in auctions for its own account,
unless the Trust notifies all Broker-Dealers that they may no longer do so, in
which case Broker-Dealers may continue to submit hold orders and sell orders
for their own accounts. Any Broker-Dealer that is an affiliate of the Trust may
submit orders in auctions, but only if such orders are not for its own account.
If a Broker-Dealer submits an order for its own account in any auction, it
might have an advantage over other bidders because it would have knowledge of
all orders submitted by it in that auction; such Broker-Dealer, however, would
not have knowledge of orders submitted by other Broker-Dealers in that auction.

                          DESCRIPTION OF COMMON SHARES

   A description of common shares is contained in the prospectus. The Trust
intends to hold annual meetings of shareholders so long as the common shares
are listed on a national securities exchange and such meetings are required as
a condition to such listing.

                          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

                                      B-26
<PAGE>

may frequently trade at prices lower than net asset value, the Trust's board of
trustees may consider action that might be taken to reduce or eliminate any
material discount from net asset value in respect of common shares, which may
include the repurchase of such shares in the open market or in private
transactions, the making of a tender offer for such shares, or the conversion
of the Trust to an open-end investment company. The board of trustees may
decide not to take any of these actions. In addition, there can be no assurance
that share repurchases or tender offers, if undertaken, will reduce market
discount.

   Notwithstanding the foregoing, at any time when the Trust's Preferred Shares
are outstanding, the Trust may not purchase, redeem or otherwise acquire any of
its common shares unless (1) all accrued Preferred Shares dividends have been
paid and (2) at the time of such purchase, redemption or acquisition, the net
asset value of the Trust's portfolio (determined after deducting the
acquisition price of the common shares) is at least 200% of the liquidation
value of the outstanding Preferred Shares (expected to equal the original
purchase price per share plus any accrued and unpaid dividends thereon). Any
service fees incurred in connection with any tender offer made by the Trust
will be borne by the Trust and will not reduce the stated consideration to be
paid to tendering shareholders.

   Subject to its investment restrictions, the Trust may borrow to finance the
repurchase of common shares or to make a tender offer. Interest on any
borrowings to finance share repurchase transactions or the accumulation of cash
by the Trust in anticipation of share repurchases or tenders will reduce the
Trust's net income. Any share repurchase, tender offer or borrowing that might
be approved by the Trust's board of trustees would have to comply with the
Securities Exchange Act of 1934, as amended, the Investment Company Act and the
rules and regulations thereunder.

   Although the decision to take action in response to a discount from net
asset value will be made by the board of trustees at the time it considers such
issue, it is the board's present policy, which may be changed by the board of
trustees, not to authorize repurchases of common shares or a tender offer for
such shares if: (1) such transactions, if consummated, would (a) result in the
delisting of the common shares from the 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 consistent with the Trust's
investment objective and policies in order to repurchase shares; or (3) there
is, in the board's judgment, any (a) material legal action or proceeding
instituted or threatened challenging such transactions or otherwise materially
adversely affecting the Trust, (b) general suspension of or limitation on
prices for trading securities on the New York Stock Exchange, (c) declaration
of a banking moratorium by Federal or state authorities or any suspension of
payment by United States or New York banks, (d) material limitation affecting
the Trust or the issuers of its portfolio securities by Federal or state
authorities on the extension of credit by lending institutions or on the
exchange of foreign currency, (e) commencement of war, armed hostilities or
other international or national calamity directly or indirectly involving the
United States, or (f) other event or condition which would have a material
adverse effect (including any adverse tax effect) on the Trust or its
shareholders if shares were repurchased. The board of trustees may in the
future modify these conditions in light of experience.

   The repurchase by the Trust of its shares at prices below net asset value
will result in an increase in the net asset value of those shares that remain
outstanding. However, there can be no assurance that share repurchases or
tender offers at or below net asset value will result in the Trust's common
shares trading at a price equal to their net asset value. Nevertheless, the
fact that the Trust's common shares may be the subject of repurchase or tender
offers from time to time, or that the Trust may be converted to an open-end
investment company, may reduce any spread between market price and net asset
value that might otherwise exist.

   In addition, a purchase by the Trust of its common shares will decrease the
Trust's total assets which would likely have the effect of increasing the
Trust's expense ratio. Any purchase by the Trust of its common

                                      B-27
<PAGE>

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 U.S. federal income tax
consequences to a shareholder of acquiring, holding and disposing of Preferred
Shares of the Trust. The discussion reflects applicable tax laws of the United
States as of the date of this prospectus, which tax laws may be changed or
subject to new interpretations by the courts or the Internal Revenue Service
(the "IRS") retroactively or prospectively.

   The Trust intends to elect to be treated and to qualify to be taxed as a
regulated investment company under subchapter M of the Code, and to satisfy
conditions which will enable dividends on common shares or Preferred Shares
which are attributable to interest on tax-exempt municipal securities to be
exempt from U.S. federal income tax in the hands of its shareholders, subject
to the possible application of the U.S. federal alternative minimum tax.

   In order to qualify to be taxed as a regulated investment company, the Trust
must, among other things: (a) derive at least 90% of its annual gross income
(including tax-exempt interest) from dividends, interest, payments with respect
to certain securities loans, gains from the sale or other disposition of stock
or securities or foreign currencies, or other income (including but not limited
to gains from options, futures and forward contracts) derived with respect to
its business of investing in such stock, securities or currencies, and (b)
diversify its holdings so that, at the end of each quarter of its taxable year
(i) at least 50% of the market value of the Trust's assets is represented by
cash, cash items, U.S. government securities and securities of other regulated
investment companies, and other securities, with these other securities
limited, with respect to any one issuer, to an amount not greater in value than
5% of the Trust's total assets, and to not more than 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the market
value of the Trust's assets is invested in the securities of any one issuer
(other than U.S. government securities or securities of other regulated
investment companies) or two or more issuers controlled by the Trust and
engaged in the same, similar or related trades or businesses.

   As a regulated investment company, the Trust generally is not subject to
U.S. federal income tax on income and gains that it distributes each taxable
year to its shareholders, provided that in such taxable year it distributes at
least 90% of the sum of its (i) "investment company taxable income" (which
includes, among other items, dividends, taxable interest, the excess of any net
short-term capital gain over net long-term capital loss, and any other taxable
income other than net capital gain (as defined below) reduced by deductible
expenses) determined without regard to the deduction for dividends paid and
(ii) its net tax-exempt interest (the excess of its gross tax-exempt interest
over certain disallowed deductions) . The Trust may retain for investment its
net capital gain (which consists of the excess of its net long-term capital
gain over its net short-term capital loss). However, if the Trust retains any
net capital gain or any investment company taxable income, it will be subject
to tax at regular corporate rates on the amount retained. If the Trust retains
any net capital gain, it may designate the retained amount as an undistributed
capital gains dividend in a notice to its shareholders who, if subject to U.S.
federal income tax on long-term capital gains (i) will be required to include
in income their share of such undistributed long-term capital gain and (ii)
will be entitled to credit their proportionate share of the tax paid by the
Trust against their U.S. federal tax liability, if any, and to claim refunds to
the extent the credit exceeds such liability. For U.S. federal income tax
purposes, the tax basis of


                                      B-28
<PAGE>

shares owned by a shareholder of the Trust will be increased by the amount of
undistributed capital gain included in the gross income of such shareholder
less the tax deemed paid by such shareholder under clause (ii) of the preceding
sentence. In meeting these requirements of subchapter M of the Code, the Trust
may be restricted in the utilization of certain of the investment techniques
described above and in the prospectus.

   If in any year the Trust should fail to qualify under Subchapter M for tax
treatment as a regulated investment company, the Trust would incur a regular
U.S. federal corporate income tax upon its taxable income for that year, and
distributions to its shareholders would be taxable to such holders as ordinary
income to the extent of the earnings and profits of the Trust. In addition, a
regulated investment company that fails to distribute, by the close of each
calendar year, at least an amount equal to the sum of 98% of its ordinary
taxable income for such year and 98% of its capital gain net income (adjusted
for certain ordinary losses) for a one year period generally ending October 31
in the calendar year, and 100% of all ordinary income and capital gains for
previous years that were not distributed during such years and on which the
Trust paid no U.S. federal income tax, is liable for a 4% excise tax on the
portion of the undistributed amount of such income that is less than the
required amount for such distributions. To avoid the imposition of this excise
tax, the Trust intends to the extent possible, make the required distributions
of its ordinary taxable income, if any, and its capital gain net income, by the
close of each calendar year.


   Certain of the Trust's investment practices are subject to special
provisions of the Code that, among other things, may defer the use of certain
deductions or losses of the Trust and affect the holding period of securities
held by the Trust and the character of the gains or losses realized by the
Trust. These provisions may also require the Trust to recognize income or gain
without receiving cash with which to make distributions in the amounts
necessary to satisfy the requirements for maintaining regulated investment
company status and for avoiding income and excise taxes. The Trust will monitor
its transactions and may make certain tax elections in order to mitigate the
effect of these rules and prevent disqualification of the Trust as a regulated
investment company.

   The Trust intends to invest a sufficient amount of its assets in tax-exempt
municipal bonds to permit payment of "exempt-interest" dividends, as defined in
the Code, on its common shares and Preferred Shares. Under the Code, if at the
close of each quarter of its taxable year, if at least 50% of the value of the
total assets of the Trust consists of municipal bonds, the Trust will be
qualified to pay exempt-interest dividends to its shareholders. Exempt-interest
dividends are dividends or any part thereof (other than a capital gain
dividend) paid by the Trust which are attributable to interest on municipal
bonds and are so designated by the Trust. Exempt-interest dividends will be
exempt from U.S. federal income tax, subject to the possible application of the
U.S. federal alternative minimum tax. Insurance proceeds received by the Trust
under any insurance policies in respect of scheduled interest payments on
defaulted municipal bonds, as described herein, will generally be excludable
from gross income under Section 103(a) of the Code. See "Investment Policies
and Techniques" above. Gains of the Trust that are attributable to market
discount on certain municipal obligations are treated as ordinary income.
Distributions by the Trust of investment company taxable income, if any, will
be taxable to its shareholders as ordinary income whether received in cash or
additional shares. Distributions by the Trust of net capital gain, if any, are
taxable as long-term capital gain, regardless of the length of time the
shareholder has owned common shares or Preferred Shares and whether such
distributions are made in cash or additional shares. The amount of taxable
income allocable to the Trust's Preferred Shares will depend upon the amount of
such income realized by the Trust, but is not generally expected to be
significant. Except for dividends paid on Preferred Shares which include an
allocable portion of any net capital gain or other taxable income, the Trust
anticipates that all other dividends paid on its Preferred Shares will
constitute exempt-interest dividends for U.S. federal income tax purposes.
Distributions, if any, in excess of the Trust's earnings and profits will first
reduce the adjusted tax basis of a shareholder's shares, and after the basis
has been reduced to zero, will constitute capital gains to the shareholder
(assuming the shares are held as a capital asset). As long as the Trust
qualifies as a regulated investment company under the Code, no part of its
distributions to shareholders will qualify for the dividends received deduction
for corporations. The interest on private activity bonds in most instances is
not tax-exempt to a person who is a "substantial user" of a facility financed
by such


                                      B-29
<PAGE>

bonds or a "related person" of such "substantial user." As a result, the Trust
may not be an appropriate investment for shareholders who are considered either
a "substantial user" or a "related person" within the meaning of the Code. In
general, a "substantial user" of a facility includes a non-exempt person who
regularly uses a part of such facility in his trade or business. "Related
persons" include certain natural persons, affiliated corporations, a
partnership and its partners and an S corporation and its shareholders. The
foregoing is not a complete description of all of the provisions of the Code
covering the definitions of "substantial user" and "related person."

   U.S. federal tax law imposes an alternative minimum tax with respect to both
corporations and individuals. Interest on certain municipal obligations, such
as bonds issued to make loans for housing purposes or to private entities (but
not to certain tax-exempt organizations such as universities and non-profit
hospitals) is included as an item of tax preference in determining the amount
of a taxpayer's alternative minimum taxable income. To the extent that the
Trust receives income from municipal obligations subject to the U.S. federal
alternative minimum tax, a portion of the dividends paid by it, although
otherwise exempt from U.S. federal income tax, will be taxable to its
shareholders to the extent that their tax liability is determined under the
alternative minimum tax. The Trust will annually supply a report indicating the
percentage of the Trust's income attributable to municipal obligations subject
to the alternative minimum tax. In addition, for certain corporations,
alternative minimum taxable income is increased by 75% of the difference
between an alternative measure of income ("adjusted current earnings") and the
amount otherwise determined to be the alternative minimum taxable income.
Interest on municipal obligations, and therefore all exempt-interest dividends
received from the Trust, are included in calculating a corporation's adjusted
current earnings. Certain small corporations are not subject to the alternative
minimum tax.

   Tax-exempt income, including exempt-interest dividends paid by the Trust, is
taken into account in calculating the amount of Social Security and railroad
retirement benefits that may be subject to U.S. federal income tax.

   The IRS requires that a regulated investment company that has two or more
classes of shares must designate to each such class proportionate amounts of
each type of its income for each tax year based upon the percentage of total
dividends distributed to each class for such year. The Trust intends each year
to allocate, to the fullest extent practicable, net tax-exempt interest, net
capital gain and other taxable income, if any, between its common shares and
preferred shares, including the Preferred Shares, in proportion to the total
dividends paid to each class with respect to such year. To the extent permitted
under applicable law, the Trust reserves the right to make special allocations
of income within a class, consistent with the objectives of the Trust. The
Trust may, at its election, notify the Auction Agent of the amount of any net
capital gain or other income taxable for U.S. federal income tax purposes to be
included in any dividend on shares of its Preferred Shares prior to the Auction
establishing the Applicable Rate for such dividend. If the Trust allocates any
net capital gain or other taxable income for U.S. federal income tax purposes
to its Preferred Shares without having given advance notice thereof as
described above, the Trust generally will be required to make payments to
owners of its Preferred Shares to which such allocation was made in order to
offset the U.S. federal income tax effect of the taxable income so allocated as
described under "Description of Preferred Shares--Dividends and Dividend
Periods--Additional Dividends" in the prospectus.

   If at any time when the Trust's Preferred Shares are outstanding the Trust
fails to meet the Preferred Shares Basic Maintenance Amount or the Investment
Company Act Preferred Shares Asset Coverage, the Trust will be required to
suspend distributions to holders of its common shares until such maintenance
amount or asset coverage, as the case may be, is restored. See "Description of
Preferred Shares--Dividends and Dividend Periods--Restrictions on Dividends and
Other Distributions" in the prospectus. This may prevent the Trust from
distributing at least an amount equal to the sum of 90% of its investment
company taxable income (determined without regard to the deduction for
dividends paid) and 90% of its net tax-exempt income, and may therefore
jeopardize the Trust's qualification for taxation as a regulated investment
company or cause the Trust to incur a tax liability or a non-deductible 4%
excise tax on the undistributed taxable income (including net capital gain), or
both. Upon failure to meet the Preferred Shares Basic Maintenance Amount or the

                                      B-30
<PAGE>


Investment Company Act Preferred Shares Asset Coverage, the Trust will be
required to redeem Preferred Shares in order to maintain or restore such
maintenance amount or asset coverage and avoid the adverse consequences to the
Trust and its shareholders of failing to qualify as a regulated investment
company. There can be no assurance, however, that any such redemption would
achieve such objectives.


   The Trust may, at its option, redeem Preferred Shares in whole or in part,
and is required to redeem Preferred Shares to the extent required to maintain
the Preferred Shares Basic Maintenance Amount and the Investment Company Act
Preferred Shares Asset Coverage. Gain or loss, if any, resulting from a
redemption of Preferred Shares will be taxed as gain or loss from the sale or
exchange of Preferred Shares under Section 302 of the Code rather than as a
dividend, but only if the redemption distribution (a) is deemed not to be
essentially equivalent to a dividend, (b) is in complete redemption of an
shareholder's interest in the Trust, (c) is substantially disproportionate with
respect to the shareholder, or (d) with respect to a non-corporate shareholder,
is in partial liquidation of the shareholder's interest in the Trust. For
purposes of (a), (b) and (c) above, a Preferred Shareholder's ownership of
common shares will be taken into account.


   The Code provides that interest on indebtedness incurred or continued to
purchase or carry the Trust's shares to which exempt-interest dividends are
allocated is not deductible. Under rules used by the IRS for determining when
borrowed funds are considered used for the purpose of purchasing or carrying
particular assets, the purchase or ownership of shares may be considered to
have been made with borrowed funds even though such funds are not directly used
for the purchase or ownership of such shares.

   Nonresident alien individuals and certain foreign corporations and other
entities ("foreign investors") generally are subject to U.S. withholding tax at
the rate of 30% (or possibly a lower rate provided by an applicable tax treaty)
on distributions of taxable net investment income (which includes net short-
term capital gains). To the extent received by foreign investors, exempt-
interest dividends, distributions of net capital gains and gain from the sale
or other disposition of Preferred Shares generally are exempt from U.S. federal
income taxation. Different tax consequences may result if the shareholder is
engaged in a trade or business in the United States or, in the case of an
individual, is present in the United States for 183 or more days during a
taxable year and certain other conditions are met.

   Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in one of those months and paid during the following
January will be treated as having been distributed by the Trust (and received
by the shareholders) on December 31 of the year declared.

   The sale or other disposition of common shares or Preferred Shares of the
Trust will result in capital gain or loss to shareholders who hold their shares
as capital assets. Generally, a shareholder's gain or loss will be long-term
gain or loss if the shares have been held for more than one year. Present law
taxes both long-term and short-term capital gains of corporations at the rates
applicable to ordinary income. For non-corporate taxpayers, however, short-term
capital gains and ordinary income will currently be taxed at a maximum rate of
39.1% while long-term capital gains generally will be taxed at a maximum rate
of 20% (or 18% for capital assets that have been held for more than five years
and the holding period of which began after December 31, 2000).** However,
because of the limitations on itemized deductions and the deduction for
personal exemptions applicable to higher income taxpayers, the effective rate
of tax may be higher in certain circumstances. Losses realized by a shareholder
on the sale or exchange of shares of the Trust held for six months or less are
disallowed to the extent of any distribution of exempt-interest dividends
received with respect to such shares, and, if not disallowed, such losses are
treated as long-term capital losses to the extent of any distribution of net
capital gain received (or amounts credited as undistributed capital gain) with
respect to such shares. A shareholder's holding period is suspended for any
periods during which the shareholder's risk of loss is

--------
** The Economic Growth and Tax Relief Reconciliation Act of 2001, effective for
   taxable years beginning after December 31, 2000, creates a new 10 percent
   income tax bracket and reduces the tax rates applicable to ordinary income
   over a six year phase-in period. Beginning in the taxable year 2006,
   ordinary income will be subject to a 35% maximum rate, with approximately
   proportionate reductions in the other ordinary rates.

                                      B-31
<PAGE>

diminished as a result of holding one or more other positions in substantially
similar or related property, or through certain options or short sales. Any
loss realized on a sale or exchange of shares of the Trust will be disallowed
to the extent those shares of the Trust are replaced by other shares within a
period of 61 days beginning 30 days before and ending 30 days after the date of
disposition of the original shares. In that event, the basis of the replacement
shares of the Trust will be adjusted to reflect the disallowed loss.

   The Trust is required in certain circumstances to backup withhold on taxable
dividends and certain other payments paid to non-corporate holders of the
Trust's shares who do not furnish the Trust with their correct taxpayer
identification number (in the case of individuals, their Social Security
number) and certain certifications, or who are otherwise subject to backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
from payments made to a shareholder may be refunded or credited against such
shareholder's U.S. federal income tax liability, if any, provided that the
required information is furnished to the IRS.

   The foregoing is a general summary of the provisions of the Code and the
Treasury Regulations in effect as they directly govern the taxation of the
Trust and its shareholders. These provisions are subject to change by
legislative or administrative action, and any such change may be retroactive.
Moreover, the foregoing does not address many of the factors that may be
determinative of whether an investor will be liable for the alternative minimum
tax. Shareholders are advised to consult their own tax advisers for more
detailed information concerning the U.S. federal, state, local, foreign and
other income tax consequences to them of purchasing, holding and disposing of
Trust shares.

                                    EXPERTS

   The statement of Assets and Liabilities of the Trust as of July 16, 2001 and
statement of operations for the period then ended 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 Berkeley Street, Boston, Massachusetts, 02116, provides auditing
services to the Trust.

                             ADDITIONAL INFORMATION

   A Registration Statement on Form N-2 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-32
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

The Board of Trustees and Shareholder of
The BlackRock New York Municipal Income Trust

   We have audited the accompanying statement of assets and liabilities of The
BlackRock New York 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 present 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 NEW YORK 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
                                                                      ========
</TABLE>

                 THE BLACKROCK NEW YORK MUNICIPAL INCOME TRUST

                            STATEMENT OF OPERATIONS

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

<TABLE>
<S>                                                                    <C>
Investment Income..................................................... $     --
Expenses
  Organization expenses...............................................   15,000
                                                                       --------
Net investment loss................................................... $(15,000)
                                                                       ========
</TABLE>

                                      F-2
<PAGE>

                 THE BLACKROCK NEW YORK MUNICIPAL INCOME TRUST

                       STATEMENT OF CHANGES IN NET ASSETS

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

<TABLE>
<S>                                                                   <C>
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>

                         NOTES TO FINANCIAL STATEMENTS

Note 1. Organization

   The Blackrock New York Municipal Income Trust (the "Trust") was organized as
a Delaware business trust on March 30, 2001 and is registered as a non-
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 $441,200 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>

                              FINANCIAL STATEMENTS

                 THE BLACKROCK NEW YORK MUNICIPAL INCOME TRUST

                      STATEMENT OF ASSETS AND LIABILITIES

                                AUGUST 31, 2001
                                  (Unaudited)

<TABLE>
<S>                                                               <C>
Assets:
Investments at value (cost $179,576,561) (Note 1)................ $180,713,536
Cash.............................................................      787,643
Receivable for investments sold..................................   15,119,206
Interest receivable..............................................    1,535,711
Receivable for fund shares sold..................................       50,000
                                                                  ------------
                                                                   198,206,096
                                                                  ------------
Liabilities:
Payable for investments purchased................................   41,875,523
Investment advisory fee payable (Note 2).........................       52,151
Payable for organization and offering costs......................      324,000
Other accrued expenses...........................................       34,079
                                                                  ------------
                                                                    42,285,753
                                                                  ------------
Net Investment Assets............................................  155,920,343
                                                                  ============
Net assets were comprised of:
Common shares of beneficial interest:
  Par value (Note 4).............................................       10,808
  Paid in capital in excess of par...............................  154,505,193
                                                                  ------------
                                                                   154,516,001
Undistributed net investment income (Note 1).....................      267,367
Net unrealized appreciation (Note 1).............................    1,136,975
                                                                  ------------
Net investment assets, August 31, 2001........................... $155,920,343
                                                                  ============
Net asset value per share:
Equivalent to 10,808,028 common shares of beneficial interest
 issued and outstanding, par value $0.001, unlimited shares
 authorized...................................................... $      14.43
                                                                  ============
</TABLE>


                       See Notes to Financial Statements

                                      F-4
<PAGE>

                 THE BLACKROCK NEW YORK MUNICIPAL INCOME TRUST

                            STATEMENT OF OPERATIONS

For the period July 27, 2001 (date of inception) to August 31, 2001 (Unaudited)

Net Investment Income
<TABLE>
<S>                                                                 <C>
Income
  Interest......................................................... $  368,597
                                                                    ----------
Expenses
  Investment advisory..............................................     89,402
  Organization expenses............................................     15,000
  Independent accountants..........................................      8,515
  Reports to shareholders..........................................      7,686
  Custodian........................................................      5,855
  Trustees.........................................................      3,407
  Transfer agent...................................................      2,021
  Registration.....................................................      1,720
  Legal............................................................        960
  Miscellaneous....................................................      3,915
                                                                    ----------
  Total expenses...................................................    138,481
  Less fees waived by Advisor (Note 2).............................    (37,251)
                                                                    ----------
  Net expenses.....................................................    101,230
                                                                    ----------
Net investment income..............................................    267,367
                                                                    ----------
Net change in unrealized appreciation on investments...............  1,136,975
                                                                    ----------
Net Increase in Net Investment Assets Resulting from Operations.... $1,404,342
                                                                    ==========
</TABLE>



                       See Notes to Financial Statements

                                      F-5
<PAGE>

                 THE BLACKROCK NEW YORK MUNICIPAL INCOME TRUST

                       STATEMENT OF CHANGES IN NET ASSETS

For the period July 27, 2001 (date of inception) to August 31, 2001 (Unaudited)

<TABLE>
<S>                                                               <C>
Increase in Net Investment Assets
Operations:
  Net Investment income.......................................... $    267,367
  Net change in unrealized appreciation on investments...........    1,136,975
                                                                  ------------
    Net increase in net assets resulting from operations.........    1,404,342
                                                                  ------------
Capital Share Transactions:
Net proceeds from the issuance of common shares..................  154,516,001
                                                                  ------------
    Total increase...............................................  155,920,343
                                                                  ------------
Net Investment Assets
Beginning of period..............................................          --
                                                                  ------------
End of period (including undistributed net investment income of
 $267,367)....................................................... $155,920,343
                                                                  ============
</TABLE>



                       See Notes to Financial Statements

                                      F-6
<PAGE>

                 THE BLACKROCK NEW YORK MUNICIPAL INCOME TRUST

                        FINANCIAL HIGHLIGHTS (Unaudited)

<TABLE>
<CAPTION>
                                                                 For the Period
                                                                 July 27, 2001*
                                                                     Through
                                                                 August 31, 2001
                                                                 ---------------
<S>                                                              <C>
Per Common Share Operating Performance:
  Net asset value, beginning of period**........................    $ 14.33+
                                                                    --------
  Net investment income.........................................        0.03
  Net unrealized gain on investments............................        0.11
                                                                    --------
  Net increase from investment operations.......................        0.14
                                                                    --------
Capital charge with respect to issuance of common shares........       (0.03)
                                                                    --------
Net asset value, end of period**................................    $  14.44
                                                                    ========
Market value, end of period**...................................    $  15.32
                                                                    ========
    Total Investment Return++...................................        2.13%
                                                                    ========
Ratios to Average Net Assets of Common Shareholders:
  Expenses after fee waiver.....................................        0.66%#
  Expenses before fee waiver....................................        0.91%#
  Net investment income after fee waiver........................        1.74%#
  Net investment income before fee waiver.......................        1.49%#
Supplemental Data:
  Average net assets of common shareholders (000)...............    $155,920
  Portfolio turnover............................................           0%
  Net assets of common shareholders, end of period (000)........    $155,920
</TABLE>
--------
*  Commencement of investment operations. (Note 1)
** Net asset value and market value are published in Barron's on Saturday and
   The Wall Street Journal on Monday.
+  Net asset value immediately after the closing of the first public offering
   was $14.30.
++ Total investment return is calculated assuming a purchase of common shares
   at the current market price on the first day and a sale at the current
   market price on the last day of the period reported. Periods of less than
   one year are not annualized.
#  Annualized

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

                       See Notes to Financial Statements

                                      F-7
<PAGE>

                         NOTES TO FINANCIAL STATEMENTS

                                  (Unaudited)

Note 1. Organization & Accounting Policies

   The BlackRock New York Municipal Income Trust (the "Trust") was organized as
a Delaware business trust on March 30, 2001 and is registered as a non-
diversified, closed-end management investment company under the Investment
Company Act of 1940. The Trust had no other transactions other than when it
sold 8,028 Common Shares for $115,001 ($14.325 per share) to BlackRock
Advisors, Inc. until investment operations commenced on July 27, 2001. The
Trust's investment objectives are to provide current income exempt from regular
Federal and New York state income taxes and to invest in municipal bonds that
over time will perform better than the broader New York municipal bond market.
The ability of issuers of debt securities held by the Trust to meet their
obligations may be affected by economic developments in the state, a specific
industry or region. No assurance can be given that the Trust's investment
objective will be achieved.

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

   Securities Valuation: Municipal securities (including commitments to
purchase such securities on a "when-issued" basis) are valued on the basis of
prices provided by dealers or pricing services approved by the Trustees. In
determining the value of a particular security, pricing services may use
certain information with respect to transactions in such securities, quotations
from bond dealers, market transactions in comparable securities and various
relationships between securities in determining values. Short-term investments
are valued at amortized cost. Any securities or other assets for which such
current market quotations are not readily available are valued at fair value as
determined in good faith under procedures established by and under the general
supervision and responsibility of the Trustees.

   Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized and unrealized gains and losses are
calculated on the identified cost basis. The Trust also records interest income
on an accrual basis and amortizes premium and accretes discount, respectively,
to interest income on securities purchased using the interest method.

   Federal Income Taxes: It is the Trust's intention to elect to be treated as
a regulated investment company under the Internal Revenue Code and to
distribute sufficient net income to shareholders. For this reason and because
substantially all of the Trust's gross income consists of Tax-exempt interest,
no Federal income tax provision is required.

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

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

   Deferred Compensation Plan: Under a deferred compensation plan approved by
the Board of Trustees on February 24, 2000, non-interested Trustees may elect
to defer receipt of all or a portion of their annual compensation.

   Deferred amounts earn a return as though equivalent dollar amounts had been
invested in common shares of other BlackRock funds selected by the Trustees.
This has the same economic effect as if the Trustees had invested the deferred
amounts in such other BlackRock funds.

                                      F-8
<PAGE>

   The deferred compensation plan is not funded and obligations there under
represent general unsecured claims against the general assets of the Trust. The
Trust may, however, elect to invest in common shares of those funds selected by
the Trustees in order to match its deferred compensation obligations.

   New Accounting Policies: Since inception, the Trust has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment Companies, as
revised, and began amortizing market discount on debt securities. The Trust
amortizes premiums and original issue discount on debt securities. The
cumulative effect of this accounting policy had no impact on the total net
assets of the Trust. The impact of this accounting policy is anticipated to
have an immaterial effect on the financial statements statements and will
result in an increase to cost of securities and a corresponding decrease in net
unrealized appreciation, based on securities held as of August 31, 2001.

Note 2. Agreements

   The Trust has an Investment Advisory Agreement with BlackRock Advisors, Inc.
(the "Advisor"), a wholly owned subsidiary of BlackRock, Inc., which in turn is
an indirect majority-owned subsidiary of PNC Financial Services Group, Inc. The
investment management agreement covers both investment advisory and
administration services.

   The investment advisory fee paid to the Advisor is computed weekly and
payable monthly at an annual rate of 0.60% of the Trust's average weekly
Managed Assets. The Advisor 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.

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

Note 3. Portfolio Securities

   Purchases and sales of investment securities, other than short-term
investments, for the period ended August 31, 2001 aggregated $154,815,117 and
$0, respectively.

   The federal income tax basis of the Trust's investments at August 31, 2001
was $179,576,561, and accordingly, net unrealized appreciation was $1,136,975
(gross unrealized appreciation--$1,155,095, gross unrealized depreciation--
$18,120).

Note 4. Capital

   There are an unlimited number of $.001 par value common shares of beneficial
interest authorized. Of the 10,808,028 common shares of beneficial interest
outstanding at August 31, 2001, the Advisor owned 8,028 shares.

   Transactions in common shares of beneficial interest for the period July 27,
2001 (commencement of investement operations) to August 31, 2001 were as
follows:

<TABLE>
   <S>                                                                <C>
   Shares Issued in connection with initial public offering.......... 10,808,028
                                                                      ----------
   Net increase in shares outstanding................................ 10,808,028
                                                                      ==========
</TABLE>

   Offering costs of $309,000 incurred in connection with the Trust's offering
of common shares have been charged to paid-in capital in excess of par of the
common shares.

   The Trust may classify or reclassify any unissued common shares of
beneficial interest into one or more series of preferred shares of beneficial
interest into one or more series of preferred shares of beneficial interest.

                                      F-9
<PAGE>

Note 5. Dividends

   Subsequent to August 31, 2001, the Board of Trustees of the Trust declared a
dividend from undistributed earnings of $0.073125 per common share payable
October 4, 2001, to shareholders of record on October 1, 2001.

Note 6. Subsequent Event

   The underwriters elected to exercise the over-allotment option. This
resulted in the issuance of 1,620,000 common shares of beneficial interest on
September 7, 2001.

                                      F-10
<PAGE>

                   BLACKROCK NEW YORK MUNICIPAL INCOME TRUST

              PORTFOLIO OF INVESTMENTS AUGUST 31, 2001 (Unaudited)

<TABLE>
<CAPTION>
         Principal
          Amount                                      Option Call    Value
 Rating*   (000)              Description             Provisions+   (Note 1)
 ------- ---------  -------------------------------   ----------- ------------
 <C>     <C>        <S>                               <C>         <C>
                    LONG-TERM INVESTMENTS--100.0%
                    Delaware--6.1%
                    Charter Mac Equity Issuer
                     Trust,
 NR       $ 6,000++  Ser. A-2, 6.30%, 6/30/49......    6/09 @ 100 $  6,000,000
 NR         3,500++  Ser. B-1, 6.80%, 11/30/50.....   11/10 @ 100    3,500,000
                                                                  ------------
                                                                     9,500,000
                                                                  ------------
                    New York--93.9%
 AA         8,000   Dutchess Cnty. Ind. Dev. Agcy.
                    Civic Fac. Rev., Vassar College
                    Proj.,
                     5.35%, 9/01/40................    8/11 @ 100    8,149,840
 A         11,450   New York City, G.O., Ser. H,
                    5.00%, 3/15/29.................    3/09 @ 101   11,283,861
 BBB-      14,850   New York City Ind. Dev. Agcy.
                    Spec. Arpt. Fac. Rev., Airis
                    JFK I Llc Proj.,
                     Ser. A, 5.50%, 7/01/28........    7/11 @ 100   14,830,101
                    New York City Mun. Wtr. Auth.
                    Rev.,
 AA         7,000    Ser. C, 4.75%, 3/15/32........    8/11 @ 100    6,893,320
 AA        20,865    Ser. E, 5.00%, 6/15/26........    6/11 @ 100   20,632,564
 AAA        5,000   New York City Mun. Wtr. Fin.
                    Auth., Wtr. & Swr. Sys. Rev.,
                    Ser. A,
                     5.00%, 6/15/32, FGIC..........    6/11 @ 100    4,962,250
                    New York City Transitional Fin.
                    Auth. Rev.,
 AA+        5,140    Ser. C, 4.75%, 5/01/23........    5/08 @ 101    4,944,731
 AA+        6,600    Ser. C, 5.00%, 3/15/29........    5/09 @ 101    6,503,706
                    New York City Dorm. Auth Rev.,
 A3         5,010    Lenox Hill Hosp. Oblig. Grp.,
                    5.50%, 7/01/30.................    7/11 @ 101    5,136,953
 AAA       12,000    New York Univ., Ser. 2, 5.00%,
                    7/01/41, AMBAC.................    7/11 @ 100   11,820,840
 AAA       13,000    St. Univ. Edl., Fac. Ser. A,
                    4.75%, 5/15/25, MBIA...........    5/08 @ 100   12,499,630
 AAA       17,900    St. Univ. Edl., Fac. Ser. B,
                    4.75%, 5/15/28, MBIA...........    5/08 @ 101   17,144,620
 AAA        2,000    Winthrop Univ. Hosp. Assoc.,
                    Ser. A, 5.25%, 7/01/31, AMBAC..    7/11 @ 101    2,033,720
 AA-       20,000   Port Auth. New York & New
                    Jersey, Cons., 124th Ser.,
                    5.00%, 8/01/36.................    8/08 @ 101   19,617,400
                                                                  ------------
                                                                   146,453,536
                                                                  ------------
                    Total Long-Term Investments
                    (cost $154,816,563)............                155,953,536
                                                                  ------------
                    SHORT-TERM INVESTMENTS**--
                    15.9%, FRDD
                    Georgia--3.2%
 A1         5,000   Burke Cnty. Dev. Auth. Poll.
                     Ctrl. Rev., Georgia Pwr. Co.
                     Plant Vogtle 4th,
                     2.50%, 9/04/01................           N/A    5,000,000
                                                                  ------------
                    Massachusetts--0.7%
 A1+        1,100   Massachusetts St., Ser. B,
                     G.O., 1.95%, 9/04/01..........           N/A    1,100,000
                                                                  ------------
                    New York--12.0%
 A1+        3,050   Jay Street Dev. Corp. New York
                     Cts. Fac. Lease Rev., Jay
                     Street Proj.,
                     Ser. A-2, 2.35%, 9/04/01 .....           N/A    3,050,000
                    New York St. Energy Res. & Dev.
                     Auth., Poll. Ctrl. Rev.,
 A1+       10,200    Niagara Pwr. Corp., Proj. B,
                     2.55%, 9/04/01................           N/A   10,200,000
 A1+        3,300    NY St. Elec. & Gas Corp., Ser.
                     C, 2.35%, 9/04/01.............           N/A    3,300,000
 A1+        2,110   New York City Pub. Impvt. G.O.
                    Subser. A-10, 2.35%, 9/04/01...           N/A    2,110,000
                                                                  ------------
                                                                    18,660,000
                                                                  ------------
                    Total Short-Term Investments
                    (cost $24,760,000).............                 24,760,000
                    Total Investments--115.9% (cost
                    $179,576,563)..................                180,713,536
                    Liabilities in excess of other
                    assets--(15.9)%................                (24,793,193)
                                                                  ------------
                    Net Assets Applicable to Common
                    Shareholders--100.0%...........               $155,920,343
                                                                  ============
</TABLE>

                                      F-11
<PAGE>

--------
 * Using the higher of Standard & Poor's, Moody's or Fitch's rating.
** For purposes of amortized cost valuation, the maturity dates of these
   instruments is considered to be the earlier of the next date on which the
   security can be redeemed at par, or the next date on which the rate of
   interest is adjusted.
 + Option call provisions: date (month/year) and price of the earliest optional
   call or redemption. There may be other call provisions at varying prices at
   later dates.
++ Security is exempt from registration under Rule 144A of the Securities Act
   of 1933. These securities may be resold in transactions exempt from
   registration to qualified institutional buyers.

                             KEY TO ABBREVIATIONS:

  AMBAC--American Municipal Bond Assurance Corporation
                                                MBIA--Municipal Bond Insurance
  FRDD--Floating Rate Daily Demand              Association
                                                G.O.--General Obligation

                                      F-12
<PAGE>

                                   APPENDIX A

                                    FORM OF
                   BLACKROCK NEW YORK MUNICIPAL INCOME TRUST
                          STATEMENT OF PREFERENCES OF
               MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED SHARES
                              ("PREFERRED SHARES")
<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<S>                                                                      <C>
Definitions............................................................. AA-3

Part I.................................................................. AA-14

1. Number of Authorized shares.......................................... AA-14
2. Dividends............................................................ AA-14
3. Gross-up Payments.................................................... AA-17
4. Designation of Special Rate Periods.................................. AA-18
5. Voting Rights........................................................ AA-19
6. Investment Company Act Preferred Shares Asset Coverage............... AA-23
7. Preferred Shares Basic Maintenance Amount............................ AA-23
8. Reserved............................................................. AA-25
9. Restrictions on Dividends and Other Distributions.................... AA-25
10. Rating Agency Restrictions.......................................... AA-26
11. Redemption.......................................................... AA-27
12. Liquidation Rights.................................................. AA-30
13. Miscellaneous....................................................... AA-30

Part II................................................................. AA-31

1. Orders............................................................... AA-31
2. Submission of Orders by Broker-Dealers to Auction Agent.............. AA-33
3. Determination of Sufficient Clearing Bids, Winning Bid Rate and
   Applicable Rate...................................................... AA-34
4. Acceptance and Rejection of Submitted Bids and Submitted Sell Orders
   and Allocation of Shares............................................. AA-35
5. Notification of Allocations.......................................... AA-37
6. Auction Agent........................................................ AA-37
7. Transfer of Preferred Shares......................................... AA-38
8. Global Certificate................................................... AA-38

Appendix A.............................................................. AAA-1
Appendix B..............................................................  BB-1
Appendix C..............................................................  CC-1
</TABLE>

                                      AA-2
<PAGE>

   BLACKROCK NEW YORK MUNICIPAL INCOME TRUST, a Delaware business trust (the
"Trust"), certifies that:

     First: Pursuant to authority expressly vested in the Board of Trustees
  of the Trust by Article VI of the Trust's Agreement and Declaration of
  Trust, as amended and restated (which, as hereafter restated or amended
  from time to time is, together with this Statement, herein called the
  "Declaration"), the Board of Trustees has, by resolution, authorized the
  issuance of shares of the Trust's authorized Preferred Shares, liquidation
  preference $25,000 per share, having such designation or designations as to
  series as is set forth in Section 1 of Appendix A hereto and such number of
  shares per such series as is set forth in Section 2 of Appendix A hereto.

