As filed with the Securities and Exchange Commission on September 15, 2010

 

Securities Act File No. 333-            

Investment Company Act File No. 811-07642

 

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 

FORM N-14

 

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933  
Pre-Effective Amendment No.   ¨
Post-Effective Amendment No.   ¨
(Check appropriate box or boxes)  

 

 

 

BLACKROCK MUNIASSETS FUND, INC.

(Exact name of registrant as specified in charter)

 

100 Bellevue Parkway Wilmington, Delaware 19809

(Address of Principal Executive Offices)

 

Telephone Number: (800) 882-0052 (Area Code and Telephone Number)

 

Anne F. Ackerley

President and Chief Executive Officer

BlackRock MuniAssets Fund, Inc.

55 East 52nd Street

New York, New York 10055

(Name and Address of Agent for Service)

 

 

 

Copies to:

 

Michael K. Hoffman, Esq.

Skadden, Arps, Slate, Meagher & Flom LLP

4 Times Square

New York, New York 10036-6522

 

Howard B. Surloff, Esq.

BlackRock Advisors, LLC

55 East 52nd Street

New York, New York 10022

 

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

 

CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

 

 
Title of Securities Being Registered   Proposed Maximum
Aggregate
Offering Price(1)
  Amount of
Registration Fee

Common Stock, $0.10 par value

  $1,000,000   $71.30
 
 
(1) Estimated solely for the purpose of calculating the filing registration fee, pursuant to Rule 457(o) under the Securities Act of 1933.

 

 

 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


EXPLANATORY NOTE

This Registration Statement is organized as follows:

 

1. Letter to Shareholders of:

 

   

BlackRock Apex Municipal Fund, Inc.; and

 

   

BlackRock MuniAssets Fund, Inc.

 

  (collectively, the “Funds”).

 

2. Questions and Answers to Shareholders of the Funds.

 

3. Notice of Joint Special Meeting of Shareholders of the Funds.

 

4. Joint Proxy Statement/Prospectus for the Funds.

 

5. Statement of Additional Information regarding the proposed Reorganization of the Funds.

 

6. Part C: Other Information.

 

7. Exhibits.


BLACKROCK APEX MUNICIPAL FUND, INC.

BLACKROCK MUNIASSETS FUND, INC.

100 Bellevue Parkway

Wilmington, Delaware 19809

(800) 882-0052

            , 2010

Dear Shareholder:

You are cordially invited to attend a joint special shareholder meeting (the “Special Meeting”) of BlackRock Apex Municipal Fund, Inc. (“APX”) and BlackRock MuniAssets Fund, Inc. (“MUA”), each a Maryland corporation, to be held on Friday, December, 17, 2010 at 9:00 a.m. Before the Special Meeting, I would like to provide you with additional background and ask for your vote on important proposals affecting APX and MUA.

Shareholders of APX and MUA will be asked to consider the following proposals (each a “Proposal”), which are described in the enclosed Joint Proxy Statement/Prospectus, at the Special Meeting: (i) reorganizing APX into MUA (the “Reorganization”), a fund with the same or substantially similar (but not identical) investment objective and investment policies; (ii) issuing additional shares of common stock of MUA (the “Issuance”) in connection with the Reorganization; and (iii) converting APX’s and MUA’s fundamental investment policies restricting APX and MUA from issuing senior securities or borrowing amounts in excess of 5% of their respective total assets taken at market value into non-fundamental investment policies.

The Board of Directors of each fund believes each Proposal, as applicable, is in the best interests of its respective fund and shareholders and unanimously recommends that you vote “ FOR ” each Proposal, as applicable.

The enclosed materials explain these proposals in more detail, and I encourage you to review them carefully. As a shareholder, your vote is important, and we hope that you will respond today to ensure that your shares will be represented at the Special Meeting. You may vote using one of the methods below by following the instructions on your proxy card:

 

   

By touch-tone telephone;

 

   

By internet;

 

   

By returning the enclosed proxy card in the postage-paid envelope; or

 

   

In person at the Special Meeting.

If you do not vote using one of these methods, you may be contacted by             , our proxy solicitor, to vote your shares over the phone.

As always, we appreciate your support.

Sincerely,

A NNE F. A CKERLEY

President and Chief Executive Officer

BlackRock Apex Municipal Fund, Inc.

BlackRock MuniAssets Fund, Inc.


 
Please vote now. Your vote is important.
 
To avoid the wasteful and unnecessary expense of further solicitation, we urge you to indicate your voting instructions on the enclosed proxy card, date and sign it and return it promptly in the envelope provided, or record your voting instructions by telephone or via the internet, no matter how large or small your holdings may be. If you submit a properly executed proxy but do not indicate how you wish your shares to be voted, your shares will be voted “For” each Proposal, as applicable. If your shares are held through a broker, you must provide voting instructions to your broker about how to vote your shares in order for your broker to vote your shares at the Special Meeting.


            , 2010

IMPORTANT NOTICE

TO SHAREHOLDERS OF

BLACKROCK APEX MUNICIPAL FUND, INC.

BLACKROCK MUNIASSETS FUND, INC.

QUESTIONS & ANSWERS

Although we recommend that you read the entire Joint Proxy Statement/Prospectus, we have provided for your convenience a brief overview of the issues to be voted on.

 

Q: Why is a shareholder meeting being held?

 

A: Shareholders of BlackRock Apex Municipal Fund, Inc. (APX): You are being asked to vote on the reorganization (the “Reorganization”) of BlackRock Apex Municipal Fund, Inc. (“ APX”) into BlackRock MuniAssets Fund, Inc. (“MUA”, and together with APX, the “Funds”), a closed-end fund that pursues an investment objective and has investment policies that are either substantially the same or substantially similar (but not identical) to those of APX and has the same investment adviser as APX.

You are also being asked to approve a proposal to convert APX’s fundamental investment policy restricting APX from issuing senior securities or borrowing amounts in excess of 5% of its total assets taken at market value into a non-fundamental investment policy (the “APX Policy Amendment”). If this proposal is approved, APX currently intends to use leverage approximately equal to 15% of its total assets at the time the leverage is implemented, but may use leverage up to 25% of its total assets under the new leverage policy without further Board or shareholder approval. APX would need Board approval, but not shareholder approval, to use leverage above 25% of its total assets under the new leverage policy, up to the maximum amount permitted under the Investment Company Act of 1940 (the “1940 Act”).

Shareholders of BlackRock MuniAssets Fund, Inc. (MUA): You are being asked to vote on the issuance of additional shares of common stock of MUA in connection with the Reorganization.

You are also being asked to approve a proposal to convert MUA’s fundamental investment policy restricting MUA from issuing senior securities or borrowing amounts in excess of 5% of its total assets taken at market value into a non-fundamental investment policy (the “MUA Policy Amendment” and together with the APX Policy Amendment, the “Policy Amendments”). If this proposal is approved, MUA currently intends to use leverage approximately equal to 15% of its total assets at the time the leverage is implemented, but may use leverage up to 25% of its total assets under the new leverage policy without further Board or shareholder approval. MUA would need Board approval, but not shareholder approval, to use leverage above 25% of its total assets under the new leverage policy, up to the maximum amount permitted under the 1940 Act.

The Reorganization will be consummated if APX shareholders approve the Reorganization and MUA shareholders approve the issuance of additional shares of common stock of MUA in connection with the Reorganization (the “Issuance”). The Reorganization is not contingent upon the approval of any Policy Amendments. If the Reorganization is not consummated, then APX and MUA would each continue to exist and operate on a stand-alone basis. Similarly, a Policy Amendment is not contingent upon the approval of the Reorganization or the Issuance. A Fund’s shareholders would have the benefit of the new leverage policy regardless of whether the Reorganization or the Issuance is approved so long as the Fund’s Policy Amendment was approved by the Fund’s shareholders.

However, in the event the Reorganization is consummated, shareholders of the combined fund, including former shareholders of APX, would be subject to the leverage policy for MUA following the Reorganization. If MUA shareholders do not approve the MUA Policy Amendment, then the combined fund would operate under MUA’s current leverage policy and shareholders of the combined fund, including former shareholders of APX, would not have the benefit of the new leverage policy. In such an event, APX shareholders would not have the benefit of the new leverage policy even if APX shareholders had previously approved the APX Policy Amendment. If MUA shareholders approve the MUA Policy Amendment, then the combined fund would operate under the new leverage policy and shareholders of the combined fund, including former shareholders of APX, would have the benefit of the new leverage policy. In such an event, APX shareholders would be subject to the new leverage policy even if APX shareholders had not previously approved the APX Policy Amendment. There can be no assurance that MUA shareholders will approve the MUA Policy Amendment.


Q: Why is the Reorganization being recommended?

 

A: The Board of Directors of each Fund (each, a “Board”) anticipates that the Reorganization could benefit shareholders of each Fund by providing the potential for a lower operating expense ratio, portfolio management and administrative efficiencies, enhanced market liquidity, marketing benefits and approximately the same distribution yield as currently experienced by MUA (assuming all other conditions remain the same).

The Boards believe that the completion of the Reorganization would result in a reduced Total Expense Ratio (defined below) and a reduced Adjusted Total Expense Ratio (defined below) for each Fund because certain fixed administrative costs would be spread across the combined fund’s larger asset base. When we use the term “Total Expenses,” we mean a Fund’s total annual operating expenses including interest expenses associated with such Fund’s investments in tender option bonds without giving effect to the potential for increased leverage if the Policy Amendments are approved. When we use the term “Total Expense Ratio,” we mean a Fund’s Total Expenses expressed as a percentage of its average net assets attributable to its common shares. The Funds estimate that the completion of the Reorganization would result in a Total Expense Ratio for the combined fund of 0.70% on a pro forma basis for the 12-month period ended April 30, 2010, representing a reduction in the Total Expense Ratio of 0.14% for APX and 0.01% for MUA, each as a percentage of average net assets attributable to common shares.

When we use the term “Adjusted Total Expenses,” we mean a Fund’s estimated total annual operating expenses including interest expenses associated with such Fund’s leverage in an amount equal to 15% of its total assets, assuming its Policy Amendment had been approved. When we use the term “Adjusted Total Expense Ratio,” we mean a Fund’s Adjusted Total Expenses expressed as a percentage of its average net assets attributable to its common shares. The Funds estimate that the completion of the Reorganization would result in an Adjusted Total Expense Ratio for the combined fund of 0.90% on a pro forma basis for the 12-month period ended April 30, 2010, representing a reduction in the Adjusted Total Expense Ratio of 0.15% for APX and 0.01% for MUA, each as a percentage of average net assets attributable to common shares.

 

Q: What happens if the Reorganization is not approved by APX shareholders?

 

A: APX and MUA would each continue to exist and operate on a stand-alone basis. A Fund would have the benefit of the new leverage policy regardless of whether the Reorganization is approved so long as the Fund’s Policy Amendment was approved by the Fund’s shareholders. In the event a Fund’s Policy Amendment is not approved by the Fund’s shareholders, the Investment Advisor will continue to manage the Fund under its current leverage policy.

 

Q: What happens if the issuance of additional common shares by MUA is not approved by MUA shareholders?

 

A: APX and MUA would each continue to exist and operate on a stand-alone basis. A Fund would have the benefit of the new leverage policy regardless of whether the Issuance is approved so long as the Fund’s Policy Amendment was approved by the Fund’s shareholders. In the event a Fund’s Policy Amendment is not approved by the Fund’s shareholders, the Investment Advisor will continue to manage the Fund under its current leverage policy.

 

Q: How similar are the Funds?

 

A:

Each Fund is a Maryland corporation and a non-diversified management investment company registered under the 1940 Act. Each Fund’s common stock is listed on the New York Stock Exchange. The Funds have the same investment adviser, the same portfolio managers, and either the same or substantially similar (but not identical) investment objectives, investment policies, strategies, risks and restrictions. The investment objectives of the Funds are the same: to provide shareholders with high current income exempt from Federal income taxes by investing primarily in a portfolio of medium to lower grade or unrated municipal obligations the interest on which, in the opinion of bond counsel to the issuer, is exempt from Federal

 

ii


 

income taxes. Each Fund invests at least 80% of its total assets, except during temporary defensive periods, in Municipal Bonds. The salient differences between the policies of MUA and APX are discussed below.

MUA is required to invest at least 65% of its total assets in municipal obligations, issued by or on behalf of states, territories and possessions of the United States and their political subdivisions, agencies or instrumentalities paying interest which, in the opinion of bond counsel to the issuer, is exempt from Federal income taxes (“Municipal Bonds”) that are rated in any one of the medium and lower rating categories of Moody’s, S&P or Fitch, or are unrated, that the investment adviser believes are of comparable quality. APX, on the other hand, is required to invest at least 75% of its total assets in Municipal Bonds which are rated in any one of the medium and lower rating categories of a nationally recognized statistical rating organization or are unrated.

MUA has the authority to invest as much as 35% of its total assets in Municipal Bonds in the higher rating categories of nationally recognized statistical rating organizations. APX can only invest up to 25% of its total assets in Municipal Bonds in the higher rating categories of nationally recognized statistical rating organizations.

MUA may not invest in repurchase agreements maturing in more than seven days if such investments, together with all other illiquid investments, would exceed 15% of the Fund’s net assets. APX may not invest more than 10% of its total assets in repurchase agreements maturing in more than seven days.

Each Fund reserves the right to temporarily invest more than 20% of its total assets in short-term municipal securities, or short-term taxable money market securities (including commercial paper, certificates of deposit and repurchase agreements) for defensive purposes when, in the opinion of the investment adviser, prevailing market or financial conditions warrant. However, MUA may invest in taxable commercial paper rated A-1+ through A-3 by S&P, Prime-1 through Prime-3 by Moody’s, F-1+ through F-3 by Fitch or have credit characteristics equivalent to such ratings in the opinion of the investment adviser. APX, on the other hand, may only invest in taxable commercial paper rated A-1 or A-2 by S&P, Prime-1 or Prime-2 by Moody’s or an equivalent rating in the opinion of the investment adviser. In addition, the short-term tax-exempt obligations that MUA may invest in are in the highest rating categories as determined either by Moody’s (currently, MIG-1 through MIG-3 for notes and Prime-1 through Prime-3 for commercial paper), S&P (currently, SP-1+ through SP-2 for notes and A-1+ through A-3 for commercial paper), or Fitch (currently, F-1 and F-2 for notes and F-1 for commercial paper), except that MUA may invest in lower rated or unrated short-term tax-exempt obligations to the extent that such investments do not exceed 20% of its total assets. APX does not have such a policy with respect to short-term tax-exempt obligations.

As used throughout this notice, the Joint Proxy Statement/Prospectus and the Statement of Additional Information, “total assets” of a Fund means the Fund’s net assets plus the amount of any borrowings for investment purposes. Please see the Joint Proxy Statement/Prospectus for additional comparison information.

 

Q: How will the Reorganization be effected?

 

A: Assuming APX’s shareholders approve the Reorganization and MUA shareholders approve the issuance of additional common shares of MUA, APX will merge with and into MUA Merger Subsidiary, LLC, a Maryland limited liability company (the “Merger Subsidiary”) and a direct, wholly-owned subsidiary of MUA. Following the Reorganization, the Merger Subsidiary will dissolve under Maryland law and be liquidated into MUA, and APX will terminate its registration under the 1940 Act.

Shareholders of APX : You will become shareholders of MUA. Holders of common shares of APX will receive newly issued common shares of MUA, par value $0.10 per share, the aggregate net asset value (not the market value) of which will equal the aggregate net asset value (not the market value) of the common shares of APX you held immediately prior to the Reorganization, less the costs of the Reorganization (although shareholders may receive cash for fractional shares).

Shareholders of MUA : You will remain a shareholder of MUA.

 

iii


Q: At what prices have common shares of APX and MUA historically traded?

 

A: Common shares of each Fund have from time to time traded at, above and below their net asset values. There can be no assurance that, after the Reorganization, common shares of MUA will trade at, above or below net asset value. In the Reorganization, shareholders of APX will receive common shares of MUA based on the relative net asset values (not the market values) of each respective Fund’s common shares. The market value of the common shares of the combined fund may be less than the market value of the common shares of your Fund prior to the Reorganization.

 

Q: Will I have to pay any sales load, commission or other similar fees in connection with the Reorganization?

 

A: You will pay no sales loads or commissions in connection with the Reorganization. However, regardless of whether the Reorganization is completed, the costs associated with the proposed Reorganization, including the costs associated with the shareholder meeting, will be borne directly by the respective Fund incurring the expense or allocated among the Funds proportionately or on another reasonable basis, as appropriate. Such costs are estimated to be $421,819 in the aggregate, of which $205,414 is estimated to be attributable to APX and $216,405 is estimated to be attributable to MUA.

 

Q: Will I have to pay any Federal taxes as a result of the Reorganization?

 

A: The Reorganization is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”). If the Reorganization so qualifies, in general, shareholders of APX will recognize no gain or loss for Federal income tax purposes upon the exchange of their APX common shares for MUA common shares pursuant to the Reorganization. Additionally, APX will recognize no gain or loss for Federal income tax purposes by reason of the Reorganization. Neither MUA nor its shareholders will recognize any gain or loss for Federal income tax purposes pursuant to the Reorganization.

On or prior to the closing date of the transactions with respect to the Reorganization (the “Closing Date”), APX will declare a distribution to its shareholders that, together with all previous distributions, will have the effect of distributing to APX’s shareholders all of its investment company taxable income (computed without regard to the deduction for dividends paid), if any, through the Closing Date, all of its net capital gains, if any, through the Closing Date, and such portion of its net tax-exempt interest income as is necessary to ensure that APX maintains its regulated investment company (“RIC”) status at all times up to and including the Closing Date. Such a distribution may be taxable to APX’s shareholders for Federal income tax purposes.

The Funds’ shareholders should consult their own tax advisers regarding the Federal income tax consequences of the Reorganization, as well as the effects of state, local and non-U.S. tax laws, including possible changes in tax laws.

 

Q: Why is the vote of shareholders of MUA being solicited in connection with the Reorganization?

 

A: Although MUA will continue its legal existence and operations after the Reorganization, the rules of the New York Stock Exchange (on which MUA’s common shares are listed) require MUA’s shareholders to approve the issuance of additional common shares in connection with the Reorganization.

 

Q: Why is the APX Policy Amendment and MUA Policy Amendment being recommended?

 

A:

Each Fund currently has a fundamental policy that provides that such Fund may not issue senior securities or borrow amounts in excess of 5% of its total assets taken at market value. The Boards of the Funds have reviewed the current leverage policy and believe such policy is unduly restrictive and should be replaced with a non-fundamental policy. If the shareholders of the Funds approve their respective proposals, each Fund currently intends to use leverage approximately equal to 15% of its total assets at the time the leverage is implemented, but may use leverage up to 25% of its total assets under the new leverage policy without

 

iv


 

further Board or shareholder approval. As a non-fundamental policy, the Board could in the future authorize the Fund to use additional leverage up to the maximum amount permitted under the 1940 Act or change the 25% threshold at which Board approval is required to increase leverage, in each case without further shareholder approval.

The Boards of the Funds anticipate that the new leverage policy would benefit the Funds’ shareholders. The new leverage policy could provide the Investment Advisor and Fund’s sub-advisor (the “Sub-Advisor,” and together with the Investment Advisor, the “Advisors”) with the flexibility to manage each Fund more effectively in the future, to respond to changing market conditions and new investment opportunities and to generate additional income for each Fund’s shareholders. As a non-fundamental policy, the amounts of leverage incurred by a Fund can be changed by the Fund’s Board without prior notice or shareholder approval, up to the maximum amount of the leverage permitted under the 1940 Act. Approval of a Policy Amendment is not contingent upon the approval of the Reorganization or the Issuance. A Fund’s shareholders would have the benefit of the new leverage policy so long as the Fund’s Policy Amendment was approved by the Fund’s shareholders. At the Meeting, each Fund’s shareholders will be asked to approve its respective Policy Amendment. Each Policy Amendment, if approved, would take effect immediately and the Investment Advisor would begin to add additional leverage until the Fund reaches its leverage target of approximately 15% of its total assets. No assurance can be given at this time as to how long it will take for each Fund to reach its leverage target of approximately 15% of its total assets or that a Fund will be able to use additional leverage to reach such leverage target.

In the event the Reorganization is consummated, shareholders of the combined fund, including former shareholders of APX, would be subject to the leverage policy for MUA following the Reorganization. If MUA shareholders do not approve the MUA Policy Amendment, then the combined fund would operate under MUA’s current leverage policy and shareholders of the combined fund, including former shareholders of APX, would not have the benefit of the new leverage policy. In such an event, APX shareholders would not have the benefit of the new leverage policy even if APX shareholders had previously approved the APX Policy Amendment. If MUA shareholders approve the MUA Policy Amendment, then the combined fund would operate under the new leverage policy and shareholders of the combined fund, including former shareholders of APX, would have the benefit of the new leverage policy. In such an event, APX shareholders would be subject to the new leverage policy even if APX shareholders had not previously approved the APX Policy Amendment. There can be no assurance that MUA shareholders will approve the MUA Policy Amendment.

Each Fund currently utilizes leverage through the use of tender option bonds to seek to enhance the yield and NAV of their common shares. If a Fund’s Policy Amendment is approved by the Fund’s shareholders, then the Advisors would seek to utilize additional tender option bonds with respect to the Fund. Tender option bond investments generally will provide a Fund with economic benefits in periods of declining short-term interest rates, but expose the Fund to risks during periods of rising short-term interest rates. See “Investment Objectives and Policies—Tender Option Bond Transactions” and “Risk Factors and Special Considerations—Tender Option Bond Risks” for additional information about tender option bonds.

Although the use of leverage by a Fund may create an opportunity for higher total return, it also results in additional risks and costs and can magnify the effect of any losses. The risks associated with leverage will be present to a greater extent if the Fund’s Policy Amendment is approved and the Fund uses additional leverage. If the income and gains earned on municipal bonds to which a Fund has exposure through the use of leverage are greater than the payments due on the related short-term floating rate interests, the Fund’s returns will be greater than if leverage had not been used. Conversely, if the income and gains from those municipal bonds do not cover the payments due in connection with the leverage used, the return will be less than if the economic leverage had not been used. The Advisors nevertheless may determine to continue to use leverage if it expects that the benefits to a Fund will outweigh the risk of a reduced return. There is no assurance that a Fund’s leverage strategy will be successful. See “Risk Factors and Special Considerations—General Leverage Risks” for additional information about the risks associated with the use of leverage.

 

v


A Fund utilizing additional leverage would have to pay additional interest expenses associated with such leverage, which would result in higher total annual operating expenses for shareholders. In addition, the Investment Advisor’s contractual management fee for each Fund is based on a percentage of the Fund’s average daily total assets less accrued liabilities. Thus, a Fund utilizing additional leverage would also be subject to management fees on any assets attributable to the additional leverage. While the Investment Advisor’s contractual management fee for each Fund as a percentage of its average daily total assets less accrued liabilities will remain the same regardless of the amount of leverage utilized by the Funds, the Investment Advisor’s contractual management fee for each Fund as a percentage of its net assets (as opposed to total assets) is expected to increase as a result of the additional leverage. Please see “Proposals 3 and 4: Amendment to Fundamental Investment Policy” starting on page 59 and “Expense Tables for Shareholders” starting on page 22 for additional detail about the expenses of each Fund and the Combined Fund.

 

Q: How does the Board of my Fund suggest that I vote?

 

A: After careful consideration, the Board of your Fund recommends that you vote “ FOR ” each of the items proposed for your Fund.

 

Q: How do I vote my proxy?

 

A: You may cast your vote by mail, phone, internet or in person at the Special Meeting (as defined in the Joint Proxy Statement/Prospectus). To vote by mail, please mark your vote on the enclosed proxy card and sign, date and return the card in the postage-paid envelope provided. If you choose to vote by phone or internet, please refer to the instructions found on the proxy card accompanying this Joint Proxy Statement/Prospectus. To vote by phone or internet, you will need the “control number” that appears on the proxy card.

 

Q: Whom do I contact for further information?

 

A: You may contact your financial advisor for further information. You may also call             , the Funds’ proxy solicitor, at             .

 

 
Please vote now. Your vote is important.
 
To avoid the wasteful and unnecessary expense of further solicitation, we urge you to indicate your voting instructions on the enclosed proxy card, date and sign it and return it promptly in the envelope provided, or record your voting instructions by telephone or via the internet, no matter how large or small your holdings may be. If you submit a properly executed proxy but do not indicate how you wish your common shares to be voted, your shares will be voted “For” each Proposal, as applicable. If your shares are held through a broker, you must provide voting instructions to your broker about how to vote your shares in order for your broker to vote your common shares at the Special Meeting.

 

vi


BLACKROCK APEX MUNICIPAL FUND, INC.

BLACKROCK MUNIASSETS FUND, INC.

100 Bellevue Parkway

Wilmington, Delaware 19809

(800) 882-0052

NOTICE OF JOINT SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD ON FRIDAY, DECEMBER 17, 2010

Notice is hereby given that a joint special meeting of shareholders (the “Special Meeting”) of BlackRock Apex Municipal Fund, Inc. (“APX”) and BlackRock MuniAssets Fund, Inc. (“MUA”) will be held at the offices of BlackRock, Inc., 800 Scudders Mill Road, Plainsboro, NJ 08536, on Friday, December, 17, 2010 at 9:00 a.m. for the following purposes:

1. Reorganization of BlackRock Apex Municipal Fund, Inc. into BlackRock MuniAssets Fund, Inc.

Shareholders of BlackRock Apex Municipal Fund, Inc. (APX):

Proposal 1: The shareholders of APX are being asked to approve an Agreement and Plan of Reorganization among APX, MUA and MUA Merger Subsidiary, LLC (the “Reorganization Agreement”) and the termination of APX’s registration under the 1940 Act.

2. Issuance of common stock by BlackRock MuniAssets Fund, Inc.

Shareholders of BlackRock MuniAssets Fund, Inc. (MUA):

Proposal 2: The shareholders of MUA are being asked to approve the issuance of additional shares of common stock of MUA in connection with the Reorganization Agreement.

3. Change in a Fundamental Investment Policy of BlackRock Apex Municipal Fund, Inc.

Shareholders of BlackRock Apex Municipal Fund, Inc. (APX):

Proposal 3: Shareholders of APX are being asked to approve a proposal to convert APX’s fundamental investment policy restricting APX from issuing senior securities or borrowing amounts in excess of 5% of its total assets taken at market value into a non-fundamental investment policy.

4. Change in a Fundamental Investment Policy of BlackRock MuniAssets Fund, Inc.

Shareholders of BlackRock MuniAssets Fund, Inc. (MUA):

Proposal 4: Shareholders of MUA are being asked to approve a proposal to convert MUA’s fundamental investment policy restricting MUA from issuing senior securities or borrowing amounts in excess of 5% of its total assets taken at market value into a non-fundamental investment policy.

Shareholders of record as of the close of business on October 20, 2010 are entitled to vote at the Special Meeting or any adjournment thereof.

THE BOARD OF DIRECTORS (EACH, A “BOARD”) OF EACH OF APX AND MUA REQUESTS THAT YOU VOTE YOUR SHARES BY INDICATING YOUR VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD, DATING AND SIGNING SUCH PROXY CARD AND RETURNING IT IN THE ENVELOPE PROVIDED, WHICH IS ADDRESSED FOR YOUR CONVENIENCE AND NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES, OR BY RECORDING YOUR VOTING INSTRUCTIONS BY TELEPHONE OR VIA THE INTERNET.


THE BOARD OF APX RECOMMENDS THAT YOU CAST YOUR VOTE:

 

  - FOR THE REORGANIZATION OF YOUR FUND PURSUANT TO THE REORGANIZATION AGREEMENT AS DESCRIBED IN THE JOINT PROXY STATEMENT/PROSPECTUS AND THE TERMINATION OF YOUR FUND’S REGISTRATION UNDER THE 1940 ACT.

 

  - FOR THE CONVERSION OF APX’S FUNDAMENTAL INVESTMENT POLICY RESTRICTING APX FROM ISSUING SENIOR SECURITIES OR BORROWING AMOUNTS IN EXCESS OF 5% OF ITS TOTAL ASSETS TAKEN AT MARKET VALUE INTO A NON-FUNDAMENTAL INVESTMENT POLICY.

THE BOARD OF MUA RECOMMENDS THAT YOU CAST YOUR VOTE:

 

  - FOR THE ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK OF YOUR FUND IN CONNECTION WITH THE REORGANIZATION AGREEMENT.

 

  - FOR THE CONVERSION OF MUA’S FUNDAMENTAL INVESTMENT POLICY RESTRICTING MUA FROM ISSUING SENIOR SECURITIES OR BORROWING AMOUNTS IN EXCESS OF 5% OF ITS TOTAL ASSETS TAKEN AT MARKET VALUE INTO A NON-FUNDAMENTAL INVESTMENT POLICY.

IN ORDER TO AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION, WE ASK THAT YOU MAIL YOUR PROXY CARD OR RECORD YOUR VOTING INSTRUCTIONS BY TELEPHONE OR VIA THE INTERNET PROMPTLY.

For the Board of Directors of

BlackRock Apex Municipal Fund, Inc. and

BlackRock MuniAssets Fund, Inc.

A NNE F. A CKERLEY

President and Chief Executive Officer

BlackRock Apex Municipal Fund, Inc.

BlackRock MuniAssets Fund, Inc.

            , 2010

YOUR VOTE IS IMPORTANT.

PLEASE VOTE PROMPTLY BY SIGNING AND RETURNING THE

ENCLOSED PROXY CARD OR BY RECORDING YOUR VOTING INSTRUCTIONS BY TELEPHONE
OR VIA THE INTERNET, NO MATTER HOW MANY SHARES YOU OWN.

 

ii


The information contained in this Joint Proxy Statement/Prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

Subject to completion, dated September 15, 2010

JOINT PROXY STATEMENT/PROSPECTUS

BLACKROCK APEX MUNICIPAL FUND, INC.

BLACKROCK MUNIASSETS FUND, INC.

100 Bellevue Parkway

Wilmington, Delaware 19809

(800) 882-0052

JOINT SPECIAL MEETING OF SHAREHOLDERS

December 17, 2010

This Joint Proxy Statement/Prospectus is furnished to you as a common shareholder of BlackRock Apex Municipal Fund, Inc. (“APX”) and/or BlackRock MuniAssets Fund, Inc. (“MUA”), each a Maryland corporation and a non-diversified, closed-end management investment company registered under the Investment Company Act of 1940 (the “1940 Act”). A joint special meeting (the “Special Meeting”) of shareholders of APX and MUA (the “Funds”) will be held at the offices of BlackRock, Inc. (“BlackRock”), 800 Scudders Mill Road, Plainsboro, NJ 08536, on Friday, December, 17, 2010 at 9:00 a.m. to consider the items listed below and discussed in greater detail elsewhere in this Joint Proxy Statement/Prospectus. If you are unable to attend the Special Meeting or any adjournment thereof, the Board of Directors (each, a “Board”) of each Fund requests that you vote your shares of common stock by completing and returning the enclosed proxy card or by recording your voting instructions by telephone or via the Internet. The approximate mailing date of this Joint Proxy Statement/Prospectus and accompanying form of proxy is             , 2010.

The purposes of the Special Meeting are:

1. Reorganization of BlackRock Apex Municipal Fund, Inc. into BlackRock MuniAssets Fund, Inc.

Shareholders of BlackRock Apex Municipal Fund, Inc. (APX):

Proposal 1: The shareholders of APX are being asked to approve an Agreement and Plan of Reorganization among APX, MUA and MUA Merger Subsidiary, LLC (the “Reorganization Agreement”) and the termination of APX’s registration under the 1940 Act.

2. Issuance of common shares by BlackRock MuniAssets Fund, Inc.

Shareholders of BlackRock MuniAssets Fund, Inc. (MUA):

Proposal 2 : The shareholders of MUA are being asked to approve the issuance of additional common shares of MUA in connection with the Reorganization Agreement.

3. Change in a Fundamental Investment Policy of BlackRock Apex Municipal Fund, Inc.

Shareholders of BlackRock Apex Municipal Fund, Inc. (APX):

Proposal 3: Shareholders of APX are being asked to approve a proposal to convert APX’s fundamental investment policy restricting APX from issuing senior securities or borrowing amounts in excess of 5% of its total assets taken at market value into a non-fundamental investment policy (the “APX Policy Amendment”).

4. Change in a Fundamental Investment Policy of BlackRock MuniAssets Fund, Inc.

Shareholders of BlackRock MuniAssets Fund, Inc. (MUA):

Proposal 4: Shareholders of MUA are being asked to approve a proposal to convert MUA’s fundamental investment policy restricting MUA from issuing senior securities or borrowing money in amounts in excess


of 5% of its total assets taken at market value into a non-fundamental investment policy (the “MUA Policy Amendment” and together with the APX Policy Amendment, the “Policy Amendments”).

Shareholders of record as of the close of business on October 20, 2010 are entitled to vote at the Special Meeting or any adjournment thereof.

MUA as it would exist after the Reorganization is referred to herein as the “Combined Fund.” The Reorganization Agreement that APX’s shareholders are being asked to consider involves transactions that will be referred to in this Joint Proxy Statement/Prospectus collectively as the “Reorganization.”

The Reorganization seeks to combine two Funds that are substantially similar (but not identical) to achieve certain economies of scale and other operational efficiencies for the Funds. In the Reorganization, APX will merge with and into MUA Merger Subsidiary, LLC, a Maryland limited liability company and a direct, wholly owned subsidiary of MUA (the “Merger Subsidiary”). Following the Reorganization, the Merger Subsidiary will dissolve under Maryland law and be liquidated into MUA. APX will then terminate its registration under the 1940 Act. In the Reorganization, the outstanding common shares of APX will be converted into the right to receive newly issued common shares of MUA, par value $0.10 per share. The aggregate net asset value of MUA common shares received by the shareholders of APX in the Reorganization will equal the aggregate net asset value of APX common shares held by such shareholders immediately prior to the Reorganization, less the costs of the Reorganization (though shareholders may receive cash for their fractional common shares).

APX will terminate its registration under the 1940 Act after the completion of the Reorganization. MUA will continue to operate after the Reorganization as a registered, non-diversified, closed-end management investment company with the investment objective and policies described in this Joint Proxy Statement/Prospectus.

In connection with the Reorganization, the shareholders of MUA are being asked to approve the issuance of additional common shares of MUA.

In addition, the shareholders of MUA and APX are also being asked to approve proposals that would convert each Fund’s fundamental investment policy restricting such Fund from issuing senior securities or borrowing money in amounts in excess of 5% of its total assets taken at market value into a non-fundamental investment policy.

The Board of each Fund has determined that including these proposals in one Joint Proxy Statement/Prospectus will reduce costs and is in the best interests of each Fund’s shareholders.

APX and MUA would each continue to exist and operate on a stand-alone basis if either the shareholders of APX do not approve the Reorganization or the shareholders of MUA do not approve the issuance of additional common shares in connection with the Reorganization.

This Joint Proxy Statement/Prospectus sets forth concisely the information that shareholders of each Fund should know before voting on the proposals for their Fund and constitutes an offering of MUA common shares. Please read it carefully and retain it for future reference. A Statement of Additional Information, dated     , 2010, relating to this Joint Proxy Statement/Prospectus (the “Statement of Additional Information”) has been filed with the Securities and Exchange Commission (the “SEC”) and is incorporated herein by reference. You may request a free copy of the Statement of Additional Information and a copy of each Fund’s annual and most recent semi-annual report succeeding the annual report, if any, by writing to the Funds at Park Avenue Plaza, 55 East 52 nd Street, New York, New York 10055, or by calling toll free at 1-800-882-0052. The Statement of Additional Information and the annual and semi-annual reports of each Fund are also available on the EDGAR Database on the Securities and Exchange Commission’s Internet site at www.sec.gov.

 

ii


The Funds are subject to the informational requirements of the Securities Exchange Act of 1934 and, in accordance therewith, file reports, proxy statements, proxy materials and other information with the SEC. Materials filed with the SEC can be reviewed and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 or downloaded from the SEC’s web site at www.sec.gov. Information on the operation of the SEC’s Public Reference Room may be obtained by calling the SEC at (202) 551-8090. You may also request copies of these materials, upon payment at the prescribed rates of a duplicating fee, by electronic request to the SEC’s e-mail address (publicinfo@sec.gov) or by writing the Public Reference Branch, Office of Consumer Affairs and Information Services, Securities and Exchange Commission, Washington, DC 20549-0102.

BlackRock will update performance information for the Funds, as well as certain other information for the Funds, on a monthly basis on its website in the “Closed-End Funds” section of www.blackrock.com. Shareholders are advised to periodically check the website for updated performance information and other information about the Funds.

Please note that only one copy of shareholder documents, including annual or semi-annual reports and proxy materials may be delivered to two or more shareholders of the Fund who share an address, unless the Funds have received instructions to the contrary. This practice is commonly called “householding” and it is intended to reduce expenses and eliminate duplicate mailings of shareholder documents. Mailings of your shareholder documents may be householded indefinitely unless you instruct us otherwise. To request a separate copy of any shareholder document, or for instructions as to how to request a separate copy of these documents or as to how to request a single copy if multiple copies of these documents are received, shareholders should contact the Fund at the address and phone number set forth above.

The common shares of BlackRock MuniAssets Fund, Inc. are listed on the New York Stock Exchange (“NYSE”) under the ticker symbol “MUA” and will continue to be so listed subsequent to the Reorganization. The common shares of BlackRock Apex Municipal Fund, Inc. are listed on the NYSE under the ticker symbol “APX.” Reports, proxy statements and other information concerning the Funds may be inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005.

This Joint Proxy Statement/Prospectus serves as a prospectus of MUA in connection with the issuance of MUA common shares in the Reorganization. No person has been authorized to give any information or make any representation not contained in this Joint Proxy Statement/Prospectus and, if so given or made, such information or representation must not be relied upon as having been authorized. This Joint Proxy Statement/Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction in which, or to any person to whom, it is unlawful to make such offer or solicitation.

Photographic identification and proof of ownership will be required for admission to the meeting. For directions to the meeting, please contact             , the firm assisting us in the solicitation of proxies, at             .

THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this Joint Proxy Statement/Prospectus is             , 2010.

 

iii


TABLE OF CONTENTS

 

       Page

SUMMARY

   1

RISK FACTORS AND SPECIAL CONSIDERATIONS

   13

EXPENSE TABLES FOR SHAREHOLDERS

   22

REASONS FOR THE REORGANIZATION

   25

PROPOSAL 1: THE REORGANIZATION OF MUA AND APX

   27

INVESTMENT OBJECTIVES AND POLICIES

   29

COMPARISON OF THE FUNDS

   35

MANAGEMENT OF THE FUNDS

   43

ADDITIONAL INFORMATION ABOUT THE COMMON SHARES OF THE FUNDS

   46

DIVIDENDS AND DISTRIBUTIONS

   47

AUTOMATIC DIVIDEND REINVESTMENT PLAN

   48

CERTAIN PROVISIONS OF THE CHARTER

   49

GOVERNING LAW

   50

CONVERSION TO OPEN-END FUND

   50

VOTING RIGHTS

   50

APPRAISAL RIGHTS

   50

FINANCIAL HIGHLIGHTS

   51

INFORMATION ABOUT THE REORGANIZATION

   55

TERMS OF THE REORGANIZATION AGREEMENT

   55

MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION

   57

PROPOSAL 2: ISSUANCE OF MUA COMMON SHARES

   59

PROPOSALS 3 AND 4: AMENDMENTS TO FUNDAMENTAL INVESTMENT POLICIES

   59

VOTING INFORMATION AND REQUIREMENTS

   62

SHAREHOLDER INFORMATION

   64

SHAREHOLDER PROPOSALS

   64

SOLICITATION OF PROXIES

   65

LEGAL MATTERS

   65

OTHER MATTERS WITH RESPECT TO THE MEETING

   65

PRIVACY PRINCIPLES OF THE FUNDS

   65

OTHER INFORMATION

   66

 

iv


SUMMARY

The following is a summary of certain information contained elsewhere in this Joint Proxy Statement/Prospectus and is qualified in its entirety by reference to the more complete information contained in this Joint Proxy Statement/Prospectus and in the Statement of Additional Information. Shareholders should read the entire Joint Proxy Statement/Prospectus carefully.

PROPOSAL 1: REORGANIZATION OF BLACKROCK APEX MUNICIPAL FUND, INC. INTO BLACKROCK MUNIASSETS FUND, INC.

The Proposed Reorganization

The Board of each Fund, including the board members (the “Board Members”) who are not “interested persons” of each Fund (as defined in the 1940 Act) (the “Independent Board Members”), has unanimously approved the Reorganization Agreement. If the shareholders of APX approve the Reorganization Agreement and the shareholders of MUA approve the issuance of additional MUA common shares in connection with the Reorganization (see “Proposal 2: Issuance of Additional MUA common shares”), APX will merge with and into the Merger Subsidiary. Following the Reorganization, the Merger Subsidiary will dissolve under Maryland law and be liquidated into MUA. APX will terminate its registration under the 1940 Act after the completion of the Reorganization. The aggregate net asset value of MUA common shares received by APX’s shareholders in the Reorganization will equal the aggregate net asset value of the APX common shares held immediately prior to the Reorganization, less the costs of the Reorganization (although shareholders may receive cash for their fractional common shares). In the Reorganization, shareholders of APX will receive common shares of MUA based on the relative net asset value, not the market value, of APX common shares. The market value of the common shares of the Combined Fund may be less than the market value of the common shares of APX prior to the Reorganization.

Background and Reasons for the Proposed Reorganization

The Reorganization seeks to combine two funds that are substantially similar (but not identical) to achieve certain economies of scale and other operational efficiencies. The Board of APX (the “APX Board”), based upon its evaluation of all relevant information, anticipates that the Reorganization would benefit shareholders of APX. The Board of MUA (the “MUA Board”), based upon its evaluation of all relevant information, anticipates that the Reorganization would benefit shareholders of MUA.

The Boards have reviewed data presented by BlackRock Advisors, LLC, investment adviser to each of the Funds (the “Investment Advisor”), and believe that the Reorganization generally would result in a reduced Total Expense Ratio (as defined below) and a reduced Adjusted Total Expense Ratio (as defined below) for each Fund, as certain fixed administrative costs would be spread across the Combined Fund’s larger asset base. If the Reorganization is approved, the Combined Fund will maintain MUA’s lower management fee rate of 0.55% of the average daily value of MUA’s total assets less accrued liabilities.

When we use the term “Total Expenses,” we mean a Fund’s total annual operating expenses including interest expenses associated with such Fund’s investments in tender option bonds without giving effect to the potential for increased leverage if the Policy Amendments are approved. When we use the term “Total Expense Ratio,” we mean a Fund’s Total Expenses expressed as a percentage of its average net assets attributable to its common shares. The Funds estimate that the completion of the Reorganization would result in a Total Expense Ratio for the Combined Fund of 0.70% on a pro forma basis for the 12-month period ended April 30, 2010, representing a reduction in the Total Expense Ratio of 0.14% for APX and 0.01% for MUA, each as a percentage of average net assets attributable to common shares.

When we use the term “Adjusted Total Expenses,” we mean a Fund’s estimated total annual operating expenses including interest expenses associated with such Fund’s leverage in an amount equal to 15% of its total

 

1


assets, assuming its Policy Amendment had been approved. When we use the term “Adjusted Total Expense Ratio,” we mean a Fund’s Adjusted Total Expenses expressed as a percentage of its average net assets attributable to its common shares. Assuming shareholders of each Fund approve its Policy Amendment, each Fund intends to utilize leverage in an amount equal to 15% of its total assets regardless of whether the Reorganization is consummated. The Funds estimate that the completion of the Reorganization would result in an Adjusted Total Expense Ratio for the Combined Fund of 0.90% on a pro forma basis for the 12-month period ended April 30, 2010, representing a reduction in the Adjusted Total Expense Ratio of 0.15% for APX and 0.01% for MUA, each as a percentage of average net assets attributable to common shares.

In approving the proposed Reorganization, the Board of each Fund, including the Independent Board Members, determined that participation in the Reorganization is in the best interests of each Fund and its shareholders and that the interests of each Fund’s shareholders will not be diluted with respect to the net asset value of such Fund as a result of the Reorganization. Before reaching these conclusions, the Board of each Fund, including the Independent Board Members, engaged in a thorough review process relating to the proposed Reorganization. The Boards of the Funds also received a memorandum outlining, among other things, the legal standards and certain other considerations relevant to the Boards’ deliberations. The Boards of the Funds, including all of the Independent Board Members, approved the Reorganization at a meeting held on September 2, 2010.

The primary factors considered by the Board of each Fund with regard to the Reorganization include, but are not limited to, the following:

(1) The Combined Fund is expected to have a lower total expense ratio than that of each Fund prior to the Reorganization.

(2) APX Shareholders will incur a lower contractual management fee rate as a shareholder of the Combined Fund and will remain invested in a non-diversified, NYSE-listed, closed-end management investment company that will have substantially greater net assets and either the same or substantially similar (but not identical) investment objectives and policies as APX and, as a result, the style and risk/return profile of the Combined Fund will remain comparable to those of APX’s shareholders’ current investments, subject to the differences described in “Comparison of the Funds.”

(3) Under current market conditions and all other things being equal, the distribution yield of the Combined Fund is expected to be comparable to the current distribution yield of MUA which, all things being equal, should help the Combined Fund trade at or about the price at which MUA currently trades. Of course, no assurance can be given that the common shares of the Combined Fund will trade at or about the current market price of MUA after the Reorganization.

(4) The Combined Fund is expected to achieve certain operating and administrative efficiencies from its larger net asset size. The larger net asset size of the Combined Fund could permit the Combined Fund to achieve certain economies of scale as certain fixed and variable costs can be spread over a larger asset base and the larger Combined Fund may realize greater investment flexibility and investment options, greater diversification of portfolio investments, the ability to trade in larger positions, more favorable transaction terms, better trade execution, more consistent implementation of investment strategies, additional research coverage and greater liquidity.

(5) The greater asset base of the Combined Fund relative to each Fund on a stand-alone basis could give the Combined Fund a greater ability to utilize tender option bonds than either Fund individually, particularly if shareholders of MUA approve the MUA Policy Amendment.

(6) The Combined Fund may experience potential marketing benefits from having fewer closed-end funds in the market, including potential benefits from a more efficient secondary market and an increased focus by

 

2


investors on the remaining funds in the market (including the Combined Fund), and fewer similar funds in the same fund complex, including potential benefits from easier product differentiation for shareholders (including shareholders of the Combined Fund).

(7) Shareholders will recognize no gain or loss for Federal income tax purposes as a result of the Reorganization, as the Reorganization is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the United States Internal Revenue Code of 1986, as amended (the “Code”).

(8) Shareholders will benefit from the continuing experience and expertise of the portfolio management team designated for the Combined Fund and the team’s commitment to the investment style and strategies to be used in managing the assets of the Combined Fund.

(9) Shareholders will receive substantially the same services after the Reorganization.

(10) The aggregate net asset value of the shares of the Combined Fund that APX shareholders will receive in the Reorganization is expected to equal the aggregate net asset value of the APX shares owned by APX Shareholders immediately prior to the Reorganization, and the net asset value of APX shares will not be diluted as a result of the Reorganization.

Considering these and other reasons, the Board of APX unanimously concluded that completion of the Reorganization is in the best interests of APX and its shareholders and that the interests of the shareholders of APX will not be diluted as a result of the Reorganization. This determination was made on the basis of each Board Member’s business judgment after consideration of all of the factors taken as a whole with respect to APX and its shareholders, although individual Board Members may have placed different weight and assigned different degrees of materiality to various factors. See “Proposal 1: Reorganization of APX—Reasons for the Reorganization.”

If the Reorganization is not approved by the shareholders of APX or if the issuance of additional MUA common shares is not approved by the shareholders of MUA, APX will continue to operate for the time being as a stand-alone Maryland corporation and will continue to be advised by the Advisors.

Total Expenses Table for Shareholders of the Funds as of April 30, 2010

(Assumes No Change in Leverage)

The table below illustrates the anticipated reduction in Total Expenses expected as a result of the Reorganization. When we use the term “Total Expenses,” we mean a Fund’s total annual operating expenses including interest expenses associated with such Fund’s investments in tender option bonds without giving effect to the potential for increased leverage if the Policy Amendments are approved. When we use the term “Total Expense Ratio,” we mean a Fund’s Total Expenses expressed as a percentage of its average net assets attributable to its common shares.

The table sets forth (i) the Total Expenses (including interest expenses) and the Total Expenses (excluding interest expenses) paid by each Fund for the 12-month period ended April 30, 2010 and (ii) the pro forma Total Expenses (including interest expenses) and the pro forma Total Expenses (excluding interest expenses) for the Combined Fund, assuming the Reorganization had taken place on April 30, 2010. As shown below, the Reorganization of APX into MUA is expected to result in a lower Total Expense Ratio for shareholders of each Fund for the period covered.

 

Annual Total Expenses

(as a % of average net assets
attributable to common shares)

   APX      MUA     Pro Forma
Combined Fund

Total Expenses

   0.84    0.71 %*    0.70%

Less Interest Expenses

   0.04    0.04   0.04%

Total Expenses (Less Interest Expenses)

   0.80    0.67   0.66%

 

* Expenses have been restated to reflect current fees.

 

3


The following example is intended to help you compare the costs of investing in the common shares of the Combined Fund pro forma if the Reorganization is completed with the costs of investing in APX and MUA without the Reorganization, in each case without giving effect to the Fund’s Policy Amendment. An investor in common shares would pay the following expenses ( including interest expenses as reported in the fee table) on a $1,000 investment, assuming (1) the Total Expense Ratio for each Fund set forth in the table above and (2) a 5% annual return throughout the period:

 

       1 Year    3 Years    5 Years    10 Years

APX

   $ 9    $ 27    $ 47    $ 104

MUA

   $ 7    $ 23    $ 40    $ 88

Pro Forma Combined Fund

   $ 7    $ 22    $ 39    $ 87

The following example is intended to help you compare the costs of investing in the common shares of the Combined Fund pro forma if the Reorganization is completed with the costs of investing in APX and MUA without the Reorganization, in each case without giving effect to the Fund’s Policy Amendment. An investor in common shares would pay the following expenses ( excluding interest expenses as reported in the fee table) on a $1,000 investment, assuming (1) the Total Expense Ratio for each Fund set forth in the table above and (2) a 5% annual return throughout the period:

 

       1 Year    3 Years    5 Years    10 Years

APX

   $ 8    $ 26    $ 44    $ 99

MUA

   $ 7    $ 21    $ 37    $ 83

Pro Forma Combined Fund

   $ 7    $ 21    $ 37    $ 82

The examples set forth above assume common shares of each Fund were owned as of the completion of the Reorganization and the reinvestment of all dividends and distributions and uses a 5% annual rate of return as mandated by SEC regulations. The examples should not be considered a representation of past or future expenses or annual rates of return. Actual expenses or annual rates of return may be more or less than those assumed for purposes of the examples.

Adjusted Total Expenses Table for Shareholders of the Funds as of April 30, 2010

(Assumes Increased Leverage)

The table below illustrates the anticipated reduction in Adjusted Total Expenses expected as a result of the Reorganization. When we use the term “Adjusted Total Expenses,” we mean a Fund’s estimated total annual operating expenses including interest expenses associated with such Fund’s leverage in an amount equal to 15% of its total assets, assuming its Policy Amendment had been approved. When we use the term “Adjusted Total Expense Ratio,” we mean a Fund’s Adjusted Total Expenses expressed as a percentage of its average net assets attributable to its common shares.

The table sets forth (i) the Adjusted Total Expenses (including interest expenses) and the Adjusted Total Expenses (excluding interest expenses) that would have been paid by each Fund for the 12-month period ended April 30, 2010 if the Policy Amendment had been previously approved by shareholders and the Fund utilized leverage in an amount equal to 15% of its total assets throughout the period and (ii) the pro forma Adjusted Total Expenses (including interest expenses) and the pro forma Adjusted Total Expenses (excluding interest expenses) for the Combined Fund assuming the Reorganization had taken place on April 30, 2010. As shown below, the Reorganization of APX into MUA is expected to result in a lower Adjusted Total Expense Ratio for shareholders of each Fund for the period covered.

 

4


Adjusted Annual Total Expenses

(as a % of average net assets
attributable to common shares)

   APX     MUA     Pro Forma
Combined Fund

Adjusted Total Expenses

   1.05   0.91   0.90%

Less Interest Expenses

   0.17   0.17   0.17%

Total Expenses (Less Interest Expenses)

   0.88   0.74   0.73%

The following example is intended to help you compare the costs of investing in the common shares of the Combined Fund pro forma if the Reorganization is completed with the costs of investing in APX and MUA without the Reorganization, in each case giving effect to the Fund’s Policy Amendment. An investor in common shares would pay the following expenses ( including interest expenses as reported in the fee table) on a $1,000 investment, assuming (1) the Adjusted Total Expense Ratio for each Fund set forth in the table above and (2) a 5% annual return throughout the period:

 

       1 Year    3 Years    5 Years    10 Years

APX

   $ 11    $ 33    $ 58    $ 128

MUA

   $ 9    $ 29    $ 50    $ 112

Pro Forma Combined Fund

   $ 9    $ 29    $ 50    $ 111

The following example is intended to help you compare the costs of investing in the common shares of the Combined Fund pro forma if the Reorganization is completed with the costs of investing in APX and MUA without the Reorganization, in each case giving effect to the Fund’s Policy Amendment. An investor in common shares would pay the following expenses ( excluding interest expenses as reported in the fee table) on a $1,000 investment, assuming (1) the Adjusted Total Expense Ratio for each Fund set forth in the table above and (2) a 5% annual return throughout the period:

 

       1 Year    3 Years    5 Years    10 Years

APX

   $ 9    $ 28    $ 49    $ 108

MUA

   $ 8    $ 24    $ 41    $ 92

Pro Forma Combined Fund

   $ 7    $ 23    $ 41    $ 91

The examples set forth above assume common shares of each Fund were owned as of the completion of the Reorganization and the reinvestment of all dividends and distributions and uses a 5% annual rate of return as mandated by SEC regulations. The examples should not be considered a representation of past or future expenses or annual rates of return. Actual expenses or annual rates of return may be more or less than those assumed for purposes of the examples.

Appraisal Rights

Shareholders of MUA and APX do not have appraisal rights for their common shares because the common shares of MUA and APX are traded on the NYSE.

Comparison of the Funds

A summary comparison of the significant investment strategies and operating policies used by the Funds as of the date of the Special Meeting is set forth in the table below. See “Proposal 1: Reorganization of APX—Comparison of the Funds” for a more detailed comparison of the Funds. After the Reorganization, the investment strategies and significant operating policies of the Combined Fund will be those of MUA.

 

5


MUA

 

APX

 

Comparison

Investment Objective

 

MUA seeks to provide shareholders with high current income exempt from Federal income taxes by investing primarily in a portfolio of medium to lower grade or unrated municipal obligations the interest on which, in the opinion of bond counsel to the issuer, is exempt from Federal income taxes.

 

Investment Objective

 

Same as MUA

 

Investment Objective

 

Same

Municipal Bonds

 

MUA invests at least 80% of its total assets, except during temporary defensive periods, in Municipal Bonds.

 

Municipal Bonds

 

Same as MUA

 

Municipal Bonds

 

Same

High Yield Bonds

 

MUA invests at least 65% of its total assets in Municipal Bonds that are rated in any one of the medium and lower rating categories of Moody’s, S&P or Fitch, or in unrated Municipal Bonds that the Investment Advisor believes are of comparable quality.

 

High Yield Bonds

 

APX maintains at least 75% of its total assets in Municipal Bonds which are rated in any one of the medium and lower rating categories of a nationally recognized statistical rating organization or are unrated.

 

High Yield Bonds

 

APX must maintain a higher percentage of its total assets in medium to lower rated Municipal Bonds.

Investment Grade Bonds

 

MUA has the authority to invest as much as 35% of its total assets in Municipal Bonds in the higher rating categories of nationally recognized statistical rating organizations (ratings of A or higher by Moody’s, S&P or Fitch or comparable unrated securities).

 

Investment Grade Bonds

 

APX has the authority to invest as much as 25% of its total assets in Municipal Bonds in the higher rating categories of nationally recognized statistical rating organizations (ratings of A or higher by Moody’s, S&P).

 

Investment Grade Bonds

 

MUA may maintain a higher percentage of its total assets in Municipal Bonds in the higher rating categories of nationally recognized statistical rating organizations (ratings of A or higher by Moody’s, S&P or Fitch or comparable unrated securities).

State Concentration

 

MUA may not invest more than 25% of its total assets (taken at market value at the time of each investment) in the Municipal Bonds of any one state.

 

State Concentration

 

Same as MUA

 

State Concentration

 

Same

 

6


MUA

 

APX

 

Comparison

Industry Concentration

 

MUA may not invest more than 25% of its total assets (taken at market value at the time of each investment) in securities of issuers in a single industry. (For purposes of this restriction, states, municipalities and their political subdivisions are not considered to be part of any industry.)

 

Industry Concentration

 

Same as MUA

 

Industry Concentration

 

Same

Leverage*

 

MUA may not issue senior securities or borrow amounts in excess of 5% of its total assets taken at market value.

 

Leverage*

 

Same as MUA

 

Leverage*

 

Same

Alternative Minimum Tax

 

MUA may invest all or a portion of its assets in certain tax-exempt securities classified as “private activity bonds” (in general, bonds that benefit non-governmental entities) that may subject certain investors in the Fund to a federal alternative minimum tax.

 

Alternative Minimum Tax

 

Same as MUA

 

Alternative Minimum Tax

 

Same

Repurchase Agreements

 

MUA may not invest in repurchase agreements maturing in more than seven days if such investments, together with all other illiquid investments, would exceed 15% of the Fund’s net assets.

 

Repurchase Agreements

 

APX may not invest more than 10% of its total assets in repurchase agreements maturing in more than seven days.

 

Repurchase Agreements

 

APX does not have any limitations with respect to illiquid securities.

Non-Municipal Tax-Exempt Securities

 

MUA also may invest in securities not issued by or on behalf of a state or territory or by an agency or instrumentality thereof, if the Fund nevertheless believes such securities pay interest or distributions that are exempt from Federal income taxation (“Non-Municipal Tax-Exempt Securities”).

 

Non-Municipal Tax-Exempt Securities

 

No policy with respect to Non-Municipal Tax-Exempt Securities.

 

Non-Municipal Tax-Exempt Securities

 

APX does not have a policy with respect to Non-Municipal Tax-Exempt Securities.

 

* The current leverage policy of MUA and APX. A proposal to remove the 5% fundamental restriction on leverage is included in this joint proxy statement/prospectus for each Fund.

 

7


MUA

 

APX

 

Comparison

Non-Municipal Tax-Exempt Securities

 

Non-Municipal Tax-Exempt Securities may include securities issued by other investment companies that invest in Municipal Bonds, to the extent such investments are permitted by the 1940 Act.

 

Other Non-Municipal Tax-Exempt Securities could include trust certificates or other instruments evidencing interest in one or more long-term Municipal Bonds.

 

Certain Non-Municipal Tax-Exempt Securities may be characterized as derivative instruments.

 

Non-Municipal Tax-Exempt Securities that pay interest exempt from Federal income taxes will be considered “Municipal Bonds” for purposes of the Funds’ investment objective and policies.

  Non-Municipal Tax-Exempt Securities   Non-Municipal Tax-Exempt Securities

Defensive Measures

 

MUA reserves the right to temporarily invest more than 20% of its total assets in short-term municipal securities, or short-term taxable money market securities (including commercial paper, certificates of deposit and repurchase agreements) for defensive purposes when, in the opinion of the Investment Advisor, prevailing market or financial conditions warrant.

 

Defensive Measures

 

Same as MUA

 

Defensive Measures

 

Same

Short-Term Obligations

 

Taxable commercial paper must be rated A-1+ through A-3 by S&P, Prime-1 through Prime-3 by Moody’s, F-1+ through F-3 by Fitch or have credit characteristics equivalent to such ratings in the opinion of the Investment Advisor.

 

Short-Term Obligations

 

Taxable commercial paper must be rated A-1 or A-2 by S&P, Prime-1 or Prime-2 by Moody’s or an equivalent rating in the opinion of the Investment Advisor.

 

Short-Term Obligations

 

MUA may invest in taxable commercial paper rated A-3 by S&P, Prime 3 by Moody’s, F-3 by Fitch or with credit characteristics equivalent to such ratings.

 

8


MUA

 

APX

 

Comparison

Short-Term Obligations

 

The short-term tax-exempt obligations also will be in the highest rating categories as determined either by Moody’s (currently, MIG-1 through MIG-3 for notes and Prime-1 through Prime-3 for commercial paper), S&P (currently, SP-1+ through SP-2 for notes and A-1+ through A-3 for commercial paper), or Fitch (currently, F-1 and F-2 for notes and F-1 for commercial paper). MUA may invest in lower rated or unrated short-term tax-exempt obligations to the extent that such investments do not exceed 20% of its total assets.

 

Certificates of deposit must be issued by depository institutions with total assets of at least $1 billion. MUA may invest in certificates of deposit of smaller institutions if such certificates of deposit are Federally insured.

 

Short-Term Obligations

 

Certificates of deposit must be issued by depository institutions with total assets of at least $1 billion, except that APX may invest in certificates of deposit of smaller institutions if such certificates of deposit are Federally insured.

 

Short-Term Obligations

 

APX does not have any rating limitations with respect to short-term tax-exempt obligations.

Indexed and Inverse Floating Obligations

 

MUA may invest in Municipal Bonds (and Non-Municipal Tax-Exempt Securities) yielding a return based on a particular index of value or interest rates. MUA also may invest in so-called “inverse floating obligations” or “residual interest bonds” on which the interest rates typically vary inversely with a short-term floating rate (which may be reset periodically by a dutch auction, a remarketing agent, or by reference to a short-term tax-exempt interest rate index). MUA also may purchase synthetically created inverse floating rate bonds evidenced by custodial or trust receipts.

 

Indexed and Inverse Floating Obligations

 

No policy with respect to Indexed and Inverse Floating Obligations.

 

Indexed and Inverse Floating Obligations

 

APX does not have a policy with respect to Indexed and Inverse Floating Obligations.

 

9


MUA

 

APX

 

Comparison

Call Rights

 

MUA may purchase a Municipal Bond issuer’s right to call all or a portion of such Municipal Bond for mandatory tender for purchase (a “Call Right”).

 

Call Rights

 

No policy with respect to Call Rights.

 

Call Rights

 

APX does not have a policy with respect to Call Rights.

Writing Covered Call Options

 

MUA may not write covered call options on underlying securities in an amount exceeding 15% of the market value of its total assets.

 

Writing Covered Call Options

 

Same as MUA

 

Writing Covered Call Options

 

Same

Purchase of Options

 

MUA will not purchase options on securities if, as a result of such purchase, the aggregate cost of all outstanding options on securities held by that Fund would exceed 5% of the market value of the Fund’s total assets.

 

Purchase of Options

 

Same as MUA

 

Purchase of Options

 

Same

Distribution Schedule

 

Monthly Distributions

 

Distribution Schedule

 

Same as MUA

 

Distribution Schedule

 

Same

Further Information Regarding the Reorganization

The APX Board has determined that the Reorganization is in the best interests of APX and the shareholders of APX and that the interests of such shareholders will not be diluted as a result of APX’s Reorganization. Similarly, the MUA Board has determined that the Reorganization is in the best interests of MUA and its shareholders and that the interests of such shareholders will not be diluted as a result of the Reorganization. As a result of the Reorganization, however, shareholders of each Fund will hold a reduced percentage of ownership in the larger Combined Fund than they did in any of the individual Funds.

The Reorganization is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Code. If the Reorganization so qualifies, in general, shareholders of APX will recognize no gain or loss for Federal income tax purposes upon the exchange of their APX common shares for MUA common shares pursuant to the Reorganization. Additionally, APX will recognize no gain or loss for Federal income tax purposes by reason of the Reorganization. Neither MUA nor its shareholders will recognize any gain or loss for Federal income tax purposes pursuant to the Reorganization. It is a condition to the closing of the Reorganization that APX and MUA receive an opinion from Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden Arps”), dated as of the closing date of the Reorganization (the “Closing Date”), regarding the characterization of the Reorganization as a reorganization within the meaning of Section 368(a) of the Code.

The APX Board requests that shareholders of APX approve APX’s proposed Reorganization at the Special Meeting to be held on Friday, December 17, 2010 at 9:00 a.m. Shareholder approval of the Reorganization requires the affirmative vote of a majority of the outstanding shares of capital stock of APX entitled to vote.

For additional information regarding voting requirements, see “Voting Information and Requirements.”

 

10


Investing in the Combined Fund following the Reorganization involves risks. For additional information, see “Risk Factors and Special Considerations.”

The APX Board recommends that shareholders of APX vote “ FOR ” the Reorganization.

PROPOSAL 2: ISSUANCE OF ADDITIONAL MUA COMMON SHARES

In connection with the proposed Reorganization described under “Proposal 1: Reorganization of APX,” MUA will issue additional MUA common shares and list them for trading on the NYSE. All other things being equal, the Reorganization will result in no reduction of the net asset value of MUA common shares, other than to reflect the costs of the Reorganization.

No gain or loss for Federal income tax purposes will be recognized by MUA or its shareholders pursuant to the Reorganization. The MUA Board, based upon its evaluation of all relevant information, anticipates that the Reorganization will benefit shareholders of MUA. In particular, the MUA Board reviewed data presented by the Investment Advisor showing that MUA will experience a reduced Total Expense Ratio as a result of the proposed Reorganization. If the Reorganization is approved, the Combined Fund will maintain MUA’s lower management fee rate of 0.55% of MUA’s average daily total assets less accrued liabilities.

The MUA Board requests that shareholders of MUA approve the issuance of additional MUA common shares in connection with the Reorganization (the “Issuance”) at the Special Meeting to be held on Friday, December 17, 2010 at 9:00 a.m. The affirmative vote of shareholders representing at least a majority of votes cast on a proposal, provided that the total votes cast on the proposal represents over 50% in interest of all securities entitled to vote on the proposal, is required to approve the issuance of additional common shares for the Reorganization. Subject to the requisite approval of the shareholders of each Fund with regard to the Reorganization, it is expected that the Closing Date will be sometime during the first quarter 2011. For additional information regarding voting requirements, see “Voting Information and Requirements.”

Investing in the Combined Fund following the Reorganization involves risks. For additional information, see “Risk Factors and Special Considerations.”

The MUA Board recommends that shareholders of MUA vote “ FOR ” the issuance of additional MUA common shares in connection with the Reorganization.

PROPOSALS 3 AND 4: AMENDMENT TO FUNDAMENTAL INVESTMENT POLICY

Each Fund currently has a fundamental policy that provides that such Fund may not issue senior securities or borrow amounts in excess of 5% of its total assets taken at market value (the “Current Leverage Policy”). These policies are referred to as “fundamental” and cannot be amended without the approval of the Funds’ shareholders. The Boards of the Funds have reviewed the Current Leverage Policy and believe such policy is unduly restrictive and should be replaced with a non-fundamental policy. If this proposal is approved, each Fund currently intends to use leverage approximately equal to 15% of its total assets at the time the leverage is implemented, but may use leverage up to 25% of its total assets under the new leverage policy without further Board or shareholder approval. As a non-fundamental policy, the Board could in the future authorize the Fund to use additional leverage up to the maximum amount permitted under the 1940 Act or change the 25% threshold at which Board approval is required to increase leverage, in each case without further shareholder approval. The Reorganization is not contingent upon the approval of any Policy Amendments.