     Second: The preferences, voting powers, restrictions, limitations as to
  dividends, qualifications, and terms and conditions of redemption, of the
  shares of each series of Preferred Shares now or hereafter described in
  Section 1 of Appendix A hereto are as follows (each such series being
  referred to herein as a series of Preferred Shares, and shares of all such
  series being referred to herein individually as a Preferred Share and
  collectively as Preferred Shares).

                                  DEFINITIONS

   Except as otherwise specifically provided in Section 3 of Appendix A hereto,
as used in Parts I and II of this Statement, the following terms shall have the
following meanings (with terms defined in the singular having comparable
meanings when used in the plural and vice versa), unless the context otherwise
requires:

     (1) "AA" COMPOSITE COMMERCIAL PAPER RATE," on any date for any Rate
  Period of shares of a series of Preferred Shares, shall mean (i) (A) in the
  case of any Minimum Rate Period or any Special Rate Period of fewer than 49
  Rate Period Days, the interest equivalent of the 30-day rate; provided,
  however, that if such Rate Period is a Minimum Rate Period and the "AA"
  Composite Commercial Paper Rate is being used to determine the Applicable
  Rate for shares of such series when all of the Outstanding shares of such
  series are subject to Submitted Hold Orders, then the interest equivalent
  of the seven-day rate, and (B) in the case of any Special Rate Period of
  (1) 49 or more but fewer than 70 Rate Period Days, the interest equivalent
  of the 60-day rate; (2) 70 or more but fewer than 85 Rate Period Days, the
  arithmetic average of the interest equivalent of the 60-day and 90-day
  rates; (3) 85 or more but fewer than 99 Rate Period Days, the interest
  equivalent of the 90-day rate; (4) 99 or more but fewer than 120 Rate
  Period Days, the arithmetic average of the interest equivalent of the 90-
  day and 120-day rates; (5) 120 or more but fewer than 141 Rate Period Days,
  the interest equivalent of the 120-day rate; (6) 141 or more but fewer than
  162 Rate Period Days, the arithmetic average of the 120-day and 180-day
  rates; and (7) 162 or more but fewer than 183 Rate Period Days, the
  interest equivalent of the 180-day rate, in each case on commercial paper
  placed on behalf of issuers whose corporate bonds are rated "AA" by S&P or
  the equivalent of such rating by S&P or another rating agency, as made
  available on a discount basis or otherwise by the Federal Reserve Bank of
  New York for the Business Day next preceding such date; or (ii) in the
  event that the Federal Reserve Bank of New York does not make available any
  such rate, then the arithmetic average of such rates, as quoted on a
  discount basis or otherwise, by the Commercial Paper Dealers to the Auction
  Agent for the close of business on the Business Day next preceding such
  date. If any Commercial Paper Dealer does not quote a rate required to
  determine the "AA" Composite Commer-cial Paper Rate, the "AA" Composite
  Commercial Paper Rate shall be determined on the basis of the quotation or
  quotations furnished by the remaining Commercial Paper Dealer or Commercial
  Paper Dealers and any Substitute Commercial Paper Dealer or Substitute
  Commercial Paper Dealers selected by the Trust to provide such rate or
  rates not being supplied by any Commercial Paper Dealer or Commercial Paper
  Dealers, as the case may be, or, if the Trust does not select any such
  Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers,
  by the remaining Commercial Paper Dealer or Commercial Paper Dealers. For
  purposes of this definition, the "interest equivalent" of a rate stated on
  a discount basis (a "discount rate") for commercial paper of a given days'
  maturity shall be equal to the quotient (rounded upwards to the next higher
  one-thousandth (.001) of 1%) of (A) the discount rate

                                      AA-3
<PAGE>

  divided by (B) the difference between (x) 1.00 and (y) a fraction, the
  numerator of which shall be the product of the discount rate times the
  number of days in which such commercial paper matures and the denominator
  of which shall be 360.

     (2) "ACCOUNTANT'S CONFIRMATION" shall have the meaning specified in
  paragraph (c) of Section 7 of Part I of this Statement.

     (3) "AFFILIATE" shall mean, for purposes of the definition of
  "Outstanding," any Person known to the Auction Agent to be controlled by,
  in control of or under common control with the Trust; provided, however,
  that no Broker-Dealer controlled by, in control of or under common control
  with the Trust shall be deemed to be an Affiliate nor shall any corporation
  or any Person controlled by, in control of or under common control with
  such corporation one of the trustees, directors or executive officers of
  which is a trustee of the Trust be deemed to be an Affiliate solely because
  such trustee, director or executive officer is also a trustee of the Trust.

     (4) "AGENT MEMBER" shall mean a member of or participant in the
  Securities Depository that will act on behalf of a Bidder.

     (5) "ANTICIPATION NOTES" shall mean Tax Anticipation Notes (TANs),
  Revenue Anticipation Notes (RANs), Tax and Revenue Anticipation Notes
  (TRANs), Grant Anticipation Notes (GANs) that are rated by S&P and Bond
  Anticipation Notes (BANs) that are rated by S&P.

     (6) "APPLICABLE RATE" shall have the meaning specified in subparagraph
  (e) (i) of Section 2 of Part I of this Statement.

     (7) "AUCTION" shall mean each periodic implementation of the Auction
  Procedures

     (8) "AUCTION AGENCY AGREEMENT" shall mean the agreement between the
  Trust and the Auction Agent which provides, among other things, that the
  Auction Agent will follow the Auction Procedures for purposes of
  determining the Applicable Rate for shares of a series of Preferred Shares
  so long as the Applicable Rate for shares of such series is to be based on
  the results of an Auction.

     (9) "AUCTION AGENT" shall mean the entity appointed as such by a
  resolution of the Board of Trustees or the Executive Committee of the Board
  of Trustees in accordance with Section 6 of Part II of this Statement.

     (10) "AUCTION DATE," with respect to any Rate Period, shall mean the
  Business Day next preceding the first day of such Rate Period.

     (11) "AUCTION PROCEDURES" shall mean the procedures for conducting
  Auctions set forth in Part II of this Statement.

     (12) "AVAILABLE PREFERRED SHARES" shall have the meaning specified in
  paragraph (a) of Section 3 of Part II of this Statement.

     (13) "BENCHMARK RATE" shall have the meaning specified in Section 12 of
  Appendix A hereto.

     (14) "BENEFICIAL OWNER," with respect to shares of a series of Preferred
  Shares, means a customer of a Broker-Dealer who is listed on the records of
  that Broker-Dealer (or, if applicable, the Auction Agent) as a holder of
  shares of such series.

     (15) "BID" and "BIDS" shall have the respective meanings specified in
  paragraph (a) of Section 1 of Part II of this Statement.

                                     AA-4
<PAGE>

     (16) "BIDDER" and "BIDDERS" shall have the respective meanings specified
  in paragraph (a) of Section 1 of Part II of this Statement; provided,
  however, that neither the Trust nor any affiliate thereof shall be
  permitted to be a Bidder in an Auction, except that any Broker-Dealer that
  is an affiliate of the Trust may be a Bidder in an Auction, but only if the
  Orders placed by such Broker-Dealer are not for its own account.

     (17) "BOARD OF TRUSTEES" shall mean the Board of Trustees of the Trust
  or any duly authorized committee thereof.

     (18) "BROKER-DEALER" shall mean any broker-dealer, commercial bank or
  other entity permitted by law to perform the functions required of a
  Broker-Dealer in Part II of this Statement, that is a member of, or a
  participant in, the Securities Depository or is an affiliate of such member
  or participant, has been selected by the Trust and has entered into a
  Broker-Dealer Agreement that remains effective.

     (19) "BROKER-DEALER AGREEMENT" shall mean an agreement among the Trust,
  the Auction Agent and a Broker-Dealer pursuant to which such Broker-Dealer
  agrees to follow the procedures specified in Part II of this Statement.

     (20) "BUSINESS DAY" shall mean a day on which the New York Stock
  Exchange is open for trading and which is neither a Saturday, Sunday nor
  any other day on which banks in The City of New York, New York, are
  authorized by law to close.

     (21) "CODE" means the Internal Revenue Code of 1986, as amended.

     (22) "COMMERCIAL PAPER DEALERS" shall mean Lehman Commercial Paper
  Incorporated, Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith
  Incorporated and any other commercial paper dealer selected by the Trust as
  to which Moody's, S&P or any substitute rating agency then rating the
  Preferred Shares shall not have objected or, in lieu of any thereof, their
  respective affiliates or successors, if such entity is a commercial paper
  dealer.

     (23) "COMMON SHARES" shall mean the common shares of beneficial
  interest, par value $.001 per share, of the Trust.

     (24) "CURE DATE" shall mean the Preferred Shares Basic Maintenance Cure
  Date or the Investment Company Act Cure Date, as the case may be.

     (25) "DATE OF ORIGINAL ISSUE," with respect to shares of a series of
  Preferred Shares, shall mean the date on which the Trust initially issued
  such shares.

     (26) "DECLARATION" shall have the meaning specified on the first page of
  this Statement.

     (27) "DEPOSIT SECURITIES" shall mean cash and Municipal Obligations
  rated at least P-1, MIG-1 or VMIG-1 by Moody's, or A-1+ or SP-1+ by S&P.

     (28) "DISCOUNTED VALUE," as of any Valuation Date, shall mean, (i)(a)
  with respect to a Moody's Eligible Asset that is not currently callable as
  of such Valuation Date at the option of the issuer thereof, the quotient of
  the Market Value thereof divided by the applicable Moody's Discount Factor,
  or (b) with respect to a Moody's Eligible Asset that is currently callable
  as of such Valuation Date at the option of the issuer thereof, the quotient
  of (1) the lesser of the Market Value or call price thereof, including any
  call premium, divided by (2) the applicable Moody's Discount Factor, and
  (ii) with respect to a S&P Eligible Asset, the quotient of the Market Value
  thereof divided by the applicable S&P Discount Factor.





     (29) "DIVIDEND PAYMENT DATE," with respect to shares of a series of
  Preferred Shares, shall mean any date on which dividends are payable on
  shares of such series pursuant to the provisions of paragraph (d) of
  Section 2 of Part I of this Statement.


                                      AA-5
<PAGE>


     (30) "DIVIDEND PERIOD," with respect to shares of a series of Preferred
  Shares, shall mean the period from and including the Date of Original Issue
  of shares of such series to but excluding the initial Dividend Payment Date
  for shares of such series and any period thereafter from and including one
  Dividend Payment Date for shares of such series to but excluding the next
  succeeding Dividend Payment Date for shares of such series.


     (31) "EXISTING HOLDER," with respect to shares of a series of Preferred
  Shares, shall mean a Broker-Dealer (or any such other Person as may be
  permitted by the Trust) that is listed on the records of the Auction Agent
  as a holder of shares of such series.


     (32) "FAILURE TO DEPOSIT," with respect to shares of a series of
  Preferred Shares, shall mean a failure by the Trust to pay to the Auction
  Agent, not later than 12:00 noon, New York City time, (A) on the Business
  Day next preceding any Dividend Payment Date for shares of such series, in
  funds available on such Dividend Payment Date in The City of New York, New
  York, the full amount of any dividend (whether or not earned or declared)
  to be paid on such Dividend Payment Date on any share of such series or (B)
  on the Business Day next preceding any redemption date in funds available
  on such redemption date for shares of such series in The City of New York,
  New York, the Redemption Price to be paid on such redemption date for any
  share of such series after notice of redemption is mailed pursuant to
  paragraph (c) of Section 11 of Part I of this Statement; provided, however,
  that the foregoing clause (B) shall not apply to the Trust's failure to pay
  the Redemption Price in respect of Preferred Shares when the related Notice
  of Redemption provides that redemption of such shares is subject to one or
  more conditions precedent and any such condition precedent shall not have
  been satisfied at the time or times and in the manner specified in such
  Notice of Redemption.


     (33) "FEDERAL TAX RATE INCREASE" shall have the meaning specified in the
  definition of "Moody's Volatility Factor."


     (34) "GROSS-UP PAYMENT" shall have the meaning specified in Section 4 of
  Appendix A hereto.


     (35) "HOLDER," with respect to shares of a series of Preferred Shares,
  shall mean the registered holder of such shares as the same appears on the
  record books of the Trust.


     (36) "HOLD ORDER" and "HOLD ORDERS" shall have the respective meanings
  specified in paragraph (a) of Section 1 of Part II of this Statement.


     (37) "INDEPENDENT ACCOUNTANT" shall mean a nationally recognized
  accountant, or firm of accountants, that is with respect to the Trust an
  independent public accountant or firm of independent public accountants
  under the Securities Act of 1933, as amended from time to time.


     (38) "INITIAL RATE PERIOD," with respect to shares of a series of
  Preferred Shares, shall have the meaning specified with respect to shares
  of such series in Section 5 of Appendix A hereto.


     (39) "INTEREST EQUIVALENT" means a yield on a 360-day basis of a
  discount basis security which is equal to the yield on an equivalent
  interest-bearing security.


     (40) "INVESTMENT COMPANY ACT" shall mean the Investment Company Act of
  1940, as amended from time to time.


     (41) "INVESTMENT COMPANY ACT CURE DATE," with respect to the failure by
  the Trust to maintain the Investment Company Act Preferred Shares Asset
  Coverage (as required by Section 6 of Part I of this Statement) as of the
  last Business Day of each month, shall mean the last Business Day of the
  following month.


     (42) "INVESTMENT COMPANY ACT PREFERRED SHARES ASSET COVERAGE" shall mean
  asset coverage, as defined in Section 18(h) of the Investment Company Act,
  of at least 200% with respect to all outstanding senior securities of the
  Trust which are shares of beneficial interest including all outstanding
  Preferred Shares (or such other asset coverage as may in the future be
  specified in or under


                                     AA-6
<PAGE>

  the Investment Company Act as the minimum asset coverage for senior
  securities which are shares or stock of a closed-end investment company as
  a condition of declaring dividends on its common shares or stock).



     (43) "KENNY INDEX" shall have the meaning specified in the definition of
  "Taxable Equivalent of the Short-Term Municipal Bond Rate."


     (44) "LATE CHARGE" shall have the meaning specified in subparagraph (e)
  (1) (B) of Section 2 of Part I of this Statement.


     (45) "LIQUIDATION PREFERENCE," with respect to a given number of
  Preferred shares, means $25,000 times that number.


     (46) "MARKET VALUE" of any asset of the Trust shall be the market value
  thereof determined by Kenny S&P Evaluation services or any other pricing
  service or services designated by the Board of Trustees of the Trust,
  provided that the Trust obtains written assurance from Moody's and S&P, if
  Moody's and S&P are then rating the Preferred Shares, and from any
  substitute rating agency then rating the Preferred Shares that such
  designation will not impair the rating then assigned by Moody's, S&P or
  such substitute rating agency to the Preferred Shares (the "Pricing
  Service"). Market Value of any asset shall include any interest accrued
  thereon. The Pricing Service shall value portfolio securities at the lower
  of the quoted bid price or the mean between the quoted bid and ask price or
  the yield equivalent when quotations are not readily available. Securities
  for which quotations are not readily available shall be valued at fair
  value as determined by the Pricing Service using methods which include
  consideration of: yields or prices of municipal obligations of comparable
  quality, type of issue, coupon, maturity and rating; indications as to
  value from dealers; and general market conditions. The Pricing Service may
  employ electronic data processing techniques and/or a matrix system to
  determine valuations. If the Pricing Service fails to provide the Market
  Value of any Municipal Obligation, such Municipal Obligation shall be
  valued at the lower of two bid quotations (one of which shall be in
  writing) obtained by the Trust from two dealers who are members of the
  National Association of Securities Dealers, Inc. and are making a market in
  such Municipal Obligations. Futures contracts and options are valued at
  closing prices for such instruments established by the exchange or board of
  trade on which they are traded, or if market quotations are not readily
  available, are valued at fair value as determined by the Pricing Service or
  if the Pricing Service is not able to value such instruments they shall be
  valued at fair value on a consistent basis using methods determined in good
  faith by the Board of Trustees.


     (47) "MAXIMUM POTENTIAL GROSS-UP PAYMENT LIABILITY," as of any Valuation
  Date, shall mean the aggregate amount of Gross-up Payments that would be
  due if the Trust were to make Taxable Allocations, with respect to any
  taxable year, estimated based upon dividends paid and the amount of
  undistributed realized net capital gains and other taxable income earned by
  the Trust, as of the end of the calendar month immediately preceding such
  Valuation Date, and assuming such Gross-up Payments are fully taxable.


     (48) "MAXIMUM RATE," for shares of a series of Preferred Shares on any
  Auction Date for shares of such series, shall mean:


       (1) in the case of any Auction Date which is not the Auction Date
    immediately prior to the first day of any proposed Special Rate Period
    designated by the Trust pursuant to Section 4 of Part I of this
    Statement, the product of (A) the Reference Rate on such Auction Date
    for the next Rate Period of shares of such series and (B) the Rate
    Multiple on such Auction Date, unless shares of such series have or had
    a Special Rate Period (other than a Special Rate Period of 28 Rate
    Period Days or fewer) and an Auction at which Sufficient Clearing Bids
    existed has not yet occurred for a Minimum Rate Period of shares of
    such series after such Special Rate Period, in which case the higher
    of:

                                      AA-7
<PAGE>

         (1) the dividend rate on shares of such series for the then-
      ending Rate Period; and

         (2) the product of (1) the higher of (x) the Reference Rate on
      such Auction Date for a Rate Period equal in length to the then-
      ending Rate Period of shares of such series, if such then-ending
      Rate Period was 364 Rate Period Days or fewer, or the Treasury Note
      Rate on such Auction Date for a Rate Period equal in length to the
      then-ending Rate Period of shares of such series, if such then-
      ending Rate Period was more than 364 Rate Period Days, and (y) the
      Reference Rate on such Auction Date for a Rate Period equal in
      length to such Special Rate Period of shares of such series, if such
      Special Rate Period was 364 Rate Period Days or fewer, or the
      Treasury Note Rate on such Auction Date for a Rate Period equal in
      length to such Special Rate Period, if such Special Rate Period was
      more than 364 Rate Period Days and (2) the Rate Multiple on such
      Auction Date; or

       (2) in the case of any Auction Date which is the Auction Date
    immediately prior to the first day of any proposed Special Rate Period
    designated by the Trust pursuant to Section 4 of Part I of this
    Statement, the product of (A) the highest of (1) the Reference Rate on
    such Auction Date for a Rate Period equal in length to the then-ending
    Rate Period of shares of such series, if such then-ending Rate Period
    was 364 Rate Period Days or fewer, or the Treasury Note Rate on such
    Auction Date for a Rate Period equal in length to the then-ending Rate
    Period of shares of such series, if such then-ending Rate Period was
    more than 364 Rate Period Days, (2) the Reference Rate on such Auction
    Date for the Special Rate Period for which the Auction is being held if
    such Special Rate Period is 364 Rate Period Days or fewer or the
    Treasury Note Rate on such Auction Date for the Special Rate Period for
    which the Auction is being held if such Special Rate Period is more than
    364 Rate Period Days, and (3) the Reference Rate on such Auction Date
    for Minimum Rate Periods and (B) the Rate Multiple on such Auction Date.



     (49) "MINIMUM RATE PERIOD" shall mean any Rate Period consisting of 7
  Rate Period Days.


     (50) "MOODY'S" shall mean Moody's Investors Service, Inc., a Delaware
  corporation, and its successors.


     (51) "MOODY'S DISCOUNT FACTOR" shall have the meaning specified in
  Section 4 of Appendix A hereto.


     (52) "MOODY'S ELIGIBLE ASSET" shall have the meaning specified in
  Section 4 of Appendix A hereto.


     (53) "MOODY'S EXPOSURE PERIOD" shall mean the period commencing on a
  given Valuation Date and ending 56 days thereafter.


     (54) "MOODY'S VOLATILITY FACTOR" shall mean, as of any Valuation Date,
  (i) in the case of any Minimum Rate Period, any Special Rate Period of 28
  Rate Period Days or fewer, or any Special Rate Period of 57 Rate Period
  Days or more, a multiplicative factor equal to 275%, except as otherwise
  provided in the last sentence of this definition; (ii) in the case of any
  Special Rate Period of more than 28 but fewer than 36 Rate Period Days, a
  multiplicative factor equal to 203%; (iii) in the case of any Special Rate
  Period of more than 35 but fewer than 43 Rate Period Days, a multiplicative
  factor equal to 217%; (iv) in the case of any Special Rate Period of more
  than 42 but fewer than 50 Rate Period Days, a multiplicative factor equal
  to 226%; and (v) in the case of any Special Rate Period of more than 49 but
  fewer than 57 Rate Period Days, a multiplicative factor equal to 235%. If,
  as a result of the enactment of changes to the Code, the greater of the
  maximum marginal Federal individual income tax rate applicable to ordinary
  income and the maximum marginal Federal corporate income tax rate
  applicable to ordinary income will increase, such increase being rounded up
  to the next five percentage points (the "Federal Tax Rate Increase"), until
  the effective date of such increase, the Moody's Volatility Factor in the
  case of any


                                     AA-8
<PAGE>

  Rate Period described in (i) above in this definition instead shall be
  determined by reference to the following table:

<TABLE>
<CAPTION>
            Federal
            Tax Rate   Volatility
            Increase     Factor
            --------   ----------
            <S>        <C>
                5%        295%
               10%        317%
               15%        341%
               20%        369%
               25%        400%
               30%        436%
               35%        477%
               40%        525%
</TABLE>

     (55) "MUNICIPAL OBLIGATIONS" shall mean any and all instruments that pay
  interest or make other distributions that are exempt from regular Federal
  income tax and in which the Trust may invest consistent with the investment
  policies and restrictions contained in its registration statement on Form
  N-2 (333-86589), ("Registration Statement"), as the same may be amended
  from time to time.


     (56) "NOTICE OF REDEMPTION" shall mean any notice with respect to the
  redemption of Preferred Shares pursuant to paragraph (c) of Section 11 of
  Part I of this Statement.


     (57) "NOTICE OF SPECIAL RATE PERIOD" shall mean any notice with respect
  to a Special Rate Period of Preferred Shares pursuant to subparagraph
  (d)(i) of Section 4 of Part I of this Statement.


     (58) "ORDER" and "ORDERS" shall have the respective meanings specified
  in paragraph (a) of Section 1 of Part II of this Statement.




     (59) "OUTSTANDING" shall mean, as of any Auction Date with respect to
  shares of a series of Preferred Shares, the number of shares of such series
  theretofore issued by the Trust except, without duplication, (i) any shares
  of such series theretofore cancelled or delivered to the Auction Agent for
  cancellation or redeemed by the Trust, (ii) any shares of such series as to
  which the Trust or any Affiliate thereof shall be an Existing Holder and
  (iii) any shares of such series represented by any certificate in lieu of
  which a new certificate has been executed and delivered by the Trust.




     (60) "PERSON" shall mean and include an individual, a partnership, a
  corporation, a trust, an unincorporated association, a joint venture or
  other entity or a government or any agency or political subdivision
  thereof.




     (61) "POTENTIAL BENEFICIAL OWNER," with respect to shares of a series of
  Preferred Shares, shall mean a customer of a Broker-Dealer that is not a
  Beneficial Owner of shares of such series but that wishes to purchase
  shares of such series, or that is a Beneficial Owner of shares of such
  series that wishes to purchase additional shares of such series.


     (62) "POTENTIAL HOLDER," with respect to shares of a series of Preferred
  Shares, shall mean a Broker-Dealer (or any such other person as may be
  permitted by the Trust) that is not an Existing Holder of shares of such
  series or that is an Existing Holder of shares of such series that wishes
  to become the Existing Holder of additional shares of such series.


     (63) "PREFERRED SHARES" shall have the meaning set forth on the first
  page of this Statement.


     (64) "PREFERRED SHARES BASIC MAINTENANCE AMOUNT," as of any Valuation
  Date, shall mean the dollar amount equal to the sum of (i)(A) the product
  of the number of Preferred Shares outstanding on such date multiplied by
  $25,000 (plus the product of the number of shares of any other


                                     AA-9
<PAGE>

  series of preferred shares outstanding on such date multiplied by the
  liquidation preference of such shares), plus any redemption premium
  applicable to the Preferred Shares (or other preferred shares) then subject
  to redemption; (B) the aggregate amount of dividends that will have
  accumulated at the respective Applicable Rates (whether or not earned or
  declared) to (but not including) the first respective Dividend Payment
  Dates for the Preferred Shares outstanding that follow such Valuation Date
  (plus the aggregate amount of dividends, whether or not earned or declared,
  that will have accumulated in respect of other outstanding preferred shares
  to, but not including, the first respective dividend payment dates for such
  other shares that follow such Valuation Date); (C) the aggregate amount of
  dividends that would accumulate on shares of each series of the Preferred
  Shares outstanding from such first respective Dividend Payment Date
  therefor through the 56th day after such Valuation Date, at the Maximum
  Rate (calculated as if such Valuation Date were the Auction Date for the
  Rate Period commencing on such Dividend Payment Date) for a Minimum Rate
  Period of shares of such series to commence on such Dividend Payment Date,
  assuming, solely for purposes of the foregoing, that if on such Valuation
  Date the Trust shall have delivered a Notice of Special Rate Period to the
  Auction Agent pursuant to Section 4(d)(i) of this Part I with respect to
  shares of such series, such Maximum Rate shall be the higher of (a) the
  Maximum Rate for the Special Rate Period of shares of such series to
  commence on such Dividend Payment Date and (b) the Maximum Rate for a
  Minimum Rate Period of shares of such series to commence on such Dividend
  Payment Date, multiplied by the Volatility Factor applicable to a Minimum
  Rate Period, or, in the event the Trust shall have delivered a Notice of
  Special Rate Period to the Auction Agent pursuant to section 4(d)(i) of
  this Part I with respect to shares of such series designating a Special
  Rate Period consisting of 56 Rate Period Days or more, the Volatility
  Factor applicable to a special Rate Period of that length (plus the
  aggregate amount of dividends that would accumulate at the maximum dividend
  rate or rates on any other preferred shares outstanding from such
  respective dividend payment dates through the 56th day after such Valuation
  Date, as established by or pursuant to the respective statements
  establishing and fixing the rights and preferences of such other preferred
  shares) (except that (1) if such Valuation Date occurs at a time when a
  Failure to Deposit (or, in the case of preferred shares other than the
  Preferred Shares, a failure similar to a Failure to Deposit) has occurred
  that has not been cured, the dividend for purposes of calculation would
  accumulate at the current dividend rate then applicable to the shares in
  respect of which such failure has occurred and (2) for those days during
  the period described in this subparagraph (C) in respect of which the
  Applicable Rate in effect immediately prior to such Dividend Payment Date
  will remain in effect (or, in the case of preferred shares other than the
  Preferred Shares, in respect of which the dividend rate or rates in effect
  immediately prior to such respective dividend payment dates will remain in
  effect), the dividend for purposes of calculation would accumulate at such
  Applicable Rate (or other rate or rates, as the case may be) in respect of
  those days); (D) the amount of anticipated expenses of the Trust for the 90
  days subsequent to such Valuation Date; (E) the amount of the Trust's
  Maximum Potential Gross-up Payment Liability in respect of Preferred Shares
  (and similar amounts payable in respect of other preferred shares pursuant
  to provisions similar to those contained in Section 3 of Part I of this
  Statement) as of such Valuation Date; (F) the amount of any indebtedness or
  obligations of the Trust senior in right of payment to the Preferred
  Shares; and (G) any current liabilities as of such Valuation Date to the
  extent not reflected in any of (i)(A) through (i)(F) (including, without
  limitation, any payables for Municipal Obligations purchased as of such
  Valuation Date and any liabilities incurred for the purpose of clearing
  securities transactions) less (ii) the value (i.e., for purposes of current
  Moody's guidelines, the face value of cash, short-term Municipal
  Obligations rated MIG-1, VMIG-1 or P-1, and short-term securities that are
  the direct obligation of the U.S. government, provided in each case that
  such securities mature on or prior to the date upon which any of (i) (A)
  through (i) (G) become payable, otherwise the Moody's Discounted Value)
  (i.e., for the purposes of the current S&P guidelines, the face value of
  cash, short-term Municipal Obligations rate SP-1 or A-1 or Municipal
  Obligations rated A, provided in each case that such securities mature on
  or prior to the date upon which any of (i)(A) through (i)(G) becomes
  payable, otherwise the S&P Discounted value) of any of the Trust's assets
  irrevocably deposited by the Trust for the payment of any of (i)(A) through
  (i)(G).

                                     AA-10
<PAGE>


     (65) "PREFERRED SHARES BASIC MAINTENANCE CURE DATE," with respect to the
  failure by the Trust to satisfy the Preferred Shares Basic Maintenance
  Amount (as required by paragraph (a) of Section 7 of Part I of this
  Statement) as of a given Valuation Date, shall mean the seventh Business
  Day following such Valuation Date.


     (66) "PREFERRED SHARES BASIC MAINTENANCE REPORT" shall mean a report
  signed by the President, Treasurer or any Senior Vice President or Vice
  President of the Trust which sets forth, as of the related Valuation Date,
  the assets of the Trust, the Market Value and the Discounted Value thereof
  (seriatim and in aggregate), and the Preferred Shares Basic Maintenance
  Amount.


     (67) "QUARTERLY VALUATION DATE" shall mean the last Business Day of each
  January, April, July and October of each year, commencing on the date set
  forth in Section 6 of Appendix A hereto.


     (68) "RATE MULTIPLE" shall have the meaning specified in Section 4 of
  Appendix A hereto.


     (69) "RATE PERIOD," with respect to shares of a series of Preferred
  Shares, shall mean the Initial Rate Period of shares of such series and any
  Subsequent Rate Period, including any Special Rate Period, of shares of
  such series.


     (70) "RATE PERIOD DAYS," for any Rate Period or Dividend Period, means
  the number of days that would constitute such Rate Period or Dividend
  Period but for the application of paragraph (d) of Section 2 of Part I of
  this Statement or paragraph (b) of Section 4 of Part I of this Statement.


     (71) "RECEIVABLES FOR MUNICIPAL OBLIGATIONS SOLD" shall mean (A) for
  purposes of calculation of Moody's Eligible Assets as of any Valuation
  Date, no more than the aggregate of the following: (i) the book value of
  receivables for Municipal Obligations sold as of or prior to such Valuation
  Date if such receivables are due within five business days of such
  Valuation Date, and if the trades which generated such receivables are (x)
  settled through clearing house firms with respect to which the Trust has
  received prior written authorization from Moody's or (y) with
  counterparties having a Moody's long-term debt rating of at least Baa3; and
  (ii) the Moody's Discounted Value of Municipal Obligations sold as of or
  prior to such Valuation Date which generated receivables, if such
  receivables are due within five business days of such Valuation Date but do
  not comply with either of the conditions specified in (i) above, and (B)
  for purposes of calculation of S&P Eligible Assets as of any Valuation Date
  the book value of receivables for Municipal Obligations sold as of or prior
  to such Valuation Date if such receivables are due within five business
  days of such Valuation Date.


     (72) "REDEMPTION PRICE" shall mean the applicable redemption price
  specified in paragraph (a) or (b) of Section 11 of Part I of this
  Statement.


     (73) "REFERENCE RATE" shall mean (i) the higher of the Taxable
  Equivalent of the Short-Term Municipal Bond Rate and the "AA" Composite
  Commercial Paper Rate in the case of Minimum Rate Periods and Special Rate
  Periods of 28 Rate Period Days or fewer; (ii) the "AA" Composite Commercial
  Paper Rate in the case of Special Rate Periods of more than 28 Rate Period
  Days but fewer than 183 Rate Period Days; and (iii) the Treasury Bill Rate
  in the case of Special Rate Periods of more than 182 Rate Period Days but
  fewer than 365 Rate Period Days.


     (74) "REGISTRATION STATEMENT" has the meaning specified in the
  definition of "Municipal Obligations."


     (75) "S&P" shall mean Standard & Poor's Corporation, a New York
  corporation, and its successors.


     (76) "S&P DISCOUNT FACTOR" shall have the meaning specified in Section 4
  of Appendix A hereto.


                                     AA-11
<PAGE>


     (77) "S&P ELIGIBLE ASSET" shall have the meaning specified in Section 4
  of Appendix A hereto.


     (78) "S&P EXPOSURE PERIOD" shall mean the maximum period of time
  following a Valuation Date that the Fund has under this Statement to cure
  any failure to maintain, as of such Valuation Date, the Discounted Value
  for its portfolio at least equal to the Preferred Shares Basic Maintenance
  Amount (as described in paragraph (a) of Section 7 of Part I of this
  Statement).


     (79) "S&P VOLATILITY FACTOR" shall mean, as of any Valuation Date, a
  multiplicative factor equal to (i) 305% in the case of any Minimum Rate
  Period or any Special Rate Period of 28 Rate Period Days or fewer, (ii)
  268% in the case of any Special Rate Period of more than 28 Rate Period
  Days but fewer than 183 Rate Period Days; and (iii) 204% in the case of any
  Special Rate Period of more than 182 Rate Period Days.


     (80) "SECURITIES DEPOSITORY" shall mean The Depository Trust Company and
  its successors and assigns or any other securities depository selected by
  the Trust which agrees to follow the procedures required to be followed by
  such securities depository in connection with the Preferred Shares.


     (81) "SELL ORDER" and "SELL ORDERS" shall have the respective meanings
  specified in paragraph (a) of Section 1 of Part II of this Statement.


     (82) "SPECIAL RATE PERIOD," with respect to shares of a series of
  Preferred Shares, shall have the meaning specified in paragraph (a) of
  Section 4 of Part I of this Statement.


     (83) "SPECIAL REDEMPTION PROVISIONS" shall have the meaning specified in
  subparagraph (a)(i) of Section 11 of Part I of this Statement.


     (84) "SUBMISSION DEADLINE" shall mean 1:30 P.M., New York city time, on
  any Auction Date or such other time on any Auction Date by which Broker-
  Dealers are required to submit Orders to the Auction Agent as specified by
  the Auction Agent from time to time.


     (85) "SUBMITTED BID" and "SUBMITTED BIDS" shall have the respective
  meanings specified in paragraph (a) of Section 3 of Part II of this
  Statement.


     (86) "SUBMITTED HOLD ORDER" and "SUBMITTED HOLD ORDERS" shall have the
  respective meanings specified in paragraph (a) of Section 3 of Part II of
  this Statement.


     (87) "SUBMITTED ORDER" and "SUBMITTED ORDERS" shall have the respective
  meanings specified in paragraph (a) of Section 3 of Part II of this
  Statement.


     (88) "SUBMITTED SELL ORDER" and "SUBMITTED SELL ORDERS" shall have the
  respective meanings specified in paragraph (a) of Section 3 of Part II of
  this Statement.


     (89) "SUBSEQUENT RATE PERIOD," with respect to shares of a series of
  Preferred Shares, shall mean the period from and including the first day
  following the Initial Rate Period of shares of such series to but excluding
  the next Dividend Payment Date for shares of such series and any period
  thereafter from and including one Dividend Payment Date for shares of such
  series to but excluding the next succeeding Dividend Payment Date for
  shares of such series; provided, however, that if any Subsequent Rate
  Period is also a Special Rate Period, such term shall mean the period
  commencing on the first day of such Special Rate Period and ending on the
  last day of the last Dividend Period thereof.


     (90) "SUBSTITUTE COMMERCIAL PAPER DEALER" shall mean any commercial
  paper dealer selected by the Trust as to which Moody's, S&P or any
  substituting rating agency then rating the Preferred Shares shall not have
  objected; provided, however, that none of such entities shall be a
  Commercial Paper Dealer.



                                     AA-12
<PAGE>


     (91) "SUBSTITUTE U.S. GOVERNMENT SECURITIES DEALER" shall mean any U.S.
  Government securities dealer selected by the Trust as to which Moody's, S&P
  or any substitute rating agency then rating the Preferred Shares shall not
  have objected; provided, however, that none of such entities shall be a
  U.S. Government Securities Dealer.


     (92) "SUFFICIENT CLEARING BIDS" shall have the meaning specified in
  paragraph (a) of Section 3 of Part II of this Statement.


     (93) "TAXABLE ALLOCATION" shall have the meaning specified in Section 3
  of Part I of this Statement.


     (94) "TAXABLE INCOME" shall have the meaning specified in Section 12 of
  Appendix A hereto.


     (95) "TAXABLE EQUIVALENT OF THE SHORT-TERM MUNICIPAL BOND RATE," on any
  date for any Minimum Rate Period or Special Rate Period of 28 Rate Period
  Days or fewer, shall mean 90% of the quotient of (A) the per annum rate
  expressed on an interest equivalent basis equal to the Kenny S&P 30 day
  High Grade Index or any successor index (the "Kenny Index") (provided,
  however, that any such successor index must be approved by Moody's (if
  Moody's is then rating the Preferred Shares)), made available for the
  Business Day immediately preceding such date but in any event not later
  than 8:30 A.M., New York City time, on such date by Kenny S&P Evaluation
  Services or any successor thereto, based upon 30-day yield evaluations at
  par of short-term bonds the interest on which is excludable for regular
  Federal income tax purposes under the Code of "high grade" component
  issuers selected by Kenny S&P Evaluation Services or any such successor
  from time to time in its discretion, which component issuers shall include,
  without limitation, issuers of general obligation bonds, but shall exclude
  any bonds the interest on which constitutes an item of tax preference under
  Section 57 (a)(5) of the Code, or successor provisions, for purposes of the
  "alternative minimum tax," divided by (B) 1.00 minus the maximum marginal
  regular Federal individual income tax rate applicable to ordinary income or
  the maximum marginal regular Federal corporate income tax rate applicable
  to ordinary income (in each case expressed as a decimal), whichever is
  greater; provided, however, that if the Kenny Index is not made so
  available by 8:30 A.M., New York City time, on such date by Kenny S&P
  Evaluation Services or any successor, the Taxable Equivalent of the Short-
  Term Municipal Bond Rate shall mean the quotient of (A) the per annum rate
  expressed on an interest equivalent basis equal to the most recent Kenny
  Index so made available for any preceding Business Day, divided by (B) 1.00
  minus the maximum marginal regular Federal individual income tax rate
  applicable to ordinary income or the maximum marginal regular Federal
  corporate income tax rate applicable to ordinary income (in each case
  expressed as a decimal), whichever is greater.


     (96) "TREASURY BILL" shall mean a direct obligation of the U.S.
  Government having a maturity at the time of issuance of 364 days or less.


     (97) "TREASURY BILL RATE," on any date for any Rate Period, shall mean
  (i) the bond equivalent yield, calculated in accordance with prevailing
  industry convention, of the rate on the most recently auctioned Treasury
  Bill with a remaining maturity closest to the length of such Rate Period,
  as quoted in The Wall Street Journal on such date for the Business Day next
  preceding such date; or (ii) in the event that any such rate is not
  published in The Wall Street Journal, then the bond equivalent yield,
  calculated in accordance with prevailing industry convention, as calculated
  by reference to the arithmetic average of the bid price quotations of the
  most recently auctioned Treasury Bill with a remaining maturity closest to
  the length of such Rate Period, as determined by bid price quotations as of
  the close of business on the Business Day immediately preceding such date
  obtained from the U.S. Government Securities Dealers to the Auction Agent.


     (98) "TREASURY NOTE" shall mean a direct obligation of the U.S.
  Government having a maturity at the time of issuance of five years or less
  but more than 364 days.


     (99) "TREASURY NOTE RATE," on any date for any Rate Period, shall mean
  (i) the yield on the most recently auctioned Treasury Note with a remaining
  maturity closest to the length of such Rate Period, as quoted in The Wall
  Street Journal on such date for the Business Day next preceding such date;
  or (ii) in the event that any such rate is not published in The Wall Street
  Journal, then the yield as calculated by


                                     AA-13
<PAGE>

  reference to the arithmetic average of the bid price quotations of the most
  recently auctioned Treasury Note with a remaining maturity closest to the
  length of such Rate Period, as determined by bid price quotations as of the
  close of business on the Business Day immediately preceding such date
  obtained from the U.S. Government Securities Dealers to the Auction Agent.
  If any U.S. Government Securities Dealer does not quote a rate required to
  determine the Treasury Bill Rate or the Treasury Note Rate, the Treasury
  Bill Rate or the Treasury Note Rate shall be determined on the basis of the
  quotation or quotations furnished by the remaining U.S. Government
  Securities Dealer or U.S. Government Securities Dealers and any substitute
  U.S. Government Securities Dealers selected by the Trust to provide such
  rate or rates not being supplied by any U.S. Governmental Securities Dealer
  or U.S. Government Securities Dealers, as the case may be, or, if the Trust
  does not select any such Substitute U.S. Government Securities Dealer or
  Substitute U.S. Government Securities Dealers, by the remaining U.S.
  Government Securities Dealer or U.S. Government Securities Dealers.

     (100) "TRUST" shall mean the entity named on the first page of this
  statement, which is the issuer of the Preferred Shares.


     (101) "U.S. GOVERNMENT SECURITIES DEALER" shall mean Lehman Government
  Securities Incorporated, Goldman, Sachs & Co., Salomon Brothers Inc.,
  Morgan Guaranty Trust Company of New York and any other U.S. Government
  Securities dealer selected by the Trust as to which Moody's shall not have
  objected or their respective affiliates or successors, if such entity is a
  U.S. Government securities dealer.


     (102) "VALUATION DATE" shall mean, for purposes of determining whether
  the Trust is maintaining the Preferred Shares Basic Maintenance Amount,
  each Business Day.


     (103) "VOLATILITY FACTOR" shall mean, as of any Valuation Date, the
  Moody's Volatility Factor and the S&P Volatility Factor.


     (104) "VOTING PERIOD" shall have the meaning specified in paragraph (b)
  of Section 5 of Part I of this Statement.


     (105) "WINNING BID RATE" shall have the meaning specified in paragraph
  (a) of Section 3 of Part II of this Statement.


   Any additional definitions specifically set forth in Section 8 of Appendix A
hereto shall be incorporated herein and made part hereof by reference thereto.

                                    PART I.

1. Number of Authorized Shares.

   The number of authorized shares constituting a series of the Preferred
Shares shall be as set forth with respect to such series in Section 2 of
Appendix A hereto.

2. Dividends.

   (a) Ranking. The shares of a series of the Preferred Shares shall rank on a
parity with each other, with shares of any other series of the Preferred Shares
and with shares of any other series of preferred shares as to the payment of
dividends by the Trust.

   (b) Cumulative Cash Dividends. The Holders of any series of Preferred Shares
shall be entitled to receive, when, as and if declared by the Board of
Trustees, out of funds legally available therefor in accordance with the
Declaration and applicable law, cumulative cash dividends at the Applicable
Rate for shares of such series, determined as set forth in paragraph (e) of
this Section 2, and no more (except to the extent set forth in Section 3 of
this Part I), payable on the Dividend Payment Dates with respect to shares of
such series

                                     AA-14
<PAGE>

determined pursuant to paragraph (d) of this Section 2. Holders of Preferred
Shares shall not be entitled to any dividend, whether payable in cash, property
or shares, in excess of full cumulative dividends, as herein provided, on
Preferred Shares. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on Preferred Shares
which may be in arrears, and, except to the extent set forth in subparagraph
(e)(i) of this Section 2, no additional sum of money shall be payable in
respect of any such arrearage.

   (c) Dividends Cumulative from Date of Original Issue. Dividends on any
series of Preferred Shares shall accumulate at the Applicable Rate for shares
of such series from the Date of Original Issue thereof.

   (d) Dividend Payment Dates And Adjustment Thereof. The Dividend Payment
Dates with respect to shares of a series of Preferred Shares shall be as set
forth with respect to shares of such series in Section 9 of Appendix A hereto;
provided, however, that:

     (i) if the day on which dividends would otherwise be payable on shares
  of such series is not a Business Day, then such dividends shall be payable
  on such shares on the first Business Day that falls after such day; and

     (ii) notwithstanding Section 9 of Appendix A hereto, the Trust in its
  discretion may establish the Dividend Payment Dates in respect of any
  Special Rate Period of shares of a series of Preferred Shares consisting of
  more than 28 Rate Period Days; provided, however, that such dates shall be
  set forth in the Notice of Special Rate Period relating to such Special
  Rate Period, as delivered to the Auction Agent, which Notice of Special
  Rate Period shall be filed with the Secretary of the Trust; and further
  provided that (1) any such Dividend Payment Date shall be a Business Day
  and (2) the last Dividend Payment in respect of such Special Rate Period
  shall be the Business Day immediately following the last day thereof, as
  such last day is determined in accordance with paragraph (b) of Section 4
  of this Part I.

   (e) Dividend Rates and Calculation of Dividends.

   (i) Dividend Rates. The dividend rate on Preferred Shares of any series
during the period from and after the Date of Original Issue of shares of such
series to and including the last day of the Initial Rate Period of shares of
such series shall be equal to the rate per annum set forth with respect to
shares of such series under "Designation" in Section 1 of Appendix A hereto.
For each Subsequent Rate Period of shares of such series thereafter, the
dividend rate on shares of such series shall be equal to the rate per annum
that results from an Auction for shares of such series on the Auction Date next
preceding such Subsequent Rate Period; provided, however, that if:

     (A) an Auction for any such Subsequent Rate Period is not held for any
  reason other than as described below, the dividend rate on shares of such
  series for such Subsequent Rate Period will be the Maximum Rate for shares
  of such series on the Auction Date therefor;

     (B) any Failure to Deposit shall have occurred with respect to shares of
  such series during any Rate Period thereof (other than any Special Rate
  Period consisting of more than 364 Rate Period Days or any Rate Period
  succeeding any Special Rate Period consisting of more than 364 Rate Period
  Days during which a Failure to Deposit occurred that has not been cured),
  but, prior to 12:00 Noon, New York City time, on the third Business Day
  next succeeding the date on which such Failure to Deposit occurred, such
  Failure to Deposit shall have been cured in accordance with paragraph (f)
  of this Section 2 and the Trust shall have paid to the Auction Agent a late
  charge ("Late Charge") equal to the sum of (1) if such Failure to Deposit
  consisted of the failure timely to pay to the Auction Agent the full amount
  of dividends with respect to any Dividend Period of the shares of such
  series, an amount computed by multiplying (x) 200% of the Reference Rate
  for the Rate Period during which such Failure to Deposit occurs on the
  Dividend Payment Date for such Dividend Period by (y) a fraction, the
  numerator of which shall be the number of days for which such Failure to
  Deposit has not been cured in accordance with paragraph (f) of this Section
  2 (including the day such Failure to Deposit occurs and excluding the day
  such Failure to Deposit is cured) and the denominator of which shall be
  360, and applying the rate obtained against the aggregate

                                     AA-15
<PAGE>

  Liquidation Preference of the outstanding shares of such series and (2) if
  such Failure to Deposit consisted of the failure timely to pay to the
  Auction Agent the Redemption Price of the shares, if any, of such series
  for which Notice of Redemption has been mailed by the Trust pursuant to
  paragraph (c) of Section 11 of this Part I, an amount computed by
  multiplying (x) 200% of the Reference Rate for the Rate Period during which
  such Failure to Deposit occurs on the redemption date by (y) a fraction,
  the numerator of which shall be the number of days for which such Failure
  to Deposit is not cured in accordance with paragraph (f) of this Section 2
  (including the day such Failure to Deposit occurs and excluding the day
  such Failure to Deposit is cured) and the denominator of which shall be
  360, and applying the rate obtained against the aggregate Liquidation
  Preference of the outstanding shares of such series to be redeemed, no
  Auction will be held in respect of shares of such series for the Subsequent
  Rate Period thereof and the dividend rate for shares of such series for
  such Subsequent Rate Period will be the Maximum Rate for shares of such
  series on the Auction Date for such Subsequent Rate Period;

     (C) any Failure to Deposit shall have occurred with respect to shares of
  such series during any Rate Period thereof (other than any Special Rate
  Period consisting of more than 364 Rate Period Days or any Rate Period
  succeeding any Special Rate Period consisting of more than 364 Rate Period
  Days during which a Failure to Deposit occurred that has not been cured),
  and, prior to 12:00 Noon, New York City time, on the third Business Day
  next succeeding the date on which such Failure to Deposit occurred, such
  Failure to Deposit shall not have been cured in accordance with paragraph
  (f) of this Section 2 or the Trust shall not have paid the applicable Late
  Charge to the Auction Agent, no Auction will be held in respect of shares
  of such series for the first Subsequent Rate Period thereof thereafter (or
  for any Rate Period thereof thereafter to and including the Rate Period
  during which (1) such Failure to Deposit is cured in accordance with
  paragraph (f) of this Section 2 and (2) the Trust pays the applicable Late
  Charge to the Auction Agent (the condition set forth in this clause (2) to
  apply only in the event Moody's is rating such shares at the time the Trust
  cures such Failure to Deposit), in each case no later than 12:00 Noon, New
  York City time, on the fourth Business Day prior to the end of such Rate
  Period), and the dividend rate for shares of such series for each such
  Subsequent Rate Period shall be a rate per annum equal to the Maximum Rate
  for shares of such series on the Auction Date for such Subsequent Rate
  Period (but with the prevailing rating for shares of such series, for
  purposes of determining such Maximum Rate, being deemed to be "Below
  "ba3"/BB"); or

     (D) any Failure to Deposit shall have occurred with respect to shares of
  such series during a Special Rate Period thereof consisting of more than
  364 Rate Period Days, or during any Rate Period thereof succeeding any
  Special Rate Period consisting of more than 364 Rate Period Days during
  which a Failure to Deposit occurred that has not been cured, and, prior to
  12:00 Noon, New York City time, on the fourth Business Day preceding the
  Auction Date for the Rate Period subsequent to such Rate Period, such
  Failure to Deposit shall not have been cured in accordance with paragraph
  (f) of this Section 2 or, in the event Moody's is then rating such shares,
  the Trust shall not have paid the applicable Late Charge to the Auction
  Agent (such Late Charge, for purposes of this subparagraph (D), to be
  calculated by using, as the Reference Rate, the Reference Rate applicable
  to a Rate Period (x) consisting of more than 182 Rate Period Days but fewer
  than 365 Rate Period Days and (y) commencing on the date on which the Rate
  Period during which Failure to Deposit occurs commenced), no Auction will
  be held in respect of shares of such series for such Subsequent Rate Period
  (or for any Rate Period thereof thereafter to and including the Rate Period
  during which (1) such Failure to Deposit is cured in accordance with
  paragraph (f) of this Section 2 and (2) the Trust pays the applicable Late
  Charge to the Auction Agent (the condition set forth in this clause (2) to
  apply only in the event Moody's is rating such shares at the time the Trust
  cures such Failure to Deposit), in each case no later than 12:00 Noon, New
  York City time, on the fourth Business Day prior to the end of such Rate
  Period), and the dividend rate for shares of such series for each such
  Subsequent Rate Period shall be a rate per annum equal to the Maximum Rate
  for shares of such series on the Auction Date for such Subsequent Rate
  Period (but with the prevailing rating for shares of such series, for
  purposes of determining such Maximum Rate, being deemed to be "Below
  "ba3"/BB") (the rate per annum at which dividends are payable on shares of
  a series of Preferred Shares for any Rate Period thereof being herein
  referred to as the "Applicable Rate" for shares of such series).

                                     AA-16
<PAGE>

   (ii) Calculation of Dividends. The amount of dividends per share payable on
shares of a series of Preferred Shares on any date on which dividends shall be
payable on shares of such series shall be computed by multiplying the
Applicable Rate for shares of such series in effect for such Dividend Period or
Dividend Periods or part thereof for which dividends have not been paid by a
fraction, the numerator of which shall be the number of days in such Dividend
Period or Dividend Periods or part thereof and the denominator of which shall
be 365 if such Dividend Period consists of 7 Rate Period Days and 360 for all
other Dividend Periods, and applying the rate obtained against $25,000.

   (f) Curing Failure to Deposit. A Failure to Deposit with respect to shares
of a series of Preferred Shares shall have been cured (if such Failure to
Deposit is not solely due to the willful failure of the Trust to make the
required payment to the Auction Agent) with respect to any Rate Period of
shares of such series if, within the respective time periods described in
subparagraph (e)(i) of this Section 2, the Trust shall have paid to the Auction
Agent (A) all accumulated and unpaid dividends on shares of such series and (B)
without duplication, the Redemption Price for shares, if any, of such series
for which Notice of Redemption has been mailed by the Trust pursuant to
paragraph (c) of Section 11 of Part I of this Statement; provided, however,
that the foregoing clause (B) shall not apply to the Trust's failure to pay the
Redemption Price in respect of Preferred Shares when the related Redemption
Notice provides that redemption of such shares is subject to one or more
conditions precedent and any such condition precedent shall not have been
satisfied at the time or times and in the manner specified in such Notice of
Redemption.

   (g) Dividend Payments By Trust to Auction Agent. The Trust shall pay to the
Auction Agent, not later than 12:00 Noon, New York City time, on the Business
Day next preceding each Dividend Payment Date for shares of a series of
Preferred Shares, an aggregate amount of funds available on the next Business
Day in The City of New York, New York, equal to the dividends to be paid to all
Holders of shares of such series on such Dividend Payment Date.

   (h) Auction Agent as Trustee of Dividend Payments By Trust. All moneys paid
to the Auction Agent for the payment of dividends (or for the payment of any
Late Charge) shall be held in trust for the payment of such dividends (and any
such Late Charge) by the Auction Agent for the benefit of the Holders specified
in paragraph (i) of this Section 2. Any moneys paid to the Auction Agent in
accordance with the foregoing but not applied by the Auction Agent to the
payment of dividends (and any such Late Charge) will, to the extent permitted
by law, be repaid to the Trust at the end of 90 days from the date on which
such moneys were so to have been applied.

   (i) Dividends Paid to Holders. Each dividend on Preferred Shares shall be
paid on the Dividend Payment Date therefor to the Holders thereof as their
names appear on the record books of the Trust on the Business Day next
preceding such Dividend Payment Date.

   (j) Dividends Credited Against Earliest Accumulated But Unpaid
Dividends. Any dividend payment made on Preferred Shares shall first be
credited against the earliest accumulated but unpaid dividends due with respect
to such shares. Dividends in arrears for any past Dividend Period may be
declared and paid at any time, without reference to any regular Dividend
Payment Date, to the Holders as their names appear on the record books of the
Trust on such date, not exceeding 15 days preceding the payment date thereof,
as may be fixed by the Board of Trustees.

   (k) Dividends Designated As Exempt-interest Dividends. Dividends on
Preferred Shares shall be designated as exempt-interest dividends up to the
amount of tax-exempt income of the Trust, to the extent permitted by, and for
purposes of, section 852 of the Code.

3. Gross-Up Payments.

   Holders of Preferred Shares shall be entitled to receive, when, as and if
declared by the Board of Trustees, out of funds legally available therefor in
accordance with the Declaration and applicable law, dividends in an amount
equal to the aggregate Gross-up Payments as follows:

                                     AA-17
<PAGE>

     (a) Taxable Allocation Without Notice. If, but only if, the Trust
  allocates any net capital gain or other income taxable for Federal income
  tax purposes to a dividend paid on Preferred Shares without having given
  advance notice thereof to the Auction Agent as provided in Section 5 of
  Part II of this Statement (such allocation being referred to herein as a
  "Taxable Allocation"), whether or not by reason of the fact that such
  allocation is made retroactively as a result of the redemption of all or a
  portion of the outstanding Preferred Shares or the liquidation of the
  Trust, the Trust shall, during the Trust's fiscal year in which the Taxable
  Allocation was made or within 90 days after the end of such fiscal year,
  provide notice thereof to the Auction Agent and direct the Trust's dividend
  disbursing agent to send such notice and a Gross-up Payment to each Holder
  of such shares that was entitled to such dividend payment during such
  fiscal year at such Holder's address as the same appears or last appeared
  on the record books of the Trust.

     (b) Reserved.

     (c) No Gross-up Payments In The Event of a Reallocation. The Trust shall
  not be required to make Gross-up Payments with respect to any net capital
  gains or other taxable income determined by the Internal Revenue Service to
  be allocable in a manner different from that allocated by the Trust.

4. Designation of Special Rate Periods.

   (a) Length of and Preconditions For Special Rate Period. The Trust, at its
option, may designate any succeeding Subsequent Rate Period of shares of a
series of Preferred Shares as a Special Rate Period consisting of a specified
number of Rate Period Days evenly divisible by seven and not more than 1,820,
subject to adjustment as provided in paragraph (b) of this Section 4. A
designation of a Special Rate Period shall be effective only if (A) notice
thereof shall have been given in accordance with paragraph (c) and subparagraph
(d)(i) of this Section 4, (B) an Auction for shares of such series shall have
been held on the Auction Date immediately preceding the first day of such
proposed Special Rate Period and Sufficient Clearing Bids for shares of such
series shall have existed in such Auction, and (C) if any Notice of Redemption
shall have been mailed by the Trust pursuant to paragraph (c) of Section 11 of
this Part I with respect to any shares of such series, the Redemption Price
with respect to such shares shall have been deposited with the Auction Agent.
In the event the Trust wishes to designate any succeeding Subsequent Rate
Period for shares of a series of Preferred Shares as a Special Rate Period
consisting of more than 28 Rate Period Days, the Trust shall notify Moody's (if
Moody's is then rating such series) and S&P (if S&P is then rating such series)
in advance of the commencement of such Subsequent Rate Period that the Trust
wishes to designate such Subsequent Rate Period as a Special Rate Period and
shall provide Moody's (if Moody's is then rating such series) and S&P (if S&P
is then rating such series) with such documents as it may request.

   (b) Adjustment of Length of Special Rate Period. With respect to the Series
W7 Preferred Shares, if the Trust wishes to designate a Subsequent Rate Period
as a Special Rate Period, but the day following what would otherwise be the
last day of such Special Rate Period is not a Thursday that is a Business Day
in the case of a series of Preferred Shares designated as "Series W7 Preferred
Shares" in Section 1 of Appendix A hereto, then the Trust shall designate such
Subsequent Rate Period as a Special Rate Period consisting of the period
commencing on the first day following the end of the immediately preceding Rate
Period and ending on the first Wednesday that is followed by a Thursday that is
a Business Day preceding what would otherwise be such last day, in the case of
Series W7 Preferred Shares.

   With respect to the Series F7 Preferred Shares, if the Trust wishes to
designate a Subsequent Rate Period as a Special Rate Period, but the day
following what would otherwise be the last day of such Special Rate Period is
not a Monday that is a Business Day is the case of a series of Preferred Shares
designated as "Series F7 Preferred Shares" in Section 1 of Appendix A hereto,
then the Trust shall designate such Subsequent Rate Period as a Special Rate
Period consisting of the period commencing on the first day following the end
of the immediately preceding Rate Period and ending on the first Friday that is
followed by a Monday that is a Business Day preceding what would otherwise be
such last day, in the case of Series F7 Preferred Shares.

                                     AA-18
<PAGE>

   (c) Notice of Proposed Special Rate Period. If the Trust proposes to
designate any succeeding Subsequent Rate Period of shares of a series of
Preferred Shares as a Special Rate Period pursuant to paragraph (a) of this
Section 4, not less than 20 (or such lesser number of days as may be agreed to
from time to time by the Auction Agent) nor more than 30 days prior to the date
the Trust proposes to designate as the first day of such Special Rate Period
(which shall be such day that would otherwise be the first day of a Minimum
Rate Period), notice shall be (i) published or caused to be published by the
Trust in a newspaper of general circulation to the financial community in The
City of New York, New York, which carries financial news, and (ii) mailed by
the Trust by first-class mail, postage prepaid, to the Holders of shares of
such series. Each such notice shall state (A) that the Trust may exercise its
option to designate a succeeding Subsequent Rate Period of shares of such
series as a Special Rate Period, specifying the first day thereof and (B) that
the Trust will, by 11:00 A.M., New York City time, on the second Business Day
next preceding such date (or by such later time or date, or both, as may be
agreed to by the Auction Agent) notify the Auction Agent of either (x) its
determination, subject to certain conditions, to exercise such option, in which
case the Trust shall specify the Special Rate Period designated, or (y) its
determination not to exercise such option.

   (d) Notice of Special Rate Period. No later than 11:00 A.M., New York City
time, on the second Business Day next preceding the first day of any proposed
Special Rate Period of shares of a series of Preferred Shares as to which
notice has been given as set forth in paragraph (c) of this Section 4 (or such
later time or date, or both, as may be agreed to by the Auction Agent), the
Trust shall deliver to the Auction Agent either:

     (i) a notice ("Notice of Special Rate Period") stating (A) that the
  Trust has determined to designate the next succeeding Rate Period of shares
  of such series as a Special Rate Period, specifying the same and the first
  day thereof, (B) the Auction Date immediately prior to the first day of
  such Special Rate Period, (C) that such Special Rate Period shall not
  commence if (1) an Auction for shares of such series shall not be held on
  such Auction Date for any reason or (2) an Auction for shares of such
  series shall be held on such Auction Date but Sufficient Clearing Bids for
  shares of such series shall not exist in such Auction, (D) the scheduled
  Dividend Payment Dates for shares of such series during such Special Rate
  Period and (E) the Special Redemption Provisions, if any, applicable to
  shares of such series in respect of such Special Rate Period, such notice
  to be accompanied by a Preferred Shares Basic Maintenance Report showing
  that, as of the third Business Day next preceding such proposed Special
  Rate Period, Moody's Eligible Assets (if Moody's is then rating such
  series) and S&P (if S&P is then rating such series) each have an aggregate
  Discounted Value at least equal to the Preferred Shares Basic Maintenance
  Amount as of such Business Day (assuming for purposes of the foregoing
  calculation that (a) the Maximum Rate is the Maximum Rate on such Business
  Day as if such Business Day were the Auction Date for the proposed Special
  Rate Period, and (b) the Moody's Discount Factors applicable to Moody's
  Eligible Assets are determined by reference to the first Exposure Period
  longer than the Exposure Period then applicable to the Trust, as described
  in the definition of Moody's Discount Factor herein); or

     (ii) a notice stating that the Trust has determined not to exercise its
  option to designate a Special Rate Period of shares of such series and that
  the next succeeding Rate Period of shares of such series shall be a Minimum
  Rate Period.

   (e) Failure To Deliver Notice Of Special Rate Period. If the Trust fails to
deliver either of the notices described in subparagraphs (d)(i) or (d)(ii) of
this Section 4 (and, in the case of the notice described in subparagraph (d)(i)
of this Section 4, a Preferred Shares Basic Maintenance Report to the effect
set forth in such subparagraph (if either Moody's or S&P is then rating the
series in question)) with respect to any designation of any proposed Special
Rate Period to the Auction Agent by 11:00 A.M., New York City time, on the
second Business Day next preceding the first day of such proposed Special Rate
Period (or by such later time or date, or both, as may be agreed to by the
Auction Agent), the Trust shall be deemed to have delivered a notice to the
Auction Agent with respect to such Special Rate Period to the effect set forth
in subparagraph (d)(ii) of this Section 4. In the event the Trust delivers to
the Auction Agent a notice described in subparagraph (d)(i) of this Section 4,
it shall file a copy of such notice with the Secretary of the Trust, and the
contents of such notice shall be binding on the Trust. In the event the Trust
delivers to the Auction Agent a notice

                                     AA-19
<PAGE>

described in subparagraph (d)(ii) of this Section 4, the Trust will provide
Moody's (if Moody's is then rating the series in question) and S&P (if S&P is
then rating the series in question) a copy of such notice.

5. Voting Rights.

   (a) One Vote Per Share of Preferred Shares. Except as otherwise provided in
the Declaration or as otherwise required by law, (i) each Holder of Preferred
Shares shall be entitled to one vote for each share of Preferred Shares held by
such Holder on each matter submitted to a vote of shareholders of the Trust,
and (ii) the holders of outstanding preferred shares, including each share of
the Preferred Shares, and of Common Shares shall vote together as a single
class; provided, however, that, at any meeting of the shareholders of the Trust
held for the election of trustees, the holders of outstanding preferred shares,
including the Preferred Shares, represented in person or by proxy at said
meeting, shall be entitled, as a class, to the exclusion of the holders of all
other securities and classes of shares of beneficial interest of the Trust, to
elect two trustees of the Trust, each Preferred Share entitling the holder
thereof to one vote. Subject to paragraph (b) of this Section 5, the holders of
outstanding Common Shares and Preferred Shares voting together as a single
class, shall elect the balance of the trustees.

   (b) Voting For Additional Trustees.

     (i) Voting Period. Except as otherwise provided in the Declaration or as
  otherwise required by law, during any period in which any one or more of
  the conditions described in subparagraphs (A) or (B) of this subparagraph
  (b)(i) shall exist (such period being referred to herein as a "Voting
  Period"), the number of trustees constituting the Board of Trustees shall
  be automatically increased by the smallest number that, when added to the
  two trustees elected exclusively by the holders of preferred shares,
  including the Preferred Shares, would constitute a majority of the Board of
  Trustees as so increased by such smallest number, and the holders of
  preferred shares, including the Preferred Shares, shall be entitled, voting
  as a class on a one-vote-per-share basis (to the exclusion of the holders
  of all other securities and classes of shares of beneficial interest of the
  Trust), to elect such smallest number of additional trustees, together with
  the two trustees that such holders are in any event entitled to elect. A
  Voting Period shall commence:

       (A) if at the close of business on any dividend payment date
    accumulated dividends (whether or not earned or declared) on any
    outstanding Preferred Shares, equal to at least two full years'
    dividends shall be due and unpaid and sufficient cash or specified
    securities shall not have been deposited with the Auction Agent for the
    payment of such accumulated dividends; or

       (B) if at any time holders of preferred shares, including the
    Preferred Shares, are entitled under the Investment Company Act to
    elect a majority of the trustees of the Trust.

   Upon the termination of a Voting Period, the voting rights described in this
subparagraph (b)(i) shall cease, subject always, however, to the revesting of
such voting rights in the Holders upon the further occurrence of any of the
events described in this subparagraph (b)(i).

     (ii) Notice of Special Meeting. As soon as practicable after the accrual
  of any right of the holders of preferred shares, including the Preferred
  Shares, to elect additional trustees as described in subparagraph (b)(i) of
  this Section 5, the Trust shall notify the Auction Agent and the Auction
  Agent shall call a special meeting of such holders, by mailing a notice of
  such special meeting to such holders, such meeting to be held not less than
  10 nor more than 20 days after the date of mailing of such notice. If the
  Trust fails to send such notice to the Auction Agent or if the Auction
  Agent does not call such a special meeting, it may be called by any such
  holder on like notice. The record date for determining the holders entitled
  to notice of and to vote at such special meeting shall be the close of
  business on the fifth Business Day preceding the day on which such notice
  is mailed. At any such special meeting and at each meeting of holders of
  preferred shares, including the Preferred Shares, held during a Voting
  Period at which trustees are to be elected, such holders, voting together
  as a class (to the exclusion of the holders of all other securities and
  classes of shares of beneficial interest of the Trust), shall be entitled
  to elect the number of trustees prescribed in subparagraph (b)(i) of this
  Section 5 on a one-vote-per-share basis.

                                     AA-20
<PAGE>

     (iii) Terms of Office of Existing Trustees. The terms of office of all
  persons who are trustees of the Trust at the time of a special meeting of
  Holders and holders of other preferred shares to elect trustees shall
  continue, notwithstanding the election at such meeting by the Holders and
  such other holders of the number of trustees that they are entitled to
  elect, and the persons so elected by the Holders and such other holders,
  together with the two incumbent trustees elected by the Holders and such
  other holders of preferred shares and the remaining incumbent trustees
  elected by the holders of the Common Shares and Preferred Shares, shall
  constitute the duly elected trustees of the Trust.

     (iv) Terms of Office of Certain Trustees to Terminate Upon Termination
  of Voting Period.  Simultaneously with the termination of a Voting Period,
  the terms of office of the additional trustees elected by the Holders and
  holders of other Preferred Shares pursuant to subparagraph (b)(i) of this
  Section 5 shall terminate, the remaining trustees shall constitute the
  trustees of the Trust and the voting rights of the Holders and such other
  holders to elect additional trustees pursuant to subparagraph (b)(i) of
  this Section 5 shall cease, subject to the provisions of the last sentence
  of subpara-graph (b)(i) of this Section 5.

   (c) Holders of Preferred Shares to Vote on Certain Other Matters.

     (i) Increases In Capitalization. So long as any Preferred Shares are
  outstanding, the Trust shall not, without the affirmative vote or consent
  of the Holders of at least a majority of the Preferred Shares outstanding
  at the time, in person or by proxy, either in writing or at a meeting,
  voting as a separate class: (a) authorize, create or issue any class or
  series of shares ranking prior to or on a parity with the Preferred Shares
  with respect to the payment of dividends or the distribution of assets upon
  dissolution, liquidation or winding up of the affairs of the Trust, or
  authorize, create or issue additional shares of any series of Preferred
  Shares (except that, notwithstanding the foregoing, but subject to the
  provisions of paragraph (c) of Section 10 of this Part I, the Board of
  Trustees, without the vote or consent of the Holders of Preferred Shares,
  may from time to time authorize and create, and the Trust may from time to
  time issue, additional shares of any series of Preferred Shares or classes
  or series of other preferred shares ranking on a parity with Preferred
  Shares with respect to the payment of dividends and the distribution of
  assets upon dissolution, liquidation or winding up of the affairs of the
  Trust; provided, however, that if Moody's or S&P is not then rating the
  Preferred Shares, the aggregate liquidation preference of all preferred
  shares of the Trust outstanding after any such issuance, exclusive of
  accumulated and unpaid dividends, may not exceed the amount set forth in
  Section 10 of Appendix A hereto) or (b) amend, alter or repeal the
  provisions of the Declaration or this Statement, whether by merger,
  consolidation or otherwise, so as to adversely affect any preference, right
  or power of such Preferred Shares or the Holders thereof; provided,
  however, that (i) none of the actions permitted by the exception to (a)
  above will be deemed to affect such preferences, rights or powers, (ii) a
  division of Preferred Shares will be deemed to affect such preferences,
  rights or powers only if the terms of such division adversely affect the
  Holders of Preferred Shares and (iii) the authorization, creation and
  issuance of classes or series of shares ranking junior to the Preferred
  Shares with respect to the payment of dividends and the distribution of
  assets upon dissolution, liquidation or winding up of the affairs of the
  Trust, will be deemed to affect such preferences, rights or powers only if
  Moody's or S&P is then rating the Preferred Shares and such issuance would,
  at the time thereof, cause the Trust not to satisfy the Investment Company
  Act Preferred Shares Asset Coverage or the Preferred Shares Basic
  Maintenance Amount. So long as any shares of the Preferred Shares are
  outstanding, the Trust shall not, without the affirmative vote or consent
  of the Holders of at least 66 2/3% of the Preferred Shares outstanding at
  the time, in person or by proxy, either in writing or at a meeting, voting
  as a separate class, file a voluntary application for relief under Federal
  bankruptcy law or any similar application under state law for so long as
  the Trust is solvent and does not foresee becoming insolvent. If any action
  set forth above would adversely affect the rights of one or more series
  (the "Affected Series") of Preferred Shares in a manner different from any
  other series of Preferred Shares, the Trust will not approve any such
  action without the affirmative vote or consent of the Holders of at least a
  majority of the shares of each such Affected Series outstanding at the
  time, in person or by proxy, either in writing or at a meeting (each such
  Affected Series Voting as a separate class).

                                     AA-21
<PAGE>

     (ii) Investment Company Act Matters. Unless a higher percentage is
  provided for in the Declaration, (A) the affirmative vote of the Holders of
  at least a majority of the Preferred Shares outstanding at the time, voting
  as a separate class, shall be required to approve any conversion of the
  Trust from a closed-end to an open-end investment company and (B) the
  affirmative vote of the Holders of a "majority of the outstanding Preferred
  Shares," voting as a separate class, shall be required to approve any plan
  of reorganization (as such term is used in the Investment Company Act)
  adversely affecting such shares. The affirmative vote of the holders of a
  "majority of the outstanding Preferred Shares," voting as a separate class,
  shall be required to approve any action not described in the first sentence
  of this Section 5(c)(ii) requiring a vote of security holders of the Trust
  under section 13(a) of the Investment Company Act. For purposes of the
  foregoing, "majority of the outstanding Preferred Shares" means (i) 67% or
  more of such shares present at a meeting, if the Holders of more than 50%
  of such shares are present or represented by proxy, or (ii) more than 50%
  of such shares, whichever is less. In the event a vote of Holders of
  Preferred Shares is required pursuant to the provisions of section 13(a) of
  the Investment Company Act, the Trust shall, not later than ten Business
  Days prior to the date on which such vote is to be taken, notify Moody's
  (if Moody's is then rating the Preferred Shares) and S&P (if S&P is then
  rating the Preferred Shares) that such vote is to be taken and the nature
  of the action with respect to which such vote is to be taken. The Trust
  shall, not later than ten Business Days after the date on which such vote
  is taken, notify Moody's (if Moody's is then rating the Preferred Shares)
  and S&P (if S&P is then rating the Preferred Shares of the results of such
  vote.

   (d) Board May Take Certain Actions Without Shareholder Approval. The Board
of Trustees, without the vote or consent of the shareholders of the Fund, may
from time to time amend, alter or repeal any or all of the definitions of the
terms listed below, or any provision of this Statement viewed by Moody's or S&P
as a predicate for any such definition, and any such amendment, alteration or
repeal will not be deemed to affect the preferences, rights or powers of
Preferred Shares or the Holders thereof; provided, however, that the Board of
Trustees receives written confirmation from Moody's (such confirmation being
required to be obtained only in the event Moody's is rating the Preferred
Shares and in no event being required to be obtained in the case of the
definitions of (x) Deposit Securities, Discounted Value and Receivables for
Municipal Obligations Sold as such terms apply to S&P Eligible Assets and (y)
S&P Discount Factor, S&P Eligible Asset, S&P Exposure Period and S&P Volatility
Factor) and S&P (such confirmation being required to be obtained only in the
event S&P is rating the Preferred Shares and in no event being required to be
obtained in the case of the definitions of (x) Discounted Value and Receivables
for Municipal Obligations Sold as such terms apply to Moody's Eligible Assets,
and (y) Moody's Discount Factor, Moody's Eligible Asset, Moody's Exposure
Period and Moody's Volatility Factor) that any such amendment, alteration or
repeal would not impair the ratings then assigned by Moody's or S&P, as the
case may be, to the Preferred Shares:

<TABLE>
<S>                                <C>
Deposit Securities                 Preferred Shares Basic Maintenance Amount
Discounted Value                   Preferred Shares Basic Maintenance Cure Date
Escrowed Bonds                     Preferred Shares Basic Maintenance Report
Market Value                       Quarterly Valuation Date
Maximum Potential Gross-up
 Payment Liability                 Receivables for Municipal Obligations Sold
Moody's Discount Factor            S&P Discount Factor
Moody's Eligible Asset             S&P Eligible Asset
Moody's Exposure Period            S&P Exposure Period
Moody's Volatility Factor          S&P Volatility Factor
1940 Act Cure Date                 Valuation Date
1940 Act Preferred Asset Coverage  Volatility Factor
</TABLE>

   (e) Voting Rights Set Forth Herein are Sole Voting Rights. Unless otherwise
required by law, the Holders of Preferred Shares shall not have any relative
rights or preferences or other special rights other than those specifically set
forth herein.

   (f) No Preemptive Rights Or Cumulative Voting. The Holders of Preferred
Shares shall have no preemptive rights or rights to cumulative voting.

                                     AA-22
<PAGE>

   (g) Voting For Trustees Sole Remedy For Trust's Failure To Pay Dividends. In
the event that the Trust fails to pay any dividends on the Preferred Shares,
the exclusive remedy of the Holders shall be the right to vote for trustees
pursuant to the provisions of this Section 5.

   (h) Holders Entitled To Vote. For purposes of determining any rights of the
Holders to vote on any matter, whether such right is created by this Statement,
by the other provisions of the Declaration, by statute or otherwise, no Holder
shall be entitled to vote any Preferred Share and no Preferred Share shall be
deemed to be "outstanding" for the purpose of voting or determining the number
of shares required to constitute a quorum if, prior to or concurrently with the
time of determination of shares entitled to vote or shares deemed outstanding
for quorum purposes, as the case may be, the requisite Notice of Redemption
with respect to such shares shall have been mailed as provided in paragraph (c)
of Section 11 of this Part I and the Redemption Price for the redemption of
such shares shall have been deposited in trust with the Auction Agent for that
purpose. No Preferred Share held by the Trust or any affiliate of the Trust
(except for shares held by a Broker-Dealer that is an affiliate of the Trust
for the account of its customers) shall have any voting rights or be deemed to
be outstanding for voting or other purposes.

6. Investment Company Act Preferred Shares Asset Coverage.

   The Trust shall maintain, as of the last Business Day of each month in which
any Preferred Shares are outstanding, the Investment Company Act Preferred
Shares Asset Coverage.

7. Preferred Shares Basic Maintenance Amount.

   (a) So long as Preferred Shares are outstanding, the Trust shall maintain,
on each Valuation Date, and shall verify to its satisfaction that it is
maintaining on such Valuation Date (i) Moody's Eligible Assets having an
aggregate Discounted Value equal to or greater than the Preferred Shares Basic
Maintenance Amount (if Moody's is then rating the Preferred Shares) and S&P
Eligible Assets having an aggregate Discounted Value equal to or greater than
the Preferred Shares Basic Maintenance Amount (if S&P is then rating the
Preferred Shares).

   (b) On or before 5:00 P.M., New York City time, on the third Business Day
after a Valuation Date on which the Trust fails to satisfy the Preferred Shares
Basic Maintenance Amount, and on the third Business Day after the Preferred
Shares Basic Maintenance Cure Date with respect to such Valuation Date, the
Trust shall complete and deliver to Moody's (if Moody's is then rating the
Preferred Shares), S&P (if S&P is then rating the Preferred Shares) and the
Auction Agent (if either Moody's or S&P is then rating the Preferred Shares) a
Preferred Shares Basic Maintenance Report as of the date of such failure or
such Preferred Shares Basic Maintenance Cure Date, as the case may be, which
will be deemed to have been delivered to the Auction Agent if the Auction Agent
receives a copy or telecopy, telex or other electronic transcription thereof
and on the same day the Trust mails to the Auction Agent for delivery on the
next Business Day the full Preferred Shares Basic Maintenance Report. The Trust
shall also deliver a Preferred Shares Basic Maintenance Report to (i) the
Auction Agent (if either Moody's or S&P is then rating the Preferred Shares) as
of (A) the fifteenth day of each month (or, if such day is not a Business Day,
the next succeeding Business Day) and (B) the last Business Day of each month,
(ii) Moody's (if Moody's is then rating the Preferred Shares) and S&P (if S&P
is than rating the Preferred Shares) as of any Quarterly Valuation Date, in
each case on or before the third Business Day after such day, and S&P, if and
when requested for any Valuation Date, on or before the third Business Day
after such request. A failure by the Trust to deliver a Preferred Shares Basic
Maintenance Report pursuant to the preceding sentence shall be deemed to be
delivery of a Preferred Shares Basic Maintenance Report indicating the
Discounted Value for all assets of the Trust is less than the Preferred Shares
Basic Maintenance Amount, as of the relevant Valuation Date.

   (c) Within ten Business Days after the date of delivery of a Preferred
Shares Basic Maintenance Report in accordance with paragraph (b) of this
Section 7 relating to a Quarterly Valuation Date, the Trust shall cause the
Independent Accountant to confirm in writing to Moody's (if Moody's is then
rating the Preferred Shares),

                                     AA-23
<PAGE>

S&P (if S&P is then rating the Preferred Shares) and the Auction Agent (if
either Moody's or S&P is then rating the Preferred Shares) (i) the mathematical
accuracy of the calculations reflected in such Report (and in any other
Preferred Shares Basic Maintenance Report, randomly selected by the Independent
Accountant, that was prepared by the Trust during the quarter ending on such
Quarterly Valuation Date), (ii) that, in such Report (and in such randomly
selected Report), the Trust determined in accordance with this Statement
whether the Trust had, at such Quarterly Valuation Date (and at the Valuation
Date addressed in such randomly selected Report), Moody's Eligible Assets (if
Moody's is then rating the Preferred Shares) and S&P Eligible Assets (if S&P is
then rating the Preferred Shares) of an aggregate Discounted Value at least
equal to the Preferred Shares Basic Maintenance Amount (such confirmation being
herein called the "Accountant's Confirmation"), (iii) that, in such Report (and
in such randomly selected Report), the Trust determined whether the Trust had,
at such Quarterly Valuation Date (and at the Valuation Date addressed in such
randomly selected Report) in accordance with this Statement, Moody's Eligible
Assets of an aggregate Discounted Value at least equal to the Preferred Shares
Basic Maintenance Amount and S&P Eligible Assets of an aggregate Discounted
Value at least equal to the Preferred Shares Basic Maintenance Amount, (iv)
with respect to the S&P ratings on Municipal Obligations, the issuer name,
issue size and coupon rate listed in such Report, that the Independent
Accountant has sought to verify by reference to Bloomberg Financial Services or
another independent source approved in writing by S&P, and the Independent
Accountant shall provide a listing in its letter of any differences, (v) with
respect to the Moody's ratings on Municipal Obligations, the issuer name, issue
size and coupon rate listed in such Report, that the Independent Accountant has
sought to verify by reference to Bloomberg Financial Services or another
independent source approved in writing by Moody's, and the Independent
Accountant shall provide a listing in its letter of any differences, (vi) with
respect to the bid or mean price (or such alternative permissible factor used
in calculating the Market Value) provided by the custodian of the Trust's
assets to the Trust for purposes of valuing securities in the Trust's
portfolio, the Independent Accountant has traced the price used in such Report
to the bid or mean price listed in such Report as provided to the Trust and
verified that such information agrees (in the event such information does not
agree, the Independent Accountant will provide a listing in its letter of such
differences) and (vii) with respect to such confirmation to Moody's and S&P,
that the Trust has satisfied the requirements of Section 13 of Appendix A to
this Statement (such information is herein called the "Accountant's
Confirmation").