The Boards of the Funds anticipate that the new leverage policy would benefit the Funds’ shareholders. The new leverage policy could provide the Advisors with the flexibility to manage each Fund more effectively in the future, to respond to changing market conditions and new investment opportunities and to generate additional

 

11


income for each Fund’s shareholders. As a non-fundamental policy, the amounts of leverage incurred by a Fund can be changed without prior notice or shareholder approval up to the maximum amount of the leverage permitted under the 1940 Act. Approval of a Fund’s Policy Amendment is not contingent upon the approval of the Reorganization or the Issuance. A Fund’s shareholders would have the benefit of the new leverage policy regardless of whether the Reorganization or the Issuance is approved so long as the Fund’s Policy Amendment was approved by the Fund’s shareholders. In the event a Fund’s Policy Amendment is not approved by the Fund’s shareholders, the Investment Advisor will continue to manage the Fund under its current leverage policy.

At the Meeting, each Fund’s shareholders will be asked to approve its respective Policy Amendment. Each Policy Amendment, if approved, would take effect immediately and the Investment Advisor would begin to add additional leverage until the Fund reaches its leverage target of approximately 15% of its total assets. No assurance can be given at this time as to how long it will take for each Fund to reach its leverage target of approximately 15% of its total assets or that a Fund will be able to use additional leverage to reach such leverage target.

In the event the Reorganization is consummated, shareholders of the combined fund, including former shareholders of APX, would be subject to the leverage policy for MUA following the Reorganization. If MUA shareholders do not approve the MUA Policy Amendment, then the combined fund would operate under MUA’s current leverage policy and shareholders of the combined fund, including former shareholders of APX, would not have the benefit of the new leverage policy. In such an event, APX shareholders would not have the benefit of the new leverage policy even if APX shareholders had previously approved the APX Policy Amendment. If MUA shareholders approve the MUA Policy Amendment, then the combined fund would operate under the new leverage policy and shareholders of the combined fund, including former shareholders of APX, would have the benefit of the new leverage policy. In such an event, APX shareholders would be subject to the new leverage policy even if APX shareholders had not previously approved the APX Policy Amendment. There can be no assurance that MUA shareholders will approve the MUA Policy Amendment.

Each Fund currently utilizes leverage through the use of tender option bonds to seek to enhance the yield and NAV of their common shares. If a Fund’s Policy Amendment is approved by the Fund’s shareholders, then the Advisors would seek to utilize additional tender option bonds with respect to the Fund. Tender option bond investments generally will provide a Fund with economic benefits in periods of declining short-term interest rates, but expose the Fund to risks during periods of rising short-term interest rates. See “Investment Objectives and Policies—Tender Option Bond Transactions” and “Risk Factors and Special Considerations—Tender Option Bond Risks” for additional information about tender option bonds.

Although the use of leverage by a Fund may create an opportunity for higher total return, it also results in additional risks and costs and can magnify the effect of any losses. The risks associated with leverage will be present to a greater extent if the Fund’s Policy Amendment is approved and the Fund uses additional leverage. If the income and gains earned on municipal bonds to which a Fund has exposure through the use of leverage are greater than the payments due on the related short-term floating rate interests, the Fund’s returns will be greater than if leverage had not been used. Conversely, if the income and gains from those municipal bonds do not cover the payments due in connection with the leverage used, the return will be less than if the economic leverage had not been used. The Advisors nevertheless may determine to continue to use leverage if it expects that the benefits to a Fund will outweigh the risk of a reduced return. There is no assurance that a Fund’s leverage strategy will be successful. See “Risk Factors and Special Considerations—General Leverage Risks” for additional information about the risks associated with the use of leverage.

A Fund utilizing additional leverage would have to pay additional interest expenses associated with such leverage, which would result in higher total annual operating expenses for shareholders. In addition, the Investment Advisor’s contractual management fee for each Fund is based on a percentage of the Fund’s average daily total assets less accrued liabilities. Thus, a Fund utilizing additional leverage would be subject to management fees on any assets attributable to the additional leverage. While the Investment Advisor’s contractual management fee for each Fund as a percentage of its average daily total assets less accrued liabilities will remain the same regardless of the amount of leverage utilized by the Funds, the Investment Advisor’s

 

12


contractual management fee for each Fund as a percentage of its net assets (as opposed to total assets) is expected to increase as a result of the additional leverage. Please see “Proposals 3 and 4: Amendment to Fundamental Investment Policy” starting on page 59 and “Expense Tables for Shareholders” starting on page 22 for additional information about the expenses of each Fund and the Combined Fund.

The Board of each Fund requests that shareholders of its respective Fund approve the Fund’s Policy Amendment at the Special Meeting to be held on Friday, December 17, 2010 at 9:00 a.m. The affirmative vote of a majority of the outstanding shares entitled to vote is required to approve the Fund’s Policy Amendment. For additional information regarding voting requirements, see “Voting Information and Requirements.”

The APX Board recommends that shareholders of APX vote “ FOR ” the APX Policy Amendment.

The MUA Board recommends that shareholders of MUA vote “ FOR ” the MUA Policy Amendment.

RISK FACTORS AND SPECIAL CONSIDERATIONS

Comparison of Risks

The Funds have either substantially the same or substantially similar (but not identical) investment objectives and principal investment strategies. The Combined Fund will be managed in accordance with the same investment objectives and investment policies, and subject to the same risks, as MUA. The investment risks associated with an investment in MUA are substantially the same as those associated with an investment in APX. Risks that affect the common shares of the Funds include interest rate risk, credit risk, leverage risk, high yield risk, tender option bond risk, reinvestment risk, state concentration risk, municipal bond markets risk and non-diversification. In addition, as exchange-traded closed-end funds, each Fund is subject to the risk that the Fund’s common stock may trade at a discount from the Fund’s net asset value. Accordingly, the Funds are primarily designed for long-term investors and should not be considered a vehicle for trading purposes.

There are, however, some differences between the Funds. The main difference between the investment policies of MUA and APX is the percentage of below investment grade Municipal Bonds each Fund allocates to its respective portfolio. APX is required to allocate a larger portion of its portfolio to below investment grade securities than MUA. MUA is required to invest at least 65% of its total assets in Municipal Bonds that are rated in any one of the medium and lower rating categories of Moody’s, S&P or Fitch, or in unrated Municipal Bonds that the Investment Advisor believes are of comparable quality. APX, however, is required to invest at least 75% of its total assets in Municipal Bonds which are rated in any one of the medium and lower rating categories of a nationally recognized statistical rating organization or are unrated.

See “Risk Factors and Special Consideration” in the Statement of Additional Information for a further discussion of factors affecting the Funds’ common shares.

Risks Related to the Reorganization

Expenses

While the Funds currently estimate that the Reorganization will result in reduced aggregate expenses of the Funds by approximately $272,926 per year if the Reorganization is completed, the realization of these reduced expenses may take longer than expected to be realized or may not be realized at all. After the Reorganization, the Combined Fund is expected to (1) incur lower Total Expenses on a per common share basis than is currently incurred by each Fund and (2) incur lower Adjusted Total Expenses on a per common share basis than what would have been incurred by each Fund had the new leverage policy been in effect. However, the Combined Fund may incur higher Total Expenses and higher Adjusted Total Expenses for a period due to expenses associated with the Reorganization prior to experiencing such savings or may never experience such savings if its fixed costs were to increase or the value of its assets were to decrease.

 

13


The Board of each Fund believes that its Fund’s shareholders should realize (1) lower Total Expense Ratios and (2) lower Adjusted Total Expense Ratios after the Reorganization than they would realize if the Reorganization did not occur after the expenses associated with the Reorganization have been paid.

For the 12-month period ended April 30, 2010, the Total Expense Ratios (including interest expenses) and the Adjusted Total Expense Ratios (including interest expenses) (each as a percentage of average net assets attributable to common shares) for each Fund and the Combined Fund are as follows:

 

      

APX

    

MUA

    

Pro Forma
Combined Fund

Total Annual Expense Ratio

        
   0.84    0.71 %*     0.70%

Adjusted Total Annual Expense Ratio

  

  
   1.05    0.91    0.90%

 

* Expenses have been restated to reflect current fees.

For the 12-month period ended April 30, 2010, the Total Expense Ratios (excluding interest expenses) and the Adjusted Total Expense Ratios (excluding interest expenses) (each as a percentage of average net assets attributable to common shares) for each Fund and the Combined Fund are as follows:

 

      

APX

    

MUA

    

Pro Forma
Combined Fund

Total Annual Expense Ratio

        
   0.80    0.67 %*     0.66%

Adjusted Total Annual Expense Ratio

  

  
   0.88    0.74    0.73%

 

* Expenses have been restated to reflect current fees.

There can be no assurance that future expenses will not increase or that any expense savings will be realized.

Each Fund has incurred expenses related to the Reorganization. APX and MUA will bear expenses incurred in connection with the Reorganization, including, but not limited to, costs related to the preparation and distribution of materials distributed to each Fund’s Board, expenses incurred in connection with the preparation of the Reorganization Agreement and the registration statement on Form N-14, the printing and distribution of this Joint Proxy Statement/Prospectus and any other materials required to be distributed to shareholders, SEC and state securities commission filing fees and legal and audit fees in connection with the Reorganization, legal fees incurred preparing each Fund’s Board materials, attending each Fund’s Board meetings and preparing the minutes, auditing fees associated with each Fund’s financial statements, stock exchange fees, transfer agency fees, portfolio transfer taxes (if any) and any similar expenses incurred in connection with the Reorganization, which will be borne directly by the respective Fund incurring the expense or allocated among the Funds proportionately or on another reasonable basis, as appropriate. Because the Funds have already incurred expenses solely and directly attributable to the Reorganization and because each Fund (and not the Investment Advisor) is responsible for paying those expenses, if a Fund’s respective shareholders do not approve their Fund’s respective Reorganization, such Fund will continue to be responsible for the expenses arising from its proposed Reorganization even though its proposed Reorganization will not occur and those expenses may be material. Neither the Funds nor the Advisors will pay any expenses of shareholders arising out of or in connection with the Reorganization.

General Risks of Investing in the Funds

Investment and Market Discount Risk. An investment in a Fund’s common shares is subject to investment risk, including the possible loss of the entire amount that you invest. As with any stock, the price of a Fund’s common shares will fluctuate with market conditions and other factors. If shares are sold, the price received may

 

14


be more or less than the original investment. Common shares are designed for long-term investors and should not be treated as trading vehicles. Shares of closed-end management investment companies frequently trade at a discount from their net asset value. At any point in time an investment in a Fund’s common shares may be worth less than the original amount invested, even after taking into account distributions paid by the Fund. Each Fund uses leverage, which will magnify the Fund’s investment, market and certain other risks.

Market Risk and Selection Risk. Market risk is the possibility that the market values of securities owned by a Fund will decline. There is a risk that the bond market will go down in value, including the possibility that the market will go down sharply and unpredictably. The prices of debt securities tend to fall as interest rates rise, and such declines tend to be greater among debt securities with longer maturities. Market risk is often greater among certain types of debt securities, such as zero coupon bonds which do not make regular interest payments but are instead bought at a discount to their face values and paid in full upon maturity. As interest rates change, these securities often fluctuate more in price than securities that make regular interest payments and therefore subject a Fund to greater market risk than a fund that does not own these types of securities. When-issued and delayed delivery transactions are subject to changes in market conditions from the time of the commitment until settlement. This may adversely affect the prices or yields of the securities being purchased. The greater a Fund’s outstanding commitments for these securities, the greater the Fund’s exposure to market price fluctuations. Selection risk is the risk that the securities that a Fund’s management selects will underperform the bond market, the market relevant indices, or other funds with similar investment objectives and investment strategies.

Interest Rate Risk . Generally, when market interest rates rise, prices of debt securities fall, and vice versa. Interest rate risk is the risk that the debt securities in a Fund’s portfolio will decline in value because of increases in market interest rates. As interest rates increase, slower than expected principal payments may extend the average life of securities, potentially locking in a below-market interest rate and reducing a Fund’s value. In typical market interest rate environments, the prices of longer-term debt securities generally fluctuate more than the prices of shorter-term debt securities as interest rates change. These risks may be greater in the current market environment because certain interest rates are near historically low levels. As interest rates decline, issuers of Municipal Bonds that have the right to call those securities may prepay principal earlier than scheduled, forcing a Fund to reinvest in lower-yielding securities and potentially reducing the Fund’s income. The Funds may utilize certain strategies, including taking positions in futures and options for the purpose of reducing the interest rate sensitivity of the Funds’ debt securities and decreasing the Funds’ exposure to interest rate risk. The Funds are not required to hedge their exposure to interest rate risk and may choose not to do so. In addition, there is no assurance that any attempts by the Funds to reduce interest rate risk will be successful.

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 a Fund’s net asset value or dividends. Because each Fund invests primarily in lower rated Municipal Bonds, each Fund is more subject to credit risk than a fund that invests primarily in investment grade Municipal Bonds. See “—High Yield Risk.”

High Yield Risk . MUA invests at least 65% of its total assets in Municipal Bonds that are rated in any one of the medium and lower rating categories of Moody’s, S&P or Fitch, or in unrated Municipal Bonds that the Investment Advisor believes are of comparable quality. APX invests at least 75% of its total assets in Municipal Bonds which are rated in any one of the medium and lower rating categories of a nationally recognized statistical rating organization or are unrated. As of July 31, 2010, (i) the approximate amount invested in Municipal Bonds rated in the medium and lower rating categories of Moody’s, S&P or Fitch, or in unrated Municipal Bonds that the Investment Advisor believes are of comparable quality, as a percentage of total assets for MUA and APX was 75.84% and 77.56%, respectively, and (ii) the approximate amount invested in below investment grade Municipal Bonds as a percentage of total assets for MUA and APX was 44.85% and 47.48%, respectively. If the Reorganization was completed as of July 31, 2010, then (i) the approximate amount invested in Municipal Bonds rated in the medium and lower rating categories of Moody’s, S&P or Fitch, or in unrated Municipal Bonds that

 

15


the Investment Advisor believes are of comparable quality, as a percentage of total assets for the Combined Fund would have been 76.54% and (ii) the approximate amount invested in below investment grade Municipal Bonds as a percentage of total assets for the Combined Fund would have been 45.92%.

Bonds of below investment grade quality (“Ba/BB” or below) are regarded as having predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal, and are commonly referred to as “junk bonds.” The value of high yield, lower quality bonds is affected by the creditworthiness of the issuers of the securities and by general economic and specific industry conditions. Issuers of high yield bonds are not as strong financially as those with higher credit ratings. These issuers are more vulnerable to financial setbacks and recession than more creditworthy issuers, which may impair their ability to make interest and principal payments. Lower grade securities may be particularly susceptible to economic downturns. It is likely that an economic recession could severely disrupt the market for such securities and may have an adverse impact on the value of such securities. In addition, it is likely that any such economic downturn could adversely affect the ability of the issuers of such securities to repay principal and pay interest thereon and increase the incidence of default for such securities.

Lower grade securities, though high yielding, are characterized by high risk. These securities are subject to a greater risk of default. They may be subject to certain risks with respect to the issuing entity and to greater market fluctuations than certain lower yielding, higher rated securities. The retail secondary market for lower grade securities may be less liquid than that of higher rated securities; adverse conditions could make it difficult at times for the Fund to sell certain securities or could result in lower prices than those used in calculating the Fund’s net asset value. Because of the substantial risks associated with lower grade securities, you could lose money on your investment in common shares of a Fund, both in the short term and the long term.

The prices of debt securities generally are inversely related to interest rate changes; however, the price volatility caused by fluctuating interest rates of securities also is inversely related to the coupons of such securities. Accordingly, below investment grade securities may be relatively less sensitive to interest rate changes than higher quality securities of comparable maturity because of their higher coupon. This higher coupon is what the investor receives in return for bearing greater credit risk. The higher credit risk associated with below investment grade securities potentially can have a greater effect on the value of such securities than may be the case with higher quality issues of comparable maturity.

The ratings of Moody’s, S&P and other rating agencies represent their opinions as to the quality of the obligations which they undertake to rate. Ratings are relative and subjective and, although ratings may be useful in evaluating the safety of interest and principal payments, they do not evaluate the market value risk of such obligations. Although these ratings may be an initial criterion for selection of portfolio investments, the Advisors also will independently evaluate these securities and the ability for the issuers of such securities to pay interest and principal. To the extent that the Fund invests in lower grade securities that have not been rated by a rating agency, the Fund’s ability to achieve its investment objectives will be more dependent on the Advisors’ credit analysis than would be the case when the Fund invests in rated securities.

Municipal Bond Market Risk . Economic exposure to the municipal bond market involves certain risks. A Fund’s economic exposure to Municipal Bonds includes Municipal Bonds in the Fund’s portfolio and Municipal Bonds to which the Fund is exposed through the ownership of residual interest municipal tender option bonds. The municipal market is one in which dealer firms make markets in bonds on a principal basis using their proprietary capital, and during the recent market turmoil these firms’ capital was severely constrained. As a result, some firms were unwilling to commit their capital to purchase and to serve as a dealer for Municipal Bonds. Certain Municipal Bonds may not be registered with the SEC or any state securities commission and will not be listed on any national securities exchange. The amount of public information available about the Municipal Bonds to which a Fund is economically exposed is generally less than that for corporate equities or bonds, and the investment performance of the Fund may therefore be more dependent on the analytical abilities of the Advisors than would be a stock fund or taxable bond fund. The secondary market for Municipal Bonds,

 

16


particularly the below investment grade bonds to which a Fund may be economically exposed, also tends to be less well-developed or liquid than many other securities markets, which may adversely affect the ability to sell such bonds at attractive prices or at prices approximating those at which the Fund currently values them.

In addition, many state and municipal governments that issue securities are under significant economic and financial stress and may not be able to satisfy their obligations. The ability of municipal issuers to make timely payments of interest and principal may be diminished during general economic downturns and as governmental cost burdens are reallocated among federal, state and local governments. The taxing power of any governmental entity may be limited by provisions of state constitutions or laws and an entity’s credit will depend on many factors, including the entity’s tax base, the extent to which the entity relies on federal or state aid, and other factors which are beyond the entity’s control. In addition, laws enacted in the future by Congress or state legislatures or referenda could extend the time for payment of principal and/or interest, or impose other constraints on enforcement of such obligations, or on the ability of municipalities to levy taxes. Issuers of Municipal Bonds might seek protection under the bankruptcy laws. In the event of bankruptcy of such an issuer, holders of Municipal Bonds could experience delays in collecting principal and interest and such holders may not, in all circumstances, be able to collect all principal and interest to which they are entitled. To enforce its rights in the event of a default in the payment of interest or repayment of principal, or both, a Fund may take possession of and manage the assets securing the issuer’s obligations on such securities, which may increase the Fund’s operating expenses. Any income derived from a Fund’s ownership or operation of such assets may not be tax-exempt.

Revenue bonds issued by state or local agencies to finance the development of low-income, multi-family housing involve special risks in addition to those associated with Municipal Bonds generally, including that the underlying properties may not generate sufficient income to pay expenses and interest costs. Such bonds are generally non-recourse against the property owner, may be junior to the rights of others with an interest in the properties, may pay interest that changes based in part on the financial performance of the property, may be prepayable without penalty and may be used to finance the construction of housing developments which, until completed and rented, do not generate income to pay interest. Increases in interest rates payable on senior obligations may make it more difficult for issuers to meet payment obligations on subordinated bonds.

Municipal leases and certificates of participation involve special risks not normally associated with general obligations or revenue bonds. Leases and installment purchase or conditional sale contracts (which normally provide for title to the leased asset to pass eventually to the governmental issuer) have evolved as a means for governmental issuers to acquire property and equipments without meeting the constitutional and statutory requirements for the issuance of debt. The debt issuance limitations are deemed to be inapplicable because of the inclusion in many leases or contracts of “non-appropriation” clauses that relieve the governmental issuer of any obligation to make future payments under the lease or contract unless money is appropriated for such purpose by the appropriate legislative body on a yearly or other periodic basis. In addition, such leases or contracts may be subject to the temporary abatement of payments in the event that the governmental issuer is prevented from maintaining occupancy of the lease premises or utilizing the leased equipment. Although the obligations may be secured by the leased equipment or facilities, the disposition of the property in the event of non-appropriation or foreclosure might prove difficult, time consuming and costly, and may result in a delay in recovering or the failure to fully recover ownership of the assets.

Certificates of participation, which represent interests in unmanaged pools of municipal leases or installment contracts, involve the same risks as the underlying municipal leases. In addition, the Fund may be dependent upon the municipal authority issuing the certificate of participation to exercise remedies with respect to the underlying securities. Certificates of participation also entail a risk of default or bankruptcy, both of the issuer of the municipal lease and also the municipal agency issuing the certificate of participation.

General Leverage Risk . Each Fund currently has a fundamental policy that provides that such Fund may not issue senior securities or borrow amounts in excess of 5% of its total assets taken at market value. The Fund’s

 

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currently leverage their assets through tender option bonds (“TOBs”), which does not exceed 5% of each Fund’s total assets. See table below for details regarding the following: (1) each Fund’s total economic leverage as a percentage of its total assets as of July 31, 2010 without giving effect to the potential for increased leverage if the Policy Amendments are approved; (2) the Combined Fund’s total economic leverage on a pro forma basis as a percentage of its total assets assuming the Reorganization is consummated as of July 31, 2010 and without giving effect to the potential for increased leverage if the Policy Amendments are approved; and (3) the proposed total economic leverage as a percentage of its total assets of each Fund and the Combined Fund assuming the Funds’ Policy Amendment are approved.

 

Fund

   Total Economic Leverage
As a  % of Total Assets
(Current Leverage Policy)
   Total Economic Leverage
As a  % of Total Assets
(Proposed Leverage Policy)

MUA

   3.83%    15.00%

APX

   3.77%    15.00%

Combined Fund

   3.81%    15.00%

See “Comparison of the Funds—Leverage” for additional detail regarding each Fund’s use of leverage.

The Boards of the Funds have reviewed the Current Leverage Policy and believe such policy is unduly restrictive and should be replaced with a non-fundamental policy. If the new policy is approved, each Fund currently intends to use leverage approximately equal to 15% of its total assets at the time the leverage is implemented, but may use leverage up to 25% of its total assets under the new leverage policy without further Board or shareholder approval. As a non-fundamental policy, the Board could in the future authorize the Fund to use additional leverage up to the maximum amount permitted under the 1940 Act or change the 25% threshold at which Board approval is required to increase leverage, in each case without further shareholder approval. See “Tender Option Bond Risk” for details about the risks associated with TOBs.

In the event the Reorganization is consummated, shareholders of the combined fund, including former shareholders of APX, would be subject to the leverage policy that was in effect for MUA as of the effective date of the Reorganization. If MUA shareholders do not approve the MUA Policy Amendment, then the combined fund would operate under MUA’s current leverage policy and shareholders of the combined fund, including former shareholders of APX, would not have the benefit of the new leverage policy. In such an event, APX shareholders would not have the benefit of the new leverage policy even if APX shareholders had previously approved the APX Policy Amendment. If MUA shareholders approve the MUA Policy Amendment, then the combined fund would operate under the new leverage policy and shareholders of the combined fund, including former shareholders of APX, would have the benefit of the new leverage policy. In such an event, APX shareholders would be subject to the new leverage policy even if APX shareholders had not previously approved the APX Policy Amendment. There can be no assurance that MUA shareholders will approve the MUA Policy Amendment.

The use of leverage creates an opportunity for increased common share net investment income dividends, but also creates risks for the holders of common shares. Leverage is a speculative technique that exposes a Fund to greater risk and increased costs than if it were not implemented. Increases and decreases in the value of the Fund’s portfolio will be magnified when the Fund uses leverage. As a result, leverage may cause greater changes in the Fund’s net asset value. A Fund will also have to pay interest on its borrowings, if any, which may reduce the Fund’s return. This interest expense may be greater than the Fund’s return on the underlying investment. If the income and gains earned on Municipal Bonds to which a Fund has exposure through the use of leverage are greater than the payments due on the related short-term floating rate interests, the Fund’s returns will be greater than if leverage had not been used. Conversely, if the income and gains from those Municipal Bonds do not cover the payments due in connection with the leverage used, the return will be less than if the economic leverage had not been used. BlackRock nevertheless may determine to continue to use leverage if it expects that the benefits to a Fund’s shareholders will outweigh the risk of a reduced return.

 

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There is no assurance that a Fund’s leverage strategy will be successful. Leverage involves risks and special considerations for common shareholders, including:

 

   

the likelihood of greater volatility of net asset value, market price and dividend rate of the common shares than a comparable portfolio without leverage;

 

   

the risk that fluctuations in interest rates on borrowings and short-term debt or in the interest or dividend rates on any leverage that a Fund must pay will reduce the return to the common shareholders;

 

   

the effect of leverage in a declining market, which is likely to cause a greater decline in the net asset value of the common shares than if a Fund was not leveraged, which may result in a greater decline in the market price of the common shares;

 

   

when a Fund uses financial leverage, the investment advisory fees payable to the Advisors will be higher than if the Fund did not use leverage; and

 

   

leverage may increase operating costs, which may reduce total return.

The risks and costs associated with leverage will be present to a greater extent if a Fund’s Policy Amendment is approved and the Fund uses additional leverage.

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

A Fund may invest in the securities of other investment companies. Such securities may also be leveraged and will therefore be subject to the leverage risks described above. This additional leverage may in certain market conditions reduce the net asset value of a Fund’s common shares and the returns to the holders of common shares.

Tender Option Bond Risk . As noted above, the Funds currently utilize leverage through the use of TOBs. Residual interest municipal tender option bonds (“TOBs Residuals”) are derivative municipal securities that have embedded in them the risk of economic leverage. There is no assurance that a Fund’s strategy of using TOBs Residuals to leverage its assets will be successful.

Distributions on TOBs Residuals will bear an inverse relationship to short-term Municipal Bond interest rates. Distributions on the TOBs Residuals paid to a Fund will be reduced or, in the extreme, eliminated as short-term municipal interest rates rise and will increase when short-term municipal interest rates fall. The amount of such reduction or increase is a function, in part, of the amount of short-term floating rate certificates (“TOBs Floaters”) sold by the issuer of these securities relative to the amount of the TOBs Residuals that it sells. The greater the amount of TOBs Floaters sold relative to the TOBs Residuals, the more volatile the distributions on the TOBs Residuals will be. Short-term interest rates are at historic lows and may be more likely to rise in the current market environment.

The Funds’ use of TOBs Residuals will create economic leverage. Any economic leverage achieved through a Fund’s investment in TOBs Residuals will create an opportunity for increased common share net income and returns, but will also create the possibility that common share long-term returns will be diminished if the cost of the TOBs Floaters issued by a tender option bond trusts (each, a “TOBs Issuer”) exceeds the return on the securities in the TOBs Issuer. See “—General Leverage Risk.” If the income and gains earned on municipal securities owned by a TOBs Issuer that issues TOBs Residuals to a Fund are greater than the payments due on the TOBs Floaters issued by the TOBs Issuer, the Fund’s returns will be greater than if it had not invested in the TOBs Residual.

 

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Although a Fund generally would unwind a TOBs transaction rather than try to sell a TOBs Residual, if it did try to sell a TOBs Residual its ability to do so would depend on the liquidity of the TOBs Residual. TOBs Residuals have varying degrees of liquidity based, among other things, upon the liquidity of the underlying securities deposited in the TOBs Issuer. The market price of TOBs Residuals are more volatile than the underlying securities due to leverage. The leverage attributable to TOBs Residuals may be “called away” on relatively short notice and therefore may be less permanent than more traditional forms of leverage. In certain circumstances, the likelihood of an increase in the volatility of net asset value and market price of the common shares may be greater for a fund that relies primarily on TOBs Residuals to achieve a desired effective leverage ratio. A Fund may be required to sell its TOBs Residuals at less than favorable prices, or liquidate other Fund portfolio holdings in certain circumstances, including, but not limited to, the following:

 

   

If the Fund has a need for cash and the securities in the TOBs Issuer are not actively trading due to adverse market conditions;

 

   

If the sponsors of TOBs Issuers (as a collective group or individually) experience financial hardship and consequently seek to terminate TOBs Issuers sponsored by them; and

 

   

If the value of an underlying security declines significantly (to a level below the notional value of the TOBs Floaters issued by the TOBs Issuer) and if additional collateral has not been posted by the Fund.

The use of TOBs Residuals requires a Fund to segregate assets to cover its obligations. While the segregated assets may be invested in liquid securities, they may not be used for other operational purposes. Consequently, the use of leverage may limit Fund’s flexibility and may require that the Fund sell other portfolio investments to pay Fund expenses, to maintain assets in an amount sufficient to cover the Fund’s leveraged exposure or to meet other obligations at a time when it may be disadvantageous to sell such assets.

Volatility Risk . The use of leverage by a Fund will cause the net asset value, and possibly the market price, of the Fund’s common shares to fluctuate significantly in response to changes in interest rates and other economic indicators. In addition, a Fund may invest a significant portion of its total assets in non-investment grade Municipal Bonds, which may be less liquid and therefore more volatile than investment grade Municipal Bonds. As a result, the net asset value and market price of the common shares of a Fund will be more volatile than those of a closed-end investment company that is not exposed to leverage or that does not invest such a significant amount of its assets in non-investment grade Municipal Bonds.

Non-Diversification Risk . Each Fund has registered as a “non-diversified” investment company under the 1940 Act. This means that each Fund may invest a greater percentage of its assets in the obligations of a single issuer than a diversified investment company. Since a Fund may invest a relatively high percentage of its assets in a limited number of issuers, the Fund may be more exposed to any single economic, political or regulatory occurrence than a more widely diversified fund. Even as a non-diversified fund, however, each Fund’s investments will be limited so as to qualify the Fund as a “regulated investment company” for purposes of Federal tax laws. Requirements for qualification include limiting its investments so that, at the close of each quarter of the taxable year, (i) not more than 25% of the market value of the Fund’s total assets will be invested in (A) the securities of a single issuer (other than U.S. Government securities and securities of other regulated investment companies), (B) the securities of two or more issuers (other than securities of other regulated investment companies) controlled by the Fund and engaged in the same, similar or related trades or businesses or (C) the securities of one or more qualified publicly traded partnerships and (ii) with respect to 50% of the market value of its total assets, not more than 5% of the market value of its total assets will be invested in the securities of a single issuer and the Fund will not own more than 10% of the outstanding voting securities of a single issuer (other than U.S. Government securities and securities of other regulated investment companies).

Alternative Minimum Tax Risk. Each Fund expects that a portion of the interest or income it produces will be includable in alternative minimum taxable income. Exempt-interest dividends may also be subject to state and local income taxes. The Fund may invest in certain tax-exempt securities classified as “private activity bonds.”

 

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These bonds may subject certain investors in the Fund to the federal alternative minimum tax. The Funds may not be a suitable investment for investors subject to the Federal alternative minimum tax or who would become subject to such tax by investing in the Funds. The suitability of an investment in common shares will depend upon a comparison of the after-tax yield likely to be provided from a Fund 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.

Market Disruption and Geopolitical Risk . The aftermath of the war in Iraq, instability in Afghanistan, Pakistan and the Middle East and terrorist attacks in the United States and around the world may result in market volatility, may have long-term effects on the U.S. and worldwide financial markets and may cause further economic uncertainties in the United States and worldwide. The Funds do not know how long the securities markets may be affected by these events and cannot predict the effects of the occupation or similar events in the future on the U.S. economy and securities markets.

The Funds may be adversely affected by uncertainties such as terrorism, international political developments, and changes in government policies, taxation, restrictions on foreign investment and currency repatriation, currency fluctuations and other developments in the laws and regulations of the countries in which it may be invested.

Current Economic Conditions—Credit Crisis Liquidity and Volatility Risk . The markets for credit instruments have experienced periods of extreme illiquidity and volatility since the latter half of 2007. General market uncertainty and consequent repricing risk have led to market imbalances of sellers and buyers, which in turn have resulted in significant valuation uncertainties in a variety of debt securities, including Municipal Bonds. These conditions resulted in, and in many cases continue to result in, greater volatility, less liquidity, widening credit spreads and a lack of price transparency, with many debt securities remaining illiquid and of uncertain value. Such market conditions may make valuation of some of the Funds’ Municipal Bonds uncertain and/or result in sudden and significant valuation increases or declines in its holdings. Also, issuers of Municipal Bonds might seek protection under the bankruptcy laws. In the event of bankruptcy of such an issuer, holders of Municipal Bonds could experience delays in collecting principal and interest and such holders may not, in all circumstances, be able to collect all principal and interest to which they are entitled. To enforce its rights in the event of a default in the payment of interest or repayment of principal, or both, a Fund may take possession of and manage the assets securing the issuer’s obligations on such securities, which may increase the Fund’s operating expenses. In addition, illiquidity and volatility in the credit markets may directly and adversely affect the setting of dividend rates on the common shares.

In response to the recent national economic downturn, governmental cost burdens may be reallocated among federal, state and local governments. Also, as a result of the downturn, many state and local governments have experienced significant reductions in revenues and consequently difficulties meeting ongoing expenses. As a result, certain of these state and local governments may have difficulty paying principal or interest on their outstanding debt and may experience ratings downgrades of their debt. In addition, municipalities might seek protection under the bankruptcy laws, thereby affecting the repayment of their outstanding debt.

Legislation Risk . At any time after the date of this Joint Proxy Statement/Prospectus, legislation may be enacted that could negatively affect the assets of a Fund or the issuers of such assets. Changing approaches to regulation may have a negative impact on the entities in which a Fund invests. Legislation or regulation may also change the way in which a Fund itself is regulated. There can be no assurance that future legislation, regulation or deregulation will not have a material adverse effect on a Fund or will not impair the ability of the Fund to achieve its investment objective.

Portfolio Turnover Risk . A Fund’s annual portfolio turnover rate may vary greatly from year to year. Portfolio turnover rate is not considered a limiting factor in the execution of investment decisions for a Fund. A higher portfolio turnover rate results in correspondingly greater brokerage commissions and other transactional

 

21


expenses that are borne by a Fund. High portfolio turnover may result in an increased realization of net short-term capital gains by a Fund which, when distributed to common shareholders, will be taxable as ordinary income. Additionally, in a declining market, portfolio turnover may create realized capital losses.

Antitakeover Provisions . Each Fund’s charter, bylaws and the Maryland General Corporation Law include provisions that could limit the ability of other entities or persons to acquire control of such Fund or to change the composition of its Board. Such provisions could limit the ability of shareholders to sell their shares at a premium over prevailing market prices by discouraging a third party from seeking to obtain control of a Fund. See “ Certain Provisions of the Charter.”

EXPENSE TABLES FOR SHAREHOLDERS

Total Expenses Table for Shareholders of the Funds as of April 30, 2010

(Assumes No Change in Leverage)

The table below illustrates the anticipated reduction in Total Expenses expected as a result of the Reorganization. When we use the term “Total Expenses,” we mean a Fund’s total annual operating expenses including interest expenses associated with such Fund’s investments in tender option bonds without giving effect to the potential for increased leverage if the Policy Amendments are approved. When we use the term “Total Expense Ratio,” we mean a Fund’s Total Expenses expressed as a percentage of its average net assets attributable to its common shares. The table sets forth (i) the Total Expenses paid by each Fund for the 12-month period ended April 30, 2010 and (ii) the pro forma Total Expenses for the Combined Fund, assuming the Reorganization had taken place on April 30, 2010. As shown below, the Reorganization of APX into MUA is expected to result in a lower Total Expense Ratio for shareholders of each Fund for the period covered.

 

     APX     MUA     Pro Forma
Combined  Fund (a)

Shareholder Transaction Expenses

      

Maximum Sales Load (as a percentage of the offering price) imposed on purchases of common shares (b)

   None      None      None

Dividend Reinvestment and Cash Purchase Plan Fees

   None      None      None

Annual Total Expenses (as a percentage of average net assets attributable to common shares)

      

Investment Management Fees (c)

   0.68   0.58   0.58%

Other Expenses

   0.12   0.09 % (d)     0.08%

Interest Expense (e)

   0.04   0.04   0.04%
                

Total Expenses (e)

   0.84   0.71   0.70%
                

 

(a)

Assumes the Reorganization had taken place on April 30, 2010.

(b)

No sales load will be charged in connection with the issuance of MUA’s common shares as part of the Reorganization. Common shares are not available for purchase from the Funds but may be purchased on the NYSE through a broker-dealer subject to individually negotiated commission rates. Common shares purchased in the secondary market may be subject to brokerage commissions or other charges.

(c)

The Investment Advisor’s contractual management fee for each Fund as a percentage of its average daily total assets and average common net assets is indicated in the table below.

 

As a percentage of

   APX     MUA     Pro Forma
Combined Fund

Total Assets

   0.65   0.55   0.55%

Common Net Assets

   0.68   0.58   0.58%

 

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(d)

Other Expenses have been restated to reflect current fees.

(e)

The main table above includes interest expenses associated with the Funds’ investments in tender option bonds (also known as “inverse floaters”). Although such interest expenses are actually paid by special purpose vehicles in which the Funds invest, they are recorded on the Funds’ financial statements for accounting purposes. Excluding such interest expenses the Total Expenses would be:

 

       APX     MUA     Pro Forma
Combined Fund

Total Expenses

   0.80   0.67   0.66%

The following example is intended to help you compare the costs of investing in the common shares of the Combined Fund pro forma if the Reorganization is completed with the costs of investing in APX and MUA without the Reorganization, in each case without giving effect to the Fund’s Policy Amendment. An investor in common shares would pay the following expenses ( including interest expenses as reported in the fee table) on a $1,000 investment, assuming (1) the Total Expense Ratio for each Fund set forth in the table above and (2) a 5% annual return throughout the period:

 

     1 Year    3 Years    5 Years    10 Years

APX

   $ 9    $ 27    $ 47    $ 104

MUA

   $ 7    $ 23    $ 40    $ 88

Pro Forma Combined Fund

   $ 7    $ 22    $ 39    $ 87

The following example is intended to help you compare the costs of investing in the common shares of the Combined Fund pro forma if the Reorganization is completed with the costs of investing in APX and MUA without the Reorganization, in each case without giving effect to the Fund’s Policy Amendment. An investor in common shares would pay the following expenses ( excluding interest expenses as reported in the fee table) on a $1,000 investment, assuming (1) the Total Expense Ratio for each Fund set forth in the table above and (2) a 5% annual return throughout the period:

 

       1 Year    3 Years    5 Years    10 Years

APX

   $ 8    $ 26    $ 44    $ 99

MUA

   $ 7    $ 21    $ 37    $ 83

Pro Forma Combined Fund

   $ 7    $ 21    $ 37    $ 82

The examples set forth above assume common shares of each Fund were owned as of the completion of the Reorganization and the reinvestment of all dividends and distributions and uses a 5% annual rate of return as mandated by SEC regulations. The examples should not be considered a representation of past or future expenses or annual rates of return. Actual expenses or annual rates of return may be more or less than those assumed for purposes of the examples.

Adjusted Total Expenses Table for Shareholders of the Funds as of April 30, 2010

(Assumes Increased Leverage)

The table below illustrates the anticipated reduction in Adjusted Total Expenses expected as a result of the Reorganization. When we use the term “Adjusted Total Expenses,” we mean a Fund’s estimated total annual operating expenses including interest expenses associated with such Fund’s leverage in an amount equal to 15% of its total assets, assuming its Policy Amendment had been approved. When we use the term “Adjusted Total Expense Ratio,” we mean a Fund’s Adjusted Total Expenses expressed as a percentage of its average net assets attributable to its common shares. The table sets forth (i) the Adjusted Total Expenses that would have been paid by each Fund for the 12-month period ended April 30, 2010 if the Policy Amendment had been previously approved by shareholders and the Fund utilized leverage in an amount equal to 15% of its total assets throughout

 

23


the period and (ii) the pro forma Adjusted Total Expenses for the Combined Fund assuming the Reorganization had taken place on April 30, 2010. As shown below, the Reorganization of APX into MUA is expected to result in a lower Adjusted Total Expense Ratio for shareholders of each Fund for the period covered.

 

     APX     MUA     Pro Forma
Combined  Fund (a)

Shareholder Transaction Expenses

      

Maximum Sales Load (as a percentage of the offering price)

imposed on purchases of common shares (b)

   None      None      None

Dividend Reinvestment and Cash Purchase Plan Fees

   None      None      None

Adjusted Annual Total Expenses (as a percentage of average net assets attributable to common shares)

      

Investment Management Fees (c)

   0.77   0.65   0.65%

Other Expenses (d)

   0.11   0.09   0.08%

Interest Expense (e)(f)

   0.17   0.17   0.17%

Adjusted Total Expenses (f)

   1.05   0.91   0.90%

 

(a)

Assumes the Reorganization had taken place on April 30, 2010.

(b)

No sales load will be charged in connection with the issuance of MUA’s common shares as part of the Reorganization. Common shares are not available for purchase from the Funds but may be purchased on the NYSE through a broker-dealer subject to individually negotiated commission rates. Common shares purchased in the secondary market may be subject to brokerage commissions or other charges.

(c)

The Investment Advisor’s contractual management fee for each Fund as a percentage of its average daily total assets and average common net assets is indicated in the table below.

 

As a percentage of

   APX     MUA     Pro Forma
Combined Fund

Total Assets

   0.65   0.55   0.55%

Common Net Assets

   0.77   0.65   0.65%

 

(d)

Other Expenses have been restated to reflect current fees.

(e)

Interest Expense has been estimated based upon leverage equal to 15% of each Fund’s total assets.

(f)

The main table above includes interest expenses associated with the Funds’ investments in tender option bonds (also known as “inverse floaters”). Although such interest expenses are actually paid by special purpose vehicles in which the Funds invest, they are recorded on the Funds’ financial statements for accounting purposes. Excluding such interest expenses the Adjusted Total Expenses would be:

 

       APX     MUA     Pro Forma
Combined Fund

Adjusted Total Expenses

   0.88   0.74   0.73%

The following example is intended to help you compare the costs of investing in the common shares of the Combined Fund pro forma if the Reorganization is completed with the costs of investing in APX and MUA without the Reorganization, in each case giving effect to the Fund’s Policy Amendment. An investor in common shares would pay the following expenses ( including interest expenses as reported in the fee table) on a $1,000 investment, assuming (1) the Adjusted Total Expense Ratio for each Fund set forth in the table above and (2) a 5% annual return throughout the period:

 

     1 Year    3 Years    5 Years    10 Years

APX

   $ 11    $ 33    $ 58    $ 128

MUA

   $ 9    $ 29    $ 50    $ 112

Pro Forma Combined Fund

   $ 9    $ 29    $ 50    $ 111

 

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The following example is intended to help you compare the costs of investing in the common shares of the Combined Fund pro forma if the Reorganization is completed with the costs of investing in APX and MUA without the Reorganization, in each case giving effect to the Fund’s Policy Amendment. An investor in common shares would pay the following expenses ( excluding interest expenses as reported in the fee table) on a $1,000 investment, assuming (1) the Adjusted Total Expense Ratio for each Fund set forth in the table above and (2) a 5% annual return throughout the period:

 

     1 Year    3 Years    5 Years    10 Years

APX

   $ 9    $ 28    $ 49    $ 108

MUA

   $ 8    $ 24    $ 41    $ 92

Pro Forma Combined Fund

   $ 7    $ 23    $ 41    $ 91

The examples set forth above assume common shares of each Fund were owned as of the completion of the Reorganization and the reinvestment of all dividends and distributions and uses a 5% annual rate of return as mandated by SEC regulations. The examples should not be considered a representation of past or future expenses or annual rates of return. Actual expenses or annual rates of return may be more or less than those assumed for purposes of the examples.

MUA and APX will bear expenses incurred in connection with the Reorganization that are not reflected in “Other Expenses,” including, but not limited to, costs related to the preparation and distribution of materials distributed to each Fund’s Board, expenses incurred in connection with the preparation of the Reorganization Agreement and the registration statement on Form N-14, the printing and distribution of this Joint Proxy Statement/Prospectus and any other materials required to be distributed to shareholders, SEC and state securities commission filing fees and legal and audit fees in connection with the Reorganization, legal fees incurred preparing each Fund’s Board materials, attending each Fund’s Board meetings and preparing the minutes, auditing fees associated with each Fund’s financial statements, stock exchange fees, transfer agency fees, portfolio transfer taxes (if any) and any similar expenses incurred in connection with the Reorganization, which will be borne directly by the respective Fund incurring the expense or allocated among the Funds proportionately or on another reasonable basis, as appropriate. Such expenses are estimated to be $421,819 in the aggregate, of which $216,405 is estimated to be attributable to MUA and $205,414 is estimated to be attributable to APX. Neither the Funds nor the Advisors will pay any expenses of shareholders arising out of or in connection with the Reorganization.

REASONS FOR THE REORGANIZATION

The factors considered by the Boards with regard to the Reorganization include, but are not limited to, the following:

 

  1. The Combined Fund is expected to have a lower total expense ratio than that of each Fund prior to the Reorganization.

The Funds estimate that the completion of the Reorganization would result in a Total Expense Ratio for the Combined Fund of 0.70% on a pro forma basis for the 12-month period ended April 30, 2010, representing a reduction in the Total Expense Ratio of 0.14% for APX and 0.01% for MUA, each as a percentage of average net assets attributable to common shares.

The Funds estimate that the completion of the Reorganization would result in a Adjusted Total Expense Ratio for the Combined Fund of 0.90% on a pro forma basis for the 12-month period ended April 30, 2010, representing a reduction in the Total Expense Ratio of 0.15% for APX and 0.01% for MUA, each as a percentage of average net assets attributable to common shares.

 

  2.

APX Shareholders will incur a lower contractual management fee rate as a shareholder of the Combined Fund and will remain invested in a non-diversified, NYSE-listed, closed-end management

 

25


 

investment company that will have substantially greater net assets and either substantially the same or substantially similar (but not identical) investment objectives and policies as APX and, as a result, the style and risk/return profile of the Combined Fund will remain comparable to those of APX’s shareholders’ current investments, subject to the differences described in “Comparison of the Funds.”

APX shareholders would continue to own a closed-end fund that (i) has the same investment adviser and portfolio managers as APX, (ii) has comparable risk-return attributes as APX, (iii) similarly focuses its investments primarily on medium to lower grade or unrated municipal obligations exempt from regular Federal and other income taxes, (iv) utilizes leverage as a means to enhance income to shareholders, (v) pays regular distributions on a monthly basis and (vi) trades at market price on the NYSE. See “Investment Objectives and Policies” for additional information regarding the Funds’ investment objectives and policies.

 

  3. Under current market conditions and all other things being equal, the distribution yield of the Combined Fund is expected to be comparable to the current distribution yield of MUA which, all things being equal, should help the Combined Fund trade at or about the price at which MUA currently trades. Of course, no assurance can be given that the common shares of the Combined Fund will trade at or about the current market price of MUA after the Reorganization.

 

  4. The Combined Fund is expected to achieve certain operating and administrative efficiencies from its larger net asset size. The larger net asset size of the Combined Fund could permit the Combined Fund to achieve certain economies of scale as certain fixed and variable costs can be spread over a larger asset base and the larger Combined Fund may realize greater investment flexibility and investment options, greater diversification of portfolio investments, the ability to trade in larger positions, more favorable transaction terms, better trade execution, more consistent implementation of investment strategies, additional research coverage and greater liquidity.

 

  5. The greater asset base of the Combined Fund relative to each Fund on a stand-alone basis could give the Combined Fund a greater ability to utilize tender option bonds than either Fund individually, particularly if shareholders of MUA approve the MUA Policy Amendment.

 

  6. The Combined Fund may experience potential marketing benefits from having fewer closed-end funds in the market, including potential benefits from a more efficient secondary market and an increased focus by investors on the remaining funds in the market (including the Combined Fund), and fewer similar funds in the same fund complex, including potential benefits from easier product differentiation for shareholders (including shareholders of the Combined Fund).

 

  7. Shareholders will recognize no gain or loss for Federal income tax purposes as a result of the Reorganization, as the Reorganization is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Code. In the Reorganization, APX will merge with and into the Merger Subsidiary. APX common shares will be exchanged for MUA common shares pursuant to the Reorganization. Following the Reorganization, the Merger Subsidiary will be liquidated into MUA.

 

  8. Shareholders will benefit from the continuing experience and expertise of the portfolio management team designated for the Combined Fund and the team’s commitment to the investment style and strategies to be used in managing the assets of the Combined Fund. See “Management of the Funds.” The portfolio guidelines of the Combined Fund will either be the same or substantially similar (but not identical) to that of APX, as described in greater detail elsewhere in this Joint Proxy Statement/Prospectus. As a result, it is not anticipated that there will be significant disposition of the holdings in APX as a result of the Reorganization. In addition, nothing will require either Funds to dispose of holdings in APX’s portfolio if, in the reasonable judgment of the Boards or the Investment Advisor, such disposition would adversely affect the tax-free nature of the Reorganization for Federal income tax purposes.

 

  9. Shareholders will receive substantially the same services after the Reorganization.

 

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  10. The aggregate net asset value of the shares of the Combined Fund that APX shareholders will receive in the Reorganization is expected to equal the aggregate net asset value of the APX shares owned by APX Shareholders immediately prior to the Reorganization, and the net asset value of APX shares will not be diluted as a result of the Reorganization.

The Board of each Fund believes that the Reorganization would benefit shareholders of the Funds, based on a number of factors, including that shareholders would not be diluted with respect to net asset value; the relative similarity of the investment strategies and policies of the Funds; the larger net asset base of the Combined Fund after the Reorganization; the capabilities of the management team of the Combined Fund that would manage the Combined Fund; and the possibility of achieving economies of scale going forward. Considering these and other reasons, the Board of each Fund unanimously concluded that completion of the Reorganization is in the best interests of each Fund and its shareholders and that the interests of the shareholders of each Fund will not be diluted with respect to net asset value as a result of the Reorganization. This determination was made on the basis of each Board Member’s business judgment after consideration of all of the factors taken as a whole with respect to each Fund and its shareholders, although individual Board Members may have placed different weight on various factors and assigned different degrees of materiality to various factors.

PROPOSAL 1: THE REORGANIZATION OF MUA AND APX

The Reorganization seeks to combine two funds that are substantially similar (but not identical) to achieve certain economies of scale and other operational efficiencies. Each Fund is registered as a non-diversified, closed-end management investment company under the 1940 Act. Each Fund’s common shares are listed on the NYSE. The Funds have the same investment adviser. Each Fund focuses its investments primarily on medium to lower grade or unrated municipal obligations exempt from regular Federal and other income taxes. The investment objectives of the Funds are the same: to provide shareholders with high current income exempt from Federal income taxes by investing primarily in a portfolio of medium to lower grade or unrated municipal obligations the interest on which, in the opinion of bond counsel to the issuer, is exempt from Federal income taxes.

The Board of each Fund, including the Independent Board Members, has unanimously approved the Reorganization Agreement. If the shareholders of APX approve the Reorganization Agreement and the shareholders of MUA approve the issuance of additional MUA common shares in connection with the Reorganization (see “Proposal 2: Issuance of Additional MUA common shares”), APX will merge with and into the Merger Subsidiary. Following the Reorganization, the Merger Subsidiary will dissolve under Maryland law and be liquidated into MUA. APX will terminate its registration under the 1940 Act after the completion of the Reorganization. MUA will continue to operate after the Reorganization as a registered, non-diversified, NYSE-listed, closed-end management investment company with the investment objective and policies described in this Joint Proxy Statement/Prospectus. The aggregate net asset value of MUA common shares received by APX’s shareholders in the Reorganization will equal the aggregate net asset value of that APX common shares held immediately prior to the Reorganization, less the costs of the Reorganization (although shareholders may receive cash for their fractional common shares). In the Reorganization, shareholders of APX will receive common shares of MUA based on the relative net asset values, not the market values, of APX common shares. The market value of the common shares of the Combined Fund may be less than the market value of the common shares of APX prior to the Reorganization.

The Boards have reviewed data presented by BlackRock Advisors, LLC, investment adviser to each of the Funds (the “Investment Advisor”), and believe that the Reorganization generally would result in a reduced Total Expense Ratio (as defined below) and a reduced Adjusted Total Expense Ratio (as defined below) for each Fund, as certain fixed administrative costs would be spread across the Combined Fund’s larger asset base. If the Reorganization is approved, the Combined Fund will maintain MUA’s lower management fee rate of 0.55% of MUA’s average daily total assets less accrued liabilities.

 

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When we use the term “Total Expenses,” we mean a Fund’s total annual operating expenses including interest expenses associated with such Fund’s investments in tender option bonds without giving effect to the potential for increased leverage if the Policy Amendments are approved. When we use the term “Total Expense Ratio,” we mean a Fund’s Total Expenses expressed as a percentage of its average net assets attributable to its common shares. The Funds estimate that the completion of the Reorganization would result in a Total Expense Ratio for the Combined Fund of 0.70% on a pro forma basis for the 12-month period ended April 30, 2010, representing a reduction in the Total Expense Ratio of 0.14% for APX and 0.01% for MUA, each as a percentage of average net assets attributable to common shares.

When we use the term “Adjusted Total Expenses,” we mean a Fund’s estimated total annual operating expenses including interest expenses associated with such Fund’s leverage in an amount equal to 15% of its total assets, assuming its Policy Amendment had been approved. When we use the term “Adjusted Total Expense Ratio,” we mean a Fund’s Adjusted Total Expenses expressed as a percentage of its average net assets attributable to its common shares. The Funds estimate that the completion of the Reorganization would result in an Adjusted Total Expense Ratio for the Combined Fund of 0.90% on a pro forma basis for the 12-month period ended April 30, 2010, representing a reduction in the Adjusted Total Expense Ratio of 0.15% for APX and 0.01% for MUA, each as a percentage of average net assets attributable to common shares.

In approving the proposed Reorganization, the Board of each Fund, including the Independent Board Members, determined that participation in the Reorganization is in the best interests of each Fund and its shareholders and that the interests of each Fund’s shareholders will not be diluted with respect to the net asset value of such Fund as a result of the Reorganization. Before reaching these conclusions, the Board of each Fund, including the Independent Board Members, engaged in a thorough review process relating to the proposed Reorganization. The Boards of the Funds also received a memorandum outlining, among other things, the legal standards and certain other considerations relevant to the Boards’ deliberations. The Boards of the Funds, including all of the Independent Board Members, approved the Reorganization at a meeting held on September 2, 2010.

Considering these and other reasons, the Board of APX unanimously concluded that completion of the Reorganization is in the best interests of APX and its shareholders and that the interests of the shareholders of APX will not be diluted as a result of the Reorganization. This determination was made on the basis of each Board Member’s business judgment after consideration of all of the factors taken as a whole with respect to APX and its shareholders, although individual Board Members may have placed different weight and assigned different degrees of materiality to various factors. See “Reasons for the Reorganization.”

If the Reorganization is not approved by the shareholders of APX or if the issuance of additional MUA common shares is not approved by the shareholders of MUA, APX will continue to operate for the time being as a stand-alone Maryland corporation and will continue to be advised by the Advisors.

The APX Board has determined that the Reorganization is in the best interests of APX and the shareholders of APX and that the interests of such shareholders will not be diluted as a result of the Reorganization. Similarly, the MUA Board has determined that the Reorganization is in the best interests of MUA and its shareholders and that the interests of such shareholders will not be diluted as a result of the Reorganization. As a result of the Reorganization, however, shareholders of each Fund will hold a reduced percentage of ownership in the larger Combined Fund than they did in any of the separate Funds.

The Reorganization is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Code. If the Reorganization so qualifies, in general, shareholders of APX will recognize no gain or loss for Federal income tax purposes upon the exchange of their APX common shares for MUA common shares pursuant to the Reorganization. Additionally, APX will recognize no gain or loss for Federal income tax purposes by reason of the Reorganization. Neither MUA nor its shareholders will recognize any gain or loss for Federal income tax purposes pursuant to the Reorganization. It is a condition to the closing of the Reorganization that

 

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APX and MUA receive an opinion from Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden Arps”), dated as of the closing date of the Reorganization (the “Closing Date”), regarding the characterization of the Reorganization as a reorganization within the meaning of Section 368(a) of the Code.

The APX Board requests that shareholders of APX approve APX’s proposed Reorganization at the Special Meeting to be held on Friday, December 17, 2010 at 9:00 a.m. Shareholder approval of the Reorganization requires the affirmative vote of a majority of the outstanding shares of capital stock of APX entitled to vote.

Investing in the Combined Fund following the Reorganization involves risks. For additional information, see “Risk Factors and Special Considerations.”

The APX Board recommends that shareholders of APX vote “FOR” the Reorganization.

INVESTMENT OBJECTIVES AND POLICIES

The structure, organization and investment policies of the Funds are substantially similar. Each Fund is a non-diversified closed-end management investment company registered under the 1940 Act. Each Fund’s common shares are also listed for trading under the NYSE. The investment objectives of the Funds are the same: to provide shareholders with high current income exempt from Federal income taxes by investing primarily in a portfolio of medium to lower grade or unrated municipal obligations the interest on which, in the opinion of bond counsel to the issuer, is exempt from Federal income taxes. Each Fund seeks to achieve its investment objective by investing primarily in a portfolio of medium to lower grade or unrated Municipal Bonds. Each Fund invests at least 80% of its total assets, except during temporary defensive periods, in Municipal Bonds. MUA and APX each is required to invest at least 65% and 75%, respectively, of its total assets in Municipal Bonds that are rated in any one of the medium and lower rating categories of Moody’s, S&P or Fitch, or in unrated Municipal Bonds that the Investment Advisor believes are of comparable quality. These ratings are currently Baa (Moody’s) or BBB (S&P or Fitch) or lower. The foregoing investment objectives and investment policies of the Funds are considered fundamental and may not be changed without the approval of a majority of the respective Funds’ outstanding voting shares as defined in the 1940 Act. As used throughout this Joint Proxy Statement/Prospectus and the Statement of Additional Information, “total assets” of a Fund means the Fund’s net assets plus the amount of any borrowings for investment purposes.

MUA and APX each has the authority to invest as much as 35% and 25%, respectively, of its total assets in Municipal Bonds in the higher rating categories of nationally recognized statistical rating organizations (ratings of A or higher by Moody’s, S&P or Fitch or comparable unrated securities). In addition, each Fund reserves the right to temporarily invest more than 20% of its total assets in short-term municipal securities, or short-term taxable money market securities (including commercial paper, certificates of deposit and repurchase agreements) for defensive purposes when, in the opinion of the Investment Advisor, prevailing market or financial conditions warrant. Neither Fund invests more than 25% of its total assets (taken at market value) in Municipal Bonds whose issuers are located in the same state.

Ordinarily, neither Fund intends to realize significant interest income that is subject to Federal income taxes. However, each Fund may invest all or a portion of its assets in certain tax-exempt securities classified as “private activity bonds” (in general, bonds that benefit non-governmental entities) that may subject certain investors in the Fund to a Federal alternative minimum tax.

MUA also may invest in securities not issued by or on behalf of a state or territory or by an agency or instrumentality thereof, if the Advisors nevertheless believe such securities pay interest or distributions that are exempt from Federal income taxation (“Non-Municipal Tax-Exempt Securities”). Non-Municipal Tax-Exempt Securities may include securities issued by other investment companies that invest in Municipal Bonds, to the extent such investments are permitted by the 1940 Act. Other Non-Municipal Tax-Exempt Securities could include trust certificates or other instruments evidencing interest in one or more long-term Municipal Bonds. Certain Non-Municipal Tax-Exempt Securities may be characterized as derivative instruments. Non-Municipal

 

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Tax-Exempt Securities that pay interest exempt from Federal income taxes will be considered “Municipal Bonds” for purposes of MUA’s investment objective and policies. APX does not have a policy with respect to Non-Municipal Tax-Exempt Securities.

Investments in lower rated Municipal Bonds generally provide a higher yield and are less affected by interest rate fluctuations than higher rated tax-exempt securities of similar maturity but are subject to greater overall market risk and are also subject to a greater degree of risk with respect to the ability of the issuer to meet its principal and interest obligations. See “Appendix D—Description of Municipal Bond Ratings.”

Each Fund seeks to reduce risk through investing in multiple issuers, credit analysis and monitoring of current developments regarding the obligor and trends in both the economy and financial markets. The Advisors will use various means to research the stability and/or potential for improvement of various municipal issuers in connection with the proposed purchase of their securities by the Funds. Evaluation of each Municipal Bond may include the analysis of financial performance, debt structure, economic factors and the administrative structure of the issuer. Additionally, the priority of liens and the overall structure of the particular issue may be factors that will determine suitability for purchase. Further investigation may be performed and may include, among other things, discussions with project management, corporate officers and industry experts as well as site inspections, area analysis, and project and financial projection analysis. All purchases and sales also may be subject to the review of market data, economic projections and the performance of the financial markets. Certain economic indicators also may be monitored. Additionally, the Advisors will vary the average maturity of the applicable Fund’s portfolio securities based upon their assessment of economic and market conditions.

Each Fund is classified as non-diversified within the meaning of the 1940 Act, which means that it is not limited by such Act in the proportion of its assets that it may invest in securities of a single issuer. However, each Fund’s investments will be limited so as to qualify the Fund as a “regulated investment company” for purposes of Federal tax laws. Requirements for qualification include limiting its investments so that, at the close of each quarter of the taxable year, (i) not more than 25% of the market value of the Fund’s total assets will be invested in (A) the securities of a single issuer (other than U.S. Government securities and securities of other regulated investment companies), (B) the securities of two or more issuers (other than securities of other regulated investment companies) controlled by the Fund and engaged in the same, similar or related trades or businesses or (C) the securities of one or more qualified publicly traded partnerships and (ii) with respect to 50% of the market value of its total assets, not more than 5% of the market value of its total assets will be invested in the securities of a single issuer and the Fund will not own more than 10% of the outstanding voting securities of a single issuer (other than U.S. Government securities and securities of other regulated investment companies). A fund that elects to be classified as “diversified” under the 1940 Act must satisfy the foregoing 5% and 10% requirements with respect to 75% of its total assets. To the extent that a Fund assumes large positions in the securities of a small number of issuers, the Fund’s net asset value may fluctuate to a greater extent than that of a diversified company as a result of changes in the financial condition or in the market’s assessment of the issuers.

Municipal Bonds

Set forth below is a detailed description of the Municipal Bonds in which each Fund invests. Information with respect to ratings assigned to tax-exempt obligations that each Fund may purchase is set forth in Appendix D—”Description of Municipal Bond Ratings.” Obligations are included within the term Municipal Bonds if the interest paid thereon is excluded from gross income for federal income tax purposes in the opinion of bond counsel to the issuer.

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. Each Fund

 

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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.

The Municipal Bonds in which the Funds invest pay interest or income that, in the opinion of bond counsel to the issuer, is exempt from regular Federal income tax. BlackRock does not conduct its own analysis of the tax status of the interest paid by Municipal Bonds held by the Funds, but will rely on the opinion of counsel to the issuer of each such instrument. Each Fund may also invest in Municipal Bonds issued by United States Territories (such as Puerto Rico or Guam) that are exempt from regular Federal income tax. In addition to the types of Municipal Bonds described in the prospectus, each Fund may invest in other securities that pay interest or income 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. Each Fund 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.

Each Fund has not established any limit on the percentage of its portfolio that may be invested in private activity bonds. Each Fund expects that a portion of the interest or income it produces will be includable in alternative minimum taxable income.

General Obligation Bonds . General obligation bonds are secured by the issuer’s pledge of its faith, credit and taxing power for the payment of principal and interest. The taxing power of any governmental entity may be limited, however, by provisions of its state constitution or laws, and an entity’s creditworthiness will depend on many factors, including potential erosion of its tax base due to population declines, natural disasters, declines in the state’s industrial base or inability to attract new industries, economic limits on the ability to tax without eroding the tax base, state legislative proposals or voter initiatives to limit ad valorem real property taxes and the extent to which the entity relies on federal or state aid, access to capital markets or other factors beyond the state’s or entity’s control. Accordingly, the capacity of the issuer of a general obligation bond as to the timely payment of interest and the repayment of principal when due is affected by the issuer’s maintenance of its tax base.

Revenue Bonds . Revenue bonds are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise tax or other specific revenue sources such as payments from the user of the facility being financed. Accordingly, the timely payment of interest and the repayment of principal in accordance with the terms of the revenue or special obligation bond is a function of the economic viability of such facility or such revenue source.

Private Activity Bonds . Private activity bonds, formerly referred to as industrial development bonds, are issued by or on behalf of public authorities to obtain funds to provide privately operated housing facilities, airport, mass transit or port facilities, sewage disposal, solid waste disposal or hazardous waste treatment or disposal facilities and certain local facilities for water supply, gas or electricity. Other types of private activity bonds, the proceeds of which are used for the construction, equipment, repair or improvement of privately operated industrial or commercial facilities, may constitute Municipal Bonds, although the current federal tax laws place substantial limitations on the size of such issues.

Private activity bonds are secured primarily by revenues derived from loan repayments or lease payments due from the entity which may or may not be guaranteed by a parent company or otherwise secured. Private activity bonds generally are not secured by a pledge of the taxing power of the issuer of such bonds. Therefore, an investor should be aware that repayment of such bonds generally depends on the revenues of a private entity

 

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and be aware of the risks that such an investment may entail. Continued ability of an entity to generate sufficient revenues for the payment of principal and interest on such bonds will be affected by many factors including the size of the entity, capital structure, demand for its products or services, competition, general economic conditions, government regulation and the entity’s dependence on revenues for the operation of the particular facility being financed.

Moral Obligation Bonds. Each Fund also may invest in “moral obligation” bonds, which are normally issued by special purpose public authorities. If an issuer of moral obligation bonds is unable to meet its obligations, the repayment of such bonds becomes a moral commitment but not a legal obligation of the state or municipality in question.

Municipal Lease Obligations and Certificates of Participation . Also included within the general category of Municipal Bonds are participations in lease obligations or installment purchase contract obligations of municipal authorities or entities (hereinafter collectively called “Municipal Lease Obligations”). 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, a Fund’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. A certificate of participation represents an undivided interest in an unmanaged pool of municipal leases, an installment purchase agreement or other instruments. The certificates are typically issued by a municipal agency, a trust or other entity that has received an assignment of the payments to be made by the state or political subdivision under such leases or installment purchase agreements. Such certificates provide a Fund with the right to a pro rata undivided interest in the underlying Municipal Bonds. In addition, such participations generally provide a Fund with the right to demand payment, on not more than seven days’ notice, of all or any part of the Fund’s participation interest in the underlying Municipal Bonds, plus accrued interest.

Zero Coupon Bonds . Each Fund may invest in zero-coupon bonds. A zero coupon bond is a bond that does not pay interest either for the entire life of the obligation or for an initial period after the issuance of the obligation. When held to its maturity, its return comes from the difference between the purchase price and its maturity value. A zero coupon bond is normally issued and traded at a deep discount from face value. Zero coupon bonds allow an issuer to avoid or delay the need to generate cash to meet current interest payments and, as a result, may involve greater credit risk than bonds that pay interest currently or in cash. The market prices of zero coupon bonds are affected to a greater extent by changes in prevailing levels of interest rates and thereby tend to be more volatile in price than securities that pay interest periodically. In addition, a Fund would be required to distribute the income on any of these instruments as it accrues, even though the Fund will not receive all of the income on a current basis or in cash. Thus, the Fund may have to sell other investments, including when it may not be advisable to do so, to make income distributions to its common shareholders.

“High Yield” or “Junk” Bonds . MUA and APX each is required to invest at least 65% and 75%, respectively, of its total assets in Municipal Bonds that are rated in any one of the medium and lower rating categories of Moody’s, S&P or Fitch, or in unrated Municipal Bonds that the Investment Advisor believes are of comparable quality. These ratings are currently Baa (Moody’s) or BBB (S&P or Fitch) or lower. Information with respect to ratings assigned to tax-exempt obligations that the Fund may purchase is set forth in Appendix D—”Description of Municipal Bond Ratings.” Municipal Bonds of below investment grade quality (“Ba/BB” or below) are commonly known as “junk bonds.” Securities rated below investment grade are judged to have speculative characteristics with respect to their interest and principal payments. Such securities may face major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments.