   (d) Within ten Business Days after the date of delivery of a Preferred
Shares Basic Maintenance Report in accordance with paragraph (b) of this
Section 7 relating to any Valuation Date on which the Trust failed to satisfy
the Preferred Shares Basic Maintenance Amount, and relating to the Preferred
Shares Basic Maintenance Cure Date with respect to such failure to satisfy the
Preferred Shares Basic Maintenance Amount, the Trust shall cause the
Independent Accountant to provide to Moody's (if Moody's is then rating the
Preferred Shares), S&P (if S&P is then rating the Preferred Shares) and the
Auction Agent (if either Moody's or S&P is then rating the Preferred Shares) an
Accountant's Confirmation as to such Preferred Shares Basic Maintenance Report.

   (e) If any Accountant's Confirmation delivered pursuant to paragraph (c) or
(d) of this Section 7 shows that an error was made in the Preferred Shares
Basic Maintenance Report for a particular Valuation Date for which such
Accountant's Confirmation was required to be delivered, or shows that a lower
aggregate Discounted Value for the aggregate of all Moody's Eligible Assets (if
Moody's is then rating the Preferred Shares) or S&P Eligible Assets (if S&P is
then rating the Preferred Shares), as the case may be, of the Trust was
determined by the Independent Accountant, the calculation or determination made
by such Independent Accountant shall be final and conclusive and shall be
binding on the Trust, and the Trust shall accordingly amend and deliver the
Preferred Shares Basic Maintenance Report to Moody's (if Moody's is then rating
the Preferred Shares), S&P (if S&P is then rating the Preferred Shares) and the
Auction Agent (if either Moody's or S&P is then rating the Preferred Shares)
promptly following receipt by the Trust of such Accountant's Confirmation.

   (f) On or before 5:00 p.m., New York City time, on the first Business Day
after the Date of Original Issue of any Preferred Shares, the Trust shall
complete and deliver to Moody's (if Moody's is then rating the Preferred
Shares) and S&P (if S&P is then rating the Preferred Shares) a Preferred Shares
Basic Maintenance

                                     AA-24
<PAGE>

Report as of the close of business on such Date of Original Issue. Within five
Business Days of such Date of Original Issue, the Trust shall cause the
Independent Accountant to confirm in writing to S&P (if S&P is then rating the
Preferred Shares) (i) the mathematical accuracy of the calculations reflected
in such Report and (ii) that the Discounted Value of S&P Eligible Assets
reflected thereon equals or exceeds the Preferred Shares Basic Maintenance
Amount reflected thereon.

   (h) On or before 5:00 p.m., New York City time, on the third Business Day
after either (i) the Trust shall have redeemed Common Shares or (ii) the ratio
of the Discounted Value of Moody's Eligible Assets or the S&P Eligible Assets
to the Preferred Shares Basic Maintenance Amount is less than or equal to 105%,
or (iii) whenever requested by Moody's or S&P, the Trust shall complete and
deliver to Moody's (if Moody's is then rating the Preferred Shares) or S&P (if
S&P is then rating the Preferred Shares), as the case may be, a Preferred
Shares Basic Maintenance Report as of the date of such event.

8. Reserved.

9. Restrictions on Dividends and Other Distributions.

   (a) Dividends On Shares Other Than The Preferred Shares. Except as set forth
in the next sentence, no dividends shall be declared or paid or set apart for
payment on the shares of any class or series of shares of beneficial interest
of the Trust ranking, as to the payment of dividends, on a parity with the
Preferred Shares for any period unless full cumulative dividends have been or
contemporaneously are declared and paid on the shares of each series of the
Preferred Shares through its most recent Dividend Payment Date. When dividends
are not paid in full upon the shares of each series of the Preferred Shares
through its most recent Dividend Payment Date or upon the shares of any other
class or series of shares of beneficial interest of the Trust ranking on a
parity as to the payment of dividends with the Preferred Shares through their
most recent respective dividend payment dates, all dividends declared upon the
Preferred Shares and any other such class or series of shares of beneficial
interest ranking on a parity as to the payment of dividends with Preferred
Shares shall be declared pro rata so that the amount of dividends declared per
share on Preferred Shares and such other class or series of shares of
beneficial interest shall in all cases bear to each other the same ratio that
accumulated dividends per share on the Trust and such other class or series of
shares of beneficial interest bear to each other (for purposes of this
sentence, the amount of dividends declared per share of Preferred Shares shall
be based on the Applicable Rate for such share for the Dividend Periods during
which dividends were not paid in full).

   (b) Dividends And Other Distributions With Respect To Common Shares Under
The Investment Company Act. The Board of Trustees shall not declare any
dividend (except a dividend payable in Common Shares), or declare any other
distribution, upon the Common Shares, or purchase Common Shares, unless in
every such case the Preferred Shares have, at the time of any such declaration
or purchase, an asset coverage (as defined in and determined pursuant to the
Investment Company Act) of at least 200% (or such other asset coverage as may
in the future be specified in or under the Investment Company Act as the
minimum asset coverage for senior securities which are shares or stock of a
closed-end investment company as a condition of declaring dividends on its
common shares or stock) after deducting the amount of such dividend,
distribution or purchase price, as the case may be.

   (c) Other Restrictions On Dividends And Other Distributions. For so long as
any Preferred Shares are outstanding, and except as set forth in paragraph (a)
of this Section 9 and paragraph (c) of Section 12 of this Part I, (A) the Trust
shall not declare, pay or set apart for payment any dividend or other
distribution (other than a dividend or distribution paid in shares of, or in
options, warrants or rights to subscribe for or purchase, Common Shares or
other shares, if any, ranking junior to the Preferred Shares as to the payment
of dividends and the distribution of assets upon dissolution, liquidation or
winding up) in respect of the Common Shares or any other shares of the Trust
ranking junior to or on a parity with the Preferred Shares as to the payment of
dividends or the distribution of assets upon dissolution, liquidation or
winding up, or call for redemption, redeem, purchase or otherwise acquire for
consideration any Common Shares or any other such junior shares (except by
conversion into or exchange for shares of the Trust ranking junior to the
Preferred Shares as to the payment of dividends and the distribution of assets
upon dissolution, liquidation or winding up), or any such

                                     AA-25
<PAGE>

parity shares (except by conversion into or exchange for shares of the Trust
ranking junior to or on a parity with Preferred Shares as to the payment of
dividends and the distribution of assets upon dissolution, liquidation or
winding up), unless (i) full cumulative dividends on shares of each series of
Preferred Shares through its most recently ended Dividend Period shall have
been paid or shall have been declared and sufficient funds for the payment
thereof deposited with the Auction Agent and (ii) the Trust has redeemed the
full number of Preferred Shares required to be redeemed by any provision for
mandatory redemption pertaining thereto, and (B) the Trust shall not declare,
pay or set apart for payment any dividend or other distribution (other than a
dividend or distribution paid in shares of, or in options, warrants or rights
to subscribe for or purchase, Common Shares or other shares, if any, ranking
junior to Preferred Shares as to the payment of dividends and the distribution
of assets upon dissolution, liquidation or winding up) in respect of Common
Shares or any other shares of the Trust ranking junior to Preferred Shares as
to the payment of dividends or the distribution of assets upon dissolution,
liquidation or winding up, or call for redemption, redeem, purchase or
otherwise acquire for consideration any Common Shares or any other such junior
shares (except by conversion into or exchange for shares of the Trust ranking
junior to Preferred Shares as to the payment of dividends and the distribution
of assets upon dissolution, liquidation or winding up), unless immediately
after such transaction the Discounted Value of Moody's Eligible Assets (if
Moody's is then rating the Preferred Shares) and S&P Eligible Assets (if S&P is
then rating the Preferred Shares) would at least equal the Preferred Shares
Basic Maintenance Amount.

10. Rating Agency Restrictions.

   For so long as any Preferred Shares are outstanding and Moody's or S&P or
both is rating such shares, the Trust will not, unless it has received written
confirmation from Moody's or S&P, or both, as applicable, that any such action
would not impair the rating then assigned by such rating agency to such shares,
engage in any one or more of the following transactions:

     (a) buy or sell futures or write put or call options;

     (b) borrow money, except that the Trust may, without obtaining the
  written confirmation described above, borrow money for the purpose of
  clearing securities transactions if (i) the Preferred Shares Basic
  Maintenance Amount would continue to be satisfied after giving effect to
  such borrowing and (ii) such borrowing (A) is privately arranged with a
  bank or other person and is evidenced by a promissory note or other
  evidence of indebtedness that is not intended to be publicly distributed or
  (B) is for "temporary purposes," is evidenced by a promissory note or other
  evidence of indebtedness and is in an amount not exceeding 5 per centum of
  the value of the total assets of the Trust at the time of the borrowing;
  for purposes of the foregoing, "temporary purpose" means that the borrowing
  is to be repaid within sixty days and is not to be extended or renewed;

     (c) issue additional shares of any series of Preferred Shares or any
  class or series of shares ranking prior to or on a parity with Preferred
  Shares with respect to the payment of dividends or the distribution of
  assets upon dissolutions, liquidation or winding up of the Trust, or
  reissue any Preferred Shares previously purchased or redeemed by the Trust;

     (d) engage in any short sales of securities;

     (e) lend securities;

     (f) merge or consolidate into or with any other corporation;

     (g) change the pricing service (currently Muller Data Corporation)
  referred to in the definition of Market Value; or

     (h) enter into reverse repurchase agreements.

   In the event any Preferred Shares are outstanding and another rating agency
is rating such shares in addition to or in lieu of Moody's or S&P, the Trust
shall comply with any restrictions imposed by such rating agency, which
restrictions may be more restrictive than those imposed by Moody's or S&P.

                                     AA-26
<PAGE>

11. Redemption.

   (a) Optional Redemption.

     (i) Subject to the provisions of subparagraph (v) of this paragraph (a),
  Preferred Shares of any series may be redeemed, at the option of the Trust,
  as a whole or from time to time in part, on the second Business Day
  preceding any Dividend Payment Date for shares of such series, out of funds
  legally available therefor, at a redemption price per share equal to the
  sum of $25,000 plus an amount equal to accumulated but unpaid dividends
  thereon (whether or not earned or declared) to (but not including) the date
  fixed for redemption; provided, however, that (1) shares of a series of
  Preferred Shares may not be redeemed in part if after such partial
  redemption fewer than 300 shares of such series remain outstanding; (2)
  unless otherwise provided in Section 11 of Appendix A hereto, shares of a
  series of Preferred Shares are redeemable by the Trust during the Initial
  Rate Period thereof only on the second Business Day next preceding the last
  Dividend Payment Date for such Initial Rate Period; and (3) subject to
  subparagraph (ii) of this paragraph (a), the Notice of Special Rate Period
  relating to a Special Rate Period of shares of a series of Preferred
  Shares, as delivered to the Auction Agent and filed with the Secretary of
  the Trust, may provide that shares of such series shall not be redeemable
  during the whole or any part of such Special Rate Period (except as
  provided in subparagraph (iv) of this paragraph (a)) or shall be redeemable
  during the whole or any part of such Special Rate Period only upon payment
  of such redemption premium or premiums as shall be specified therein
  ("Special Redemption Provisions").

     (ii) A Notice of Special Rate Period relating to shares of a series of
  Preferred Shares for a Special Rate Period thereof may contain Special
  Redemption Provisions only if the Trust's Board of Trustees, after
  consultation with the Broker-Dealer or Broker-Dealers for such Special Rate
  Period of shares of such series, determines that such Special Redemption
  Provisions are in the best interest of the Trust.

     (iii) If fewer than all of the outstanding shares of a series of
  Preferred Shares are to be redeemed pursuant to subparagraph (i) of this
  paragraph (a), the number of shares of such series to be redeemed shall be
  determined by the Board of Trustees, and such shares shall be redeemed pro
  rata from the Holders of shares of such series in proportion to the number
  of shares of such series held by such Holders.

     (iv) Subject to the provisions of subparagraph (v) of this paragraph
  (a), shares of any series of Preferred Shares may be redeemed, at the
  option of the Trust, as a whole but not in part, out of funds legally
  available therefor, on the first day following any Dividend Period thereof
  included in a Rate Period consisting of more than 364 Rate Period Days if,
  on the date of determination of the Applicable Rate for shares of such
  series for such Rate Period, such Applicable Rate equaled or exceeded on
  such date of determination the Treasury Note Rate for such Rate Period, at
  a redemption price per share equal to the sum of $25,000 plus an amount
  equal to accumulated but unpaid dividends thereon (whether or not earned or
  declared) to (but not including) the date fixed for redemption.

     (v) The Trust may not on any date mail a Notice of Redemption pursuant
  to paragraph (c) of this Section 11 in respect of a redemption contemplated
  to be effected pursuant to this paragraph (a) unless on such date (a) the
  Trust has available Deposit Securities with maturity or tender dates not
  later than the day preceding the applicable redemption date and having a
  value not less than the amount (including any applicable premium) due to
  Holders of Preferred Shares by reason of the redemption of such shares on
  such redemption date and (b) the Discounted Value of Moody's Eligible
  Assets (if Moody's is then rating the Preferred Shares) and S&P Eligible
  Assets (if S&P is then rating the Preferred Shares) each at least equals
  the Preferred Shares Basic Maintenance Amount, and would at least equal the
  Preferred Shares Basic Maintenance Amount immediately subsequent to such
  redemption if such redemption were to occur on such date. For purposes of
  determining in clause (b) of the preceding sentence whether the Discounted
  Value of Moody's Eligible Assets at least equals the Preferred Shares Basic
  Maintenance Amount, the Moody's Discount Factors applicable to Moody's
  Eligible Assets shall be determined by reference to the first Exposure
  Period longer than the Exposure Period then applicable to the Trust, as
  described in the definition of Moody's Discount Factor herein.

                                     AA-27
<PAGE>

   (b) Mandatory Redemption. The Trust shall redeem, at a redemption price
equal to $25,000 per share plus accumulated but unpaid dividends thereon
(whether or not earned or declared) to (but not including) the date fixed by
the Board of Trustees for redemption, certain of the Preferred Shares, if the
Trust fails to have either Moody's Eligible Assets or S&P Eligible Assets with
a Discounted Value greater than or equal to the Preferred Shares Basic
Maintenance Amount or fails to maintain the Investment Company Act Preferred
Shares Asset Coverage, in accordance with the requirements of the rating agency
or agencies then rating the Preferred Shares, and such failure is not cured on
or before the Preferred Shares Basic Maintenance Cure Date or the Investment
Company Act Cure Date, as the case may be. The number of Preferred Shares to be
redeemed shall be equal to the lesser of (i) the minimum number of Preferred
Shares, together with all other preferred shares subject to redemption or
retirement, the redemption of which, if deemed to have occurred immediately
prior to the opening of business on the Cure Date, would have resulted in the
Trust's having Moody's Eligible Assets and S&P Eligible Assets with a
Discounted Value greater than or equal to the Preferred Shares Basic
Maintenance Amount or maintaining the Investment Company Act Preferred Shares
Asset Coverage, as the case may be, on such Cure Date (provided, however, that
if there is no such minimum number of Preferred Shares and other preferred
shares the redemption or retirement of which would have had such result, all
Preferred Shares and other Preferred Shares then outstanding shall be
redeemed), and (ii) the maximum number of Preferred Shares, together with all
other Preferred Shares subject to redemption or retirement, that can be
redeemed out of funds expected to be legally available therefor in accordance
with the Declaration and applicable law. In determining the Preferred Shares
required to be redeemed in accordance with the foregoing, the Trust shall
allocate the number required to be redeemed to satisfy the Preferred Shares
Basic Maintenance Amount or the Investment Company Act Preferred Shares Asset
Coverage, as the case may be, pro rata among Preferred Shares and other
preferred shares (and, then, pro rata among each series of Preferred Shares)
subject to redemption or retirement. The Trust shall effect such redemption on
the date fixed by the Trust therefor, which date shall not be earlier than 20
days nor later than 40 days after such Cure Date, except that if the Trust does
not have funds legally available for the redemption of all of the required
number of the Preferred Shares and other preferred shares which are subject to
redemption or retirement or the Trust otherwise is unable to effect such
redemption on or prior to 40 days after such Cure Date, the Trust shall redeem
those Preferred Shares and other preferred shares which it was unable to redeem
on the earliest practicable date on which it is able to effect such redemption.
If fewer than all of the outstanding shares of a series of Preferred Shares are
to be redeemed pursuant to this paragraph (b), the number of shares of such
series to be redeemed shall be redeemed pro rata from the Holders of shares of
such series in proportion to the number of shares of such series held by such
Holders.

   (c) Notice of Redemption. If the Trust shall determine or be required to
redeem shares of a series of Preferred Shares pursuant to paragraph (a) or (b)
of this Section 11, it shall mail a Notice of Redemption with respect to such
redemption by first-class mail, postage prepaid, to each Holder of the shares
of such series to be redeemed, at such Holder's address as the same appears on
the record books of the Trust on the record date established by the Board of
Trustees. Such Notice of Redemption shall be so mailed not less than 20 nor
more than 45 days prior to the date fixed for redemption. Each such Notice of
Redemption shall state: (i) the redemption date; (ii) the number of Preferred
Shares to be redeemed and the series thereof; (iii) the CUSIP number for shares
of such series; (iv) the Redemption Price; (v) the place or places where the
certificate(s) for such shares (properly endorsed or assigned for transfer, if
the Board of Trustees shall so require and the Notice of Redemption shall so
state) are to be surrendered for payment of the Redemption Price; (vi) that
dividends on the shares to be redeemed will cease to accumulate on such
redemption date; and (vii) the provisions of this Section 11 under which such
redemption is made. If fewer than all shares of a series of Preferred Shares
held by any Holder are to be redeemed, the Notice of Redemption mailed to such
Holder shall also specify the number of shares of such series to be redeemed
from such Holder. The Trust may provide in any Notice of Redemption relating to
a redemption contemplated to be effected pursuant to paragraph (a) of this
Section 11 that such redemption is subject to one or more conditions precedent
and that the Trust shall not be required to effect such redemption unless each
such condition shall have been satisfied at the time or times and in the manner
specified in such Notice of Redemption.

                                     AA-28
<PAGE>

   (d) No Redemption Under Certain Circumstances. Notwithstanding the
provisions of paragraphs (a) or (b) of this Section 11, if any dividends on
shares of a series of Preferred Shares (whether or not earned or declared) are
in arrears, no shares of such series shall be redeemed unless all outstanding
shares of such series are simultaneously redeemed, and the Trust shall not
purchase or otherwise acquire any shares of such series; provided, however,
that the foregoing shall not prevent the purchase or acquisition of all
outstanding shares of such series pursuant to the successful completion of an
otherwise lawful purchase or exchange offer made on the same terms to, and
accepted by, Holders of all outstanding shares of such series.

   (e) Absence Of Funds Available For Redemption. To the extent that any
redemption for which Notice of Redemption has been mailed is not made by reason
of the absence of legally available funds therefor in accordance with the
Declaration and applicable law, such redemp-tion shall be made as soon as
practicable to the extent such funds become available. Failure to redeem
Preferred Shares shall be deemed to exist at any time after the date specified
for redemption in a Notice of Redemption when the Trust shall have failed, for
any reason whatsoever, to deposit in trust with the Auction Agent the
Redemption Price with respect to any shares for which such Notice of Redemption
has been mailed; provided, however, that the foregoing shall not apply in the
case of the Trust's failure to deposit in trust with the Auction Agent the
Redemption Price with respect to any shares where (1) the Notice of Redemption
relating to such redemption provided that such redemption was subject to one or
more conditions precedent and (2) any such condition precedent shall not have
been satisfied at the time or times and in the manner specified in such Notice
of Redemption. Notwithstanding the fact that the Trust may not have redeemed
Preferred Shares for which a Notice of Redemption has been mailed, dividends
may be declared and paid on Preferred Shares and shall include those Preferred
Shares for which a Notice of Redemption has been mailed.

   (f) Auction Agent As Trustee Of Redemption Payments By Trust. All moneys
paid to the Auction Agent for payment of the Redemption Price of Preferred
Shares called for redemption shall be held in trust by the Auction Agent for
the benefit of Holders of shares so to be redeemed.

   (g) Shares For Which Notice Of Redemption Has Been Given Are No Longer
Outstanding. Provided a Notice of Redemption has been mailed pursuant to
paragraph (c) of this Section 11, upon the deposit with the Auction Agent (on
the Business Day next preceding the date fixed for redemption thereby, in funds
available on the next Business Day in The City of New York, New York) of funds
sufficient to redeem the Preferred Shares that are the subject of such notice,
dividends on such shares shall cease to accumulate and such shares shall no
longer be deemed to be outstanding for any purpose, and all rights of the
Holders of the shares so called for redemption shall cease and terminate,
except the right of such Holders to receive the Redemption Price, but without
any interest or other additional amount, except as provided in subparagraph
(e)(i) of Section 2 of this Part I and in Section 3 of this Part I. Upon
surrender in accordance with the Notice of Redemption of the certificates for
any shares so redeemed (properly endorsed or assigned for transfer, if the
Board of Trustees shall so require and the Notice of Redemption shall so
state), the Redemption Price shall be paid by the Auction Agent to the Holders
of Preferred Shares subject to redemption. In the case that fewer than all of
the shares represented by any such certificate are redeemed, a new certificate
shall be issued, representing the unredeemed shares, without cost to the Holder
thereof. The Trust shall be entitled to receive from the Auction Agent,
promptly after the date fixed for redemption, any cash deposited with the
Auction Agent in excess of (i) the aggregate Redemption Price of the Preferred
Shares called for redemption on such date and (ii) all other amounts to which
Holders of Preferred Shares called for redemption may be entitled. Any funds so
deposited that are unclaimed at the end of 90 days from such redemption date
shall, to the extent permitted by law, be repaid to the Trust, after which time
the Holders of Preferred Shares so called for redemption may look only to the
Trust for payment of the Redemption Price and all other amounts to which they
may be entitled. The Trust shall be entitled to receive, from time to time
after the date fixed for redemption, any interest on the funds so deposited.

   (h) Compliance With Applicable Law. In effecting any redemption pursuant to
this Section 11, the Trust shall use its best efforts to comply with all
applicable conditions precedent to effecting such redemption under the
Investment Company Act and any applicable Delaware law, but shall effect no
redemption except in accordance with the Investment Company Act and any
applicable Delaware law.

                                     AA-29
<PAGE>

   (i) Only Whole Preferred Shares May Be Redeemed. In the case of any
redemption pursuant to this Section 11, only whole Preferred Shares shall be
redeemed, and in the event that any provision of the Declaration would require
redemption of a fractional share, the Auction Agent shall be authorized to
round up so that only whole shares are redeemed.

12. Liquidation Rights.

   (a) Ranking. The shares of a series of Preferred Shares shall rank on a
parity with each other, with shares of any other series of preferred shares and
with shares of any other series of Preferred Shares as to the distribution of
assets upon dissolution, liquidation or winding up of the affairs of the Trust.

   (b) Distributions Upon Liquidation. Upon the dissolution, liquidation or
winding up of the affairs of the Trust, whether voluntary or involuntary, the
Holders of Preferred Shares then outstanding shall be entitled to receive and
to be paid out of the assets of the Trust available for distribution to its
shareholders, before any payment or distribution shall be made on the Common
Shares or on any other class of shares of the Trust ranking junior to the
Preferred Shares upon dissolution, liquidation or winding up, an amount equal
to the Liquidation Preference with respect to such shares plus an amount equal
to all dividends thereon (whether or not earned or declared) accumulated but
unpaid to (but not including) the date of final distribution in same day funds,
together with any payments required to be made pursuant to Section 3 of this
Part I in connection with the liquidation of the Trust. After the payment to
the Holders of the Preferred Shares of the full preferential amounts provided
for in this paragraph (b), the Holders of Preferred Shares as such shall have
no right or claim to any of the remaining assets of the Trust.

   (c) Pro Rata Distributions. In the event the assets of the Trust available
for distribution to the Holders of Preferred Shares upon any dissolution,
liquidation, or winding up of the affairs of the Trust, whether voluntary or
involuntary, shall be insufficient to pay in full all amounts to which such
Holders are entitled pursuant to paragraph (b) of this Section 12, no such
distribution shall be made on account of any shares of any other class or
series of preferred shares ranking on a parity with the Preferred Shares with
respect to the distribution of assets upon such dissolution, liquidation or
winding up unless proportionate distributive amounts shall be paid on account
of the Preferred Shares, ratably, in proportion to the full distributable
amounts for which holders of all such parity shares are respectively entitled
upon such dissolution, liquidation or winding up.

   (d) Rights of Junior Shares. Subject to the rights of the holders of shares
of any series or class or classes of shares ranking on a parity with the
Preferred Shares with respect to the distribution of assets upon dissolution,
liquidation or winding up of the affairs of the Trust, after payment shall have
been made in full to the Holders of the Preferred Shares as provided in
paragraph (b) of this Section 12, but not prior thereto, any other series or
class or classes of shares ranking junior to the Preferred Shares with respect
to the distribution of assets upon dissolution, liquidation or winding up of
the affairs of the Trust shall, subject to the respective terms and provisions
(if any) applying thereto, be entitled to receive any and all assets remaining
to be paid or distributed, and the Holders of the Preferred Shares shall not be
entitled to share therein.

   (e) Certain Events Not Constituting Liquidation. Neither the sale of all or
substantially all the property or business of the Trust, nor the merger or
consolidation of the Trust into or with any business trust or corporation nor
the merger or consolidation of any business trust or corporation into or with
the Trust shall be a dissolution, liquidation or winding up, whether voluntary
or involuntary, for the purposes of this Section 12.

13. Miscellaneous.

   (a) Amendment of Appendix A to Add Additional Series. Subject to the
provisions of paragraph (c) of Section 10 of this Part I, the Board of Trustees
may, by resolution duly adopted, without shareholder approval (except as
otherwise provided by this Statement or required by applicable law), amend
Appendix A hereto to (1) reflect any amendments hereto which the Board of
Trustees is entitled to adopt pursuant to the terms of this

                                     AA-30
<PAGE>

Statement without shareholder approval or (2) add additional series of
Preferred Shares or additional shares of a series of Preferred Shares (and
terms relating thereto) to the series and Preferred Shares theretofore
described thereon. Each such additional series and all such additional shares
shall be governed by the terms of this statement.

   (b) Appendix A Incorporated by Reference. Appendix A hereto is incorporated
in and made a part of this Statement by reference thereto.

   (c) No Fractional Shares. No fractional shares of Preferred Shares shall be
issued.

   (d) Status of Preferred Shares Redeemed, Exchanged or Otherwise Acquired by
the Trust. Preferred Shares which are redeemed, exchanged or otherwise
acquired by the Trust shall return to the status of authorized and unissued
preferred shares without designation as to series.

   (e) Board May Resolve Ambiguities. To the extent permitted by applicable
law, the Board of Trustees may interpret or adjust the provisions of this
Statement to resolve any inconsistency or ambiguity or to remedy any formal
defect, and may amend this Statement with respect to any series of Preferred
Shares prior to the issuance of shares of such series.

   (f) Headings Not Determinative. The headings contained in this Statement
are for convenience of reference only and shall not affect the meaning or
interpretation of this statement.

   (g) Notices. All notices or communications, unless otherwise specified in
the By-Laws of the Trust or this Statement, shall be sufficiently given if in
writing and delivered in person or mailed by first-class mail, postage
prepaid.

                                   PART II.

1. Orders.

   (a) Prior to the Submission Deadline on each Auction Date for shares of a
series of Preferred Shares:

     (i) each Beneficial Owner of shares of such series may submit to its
  Broker-Dealer by telephone or otherwise information as to:

       (A) the number of Outstanding shares, if any, of such series held by
    such Beneficial Owner which such Beneficial Owner desires to continue to
    hold without regard to the Applicable Rate for shares of such series for
    the next succeeding Rate Period of such shares;

       (B) the number of Outstanding shares, if any, of such series held by
    such Beneficial Owner which such Beneficial Owner offers to sell if the
    Applicable Rate for shares of such series for the next succeeding Rate
    Period of shares of such series shall be less than the rate per annum
    specified by such Beneficial Owner; and/or

       (C) the number of Outstanding shares, if any, of such series held by
    such Beneficial Owner which such Beneficial Owner offers to sell without
    regard to the Applicable Rate for shares of such series for the next
    succeeding Rate Period of shares of such series;

   and

     (ii) one or more Broker-Dealers, using lists of Potential Beneficial
  Owners, shall in good faith for the purpose of conducting a competitive
  Auction in a commercially reasonable manner, contact Potential Beneficial
  Owners (by telephone or otherwise), including Persons that are not
  Beneficial Owners, on such lists to determine the number of shares, if any,
  of such series which each such Potential Beneficial Owner offers to
  purchase if the Applicable Rate for shares of such series for the next
  succeeding Rate Period of shares of such series shall not be less than the
  rate per annum specified by such Potential Beneficial Owner.

                                     AA-31
<PAGE>

   For the purposes hereof, the communication by a Beneficial Owner or
Potential Beneficial Owner to a Broker-Dealer, or by a Broker-Dealer to the
Auction Agent, of information referred to in clause (i) (A), (i) (B), (i) (C)
or (ii) of this paragraph (a) is hereinafter referred to as an "Order" and
collectively as "Orders" and each Beneficial Owner and each Potential
Beneficial Owner placing an Order with a Broker-Dealer, and such Broker-Dealer
placing an order with the Auction Agent, is hereinafter referred to as a
"Bidder" and collectively as "Bidders"; an Order containing the information
referred to in clause (i)(A) of this paragraph (a) is hereinafter referred to
as a "Hold Order" and collectively as "Hold Orders"; an Order containing the
information referred to in clause (i)(B) or (ii) of this paragraph (a) is
hereinafter referred to as a "Bid" and collectively as "Bids"; and an Order
containing the information referred to in clause (i)(C) of this paragraph (a)
is hereinafter referred to as a "Sell Order" and collectively as "Sell Orders."

   (b) (i) A Bid by a Beneficial Owner or an Existing Holder of shares of a
series of Preferred Shares subject to an Auction on any Auction Date shall
constitute an irrevocable offer to sell:

       (A) the number of Outstanding shares of such series specified in
    such Bid if the Applicable Rate for shares of such series determined on
    such Auction Date shall be less than the rate specified therein;

       (B) such number or a lesser number of Outstanding shares of such
    series to be determined as set forth in clause (iv) of paragraph (a) of
    Section 4 of this Part II if the Applicable Rate for shares of such
    series determined on such Auction Date shall be equal to the rate
    specified therein; or

       (C) the number of Outstanding shares of such series specified in
    such Bid if the rate specified therein shall be higher than the Maximum
    Rate for shares of such series, or such number or a lesser number of
    Outstanding shares of such series to be determined as set forth in
    clause (iii) of paragraph (b) of Section 4 of this Part II if the rate
    specified therein shall be higher than the Maximum Rate for shares of
    such series and Sufficient Clearing Bids for shares of such series do
    not exist.

     (ii) A Sell Order by a Beneficial Owner or an Existing Holder of shares
  of a series of Preferred Shares subject to an Auction on any Auction Date
  shall constitute an irrevocable offer to sell:

       (A) the number of Outstanding shares of such series specified in
    such Sell Order; or

       (B) such number or a lesser number of Outstanding shares of such
    series as set forth in clause (iii) of paragraph (b) of Section 4 of
    this Part II if Sufficient Clearing Bids for shares of such series do
    not exist; provided, however, that a Broker-Dealer that is an Existing
    Holder with respect to shares of a series of Preferred Shares shall not
    be liable to any Person for failing to sell such shares pursuant to a
    Sell Order described in the proviso to paragraph (c) of Section 2 of
    this Part II if (1) such shares were transferred by the Beneficial
    Owner thereof without compliance by such Beneficial Owner or its
    transferee Broker- Dealer (or other transferee person, if permitted by
    the Trust) with the provisions of Section 7 of this Part II or (2) such
    Broker-Dealer has informed the Auction Agent pursuant to the terms of
    its Broker-Dealer Agreement that, according to such Broker-Dealer's
    records, such Broker-Dealer believes it is not the Existing Holder of
    such shares.

     (iii) A Bid by a Potential Beneficial Holder or a Potential Holder of
  shares of a series of Preferred Shares subject to an Auction on any Auction
  Date shall constitute an irrevocable offer to purchase:

       (A) the number of Outstanding shares of such series specified in
    such Bid if the Applicable Rate for shares of such series determined on
    such Auction Date shall be higher than the rate specified therein; or

       (B) such number or a lesser number of Outstanding shares of such
    series as set forth in clause (v) of paragraph (a) of Section 4 of this
    Part II if the Applicable Rate for shares of such series determined on
    such Auction Date shall be equal to the rate specified therein.

       (C) No Order for any number of Preferred Shares other than whole
    shares shall be valid.

                                     AA-32
<PAGE>

2. Submission of Orders by Broker-Dealers to Auction Agent.

   (a) Each Broker-Dealer shall submit in writing to the Auction Agent prior to
the Submission Deadline on each Auction Date all Orders for Preferred shares of
a series subject to an Auction on such Auction Date obtained by such Broker-
Dealer, designating itself (unless otherwise permitted by the Trust) as an
Existing Holder in respect of shares subject to Orders submitted or deemed
submitted to it by Beneficial Owners and as a Potential Holder in respect of
shares subject to Orders submitted to it by Potential Beneficial Owners, and
shall specify with respect to each Order for such shares:

     (i) the name of the Bidder placing such Order (which shall be the
  Broker- Dealer unless otherwise permitted by the Trust);

     (ii) the aggregate number of shares of such series that are the subject
  of such Order;

     (iii) to the extent that such Bidder is an Existing Holder of shares of
  such series:

       (A) the number of shares, if any, of such series subject to any Hold
    Order of such Existing Holder;

       (B) the number of shares, if any, of such series subject to any Bid
    of such Existing Holder and the rate specified in such Bid; and

       (C) the number of shares, if any, of such series subject to any Sell
    Order of such Existing Holder; and

     (iv) to the extent such Bidder is a Potential Holder of shares of such
  series, the rate and number of shares of such series specified in such
  Potential Holder's Bid.

   (b) If any rate specified in any Bid contains more than three figures to the
right of the decimal point, the Auction Agent shall round such rate up to the
next highest one thousandth (.001) of 1%.

   (c) If an Order or Orders covering all of the outstanding Preferred Shares
of a series held by any Existing Holder is not submitted to the Auction Agent
prior to the Submission Deadline, the Auction Agent shall deem a Hold Order to
have been submitted by or on behalf of such Existing Holder covering the number
of Outstanding shares of such series held by such Existing Holder and not
subject to Orders submitted to the Auction Agent; provided, however, that if an
Order or Orders covering all of the Outstanding shares of such series held by
any Existing Holder is not submitted to the Auction Agent prior to the
Submission Deadline for an Auction relating to a Special Rate Period consisting
of more than 28 Rate Period Days, the Auction Agent shall deem a Sell order to
have been submitted by or on behalf of such Existing Holder covering the number
of outstanding shares of such series held by such Existing Holder and not
subject to Orders submitted to the Auction Agent.

   (d) If one or more Orders of an Existing Holder is submitted to the Auction
Agent covering in the aggregate more than the number of Outstanding Preferred
Shares of a series subject to an Auction held by such Existing Holder, such
Orders shall be considered valid in the following order of priority:

     (i) all Hold Orders for shares of such series shall be considered valid,
  but only up to and including in the aggregate the number of Outstanding
  shares of such series held by such Existing Holder, and if the number of
  shares of such series subject to such Hold Orders exceeds the number of
  Outstanding shares of such series held by such Existing Holder, the number
  of shares subject to each such Hold Order shall be reduced pro rata to
  cover the number of Outstanding shares of such series held by such Existing
  Holder;

     (ii) (A) any Bid for shares of such series shall be considered valid up
  to and including the excess of the number of Outstanding shares of such
  series held by such Existing Holder over the number of shares of such
  series subject to any Hold Orders referred to in clause (i) above;

       (B) subject to subclause (A), if more than one Bid of an Existing
    Holder for shares of such series is submitted to the Auction Agent with
    the same rate and the number of Outstanding shares of such

                                     AA-33
<PAGE>

    series subject to such Bids is greater than such excess, such Bids
    shall be considered valid up to and including the amount of such
    excess, and the number of shares of such series subject to each Bid
    with the same rate shall be reduced pro rata to cover the number of
    shares of such series equal to such excess;

       (C) subject to subclauses (A) and (B), if more than one Bid of an
    Existing Holder for shares of such series is submitted to the Auction
    Agent with different rates, such Bids shall be considered valid in the
    ascending order of their respective rates up to and including the
    amount of such excess; and

       (D) in any such event, the number, if any, of such Outstanding
    shares of such series subject to any portion of Bids considered not
    valid in whole or in part under this clause (ii) shall be treated as
    the subject of a Bid for shares of such series by or on behalf of a
    Potential Holder at the rate therein specified; and

     (iii) all Sell Orders for shares of such series shall be considered
  valid up to and including the excess of the number of Outstanding shares of
  such series held by such Existing Holder over the sum of shares of such
  series subject to valid Hold Orders referred to in clause (i) above and
  valid Bids referred to in clause (ii) above.

   (e) If more than one Bid for one or more shares of a series of Preferred
Shares is submitted to the Auction Agent by or on behalf of any Potential
Holder, each such Bid submitted shall be a separate Bid with the rate and
number of shares therein specified.

   (f) Any Order submitted by a Beneficial Owner or a Potential Beneficial
Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior
to the Submission Deadline on any Auction Date, shall be irrevocable.

3. Determination of Sufficient Clearing Bids, Winning Bid Rate and Applicable
Rate.

   (a) Not earlier than the Submission Deadline on each Auction Date for shares
of a series of Preferred Shares, the Auction Agent shall assemble all valid
Orders submitted or deemed submitted to it by the Broker-Dealers in respect of
shares of such series (each such Order as submitted or deemed submitted by a
Broker-Dealer being hereinafter referred to individually as a "Submitted Hold
Order," a "Submitted Bid" or a "Submitted Sell Order," as the case may be, or
as a "Submitted Order" and collectively as "Submitted Hold Orders," "Submitted
Bids" or "Submitted Sell Orders," as the case may be, or as "Submitted Orders")
and shall determine for such series:

     (i) the excess of the number of Outstanding shares of such series over
  the number of Outstanding shares of such series subject to Submitted Hold
  Orders (such excess being hereinafter referred to as the "Available
  Preferred Shares" of such series);

     (ii) from the Submitted Orders for shares of such series whether:

       (A) the number of Outstanding shares of such series subject to
    Submitted Bids of Potential Holders specifying one or more rates equal
    to or lower than the Maximum Rate for shares of such series;

   exceeds or is equal to the sum of:

       (B) the number of Outstanding shares of such series subject to
    Submitted Bids of Existing Holders specifying one or more rates higher
    than the Maximum Rate for shares of such series; and

       (C) the number of Outstanding shares of such series subject to
    Submitted Sell Orders

  (in the event such excess or such equality exists (other than because the
  number of shares of such series in subclauses (B) and (C) above is zero
  because all of the Outstanding shares of such series are subject to
  Submitted Hold Orders), such Submitted Bids in subclause (A) above being
  hereinafter referred to collectively as "Sufficient Clearing Bids" for
  shares of such series); and

                                     AA-34
<PAGE>

     (iii) if Sufficient Clearing Bids for shares of such series exist, the
  lowest rate specified in such Submitted Bids (the "Winning Bid Rate" for
  shares of such series) which if:

       (A) (I) each such Submitted Bid of Existing Holders specifying such
    lowest rate and (II) all other such Submitted Bids of Existing Holders
    specifying lower rates were rejected, thus entitling such Existing
    Holders to continue to hold the shares of such series that are subject
    to such Submitted Bids; and

       (B) (I) each such Submitted Bid of Potential Holders specifying such
    lowest rate and (II) all other such Submitted Bids of Potential Holders
    specifying lower rates were accepted;

  would result in such Existing Holders described in subclause (A) above
  continuing to hold an aggregate number of Outstanding shares of such series
  which, when added to the number of Outstanding shares of such series to be
  purchased by such Potential Holders described in subclause (B) above, would
  equal not less than the Available Preferred Shares of such series.

   (b) Promptly after the Auction Agent has made the determinations pursuant to
paragraph (a) of this Section 3, the Auction Agent shall advise the Trust of
the Maximum Rate for shares of the series of Preferred Shares for which an
Auction is being held on the Auction Date and, based on such determination the
Applicable Rate for shares of such series for the next succeeding Rate Period
thereof as follows:

     (i) if Sufficient Clearing Bids for shares of such series exist, that
  the Applicable Rate for all shares of such series for the next Succeeding
  Rate Period thereof shall be equal to the Winning Bid Rate for shares of
  such series so determined;

     (ii) if sufficient Clearing Bids for shares of such series do not exist
  (other than because all of the Outstanding shares of such series are
  subject to Submitted Hold Orders), that the Applicable Rate for all shares
  of such series for the next succeeding Rate Period thereof shall be equal
  to the Maximum Rate for shares of such series; or

     (iii) if all of the Outstanding shares of such series are subject to
  Submitted Hold Orders, that the Applicable Rate for all shares of such
  series for the next succeeding Rate Period thereof shall be as set forth in
  Section 12 of Appendix A hereto.

4. Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and
Allocation of Shares.

   Existing Holders shall continue to hold the Preferred Shares that are
subject to Submitted Hold Orders, and, based on the determinations made
pursuant to paragraph (a) of Section 3 of this Part II, the Submitted Bids and
Submitted Sell Orders shall be accepted or rejected by the Auction Agent and
the Auction Agent shall take such other action as set forth below:

   (a) If sufficient Clearing Bids for shares of a series of Preferred Shares
have been made, all Submitted Sell Orders with respect to shares of such series
shall be accepted and, subject to the provisions of paragraphs (d) and (e) of
this section 4, Submitted Bids with respect to shares of such series shall be
accepted or rejected as follows in the following order of priority and all
other Submitted Bids with respect to shares of such series shall be rejected:

     (i) Existing Holders' Submitted Bids for shares of such series
  specifying any rate that is higher than the Winning Bid Rate for shares of
  such series shall be accepted, thus requiring each such Existing Holder to
  sell the Preferred Shares subject to such Submitted Bids;

     (ii) Existing Holders' Submitted Bids for shares of such series
  specifying any rate that is lower than the Winning Bid Rate for shares of
  such series shall be rejected, thus entitling each such Existing Holder to
  continue to hold the Preferred Shares subject to such Submitted Bids;

     (iii) Potential Holders' Submitted Bids for shares of such series
  specifying any rate that is lower than the Winning Bid Rate for shares of
  such series shall be accepted;

                                     AA-35
<PAGE>

     (iv) each Existing Holder's Submitted Bid for shares of such series
  specifying a rate that is equal to the Winning Bid Rate for shares of such
  series shall be rejected, thus entitling such Existing Holder to continue
  to hold the Preferred Shares subject to such Submitted Bid, unless the
  number of Outstanding Preferred Shares subject to all such Submitted Bids
  shall be greater than the number of Preferred Shares ("remaining shares")
  in the excess of the Available Preferred Shares of such series over the
  number of Preferred Shares subject to Submitted Bids described in clauses
  (ii) and (iii) of this paragraph (a), in which event such Submitted Bid of
  such Existing Holder shall be rejected in part, and such Existing Holder
  shall be entitled to continue to hold Preferred Shares subject to such
  Submitted Bid, but only in an amount equal to the number of Preferred
  Shares of such series obtained by multiplying the number of remaining
  shares by a fraction, the numerator of which shall be the number of
  Outstanding Preferred Shares held by such Existing Holder subject to such
  Submitted Bid and the denominator of which shall be the aggregate number of
  Outstanding Preferred Shares subject to such Submitted Bids made by all
  such Existing Holders that specified a rate equal to the Winning Bid Rate
  for shares of such series; and

     (v) each Potential Holder's Submitted Bid for shares of such series
  specifying a rate that is equal to the Winning Bid Rate for shares of such
  series shall be accepted but only in an amount equal to the number of
  shares of such series obtained by multiplying the number of shares in the
  excess of the Available Preferred Shares of such series over the number of
  Preferred Shares subject to Submitted Bids described in clauses (ii)
  through (iv) of this paragraph (a) by a fraction, the numerator of which
  shall be the number of Outstanding Preferred Shares subject to such
  Submitted Bid and the denominator of which shall be the aggregate number of
  Outstanding Preferred Shares subject to such Submitted Bids made by all
  such Potential Holders that specified a rate equal to the Winning Bid Rate
  for shares of such series.

   (b) If Sufficient Clearing Bids for shares of a series of Preferred Shares
have not been made (other than because all of the Outstanding shares of such
series are subject to Submitted Hold Orders), subject to the provisions of
paragraph (d) of this Section 4, Submitted Orders for shares of such series
shall be accepted or rejected as follows in the following order of priority and
all other Submitted Bids for shares of such series shall be rejected:

     (i) Existing Holders' Submitted Bids for shares of such series
  specifying any rate that is equal to or lower than the Maximum Rate for
  shares of such series shall be rejected, thus entitling such Existing
  Holders to continue to hold the Preferred Shares subject to such Submitted
  Bids;

     (ii) Potential Holders' Submitted Bids for shares of such series
  specifying any rate that is equal to or lower than the Maximum Rate for
  shares of such series shall be accepted; and

     (iii) Each Existing Holder's Submitted Bid for shares of such series
  specifying any rate that is higher than the Maximum Rate for shares of such
  series and the Submitted Sell Orders for shares of such series of each
  Existing Holder shall be accepted, thus entitling each Existing Holder that
  submitted or on whose behalf was submitted any such Submitted Bid or
  Submitted Sell Order to sell the shares of such series subject to such
  Submitted Bid or Submitted Sell Order, but in both cases only in an amount
  equal to the number of shares of such series obtained by multiplying the
  number of shares of such series subject to Submitted Bids described in
  clause (ii) of this paragraph (b) by a fraction, the numerator of which
  shall be the number of Outstanding shares of such series held by such
  Existing Holder subject to such Submitted Bid or Submitted Sell Order and
  the denominator of which shall be the aggregate number of Outstanding
  shares of such series subject to all such Submitted Bids and Submitted Sell
  Orders.

   (c) If all of the Outstanding shares of a series of Preferred Shares are
subject to Submitted Hold Orders, all Submitted Bids for shares of such series
shall be rejected.

   (d) If, as a result of the procedures described in clause (iv) or (v) of
paragraph (a) or clause (iii) of paragraph (b) of this Section 4, any Existing
Holder would be entitled or required to sell, or any Potential Holder would be
entitled or required to purchase, a fraction of a share of a series of
Preferred Shares on any Auction Date, the Auction Agent shall, in such manner
as it shall determine in its sole discretion, round up or

                                     AA-36
<PAGE>

down the number of Preferred Shares of such series to be purchased or sold by
any Existing Holder or Potential Holder on such Auction Date as a result of
such procedures so that the number of shares so purchased or sold by each
Existing Holder or Potential Holder on such Auction Date shall be whole
Preferred Shares.

   (e) If, as a result of the procedures described in clause (v) of paragraph
(a) of this Section 4, any Potential Holder would be entitled or required to
purchase less than a whole share of a series of Preferred Shares on any Auction
Date, the Auction Agent shall, in such manner as it shall determine in its sole
discretion, allocate Preferred Shares of such series for purchase among
Potential Holders so that only whole shares of Preferred Shares of such series
are purchased on such Auction Date as a result of such procedures by any
Potential Holder, even if such allocation results in one or more Potential
Holders not purchasing Preferred Shares of such series on such Auction Date.

   (f) Based on the results of each Auction for shares of a series of Preferred
Shares, the Auction Agent shall determine the aggregate number of shares of
such series to be purchased and the aggregate number of shares of such series
to be sold by Potential Holders and Existing Holders and, with respect to each
Potential Holder and Existing Holder, to the extent that such aggregate number
of shares to be purchased and such aggregate number of shares to be sold
differ, determine to which other Potential Holder(s) or Existing Holder(s) they
shall deliver, or from which other Potential Holder(s) or Existing Holder(s)
they shall receive, as the case may be, Preferred Shares of such series.
Notwithstanding any provision of the Auction Procedures to the contrary, in the
event an Existing Holder or Beneficial Owner of a series of Preferred Shares
with respect to whom a Broker-Dealer submitted a Bid to the Auction Agent for
such shares that was accepted in whole or in part, or submitted or is deemed to
have submitted a Sell Order for such shares that was accepted in whole or in
part, fails to instruct its Agent Member to deliver such shares against payment
therefor, partial deliveries of Preferred Shares that have been made in respect
of Potential Holders' or Potential Beneficial Owners' submitted Bids for shares
of such series that have been accepted in whole or in part shall constitute
good delivery to such Potential Holders and Potential Beneficial Owners.

   (g) Neither the Trust nor the Auction Agent nor any affiliate of either
shall have any responsibility or liability with respect to the failure of an
Existing Holder, a Potential Holder, a Beneficial Owner, a Potential Beneficial
Owner or its respective Agent Member to deliver Preferred Shares of any series
or to pay for Preferred Shares of any series sold or purchased pursuant to the
Auction Procedures or otherwise.

5. Notification of Allocations.

   Whenever the Trust intends to include any net capital gains or other income
taxable for Federal income tax purposes in any dividend on Preferred Shares,
the Trust may, but shall not be required to, notify the Auction Agent of the
amount to be so included not later than the Dividend Payment Date next
preceding the Auction Date on which the Applicable Rate for such dividend is to
be established. Whenever the Auction Agent receives such notice from the Trust,
it will be required in turn to notify each Broker-Dealer, who, on or prior to
such Auction Date, in accordance with its Broker-Dealer Agreement, will be
required to notify its Beneficial Owners and Potential Beneficial Owners of
Preferred Shares believed by it to be interested in submitting an Order in the
Auction to be held on such Auction Date.

6. Auction Agent.

   For so long as any Preferred Shares are outstanding, the Auction Agent, duly
appointed by the Trust to so act, shall be in each case a commercial bank,
trust company or other financial institution independent of the Trust and its
affiliates (which however may engage or have engaged in business transactions
with the Trust or its affiliates) and at no time shall the Trust or any of its
affiliates act as the Auction Agent in connection with the Auction Procedures.
If the Auction Agent resigns or for any reason its appointment is terminated
during any period that any Preferred Shares are outstanding, the Board of
Trustees shall use its best efforts promptly thereafter to appoint another
qualified commercial bank, trust company or financial institution to act as the

                                     AA-37
<PAGE>

Auction Agent. The Auction Agent's registry of Existing Holders of a series of
Preferred Shares shall be conclusive and binding on the Broker-Dealers. A
Broker-Dealer may inquire of the Auction Agent between 3:00 p.m. on the
Business Day preceding an Auction for a series of Preferred Shares and 9:30
a.m. on the Auction Date for such Auction to ascertain the number of shares of
such series in respect of which the Auction Agent has determined such Broker-
Dealer to be an Existing Holder. If such Broker-Dealer believes it is the
Existing Holder of fewer shares of such series than specified by the Auction
Agent in response to such Broker-Dealer's inquiry, such Broker-Dealer may so
inform the Auction Agent of that belief. Such Broker-Dealer shall not, in its
capacity as Existing Holder of shares of such series, submit Orders in such
Auction in respect of shares of such series covering in the aggregate more than
the number of shares of such series specified by the Auction Agent in response
to such Broker-Dealer's inquiry.

7. Transfer of Preferred Shares.

   Unless otherwise permitted by the Trust, a Beneficial Owner or an Existing
Holder may sell, transfer or otherwise dispose of Preferred Shares only in
whole shares and only pursuant to a Bid or Sell Order placed with the Auction
Agent in accordance with the procedures described in this Part II or to a
Broker-Dealer; provided, however, that (a) a sale, transfer or other
disposition of Preferred Shares from a customer of a Broker-Dealer who is
listed on the records of that Broker-Dealer as the holder of such shares to
that Broker-Dealer or another customer of that Broker-Dealer shall not be
deemed to be a sale, transfer or other disposition for purposes of this Section
7 if such Broker-Dealer remains the Existing Holder of the shares so sold,
transferred or disposed of immediately after such sale, transfer or disposition
and (b) in the case of all transfers other than pursuant to Auctions, the
Broker-Dealer (or other Person, if permitted by the Trust) to whom such
transfer is made shall advise the Auction Agent of such transfer.

8. Global Certificate.

   Prior to the commencement of a Voting Period, (i) all of the shares of a
series of Preferred Shares outstanding from time to time shall be represented
by one global certificate registered in the name of the Securities Depository
or its nominee and (ii) no registration of transfer of shares of a series of
Preferred Shares shall be made on the books of the Trust to any Person other
than the Securities Depository or its nominee.

   IN WITNESS WHEREOF, BLACKROCK NEW YORK MUNICIPAL INCOME TRUST, has caused
these presents to be signed on October 2, 2001 in its name and on its behalf by
its President and attested by its Secretary. Said officers of the Trust have
executed this Statement as officers and not individually, and the obligations
and rights set forth in this Statement are not binding upon any such officers,
or the trustees or shareholders of the Trust, individually, but are binding
only upon the assets and property of the Trust.


                                          Blackrock New York
                                          Municipal Income Trust


                                          By: _________________________________

                                          Name: Ralph L. Schlosstein


                                          Title: President


ATTEST: _____________________________

Name: Anne F. Ackerley


Title: Secretary


October 2, 2001


                                     AA-38
<PAGE>

                   BLACKROCK NEW YORK MUNICIPAL INCOME TRUST

APPENDIX A

                                   SECTION 1

Designation as to Series.

   SERIES W7: A series of [  ] Preferred Shares, par value $.001 per share,
liquidation preference $25,000 per share, is hereby designated "Municipal
Auction Rate Cumulative Preferred Shares, Series W7." Each of the 2,195 shares
of Series W7 Preferred Shares issued on October 5, 2001 shall, for purposes
hereof, be deemed to have a Date of Original Issue of October 5, 2001; have an
Applicable Rate for its Initial Rate Period equal to [ ]% per annum; have an
initial Dividend Payment Date of October 18, 2001; and have such other
preferences, limitations and relative voting rights, in addition to those
required by applicable law or set forth in the Agreement and Declaration of
Trust, as amended and restated, applicable to Preferred Shares of the Trust, as
set forth in Part I and Part II of this Statement. Any shares of Series W7
Preferred Shares issued thereafter shall be issued on the first day of a Rate
Period of the then outstanding shares of Series W7 Preferred Shares, shall
have, for such Rate Period, an Applicable Rate equal to the Applicable Rate for
shares of such series established in the first Auction for shares of such
series preceding the date of such issuance; and shall have such other
preferences, limitations and relative voting rights, in addition to those
required by applicable law or set forth in the Agreement and Declaration of
Trust applicable to Preferred Shares of the Trust, as set forth in Part I and
Part II of this Statement. The Series W7 Preferred Shares shall constitute a
separate series of Preferred Shares of the Trust, and each share of Series W7
Preferred Shares shall be identical except as provided in Section 11 of Part I
of this statement.


   SERIES F7: A series of [ ] Preferred Shares, par value $.001 per share,
liquidation preference $25,000 per share, is hereby designated "Municipal
Auction Rate Cumulative Preferred Shares, Series F7." Each of the 2,195 shares
of Series F7 Preferred Shares issued on October 5, 2001 shall, for purposes
hereof, be deemed to have a Date of Original Issue of October 5, 2001; have an
Applicable Rate for its Initial Rate Period equal to [ ]% per annum; have an
initial Dividend Payment Date of October 22, 2001; and have such other
preferences, limitations and relative voting rights, in addition to those
required by applicable law or set forth in the Agreement and Declaration of
Trust, as amended and restated, applicable to Preferred Shares of the Trust, as
set forth in Part I and Part II of this Statement. Any shares of Series F7
Preferred Shares issued thereafter shall be issued on the first day of a Rate
Period of the then outstanding shares of Series F7 Preferred Shares, shall
have, for such Rate Period, an Applicable Rate equal to the Applicable Rate for
shares of such series established in the first Auction for shares of such
series preceding the date of such issuance; and shall have such other
preferences, limitations and relative voting rights, in addition to those
required by applicable law or set forth in the Agreement and Declaration of
Trust applicable to Preferred Shares of the Trust, as set forth in Part I and
Part II of this Statement. The Series F7 Preferred Shares shall constitute a
separate series of Preferred Shares of the Trust, and each share of Series F7
Preferred Shares shall be identical except as provided in Section 11 of Part I
of this statement.


                                   SECTION 2

Number of Authorized Shares Per Series.

   The number of authorized shares constituting Series W7 Preferred Shares is
[  ].

   The number of authorized shares constituting Series F7 Preferred Shares is
[  ].

                                   SECTION 3

Exceptions to Certain Definitions.

   Notwithstanding the definitions contained under the heading "Definitions" in
this Statement, the following terms shall have the following meanings for
purposes of this Statement:

   Not applicable.

                                     AA-39
<PAGE>

                                   SECTION 4

Certain Definitions.

   For purposes of this Statement, the following terms shall have the following
meanings (with terms defined in the singular having comparable meanings when
used in the plural and vice versa), unless the context otherwise requires:

   "ESCROWED BONDS" shall mean Municipal Obligations that (i) have been
determined to be legally defeased in accordance with S&P's legal defeasance
criteria, (ii) have been determined to be economically defeased in accordance
with S&P's economic defeasance criteria and assigned a rating of AAA by S&P,
(iii) are not rated by S&P but have been determined to be legally defeased by
Moody's or (iv) have been determined to be economically defeased by Moody's and
assigned a rating no lower than the rating that is Moody's equivalent of S&P's
AAA rating.

   "GROSS-UP PAYMENT" means payment to a Holder of Preferred Shares of an
amount which, when taken together with the aggregate amount of Taxable
Allocations made to such Holder to which such Gross-up Payment relates, would
cause such Holder's dividends in dollars (after Federal income tax
consequences) from the aggregate of such Taxable Allocations and the related
Gross-up Payment to be at least equal to the dollar amount of the dividends
which would have been received by such Holder if the amount of such aggregate
Taxable Allocations had been excludable from the gross income of such Holder.
Such Gross-up Payment shall be calculated (i) without consideration being given
to the time value of money; (ii) assuming that no Holder of Preferred Shares is
subject to the Federal alternative minimum tax with respect to dividends
received from the Trust; and (iii) assuming that each Taxable Allocation and
each Gross-up Payment (except to the extent such Gross-up Payment is designated
as an exempt-interest dividend under Section 852(b)(5) of the Code or successor
provisions) would be taxable in the hands of each Holder of Preferred Shares at
the maximum marginal regular Federal individual income tax rate applicable to
ordinary income or net capital gain, as applicable, or the maximum marginal
regular Federal corporate income tax rate applicable to ordinary income or net
capital gain, as applicable, which ever is greater, in effect at the time such
Gross-up Payment is made.

   "INVERSE FLOATER" shall mean trust certificates or other instruments
evidencing interests in one or more Municipal Obligations that qualify as S&P
Eligible Assets, the interest rates on which are adjusted at short-term
intervals on a basis that is inverse to the simultaneous readjustment of the
interest rates on corresponding floating rate trust certificates or other
instruments issued by the same issuer, provided that the ratio of the aggregate
dollar amount of floating rate instruments to inverse floating rate instruments
issued by the same issuer does not exceed one to one at their time of original
issuance unless the floating instruments have only one reset remaining until
maturity.

   "MOODY'S DISCOUNT FACTOR" shall mean, for purposes of determining the
Discounted Value of any Moody's Eligible Asset, the percentage determined by
reference to the rating on such asset and the shortest Exposure Period set
forth opposite such rating that is the same length as or is longer than the
Moody's Exposure Period, in accordance with the table set forth below:

                                RATING CATEGORY

<TABLE>
<CAPTION>
Exposure Period          Aaa  Aa*  A*   Baa*  Other** (V)MIG-1*** SP-1+**** Unrated*****
---------------          ---  ---  ---  ----  ------- ----------- --------- ------------
<S>                      <C>  <C>  <C>  <C>   <C>     <C>         <C>       <C>
7 weeks................. 151% 159% 166% 173%    187%      136%       148%       225%
8 weeks or less but
 greater than seven
 weeks.................. 154  161  168  176     190       137        149        231
9 weeks or less but
 greater than eight
 weeks.................. 156  163  170  177     192       138        150        240
</TABLE>
--------
*  Moody's rating.
**  Municipal Obligations not rated by Moody's but rated BBB by S&P.
***  Municipal Obligations rated MIG-1 or VMIG-1, which do not mature or have a
     demand feature at par exercisable in 30 days and which do not have a long-
     term rating.
****  Municipal Obligations not rated by Moody's but rated SP-1+ by S&P, which
      do not mature or have a demand feature at par exercisable in 30 days and
      which do not have a long-term rating.
*****  Municipal Obligations rated less than Baa3 by Moody's or less than BBB
       by S&P or not rated by Moody's or S&P.

                                     AA-40
<PAGE>

   Notwithstanding the foregoing, (i) the Moody's Discount Factor for short-
term Municipal Obligations will be 115%, so long as such Municipal Obligations
are rated at least MIG-1, VMIG-l or P-1 by Moody's and mature or have a demand
feature at par exercisable in 30 days or less or 125% as long as such Municipal
Obligations are rated at least A-1+/AA or SP-1+/AA by S&P and mature or have a
demand feature at par exercisable in 30 days or less and (ii) no Moody's
Discount Factor will be applied to cash or to Receivables for Municipal
Obligations Sold.

   "MOODY'S ELIGIBLE ASSET" shall mean cash, Receivables for Municipal
Obligations Sold or a Municipal Obligation that (i) pays interest in cash, (ii)
does not have its Moody's rating, as applicable, suspended by Moody's, and
(iii) is part of an issue of Municipal Obligations of at least $10,000,000.
Municipal Obligations issued by any one issuer and rated BBB or lower by S&P,
Ba or B by Moody's or not rated by S&P and Moody's ("Other Securities") may
comprise no more than 4% of total Moody's Eligible Assets; such other
Securities, if any, together with any Municipal Obligations issued by the same
issuer and rated Baa by Moody's or A by S&P, may comprise no more than 6% of
total Moody's Eligible Assets; such Other Securities, Baa and A-rated Municipal
Obligations, if any, together with any Municipal Obligations issued by the same
issuer and rated A by Moody's or AA by S&P, may comprise no more than 10% of
total Moody's Eligible Assets; and such Baa, A and AA-rated Municipal
Obligations, if any, together with any Municipal Obligations issued by the same
issuer and rated Aa by Moody's or AAA by S&P, may comprise no more than 20% of
total Moody's Eligible Assets. For purposes of the foregoing sentence any
Municipal Obligation backed by the guaranty, letter of credit or insurance
issued by a third party shall be deemed to be issued by such third party if the
issuance of such third party credit is the sole determinant of the rating on
such Municipal Obligation. Other Securities issued by issuers located within a
single state or territory may comprise no more than 12% of total Moody's
Eligible Assets; such Other Securities, if any, together with any Municipal
Obligations issued by issuers located within the same state or territory and
rated Baa by Moody's or A by S&P, may comprise no more than 20% of total
Moody's Eligible Assets; such Other Securities, Baa and A-rated Municipal
Obligations, if any, together with any Municipal Obligations issued by issuers
located within the same state or territory and rated A by Moody's or AA by S&P,
may comprise no more than 40% of total Moody's Eligible Assets; and such Other
Securities, Baa, A and AA-rated Municipal Obligations, if any, together with
any Municipal Obligations issued by issuers located within the same state or
territory and rated Aa by Moody's or AAA by S&P, may comprise no more than 60%
of total Moody's Eligible Assets. For purposes of applying the foregoing
requirements, a Municipal Obligation shall be deemed to be rated BBB by S&P if
rated BBB-, BBB or BBB+ by S&P, Moody's Eligible Assets shall be calculated
without including cash, and Municipal Obligations rated MIG-1, VMIG-1 or P-1
or, if not rated by Moody's, rated A-1+/AA or SP-1+/AA by S&P, shall be
considered to have a long-term rating of A. When the Trust sells a Municipal
Obligation and agrees to repurchase such Municipal Obligation at a future date,
such Municipal Obligation shall be valued at its Discounted Value for purposes
of determining Moody's Eligible Assets, and the amount of the repurchase price
of such Municipal Obligation shall be included as a liability for purposes of
calculating the Preferred Basic Maintenance Amount. When the Trust purchases a
Moody's Eligible Asset and agrees to sell it at a future date, such Eligible
Asset shall be valued at the amount of cash to be received by the Trust upon
such future date, provided that the counterparty to the transaction has a long-
term debt rating of at least A2 from Moody's and the transaction has a term of
no more than 30 days, otherwise, such Eligible Asset shall be valued at the
Discounted Value of such Eligible Asset.

   Notwithstanding the foregoing, an asset will not be considered a Moody's
Eligible Asset to the extent it is (i) subject to any material lien, mortgage
pledge, security interest or security agreement of any kind (collectively,
"Liens"), except for (a) Liens which are being contested in good faith by
appropriate proceedings and which Moody's has indicated to the Trust will not
affect the status of such asset as a Moody's Eligible Asset, (b) Liens for
taxes that are not then due and payable or that can be paid thereafter without
penalty, (c) Liens to secure payment for services rendered or cash advanced to
the Trust by BlackRock Advisors, Inc., BlackRock Financial Management, Inc.,
State Street Bank and Trust or the Auction Agent and (d) Liens by virtue of any
repurchase agreement; or (iii) deposited irrevocably for the payment of any
liabilities for purposes of determining the Preferred Shares Basic Maintenance
Amount.

                                     AA-41
<PAGE>

   "RATE MULTIPLE," for shares of a series of Preferred Shares on any Auction
Date for shares of such series, shall mean the percentage, determined as set
forth in the columns below (depending on whether the trust has notified the
Auction Agent of its intent to allocate income taxable for Federal income tax
purposes to shares of such series prior to the Auction establishing the
Applicable Rate for shares of such series as provided in this statement) based
on the prevailing rating of shares of such series in effect at the close of
business on the Business Day next preceding such Auction Date:

<TABLE>
<CAPTION>
                                                        Applicable
                                                        Percentage   Applicable
                                                            No       Percentage
       Prevailing Rating                               Notification Notification
       -----------------                               ------------ ------------
       <S>                                             <C>          <C>
       "aa3"/AA- or higher............................     110%         150%
       "a3"/A-........................................     125%         160%
       "baa3"/BBB-....................................     150%         250%
       "ba3"/BB-......................................     200%         275%
       Below "ba3"/BB-................................     250%         300%
</TABLE>

   For purposes of this definition, the "prevailing rating" of shares of a
series of Preferred Shares shall be (i) "aa3"/AA- or higher if such shares have
a rating of "aa3" or better by Moody's and AA- or better by S&P or the
equivalent of such ratings by such agencies or a substitute rating agency or
substitute rating agencies selected as provided below, (ii) if not "aa3"/AA- or
higher, then "a3"/A- if such shares have a rating of "a3" or better by Moody's
and A- or better by S&P or the equivalent of such ratings by such agencies or a
substitute rating agency or substitute rating agencies selected as provided
below, (iii) if not "aa3"/AA- or higher or a3/A- then "baa3"/BBB--if such
shares have a rating of "baa3" or better by Moody's and BBB- or better by S&P
or the equivalent of such ratings by such agencies or a substitute rating
agency or substitute rating agencies selected as provided below, (iv) if not
"aa3"/AA- or higher, "a3"/A- or "baa3"/BBB-, then "ba3"/BB- if such shares have
a rating of "ba3" or better by Moody's and BB- or better by S&P or the
equivalent of such ratings by such agencies or a substitute rating agency or
substitute rating agencies selected as provided below, and (v) if not "aa3"/AA-
or higher, "a3"/A-, "baa3"/BBB-, or "ba3"/BB-, then Below "ba3"/BB-; provided,
however, that if such shares are rated by only one rating agency, the
prevailing rating will be determined without reference to the rating of any
other rating agency. The Trust shall take all reasonable action necessary to
enable either S&P or Moody's to provide a rating for the Preferred Shares. If
neither S&P nor Moody's shall make such a rating available, the party set forth
in Section 7 of Appendix A or its successor shall select one nationally
recognized statistical rating organization (as that term is used in the rules
and regulations of the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended from time, to time) to act as a substitute
rating agency in respect of shares of the series of Preferred Shares set forth
opposite such party's name in Section 7 of Appendix A and the Trust shall take
all reasonable action to enable such rating agency to provide a rating for such
shares.

   "S&P DISCOUNT FACTOR" shall mean, for purposes of determining the Discounted
Value of any S&P Eligible Asset, the percentage determined by reference to the
rating on such asset and the shortest Exposure Period set forth opposite such
rating that is the same length as or is longer than the S&P Exposure Period, in
accordance with the table set forth below:

<TABLE>
<CAPTION>
                                                   Rating Category
                                                  --------------------
   Exposure Period                                AAA*  AA*  A*   BBB*  High Yield
   ---------------                                ----  ---  ---  ----  ----------
   <S>                                            <C>   <C>  <C>  <C>   <C>
   45 Business Days.............................. 210%  215% 230% 270%     240%
   25 Business Days.............................. 190   195  210  250      240
   10 Business Days.............................. 175   180  195  235      240
   7 Business Days............................... 170   175  190  230      240
   3 Business Days............................... 150   155  170  210      240
</TABLE>
  --------
  *  S&P rating.


                                     AA-42
<PAGE>

   Notwithstanding the foregoing, (i) the S&P Discount Factor for short-term
Municipal Obligations will be 115%, so long as such Municipal Obligations are
rated A-1+ or SP-1+ by S&P and mature or have a demand feature exercisable
within 30 days or less, or 120% so long as such Municipal Obligations are rated
A-1 or SP-1 by S&P and mature or have a demand feature exercisable in 30 days
or less or 125% if such Municipal Obligations are not rated by S&P but are
rated equivalent to A-1+ or SP-1+ by another nationally recognized statistical
rating organization, on a case by case basis; provided, however, that any such
non-S&P rated short-term Municipal Obligations which have demand features
exercisable within 30 days or less must be backed by a letter of credit,
liquidity facility or guarantee from a bank or other financial institution with
a short-term rating of at least A-1+ from S&P; and further provided that such
non-S&P rated short-term Municipal Obligations may comprise no more than 50% of
short-term Municipal Obligations that qualify as S&P Eligible Assets; provided,
however, that Municipal Obligations not rated by S&P but rated equivalent to
BBB or lower by another nationally recognized statistical rating organization,
rated BB+ or lower by S&P or non-rated (such Municipal Obligations are
hereinafter referred to as "High Yield Securities") may comprise no more than
20% of the short-term Municipal Obligations that qualify as S&P Eligible
Assets; (ii) the S&P Discount Factor for Receivables for Municipal Obligations
Sold that are due in more than five Business Days from such Valuation Date will
be the S&P Discount Factor applicable to the Municipal Obligations sold; (iii)
no S&P Discount Factor will be applied to cash or to Receivables for Municipal
Obligations Sold if such receivables are due within five Business Days of such
Valuation Date; and (iv) except as set forth in clause (i) above, in the case
of any Municipal Obligation that is not rated by S&P but qualifies as an S&P
Eligible Asset pursuant to clause (iii) of that definition, such Municipal
Obligation will be deemed to have an S&P rating one full rating category lower
than the S&P rating category that is the equivalent of the rating category in
which such Municipal Obligation is placed by a nationally recognized
statistical rating organization. "Receivables for Municipal Obligations Sold,"
for purposes of calculating S&P Eligible Assets as of any Valuation Date, means
the book value of receivables for Municipal Obligations sold as of or prior to
such Valuation Date. The Trust may adopt S&P Discount Factors for Municipal
Obligations other than Municipal Obligations provided that S&P advises the
Trust in writing that such action will not adversely affect its then current
rating on the Preferred Shares. For purposes of the foregoing, Anticipation
Notes rated SP-1+ or, if not rated by S&P, equivalent to A-1+ or SP-1+ by
another nationally recognized statistical rating organization, on a case by
case basis, which do not mature or have a demand feature at par exercisable in
30 days and which do not have a long-term rating, shall be considered to be
short-term Municipal Obligations.

   "S&P ELIGIBLE ASSET" shall mean cash (excluding any cash irrevocably
deposited by the Trust for the payment of any liabilities within the meaning of
Preferred Shares Basic Maintenance Amount), Receivables for Municipal
Obligations Sold or a Municipal Obligation owned by the Trust that (i) is
interest bearing and pays interest at least semi-annually; (ii) is payable with
respect to principal and interest in U.S. Dollars; (iii) is publicly rated BBB
or higher by S&P or, if not rated by S&P but rated equivalent or higher to an A
by another nationally recognized statistical rating organization, on a case by
case basis; (iv) is not subject to a covered call or put option written by the
Trust; (v) except for Inverse Floaters, is not part of a private placement of
Municipal Obligations; and (vi) except for Inverse Floaters, is part of an
issue of Municipal Obligations with an original issue size of at least $10
million or, if of an issue with an original issue size below $10 million (but
in no event below $5 million), is issued by an issuer with a total of at least
$50 million of securities outstanding. Solely for purposes of this definition,
the term "Municipal Obligation" means any obligation the interest on which is
exempt from regular Federal income taxation and which is issued by any of the
fifty United States, the District of Columbia or any of the territories of the
United States, their subdivisions, counties, cities, towns, villages, school
districts and agencies (including authorities and special districts created by
the states), and federally sponsored agencies such as local housing
authorities. Notwithstanding the foregoing limitations:

     (1) Municipal Obligations (excluding Escrowed Bonds) of any one issuer
  or guarantor (excluding bond insurers) shall be considered S&P Eligible
  Assets only to the extent the Market Value of such Municipal Obligations
  (including short-term Municipal Obligations) does not exceed 10% of the
  aggregate Market Value of S&P Eligible Assets, provided that 2% is added to
  the applicable S&P Discount Factor for every 1% by which the Market Value
  of such Municipal Obligations exceeds 5% of the aggregate

                                     AA-43
<PAGE>

  Market Value of S&P Eligible Assets. High Yield Securities of any one
  issuer shall be considered S&P Eligible Assets only to the extent the
  Market Value of such Municipal Obligations does not exceed 5% of the
  aggregate Market Value of S&P Eligible Assets;

     (2) Municipal Obligations not rated by S&P shall be considered S&P
  Eligible Assets only to the extent the Market Value of such Municipal
  Obligations does not exceed 50% of the aggregate Market Value of S&P
  Eligible Assets; provided, however, that High Yield Securities shall be
  considered S&P Eligible Assets only to the extent the Market Value of such
  Municipal Obligations does not exceed 20% of the aggregate Market Value of
  S&P Eligible Assets; and

     (3) Out of State Bonds shall be considered S&P Eligible Assets only to
  the extent that the Market Value of such Municipal Obligations does not
  exceed 20% of the aggregate Market Value of S&P Eligible Assets.

                                   SECTION 5

Initial Rate Periods.

   The Initial Rate Period for shares of Series W7 Preferred Shares shall be
the period from and including the Date of Original Issue thereof to but
excluding October 18, 2001.


   The Initial Rate Period for shares of Series F7 Preferred Shares shall be
the period from and including the Date of Original Issue thereof to but
excluding October 22, 2001.


                                   SECTION 6

Date for Purposes of the Definition of "Quarterly Valuation Date" Contained
under the Heading "Definitions" in this Statement.

   December 31, 2001


                                   SECTION 7

Party Named for Purposes of the Definition of "Rate Multiple" in this
Statement.


<TABLE>
<CAPTION>
   Party:                                             Series of Preferred Shares
   ------                                             --------------------------
   <S>                                                <C>
   Salomon Smith Barney..............................         Series W7
   Salomon Smith Barney..............................         Series F7
</TABLE>


                                   SECTION 8

Additional Definitions.

   Not applicable.

                                   SECTION 9

Dividend Payment Dates.

   Except as otherwise provided in paragraph (d) of Section 2 of Part I of this
Statement, dividends shall be payable on shares of: Series W7 Preferred Shares,
for the Initial Rate Period on October 17, 2001, and on

                                     AA-44
<PAGE>


each Thursday thereafter, and Series F7 Preferred Shares, for the Initial Rate
Period on October 21 2001, and on each Monday thereafter.


                                   SECTION 10

Amount for Purposes of Subparagraph (c) (i) of Section 5 of Part I of this
Statement.

   $109,750,000


                                   SECTION 11

Redemption Provisions Applicable to Initial Rate Periods.

   Not applicable.

                                   SECTION 12

Applicable Rate for Purposes of Subparagraph (b) (iii) of Section 3 of Part II
of this Statement.

   For purposes of subparagraph (b)(iii) of Section 3 of Part II of this
Statement, the Applicable Rate for shares of such series for the next
succeeding Rate Period of shares of such series shall be equal to the lesser of
the Kenny Index (if such Rate Period consists of fewer than 183 Rate Period
Days) or the product of (A) (I) the "AA" Composite Commercial Paper Rate on
such Auction Date for such Rate Period, if such Rate Period consists of fewer
than 183 Rate Period Days; (II) the Treasury Bill Rate on such Auction Date for
such Rate Period, if such Rate Period consists of more than 182 but fewer than
365 Rate Period Days; or (III) the Treasury Note Rate on such Auction Date for
such Rate Period, if such Rate Period is more than 364 Rate Period Days (the
rate described in the foregoing clause (A)(I), (II) or (III), as applicable,
being referred to herein as the Benchmark Rate") and (B) 1 minus the maximum
marginal regular Federal individual income tax rate applicable to ordinary
income or the maximum marginal regular Federal corporate income tax rate
applicable to ordinary income, whichever is greater; provided, however, that if
the Trust has notified the Auction Agent of its intent to allocate to shares of
such series in such Rate Period any net capital gains or other income taxable
for Federal income tax purposes ("Taxable Income"), the Applicable Rate for
shares of such series for such Rate Period will be (i) if the Taxable Yield
Rate (as defined below) is greater than the Bench mark Rate, then the Benchmark
Rate, or (ii) if the Taxable Yield Rate is less than or equal to the Benchmark
Rate, then the rate equal to the sum of (x) the lesser of the Kenny Index (if
such Rate Period consists of fewer than 183 Rate Period Days) or the product of
the Benchmark Rate multiplied by the factor set forth in the preceding clause
(B) and (y) the product of the maximum marginal regular Federal individual
income tax rate applicable to ordinary income or the maximum marginal regular
Federal corporate income tax applicable to ordinary income, whichever is
greater, multiplied by the Taxable Yield Rate. For purposes of the foregoing,
Taxable Yield Rate means the rate determined by (a) dividing the amount of
Taxable Income available for distribution per such Preferred Shares by the
number of days in the Dividend Period in respect of which such Taxable Income
is contemplated to be distributed, (b) multiplying the amount determined in (a)
above by 365 (in the case of a Dividend Period of 7 Rate Period Days) or 360
(in the case of any other Dividend Period), and (c) dividing the amount
determined in (b) above by $25,000.

                                   SECTION 13

Certain Other Restrictions and Requirements

   (a) For so long as any Preferred Shares are rated by Moody's, the Trust will
not buy or sell futures contracts, write, purchase or sell call options on
futures contracts or purchase put options on futures contracts

                                     AA-45
<PAGE>

or write call options (except covered call options) on portfolio securities
unless it receives written confirmation from Moody's that engaging in such
transactions would not impair the ratings then assigned to the Preferred Shares
by Moody's, except that the Trust may purchase or sell exchange-traded futures
contracts based on the Bond Buyer Municipal Bond Index (the Municipal Index")
or United States Treasury Bonds or Notes ("Treasury Bonds"), and purchase,
write or sell exchange-traded Put options on such futures contracts and
purchase, write or sell exchange-traded call options on such futures contracts
(collectively, "Moody's Hedging Transactions"), subject to the following
limitations:

     (i) the Trust will not engage in any Moody's Hedging Transaction based
  on the Municipal Index (other than transactions which terminate a futures
  contract or option held by the Trust by the Trust's taking an opposite
  position thereto ("Closing Transactions")) which would cause the Trust at
  the time of such transaction to own or have sold (A) outstanding futures
  contracts based on the Municipal Index exceeding in number 10% of the
  average number of daily traded futures contracts based on the Municipal
  Index in the 30 days preceding the time of effecting such transaction as
  reported by the Wall Street Journal or (B) outstanding futures contracts
  based on the Municipal Index having a Market Value exceeding 50% of the
  Market Value of all Municipal Bonds constituting Moody's Eligible Assets
  owned by the Trust (other than Moody's Eligible Assets already subject to a
  Moody's Hedging Transaction);

     (ii) the Trust will not engage in any Moody's Hedging Transaction based
  on Treasury Bonds (other than Closing Transactions) which would cause the
  Trust at the time of such transaction to own or have sold (A) outstanding
  futures contracts based on Treasury Bonds having an aggregate Market Value
  exceeding 20% of the aggregate Market Value of Moody's Eligible Assets
  owned by the Trust and rated Aa by Moody's (or, if not rated by Moody's but
  rated by S&P, rated AAA by S&P) or (B) outstanding futures contracts based
  on Treasury Bonds having an aggregate Market Value exceeding 40% of the
  aggregate Market Value of all Municipal Bonds constituting Moody's Eligible
  Assets owned by the Trust (other than Moody's Eligible Assets already
  subject to a Moody's Hedging Transaction) and rated Baa or A by Moody's
  (or, if not rated by Moody's but rated by S&P, rated A or AA by S&P (for
  purpose of the foregoing clauses (i) and (ii), the Trust shall be deemed to
  own the number of futures contracts that underlie any outstanding options
  written by the Trust);

     (iii) the Trust will engage in Closing Transactions to close out any
  outstanding futures contract based on the Municipal Index if the amount of
  open interest in the Municipal Index as reported by The Wall Street Journal
  is less than 5,000;

     (iv) the Trust will engage in a Closing Transaction to close out any
  outstanding futures contract by no later than the fifth Business Day of the
  month in which such contracts expires and will engage in a Closing
  Transaction to close out any outstanding option on a futures contract by no
  later than the first Business Day of the month in which such option
  expires;

     (v) the Trust will engage in Moody's Hedging Transaction only with
  respect to futures contracts or options thereon having the next settlement
  date of the settlement date immediately thereafter;

     (vi) the Trust will not engage in options and futures transactions for
  leveraging or speculative purposes and will not write any call options or
  sell any futures contracts for the purpose of hedging the anticipated
  purchase of an asset prior to completion of such purchase; and

     (vii) the Trust will not enter into an option of futures transaction
  unless, after giving effect thereto, the Trust would continue to have
  Moody's Eligible Assets with an aggregate Discounted Value equal to or
  greater than the Preferred Shares Basic Maintenance Amount.