 

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Tender Option Bonds

Each Fund may leverage its assets through the use of TOBs Issuers. A TOBs Issuer is typically established by a third party sponsor forming a special purpose trust into which a Fund, or an agent on behalf of the Fund, transfers municipal securities. A TOBs Issuer typically issues two classes of beneficial interests: TOBs Floaters, which are sold to third party investors, and TOBs Residuals which are generally issued to the Fund. Each Fund may invest in both TOBs Floaters and TOBs Residuals. Below is a diagram outlining the structure for a typical TOBs Issuer.

LOGO

As diagrammed above, the TOBs Issuer receives municipal securities from a Fund through the sponsor and then issues TOBs Floaters to third party investors and a TOBs Residual to the Fund. The Fund is paid the cash (less transaction expenses, which are borne by the Fund and therefore common shareholders indirectly) received by the TOBs Issuer from the sale of the TOBs Floaters and typically will invest the cash in additional investments permitted by its investment policies. TOBs Floaters may have first priority on the cash flow from the securities held by the TOBs Issuer and are enhanced with a liquidity support arrangement from a liquidity provider which allows holders to tender their position at par (plus accrued interest). The Fund, in addition to receiving cash from the sale of the TOBs Floaters, also receives the TOBs Residual. The TOBs Residual provides the Fund with the right (1) to cause the holders of the TOBs Floaters to tender their notes to the TOBs Issuer at par (plus accrued interest), and (2) to acquire municipal securities from the TOBs Issuer. In addition, all voting rights and decisions to be made with respect to any other rights relating to the securities held in the TOBs Issuer are passed through to the Fund, as the holder of the TOBs Residual. This transaction, in effect, creates exposure for the Fund to the entire return of the securities in the TOBs Issuer, with a net cash investment by the Fund that is less than the value of the securities in the TOBs Issuer. This multiplies the positive or negative impact of the securities’ return within the Fund (thereby creating leverage). The leverage within a TOBs Issuer depends on the value of the securities deposited in the TOBs Issuer relative to the value of the TOBs Floaters it issues. In the diagram above, the TOBs Issuer receives municipal securities worth $60, issues TOBs Floaters worth $45 and the Fund receives a TOBs Residual worth $15. The leverage ratio in the TOBs Issuer described in the example is thus 3:1. Increasing the value of the TOBs Floaters issued would increase the leverage ratio of the TOBs Issuer. A TOBs Issuer is generally considered highly leveraged if the TOBs Floaters represent greater than 75% of the

 

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market value of the municipal securities at the time they are deposited into the TOBs Issuer and the TOBs Residuals issued by such highly leveraged TOBs Issuers are referred to as “recourse TOBs Residuals”).

The TOBs Issuer may be terminated without the consent of the Fund upon the occurrence of certain events, such as the bankruptcy or default of the issuer of the securities in the TOBs Issuer, a substantial downgrade in the credit quality of the issuer of the securities in the TOBs Issuer, the inability of the TOBs Issuer to obtain liquidity support for the TOBs Floaters, a substantial decline in the market value of the securities in the TOBs Issuer, or the inability of the sponsor to remarket any TOBs Floaters tendered to it by holders of the TOBs Floaters. In such an event, the TOBs Floaters would be redeemed by the TOBs Issuer at par (plus accrued interest) out of the proceeds from a sale of the securities in the TOBs Issuer. If this happens, the Fund would be entitled to the assets of the TOBs Issuer, if any, that remains after the TOBs Floaters have been redeemed at par (plus accrued interest). If there are insufficient proceeds from the sale of these securities to redeem all of the TOBs Floaters at par (plus accrued interest), the liquidity provider or the holders of the TOBs Floaters would bear the losses on those securities and there would be no recourse to the Fund’s assets (unless it was a recourse TOBs Residual).

If the Fund were to invest in a recourse TOBs Residual to leverage its portfolio, it would typically be required to enter into an agreement pursuant to which the Fund is required to pay to the liquidity provider the difference between the purchase price of any TOBs Floaters put to the liquidity provider by holders of the TOBs Floaters and the proceeds realized from the remarketing of those TOBs Floaters or the sale of the assets in the TOBs Issuer.

Under accounting rules, securities of a Fund that are deposited into a TOBs Issuer are investments of the Fund and are presented on the Fund’s Schedule of Investments and outstanding TOBs Floaters issued by a TOBs Issuer are presented as liabilities in the Fund’s Statement of Assets and Liabilities. Interest income from the underlying security is recorded by the Fund on an accrual basis. Interest expense incurred on the TOBs Floaters and other expenses related to remarketing, administration and trustee services to a TOBs Issuer are reported as expenses of the Fund.

For TOBs Floaters, generally, the interest rate earned will be based upon the market rates for municipal securities with maturities or remarketing provisions that are comparable in duration to the periodic interval of the tender option, which may vary from weekly, to monthly, to extended periods of one year or multiple years. Since the option feature has a shorter term than the final maturity or first call date of the underlying securities deposited in the TOBs Issuer, the Fund as the holder of the TOBs Floaters relies upon the terms of the agreement with the financial institution furnishing the option as well as the credit strength of that institution. As further assurance of liquidity, the terms of the TOBs Issuer provide for a liquidation of the municipal security deposited in the TOBs Issuer and the application of the proceeds to pay off the TOBs Floaters.

The use of TOBs Residuals will require each Fund to earmark or segregate liquid assets in an amount equal to any TOBs Floaters, plus any accrued but unpaid interest due on the TOBs Floaters, issued by TOBs Issuers sponsored on behalf of the Fund that are not owned by the Fund. Each Fund will not earmark or segregate assets transferred to a TOBs Issuer. Each Fund reserves the right to modify its asset segregation policies in the future to the extent that such changes are in accordance with applicable regulations or interpretations.

See “Risks—Tender Option Bonds Risks” for a description of the risks involved with a TOBs Issuer.

Other Investment Policies

See “Investment Objectives and Policies of the Funds—Other Investment Policies” in the Statement of Additional Information for a discussion of the Funds’ other investment policies.

 

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Information Regarding Strategic Transactions

Each Fund may enter into certain hedging and risk management transactions (“Strategic Transactions”). Strategic Transactions involve the use of derivative instruments. Such instruments may include, options and certain financial futures contracts and options thereon. Strategic Transactions may be used to attempt to protect against possible changes in the market value of a Fund’s portfolio resulting from fluctuations in the debt securities markets and changes in interest rates, to protect the Fund’s unrealized gains in the value of its portfolio securities, to facilitate the sale of such securities for investment purposes and to establish a position in the securities markets as a temporary substitute for purchasing particular securities. Any or all of these Strategic Transactions may be used at any time. There is no particular strategy that requires use of one technique rather than another. Use of any Strategic Transaction is a function of market conditions. The ability of a Fund to use Strategic Transactions successfully will depend on the Advisors’ ability to predict pertinent market movements as well as sufficient correlation among the instruments, which cannot be assured. There is no assurance that these derivative strategies will be available at any time or that the Advisors will determine to use them for hedging or risk management purposes or, if used, that the strategies will be successful. The Strategic Transactions that the Funds may use are described in the Statement of Additional Information under “Investment Objectives and Policies of the Funds—Information Regarding Strategic Transactions.”

The principal risks relating to the use of Strategic Transactions are: (a) less than perfect correlation between the prices of the instrument and the market value of the securities in a Fund’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 the Advisors; and (d) the obligation to meet additional variation margin or other payment requirements, all of which could result in the Fund being in a worse position than if such techniques had not been used. Certain provisions of the Code may also restrict or affect the ability of the Fund to engage in Strategic Transactions. Appendix E to the Statement of Additional Information contains further information about the characteristics, risks and possible benefits of Strategic Transactions.

COMPARISON OF THE FUNDS

Investment Objectives

The investment objectives of the Funds are the same: to provide shareholders with high current income exempt from Federal income taxes by investing primarily in a portfolio of medium to lower grade or unrated municipal obligations the interest on which, in the opinion of bond counsel to the issuer, is exempt from Federal income taxes. The investment objective of each Fund is a fundamental policy of the Fund and may not be changed without the approval of a majority of the Fund’s outstanding voting shares as defined in the 1940 Act.

 

35


Investment Strategies and Restrictions

The Funds have either the same or substantially similar (but not identical) investment strategies and restrictions. A comparison of the significant investment strategies and operating policies used by the Funds is set forth in the table below. The investment strategies and significant operating policies of the Combined Fund will be those of MUA.

 

MUA

 

APX

 

Comparison

Investment Objective

 

MUA seeks to provide shareholders with high current income exempt from Federal income taxes by investing primarily in a portfolio of medium to lower grade or unrated municipal obligations the interest on which, in the opinion of bond counsel to the issuer, is exempt from Federal income taxes.

 

Investment Objective

 

Same as MUA

 

Investment Objective

 

Same

Municipal Bonds

 

MUA invests at least 80% of its total assets, except during temporary defensive periods, in Municipal Bonds.

 

Municipal Bonds

 

Same as MUA

 

Municipal Bonds

 

Same

High Yield Bonds

 

MUA invests at least 65% of its total assets in Municipal Bonds that are rated in any one of the medium and lower rating categories of Moody’s, S&P or Fitch, or in unrated Municipal Bonds that the Investment Advisor believes are of comparable quality.

 

High Yield Bonds

 

APX maintains at least 75% of its total assets in Municipal Bonds which are rated in any one of the medium and lower rating categories of a nationally recognized statistical rating organization or are unrated.

 

High Yield Bonds

 

APX must maintain a higher percentage of its total assets in medium to lower rated Municipal Bonds.

Investment Grade Bonds

 

MUA has the authority to invest as much as 35% of its total assets in Municipal Bonds in the higher rating categories of nationally recognized statistical rating organizations (ratings of A or higher by Moody’s, S&P or Fitch or comparable unrated securities).

 

Investment Grade Bonds

 

APX has the authority to invest as much as 25% of its total assets in Municipal Bonds in the higher rating categories of nationally recognized statistical rating organizations (ratings of A or higher by Moody’s, S&P).

 

Investment Grade Bonds

 

MUA may maintain a higher percentage of its total assets in Municipal Bonds in the higher rating categories of nationally recognized statistical rating organizations (ratings of A or higher by Moody’s, S&P or Fitch or comparable unrated securities).

State Concentration

 

MUA may not invest more than 25% of its total assets (taken at market value at the time of each investment) in the Municipal Bonds of any one state.

 

State Concentration

 

Same as MUA

 

State Concentration

 

Same

 

36


MUA

 

APX

 

Comparison

Industry Concentration

 

MUA may not invest more than 25% of its total assets (taken at market value at the time of each investment) in securities of issuers in a single industry. (For purposes of this restriction, states, municipalities and their political subdivisions are not considered to be part of any industry.)

 

Industry Concentration

 

Same as MUA

 

Industry Concentration

 

Same

Leverage*

 

MUA may not issue senior securities or borrow amounts in excess of 5% of its total assets taken at market value.

 

Leverage*

 

Same as MUA

 

Leverage*

 

Same

Alternative Minimum Tax

 

MUA may invest all or a portion of its assets in certain tax-exempt securities classified as “private activity bonds” (in general, bonds that benefit non-governmental entities) that may subject certain investors in the Fund to a federal alternative minimum tax.

 

Alternative Minimum Tax

 

Same as MUA

 

Alternative Minimum Tax

 

Same

Repurchase Agreements

 

MUA may not invest in repurchase agreements maturing in more than seven days if such investments, together with all other illiquid investments, would exceed 15% of the Fund’s net assets.

 

Repurchase Agreements

 

APX may not invest more than 10% of its total assets in repurchase agreements maturing in more than seven days.

 

Repurchase Agreements

 

APX does not have any limitations with respect to illiquid securities.

Non-Municipal Tax-Exempt Securities

 

MUA also may invest in securities not issued by or on behalf of a state or territory or by an agency or instrumentality thereof, if the Fund nevertheless believes such securities pay interest or distributions that are exempt from Federal income taxation (“Non-Municipal Tax-Exempt Securities”).

 

Non-Municipal Tax-Exempt Securities

 

No policy with respect to Non-Municipal Tax-Exempt Securities.

 

Non-Municipal Tax-Exempt Securities

 

APX does not have a policy with respect to Non-Municipal Tax-Exempt Securities.

 

* The current leverage policy of MUA and APX. A proposal to remove the 5% fundamental restriction on leverage is included in this joint proxy statement/prospectus for each Fund.

 

37


MUA

 

APX

 

Comparison

Non-Municipal Tax-Exempt Securities

 

Non-Municipal Tax-Exempt Securities may include securities issued by other investment companies that invest in Municipal Bonds, to the extent such investments are permitted by the 1940 Act.

 

Other Non-Municipal Tax-Exempt Securities could include trust certificates or other instruments evidencing interest in one or more long-term Municipal Bonds.

 

Certain Non-Municipal Tax-Exempt Securities may be characterized as derivative instruments.

 

Non-Municipal Tax-Exempt Securities that pay interest exempt from Federal income taxes will be considered “Municipal Bonds” for purposes of the Funds’ investment objective and policies.

  Non-Municipal Tax-Exempt Securities   Non-Municipal Tax-Exempt Securities

Defensive Measures

 

MUA reserves the right to temporarily invest more than 20% of its total assets in short-term municipal securities, or short-term taxable money market securities (including commercial paper, certificates of deposit and repurchase agreements) for defensive purposes when, in the opinion of the Investment Advisor, prevailing market or financial conditions warrant.

 

Defensive Measures

 

Same as MUA

 

Defensive Measures

 

Same

Short-Term Obligations

 

Taxable commercial paper must be rated A-1+ through A-3 by S&P, Prime-1 through Prime-3 by Moody’s, F-1+ through F-3 by Fitch or have credit characteristics equivalent to such ratings in the opinion of the Investment Advisor.

 

Short-Term Obligations

 

Taxable commercial paper must be rated A-1 or A-2 by S&P, Prime-1 or Prime-2 by Moody’s or an equivalent rating in the opinion of the Investment Advisor.

 

Short-Term Obligations

 

MUA may invest in taxable commercial paper rated A-3 by S&P, Prime 3 by Moody’s, F-3 by Fitch or with credit characteristics equivalent to such ratings.

 

38


MUA

 

APX

 

Comparison

Short-Term Obligations

 

The short-term tax-exempt obligations also will be in the highest rating categories as determined either by Moody’s (currently, MIG-1 through MIG-3 for notes and Prime-1 through Prime-3 for commercial paper), S&P (currently, SP-1+ through SP-2 for notes and A-1+ through A-3 for commercial paper), or Fitch (currently, F-1 and F-2 for notes and F-1 for commercial paper). MUA may invest in lower rated or unrated short-term tax-exempt obligations to the extent that such investments do not exceed 20% of its total assets.

 

Certificates of deposit must be issued by depository institutions with total assets of at least $1 billion. MUA may invest in certificates of deposit of smaller institutions if such certificates of deposit are Federally insured.

 

Short-Term Obligations

 

Certificates of deposit must be issued by depository institutions with total assets of at least $1 billion, except that APX may invest in certificates of deposit of smaller institutions if such certificates of deposit are Federally insured.

 

Short-Term Obligations

 

APX does not have any rating limitations with respect to short-term tax-exempt obligations.

Indexed and Inverse Floating Obligations

 

MUA may invest in Municipal Bonds (and Non-Municipal Tax-Exempt Securities) yielding a return based on a particular index of value or interest rates. MUA also may invest in so-called “inverse floating obligations” or “residual interest bonds” on which the interest rates typically vary inversely with a short-term floating rate (which may be reset periodically by a dutch auction, a remarketing agent, or by reference to a short-term tax-exempt interest rate index). MUA also may purchase synthetically created inverse floating rate bonds evidenced by custodial or trust receipts.

 

Indexed and Inverse Floating Obligations

 

No policy with respect to Indexed and Inverse Floating Obligations.

 

Indexed and Inverse Floating Obligations

 

APX does not have a policy with respect to Indexed and Inverse Floating Obligations.

 

39


MUA

 

APX

 

Comparison

Call Rights

 

MUA may purchase a Municipal Bond issuer’s right to call all or a portion of such Municipal Bond for mandatory tender for purchase (a “Call Right”).

 

Call Rights

 

No policy with respect to Call Rights.

 

Call Rights

 

APX does not have a policy with respect to Call Rights.

Writing Covered Call Options

 

MUA may not write covered call options on underlying securities in an amount exceeding 15% of the market value of its total assets.

 

Writing Covered Call Options

 

Same as MUA

 

Writing Covered Call Options

 

Same

Purchase of Options

 

MUA will not purchase options on securities if, as a result of such purchase, the aggregate cost of all outstanding options on securities held by that Fund would exceed 5% of the market value of the Fund’s total assets.

 

Purchase of Options

 

Same as MUA

 

Purchase of Options

 

Same

Distribution Schedule

 

Monthly Distributions

 

Distribution Schedule

 

Same as MUA

 

Distribution Schedule

 

Same

The Funds’ investment restrictions differ in some respects, as discussed below. The fundamental investment restrictions of each Fund may not be changed without the approval of the holders of a majority of the outstanding shares of common shares of that Fund. (For this purpose and under the 1940 Act, “majority” means the lesser of (i) 67% of the shares represented at a meeting at which more than 50% of the outstanding shares are represented or (ii) more than 50% of the outstanding shares). The following investment restrictions of MUA will apply to the Combined Fund. Under its fundamental investment restrictions, MUA may not:

1) Make investments for the purpose of exercising control or management.

2) Purchase securities of other investment companies, except (i) in connection with a merger, consolidation, acquisition or reorganization, (ii) by purchase of shares of money market funds advised by the Investment Advisor or its affiliates (as defined in the Investment Company Act) to the extent permitted by an exemptive order issued to the Fund by the Securities and Exchange Commission, or (iii) by purchase in the open market of securities of closed-end investment companies and only if immediately thereafter not more than 10% of the Fund’s total assets would be invested in such securities.

3) Purchase or sell real estate, real estate limited partnerships, commodities or commodity contracts; provided that the Fund may invest in securities secured by real estate or interests therein or issued by companies that invest in real estate or interests therein and the Fund may purchase and sell financial futures contracts and options thereon.

4) Issue senior securities or borrow amounts in excess of 5% of its total assets taken at market value.

5) Underwrite securities of other issuers except insofar as the Fund may be deemed an underwriter under the Securities Act of 1933 in selling portfolio securities.

 

40


6) Make loans to other persons, except that the Fund may purchase Municipal Bonds and other debt securities and enter into repurchase agreements in accordance with its investment objective, policies and limitations.

7) Invest more than 25% of its total assets (taken at market value at the time of each investment) in securities of issuers in a single industry. (For purposes of this restriction, states, municipalities and their political subdivisions are not considered to be part of any industry).

For purposes of restriction (7), the exception for states, municipalities and their political subdivisions applies only to tax-exempt securities issued by such entities.

Additional investment restrictions adopted by MUA, which may be changed by its Board of Directors without shareholder approval, provide that MUA may not:

A) Invest more than 25% of its total assets (taken at market value at the time of each investment) in the Municipal Bonds of any one state.

B) Mortgage, pledge, hypothecate or in any manner transfer, as security for indebtedness, any securities owned or held by the Fund except as may be necessary in connection with borrowings mentioned in (4) above or except as may be necessary in connection with transactions in financial futures contracts and options thereon.

C) Purchase any securities on margin, except that the Fund may obtain such short-term credit as may be necessary for the clearance of purchases and sales of portfolio securities (the deposit or payment by the Fund of initial or variation margin in connection with financial futures contracts and options thereon is not considered the purchase of a security on margin).

D) Make short sales of securities or maintain a short position or invest in put, call, straddle or spread options except that the Fund may write, purchase and sell options and futures on municipal bonds, U.S. Government obligations and related indices or otherwise in connection with bona fide hedging activities and may purchase and sell call rights to require a mandatory tender for the purchase of related municipal bonds.

If a percentage restriction on the investment or use of assets set forth above is adhered to at the time a transaction is effected, later changes in percentages resulting from changing values will not be considered a violation.

APX’s fundamental investment restrictions are substantially the same as MUA’s fundamental investment restrictions (1) through (7) above. In addition, APX has two other fundamental investment restrictions, which are substantially similar to MUA’s additional non-fundamental investment restrictions (C) and (D) above.

Each Fund’s shareholders separately are being asked to convert restriction (4) from a fundamental policy to a non-fundamental policy authorizing its respective Fund to issue senior securities and borrow amounts of up to 25% of the value of its total assets at the time of such borrowings. See “Proposal 3 and 4: Amendments to the Funds Fundamental Investment Policies.”

In addition, in order to comply with Federal tax requirements for qualification as a “regulated investment company,” each Fund’s investments will be limited in a manner such that at the close of each quarter of each taxable year, (i) not more than 25% of the market value of the Fund’s total assets will be invested in (A) the securities of a single issuer (other than U.S. Government securities and securities of other regulated investment companies), (B) the securities of two or more issuers (other than securities of other regulated investment companies) controlled by the Fund and engaged in the same, similar or related trades or businesses or (C) the securities of one or more qualified publicly traded partnerships and (ii) with respect to 50% of the market value of its total assets, not more than 5% of the market value of its total assets will be invested in the securities of a

 

41


single issuer and the Fund will not own more than 10% of the outstanding voting securities of a single issuer (other than U.S. Government securities and securities of other regulated investment companies). These tax-related limitations may be changed by each Fund’s respective Board to the extent appropriate in light of changes to applicable tax requirements.

Any policies of MUA not described as fundamental in this Joint Proxy Statement/Prospectus may be changed by its Board without shareholder approval.

Leverage

The Funds currently leverage their assets through TOBs. The Combined Fund would also utilize such forms of leverage.

Each Fund currently has a fundamental policy that provides that such Fund may not issue senior securities or borrow amounts in excess of 5% of its total assets taken at market value. The Fund’s currently leverage their assets through TOBS, which does not exceed 5% of each Fund’s total assets. See table below for details regarding the following: (1) each Fund’s total economic leverage as a percentage of its total assets as of July 31, 2010 without giving effect to the potential for increased leverage if the Policy Amendments are approved; (2) the Combined Fund’s total economic leverage on a pro forma basis as a percentage of its total assets assuming the Reorganization is consummated as of July 31, 2010 and without giving effect to the potential for increased leverage if the Policy Amendments are approved; and (3) the proposed total economic leverage as a percentage of its total assets of each Fund and the Combined Fund assuming the Funds’ Policy Amendments are approved.

 

Fund

   Total Economic Leverage
As a  % of Total Assets
(Current Leverage Policy)
  Total Economic Leverage
As a  % of Total Assets
(Proposed Leverage Policy)

MUA

   3.83%   15.00%

APX

   3.77%   15.00%

Combined Fund

   3.81%   15.00%

The Boards of the Funds have reviewed the Current Leverage Policy and believe such policy is unduly restrictive and should be replaced with a non-fundamental policy. If the new policy is approved, each Fund currently intends to use leverage approximately equal to 15% of its total assets at the time the leverage is implemented, but may use leverage up to 25% of its total assets under the new leverage policy without further Board or shareholder approval. As a non-fundamental policy, the Board of each Fund could in the future authorize its respective Fund to use additional leverage up to the maximum amount permitted under the 1940 Act or change the 25% threshold at which Board approval is required to increase leverage, in each case without further shareholder approval.

In the event the Reorganization is consummated, shareholders of the combined fund, including former shareholders of APX, would be subject to the leverage policy that was in effect for MUA as of the effective date of the Reorganization. If MUA shareholders do not approve the MUA Policy Amendment, then the combined fund would operate under MUA’s current leverage policy and shareholders of the combined fund, including former shareholders of APX, would not have the benefit of the new leverage policy. In such an event, APX shareholders would not have the benefit of the new leverage policy even if APX shareholders had previously approved the APX Policy Amendment. If MUA shareholders approve the MUA Policy Amendment, then the combined fund would operate under the new leverage policy and shareholders of the combined fund, including former shareholders of APX, would have the benefit of the new leverage policy. In such an event, APX shareholders would be subject to the new leverage policy even if APX shareholders had not previously approved the APX Policy Amendment. There can be no assurance that MUA shareholders will approve the MUA Policy Amendment.

There can be no assurance the Combined Fund will be able to continue to use leverage through the use of TOBs or other forms of leverage during periods of instability or illiquidity in the debt markets, during periods of high short-term interest rates or due to other adverse market conditions, because the Combined Fund may not be able to enter into TOBs transactions or use other forms of leverage during such periods.

 

42


Leverage involves greater risks and costs and the Combined Fund’s leveraging strategy may not be successful. Although the timing of and other terms concerning the Combined Fund’s use of leverage will be determined by the Combined Fund’s Board, the Combined Fund would expect to invest the proceeds resulting from its use of leverage in municipal bonds. Any leverage used by the Combined Fund would pay adjustable rate dividends based on shorter-term interest rates, which would likely be determined periodically by a remarketing or similar process. The adjustment period for dividends payable pursuant to the Combined Fund’s use of leverage could be as short as one day or as long as a year or more. So long as the Combined Fund’s portfolio is invested in securities that provide a higher rate of return than the dividend rate payable on the Combined Fund’s leverage, after accounting for expenses, the leverage would cause a common shareholder of the Combined Fund to receive a higher current rate of income than if the Combined Fund was not leveraged. See “Risk Factors and Special Considerations—General Leverage Risk” and “Tender Option Bond Risk.”

Changes in the value of the Combined Fund’s bond portfolio, including bonds purchased with the proceeds of TOBs, will be borne entirely by the shareholders. If there is a net decrease, or increase, in the value of the Combined Fund’s investment portfolio, the leverage will decrease or increase (as the case may be) the net asset value per common share to a greater extent than if the Combined Fund was not leveraged. During periods in which the Combined Fund is using leverage, the fees paid to BlackRock for advisory and sub-advisory services will be higher than if the Combined Fund did not use leverage because the fees paid will be calculated on the basis of the Combined Fund’s total assets, including amounts borrowed for investment purposes.

If a Fund’s Policy Amendment is approved, any benefits from additional leverage will not be fully achieved until the additional proceeds resulting from the increased use of leverage have been invested in debt instruments in accordance with the Fund’s investment objectives and policies. No assurance can be given at this time as to how long it will take for each Fund to reach its leverage target of approximately 15% of its total assets or that a Fund will be able to use additional leverage to reach such leverage target.

MANAGEMENT OF THE FUNDS

The Boards

The Board of each Fund is responsible for the overall supervision of the operations of its respective Fund and performs the various duties imposed on the Board Members of investment companies by the 1940 Act and under Maryland law. A list of the Board Members, a brief biography for each Board Member and additional information relating to the Boards are included in the Statement of Additional Information.

The Advisors

BlackRock Advisors, LLC acts as the investment adviser for each Fund. Pursuant to an investment management agreement between BlackRock Advisors, LLC and each Fund, MUA and APX pays the Investment Advisor a monthly fee at an annual rate of 0.55% and 0.65%, respectively, of the respective Fund’s average daily total assets. “Total assets” means the total assets of the Fund (including any assets attributable to money borrowed for investment purposes) minus the sum of the Fund’s accrued liabilities (other than money borrowed for investment purposes). For the avoidance of doubt, assets attributable to money borrowed for investment purposes includes the portion of the Fund’s assets in a TOBs Issuer of which the Fund owns the TOBs Residual.

BlackRock Investment Management, LLC acts as the sub-advisor for each Fund (the “Sub-Advisor” and together with the Investment Advisor, the “Advisors”). BlackRock Advisors, LLC has entered into a separate sub-advisory agreement with BlackRock Investment Management, LLC, under which the BlackRock Advisors, LLC pays BlackRock Investment Management, LLC for services it provides, a monthly fee that is a percentage of the investment advisory fees paid by each Fund to BlackRock Advisors, LLC.

A discussion regarding the basis for the approval of the investment management agreements by the Boards of the Funds are available in each Fund’s semi-annual report to shareholders for the period ending October 31, 2009.

 

43


In addition to the fees paid to the Investment Advisor, the Funds pay all other costs and expenses of their operations, including compensation of their directors (other than those affiliated with the Advisors), custodian, leveraging expenses, transfer and dividend disbursing agent expenses, legal fees, listing fees and expenses, expenses of independent auditors, expenses of preparing, printing and distributing shareholder reports, notices, proxy statements and reports to governmental agencies and taxes, if any.

BlackRock Advisors, LLC, located at 100 Bellevue Parkway, Wilmington, Delaware 19809, and BlackRock Investment Management, LLC, located at 55 East 52 nd Street, New York, New York 10055, are wholly owned subsidiaries of BlackRock, Inc. (“BlackRock”), which is a leader in investment management, risk management and advisory services for institutional and retail clients worldwide. At June 30, 2010, BlackRock’s assets under management was $3.151 trillion.

The BlackRock organization has over 20 years of experience managing closed-end funds and, as of June 30, 2010, advised a registered closed-end fund family of 95 exchange-listed active funds with approximately $36.6 billion in assets. In addition, BlackRock advised 3 non-exchange-listed closed-end funds with approximately $815 million in assets.

BlackRock offers products that span the risk spectrum to meet clients’ needs, including active, enhanced and index strategies across markets and asset classes. Products are offered in a variety of structures including separate accounts, mutual funds, iShares ® (exchange traded funds), and other pooled investment vehicles. BlackRock also offers risk management, advisory and enterprise investment system services to a broad base of institutional investors through BlackRock Solutions ® . Headquartered in New York City, as of June 30, 2010, the firm has approximately 8,500 employees in 24 countries and a major presence in key global markets, including North and South America, Europe, Asia, Australia and the Middle East and Africa.

Portfolio Management

The Investment Advisor serves as the investment adviser for each of the Funds and is expected to continue to serve as investment adviser for the Combined Fund. Each Fund is managed by a team of investment professionals comprised of Theodore R. Jaeckel, Jr., CFA, Managing Director at BlackRock and Walter O’Connor, Managing Director at BlackRock. Each is a member of BlackRock’s municipal tax-exempt management group. Each is jointly responsible for the day-to-day management of each Fund’s portfolio, which includes setting each Fund’s overall investment strategy, overseeing the management of each Fund and/or selection of its investments. Messrs. Jaeckel and O’Connor have been members of the Funds’ portfolio management team since 1997 and 2006, respectively.

Mr. Jaeckel joined BlackRock in 2006. Prior to joining BlackRock, he was a Managing Director (Municipal Tax-Exempt Fund Management) of Merrill Lynch Investment Managers, L.P. (“MLIM“) from 2005 to 2006 and a Director of MLIM from 1997 to 2005. He has been a portfolio manager with BlackRock or MLIM since 1991.

Mr. O’Connor joined BlackRock in 2006. Prior to joining BlackRock, he was a Managing Director (Municipal Tax-Exempt Fund Management) of MLIM from 2003 to 2006 and was a Director of MLIM from 1998 to 2003. He has been a portfolio manager with BlackRock or MLIM since 1991.

The Statement of Additional Information provides additional information about the portfolio managers’ compensation, other accounts managed by the portfolio managers, and the portfolio managers’ ownership of securities in each Fund.

Portfolio Transactions with Affiliates

The Advisors may place portfolio transactions, to the extent permitted by law, with brokerage firms affiliated with the Funds and the Advisors, if it reasonably believes that the quality of execution and the

 

44


commission are comparable to that available from other qualified brokerage firms. None of the Funds paid brokerage commissions to affiliated broker-dealers during their three most recent fiscal years.

Legal Proceedings

There are no material pending legal proceedings against the Funds or the Advisors.

Other Service Providers

The professional service providers for the Funds are as follows:

 

Service

  

Service Providers to MUA and APX

Investment Advisor

   BlackRock Advisors, LLC

Sub-Advisor

   BlackRock Investment Management, LLC

Custodian

   The Bank of New York Mellon

Transfer Agent, Dividend Disbursing Agent and Registrar

   The Bank of New York Mellon

Accounting Services Provider

   State Street Bank and Trust Company

Independent Auditors

  

Fund Counsel

   Skadden, Arps, Slate, Meagher & Flom LLP

Counsel to the Independent Board Members

   Debevoise & Plimpton LLP

All securities owned by the Funds and all cash, including proceeds from the sale of securities in each Fund’s investment portfolio, are held by the Bank of New York Mellon, One Wall Street, New York, New York 10286, as custodian. The Bank of New York Mellon also serves as each Fund’s transfer agent with respect to the Funds’ common shares.

It is not anticipated that the Reorganization will result in any change in the organizations providing services to MUA as set forth above. As a result of the Reorganization, the service providers to MUA are anticipated to be the service providers to the Combined Fund.

Capitalization

The Board of each Fund may authorize separate classes of shares together with such designation of preferences, rights, voting powers, restrictions, limitations, qualifications or terms as may be determined from time to time by the Board of such Fund. The tables below set forth the capitalization of APX and MUA as of July 31, 2010 and the pro forma capitalization of the Combined Fund as if the proposed Reorganization had occurred on that date.

Capitalization as of July 31, 2010

Reorganization of all the Funds

 

       MUA    APX    Pro Forma
Combined Fund
 

Net Assets Attributable (a)(b)

   $ 269,721,555    $ 185,633,979    $ 455,355,534   

Common Shares Outstanding

     21,137,255      19,981,270      35,684,818 (c)  

Net Asset Value Per Share (b)

   $ 12.76    $ 9.29    $ 12.76   

 

(a)

Based on the number of outstanding shares of common stock listed in “Outstanding common shares” table below.

(b)

Reflects non-recurring aggregate estimated Reorganization expenses of $421,819 of which $216,405 is estimated to be attributable to MUA and $205,414 is estimated to be attributable to APX.

(c)

Reflects adjustments of (5,433,707) for APX due to differences in per share NAV.

 

45


ADDITIONAL INFORMATION ABOUT THE COMMON SHARES OF THE FUNDS

General

Shareholders of a Fund are entitled to share equally in dividends declared by the Fund’s Board as payable to holders of the Fund’s common shares and in the net assets of the Fund available for distribution to holders of the common shares. Shareholders do not have preemptive or conversion rights and a Fund’s common shares are not redeemable. The outstanding common shares of each Fund are fully paid and nonassessable.

Purchase and Sale

Purchase and sale procedures for the common shares of each of the Funds are identical. Investors typically purchase and sell common shares of the Funds through a registered broker-dealer on the NYSE, thereby incurring a brokerage commission set by the broker-dealer. Alternatively, investors may purchase or sell common shares of the Funds through privately negotiated transactions with existing shareholders.

Outstanding Shares as of July 31, 2010

 

Fund

   Title of Class    Amount Authorized    Amount Held by
Fund for its Own
Account
   Amount Outstanding
Exclusive of Amount
Shown in Previous
Column

MUA

   Common Stock    200,000,000    —      21,137,255

APX

   Common Stock    150,000,000    —      19,981,270

Share Price Data

The following tables set forth the high and low market prices for common shares of each Fund on the NYSE, for each full quarterly period within each Fund’s two most recent fiscal years and each full quarter since the beginning of each Fund’s current fiscal year, along with the net asset value and discount or premium to net asset value for each quotation.

 

MUA

   Market Price    Net Asset Value    Premium/(Discount) to
Net Asset Value
 

Period Ended

   High    Low    High    Low    High     Low  

July 31, 2010

   $ 12.88    $ 12.42    $ 12.77    $ 12.57    1.02   -2.05

April 30, 2010

   $ 12.70    $ 12.19    $ 12.63    $ 12.29    1.71   -1.44

January 31, 2010

   $ 12.65    $ 11.74    $ 12.31    $ 11.96    3.10   -2.98

October 31, 2009

   $ 12.72    $ 11.29    $ 12.52    $ 11.07    8.35   -7.21

July 31, 2009

   $ 11.51    $ 10.79    $ 11.17    $ 10.60    5.47   -2.62

April 30, 2009

   $ 11.35    $ 9.91    $ 10.59    $ 10.21    8.93   -3.38

January 31, 2009

   $ 10.70    $ 8.36    $ 10.73    $ 9.54    4.80   -14.91

October 31, 2008

   $ 12.70    $ 8.35    $ 12.62    $ 10.57    1.77   -26.30

July 31, 2008

   $ 13.60    $ 12.54    $ 12.85    $ 12.41    6.33   -0.40

APX

   Market Price    Net Asset Value    Premium/(Discount) to
Net Asset Value
 

Period Ended

   High    Low    High    Low    High     Low  

July 31, 2010

   $ 9.10    $ 8.77    $ 9.30    $ 9.16    -1.73   -4.98

April 30, 2010

   $ 9.13    $ 8.75    $ 9.19    $ 8.94    1.68   -3.48

January 31, 2010

   $ 9.00    $ 8.33    $ 8.94    $ 8.68    1.12   -5.13

October 31, 2009

   $ 8.85    $ 8.01    $ 9.06    $ 8.04    3.20   -9.39

July 31, 2009

   $ 8.18    $ 7.47    $ 8.08    $ 7.68    2.25   -5.08

April 30, 2009

   $ 7.82    $ 6.52    $ 7.67    $ 7.41    2.62   -13.41

January 31, 2009

   $ 8.01    $ 6.10    $ 7.79    $ 6.91    2.96   -18.59

October 31, 2008

   $ 9.53    $ 5.98    $ 9.16    $ 7.67    4.96   -28.00

July 31, 2008

   $ 9.86    $ 9.03    $ 9.32    $ 9.01    5.79   -1.09

 

46


As of September 10, 2010, the net asset value per common share of APX was $9.49 and the market price per common share was $9.46, representing a discount to net asset value of -0.316% and the net asset value per common share of MUA was $13.05 and the market price per common share was $13.03, representing a discount to net asset value of -0.153%. Common shares of each Fund have historically traded at both a premium and a discount to net asset value.

Performance Information

The performance table below illustrates the past performance of an investment in common shares of each Fund by setting forth the average total returns for the Funds for the periods indicated. A Fund’s past performance does not necessarily indicate how its common shares will perform in the future.

Average Annual Total Returns as of July 31, 2010

 

Fund

   Trailing
12-month
Distribution
Yield

based on
July 31, 2010
NAV
    One Year
ended

July 31,  2010
based on

NAV
    One Year
ended

July 31,  2010
based on

Market Price
    Life of Fund
based on
NAV
    Life of Fund
based on
Market Price
    Inception
Date

APX

   6.01   23.05   18.28   6.25   5.74   7/25/1989

MUA

   6.27   22.88   21.21   6.14   5.80   6/25/1993

DIVIDENDS AND DISTRIBUTIONS

The dividend and distribution policy of MUA will be the dividend and distribution policy for the Combined Fund. The dividend and distribution policies of APX are the same as that of MUA. MUA intends to make regular monthly cash distributions of all or a portion of its net investment income to holders of the Fund’s common shares. MUA’s net investment income consists of all interest income accrued on portfolio assets less all expenses of the Fund. MUA is required to allocate net capital gains and other taxable income, if any, received by the Fund among its shareholders on a pro rata basis in the year for which such capital gains and other income is realized.

The tax treatment and characterization of MUA’s distributions may vary significantly from time to time because of the varied nature of the Fund’s investments. MUA will indicate the proportion of its capital gains distributions that constitute long-term and short-term gains annually. The ultimate tax characterization of MUA’s distributions made in a calendar or fiscal year cannot finally be determined until after the end of that fiscal year. As a result, there is a possibility that MUA may make total distributions during a calendar or fiscal year in an amount that exceeds MUA’s net investment income, net capital gains and accumulated earnings and profits (if any) for the relevant fiscal year and its previously undistributed earnings and profits from prior years. In such situations, the amount by which MUA’s total distributions exceed its net investment income, net capital gains and accumulated earnings and profits (if any) generally will be treated as a tax-free return of capital reducing the amount of a shareholder’s tax basis in such shareholder’s shares, with any amounts exceeding such basis treated as gain from the sale of shares.

Various factors will affect the level of MUA’s net investment income, such as its asset mix, its level of retained earnings, the amount of leverage utilized by the Fund and the effects thereof and the movement of interest rates for municipal bonds. These factors, among others, may result in the Combined Fund’s level of net investment income being different from the level of net investment income for any of APX or MUA if the Reorganization were not completed. To permit MUA to maintain more stable monthly distributions and to the extent consistent with the distribution requirements imposed on regulated investment companies by the Code, the Fund may from time to time distribute less than the entire amount earned in a particular period. The income would be available to supplement future distributions. As a result, the distributions paid by MUA for any particular month may be more or less than the amount actually earned by the Fund during that month. Undistributed earnings will increase MUA’s net asset value and, correspondingly, distributions from

 

47


undistributed earnings and from capital, if any, will reduce the Fund’s net asset value. Holders of MUA’s common shares will automatically have all dividends and distributions reinvested in common shares issued by the Fund or common shares of the Fund purchased in the open market in accordance with the Fund’s Automatic Dividend Reinvestment Plan, unless an election is made to receive cash. For information concerning the manner in which dividends and distributions to holders of a Fund’s common shares may be reinvested automatically in such Fund’s common shares, see “Automatic Dividend Reinvestment Plan” below.

AUTOMATIC DIVIDEND REINVESTMENT PLAN

The automatic dividend reinvestment plan (the “Plan”) of MUA will be the automatic dividend reinvestment plan of the Combined Fund. The automatic dividend reinvestment plan of APX is the same as MUA’s Plan. Shareholders of MUA are automatically enrolled to have all distributions of dividends and capital gains reinvested by BNY Mellon Shareowner Services (the “Plan Agent”), agent for shareholders in administering the Plan. Shareholders who do not participate in the Plan receive all distributions in cash paid by check and mailed directly to the shareholders of record (or if the shares are held in street or other nominee name, then to the nominee) by the Plan Agent.

After MUA declares a dividend or determines to make a capital gain distribution, the Plan Agent will acquire shares for the participants’ accounts, depending upon the circumstances described below, either (i) through receipt of unissued but authorized shares from the Fund (“newly issued shares”) or (ii) by open-market purchases. If, on the dividend payment date, the net asset value per share (“NAV”) is equal to or less than the market price per share plus estimated brokerage commissions (such condition being referred to herein as “market premium”), the Plan Agent will invest the dividend amount in newly issued shares on behalf of the participants. The number of newly issued shares to be credited to each participant’s account will be determined by dividing the dollar amount of the dividend by the NAV on the date the shares are issued. However, if the NAV is less than 95% of the market price on the payment date, the dollar amount of the dividend will be divided by 95% of the market price on the payment date. If, on the dividend payment date, the NAV is greater than the market value per share plus estimated brokerage commissions (such condition being referred to herein as “market discount”), the Plan Agent will invest the dividend amount in shares acquired on behalf of the participants in open market purchases.

In the event of a market discount on the payment date for any dividend, the Plan Agent will have until the last business day before the next date on which the common shares trade on an “ex-dividend” basis or 30 days after the payment date for such dividend, whichever is sooner (the “last purchase date”), to invest the dividend amount in common shares acquired in open-market purchases. It is contemplated that the Fund will pay monthly dividends. Therefore, the period during which open-market purchases can be made will exist only from the payment date of each dividend through the date before the next “ex-dividend” date, which will typically be approximately 10 days after the payment date for such dividend. If, before the Plan Agent has completed its open-market purchases, the market price of a common share exceeds the net asset value per common share, the average per common share purchase price paid by the Plan Agent may exceed the net asset value of the common shares, resulting in the acquisition of fewer common shares than if the dividend had been paid in newly issued common shares on the dividend payment date. Because of the foregoing difficulty with respect to open-market purchases, if the Plan Agent is unable to invest the full dividend amount in open-market purchases during the purchase period or if the market discount shifts to a market premium during the purchase period, the Plan Agent may cease making open-market purchases and may invest the uninvested portion of the dividend amount in newly issued common shares at the net asset value per common share at the close of business on the last purchase date.

Participation in the Plan is completely voluntary and may be terminated or resumed at any time without penalty by notice if received and processed by the Plan Agent prior to the dividend record date; otherwise such termination or resumption will be effective with respect to any subsequently declared dividend or distribution.

 

48


The Plan Agent’s fees for the handling of the reinvestment of dividends and distributions are paid by MUA. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to the Plan Agent’s open-market purchases in connection with the reinvestment of dividends and distributions. The automatic reinvestment of dividends and distributions will not relieve participants of any Federal income tax that may be payable on such dividends or distributions. Participants should consult their own tax advisors regarding the Federal income tax consequences of the automatic reinvestment of dividends and distributions, as well as the effects of state, local and non-U.S. tax laws, including possible changes in tax laws.

MUA reserves the right to amend or terminate its Plan. There is no direct service charge to participants in its Plan; however, MUA reserves the right to amend its Plan to include a service charge payable by the participants. Participants who request a sale of shares through the Plan Agent are subject to a $0.02 per share sold brokerage commission.

All correspondence concerning the Plan, including any questions about the Plan, should be directed to the Plan Agent at BNY Mellon Shareowner Services, P.O. Box 358035, Pittsburgh, PA 15252–8035, Telephone: (866)  216–0242.

CERTAIN PROVISIONS OF THE CHARTER

Each Fund’s charter includes provisions that could have the effect of limiting the ability of other entities or persons to acquire control of the Fund or to change the composition of its Board. 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 Fund. Such attempts could have the effect of increasing the expenses of the Fund and disrupting the normal operation of the Fund.

The Board of each Fund 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 Board Members 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 a Fund. With respect to APX, a Board Member may only be removed from office for cause and only by action taken by the holders of at least 75% of the shares of capital stock entitled to be voted on the matter. With respect to MUA, a Board Member may be removed from office with or without cause by vote of the holders of 66% of the votes entitled to be voted on the matter.

The charters of MUA and APX require the favorable vote of the holders of at least 66 2/3% and 75%, respectively, of all of the Fund’s shares of capital stock, then entitled to be voted on the matter, to approve, adopt or authorize the following:

 

   

a merger or consolidation or statutory share exchange of the Fund with any other corporation or entity,

 

   

a sale of all or substantially all of the Fund’s assets (other than in the regular course of the Fund’s investment activities), or

 

   

a liquidation or dissolution of the Fund,

unless such action has been approved, adopted or authorized by the affirmative vote of at least two-thirds of the total number of Board Members fixed in accordance with the bylaws, in which case the affirmative vote of a majority of all of the votes entitled to be cast by shareholders of the Fund is required.

The Board of each Fund has determined that the voting requirements described above, which are greater than the minimum requirements under the 1940 Act or, in certain circumstances, Maryland law, are in the best interests of shareholders generally. Reference should be made to the charter of each Fund on file with the SEC for the full text of these provisions.

 

49


GOVERNING LAW

Each Fund is incorporated as a Maryland corporation pursuant to its charter governed by the laws of the State of Maryland. MUA was incorporated under the laws of the State of Maryland on April 15, 1993 and commenced operations on June 25, 1993. APX was incorporated under the laws of the State of Maryland on June 29, 1987 and commenced operations on July 25, 1987.

CONVERSION TO OPEN-END FUND

To convert MUA to an open-end investment company, MUA’s charter requires the affirmative vote of the holders of at least 66 2/3% of MUA’s outstanding shares of capital stock entitled to be voted on the matter (or a majority of such shares if the amendment was previously approved, adopted or authorized by the affirmative vote of at least two-thirds of the total number of Board Members fixed in accordance with the bylaws).

To convert APX to an open-end investment company, APX’s charter requires the affirmative vote of the holders of at least 75% of APX’s outstanding shares of capital stock entitled to be voted on the matter (or a majority of the votes entitled to be cast thereon if the amendment was previously approved, adopted or authorized by the affirmative vote of at least two-thirds of the total number of Board Members fixed in accordance with the bylaws).

The foregoing votes would satisfy a separate requirement in the 1940 Act that any conversion of a Fund to an open-end investment company be approved by the shareholders. If approved in the foregoing manners, we anticipate conversion of a Fund to an open-end investment company might not occur until 90 days after the shareholders’ meeting at which such conversion was approved and would also require at least 10 days’ prior notice to all shareholders. Following any such conversion, it is possible that certain of the Fund’s investment policies and strategies would have to be modified to assure sufficient portfolio liquidity. In the event of conversion, the common shares would cease to be listed on the NYSE. Shareholders of an open-end investment company may require the company to redeem their shares at any time, except in certain circumstances as authorized by or under the 1940 Act, at their net asset value, less such redemption charge, if any, as might be in effect at the time of redemption. An open-end investment company expects to pay all such redemption requests in cash, but reserves the right to pay redemption requests in a combination of cash and securities. If such partial payment in securities were made, investors may incur brokerage costs in converting such securities to cash. If a Fund were converted to an open-end investment company, it is likely that new shares would be sold at net asset value plus a sales load. The Boards believe, however, that the Funds’ closed-end structure is desirable in light of the Funds’ investment objectives and policies. Therefore, shareholders should assume that it is not likely that the Boards would vote to convert any of the Funds to an open-end fund.

VOTING RIGHTS

Voting rights are identical for the shareholders of each Fund. The shareholders of each Fund are entitled to one vote for each share held by them. The shareholders of each Fund do not have any preemptive or preferential right to purchase or subscribe to any shares of such Fund.

Each Fund’s common shares do not have cumulative voting rights, which means that the holders of more than 50% of a Fund’s common shares voting for the election of Board Members can elect all of the Board Members standing for election by such holders, and, in such event, the holders of the Fund’s remaining common shares will not be able to elect any Board Members.

APPRAISAL RIGHTS

Common shareholders of APX, which is a corporation organized under Maryland law, will not have appraisal rights as the common shares of APX are traded on the NYSE. Under Maryland law, shareholders of an investment company whose shares are traded publicly on a national securities exchange are not entitled to demand the fair value of their shares in connection with a reorganization.

 

50


FINANCIAL HIGHLIGHTS

MUA

BlackRock MuniAssets Fund, Inc.

The Financial Highlights table is intended to help you understand MUA’s financial performance for the periods shown. Certain information reflects the financial results for a single Fund share. The total returns in the table represent the rate an investor would have earned or lost on an investment in MUA (assuming reinvestment of all dividends and/or distributions, if applicable). The information for the periods shown has been audited by     , MUA’s independent registered public accounting firm. Financial statements for the fiscal year ended                      and the Report of the Independent Registered Public Accounting Firm thereon appear in MUA’s Annual Report for the fiscal year ended                     .

 

51


BlackRock MuniAssets Fund, Inc. (MUA)

 

    Year
Ended
April 30,

2010
    Period
June 1,
2008 to
April 30,

2009
    Year Ended May 31,  
        2008     2007     2006     2005     2004     2003     2002     2001     2000  

Per Share Operating Performance

                     

Net asset value,
beginning of period

  $10.59      $12.79      $13.87      $13.65      $13.40      $12.36      $11.94      $12.55      $12.96      $12.76      $14.46   
                                                                 

Net investment income

  0.80 1     0.72 1     0.78 1     0.82 1     0.81 1     0.81 1     0.83 1     0.81 1     0.79      0.83      0.80   

Net realized and unrealized gain (loss)

  2.06      (2.18   (1.04   0.24      0.27      1.04      0.38      (0.64   (0.41   0.19      (1.69
                                                                 

Net increase (decrease) from investment operations

  2.86      (1.46   (0.26   1.06      1.08      1.85      1.21      0.17      0.38      1.02      (0.89
                                                                 

Dividends and distributions from:

                     

Net investment income

  (0.82   (0.74   (0.82   (0.84   (0.83   (0.81   (0.78   (0.78   (0.79   (0.82   (0.81

Net realized gain

  —        —        (0.00 ) 2     —        —        —        (0.01   —        —        —        —     
                                                                 

Total dividends and distributions

  (0.82   (0.74   (0.82   (0.84   (0.83   (0.81   (0.79   (0.78   (0.79   (0.82   (0.81
                                                                 

Net asset value, end of period

  $12.63      $10.59      $12.79      $13.87      $13.65      $13.40      $12.36      $11.94      $12.55      $12.96      $12.76   
                                                                 

Market price, end of period

  $12.65      $10.91      $13.35      $15.29      $14.13      $13.27      $11.38      $11.91      $11.66      $13.00      $11.19   
                                                                 

Total Investment Return 3  

                     

Based on net asset value

  27.72   (11.29 )% 4     (1.90 )%    7.72   8.31   15.65   10.74   1.61   3.30   8.58   (5.45 )% 
                                                                 

Based on market price

  24.17   (12.45 )% 4     (7.12 )%    14.71   13.22   24.39   2.22   9.09   (4.32 )%    24.22   (7.79 )% 
                                                                 

Ratios Based on Average Net Assets Applicable to Common Shares

                     

Total expenses

  0.72   0.77 % 6     0.70   0.68   0.68   0.67   0.67   0.78   0.83   0.76   0.74
                                                                 

Total expenses after fees waived and paid indirectly

  0.72   0.76 % 6     0.69   0.68   0.68   0.67   0.67   0.78   0.83   0.76   0.74
                                                                 

Total expenses after fees waived and paid indirectly and excluding interest expense and fees 5

  0.67   0.70 % 6     0.66   0.68   0.68   0.67   0.67   0.78   0.74 % 7     0.76   0.74
                                                                 

Net investment income

  6.72   7.13 % 6     5.81   5.91   5.97   6.30   6.71   6.76   6.16   6.44   5.96
                                                                 

Supplemental Data

                     

Net assets, end of period (000)

  $266,831      $221,899      $266,913      $287,367      $280,793      $273,382      $252,203      $243,671      $255,150      $135,448      $133,065   
                                                                 

Portfolio turnover

  44   23   23   25   17   20   19   27   20   17   32
                                                                 

 

1

Based on average shares outstanding.

2

Amount is less than $(0.01) per share.

3

Total investment returns based on market price, which can be significantly greater or lesser than the net asset value, may result in substantially different returns. Where applicable, total investment returns exclude the effects of sales charges and include the reinvestment of dividends and distributions.

4

Aggregate total investment return.

5

Interest expense and fees relate to tender option bond trusts. See Note 1 of the Notes to Financial Statements in the Fund’s most recent annual report for details of municipal bonds transferred to tender option bond trusts.

6

Annualized.

7

Excludes reorganization costs.

 

52


APX

BlackRock Apex Municipal Fund, Inc.

The Financial Highlights table is intended to help you understand APX’s financial performance for the periods shown. Certain information reflects the financial results for a single Fund share. The total returns in the table represent the rate an investor would have earned or lost on an investment in APX (assuming reinvestment of all dividends and/or distributions, if applicable). The information for the periods shown has been audited by         , APX’s independent registered public accounting firm. Financial statements for the fiscal year ended                      and the Report of the Independent Registered Public Accounting Firm thereon appear in APX’s Annual Report for the fiscal year ended                     .

 

53


BlackRock Apex Municipal Fund, Inc. (APX)

 

    Year
Ended
April 30,

2010
    Period
July 1,
2008 to
April 30,

2009
    Year Ended June 30,  
        2008     2007     2006     2005     2004     2003     2002     2001     2000  

Per Share Operating Performance

                     

Net asset value, beginning of period

  $7.67      $9.14      $9.95      $9.90      $9.82      $9.13      $8.99      $9.24      $9.45      $9.33      $10.37   
                                                                 

Net investment income

  0.57 1     0.48 1     0.54 1     0.58 1     0.58 1     0.58 1     0.60 1     0.58 1     0.58      0.59      0.66   

Net realized and unrealized gain (loss)

  1.51      (1.48   (0.77   0.06      0.08      0.69      0.11      (0.27   (0.22   0.13      (1.03
                                                                 

Net increase (decrease) from investment operations

  2.08      (1.00   (0.23   0.64      0.66      1.27      0.71      0.31      0.36      0.72      (0.37
                                                                 

Dividends and distributions from:

                     

Net investment income

  (0.56   (0.47   (0.58   (0.59   (0.58   (0.58   (0.57   (0.56   (0.57   (0.60   (0.67

Net realized gain

  —        —        —        —        —        —        (0.00 ) 2     —        —        —        —     
                                                                 

Total dividends and distributions

  (0.56   (0.47   (0.58   (0.59   (0.58   (0.58   (0.57   (0.56   (0.57   (0.60   (0.67
                                                                 

Net asset value, end of period

  $9.19      $7.67      $9.14      $9.95      $9.90      $9.82      $9.13      $8.99      $9.24      $9.45      $9.33   
                                                                 

Market price, end of period

  $8.87      $7.72      $9.28      $10.23      $10.25      $9.48      $8.26      $8.48      $8.39      $9.10      $8.94   
                                                                 

Total Investment Return 3

                     

Based on net asset value

  27.99   (10.81 )% 4     (2.40 )%    6.48   7.00   14.67   8.64   4.13   4.31   8.48   (3.23 )% 
                                                                 

Based on market price

  22.73   (11.58 )% 4     (3.61 )%    5.73   14.76   22.36   4.20   8.18   (1.64 )%    9.05   (6.22 )% 
                                                                 

Ratios Based on Average Net Assets Applicable to Common Shares

                     

Total expenses

  0.84   0.91 % 6     0.85   0.80   0.81   0.80   0.79   0.90   0.87   0.82   0.81
                                                                 

Total expenses after fees waived

  0.84   0.91 % 6     0.84   0.80   0.80   0.80   0.79   0.90   0.87   0.82   0.81
                                                                 

Total expenses after fees waived and excluding interest expense and fees 5

  0.80   0.84 % 6     0.80   0.80   0.80   0.80   0.79   0.90   0.87   0.82   0.81
                                                                 

Net investment income

  6.64   7.16 % 6     5.64   5.75   5.83   6.11   6.52   6.56   6.19   6.35   6.71
                                                                 

Supplemental Data

                     

Net assets, end of period (000)

  $183,622      $152,961      $181,656      $196,826      $194,646      $192,475      $178,983      $176,116      $181,093      $185,246      $182,879   
                                                                 

Portfolio turnover

  46   20   25   22   19   22   19   24   25   17   20
                                                                 

 

1

Based on average shares outstanding.

2

Amount is less than $(0.01) per share.

3

Total investment returns based on market price, which can be significantly greater or lesser than the net asset value, may result in substantially different returns. Where applicable, total investment returns exclude the effects of sales charges and include the reinvestment of dividends and distributions.

4

Aggregate total investment return.

5

Interest expense and fees relate to tender option bond trusts. See Note 1 of the Notes to Financial Statements in the Fund’s most recent annual report for details of municipal bonds transferred to tender option bond trusts.

6

Annualized.

 

54


INFORMATION ABOUT THE REORGANIZATION

General

Pursuant to the Reorganization Agreement (a form of which is attached as Appendix A to the Statement of Additional Information), APX will merge with and into the Merger Subsidiary. APX common shares will be converted to the right to receive MUA common shares pursuant to the Reorganization. MUA common shares issued to APX shareholders will have an aggregate net asset value equal to the aggregate net asset value of APX’s common shares outstanding immediately prior to the Reorganization, less the costs of the Reorganization (though cash may be paid in lieu of any fractional common shares). Each shareholder of APX will receive the number of MUA common shares corresponding to his or her proportionate interest in the common shares of APX. As soon as practicable after the Closing Date for the Reorganization, APX will deregister as investment companies under the 1940 Act and the Merger Subsidiary will dissolve under Maryland law and be liquidated into MUA.

The distribution of MUA common shares to APX’s shareholders will be accomplished by opening new accounts on the books of MUA in the names of the shareholders of APX and transferring to those shareholder accounts MUA common shares. Each newly-opened account on the books of MUA for the former shareholders of APX will represent the respective pro rata number of MUA common shares (rounded down, in the case of fractional common shares held other than in a Plan account, to the next largest number of whole common shares) due such shareholder. No fractional MUA common shares will be issued (except for common shares held in a Plan account). In the event there are fractional common shares in an account other than a Plan account, MUA’s transfer agent will aggregate all such fractional MUA common shares and sell the resulting whole common shares on the NYSE, for the account of all holders of such fractional interests, and each such holder will be entitled to the pro rata share of the proceeds from such sale upon surrender of APX common share certificates. See “Terms of the Reorganization Agreement—Surrender and Exchange of Share Certificates” below for a description of the procedures to be followed by APX’s shareholders to obtain their MUA common shares (and cash in lieu of fractional common shares, if any).

As a result of the Reorganization, each common shareholder of APX will own MUA common shares that (except for cash payments received in lieu of fractional common shares) will have an aggregate net asset value immediately after the Closing Date equal to the aggregate net asset value of that shareholder’s APX common shares immediately prior to the Closing Date. Since MUA common shares will be issued at net asset value in exchange for the common shares of APX having a value equal to the aggregate net asset value of those MUA common shares, the net asset value per share of MUA common shares should remain virtually unchanged by the Reorganization except for its share of the costs of the Reorganization. Thus, the Reorganization will result in no dilution of the net asset value of MUA common shares, other than to reflect the costs of the Reorganization. However, as a result of the Reorganization, a shareholder of any of the Funds will hold a reduced percentage of ownership in the Combined Fund than he or she did in any of APX. No sales charge or fee of any kind will be charged to shareholders of APX in connection with their receipt of MUA common shares in the Reorganization.

TERMS OF THE REORGANIZATION AGREEMENT

The following is a summary of the significant terms of the Reorganization Agreement. This summary is qualified in its entirety by reference to the Form of Reorganization Agreement attached as Appendix A to the Statement of Additional Information.

Valuation of Assets and Liabilities

The respective assets of each of the Funds will be valued on or after the close of business of the NYSE on the business day immediately preceding the Closing Date (the “Valuation Time”). The valuation procedures are the same for each Fund. The net asset value per common share of each Fund will be determined after the close of

 

55


business on the NYSE (generally, 4:00 p.m., Eastern Time) at the Valuation Time. For the purpose of determining the net asset value of a common share of each Fund, the value of the securities held by the Fund plus any cash or other assets (including interest accrued but not yet received) minus all liabilities (including incurred and accrued expenses, which will include each Fund’s share of the costs of the Reorganization) is divided by the total number of common shares of the Fund outstanding at such time.

Amendments and Conditions

The Reorganization Agreement may be amended at any time prior to the Closing Date with respect to any of the terms therein upon mutual agreement. The obligations of each Fund pursuant to the Reorganization Agreement are subject to various conditions, including a registration statement on Form N-14 being declared effective by the SEC, approval of the Reorganization Agreement by the shareholders of APX, approval of the issuance of additional MUA common shares by the shareholders of MUA, receipt of an opinion of counsel as to tax matters, receipt of an opinion of counsel as to corporate and securities matters and the continuing accuracy of various representations and warranties of the Funds being confirmed by the respective parties.

Postponement; Termination

Under the Reorganization Agreement, the Board of each Fund may cause the Reorganization to be postponed or abandoned under certain circumstances should such Board determine that it is in the best interests of the shareholders of its respective Fund to do so. The Reorganization Agreement may be terminated and the Reorganization abandoned at any time (whether before or after adoption thereof by the shareholders of APX) prior to the Closing Date, or the Closing Date may be postponed, (i) by mutual consent of the Board of each Fund; (ii) by the Board of APX if any condition of APX’s obligations set forth in the Reorganization Agreement has not been fulfilled or waived by such Board; and (iii) by the Board of MUA if any condition of MUA’s obligations set forth in the Reorganization Agreement has not been fulfilled or waived by such Board.

Surrender and Exchange of Share Certificates

MUA will issue to APX shareholders book entry interests for MUA common shares registered in the name of such shareholders on the basis of each holder’s proportionate interest in the aggregate net asset value of APX common shares. With respect to any APX shareholder holding certificates evidencing ownership of APX common shares as of the Closing Date, and subject to MUA being informed thereof in writing by APX, MUA will not permit such shareholder to receive new certificates evidencing ownership of MUA common shares, until notified by APX or its agent that such shareholder has surrendered his or her outstanding certificates evidencing ownership of APX common shares or, in the event of lost certificates, posted adequate bond. APX, at its own expense, will request its shareholders to surrender their outstanding certificates evidencing ownership of APX common shares or post adequate bond.

Please do not send in any share certificates at this time. Upon consummation of the Reorganization, shareholders of APX will be furnished with instructions for exchanging their share certificates for MUA share certificates and, if applicable, cash in lieu of fractional common shares.

From and after the Closing Date, there will be no transfers on the stock transfer books of APX. If, after the Closing Date, certificates representing common shares of APX are presented to MUA, they will be cancelled and exchanged for certificates representing MUA common shares and cash in lieu of fractional common shares, if applicable, distributable with respect to APX’s common shares in the Reorganization.

Expenses of the Reorganization

The Funds will bear expenses incurred in connection with the Reorganization, including, but not limited to, costs related to the preparation and distribution of materials distributed to each Fund’s Board, expenses incurred in connection with the preparation of the Reorganization Agreement and the registration statement on Form

 

56


N-14, the printing and distribution of this Joint Proxy Statement/Prospectus and any other materials required to be distributed to shareholders, SEC and state securities commission filing fees and legal and audit fees in connection with the Reorganization, legal fees incurred preparing each Fund’s Board materials, attending each Fund’s Board meetings and preparing the minutes, auditing fees associated with each Fund’s financial statements, stock exchange fees, transfer agency fees, portfolio transfer taxes (if any) and any similar expenses incurred in connection with the Reorganization, which will be borne directly by the respective Fund incurring the expense or allocated among the Funds proportionately or on another reasonable basis, as appropriate. Neither the Funds nor the Advisors will pay any expenses of shareholders arising out of or in connection with the Reorganization. The estimated expenses of the Reorganization attributable to MUA and APX are estimated to be $216,405 and $205,414, respectively.

MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION

The following is a summary of certain Federal income tax consequences of the Reorganization. The discussion is based upon the Code, Treasury regulations, court decisions, published positions of the Internal Revenue Service (“IRS”) and other applicable authorities, all as in effect on the date hereof and all of which are subject to change or differing interpretations (possibly with retroactive effect). The discussion is limited to U.S. persons who hold common shares of APX as capital assets for Federal income tax purposes (generally, assets held for investment). This summary does not address all of the Federal income tax consequences that may be relevant to a particular shareholder or to shareholders who may be subject to special treatment under Federal income tax laws. No ruling has been or will be obtained from the IRS regarding any matter relating to the Reorganization. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax aspects described below. This summary of Federal income tax consequences is for general information only. The Funds’ shareholders should consult their own tax advisers regarding the Federal income tax consequences of the Reorganization, as well as the effects of state, local and non-U.S. tax laws, including possible changes in tax law.

It is a condition to the closing of the Reorganization that APX and MUA each receive an opinion from Skadden Arps, dated as of the Closing Date, regarding the characterization of the Reorganization as a “reorganization” within the meaning of Section 368(a) of the Code. The opinion of Skadden Arps will be based on Federal income tax law in effect on the Closing Date. In rendering its opinion, Skadden Arps will also rely upon certain representations of the management of APX and MUA and assume, among other things, that the Reorganization will be consummated in accordance with the applicable Reorganization Agreement and other operative documents and as described herein. An opinion of counsel is not binding on the IRS or any court.

As a reorganization, the Federal income tax consequences of the Reorganization can be summarized as follows:

 

   

No gain or loss will be recognized by APX or MUA by reason of the Reorganization.

 

   

No gain or loss will be recognized by a shareholder of APX who exchanges all of its APX common shares solely for MUA common shares pursuant to the Reorganization (except with respect to cash received in lieu of a fractional MUA common share, as discussed below).

 

   

The aggregate tax basis of MUA common shares received by a shareholder of APX pursuant to the Reorganization will be the same as the aggregate tax basis of the shareholder’s APX common shares surrendered in exchange therefor (reduced by any amount of tax basis allocable to a fractional MUA common share for which cash is received).

 

   

The holding period of MUA common shares received by a shareholder of APX pursuant to the Reorganization will include the holding period of the shareholder’s APX common shares surrendered in exchange therefor.

 

   

A shareholder of APX that receives cash in lieu of a fractional MUA common share in connection with the Reorganization will be treated as having received cash in redemption of such fractional MUA

 

57


 

common share. An APX shareholder that receives cash in lieu of a fractional MUA common share will recognize capital gain or loss equal to the difference between the amount of cash deemed received for the fractional MUA common share and the APX shareholder’s tax basis in APX common shares allocable to the fractional MUA common share. The capital gain or loss will be a long-term capital gain or loss if the APX shareholder’s holding period for APX common shares is more than one year as of the date the Reorganization is consummated.

 

   

MUA’s tax basis in APX’s assets received by MUA pursuant to the Reorganization will, in each instance, equal the tax basis of such assets in the hands of APX immediately prior to the Reorganization, and MUA’s holding period for such assets will, in each instance, include the period during which the assets were held by APX.

MUA intends to continue to be taxed under the rules applicable to regulated investment companies as defined in Section 851 of the Code, which are the same rules currently applicable to each Fund and its shareholders.

On or prior to the Closing Date, APX will declare and pay a distribution to its shareholders, which together with all previous distributions, will have the effect of distributing to the shareholders of APX all of APX’s investment company taxable income (computed without regard to the deduction for dividends paid), if any, through the Closing Date, net capital gains, if any, through the Closing Date, and such portion of its net tax-exempt interest income as is necessary to ensure that APX maintains its status as a regulated investment company at all times up to and including the Closing Date. To the extent that such a distribution is not an “exempt-interest dividend” (as defined in the Code), the distribution will be taxable to shareholders for Federal income tax purposes.

MUA will succeed to capital loss carryforwards (and certain unrealized built-in losses), if any, of APX, which will be subject to the limitations described below. If APX has capital loss carryforwards, they would, in the absence of the Reorganization, generally be available to offset capital gains. As a result of the Reorganization, however, APX will undergo an “ownership change” for Federal income tax purposes, and, accordingly, MUA’s use of APX’s capital loss carryforwards (and certain unrealized built-in losses) will be limited by the operation of the tax loss limitation rules of the Code. For a fund that undergoes an “ownership change,” the Code generally limits the amount of pre-ownership change losses that may be used to offset post-ownership change gains to a specific “annual loss limitation amount” (generally the product of (i) the fair market value of the stock of such Fund, with certain adjustments, immediately prior to the Reorganization and (ii) a rate established by the IRS (for example, the rate is 4.01% for July 2010)). Any unused portion of these losses may be available in subsequent years, subject to the overall eight-year capital loss carryforward limit, as measured from the date of recognition. MUA’s capital loss carryforwards, if any, should not be limited solely by reason of the Reorganization.

Due to the operation of these tax loss limitation rules, it is possible that shareholders of APX would receive taxable distributions of short-term and long-term capital gains earlier than they would have in the absence of the Reorganization. Such taxable distributions will be treated either as ordinary income (and not as favorably taxed “qualified dividend income”) if such capital gains are short term or as favorably taxed capital gain dividends if such capital gains are long term. The actual effect of the loss limitation rules on a shareholder of a Fund would depend on many variables, including such Fund’s expected growth rate if the Reorganization were not to occur (i.e., whether, in the absence of the Reorganization, the Fund would generate capital gains against which to utilize its capital loss carryforwards prior to their expiration (and certain realized built-in losses) in excess of what would be the “annual loss limitation amount” were the Reorganization to occur, the timing and amount of future capital gains that would be recognized by the Combined Fund if the Reorganization were to occur, and the timing of a historic Fund shareholder’s disposition of its shares (the tax basis of which might, depending on the facts, reflect that shareholder’s share of such Fund’s capital losses)). Shareholders of all of the Funds should consult their own tax advisors in this regard.

 

58


In addition, for five years beginning on the Closing Date of the Reorganization, the Combined Fund will not be allowed to offset certain pre-Reorganization built-in gains attributable to one Fund that is a gain corporation with capital loss carryforwards (and certain built-in losses) attributable to the other Fund.

PROPOSAL 2: ISSUANCE OF MUA COMMON SHARES

In connection with the proposed Reorganization described under “Proposal 1: Reorganization of APX,” MUA will issue additional MUA common shares and list them for trading on the NYSE. All other things being equal, the Reorganization will result in no reduction of the net asset value of MUA common shares, other than to reflect the costs of the Reorganization.

No gain or loss for Federal income tax purposes will be recognized by MUA or its shareholders pursuant to the Reorganization. The MUA Board, based upon its evaluation of all relevant information, anticipates that the Reorganization will benefit shareholders of MUA. In particular, the MUA Board reviewed data presented by the Advisors showing that MUA will experience a reduced Total Expense Ratio as a result of the proposed Reorganization. If the Reorganization is approved, the Combined Fund will maintain MUA’s lower management fee rate of 0.55% of MUA’s average daily total assets.

The MUA Board requests that shareholders of MUA approve the issuance of additional MUA common shares in connection with the Reorganization at the Special Meeting to be held on Friday, December 17, 2010 at 9:00 a.m. The affirmative vote of shareholders representing at least a majority of votes cast on a proposal, provided that the total votes cast on the proposal represents over 50% in interest of all securities entitle to vote on the proposal is required to approve the issuance of additional common shares for the Reorganization. Subject to the requisite approval of the shareholders of each Fund with regard to the Reorganization, it is expected that the Closing Date will be sometime during the first quarter 2011. For additional information regarding voting requirements, see “Voting Information and Requirements.”

The MUA Board recommends that shareholders of MUA vote “FOR” the issuance of additional MUA common shares in connection with the Reorganization.

PROPOSALS 3 AND 4: AMENDMENTS TO FUNDAMENTAL INVESTMENT POLICIES

Each Fund currently has a fundamental policy that provides that such Fund may not issue senior securities or borrow amounts in excess of 5% of its total assets taken at market value. These policies are referred to as “fundamental” and cannot be amended without the approval of the Funds’ shareholders. The Boards of the Funds have reviewed the Current Leverage Policy and believe such policy is unduly restrictive and should be replaced with a non-fundamental policy. If this proposal is approved, each Fund currently intends to use leverage approximately equal to 15% of its total assets at the time the leverage is implemented, but may use leverage up to 25% of its total assets under the new leverage policy without further Board or shareholder approval. As a non-fundamental policy, the Board could in the future authorize the Fund to use additional leverage up to the maximum amount permitted under the 1940 Act or change the 25% threshold at which Board approval is required to increase leverage, in each case without further shareholder approval. The Reorganization is not contingent upon the approval of any Policy Amendment.

The Boards of the Funds anticipate that the new leverage policy would benefit the Funds’ shareholders. The new leverage policy could provide the Advisors with the flexibility to manage each Fund more effectively in the future, to respond to changing market conditions and new investment opportunities and to generate additional income for each Fund’s shareholders. As a non-fundamental policy, the amounts of leverage incurred by a Fund can be changed by the Fund’s Board without prior notice or shareholder approval up to the maximum amount of the leverage permitted under the 1940 Act. Approval of a Fund’s Policy Amendment is not contingent upon the approval of the Reorganization or the Issuance. A Fund’s shareholders would have the benefit of the new leverage

 

59


policy regardless of whether the Reorganization or the Issuance was approved so long as the Fund’s Policy Amendment was approved by the Fund’s shareholders. In the event a Fund’s Policy Amendment is not approved by the Fund’s shareholders, the Investment Advisor will continue to manage the Fund under its current leverage policy.

At the Meeting, each Fund’s shareholders will be asked to approve its respective Policy Amendment. Each Policy Amendment, if approved, would take effect immediately and the Investment Advisor would begin to add additional leverage until the Fund reaches its leverage target of approximately 15% of its total assets. No assurance can be given at this time as to how long it will take for the Fund to reach its leverage target of approximately 15% of its total assets or that the Fund will be able to use additional leverage to reach such leverage target.

In the event the Reorganization is consummated, shareholders of the combined fund, including former shareholders of APX, would be subject to the leverage policy for MUA following the Reorganization. If MUA shareholders do not approve the MUA Policy Amendment, then the combined fund would operate under MUA’s current leverage policy and shareholders of the combined fund, including former shareholders of APX, would not have the benefit of the new leverage policy. In such an event, APX shareholders would not have the benefit of the new leverage policy even if APX shareholders had previously approved the APX Policy Amendment. If MUA shareholders approve the MUA Policy Amendment, then the combined fund would operate under the new leverage policy and shareholders of the combined fund, including former shareholders of APX, would have the benefit of the new leverage policy. In such an event, APX shareholders would be subject to the new leverage policy even if APX shareholders had not previously approved the APX Policy Amendment. There can be no assurance that MUA shareholders will approve the MUA Policy Amendment.

Each Fund currently utilizes leverage through the use of tender option bonds to seek to enhance the yield and NAV of their common shares. If a Fund’s Policy Amendment is approved by the Fund’s shareholders, then the Advisors would seek to utilize additional tender option bonds with respect to the Fund. Tender option bond investments generally will provide a Fund with economic benefits in periods of declining short-term interest rates, but expose the Fund to risks during periods of rising short-term interest rates. See “Investment Objectives and Policies—Tender Option Bond Transactions” and “Risk Factors and Special Considerations—Tender Option Bond Risks” for additional information about tender option bonds.

Although the use of leverage by a Fund may create an opportunity for higher total return, it also results in additional risks and can magnify the effect of any losses. The risks associated with leverage will be present to a greater extent if the Fund’s Policy Amendment is approved and the Fund uses additional leverage. If the income and gains earned on municipal bonds to which a Fund has exposure through the use of leverage are greater than the payments due on the related short-term floating rate interests, the Fund’s returns will be greater than if leverage had not been used. Conversely, if the income and gains from those municipal bonds do not cover the payments due in connection with the leverage used, the return will be less than if the economic leverage had not been used. The Advisors nevertheless may determine to continue to use leverage if it expects that the benefits to a Fund will outweigh the risk of a reduced return. There is no assurance that a Fund’s leverage strategy will be successful. See “Risk Factors and Special Considerations—General Leverage Risks” for additional information about the risks associated with the use of leverage.

A Fund utilizing additional leverage would have to pay additional interest expenses associated with such leverage, which would result in higher total annual operating expenses for shareholders. In addition, the Investment Advisor’s contractual management fee for each Fund is based on a percentage of the Fund’s average daily total assets. Thus, a Fund utilizing additional leverage would be subject to management fees on any assets attributable to the additional leverage. While the Investment Advisor’s contractual management fee for each Fund as a percentage of its average daily total assets will remain the same regardless of the amount of leverage utilized by the Funds, the Investment Advisor’s contractual management fee for each Fund as a percentage of its net assets (as opposed to total assets) is expected to increase as a result of the additional leverage. Please see the table below for the Funds’ contractual management fees expressed as a percentage of total assets and as a percentage of common net assets as of April 30, 2010.

 

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Contractual Management Fee

As a % of Total Assets

   Current Leverage   15% Leverage

APX

   0.65%   0.65%

MUA

   0.55%   0.55%

Pro Forma Combined Fund*

   0.55%   0.55%

 

* Assumes the Reorganization had taken place on April 30, 2010.

 

Contractual Management Fee

As a % of Common Net Assets

   Current Leverage   15% Leverage

APX

   0.68%   0.77%

MUA

   0.58%   0.65%

Pro Forma Combined Fund*

   0.58%   0.65%

 

* Assumes the Reorganization had taken place on April 30, 2010.

Based on information available as of April 30, 2010, the Adjusted Total Expense Ratios (including interest expenses) of APX, MUA and the Combined Fund are expected to be 0.21%, 0.20% and 0.20% higher than the Total Expense Ratios (including interest expenses) of APX, MUA and the Combined Fund, respectively. Please see the table below for the Adjusted Total Expense Ratios (including interest expenses) and Total Expense Ratios (including interest expenses) of each Fund and the Combined Fund as of April 30, 2010.

 

Fund

   Total Annual
Expense  Ratio

(Including Interest Expenses)
  Adjusted Total Annual
Expense Ratio

(Including Interest Expenses)

APX

   0.84%   1.05%

MUA

   0.71% 1   0.91%

Combined Fund 2

   0.70%   0.90%

 

1

Expenses have been restated to reflect current fees.

2

Assumes the Reorganization had taken place on April 30, 2010.

Based on information available as of April 30, 2010, the Adjusted Total Expense Ratios (excluding interest expenses) of APX, MUA and the Combined Fund are expected to be 0.08%, 0.07% and 0.07% higher than the Total Expense Ratios (excluding interest expenses) of APX, MUA and the Combined Fund, respectively. Please see the table below for the Adjusted Total Expense Ratio (excluding interest expenses) and Total Expense Ratio (excluding interest expenses) of each Fund and the Combined Fund as of April 30, 2010.

 

Fund

   Total Annual
Expense  Ratio

(Excluding Interest Expenses)
  Adjusted Total Annual
Expense Ratio

(Excluding Interest Expenses)

APX

   0.80%   0.88%

MUA

  

0.67% 1

  0.74%

Combined Fund 2

   0.66%   0.73%

 

1

Expenses have been restated to reflect current fees.

2

Assumes the Reorganization had taken place on April 30, 2010.

Please see “Expense Tables for Shareholders” starting on page 22 for additional detail about the expenses of each Fund and the Combined Fund.

The Board of each Fund requests that shareholders of its respective Fund approve the Fund’s Policy Amendment at the Special Meeting to be held on Friday, December 17, 2010 at 9:00 a.m. The affirmative vote of a majority of the outstanding shares entitled to vote is required to approve each Fund’s Policy Amendment. For additional information regarding voting requirements, see “Voting Information and Requirements.”

The APX Board recommends that shareholders of APX vote “ FOR ” the APX Policy Amendment.

The MUA Board recommends that shareholders of MUA vote “ FOR ” the MUA Policy Amendment.

 

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VOTING INFORMATION AND REQUIREMENTS

General

A list of the Funds’ shareholders of record as of the Record Date will be available at the shareholder meeting.

Record Date

The Funds’ have fixed the close of business on October 20, 2010 as the record date (the “Record Date”) for the determination of shareholders entitled to notice of, and to vote at, the Special Meeting or any adjournment thereof. Shareholders on the Record Date will be entitled to one vote for each share held, with no shares having cumulative voting rights.

At the Record Date, the Funds had outstanding the following amount of common shares:

 

Title of Class

     MUA      APX

Common Stock

         

Proxies

Shareholders may vote by appearing in person at the Special Meeting, by returning the enclosed proxy card or by casting their vote via telephone or the Internet using the instructions provided on the enclosed proxy card and more fully described below. Shareholders of each Fund have the opportunity to submit their voting instructions via the Internet by utilizing a program provided by             , or by “touch-tone” telephone voting. The giving of such a proxy will not affect your right to vote in person should you decide to attend the Special Meeting. To use the Internet, please access the Internet address found on your proxy card. To record your voting instructions by automated telephone, please call the toll-free number listed on your proxy card. The Internet and automated telephone voting instructions are designed to authenticate shareholder identities, to allow shareholders to give their voting instructions, and to confirm that shareholders’ instructions have been recorded properly. Shareholders submitting their voting instructions via the Internet should understand that there may be costs associated with Internet access, such as usage charges from Internet access providers and telephone companies, that must be borne by the shareholders. Any person giving a proxy may revoke it at any time prior to its exercise by giving written notice of the revocation to the Secretary of the Fund at the address indicated above, by delivering a duly executed proxy bearing a later date, by recording later-dated voting instructions via the Internet or automated telephone or by attending the Special Meeting and voting in person. The giving of a proxy will not affect your right to vote in person if you attend the Special Meeting and wish to do so.

Votes cast by proxy or in person at the Special Meeting will be tabulated by the inspectors of election appointed for the Special Meeting. The holders of at least one-third of the shares entitled to vote on the proposal must be present in person or by proxy to have a quorum to conduct business at the Special Meeting. The inspectors of election, who may be employees of BlackRock, will determine whether or not a quorum is present at the Special Meeting. The inspectors of election will generally treat abstentions and “broker non-votes” (i.e., shares held by brokers or nominees, typically in “street name,” as to which proxies have been returned but (a) instructions have not been received from the beneficial owners or persons entitled to vote and (b) the broker or nominee does not have discretionary voting power or elects not to exercise discretion on a particular matter) as present for purposes of determining a quorum, subject to any applicable rules of the stock exchange on which a Fund’s shares are listed.

If you hold your shares directly (not through a broker-dealer, bank or other financial institution) and if you return a properly executed proxy card that does not specify how you wish to vote on a proposal, your shares will be voted “FOR” each Proposal if you are entitled to vote on these proposals.

 

62


Broker-dealer firms holding shares of a Fund in “street name” for the benefit of their customers and clients will request the instructions of such customers and clients on how to vote their shares on Proposals 1—4 before the Special Meeting. Proposals 1—4 are not “routine” matters and shareholder instructions are required for broker-dealers to vote a beneficial owner’s shares.

If you hold shares of a Fund through a bank or other financial institution or intermediary (called a service agent) that has entered into a service agreement with the Fund or a distributor of the Fund, the service agent may be the record holder of your shares. At the Special Meeting, a service agent will vote shares for which it receives instructions from its customers in accordance with those instructions. A properly executed proxy card or other authorization by a shareholder that does not specify how the shareholder’s shares should be voted on a proposal may be deemed to authorize a service provider to vote such shares in favor of the proposal. Depending on its policies, applicable law or contractual or other restrictions, a service agent may be permitted to vote shares with respect to which it has not received specific voting instructions from its customers. In those cases, the service agent may, but may not be required to, vote such shares in the same proportion as those shares for which the service agent has received voting instructions. This practice is commonly referred to as “echo voting.”

All properly executed proxies received prior to the Special Meeting will be voted in accordance with the instructions marked thereon or otherwise as provided therein. Unless instructions to the contrary are marked, proxies will be voted “FOR” the approval of each proposal. Abstentions and broker non-votes are not treated as votes “FOR” a proposal.

With respect to Proposal 1, abstentions and broker non-votes will have the same effect as votes “AGAINST” the proposal.

With respect to Proposal 2, abstentions will be counted as “votes cast” and will therefore have the same effect as votes “AGAINST” the proposal and broker non-votes will have the same effect as votes “AGAINST” the proposal, in each case unless holders of more than 50% of all securities entitled to vote on the proposal cast votes, in which event abstentions and broker non-votes will not have any effect on the result of the vote.

With respect to Proposals 3 and 4, abstentions and broker non-votes will have the effect of votes “AGAINST” the proposal.

Voting Requirements for Proposal 1: Reorganization of APX

 

Proposal

  

Required Approval

The common shareholders of APX are being asked to approve the Agreement and Plan of Reorganization among APX, MUA and MUA Merger Subsidiary, LLC and the termination of APX’s registration under the 1940 Act.    A majority of the outstanding shares of APX entitled to vote.

Voting Requirements for Proposal 2: Issuance of Common Shares by MUA

 

Proposal

  

Required Approval

The common shareholders of MUA are being asked to approve the issuance of additional common shares of MUA in connection with an Agreement and Plan of Reorganization among APX, MUA and MUA Merger Subsidiary, LLC.    A majority of votes cast, provided that the total votes cast on the proposal represents over 50% in interest of all shares entitle to vote on the proposal.

 

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Voting Requirements for Proposal 3: Fundamental Policy Change for APX

 

Proposal

  

Required Approval

The common shareholders of APX are being asked to change APX’s fundamental investment policy restricting APX from borrowing money in amounts in excess of 5% of its total assets taken at market value to a non-fundamental policy authorizing APX to issue senior securities and borrow amounts of up to 25% of the value of its total assets at the time of such borrowings.    A majority of the outstanding shares entitled to vote

Voting Requirements for Proposal 4: Fundamental Policy Change for MUA

 

Proposal

  

Required Approval

The common shareholders of MUA are being asked to change MUA’s fundamental investment policy restricting MUA from borrowing money in amounts in excess of 5% of its total assets taken at market value to a non-fundamental policy authorizing MUA to issue senior securities and borrow amounts of up to 25% of the value of its total assets at the time of such borrowings.    A majority of the outstanding shares entitled to vote

SHAREHOLDER INFORMATION

As of October 20, 2010, the Record Date, the officers and Board Members of each Fund, as a group, beneficially owned less than 1% of the outstanding common shares of each such Fund, and no person owned of record or, to the knowledge of each such Fund, beneficially 5% or more of the outstanding common shares of each such Fund, except as follows:

 

Shareholder

 

Address

 

Holdings

 

Percentage Owned

SHAREHOLDER PROPOSALS

To be considered for presentation at a shareholder’s meeting, rules promulgated by the SEC generally require that, among other things, a shareholder’s proposal must be received at the offices of the relevant Fund a reasonable time before solicitation is made. In addition, each Fund’s bylaws provide for advance notice provisions, which require shareholders to give timely notice in proper written form to the Secretary of the Fund. Shareholders should review each Fund’s bylaws for additional information regarding the Funds’ advance notice provisions. Each Fund’s bylaws were filed with the SEC on October 7, 2008 as part of the Funds’ 8-Ks, and shareholders may obtain copies of such documents as described on page iii of this Joint Proxy Statement/Prospectus.

Timely submission of a proposal does not necessarily mean that such proposal will be included. Any shareholder who wishes to submit a proposal for consideration at a meeting of such shareholder’s Fund should send such proposal to the relevant Fund at Park Avenue Plaza, 55 East 52 nd Street, New York, New York 10055, Attention: Howard B. Surloff.

 

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SOLICITATION OF PROXIES

Solicitation of proxies is being made primarily by the mailing of this Notice and Joint Proxy Statement/Prospectus with its enclosures on or about                     , 2010. Shareholders of the Funds whose shares are held by nominees such as brokers can vote their proxies by contacting their respective nominee. In addition to the solicitation of proxies by mail, employees of the Advisors and their affiliates as well as dealers or their representatives may solicit proxies in person or by mail, telephone, telegraph, facsimile or oral communication. The Funds and the Advisors have retained             , a proxy solicitation firm, to assist in the printing and distribution of proxy materials and the solicitation and tabulation of proxies. The cost of              services in connection with the proxy is approximately $     for MUA and $     for APX. In addition, (“    ”) will assist the Funds in the distribution of proxy materials. The cost of              services in connection with the proxy is approximately $     for MUA and $     for APX.

LEGAL MATTERS

Certain legal matters concerning the Federal income tax consequences of the Reorganization and the issuance of MUA common shares will be passed upon by Skadden, Arps, Slate, Meagher & Flom LLP and Miles & Stockbridge P.C., as applicable, which serve as special counsel to APX and MUA.

OTHER MATTERS WITH RESPECT TO THE MEETING

A representative of the Independent Registered Public Accounting Firm may attend the Special Meeting and will have the opportunity to make a statement if he or she desires to do so and will be available to answer appropriate questions.

A list of shareholders entitled to be present and to vote at the meeting will be available at the offices of the Fund, Park Avenue Plaza, 55 East 52nd Street, New York, New York 10055, for inspection by any shareholder during regular business hours beginning ten days prior to the date of the meeting.

Shareholders who want to communicate with the Board or any individual Board Member should write the Fund to the attention of the Secretary, Park Avenue Plaza, 55 East 52nd Street, New York, New York 10055. Shareholders may communicate with the Board electronically by sending an email to closedendfundsbod@blackrock.com. The communication should indicate that you are a Fund shareholder. If the communication is intended for a specific Board Member and so indicates, it will be sent only to that Board Member. If a communication does not indicate a specific Board Member, it will be sent to the Chair of the Governance and Nominating Committee and the outside counsel to the Independent Board Members for further distribution as deemed appropriate by such persons.

Additionally, shareholders with complaints or concerns regarding accounting matters may address letters to the Fund’s Chief Compliance Officer, Park Avenue Plaza, 55 East 52nd Street, New York, New York 10055. Shareholders who are uncomfortable submitting complaints to the Chief Compliance Officer may address letters directly to the Chair of the Audit Committee of the Board. Such letters may be submitted on an anonymous basis.

PRIVACY PRINCIPLES OF THE FUNDS

The Funds are committed to maintaining the privacy of its current and former shareholders and to safeguarding their non-public personal information. The following information is provided to help you understand what personal information the Funds collect, how the Funds protect that information and why, in certain cases, the Funds may share such information with select parties.

 

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The Funds obtain or verify personal non-public information from and about you from different sources, including the following: (i) information the Funds receive from you or, if applicable, your financial intermediary, on applications, forms or other documents; (ii) information about your transactions with the Funds, their affiliates or others; (iii) information the Funds receive from a consumer reporting agency; and (iv) from visits to the Funds’ or their affiliates’ websites.

The Funds do not sell or disclose to non-affiliated third parties any non-public personal information about its current and former shareholders, except as permitted by law or as is necessary to respond to regulatory requests or to service shareholder accounts. These non-affiliated third parties are required to protect the confidentiality and security of this information and to use it only for its intended purpose.

The Funds may share information with its affiliates to service your account or to provide you with information about other BlackRock products or services that may be of interest to you. In addition, the Funds restrict access to non-public personal information about its current and former shareholders to those BlackRock employees with a legitimate business need for the information. The Funds maintain physical, electronic and procedural safeguards that are designed to protect the non-public personal information of its current and former shareholders, including procedures relating to the proper storage and disposal of such information.

If you are located in a jurisdiction where specific laws, rules or regulations require the Funds to provide you with additional or different privacy-related rights beyond what is set forth above, then the Funds will comply with those specific laws, rules or regulations.

OTHER INFORMATION

BlackRock is independent in ownership and governance, with no single majority shareholder and a majority of independent Board Members. As of the date of this Joint Proxy Statement/Prospectus, Bank of America Corporation (“Bank of America”), through its subsidiary Merrill Lynch & Co. Inc., Barclays Bank Plc (“Barclays”), and The PNC Financial Services Group, Inc. (“PNC”) owned 3.7%, 4.8% and 35.2%, respectively, of the voting shares of BlackRock. In addition, Bank of America, Barclays, and PNC held economic interests in BlackRock of 34.2%, 19.8% and 24.5%, respectively.

If you cannot be present in person at the Special Meeting, please fill in, sign and return the enclosed proxy card or please record your voting instructions by telephone or via the Internet promptly. No postage is necessary if the enclosed proxy card is mailed in the United States.

Anne F. Ackerley

President and Chief Executive Officer

BlackRock Apex Municipal Fund, Inc.

BlackRock MuniAssets Fund, Inc.

    , 2010

 

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

Subject to completion, dated September 15, 2010

STATEMENT OF ADDITIONAL INFORMATION

RELATING TO THE REORGANIZATION OF BLACKROCK MUNIASSETS FUND, INC.

AND

BLACKROCK APEX MUNICIPAL FUND, INC.

Dated                     , 2010

This Statement of Additional Information is available to the shareholders of BlackRock MuniAssets Fund, Inc. (“MUA”) and BlackRock Apex Municipal Fund, Inc. (“APX” and together with MUA, the “Funds”) in connection with the proposed reorganization (the “Reorganization”) whereby APX will merge with and into MUA Merger Subsidiary, LLC (the “Merger Subsidiary”), a direct, wholly-owned subsidiary of MUA. Following the Reorganization, the Merger Subsidiary will dissolve under Maryland law and be liquidated into MUA. APX will then terminate its registration under the Investment Company Act of 1940 (the “1940 Act”). In the Reorganization, the outstanding shares of common stock of APX will be converted into the right to receive newly-issued common shares of MUA, par value $0.10 per share. The aggregate net asset value of MUA common shares received by the common shareholders of APX in the Reorganization will equal the aggregate net asset value of APX common shares held by such shareholders immediately prior to the Reorganization, less the costs of the Reorganization (though common shareholders may receive cash for their fractional common shares). A copy of a form of the Agreement and Plan of Reorganization between MUA and APX is attached hereto as Appendix A. Unless otherwise defined herein, capitalized terms have the meanings given to them in the Joint Proxy Statement/Prospectus.

This Statement of Additional Information is not a prospectus and should be read in conjunction with the Joint Proxy Statement/Prospectus dated         , 2010 relating to the proposed Reorganization of APX into MUA. A copy of the Joint Proxy Statement/Prospectus may be obtained, without charge, by writing to the Fund at P.O. Box 9011, Princeton, NJ 08543-9011, or by calling (800) 882-0052.

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

 

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TABLE OF CONTENTS

 

INVESTMENT OBJECTIVE AND POLICIES OF THE FUNDS

   S-3

RISK FACTORS AND SPECIAL CONSIDERATIONS

   S-8

BOARD MEMBERS AND OFFICERS

   S-11

INVESTMENT MANAGEMENT AGREEMENTS

   S-26

OTHER AGREEMENTS

   S-28

FUND MANAGEMENT

   S-29

CONFLICTS OF INTEREST

   S-32

OTHER INFORMATION

   S-39

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

   S-40

FINANCIAL STATEMENTS

   S-40

PRO FORMA FINANCIAL STATEMENTS

   S-41

APPENDIX A FORM OF AGREEMENT AND PLAN OF REORGANIZATION

   A-1

APPENDIX B PRO FORMA FINANCIAL STATEMENTS

   B-1

APPENDIX C PROXY VOTING POLICIES

   C-1

APPENDIX D DESCRIPTION OF MUNICIPAL BOND RATINGS

   D-1

APPENDIX E GENERAL CHARACTERISTICS AND RISKS OF STRATEGIC TRANSACTIONS

   E-1

 

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INVESTMENT OBJECTIVE AND POLICIES OF THE FUNDS

The following information supplements the discussion of the Funds’ investment objectives, policies and techniques that are described in the Joint Proxy Statement/Prospectus. As used throughout the Joint Proxy Statement/Prospectus and this Statement of Additional Information, “total assets” of a Fund means the Fund’s net assets plus the amount of any borrowings for investment purposes.

Other Investment Policies

Short-Term Obligations . Each Fund reserves the right to temporarily invest more than 20% of its total assets in short-term municipal securities, or short-term taxable money market securities (including commercial paper, certificates of deposit and repurchase agreements) for defensive purposes when, in the opinion of the Investment Advisor, prevailing market or financial conditions warrant. MUA may invest in taxable commercial paper rated A-1+ through A-3 by S&P, Prime-1 through Prime-3 by Moody’s, F-1+ through F-3 by Fitch or have credit characteristics equivalent to such ratings in the opinion of the Investment Advisor. APX may invest in taxable commercial paper rated A-1 or A-2 by S&P, Prime-1 or Prime-2 by Moody’s or an equivalent rating in the opinion of the Investment Advisor. With respect to MUA, the short-term tax-exempt obligations also will be in the highest rating categories as determined either by Moody’s (currently, MIG-1 through MIG-3 for notes and Prime-1 through Prime-3 for commercial paper), S&P (currently, SP-1+ through SP-2 for notes and A-1+ through A-3 for commercial paper), or Fitch (currently, F-1 and F-2 for notes and F-1 for commercial paper), except that MUA may invest in lower rated or unrated short-term tax-exempt obligations to the extent that such investments do not exceed 20% of its total assets. Certificates of deposit must be issued by depository institutions with total assets of at least $1 billion, except that the Funds may invest in certificates of deposit of smaller institutions if such certificates of deposit are federally insured. See “Appendix D—Description of Municipal Bond Ratings.”

Repurchase Agreements . Each Fund may invest in securities pursuant to repurchase agreements. Repurchase agreements may be entered into only with a member bank of the Federal Reserve System or a primary dealer in U.S. Government securities or an affiliate thereof. MUA may not invest in repurchase agreements maturing in more than seven days if such investments, together with all other illiquid investments, would exceed 15% of the Fund’s net assets. APX may not invest more than 10% of its total assets in repurchase agreements maturing in more than seven days. A repurchase agreement is a contractual agreement whereby the seller of securities agrees to repurchase the same security at a specified price on a future date agreed upon by the parties. Under a repurchase agreement, the seller agrees, upon entering into the contract, to repurchase the security at a mutually agreed upon time and price, thereby determining the yield during the term of the agreement. The agreed-upon repurchase price determines the yield during a Fund’s holding period. This results in a fixed rate of return insulated from market fluctuations during such period.

Repurchase agreements are considered to be loans collateralized by the underlying security that is the subject of the repurchase contract. The risk to a Fund 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 a Fund 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 Fund may be delayed or limited. BlackRock will monitor the value of the collateral at the time the transaction is entered into and throughout 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.

In the event of default by the seller under a repurchase agreement, a Fund may suffer time delays and incur costs or possible losses in connection with the disposal of the underlying securities. In general, for Federal income tax purposes, repurchase agreements are treated as collateralized loans secured by the securities “sold.” Therefore, amounts earned under such agreements will not be considered tax-exempt interest.

 

S-3


Indexed and Inverse Floating Rate Securities . MUA may invest in Municipal Bonds (and Non- Municipal Tax-Exempt Securities) that yield a return based on a particular index of value or interest rates. For example, MUA may invest in Municipal Bonds that pay interest based on an index of Municipal Bond interest rates. The principal amount payable upon maturity of certain Municipal Bonds also may be based on the value of the index. To the extent MUA invests in these types of Municipal Bonds, MUA’s return on such Municipal Bonds will be subject to risk with respect to the value of the particular index. Interest and principal payable on the Municipal Bonds may also be based on relative changes among particular indices. Also, MUA may invest in so-called “inverse floating obligations” or “residual interest bonds” on which the interest rates vary inversely with a short-term floating rate (which may be reset periodically by a dutch auction, a remarketing agent, or by reference to a short-term tax-exempt interest rate index). MUA may purchase synthetically created inverse floating rate bonds evidenced by custodial or trust receipts. Generally, income on inverse floating rate bonds will decrease when short term interest rates increase, and will increase when short-term interest rates decrease. Such securities have the effect of providing a degree of investment leverage, since they may increase or decrease in value in response to changes, as an illustration, in market interest rates at a rate which is a multiple (typically two) of the rate at which fixed rate long term tax-exempt securities increase or decrease in response to such changes. As a result, the market values of such securities will generally be more volatile than the market values of fixed rate tax-exempt securities. To seek to limit the volatility of these securities, MUA may purchase inverse floating obligations with shorter-term maturities or which contain limitations on the extent to which the interest rate may vary. Certain investments in such obligations may be illiquid. APX does not have a policy with respect to indexed and inverse floating rate securities.

When-Issued Securities and Delayed Delivery Transactions . Each Fund may purchase or sell Municipal Bonds on a delayed delivery basis or when-issued basis at fixed purchase or sale terms. These transactions involve the purchase or sale of securities by the Fund at an established price with payment and delivery taking place in the future. The purchase will be recorded on the date the Fund enters into the commitment and the value of the obligation will thereafter be reflected in the calculation of the Fund’s net asset value. The value of the obligation on the delivery date may be more or less than its purchase price. A separate account of a Fund will be established with its custodian consisting of cash, cash equivalents or liquid securities having a market value at all times at least equal to the amount of the commitment.

There can be no assurance that a security purchased on a when issued basis will be issued or that a security purchased or sold through a forward commitment will be delivered. A default by a counterparty may result in the Fund missing the opportunity of obtaining a price considered to be advantageous. The value of securities in these transactions on the delivery date may be more or less than the Fund’s purchase price. The Fund may bear the risk of a decline in the value of the security in these transactions and may not benefit from an appreciation in the value of the security during the commitment period.

Call Rights . MUA may purchase a Municipal Bond issuer’s right to call all or a portion of such Municipal Bond for mandatory tender for purchase (a “Call Right”). A holder of a Call Right may exercise such right to require a mandatory tender for the purchase of related Municipal Bonds, subject to certain conditions. A Call Right that is not exercised prior to maturity of the related Municipal Bond will expire without value. The economic effect of holding both the Call Right and the related Municipal Bond is identical to holding a Municipal Bond as a non-callable security. Certain investments in such obligations may be illiquid. APX does not have a policy with respect to Call Rights.

Information Regarding Strategic Transactions

Each Fund may hedge all or a portion of its portfolio investments against fluctuations in interest rates through the use of options and certain financial futures contracts and options thereon. While each Fund’s use of hedging strategies is intended to reduce the volatility of the net asset value of Fund shares, the net asset value of Fund shares will fluctuate. There can be no assurance that a Fund’s hedging transactions will be effective. Furthermore, the Funds engage in hedging activities from time to time and may not necessarily be engaging in

 

S-4


hedging activities when movements in interest rates occur. The Funds have no obligation to enter into hedging transactions and each may choose not to do so.

The following is a description of the options and futures transactions in which the Funds may engage, limitations on the use of such transactions and risks associated therewith. The investment policies with respect to the hedging transactions of each Fund are not fundamental policies and may be modified by that Fund’s Board without the approval of the Fund’s shareholders.

Writing Covered Call Options . Each Fund may write (i.e., sell) covered call options with respect to Municipal Bonds it owns, thereby giving the holder of the option the right to buy the underlying security covered by the option from the Fund at the stated exercise price until the option expires. Each Fund only writes covered options, which means that so long as the Fund is obligated as the writer of a call option, it will own the underlying securities subject to the option. Neither Fund may write covered call options on underlying securities in an amount exceeding 15% of the market value of its total assets.

Each Fund receives a premium from writing a call option that increases the Fund’s return on the underlying security in the event the option expires unexercised or is closed out at a profit. By writing a call, a Fund limits its opportunity to profit from an increase in the market value of the underlying security above the exercise price of the option for as long as the Fund’s obligation as a writer continues. Covered call options serve as a partial hedge against a decline in the price of the underlying security. Each Fund may engage in closing transactions in order to terminate outstanding options that it has written.

Purchase of Options . Each Fund may purchase put options in connection with its hedging activities. By buying a put a Fund has a right to sell the underlying security at the exercise price, thus limiting the Fund’s risk of loss through a decline in the market value of the security until the put expires. The amount of any appreciation in the value of the underlying security will be partially offset by the amount of the premium paid for the put option and any related transaction costs. Prior to its expiration, a put option may be sold in a closing sale transaction; profit or loss from the sale will depend on whether the amount received is more or less than the premium paid for the put option plus the related transaction costs. A closing sale transaction cancels out a Fund’s position as the purchaser of an option by means of an offsetting sale of an identical option prior to the expiration of the option it has purchased. In certain circumstances, a Fund may purchase call options on securities held in its portfolio on which it has written call options or on securities that it intends to purchase. Neither Fund will purchase options on securities if, as a result of such purchase, the aggregate cost of all outstanding options on securities held by that Fund would exceed 5% of the market value of the Fund’s total assets.

Financial Futures Contracts and Options . Each Fund may purchase and sell certain financial futures contracts and options thereon solely for the purpose of hedging its investments in Municipal Bonds against declines in value and to hedge against increases in the cost of securities it intends to purchase. A financial futures contract obligates the seller of a contract to deliver and the purchaser of a contract to take delivery of the type of financial instrument covered by the contract, or in the case of index-based futures contracts to make and accept a cash settlement, at a specific future time for a specified price. A sale of financial futures contracts may provide a hedge against a decline in the value of portfolio securities because such depreciation may be offset, in whole or in part, by an increase in the value of the position in the financial futures contracts. A purchase of financial futures contracts may provide a hedge against an increase in the cost of securities intended to be purchased, because such appreciation may be offset, in whole or in part, by an increase in the value of the position in the futures contracts.

The purchase or sale of a futures contract differs from the purchase or sale of a security in that no price or premium is paid or received. Instead, an amount of cash or U.S. Treasury bills equal to approximately 5% of the contract amount must be deposited with the broker. This amount is known as initial margin. Subsequent payments to and from the broker, called variation margin, are made on a daily basis as the price of the futures contract fluctuates making the long and short positions in the futures contract more or less valuable.

 

S-5


The Funds may purchase and sell financial futures contracts based on The Bond Buyer Municipal Bond Index, a price-weighted measure of the market value of 40 large recently issued tax-exempt bonds, and purchase and sell put and call options on such futures contracts for the purpose of hedging Municipal Bonds that the Funds hold or anticipate purchasing against adverse changes in interest rates. Each Fund also may purchase and sell financial futures contracts on U.S. Government securities and purchase and sell put and call options on such futures contracts for such hedging purposes. With respect to U.S. Government securities, currently there are financial futures contracts based on long-term U.S. Treasury bonds, Treasury notes, GNMA Certificates and three-month U.S. Treasury bills.

Subject to policies adopted by its Board Members, each Fund also may engage in transactions in other financial futures contracts transactions and options thereon, such as financial futures contracts or options on other municipal bond indices that may become available if the Advisors and the Board Members of the Fund should determine that there is normally a sufficient correlation between the prices of such futures contracts and the Municipal Bonds in which the Funds invest to make such hedging appropriate.

Over-the-Counter Options . Each Fund may engage in options and futures transactions on exchanges and in the over-the-counter markets. In general, exchange-traded contracts are third-party contracts (i.e., performance of the parties’ obligations is guaranteed by an exchange or clearing corporation) with standardized strike prices and expiration dates. Over-the-counter options (“OTC options”) transactions are two-party contracts with price and terms negotiated by the buyer and seller. See “Restrictions on OTC Options” below for information as to restrictions on the use of OTC options.

Restrictions on OTC Options . Each Fund will engage in OTC options only with member banks of the Federal Reserve System and primary dealers in U.S. Government securities or with affiliates of such banks or dealers that have capital of at least $50 million or whose obligations are guaranteed by an entity having capital of at least $50 million. OTC options and assets used to cover OTC options written by a Fund may be considered to be illiquid. The illiquidity of such options or assets may prevent a successful sale of such options or assets, result in a delay of sale, or reduce the amount of proceeds that might otherwise be realized.

Risk Factors in Strategic Transactions . Each Fund’s use of derivatives may reduce its returns and/or increase volatility. Volatility is defined as the characteristic of a security, an index or a market to fluctuate significantly in price within a short time period. A risk of a Fund’s use of derivatives is that the fluctuations in their values may not correlate perfectly with the overall securities markets. Derivatives are also subject to counterparty risk, which is the risk that the other party in the transaction will not fulfill its contractual obligation. In addition, some derivatives are more sensitive to interest rate changes and market price fluctuations than other securities. The possible lack of a liquid secondary market for derivatives and the resulting inability of the Funds to sell or otherwise close a derivatives position could expose the Funds to losses and could make derivatives more difficult for the Funds to value accurately. The Funds could also suffer losses related to its derivative positions as a result of unanticipated market movements, which losses are potentially unlimited. Finally, the Advisors may not be able to predict correctly the direction of securities prices, interest rates and other economic factors, which could cause the Funds’ derivatives positions to lose value. When a derivative is used as a hedge against a position that a Fund holds, any loss generated by the derivative generally should be substantially offset by gains on the hedged investment, and vice versa. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. Hedges are sometimes subject to imperfect matching between the derivative and the underlying security, and there can be no assurance that a Fund’s hedging transactions will be effective. The income from certain derivatives may be subject to federal income tax. Derivatives are volatile and involve significant risks, including:

Credit Risk—the risk that the counterparty in a derivative transaction will be unable to honor its financial obligation to the Funds, or the risk that the reference entity in a credit default swap or similar derivative will not be able to honor its financial obligations.

 

S-6


Leverage Risk—the risk associated with certain types of investments or trading strategies (such as, for example, borrowing money to increase the amount of investments) that relatively small market movements may result in large changes in the value of an investment. Certain investments or trading strategies that involve leverage can result in losses that greatly exceed the amount originally invested.

Liquidity Risk—the risk that certain securities may be difficult or impossible to sell at the time that the seller would like or at the price that the seller believes the security is currently worth.

Correlation Risk—the risk that changes in the value of a derivative will not match the changes in the value of the portfolio holdings that are being hedged or of the particular market or security to which the Funds seeks exposure.

Index Risk—If the derivative is linked to the performance of an index, it will be subject to the risks associated with changes in that index. If the index changes, a Fund could receive lower interest payments or experience a reduction in the value of the derivative to below what that Fund paid. Certain indexed securities, including inverse securities (which move in an opposite direction to the index), may create leverage, to the extent that they increase or decrease in value at a rate that is a multiple of the changes in the applicable index.

There can be no assurance that, at any specific time, either a liquid secondary market will exist for a derivative or a Fund will otherwise be able to sell such instrument at an acceptable price. It may, therefore, not be possible to close a position in a derivative without incurring substantial losses, if at all. Certain transactions in derivatives involve substantial leverage risk and may expose a Fund to potential losses that exceed the amount originally invested by the Fund. When a Fund engages in such a transaction, the Fund will deposit in a segregated account liquid assets with a value at least equal to the Fund’s exposure, on a mark-to-market basis, to the transaction (as calculated pursuant to requirements of the Securities and Exchange Commission). Such segregation will ensure that a Fund has assets available to satisfy its obligations with respect to the transaction, but will not limit the Fund’s exposure to loss.

Risks Associated with Options . There are several risks associated with transactions in options on securities and indexes. For example, there are significant differences between the securities and options markets that could result in an imperfect correlation between these markets, causing a given transaction not to achieve its objectives. In addition, a liquid secondary market for particular options, whether traded over-the-counter or on a national securities exchange (“Exchange”) may be absent for reasons which include the following: there may be insufficient trading interest in certain options; restrictions may be imposed by an Exchange on opening transactions or closing transactions or both; trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of options or underlying securities; unusual or unforeseen circumstances may interrupt normal operations on an Exchange; the facilities of an Exchange or the Options Clearing Corporation (“OCC”) may not at all times be adequate to handle current trading volume; or one or more Exchanges could, for economic or other reasons, decide or be compelled at some future date 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 that had been issued by the OCC as a result of trades on that Exchange would continue to be exercisable in accordance with their terms. Furthermore, the volume of trading in the exchange markets with respect to Municipal Bond options may be limited, and it is impossible to predict the amount of trading interest that may exist in such options. In addition, there can be no assurance that viable exchange markets will continue.

Risks Associated with Futures . The primary risks associated with the use of futures contracts and options are (a) the imperfect correlation between the change in market value of the instruments held by a Fund and the price of the futures contract or option; (b) possible lack of a liquid secondary market for a futures contract and the resulting inability to close a futures contract when desired; (c) losses caused by unanticipated market movements, which are potentially unlimited; (d) the Advisors’ inability to predict correctly the direction of securities prices, interest rates, currency exchange rates and other economic factors; and (e) the possibility that the counterparty will default in the performance of its obligations.

 

S-7


Additional Risk Factors of OTC Transactions; Limitations on the Use of OTC Derivatives . Each Fund intends to enter into options and futures transactions, on an exchange or in the over-the-counter market, only if there appears to be a liquid secondary market for such options or futures or, in the case of OTC options, the Advisors believe the Funds can receive on each business day at least two independent bids or offers. Certain derivatives traded in OTC markets, including OTC options, involve substantial liquidity risk. The absence of liquidity may make it difficult or impossible for a Fund to sell such instruments promptly at an acceptable price. The absence of liquidity may also make it more difficult for a Fund to ascertain a market value for such instruments. There can be no assurance that a liquid secondary market will exist at any specific time. Thus, it may not be possible to close an options or futures transaction. The inability to close options and futures positions also could have an adverse impact on a Fund’s ability to effectively hedge its portfolio. Because derivatives traded in OTC markets are not guaranteed by an exchange or clearing corporation and generally do not require payment of margin, to the extent that a Fund has unrealized gains in such instruments or has deposited collateral with its counterparties the Fund is at risk that its counterparties will become bankrupt or otherwise fail to honor its obligations.

When a Fund purchases a futures contract, or writes a put option or purchases a call option thereon, it will maintain an amount of cash, cash equivalents (e.g., commercial paper and daily tender adjustable notes) or short-term high-grade fixed-income securities in a segregated account with the Fund’s custodian, so that the amount so segregated plus the amount of initial and variation margin held in the account of its broker equals the market value of the futures contract, thereby ensuring that the use of such futures contract is unleveraged.

Although certain risks are involved in options and futures transactions, the Advisors believe that, because the Funds will engage in options and futures transactions only for hedging purposes, the options and futures portfolio strategies of the Funds do not subject the Funds to certain risks frequently associated with speculation in options and futures transactions.

The successful use of these transactions depends on the ability of the Advisors to forecast correctly the direction and extent of interest rate movements within a given time frame. To the extent these rates remain stable during the period in which a futures contract is held by a Fund or move in a direction opposite to that anticipated, that Fund may realize a loss on the hedging transaction that is not fully or partially offset by an increase in the value of portfolio securities. As a result, a Fund’s total return for such period may be less than if it had not engaged in the hedging transaction. Furthermore, a Fund only engages in hedging transactions from time to time and may not necessarily be engaging in hedging transactions when movements in interest rates occur.

RISK FACTORS AND SPECIAL CONSIDERATIONS

The following information supplements the discussion of the Funds’ risk factors that are described in the Joint Proxy Statement/Prospectus and the preceding discussion of the Funds’ investment objective, policies and techniques.

Reinvestment Risk . Reinvestment risk is the risk that income from a Fund’s bond portfolio will decline if and when the Fund invests the proceeds from matured, traded, prepaid or called bonds at market interest rates that are below the portfolio’s current earnings rate. A decline in income could affect the common shares’ market price or their overall returns.

Call Risk . If interest rates fall, it is possible that issuers of securities with high interest rates will prepay or “call” their securities before their maturity dates. In this event, the proceeds from the called securities would likely be reinvested by a Fund in securities bearing the new, lower interest rates, resulting in a possible decline in the Fund’s income and distributions to shareholders.

 

S-8


Inflation Risk . Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. As inflation increases, the real value of the common shares and distributions on those shares can decline. In addition, during any periods of rising inflation, short-term rates would likely increase, which would tend to further reduce returns on any residual interest municipal tender option bonds owned by a Fund and therefore reduce returns to the holders of common shares.

Deflation Risk . Deflation risk is the risk that prices throughout the economy decline over time, which may have an adverse effect on the market valuation of companies, their assets and revenues. In addition, deflation may have an adverse effect on the creditworthiness of issuers and may make issuer default more likely, which may result in a decline in the value of a Fund’s portfolio.

Illiquid Securities Risk . The market for Municipal Bonds is generally smaller than other markets, resulting in heightened liquidity risk. Each Fund may invest in Municipal Bonds and other instruments that, at the time of investment, are illiquid. Illiquid securities are securities that are not readily marketable and may include some restricted securities, which are securities that may not be resold to the public without an effective registration statement under the Securities Act, if they are unregistered, may be sold only in a privately negotiated transaction or pursuant to an exemption from registration. Illiquid securities involve the risk that the securities will not be able to be sold at the time desired by a Fund or at prices approximating the value at which the Fund is carrying the securities on its books.

Counterparty Risk . Each Fund will be subject to credit risk with respect to the counterparties to the derivative contracts purchased by such Fund. If a counterparty becomes bankrupt or otherwise fails to perform its obligations under a derivative contract due to financial difficulties, the Fund may experience significant delays in obtaining any recovery under the derivative contract in bankruptcy or other reorganization proceeding. The Fund may obtain only a limited recovery or may obtain no recovery in such circumstances.

Management Risk . Each Fund is subject to management risk because it is an actively managed portfolio. The Advisors and the Funds’ portfolio managers apply investment techniques and risk analyses in making investment decisions for the Funds, but there can be no guarantee that these decisions will produce the desired results.

Reliance on the Advisors . Each Fund is dependent upon services and resources provided by the Advisors, and therefore the Advisors’ parent, BlackRock. BlackRock, through its own business or the financial support of its affiliates, may not be able to generate sufficient cash flow from operations or ensure that future borrowings will be available in an amount sufficient to enable it to pay its indebtedness or to fund its other liquidity needs. In addition, the Advisors are not required to devote its full time to the business of the Funds and there is no guarantee or requirement that any investment professional or other employee of the Advisors will allocate a substantial portion of his or her time to the Funds. The loss of one or more individuals involved with the Advisors could have a material adverse effect on the performance or the continued operation of the Funds. For additional information on the Advisors and BlackRock, see “Management of the Funds—The Advisors.”

Reliance on Service Providers .  Each Fund must rely upon the performance of service providers to perform certain functions, which may include functions that are integral to such Fund’s operations and financial performance. Failure by any service provider to carry out its obligations to a Fund in accordance with the terms of its appointment, to exercise due care and skill, or to perform its obligations to the Fund at all as a result of insolvency, bankruptcy or other causes could have a material adverse effect on the Fund’s performance and returns to shareholders. The termination of a Fund’s relationship with any service provider, or any delay in appointing a replacement for such service provider, could materially disrupt the business of the Fund and could have a material adverse effect on the Fund’s performance and returns to shareholders.

Information Technology Systems .  The Funds are dependent on the Advisors for certain management services as well as back-office functions. The Advisors depend on information technology systems in order to assess

 

S-9


investment opportunities, strategies and markets and to monitor and control risks for the Funds. It is possible that a failure of some kind which causes disruptions to these information technology systems could materially limit the Advisors’ ability to adequately assess and adjust investments, formulate strategies and provide adequate risk control. Any such information technology related difficulty could harm the performance of a Fund. Further, failure of the back-office functions of the Advisors to process trades in a timely fashion could prejudice the investment performance of a Fund.

Misconduct of Employees and of Service Providers . Misconduct or misrepresentations by employees of the Advisors or the Funds’ service providers could cause significant losses to the Funds. Employee misconduct may include binding a Fund to transactions that exceed authorized limits or present unacceptable risks and unauthorized trading activities or concealing unsuccessful trading activities (which, in any case, may result in unknown and unmanaged risks or losses) or making misrepresentations regarding any of the foregoing. Losses could also result from actions by a Fund’s service providers, including, without limitation, failing to recognize trades and misappropriating assets. In addition, employees and service providers may improperly use or disclose confidential information, which could result in litigation or serious financial harm, including limiting a Fund’s business prospects or future marketing activities. Despite the Advisors’ due diligence efforts, misconduct and intentional misrepresentations may be undetected or not fully comprehended, thereby potentially undermining the Advisors’ due diligence efforts. As a result, no assurances can be given that the due diligence performed by the Advisors will identify or prevent any such misconduct.

Legal, Tax and Regulatory Risks . Legal, tax and regulatory changes could occur that may materially adversely affect a Fund. For example, the regulatory and tax environment for derivative instruments in which a Fund may participate is evolving, and changes in the regulation or taxation of derivative instruments may materially adversely affect the value of derivative instruments held by the Fund and the ability of the Fund to pursue its investment strategies.

A Fund will invest in Municipal Bonds in reliance at the time of purchase on an opinion of bond counsel to the issuer that the interest paid on those securities will be excludable from gross income for Federal income tax purposes, and the Advisors will not independently verify that opinion. Subsequent to a Fund’s acquisition of such a municipal security, however, the security may be determined to pay, or to have paid, taxable income. As a result, the treatment of dividends previously paid or to be paid by a Fund as “exempt-interest dividends” could be adversely affected, subjecting a Fund’s shareholders to increased federal income tax liabilities. Under highly unusual circumstances, the Internal Revenue Service (“IRS”) may determine that a Municipal Bond issued as tax-exempt should in fact be taxable. If a Fund held such a bond, it might have to distribute taxable ordinary income dividends or reclassify as taxable income previously distributed exempt-interest dividends.

To qualify for the favorable Federal income tax treatment generally accorded to regulated investment companies, a Fund must, among other things, derive in each taxable year at least 90% of its gross income from certain prescribed sources. If for any taxable year a Fund does not qualify as a regulated investment company, all of its taxable income for that year (including its net capital gain) would be subject to tax at regular corporate rates without any deduction for distributions to shareholders, and such distributions would be taxable as ordinary dividends to the extent of a Fund’s current and accumulated earnings and profits.

Nonpayment Risk . Municipal Bonds, like other debt obligations, are subject to the risk of nonpayment. The ability of issuers of municipal securities to make timely payments of interest and principal may be adversely impacted in general economic downturns and as relative governmental cost burdens are allocated and reallocated among Federal, state and local governmental units. Such nonpayment would result in a reduction of income to a Fund and could result in a reduction in the value of the municipal security experiencing nonpayment and a potential decrease in the net asset value of the Fund.

 

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BOARD MEMBERS AND OFFICERS

The Board Members

The Board of each Fund currently consists of 10 individuals, 8 of whom are not “interested persons” of the Funds as defined in the 1940 Act (the “Independent Board Members”). Prior to December 31, 2009, the Board of each Fund had 12 Board Members. However, on December 31, 2009, Kent Dixon retired from the Board of each Fund pursuant to the Funds’ mandatory retirement policy, which requires Board Members to retire on December 31 in the year in which they turn 72. Following the retirement of Mr. Dixon, the Board of each Fund determined to reduce the number of Board Members from 12 to 11. On March 31, 2010, G. Nicholas Beckwith, III resigned from the Board of each Fund. Following Mr. Beckwith’s resignation, the Board of each Fund determined to reduce the number of Board Members from 11 to 10. As such, no persons have been nominated to replace Messrs. Beckwith or Dixon.

The registered investment companies advised by the Investment Advisor or its affiliates (the “BlackRock-Advised Funds”) are organized into one complex of closed-end funds (the “Closed-End Complex”), two complexes of open-end funds (the “Equity-Liquidity Complex,” and the “Equity-Bond Complex”) and one complex of exchange-traded funds (the “Exchange-Traded Complex”; each such complex a “BlackRock Fund Complex”). The Funds are included in the Closed-End Complex. The Board Members also oversee as board members the operations of the other closed-end registered investment companies included in the Closed-End Complex.

The Board of each Fund has overall responsibility for the oversight of its Fund. The Chair of each Board is an Independent Board Member, and the Chair of each Board committee (each, a “Committee”) is an Independent Board Member. Each Fund’s Board currently has five standing committees: an Executive Committee, an Audit Committee, a Governance and Nominating Committee, a Compliance Committee and a Performance Oversight Committee. Each Board also has one ad hoc committee, the Joint Product Pricing Committee.

The Chair of the Board’s role is to preside at all meetings of the Board, and to act as a liaison with service providers, officers, attorneys, and other Board Members generally between meetings. The Chair of each Committee performs a similar role with respect to such Committee. The Chair of the Board or a Committee may also perform such other functions as may be delegated by the Board or the Committee from time to time. The Independent Board Members meet regularly outside the presence of the Funds’ management, in executive session or with other service providers to the Funds. Each Board has regular meetings five times a year, including a meeting to consider the approval of the Funds’ investment advisory agreements, and may hold special meetings if required before its next regular meeting. Each Committee meets regularly to conduct the oversight functions delegated to that Committee by the Board and reports its findings to the Board. Each Board and each standing Committee conduct annual assessments of their oversight function and structure. Each Board has determined that the Board’s leadership structure is appropriate because it allows the Board to exercise independent judgment over management and to allocate areas of responsibility among Committees and the full Board to enhance effective oversight.

Each Board has engaged the Investment Advisor to manage its respective Fund on a day-to-day basis. Each Board is responsible for overseeing the Advisors, other service providers, the operations of its Fund and associated risk in accordance with the provisions of the 1940 Act, state law, other applicable laws, the Fund’s charter, and the Fund’s investment objective and strategies. The Boards review, on an ongoing basis, the Funds’ performance, operations, and investment strategies and techniques. The Boards also conduct reviews of the Investment Advisor and Sub-Advisor and their role in running the operations of the Funds. The Board Members and officers of MUA hold the same positions in APX.

Day-to-day risk management with respect to the Funds is the responsibility of the Investment Advisor, the Sub-Advisor or other service providers (depending on the nature of the risk), subject to the supervision of the Boards. Each Fund is subject to a number of risks, including investment, compliance, operational and valuation

 

S-11


risks, among others. While there are a number of risk management functions performed by the Advisors or other service providers, as applicable, it is not possible to eliminate all of the risks applicable to the Funds. Risk oversight is part of the Boards’ general oversight of the Funds and is addressed as part of various Board and Committee activities. The Boards, directly or through a Committee, also review reports from, among others, management, the independent registered public accounting firm for the Funds, the Sub-Advisor, and internal auditors for the Investment Advisor or its affiliates, as appropriate, regarding risks faced by the Funds and management’s or the service provider’s risk functions. The Committee system facilitates the timely and efficient consideration of matters by the Board Members, and facilitates effective oversight of compliance with legal and regulatory requirements and of the Funds’ activities and associated risks. Each Board has appointed a Chief Compliance Officer for its Fund, who oversees the implementation and testing of the Fund’s compliance programs and reports to the Board regarding compliance matters for the Fund and its service providers. The Independent Board Members have engaged independent legal counsel to assist them in performing their oversight responsibilities.

During the Funds’ most recent fiscal year, each Board met five times. During the calendar year 2009, each Board met six times. No Board Member attended less than 75% of the aggregate number of meetings of the Boards and of each committee of the Boards on which the Board Member served. It is the policy of all the Funds to encourage Board Members to attend the annual shareholders’ meeting. All of the Board Members of each Fund attended last year’s annual shareholder’s meeting.

Audit Committee . Each Board has a standing Audit Committee comprised of Karen P. Robards (Chair), Frank J. Fabozzi, James T. Flynn and W. Carl Kester, all of whom are Independent Board Members. The principal responsibilities of the Audit Committee are to assist the Board in fulfilling its oversight responsibilities relating to the accounting and financial reporting polices and practices of the Fund. The Audit Committee’s responsibilities include, without limitation: (i) approving the selection, retention, termination and compensation of the Fund’s independent registered public accounting firm (the “independent auditors”) and evaluating the independence and objectivity of the independent auditors; (ii) approving all audit engagement terms and fees for the Fund; (iii) reviewing the conduct and results of each audit and discussing the Fund’s audited and unaudited financial statements; (iv) reviewing any issues raised by the independent auditor or management regarding the accounting or financial reporting policies and practices of the Fund, its internal controls, and, as appropriate, the internal controls of certain service providers and management’s response to any such issues; (v) reviewing and discussing the Fund’s audited and unaudited financial statements and disclosure in the Fund’s shareholder reports relating to the Fund’s performance; (vi) assisting the Board in considering the performance of the Fund’s internal audit function provided by its investment adviser, administrator, pricing agent or other service provider; and (vii) resolving any disagreements between Fund management and the independent auditors regarding financial reporting.

A copy of the Audit Committee Charter for the Funds can be found at the Funds’ website at: http://www1.blackrock.com/eIndex.aspx?cmty=ind&m=ind_1&m1=ind_1_2&lo=4&eid=35929&ln=36494

Governance and Nominating Committee . Each Board has a standing Governance and Nominating Committee. Each Governance and Nominating Committee is comprised of R. Glenn Hubbard (Chair), Richard E. Cavanagh, Kathleen F. Feldstein and Jerrold B. Harris, all of whom are Independent Board Members.

The principal responsibilities of the Governance Committee are: (i) identifying individuals qualified to serve as Independent Board Members and recommending Independent Board Member nominees for election by shareholders or appointment by the Board; (ii) advising the Board with respect to Board composition, procedures and committees (other than the Audit Committee); (iii) overseeing periodic self-assessments of the Board and committees of the Board (other than the Audit Committee); (iv) reviewing and making recommendations in respect of Independent Board Member compensation; (v) monitoring corporate governance matters and making recommendations in respect thereof to the Board; and (vi) acting as the administrative committee with respect to Board policies and procedures, committee policies and procedures (other than the Audit Committee) and codes of ethics as they relate to the Independent Board Members.

 

S-12


The Governance Committee of each Board seeks to identify individuals to serve on the Board who have a diverse range of viewpoints, qualifications, experiences, backgrounds and skill sets so that the Board will be better suited to fulfill its responsibility of overseeing the Fund’s activities. In so doing, the Governance Committee reviews the size of the Board, the ages of the current Board Members and their tenure on the Board, and the skills, background and experiences of the Board Members in light of the issues facing the Fund in determining whether one or more new directors should be added to the Board. The Governance Committee believes that the Board Members as a group possess the array of skills, experiences and backgrounds necessary to guide the Fund. The Board Members’ biographies included herein highlight the diversity and breadth of skills, qualifications and expertise that the Board Members bring to the Fund.

Each Governance and Nominating Committee may consider nominations for Board Members made by the Fund’s shareholders, as it deems appropriate. Shareholders who wish to recommend a nominee should send a recommendation to the Fund’s Secretary that includes all information relating to such person that is required to be disclosed in solicitations of proxies for the election of Board Members or is required by the advance notice provision of the Fund’s By-laws. For a candidate to be considered by the Governance and Nominating Committee, a shareholder must submit the recommendation in writing and must include:

 

   

the name and record address of the shareholder, the class or series and number of shares of the Fund which are owned beneficially or of record by the shareholder, a description of all arrangements or understandings between the shareholder and each proposed candidate and any other person or persons (including their names) in connection with the nomination(s) made by the shareholder, a representation that the shareholder intends to appear in person or by proxy at the meeting to nominate the persons named in its recommendation, and any other information relating to the shareholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder; and

 

   

the name, age, business address and residential address of the candidate(s), the principal occupation or employment of the candidate(s), the class or series and number of shares of the Fund which are owned beneficially or of record by the candidate(s), if any, and any other information relating to the candidate(s) that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act.

Such recommendation must be accompanied by a written consent of each proposed candidate to being named as a nominee and to serve as a director/trustee if elected. The Governance and Nominating Committee may take into consideration the number of shares held by the recommending shareholder and the length of time that such shares have been held.

A copy of the Governance and Nominating Committee Charter for the Funds can be found at the Funds’ website at: http://www1.blackrock.com/eIndex.aspx?cmty=ind&m=ind_1&m1=ind_1_2&lo= 4&eid=35929&ln=36494

Compliance Committee . Each Fund has a Compliance Committee composed of Kathleen F. Feldstein (Chair), Richard E. Cavanagh, Jerrold B. Harris and R. Glenn Hubbard, all of whom are Independent Board Members. The Compliance Committee’s purpose is to assist the Board in fulfilling its responsibility with respect to the oversight of regulatory and fiduciary compliance matters involving the Fund, the fund-related activities of BlackRock, and any subadvisor and the Fund’s other third party service providers. The Compliance Committee’s responsibilities include, without limitation: (i) overseeing the compliance policies and procedures of the Fund and its service providers; (ii) reviewing information on and, where appropriate, recommending policies concerning the Fund’s compliance with applicable law; (iii) reviewing information on any significant correspondence with or other actions by regulators or governmental agencies with respect to the Fund and any employee complaints or published reports that raise concerns regarding compliance matters; and (iv) reviewing reports from and making certain recommendations in respect of the Fund’s Chief Compliance Officer, including,

 

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without limitation, determining the amount and structure of the Chief Compliance Officer’s compensation. The Boards have adopted a written charter for each Compliance Committee.

Performance Oversight Committee . Each Fund has a Performance Oversight Committee composed of Frank J. Fabozzi (Chair), Richard E. Cavanagh, Kathleen F. Feldstein, James T. Flynn, Jerrold B. Harris, R. Glenn Hubbard, W. Carl Kester and Karen P. Robards, all of whom are Independent Board Members. The Performance Oversight Committee’s purpose is to assist the Board in fulfilling its responsibility to oversee the Fund’s investment performance relative to the Fund’s investment objectives, policies and practices. The Performance Oversight Committee’s responsibilities include, without limitation: (i) reviewing the Fund’s investment objectives, policies and practices; (ii) recommending to the Board any required action in respect of changes in fundamental and non-fundamental investment restrictions; (iii) reviewing information on appropriate benchmarks and competitive universes; (iv) reviewing the Fund’s investment performance relative to such benchmarks; (v) reviewing information on unusual or exceptional investment matters; (vi) reviewing whether the Fund has complied with its investment polices and restrictions; and (vii) overseeing policies, procedures and controls regarding valuation of the Fund’s investments. The Boards have adopted a written charter for each Performance Oversight Committee.

Executive Committee . Each Fund has an Executive Committee composed of Richard E. Cavanagh and Karen P. Robards, both of whom are Independent Board Members, and Richard S. Davis, who serves as an interested Board Member. The principal responsibilities of the Executive Committee include, without limitation: (i) acting on routine matters between meetings of the Board; (ii) acting on such matters as may require urgent action between meetings of the Board; and (iii) exercising such other authority as may from time to time be delegated to the Executive Committee by the Board. The Boards have adopted a written charter for each Executive Committee.