   For purposes of determining whether the Trust has Moody's Eligible Assets
with an aggregate Discounted Value that equals or exceeds the Preferred Shares
Basic Maintenance Amount, the Discounted Value of Moody's Eligible Assets which
the Trust is obligated to deliver or receive pursuant to an outstanding futures
contract or option shall be as follows: (i) assets subject to call options
written by the Trust which are either exchange-traded and "readily reversible"
or which expire within 49 days after the date as of which such valuation is
made shall be valued at the lesser of (a) Discounted Value and (b) the exercise
price of the call

                                     AA-46
<PAGE>

option written by the Trust; (ii) assets subject to call options written by the
Trust not meeting the requirements of clause (i) of this sentence shall have no
value; (iii) assets subject to put options written by the Trust shall be valued
at the lesser of (A) the exercise price and (B) the Discounted Value of the
subject security; (iv) futures contracts shall be valued at the lesser of (A)
settlement price and (B) the Discounted Value of the subject security, provided
that, if a contract matures within 49 days after the date as of which such
valuation is made, where the Trust is the seller the contract may be valued at
the settlement price and where the Trust is the buyer the contract may be
valued at the Discounted Value of the subject securities; and (v) where
delivery may be made to the Trust with any security of a class of securities,
the Trust shall assume that it will take delivery of the security with the
lowest Discounted Value.

   For purposes of determining whether the Trust has Moody's Eligible Assets
with an aggregate Discounted Value that equals or exceeds the Preferred Shares
Basic Maintenance Amount, the following amounts shall be subtracted from the
aggregate Discounted Value of the Moody's Eligible Assets held by the Trust:
(i) 10% of the exercise price of a written call option; (ii) the exercise price
of any written put option; (iii) where the Trust is the seller under a futures
contract, 10% of the settlement price of the futures contract; (iv) where the
Trust is the purchaser under a futures contract, the settlement price of assets
purchased under such futures contract; (v) the settlement price of the
underlying futures contract if the Trust writes put options on a futures
contract; and (vi) 105% of the Market Value of the underlying futures contracts
if the Trust writes call options on a futures contract and does not own the
underlying contract.

   (b) For so long as any Preferred Shares are rated by Moody's, the Trust will
not enter into any contract to purchase securities for a fixed price at a
future date beyond customary settlement time (other than such contracts that
constitute Moody's Hedging Transactions that are permitted under Section 13(b)
of this Statement), except that the Trust may enter into such contracts to
purchase newly-issued securities on the date such securities are issued
("Forward Commitments"), subject to the following limitation:

     (i) the Trust will maintain in a segregated account with its custodian
  cash, cash equivalents or short-term, fixed-income securities rated P-1,
  MTG-1 or MIG-1 by Moody's and maturing prior to the date of the Forward
  Commitment with a Market Value that equals or exceeds the amount of the
  Trust's obligations under any Forward Commitments to which it is from time
  to time a party or long-term fixed income securities with a Discounted
  Value that equals or exceeds the amount of the Trust's obligations under
  any Forward Commitment to which it is from time to time a party; and

     (ii) the Trust will not enter into a Forward Commitment unless, after
  giving effect thereto, the Trust would continue to have Moody's Eligible
  Assets with an aggregate Discounted Value equal to or greater than the
  Preferred Shares Maintenance Amount.

   For purposes of determining whether the Trust has Moody's Eligible Assets
with an aggregate Discounted Value that equals or exceeds the Preferred Shares
Basic Maintenance Amount, the Discounted Value of all Forward Commitments to
which the Trust is a party and of all securities deliverable to the Trust
pursuant to such Forward Commitments shall be zero.

   (c) For so long as any Preferred Shares are rated by S&P, the Trust will not
purchase or sell futures contracts, write, purchase or sell options on futures
contracts or write put options (except covered put options) or call options
(except covered call options) on portfolio securities unless it receives
written confirmation from S&P that engaging in such transactions will not
impair the ratings then assigned to the Preferred Shares by S&P, except that
the Fund may purchase or sell futures contracts based on the Bond Buyer
Municipal Bond Index (the "Municipal Index") or United States Treasury Bonds or
Notes ("Treasury Bonds") and write, purchase or sell put and call options on
such contracts (collectively, "S&P Hedging Transactions"), subject to the
following limitations:

     (i) the Trust will not engage in any S&P Hedging Transaction based on
  the Municipal Index (other than transactions which terminate a futures
  contract or option held by the fund by the Trust's taking an opposite
  position thereto ("Closing Transactions")), which would cause the Trust at
  the time of such

                                     AA-47
<PAGE>

  transaction to own or have sold the least of (A) more than 1,000
  outstanding futures contracts based on the Municipal Index, (B) outstanding
  futures contracts based on the Municipal Index exceeding in number 25% of
  the quotient of the Market Value of the Trust's total assets divided by
  $1,000 or (C) outstanding futures contracts based on the Municipal Index
  exceeding in number 10% of the average number of daily traded futures
  contracts based on the Municipal Index in the 30 days preceding the time of
  effecting such transaction as reported by The Wall Street Journal;

     (ii) the Trust will not engage in any S&P Hedging Transaction based on
  Treasury Bonds (other than Closing Transactions) which would cause the
  Trust at the time of such transaction to own or have sold the lesser of (A)
  outstanding futures contracts based on Treasury Bonds exceeding in number
  50% of the quotient of the Market Value of the Trust's total assets divided
  by $100,000 ($200,000 in the case of the two-year United States Treasury
  Note) or (B) outstanding futures contracts based on Treasury Bonds
  exceeding in number 10% of the average number of daily traded futures
  contracts based on Treasury Bonds in the 30 days preceding the time of
  effecting such transaction as reported by The Wall Street Journal.

     (iii) the Trust will engage in Closing Transactions to close out any
  outstanding futures contract which the Trust owns or has sold or any
  outstanding option thereon owned by the Trust in the event (A) the Trust
  does not have S&P Eligible Assets with an aggregate Discounted Value equal
  to or greater than the Preferred Shares Basic Maintenance Amount on two
  consecutive Valuation Dates and (B) the Trust is required to pay Variation
  Margin on the second such Valuation Date;

     (iv) the Trust will engage in a Closing Transaction to close out any
  outstanding futures contract or option thereon in the month prior to the
  delivery month under the terms of such futures contract or option thereon
  unless the Trust holds the securities deliverable under such terms; and

     (v) when the Trust writes a futures contract or option thereon, it will
  either maintain an amount of cash, cash equivalents or high grade (rated A
  or better by S&P), fixed-income securities in a segregated account with the
  Trust's custodian, so that the amount so segregated plus the amount of
  Initial Margin and Variation Margin held in the account of or on behalf of
  the Trust's broker with respect to such futures contract or option equals
  the Market Value of the futures contract or option, or, in the event the
  Trust writes a futures contract or option thereon which requires delivery
  of an underlying security, it shall hold such underlying security in its
  portfolio.

   For purposes of determining whether the Trust has S&P Eligible Assets with a
Discounted Value that equals or exceeds the Preferred Shares Basic Maintenance
Amount, the Discounted Value of cash or securities held for the payment of
Initial Margin or Variation Margin shall be zero and the aggregate Discounted
Value of S&P Eligible Assets shall be reduced by an amount equal to (i) 30% of
the aggregate settlement value, as marked to market, of any outstanding futures
contracts based on the Municipal Index which are owned by the Trust plus (ii)
25% of the aggregate settlement value, as marked to market, of any outstanding
futures contracts based on Treasury Bonds which contracts are owned by the
Fund.

                                     AA-48
<PAGE>

                                   APPENDIX B

Ratings of Investments

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

 Long-Term Debt

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

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

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

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

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

    2. Nature of and provisions of the obligation; and

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

 Investment Grade

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

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

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

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

 Speculative Grade Rating

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


                                      BB-1
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

                                      BB-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.

                                      BB-3
<PAGE>

The ratings may be changed, suspended or withdrawn as a result of changes in or
unavailability of such information or based on other circumstances.

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

 Municipal Bonds

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

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

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

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

Ba    Bonds which are rated Ba are judged to have speculative elements; their
      future cannot be considered as well assured. Often the protection of
      interest and principal payments may be very moderate and thereby not well
      safeguarded during both good and bad times over the future. Uncertainty
      of position characterizes bonds in this class.

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

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

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

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

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

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

                                      BB-4
<PAGE>

     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.

   Fitch IBCA, Inc.--A brief description of the applicable Fitch IBCA, Inc.
("Fitch") ratings symbols and meanings (as published by Fitch) follows:

                                     BB-5
<PAGE>

 Long-Term Credit Ratings

   Investment Grade

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

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

A     High credit quality. "A' ratings denote a low expectation of credit risk.
      The capacity for timely payment of financial commitments is considered
      strong. This capacity may, nevertheless, be more vulnerable to changes in
      circumstances or in economic conditions than is the case for higher
      ratings.

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

   Speculative Grade

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

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

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

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

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

 Short-Term Credit Ratings

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

                                      BB-6
<PAGE>

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. The 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.

                                      BB-7
<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 below the exercise price of the
option, less the premium received on the sale of the option. The Trust is
authorized to purchase and sell exchange-listed options and over-the-counter
options ("OTC Options") which are privately negotiated with the counterparty.
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,

                                      CC-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

                                      CC-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 Trust will be required to
segregate on an ongoing basis with its custodian, cash, U.S. government
securities, or other liquid high grade debt obligations in an amount at least
equal to the Trust's obligations with respect to such instruments. Such amounts
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.

                                      CC-3
<PAGE>

                                     PART C

                               OTHER INFORMATION

Item 24. Financial Statements and Exhibits

(1)Financial Statements

  Part A--Financial Highlights (unaudited)

  Part B--Report of Independent Accountants

  Statement of Assets and Liabilities.

  Statement of Operations.

  Financial Statements (Unaudited)

(2) Exhibits


<TABLE>
<CAPTION>
   (a)    Amended and Restated Agreement and Declaration of Trust./2/

   <C>    <S>
   (b)    By-Laws./1/

   (c)    Inapplicable.

          Statement of Preferences of Municipal Auction Rate Cumulative
   (d)(1) Preferred Shares/5/

   (d)(2) Form of Specimen Stock Certificate./6/

   (e)    Dividend Reinvestment Plan./1/

   (f)    Inapplicable.

   (g)(1) Investment Management Agreement./3/

   (g)(2) Waiver Reliance Letter./3/

   (g)(3) Sub-Investment Advisory Agreement./3/

   (h)    Form of Underwriting Agreement./4/

   (i)    Deferred Compensation Plan for Independent Trustees./3/

   (j)    Custodian Agreement./3/

   (k)(1) Transfer Agency Agreement./3/

   (k)(2) Auction Agency Agreement./6/

   (k)(3) Broker-Dealer Agreement./6/

   (k)(4) Form of DTC Agreement./4/

   (l)    Opinion and Consent of Counsel to the Trust./6/

   (m)    Inapplicable.

   (n)    Consent of Independent Public Accountants./6/

   (o)    Inapplicable.

   (p)    Initial Subscription Agreement./3/

   (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./4/
</TABLE>

--------
/1/Previously filed in the initial filing on April 3, 2001
/2/Previously filed with Pre-Effective Amendment No. 3 to the Registration
   Statement of the Common Shares on July 25, 2001.

/3/Previously filed with the initial filing of the Registration Statement of
   the Preferred Shares on August 21, 2001.


/4/Previously filed with Pre-Effective Amendment No. 1 to the Registration
   Statement of the Preferred Shares on September 27, 2001.


/5 /Filed as Appendix A of the Statement of Additional Information.


/6/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................................................  $27,437
     Printing (other than certificates)...............................   22,302
     Rating Fees......................................................   76,825
     Accounting fees and expenses.....................................    1,500
     Legal fees and expenses..........................................   55,037
     Miscellaneous....................................................   10,000
       Total.......................................................... $193,101
</TABLE>

--------
* To be furnished by amendment.

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

   None.

Item 28. Number of Holders of Shares


<TABLE>
<CAPTION>
                                                                    Number of
     Title of Class                                               Record Holders
     --------------                                               --------------
     <S>                                                          <C>
     Common Shares of Beneficial Interest........................       44
     Preferred Shares............................................        0
</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, other than the Trust or its
Shareholders, in connection with Trust Property or the affairs of the Trust,
save only liability to the Trust or its Shareholders arising from bad faith,
willful misfeasance, gross negligence (negligence in the case of those Trustees
or officers who are directors, officers or employees of the Trust's investment
advisor ("Affiliated Indemnitees")) 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,

                                      C-2
<PAGE>

subject to the foregoing exception, he shall not, on account thereof, be held
to any personal liability. Any repeal or modification of this Section 5.1 shall
not adversely affect any right or protection of a Trustee or officer of the
Trust existing at the time of such repeal or modification with respect to acts
or omissions occurring prior to such repeal or modification.

   5.2 Mandatory Indemnification. (a) The Trust hereby agrees to indemnify each
person who at any time serves as a Trustee or officer of the Trust (each such
person being an "indemnitee") against any liabilities and expenses, including
amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and reasonable counsel fees reasonably incurred by such indemnitee
in connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
investigative body in which he may be or may have been involved as a party or
otherwise or with which he may be or may have been threatened, while acting in
any capacity set forth in this Article V by reason of his having acted in any
such capacity, except with respect to any matter as to which he shall not have
acted in good faith in the reasonable belief that his action was in the best
interest of the Trust or, in the case of any criminal proceeding, as to which
he shall have had reasonable cause to believe that the conduct was unlawful,
provided, however, that no indemnitee shall be indemnified hereunder against
any liability to any person or any expense of such indemnitee arising by reason
of (i) willful misfeasance, (ii) bad faith, (iii) gross negligence (negligence
in the case of Affiliated Indemnitees), or (iv) reckless disregard of the
duties involved in the conduct of his position (the conduct referred to in such
clauses (i) through (iv) being sometimes referred to herein as "disabling
conduct"). Notwithstanding the foregoing, with respect to any action, suit or
other proceeding voluntarily prosecuted by any indemnitee as plaintiff,
indemnification shall be mandatory only if the prosecution of such action, suit
or other proceeding by such indemnitee (1) was authorized by a majority of the
Trustees or (2) was instituted by the indemnitee to enforce his or her rights
to indemnification hereunder in a case in which the indemnitee is found to be
entitled to such indemnification. The rights to indemnification set forth in
this Declaration shall continue as to a person who has ceased to be a Trustee
or officer of the Trust and shall inure to the benefit of his or her heirs,
executors and personal and legal representatives. No amendment or restatement
of this Declaration or repeal of any of its provisions shall limit or eliminate
any of the benefits provided to any person who at any time is or was a Trustee
or officer of the Trust or otherwise entitled to indemnification hereunder in
respect of any act or omission that occurred prior to such amendment,
restatement or repeal.

   (b) Notwithstanding the foregoing, no indemnification shall be made
hereunder unless there has been a determination (i) by a final decision on the
merits by a court or other body of competent jurisdiction before whom the issue
of entitlement to indemnification hereunder was brought that such indemnitee is
entitled to indemnification hereunder or, (ii) in the absence of such a
decision, by (1) a majority vote of a quorum of those Trustees who are neither
"interested persons" of the Trust (as defined in Section 2(a)(19) of the 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

                                      C-3
<PAGE>

legal counsel in a written opinion, shall conclude, based on a review of
readily available facts (as opposed to a full trial-type inquiry), that there
is substantial reason to believe that the indemnitee ultimately will be found
entitled to indemnification.

   (d) The rights accruing to any indemnitee under these provisions shall not
exclude any other right which any person may have or hereafter acquire under
this Declaration, the By-Laws of the Trust, any statute, agreement, vote of
stockholders or Trustees who are "disinterested persons" (as defined in Section
2(a)(19) of the 1940 Act) or any other right to which he or she may be lawfully
entitled.

   (e) Subject to any limitations provided by the 1940 Act and this
Declaration, the Trust shall have the power and authority to indemnify and
provide for the advance payment of expenses to employees, agents and other
Persons providing services to the Trust or serving in any capacity at the
request of the Trust to the full extent corporations organized under the
Delaware General Corporation Law may indemnify or provide for the advance
payment of expenses for such Persons, provided that such indemnification has
been approved by a majority of the Trustees.

   5.3 No Bond Required of Trustees. No Trustee shall, as such, be obligated to
give any bond or other security for the performance of any of his duties
hereunder.

   5.4 No Duty of Investigation; Notice in Trust Instruments, etc. No
purchaser, lender, transfer agent or other person dealing with the Trustees or
with any officer, employee or agent of the Trust shall be bound to make any
inquiry concerning the validity of any transaction purporting to be made by the
Trustees or by said officer, employee or agent or be liable for the application
of money or property paid, loaned, or delivered to or on the order of the
Trustees or of said officer, employee or agent. Every obligation, contract,
undertaking, instrument, certificate, Share, other security of the Trust, and
every other act or thing whatsoever executed in connection with the Trust shall
be conclusively taken to have been executed or done by the executors thereof
only in their capacity as Trustees under this Declaration or in their capacity
as officers, employees or agents of the Trust. Every written obligation,
contract, undertaking, instrument, certificate, Share, other security of the
Trust made or issued by the Trustees or by any officers, employees or agents of
the Trust in their capacity as such, shall contain an appropriate recital to
the effect that the Shareholders, Trustees, officers, employees or agents of
the Trust shall not personally be bound by or liable thereunder, nor shall
resort be had to their private property for the satisfaction of any obligation
or claim thereunder, and appropriate references shall be made therein to this
Declaration, and may contain any further recital which they may deem
appropriate, but the omission of such recital shall not operate to impose
personal liability on any of the Trustees, Shareholders, officers, employees or
agents of the Trust. The Trustees may maintain insurance for the protection of
the Trust Property, its Shareholders, Trustees, officers, employees and agents
in such amount as the Trustees shall deem adequate to cover possible tort
liability, and such other insurance as the Trustees in their sole judgment
shall deem advisable or is required by the 1940 Act.

   5.5 Reliance on Experts, etc. Each Trustee and officer or employee of the
Trust shall, in the performance of its duties, be fully and completely
justified and protected with regard to any act or any failure to act resulting
from reliance in good faith upon the books of account or other records of the
Trust, upon an opinion of counsel, or upon reports made to the Trust by any of
the Trust's officers or employees or by any advisor, administrator, manager,
distributor, selected dealer, accountant, appraiser or other expert or
consultant selected with reasonable care by the Trustees, officers or employees
of the Trust, regardless of whether such counsel or expert may also be a
Trustee.

   5.6 Indemnification of Shareholders. If any Shareholder or former
Shareholder shall be held personally liable solely by reason of its being or
having been a Shareholder and not because of its acts or omissions or for some
other reason, the Shareholder or former Shareholder (or its heirs, executors,
administrators or other legal representatives or in the case of any entity, its
general successor) shall be entitled out of the assets belonging to

                                      C-4
<PAGE>

the Trust to be held harmless from and indemnified to the maximum extent
permitted by law against all loss and expense arising from such liability. The
Trust shall, upon request by such Shareholder, assume the defense of any claim
made against such Shareholder for any act or obligation of the Trust and
satisfy any judgment thereon from the assets of the Trust.

   Insofar as indemnification for liabilities arising under the Act, may be
terminated to Trustees, officers and controlling persons of the Trust,
pursuant to the foregoing provisions or otherwise, the Trust has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
Reference is made to Article 8 of the underwriting agreement to be attached as
Exhibit (h).

Item 30. Business and Other Connections of Investment Advisor

   Not Applicable

Item 31. Location of Accounts and Records

   The Registrant's accounts, books and other documents are currently located
at the offices of the Registrant, c/o BlackRock Advisors, Inc., 100 Bellevue
Parkway, Wilmington, Delaware 19809 and at the offices of State Street Bank
and Trust Company, the Registrant's Custodian, and EquiServe Trust Company,
N.A., the Registrant's Transfer Agent and Dividend Disbursing Agent.

Item 32. Management Services

   Not Applicable

Item 33. Undertakings

   (1) The Registrant hereby undertakes to suspend the offering of its units
until it amends its prospectus if
(a) subsequent to the effective date of its registration statement, the net
asset value declines more than 10 percent from its net asset value as of the
effective date of the Registration Statement or (b) the net asset value
increases to an amount greater than its net proceeds as stated in the
prospectus.

   (2) Not applicable

   (3) Not applicable

   (4) Not applicable

   (5) (a) For the purposes of determining any liability under the Securities
Act of 1933, the information omitted form the form of prospectus filed as part
of a registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant under Rule 497 (h) under the
Securities Act of 1933 shall be deemed to be part of the Registration
Statement as of the time it was declared effective.

   (b) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of the securities at that time shall be
deemed to be the initial bona fide offering thereof.

   (6) The Registrant undertakes to send by first class mail or other means
designed to ensure equally prompt delivery within two business days of receipt
of a written or oral request, any Statement of Additional Information.

                                      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 2nd day
of October, 2001.


                                                  /s/ Ralph L. Schlosstein
                                          _____________________________________
                                                    Ralph L. Schlosstein
                                                 President, Chief Executive
                                                          Officer
                                                and Chief Financial Officer

   Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities set forth below on the 2nd day of October, 2001.


<TABLE>
<CAPTION>
                   Name                                       Title
                   ----                                       -----

<S>                                                 <C>
       /s/ Ralph L. Schlosstein                     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>
  (d)(2) Form of Specimen Stock Certificate
  (k)(2) Auction Agency Agreement
  (k)(3) Broker-Dealer Agreement
  (l)    Opinion and Consent of Counsel to the Trust
  (n)    Consent of Independent Public Accountants
</TABLE>


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(D)(2)
<SEQUENCE>3
<FILENAME>dex99d2.txt
<DESCRIPTION>FORM OF SPECIMEN STOCK CERTIFICATE
<TEXT>
<PAGE>



                                                                  Exhibit (d)(2)

CERTIFICATE NO.                                                          SHARES
  ________                                                              ________

                   BLACKROCK NEW YORK MUNICIPAL INCOME TRUST
               Organized Under the Laws of The State of Delaware
      Municipal Auction Rate Cumulative Preferred Shares - Series [    ]
                           $.001 Par Value Per Share
                   $25,000 Liquidation Preference Per Share

                                                                       Cusip No.

        This certifies that Cede & Co. is the owner of [      ] fully paid and
non-assessable shares of Municipal Auction Rate Cumulative Preferred Shares -
Series [     ], $.001 par value per share, $25,000 liquidation preference per
share, of BlackRock New York Municipal Income Trust (the "Trust") transferable
only on the books of the Trust by the holder thereof in person or by duly
authorized Attorney upon surrender of this Certificate properly endorsed. This
Certificate is not valid unless countersigned by the transfer agent and
registrar.

        A statement in full, of all the designations, preferences,
qualifications, limitations, restrictions and special or relative rights of the
shares of each class authorized to be issued, will be furnished by the Trust to
any shareholders upon request and without charge.

        IN WITNESS WHEREOF, the Trust has caused this Certificate to be signed
by its duly authorized officers and its Seal to be hereunto affixed this ____
day of October 2001

BANK OF NEW YORK                                      BLACKROCK NEW YORK
As Transfer Agent and Registrar                       MUNICIPAL INCOME TRUST


By: _________________________                         By:
    Authorized Signature                                    President

                                                      Attest:

                                                            Secretary


FOR VALUE RECEIVED, _______________________________ hereby sells, assigns and
transfers unto



Shares represented by this Certificate, and do hereby irrevocably constitute and
appoint ____________________ Attorney to transfer the said Shares on the books
of the within named Trust with full power of substitution in the premises.

Dated ______________________,

In presence of


______________________________

        Shares of Municipal Auction Rate Cumulative Preferred Shares evidenced
        by this Certificate may be sold, transferred, or otherwise disposed of
        only pursuant to the provisions of the Trust's Amended and Restated
        Agreement and Declaration of Trust and the Trust's Statement of
        Preferences.

        The Trust will furnish to any shareholder, upon request and without
        charge, the Trust's Amended and Restated Agreement and Declaration of
        Trust and a full statement of the designations, preferences, limitations
        and relative rights of the shares of each class or series of capital
        stock of the Trust authorized to be issued, so far as they have been
        determined, and the authority of the Board of Trustees to determine the
        relative rights and preferences of subsequent classes or series. Any
        such request should be addressed to the Secretary of the Trust.

Unless this certificate is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC"), to the Trust or its
agent for registration of transfer, exchange, or payment, and any certificate
issued is registered in the name of Cede & Co. or in such other name as is
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(K)(2)
<SEQUENCE>4
<FILENAME>dex99k2.txt
<DESCRIPTION>AUCTION AGENCY AGREEMENT
<TEXT>
<PAGE>

                                                                 Exhibit (k) (2)

                   BLACKROCK [STATE] MUNICIPAL INCOME TRUST
                _______________________________________________

                           AUCTION AGENCY AGREEMENT

                      dated as of ___________ ____, 2001

                                  Relating to

              Municipal Auction Rate Cumulative Preferred Shares

                            Series _______________

                                      of

                   BLACKROCK [STATE] MUNICIPAL INCOME TRUST
                ______________________________________________
                             The Bank of New York,
                               as Auction Agent

                           AUCTION AGENCY AGREEMENT

          This Auction Agency Agreement (this "Agreement"), dated as of
________, 2001, is between BlackRock [State] Municipal Income Trust (the
"Trust") and The Bank of New York, a New York banking corporation.

          The Trust proposes to issue an aggregate of ___________ preferred
shares, no par value, liquidation preference $25,000 per share, designated as
Municipal Auction Rate Cumulative Preferred Shares, Series _____ (the "Preferred
Shares"), pursuant to the Statement of Preferences (as defined below).

          The Trust desires that The Bank of New York perform certain duties as
agent in connection with each Auction (as defined below) (in such capacity, the
"Auction Agent"), and as the transfer agent, registrar, dividend paying agent
and redemption agent with respect to the Preferred Shares (in such capacity, the
"Paying Agent"), upon the terms and conditions of this Agreement, and the Trust
hereby appoints The Bank of New York as said Auction Agent.

<PAGE>

          NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the Trust and the Auction Agent agree as follows:

1.   Definitions and Rules of Construction.

          1.1 Terms Defined By Reference to Statement.

          Capitalized terms not defined herein shall have the respective
meanings specified in the Statement.

          1.2 Terms Defined Herein.

          As used herein and in the Settlement Procedures, the following terms
shall have the following meanings, unless the context otherwise requires:

          (1) "Agent Member" of any Person shall mean the member of, or
participant in, the Securities Depository that will act on behalf of a Bidder.

          (2) "Agreement" shall mean the Agreement, together with the Request
and Acceptance Letter relating to one or more series of Preferred Shares.

          (3) "Auction" shall have the meaning specified in Section 2.1 hereof.

          (4) "Auction Procedures" shall mean the auction procedures
constituting Part II of the form of Statement as of the filing thereof.

          (5) "Authorized Officer" of the Auction Agent shall mean each  Vice
President, Assistant Vice President, Assistant Treasurer and Assistant Secretary
of the Auction Agent assigned to its Corporate Trust and Agency Group and every
other officer or employee of the Auction Agent designated as an "Authorized
Officer" for purposes hereof in a communication to the Trust.

          (6) "Broker-Dealer Agreement" shall mean each agreement among the
Trust, the Auction Agent and a Broker-Dealer substantially in the form attached
hereto as Exhibit A.

          (7) "Preferred Shares" shall mean the preferred shares, par value$.001
per share, of the Trust designated as its "Municipal Auction Rate Cumulative
Preferred Shares" and bearing such further designation as to series as the

                                       2
<PAGE>

Board of Trustees, as the case may be, of the Trust or any committee thereof
shall specify; as set forth in the Request and Acceptance Letter.

          (8) "Settlement Procedures" shall mean the Settlement Procedures
attached hereto as Exhibit B.

          (9) "Statement" shall mean the Statement of Preferences of Municipal
Auction Rate Cumulative Preferred Shares, as the same may be amended,
supplemented or modified from time to time.

          (10) "Trust Officer" shall mean the Chairman and Chief Executive
Officer, the President, each Vice President (whether or not designated by a
number or word or words added before or after the title "Vice President"), the
Secretary, the Treasurer, each Assistant Vice President, each Assistant
Secretary and each Assistant Treasurer of the Trust and every other officer or
employee of the Trust designated as a "Trust Officer" for purposes hereof in a
notice to the Auction Agent.

          1.3 Rules of Construction.

          Unless the context or use indicates another or different meaning or
intent, the following rules shall apply to the construction of the Agreement:

          (1) Words importing the singular number shall include the plural
number and vice versa.

          (2) The captions and headings herein are solely for convenience of
reference and shall not constitute a part of the Agreement nor shall they affect
its meaning, construction or effect.

          (3) The words "hereof", "herein", "hereto" and other words of similar
import refer to the Agreement as a whole.

          (4) All references herein to a particular time of day shall be to New
York City time.

2.   The Auction.

          2.1 Purpose; Incorporation by Reference of Auction Procedures and
Settlement Procedures.


                                       3
<PAGE>

          (1) The Board of Trustees of the Trust has adopted a resolution
appointing Bank of New York as Auction Agent for purposes of the Auction
Procedures. The Auction Agent hereby accepts such appointment and agrees that,
on each Auction Date, it shall follow the procedures set forth in this Section 2
and the Auction Procedures for the purpose of determining the Applicable Rate
for any Subsequent Rate Period of any series of Preferred Shares for which the
Applicable Rate is to be determined by auction. Each periodic operation of such
procedures is hereinafter referred to as an "Auction."

          (2) All of the provisions contained in the Auction Procedures and the
Settlement Procedures are incorporated herein by reference in their entirety and
shall be deemed to be a part hereof to the same extent as if such provisions
were fully set forth herein.

          2.2 Preparation for Each Auction; Maintenance of Registry of
Beneficial Owners.

          (1) Not later than seven days prior to the first Auction Date for the
first series of Preferred Shares subject to an Auction, the Trust shall provide
the Auction Agent with a list of the Broker-Dealers. Not later than seven days
prior to any Auction Date for any series of Preferred Shares for which any
change in such list of Broker-Dealers is to be effective, the Trust will notify
the Auction Agent in writing of such change and, if any such change involves the
addition of a Broker-Dealer to such list, shall cause to be delivered to the
Auction Agent for execution by the Auction Agent a Broker-Dealer Agreement
signed by such Broker-Dealer; provided, however, that if the Trust proposes to
designate any Special Rate Period of any series of Preferred Shares pursuant to
Section 4 of Part I of the Statement, not later than 11:00 A.M. on the Business
Day next preceding the Auction next preceding the first day of such Rate Period
or by such later time or date, or both, as may be agreed to by the Auction
Agent, the Trust shall provide the Auction Agent with a list of the Broker-
Dealers for such series and a manually signed copy of each Broker-Dealer
Agreement or a new Schedule A to a Broker-Dealer Agreement (which Schedule A
shall replace and supersede any previous Schedule A to such Broker-Dealer
Agreement) with each Broker-Dealer for such series. The Auction Agent and the
Trust shall have entered into a Broker-Dealer Agreement with each Broker-Dealer
prior to the participation of any such Broker-Dealer in any Auction.

          (2) In the event that any Auction Date for any series of Preferred
Shares shall be changed after the Auction Agent shall have given the notice
referred to in clause (vi) of paragraph (a) of the Settlement Procedures, or
after the

                                       4
<PAGE>

notice referred to in Section 2.5(a) hereof, if applicable, the Auction Agent,
by such means as the Auction Agent deems practicable, shall give notice of such
change to the Broker-Dealers for such series not later than the earlier of 9:15
A.M. on the new Auction Date or 9:15 A.M. on the old Auction Date.

               (a) (i) The Auction Agent shall maintain a registry of the
     beneficial owners of the Preferred Shares of each series who shall
     constitute Existing Holders of Preferred Shares of such series for purposes
     of Auctions and shall indicate thereon the identity of the respective
     Broker-Dealer of each Existing Holder, if any, on whose behalf such Broker-
     Dealer submitted the most recent Order in any Auction which resulted in
     such Existing Holder continuing to hold or purchasing Preferred Shares of
     such series. The Auction Agent shall keep such registry current and
     accurate based on the information provided to it from time to time by the
     Broker-Dealer. The Trust shall provide or cause to be provided to the
     Auction Agent at or prior to the Date of Original Issue of the Preferred
     Shares of each series a list of the initial Existing Holders of the shares
     of each such series of Preferred Shares, the number of shares purchased by
     each such Existing Holder and the respective Broker-Dealer of each such
     Existing Holder or the affiliate thereof through which each such Existing
     Holder purchased such shares. The Auction Agent may rely upon, as
     conclusive evidence of the identities of the Existing Holders of Preferred
     Shares of any series (A) such list, (B) the results of Auctions, (C)
     notices from any Broker-Dealer as described in the first sentence of
     Section 2.2(c)(iii) hereof and (D) the results of any procedures approved
     by the Trust that have been devised for the purpose of determining the
     identities of Existing Holders in situations where Preferred Shares may
     have been transferred without compliance with any restriction on the
     transfer thereof set forth in the Auction Procedures.

               (1) In the event of any partial redemption of any series of
     Preferred Shares, the Auction Agent shall, at least two Business Days prior
     to the next Auction for such series, request each Broker-Dealer to provide
     the Auction Agent with a list of Persons who such Broker-Dealer believes
     should remain Existing Holders after such redemption based upon inquiries
     of those Persons such Broker-Dealer believes are Beneficial Owners as a
     result of the most recent Auction and with respect to each such Person, the
     number of Preferred Shares of such series such Broker-Dealer believes are
     owned by such Person after such redemption. In the absence of receiving any
     such information from any Broker-Dealer, the Auction Agent may continue to
     treat the Persons listed in its registry of Existing Holders as the
     beneficial

                                       5
<PAGE>

     owner of the number of Preferred Shares of such series shown in such
     registry.

               (2) The Auction Agent shall be required to register a transfer
     of Preferred Shares of any series from an Existing Holder of such Preferred
     Shares only if such transfer is to another Existing Holder, or other Person
     if permitted by the Trust, and only if such transfer is made (A) pursuant
     to an Auction, (B) the Auction Agent has been notified in writing (I) in a
     notice substantially in the form of Exhibit C to the Broker-Dealer
     Agreements by a Broker-Dealer of such transfer or (II) in a notice
     substantially in the form of Exhibit D to the Broker-Dealer Agreements by
     the Broker-Dealer of any Existing Holder, or other Person if permitted by
     the Trust, that purchased or sold such Preferred Shares in an Auction of
     the failure of such Preferred Shares to be transferred as a result of such
     Auction or (C) pursuant to procedures approved by the Trust that have been
     devised for the purpose of determining the identities of Existing Holders
     in situations where Preferred Shares may have been transferred without
     compliance with any restriction on the transfer thereof set forth in the
     Auction Procedures. The Auction Agent is not required to accept any such
     notice for an Auction unless it is received by the Auction Agent by 1:00
     P.M. on the Business Day preceding such Auction.

          (3) The Auction Agent may, but shall have no obligation to, request
the Broker-Dealers, as set forth in the Broker-Dealer Agreements, to provide the
Auction Agent with a list of Persons who such Broker-Dealer believes should be
Existing Holders based upon inquiries of those Persons such Broker-Dealer
believes are Beneficial Owners as a result of the most recent Auction and with
respect to each such Person, the number of shares of such series of Preferred
Shares such Broker-Dealer believes to be owned by such Person. The Auction Agent
shall keep confidential such registry of Existing Holders and shall not disclose
the identities of the Existing Holders of such Preferred Shares to any Person
other than the Trust and the Broker-Dealer that provided such information;
provided, however, that the Auction Agent reserves the right and is authorized
to disclose any such information if (a) it is ordered to do so by a court of
competent jurisdiction or a regulatory body, judicial or quasi-judicial agency
or authority having the authority to compel such disclosure, (b) it is advised
by its counsel that its failure to do so would be unlawful or (c) failure to do
so would expose the Auction Agent to loss, liability, claim, damage or expense
for which it has not received indemnity or security satisfactory to it.

                                       6
<PAGE>

          2.3 Auction Schedule.

          The Auction Agent shall conduct Auctions in accordance with the
schedule set forth below. Such schedule may be changed by the Auction Agent with
the consent of the Trust, which consent shall not be unreasonably withheld. The
Auction Agent shall give written notice of any such change to each Broker-
Dealer. Such notice shall be given prior to the close of business on the
Business Day next preceding the first Auction Date on which any such change
shall be effective.

Time                          Event
----                          -----

By 9:30 A.M.                  Auction Agent advises the Trust and Broker-Dealers
                              of the applicable Maximum Rate and the Reference
                              Rate(s) and Treasury Note Rate(s), as the case may
                              be, used in determining such Maximum Rate as set
                              forth in Section 2.3(b)(i) hereof.

9:30 A.M. - 1:30 P.M.         Auction Agent assembles information communicated
                              to it by Broker-Dealers as provided in Section
                              2(a) of the Auction Procedures. Submission
                              Deadline is 1:30 P.M.

Not earlier than 1:30 P.M.    Auction Agent makes determinations pursuant to
                              Section 3(a) of the Auction Procedures.

By approximately 3:30 P.M.    Auction Agent advises Trust of results of Auction
                              as provided in Section 3(b) of the Auction
                              Procedures.

                              Submitted Bids and Submitted Sell Orders are
                              accepted and rejected and Preferred Shares
                              allocated as provided in Section 4 of the Auction
                              Procedures. Auction Agent gives notice of Auction
                              results as set forth in paragraph(a) of the
                              Settlement Procedures.

                                       7

<PAGE>

The Auction Agent shall follow the notification procedures set forth in
paragraph (a) of the Settlement Procedures.


          2.4  Notice of Auction Results.

          The Auction Agent will advise each Broker-Dealer who submitted a Bid
or Sell Order in an Auction whether such Bid or Sell Order was accepted or
rejected in whole or in part and of the Applicable Rate for the next Dividend
Period for the related Preferred Shares by telephone or through its Auction
Processing System as set forth in paragraph (a) of the Settlement Procedures.

          2.5  Broker-Dealers.

               (1)  Not later than 12:00 Noon on each Auction Date for any
series of Preferred Shares, the Trust shall pay to the Auction Agent an amount
in cash equal to the aggregate fees payable to the Broker-Dealers for such
series pursuant to Section 2.5 of the Broker-Dealer Agreements for such series.
The Auction Agent shall apply such moneys as set forth in Section 2.5 of each
such Broker-Dealer Agreement.

               (2)  The Trust shall obtain the consent of the Auction Agent
prior to selecting any Person to act as a Broker-Dealer, which consent shall not
be unreasonably withheld.

               (3)  The Auction Agent shall terminate any Broker-Dealer
Agreement as set forth therein if so directed by the Trust, provided that at
least one Broker-Dealer Agreement would be in effect for each series of
Preferred Shares after such termination.

               (4)  Subject to the Auction Agent's having consented to the
selection of the relevant Broker-Dealer pursuant to Section 2.5(b) hereof, the
Auction Agent shall from time to time enter into such Broker-Dealer Agreements
with one or more Broker-Dealers as the Trust shall request, and shall enter into
such schedules to any such Broker-Dealer Agreements as the Trust shall request,
which schedules, among other things, shall set forth the series of Preferred
Shares to which such Broker-Dealer Agreement relates.