Joint Product Pricing Committee . The Boards of the Equity-Liquidity Complex, the Equity-Bond Complex and the Closed-End Complex established the ad hoc Joint Product Pricing Committee comprised of nine members drawn from the members serving on the Boards of these BlackRock Fund Complexes. Ms. Karen P. Robards and Mr. Jerrold B. Harris currently are members of the Joint Product Pricing Committee representing the Closed-End Complex. Five Independent Board Members representing the Equity-Bond Complex and two Independent Board Members representing the Equity-Liquidity Complex serve on the Joint Product Pricing Committee. The Joint Product Pricing Committee is chaired by Mr. John F. O’Brien. The purpose of the Joint Product Pricing Committee is to review the components and pricing structure of the non-money market funds in the BlackRock Fund Complexes. The Joint Product Pricing Committee was formed on June 4, 2009, and for the period from June 4, 2009 to June 3, 2010, the Joint Product Pricing Committee met six times.

During the Funds’ most recent fiscal year and with respect to each Fund, the Executive Committee held one meeting, the Audit Committee held five meetings, the Governance and Nominating Committee held four meetings, the Compliance Committee held five meetings, and the Performance Oversight Committee held four meetings.

Biographical Information

Certain biographical and other information relating to the Board Members and officers of the Funds is set forth below, including their year of birth, their principal occupation for at least the last five years, the length of time served, the total number of investment companies overseen in the complex of funds advised by the Investment Advisor or its affiliates (the “Fund Complex”) and any public directorships or trusteeships. Board Members serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. The officers of the Funds serve at the pleasure of the Board Members or until their successors have been duly elected and qualified.

 

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Name, Address
and Year of Birth

 

Position(s)
Held with
Fund

 

Length
of Time
Served*

 

Principal Occupation(s)
During Past Five Years

 

Number of
BlackRock-Advised
Registered Investment
Companies (“RICs”)
Consisting  of
Investment Portfolios
(“Portfolios”)
Overseen**

 

Other Public
Company or
Investment
Company
Directorships
Held During
Past Five Years***

Non-Interested Directors

         

Richard E. Cavanagh

55 East 52nd Street

New York, NY

10055

 

1946

  Director and Chair of the Board   2007 to present   Trustee, Aircraft Finance Trust from 1999 to 2009; Director, The Guardian Life Insurance Company of America since 1998; Trustee, Educational Testing Service from 1997 to 2009 and Chairman thereof from 2005 to 2009; Senior Advisor, the Fremont Group since 2008 and Director thereof since 1996; Adjunct Lecturer, Harvard University since 2007; President and Chief Executive Officer, The Conference Board, Inc. (global business research organization) from 1995 to 2007.  

100 RICs consisting of

98 Portfolios

  Arch Chemicals (chemical and allied products)

Karen P. Robards

55 East 52nd Street

New York, NY

10055

 

1950

 

Director, Vice Chair of the Board

and Chair

of the Audit Committee

  2007 to present   Partner of Robards & Company, LLC (financial advisory firm) since 1987; Co-founder and Director of the Cooke Center for Learning and Development (a not-for-profit organization) since 1987; Director of Enable Medical Corp. from 1996 to 2005; Investment Banker at Morgan Stanley from 1976 to 1987.  

100 RICs consisting of

98 Portfolios

  AtriCure, Inc. (medical devices); Care Investment Trust, Inc. (health care REIT)

Frank J. Fabozzi

55 East 52nd Street

New York, NY

10055

 

1948

  Director and Member of the Audit Committee   2007 to present   Consultant/Editor of The Journal of Portfolio Management since 2006; Professor in the Practice of Finance and Becton Fellow, Yale University, School of Management since 2006; Adjunct Professor of Finance and Becton Fellow, Yale University from 1994 to 2006.  

100 RICs consisting of

98 Portfolios

  None

Kathleen F. Feldstein

55 East 52nd Street

New York, NY

10055

 

1941

  Director   2007 to present   President of Economics Studies, Inc. (private economic consulting firm) since 1987; Chair, Board of Trustees, McLean Hospital from 2000 to 2008 and Trustee Emeritus since 2008; Member of the Board of Partners Community Healthcare, Inc. from 2005 to 2009; Member of the Corporation of Partners HealthCare since 1995; Trustee, Museum of Fine Arts, Boston since 1992; Member of the Visiting Committee to the Harvard University Art Museum since 2003; Director, Catholic Charities of Boston since 2009.  

100 RICs consisting of

98 Portfolios

 

The McClatchy Company (publishing); BellSouth

(telecommunications);

Knight Ridder

(publishing)

James T. Flynn

55 East 52nd Street

New York, NY

10055

 

1939

  Director and Member of the Audit Committee   2007 to present   Chief Financial Officer of JPMorgan & Co., Inc. from 1990 to 1995.  

100 RICs consisting of

98 Portfolios

  None

 

S-15


Name, Address
and Year of Birth

 

Position(s)
Held with
Fund

 

Length
of Time
Served*

 

Principal Occupation(s)
During Past Five Years

 

Number of
BlackRock-Advised
Registered Investment
Companies (“RICs”)
Consisting  of
Investment Portfolios
(“Portfolios”)
Overseen**

 

Other Public
Company or
Investment
Company
Directorships
Held During
Past Five Years***

Jerrold B. Harris

55 East 52nd Street

New York, NY

10055

 

1942

  Director   2007 to present   Trustee, Ursinus College since 2000; Director, Troemner LLC (scientific equipment) since 2000; Director of Delta Waterfowl Foundation since 2001; President and Chief Executive Officer, VWR Scientific Products Corporation from 1990 to 1999.  

100 RICs consisting of

98 Portfolios

  BlackRock Kelso Capital Corp. (business development company)

R. Glenn Hubbard

55 East 52nd Street

New York, NY

10055

 

1958

  Director   2007 to present   Dean, Columbia Business School since 2004; Columbia faculty member since 1988; Co-Director, Columbia Business School’s Entrepreneurship Program from 1997 to 2004; Chairman, U.S. Council of Economic Advisers under the President of the United States from 2001 to 2003; Chairman Economic Policy Committee of the OECD from 2001 to 2003.  

100 RICs consisting of

98 Portfolios

  ADP (data and information services); KKR Financial Corporation (finance); Metropolitan Life Insurance Company (insurance)

W. Carl Kester

55 East 52nd Street

New York, NY

10055

 

1951

  Director and Member of the Audit Committee   2007 to present   George Fisher Baker Jr. Professor of Business Administration, Harvard Business School; Deputy Dean for Academic Affairs since 2006; Unit Head, Finance, Harvard Business School from 2005 to 2006; Senior Associate Dean and Chairman of the MBA Program of Harvard Business School from 1999 to 2005; Member of the Faculty of Harvard Business School since 1981; Independent Consultant since 1978.  

100 RICs consisting of

98 Portfolios

  None

Interested Directors†

         

Richard S. Davis

55 East 52nd Street

New York, NY

10055

 

1945

  Director   2007 to present   Managing Director, BlackRock, Inc. since 2005; Chief Executive Officer, State Street Research & Management Company from 2000 to 2005; Chairman of the Board of Trustees, State Street Research Mutual Funds from 2000 to 2005; Chairman, SSR Realty from 2000 to 2004.   170 RICs consisting of 291 Portfolios   None

 

S-16


Name, Address
and Year of Birth

 

Position(s)
Held with
Fund

 

Length
of Time
Served*

 

Principal Occupation(s)
During Past Five Years

 

Number of
BlackRock-Advised
Registered Investment
Companies (“RICs”)
Consisting  of
Investment Portfolios
(“Portfolios”)
Overseen**

 

Other Public
Company or
Investment
Company
Directorships
Held During
Past Five Years***

Henry Gabbay

55 East 52nd Street

New York, NY

10055

 

1947

  Director   2007 to present   Consultant, BlackRock, Inc. from 2007 to 2008; Managing Director, BlackRock, Inc. from 1989 to 2007; Chief Administrative Officer, BlackRock Advisors, LLC from 1998 to 2007; President of BlackRock Funds and BlackRock Bond Allocation Target Shares from 2005 to 2007; Treasurer of certain closed-end funds in the Closed-End Complex from 1989 to 2006.   170 RICs consisting of 291 Portfolios   None

 

* Following the combination of Merrill Lynch Investment Managers, L.P. (“MLIM”) and BlackRock in September 2006, the various legacy MLIM and legacy BlackRock fund boards were realigned and consolidated into three new fund boards in 2007. As a result, although the chart shows certain Board Members as joining the Board in 2007, each Board Member first became a member of the Board of Directors/Trustees of other legacy MLIM or legacy BlackRock funds as follows: Richard E. Cavanagh since 1994; Richard S. Davis since 2007; Frank J. Fabozzi since 1988; Kathleen F. Feldstein since 2005; James T. Flynn since 1996; Henry Gabbay since 2007; Jerrold B. Harris since 1999; R. Glenn Hubbard since 2004; W. Carl Kester since 1998; and Karen P. Robards since 1998. Board Members serve until their resignation, removal or death, or until December 31 of the year in which they turn 72.
** For purposes of this chart, “RICs” refers to the legal investment companies into which investors invest and “Portfolios” refers to the investment programs of the Funds. The Closed-End Complex is comprised of 99 RICs. Some of the RICs have the same investment program because they invest through a master-feeder structure, which results in the smaller number of Portfolios than RICs.
*** Directorships disclosed under this column do not include directorships disclosed under the column “Principal Occupation(s) During Past Five Years.”
Messrs. Davis and Gabbay are “interested persons” (as defined in the 1940 Act) of the Fund by virtue of their current or former positions with BlackRock Advisors, LLC, BlackRock Capital Management, Inc. or BlackRock Financial Management, Inc. (collectively, “BlackRock Advisors”), each a wholly owned subsidiary of BlackRock, Inc., and their ownership of BlackRock, Inc. and The PNC Financial Service Group, Inc. securities.

Board Member Qualifications

The Independent Board Members have adopted a statement of policy that describes the experiences, qualifications, skills and attributes that are necessary and desirable for potential Independent Board Member candidates (the “Statement of Policy”). The Boards believe that each Independent Board Member satisfied, at the time he or she was initially elected or appointed a Board Member, and continues to satisfy, the standards contemplated by the Statement of Policy. Furthermore, in determining that a particular Board Member was and continues to be qualified to serve as a Board Member, the Boards have considered a variety of criteria, none of which, in isolation, was controlling. The Boards believe that, collectively, the Board Members have balanced and diverse experiences, skills, attributes and qualifications, which allow the Boards to operate effectively in governing the Funds and protecting the interests of shareholders. Among the attributes common to all Board Members is their ability to review critically, evaluate, question and discuss information provided to them, to interact effectively with the Investment Advisor, the Sub-Advisor, other service providers, counsel and independent auditors, and to exercise effective business judgment in the performance of their duties as Board Members. Each Board Member’s ability to perform his or her duties effectively is evidenced by his or her educational background or professional training; business, consulting, public service or academic positions; experience from service as a board member of the Funds or the other funds in the BlackRock fund complexes (and any predecessor funds), other investment funds, public companies, or not-for-profit entities or other organizations; ongoing commitment and participation in Board and committee meetings, as well as their leadership of standing and ad hoc committees throughout the years; or other relevant life experiences.

 

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The table below discusses some of the experiences, qualifications and skills of each of the Board Members that support the conclusion that they should serve on the Boards.

 

Director

  

Experience, Qualifications and Skills

Richard E. Cavanagh

   Mr. Cavanagh brings to the Boards a wealth of practical business knowledge and leadership as an experienced director/trustee of various public and private companies. In particular, because Mr. Cavanagh served for over a decade as President and Chief Executive Officer of The Conference Board, Inc., a global business research organization, he is able to provide the Boards with expertise about business and economic trends and governance practices. Mr. Cavanagh created the “blue ribbon” Commission on Public Trust and Private Enterprise in 2002, which recommended corporate governance enhancements. Mr. Cavanagh’s service as a director of The Guardian Life Insurance Company of America and as a senior advisor and director of The Fremont Group provides added insight into investment trends and conditions. Mr. Cavanagh’s long-standing service on the Boards also provides him with a specific understanding of the Funds, their operations, and the business and regulatory issues facing the Funds. Mr. Cavanagh’s independence from the Funds and the Funds’ investment adviser enhances his service as Chair of the Boards, Chair of the ad hoc AMPS Committee, Chair of the Executive Committee and as a member of the Governance and Nominating Committee, Compliance Committee and Performance Oversight Committee.

Karen P. Robards

   The Boards benefit from Ms. Robards’s many years of experience in investment banking and the financial advisory industry where she obtained extensive knowledge of the capital markets and advised clients on corporate finance transactions, including mergers and acquisitions and the issuance of debt and equity securities. Ms. Robards’s prior position as an investment banker at Morgan Stanley provides useful oversight of the Funds’ investment decisions and investment valuation processes. Additionally, Ms. Robards’s experience derived from serving as a director of Care Investment Trust, Inc., a health care real estate investment trust, provides the Boards with the benefit of her experience with the management practices of other financial companies. Ms. Robards’s long-standing service on the Boards also provides her with a specific understanding of the Funds, their operations, and the business and regulatory issues they face. Ms. Robards’s knowledge of financial and accounting matters qualifies her to serve as Vice Chair of the Boards and as the Chair of the Funds’ Audit Committee. Ms. Robards’s independence from the Funds and the Funds’ investment adviser enhances her service as a member of the Performance Oversight Committee and Executive Committee. In addition, Ms. Robards is a member of the Joint Product Pricing Committee.

 

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Director

  

Experience, Qualifications and Skills

Frank J. Fabozzi

   Dr. Fabozzi holds the designation of Chartered Financial Analyst and Certified Public Accountant. Dr. Fabozzi was inducted into the Fixed Income Analysts Society’s Hall of Fame and is the 2007 recipient of the C. Stewart Sheppard Award given by the CFA Institute. The Boards benefit from Dr. Fabozzi’s experiences as a professor and author in the field of finance. Dr. Fabozzi’s experience as a Professor in the Practice of Finance and Becton Fellow at the Yale University School of Management and as editor of the Journal of Portfolio Management demonstrate his wealth of expertise in the investment management and structured finance areas. Dr. Fabozzi has authored and edited numerous books and research papers on topics in management and financial econometrics, and his writings have focused on fixed income securities and portfolio management, many of which are considered standard references in the investment management industry. Dr. Fabozzi’s long-standing service on the Boards also provides him with a specific understanding of the Funds, their operations, and the business and regulatory issues facing the Funds. Moreover, Dr. Fabozzi’s knowledge of financial and accounting matters qualifies him to serve as a member of the Funds’ Audit Committee. Dr. Fabozzi’s independence from the Funds and the Funds’ investment adviser enhances his service as Chair of the Performance Oversight Committee.

Kathleen F. Feldstein

   Dr. Feldstein, who is President of Economics Studies, Inc., an economic consulting firm, benefits the Boards by providing business leadership and experience and knowledge of economics. The Boards benefit from Dr. Feldstein’s experience as a director/trustee of publicly traded and private companies, including financial services, technology and telecommunications companies. Dr. Feldstein’s long-standing service on the Boards also provides her with a specific understanding of the Funds, their operations, and the business and regulatory issues facing the Funds. In addition, Dr. Feldstein’s independence from the Funds and the Funds’ investment adviser enhances her service as Chair of the Compliance Committee and a member of the Governance and Nominating Committee and Performance Oversight Committee.

James T. Flynn

   Mr. Flynn brings to the Boards a broad and diverse knowledge of business and capital markets as a result of his many years of experience in the banking and financial industry. Mr. Flynn’s five years as the Chief Financial Officer of JP Morgan & Co. provide the Boards with experience on financial reporting obligations and oversight of investments. Mr. Flynn’s long-standing service on the Boards also provides him with a specific understanding of the Funds, their operations, and the business and regulatory issues facing the Funds. Mr. Flynn’s knowledge of financial and accounting matters qualifies him to serve as a member of the Funds’ Audit Committee. Mr. Flynn’s independence from the Funds and the Funds’ investment adviser enhances his service as a member of the Performance Oversight Committee.

 

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Director

  

Experience, Qualifications and Skills

Jerrold B. Harris

   Mr. Harris’s time as President and Chief Executive Officer of VWR Scientific Products Corporation brings to the Boards business leadership and experience and knowledge of the chemicals industry and national and international product distribution. Mr. Harris’s position as a director of BlackRock Kelso Capital Corporation brings to the Boards the benefit of his experience as a director of a business development company governed by the 1940 Act and allows him to provide the Boards with added insight into the management practices of other financial companies. Mr. Harris’s long-standing service on the Boards also provides him with a specific understanding of the Funds, their operations and the business and regulatory issues facing the Funds. Mr. Harris’s independence from the Funds and the Funds’ investment adviser fosters his role as a member of the Governance and Nominating Committee, Compliance Committee and Performance Oversight Committee. In addition, Mr. Harris is a member of the Joint Product Pricing Committee.

R. Glenn Hubbard

   Dr. Hubbard has served in numerous roles in the field of economics, including as the Chairman of the U.S. Council of Economic Advisers of the President of the United States. Dr. Hubbard serves as the Dean of Columbia Business School, has served as a member of the Columbia Faculty and as a Visiting Professor at the John F. Kennedy School of Government at Harvard University, the Harvard Business School and the University of Chicago. Dr. Hubbard’s experience as an adviser to the President of the United States adds a dimension of balance to the Funds’ governance and provides perspective on economic issues. Dr. Hubbard’s service on the boards of KKR Financial Corporation, ADP and Metropolitan Life Insurance Company provides the Boards with the benefit of his experience with the management practices of other financial companies. Dr. Hubbard’s long-standing service on the Boards also provides him with a specific understanding of the Funds, their operations, and the business and regulatory issues facing the Funds. Dr. Hubbard’s independence from the Funds and the Funds’ investment adviser enhances his service as the Chair of the Governance and Nominating Committee and a member of the Compliance Committee and Performance Oversight Committee.

W. Carl Kester

   The Boards benefit from Dr. Kester’s experiences as a professor and author in finance, and his experience as the George Fisher Baker Jr. Professor of Business Administration at Harvard Business School and as Deputy Dean of Academic Affairs at Harvard Business School adds to the Boards a wealth of expertise in corporate finance and corporate governance. Dr. Kester has authored and edited numerous books and research papers on both subject matters, including co-editing a leading volume of finance case studies used worldwide. Dr. Kester’s long-standing service on the Boards also provides him with a specific understanding of the Funds, their operations, and the business and regulatory issues facing the Funds. Dr. Kester’s knowledge of financial and accounting matters qualifies him to serve as a member of the Funds’ Audit Committee. In addition, Dr. Kester’s independence from the Funds and the Funds’ investment adviser enhances his service as a member of the Performance Oversight Committee.

 

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Director

  

Experience, Qualifications and Skills

Richard S. Davis

   The Boards benefit from Mr. Davis’s experience as a Managing Director of BlackRock, Inc. and Chief Executive Officer of State Street Research & Management Company in light of his business leadership and experience. Mr. Davis’s experiences as the Chairman of State Street Research Mutual Funds and SSR Realty provide the Boards with practical business knowledge and leadership in the investment management industry. Mr. Davis’s long-standing service on the Boards also provides him with a specific understanding of the Funds, their operations, and the business and regulatory issues facing the Funds. Mr. Davis serves as a member of the Executive Committee.

Henry Gabbay

   The Boards benefit from Dr. Gabbay’s many years of experience in administration, finance and financial services operations. Dr. Gabbay’s experience as a Managing Director of BlackRock, Inc., Chief Administrative Officer of BlackRock Advisors, LLC and President of BlackRock Funds provides the Boards with insight into investment company operational, financial and investment matters. Dr. Gabbay’s former positions as Chief Administrative Officer of BlackRock Advisors, LLC and as Treasurer of certain funds in the Closed-End Complex provide the Boards with direct knowledge of the operations of the Funds and their investment adviser. Dr. Gabbay’s long-standing service on the Boards also provides him with a specific understanding of the Funds, their operations, and the business and regulatory issues facing the Funds.

The Executive Officers

The executive officers of each Fund, their year of birth and their principal occupations during the past five years (their titles may have varied during that period) are shown in the table below. The address of each officer is c/o BlackRock, Inc., Park Avenue Plaza, 55 East 52 nd Street, New York, New York 10055.

Each executive officer is an “interested person” of the Funds (as defined in the 1940 Act) by virtue of that individual’s position with BlackRock or its affiliates described in the table below.

 

Name, Address
and
Year of Birth

  

Position(s) Held
with Funds

  

Length of

Time Served

  

Principal Occupations(s)

During Past 5 Years

Anne F. Ackerley

55 East 52nd Street

New York, NY

10055

 

1962

   President and Chief Executive Officer    Since 2007*    Managing Director of BlackRock, Inc. since 2000; Vice President of the BlackRock-advised funds from 2007 to 2009; Chief Operating Officer of BlackRock’s Global Client Group since 2009; Chief Operating Officer of BlackRock’s U.S. Retail Group from 2006 to 2009; Head of BlackRock’s Mutual Fund Group from 2000 to 2006.

Brendan Kyne

55 East 52nd Street

New York, NY

10055

 

1977

   Vice President    Since 2009    Managing Director of BlackRock, Inc. since 2010; Director of BlackRock, Inc. from 2008 to 2009; Head of Product Development and Management for BlackRock’s U.S. Retail Group since 2009; Co-head of Product Development and Management for BlackRock’s U.S. Retail Group from 2007 to 2009; Vice President of BlackRock, Inc. from 2005 to 2008.

 

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Name, Address
and
Year of Birth

  

Position(s) Held
with Funds

  

Length of

Time Served

  

Principal Occupations(s)

During Past 5 Years

Neal J. Andrews

55 East 52nd Street

New York, NY

10055

 

1966

   Chief Financial Officer    Since 2007    Managing Director of BlackRock, Inc. since 2006; Senior Vice President and Line of Business Head of Fund Accounting and Administration at PNC Global Investment Servicing (US) Inc. from 1992 to 2006.

Jay M. Fife

55 East 52nd Street

New York, NY

10055

 

1970

   Treasurer    Since 2007    Managing Director of BlackRock, Inc. since 2007; Director of BlackRock, Inc. in 2006; Assistant Treasurer of the Merrill Lynch Investment Managers, L.P. (“MLIM”) and Fund Asset Management L.P. advised Funds from 2005 to 2006; Director of MLIM Fund Services Group from 2001 to 2006.

Brian P. Kindelan

55 East 52nd Street

New York, NY

10055

 

1959

   Chief Compliance Officer    Since 2007    Chief Compliance Officer of the BlackRock - advised Funds since 2007; Managing Director and Senior Counsel of BlackRock, Inc. since 2005.

Howard B. Surloff

55 East 52nd Street

New York, NY

10055

 

1965

   Secretary    Since 2007    Managing Director and General Counsel of U.S. Funds of BlackRock, Inc. since 2006; General Counsel (U.S.) of Goldman Sachs Asset Management, L.P. from 1993 to 2006.

 

* Ms. Ackerley has been President and Chief Executive Officer since 2009 and was Vice President from 2007 to 2009.

With the exception of the CCO, executive officers receive no compensation from the Funds. The Funds compensate the CCO for his services as their CCO.

Indemnification of Board Members and Officers

The governing documents of each Fund generally provide that, to the extent permitted by applicable law, the Fund will indemnify its Board Members and officers against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with the Fund unless, as to liability to the Fund or its investors, it is finally adjudicated that they engaged in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in their offices. In addition, the Fund will not indemnify Board Members with respect to any matter as to which Board Members did not act in good faith in the reasonable belief that his or her action was in the best interest of the Fund or, in the case of any criminal proceeding, as to which Board Members had reasonable cause to believe that the conduct was unlawful. Indemnification provisions contained in a Fund’s governing documents are subject to any limitations imposed by applicable law.

The Funds in the Closed-End Complex have also entered into a separate indemnification agreement with the Board Members of each Board (the “Indemnification Agreement”). The Indemnification Agreement (i) extends the indemnification provisions contained in a Fund’s governing documents to Board Members who leave that Fund’s Board and serve on an advisory board of a different fund in the Closed-End Complex; (ii) sets in place the terms of the indemnification provisions of a Fund’s governing documents once a Board Member retires from a Board; and (iii) in the case of Board Members who left the Board of a Fund in connection with or prior to the board consolidation that occurred in 2007 as a result of the merger of BlackRock and Merrill Lynch & Co., Inc.’s investment management business, clarifies that such Fund continues to indemnify the Board Member for claims arising out of his or her past service to that Fund.

 

S-22


Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities and Exchange Act of 1934 requires the Funds’ Board Members, executive officers, persons who own more than ten percent of a registered class of a Fund’s equity securities, the Investment Advisor and certain officers of the Investment Advisor, to file reports on holdings of, and transactions in, Fund shares with the SEC and to furnish the Funds with copies of all such reports. Based solely on a review of copies of such reports furnished to the relevant Funds and representations from these reporting persons, each Fund believes that its Board Members, executive officers, ten percent holders, the Investment Advisor and certain officers of the Investment Advisor met all applicable SEC filing requirements except for the one late Form 4 relating to MUA’s most recently concluded fiscal year listed below:

 

Fund

   Filing Person   

Number of Late Reports and

Number of Related Transactions

MUA

   Peter Hayes    One Form 4 relating to two transactions

Share Ownership

Information relating to each Board Member’s share ownership in each Fund and in the other funds in the Closed-End Complex that are overseen by the respective Board Member (“Supervised Funds”) as of December 31, 2009 is set forth in the chart below:

 

Name of Board Member

   Aggregate Dollar Range
of Equity Securities in
MUA
   Aggregate Dollar Range
of Equity Securities in
APX
   Aggregate Dollar Range
of Equity Securities in
Supervised Funds

Richard E. Cavanagh

   $1-$10,000    $1-$10,000    Over $100,000

Richard S. Davis

   None    None    Over $100,000

Frank J. Fabozzi

   $1-$10,000    $1-$10,000    $50,001-$100,000

Kathleen F. Feldstein

   None    None    $10,001-$50,000

James T. Flynn

   None    None    Over $100,000

Henry Gabbay

   None    $10,001-$50,000    Over $100,000

Jerrold B. Harris

   $1-$10,000    $1-$10,000    $50,001-$100,000

R. Glenn Hubbard

   None    None    $50,001-$100,000

W. Carl Kester

   None    None    Over $100,000

Karen P. Robards

   None    None    $50,001-$100,000

Name of Board Member

   Aggregate Dollar
Range of Share
Equivalents in
MUA
   Aggregate Dollar
Range of Share
Equivalents in
APX
   Aggregate Dollar Range
of Equity Securities and
Share Equivalents  in
Supervised Funds

Richard E. Cavanagh

   None    None    Over $100,000

Kent Dixon

   None    None    Over $100,000

Frank J. Fabozzi

   None    None    Over $100,000

Kathleen F. Feldstein

   None    None    Over $100,000

James T. Flynn

   None    None    Over $100,000

Henry Gabbay

   None    None    Over $100,000

Jerrold B. Harris

   None    None    Over $100,000

R. Glenn Hubbard

   None    None    Over $100,000

W. Carl Kester

   None    None    Over $100,000

Karen P. Robards

   None    None    Over $100,000

As of December 31, 2009, the officers and Board Members as a group owned an aggregate of less than 1% of the outstanding shares of any Supervised Fund. As of December 31, 2009, none of the Independent Board Members of the Funds or their immediate family members owned beneficially or of record any securities of BlackRock or any affiliate of BlackRock.

 

S-23


Compensation of Board Members

Each Board Member who is not an “interested person” (as defined in the 1940 Act) (the “Independent Board Members”), is paid an annual retainer of $250,000 per year for his or her services as a Board Member of the Supervised Funds and each Board Member may also receive a $10,000 board meeting fee for special unscheduled meetings or meetings in excess of six Board meetings held in a calendar year, together with out-of-pocket expenses in accordance with a Board policy on travel and other business expenses relating to attendance at meetings. In addition, the Chair and Vice-Chair of the Boards are paid an additional annual retainer of $120,000 and $40,000, respectively. The Chairs of the Audit Committee, Compliance Committee, Governance and Nominating Committee, and Performance Oversight Committee are paid an additional annual retainer of $35,000, $20,000, $10,000, and $20,000, respectively. Each Audit Committee member is paid an additional annual retainer of $25,000. For the year ended December 31, 2009, the Supervised Funds reimbursed Independent Board Member expenses in an aggregate amount of $50,726.

Dr. Gabbay is an interested person of the Funds and serves as an interested Board Member of three groups of BlackRock-advised funds—one complex of closed-end funds (the “Closed-End Complex”) and two complexes of open-end funds (the “Equity-Liquidity Complex” and the “Equity-Bond Complex”; each such complex, a “BlackRock Fund Complex”). Dr. Gabbay receives for his services as a Board Member of such BlackRock Fund Complexes (i) an annual retainer of $487,500 allocated to the funds in these three BlackRock Fund Complexes, including the Funds, based on their net assets and (ii) with respect to each of the two open-end BlackRock Fund Complexes, a Board meeting fee of $3,750 (with respect to meetings of the Equity-Liquidity Complex) and $18,750 (with respect to meetings of the Equity-Bond Complex) to be paid for attendance at each Board meeting up to five Board meetings held in a calendar year by each such complex (compensation for meetings in excess of this number to be determined on a case-by-case basis). Dr. Gabbay is also reimbursed for out-of-pocket expenses in accordance with a Board policy on travel and other business expenses relating to attendance at meetings. Dr. Gabbay’s compensation for serving on the boards of the funds in these BlackRock Fund Complexes (including the Funds) is equal to 75% of each retainer and, as applicable, of each meeting fee (without regard to additional fees paid to Board and Committee chairs) received by the Independent Board Members serving on such boards. The Boards of the Funds or of any other fund in a BlackRock Fund Complex may modify the Board Members’ compensation from time to time depending on market conditions and Dr. Gabbay’s compensation would be impacted by those modifications.

Each Fund pays a pro rata portion quarterly (based on the relative net assets) of the foregoing Board Member fees paid by the funds in the Closed-End Complex for which they serve.

The Independent Board Members have agreed that a maximum of 50% of each Independent Board Member’s total compensation paid by funds in the Closed-End Complex may be deferred pursuant to the Closed-End Complex’s deferred compensation plan. Under the deferred compensation plan, deferred amounts earn a return for the Independent Board Members as though equivalent dollar amounts had been invested in common shares of certain funds in the Closed-End Complex selected by the Independent Board Members. This has approximately the same economic effect for the Independent Board Members as if they had invested the deferred amounts in such other funds in the Closed-End Complex. The deferred compensation plan is not funded and obligations thereunder represent general unsecured claims against the general assets of a fund. A fund may, however, elect to invest in common shares of those funds in the Closed-End Complex selected by the Independent Board Members in order to match its deferred compensation obligation.

The following table sets forth the aggregate compensation, including deferred compensation amounts, paid to each Independent Board Member and Dr. Gabbay by each Fund during its most recently completed fiscal year and by the Closed-End Complex for the most recently completed calendar year.

 

S-24


     Aggregate
Compensation
from MUA (1)
   Aggregate
Compensation
from APX (1)
   Total
Compensation
from  Closed-End
Complex (13)
   Number of Funds in
Closed-End
Complex Overseen
by Board Member

Richard E. Cavanagh (2)

   $ 3,469    $ 2,388    $ 370,448    99

Frank J. Fabozzi (3)

   $ 2,766    $ 1,904    $ 295,538    99

Kathleen F. Feldstein (4)

   $ 2,531    $ 1,742    $ 270,046    99

R. Glenn Hubbard (5)(11)

   $ 2,438    $ 1,678    $ 263,824    99

G. Nicholas Beckwith, III (6)

   $ 2,151    $ 1,480    $ 250,000    Resigned

James T. Flynn (7)

   $ 2,578    $ 1,775    $ 275,000    99

Jerrold B. Harris (8)

   $ 2,344    $ 1,613    $ 250,000    99

W. Carl Kester (9)

   $ 2,578    $ 1,775    $ 275,000    99

Karen P. Robards (10)

   $ 3,281    $ 2,258    $ 350,000    99

Henry Gabbay (11)

   $ 891    $ 614    $ 140,625    99

Kent Dixon (12)

   $ 1,728    $ 1,189    $ 275,604    Retired

 

(1)

Information is for the Fund’s most recent fiscal year.

(2)

Total amount of deferred compensation payable by the Closed-End Complex to Board Member is $375,666 as of 12/31/09.

(3)

Total amount of deferred compensation payable by the Closed-End Complex to Board Member is $313,845 as of 12/31/09.

(4)

Total amount of deferred compensation payable by the Closed-End Complex to Board Member is $279,895 as of 12/31/09.

(5)

Dr. Hubbard previously participated in the deferred compensation plan and is owed $622,312 by the Closed-End Complex as of 12/31/09 pursuant to such plan.

(6)

Mr. Beckwith resigned from the Board on March 31, 2010. Mr. Beckwith previously participated in the deferred compensation plan and is owed $311,251 by the Closed-End Complex as of 12/31/09 pursuant to such plan.

(7)

Total amount of deferred compensation payable by the Closed-End Complex to Board Member is $342,376 as of 12/31/09.

(8)

Total amount of deferred compensation payable by the Closed-End Complex to Board Member is $311,251 as of 12/31/09.

(9)

Total amount of deferred compensation payable by the Closed-End Complex to Board Member is $186,750 as of 12/31/09.

(10)

Total amount of deferred compensation payable by the Closed-End Complex to Board Member is $180,290 as of 12/31/09.

(11)

As of December 31, 2009 the Board Member did not participate in the deferred compensation plan. During the calendar year 2009, Dr. Gabbay also received $46,875 from BlackRock Advisors, LLC as compensation for his service as a Board Member during the calendar year 2008.

(12)

Mr. Dixon retired from the Board on December 31, 2009. Mr. Dixon previously participated in the deferred compensation plan and was paid $209,072 by the Closed-End Complex, the full amount of his deferred compensation following his retirement.

(13)

Represents the aggregate compensation earned by such persons from the Closed-End Complex during the calendar year ended December 31, 2009. Of this amount, Mr. Cavanagh, Dr. Fabozzi, Dr. Feldstein, Mr. Beckwith, Mr. Flynn, Mr. Harris, Dr. Kester and Ms. Robards deferred $37,000, $14,750, $81,000, $125,000, $137,500, $125,000, $75,000 and $35,000, respectively, pursuant to the Closed-End Complex’s deferred compensation plan. Includes amounts received by Mr. Cavanagh, Dr. Fabozzi, Dr. Feldstein, Dr. Hubbard and Mr. Dixon during the calendar year ended December 31, 2009, due to deferred compensation payments in connection with term trust liquidations.

 

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INVESTMENT MANAGEMENT AGREEMENTS

Investment Management Agreement

The investment management agreement between each Fund and the Investment Advisor was approved by the respective Fund’s Boards, including a majority of the Independent Board Members. Certain administrative services are also provided to the Funds by the Investment Advisor pursuant to the investment management agreement between each Fund and the Investment Advisor. The Investment Advisor and its affiliates provide each Fund with services such as: preparing shareholder reports and communications, including annual and semi-annual financial statements and the Funds’ websites; communications with analysts to support secondary market trading; assisting with daily accounting and pricing; preparing periodic filings with regulators and stock exchanges; overseeing and coordinating the activities of other service providers; administering and organizing Board meetings and preparing the Board materials for such meetings; providing legal and compliance support (such as helping to prepare proxy statements and responding to regulatory inquiries); and performing other Fund administrative tasks necessary for the operation of the respective Fund (such as tax reporting and fulfilling regulatory filing requirements).

The investment management agreement between the Investment Advisor and MUA provides for MUA to pay a management fee of 0.55% of MUA’s average daily total assets. MUA also reimburses the Investment Advisor for all out-of-pocket expenses the Investment Advisor incurs in connection with performing administrative services for MUA.

The investment management agreement between the Investment Advisor and APX provides for APX to pay a management fee of 0.65% of APX’s average daily total assets.

“Total assets” means the total assets of the Fund (including any assets attributable to money borrowed for investment purposes) minus the sum of the Fund’s accrued liabilities (other than money borrowed for investment purposes). For the avoidance of doubt, assets attributable to money borrowed for investment purposes includes the portion of the Fund’s assets in a TOBs Issuer of which the Fund owns the TOBs Residual.

Prior to September 29, 2006, Fund Asset Management, L.P. (“FAM”), an indirect wholly owned subsidiary of Merrill Lynch & Co., Inc. (“Merrill Lynch”), acted as each Fund’s investment adviser and was compensated according to the same investment advisory fee rate as the Investment Advisor discussed above.

The investment management agreements continue in effect for a period of two years from their respective effective dates, and if not terminated earlier, 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 applicable Fund’s Board or the vote of a majority of the securities of the applicable Fund at the time outstanding and entitled to vote (as such term is defined in the 1940 Act) and (2) by the vote of a majority of the Independent Board Members of the applicable Fund, cast in person at a meeting called for the purpose of voting on such approval. The agreements may be terminated at any time, without the payment of any penalty, by each Fund (upon the vote of a majority of the applicable Fund’s Board or a majority of the outstanding voting securities of the applicable Fund) or by the Investment Advisor, upon 60 days’ written notice by either party to the other which can be waived by the non-terminating party. The agreements will terminate automatically in the event of their assignment (as such term is defined in the 1940 Act and the rules thereunder).

The investment management agreements provide that the Investment Advisor will not be liable for any error of judgment or mistake of law or for any loss suffered by a Fund in connection with the performance of the investment management agreements, except a loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services or a loss resulting from willful misfeasance, bad faith or gross negligence on the Investment Advisor’s part in the performance of its duties or from reckless disregard by the Investment Advisor of its duties under the investment management agreement. The investment management agreements also

 

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provide for indemnification by each Fund of the Investment Advisor, its directors, officers, employees, agents and control persons for liabilities incurred by them in connection with their services to each Fund, subject to certain limitations and conditions.

The Investment Advisor will devote such time and effort to the business of each Fund as is reasonably necessary to perform its duties to each Fund. However, the services of the Investment Advisor are not exclusive, and the Investment Advisor provides similar services to other investment companies and other clients and may engage in other activities.

Sub-Investment Advisory Agreements

Pursuant to the sub-investment advisory agreements between the Investment Advisor and BlackRock Investment Management, LLC (the “Sub-Advisor”), the Investment Advisor, on behalf of the Funds, may reimburse the Sub-Advisor at cost for certain expenses approved by the Boards and incurred by the Sub-Advisor in connection with its duties under the sub-investment advisory agreements. In such case, the Investment Advisor, and not any of the Funds, would be responsible for paying the Sub-Advisor from its advisory compensation.

The sub-investment advisory agreements continue in effect for a period of two years from their effective dates, and if not terminated earlier, 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 a Fund’s Board or the vote of a majority of the outstanding voting securities of a Fund at the time outstanding and entitled to vote (as defined in the 1940 Act) and (2) by the vote of a majority of the Independent Board Members, cast in person at a meeting called for the purpose of voting on such approval. The agreements may be terminated at any time, without the payment of any penalty, by a Fund or the Investment Advisor (upon the vote of a majority of a Fund’s Board or a majority of the outstanding voting securities of a Fund) or by the Sub-Advisor, upon 60 days’ written notice by either party to the other, which notice can be waived by the non-terminating party. The agreements will terminate automatically in the event of their assignment (as such term is defined in the 1940 Act and the rules thereunder).

The sub-investment advisory agreements provide that the Sub-Advisor will not be liable for any error of judgment or mistake of law or for any loss suffered by a Fund in connection with the performance of the investment management agreements, except a loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services or a loss resulting from willful misfeasance, bad faith or gross negligence on the Sub-Advisor’s part in the performance of its duties or from reckless disregard by the Sub-Advisor of its duties under the sub-investment advisory agreement. The sub-investment advisory agreements also provide for indemnification by each Fund of the sub-investment advisor, its directors, officers, employees, agents and control persons for liabilities incurred by them in connection with their services to each Fund, subject to certain limitations and conditions.

The Sub-Advisor will devote such time and effort to the business of each Fund as is reasonably necessary to perform its duties to each Fund. However, the services of the Sub-Advisor are not exclusive, and the Sub-Advisor provides similar services to other investment companies and other clients and may engage in other activities.

 

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The tables below set forth information about the total advisory fees, net of any applicable fee waiver, paid by the Funds to the Investment Advisor and to FAM. No fees were paid by the Investment Advisor to the Sub-Advisor during the last three fiscal years for either Fund.

Advisory Fees Paid to the Investment Advisor

 

Investment Management Fees

   MUA  

For the Fiscal Year/Period Ended

   Paid to the
Investment
Advisor
    Waived by the
Investment
Advisor (a)
    Paid to
FAM
    Waived by
FAM (a)
 

April 30, 2010

   $ 1,436,373      $ 1,650        N/A        N/A   

April 30, 2009 (b)

   $ 1,214,568      $ 9,317        N/A        N/A   

May 31, 2008

   $ 1,523,956      $ 7,246        N/A        N/A   

May 31, 2007

   $ 1,054,504 (c)    $ 2,985 (c)    $ 525,921 (d)    $ 1,873 (d) 

 

(a) The Investment Advisor, and previously FAM, agreed to waive a portion of MUA’s investment advisory fee in connection with MUA’s investment in an affiliated money market fund.
(b) For the period June 1, 2008 to April 30, 2009. In 2008, the Board of MUA changed the fiscal year end of MUA from May 31 to April 30.
(c) For the period September 29, 2006 to May 31, 2007.
(d) For the period June 1, 2006 to September 29, 2006.

 

Investment Management Fees

   APX  

For the Fiscal Year/Period Ended

   Paid to the
Investment
Advisor
    Waived by the
Investment
Advisor (a)
    Paid to
FAM
    Waived by
FAM (a)
 

April 30, 2010

   $ 1,167,661      $ 1,115        N/A        N/A   

April 30, 2009 (b)

   $ 891,184      $ 3,663        N/A        N/A   

June 30, 2008

   $ 1,229,902      $ 3,446        N/A        N/A   

June 30, 2007

   $ 968,778 (c)    $ 2,183 (c)    $ 318,524 (d)    $ 1,381 (d) 

 

(a) The Investment Advisor, and previously FAM, agreed to waive a portion of APX’s investment advisory fee in connection with APX’s investment in an affiliated money market fund.
(b) For the period July 1, 2008 to April 30, 2009. In 2008, the Board of APX changed the fiscal year end of APX from June 30 to April 30.
(c) For the period September 29, 2006 to June 30, 2007.
(d) For the period July 1, 2006 to September 29, 2006.

OTHER AGREEMENTS

Fund Accounting Agreement

Fund accounting services are provided to the Funds by State Street Bank and Trust Company (the “Accounting Services Provider”) pursuant to a fund accounting agreement that was entered into by the Funds and State Street Bank and Trust Company. The table below shows the amounts paid by the Funds to the Accounting Services Provider, the Investment Advisor and to FAM for such services for the periods indicated:

 

Accounting Services

   MUA

For the Fiscal Year/Period Ended

   Paid to
State Street
   Paid to the
Investment Advisor
    Paid
to
FAM

April 30, 2010

   $ 69,875    $ 5,240      N/A

April 30, 2009 (a)

   $ 72,743    $ 3,832      N/A

May 31, 2008

   $ 94,490    $ 4,953      N/A

May 31, 2007

   $ 95,650    $ 3,954 (b)    $1,951(c)

 

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(a) For the period June 1, 2008 to April 30, 2009. In 2008, the Board of MUA changed the fiscal year end of MUA from May 31 to April 30.
(b) For the period September 29, 2006 to May 31, 2007.
(c) For the period June 1, 2006 to September 29, 2006.

 

Accounting Services

   APX  

For the Fiscal Year/Period Ended

   Paid to
State Street
   Paid to the
Investment Advisor
    Paid to
FAM
 

April 30, 2010

   $ 43,854    $ 3,513        N/A   

April 30, 2009 (a)

   $ 41,861    $ 2,398        N/A   

June 30, 2008

   $ 75,749    $ 3,435        N/A   

June 30, 2007

   $ 75,443    $ 2,856 (b)    $ 1,161 (c) 

 

(a) For the period July 1, 2008 to April 30, 2009. In 2008, the Board of APX changed the fiscal year end of APX from June 30 to April 30.
(b) For the period September 29, 2006 to June 30, 2007.
(c) For the period July 1, 2006 to September 29, 2006.

FUND MANAGEMENT

Other Accounts Managed by the Portfolio Managers

For MUA, as of April 30, 2010:

 

     Number of Other Accounts Managed and Assets by
Account Type
   Number of Other Accounts and Assets for
Which Advisory Fee is
Performance-Based

Name of Portfolio
Manager

   Other Registered
Investment
Companies
   Other Pooled
Investment
Vehicles
   Other Accounts    Other
Registered
Investment
Companies
   Other Pooled
Investment
Vehicles
   Other
Accounts

Theodore R. Jaeckel, Jr.

   72

$19.61Billion

    

$

0

0

    

$

0

0

    

$

0

0

    

$

0

0

    

$

0

0

Walter O’Connor

   72

$19.61Billion

    

$

0

0

    

$

0

0

    

$

0

0

    

$

0

0

    

$

0

0

For APX, as of April 30, 2010:

 

     Number of Other Accounts Managed and Assets by
Account Type
   Number of Other Accounts and Assets for
Which Advisory Fee is
Performance-Based

Name of Portfolio Manager

   Other Registered
Investment
Companies
   Other Pooled
Investment
Vehicles
   Other Accounts    Other
Registered
Investment
Companies
   Other Pooled
Investment
Vehicles
   Other
Accounts

Theodore R. Jaeckel, Jr.

   72

$19.25Billion

    

$

0

0

    

$

0

0

    

$

0

0

    

$

0

0

    

$

0

0

Walter O’Connor

   72

$19.25Billion

    

$

0

0

    

$

0

0

    

$

0

0

    

$

0

0

    

$

0

0

Portfolio Manager Compensation Overview

BlackRock’s financial arrangements with its portfolio managers, its competitive compensation and its career path emphasis at all levels reflect the value senior management places on key resources. Compensation may include a variety of components and may vary from year to year based on a number of factors. The principal components of compensation include a base salary, a performance-based discretionary bonus, participation in

 

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various benefits programs and one or more of the incentive compensation programs established by BlackRock such as its Long-Term Retention and Incentive Plan. The Combined Fund will maintain the portfolio manager compensation of MUA.

The Funds’ Portfolio Manager Compensation

Base compensation.  Generally, portfolio managers receive base compensation based on their seniority and/or their position with the firm. Senior portfolio managers who perform additional management functions within the portfolio management group or within BlackRock may receive additional compensation for serving in these other capacities.

Discretionary Incentive Compensation. Discretionary incentive compensation is a function of several components: the performance of BlackRock, Inc., the performance of the portfolio manager’s group within BlackRock, the investment performance, including risk-adjusted returns, of the firm’s assets under management or supervision by that portfolio manager relative to predetermined benchmarks, and the individual’s seniority, role within the portfolio management team, teamwork and contribution to the overall performance of these portfolios and BlackRock. In most cases, including for the portfolio managers of the Funds, these benchmarks are the same as the benchmark or benchmarks against which the performance of the Funds or other accounts managed by the portfolio managers are measured. BlackRock’s Chief Investment Officers determine the benchmarks against which the performance of funds and other accounts managed by each portfolio manager is compared and the period of time over which performance is evaluated. With respect to the portfolio managers, such benchmarks for the Funds include a combination of market-based indices (e.g. Barclays Capital Municipal Bond Index), certain customized indices and certain fund industry peer groups. BlackRock’s Chief Investment Officers make a subjective determination with respect to the portfolio managers’ compensation based on the performance of the funds and other accounts managed by each portfolio manager relative to the various benchmarks noted above. Performance is measured on both a pre-tax and after-tax basis over various time periods including 1-, 3-, 5- and 10-year periods, as applicable.

Distribution of Discretionary Incentive Compensation.

Discretionary incentive compensation is distributed to portfolio managers in a combination of cash and BlackRock, Inc. restricted stock units which vest ratably over a number of years. The BlackRock, Inc. restricted stock units, if properly vested, will be settled in BlackRock, Inc. common stock. Typically, the cash bonus, when combined with base salary, represents more than 60% of total compensation for the portfolio managers. Paying a portion of annual bonuses in stock puts compensation earned by a portfolio manager for a given year “at risk” based on BlackRock’s ability to sustain and improve its performance over future periods.

Long-Term Retention and Incentive Plan (“LTIP”) — From time to time long-term incentive equity awards are granted to certain key employees to aid in retention, align their interests with long-term shareholder interests and motivate performance. Equity awards are generally granted in the form of BlackRock, Inc. restricted stock units that, if once vested, will be settled in BlackRock, Inc. common stock. Messrs. Jaeckel and O’Connor have each received awards under the LTIP.

Deferred Compensation Program — A portion of the compensation paid to eligible BlackRock employees may be voluntarily deferred into an account that tracks the performance of certain of the firm’s investment products. Each participant in the deferred compensation program is permitted to allocate his deferred amounts among the various investment options. Messrs. Jaeckel and O’Connor have participated in the deferred compensation program.

Other compensation benefits. In addition to base compensation and discretionary incentive compensation, portfolio managers may be eligible to receive or participate in one or more of the following:

 

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Incentive Savings Plans — BlackRock has created a variety of incentive savings plans in which BlackRock employees are eligible to participate, including a 401(k) plan, the BlackRock Retirement Savings Plan (“RSP”), and the BlackRock Employee Stock Purchase Plan (“ESPP”). The employer contribution components of the RSP include a company match equal to 50% of the first 6% of eligible pay contributed to the plan capped at $4,000 per year, and a company retirement contribution equal to 3-5% of eligible compensation. The RSP offers a range of investment options, including registered investment companies managed by the firm. BlackRock contributions follow the investment direction set by participants for their own contributions or, absent employee investment direction, are invested into a balanced portfolio. The ESPP allows for investment in BlackRock common stock at a 5% discount on the fair market value of the stock on the purchase date. Annual participation in the ESPP is limited to the purchase of 1,000 shares or a dollar value of $25,000. Each portfolio manager is eligible to participate in these plans.

Securities Ownership of Portfolio Managers

As of April 30, 2010, neither of Messrs. Jaeckel or O’Connor beneficially owned any stock issued by MUA or APX.

Portfolio Transactions and Brokerage Allocation

The Advisors are responsible for decisions to buy and sell securities for the Funds, the selection of brokers and dealers to effect the transactions and the negotiation of prices and any brokerage commissions. The securities in which the Funds invest 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 Funds may also purchase certain money market instruments directly from an issuer, in which case no commissions or discounts are paid. Purchases and sales of bonds on a stock exchange are effected through brokers who charge a commission for their services.

The Advisors are responsible for effecting securities transactions of the Funds and will do so in a manner deemed fair and reasonable to shareholders of the Funds and not according to any formula. The Advisors’ primary considerations in selecting the manner of executing securities transactions for the Funds 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 Advisors, 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 Funds. 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 Advisors are able to fulfill their obligation to furnish a continuous investment program to the Funds 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 Advisors, and does not reduce the Advisors’ normal research activities in rendering investment advice under the investment management agreement or the sub-investment advisory agreement. It is possible that the Advisors’ expenses could be materially increased if it attempted to purchase this type of information or generate it through its own staff.

One or more of the other investment companies or accounts which the Advisors manage may own from time to time some of the same investments as the Funds. Investment decisions for the Funds 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

 

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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 Advisors 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 Funds. In other cases, however, the ability of the Funds to participate in volume transactions may produce better execution for the Funds. It is the opinion of the Funds’ Boards that this advantage, when combined with the other benefits available due to the Advisors’ organization, outweighs any disadvantages that may be said to exist from exposure to simultaneous transactions.

It is not the Funds’ policy to engage in transactions with the objective of seeking profits from short-term trading. However, the annual portfolio turnover rate of the Funds may be greater than 100%. Because it is difficult to predict accurately portfolio turnover rates, actual turnover may be higher or lower. Higher portfolio turnover results in increased Fund costs, including brokerage commissions, dealer mark-ups and other transaction costs on the sale of securities and on the reinvestment in other securities.

Information about the brokerage commissions paid by the Funds, including commissions paid to affiliates, is set forth in the following tables:

 

Brokerage Commissions

   MUA

For the Fiscal Year/Period Ended

   Aggregate Brokerage Commissions Paid

April 30, 2010

   $ 1,333

April 30, 2009 (a)

   $ 407

May 31, 2008

   $ 407

May 31, 2007

   $ 0

 

(a) For the period June 1, 2008 to April 30, 2009. In 2008, the Board of MUA changed the fiscal year end of MUA from May 31 to April 30.

 

Brokerage Commissions

   APX

For the Fiscal Year/Period Ended

   Aggregate Brokerage Commissions Paid

April 30, 2010

   $ 999

April 30, 2009 (a)

   $ 0

June 30, 2008

   $ 550

June 30, 2007

   $ 0

 

(a) For the period July 1, 2008 to April 30, 2009. In 2008, the Board of APX changed the fiscal year end of APX from June 30 to April 30.

None of the Funds paid brokerage commission to affiliated broker-dealers during its three most recent fiscal years.

The Funds have received an exemptive order from the SEC permitting them to lend portfolio securities to Merrill Lynch, Pierce, Fenner & Smith Incorporated, a wholly owned subsidiary of Merrill Lynch & Co., Inc., and its affiliates. Pursuant to that order, each Fund has retained BIM as the securities lending agent for a fee based on a share of the returns on investment of cash collateral. BIM may, on behalf of the Funds, invest cash collateral received by the Funds for such loans, among other things, in a private investment company managed by the Investment Advisor or in registered money market funds advised by the Investment Advisor or its affiliates.

CONFLICTS OF INTEREST

The Bank of America Corporation (“BAC”), through its subsidiary Merrill Lynch and Co., Inc. (“Merrill Lynch”), Barclays PLC (“Barclays”) and The PNC Financial Services Group, Inc. (“PNC”) each have a significant economic interest in BlackRock, Inc., the parent of the Investment Advisor. PNC is considered to be an affiliate of BlackRock, Inc., under the Investment Company Act. Certain activities of the Investment Advisor,

 

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BlackRock, Inc. and their affiliates (collectively, “BlackRock”) and PNC and its affiliates (collectively, “PNC” and together with BlackRock, “Affiliates”), and those of BAC, Merrill Lynch and their affiliates (collectively, the “BAC Entities”) and Barclays and its affiliates (collectively, the “Barclays Entities”) (BAC Entities and Barclays Entities, collectively, the “BAC/Barclays Entities”), with respect to the Funds and/or other accounts managed by BlackRock, PNC or BAC/Barclays Entities, may give rise to actual or perceived conflicts of interest such as those described below.

BlackRock is one of the world’s largest asset management firms. BAC is a national banking corporation which through its affiliates and subsidiaries, including Merrill Lynch, provides a full range of financial services. Merrill Lynch is a full service investment banking, broker-dealer, asset management and financial services organization. PNC is a diversified financial services organization spanning the retail, business and corporate markets. Barclays is a major global financial services provider engaged in a range of activities including retail and commercial banking, credit cards, investment banking, and wealth management. BlackRock and PNC are affiliates of one another under the Investment Company Act. BlackRock, BAC, Merrill Lynch, PNC, Barclays and their respective affiliates (including, for these purposes, their directors, partners, trustees, managing members, officers and employees), including the entities and personnel who may be involved in the investment activities and business operations of the Funds, are engaged worldwide in businesses, including equity, fixed income, cash management and alternative investments, and have interests other than that of managing the Funds. These are considerations of which investors in a Fund should be aware, and which may cause conflicts of interest that could disadvantage a Fund and its shareholders. These activities and interests include potential multiple advisory, transactional, financial and other interests in securities and other instruments, and companies that may be purchased or sold by a Fund.

BlackRock and its Affiliates, as well as the BAC/Barclays Entities, have proprietary interests in, and may manage or advise with respect to, accounts or funds (including separate accounts and other funds and collective investment vehicles) that have investment objectives similar to those of the Funds that engage in transactions in the same types of securities, currencies and instruments as the Funds. One or more Affiliates and BAC/Barclays Entities are also major participants in the global currency, equities, swap and fixed income markets, in each case both on a proprietary basis and for the accounts of customers. As such, one or more Affiliates or BAC/Barclays Entities are or may be actively engaged in transactions in the same securities, currencies, and instruments in which a Fund may invest. Such activities could affect the prices and availability of the securities, currencies, and instruments in which a Fund invests, which could have an adverse impact on such Fund’s performance. Such transactions, particularly in respect of most proprietary accounts or customer accounts, will be executed independently of a Fund’s transactions and thus at prices or rates that may be more or less favorable than those obtained by such Fund.

When BlackRock and its Affiliates or the BAC/Barclays Entities seek to purchase or sell the same assets for their managed accounts, the assets actually purchased or sold may be allocated among the accounts on a basis determined in their good faith discretion to be equitable. In some cases, this system may adversely affect the size or price of the assets purchased or sold for a Fund. In addition, transactions in investments by one or more other accounts managed by BlackRock or its Affiliates or a BAC/Barclays Entity may have the effect of diluting or otherwise disadvantaging the values, prices or investment strategies of a Fund, particularly, but not limited to, with respect to small capitalization, emerging market or less liquid strategies. This may occur when investment decisions regarding a Fund are based on research or other information that is also used to support decisions for other accounts. When BlackRock or its Affiliates or a BAC/Barclays Entity implements a portfolio decision or strategy on behalf of another account ahead of, or contemporaneously with, similar decisions or strategies for a Fund, market impact, liquidity constraints, or other factors could result in a Fund receiving less favorable trading results and the costs of implementing such decisions or strategies could be increased or such Fund could otherwise be disadvantaged. BlackRock or its Affiliates or a BAC/Barclays Entity may, in certain cases, elect to implement internal policies and procedures designed to limit such consequences, which may cause a Fund to be unable to engage in certain activities, including purchasing or disposing of securities, when it might otherwise be desirable for it to do so.

 

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Conflicts may also arise because portfolio decisions regarding the Funds may benefit other accounts managed by BlackRock or its Affiliates or a BAC/Barclays Entity. For example, the sale of a long position or establishment of a short position by a Fund may impair the price of the same security sold short by (and therefore benefit) one or more Affiliates or BAC/Barclays Entities or their other accounts, and the purchase of a security or covering of a short position in a security by a Fund may increase the price of the same security held by (and therefore benefit) one or more Affiliates or BAC/Barclays Entities or their other accounts.

BlackRock and its Affiliates or a BAC/Barclays Entity and their clients may pursue or enforce rights with respect to an issuer in which the Funds have invested, and those activities may have an adverse effect on a Fund. As a result, prices, availability, liquidity and terms of a Fund’s investments may be negatively impacted by the activities of BlackRock or its Affiliates or a BAC/Barclays Entity or their clients, and transactions for a Fund may be impaired or effected at prices or terms that may be less favorable than would otherwise have been the case.

The results of the Funds’ investment activities may differ significantly from the results achieved by BlackRock and its Affiliates or the BAC/Barclays Entities for their proprietary accounts or other accounts (including investment companies or collective investment vehicles) managed or advised by them. It is possible that one or more Affiliate- or BAC/Barclays Entity-managed accounts and such other accounts will achieve investment results that are substantially more or less favorable than the results achieved by the Funds. Moreover, it is possible that the Funds will sustain losses during periods in which one or more Affiliates or BAC/Barclays Entity-managed accounts achieve significant profits on their trading for proprietary or other accounts. The opposite result is also possible. The investment activities of one or more Affiliates or BAC/Barclays Entities for their proprietary accounts and accounts under their management may also limit the investment opportunities for the Funds in certain emerging and other markets in which limitations are imposed upon the amount of investment, in the aggregate or in individual issuers, by affiliated foreign investors.

From time to time, the Funds’ activities may also be restricted because of regulatory restrictions applicable to one or more Affiliates or BAC/Barclays Entities, and/or their internal policies designed to comply with such restrictions. As a result, there may be periods, for example, when BlackRock, and/or one or more Affiliates or BAC/Barclays Entities, will not initiate or recommend certain types of transactions in certain securities or instruments with respect to which BlackRock and/or one or more Affiliates or BAC/Barclays Entities are performing services or when position limits have been reached.

In connection with its management of the Funds, BlackRock may have access to certain fundamental analysis and proprietary technical models developed by one or more Affiliates or BAC/Barclays Entities. BlackRock will not be under any obligation, however, to effect transactions on behalf of the Funds in accordance with such analysis and models. In addition, neither BlackRock nor any of its Affiliates, nor any BAC/Barclays Entity, will have any obligation to make available any information regarding their proprietary activities or strategies, or the activities or strategies used for other accounts managed by them, for the benefit of the management of the Funds and it is not anticipated that BlackRock will have access to such information for the purpose of managing the Funds. The proprietary activities or portfolio strategies of BlackRock and its Affiliates and the BAC/Barclays Entities, or the activities or strategies used for accounts managed by them or other customer accounts could conflict with the transactions and strategies employed by BlackRock in managing the Funds.

In addition, certain principals and certain employees of BlackRock are also principals or employees of BlackRock or another Affiliate. As a result, the performance by these principals and employees of their obligations to such other entities may be a consideration of which investors in a Fund should be aware.

BlackRock may enter into transactions and invest in securities, instruments and currencies on behalf of a Fund in which customers of BlackRock or its Affiliates or a BAC/Barclays Entity, or, to the extent permitted by the SEC, BlackRock or another Affiliate or a BAC/Barclays Entity, serves as the counterparty, principal or issuer. In such cases, such party’s interests in the transaction will be adverse to the interests of such Fund, and

 

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such party may have no incentive to assure that such Fund obtains the best possible prices or terms in connection with the transactions. In addition, the purchase, holding and sale of such investments by such Fund may enhance the profitability of BlackRock or its Affiliates or a BAC/Barclays Entity. One or more Affiliates or BAC/Barclays Entities may also create, write or issue derivatives for their customers, the underlying securities, currencies or instruments of which may be those in which a Fund invests or which may be based on the performance of a Fund. The Funds may, subject to applicable law, purchase investments that are the subject of an underwriting or other distribution by one or more Affiliates or BAC/Barclays Entities and may also enter into transactions with other clients of an Affiliate or BAC/Barclays Entity where such other clients have interests adverse to those of the Funds.

At times, these activities may cause departments of BlackRock or its Affiliates or a BAC/Barclays Entity to give advice to clients that may cause these clients to take actions adverse to the interests of the Funds. To the extent affiliated transactions are permitted, the Funds will deal with BlackRock and its Affiliates or BAC/Barclays Entities on an arms-length basis. BlackRock or its Affiliates or a BAC/Barclays Entity may also have an ownership interest in certain trading or information systems used by the Funds. The Funds’ use of such trading or information systems may enhance the profitability of BlackRock and its Affiliates or BAC/Barclays Entities.

One or more Affiliates or one of the BAC/Barclays Entities may act as broker, dealer, agent, lender or adviser or in other commercial capacities for the Funds. It is anticipated that the commissions, mark-ups, mark-downs, financial advisory fees, underwriting and placement fees, sales fees, financing and commitment fees, brokerage fees, other fees, compensation or profits, rates, terms and conditions charged by an Affiliate or BAC/Barclays Entity will be in its view commercially reasonable, although each Affiliate or BAC/Barclays Entity, including its sales personnel, will have an interest in obtaining fees and other amounts that are favorable to the Affiliate or BAC/Barclays Entity and such sales personnel.

Subject to applicable law, the Affiliates and BAC/Barclays Entities (and their personnel and other distributors) will be entitled to retain fees and other amounts that they receive in connection with their service to the Funds as broker, dealer, agent, lender, adviser or in other commercial capacities and no accounting to the Funds or their shareholders will be required, and no fees or other compensation payable by the Funds or their shareholders will be reduced by reason of receipt by an Affiliate or BAC/Barclays Entity of any such fees or other amounts.

When an Affiliate or BAC/Barclays Entity acts as broker, dealer, agent, adviser or in other commercial capacities in relation to the Funds, the Affiliate or BAC/Barclays Entity may take commercial steps in its own interests, which may have an adverse effect on the Funds. The Funds will be required to establish business relationships with its counterparties based on each Fund’s own credit standing. Neither BlackRock nor any of the Affiliates, nor any BAC/Barclays Entity, will have any obligation to allow their credit to be used in connection with a Fund’s establishment of their business relationships, nor is it expected that a Fund’s counterparties will rely on the credit of BlackRock or any of the Affiliates or BAC/Barclays Entities in evaluating such Fund’s creditworthiness.

Purchases and sales of securities for the Funds may be bunched or aggregated with orders for other BlackRock client accounts. BlackRock and its Affiliates and the BAC/Barclays Entities, however, are not required to bunch or aggregate orders if portfolio management decisions for different accounts are made separately, or if they determine that bunching or aggregating is not practicable, required or with cases involving client direction.

Prevailing trading activity frequently may make impossible the receipt of the same price or execution on the entire volume of securities purchased or sold. When this occurs, the various prices may be averaged, and the appropriate Fund will be charged or credited with the average price. Thus, the effect of the aggregation may operate on some occasions to the disadvantage of the Funds. In addition, under certain circumstances, a Fund will not be charged the same commission or commission equivalent rates in connection with a bunched or aggregated order.

 

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BlackRock may select brokers (including, without limitation, Affiliates or BAC/Barclays Entities) that furnish BlackRock, the Funds, other BlackRock client accounts or other Affiliates or BAC/Barclays Entities or personnel, directly or through correspondent relationships, with research or other appropriate services which provide, in BlackRock’s view, appropriate assistance to BlackRock in the investment decision-making process (including with respect to futures, fixed price offerings and over-the-counter transactions). Such research or other services may include, to the extent permitted by law, research reports on companies, industries and securities; economic and financial data; financial publications; proxy analysis; trade industry seminars; computer databases; research-oriented software and other services and products.

Research or other services obtained in this manner may be used in servicing the Funds and other BlackRock client accounts, including in connection with BlackRock client accounts other than those that pay commissions to the broker relating to the research or other service arrangements. Such products and services may disproportionately benefit other BlackRock client accounts relative to the Funds based on the amount of brokerage commissions paid by the Funds and such other BlackRock client accounts. For example, research or other services that are paid for through one client’s commissions may not be used in managing that client’s account. In addition, other BlackRock client accounts may receive the benefit, including disproportionate benefits, of economies of scale or price discounts in connection with products and services that may be provided to the Funds and to such other BlackRock client accounts. To the extent that BlackRock uses soft dollars, it will not have to pay for those products and services itself.

BlackRock may receive research that is bundled with the trade execution, clearing, and/or settlement services provided by a particular broker-dealer. To the extent that BlackRock receives research on this basis, many of the same conflicts related to traditional soft dollars may exist. For example, the research effectively will be paid by client commissions that also will be used to pay for the execution, clearing, and settlement services provided by the broker-dealer and will not be paid by BlackRock.

BlackRock may endeavor to execute trades through brokers who, pursuant to such arrangements, provide research or other services in order to ensure the continued receipt of research or other services BlackRock believes are useful in its investment decision-making process. BlackRock may from time to time choose not to engage in the above described arrangements to varying degrees. BlackRock may also enter into commission sharing arrangements under which BlackRock may execute transactions through a broker-dealer, including, where permitted, an Affiliate or BAC/Barclays Entity, and request that the broker-dealer allocate a portion of the commissions or commission credits to another firm that provides research to BlackRock. To the extent that BlackRock engages in commission sharing arrangements, many of the same conflicts related to traditional soft dollars may exist.