          2.6 Information Concerning Rates.

                                       8
<PAGE>

               (1)  The Rate Multiple on the date of the Agreement is set forth
in the Request and Acceptance Letter. If there is any change in the credit
rating of Preferred Shares by the rating agency (or substitute or successor
rating agencies) referred to in the definition of "Rate Multiple" resulting in
any change in the Rate Multiple for Preferred Shares after the date of the
Request and Acceptance Letter, the Trust shall notify the Auction Agent in
writing of such change in the Rate Multiple prior to 12:00 Noon on the Business
Day prior to the next Auction Date for any series of Preferred Shares succeeding
such change. If the Trust designates all or a portion of any dividend on shares
of any series of Preferred Shares to consist of net capital gains or other
income taxable for Federal income tax purposes, it may indicate, in a notice in
the form of Exhibit I hereto to the Auction Agent pursuant to Section 2.6
hereof, the Rate Multiple for such series to be in effect for the Auction Date
on which the dividend rate for such dividend is to be fixed. In determining the
Maximum Rate for any series of Preferred Shares on any Auction Date as set forth
in Section 2.3(b)(i) hereof, the Auction Agent shall be entitled to rely on the
last Rate Multiple for Preferred Shares of which it has most recently received
notice from the Trust (or, in the absence of such notice, the percentage
determined by reference to the definition of Rate Multiple), except that if the
Trust shall have notified the Auction Agent of a Rate Multiple to be in effect
for an Auction Date in accordance with the preceding sentence, the Rate Multiple
in effect for the next succeeding Auction Date of any series of Preferred Shares
shall be, unless the Trust notifies the Auction Agent of a change in the Rate
Multiple for such succeeding Auction Date pursuant to this Section 2.6(a), the
Rate Multiple that was in effect on the first preceding Auction Date for
Preferred Shares with respect to which the dividend, the rate for which was
fixed on such Auction Date, did not include any net capital gain or other income
taxable for Federal income tax purposes.

                    (1)  On each Auction Date for any series of Preferred
     Shares, the Auction Agent shall determine the Maximum Rate for such series.
     The Maximum Rate for any series of Preferred Shares on any Auction Date
     shall be:

                         (1)  in the case of any Auction Date which is not the
          Auction Date immediately prior to the first day of any proposed
          Special Rate Period designated by the Trust pursuant to Section 4 of
          Part I of the Statement, the product of (1) the Reference Rate on such
          Auction Date for the next Rate Period of such series and (2) the Rate
          Multiple on such Auction Date, unless such series has or had a Special
          Rate Period (other than a Special Rate Period of 28 Rate Period Days
          or fewer) and an Auction at which Sufficient Clearing

                                       9
<PAGE>

          Bids existed has not yet occurred for a Minimum Rate Period of such
          series after such Special Rate Period, in which case the higher of:

                         (1)  the dividend rate on shares of such series for the
               then-ending Rate Period; and

                         (2)  the product of (x) the higher of (I) the Reference
               Rate on such Auction Date for a Rate Period equal in length to
               the then-ending Rate Period of such series, if such then ending
               Rate Period was 364 Rate Period Days or fewer, or the Treasury
               Note Rate on such Auction Date for a Rate Period equal in length
               to the then-ending Rate Period of such series, if such then
               ending Rate Period was more than 364 Rate Period Days, and (II)
               the Reference Rate on such Auction Date for a Rate Period equal
               in length to such Special Rate Period of such series, if such
               Special Rate Period was 364 Rate Period Days or fewer, or the
               Treasury Note Rate on such Auction Date for a Rate Period equal
               in length to such Special Rate Period, if such Special Rate
               Period was more than 364 Rate Period Days and (y) the Rate
               Multiple on such Auction Date; or

                    (2)  in the case of any Auction Date which is the Auction
          Date immediately prior to the first day of any proposed Special Rate
          Period designated by the Trust pursuant to Section 4 of Part I of the
          Statement, the product of (1) the highest of (x) the Reference Rate on
          such Auction Date for a Rate Period equal in length to the then-ending
          Rate Period of such series, if such then-ending Rate Period was 364
          Rate Period Days or fewer, or the Treasury Note Rate on such Auction
          Date for a Rate Period equal in length to the then-ending Rate Period
          of such Rate Period, if such then-ending Rate Period was more than 364
          Rate Period Days, (y) the Reference Rate on such Auction Date for the
          Special Rate Period for which the Auction is being held if such
          Special Rate Period is 364 Rate Period Days or fewer or the Treasury
          Note Rate on such Auction Date for the Special Rate Period for which
          the Auction is being held if such Special Rate Period is more than 364
          Rate Period Days, and (z) the Reference Rate on such Auction Date for
          Minimum Rate Periods and (2) the Rate Multiple on such Auction Date.

Not later than 9:30 A.M. on each Auction Date the Auction Agent shall notify the
Trust and the Broker-Dealers of the Maximum Rate and the "AA" Composite

                                      10
<PAGE>

Commercial Paper Rate(s), the Taxable Equivalent of the Short-Term Municipal
Bond Rate(s), Treasury Note Rate(s) and Treasury Bill Rate(s), as the case may
be, used to make such determination.

               (2)  From and after a Failure to Deposit by the Trust during any
     Rate Period of any series of Preferred Shares, until such failure is cured
     and a Late Charge is paid, in accordance with subparagraph (e)(i) of
     Section 2 of Part I of the Statement, on the first day of each Rate Period
     of such series the Auction Agent shall determine the Treasury Note Rate for
     such Rate Period of more than 364 Rate Period Days and the Reference Rate
     for Rate Periods of 364 Rate Period Days or fewer. Not later than 9:30 A.M.
     on each such first day, the Auction Agent shall notify the Trust of the
     applicable Reference Rate and Treasury Note Rate.

               (3)  If any "AA" Composite Commercial Paper Rate, Taxable
     Equivalent of the Short-Term Municipal Bond Rate, Treasury Note Rate or
     Treasury Bill Rate, as the case may be, is not quoted on an interest or
     bond equivalent, as the case may be, basis, the Auction Agent shall convert
     the quoted rate to the interest or bond equivalent thereof as set forth in
     the definition of such rate in the Statement if the rate obtained by the
     Auction Agent is quoted on a discount basis, or if such rate is quoted on a
     basis other than an interest or bond equivalent or discount basis the
     Auction Agent shall convert the quoted rate to an interest or bond
     equivalent rate after consultation with the Trust as to the method of such
     conversion.

               (4)  If any "AA" Composite Commercial Paper Rate is to be based
     on rates supplied by Commercial Paper Dealers and one or more of the
     Commercial Paper Dealers shall not provide a quotation for the
     determination of such "AA" Composite Commercial Paper Rate, the Auction
     Agent shall immediately notify the Trust so that the Trust can determine
     whether to select a Substitute Commercial Paper Dealer or Substitute
     Commercial Paper Dealers to provide the quotation or quotations not being
     supplied by any Commercial Paper Dealer or Commercial Paper Dealers. The
     Trust shall promptly advise the Auction Agent of any such selection.

               (5)   If any Treasury Note Rate or Treasury Bill Rate is to be
     based on rates supplied by U.S. Government Securities Dealers and one or
     more of the U.S. Government Securities Dealers shall not provide a
     quotation for the determination of such Treasury Rate, the Auction Agent
     shall immediately notify the Trust so that the Trust can determine whether
     to

                                      11
<PAGE>

     select a Substitute U.S. Government Securities Dealer or Substitute U.S.
     Government Securities Dealers to provide the quotation or quotations not
     being supplied by any U.S. Government Securities Dealer or U.S. Government
     Securities Dealers. The Trust shall promptly advise the Auction Agent of
     any such selection.

               (2)  The maximum marginal tax rate referred to in the definition
of "Rate Multiple" in the Statement is referred to in this Agreement as the
"Highest Marginal Rate." The Highest Marginal Rate on the date of the Agreement
is set forth in the Request and Acceptance Letter. If there is any change in the
Highest Marginal Rate, the Trust shall notify the Auction Agent in writing of
such change prior to 12:00 Noon on the Business Day prior to the next Auction
Date for Preferred Shares succeeding such change. In determining the Maximum
Rate for any series of Preferred Shares on any Auction Date, the Auction Agent
shall be entitled to rely on the Highest Marginal Rate of which it has most
recently received notice from the Trust (or, in the absence of such notice, the
percentage set forth in the Request and Acceptance Letter).

          2.7  Designation of Special Rate Period.

               (1)  The Statement will provide that, subject to the Trust's
option to designate a Special Rate Period as referred to in paragraph (b) of
this Section 2.7, (i) each Rate Period of any series of Preferred Shares will be
a Minimum Rate Period (a duration of seven days, subject to certain exceptions)
and (ii) each Rate Period following a Rate Period of any series of Preferred
Shares that is other than a Minimum Rate Period will be a Minimum Rate Period.
Not less than 10 nor more than 20 days prior to the last day of any such Rate
Period that is not a Minimum Rate Period, (i) the Trust shall deliver to the
Auction Agent a notice of the Auction Date of the next succeeding Auction for
such series in the form of Exhibit C hereto and (ii) the Auction Agent shall
deliver such notice by first-class mail, postage prepaid, to each Existing
Holder of shares of such series at the address set forth for such Existing
Holder in the records of the Auction Agent and to the Broker-Dealers for such
series as promptly as practicable after its receipt of such notice from the
Trust.

               (2)  Pursuant to the Statement, the Trust may, at its option,
designate a Special Rate Period for any series of Preferred Shares in the manner
described in Section 4 of Part I of the Statement.

                                      12
<PAGE>

               (1)  If the Board of Trustees proposes to designate any
     succeeding Subsequent Rate Period of any series of Preferred Shares as a
     Special Rate Period, (A) the Trust shall deliver to the Auction Agent a
     notice of such proposed Special Rate Period in the form of Exhibit D hereto
     not less than 20 (or such lesser number of days as may be agreed to from
     time to time by the Auction Agent) nor more than 30 days prior to the first
     day of such proposed Special Rate Period and (B) the Auction Agent on
     behalf of the Trust shall deliver such notice by first-class mail, postage
     prepaid, to each Existing Holder of shares of such series of Preferred
     Shares at the address set forth for such Existing Holder in the records of
     the Auction Agent and to the Broker-Dealers for such series as promptly as
     practicable after its receipt of such notice from the Trust.

               (2) If the Board of Trustees determines to designate such
     succeeding Subsequent Rate Period as a Special Rate Period, (A) the Trust
     shall deliver to the Auction Agent a notice of such determination in the
     form of Exhibit E hereto not later than 11:00 A.M. on the second Business
     Day next preceding the first day of such proposed Special Rate Period (or
     such later time or date, or both, as may be agreed to by the Auction Agent)
     and (B) the Auction Agent shall deliver such notice to the Broker-Dealers
     for such series not later than 3:00 P.M. on such second Business Day (or,
     if the Auction Agent has agreed to a later time or date, as promptly as
     practicable thereafter).

               (3) If the Trust shall deliver to the Auction Agent a notice not
     later than 11:00 A.M. on the second Business Day next preceding the first
     day of such proposed Special Rate Period (or such later time or date, or
     both, as may be agreed to by the Auction Agent) stating that the Trust has
     determined not to exercise its option to designate such succeeding
     Subsequent Rate Period as a Special Rate Period, in the form of Exhibit F
     hereto, or shall fail to timely deliver either such notice or a notice in
     the form of Exhibit E hereto, the Auction Agent shall deliver a notice in
     the form of Exhibit F hereto to the Broker-Dealers for such series not
     later than 3:00 P.M. on such second Business Day (or, if the Auction Agent
     has agreed to a later time or date, as promptly as practicable thereafter).

          Such change in the length of any Rate Period shall not occur if (1) an
Auction for shares of such series shall not be held on such Auction Date for any
reason or (2) an Auction for shares of such series shall be held on such Auction
Date but Sufficient Clearing Bids for shares of such series shall not exist in
such Auction.

                                      13
<PAGE>

          2.8 Failure to Deposit.

              (1)  If:

               (1) any Failure to Deposit shall have occurred with respect to
     Preferred Shares during any Rate Period thereof (other than any Special
     Rate Period of more than 364 Rate Period Days or any Rate Period succeeding
     any Special Rate Period of more than 364 Rate Period Days during which a
     Failure to Deposit occurred that has not been cured), but, prior to 12:00
     Noon, New York City time, on the third Business Day next succeeding the
     date on which such Failure to Deposit occurred, such Failure to Deposit
     shall have been cured in accordance with Section 2.8(c) hereof and the
     Trust shall have paid to the Auction Agent a late charge (a "Late Charge")
     equal to the sum of (1) if such Failure to Deposit consisted of the failure
     timely to pay to the Auction Agent the full amount of dividends with
     respect to any Dividend Period on such shares, an amount computed by
     multiplying (x) 200% of the Reference Rate for the Rate Period during which
     such Failure to Deposit occurs on the Dividend Payment Date for such
     Dividend Period by (y) a fraction, the numerator of which shall be the
     number of days for which such Failure to Deposit has not been cured in
     accordance with Section 2.8(c) hereof (including the day such Failure to
     Deposit occurs and excluding the day such Failure to Deposit is cured) and
     the denominator of which shall be 360, and applying the rate obtained
     against the aggregate liquidation preference of the outstanding Preferred
     Shares and (2) if such Failure to Deposit consisted of the failure timely
     to pay to the Auction Agent the Redemption Price of the Preferred Shares,
     if any, for which Notice of Redemption has been given by the Trust, an
     amount computed by multiplying (x) 200% of the Reference Rate for the Rate
     Period during which such Failure to Deposit occurs on the redemption date
     by (y) a fraction, the numerator of which shall be the number of days for
     which such Failure to Deposit is not cured in accordance with Section
     2.8(c) hereof (including the day such Failure to Deposit occurs and
     excluding the day such Failure to Deposit is cured) and the denominator of
     which shall be 360, and applying the rate obtained against the aggregate
     liquidation preference of the outstanding Preferred Shares to the redeemed,

then the Auction Agent shall deliver a notice in the form of Exhibit G hereto by
first-class mail, postage prepaid, to the Broker-Dealers for such series not
later than one Business Day after its receipt of the payment from the Trust
curing such Failure to Deposit and such Late Charge.

                                      14
<PAGE>

              (2)  If:

               (1) any Failure to Deposit shall have occurred with respect to
     Preferred Shares during any Rate Period thereof (other than any Special
     Rate Period of more than 364 Rate Period Days or any Rate Period succeeding
     any Special Rate Period of more than 364 Rate Period Days during which a
     Failure to Deposit occurred but has not been cured), and, prior to 12:00
     Noon, New York City time, on the third Business Day next succeeding the
     date on which such Failure to Deposit occurred, such Failure to Deposit
     shall not have been cured in accordance with Section 2.8(c) hereof or the
     Trust shall not have paid the applicable Late Charge to the Auction Agent;
     or

               (2)  any Failure to Deposit shall have occurred with respect to
     Preferred Shares during a Special Rate Period thereof of more than 364 Rate
     Period Days, or during any Rate Period thereof succeeding any Special Rate
     Period of more than 364 Rate Period Days during which a Failure to Deposit
     occurred that has not been cured, and, prior to 12:00 noon, New York City
     time, on the fourth Business Day preceding the Auction Date for the Rate
     Period subsequent to such Rate Period, such Failure to Deposit shall not
     have been cured in accordance with Section 2.8(c) hereof or the Trust shall
     not have paid the applicable Late Charge to the Auction Agent in accordance
     with Section 2(e)(i)(d) of the Statement (such Late Charge, for purposes of
     this clause (b) (iii) of this Section 2.8, to be calculated by using, as
     the Reference Rate, the Reference Rate applicable to a Rate Period (x)
     consisting of more than 182 Rate Period Days and (y) commencing on the date
     on which the Rate Period during which Failure to Deposit occurs commenced);

then the Auction Agent shall deliver a notice in the form of Exhibit H hereto to
the Broker-Dealers for such series not later than one Business Day after the
receipt of the payment from the Trust curing such Failure to Deposit and such
Late Charge.

          (3) A Failure to Deposit with respect to Preferred Shares shall have
been cured (if such Failure to Deposit is not solely due to the willful failure
to the Trust to make the required payment to the Auction Agent) with respect to
any Rate Period if, within the respective time periods described immediately
above, the Trust shall have paid to the Auction Agent (i) all accumulated and
unpaid dividends on the Preferred Shares and (ii) without duplication, the
Redemption Price for the

                                      15
<PAGE>

Preferred Shares, if any, for which Notice of Redemption has been mailed;
provided, however, that the foregoing clause (ii) shall not apply to the Trust's
failure to pay the Redemption Price in respect of Preferred Shares when the
related Redemption Notice provides that redemption of such shares is subject to
one or more conditions precedent and each such condition precedent shall not
have been satisfied at the time or times and in the manner specified in such
Notice of Redemption.

          2.9 Ownership of Shares of Preferred Shares.

          The Trust shall notify the Auction Agent if the Trust or any affiliate
of the Trust acquires any Preferred Shares of any series.  Neither the Trust nor
any affiliate of the Trust shall submit any Order in any Auction for Preferred
Shares, except as set forth in the next sentence.  Any Broker-Dealer that is an
affiliate of the Trust may submit Orders in Auctions, but only if such Orders
are not for its own account.  For purposes of this Section 2.9, a Broker-Dealer
shall not be deemed to be an affiliate of the Trust solely because one or more
of the directors or executive officers of such Broker-Dealer or of any Person
controlled by, in control of or under common control with such Broker-Dealer is
also a director of the Trust.  The Auction Agent shall have no duty or liability
with respect to enforcement of this Section 2.9.

          2.10 Allocation of Taxable Income.

          The Trust may designate all or a portion of any dividend on shares of
any series of Preferred Shares to consist of net capital gains or other income
taxable for Federal income tax purposes and may deliver to the Auction Agent a
notice in the form of Exhibit I hereto of such designation not later than the
Dividend Payment Date for such series next preceding the Auction Date on which
the dividend rate for such dividend is to be fixed.  The Auction Agent will
deliver such notice, if given, to the Broker-Dealers for such series on the
Business Day following its receipt of such notice from the Trust.  Within two
Business Days after any Auction Date involving the allocation of income taxable
for Federal income tax purposes for which notice has so been given by the Trust,
the Auction Agent shall notify each Broker-Dealer for the related series as to
the dollar amount per share of such taxable income and income exempt from
Federal income taxation included in the related dividend.

          2.11 Access to and Maintenance of Auction Records.

          The Auction Agent shall afford to the Trust, its agents, independent
public accountants and counsel and the Broker-Dealers, access at reasonable
times during normal business hours to review and make extracts or copies of all
books,

                                      16
<PAGE>

records, documents and other information concerning the conduct and results of
Auctions (at no cost to the Auction Agent), provided that any such agent,
accountant, counsel or Broker-Dealer shall furnish the Auction Agent with a
letter from the Trust requesting that the Auction Agent afford such person
access. The Auction Agent shall maintain records relating to any Auction for a
period of six years after such Auction, and such records shall, in reasonable
detail, accurately and fairly reflect the actions taken by the Auction Agent
hereunder.

3.   The Auction Agent as Dividend and Redemption Price Disbursing Agent.

          The Auction Agent, as dividend and redemption price disbursing agent,
shall pay to the Holders of Preferred Shares of any series (i) on each Dividend
Payment Date for such series, dividends on the Preferred Shares of such series,
(ii) on any date fixed for redemption of Preferred Shares of any series, the
Redemption Price of any shares of such series called for redemption and (iii)
any Late Charge related to any payment of dividends or Redemption Price, in each
case after receipt of the necessary funds from the Trust with which to pay such
dividends, Redemption Price or Late Charge.  The amount of dividends for any
Rate Period for any series of Preferred Shares to be paid by the Auction Agent
to the Holders of such shares of such series will be determined by the Trust as
set forth in Section 2 of Part I of the Statement with respect to such series.
The Redemption Price of any shares to be paid by the Auction Agent to the
Holders will be determined by the Trust as set forth in Section 11 of Part I of
the Statement with respect to such series.  The Trust shall notify the Auction
Agent in writing of a decision to redeem shares of any series of Preferred
Shares at least five days prior to the date a notice of redemption is required
to be mailed to the Holders of the shares to be redeemed by paragraph (c) of
Section 11 of Part I of the Statement.  Such notice by the Trust to the Auction
Agent shall contain the information required by paragraph (c) of Section 11 of
Part I of the Statement to be stated in the notice of redemption required to be
mailed by the Trust to such Holders.

4.   The Auction Agent as Transfer Agent and Registrar.

          4.1 Issue of Stock or Shares Certificates.

          Upon the Date of Original Issue of each series of Preferred Shares,
one or more certificates representing all of the shares of such series issued on
such date shall be issued by the Trust and, at the request of the Trust,
registered in the name of Cede & Co. and countersigned by the Auction Agent.

                                      17
<PAGE>

          4.2 Registration of Transfer of Shares.

          Shares of each series of Preferred Shares shall be registered solely
in the name of the Securities Depository or its nominee.

          4.3 Removal of Legend on Restricted Shares.

          All requests for removal of legends on Preferred Shares of any series
indicating restrictions on transfer shall be accompanied by an opinion of
counsel stating that such legends may be removed and such shares freely
transferred, such opinion to be delivered under cover of a letter from a Trust
Officer authorizing the Auction Agent to remove the legend on the basis of said
opinion.

          4.4 Lost Stock or Share Certificates.

          The Auction Agent shall issue and register replacement certificates
for certificates represented to have been lost, stolen or destroyed upon the
fulfillment of such requirements as shall be deemed appropriate by the Trust and
the Auction Agent, subject at all times to provisions of law, the By-Laws of the
Trust governing such matters and resolutions adopted by the Trust with respect
to lost securities.  The Auction Agent may issue new certificates in exchange
for and upon the cancellation of mutilated certificates.  Any request by the
Trust to the Auction Agent to issue a replacement or new certificate pursuant to
this Section 4.4 shall be deemed to be a representation and warranty by the
Trust to the Auction Agent that such issuance will comply with such provisions
of law and the By-Laws and resolutions of the Trust.

          4.5 Disposition of Cancelled Certificates; Record Retention.

          The Auction Agent shall retain all stock or share certificates which
have been cancelled in transfer or exchange and all accompanying documentation
in accordance with applicable rules and regulations of the Securities and
Exchange Commission for two calendar years.  The Trust shall also undertake to
furnish to the Securities and Exchange Commission and to the Board of Governors
of the Federal Reserve System, upon demand, at either the principal office or at
any regional office, complete, correct and current hard copies of any and all
such records.

          4.6 Stock or Record Books.

          For so long as the Auction Agent is acting as the transfer agent for
any series of Preferred Shares pursuant to the Agreement, it shall maintain a
stock or

                                      18
<PAGE>

record book containing a list of the Holders of the Preferred Shares of each
such series. In case of any request or demand for the inspection of the stock or
record books of the Trust or any other books in the possession of the Auction
Agent, the Auction Agent will notify the Trust and secure instructions as to
permitting or refusing such inspection. The Auction Agent reserves the right,
however, to exhibit the stock or record books or other books to any Person if
(a) it is ordered to do so by a court of competent jurisdiction or a regulatory
body, judicial or quasi-judicial agency or authority having the authority to
compel such disclosure, (b) it is advised by its counsel that its failure to do
so would be unlawful or (c) failure to do so would expose the Auction Agent to
loss, liability, claim, damage or expense for which it has not received
indemnity or security satisfactory to it.

          4.7 Return of Funds.

          Any funds deposited with the Auction Agent hereunder by the Trust for
any reason, including but not limited to redemption of Preferred Shares of any
series, that remain unpaid after ninety days shall be repaid to the Trust upon
the written request of the Trust.

5.   Representations and Warranties.

          5.1 Representations and Warranties of the Trust

          The Trust represents and warrants to the Auction Agent that:

              (1) the Trust is duly organized and existing business trust in
good standing under the laws of the State of its incorporation or organization
and has full corporate power or all requisite power to execute and deliver the
Agreement and to authorize, create and issue the Preferred Shares of each
series, and the Preferred Shares of each series when issued, will be duly
authorized, validly issued, fully paid and nonassessable;

              (2) the Agreement has been duly and validly authorized, executed
and delivered by the Trust and constitutes the legal, valid and binding
obligation of the Trust;

              (3) the form of the certificate evidencing the Preferred Shares of
each series complies or will comply with all applicable laws of the State of its
incorporation or organization;

                                      19
<PAGE>

              (b) when issued, the Preferred Shares of each series will have
been duly registered under the Securities Act of 1933, as amended, and no
further action by or before any governmental body or authority of the United
States or of any state thereof is required in connection with the execution and
delivery of the Agreement or will have been required in connection with the
issuance of Preferred Shares of each series;

              (4) the execution and delivery of the Agreement and the issuance
and delivery of the Preferred Shares of each series do not and will not conflict
with, violate or result in a breach of, the terms, conditions or provisions of,
or constitute a default under, the Agreement and Declaration of Trust (as
amended by one or more Statements) or the By-Laws of the Trust, any law or
regulation, any order or decree of any court or public authority having
jurisdiction, or any mortgage, indenture, contract, agreement or undertaking to
which the Trust is a party or by which it is bound the effect of which conflict,
violation, default or breach would be material to the Trust or the Trust and its
subsidiaries taken as a whole; and

              (5) no taxes are payable upon or in respect of the execution of
the Agreement or the issuance of the Preferred Shares of any series.

          5.2 Representations and Warranties of the Auction Agent.

          The Auction Agent represents and warrants to the Trust that:

                 (1) The Auction Agent is duly organized and is validly existing
     as a banking corporation in good standing under the laws of the State of
     New York and has the corporate power to enter into and perform its
     obligations under this Agreement; and

                 (2) this Agreement has been duly and validly authorized,
     executed and delivered by the Auction Agent and constitutes the legal,
     valid and binding obligation of the Auction Agent, enforceable against the
     Auction Agent in accordance with its terms, subject to bankruptcy,
     insolvency, reorganization and other laws of general applicability relating
     to or affecting creditors' rights and to general equitable principles.

6.   The Auction Agent.

          6.1 Duties and Responsibilities.

                                      20
<PAGE>

              (1) The Auction Agent is acting solely as agent for the Trust
hereunder and owes no fiduciary duties to any Person, other than the Trust, by
reason of the Agreement.

              (2) The Auction Agent undertakes to perform such duties and only
such duties as are specifically set forth in the Agreement, and no implied
covenants or obligations shall be read into the Agreement against the Auction
Agent.

              (3) In the absence of bad faith or negligence on its part, the
Auction Agent shall not be liable for any action taken, suffered, or omitted or
for any error of judgment made by it in the performance of its duties under the
Agreement. The Auction Agent shall not be liable for any error of judgment made
in good faith unless the Auction Agent shall have been negligent in ascertaining
the pertinent facts.

          6.2 Rights of the Auction Agent.

              (1) The Auction Agent may conclusively rely and shall be protected
in acting or refraining from acting upon any communication authorized hereby and
upon any written instruction, notice, request, direction, consent, report,
certificate, share certificate or other instrument, paper or document believed
in good faith by it to be genuine. The Auction Agent shall not be liable for
acting upon any telephone communication authorized hereby which the Auction
Agent believes in good faith to have been given by the Trust or by a Broker-
Dealer. The Auction Agent may record telephone communications with the Trust or
with the Broker-Dealers or both.

              (2) The Auction Agent may consult with counsel of its choice and
the advice of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon.

              (3) The Auction Agent shall not be required to advance, expend or
risk its own Trusts or otherwise incur or become exposed to financial liability
in the performance of its duties hereunder.

              (4) The Auction Agent may perform its duties and exercise its
rights hereunder either directly or by or through agents or attorneys and shall
not be responsible for any misconduct or negligence on the part of any agent or
attorney appointed by it with due care hereunder.

                                      21
<PAGE>

          (5) The Auction Agent shall not be responsible or liable for any
failure or delay in the performance of its obligations under this agreement
arising out of or caused, directly or indirectly, by circumstances beyond its
reasonable control, it being understood that the Auction Agent shall use
reasonable efforts which are consistent with accepted practices in the banking
industry to resume performance as soon as practicable under the circumstances.

          6.3 Compensation, Expenses and Indemnification.

               (1) The Trust shall pay the Auction Agent an annual fee as
compensation for all services rendered by it under the Agreement and the Broker-
Dealer Agreements as the Trust and the Auction Agent have agreed to from time to
time.

               (2) The Trust shall reimburse the Auction Agent upon its request
for all reasonable out-of-pocket expenses, disbursements and advances incurred
or made by the Auction Agent in accordance with any provision of the Agreement
and the Broker-Dealer Agreements (including the compensation and the reasonable
expenses and disbursements of its agents and counsel), except any expense or
disbursement attributable to its negligence or bad faith.

               (3) The Trust shall indemnify the Auction Agent for and hold it
harmless against any loss, liability or expense incurred without negligence or
bad faith on its part, arising out of or in connection with its agency under the
Agreement and the Broker-Dealer Agreements, including the costs and expenses of
defending itself against any such claim or liability in connection with its
exercise or performance of any of its duties hereunder and thereunder.

          6.4 Auction Agent's Disclaimer.

          The Auction Agent makes no representation as to the validity or
adequacy of the Agreement, the Broker-Dealer Agreements or the Preferred Shares
of any series except that the Auction Agent hereby represents that the Agreement
has been duly authorized, executed and delivered by the Auction Agent and
constitutes a legal and binding obligation of the Auction Agent.

7.   Miscellaneous.

          7.1 Term of Agreement.

                                      22
<PAGE>

               (1) The term of the Agreement is unlimited unless it shall be
terminated as provided in this Section 7.1. The Trust may terminate the
Agreement at any time by so notifying the Auction Agent, provided that the Trust
has entered into an agreement in substantially the form of the Agreement with a
successor Auction Agent. The Auction Agent may terminate the Agreement upon
written notice to the Trust on the date specified in such notice, which date
shall be no earlier than 45 days after the date of delivery of such notice.

               (2) Except as otherwise provided in this paragraph (b), the
respective rights and duties of the Trust and the Auction Agent under the
Agreement with respect to any series of Preferred Shares shall cease upon
termination of the Agreement with respect to such series. The Trust's
representations, warranties, covenants and obligations to the Auction Agent
under Sections 5 and 6.4 hereof shall survive the termination of the Agreement
with respect to any series of Preferred Shares. Upon termination of the
Agreement with respect to any series of Preferred Shares, the Auction Agent
shall, at the Trust's request, promptly deliver to the Trust copies of all books
and records maintained by it with respect to Preferred Shares in connection with
its duties hereunder.

          7.2 Communications.

          Except for (i) communications authorized to be by telephone pursuant
to the Agreement or the Auction Procedures and (ii) communications in connection
with Auctions (other than those expressly required to be in writing), all
notices, requests and other communications to any party hereunder shall be in
writing (including telecopy or similar writing) and shall be given to such
party, addressed to it, at its address or telecopy number set forth below:

If to the Trust,     The BlackRock [State] Municipal Income Trustc/o
                     BlackRock Advisors, Inc.345 Park Avenue, New York,
                     New York 10154 Attention:_____________ Telecopier
                     No.: Telephone No.:

If to the Auction
Agent,               The Bank of New York  ___________________
                     ___________________
                     Attention:  _____________
                     Telecopier No.:
                     Telephone No.:

                                      23
<PAGE>

          Each such notice, request or communication shall be effective when
delivered at the address specified herein.  Communications shall be given on
behalf of the Trust by a Trust Officer and on behalf of the Auction Agent by
telephone (confirmed by telecopy or in writing) by an Authorized Officer.

          7.3 Entire Agreement.

          The Agreement contains the entire agreement between the parties
relating to, and superseding any prior agreement between the parties relating
to, the subject matter hereof, and there are no other representations,
endorsements, promises, agreements or understandings, oral, written or implied,
between the parties relating to the subject matter hereof except for agreements
relating to the compensation of the Auction Agent.

          7.4 Benefits.

          Nothing herein, express or implied, shall give to any Person, other
than the Trust, the Auction Agent and their respective successors and assigns,
any benefit of any legal or equitable right, remedy or claim hereunder.

          7.5 Amendment; Waiver.

               (1) The Agreement shall not be deemed or construed to be
modified, amended, rescinded, cancelled or waived, in whole or in part, except
by a written instrument signed by a duly authorized representative of the party
to be charged.

               (2) Failure of either party hereto to exercise any right or
remedy hereunder in the event of a breach hereof by the other party shall not
constitute a waiver of any such right or remedy with respect to any subsequent
breach.

          7.6 Successors and Assigns.

          The Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the respective successors and assigns of each of the Trust and
the Auction Agent.

          7.7 Severability.

                                      24
<PAGE>

          If any clause, provision or section hereof shall be ruled invalid or
unenforceable by any court of competent jurisdiction, the invalidity or
unenforceability of such clause, provision or section shall not affect any of
the remaining clauses, provisions or sections hereof.

          7.8 Disclosure of Information.

          The Auction Agent agrees that it will not disclose or use any "non-
public personal information" about the Fund's shareholders other than such uses
or disclosures which are necessary to permit the Auction Agent to carry out its
duties under this Agreement, or are otherwise permitted by Regulation S-P under
Section 504 of the Gramm-Leach Biley Act ("Regulation S-P").  "Nonpublic
personal information" about a shareholder shall mean: (i) personally
identifiable financial information; (ii) any list, description, or other
grouping of consumers that is derived from using any personally identifiable
information that is not publically available; and (iii) any other information
that a Customer or the Transfer Agent is prohibited from using or disclosing
pursuant to Regulation S-P.

          7.9 Governing Law.

          The Agreement shall be governed by and construed in accordance with
the laws of the State of New York.

                            BLACKROCK [STATE]
                            MUNICIPAL INCOME TRUST



                            __________________________________
                            By:  Name
                                 Title

                            THE BANK OF NEW YORK



                            __________________________________
                            By:  Name
                                 Title

                                      25
<PAGE>

                                                                       EXHIBIT A

                                    FORM OF
                            BROKER-DEALER AGREEMENT





                                      A-1
<PAGE>

                                                                       EXHIBIT B

                             SETTLEMENT PROCEDURES




                                      B-1
<PAGE>

                                                                       EXHIBIT C


           THE BLACKROCK ____________________ MUNICIPAL INCOME TRUST
                           NOTICE OF AUCTION DATE FOR
               MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED SHARES
                              ("Preferred Shares")

          NOTICE IS HEREBY GIVEN that the Auction Date of the next Auction for
Series ___ of the Trust's Preferred Shares is scheduled to be _______________,
20___ and the next Dividend Payment Date for Series ___ of the Trust's Preferred
Shares will be __________________, 20___.

          [A Failure to Deposit in respect of the Series ___ Preferred Shares
currently exists. If, prior to 12:00 noon, New York City time, on the fourth
Business Day preceding the next scheduled Auction Date of the Series ____
Preferred Shares, such Failure to Deposit is not cured or the applicable Late
Charge is not paid, the next Auction will not be held. Notice of the next
Auction for the Series ___ Preferred Shares will be delivered when such Failure
to Deposit is cured and the applicable Late Charge is paid.(1)]

                         THE BLACKROCK MUNICIPAL
                         INCOME TRUST


                         _________________________________

(1)   Include this language if a Failure to Deposit exists.


                                      C-1
<PAGE>

                                                                       EXHIBIT D

                  THE BLACKROCK [STATE] MUNICIPAL INCOME TRUST
                          NOTICE OF PROPOSED CHANGE OF
                            LENGTH OF RATE PERIOD OF
               MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED SHARES
                              ("Preferred Shares")

          The BlackRock [State] Municipal Income Trust (the "Trust") may
exercise its option to designate the Rate Period of its Series ____ Preferred
Shares commencing [the first day of the Special Rate Period] as a Special Rate
Period.

          By 11:00 A.M. on the second Business Day preceding the first day of
such proposed Special Rate Period, the Trust will notify ___________________ of
either (a) its determination to exercise such option, designating the length of
such Special Rate Period for such series or (b) its determination not to
exercise such option.

                                   THE BLACKROCK [STATE] MUNICIPAL
                                   INCOME TRUST


                                   _________________________________


Dated:  __________, 2000



                                      D-1
<PAGE>

                                                                       EXHIBIT E


                 THE BLACKROCK [STATE] MUNICIPAL INCOME TRUST
                   NOTICE OF CHANGE OF LENGTH OF RATE PERIOD
              MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED SHARES
                             ("Preferred Shares")

          NOTICE IS HEREBY GIVEN that [NAME OF TRUST] (the "Trust") has
determined to designate the Rate Period of its Series ____ Preferred Shares
commencing on [the first day of the Special Rate Period] as a Special Rate
Period.

          The Special Rate Period will be __________ [Rate Period Days].

          The Auction Date for the Special Rate Period is [the Business Day next
preceding the first day of such Special Rate Period].

          As a result of the Special Rate Period designation, the amount of
dividends payable on Series ____ Preferred Shares during the Special Rate Period
will be based on a 360-day year.

          The Special Rate Period shall not commence if (a) an Auction for
Preferred Shares shall not be held on such Auction Date for any reason or (b) an
Auction for Preferred Shares shall be held on such Auction Date but Sufficient
Clearing Bids for such shares shall not exist in such Auction.

          The scheduled Dividend Payment Dates for such series of Preferred
Shares during such Special Rate Period will be _________________________.

          [Special Redemption Provisions, if any]

          Attached hereto is a Preferred Shares Basic Maintenance Report showing
that, as of the third Business Day next preceding such proposed Special Rate
Period, Moody's Eligible Assets (if Moody's is rating such Preferred Shares) and
S&P Eligible Assets (if S&P is rating such Preferred Shares) each have an
aggregate Discounted Value at least equal to the Preferred Shares Basic
Maintenance Amount as of such Business Day (assuming for purposes of the
foregoing calculation that (i) the Maximum Rate is the Maximum Rate on such
Business Day as if such Business Day were the Auction Date for the proposed
Special Rate Period, and (ii) the Moody's Discount Factors applicable to Moody's
Eligible Assets are determined by reference to the first Moody's Exposure Period
longer than the Moody's Exposure Period then applicable to the Trust).

                                      E-1
<PAGE>

                                         THE BLACKROCK [STATE]
                                         MUNICIPAL INCOME TRUST


                                         _________________________________

Dated:  __________, 20__



                                      E-2
<PAGE>

                                                                       EXHIBIT F

                  THE BLACKROCK [STATE] MUNICIPAL INCOME TRUST
                     NOTICE OF DETERMINATION NOT TO CHANGE
                            LENGTH OF RATE PERIOD OF
               MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED SHARES
                              ("Preferred Shares")

          NOTICE IS HEREBY GIVEN that The BlackRock [State] Municipal Income
Trust (the "Trust") has determined not to exercise its option to designate a
Special Rate Period of its Series ___ Preferred Shares and the next succeeding
Rate Period of such series will be a Minimum Rate Period of ____ Rate Period
Days.

                                         THE BLACKROCK [STATE] MUNICIPAL
                                         INCOME TRUST


                                         ______________________________


Dated:  __________, 20___




                                      F-1
<PAGE>

                                                                       EXHIBIT G

                     THE BLACKROCK [STATE] MUNICIPAL TRUST
           NOTICE OF CURE OF FAILURE TO DEPOSIT ON MUNICIPAL AUCTION
                       RATE CUMULATIVE PREFERRED SHARES
                             ("Preferred Shares")

          NOTICE IS HEREBY GIVEN that The BlackRock [State] Municipal Income
Trust (the "Trust") has cured its Failure to Deposit and paid the applicable
Late Charge with respect to its Series ___ Preferred Shares.  The dividend rate
on the shares of Series ___ Preferred Shares for the current Dividend Period is
_____________% per annum, the Dividend Payment Date for the current Dividend
Period is scheduled to be _______________, 20___ and the next Auction Date is
scheduled to be _______________, 20___.


                                         THE BLACKROCK [STATE] MUNICIPAL
                                         INCOME TRUST


                                         ______________________________

Dated:  __________, 20___


                                      G-1
<PAGE>

                                                                       EXHIBIT H

                     THE BLACKROCK [STATE] MUNICIPAL TRUST
                 NOTICE OF CURE OF FAILURE TO DEPOSIT ON INCOME
               MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED SHARES
                             ("Preferred Shares ")

          NOTICE IS HEREBY GIVEN that The BlackRock [State] Municipal Trust (the
"Trust") has cured its Failure to Deposit and paid the applicable Late Charge
with respect to its Series ____ Preferred Shares. The next Auction Date for the
Series ____ Preferred Shares is scheduled to be on _________________, 20___.


                                         THE BLACKROCK [STATE] MUNICIPAL
                                         INCOME TRUST


                                         ______________________________

Dated:  __________, 20___


                                      H-1
<PAGE>

                                                                       EXHIBIT I

                  THE BLACKROCK [STATE] MUNICIPAL INCOME TRUST
                                   NOTICE OF
               [CAPITAL GAINS] [AND] [TAXABLE ORDINARY INCOME](1)
                                  DIVIDEND FOR
               MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED SHARES
                             ("Preferred Shares ")

          NOTICE IS HEREBY GIVEN that the amount of the dividend payable on
________________, 20____ for Series ____ of the Trust's Preferred Shares will be
determined by the Auction to be held on _______________, 20___. Up to [$ A ](2)
[$ B ](3) per share of the dividend payable on such date as determined by such
Auction will consist of [capital gains](2) [ordinary income taxable for Federal
income tax purposes](3). If the dividend amount payable on such date as
determined by such Auction is less than [$ A ](2) [$ B ](3) per share, the
entire amount of the dividend will consist of [capital gains](2) [ordinary
income taxable for Federal income tax purposes](3). [To the extent such dividend
amount exceeds [$ A ] per share, any excess up to [$ B ] per share will consist
of ordinary income taxable for Federal income tax purposes.](4) Accordingly, the
aforementioned composition of the dividend payable on _______________, 20___
should be considered in determining Orders to be submitted with respect to the
Auction to be held on ________________, 20__. The Rate Multiple in effect for
such Auction will be ____%.