BlackRock may utilize certain electronic crossing networks (“ECNs”) in executing client securities transactions for certain types of securities. These ECNs may charge fees for their services, including access fees and transaction fees. The transaction fees, which are similar to commissions or markups/markdowns, will generally be charged to clients and, like commissions and markups/markdowns, would generally be included in the cost of the securities purchased. Access fees may be paid by BlackRock even though incurred in connection with executing transactions on behalf of clients, including the Funds. In certain circumstances, ECNs may offer volume discounts that will reduce the access fees typically paid by BlackRock. This would have the effect of reducing the access fees paid by BlackRock. BlackRock will only utilize ECNs consistent with its obligation to seek to obtain best execution in client transactions.

BlackRock has adopted policies and procedures designed to prevent conflicts of interest from influencing proxy voting decisions that it makes on behalf of advisory clients, including the Funds, and to help ensure that such decisions are made in accordance with BlackRock’s fiduciary obligations to its clients. Nevertheless, notwithstanding such proxy voting policies and procedures, actual proxy voting decisions of BlackRock may have the effect of favoring the interests of other clients or businesses of other divisions or units of BlackRock and/or its Affiliates or a BAC/Barclays Entity, provided that BlackRock believes such voting decisions to be in accordance with its fiduciary obligations.

 

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It is also possible that, from time to time, BlackRock or its Affiliates or a BAC/Barclays Entity may, although they are not required to, purchase and hold shares of the Funds. Increasing the Funds’ assets may enhance investment flexibility and diversification and may contribute to economies of scale that tend to reduce each Fund’s expense ratio.

It is possible that the Funds may invest in securities of companies with which an Affiliate or a BAC/Barclays Entity has or is trying to develop investment banking relationships as well as securities of entities in which BlackRock or its Affiliates or a BAC/Barclays Entity has significant debt or equity investments or in which an Affiliate or BAC/Barclays Entity makes a market. The Funds also may invest in securities of companies to which an Affiliate or a BAC/Barclays Entity provides or may some day provide research coverage. Such investments could cause conflicts between the interests of a Fund and the interests of other clients of BlackRock or its Affiliates or a BAC/Barclays Entity. In making investment decisions for the Funds, BlackRock is not permitted to obtain or use material non-public information acquired by any division, department or Affiliate of BlackRock or of a BAC/Barclays Entity in the course of these activities. In addition, from time to time, the activities of an Affiliate or a BAC/Barclays Entity may limit a Fund’s flexibility in purchases and sales of securities. When an Affiliate is engaged in an underwriting or other distribution of securities of an entity, BlackRock may be prohibited from purchasing or recommending the purchase of certain securities of that entity for the Funds.

BlackRock and its Affiliates and the BAC/Barclays Entities, their personnel and other financial service providers have interests in promoting sales of the Funds. With respect to BlackRock and its Affiliates and BAC/ Barclays Entities and their personnel, the remuneration and profitability relating to services to and sales of the Funds or other products may be greater than remuneration and profitability relating to services to and sales of certain funds or other products that might be provided or offered. BlackRock and its Affiliates or BAC/Barclays Entities and their sales personnel may directly or indirectly receive a portion of the fees and commissions charged to the Funds or their shareholders. BlackRock and its advisory or other personnel may also benefit from increased amounts of assets under management. Fees and commissions may also be higher than for other products or services, and the remuneration and profitability to BlackRock or its Affiliates or a BAC/Barclays Entity and such personnel resulting from transactions on behalf of or management of the Funds may be greater than the remuneration and profitability resulting from other funds or products.

BlackRock and its Affiliates or a BAC/Barclays Entity and their personnel may receive greater compensation or greater profit in connection with an account for which BlackRock serves as an adviser than with an account advised by an unaffiliated investment adviser. Differentials in compensation may be related to the fact that BlackRock may pay a portion of its advisory fee to its Affiliate or to a BAC/Barclays Entity, or relate to compensation arrangements, including for portfolio management, brokerage transactions or account servicing. Any differential in compensation may create a financial incentive on the part of BlackRock or its Affiliates or BAC/Barclays Entities and their personnel to recommend BlackRock over unaffiliated investment advisers or to effect transactions differently in one account over another.

BlackRock and its Affiliates or a BAC/Barclays Entity may provide valuation assistance to certain clients with respect to certain securities or other investments and the valuation recommendations made for their clients’ accounts may differ from the valuations for the same securities or investments assigned by a Fund’s pricing vendors, especially if such valuations are based on broker-dealer quotes or other data sources unavailable to such Fund’s pricing vendors. While BlackRock will generally communicate its valuation information or determinations to a Fund’s pricing vendors and/or fund accountants, there may be instances where such Fund’s pricing vendors or fund accountants assign a different valuation to a security or other investment than the valuation for such security or investment determined or recommended by BlackRock.

When market quotations of direct investments are not readily available or are believed by BlackRock to be unreliable, a Fund’s investments may be valued at fair value by BlackRock, pursuant to procedures adopted by such Fund’s boards of trustees. When determining an asset’s “fair value,” BlackRock seeks to determine the

 

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price that such Fund might reasonably expect to receive from the current sale of that asset in an arm’s-length transaction. The price generally may not be determined based on what such Fund might reasonably expect to receive for selling an asset at a later time or if it holds the asset to maturity. While fair value determinations will be based upon all available factors that BlackRock deems relevant at the time of the determination, and may be based on analytical values determined by BlackRock using proprietary or third party valuation models, fair value represents only a good faith approximation of the value of a security. The fair value of one or more securities may not, in retrospect, be the price at which those assets could have been sold during the period in which the particular fair values were used in determining a Fund’s NAV. As a result, a Fund’s sale or repurchase of its shares at NAV, at a time when a holding or holdings are valued by BlackRock (pursuant to Board-adopted procedures) at fair value, may have the effect of diluting or increasing the economic interest of existing shareholders.

To the extent permitted by applicable law, the Funds may invest all or some of their short term cash investments in any money market fund or similarly-managed private fund or exchange-traded fund advised or managed by BlackRock. In connection with any such investments, the Funds, to the extent permitted by the Investment Company Act, may pay their share of expenses of a money market fund in which they invest, which may result in the Funds bearing some additional expenses.

BlackRock and its Affiliates or a BAC/Barclays Entity and their directors, officers and employees, may buy and sell securities or other investments for their own accounts, and may have conflicts of interest with respect to investments made on behalf of the Funds. As a result of differing trading and investment strategies or constraints, positions may be taken by directors, officers, employees and Affiliates of BlackRock or by BAC/Barclays Entities that are the same, different from or made at different times than positions taken for the Funds. To lessen the possibility that the Funds will be adversely affected by this personal trading, each Fund and BlackRock have adopted a Code of Ethics in compliance with Section 17(j) of the Investment Company Act that restricts securities trading in the personal accounts of investment professionals and others who normally come into possession of information regarding the Funds’ portfolio transactions.

BlackRock and its Affiliates will not purchase securities or other property from, or sell securities or other property to, the Funds, except that the Funds may in accordance with rules adopted under the Investment Company Act engage in transactions with accounts that are affiliated with the Funds as a result of common officers, directors, or investment advisers or pursuant to exemptive orders granted to the Funds and/or BlackRock by the Securities and Exchange Commission. These transactions would be affected in circumstances in which BlackRock determined that it would be appropriate for the Funds to purchase and another client of BlackRock to sell, or the Funds, to sell and another client of BlackRock to purchase, the same security or instrument on the same day. From time to time, the activities of the Funds may be restricted because of regulatory requirements applicable to BlackRock or its Affiliates or a BAC/Barclays Entity and/or BlackRock’s internal policies designed to comply with, limit the applicability of, or otherwise relate to such requirements. A client not advised by BlackRock would not be subject to some of those considerations. There may be periods when BlackRock may not initiate or recommend certain types of transactions, or may otherwise restrict or limit their advice in certain securities or instruments issued by or related to companies for which an Affiliate or a BAC/Barclays Entity is performing investment banking, market making or other services or has proprietary positions. For example, when an Affiliate is engaged in an underwriting or other distribution of securities of, or advisory services for, a company, the Funds may be prohibited from or limited in purchasing or selling securities of that company. Similar situations could arise if personnel of BlackRock or its Affiliates or a BAC/Barclays Entity serve as directors of companies the securities of which the Funds wish to purchase or sell.

However, if permitted by applicable law, the Funds may purchase securities or instruments that are issued by such companies or are the subject of an underwriting, distribution, or advisory assignment by an Affiliate or a BAC/Barclays Entity, or in cases in which personnel of BlackRock or its Affiliates or of BAC/Barclays Entities are directors or officers of the issuer. The investment activities of one or more Affiliates or BAC/Barclays Entities for their proprietary accounts and for client accounts may also limit the investment strategies and rights

 

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of the Funds. For example, in regulated industries, in certain emerging or international markets, in corporate and regulatory ownership definitions, in certain futures and derivative transactions, and to comply with certain provisions of the Investment Company Act that prohibit affiliated transactions there may be limits on the aggregate amount of investment by affiliated investors that may not be exceeded without the grant of a license or other regulatory or corporate consent or, if exceeded, may cause BlackRock, the Funds or other client accounts to suffer disadvantages or business restrictions. These limitations may cause the Funds to invest in different portfolios than other BlackRock funds which may result in the Funds investing on less advantageous terms than such other funds or in different types of securities, such as non-voting securities, in order to comply with regulatory requirements.

If certain aggregate ownership thresholds are reached or certain transactions undertaken, the ability of BlackRock on behalf of clients (including the Funds) to purchase or dispose of investments, or exercise rights or undertake business transactions, may be restricted by regulation or otherwise impaired. As a result, BlackRock, on behalf of clients (including the Funds), may limit purchases, sell existing investments, or otherwise restrict or limit the exercise of rights (including voting rights) when BlackRock, in its sole discretion, deems it appropriate.

BlackRock and its Affiliates and BAC/Barclays Entities may maintain securities indices as part of their product offerings. Index based funds seek to track the performance of securities indices and may use the name of the index in the fund name. Index providers, including BlackRock and its Affiliates and BAC/Barclays Entities may be paid licensing fees for use of their index or index name. BlackRock and its Affiliates and BAC/Barclays Entities will not be obligated to license their indices to BlackRock, and BlackRock cannot be assured that the terms of any index licensing agreement with BlackRock and its Affiliates and BAC/Barclays Entities will be as favorable as those terms offered to other index licensees.

BlackRock and its Affiliates and BAC/Barclays Entities may serve as Authorized Participants in the creation and redemption of exchange traded funds, including funds advised by affiliates of BlackRock. BlackRock and its Affiliates and BAC/Barclays Entities may therefore be deemed to be participants in a distribution of such exchange traded funds, which could render them statutory underwriters.

The custody arrangement between the custodian may lead to potential conflicts of interest with BlackRock where BlackRock has agreed to waive fees and/or reimburse ordinary operating expenses in order to cap expenses of the Funds. This is because the custody arrangements with the custodian may have the effect of reducing custody fees when the Funds leave cash balances uninvested. When a Fund’s actual operating expense ratio exceeds a stated cap, a reduction in custody fees reduces the amount of waivers and/or reimbursements BlackRock would be required to make to such Fund. This could be viewed as having the potential to provide BlackRock an incentive to keep high positive cash balances for funds with expense caps in order to offset fund custody fees that BlackRock might otherwise reimburse. However, BlackRock’s portfolio managers do not intentionally keep uninvested balances high, but rather make investment decisions that they anticipate will be beneficial to fund performance.

Present and future activities of BlackRock and its Affiliates and BAC/Barclays Entities, including BlackRock Advisors, LLC, in addition to those described in this section, may give rise to additional conflicts of interest.

OTHER INFORMATION

Custody of Assets

All securities owned by the Funds and all cash, including proceeds from the sale of securities in each Fund’s investment portfolio, are held by the Bank of New York Mellon, One Wall Street, New York, New York 10286, as custodian.

 

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Transfer Agent, Dividend Disbursing Agent and Registrar

The Bank of New York Mellon serves as each Fund’s transfer agent with respect to the Funds’ common shares.

Code of Ethics

Each Fund has adopted a Code of Ethics under Rule 17j-1 of the 1940 Act. The Code of Ethics establishes procedures for personal investing and restricts certain transactions. Employees subject to the Code of Ethics may invest in securities for their personal investment accounts, including securities that may be purchased or held by a Fund. Each Code of Ethics can be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the SEC at (202) 551-8090. The Code of Ethics is also available on the EDGAR Database on the SEC’s Internet site at http://www.sec.gov, and copies may be obtained, after paying a duplicating fee, by e-mail at publicinfo@sec.gov or by writing the SEC’s Public Reference Section, Washington, DC 20549-0102.

Proxy Voting Policy

The Board of each Fund has delegated the voting of proxies for each Fund’s securities to the Investment Advisor pursuant to the Investment Advisor’s proxy voting guidelines. Under these guidelines, the Investment Advisor will vote proxies related to Fund securities in the best interests of the Fund and its shareholders. From time to time, a vote may present a conflict between the interests of the Fund’s shareholders, on the one hand, and those of the Investment Advisor, or any affiliated person of the Fund or the Investment Advisor, on the other. In such event, provided that the Investment Advisor’s Equity Investment Policy Oversight Committee, or a sub-committee thereof (the “Committee”) is aware of the real or potential conflict, if the matter to be voted on represents a material, non-routine matter and if the Committee does not reasonably believe it is able to follow its general voting guidelines (or if the particular proxy matter is not addressed in the guidelines) and vote impartially, the Committee may retain an independent fiduciary to advise the Committee on how to vote or to cast votes on behalf of the Investment Advisor’s clients. If the Investment Advisor determines not to retain an independent fiduciary, or does not desire to follow the advice of such independent fiduciary, the Committee shall determine how to vote the proxy after consulting with the Investment Advisor’s Portfolio Management Group and/or the Investment Advisor’s Legal and Compliance Department and concluding that the vote cast is in its client’s best interest notwithstanding the conflict. A copy of the Funds’ Proxy Voting Policy and Procedures is included as Appendix C to this Statement of Additional Information. Information on how each Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge, (i) at www.blackrock.com and (ii) on the SEC’s website at http://www.sec.gov.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

An independent registered public accounting firm for the Funds performs an annual audit of each Fund’s financial statements. Each Fund’s Board has appointed              (the “Independent Auditor”) to be each Fund’s independent registered public accounting firm. The Independent Auditor is located at     .

FINANCIAL STATEMENTS

The audited financial statements of MUA for the fiscal year ended                      are incorporated by reference herein to MUA’s annual report filed on                             .

The audited financial statements of APX for the fiscal year ended                      are incorporated by reference herein to APX’s annual report filed on                             .

 

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PRO FORMA FINANCIAL STATEMENTS

Set forth in Appendix B hereto are unaudited pro forma financial statements of the Combined Fund giving effect to the Reorganization of APX with MUA which include: (i) Pro Forma Condensed Combined Schedule of Investments at April 30, 2010, (ii) Pro Forma Condensed Combined Statement of Assets and Liabilities at April 30, 2010, (iii) Pro Forma Condensed Combined Statement of Operations for the 12-month period ended April 30, 2010 and (iv) Notes to Pro Forma Condensed Combined Financial Statements.

 

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APPENDIX A

FORM OF AGREEMENT AND PLAN OF REORGANIZATION

            , 2010

In order to consummate the reorganization contemplated herein (the “ Reorganization ”) and in consideration of the promises and the covenants and agreements hereinafter set forth, and intending to be legally bound, BlackRock Apex Municipal Fund, Inc. (“ APX ”), a registered closed-end investment company, File No. 811-05227, BlackRock MuniAssets Fund, Inc. (“ MUA ”), a registered closed-end investment company, File No. 811-07642 (each, a “ Fund ” and collectively, the “ Funds ”) and MUA Merger Subsidiary, LLC, a Maryland limited liability company and a direct, wholly owned subsidiary of MUA (“ Merger Subsidiary ”) (MUA and Merger Subsidiary are each referred to herein as a “MUA Party” and collectively as the “MUA Parties”), each hereby agree as follows:

1. REPRESENTATIONS AND WARRANTIES OF THE MUA PARTIES.

Each of MUA and Merger Subsidiary represents and warrants to, and agrees with, APX that:

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

(b) Merger Subsidiary is a limited liability company, duly organized, validly existing and in good standing in conformity with the laws of the State of Maryland, and has the power to own all of its assets and to carry out this Agreement. Merger Subsidiary has all necessary federal, state and local authorizations to carry on its business as it is now being conducted and to carry out this Agreement.

(c) MUA is duly registered under the Investment Company Act of 1940, as amended (the “ 1940 Act ”) as a non-diversified, closed-end management investment company and such registration has not been revoked or rescinded and is in full force and effect.

(d) Each of MUA and Merger Subsidiary has full power and authority to enter into and perform its obligations under this Agreement subject, in the case of consummation of the Reorganization to the approval and adoption of this Agreement and the Reorganization by the stockholders of MUA as described in Section 9(a) hereof. The execution, delivery and performance of this Agreement have been duly authorized by all necessary action of MUA’s Board of Directors and Merger Subsidiary’s managing member or manager, as applicable (“ Manager ”), and this Agreement constitutes a valid and binding contract enforceable in accordance with its terms, subject to the effects of bankruptcy, insolvency, moratorium, fraudulent conveyance and similar laws relating to or affecting creditors’ rights generally and court decisions with respect thereto.

(e) MUA has provided or made available to APX, the most recent audited annual financial statements of MUA which have been prepared in accordance with accounting principles generally accepted in the United States of America consistently applied and have been audited by             , and such statements fairly reflect the financial condition and the results of operations of MUA as of the respective date and the results of operations and changes in net assets for the periods indicated, and there are no liabilities of MUA whether actual or contingent and whether or not determined or determinable as of such date that are required to be disclosed but are not disclosed in such statements.

(f) An unaudited statement of assets and liabilities of MUA and an unaudited schedule of investments of MUA, each as of the Valuation Time (as defined in Section 3(i) herein) (together, the “ MUA Closing Financial Statements ”), will be provided or made available (including by electronic format) to APX, at

 

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or prior to the Closing Date (as defined in Section 7(a) herein), for the purpose of determining the number of MUA Common Shares (as defined in Section 1(m) herein) to be issued to APX stockholders pursuant to Section 3 of this Agreement; the MUA Closing Financial Statements will fairly present the financial position of MUA as of the Valuation Time in conformity with generally accepted accounting principles used in the United States applied on a consistent basis.

(g) There are no material legal, administrative or other proceedings pending or, to the knowledge of either of MUA or Merger Subsidiary, threatened against either MUA or Merger Subsidiary which assert liability on the part of MUA or Merger Subsidiary or which materially affect its financial condition or its ability to consummate the Reorganization. Neither MUA nor Merger Subsidiary is charged with or, to the best of its knowledge, threatened with any violation or investigation of any possible violation of any provisions of any federal, state or local law or regulation or administrative ruling relating to any aspect of its business.

(h) There are no material contracts outstanding to which MUA or Merger Subsidiary is a party that have not been disclosed in the N-14 Registration Statement (as defined in subsection (k) below) or that will not otherwise be disclosed to APX prior to the Valuation Time.

(i) Neither MUA nor Merger Subsidiary is obligated under any provision of its charter, bylaws or operating agreement (as applicable), each as amended, and is not a party to any contract or other commitment or obligation, and is not subject to any order or decree, which would be violated by its execution of or performance under this Agreement, except insofar as the parties have mutually agreed to amend such contract or other commitment or obligation to cure any potential violation as a condition precedent to the Reorganization.

(j) MUA has no known liabilities of a material amount, contingent or otherwise, other than those shown on MUA’s most recent Annual Report, those incurred since the date thereof in the ordinary course of its business as an investment company, and those incurred in connection with the Reorganization. As of the Valuation Time, MUA will advise APX of all known liabilities, contingent or otherwise, whether or not incurred in the ordinary course of business, existing or accrued as of such time, except to the extent disclosed in the MUA Closing Financial Statements or to the extent already known by APX.

(k) No consent, approval, authorization or order of any court or government authority is required for the consummation by MUA or Merger Subsidiary of the Reorganization, except such as may be required under the Securities Act of 1933, as amended (the “ 1933 Act ”), the Securities Exchange Act of 1934, as amended (the “ 1934 Act ”) and the 1940 Act or state securities laws (which term as used herein shall include the laws of the District of Columbia and Puerto Rico) or the New York Stock Exchange Rules, each of which will have been obtained on or prior to the Closing Date.

(l) The registration statement filed by MUA on Form N-14, which includes the proxy statement of APX and MUA with respect to the transactions contemplated herein (the “ Proxy Statement/Prospectus ”), and any supplement or amendment thereto or to the documents included or incorporated by reference therein (collectively, as so amended or supplemented, the “ N-14 Registration Statement ”), on its effective date, at the time of the stockholders meeting called to vote on this Agreement and on the Closing Date, insofar as it relates to MUA, (i) complied or will comply in all material respects with the provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules and regulations thereunder and (ii) did not or will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein in light of the circumstances under which they were made, not misleading; and the Proxy Statement/Prospectus included therein did not or will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided , however , that the representations and warranties in this subsection only shall apply to statements in or omissions from the N-14 Registration Statement made in reliance upon and in conformity with information furnished by MUA for use in the N-14 Registration Statement.

 

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

(n) MUA is authorized to issue 200,000,000 shares of common stock, par value $0.10 per share (the “ MUA Common Shares ”). Each outstanding MUA Common Share is fully paid and nonassessable and has full voting rights.

(o) The books and records of the MUA Parties made available to APX and/or its counsel are substantially true and correct and contain no material misstatements or omissions with respect to the operations of the MUA Parties.

(p) The MUA Common Shares to be issued to APX stockholders pursuant to this Agreement will have been duly authorized and, when issued and delivered pursuant to this Agreement, will be legally and validly issued and will be fully paid and nonassessable and will have full voting rights, and no stockholder of MUA will have any preemptive right of subscription or purchase in respect thereof.

(q) At or prior to the Closing Date, the MUA Common Shares to be transferred to the stockholders of APX on the Closing Date will be duly qualified for offering to the public in all states of the United States in which the sale of shares of stock of the Funds presently are qualified, and there will be a sufficient number of such shares registered under the 1933 Act and, as may be necessary, with each pertinent state securities commission to permit the transfers contemplated by this Agreement to be consummated.

(r) At or prior to the Closing Date, MUA will have obtained any and all regulatory, Board and stockholder approvals necessary to issue the MUA Common Shares to stockholders of APX.

(s) MUA has elected to qualify and has qualified as a regulated investment company (“ RIC ”) within the meaning of Section 851 of the Internal Revenue Code of 1986, as amended (the “ Code ”) for each of its taxable years since its inception, and MUA has satisfied the distribution requirements of Section 852 of the Code to maintain RIC status for each of its taxable years.

(t) Merger Subsidiary has not elected, and will not elect, to be treated as a corporation for U.S. federal income tax purposes. Merger Subsidiary is a wholly owned subsidiary of MUA. Merger Subsidiary is a disregarded entity for U.S. federal income tax purposes.

2. REPRESENTATIONS AND WARRANTIES OF APX.

APX represents and warrants to, and agrees with, the MUA Parties that:

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

(b) APX is duly registered under the 1940 Act as a non-diversified, closed-end management investment company, and such registration has not been revoked or rescinded and is in full force and effect.

(c) APX has full power and authority to enter into and perform its obligations under this Agreement subject, in the case of consummation of the Reorganization, to the approval and adoption of this

 

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Agreement and the Reorganization by the stockholders of APX as described in Section 8(a) hereof. The execution, delivery and performance of this Agreement have been duly authorized by all necessary action of its Board of Trustees and this Agreement constitutes a valid and binding contract enforceable in accordance with its terms, subject to the effects of bankruptcy, insolvency, moratorium, fraudulent conveyance and similar laws relating to or affecting creditors’ rights generally and court decisions with respect thereto.

(d) APX has provided or made available to the MUA Parties APX’s most recent audited annual financial statements which have been prepared in accordance with accounting principles generally accepted in the United States of America consistently applied and have been audited by             , and such statements fairly reflect the financial condition and the results of operations of APX as of the respective date and the results of operations and changes in net assets for the periods indicated, and there are no liabilities of APX, whether actual or contingent and whether or not determined or determinable as of such date that are required to be disclosed but are not disclosed in such statements.

(e) An unaudited statement of assets and liabilities of APX and an unaudited schedule of investments of APX, each as of the Valuation Time (as defined in Section 3(i) herein) (together, the “ APX Closing Financial Statements ”), will be provided or made available (including by electronic format) to the MUA Parties at or prior to the Closing Date for the purpose of determining the number of MUA Common Shares to be issued to APX stockholders pursuant to Section 3 of this Agreement; APX Closing Financial Statements will fairly present the financial position of APX as of the Valuation Time in conformity with generally accepted accounting principles used in the United States applied on a consistent basis.

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

(g) There are no material contracts outstanding to which APX is a party that have not been disclosed in the N-14 Registration Statement or will not otherwise be disclosed to the MUA Parties prior to the Valuation Time.

(h) APX is not obligated under any provision of its charter or its bylaws, each as amended, or a party to any contract or other commitment or obligation, and is not subject to any order or decree, which would be violated by its execution of or performance under this Agreement, except insofar as the parties have mutually agreed to amend such contract or other commitment or obligation to cure any potential violation as a condition precedent to the Reorganization.

(i) APX has no known liabilities of a material amount, contingent or otherwise, other than those shown in its most recent Annual Report, those incurred since the date thereof in the ordinary course of its business as an investment company and those incurred in connection with the Reorganization. As of the Valuation Time, APX will advise the MUA Parties of all known liabilities, contingent or otherwise, whether or not incurred in the ordinary course of business, existing or accrued as of such time, except to the extent disclosed in APX Closing Financial Statements or to the extent already known by the MUA Parties.

(j) No consent, approval, authorization or order of any court or governmental authority is required for the consummation by APX of the Reorganization, except such as may be required under the 1933 Act, the 1934 Act and the 1940 Act or state securities laws (which term as used herein shall include the laws of the District of Columbia and Puerto Rico) or the New York Stock Exchange rules, each of which will have been obtained on or prior to the Closing Date.

 

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(k) The N-14 Registration Statement, on its effective date, at the time of the stockholders meeting called to vote on this Agreement and on the Closing Date, insofar as it relates to APX (i) complied or will comply in all material respects with the provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules and regulations thereunder and (ii) did not or will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein in light of the circumstances under which they were made, not misleading; and the Proxy Statement/Prospectus included therein did not or will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided , however , that the representations and warranties in this subsection shall apply only to statements in or omissions from the N-14 Registration Statement made in reliance upon and in conformity with information furnished by APX for use in the N-14 Registration Statement.

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

(m) APX is authorized to issue 200,000,000 shares of common stock, par value $0.10 per share (the “APX Common Shares”). Each outstanding APX Common Share is fully paid and nonassessable and has full voting rights.

(n) The books and records of APX made available to the MUA Parties and/or its counsel are substantially true and correct and contain no material misstatements or omissions with respect to the operations of APX.

(o) APX has elected to qualify and has qualified as a RIC within the meaning of Section 851 of the Code for each of its taxable years since its inception, and APX has satisfied the distribution requirements of Section 852 of the Code to maintain RIC status for each of its taxable years.

3. THE REORGANIZATION.

(a) Subject to receiving the requisite approvals of the stockholders of APX and MUA, and to the other terms and conditions contained herein, and in accordance with the Maryland General Corporation Law (the “ MGCL ”), at the Effective Time (as defined in Section 3(b)) APX shall be merged with and into Merger Subsidiary, the separate existence of APX as a corporation and registered investment company shall cease and Merger Subsidiary shall continue as the surviving entity following the Reorganization (sometimes referred to herein as the “ Surviving Fund ”) and as a wholly owned subsidiary of MUA. The existence of Merger Subsidiary shall continue unaffected and unimpaired by the Reorganization and, as the Surviving Fund, it shall be governed by the Maryland Limited Liability Company Act.

(b) Upon the terms and subject to the conditions of this Agreement, on the Closing Date, the parties shall cause the Reorganization to be consummated by filing articles of merger (the “ Articles of Merger ”) with the Maryland State Department of Assessments and Taxation in accordance with the MGCL and the Maryland Limited Liability Company Act. The Reorganization shall become effective at such time as the Articles of Merger is duly filed with the Maryland State Department of Assessments and Taxation, or at such subsequent date or time as the MUA Parties and APX shall agree and specify in the Articles of Merger (the “ Effective Time ”).

 

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(c) At the Effective Time, the effect of the Reorganization shall be as provided in the applicable provisions of the MGCL and Maryland Limited Liability Company Act, as applicable. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, except as otherwise provided herein, all the property, rights, privileges, powers and franchises of APX and the Merger Subsidiary shall vest in the Surviving Fund, and all debts, liabilities, obligations, restrictions, disabilities and duties of APX and the Merger Subsidiary shall become the debts, liabilities, obligations, restrictions, disabilities and duties of the Surviving Fund.

(d) At the Effective Time, the operating agreement of the Merger Subsidiary in effect immediately prior to the Effective Time shall continue to be the operating agreement of the Surviving Fund, until thereafter amended in accordance with their respective terms and applicable law.

(e) From and after the Effective Time, the Manager and officers of Merger Subsidiary shall be the Manager and officers of the Surviving Fund, and such Manager and officers shall serve until their successors have been duly elected or appointed and qualified or until their death, resignation or removal in accordance with the operating agreement of the Surviving Fund.

(f) Pursuant to this Agreement, as soon as practicable, and in no event more than 48 hours, exclusive of Sundays and holidays, after the Effective Time, MUA will issue MUA Common Shares to APX stockholders for their APX Common Shares. Such distributions shall be accomplished by the opening of stockholder accounts on the share ledger records of MUA in the names of and in the amounts due to the stockholders of APX based on their respective holdings in APX as of the Valuation Time.

(g) APX and MUA covenant and agree to dispose of certain assets prior to the Closing Date, but only if and to the extent necessary, so that at Closing, when APX’s assets are added to MUA’s portfolio, the resulting portfolio will meet MUA’s investment objective, policies and restrictions, as set forth in MUA’s Prospectus, a copy of which has been delivered to APX. Notwithstanding the foregoing, nothing herein will require APX to dispose of any portion of its assets if, in the reasonable judgment of APX’s trustees or investment adviser, such disposition would create more than an insignificant risk that the Reorganization would not be treated as a “reorganization” as described in Section 368(a) of the Code.

(h) Prior to the Closing Date, APX shall declare a dividend or dividends which, together with all such previous dividends, shall have the effect of distributing to its stockholders all of its investment company taxable income to and including the Closing Date, if any (computed without regard to any deduction for dividends paid), and all of its net capital gain, if any, realized to and including the Closing Date.

(i) The Valuation Time shall be at the close of business of the New York Stock Exchange on the business day immediately preceding the Closing Date, or such earlier or later day and time as may be mutually agreed upon in writing (the “ Valuation Time ”).

(j) Recourse for liabilities assumed from APX by the Surviving Fund in the Reorganization will be limited to the net assets acquired by the Surviving Fund. The known liabilities of APX, as of the Valuation Time, shall be confirmed to the Surviving Fund pursuant to Section 2(i) of this Agreement.

(k) For U.S. federal income tax purposes, this Agreement will constitute a plan of reorganization within the meaning of U.S. Treasury Regulations Section 1.368-2(g).

4. ISSUANCE AND VALUATION OF MUA COMMON SHARES IN THE REORGANIZATION.

At the Effective Time, the APX Common Shares outstanding immediately prior to the Effective Time shall be converted into the right to receive MUA Common Shares with an aggregate net asset value of the APX Common Shares outstanding immediately prior to the Effective Time. The aggregate net asset value of such shares shall be determined as set forth below.

 

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The net asset value of MUA and APX shall be determined as of the Valuation Time in accordance with the regular procedures of the investment adviser, and no formula will be used to adjust the net asset value so determined of any Fund to take into account differences in realized and unrealized gains and losses. Values in all cases shall be determined as of the Valuation Time. The value of APX’s portfolio securities shall be determined pursuant to the regular procedures of the investment advisor.

Such valuation and determination shall be made by the MUA Parties in cooperation with APX and shall be confirmed in writing by the MUA Parties to APX. The net asset value per share of the MUA Common Shares shall be determined in accordance with such procedures and MUA shall certify the computations involved. For purposes of determining the net asset value per share of APX Common Shares and the MUA Common Shares, the value of the securities held by the applicable Fund plus any cash or other assets (including interest accrued but not yet received) minus all liabilities (including accrued expenses) shall be divided by the total number of APX Common Shares or MUA Common Shares, as the case may be, outstanding at such time. MUA shall issue to common stockholders of APX book entry interests for the MUA Common Shares registered in the name of such stockholders on the basis of each holder’s proportionate interest in the aggregate net asset value of APX Common Shares. With respect to any APX stockholder holding certificates evidencing ownership of APX Common Shares as of the Closing Date, and subject to MUA being informed thereof in writing by APX, MUA will not permit such stockholder to receive new certificates evidencing ownership of the MUA Common Shares, until such stockholder has surrendered his or her outstanding certificates evidencing ownership of APX Common Shares or, in the event of lost certificates, posted adequate bond. APX, at its own expense, will request its stockholders to surrender their outstanding certificates evidencing ownership of APX Common Shares or post adequate bond therefor.

No fractional shares of MUA Common Shares will be issued to holders of APX Common Shares unless such shares are held in a Dividend Reinvestment Plan account. In lieu thereof, the MUA’s transfer agent will aggregate all fractional MUA Common Shares to be issued in connection with the Reorganization (other than those issued to a Dividend Reinvestment Plan account) and sell the resulting full shares on the New York Stock Exchange at the current market price for MUA Common Shares for the account of all holders of such fractional interests, and each such holder will receive such holder’s pro rata share of the proceeds of such sale upon surrender of such holder’s certificates representing MUA Common Shares.

5. PAYMENT OF EXPENSES.

(a) APX and MUA will bear expenses incurred in connection with the Reorganization, including but not limited to, costs related to the preparation and distribution of materials distributed to MUA’s and APX’s Board of Directors, expenses incurred in connection with the preparation of the Agreement and Plan of Reorganization, Articles of Merger and a registration statement on Form N-14, the printing and distribution of the Proxy Statement/Prospectus and any other materials required to be distributed to stockholders, SEC and state securities commission filing fees and legal and audit fees in connection with the Reorganization, legal fees incurred preparing each Fund’s board materials, attending each Fund’s board meetings and preparing the minutes, auditing fees associated with each Fund’s financial statements, stock exchange fees, transfer agency fees, portfolio transfer taxes (if any) and any similar expenses incurred in connection with the Reorganization, which will be borne directly by the respective Fund incurring the expense or allocated among the Funds based upon any reasonable methodology approved by the Board of Directors of the Funds. Neither the Funds nor the investment adviser will pay any expenses of stockholders arising out of or in connection with the Reorganization.

(b) If for any reason the Reorganization is not consummated, no party shall be liable to any other party for any damages resulting therefrom, including, without limitation, consequential damages, and each Fund shall be responsible, on a proportionate total assets basis, for all expenses incurred in connection with the Reorganization.

 

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6. COVENANTS OF THE PARTIES.

(a) Each party covenants to operate its business as presently conducted between the date hereof and the Closing Date.

(b) APX undertakes that if the Reorganization is consummated, it will file an application pursuant to Section 8(f) of the 1940 Act for an order declaring that APX has ceased to be a registered investment company.

(c) MUA will file the N-14 Registration Statement with the Securities and Exchange Commission (the “ SEC ”) and will use its best efforts to provide that the N-14 Registration Statement becomes effective as promptly as practicable. Each Fund agrees to cooperate fully with the other, and each will furnish to the other the information relating to itself to be set forth in the N-14 Registration Statement as required by the 1933 Act, the 1934 Act and the 1940 Act, and the rules and regulations thereunder and the state securities laws.

(d) Each party agrees that by the Closing Date all of its U.S. federal and other tax returns and reports required to be filed on or before such date shall have been filed and all taxes shown as due on said returns either have been paid or adequate liability reserves have been provided for the payment of such taxes.

The intention of the parties is that the transaction contemplated by this Agreement will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Neither MUA nor Merger Subsidiary nor APX shall take any action or cause any action to be taken (including, without limitation, the filing of any tax return) that is inconsistent with such treatment or results in the failure of the transaction to qualify as a reorganization within the meaning of Section 368(a) of the Code. At or prior to the Closing Date, the MUA Parties and APX will take such action, or cause such action to be taken, as is reasonably necessary to enable Skadden, Arps, Slate, Meagher & Flom LLP (“ Skadden ”), special counsel to the parties, to render the tax opinion required herein (including, without limitation, each party’s execution of representations reasonably requested by and addressed to Skadden).

In connection with this covenant, the parties agree to cooperate with each other in filing any tax return, amended return or claim for refund, determining a liability for taxes or a right to a refund of taxes or participating in or conducting any audit or other proceeding in respect of taxes. The MUA Parties agree to retain for a period of ten (10) years following the Closing Date all returns, schedules and work papers and all material records or other documents relating to tax matters of APX for such party’s taxable periods ending on or before the Closing Date.

After the Closing Date, APX shall prepare, or cause its agents to prepare, any U.S. federal, state or local tax returns required to be filed by APX with respect to its final taxable year ending with its complete liquidation and dissolution and for any prior periods or taxable years and further shall cause such tax returns to be duly filed with the appropriate taxing authorities. Notwithstanding the aforementioned provisions of this subsection, any expenses incurred by APX (other than for payment of taxes) in connection with the preparation and filing of said tax returns after the Closing Date shall be borne by APX to the extent such expenses have been accrued by APX in the ordinary course without regard to the Reorganization; any excess expenses shall be paid from a liability reserve established to provide for the payment of such expenses.

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

(f) Following the consummation of the Reorganization, MUA will continue its business as a non-diversified, closed-end management investment company registered under the 1940 Act.

 

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(g) MUA shall use its reasonable best efforts to cause the MUA Common Shares to be issued in the Reorganization to be approved for listing on the New York Stock Exchange prior to the Closing Date.

7. CLOSING DATE.

(a) The closing of the Reorganization (the “ Closing ”) shall occur sometime during the first quarter of 2011 at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New York, New York 10036, or at such other time or location as may be mutually agreed by the parties, on the next full business day following the Valuation Time to occur after the satisfaction or waiver of all of the conditions set forth in Sections 8 and 9 of this Agreement (other than the conditions that relate to actions to be taken, or documents to be delivered at the Closing, it being understood that the occurrence of the Closing shall remain subject to the satisfaction or waiver of such conditions at Closing), or at such other time and date as may be mutually agreed to by the parties (such date, the “ Closing Date ”).

(b) As soon as practicable after the close of business on the Closing Date, APX shall deliver to MUA a list of the names and addresses of all of the stockholders of record of APX on the Closing Date and the number of APX Common Shares owned by each such stockholder, certified to the best of its knowledge and belief by the transfer agent for APX or by its President.

8. CONDITIONS OF APX.

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

(a) That this Agreement shall have been adopted, and the Reorganization shall have been approved, by the affirmative vote of a two-thirds of the members of the Board of Directors of APX and the affirmative vote of the requisite majority of the common stockholders as set forth in the Proxy Statement/Prospectus; and that each of the MUA Parties shall have delivered to APX a copy of the resolutions approving this Agreement adopted by MUA’s Board of Directors and Merger Subsidiary’s Manager, and a certificate setting forth the vote of holders of MUA Common Shares certified by its Secretary.

(b) That MUA shall have provided or made available (including by electronic format) to APX the MUA Closing Financial Statements, together with a schedule of MUA’s investments, all as of the Valuation Time, certified on MUA’s behalf by its President, Vice President or Treasurer, and a certificate signed by MUA’s President, Vice President or Treasurer, dated as of the Closing Date, certifying that as of the Valuation Time and as of the Closing Date there has been no material adverse change in the financial position of the MUA since the date of MUA’s most recent Annual or Semi-Annual Report, as applicable, other than changes in its portfolio securities since that date or changes in the market value of its portfolio securities.

(c) That MUA shall have furnished to APX a certificate signed by MUA’s President, Vice President or Treasurer, dated as of the Closing Date, certifying that, as of the Valuation Time and as of the Closing Date, all representations and warranties of the MUA Parties made in this Agreement are true and correct in all material respects with the same effect as if made at and as of such dates, and that the MUA Parties have complied with all of the agreements and satisfied all of the conditions on its part to be performed or satisfied at or prior to each of such dates.

(d) That there shall not be any material litigation pending with respect to the matters contemplated by this Agreement.

(e) That APX shall have received the opinion of Skadden or local Maryland counsel, each acting as special counsel for each of the MUA Parties, dated as of the Closing Date, addressed to APX, substantially in the form and to the effect that:

(i) each MUA Party is validly existing and in good standing under the laws of the State of Maryland;

 

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(ii) MUA is registered as a closed-end management investment company under the 1940 Act;

(iii) each MUA Party has the power and authority to execute, deliver and perform all of its obligations under this Agreement under the laws of the State of Maryland, the execution and delivery and the consummation by each MUA Party of the transactions contemplated hereby have been duly authorized by all requisite action of each MUA Party under the laws of the State of Maryland, and this Agreement has been duly executed and delivered by each MUA Party under the laws of the State of Maryland;

(iv) this Agreement constitutes a valid and binding obligation of each MUA Party (assuming this Agreement is a valid and binding obligation of the other party hereto);

(v) the execution and delivery by each MUA Party of this Agreement and the performance by each MUA Party of its obligations under this Agreement do not conflict with the charter, bylaws or operating agreement, as applicable, of either MUA Party;

(vi) neither the execution, delivery or performance by each MUA Party of this Agreement nor the compliance by each MUA Party with the terms and provisions hereof contravene any provision of the laws of the State of Maryland or the federal laws of the United States;

(vii) no governmental approval, which has not been obtained or taken and is not in full force and effect, is required to authorize, or is required in connection with, the execution or delivery of this Agreement by each MUA Party or the enforceability of this Agreement against each MUA Party;

(viii) the MUA Common Shares to be issued pursuant to the Reorganization have each been duly authorized and, upon issuance thereof in accordance with this Agreement, each will be validly issued, fully paid and nonassessable; and

(f) That APX shall have obtained an opinion from Skadden, special counsel for the MUA Parties, dated as of the Closing Date, addressed to APX, that the consummation of the transactions set forth in this Agreement complies with the requirements of a reorganization as described in Section 368(a) of the Code.

(g) That all proceedings taken by each MUA Party and its counsel in connection with the Reorganization and all documents incidental thereto shall be satisfactory in form and substance to APX.

(h) That the N-14 Registration Statement shall have become effective under the 1933 Act, and no stop order suspending such effectiveness shall have been instituted or, to the knowledge of each MUA Party, be contemplated by the SEC.

9. CONDITIONS OF THE MUA PARTIES.

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

(a) That this Agreement shall have been adopted, and the Reorganization shall have been approved, by the Board of Directors of MUA and the Manager of Merger Subsidiary and that the issuance of additional MUA Common Shares shall have been approved by the affirmative vote of the requisite majority of the votes cast by the MUA common stockholders, at a meeting at which a quorum is present, and APX shall have delivered to each MUA Party a copy of the resolution approving this Agreement adopted by APX’s Board of Directors, and a certificate setting forth the vote of holders of APX Common Shares certified by its Secretary.

(b) That APX shall have provided or made available (including by electronic format) to the MUA Parties APX Closing Financial Statements, together with a schedule of investments with their respective dates of acquisition and tax costs, all as of the Valuation Time, certified on APX’s behalf by its President, Vice President or Treasurer, and a certificate signed by APX’s President, Vice President or Treasurer, dated as of the Closing Date, certifying that as of the Valuation Time and as of the Closing Date there has been no material adverse

 

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change in the financial position of APX since the date of APX’s most recent Annual Report or Semi-Annual Report, as applicable, other than changes in its portfolio securities since that date or changes in the market value of its portfolio securities.

(c) That APX shall have furnished to the MUA Parties a certificate signed by APX’s President, Vice President or Treasurer, dated as of the Closing Date, certifying that as of the Valuation Time and as of the Closing Date all representations and warranties of APX made in this Agreement are true and correct in all material respects with the same effect as if made at and as of such dates and APX has complied with all of the agreements and satisfied all of the conditions on its part to be performed or satisfied at or prior to such dates.

(d) That there shall not be any material litigation pending with respect to the matters contemplated by this Agreement.

(e) That the MUA Parties shall have received the opinion of Skadden or local Maryland counsel, each acting as special counsel for APX, dated as of the Closing Date, addressed to the MUA Parties, substantially in the form and to the effect that:

(i) APX is validly existing and in good standing under the laws of the State of Maryland;

(ii) APX is registered as a closed-end management investment company under the 1940 Act;

(iii) APX has the power and authority to execute, deliver and perform all of its obligations under this Agreement under the laws of the State of Maryland, the execution and delivery and the consummation by APX of the transactions contemplated hereby have been duly authorized by all requisite action of APX under the laws of the State of Maryland, and this Agreement has been duly executed and delivered by APX under the laws of the State of Maryland;

(iv) this Agreement constitutes a valid and binding obligation of APX (assuming this Agreement is a valid and binding obligation of the other party hereto);

(v) the execution and delivery by APX of this Agreement and the performance by APX of its obligations under this Agreement do not conflict with the charter or the bylaws of APX;

(vi) neither the execution, delivery or performance by APX of this Agreement nor the compliance by APX with the terms and provisions hereof contravene any provision of the laws of the State of Maryland or the federal laws of the United States; and

(vii) no governmental approval, which has not been obtained or taken and is not in full force and effect, is required to authorize, or is required in connection with, the execution or delivery of this Agreement by APX or the enforceability of this Agreement against APX.

(f) That the MUA Parties shall have obtained an opinion from Skadden, special counsel for APX, dated as of the Closing Date, addressed to the MUA Parties, that the consummation of the transactions set forth in this Agreement complies with the requirements of a reorganization as described in Section 368(a) of the Code.

(g) That all proceedings taken by APX and its counsel in connection with the Reorganization and all documents incidental thereto shall be satisfactory in form and substance to the MUA Parties.

(h) That the N-14 Registration Statement shall have become effective under the 1933 Act and no stop order suspending such effectiveness shall have been instituted or, to the knowledge of APX, be contemplated by the SEC.

(i) That prior to the Closing Date, APX shall have declared a dividend or dividends which, together with all such previous dividends, shall have the effect of distributing to its stockholders all of its net

 

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investment company taxable income for the period to and including the Closing Date, if any (computed without regard to any deduction for dividends paid), and all of its net capital gain, if any, realized to and including the Closing Date.

10. TERMINATION, POSTPONEMENT AND WAIVERS.

(a) Notwithstanding anything contained in this Agreement to the contrary, this Agreement may be terminated and the Reorganization abandoned at any time (whether before or after adoption thereof by the stockholders of APX) prior to the Closing Date, or the Closing Date may be postponed, (i) by mutual consent of the Boards of Directors of MUA and APX; (ii) by the Board of Directors of APX if any condition of APX’s obligations set forth in Section 8 of this Agreement has not been fulfilled or waived by such Board; and (iii) by the Board of Directors of MUA if any condition of MUA’s obligations set forth in Section 9 of this Agreement has not been fulfilled or waived by such Board.

(b) If the transactions contemplated by this Agreement have not been consummated by December 31, 2011, this Agreement automatically shall terminate on that date, unless a later date is mutually agreed to by the Boards of Directors of the MUA and APX and the Manager of Merger Subsidiary.

(c) In the event of termination of this Agreement pursuant to the provisions hereof, the same shall become void and have no further effect, and there shall not be any liability on the part of any party or its respective directors, manager, officers, agents, stockholders or members in respect of this Agreement.

(d) At any time prior to the Closing Date, any of the terms or conditions of this Agreement may be waived by the Board of Directors of MUA or APX (whichever is entitled to the benefit thereof), if, in the judgment of such Board after consultation with its counsel, such action or waiver will not have a material adverse effect on the benefits intended under this Agreement to their respective stockholders, on behalf of which such action is taken.

(e) The respective representations and warranties contained in Sections 1 and 2 of this Agreement shall expire with, and be terminated by, the consummation of the Reorganization, and the parties and their respective officers, directors, managers, agents, stockholders or members shall not have any liability with respect to such representations or warranties after the Closing Date. This provision shall not protect any officer, director, manager, agent, stockholder or member of any party against any liability to the party for which that officer, director, manager, agent, stockholder or member so acts or to its stockholders or members, as applicable, to which that officer, director, manager, agent, stockholder or member otherwise would be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of his or her duties in the conduct of such office.

(f) If any order or orders of the SEC with respect to this Agreement shall be issued prior to the Closing Date and shall impose any terms or conditions which are determined by action of the Board of Directors of MUA and APX to be acceptable, such terms and conditions shall be binding as if a part of this Agreement without further vote or approval of the stockholders of APX unless such terms and conditions shall result in a change in the method of computing the number of MUA Common Shares to be issued to stockholders of APX, in which event, unless such terms and conditions shall have been included in the proxy solicitation materials furnished to the stockholders of APX prior to the meeting at which the Reorganization shall have been approved, this Agreement shall not be consummated and shall terminate unless APX promptly shall call a special meeting of stockholders at which such conditions so imposed shall be submitted for approval.

11. INDEMNIFICATION.

(a) Each party (an “ Indemnitor ”) shall indemnify and hold the other and its officers, trustees, agents and persons controlled by or controlling any of them (each an “ Indemnified Party ”) harmless from and against any and all losses, damages, liabilities, claims, demands, judgments, settlements, deficiencies, taxes,

 

A-12


assessments, charges, costs and expenses of any nature whatsoever (including reasonable attorneys’ fees) including amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and counsel fees reasonably incurred by such Indemnified Party in connection with the defense or disposition of any claim, action, suit or other proceeding, whether civil or criminal, before any court or administrative or investigative body in which such Indemnified Party may be or may have been involved as a party or otherwise or with which such Indemnified Party may be or may have been threatened (collectively, the “ Losses ”) arising out of or related to any claim of a breach of any representation, warranty or covenant made herein by the Indemnitor; provided , however , that no Indemnified Party shall be indemnified hereunder against any Losses arising directly from such Indemnified Party’s (i) willful misfeasance, (ii) bad faith, (iii) gross negligence or (iv) reckless disregard of the duties involved in the conduct of such Indemnified Party’s position.

(b) The Indemnified Party shall use its best efforts to minimize any liabilities, damages, deficiencies, claims, judgments, assessments, costs and expenses in respect of which indemnity may be sought hereunder. The Indemnified Party shall give written notice to Indemnitor within the earlier of ten (10) days of receipt of written notice to the Indemnified Party or thirty (30) days from discovery by the Indemnified Party of any matters which may give rise to a claim for indemnification or reimbursement under this Agreement. The failure to give such notice shall not affect the right of the Indemnified Party to indemnity hereunder unless such failure has materially and adversely affected the rights of the Indemnitor. At any time after ten (10) days from the giving of such notice, the Indemnified Party may, at its option, resist, settle or otherwise compromise, or pay such claim unless it shall have received notice from the Indemnitor that the Indemnitor intends, at the Indemnitor’s sole cost and expense, to assume the defense of any such matter, in which case the Indemnified Party shall have the right, at no cost or expense to the Indemnitor, to participate in such defense. If the Indemnitor does not assume the defense of such matter, and in any event until the Indemnitor states in writing that it will assume the defense, the Indemnitor shall pay all costs of the Indemnified Party arising out of the defense until the defense is assumed; provided , however , that the Indemnified Party shall consult with the Indemnitor and obtain indemnitor’s prior written consent to any payment or settlement of any such claim. The Indemnitor shall keep the Indemnified Party fully apprised at all times as to the status of the defense. If the Indemnitor does not assume the defense, the Indemnified Party shall keep the Indemnitor apprised at all times as to the status of the defense. Following indemnification as provided for hereunder, the Indemnitor shall be subrogated to all rights of the Indemnified Party with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made.

12. OTHER MATTERS.

(a) All covenants, agreements, representations and warranties made under this Agreement and any certificates delivered pursuant to this Agreement shall be deemed to have been material and relied upon by each of the parties, notwithstanding any investigation made by them or on their behalf.

(b) All notices hereunder shall be sufficiently given for all purposes hereunder if in writing and delivered personally or sent by registered mail or certified mail, postage prepaid. Notice to APX shall be addressed to BlackRock Apex Municipal Fund, Inc. c/o BlackRock Advisors, LLC, 55 East 52 nd Street New York, New York 10055, Attention: Howard B. Surloff, Esq., or at such other address as APX may designate by written notice to the MUA Parties. Notice to the MUA Parties shall be addressed to BlackRock MuniAssets Fund, Inc. c/o BlackRock Advisors, LLC, 55 East 52 nd Street New York, New York 10055, Attention: Howard B. Surloff, Esq., or at such other address and to the attention of such other person as the MUA Parties may designate by written notice to APX. Any notice shall be deemed to have been served or given as of the date such notice is delivered personally or mailed.

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

 

A-13


(d) This Agreement may be amended or modified by the parties hereto prior to the Closing Date, by action taken or authorized by their respective Boards of Directors or Manager, as applicable, at any time before or after adoption of this Agreement and approval of the Reorganization by APX’s stockholders, but, after any such adoption and approval, no amendment or modification shall be made which by law requires further approval by such stockholders without such further approval. This Agreement may not be amended or modified except by an instrument in writing signed on behalf of each party.

(e) This Agreement is not intended to confer upon any person other than the parties hereto (or their respective successors and assigns) any rights, remedies, obligations or liabilities hereunder. If any provision of this Agreement shall be held or made invalid by statute rule, regulation, decision of a tribunal or otherwise, the remainder of this Agreement shall not be affected thereby and, to such extent, the provisions of this Agreement shall be deemed severable provided that this Agreement shall be deemed modified to give effect to the fullest extent permitted under applicable law to the intentions of the party as reflected by this Agreement prior to the invalidity of such provision.

(f) It is expressly agreed that the obligations of the parties hereunder shall not be binding upon any of their respective directors, manager, stockholders, members, nominees, officers, agents, or employees personally, but shall bind only the property of the respective party. The execution and delivery of this Agreement has been authorized by the Board of Directors of MUA and APX and the Manager of Merger Subsidiary and signed by authorized officers of MUA and APX and the authorized officer of the Manager of Merger Subsidiary, acting as such, and neither such authorization by such Directors or Manager, as applicable, nor such execution and delivery by such officers shall be deemed to have been made by any of them individually or to impose any liability on any of them personally, but shall bind only the trust property of each party.

(g) This Agreement may be executed in any number of counterparts, each of which, when executed and delivered, shall be deemed to be an original but all such counterparts together shall constitute but one instrument.

[Remainder of Page Intentionally Left Blank]

 

A-14


The parties have hereunto caused this Agreement to be executed and delivered by their duly authorized officers as of the day and year first written above.

 

BlackRock Apex Municipal Fund, Inc.

By:

 

 

  Name:
  Title:

BlackRock MuniAssets Fund, Inc.

By:

 

 

  Name:
  Title:

MUA Merger Subsidiary, LLC

By:

 

 

  Name:
  Title:

 

A-15


APPENDIX B

PRO FORMA FINANCIAL STATEMENTS

The following presents the pro forma financial statements for the reorganization of BlackRock Apex Municipal Fund, Inc. (“APX”) into BlackRock MuniAssets Fund, Inc. (“MUA”) (the “Reorganization”).

The unaudited Pro Forma Condensed Combined Schedule of Investments and Pro Forma Condensed Combined Statement of Assets and Liabilities reflect the financial position as if the Reorganization occurred on April 30, 2010. The Pro Forma Condensed Combined Statement of Operations reflects the operations for the 12-month period ended April 30, 2010 as if the Reorganization had taken place on May 1, 2009. The pro forma financial statements give effect to the proposed Reorganization in which APX will merge with and into MUA Merger Subsidiary, LLC, a direct, wholly owned subsidiary of MUA (the “Merger Subsidiary”). Following the Reorganization, the Merger Subsidiary will dissolve under Maryland law and be liquidated into MUA, and APX will terminate their registration under the Investment Company Act of 1940, as amended. The proposed transaction will be accounted for as a tax-free reorganization in accordance with accounting principles generally accepted in the United States of America. The historical cost basis of the investments is carried over to the surviving entity. It is not anticipated that MUA will sell any securities of APX acquired in the reorganization other than in the ordinary course of business.

 

B-1


Pro Forma Condensed Combined Schedule of Investments for

BlackRock MuniAssets Fund, Inc. (“MUA”) and

BlackRock Apex Municipal Fund, Inc. (“APX”)

As of April 30, 2010 (Unaudited)

 

    Par   Value

Municipal Bonds

  MUA   APX   Pro Forma
Combined
Fund
  MUA   APX   Pro Forma
Combined
Fund

Alabama - 0.4%

           

County of Jefferson Alabama, RB, Series A:

           

5.25%, 1/01/13

  $ 635   $ 435   $ 1,070   $ 601,904   $ 412,328   $ 1,014,232

5.25%, 1/01/17

    530     365     895     480,530     330,931     811,461
           
          1,082,434     743,259     1,825,693
           

Alaska - 0.5%

           

Alaska Industrial Development & Export Authority, RB, Williams Lynxs, Alaska Cargoport, AMT:

           

7.80%, 5/01/14

    395     —       395     389,462     —       389,462

8.00%, 5/01/23

    —       2,000     2,000     —       1,925,240     1,925,240
           
          389,462     1,925,240     2,314,702
           

Arizona - 5.4%

           

Coconino County Pollution Control Corp. Arizona, Refunding RB, Tucson Electric Power-Navajo, Series A, AMT, 7.13%, 10/01/32

    3,000     —       3,000     3,001,380     —       3,001,380

Maricopa County IDA Arizona, RB, Series A:

           

Arizona Charter Schools Project, 6.63%, 7/01/20

    1,625     1,100     2,725     1,251,981     847,495     2,099,476

Sun King Apartments Project, 6.00%, 11/01/10

    —       5     5     —       4,969     4,969

Phoenix IDA Arizona, Refunding RB, America West Airlines Inc. Project, AMT, 6.30%, 4/01/23

    4,800     2,950     7,750     3,753,744     2,306,988     6,060,732

Pima County IDA, RB, Arizona Charter Schools Project, Series E, 7.25%, 7/01/31

    1,375     960     2,335     1,380,115     963,571     2,343,686

Pima County IDA, Refunding IDRB, Tucson Electric Power, 5.75%, 9/01/29

    670     460     1,130     681,779     468,087     1,149,866

Pima County IDA, Refunding RB:

           

Arizona Charter Schools Project, Series O, 5.25%, 7/01/31

    500     —       500     398,950     —       398,950

Charter Schools II, Series A, 6.75%, 7/01/31

    670     —       670     646,195     —       646,195

Salt Verde Financial Corp., RB, Senior:

           

5.00%, 12/01/32

    2,840     1,950     4,790     2,575,709     1,768,533     4,344,242

5.00%, 12/01/37

    1,850     —       1,850     1,640,487     —       1,640,487

Show Low Improvement District, Special Assessment Bonds, District No. 5, 6.38%, 1/01/15

    745     —       745     745,477     —       745,477

University Medical Center Corp. Arizona, RB:

           

6.25%, 7/01/29

    280     540     820     298,052     574,814     872,866

6.50%, 7/01/39

    500     —       500     532,990     —       532,990

Yavapai County IDA Arizona, RB, Yavapai Regional Medical Center, Series A, 6.00%, 8/01/33

    —       500     500     —       502,870     502,870
           
          16,906,859     7,437,327     24,344,186
           

California - 4.3%

           

California Health Facilities Financing Authority, RB, Cedars-Sinai Medical Center, 5.00%, 8/15/39

    640     —       640     618,938     —       618,938

California Statewide Communities Development Authority, Refunding RB:

           

American Baptist Homes of the West, 6.25%, 10/01/39

    1,290     885     2,175     1,281,331     879,053     2,160,384

Senior Living, Southern California, 7.00%, 11/15/29

    600     400     1,000     644,442     429,628     1,074,070

Senior Living, Southern California, 7.25%, 11/15/41

    2,060     1,440     3,500     2,234,029     1,561,651     3,795,680

City of Fontana California, Special Tax Bonds, Refunding, Community Facilities District No. 22-Sierra, Series H, 6.00%, 9/01/34

    1,320     1,000     2,320     1,261,432     955,630     2,217,062

State of California, GO
4.50%, 10/01/36

    2,555     1,755     4,310     2,289,433     1,572,585     3,862,018

Various Purpose, 6.00%, 3/01/33

    3,075     2,120     5,195     3,384,683     2,333,505     5,718,188
           
          11,714,288     7,732,052     19,446,340
           

See Notes to Pro Forma Condensed Combined Financial Statements.

 

B-2


Pro Forma Condensed Combined Schedule of Investments for

BlackRock MuniAssets Fund, Inc. (“MUA”) and

BlackRock Apex Municipal Fund, Inc. (“APX”)

As of April 30, 2010 (Unaudited)

 

    Par   Value

Municipal Bonds

  MUA   APX   Pro Forma
Combined
Fund
  MUA   APX   Pro Forma
Combined
Fund

Colorado - 2.7%

           

Elk Valley Public Improvement Corp., RB, Public Improvement Fee:

           

Series A, 7.10%, 9/01/14

  $ 1,395   $ —     $ 1,395   $ 1,424,532   $ —     $ 1,424,532

Series A, 7.30%, 9/01/22

    2,095     2,800     4,895     2,048,533     2,737,896     4,786,429

Series B, 7.45%, 9/01/31

    200     —       200     186,542     —       186,542

Plaza Metropolitan District No. 1 Colorado, Tax Allocation Bonds, Tax Increment:

           

Public Improvement Fee, 8.00%, 12/01/25

    2,850     2,000     4,850     2,853,192     2,002,240     4,855,432

Subordinate Public Improvement Fee, 8.13%, 12/01/25

    525     500     1,025     500,724     476,880     977,604
           
          7,013,523     5,217,016     12,230,539
           

Connecticut - 2.7%

           

Connecticut State Development Authority, RB, AFCO Cargo BDL LLC Project, AMT, 8.00%, 4/01/30

    3,490     —       3,490     3,297,945     —       3,297,945

Harbor Point Infrastructure Improvement District, Tax Allocation Bonds, Harbor Point Project, Series A, 7.88%, 4/01/39

    2,340     1,610     3,950     2,450,893     1,686,298     4,137,191

Mohegan Tribe of Indians of Connecticut, RB, Public Improvement, Priority Distribution:

           

6.25%, 1/01/31

    2,610     1,785     4,395     2,098,075     1,434,890     3,532,965

5.25%, 1/01/33 (a)

    —       1,500     1,500     —       1,072,530     1,072,530
           
          7,846,913     4,193,718     12,040,631
           

District of Columbia - 2.2%

           

District of Columbia, RB, Methodist Home District of Columbia, Series A:

           

7.38%, 1/01/30

    985     680     1,665     998,583     689,377     1,687,960

7.50%, 1/01/39

    1,615     1,110     2,725     1,638,789     1,126,351     2,765,140

District of Columbia Tobacco Settlement Financing Corp., Refunding RB, Asset-Backed, 6.50%, 5/15/33

    1,055     730     1,785     1,035,208     716,305     1,751,513

Metropolitan Washington Airports Authority, RB, CAB, 2nd Senior Lien, Series B (AGC) (b):

           

6.54%, 10/01/30

    7,000     —       7,000     2,126,810     —       2,126,810

6.75%, 10/01/39

    —       9,770     9,770     —       1,691,871     1,691,871
           
          5,799,390     4,223,904     10,023,294
           

 

 

See Notes to Pro Forma Condensed Combined Financial Statements.

 

B-3


Pro Forma Condensed Combined Schedule of Investments for

BlackRock MuniAssets Fund, Inc. (“MUA”) and

BlackRock Apex Municipal Fund, Inc. (“APX”)

As of April 30, 2010 (Unaudited)

 

     Par    Value

Municipal Bonds

   MUA    APX    Pro Forma
Combined
Fund
   MUA    APX    Pro Forma
Combined
Fund

Florida - 9.2%

                 

Capital Region Community Development District Florida, Special Assessment Bonds, Capital Improvement,
Series A, 7.00%, 5/01/39

   $ 945    $ 630    $ 1,575    $ 886,278    $ 590,852    $ 1,477,130

County of Miami-Dade Florida, Refunding RB, Miami International Airport, Series A-1, 5.38%, 10/01/41

     705      360      1,065      713,100      364,136      1,077,236

Greater Orlando Aviation Authority Florida, RB, Special Purpose, JetBlue Airways Corp., AMT, 6.38%, 11/15/26

     1,180      —        1,180      1,102,887      —        1,102,887

Harbor Bay Community Development District Florida, Special Assessment Bonds, Series A, 7.00%, 5/01/33

     455      —        455      455,332      —        455,332

Hillsborough County IDA, RB:

                 

National Gypsum Co., Series A, AMT, 7.13%, 4/01/30

     2,000      2,500      4,500      1,742,020      2,177,525      3,919,545

National Gypsum Co., Series B, AMT, 7.13%, 4/01/30

     1,540      1,560      3,100      1,341,355      1,358,776      2,700,131

Tampa General Hospital Project, 5.00%, 10/01/36

     2,670      —        2,670      2,492,071      —        2,492,071

Jacksonville Economic Development Commission, RB, Gerdau Ameristeel US Inc., AMT, 5.30%, 5/01/37

     1,300      900      2,200      1,005,212      695,916      1,701,128

Jacksonville Economic Development Commission, Refunding RB, Florida Proton Therapy Institute, Series A, 6.00%, 9/01/17

     850      840      1,690      867,077      856,876      1,723,953

Lee County IDA Florida, RB, Series A, Lee Charter Foundation, 5.38%, 6/15/37

     2,620      1,810      4,430      2,005,165      1,385,247      3,390,412

Main Street Community Development District, Special Assessment Bonds, Series B, 6.90%, 5/01/17

     500      345      845      469,165      323,724      792,889

Midtown Miami Community Development District, Special Assessment Bonds, Series A:

                 

6.00%, 5/01/24

     —        1,370      1,370      —        1,313,707      1,313,707

6.25%, 5/01/37

     3,255      1,350      4,605      3,054,036      1,266,651      4,320,687

Santa Rosa Bay Bridge Authority, RB, 6.25%, 7/01/28

     3,040      2,140      5,180      1,655,432      1,165,337      2,820,769

Sarasota County Health Facilities Authority, Refunding RB, Village On The Isle Project:

                 

5.50%, 1/01/27

     860      590      1,450      781,293      536,003      1,317,296

5.50%, 1/01/32

     795      550      1,345      704,879      487,652      1,192,531

Sarasota County Public Hospital District, RB, Sarasota Memorial Hospital Project, Series A, 5.63%, 7/01/39

     695      —        695      720,374      —        720,374

Sumter Landing Community Development District Florida, RB, Sub-Series B, 5.70%, 10/01/38

     2,380      1,615      3,995      1,863,064      1,264,222      3,127,286

Tampa Palms Open Space & Transportation Community Development District, RB, Capital Improvement, Richmond Place Project, 7.50%, 5/01/18

     —        1,905      1,905      —        1,905,152      1,905,152

Tolomato Community Development District, Special Assessment Bonds, Special Assessment, 6.65%, 5/01/40

     2,680      1,850      4,530      2,132,744      1,472,230      3,604,974
               
              23,991,484      17,164,006      41,155,490
               

See Notes to Pro Forma Condensed Combined Financial Statements.

 

B-4


Pro Forma Condensed Combined Schedule of Investments for

BlackRock MuniAssets Fund, Inc. (“MUA”) and

BlackRock Apex Municipal Fund, Inc. (“APX”)

As of April 30, 2010 (Unaudited)

 

    Par   Value

Municipal Bonds

  MUA   APX   Pro Forma
Combined
Fund
  MUA   APX   Pro Forma
Combined
Fund

Georgia - 4.2%

           

City of Atlanta Georgia, Tax Allocation Bonds, Princeton Lakes Project, 5.50%, 1/01/31

  $ 640   $ 395   $ 1,035   $ 561,792   $ 346,731   $ 908,523

Clayton County Development Authority, RB, Delta Air Lines Inc. Project, Series A, 8.75%, 6/01/29

    1,990     1,375     3,365     2,122,972     1,466,877     3,589,849

County of Clayton Georgia, Tax Allocation Bonds, Ellenwood Project, 7.50%, 7/01/33

    2,375     1,640     4,015     2,257,461     1,558,836     3,816,297

DeKalb County Hospital Authority Georgia, RB, DeKalb Medical Center Inc. Project, 6.13%, 9/01/40 (c)

    2,625     1,805     4,430     2,625,735     1,805,505     4,431,240

Gainesville & Hall County Development Authority, Refunding RB, Acts Retirement Life Community, Series A-2:

           

6.38%, 11/15/29

    700     —       700     727,076     —       727,076

6.63%, 11/15/39

    235     645     880     244,160     670,142     914,302

Rockdale County Development Authority, RB, Visy Paper Project, Series A, AMT, 6.13%, 1/01/34

    2,435     1,680     4,115     2,245,606     1,549,330     3,794,936

Thomasville Hospital Authority, RB, Anticipation Certificates, John D. Archbold, 5.38%, 11/01/40 (c)

    300     210     510     297,555     208,289     505,844
           
          11,082,357     7,605,710     18,688,067
           

Guam - 1.9%

           

Guam Government Waterworks Authority, Refunding RB, Water:

           

5.88%, 7/01/35

    1,150     800     1,950     1,128,115     784,776     1,912,891

6.00%, 7/01/25

    750     515     1,265     766,267     526,170     1,292,437

Territory of Guam, GO, Series A:

           

6.00%, 11/15/19

    365     250     615     377,852     258,803     636,655

6.75%, 11/15/29

    635     440     1,075     675,361     467,966     1,143,327

7.00%, 11/15/39

    660     455     1,115     704,774     485,867     1,190,641

Territory of Guam, RB, Section 30, Series A, 5.63%, 12/01/29

    1,460     1,000     2,460     1,487,536     1,018,860     2,506,396
           
          5,139,905     3,542,442     8,682,347
           

Illinois - 5.2%

           

City of Chicago Illinois, Refunding RB, American Airlines Inc. Project, 5.50%, 12/01/30

    4,140     2,860     7,000     3,075,606     2,124,694     5,200,300

Illinois Finance Authority, RB:

           

Clare at Water Tower Project, Series A, 6.13%, 5/15/38 (d)(e)

    2,950     2,050     5,000     1,176,843     817,806     1,994,649

Roosevelt University Project, 6.50%, 4/01/44

    2,470     1,700     4,170     2,590,314     1,782,807     4,373,121

Rush University Medical Center Obligation Group, Series A, 7.25%, 11/01/30

    —       2,000     2,000     —       2,277,400     2,277,400

Rush University Medical Center Obligation Group, Series B, 7.25%, 11/01/30

    1,170     —       1,170     1,332,279     —       1,332,279

Illinois Finance Authority, Refunding RB:

           

Friendship Village of Schaumbu, 7.25%, 2/15/45

    2,370     1,630     4,000     2,351,775     1,617,465     3,969,240

Primary Health Care Centers Program, 6.60%, 7/01/24

    685     490     1,175     609,465     435,968     1,045,433

Village of Lincolnshire Illinois, Special Tax Bonds, Sedgebrook Project, 6.25%, 3/01/34

    1,070     755     1,825     864,196     609,783     1,473,979

Village of Wheeling Illinois, Tax Allocation Bonds, North Milwaukee/Lake-Cook TIF Project, 6.00%, 1/01/25

    825     750     1,575     752,821     684,383     1,437,204
           
          12,753,299     10,350,306     23,103,605
           

Indiana - 1.2%

           

Indiana Finance Authority, Refunding RB, Improvement, U.S. Steel Corp., 6.00%, 12/01/26 (c)

    900     620     1,520     906,714     624,625     1,531,339

Indiana Health & Educational Facilities Financing Authority, Refunding RB, Community Foundation Northwest Indiana, 5.50%, 3/01/37

    —       1,770     1,770     —       1,723,856     1,723,856

Vigo County Hospital Authority Indiana, RB, Union Hospital Inc. (a):

           

5.70%, 9/01/37

    615     440     1,055     534,164     382,167     916,331

5.75%, 9/01/42

    765     545     1,310     655,116     466,716     1,121,832
           
          2,095,994     3,197,364     5,293,358
           

See Notes to Pro Forma Condensed Combined Financial Statements.

 

B-5


Pro Forma Condensed Combined Schedule of Investments for

BlackRock MuniAssets Fund, Inc. (“MUA”) and

BlackRock Apex Municipal Fund, Inc. (“APX”)

As of April 30, 2010 (Unaudited)

 

    Par   Value

Municipal Bonds

  MUA   APX   Pro Forma
Combined
Fund
  MUA   APX   Pro Forma
Combined
Fund

Kentucky - 0.7%

           

Kentucky Economic Development Finance Authority, Refunding RB, Owensboro Medical Health System:

           

Series A, 6.38%, 6/01/40

  $ 935   $ 645   $ 1,580   $ 961,180   $ 663,060   $ 1,624,240

Series B, 6.38%, 3/01/40

    885     615     1,500     909,780     632,220     1,542,000
           
          1,870,960     1,295,280     3,166,240
           

Louisiana - 1.2%

           

Louisiana Local Government Environmental Facilities & Community Development Authority, RB, Westlake Chemical Corp. Projects, 6.75%, 11/01/32

    3,000     2,000     5,000     3,084,960     2,056,640     5,141,600
           

Maryland - 1.2%

           

Maryland EDC, RB, Transportation Facilities Project, Series A, 5.75%, 6/01/35

    615     420     1,035     628,179     429,001     1,057,180

Maryland EDC, Refunding RB, Health & Mental Hygiene Program, Series A, 7.75%, 3/01/25

    1,480     —        1,480     1,495,570     —       1,495,570

Maryland Health & Higher Educational Facilities Authority, RB, Washington Christian Academy, 5.50%, 7/01/38

    590     410     1,000     253,712     176,308     430,020

Maryland State Energy Financing Administration, RB, Cogeneration, AES Warrior Run, AMT, 7.40%, 9/01/19

    1,080     1,500     2,580     1,080,313     1,500,435     2,580,748
           
          3,457,774     2,105,744     5,563,518
           

Massachusetts - 1.2%

           

Massachusetts Development Finance Agency, RB, First Mortgage, Overlook Communities, Series A, 6.25%, 7/01/34

    —       1,845     1,845     —       1,584,597     1,584,597

Massachusetts Development Finance Agency, Refunding RB, Eastern Nazarene College:

           

5.63%, 4/01/19

    —       1,070     1,070     —       975,519     975,519

5.63%, 4/01/29

    500     —       500     402,565     —       402,565

Massachusetts Health & Educational Facilities Authority, RB, Jordan Hospital, Series E, 6.75%, 10/01/33

    1,150     850     2,000     1,126,747     832,813     1,959,560

Massachusetts Health & Educational Facilities Authority, Refunding RB, Milton Hospital, Series C, 5.50%, 7/01/16

    —       500     500     —       444,240     444,240
           
          1,529,312     3,837,169     5,366,481
           

Michigan - 2.7%

           

Advanced Technology Academy, RB, 6.00%, 11/01/37

    900     625     1,525     803,808     558,200     1,362,008

County of Wayne Michigan, GO, Building Improvement,
Series A, 6.75%, 11/01/39

    545     375     920     574,839     395,531     970,370

Monroe County Hospital Finance Authority, Refunding RB, Mercy Memorial Hospital Corp. Obligation, 5.50%, 6/01/35

    1,740     1,260     3,000     1,433,395     1,037,975     2,471,370

Royal Oak Hospital Finance Authority Michigan, Refunding RB, William Beaumont Hospital, 8.25%, 9/01/39

    3,735     2,575     6,310     4,408,532     3,039,350     7,447,882
           
          7,220,574     5,031,056     12,251,630
           

Minnesota - 0.4%

           

City of Minneapolis Minnesota, Refunding RB, Fairview Health Services, Series A, 6.75%, 11/15/32

    1,785     —       1,785     1,992,078     —       1,992,078
           

Missouri - 0.9%

           

Kansas City IDA Missouri, RB, First Mortgage, Bishop Spencer, Series A, 6.50%, 1/01/35

    1,000     1,000     2,000     887,200     887,200     1,774,400

Kirkwood IDA Missouri, RB, Aberdeen Heights,
Series A, 8.25%, 5/15/39

    1,370     945     2,315     1,363,931     940,814     2,304,745
           
          2,251,131     1,828,014     4,079,145
           

See Notes to Pro Forma Condensed Combined Financial Statements.

 

B-6


Pro Forma Condensed Combined Schedule of Investments for

BlackRock MuniAssets Fund, Inc. (“MUA”) and

BlackRock Apex Municipal Fund, Inc. (“APX”)

As of April 30, 2010 (Unaudited)

 

    Par   Value

Municipal Bonds

  MUA   APX   Pro Forma
Combined
Fund
  MUA   APX   Pro Forma
Combined
Fund

Multi-State - 0.3%

           

MuniMae TE Bond Subsidiary LLC, 7.50%, 6/30/49 (a)(f)(g)

  $ 960   $ 672   $ 1,632   $ 890,681   $ 623,477   $ 1,514,158
           

Nevada - 0.2%

           

County of Clark Nevada, Special Assessment Bonds, Special Improvement District No. 142, Local Improvement, 6.38%, 8/01/23

    610     380     990     576,834     359,339     936,173
           

New Hampshire - 0.4%

           

New Hampshire Health & Education Facilities Authority, RB, Catholic Medical Center, 5.00%, 7/01/36

    1,165     835     2,000     990,355     709,825     1,700,180
           

New Jersey - 7.1%

           

New Jersey EDA, RB, Continental Airlines Inc. Project, AMT:

           

6.63%, 9/15/12

    —       3,050     3,050     —       3,081,537     3,081,537

6.25%, 9/15/19

    2,000     —       2,000     1,921,780     —       1,921,780

6.40%, 9/15/23

    1,000     —       1,000     959,630     —       959,630

6.25%, 9/15/29

    3,330     1,000     4,330     3,123,873     938,100     4,061,973

9.00%, 6/01/33

    1,250     —       1,250     1,315,862     —       1,315,862

New Jersey EDA, Refunding RB, Newark Airport Marriott Hotel, 7.00%, 10/01/14

    2,500     1,500     4,000     2,503,200     1,501,920     4,005,120

New Jersey Educational Facilities Authority, Refunding RB, University of Medicine & Dentistry, Series B:

           

7.13%, 12/01/23

    —       670     670     —       774,078     774,078

7.50%, 12/01/32

    2,510     1,065     3,575     2,874,728     1,219,755     4,094,483

New Jersey Health Care Facilities Financing Authority, RB, Pascack Valley Hospital Association, 6.63%, 7/01/36 (d)(e)

    2,000     1,870     3,870     20     19     39

New Jersey Health Care Facilities Financing Authority, Refunding RB, St. Joseph’s Healthcare System, 6.63%, 7/01/38

    2,410     1,680     4,090     2,471,503     1,722,873     4,194,376

New Jersey Transportation Trust Fund Authority, RB, CAB, Transportation System, Series C (AMBAC),
5.05%, 12/15/35 (b)

    3,450     2,760     6,210     739,784     591,827     1,331,611

Tobacco Settlement Financing Corp. New Jersey, Refunding RB, Series 1A:

           

4.50%, 6/01/23

    2,950     2,050     5,000     2,817,663     1,958,037     4,775,700

5.00%, 6/01/41

    1,250     860     2,110     864,363     594,681     1,459,044
           
          19,592,406     12,382,827     31,975,233
           

 

 

See Notes to Pro Forma Condensed Combined Financial Statements.

 

B-7


Pro Forma Condensed Combined Schedule of Investments for

BlackRock MuniAssets Fund, Inc. (“MUA”) and

BlackRock Apex Municipal Fund, Inc. (“APX”)

As of April 30, 2010 (Unaudited)

 

    Par   Value

Municipal Bonds

  MUA   APX   Pro Forma
Combined
Fund
  MUA   APX   Pro Forma
Combined
Fund

New York - 6.1%

           

Brooklyn Arena Local Development Corp., RB, Barclays Center Project, 6.38%, 7/15/43

  $ 1,000   $ 685   $ 1,685   $ 1,024,220   $ 701,591   $ 1,725,811

Chautauqua County Industrial Development Agency, RB, NRG Dunkirk Power Project, 5.88%, 4/01/42

    2,485     1,710     4,195     2,526,425     1,738,506     4,264,931

Dutchess County Industrial Development Agency New York, RB, St. Francis Hospital, Series B, 7.50%, 3/01/29

    —       1,000     1,000     —       993,870     993,870

Dutchess County Industrial Development Agency New York, Refunding RB, St. Francis Hospital, Series A, 7.50%, 3/01/29

    1,400     —       1,400     1,391,418     —       1,391,418

Metropolitan Transportation Authority, RB, Series 2008-C, 6.50%, 11/15/28

    3,685     2,000     5,685     4,279,354     2,322,580     6,601,934

New York City Industrial Development Agency, RB:

           

American Airlines Inc., JFK International Airport, AMT, 8.00%, 8/01/28

    1,045     720     1,765     1,088,754     750,146     1,838,900

British Airways Plc Project, AMT, 7.63%, 12/01/32

    2,400     1,730     4,130     2,373,024     1,710,555     4,083,579

Series C, 6.80%, 6/01/28

    510     350     860     536,219     367,993     904,212

Special Needs Facilities Pooled Program, Series C-1, 6.50%, 7/01/24

    —       830     830     —       771,178     771,178

Special Needs Facilities Pooled Program, Series C-1, 6.63%, 7/01/29

    1,515     —       1,515     1,358,546     —       1,358,546

New York Liberty Development Corp., RB, National Sports Museum Project, Series A, 6.13%, 2/15/19 (d)(e)

    870     630     1,500     9     6     15

New York State Dormitory Authority, RB, North Shore-Long Island Jewish Health System, Series A, 5.50%, 5/01/37

    —       1,000     1,000     —       1,024,960     1,024,960

Yonkers Industrial Development Agency New York, RB, Sarah Lawrence College Project, Series A, 6.00%, 6/01/41

    1,240     850     2,090     1,292,799     886,193     2,178,992
           
          15,870,768     11,267,578     27,138,346
           

North Carolina - 1.2%

           

North Carolina Medical Care Commission, Refunding RB, First Mortgage, Deerfield, Series A, 6.13%, 11/01/38

    2,335     3,230     5,565     2,317,884     3,206,324     5,524,208
           

Ohio - 1.9%

           

Buckeye Tobacco Settlement Financing Authority, RB, Asset-Backed, Senior Series A-2:

           

5.13%, 6/01/24

    2,265     1,120     3,385     2,084,276     1,030,635     3,114,911

6.50%, 6/01/47

    3,935     2,685     6,620     3,229,218     2,203,419     5,432,637
           
          5,313,494     3,234,054     8,547,548
           

 

See Notes to Pro Forma Condensed Combined Financial Statements.

 

B-8


Pro Forma Condensed Combined Schedule of Investments for

BlackRock MuniAssets Fund, Inc. (“MUA”) and

BlackRock Apex Municipal Fund, Inc. (“APX”)

As of April 30, 2010 (Unaudited)

 

    Par   Value

Municipal Bonds

  MUA   APX   Pro Forma
Combined
Fund
  MUA   APX   Pro Forma
Combined
Fund

Pennsylvania - 8.4%

           

Allegheny County Hospital Development Authority, Refunding RB, Health System, West Penn, Series A, 5.38%, 11/15/40

  $ 3,960   $ 2,385   $ 6,345   $ 3,178,019   $ 1,914,034   $ 5,092,053

Bucks County IDA, RB, Ann’s Choice Inc. Facility, Series A:

           

6.13%, 1/01/25

    200     1,160     1,360     189,342     1,098,184     1,287,526

6.25%, 1/01/35

    1,550     —       1,550     1,410,794     —       1,410,794

Cumberland County Municipal Authority, RB, Diakon Lutheran, 6.38%, 1/01/39

    3,655     2,510     6,165     3,682,376     2,528,800     6,211,176

Lancaster County Hospital Authority, RB, Brethren Village Project, Series A:

           

6.25%, 7/01/26

    685     475     1,160     684,233     474,468     1,158,701

6.50%, 7/01/40

    590     410     1,000     572,501     397,839     970,340

Montgomery County IDA Pennsylvania, MRB, Whitemarsh Continuing Care:

           

6.13%, 2/01/28

    2,330     —       2,330     1,870,524     —       1,870,524

6.25%, 2/01/35

    —       1,700     1,700     —       1,260,176     1,260,176

Pennsylvania Economic Development Financing Authority, RB:

           

National Gypsum Co., Series A, AMT, 6.25%, 11/01/27

    3,250     —       3,250     2,594,572     —       2,594,572

Reliant Energy, Series B, AMT, 6.75%, 12/01/36

    2,040     —       2,040     2,104,770     —       2,104,770

Pennsylvania Higher Educational Facilities Authority, Refunding RB, Allegheny Delaware Valley Obligation, Series A (NPFGC), 5.88%, 11/15/21

    1,645     470     2,115     1,586,899     453,400     2,040,299

Philadelphia Authority for Industrial Development, RB:

           

Commercial Development, AMT, 7.75%, 12/01/17

    5,000     3,000     8,000     5,005,450     3,003,270     8,008,720

Subordinate, Air Cargo, Series A, AMT, 7.50%, 1/01/25

    2,270     1,600     3,870     2,163,264     1,524,768     3,688,032
           
          25,042,744     12,654,939     37,697,683
           

Puerto Rico - 1.3%

           

Puerto Rico Public Buildings Authority, Refunding RB, Series Q, 5.63%, 7/01/39

    1,650     985     2,635     1,684,815     1,005,784     2,690,599

Puerto Rico Sales Tax Financing Corp., RB, First Sub-Series A, 6.50%, 8/01/44

    1,650     1,000     2,650     1,864,022     1,129,710     2,993,732
           
          3,548,837     2,135,494     5,684,331
           

Rhode Island - 0.8%

           

Central Falls Detention Facility Corp., Refunding RB, 7.25%, 7/15/35

    2,495     1,750     4,245     2,140,735     1,501,518     3,642,253
           

South Carolina - 0.5%

           

Connector 2000 Association Inc., RB, CAB, Senior Series B, 0.00%, 1/01/14 (b)(d)(e)

    1,485     1,075     2,560     245,025     177,375     422,400

South Carolina Jobs-EDA, Refunding RB, Palmetto Health,
5.50%, 8/01/26

    975     670     1,645     967,463     664,821     1,632,284
           
          1,212,488     842,196     2,054,684
           

Tennessee - 0.4%

           

Knox County Health Educational & Housing Facilities Board Tennessee, Refunding RB, Covenant, Series A (AGM), 4.68%, 1/01/40 (b)

    6,480     —       6,480     1,263,794     —       1,263,794

Shelby County Health Educational & Housing Facilities Board, RB, Village at Germantown, 6.25%, 12/01/34

    355     245     600     302,854     209,012     511,866
           
          1,566,648     209,012     1,775,660
           

See Notes to Pro Forma Condensed Combined Financial Statements.

 

B-9


Pro Forma Condensed Combined Schedule of Investments for

BlackRock MuniAssets Fund, Inc. (“MUA”) and

BlackRock Apex Municipal Fund, Inc. (“APX”)

As of April 30, 2010 (Unaudited)

 

    Par   Value

Municipal Bonds

  MUA   APX   Pro Forma
Combined
Fund
  MUA   APX   Pro Forma
Combined
Fund

Texas - 9.5%

           

Bexar County Health Facilities Development Corp., RB, Army Retirement Residence Project, 6.20%, 7/01/45

  $ 2,985   $ 2,055   $ 5,040   $ 3,013,805   $ 2,074,831   $ 5,088,636

Brazos River Authority, Refunding RB, Texas Utility Co., Series, AMT, 7.70%, 4/01/33

    2,550     2,530     5,080     1,518,525     1,506,615     3,025,140

Central Texas Regional Mobility Authority, RB:

           

CAB, 7.48%, 1/01/28 (b)

    —       1,000     1,000     —       282,670     282,670

CAB, 7.56%, 1/01/29 (b)

    2,000     —       2,000     525,380     —       525,380

CAB, 7.65%, 1/01/30 (b)

    1,170     —       1,170     283,409     —       283,409

CAB, 7.71%, 1/01/31 (b)

    2,000     —       2,000     447,180     —       447,180

CAB, 7.77%, 1/01/32 (b)

    3,500     —       3,500     723,310     —       723,310

CAB, 7.78%, 1/01/33 (b)

    1,540     2,150     3,690     293,986     410,435     704,421

CAB, 7.79%, 1/01/34 (b)

    —       4,000     4,000     —       708,200     708,200

Senior Lien, 5.75%, 1/01/25

    650     450     1,100     656,663     454,612     1,111,275

City of Houston Texas, RB, Special Facilities, Continental Airlines, Series E, AMT, 6.75%, 7/01/21

    2,685     1,865     4,550     2,675,737     1,858,566     4,534,303

Danbury Higher Education Authority Inc., RB, A.W. Brown Fellowship Charter, Series A (ACA), 5.13%, 8/15/36

    —       1,000     1,000     —       1,133,290     1,133,290

Harris County Health Facilities Development Corp., Refunding RB, Memorial Hermann Healthcare System, Series B:

           

7.13%, 12/01/31

    1,500     —       1,500     1,686,780     —       1,686,780

7.25%, 12/01/35

    —       1,110     1,110     —       1,251,159     1,251,159

La Vernia Higher Education Finance Corp., RB, KIPP Inc., 6.38%, 8/15/44

    860     —       860     887,253     —       887,253

Matagorda County Navigation District No. 1 Texas, Refunding RB, Central Power & Light Co. Project, Series A,
6.30%, 11/01/29

    1,240     850     2,090     1,342,325     920,142     2,262,467

North Texas Tollway Authority, RB, Toll, 2nd Tier, Series F, 6.13%, 1/01/31

    2,775     1,650     4,425     2,959,648     1,759,791     4,719,439

Tarrant County Cultural Education Facilities Finance Corp., RB:

           

CC Young Memorial Home, Series A, 8.00%, 2/15/38

    1,035     710     1,745     1,023,656     702,218     1,725,874

Senior Living Center Project, Series A, 8.25%, 11/15/44

    2,490     1,710     4,200     2,464,577     1,692,541     4,157,118

Texas Private Activity Bond Surface Transportation Corp., RB, Senior Lien, Note Mobility, 6.88%, 12/31/39

    2,330     1,605     3,935     2,434,198     1,676,776     4,110,974

Texas State Public Finance Authority, Refunding ERB, KIPP Inc., Series A (ACA), 5.00%, 2/15/28

    1,000     2,250     3,250     919,140     2,068,065     2,987,205
           
          23,855,572     18,499,911     42,355,483
           

U.S. Virgin Islands - 1.3%

           

United States Virgin Islands, Refunding RB, Senior Secured, Hovensa Coker Project, AMT, 6.50%, 7/01/21

    3,000     2,100     5,100     3,039,120     2,127,384     5,166,504

Virgin Islands Public Finance Authority, RB, Senior Lien, Capital Projects, Series A-1, 5.00%, 10/01/39

    500     340     840     473,480     321,966     795,446
           
          3,512,600     2,449,350     5,961,950
           

Utah - 0.9%

           

County of Carbon Utah, Refunding RB, Laidlaw Environmental, Series A, AMT, 7.45%, 7/01/17

    1,660     2,240     3,900     1,663,237     2,244,368     3,907,605
           

See Notes to Pro Forma Condensed Combined Financial Statements.

 

B-10


Pro Forma Condensed Combined Schedule of Investments for

BlackRock MuniAssets Fund, Inc. (“MUA”) and

BlackRock Apex Municipal Fund, Inc. (“APX”)

As of April 30, 2010 (Unaudited)

 

    Par   Value  

Municipal Bonds

  MUA   APX   Pro Forma
Combined
Fund
  MUA     APX     Pro Forma
Combined
Fund
 

Virginia - 2.7%

           

Dulles Town Center Community Development Authority, Special Assessment Bonds, Dulles Town Center Project, 6.25%, 3/01/26

  $ 1,410   $ 2,330   $ 3,740   $ 1,335,340      $ 2,206,627      $ 3,541,967   

Fairfax County EDA, Refunding RB, Goodwin House Inc.:

           

5.13%, 10/01/37

    750     —       750     724,792        —          724,792   

5.13%, 10/01/42

    450     —       450     430,475        —          430,475   

Lexington IDA, Refunding MRB, Kendal at Lexington, Series A, 5.38%, 1/01/28

    540     —       540     453,298        —          453,298   

Tobacco Settlement Financing Corp. Virginia, Refunding RB, Senior Series B1, 5.00%, 6/01/47

    5,875     4,040     9,915     4,043,939        2,780,853        6,824,792   
             
          6,987,844        4,987,480        11,975,324   
             

Wisconsin - 2.3%

           

Wisconsin Health & Educational Facilities Authority, RB:

           

New Castle Place Project, Series A, 7.00%, 12/01/31

    1,855     1,320     3,175     1,785,104        1,270,262        3,055,366   

Wheaton Franciscan Healthcare, 5.25%, 8/15/34

    3,695     2,540     6,235     3,351,402        2,303,805        5,655,207   

Wisconsin Health & Educational Facilities Authority, Refunding RB, St. John’s Communities Inc., Series A:

           

7.25%, 9/15/29

    250     175     425     255,685        178,980        434,665   

7.63%, 9/15/39

    505     350     855     523,983        363,157        887,140   
             
          5,916,174        4,116,204        10,032,378   
             

Wyoming - 1.3%

           

County of Sweetwater Wyoming, Refunding RB, FMC Corp. Project, AMT, 5.60%, 12/01/35

    3,600     2,500     6,100     3,458,088        2,401,450        5,859,538   
             

Total Municipal Bonds - 94.8%

          251,680,086        173,311,593        424,991,679   
             

Municipal Bonds Transferred to

Tender Option Bond Trusts (h)

           

District of Columbia - 1.7%

           

District of Columbia Water & Sewer Authority, RB, Series A, 6.00%, 10/01/35

    3,951     2,730     6,681     4,450,360        3,075,819        7,526,179   
             

Florida - 3.3%

           

County of Miami-Dade Florida, RB, Miami International Airport, Series A, AMT (AGC), 5.25%, 10/01/33

    8,870     6,130     15,000     8,845,874        6,113,326        14,959,200   
             

Virginia - 3.2%

           

Virginia HDA, RB, Sub-Series H-1 (NPFGC), 5.38%, 7/01/36

    8,690     5,710     14,400     8,756,392        5,753,624        14,510,016   
             

Total Municipal Bonds Transferred to Tender Option Bond Trusts - 8.2%

          22,052,626        14,942,769        36,995,395   
             
Total Long-Term Investments
(Cost - $469,384,796) - 103.0%
          273,732,712        188,254,362        461,987,074   
             

Short-Term Securities

  Shares                          

FFI Institutional Tax-Exempt Fund, 0.25% (i)(j)

    150     649     799     149,925        648,958        798,883   
             
Short-Term Securities
(Cost - $798,883) - 0.2%
          149,925        648,958        798,883   
             
Total Investments
(Cost - $470,183,679*) - 103.2%
          273,882,637        188,903,320        462,785,957   

Other Assets Less Liabilities - 0.8%

          3,711,696        2,009,210        3,894,193 ** 

Liability for Trust Certificates, Including Interest Expense and Fees Payable - (4.0)%

          (10,763,093     (7,290,410     (18,053,503
             

Net Assets - 100%

        $ 266,831,240      $ 183,622,120      $ 448,626,647   
             

See Notes to Pro Forma Condensed Combined Financial Statements.

 

B-11


 

 

* The cost and unrealized appreciation (depreciation) of investments as of April 30, 2010, as computed for federal income tax purposes, were as follows:

 

Aggregate cost

   $ 450,868,268   
        

Gross unrealized appreciation

   $ 22,504,943   

Gross unrealized depreciation

     (28,628,346
        

Net unrealized depreciation

   $ (6,123,403
        
** Reflects pro forma adjustments to the Condensed Combined Statement of Assets and Liabilities.
(a) Security 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 investors.
(b) Represents a zero-coupon bond. Rate shown reflects the current yield as of report date.
(c) When-issued security. Net unsettled when-issued transactions were as follows:

 

Counterparty

   Value    Unrealized
Appreciation

BB&T Capital Markets

   $ 505,844    $ 760

Morgan Stanley Capital Services, Inc.

   $ 1,531,339    $ 11,339

Raymond C. Forbes

   $ 4,431,240    $ 76,638

 

(d) Issuer filed for bankruptcy and/or is in default of interest payments.
(e) Non-income producing security.
(f) Security represents a beneficial interest in a trust. The collateral deposited into the trust is federally tax-exempt revenue bonds issued by various state or local governments, or their respective agencies or authorities. The security is subject to remarketing prior to its stated maturity.
(g) Variable rate security. Rate shown is as of report date.
(h) Securities represent bonds transferred to a tender option bond trust in exchange for which the Fund acquired residual interest certificates. These securities serve as collateral in a financing transaction. See Note 1 of the Notes to Financial Statements in the Funds’ most recent annual report for details of municipal bonds transferred to tender option bond trusts.
(i) Investments in companies considered to be an affiliate of the Fund, for purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as follows:

 

Affiliate

   Fund    Shares Held
at April 30,
2009
   Net
Activity
     Shares Held
at April 30,
2010
   Income

FFI Institutional Tax-Exempt Fund

   MUA    2,001,534    (1,851,609    149,925    $ 4,762
   APX    100,006    548,952       648,958    $ 2,997
                            
   Pro Forma
Combined
Fund
   2,101,540    (1,302,657    798,883    $ 7,759
                            
(j) Represents the current yield as of report date.

To simplify the listings of portfolio holdings in the Schedule of Investments, the names and descriptions of many of the securities have been abbreviated according to the list below:

 

ACA

   American Capital Access Corp.

AGC

   Assured Guaranty Corp.

AGM

   Assured Guaranty Municipal Corp.

AMBAC

   American Municipal Bond Assurance Corp.

AMT

   Alternative Minimum Tax (subject to)

CAB

   Capital Appreciation Bonds

GO

   General Obligation Bonds

HDA

   Housing Development Authority

IDA

   Industrial Development Authority

IDRB

   Industrial Development Revenue Bonds

MRB

   Mortgage Revenue Bonds

NPFGC

   National Public Finance Guarantee Corp.

RB

   Revenue Bonds

TE

   Tax-Exempt

See Notes to Pro Forma Condensed Combined Financial Statements.

 

B-12


Pro Forma Condensed Combined Statement of Assets and Liabilities for BlackRock MuniAssets Fund, Inc. (“MUA”) and BlackRock Apex Municipal Fund, Inc. (“APX”) As of April 30, 2010 (Unaudited)

 

       MUA     APX     Adjustments     Pro Forma
Combined
Fund
 

Assets

                                

Investments at value - unaffiliated (1)

   $ 273,732,712      $ 188,254,362      $ —        $ 461,987,074   

Investments at value - affiliated (2)

     149,925        648,958        —          798,883   

Cash

     —          115,496        —          115,496   

Interest receivable

     5,361,012        3,816,134        —          9,177,146   

Investments sold receivable

     3,590,647        1,684,909        —          5,275,556   

Paydown receivable

     13,440        9,408        —          22,848   

Prepaid expenses

     21,259        16,684        —          37,943   
        

Total assets

     282,868,995        194,545,951        —          477,414,946   
        
                                  

Accrued Liabilities

                                

Investments purchased payable

     3,777,431        2,602,255        —          6,379,686   

Income dividends payable

     1,320,236        879,176        1,404,894 (5)      3,604,306   

Reorganization expenses

         421,819 (6)      421,819   

Investment advisory fees payable

     132,566        107,797        —          240,363   

Interest expense and fees payable

     7,447        4,964        —          12,411   

Other affiliates payable

     1,689        1,163        —          2,852   

Officer’s and Directors’ fees payable

     433        499        —          932   

Other accrued expenses payable

     42,307        42,531        —          84,838   
        

Total accrued liabilities

     5,282,109        3,638,385        1,826,713        10,747,207   
        
                                  

Other Liabilities

                                

Trust certificates (7)

     10,755,646        7,285,446        —          18,041,092   
        

Total Liabilities

     16,037,755        10,923,831        1,826,713        28,788,299   
        

Net Assets

   $ 266,831,240      $ 183,622,120      $ (1,826,713   $ 448,626,647   
        
                                  

Net Assets Consist of

                                

Paid-in capital (3)(4)

   $ 295,792,977      $ 194,462,599      $ (421,819 )(6)    $ 489,833,757   

Undistributed net investment income

     825,801        1,404,894        (1,404,894 )(5)      825,801   

Accumulated net realized loss

     (25,171,720     (9,463,469     —          (34,635,189

Net unrealized appreciation/depreciation

     (4,615,818     (2,781,904     —          (7,397,722
        

Net Assets

   $ 266,831,240      $ 183,622,120      $ (1,826,713   $ 448,626,647   
        

Net asset value per share

   $ 12.63      $ 9.19        $ 12.62   
        

(1) Investments at cost - unaffiliated

   $ 278,348,530      $ 191,036,266      $ —        $ 469,384,796   
                                

(2) Investments at cost - affiliated

   $ 149,925      $ 648,958      $ —        $ 798,883   
                                

(3) Shares outstanding, $0.10 par value

     21,123,770        19,981,270        (5,560,568 )(8)      35,544,472   
                                

(4) Shares authorized

     200 Million        150 Million          200 Million   
                                
(5) Reflects the distribution of undistributed net investment income of $1,404,894 attributable to APX.
(6) Reflects the charge for estimated reorganization expenses of $421,819 of which $216,405 was attributable to MUA and $205,414 was attributable to APX, respectively.
(7) Represents short-term floating rate certificates issued by tender option bond trusts.
(8) Reflects the capitalization adjustments giving the effect of the transfer of shares of MUA which APX shareholders will receive as if the Reorganization had taken place on April 30, 2010. The foregoing should not be relied upon to reflect the number of shares of MUA that actually will be received on or after such date.

See Notes to Pro Forma Condensed Combined Financial Statements.

 

B-13


Pro Forma Condensed Combined Statement of Operations for

BlackRock MuniAssets Fund, Inc. (“MUA”) and

BlackRock Apex Municipal Fund, Inc. (“APX”)

For the Twelve Months Ended April 30, 2010 (Unaudited)

 

     MUA     APX     Adjustments     Pro Forma
Combined
Fund (1)
 

Investment Income

        

Interest

   $ 18,606,658      $ 12,891,160      $ —        $ 31,497,818   

Income - affiliated

     4,762        2,997        —          7,759   
        

Total income

     18,611,420        12,894,157        —          31,505,577   
        

Expenses

        

Investment advisory

     1,436,373        1,167,661        (179,640 )(2)      2,424,394   

Accounting services

     75,115        47,367        8,288 (3)      130,770   

Transfer agent

     37,795        37,125        (23,072 )(2)      51,848   

Professional

     35,920        35,212        (27,736 )(2)      43,396   

Officer and Directors

     29,863        20,754        (4,227 )(2)      46,390   

Custodian

     15,202        11,876        (2,579 )(2)      24,499   

Printing

     15,144        10,636        (4,488 )(2)      21,292   

Registration

     9,221        9,504        (9,344 )(2)      9,381   

Miscellaneous

     34,024        42,767        (11,031 )(2)      65,760   
        

Total expenses excluding interest expense and fees

     1,688,657        1,382,902        (253,829 )     2,817,730   

Interest expense and fees (4)

     105,788        71,622        —          177,410   
        

Total expenses

     1,794,445        1,454,524        (253,829     2,995,140   

Less fees waived by advisor

     (1,650     (1,115     —          (2,765
        

Total expenses after fees waived

     1,792,795        1,453,409        (253,829     2,992,375   
        

Net investment income

     16,818,625        11,440,748        253,829        28,513,202   
        

Realized and Unrealized Gain (Loss)

        

Net realized loss from:

        

Investments

     (319,985     (502,612     —          (822,597

Financial futures contracts

     (185,318     (116,233     —          (301,551
        
     (505,303     (618,845     —          (1,124,148
        

Net change in unrealized appreciation/depreciation on investments

     43,885,403        30,737,544        —          74,622,947   
        

Total realized and unrealized gain

     43,380,100        30,118,699        —          73,498,799   
        

Net Increase in Net Assets Resulting from Operations

     60,198,725        41,559,447        253,829        102,012,001   
        

 

(1) This Pro Forma Condensed Combined Statement of Operations excludes non-recurring aggregate estimated Reorganization expenses of $421,819 of which $216,405 was attributable to MUA and $205,414 was attributable to APX, respectively.
(2) Reflects the estimated savings as a result of the Reorganization due to fewer audits and consolidation of custody, legal, printing and other services.
(3) Reflects the estimated increase in accounting services due to the increase in net assets of the Combined Fund.
(4) Related to tender option bond trusts.

 

See Notes to Pro Forma Condensed Combined Financial Statements.

 

B-14


Notes to Pro Forma Condensed Combined Financial Statements

BlackRock MuniAssets Fund, Inc.

(Unaudited)

NOTE 1 — Basis of Combination:

The Board of Directors of BlackRock Apex Municipal Fund, Inc. (“APX” or the “Target Fund”) and BlackRock MuniAssets Fund, Inc. (“MUA” or the “Acquiring Fund” and, together with the Target Fund, the “Fund” or the “Funds”) at a meeting held on September 2, 2010 approved a proposed tax-free reorganization in which the Target Fund will merge with and into MUA Merger Subsidiary, LLC (the “Merger Subsidiary”), a direct, wholly owned subsidiary of MUA (the “Reorganization”). Following the Reorganization, the Merger Subsidiary will dissolve under Maryland law and be liquidated into MUA and the Target Fund will terminate its registration under the Investment Company Act of 1940.

In the Reorganization, the outstanding shares of the Target Fund will be converted into the right to receive newly issued shares of the Acquiring Fund, par value $0.10 per share (“Acquiring Fund Shares”). The aggregate net asset value of Acquiring Fund Shares received by the shareholders of the Target Fund in the Reorganization will equal the aggregate net asset value of Target Fund shares held by such shareholders immediately prior to the Reorganization, less the costs of the Reorganization (though shareholders may receive cash for their fractional shares).

The Reorganization will be accounted for as a tax-free merger of investment companies. The unaudited pro forma condensed combined schedule of investments and condensed combined statement of assets and liabilities reflect the financial position of the Funds at April 30, 2010. The unaudited pro forma condensed combined statement of operations reflects the results of operations of the Funds for the twelve months ended April 30, 2010. These statements have been derived from the books and records of the Funds utilized in calculating daily net asset value at the dates indicated above in conformity with accounting principles generally accepted in the United States of America. As of April 30, 2010, all the securities held by the Target Fund comply with the compliance guidelines and/or investment restrictions of MUA. The historical cost of investment securities will be carried forward to the surviving entity. The fiscal year end for MUA and APX is April 30.

The accompanying pro forma condensed combined financial statements should be read in conjunction with the historical financial statements of the Funds included or incorporated by reference in their respective Statements of Additional Information. Such pro forma condensed combined financial statements are presented for information only and may not necessarily be representative of what the actual combined financial statements would have been had the Reorganization occurred on April 30, 2010. Following the Reorganization, MUA will be the accounting survivor.

If the Reorganization is completed, the costs associated with the Reorganization, including the costs associated with the shareholder meeting, will be borne directly by the respective Fund incurring the expense or allocated among the Funds proportionately or on another reasonable basis, as appropriate. The estimated expenses of the Reorganization attributable to each Fund are as follows:

 

            Estimated Reorganization Expenses            

MUA

 

APX

$216,405

  $205,414

NOTE 2 — MUA Fund Valuation:

The Funds fair value their financial instruments at market value using independent dealers or pricing services under policies approved by the Board of Directors (the “Board”). Municipal investments (including commitments to purchase such investments on a “when-issued” basis) are valued on the basis of prices provided

 

B-15


by dealers or pricing services. In determining the value of a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrixes, market transactions in comparable investments and information with respect to various relationships between investments. Financial futures contracts traded on exchanges are valued at their last sale price. Short-term securities with remaining maturities of 60 days or less may be valued at amortized cost, which approximates fair value. Investments in open-end investment companies are valued at net asset value each business day.

In the event that application of these methods of valuation results in a price for an investment which is deemed not to be representative of the market value of such investment or is not available, the investment will be valued by a method approved by the Funds’ Boards as reflecting fair value (“Fair Value Assets”). When determining the price for Fair Value Assets, the investment advisor and/or the sub-advisor seeks to determine the price that each Fund might reasonably expect to receive from the current sale of that asset in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the investment advisor and/or sub-advisor deems relevant. The pricing of all Fair Value Assets is subsequently reported to the Board or a committee thereof.

NOTE 3 — Capital Shares:

The pro forma net asset value per share assumes the issuance of shares of MUA that would have been issued at April 30, 2010 in connection with the proposed Reorganization. The number of shares assumed to be issued is equal to the net asset value of shares of APX, as of April 30, 2010, divided by the net asset value per share of the shares of MUA as of April 30, 2010.

The pro forma number of shares outstanding for the combined Fund consists of the following at April 30, 2010:

 

                Additional Shares Assumed Issued in the Reorganization                

Total

Outstanding

MUA Shares

Pre-Combination

 

APX

 

Total

Outstanding

MUA Shares

Post-Combination

21,123,770

  14,420,702   35,544,472

NOTE 4 — Pro Forma Operating Expenses:

The pro forma condensed combined statement of operations for the twelve-month period ending April 30, 2010, as adjusted, giving effect to the Reorganization reflects changes in expenses of MUA as if the Reorganization was consummated on May 1, 2009. Although it is anticipated that there will be an elimination of certain duplicative expenses because of the Reorganization, the actual amount of such expenses cannot be determined because it is not possible to predict the cost of future operations.

NOTE 5 — Federal Income Taxes:

Each of APX and MUA has elected to be taxed as a “regulated investment company” under the Internal Revenue Code of 1986, as amended (the “Code”). If the Reorganization is consummated, unless it determines such qualification is no longer in the best interest of shareholders, MUA will seek to continue to qualify as a regulated investment company by complying with the provisions applicable to certain investment companies, as defined in applicable sections of the Code, and to make distributions of taxable income sufficient to relieve it from all, or substantially all, Federal income taxes. In addition, APX will make any required income or capital gain distributions prior to consummation of this Reorganization, in accordance with provisions of the Code relating to tax-free reorganizations of investment companies.

MUA will succeed to capital loss carryforwards (and certain unrealized built-in losses), if any, of APX, which will be subject to the limitations described below. If APX has capital loss carryforwards, they would, in

 

B-16


the absence of the Reorganization, generally be available to offset capital gains. As a result of the Reorganization, however, APX will undergo an “ownership change” for Federal income tax purposes, and, accordingly, MUA’s use of APX’s capital loss carryforwards (and certain unrealized built-in losses) will be limited by the operation of the tax loss limitation rules of the Code. For a fund that undergoes an “ownership change,” the Code generally limits the amount of pre-ownership change losses that may be used to offset post-ownership change gains to a specific “annual loss limitation amount” (generally the product of (i) the fair market value of the stock of such fund, with certain adjustments, immediately prior to the reorganization and (ii) a rate established by the IRS (for example, the rate is 4.01% for July 2010)). Any unused portion of these losses may be available in subsequent years, subject to the overall eight-year capital loss carryforward limit, as measured from the date of recognition. MUA’s capital loss carryforwards, if any, should not be limited solely by reason of the Reorganization.

NOTE 6 — Pro Forma Calculation:

The accompanying Pro Forma Condensed Combined Financial Statements include pro forma calculations that are based on estimates and as such may not necessarily be representative of the actual combined fund financial statements.

NOTE 7 — Subsequent Events:

Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued and has determined that there were no subsequent events requiring adjustment or additional disclosure in the financial statements.

 

B-17


APPENDIX C

PROXY VOTING POLICIES

For The BlackRock-Advised Funds

December, 2009

Table of Contents

 

I. Introduction

   C-1

II. Proxy Voting Policies

   C-2

A. Boards of Directors

   C-2

B. Auditors

   C-2

C. Compensation and Benefits

   C-2

D. Capital Structure

   C-2

E. Corporate Charter and By-Laws

   C-3

F. Environmental and Social Issues

   C-3

III. Conflicts Management

   C-3

IV. Reports to the Board

   C-3

 

I. INTRODUCTION

The Trustees/Directors (“Directors”) of the BlackRock-Advised Funds (the “Funds”) have the responsibility for voting proxies relating to portfolio securities of the Funds, and have determined that it is in the best interests of the Funds and their shareholders to delegate that responsibility to BlackRock Advisors, LLC and its affiliated U.S. Registered investment advisers (“BlackRock”), the investment adviser to the Funds, as part of BlackRock’s authority to manage, acquire and dispose of account assets. The Directors hereby direct BlackRock to vote such proxies in accordance with this Policy, and any proxy voting guidelines that the Adviser determines are appropriate and in the best interests of the Funds’ shareholders and which are consistent with the principles outlined in this Policy. The Directors have authorized BlackRock to utilize an unaffiliated third-party as its agent to vote portfolio proxies in accordance with this Policy and to maintain records of such portfolio proxy voting.

Rule 206(4)-6 under the Investment Advisers Act of 1940 requires, among other things, that an investment adviser that exercises voting authority over clients’ proxy voting adopt policies and procedures reasonably designed to ensure that the adviser votes proxies in the best interests of clients, discloses to its clients information about those policies and procedures and also discloses to clients how they may obtain information on how the adviser has voted their proxies.

BlackRock has adopted separate but substantially similar guidelines and procedures that are consistent with the principles of this Policy. BlackRock’s Corporate Governance Committee (the “Committee”), addresses proxy voting issues on behalf of BlackRock and its clients, including the Funds. The Committee is comprised of senior members of BlackRock’s Portfolio Management and Administration Groups and is advised by BlackRock’s Legal and Compliance Department.

BlackRock votes (or refrains from voting) proxies for each Fund in a manner that BlackRock, in the exercise of its independent business judgment, concludes are in the best economic interests of such Fund. In some cases, BlackRock may determine that it is in the best economic interests of a Fund to refrain from exercising the Fund’s proxy voting rights (such as, for example, proxies on certain non-U.S. Securities that might impose costly or time-consuming in-person voting requirements). With regard to the relationship between securities lending and proxy voting, BlackRock’s approach is also driven by our clients’ economic interests. The evaluation of the economic desirability of recalling loans involves balancing the revenue producing value of loans against the likely economic value of casting votes. Based on our evaluation of this relationship, BlackRock believes that the likely economic value of casting a vote generally is less than the securities lending income,

 

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either because the votes will not have significant economic consequences or because the outcome of the vote would not be affected by BlackRock recalling loaned securities in order to ensure they are voted. Periodically, BlackRock analyzes the process and benefits of voting proxies for securities on loan, and will consider whether any modification of its proxy voting policies or procedures are necessary in light of any regulatory changes.

BlackRock will normally vote on specific proxy issues in accordance with BlackRock’s proxy voting guidelines. BlackRock’s proxy voting guidelines provide detailed guidance as to how to vote proxies on certain important or commonly raised issues. BlackRock may, in the exercise of its business judgment, conclude that the proxy voting guidelines do not cover the specific matter upon which a proxy vote is requested, or that an exception to the proxy voting guidelines would be in the best economic interests of a Fund. BlackRock votes (or refrains from voting) proxies without regard to the relationship of the issuer of the proxy (or any shareholder of such issuer) to the Fund, the Fund’s affiliates (if any), BlackRock or BlackRock’s affiliates. When voting proxies, BlackRock attempts to encourage companies to follow practices that enhance shareholder value and increase transparency and allow the market to place a proper value on their assets.

 

II. PROXY VOTING POLICIES

 

A. Boards of Directors

The Funds generally support the board’s nominees in the election of directors and generally supports proposals that strengthen the independence of boards of directors. As a general matter, the Funds believe that a company’s board of directors (rather than shareholders) is most likely to have access to important, nonpublic information regarding a company’s business and prospects, and is therefore best-positioned to set corporate policy and oversee management. The Funds therefore believe that the foundation of good corporate governance is the election of responsible, qualified, independent corporate directors who are likely to diligently represent the interests of shareholders and oversee management of the corporation in a manner that will seek to maximize shareholder value over time. In individual cases, consideration may be given to a director nominee’s history of representing shareholder interests as a director of the company issuing the proxy or other companies, or other factors to the extent deemed relevant by the Committee.

 

B. Auditors

These proposals concern those issues submitted to shareholders related to the selection of auditors. As a general matter, the Funds believe that corporate auditors have a responsibility to represent the interests of shareholders and provide an independent view on the propriety of financial reporting decisions of corporate management. While the Funds anticipate that BlackRock will generally defer to a corporation’s choice of auditor, in individual cases, consideration may be given to an auditors’ history of representing shareholder interests as auditor of the company issuing the proxy or other companies, to the extent deemed relevant.

 

C. Compensation and Benefits

These proposals concern those issues submitted to shareholders related to management compensation and employee benefits. As a general matter, the Funds favor disclosure of a company’s compensation and benefit policies and oppose excessive compensation, but believe that compensation matters are normally best determined by a corporation’s board of directors, rather than shareholders. Proposals to “micro-manage” a company’s compensation practices or to set arbitrary restrictions on compensation or benefits should therefore generally not be supported.

 

D. Capital Structure

These proposals relate to various requests, principally from management, for approval of amendments that would alter the capital structure of a company, such as an increase in authorized shares. As a general matter, the Funds expect that BlackRock will support requests that it believes enhance the rights of common shareholders and oppose requests that appear to be unreasonably dilutive.

 

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E. Corporate Charter and By-Laws

These proposals relate to various requests for approval of amendments to a corporation’s charter or bylaws. As a general matter, the Funds generally vote against anti-takeover proposals and proposals that would create additional barriers or costs to corporate transactions that are likely to deliver a premium to shareholders.

 

F. Environmental and Social Issues

These are shareholder proposals addressing either corporate social and environmental policies or requesting specific reporting on these issues. The Funds generally do not support proposals on social issues that lack a demonstrable economic benefit to the issuer and the Fund investing in such issuer. BlackRock seeks to make proxy voting decisions in the manner most likely to protect and promote the long-term economic value of the securities held in client accounts. We intend to support economically advantageous corporate practices while leaving direct oversight of company management and strategy to boards of directors. We seek to avoid micromanagement of companies, as we believe that a company’s board of directors is best positioned to represent shareholders and oversee management on shareholders behalf. Issues of corporate social and environmental responsibility are evaluated on a case-by-case basis within this framework.

 

III. CONFLICTS MANAGEMENT

BlackRock maintains policies and procedures that are designed to prevent any relationship between the issuer of the proxy (or any shareholder of the issuer) and a Fund, a Fund’s affiliates (if any), BlackRock or BlackRock’s affiliates, from having undue influence on BlackRock’s proxy voting activity. In certain instances, BlackRock may determine to engage an independent fiduciary to vote proxies as a further safeguard against potential conflicts of interest or as otherwise required by applicable law. The independent fiduciary may either vote such proxies or provide BlackRock with instructions as to how to vote such proxies. In the latter case, BlackRock votes the proxy in accordance with the independent fiduciary’s determination.

 

IV. REPORTS TO THE BOARD

BlackRock will report to the Directors on proxy votes it has made on behalf of the Funds at least annually.

 

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APPENDIX D

DESCRIPTION OF MUNICIPAL BOND RATINGS

Standard & Poor’s Corporation— A brief description of the applicable Standard & Poor’s Corporation (“S&P”) rating symbols and their meanings (as published by S&P) follows:

Long-Term Debt

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

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

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

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

 

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

 

  2. Nature of and provisions of the obligation; and

 

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

Investment Grade

 

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

 

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

 

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

 

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

Speculative Grade Rating

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

 

  BB

Debt rated “BB” has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or

 

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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.

 

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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

 

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perform an audit in connection with any rating and may, on occasion, rely on unaudited financial information. The ratings may be changed, suspended or withdrawn as a result of changes in or unavailability of such information or based on other circumstances.

Moody’s Investors Service, Inc.—A brief description of the applicable Moody’s Investors Service, Inc. (“Moody’s”) rating symbols and their meanings (as published by Moody’s) follows:

Municipal Bonds

 

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

 

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

 

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

 

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

 

  Ba Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.

 

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

 

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

 

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

 

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

 

  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.

 

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

Short-Term Loans

MIG 1/VMIG 1 This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad based 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.

 

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Fitch IBCA, Inc.—A brief description of the applicable Fitch IBCA, Inc. (“Fitch”) ratings symbols and meanings (as published by Fitch) follows:

Long-Term Credit Ratings

Investment Grade

 

AAA   Highest credit quality. “AAA” ratings denote the lowest expectation of credit risk. They are assigned only in case of exception ally strong capacity for timely payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events.
AA   Very high credit quality. “AA” ratings denote a very low expectation of credit risk. They indicate very strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events.
A   High credit quality. “A” ratings denote a low expectation of credit risk. The capacity for timely payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings.
BBB   Good credit quality. “BBB” ratings indicate that there is currently a low expectation of credit risk. The capacity for timely payment of financial commitments is considered adequate, but adverse changes in circumstances and in economic conditions are more likely to impair this capacity. This is the lowest investment-grade category.

Speculative Grade

 

BB   Speculative. “BB” ratings indicate that there is a possibility of credit risk developing, particularly as the result of adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met. Securities rated in this category are not investment grade.
B   Highly speculative. “B” ratings indicate that significant credit risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favorable business and economic environment.
CCC, CC, C   High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic developments. A “CC” rating indicates that default of some kind appears probable. “C” ratings signal imminent default.
DDD, DD, and D   Default. The ratings of obligations in this category are based on their prospects for achieving partial or full recovery in a reorganization or liquidation of the obligor. While expected recovery values are highly speculative and cannot be estimated with any precision, the following serve as general guidelines. “DDD” obligations have the highest potential for recovery, around 90%-100% of outstanding amounts and accrued interest. “DD” indicates potential recoveries in the range of 50%-90%, and “D” the lowest recovery potential, i.e., below 50%. Entities rated in this category have defaulted on some or all of their obligations. Entities rated “DDD” have the highest prospect for resumption of performance or continued operation with or without a formal reorganization process. Entities rated “DD” and “D” are generally undergoing a formal reorganization or liquidation process; those rated “DD” are likely to satisfy a higher portion of their outstanding obligations, while entities rated “D” have a poor prospect for repaying all obligations.

 

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Short-Term Credit Ratings

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

 

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

 

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

 

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

 

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

 

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

 

  D Default. Denotes actual or imminent payment default.

Notes:

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

“NR” indicates that Fitch does not rate the issuer or issue in question.

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

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

 

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APPENDIX E

GENERAL CHARACTERISTICS AND RISKS OF STRATEGIC TRANSACTIONS

In order to manage the risk of its securities portfolio each Fund may engage in Strategic Transactions. Each Fund may engage in such activities in the Advisors 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 Fund occur. Each Fund’s ability to pursue certain of these strategies may be limited by applicable regulations of the CFTC. Certain Strategic Transactions may give rise to taxable income.

Put And Call Options On Securities

Each Fund may purchase put and call options and sell covered call options on securities. 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 purchase of a put option on a debt security could protect a Fund’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 a Fund’s 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 Fund will experience a loss in the amount of the option premium plus any related commissions. When a Fund sells call options, it receives a premium as the seller of the option. The premium that a Fund 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. Each Fund may engage in options transactions on exchanges and in the over-the-counter markets. Transactions in exchange-listed options and over-the-counter options (“OTC Options”) 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.

A Fund’s ability to close out its position of an exchange-listed 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 transacted with dealers, financial institutions or other counterparties which have entered into direct agreements with a Fund. With OTC Options, such variables as expiration date, exercise price and premium will be agreed upon between the Fund and the counterparty, without the intermediation of a third party such as the OCC. If the counterparty fails to make or take delivery of the securities underlying an option it has written, or otherwise settle the transaction in accordance with the terms of that option as written, the Fund would lose the premium paid for the option as well as any anticipated benefit of the transaction.

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.

 

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Futures Contracts And Related Options

Characteristics. The sale of a futures contract creates an obligation by the Fund, 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, a Fund must allocate cash or securities as a deposit payment (“initial margin”). It is expected that the initial margin that a Fund 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, a Fund 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. A Fund’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 each Fund currently may enter into such transactions without limit for bona fide hedging purposes, including risk management and duration management and other portfolio strategies. Each Fund 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 and listed or OTC options on securities sold by the Funds are generally subject to earmarking and coverage requirements of either the CFTC or the SEC, with the result that, if a Fund does not hold the security or futures contract underlying the instrument, the Fund will be required to designate on its books and records an ongoing basis, cash, U.S. Government securities, or other liquid high grade debt obligations in an amount at least equal to the Fund’s obligations with respect to such instruments. Such amounts fluctuate as the obligations increase or decrease. The earmarking requirement can result in a Fund 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.

Strategic Transactions present certain risks. W ith 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 a Fund’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, a Fund 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 a Fund to successfully utilize Strategic Transactions 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 a Fund 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 Strategic Transactions will reduce net asset value.

Regulatory Considerations. Each Fund has claimed an exclusion from the term “commodity pool operator” under the Commodity Exchange Act and, therefore, is not subject to registration or regulation as a commodity pool operator under the Commodity Exchange Act.

 

E-2


PART C: OTHER INFORMATION

 

Item 15.     Indemnification

 

Section 2-418 of the General Corporation Law of the State of Maryland, Article VI of the Registrant’s Articles of Incorporation, a copy of which was filed as an exhibit to Pre-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form N-14 filed on September 10, 2001, Article IV of the Registrant’s Amended and Restated Bylaws, a copy of which was filed as an exhibit to the Registrant’s 8-K filed on October 7, 2008, the Investment Management Agreement, a copy of which is filed as an exhibit hereto, and the Sub-Investment Advisory Agreement, a copy of which is filed as an exhibit hereto, each provides for indemnification.

 

Article VI of the Registrant’s Articles of Incorporation provides as follows:

 

(3) Each director and each officer of the Corporation shall be indemnified by the Corporation to the full extent permitted by the General Laws of the State of Maryland, subject to the requirements of the Investment Company Act of 1940, as amended. No amendment of these Articles of Incorporation or repeal of any provision hereof shall limit or eliminate the benefits provided to directors and officers under this provision in connection with any act or omission that occurred prior to such amendment or repeal.

 

(4) To the fullest extent permitted by the General Laws of the State of Maryland, subject to the requirements of the Investment Company Act of 1940, as amended, no director or officer of the Corporation shall be personally liable to the Corporation or its security holders for money damages. No amendment of these Articles of Incorporation or repeal of any provision hereof shall limit or eliminate the benefits provided to directors and officers under this provision in connection with any act or omission that occurred prior to such amendment or repeal.

 

Article IV of the Registrant’s Amended and Restated Bylaws provides as follows:

 

Section 1. No Personal Liability of Directors or Officers. No Director, advisory board member or officer of the Fund shall be subject in such capacity to any personal liability whatsoever to any Person, save only liability to the Fund or its Shareholders arising from bad faith, willful misfeasance, gross negligence or reckless disregard for his or her duty to such Person; and, subject to the foregoing exception, all such Persons shall look solely to the assets of the Fund for satisfaction of claims of any nature arising in connection with the affairs of the Fund. If any Director, advisory board member or officer, as such, of the Fund, is made a party to any suit or proceeding to enforce any such liability, subject to the foregoing exception, such person shall not, on account thereof, be held to any personal liability. Any repeal or modification of the Charter or this Article IV Section 1 shall not adversely affect any right or protection of a Director, advisory board member or officer of the Fund existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification.

 

Section 2. Mandatory Indemnification.

 

(a) The Fund hereby agrees to indemnify each person who is or was a Director, advisory board member or officer of the Fund (each such person being an “Indemnitee”) to the full extent permitted under applicable law against any and all liabilities and expenses, including amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and legal fees and expenses 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 such person may be or may have been involved as a party or otherwise or with which such person may be or may have been threatened, while acting in any capacity set forth in this Article IV by reason of having acted in any such capacity, whether such liability or expense is asserted before or after service, except with respect to any matter as to which such person shall not have acted in good faith in the reasonable belief that his or her action was in the best interest of the Fund or, in the case of any criminal proceeding, as to which such person shall have had reasonable cause to believe that the conduct was unlawful; provided, however, that no Indemnitee shall be indemnified hereunder against any liability to any person or any expense of such Indemnitee arising by reason of (i) willful misfeasance, (ii) bad faith, (iii) gross negligence, or (iv) reckless disregard of the duties involved in the conduct of the Indemnitee’s 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 (A) was authorized by a majority of the Directors or (B) 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 termination of any (b) action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Fund, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such person’s conduct was unlawful. The rights to indemnification pursuant to the Charter and set forth in these Bylaws shall continue as to a person who has ceased to be a Director or officer of the Fund and shall inure to the benefit of his or her heirs, executors and personal and legal representatives.

 

(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 (A) a majority vote of a quorum of those Directors who are both Independent Directors and not parties to the proceeding (“Independent Non-Party Directors”), that the Indemnitee is entitled to indemnification hereunder, or (B) if such quorum is not obtainable or even if obtainable, if such majority so directs, a Special Counsel in a written opinion concludes that the Indemnitee should be entitled to indemnification hereunder.

 

(c) Notwithstanding the foregoing, to the extent that an Indemnitee has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith, without the necessity of authorization in the specific case.

 

(d) The Fund shall make advance payments in connection with the expenses of defending any action with respect to which indemnification might be sought hereunder, to the full extent permitted under applicable law, only if the Fund 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 by the Indemnitee to reimburse the Fund if it shall ultimately be determined that the standards of conduct necessary for indemnification have not been met. In addition, at least one of the following conditions must be met: (i) the Indemnitee shall provide adequate security for his or her undertaking, (ii) the Fund shall be insured against losses arising by reason of any lawful advances or (iii) a majority of a quorum of the Independent Non-Party Directors, or if such quorum is not obtainable or even if obtainable, if a majority vote of such quorum so direct, Special 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.

 

(e) The rights accruing to any Indemnitee under these provisions shall not exclude any other right which any person may have or hereafter acquire under the Charter, these Bylaws or any statute, insurance policy, agreement, vote of Shareholders or Independent Directors or any other right to which such person may be lawfully entitled.

 

(f) Subject to any limitations provided by the 1940 Act and the Charter, the Fund 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 Fund or serving in any capacity at the request of the Fund to the full extent permitted for corporations organized under the corporations laws of the state in which the Fund was formed, provided that such indemnification has been approved by a majority of the Directors.

 

(g) Any repeal or modification of the Charter or Section 2 of this Article IV shall not adversely affect any right or protection of a Director, advisory board member or officer of the Fund existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification.


Section 3. Good Faith Defined; Reliance on Experts. For purposes of any determination under this Article IV, a person shall be deemed to have acted in good faith and in a manner such person reasonably believed to be in the best interests of the Fund, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe such person’s conduct was unlawful, if such person’s action is based on the records or books of account of the Fund, or on information supplied to such person by the officers of the Fund in the course of their duties, or on the advice of legal counsel for the Fund or on information or records given or reports made to the Fund by an independent certified public accountant or by an appraiser or other expert or agent selected with reasonable care by the Fund. The provisions of this Article IV Section 3 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in this Article IV. Each Director and officer or employee of the Fund shall, in the performance of his or her 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 Fund, upon an opinion of counsel, or upon reports made to the Fund by any of the Fund’s officers or employees or by any advisor, administrator, manager, distributor, dealer, accountant, appraiser or other expert or consultant selected with reasonable care by the Directors, officers or employees of the Fund, regardless of whether such counsel or expert may also be a Director.

 

Section 4. Survival of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article IV shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person.

 

Section 5. Insurance. The Directors may maintain insurance for the protection of the Fund’s property, the Shareholders, Directors, officers, employees and agents in such amount as the Directors shall deem adequate to cover possible tort liability, and such other insurance as the Directors in their sole judgment shall deem advisable or is required by the 1940 Act.

 

Section 6. Subrogation. In the event of payment by the Fund to an Indemnitee under the Charter or these Bylaws, the Fund shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute such documents and do such acts as the Fund may reasonably request to secure such rights and to enable the Fund effectively to bring suit to enforce such rights.

 

The Investment Management Agreement, by and between the Registrant and its investment adviser, provides as follows:

 

10. Indemnity. (a) The Fund may, in the discretion of the Board of Directors of the Fund, indemnify the Advisor, and each of the Advisor’s directors, officers, employees, agents, associates and controlling persons and the directors, partners, members, officers, employees and agents thereof (including any individual who serves at the Advisor’s request as director, officer, partner, member, trustee or the like of another entity) (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 counsel fees (all as provided in accordance with applicable state law) 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 such Indemnitee may be or may have been involved as a party or otherwise or with which such Indemnitee may be or may have been threatened, while acting in any capacity set forth herein or thereafter by reason of such Indemnitee having acted in any such capacity, except with respect to any matter as to which such Indemnitee shall have been adjudicated not to have acted in good faith in the reasonable belief that such Indemnitee’s action was in the best interest of the Fund and furthermore, in the case of any criminal proceeding, so long as such Indemnitee had no reasonable cause to believe that the conduct was unlawful; provided, however, that (1) no Indemnitee shall be indemnified hereunder against any liability to the Fund or its shareholders or any expense of such Indemnitee arising by reason of (i) willful misfeasance, (ii) bad faith, (iii) gross negligence or (iv) reckless disregard of the duties involved in the conduct of such Indemnitee’s position (the conduct referred to in such clauses (i) through (iv) being sometimes referred to herein as “disabling conduct”), (2) as to any matter disposed of by settlement or a compromise payment by such Indemnitee, pursuant to a consent decree or otherwise, no indemnification either for said payment or for any other expenses shall be provided unless there has been a


determination that such settlement or compromise is in the best interests of the Fund and that such Indemnitee appears to have acted in good faith in the reasonable belief that such Indemnitee’s action was in the best interest of the Fund and did not involve disabling conduct by such Indemnitee and (3) 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 was authorized by a majority of the full Board of Directors of the Fund.

 

(b) The Fund may make advance payments in connection with the expenses of defending any action with respect to which indemnification might be sought hereunder if the Fund receives a written affirmation of the Indemnitee’s good faith belief that the standard of conduct necessary for indemnification has been met and a written undertaking to reimburse the Fund unless it is subsequently determined that such Indemnitee is entitled to such indemnification and if the Directors of the Fund determine that the facts then known to them would not preclude indemnification. In addition, at least one of the following conditions must be met: (A) the Indemnitee shall provide security for such Indemnitee undertaking, (B) the Fund shall be insured against losses arising by reason of any unlawful advance, or (C) a majority of a quorum consisting of Directors of the Fund who are neither “interested persons” of the Fund (as defined in Section 2(a)(19) of the 1940 Act) nor parties to the proceeding (“Disinterested Non Party Directors”) or an independent legal counsel in a written opinion, shall determine, based on a review of readily available facts (as opposed to a full trial type inquiry), that there is reason to believe that the Indemnitee ultimately will be found entitled to indemnification.

 

(c) All determinations with respect to the standards for indemnification hereunder shall be made (1) by a final decision on the merits by a court or other body before whom the proceeding was brought that such Indemnitee is not liable or is not liable by reason of disabling conduct, or (2) in the absence of such a decision, by (i) a majority vote of a quorum of the Disinterested Non Party Directors of the Fund, or (ii) if such a quorum is not obtainable or, even if obtainable, if a majority vote of such quorum so directs, independent legal counsel in a written opinion. All determinations that advance payments in connection with the expense of defending any proceeding shall be authorized and shall be made in accordance with the immediately preceding clause (2) above.