                                         THE BLACKROCK [STATE] MUNICIPAL
                                         INCOME TRUST

                                         _________________________________

          (1)  Include language with respect to capital gains, taxable ordinary
income or both, depending on the character of the designation to be made with
respect to the dividend(s).

          (2)  Include bracketed material if a portion of the dividend will be
designated capital gains.

          (3)  Include bracketed material if a portion of the dividend will be
designated ordinary income taxable for Federal income tax purposes and no
portion of the dividend will be designated capital gains.


                                      I-1
<PAGE>

          (4)  Include bracketed material if a portion of the dividend will be
designated capital gains and a portion will be designated ordinary income
taxable for Federal income tax purposes.

A  =   the maximum amount of capital gains allocated to such series of Preferred
Shares to be included in such dividend, divided by the number of Preferred
Shares.

B  =   the maximum amount of ordinary income taxable for Federal income tax
purposes allocated to such series of Preferred Shares to be included in such
dividend, divided by the number of shares in such series.


                                      I-2

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(K)(3)
<SEQUENCE>5
<FILENAME>dex99k3.txt
<DESCRIPTION>BROKER - DEALER AGREEMENT
<TEXT>
<PAGE>

                                                                  Exhibit (k)(3)

                                                                  EXECUTION COPY

                                                                       EXHIBIT A
                                                      TO AUCTION AGENT AGREEMENT
                                                      --------------------------

================================================================================


                        FORM OF BROKER-DEALER AGREEMENT


                                     among


                             THE BANK OF NEW YORK

                               as Auction Agent


                      -----------------------------------
                               as Broker-Dealer



                        Dated as of __________ __, 2001



                                  Relating to

    MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED SHARES OF BLACKROCK [STATE]
                            MUNICIPAL INCOME TRUST


================================================================================
<PAGE>

     BROKER-DEALER AGREEMENT dated as of __________ __, 2001 (this "Agreement"),
among (i) The Bank of New York, a New York banking corporation, as auction agent
(the "Auction Agent") (not in its individual capacity but solely as agent)
pursuant to Trust granted to it in the Auction Agent Agreement, (ii)
_____________________________, a __________ Delaware business trust (the
"Trust"), and (iii) as broker-dealer (together with its successors and assigns
as such hereinafter referred to as "BD").

     The Trust intends to issue Shares of one or more Series of Municipal
Auction Rate Cumulative Preferred Shares, liquidation preference $25,000 per
share (the "Preferred Shares"). The Shares of each Series of Preferred Shares
shall be issued in book-entry form through the facilities of the Securities
Depository. References to "Shares of Preferred Shares" or "Preferred Shares" in
this Agreement shall refer only to the beneficial interests in the Preferred
Shares unless the context otherwise requires.

     The Auction Procedures require the participation of a Broker-Dealer.

     NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Auction Agent, the Trust and BD
agree as follows:

          1.  Definitions and Rules of Construction

          1.1  Terms Defined by Statement of Preferences. Capitalized terms not
defined herein shall have the respective meanings specified in the Statement.

          1.2  Terms Defined Herein.  As used herein and in the Settlement
Procedures, the following terms shall have the following meanings, unless the
context otherwise requires:

               (a)  "Agent Member" of any Person shall mean the member of, or
participant in, the Securities Depositary that will act on behalf of a Bidder.

               (b)  "Agreement" shall mean the Basic Terms, together with the
Request and Acceptance Letter relating to one or more series of Preferred
Shares.

               (c)  "Auction" shall have the meaning specified in Section 2.1
hereof.

               (d)  "Auction Procedures" shall mean the auction procedures
constituting Part II of the form of Statement as of the filing thereof.

               (e)  "Authorized Officer" of the Auction Agent shall mean each
Senior Vice President, Vice President, Assistant Vice President, Assistant
Treasurer and Assistant Secretary of the Auction Agent assigned to its Corporate
Trust and Agency Group and every other officer or employee of the Auction Agent
designated as an "Authorized Officer" for purposes hereof in a communication to
the Trust.

               (f)  "Preferred Shares" shall mean the Preferred Shares, par
value $.001 per share, of the Trust designated as its "Municipal Auction Rate
Cumulative Preferred Shares" and bearing such further designation as to series
as the Board of Trustees, as the case may be, of

<PAGE>

the Trust or any committee thereof shall specify; as set forth in the Request
and Acceptance Letter.

               (g)  "Settlement Procedures" shall mean the Settlement Procedures
attached to the Auction Agent Agreement as Exhibit B.

               (h)  "Statement" shall mean the Statement of Preferences of
Municipal Auction Rate Cumulative Preferred Shares, as the same may be amended,
supplemented or modified from time to time.

               (i)  "Trust Officer" shall mean the Chairman and Chief Executive
Officer, the President, each Vice President (whether or not designated by a
number or word or words added before or after the title "Vice President"), the
Secretary, the Treasurer, each Assistant Vice President, each Assistant
Secretary and each Assistant Treasurer of the Trust and every other officer or
employee of the Trust designated as a "Trust Officer" for purposes hereof in a
notice to the Auction Agent.

          1.3  Rules of Construction.  Unless the context or use indicates
another or different meaning or intent, the following rules shall apply to the
construction of this Agreement:

               (a)  Words importing the singular number shall include the plural
number and vice versa.

               (b)  The captions and headings herein are solely for convenience
of reference and shall not constitute a part of this Agreement nor shall they
affect its meaning, construction or effect.

               (c)  The words "hereof," "herein," "hereto," and other words of
similar import refer to this Agreement as a whole.

               (d)  All references herein to a particular time of day shall be
to New York City time.

               (e)  This Agreement shall apply separately but equally to all
Series of PREFERRED SHARES that may be issued.

          1.4  Warranties of BD.  BD hereby represents and warrants that this
Broker-Dealer Agreement has been duly authorized, executed and delivered by BD
and that, assuming the due authorization, execution and delivery hereof by the
Auction Agent, this Broker-Dealer Agreement constitutes a valid and binding
agreement of BD, enforceable against it in accordance with its terms. BD's
representations and warranties in this Section 1.4 shall survive the termination
of this Agreement.

          2.  The Auctions

          2.1  Purpose; Incorporation by Reference of Auction Procedures and
Settlement Procedures.

                                       2
<PAGE>

               (a)  On each Auction Date, the provisions of the Auction
Procedures will be followed by the Auction Agent for the purpose of determining
the Applicable Rate for the Preferred Shares for the next Dividend Period. Each
periodic implementation of such procedures is hereinafter referred to as an
"Auction."

               (b)  All of the provisions contained in the Auction Procedures
and the Settlement Procedures are incorporated herein by reference in their
entirety and shall be deemed to be a part of this Agreement to the same extent
as if such provisions were fully set forth herein.

               (c)  BD is delivering herewith, or has previously delivered, a
Purchaser's Letter executed by the purchaser. BD agrees to act as, and assumes
the obligations of and limitations and restrictions placed upon, a Broker-Dealer
under this Agreement.

               (d)  BD acknowledges and agrees that each provision of the
Auction Procedures that requires BD to perform an obligation or procedure is
hereby incorporated herein by reference and that this Agreement shall constitute
the Trust's instruction, and BD hereby agrees, to perform such obligations and
procedures without further request by or instructions from the Trust.

               (e)  BD may participate in Auctions for its own account.

          2.2  Preparation for Each Auction.

               (a)  Not later than 9:30 a.m. on each Auction Date, the Auction
Agent shall advise BD by telephone or other electronic means, to be confirmed in
writing by the Auction Agent, of the Maximum Rate, Reference Rate(s) and
Treasury Note Rate(s).

               (b)  BD shall cause the Maximum Rate to be communicated as
promptly as practicable to its customers who hold or may be interested in
acquiring Preferred Shares.

               (c)  As promptly as practicable after determining each Auction
Date, but not later than 9:15 a.m. on the Business Day preceding such Auction
Date, the Auction Agent shall notify BD, by such means as the Auction Agent
deems practicable, of the scheduled date of such Auction Date. If the Auction
Date for any Auction shall be changed after the Auction Agent has given such
notice or the notice referred to in clause (vii) of paragraph (a) of the
Settlement Procedures, the Auction Agent, by such means as the Auction Agent
deems practicable, shall give notice of such change to BD not later than the
earlier of (x) 9:15 a.m. on the Business Day preceding the new Auction Date, and
(y) 9:15 a.m. on the original Auction Date. Thereafter, BD shall promptly notify
customers of BD that are Existing Holders of such change in the Auction Date.

               (d)  If required by applicable law, or requested by the Auction
Agent, BD shall provide a list of Existing Holders based upon inquiries of those
Persons such Broker-Dealer believes are Beneficial Owners as a result of the
most recent Auction to the Auction Agent promptly after any date so requested by
the Auction Agent. The Auction Agent shall keep confidential any such
information, including information received as to the identity of Bidders in any
Auction, and shall not disclose any such information so provided to any Person
other than the other parties hereto, provided that the Auction Agent each
reserves the right to disclose any such information if (a) it is ordered to do
so by a court of competent jurisdiction or a regulatory,

                                       3
<PAGE>

judicial or quasi-judicial agency, (b) it is advised by its counsel that its
failure to do so would be unlawful or (c) failure to do so would expose the
Auction Agent to loss, liability, claim, damage or expense for which it has not
received indemnity satisfactory to it.

               (e)  BD agrees to maintain a list of customers relating to a
series of Preferred Shares and to use its best efforts, subject to existing laws
and regulations, to contact the customers on such list whom BD believe may be
interested in participating in the Auction on each Auction Date, as a Potential
Holder or a Potential Beneficial Owner, for the purposes set forth in the
Auction Procedures. Nothing herein shall require BD to submit an Order for any
customer in any Auction.

               (f)  The Auction Agent's registry of Existing Holders of shares
of a series of Preferred Shares shall be conclusive and binding on BD. BD may
inquire of the Auction Agent between 3:00 P.M. on the Business Day preceding an
Auction for shares of a series of preferred Shares and 9:30 A.M. on the Auction
Date for such Auction to ascertain the number of shares of such series in
respect of which the Auction Agent has determined BD to be an Existing Holder.
If BD believes it is the Existing Holder of fewer shares of such series than
specified by the Auction Agent in response to BD's inquiry, BD may so inform the
Auction Agent of that belief. BD shall not, in its capacity as Existing Holder
of shares of such series, submit Orders in such Auction in respect of shares of
such series covering in the aggregate more than the number of shares of such
series specified by the Auction Agent in response to BD's inquiry.

          2.3  Auction Schedule; Method of Submission of Orders.

               (a)  The Auction Agent shall conduct Auctions in accordance with
the schedule set forth below. Such schedule may be changed at any time by the
Auction Agent with the consent of the Trust, which consent shall not be
unreasonably withheld. The Auction Agent shall give written notice of any such
change to BD which shall have the right to review such change. Such notice shall
be received one Business Day prior to the first Auction Date on which any such
change shall be effective.

                                       4
<PAGE>

Time                              Event
----                              -----
By 9:30 a.m.                      Auction Agent advises the Trust and the
                                  Broker-Dealer of the applicable Maximum Rate
                                  and the Reference Rate(s) and Treasury Note
                                  Rate(s) as set forth in Section 2.2(a) hereof.

9:30 a.m. - 1:30 p.m.             Auction Agent assembles information
                                  communicated to it by Broker-Dealer as
                                  provided in Section 2(a) of the Auction
                                  Procedures. Submission Deadline is 1:30 p.m.

Not earlier than                  Auction Agent makes determinations pursuant
1:30 p.m.                         to 3(a) of the Auction Procedures.

By approximately                  Auction Agent advises the Trust of results
3:30 p.m.                         of Auction as provided in Section 3(b) of the
                                  Auction Procedures. Submitted Bids and
                                  Submitted Sell Orders are accepted and
                                  rejected in whole or in part and Preferred
                                  Shares are allocated as provided in Section 4
                                  of the Auction Procedures. Auction Agent gives
                                  notice of Auction results as set forth in
                                  paragraph (a) of the Settlement Procedures.


               (b) BD may designate one or more individuals in its organization
who will coordinate its procedures in connection with Auctions and purchases and
sales of Shares of any Series of Preferred Shares.

               (c) BD agrees to handle its customers' order in accordance with
its duties under applicable securities laws and rules.

               (d) To that extent that pursuant to Section 4 of the Auction
Procedures of any Trust, BD continues to hold, sells or purchases a number of
shares that is fewer than the number of shares in an Order submitted by BD to
the Auction Agent in which BD designated itself as an Existing Holder or
Potential Holder in respect of customer Orders, BD shall make appropriate pro
rata allocations among its customers for which it submitted Orders of similar
tenor. If as a result of such allocations, any Beneficial Owner would be
entitled or required to purchase, a fraction of a Preferred Share on any Auction
Date, BD shall, in such manner as it shall determine in its sole discretion,
round up or down the number of Preferred Shares to be purchased or sold on such
Auction Date by any Beneficial Owner or Potential Beneficial Owner

                                       5
<PAGE>

on whose behalf BD submitted an Order so that the number of shares so purchased
or sold by each such Beneficial Owner or Potential Beneficial Owner on such
Auction Date shall be whole shares.

               (e) BD shall submit Orders to the Auction Agent in writing in
substantially the form attached hereto as Exhibit A. BD shall submit separate
Orders to the Auction Agent for each Potential Holder or Existing Holder on
whose behalf BD is submitting an Order and shall not net or aggregate the Orders
of Potential Holders or Existing Holders on whose behalf BD is submitting
Orders.

               (f) BD shall deliver to the Auction Agent a written notice,
substantially in the form attached hereto as Exhibit B, of transfers of
Preferred Shares made through BD by an Existing Holder to another Person other
than pursuant to an Auction and a written notice, substantially in the form
attached hereto as Exhibit C, of the failure of any Preferred Shares to be
transferred to or by any Person that purchased or sold Preferred Shares through
BD pursuant to an Auction. The Auction Agent is not required to accept any
notice delivered pursuant to the terms of the foregoing sentence with respect to
an Auction unless it is received by the Auction Agent by 3:30 p.m. on the
Business Day next preceding the applicable Auction Date.


          2.4 Notices.

               (a) On each Auction Date, the Auction Agent shall notify BD by
telephone or facsimile (or other electronic means acceptable to both parties) of
the results of the Auction as set forth in paragraph (a) of the Settlement
Procedures. By approximately 11:30 A.M. on the Business Day next succeeding such
Auction Date, the Auction Agent shall notify BD in writing of the disposition of
all Orders submitted by BD in the Auction held on such Auction Date.

               (b) BD shall notify each Existing Holder or Potential Holder on
whose behalf BD has submitted an Order as set forth in paragraph (b) of the
Settlement Procedures and take such other action as is required of BD pursuant
to the Settlement Procedures.

          2.5  Designation of Special Rate Period.

               (a) If any Trust delivers to its Auction Agent a notice of the
Auction Date for any series of Preferred Shares of such Trust for a Rate Period
thereof that next succeeds a Rate period that is not a Minimum Rate Period in
the form of Exhibit C to the Auction Agency Agreement, and BD is a Broker-
Dealer of such series, the Auction Agent shall deliver such notice to BD as
promptly as practicable after its receipt of such notice from such Trust.

               (b) If the Board of Trustees of any Trust proposes to designate
any succeeding Subsequent Rate Period of any series of Preferred Shares of such
Trust as a Special Rate Period and such Trust delivers to its Auction Agent a
notice of such proposed Special Rate Period in the form of Exhibit D to the
Auction Agency Agreement, and BD is a Broker-Dealer for such series, such
Auction Agent shall deliver such notice to BD as promptly as practicable after
its receipt of such notice from the Trust.

               (c) If the Board of Trustees of any Trust determines to designate
such succeeding Subsequent Rate Period as a Special Rate Period, and such Trust
delivers to its

                                       6
<PAGE>

Auction Agent a notice of such Special Rate Period in the form of Exhibit E to
the Auction Agency Agreement not later than 11:00 A.M. on the second Business
Day next preceding the first day of such Rate Period (or by such later time or
date, or both, as may be agreed to by such Auction Agent), and BD is a Broker-
Dealer for such series, such Auction Agent shall deliver such notice to BD not
later than 3:00 P.M. on such second Business Day (or, if such Auction Agent has
agreed to a later time or date, as promptly as practicable thereafter).

               (d) If any Trust shall deliver to its Auction Agent a notice not
later than 11:00 A.M. on the second Business Day next preceding the first day of
any Rate Period (or by such later time or date, or both, as may be agreed to by
such Auction Agent) stating that such Trust has determined not to exercise its
option to designate such succeeding Subsequent Rate Period as a Special Rate
Period, in the form of Exhibit F to the Auction Agency Agreement, or shall fail
to timely deliver either such notice or a notice in the form of Exhibit E to the
Auction Agency Agreement, and BD is a Broker-Dealer for such series, such
Auction Agent shall deliver a notice in the form of Exhibit F to the Auction
Agency Agreement to BD not later than 3:00 P.M. on such second Business Day (or,
if such Auction Agent has agreed to a later time or date, as promptly as
practicable thereafter).

          2.6  Allocation of Taxable Income.

          If any Trust delivers to its Auction Agent a notice in the form of
Exhibit I to the Auction Agency Agreement designating all or a portion of any
dividend on shares of any series of Preferred Shares of such Trust to consist of
net capital gains or other income taxable for Federal income tax purposes, and
BD is a Broker-Dealer for such series, such Auction Agent shall deliver such
notice to BD on the Business Day following its receipt of such notice from such
Trust. On or prior to the Auction Date referred to in such notice, BD will
contact each of its customers that is a Beneficial Owner of shares of such
series of Preferred Shares or a Potential Beneficial Owner of shares of such
series of Preferred Shares interested in submitting an Order in the Auction to
be held on such Auction Date, and BD will notify such Beneficial Owners and
Potential Beneficial Owners of the contents of such notice. BD will be deemed to
have notified such Beneficial Owners and Potential Beneficial Owners if, for
each of them, (i) BD makes a reasonable effort to contact such Beneficial Owner
or Potential Beneficial Owner by telephone, and (ii) upon failing to contact
such Beneficial Owner or Potential Beneficial Owner by Telephone BD mails
written notification to such Beneficial Owner or Potential Beneficial Owner at
the mailing address indicated in the account records of BD.

          The Auction Agent for any series of Preferred Shares shall be required
to notify BD if it is a Broker-Dealer for such series within two Business Days
after each Auction of such series of the Auction Agent's receipt of notice from
the Trust that such Auction involves an allocation of income taxable for Federal
income tax purposes as to the dollar amount per share of such taxable income and
income exempt from Federal income taxation included in the related dividend.

          2.7  Failure to Deposit.

               (a) If: (i) any Failure to Deposit shall have occurred with
respect to shares of any series of Preferred Shares of any Trust during any Rate
Period thereof (other than any Special Rate Period of Rate Period Days or any
Rate Period succeeding any Special Rate

                                       7
<PAGE>

Period of more than 364 Rate Period Days during which a Failure to deposit
occurred that has not been cured), but, prior to 12:00 Noon, New York City time,
on the third Business Day next succeeding that date on which such accordance
with Section 2.8 of the Auction Agency Agreement and such Trust shall have paid
to the Auction Agent for such series the applicable Late Charge as described in
Section 2.8 of the Auction Agency Agreement, then, if BD is a Broker-Dealer for
such series, such Auction Agent shall deliver a notice in the form of Exhibit G
to the Auction Agency Agreement by first-class mail, postage prepaid, to BD not
later than one Business Day after its receipt of the payment from such Trust
curing such Failure to Deposit and such Late Charge.

               (b) If: (i) any Failure to Deposit shall have occurred with
respect to shares of any series of Preferred Shares of any Trust during any Rate
Period thereof (other than any Special Rate Period of more than 364 Rate Period
Days or any Rate Period succeeding any Special Rate Period of more than 364 Rate
Period Days during which a Failure to Deposit occurred but has not been cured),
and, prior to 12:00 Noon, New York City time, on the third Business Day next
succeeding the date on which such Failure to Deposit occurred, such Failure to
Deposit shall not have been cured as described in Section 2.8 of the Auction
Agency Agreement or such Trust shall not have paid to the Auction Agent for such
series the applicable Late Charge described in Section 2.8 of the Auction Agency
Agreement; or (ii) any Failure to Deposit shall have occurred with respect to
shares of any series of Preferred Shares of any Trust during a Special Rate
Period thereof of more than 364 Rate Period Days, or during any Rate Period
thereof succeeding any Special Rate Period of more than 364 Rate Period Days
during which a Failure to Deposit occurred that has not been cured, and, prior
to 12:00 noon, New York City time, on the fourth Business Day preceding the
Auction Date for the Rate Period subsequent to such Rate Period, such Failure to
Deposit shall not have been cured as described in Section 2.8 of the Auction
Agency Agreement of such Trust shall not have paid to the Auction Agent for such
series the applicable Late Charge described in Section 2.8 of the Auction Agency
Agreement; then such Auction Agent shall deliver a notice in the form of Exhibit
H to the Auction Agency Agreement to the Broker-Dealers for such series not
later than one Business Day after the receipt of the payment from such Trust
curing such Failure to Deposit and Late Charge.

          2.8  Service Charge to Be Paid to BD.

               (a) No later than 12:00 noon on each Auction Date, the Auction
Agent after each Auction will pay a service charge from funds provided by the
Trust to each Broker-Dealer on the basis of the purchase price of Preferred
Shares placed by such Broker-Dealer at such Auction. The service charge shall be
(i) in the case of any Auction Date immediately preceding a seven-day Dividend
Period, the product of (A) a fraction the numerator of which is the number of
days in such Dividend Period (calculated by counting the first day of such
Dividend Period but excluding the last day thereof) and the denominator of which
is 365, times (B) 1/4 of 1%, times (C) $25,000 times (D) the sum of the
aggregate number of shares of outstanding Preferred Shares for which the Auction
is conducted and (ii) in the case of any Special Dividend Period the amount
determined by mutual consent of the Fund and any such Broker-Dealers and shall
be based upon a selling concession that would be applicable to an underwriting
of fixed or variable rate Preferred Shares with a similar final maturity or
variable rate dividend period, respectively, at the commencement of the Dividend
Period with respect to such Auction.

                                       8
<PAGE>

               (b) If the Trust determines to change the rate at which the
Broker-Dealer Fee accrues, the Trust shall mail to the Auction Agent a notice
thereof within two Business Days of such change. Any change in the Broker-Dealer
Fee Rate shall be effective on the Auction Date next succeeding such change.

          2.9  Settlement.

               (a) If any Existing Holder selling Preferred Shares in an Auction
fails to deliver such Preferred Shares (by authorized book-entry), the BD of any
Person that was to have purchased Preferred Shares in such Auction may deliver
to such Person a number of Shares of Preferred Shares that is less than the
number of Shares of Preferred Shares that otherwise were to be purchased by such
Person. In such event, the number of Shares of Preferred Shares to be so
delivered shall be determined by BD. Delivery of such lesser number of Shares
shall constitute good delivery. Upon the occurrence of any such failure to
deliver Shares, BD shall deliver to the Auction Agent the notice required by
Section 2.3(h)(ii) hereof. Notwithstanding the foregoing provisions of this
Section 2.6(a), any delivery or non delivery of Preferred Shares which
represents any departure from the results of an Auction, as determined by the
Auction Agent, shall be of no effect unless and until the Auction Agent shall
have been notified of such delivery or non-delivery in accordance with the terms
of Section 2.3(h)(ii) hereof. The Auction Agent shall have no duty or liability
with respect to enforcement of this Section 2.6(a).

               (b) Neither the Auction Agent nor the Trust shall have any
responsibility or liability with respect to the failure of an Existing Holder, a
Potential Holder or an Agent Member or any of them to deliver Preferred Shares
or to pay for Preferred Shares sold or purchased pursuant to the Auction
Procedures or otherwise.

               (c) Notwithstanding any provision of the Auction Procedures or
the Settlement Procedures to the contrary, in the event BD is an Existing Holder
with respect to shares of a series of Preferred Shares and the Auction
procedures provide that BD shall be deemed to have submitted a Sell Order in an
Auction with respect to such shares if BD fails to submit an Order in that
Auction with respect to such shares, BD shall have no liability to any Person
for failing to sell such shares pursuant to such a deemed Sell Order if (i) such
shares were transferred by the beneficial owner thereof without notification of
such transfer in compliance with the Auction Procedures or (ii) BD has indicated
to the Auction Agent pursuant to Section 2.2(f) of this Agreement that,
according to BD's records, BD is not the Existing Holder of such shares.

               (d) Notwithstanding any provision of the Auction Procedures or
the Settlement Procedures to the contrary, in the event an Existing Holder or
Beneficial Owner of shares of a series of Preferred Shares with respect to whom
a Broker-Dealer submitted a Bid to the Auction Agent for such shares that was
accepted in whole or in part, or submitted or is deemed to have submitted a Sell
Order for such shares that was accepted in whole or in part, fails to instruct
its Agent Member to deliver such shares against payment therefore, partial
deliveries of Preferred Shares that have been made in respect of Potential
Holders' or Potential Beneficial Owners' Submitted Bids for shares of such
series that have been accepted in whole or in part shall constitute good
delivery to such Potential Holders and Potential Beneficial Owners.

                                       9
<PAGE>

          3.   The Auction Agent

          3.1  Duties and Responsibilities.

               (a) The Auction Agent is acting solely as agent for the Trust
hereunder and owes no duties, fiduciary or otherwise, to any other Person.

               (b) The Auction Agent undertakes to perform such duties and only
such duties as are specifically set forth in this Agreement, and no implied
covenants or obligations shall be read into this Agreement, the Auction Agent
Agreement, Auction Procedures or the Settlement Procedures against the Auction
Agent.

               (c) In the absence of bad faith or negligence on its part, the
Auction Agent shall not be liable for any action taken, suffered, or omitted or
for any error of judgment made by it in the performance of its duties under this
Agreement. The Auction Agent shall not be liable for any error resulting from
the use or reliance on a source of information used in good faith and without
negligence to make any determination, calculation or declaration hereunder. The
Auction Agent shall not be liable for any error of judgment made in good faith
unless the Auction Agent shall have been negligent in ascertaining or failing to
ascertain the pertinent facts. In no event shall the Auction Agent be liable for
special, punitive, indirect or consequential loss or damage of any kind
whatsoever (including but not limited to lost profits), even if the Auction
Agent has been advised of the likelihood of such loss or damage and regardless
of the form of action.

               (d) The Auction Agent shall not be: (i) required to, and does
not, make any representations or have any responsibilities as to the validity,
accuracy, value or genuineness of any signatures or endorsements, other than its
own; (ii) obligated to take any legal action hereunder that might, in its
judgment, involve any expense or liability, unless it has been furnished with
indemnity satisfactory to the Auction Agent; and (iii) responsible for or liable
in any respect on account of the identity, Trust or rights of any Person (other
than itself and its agents and attorneys) executing or delivering or purporting
to execute or deliver any document under this Agreement or any Broker-Dealer
Agreement.

               (e) The Auction Agent shall not be responsible or liable for any
failure or delay in the performance of its obligations under this Agreement
arising out of or caused, directly or indirectly, by circumstances beyond its
reasonable control; it being understood that the Auction Agent shall use
reasonable efforts which are consistent with accepted practices in the banking
industry to resume performance as soon as practicable under the circumstances.

          3.2  Rights of the Auction Agent.

               (a) The Auction Agent may conclusively rely and shall be fully
protected in acting or refraining from acting upon any communication authorized
by this Agreement and upon any written instruction, notice, request, direction,
consent, report, certificate, share certificate or other instrument, paper or
document believed by it to be genuine. The Auction Agent shall not be liable for
acting upon any communication authorized by this Agreement (including, but not
limited to, any made by telephone, telecopier or other means of electronic
communication acceptable to the parties hereto) which the Auction Agent believes
in

                                       10
<PAGE>

good faith to have been given by the Trust or by BD. The Auction Agent may
record telephone communications with BD.

               (b) The Auction Agent may consult with counsel of its own choice,
and the advice of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon.

               (c) The Auction Agent shall not be required to advance, expend or
risk its own funds or otherwise incur or become exposed to financial liability
in the performance of its duties hereunder.

               (d) The Auction Agent may perform its duties and exercise its
rights hereunder either directly or by or through agents or attorneys and shall
not be responsible for any misconduct or negligence on the part of any agent or
attorney appointed by it with due care.

          3.3 Auction Agent's Disclaimer. The Auction Agent makes no
representation as to, and shall have no liability with respect to, the
correctness of the recitals in, or the validity, adequacy or accuracy of, this
Agreement, the Auction Agent Agreement, the Auction Procedures, any Purchaser's
Letter, the offering material used in connection with the offer and sale of the
Preferred Shares or any other agreement or instrument executed in connection
with the transactions contemplated herein or in any thereof.

          4.   Miscellaneous

          4.1 Termination. (a) Any party may terminate this Agreement at any
time upon five (5) days written notice to the other parties, which notice may be
given by facsimile as provided in Section 4.4 hereof. This Agreement shall
automatically terminate upon the redemption of all outstanding Preferred Shares
or upon termination of the Auction Agent Agreement.

               (b) BD represents that it (or if BD does not act as Agent Member,
one of its affiliates) shall make all dividend payments on the Preferred Shares
available in same-day funds on each Dividend Payment Date to customers that use
BD or affiliate as Agent Member.

          4.2 Agent Member. BD is, and shall remain for the term of this
Agreement, a member of, or participant in, the Securities Depository (or an
affiliate of such a member or participant).

          4.3 Communications. Except for (i) communications authorized to be by
telephone pursuant to this Agreement or the Auction Procedures and (ii)
communications in connection with the Auctions (other than those expressly
required to be in writing), all notices, requests and other communications to
any party hereunder shall be in writing (for the purposes of this Agreement,
telecopy or other means of electronic communication acceptable to the parties
shall be deemed to be in writing) and shall be given to such party, addressed to
it, at its address, telecopy number set forth below and, where appropriate
reference the particular Auction to which such notice relates:

                                       11
<PAGE>

If to BD,                   _________________________
addressed:                  _________________________
                            _________________________
                            _________________________
                            Attention:  _____________
                            Telephone No.: __________
                            Facsimile No.: __________

If to the Auction           The Bank of New York
Agent, addressed:           Corporate Trust Administration
                            385 Rifle Camp Road - 1st Floor
                            West Paterson, NJ 07424
                            Attention:  Dealing and Trading Group - Auction Desk
                            Telephone No.:  (973) 247-4642
                            Facsimile No.:  (973) 247-4646

If to the Trust,            The BlackRock [State] Municipal Income Trust
addressed:                  c/o BlackRock Advisors, Inc.
                            345 Park Avenue
                            New York, New York   10154
                            Attention:  _______________
                            Telephone No.:  ___________
                            Facsimile No.:  ___________


or such other address or facsimile number as such party may hereafter specify
for such purpose by notice to the other parties. Each such notice, request or
communication shall be effective when delivered at the address specified herein.
Communications shall be given on behalf of BD by a BD Officer, on behalf of the
Auction Agent by an Authorized Officer and on behalf of the Trust by an
Authorized Trust Officer. Telephone communications may be recorded.

          4.4 Entire Agreement. This Agreement contains the entire agreement
between the parties relating to the subject matter hereof, and there are no
other representations, endorsements, promises, agreements or understandings,
oral, written or inferred, between the parties relating to the subject matter
hereof.

          4.5 Benefits. Nothing in this Agreement, express or implied, shall
give to any person, other than the Auction Agent, the Trust and BD and their
respective successors and permitted assigns, any benefit of any legal or
equitable right, remedy or claim under this Agreement.

          4.6  Amendment; Waiver.

               (a) This Agreement shall not be deemed or construed to be
modified, amended, rescinded, cancelled or waived, in whole or in part, except
by a written instrument signed by a duly authorized representative of each of
the parties hereto.

                                       12
<PAGE>

               (b) Failure of any party to this Agreement to exercise any right
or remedy hereunder in the event of a breach of this Agreement by any other
party shall not constitute a waiver of any such right or remedy with respect to
any subsequent breach.

          4.7 Successors and Assigns. This Agreement shall be binding upon,
inure to the benefit of, and be enforceable by, the respective successors and
permitted assigns of each of the parties hereto. This Agreement may not be
assigned by any party hereto absent the prior written consent of the other
parties.

          4.8 Severability. If any clause, provision or section of this
Agreement shall be ruled invalid or unenforceable by any court of competent
jurisdiction, the invalidity or unenforceability of such clause, provision or
section shall not affect any remaining clause, provision or section hereof.

          4.9 Execution in Counterparts. This Agreement may be executed in
several counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.

          4.10 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO
ANY PROVISIONS THEREOF RELATING TO CONFLICTS OF LAW, OTHER THAN SECTION 5-1401
OF THE GENERAL OBLIGATIONS LAW OF NEW YORK).

                                       13
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the date first above written.


                                 THE BANK OF NEW YORK,
                                  as Auction Agent

                                 By:
                                    ------------------------------
                                 Name:  Joseph Panepinto
                                 Title: Vice President

                                 SALOMON SMITH BARNEY INC.

                                 By:
                                    ------------------------------
                                 Name:
                                 Title:

                                 MERRILL LYNCH, PIERCE, FENNER & SMITH
                                 INCORPORATED
                                 as Broker-Dealer

                                 By:
                                    ------------------------------
                                 Name:
                                 Title:

                                      14
<PAGE>

                                                                       Exhibit A
                                                                To BROKER-DEALER
                                                                       AGREEMENT

                               AUCTION BID FORM

                  (Submit only one Order on this Order Form)
                    BLACKROCK [STATE] MUNICIPAL INCOME FUND
    Municipal Auction Rate Cumulative Preferred Shares ("PREFERRED SHARES")

To:  The Bank of New York                   Date of Auction ____________________
     Corporate Trust Administration         Series of PREFERRED SHARES (indicate
     385 Rifle Camp Road- 1st Floor         by Number Designation)
     West Pasterson, New Jersey  07424      _______
     Attention:  Dealing and Trading Group

The undersigned Broker-Dealer submits the following Order on behalf of the
Bidder listed below:

          Name of Bidder: __________________________________

          Bidder placed the Order listed below covering the number of Shares
          indicated (complete only one blank):

          _________________  number of Shares of Preferred Shares now held by

          Bidder (an Existing Holder), and the Order is a (check one):

          [_]     Hold Order; or

          [_]     Bid at a rate of ____%; or

          [_]     Sell Order;

-- or -

          _________________  number of Shares of Preferred Shares not now held
          by Bidder (a Potential Holder), and the Order is
          a Bid at a rate of ______%

Notes:

(1)  If submitting more than one Bid for one Bidder, use additional Order Forms.

(2)  If one or more Bids covering in the aggregate more than the outstanding
     number of Shares of the Preferred Shares held by any Existing Holder are
     submitted, such Bids shall be considered valid in the order of priority set
     forth in the Auction Procedures.

(3)  A Hold or Sell Order may be placed only by an Existing Holder covering a
     number of Shares of the Preferred Shares not greater than the number of
     Shares currently held by such Existing Holder.

(4)  Potential Holders may make Bids only, each of which must specify a rate.
     If more than one Bid is submitted on behalf of any Potential Holder, each
     Bid submitted shall be a separate Bid with the rate specified.

(5)  Bids may contain no more than three figures to the right of the decimal
     point (.001 of 1%).

(6)  An Order must be submitted in whole Shares of Preferred Shares with an
     aggregate liquidation preference of $25,000.

                              Name of Broker-Dealer:  __________________________
                              By:  __________________________

                                      A-1
<PAGE>

                                                                       Exhibit B
                                                                To BROKER-DEALER
                                                                       AGREEMENT

                 (To be used only for transfers made other than
                            pursuant to an Auction)

                                 TRANSFER FORM

                    BLACKROCK [STATE] MUNICIPAL INCOME FUND
    Municipal Auction Rate Cumulative Preferred Shares ("PREFERRED SHARES")

                   Series _____ Preferred Shares (indicate by
                              Number Designation)
We are (check one):

          [_]  the Existing Holder named below; or

          [_]  the Broker-Dealer for such Existing Holder; or

          [_]  the Agent Member for such Existing Holder.

          We hereby notify you that such Existing Holder will transfer ___
Shares of PREFERRED SHARES to ____________________.


                                        BLACKROCK [STATE]
                                      MUNICIPAL INCOME FUND

                                      By: _______________________________
                                          Name:
                                          Title:

                                      (Name of Existing Holder)

                                      (Name of Broker-Dealer)

                                      (Name of Agent Member)

                                      By: _______________________________
                                          Name:
                                          Title:

                                      B-1
<PAGE>

                                                                       Exhibit C
                                                                To BROKER-DEALER
                                                                       AGREEMENT

                   (To be used only for failures to deliver
                 PREFERRED SHARES sold pursuant to an Auction)

                        NOTICE OF A FAILURE TO DELIVER

                    BLACKROCK [STATE] MUNICIPAL INCOME FUND
    Municipal Auction Rate Cumulative Preferred Shares ("Preferred Shares")

                  Series _____ Preferred Shares (indicate by
                              Number Designation)

     Complete either I. or II.

     I.   We are a Broker-Dealer for ______________ (the "Purchaser"), which
          purchased ____ Shares of Preferred Shares in the Auction held on
          __________________ from the seller of such Preferred Shares.

     II.  We are a Broker-Dealer for _____________ (the "Seller"), which sold
          ____ Shares of Preferred Shares in the Auction held on
          ____________________ to the purchaser of such Preferred Shares.

     We hereby notify you that (check one):

     __________ the Seller failed to deliver such Preferred Shares to the
          Purchaser; or

     __________   the Purchaser failed to make payment to the Seller upon
          delivery of such Preferred Shares.


                                            Name:
                                                  -----------------------------
                                                  (Name of Broker-Dealer)



                                            By:
                                                -------------------------------
                                                Printed Name:
                                                Title:

                                      C-1
<PAGE>

     Capitalized terms used in this letter, unless otherwise defined herein,
shall have the meanings set forth in the Offering Documents.

                                    (Name of Purchaser)

                                    By:
                                       --------------------------------
                                       Name:
                                       Title:

                                    Address:
                                            ---------------------------

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

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

Dated:

                                      S-1

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(L)
<SEQUENCE>6
<FILENAME>dex99l.txt
<DESCRIPTION>OPINION AND CONSENT OF COUNSEL TO THE TRUST
<TEXT>
<PAGE>

                                                                    Exhibit (l)

                              October 2, 2001



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

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

Ladies and Gentlemen:

          We have acted as special counsel to BlackRock New York Municipal
Income Trust, a business trust formed under the Delaware Business Trust Act (the
"Trust"), in connection with the public offering by the Trust of up to 2,195
shares of the Trust's Series W7 Preferred Shares of Beneficial Interest, and
2,195 shares of the Trust's Series F7 Preferred Shares of Beneficial Interest,
liquidation preference $25,000 per share (the "Preferred 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. 333-67998 and 811-10337), as filed with the
Commission on August 21, 2001, and as amended by Pre-Effective Amendment No. 1
on September 27, 2001 and Pre-Effective Amendment No. 2 on October 2, 2001 under
the 1933 Act
<PAGE>

BlackRock New York
Municipal Income Trust
October 2, 2001
Page 2


(such Registration Statement, as so amended and proposed to be amended, being
hereinafter referred to as the "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 Preferred
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 Statement of Preferences setting forth the rights, powers, terms and
preferences of the Preferred Shares; (vii) the By-Laws of the Trust, as
currently in effect; (viii) certain resolutions of the Board of Trustees of the
Trust relating to the issuance and sale of the Preferred Shares and related
matters and (ix) 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 Preferred
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
Preferred Shares and registered by such transfer agent and registrar.  As to any
facts material to
<PAGE>

BlackRock New York
Municipal Income Trust
October 2, 2001
Page 3


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.

          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 Preferred 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 Preferred Shares and registered by such transfer agent and
registrar; and (iv) the Preferred 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 Preferred Shares as contemplated by the Underwriting Agreement, the
issuance and sale of the Preferred Shares will have been duly authorized, and
the Preferred 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,


                         Skadden, Arps, Slate, Meagher & Flom LLP



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(N)
<SEQUENCE>7
<FILENAME>dex99n.txt
<DESCRIPTION>CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
<TEXT>
<PAGE>

                                                                     Exhibit (n)

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Pre-Effective Amendment No. 2 to the Registration
Statement of the BlackRock New York Municipal Income Trust (Securities Act
Registration No. 333-67998) of our report dated July 18, 2001, relating to the
financial statements of the BlackRock New York 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
Statement of Additional Information.



Boston, Massachusetts
October 1, 2001

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