 

The rights accruing to any Indemnitee under these provisions shall not exclude any other right to which such Indemnitee may be lawfully entitled.

 

11. Limitation on Liability. (a) The Advisor will not be liable for any error of judgment or mistake of law or for any loss suffered by Advisor or by the Fund in connection with the performance of this Agreement, except a loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services or a loss resulting from willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard by it of its duties under this Agreement. As used in this Section 11(a), the term “Advisor” shall include any affiliates of the Advisor performing services for the Fund contemplated hereby and partners, directors, officers and employees of the Advisor and of such affiliates.

 

The Sub-Investment Advisory Agreement, by and between the Registrant’s investment adviser and sub-advisor with respect to the Registrant, provides as follows:

 

8. Indemnity. (a) The Fund may, in the discretion of the Board of Directors of the Fund, indemnify the Sub-Advisor, and each of the Sub-Advisor’s directors, officers, employees, agents, associates and controlling persons and the directors, partners, members, officers, employees and agents thereof (including any individual who serves at the Sub-Advisor’s request as director, officer, partner, member, trustee or the like of another entity) (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 counsel fees (all as provided in accordance with applicable state law) 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 such Indemnitee may be or may have been involved as a party or otherwise or with which such Indemnitee may be or may have been threatened, while acting in any capacity set forth herein or thereafter by reason of such Indemnitee having acted in any such capacity, except with respect to any matter as to which such Indemnitee shall have been adjudicated not to have acted in good faith in the reasonable belief that


such Indemnitee’s action was in the best interest of the Fund and furthermore, in the case of any criminal proceeding, so long as such Indemnitee had no reasonable cause to believe that the conduct was unlawful; provided, however, that (1) no Indemnitee shall be indemnified hereunder against any liability to the Fund or its shareholders or any expense of such Indemnitee arising by reason of (i) willful misfeasance, (ii) bad faith, (iii) gross negligence or (iv) reckless disregard of the duties involved in the conduct of such Indemnitee’s position (the conduct referred to in such clauses (i) through (iv) being sometimes referred to herein as “disabling conduct”), (2) as to any matter disposed of by settlement or a compromise payment by such Indemnitee, pursuant to a consent decree or otherwise, no indemnification either for said payment or for any other expenses shall be provided unless there has been a determination that such settlement or compromise is in the best interests of the Fund and that such Indemnitee appears to have acted in good faith in the reasonable belief that such Indemnitee’s action was in the best interest of the Fund and did not involve disabling conduct by such Indemnitee and (3) 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 was authorized by a majority of the full Board of Directors of the Fund.

 

(b) The Fund shall make advance payments in connection with the expenses of defending any action with respect to which indemnification might be sought hereunder if the Fund receives a written affirmation of the Indemnitee’s good faith belief that the standard of conduct necessary for indemnification has been met and a written undertaking to reimburse the Fund unless it is subsequently determined that such Indemnitee is entitled to such indemnification and if the Directors of the Fund determine that the facts then known to them would not preclude indemnification. In addition, at least one of the following conditions must be met: (A) the Indemnitee shall provide a security for such Indemnitee undertaking, (B) the Fund shall be insured against losses arising by reason of any unlawful advance, or (C) a majority of a quorum consisting of Directors of the Fund who are neither “interested persons” of the Fund (as defined in Section 2(a)(19) of the 1940 Act) nor parties to the proceeding (“Disinterested Non-Party Directors”) or an independent legal counsel in a written opinion, shall determine, based on a review of readily available facts (as opposed to a full trial-type inquiry), that there is reason to believe that the Indemnitee ultimately will be found entitled to indemnification.

 

(c) All determinations with respect to the standards for indemnification hereunder shall be made (1) by a final decision on the merits by a court or other body before whom the proceeding was brought that such Indemnitee is not liable by reason of disabling conduct, or (2) in the absence of such a decision, by (i) a majority vote of a quorum of the Disinterested Non-Party Directors of the Fund, or (ii) if such a quorum is not obtainable or even, if obtainable, if a majority vote of such quorum so directs, independent legal counsel in a written opinion. All determinations that advance payments in connection with the expense of defending any proceeding shall be authorized shall be made in accordance with the immediately preceding clause (2) above.

 

The rights accruing to any Indemnitee under these provisions shall not exclude any other right to which such Indemnitee may be lawfully entitled.

 

9. Limitation on Liability. The Sub-Advisor will not be liable for any error of judgment or mistake of law or for any loss suffered by the Advisor or by the Fund in connection with the performance of this Agreement, except a loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services or a loss resulting from willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard by it of its duties under this Agreement. As used in this Section 9(a), the term “Sub-Advisor” shall include any affiliates of the Sub-Advisor performing services for the Fund contemplated hereby and partners, directors, officers and employees of the Sub-Advisor and such affiliates.

 

Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the “Securities Act”), may be permitted to Directors, officers and controlling persons of the Registrant, pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the 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 Director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such Director, officer or


controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

 

Item 16.     Exhibits

 

1   (a)   

—Articles of Incorporation, dated April 14, 1993. (a)

 

(b)

  

—Articles of Amendment to Articles of Incorporation, dated May 5, 1993. (b)

 

(c)

  

    Articles of Amendment to Articles of Incorporation, dated September 14, 2006. (c)

2     

—Amended and Restated Bylaws of the Registrant. (d)

3     

—Not Applicable.

4     

—Form of Agreement and Plan of Reorganization. (e)

5  

(a)

  

—Portions of the Articles of Incorporation and the Amended and Restated Bylaws of the Registrant defining the rights of stockholders. (c)

 

(b)

  

—Form of specimen certificate for the Common Stock of the Registrant.*

6  

(a)

  

—Investment Management Agreement between the Registrant and BlackRock Advisors, LLC. (c)

 

(b)

  

    Sub-Investment Advisory Agreement between the Registrant and BlackRock Investment Management, LLC. (c)

7     

—Not applicable.

8     

—Second Amended and Restated Deferred Compensation Plan.*

9     

—Custodian Agreement between the Fund and The Bank of New York. (c)

10     

—Not applicable.

11     

—Opinion and Consent of Miles & Stockbridge P.C., special counsel for the Registrant.*

12     

—Tax opinion of Skadden, Arps, Slate, Meagher & Flom LLP relating to Registrant’s acquisition of BlackRock Apex Municipal Fund, Inc.*

13  

(a)

  

—Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency Agreement between the Registrant and The Bank of New York. (f)

 

(b)

  

Administrative Services Agreement between the Registrant and State Street Bank and Trust

Company. (c)

14     

—Consent of the independent registered public accounting firm for the Registrant and BlackRock Apex Municipal Fund, Inc.*

15     

—Not applicable.

16     

—Power of Attorney. (c)

17     

—Form of Proxy Cards. (c)

 

* To be filed by further amendment.
(a) Filed as Exhibit 1(a) to Pre-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form N-14 (File No. 333-65446) filed on September 10, 2001.
(b) Filed as Exhibit 1(b) to Pre-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form N-14 (File No. 333-65446) filed on September 10, 2001.
(c) Filed herewith.
(d) Filed as Exhibit 3.1 to the Registrant’s Form 8-K filed on October 7, 2008.
(e) Included in the Statement of Additional Information as Appendix A.
(f) Filed as Exhibit 13 to Pre-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form N-14 (File No. 333-65446) filed on September 10, 2001.


Item 17.     Undertakings

 

(1) The undersigned Registrant agrees that prior to any public reoffering of the securities registered through use of a prospectus which is part of this Registration Statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act of 1933, as amended, the reoffering prospectus will contain information called for by the applicable Exchange registration form for reofferings by persons who may be deemed underwriters, in addition to the information called for by other items of the applicable form.

 

(2) The undersigned Registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as part of an amendment to the registration statement and will not be used until the amendment is effective, and that, in determining any liability under the Securities Act of 1933, as amended, each post-effective amendment shall be deemed to be a new registration statement for the securities offered therein, and the offering of securities at that time shall be deemed to be the initial bona fide offering of them.

 

(3) The undersigned Registrant agrees to file, by post-effective amendment, opinions of counsel supporting the tax consequences of the Reorganization within a reasonably prompt time after receipt of such opinions.


SIGNATURES

As required by the Securities Act of 1933, this Registration Statement has been signed on behalf of the Registrant, in the City of New York and the State of New York, on September 15, 2010.

 

BLACKROCK MUNIASSETS FUND, INC.
By:   / S /    A NNE . F. A CKERLEY      
Name:       Anne F. Ackerley
Title:       President and Chief Executive Officer

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

 

Signature

  

Title

 

Date

/ S /    A NNE F. A CKERLEY      

Anne F. Ackerley

   President and Chief Executive Officer   September 15, 2010

/ S /    N EAL J. A NDREWS      

Neal J. Andrews

   Chief Financial Officer   September 15, 2010

*

Richard E. Cavanagh

   Director   September 15, 2010

*

Frank J. Fabozzi

   Director   September 15, 2010

*

Kathleen F. Feldstein

   Director   September 15, 2010

*

James T. Flynn

   Director   September 15, 2010

*

Jerrold B. Harris

   Director   September 15, 2010

*

R. Glenn Hubbard

   Director   September 15, 2010

*

W. Carl Kester

   Director   September 15, 2010

*

Karen P. Robards

   Director   September 15, 2010

*

Richard S. Davis

   Director   September 15, 2010

*

Henry Gabbay

   Director   September 15, 2010
*By:   / S /    A NNE F. A CKERLEY          Attorney-in-Fact   September 15, 2010
  Anne F. Ackerley     


SCHEDULE OF EXHIBITS TO FORM N-14

BLACKROCK MUNIASSETS FUND, INC.

 

Exhibit

       
1 (c)   

    Articles of Amendment to Articles of Incorporation, dated September 14, 2006.

5 (a)   

—Portions of the Articles of Incorporation and the Amended and Restated Bylaws of the Registrant defining the rights of stockholders.

6 (a)   

—Investment Management Agreement between the Registrant and BlackRock Advisors, LLC.

   (b)   

    Sub-Investment Advisory Agreement between the Registrant and BlackRock Investment Management, LLC.

9     

—Custodian Agreement between the Fund and The Bank of New York.

13 (b)   

    Administrative Services Agreement between the Registrant and State Street Bank and Trust Company.

16     

—Power of Attorney.

17     

—Form of Proxy Cards.

Exhibit 1(c)

MUNIASSETS FUND INC.

ARTICLES OF AMENDMENT

MuniAssets Fund, Inc., a Maryland corporation (the “Corporation”), does hereby certify to the State Department of Assessments and Taxation of Maryland that:

FIRST: The name of the corporation is MuniAssets Fund, Inc.

SECOND: The charter of the Corporation is hereby amended by deleting Article II thereof in its entirety and inserting the following in lieu thereof:

ARTICLE II

NAME

The name of the Corporation is

BlackRock MuniAssets Fund, Inc.

THIRD: These Articles of Amendment have been approved by a majority of the entire Board of Directors of the Corporation and are limited to a change expressly authorized by Section 2-605 of the Maryland General Corporation Law and are therefore made without action by the stockholders.

FOURTH: The authorized capital stock of the Corporation has not been increased by these Articles of Amendment.

FIFTH: As amended hereby, the Corporation’s charter shall remain in full force and effect.

SIXTH: These Articles of Amendment shall be effective as of the 29th day of September, 2006.

 

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IN WITNESS WHEREOF, MuniAssets Fund, Inc. has caused these presents to be signed in its name and on its behalf by its Vice President and witnessed by its Secretary as of the 14th day of September, 2006.

 

MUNIASSETS FUND, INC.
By:  

/s/ Donald C. Burke

  Donald C. Burke, Vice President

Witness:

 

/s/ Alice A. Pellegrine

Alice A. Pellegrine, Secretary

The UNDERSIGNED, Vice President of the Corporation, who executed on behalf of the Corporation the foregoing Articles of Amendment of which this certificate is made a part, hereby acknowledges in the name and on behalf of the Corporation the foregoing Articles of Amendment to be the corporate act of the Corporation and further certifies, as to all of the matters and facts required to be verified under oath, that to the best of his knowledge, information and belief, the matters and facts set forth herein are true in all material respects, under the penalties of perjury.

 

/s/ Donald C. Burke

Donald C. Burke, Vice President

 

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Exhibit 5(a)

Provisions of the Articles of Incorporation and

Amended and Restated Bylaws of

BlackRock MuniAssets Fund, Inc.

Defining the rights of holders of Common Stock

BLACKROCK MUNIASSETS FUND, INC.

ARTICLES OF INCORPORATION

Dated as of April 14, 1993

ARTICLE V

Capital Stock

5.3 Unless otherwise expressly provided in the charter of the Corporation, including any Articles Supplementary creating any class or series of capital stock, the holders of each class or series of capital stock shall be entitled to dividends and distributions in such amounts and at such times as may be determined by the Board of Directors, and the dividends and distributions paid with respect to the various classes or series of capital stock may vary among such classes and series.

5.4 Unless otherwise expressly provided in the charter of the Corporation, including any Articles Supplementary creating any class or series of capital stock, on each matter submitted to a vote of stockholders, each holder of a share of capital stock of the Corporation shall be entitled to one vote for each share standing in such holder’s name on the books of the Corporation, irrespective of the class or series thereof, and all shares of all classes and series shall vote together as a single class; provided, however, that as to any matter with respect to which a separate vote of any class or series is required by the Investment Company Act of 1940, as amended, and in effect from time to time, or any rules, regulations or orders issued thereunder, or by the Maryland General Corporation Law, such requirement as to a separate vote by that class or series shall apply in lieu of a general vote of all classes and series as described above.

5.5 Notwithstanding any provision of the Maryland General Corporation Law requiring a greater proportion than a majority of the votes of all classes or series of capital stock of the Corporation (or of any class or series entitled to vote thereon as a separate class or series) to take or authorize any action, the Corporation is hereby authorized (subject to the requirements of the Investment Company Act of 1940, as amended, and in effect from time to time, and any rules, regulations and orders issued thereunder) to take such action upon the concurrence of a majority of the aggregate number of shares of capital stock of the Corporation entitled to vote thereon (or a majority of the aggregate number of shares of a class or series entitled to vote thereon as a separate class or series).

5.6 Unless otherwise expressly provided in the charter of the Corporation, including any Articles Supplementary creating any class or series of capital stock, in the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of all classes and series of capital stock of the Corporation shall be entitled, after payment or provision for payment of the debts and other liabilities of the Corporation, to share ratably in the remaining net assets of the Corporation.

 

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5.7 Any fractional shares shall carry proportionately all the rights of a whole share, excepting any right to receive a certificate evidencing such fractional share, but including, without limitation, the right to vote and the right to receive dividends.

5.8 All persons who shall acquire stock in the Corporation shall acquire the same subject to the provisions of the charter and By-Laws of the Corporation. As used in the charter of the Corporation, the terms “charter” and “Articles of Incorporation” shall mean and include the Articles of Incorporation of the Corporation as amended, supplemented and restated from time to time by Articles of Amendment, Articles Supplementary, Articles of Restatement or otherwise.

ARTICLE VI

Provisions for defining, limiting and regulating certain powers of the

Corporation and of the Directors and Stockholders

6.2 The Board of Directors of the Corporation is hereby empowered to authorize the issuance from time to time of shares of capital stock, whether now or hereafter authorized, for such consideration as the Board of Directors may deem advisable, subject to such limitations as may be set forth in these Articles of Incorporation or in the By-Laws of the Corporation or in the General Laws of the State of Maryland.

6.3 Each director and each officer of the Corporation shall be indemnified by the Corporation to the full extent permitted by the General Laws of the State of Maryland, subject to the requirements of the Investment Company Act of 1940, as amended. No amendment of these Articles of Incorporation or repeal of any provision hereof shall limit or eliminate the benefits provided to directors and officers under this provision in connection with any act or omission that occurred prior to such amendment or repeal.

6.4 To the fullest extent permitted by the General Laws of the State of Maryland, subject to the requirements of the Investment Company Act of 1940, as amended, no director or officer of the Corporation shall be personally liable to the Corporation or its security holders for money damages. No amendment of these Articles of Incorporation or repeal of any provision hereof shall limit or eliminate the benefits provided to directors and officers under this provision in connection with any act or omission that occurred prior to such amendment or repeal.

6.5 The Board of Directors of the Corporation may make, alter or repeal from time to time any of the By-Laws of the Corporation except any particular By-Law which is specified as not subject to alteration or repeal by the Board of Directors, subject to the requirements of the Investment Company Act of 1940, as amended.

6.6 A director elected by the holders of capital stock may be removed (with or without cause), but only by action taken by the holders of at least sixty-six and two-thirds percent (66  2 / 3 %) of the shares of capital stock then entitled to vote in an election to fill that directorship.

 

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ARTICLE VII

Denial of Preemptive Rights

No shareholder of the Corporation shall by reason of his holding shares of capital stock have any preemptive or preferential right to purchase or subscribe to any shares of capital stock of the Corporation, now or hereafter to be authorized, or any notes, debentures, bonds or other securities convertible into shares of capital stock, now or hereafter to be authorized, whether or not the issuance of any such shares, or notes, debentures, bonds or other securities would adversely affect the dividend or voting rights of such shareholder; and the Board of Directors may issue shares of any class of the Corporation, or any notes, debentures, bonds, other securities convertible into shares of any class, either whole or in part, to the existing shareholders.

ARTICLE VIII

Determination Binding

Any determination made in good faith, so far as accounting matters are involved, in accordance with accepted accounting practice by or pursuant to the direction of the Board of Directors, as to the amount of assets, obligations or liabilities of the Corporation, as to the amount of net income of the Corporation from dividends and interest for any period or amounts at any time legally available for the payment of dividends, as to the amount of any reserves or charges set up and the propriety thereof, as to the time of or purpose for creating reserves or as to the use, alteration or cancellation of any reserves or charges (whether or not any obligation or liability for which such reserves or charges shall have been created, shall have been paid or discharged or shall be then or thereafter required to be paid or discharged), as to the price of any security owned by the Corporation or as to any other matters relating to the issuance, sale, redemption or other acquisition or disposition of securities or shares of capital stock of the Corporation, and any reasonable determination made in good faith by the Board of Directors as to whether any transaction constitutes a purchase of securities on “margin,” a sale of securities “short,” or an underwriting of the sale of, or a participation in any underwriting or selling group in connection with the public distribution of, any securities, shall be final and conclusive, and shall be binding upon the Corporation and all holders of its capital stock, past, present and future, and shares of the capital stock of the Corporation are issued and sold on the condition and understanding, evidenced by the purchase of shares of capital stock or acceptance of share certificates, that any and all such determinations shall be binding as aforesaid. No provision of these Articles of Incorporation shall be effective to (a) require a waiver of compliance with any provision of the Securities Act of 1933, as amended, or the Investment Company Act of 1940, as amended, or of any valid rule, regulation or order of the Securities and Exchange Commission thereunder or (b) protect or purport to protect any director or officer of the Corporation against any liability to the Corporation or its security holders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office.

 

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ARTICLE X

Private Property of Stockholders

The private property of Stockholders shall not be subject to the payment of corporate debts to any extent whatsoever.

ARTICLE XI

Conversion to Open-End Company

Notwithstanding any other provisions of these Articles of Incorporation or the By-Laws of the Corporation, a favorable vote of the holders of at least sixty-six and two-thirds percent (66  2 / 3 %) of the outstanding shares of capital stock of the Corporation entitled to be voted on the matter shall be required to approve, adopt or authorize an amendment to these Articles of Incorporation of the Corporation that makes the Common Stock a “redeemable security” (as that term is defined in section 2(a) (32) the Investment Company Act of 1940, as amended) unless such action has previously been approved, adopted or authorized by the affirmative vote of at least two-thirds of the total number of directors fixed in accordance with the By-Laws of the Corporation, in which case the affirmative vote of the holders of a majority of the outstanding shares of capital stock of the Corporation entitled to vote thereon shall be required.

ARTICLE XII

Merger, Sale of Assets, Liquidation

Notwithstanding any other provisions of these Articles of Incorporation or the By-Laws of the Corporation, a favorable vote of the holders of at least sixty-six and two-thirds percent (66  2 / 3 %) of the outstanding shares of capital stock of the Corporation entitled to be voted on the matter shall be required to approve, adopt or authorize (i) a merger or consolidation or statutory share exchange of the Corporation with any other corporation, (ii) a sale of all or substantially all of the assets of the Corporation (other than in the regular course of its investment activities), or (iii) a liquidation or dissolution of the Corporation, unless such action has previously been approved, adopted or authorized by the affirmative vote of at least two-thirds of the total number of directors fixed in accordance with the By-Laws of the Corporation, in which case the affirmative vote of the holders of a majority of the outstanding shares of capital stock of the Corporation entitled to vote thereon shall be required.

ARTICLE XIII

Amendment

The Corporation reserves the right to amend, alter, change or repeal any provision contained in these Articles of Incorporation, in the manner now or hereafter prescribed by statute, including any amendment which alters the contract rights, as expressly set forth in the charter, of any outstanding stock and substantially adversely affects the stockholders’ rights and all rights conferred upon stockholders herein are granted subject to this reservation. Notwithstanding any

 

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other provisions of these Articles of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that a lesser percentage may be specified by law, these Articles of Incorporation or the By-Laws of the Corporation) the amendment or repeal of Section (5) of Article V, Section (1), Section (3), Section (4), Section (5) and Section (6) of Article VI, Article IX, Article X, Article XI, Article XII, or this Article XIII, of these Articles of Incorporation shall require the affirmative vote of the holders of at least sixty-six and two-thirds percent (66  2 / 3 %) of the outstanding shares of capital stock of the Corporation entitled to be voted on the matter.

BLACKROCK MUNIASSETS FUND, INC.

AMENDED AND RESTATED BYLAWS

Effective as of May 29, 2008

ARTICLE I

Shareholder Meetings

Section 1 Chairman. The Chairman, if any, shall act as chairman at all meetings of the Shareholders. In the Chairman’s absence, the Vice Chairman, if any, shall act as chairman at the meeting. In the absence of the Chairman and the Vice Chairman, the Director or Directors present at each meeting may elect a temporary chairman for the meeting, who may be one of themselves.

Section 2 Annual Meetings of Shareholders. The Fund’s initial annual meeting of Shareholders, if any, may occur up to one year after the completion of its initial fiscal year.

Section 3. Special Meetings of Shareholders. A special meeting of Shareholders may be called at any time by the Secretary upon the request of a majority of the Directors or the President and shall also be called by the Secretary for any proper purpose upon written request of Shareholders of the Fund holding in the aggregate not less than a majority of the outstanding Shares of the Fund or class or series of Shares having voting rights on the matter.

Section 4. Place of Meetings. Any Shareholder meeting, including a Special Meeting, shall be held within or without the state in which the Fund was formed on such day and at such time as the Directors shall designate.

Section 5. Notice of Meetings.

(a) Written notice of all meetings of Shareholders, stating the time and place of the meeting, shall be given by the Secretary by mail to each Shareholder of record entitled to vote thereat at its registered address, mailed at least ten (10) days and not more than sixty (60) days before the meeting or otherwise in compliance with applicable law. Such notice will also specify the means of remote communications, if any, by which Shareholders and proxyholders may be deemed to be present in person and vote at such meeting. No business (including without limitation nominations for the election of directors) may be transacted at an annual or special meeting of Shareholders, other than business that is either (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (ii) otherwise properly brought before the

 

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annual meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (iii) in the case of an annual meeting, otherwise properly brought before the meeting by any Shareholder of the Fund, whether such proposal is included in the Fund’s proxy statement or a proxy statement prepared by one or more shareholders, (A) who is a Shareholder of record on the date of the giving of the notice provided for in this Article I Section 5 and on the record date for the determination of Shareholders entitled to notice of and to vote at such annual meeting and (B) who complies with the notice procedures set forth in this Article I Section 5 or, with respect to the election of Directors, set forth in Section 2 of Article II.

(b) In addition to any other applicable requirements, for business to be properly brought before a meeting by a Shareholder, such Shareholder must have given timely notice thereof in proper written form to the Secretary of the Fund.

(i) To be timely, a Shareholder’s notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Fund (A) in the case of an annual meeting, not less than ninety (90) days nor more than one hundred twenty (120) days prior to the anniversary date of the immediately preceding annual meeting of Shareholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the Shareholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the meeting was mailed or such public disclosure of the date of the meeting was made, whichever first occurs; and (B) in the case of a special meeting of Shareholders called for the purpose of electing directors, not later than the close of business on the fifth (5 th ) day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever first occurs.

(ii) Except for notices regarding nominations for the election of directors, which notices shall be prepared in accordance with Article II Section 2(c)(ii), to be in proper written form, a Shareholder’s notice to the Secretary must set forth as to each matter such Shareholder proposes to bring before the meeting (A) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (B) the name and record address of such Shareholder, (C) the class or series and number of shares of the Fund which are owned beneficially or of record by such Shareholder, (D) a description of all arrangements or understandings between such Shareholder and any other person or persons (including their names) in connection with the proposal of such business by such Shareholder and any material interest of such Shareholder in such business and (E) a representation that such Shareholder intends to appear in person or by proxy at the meeting to bring such business before the meeting.

(iii) The requirements set forth in this Article I Section 5(b) shall not be in effect for purposes of the 2008 annual meeting of Shareholders, and the advance notice requirements for shareholder proposals, if any, set forth in the bylaws in effect prior to the effective date of these Bylaws shall instead be in effect for such meeting.

(c) No business shall be conducted at a meeting of Shareholders except business brought before the annual meeting in accordance with the procedures set forth in

 

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this Article I Section 5 or Article II Section 2, as the case may be; provided, however, that, once business has been properly brought before the meeting in accordance with such procedures, nothing in this Article I Section 5 shall be deemed to preclude discussion by any Shareholder of any such business. If the chairman of a meeting determines that business was not properly brought before the meeting in accordance with the foregoing procedures, the chairman of the meeting shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted.

(d) Whenever written notice is required by law or the Charter to be given to any Shareholder, such notice may be given by mail, addressed to such Shareholder at such Shareholder’s address as it appears on the records of the Fund, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail or with another reasonable delivery service customarily used for business purposes.

Section 6. Conduct of Meetings. The Board of Directors of the Fund may adopt by resolution such rules and regulations for the conduct of any meeting of the Shareholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairman of any meeting of the Shareholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, the following: (a) the establishment of an agenda or order of business for the meeting; (b) the determination of when the polls shall open and close for any given matter to be voted on at the meeting; (c) rules and procedures for maintaining order at the meeting and the safety of those present; (d) limitations on attendance at or participation in the meeting to Shareholders of record of the Fund, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (e) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (f) limitations on the time allotted to questions or comments by participants.

Section 7. Adjournments. The chairman of any meeting of the Shareholders may adjourn the meeting from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place, if any, thereof and the means of remote communications, if any, by which Shareholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Fund may transact any business which might have been transacted at the original meeting. Any adjourned meeting may be held as adjourned one or more times without further notice not later than one hundred and twenty (120) days after the record date. If after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting in accordance with the requirements of Section 5 of this Article I shall be given to each Shareholder of record entitled to vote at the meeting and each other Shareholder entitled to notice of the meeting.

 

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Section 8. Record Date.

(a) For the purposes of determining the Shareholders who are entitled to vote at, or otherwise entitled to notice of any meeting, the Directors may, without closing the transfer books, fix a date not more than sixty (60) nor less than ten (10) days prior to the date of such meeting of Shareholders as a record date for the determination of the Persons to be treated as Shareholders of record for such purposes. The record date shall not precede the date upon which the resolution fixing the record date is adopted by the Directors. If no record date is fixed by the Directors and the stock transfer books are not closed, the record date for determining Shareholders entitled to notice of or to vote at a meeting of the Shareholders shall be at the later of (i) the close of business on the day on which notice is mailed or (ii) the thirtieth (30 th ) day before the meeting. A determination of Shareholders of record entitled to notice of or to vote at a meeting of the Shareholders shall apply to any adjournment of the meeting; provided, however, that the Directors may fix a new record date for the adjourned meeting.

(b) In order that the Fund may determine the Shareholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Directors. If no record date has been fixed by the Directors, the record date for determining Shareholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Directors is required by applicable law or the Charter, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Fund by delivery to its registered office in the state in which the Fund was formed, its principal place of business, or an officer or agent of the Fund having custody of the book in which proceedings of meetings of the Shareholders are recorded. Delivery made to the Fund’s registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Directors and prior action by the Directors is required by applicable law or the Charter, the record date for determining Shareholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Directors adopts the resolution taking such prior action.

Section 9. Voting.

(a) Shareholders shall have no power to vote on any matter except matters on which a vote of Shareholders is required by applicable law, the Charter or resolution of the Directors. Except as otherwise provided herein, any matter required to be submitted to Shareholders and affecting one or more classes or series of Shares shall require approval by the required vote of all the affected classes and series of Shares voting together as a single class; provided, however, that as to any matter with respect to which a separate vote of any class or series of Shares is required by the 1940 Act, such requirement as to a separate vote by that class or series of Shares shall apply in addition to a vote of all the affected classes and series voting together as a single class. Shareholders of a particular class or series of Shares shall not be entitled to vote on any matter that affects only one or more other classes or series of Shares.

 

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(b) Subject to any provision of applicable law, the Charter, these Bylaws or a resolution of the Directors specifying a greater or a lesser vote requirement for the transaction of any item of business at any meeting of Shareholders, (i) the affirmative vote of a majority of the Shares for which votes were cast at any meeting at which a quorum is present shall be the act of the Shareholders with respect to any matter that properly comes before the meeting, and (ii) where a separate vote of two or more classes or series of Shares is required on any matter, the affirmative vote of a majority of the Shares of such class or series of Shares for which votes were cast at any meeting at which a quorum is present shall be the act of the Shareholders of such class or series with respect to such matter.

(c) Only Shareholders of record shall be entitled to vote. Each full Share shall be entitled to one vote and fractional Shares shall be entitled to a vote of such fraction. When any Share is held jointly by several persons, any one of them may vote at any meeting in person or by proxy in respect of such Share, but if more than one of them shall be present at such meeting in person or by proxy, and such joint owners or their proxies so present disagree as to any vote to be cast, such vote shall be cast in accordance with applicable law.

(d) There shall be no cumulative voting in the election or removal of Directors.

Section 10. Quorum. The presence in person or by proxy of the holders of shares of stock entitled to cast one-third of the votes entitled to be cast shall constitute a quorum at any meeting of stockholders, except with respect to any matter which requires approval by a separate vote of one or more classes or series of stock, in which case the presence in person or by proxy of the holders of shares entitled to cast one-third of the votes entitled to be cast by each class or series entitled to vote as a separate class or series shall constitute a quorum. The absence from any meeting, in person or by proxy, of a quorum of Shareholders for action upon any given matter shall not prevent action at such meeting upon any other matter or matters which may properly come before the meeting, if there shall be present thereat, in person or by proxy, a quorum of Shareholders in respect of such other matters. A quorum, once established, shall not be broken by the withdrawal of enough votes to leave less than a quorum. If, however, such quorum shall not be present or represented at any meeting of the Shareholders, the chairman of the meeting, shall have power to adjourn the meeting from time to time, in the manner provided in Section 7 of this Article I, until a quorum shall be present or represented.

Section 11. Proxies.

(a) At any meeting of Shareholders, any holder of Shares entitled to vote thereat may vote by properly executed proxy, provided that no proxy shall be voted at any meeting unless it shall have been placed on file with the Secretary, or with such other officer or agent of the Fund as the Directors or Secretary may direct, for verification prior to the time at which such vote shall be taken. Pursuant to a resolution of a majority of the Directors, proxies may be solicited in the name of one or more Directors or one or more of the officers or employees of the Fund. No proxy shall be valid after the expiration of 11 months from the date thereof, unless otherwise provided in the proxy. A proxy purporting to be executed by or on behalf of a Shareholder shall be deemed valid unless challenged at or prior to its exercise, and the burden of proving invalidity shall rest on the challenger. If the holder of any such Share is a

 

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minor or a person of unsound mind, and subject to guardianship or to the legal control of any other person as regards the charge or management of such Share, such person may vote by their guardian or such other person appointed or having such control, and such vote may be given in person or by proxy.

(b) Without limiting the manner in which a Shareholder may authorize another person or persons to act for such Shareholder as proxy, the following shall constitute a valid means by which a Shareholder may grant such authority:

(i) A Shareholder may execute a writing authorizing another person or persons to act for such Shareholder as proxy. Execution may be accomplished by the Shareholder or such Shareholder’s authorized officer, director, employee or agent signing such writing or causing such person’s signature to be affixed to such writing by any reasonable means, including, but not limited to, by facsimile or electronic signature.

(ii) A Shareholder may authorize another person or persons to act for such Shareholder as proxy by transmitting or authorizing the transmission of a telegram, cablegram or other means of electronic or telephonic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telegram, cablegram or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the Shareholder. If it is determined that such telegrams, cablegrams or other electronic transmissions are valid, the inspectors of election or, if there are no inspectors of election, such other persons making that determination shall specify the information on which they relied.

(c) Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission authorizing another person or persons to act as proxy for a Shareholder may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used; provided, however, that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission.

Section 12. Inspectors of Election.

(a) In advance of any meeting of Shareholders, the Directors may appoint inspectors of election to act at the meeting or any adjournment thereof. If inspectors of election are not so appointed, the person acting as Chairman of any meeting of Shareholders may, and on the request of any Shareholder or Shareholder proxy shall, appoint inspectors of election of the meeting. The number of inspectors of election shall be either one or three. If appointed at the meeting on the request of one or more Shareholders or proxies, a majority of Shares present shall determine whether one or three inspectors of election are to be appointed, but failure to allow such determination by the Shareholders shall not affect the validity of the appointment of inspectors of election. In case any person appointed as inspector of election fails to appear or fails or refuses to act, the vacancy may be filled by appointment made by the Directors in advance of the convening of the meeting or at the meeting by the person acting as chairman.

 

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Unless otherwise required by applicable law, inspectors may be officers, employees or agents of the Fund. Each inspector, before entering upon the discharge of the duties of inspector, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of such inspector’s ability.

(b) The inspectors of election shall have the duties prescribed by law and shall determine the number of Shares outstanding, the Shares represented at the meeting, the existence of a quorum, the authenticity, validity and effect of proxies, shall receive votes, ballots or consents, shall hear and determine all challenges and questions in any way arising in connection with the right to vote, shall count and tabulate all votes or consents, determine the results, and do such other acts as may be proper to conduct the election or vote with fairness to all Shareholders. If there are three inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. On request of the chairman, if any, of the meeting, the inspectors of election shall make a report in writing of any challenge or question or matter determined by them and shall execute a certificate of any facts found by them.

Section 13. Records at Shareholder Meetings. At each meeting of the Shareholders, there shall be made available for inspection at a convenient time and place during normal business hours, if requested by Shareholders, a list of the Shareholders of the Fund, as of the record date of the meeting or the date of closing of transfer books, as the case may be. Such list of Shareholders shall contain the name and the address of each Shareholder in alphabetical order and the number of Shares owned by such Shareholder. Shareholders shall have such other rights and procedures of inspection of the books and records of the Fund as are granted to shareholders of corporations in the state in which the Fund was formed.

Section 14. Shareholder Action by Written Consent.

(a) Except as otherwise provided by statute or the Charter, any action which may be taken by Shareholders by vote may be taken without a meeting, without prior notice and without a vote, if a unanimous written consent which sets forth the action and is signed by each Shareholder entitled to vote on the matter is filed with the records of Shareholders’ meetings. Such consent shall be treated for all purposes as a vote taken at a meeting of Shareholders.

(b) Any such consent shall be delivered to the Fund by delivery to its registered office in the state in which the Fund was formed, its principal place of business, or an officer or agent of the Fund having custody of the book in which proceedings of meetings of the Shareholders are recorded. Delivery shall be in paper form, by hand, by certified or registered mail, return receipt requested, or by electronic transmission. Every written consent shall bear the date of signature of each Shareholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated consent delivered in the manner required by this Article I Section 14 to the Fund, written consents signed by a sufficient number of holders to take action are delivered to the Fund by delivery to its registered office in the state in which the Fund was formed, its principal place of business, or an officer or agent of the Fund having custody of the book in which proceedings of meetings of the Shareholders are recorded. A telegram, cablegram or other electronic

 

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transmission consenting to an action to be taken and transmitted by a Shareholder or proxyholder, or by a person or persons authorized to act for a Shareholder or proxyholder, shall be deemed to be written, signed and dated for the purposes of this Article I Section 14, provided that any such telegram, cablegram or other electronic transmission sets forth or is delivered with information from which the Fund can determine (i) that the telegram, cablegram or other electronic transmission was transmitted by the Shareholder or proxyholder or by a person or persons authorized to act for the Shareholder or proxyholder and (ii) the date on which such Shareholder or proxyholder or authorized person or persons transmitted such telegram, cablegram or electronic transmission. The date on which such telegram, cablegram or electronic transmission is transmitted shall be deemed to be the date on which such consent was signed. No consent given by telegram, cablegram or other electronic transmission shall be deemed to have been delivered until such consent is reproduced in paper form and until such paper form shall be delivered to the Fund by delivery to its registered office in the state in which the Fund was formed, its principal place of business or an officer or agent of the Fund having custody of the book in which proceedings of meetings of the Shareholders are recorded. Such delivery shall be made by hand or by certified or registered mail, return receipt requested. Any copy, facsimile or other reliable reproduction of a consent in writing may be substituted or used in lieu of the original writing for any and all purposes for which the original writing could be used, provided that such copy, facsimile or other reproduction shall be a complete reproduction of the entire original writing.

(c) Within ten (10) days after the effective date of the action, notice of the taking of the action without a meeting by less than unanimous written consent shall be given to those Shareholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of holders to take the action were delivered to the Fund as provided above in this Article I Section 14.

ARTICLE II

Directors

Section 3. Resignation and Removal. Any of the Directors may resign (without need for prior or subsequent accounting) by an instrument in writing signed by such Director and delivered or mailed to the Directors, the Chairman, if any, the President, or the Secretary and such resignation shall be effective upon such delivery, or at a later date according to the terms of the instrument. Any of the Directors may be removed, provided the aggregate number of Directors after such removal shall not be less than the minimum number set forth in the Charter, only by the proportion of votes of the Shareholders or Directors, as applicable, that are set forth in the Charter as the required proportion of votes for removal of Director, and with or without cause as may be permitted by the Charter or as required by applicable law. Upon the resignation or removal of a Director, each such resigning or removed Director shall execute and deliver to the Fund such documents as may be required by applicable law or the Charter or as may be requested by the remaining Directors as being in the best interests of the Fund and the Shareholders. Upon the incapacity or death of any Director, such Director’s legal representative shall execute and deliver to the Fund on such Director’s behalf such documents as the remaining Directors shall require as provided in the preceding sentence.

 

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Section 4. Vacancies. Whenever a vacancy in the Board of Directors shall occur, the remaining Directors may fill such vacancy by appointing an individual having the qualifications described in this Article by a written instrument signed by a majority of the Directors, whether or not sufficient to constitute a quorum, then in office or may leave such vacancy unfilled or may reduce the number of Directors. The aggregate number of Directors after such reduction shall not be less than the minimum number required by the Charter. If the Shareholders of any class or series of Shares are entitled separately to elect one or more Directors, a majority of the remaining Directors elected by that class or series or the sole remaining Director elected by that class or series may fill any vacancy among the number of Directors elected by that class or series. Any vacancy created by an increase in Directors may be filled by the appointment of an individual having the qualifications described in this Article II made by a written instrument signed by a majority of the Directors then in office. Whenever a vacancy in the number of Directors shall occur, until such vacancy is filled as provided herein, the Directors in office, regardless of their number, shall have all the powers granted to the Directors and shall discharge all the duties imposed upon the Directors.

ARTICLE V

Stock

Section 1. Shares of Stock. Except as otherwise provided in a resolution approved by the Board of Directors, all Shares of the Fund shall be uncertificated Shares.

Section 2. Transfer Agents, Registrars and the Like. The Directors shall have authority to employ and compensate such transfer agents and registrars with respect to the Shares of the Fund as the Directors shall deem necessary or desirable. The transfer agent or transfer agents may keep the applicable register and record therein the original issues and transfers, if any, of the Shares. Any such transfer agents and/or registrars shall perform the duties usually performed by transfer agents and registrars of certificates of stock in a corporation, as modified by the Directors. In addition, the Directors shall have power to employ and compensate such dividend disbursing agents, warrant agents and agents for the reinvestment of dividends as they shall deem necessary or desirable. Any of such agents shall have such power and authority as is delegated to any of them by the Directors.

Section 3. Transfer of Shares. Shares of the Fund shall be transferable in the manner prescribed by the Charter, these Bylaws and applicable law. Transfers of Shares shall be made on the books of the Fund upon receipt of proper transfer instructions from the registered holder of the Shares or by such person’s attorney lawfully constituted in writing, and upon payment of all necessary transfer taxes and compliance with appropriate procedures for transferring Shares in uncertificated form; provided, however, that such surrender and endorsement, compliance or payment of taxes shall not be required in any case in which the officers of the Fund shall determine to waive such requirement. If any certificated Shares are issued as provided in Section 1 of this Article V, they may be transferred only by the person named in the certificate or by such person’s attorney lawfully constituted in writing and upon the surrender of the certificate therefor, properly endorsed for transfer and payment of all necessary transfer taxes. With respect to certificated Shares, every certificate exchanged, returned or surrendered to the Fund shall be marked “Cancelled,” with the date of cancellation, by the Secretary of the Fund or the transfer agent thereof. No transfer of Shares shall be valid as against the Fund for any purpose until it shall have been entered in the Share records of the Fund by an entry showing from and to whom transferred.

 

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Section 4. Registered Shareholders. The Fund may deem and treat the holder of record of any Shares as the absolute owner thereof for all purposes and shall not be required to take any notice of any right or claim of right of any other person.

Section 5. Register of Shares. A register shall be kept at the offices of the Fund or any transfer agent duly appointed by the Directors under the direction of the Directors which shall contain the names and addresses of the Shareholders and the number of Shares held by them respectively and a record of all transfers thereof. Separate registers shall be established and maintained for each class or series of Shares. Each such register shall be conclusive as to who are the holders of the Shares of the applicable class or series of Shares and who shall be entitled to receive dividends or distributions or otherwise to exercise or enjoy the rights of Shareholders. No Shareholder shall be entitled to receive payment of any dividend or distribution, nor to have notice given to such Person as herein provided, until such Person has given their address to a transfer agent or such other officer or agent of the Directors as shall keep the register for entry thereon.

Section 6. Disclosure of Holdings. The holders of Shares or other securities of the Fund shall upon demand disclose to the Directors in writing such information with respect to direct and indirect ownership of Shares or other securities of the Fund as the Directors deem necessary to comply with the provisions of the Code, the 1940 Act or other applicable laws or regulations, or to comply with the requirements of any other taxing or regulatory authority.

Section 7. Signatures. Any or all of the signatures on a certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Fund with the same effect as if such person were such officer, transfer agent or registrar at the date of issue.

Section 8. Lost Certificates. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Fund alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or such owner’s legal representative, to advertise the same in such manner as the Board of Directors shall require and/or to give the Fund a bond in such sum as it may direct as indemnity against any claim that may be made against the Fund on account of the alleged loss, theft or destruction of such certificate or the issuance of such new certificate.

ARTICLE VII

Amendment of Bylaws

Section 1. Amendment and Repeal of Bylaws. The Directors shall have the exclusive power to amend or repeal the Bylaws or adopt new Bylaws at any time. Except as may

 

14


be required by applicable law or the Charter, action by the Directors with respect to the Bylaws shall be taken by an affirmative vote of a majority of the Directors. The Directors shall in no event adopt Bylaws which are in conflict with the Charter, and any apparent inconsistency shall be construed in favor of the related provisions in the Charter.

 

15

Exhibit 6(a)

INVESTMENT MANAGEMENT AGREEMENT

AGREEMENT, dated September 29, 2006, between BlackRock MuniAssets Fund, Inc. (the “Fund”), a Maryland corporation, and BlackRock Advisors, LLC (the “Advisor”), a Delaware limited liability company.

WHEREAS, the Advisor has agreed to furnish investment advisory services to the Fund, a closed-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”); and

WHEREAS, this Agreement has been approved in accordance with the provisions of the 1940 Act, and the Advisor is willing to furnish such services upon the terms and conditions herein set forth;

NOW, THEREFORE, in consideration of the mutual premises and covenants herein contained and other good and valuable consideration, the receipt of which is hereby acknowledged, it is agreed by and between the parties hereto as follows:

1. In General . The Advisor agrees, all as more fully set forth herein, to act as investment advisor to the Fund with respect to the investment of the Fund’s assets and to supervise and arrange for the day to day operations of the Fund and the purchase of securities for and the sale of securities held in the investment portfolio of the Fund.

2. Duties and Obligations of the Advisor with Respect to Investment of Assets of the Fund . Subject to the succeeding provisions of this section and subject to the direction and control of the Fund’s Board of Directors, the Advisor shall (i) act as investment advisor for and supervise and manage the investment and reinvestment of the Fund’s assets and in connection therewith have complete discretion in purchasing and selling securities and other assets for the Fund and in voting, exercising consents and exercising all other rights appertaining to such securities and other assets on behalf of the Fund; (ii) supervise continuously the investment program of the Fund and the composition of its investment portfolio; (iii) arrange, subject to the provisions of paragraph 4 hereof, for the purchase and sale of securities and other assets held in the investment portfolio of the Fund; and (iv) provide investment research to the Fund.

3. Duties and Obligations of Advisor with Respect to the Administration of the Fund . The Advisor also agrees to furnish office facilities and equipment and clerical, bookkeeping and administrative services (other than such services, if any, provided by the Fund’s Custodian, Transfer Agent and Dividend Disbursing Agent and other service providers) for the Fund. To the extent requested by the Fund, the Advisor agrees to provide the following administrative services:

(a) Oversee the determination and publication of the Fund’s net asset value in accordance with the Fund’s policy as adopted from time to time by the Board of Directors;

(b) Oversee the maintenance by the Fund’s Custodian and Transfer Agent and Dividend Disbursing Agent of certain books and records of the Fund as required under Rule

 

1


31a1(b)(4) of the 1940 Act and maintain (or oversee maintenance by such other persons as approved by the Board of Directors) such other books and records required by law or for the proper operation of the Fund;

(c) Oversee the preparation and filing of the Fund’s federal, state and local income tax returns and any other required tax returns;

(d) Review the appropriateness of and arrange for payment of the Fund’s expenses;

(e) Prepare for review and approval by officers of the Fund financial information for the Fund’s semiannual and annual reports, proxy statements and other communications with shareholders required or otherwise to be sent to Fund shareholders, and arrange for the printing and dissemination of such reports and communications to shareholders;

(f) Prepare for review by an officer of the Fund the Fund’s periodic financial reports required to be filed with the Securities and Exchange Commission (“SEC”) on Form NSAR, Form NCSR, Form NPX, Form NQ, and such other reports, forms and filings, as may be mutually agreed upon;

(g) Prepare such reports relating to the business and affairs of the Fund as may be mutually agreed upon and not otherwise appropriately prepared by the Fund’s custodian, counsel or auditors;

(h) Prepare such information and reports as may be required by any stock exchange or exchanges on which the Fund’s shares are listed;

(i) Make such reports and recommendations to the Board of Directors concerning the performance of the independent accountants as the Board of Directors may reasonably request or deems appropriate;

(j) Make such reports and recommendations to the Board of Directors concerning the performance and fees of the Fund’s Custodian and Transfer and Dividend Disbursing Agent as the Board of Directors may reasonably request or deems appropriate;

(k) Oversee and review calculations of fees paid to the Fund’s service providers;

(l) Oversee the Fund’s portfolio and perform necessary calculations as required under Section 18 of the 1940 Act;

(m) Consult with the Fund’s officers, independent accountants, legal counsel, custodian, accounting agent and transfer and dividend disbursing agent in establishing the accounting policies of the Fund and monitor financial and shareholder accounting services;

(n) Review implementation of any share purchase programs authorized by the Board of Directors;

 

2


(o) Determine the amounts available for distribution as dividends and distributions to be paid by the Fund to its shareholders; prepare and arrange for the printing of dividend notices to shareholders; and provide the Fund’s dividend disbursing agent and custodian with such information as is required for such parties to effect the payment of dividends and distributions and to implement the Fund’s dividend reinvestment plan;

(p) Prepare such information and reports as may be required by any banks from which the Fund borrows funds;

(q) Provide such assistance to the Custodian and the Fund’s counsel and auditors as generally may be required to properly carry on the business and operations of the Fund;

(r) Assist in the preparation and filing of Forms 3, 4, and 5 pursuant to Section 16 of the Securities Exchange Act of 1934, as amended, and Section 30(h) of the 1940 Act for the officers and Directors of the Fund, such filings to be based on information provided by those persons;

(s) Respond to or refer to the Fund’s officers or transfer agent, shareholder (including any potential shareholder) inquiries relating to the Fund;

(t) Supervise any other aspects of the Fund’s administration as may be agreed to by the Fund and the Advisor; and

All services are to be furnished through the medium of any directors, officers or employees of the Advisor or its affiliates as the Advisor deems appropriate in order to fulfill its obligations hereunder.

The Fund will reimburse the Advisor or its affiliates for all out of pocket expenses incurred by them in connection with the performance of the administrative services described in this paragraph 3. The Fund will reimburse the Advisor and its affiliates for their costs in providing accounting services to the Fund.

4. Covenants . (a) In the performance of its duties under this Agreement, the Advisor shall at all times conform to, and act in accordance with, any requirements imposed by: (i) the provisions of the 1940 Act and the Investment Advisers Act of 1940, as amended, and all applicable Rules and Regulations of the Securities and Exchange Commission; (ii) any other applicable provision of law; (iii) the provisions of the Charter and By Laws of the Fund, as such documents are amended from time to time; (iv) the investment objectives and policies of the Fund as set forth in its Registration Statement on Form N-2 and/or the resolutions of the Board of Directors; and (v) any policies and determinations of the Board of Directors of the Fund and

(b) In addition, the Advisor will:

(i) place orders either directly with the issuer or with any broker or dealer. Subject to the other provisions of this paragraph, in placing orders with brokers and dealers, the Advisor will attempt to obtain the best price and the most favorable execution of its orders. In placing orders, the Advisor will consider the experience and

 

3


skill of the firm’s securities traders as well as the firm’s financial responsibility and administrative efficiency. Consistent with this obligation, the Advisor may select brokers on the basis of the research, statistical and pricing services they provide to the Fund and other clients of the Advisor. Information and research received from such brokers will be in addition to, and not in lieu of, the services required to be performed by the Advisor hereunder. A commission paid to such brokers may be higher than that which another qualified broker would have charged for effecting the same transaction, provided that the Advisor determines in good faith that such commission is reasonable in terms either of the transaction or the overall responsibility of the Advisor to the Fund and its other clients and that the total commissions paid by the Fund will be reasonable in relation to the benefits to the Fund over the long term. Subject to the foregoing and the provisions of the 1940 Act, the Securities Exchange Act of 1934, as amended, and other applicable provisions of law, the Advisor may select brokers and dealers with which it or the Fund is affiliated;

(ii) maintain a policy and practice of conducting its investment advisory services hereunder independently of the commercial banking operations of its affiliates. When the Advisor makes investment recommendations for the Fund, its investment advisory personnel will not inquire or take into consideration whether the issuer of securities proposed for purchase or sale for the Fund’s account are customers of the commercial department of its affiliates; and

(iii) treat confidentially and as proprietary information of the Fund all records and other information relative to the Fund, and the Fund’s prior, current or potential shareholders, and will not use such records and information for any purpose other than performance of its responsibilities and duties hereunder, except after prior notification to and approval in writing by the Fund, which approval shall not be unreasonably withheld and may not be withheld where the Advisor may be exposed to civil or criminal contempt proceedings for failure to comply, when requested to divulge such information by duly constituted authorities, or when so requested by the Fund.

5. Services Not Exclusive . Nothing in this Agreement shall prevent the Advisor or any officer, employee or other affiliate thereof from acting as investment advisor for any other person, firm or corporation, or from engaging in any other lawful activity, and shall not in any way limit or restrict the Advisor or any of its officers, employees or agents from buying, selling or trading any securities for its or their own accounts or for the accounts of others for whom it or they may be acting; provided, however, that the Advisor will undertake no activities which, in its judgment, will adversely affect the performance of its obligations under this Agreement.

6. Sub-Advisors . The Advisor may from time to time, in its sole discretion to the extent permitted by applicable Law, appoint one or more sub-advisors, including, without limitation, affiliates of the Advisor, to perform investment advisory services with respect to the Fund. The Advisor may terminate any or all sub-advisors in its sole discretion at any time to the extent permitted by applicable law.

7. Books and Records . In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Advisor hereby agrees that all records which it maintains for the Fund are the

 

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property of the Fund and further agrees to surrender promptly to the Fund any such records upon the Fund’s request. The Advisor further agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records required to be maintained by Rule 31a-1 under the 1940 Act.

8. Expenses . During the term of this Agreement, the Advisor will bear all costs and expenses of its employees and any overhead incurred in connection with its duties hereunder and shall bear the costs of any salaries or directors’ fees of any officers or directors of the Fund who are affiliated persons (as defined in the 1940 Act) of the Advisor, provided that the Board of Directors of the Fund may approve reimbursement to the Advisor of the pro rata portion of the salaries, bonuses, health insurance, retirement benefits and all similar employment costs for the time spent on Fund operations, (including, without limitation, compliance matters) (other than the provision of investment advice and administrative services required to be provided hereunder) of all personnel employed by the Advisor who devote substantial time to Fund operations or the operations of other investment companies advised by the Advisor.

9. Compensation of the Advisor . (a) The Fund agrees to pay to the Advisor and the Advisor agrees to accept as full compensation for all services rendered by the Advisor as such, a monthly fee (the “Investment Advisory Fee”) in arrears at an annual rate equal to the amount set forth in Schedule A hereto of the average daily value of the Fund’s Net Assets. “Net Assets” means the total assets of the Fund minus the sum of the accrued liabilities. It is understood that the liquidation preference of any outstanding preferred stock (other than accumulated dividends) is not considered a liability in determining the Fund’s Net Asset Value. For any period less than a month during which this Agreement is in effect, the fee shall be prorated according to the proportion which such period bears to a full month of 28, 29, 30 or 31 days, as the case may be.

(b) For purposes of this Agreement, the net assets of the Funds shall be calculated pursuant to the procedures adopted by resolutions of the Directors of the Fund for calculating the value of the Fund’s assets or delegating such calculations to third parties.

10. Indemnity . (a) The Fund may, in the discretion of the Board of Directors of the Fund, indemnify the Advisor, and each of the Advisor’s directors, officers, employees, agents, associates and controlling persons and the directors, partners, members, officers, employees and agents thereof (including any individual who serves at the Advisor’s request as director, officer, partner, member, trustee or the like of another entity) (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 counsel fees (all as provided in accordance with applicable state law) 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 such Indemnitee may be or may have been involved as a party or otherwise or with which such Indemnitee may be or may have been threatened, while acting in any capacity set forth herein or thereafter by reason of such Indemnitee having acted in any such capacity, except with respect to any matter as to which such Indemnitee shall have been adjudicated not to have acted in good faith in the reasonable belief that such Indemnitee’s action was in the best interest of the Fund and furthermore, in the case of any criminal proceeding, so long as such Indemnitee had no reasonable cause to believe that the conduct was unlawful; provided, however, that (1) no Indemnitee shall be indemnified hereunder

 

5


against any liability to the Fund or its shareholders or any expense of such Indemnitee arising by reason of (i) willful misfeasance, (ii) bad faith, (iii) gross negligence or (iv) reckless disregard of the duties involved in the conduct of such Indemnitee’s position (the conduct referred to in such clauses (i) through (iv) being sometimes referred to herein as “disabling conduct”), (2) as to any matter disposed of by settlement or a compromise payment by such Indemnitee, pursuant to a consent decree or otherwise, no indemnification either for said payment or for any other expenses shall be provided unless there has been a determination that such settlement or compromise is in the best interests of the Fund and that such Indemnitee appears to have acted in good faith in the reasonable belief that such Indemnitee’s action was in the best interest of the Fund and did not involve disabling conduct by such Indemnitee and (3) 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 was authorized by a majority of the full Board of Directors of the Fund.

(b) The Fund may make advance payments in connection with the expenses of defending any action with respect to which indemnification might be sought hereunder if the Fund receives a written affirmation of the Indemnitee’s good faith belief that the standard of conduct necessary for indemnification has been met and a written undertaking to reimburse the Fund unless it is subsequently determined that such Indemnitee is entitled to such indemnification and if the Directors of the Fund determine that the facts then known to them would not preclude indemnification. In addition, at least one of the following conditions must be met: (A) the Indemnitee shall provide security for such Indemnitee undertaking, (B) the Fund shall be insured against losses arising by reason of any unlawful advance, or (C) a majority of a quorum consisting of Directors of the Fund who are neither “interested persons” of the Fund (as defined in Section 2(a)(19) of the 1940 Act) nor parties to the proceeding (“Disinterested Non Party Directors”) or an independent legal counsel in a written opinion, shall determine, based on a review of readily available facts (as opposed to a full trial type inquiry), that there is reason to believe that the Indemnitee ultimately will be found entitled to indemnification.

(c) All determinations with respect to the standards for indemnification hereunder shall be made (1) by a final decision on the merits by a court or other body before whom the proceeding was brought that such Indemnitee is not liable or is not liable by reason of disabling conduct, or (2) in the absence of such a decision, by (i) a majority vote of a quorum of the Disinterested Non Party Directors of the Fund, or (ii) if such a quorum is not obtainable or, even if obtainable, if a majority vote of such quorum so directs, independent legal counsel in a written opinion. All determinations that advance payments in connection with the expense of defending any proceeding shall be authorized and shall be made in accordance with the immediately preceding clause (2) above.

The rights accruing to any Indemnitee under these provisions shall not exclude any other right to which such Indemnitee may be lawfully entitled.

11. Limitation on Liability . (a) The Advisor will not be liable for any error of judgment or mistake of law or for any loss suffered by Advisor or by the Fund in connection with the performance of this Agreement, except a loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services or a loss resulting from willful

 

6


misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard by it of its duties under this Agreement. As used in this Section 11(a), the term “Advisor” shall include any affiliates of the Advisor performing services for the Fund contemplated hereby and partners, directors, officers and employees of the Advisor and of such affiliates.

12. Duration and Termination . This Agreement shall become effective as of the date hereof and, unless sooner terminated with respect to the Fund as provided herein, shall continue in effect for a period of two years. Thereafter, if not terminated, this Agreement shall continue in effect with respect to the Fund for successive periods of 12 months, provided such continuance is specifically approved at least annually by both (a) the vote of a majority of the Fund’s Board of Directors or the vote of a majority of the outstanding voting securities of the Fund at the time outstanding and entitled to vote, and (b) by the vote of a majority of the Directors who are not parties to this Agreement or interested persons of any party to this Agreement, cast in person at a meeting called for the purpose of voting on such approval. Notwithstanding the foregoing, this Agreement may be terminated by the Fund at any time, without the payment of any penalty, upon giving the Advisor 60 days’ notice (which notice may be waived by the Advisor), provided that such termination by the Fund shall be directed or approved by the vote of a majority of the Directors of the Fund in office at the time or by the vote of the holders of a majority of the voting securities of the Fund at the time outstanding and entitled to vote, or by the Advisor on 60 days’ written notice (which notice may be waived by the Fund). This Agreement will also immediately terminate in the event of its assignment. (As used in this Agreement, the terms “majority of the outstanding voting securities,” “interested person” and “assignment” shall have the same meanings of such terms in the 1940 Act.)

13. Notices . Any notice under this Agreement shall be in writing to the other party at such address as the other party may designate from time to time for the receipt of such notice and shall be deemed to be received on the earlier of the date actually received or on the fourth day after the postmark if such notice is mailed first class postage prepaid.

14. Amendment of this Agreement . This Agreement may be amended by the parties only if such amendment is specifically approved by the vote of the Board of Directors of the Fund, including a majority of those Directors who are not parties to this Agreement or interested persons of any such party cast in person at a meeting called for the purpose of voting on such approval and, where required by the 1940 Act, by a vote of a majority of the outstanding voting securities of the Fund.

15. Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of New York for contracts to be performed entirely therein without reference to choice of law principles thereof and in accordance with the applicable provisions of the 1940 Act. To the extent that the applicable laws of the State of New York, or any of the provisions, conflict with the applicable provisions of the 1940 Act, the latter shall control.

16. Use of the Name BlackRock . The Advisor has consented to the use by the Fund of the name or identifying word “BlackRock” in the name of the Fund. Such consent is conditioned upon the employment of the Advisor as the investment advisor to the Fund. The name or

 

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identifying word “BlackRock” may be used from time to time in other connections and for other purposes by the Advisor and any of its affiliates. The Advisor may require the Fund to cease using “BlackRock” in the name of the Fund if the Fund ceases to employ, for any reason, the Advisor, any successor thereto or any affiliate thereof as investment advisor of the Fund.

17. Miscellaneous . The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. This Agreement shall be binding on, and shall inure to the benefit of the parties hereto and their respective successors.

18. Counterparts . This Agreement may be executed in counterparts by the parties hereto, each of which shall constitute an original counterpart, and all of which, together, shall constitute one Agreement.

 

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IN WITNESS WHEREOF, the parties hereto have caused the foregoing instrument to be executed by their duly authorized officers, all as of the day and the year first above written.

 

BLACKROCK MUNIASSETS FUND, INC.
By:  

/s/ Donald C. Burke

  Name:   Donald C. Burke
  Title:   Vice President
BLACKROCK ADVISORS, LLC
By:  

/s/ [illegible]

  Name:  
  Title:  

 

9


Schedule A

Investment Advisory Fee

0.55% of average daily Net Assets of the Fund

 

10

Exhibit 6(b)

SUB-INVESTMENT ADVISORY AGREEMENT

AGREEMENT dated September 29, 2006, between BlackRock Advisors, LLC (the “Advisor”), a Delaware limited liability company, and BlackRock Investment Management, LLC (the “Sub-Advisor”), a Delaware limited liability company.

WHEREAS, the Advisor has agreed to furnish investment advisory services to the BlackRock MuniAssets Fund, Inc., a Maryland corporation (the “Fund”), a closed-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”);

WHEREAS, the Advisor wishes to retain the Sub-Advisor to provide it with certain sub-advisory services as described below in connection with Advisor’s advisory activities on behalf of the Fund;

WHEREAS, the advisory agreement between the Advisor and the Fund, dated September 29, 2006 (such agreement or the most recent successor agreement between such parties relating to advisory services to the Fund is referred to herein as the “Advisory Agreement”) contemplates that the Advisor may sub-contract investment advisory services with respect to the Fund to a sub-advisor pursuant to a sub-advisory agreement agreeable to the Fund and approved in accordance with the provisions of the 1940 Act; and

WHEREAS, this Agreement has been approved in accordance with the provisions of the 1940 Act, and the Sub-Advisor is willing to furnish such services upon the terms and conditions herein set forth;

NOW, THEREFORE, in consideration of the mutual premises and covenants herein contained and other good and valuable consideration, the receipt of which is hereby acknowledged, it is agreed by and between the parties hereto as follows:

1. Appointment . The Advisor hereby appoints the Sub-Advisor to act as sub-advisor with respect to the Fund and the Sub-Advisor accepts such appointment and agrees to render the services herein set forth for the compensation herein provided.

2. Services of the Sub-Advisor . Subject to the succeeding provisions of this section, the oversight and supervision of the Advisor and the direction and control of the Fund’s Board of Directors, the Sub-Advisor will perform certain of the day-to-day operations of the Fund, which may include one or more of the following services, at the request of the Advisor: (a) acting as investment advisor for and managing the investment and reinvestment of those assets of the Fund as the Advisor may from time to time request and in connection therewith have complete discretion in purchasing and selling such securities and other assets for the Fund and in voting, exercising consents and exercising all other rights appertaining to such securities and other assets on behalf of the fund; (b) arranging, subject to the provisions of paragraph 3 hereof, for the purchase and sale of securities and other assets of the Fund; (c) providing investment research and credit analysis concerning the Fund’s investments, (d) assist the Advisor in determining what

 

1


portion of the Fund’s assets will be invested in cash, cash equivalents and money market instruments, (e) placing orders for all purchases and sales of such investments made for the Fund, and (f) maintaining the books and records as are required to support Fund investment operations. At the request of the Advisor, the Sub-Advisor will also, subject to the oversight and supervision of the Advisor and the direction and control of the Fund’s Board of Directors, provide to the Advisor or the Fund any of the facilities and equipment and perform any of the services described in Section 3 of the Advisory Agreement. In addition, the Sub-Advisor will keep the Fund and the Advisor informed of developments materially affecting the Fund and shall, on its own initiative, furnish to the Fund from time to time whatever information the Sub-Advisor believes appropriate for this purpose. The Sub-Advisor will periodically communicate to the Advisor, at such times as the Advisor may direct, information concerning the purchase and sale of securities for the Fund, including: (a) the name of the issuer, (b) the amount of the purchase or sale, (c) the name of the broker or dealer, if any, through which the purchase or sale is effected, (d) the CUSIP number of the instrument, if any, and (e) such other information as the Advisor may reasonably require for purposes of fulfilling its obligations to the Fund under the Advisory Agreement. The Sub-Advisor will provide the services rendered by it under this Agreement in accordance with the Fund’s investment objectives, policies and restrictions (as currently in effect and as they may he amended or supplemented from time to time) as stated in the Fund’s Prospectus and Statement of Additional Information and the resolutions of the Fund’s Board of Directors.

3. Covenants . (a) In the performance of its duties under this Agreement, the Sub-Advisor shall at all times conform to, and act in accordance with, any requirements imposed by: (i) the provisions of the 1940 Act and the Investment Advisers Act of 1940, as amended (the “Advisers Act”) and all applicable Rules and Regulations of the Securities and Exchange Commission (the “SEC”); (ii) any other applicable provision of law; (iii) the provisions of the Charter and By-Laws of the Fund, as such documents are amended from time to time; (iv) the investment objectives and policies of the Fund as set forth in its Registration Statement on Form N-2 and/or the resolutions of the Board of Directors; and (v) any policies and determinations of the Board of the Directors of the Fund and

(b) In addition, the Sub-Advisor will:

(i) place orders either directly with the issuer or with any broker or dealer. Subject to the other provisions of this paragraph, in placing orders with brokers and dealers, the Sub-Advisor will attempt to obtain the best price and the most favorable execution of its orders. In placing orders, the Sub-Advisor will consider the experience and skill of the firm’s securities traders as well as the firm’s financial responsibility and administrative efficiency. Consistent with this obligation, the Sub-Advisor may select brokers on the basis of the research, statistical and pricing services they provide to the Fund and other clients of the Advisor or the Sub-Advisor. Information and research received from such brokers will be in addition to, and not in lieu of, the services required to be performed by the Sub-Advisor hereunder. A commission paid to such brokers may be higher than that which another qualified broker would have charged for effecting the same transaction, provided that the Sub-Advisor determines in good faith that such commission is reasonable in terms either of the transaction or the overall responsibility of the Advisor and the Sub-Advisor to the Fund’s and their other clients and that the total

 

2


commissions paid by the Fund will be reasonable in relation to the benefits to the Fund over the long-term. Subject to the foregoing and the provisions of the 1940 Act, the Securities Exchange Act of 1934, as amended, and other applicable provisions of law, the Advisor may select brokers arid dealers with which it or the Fund is affiliated;

(ii) maintain books and records with respect to the Fund’s securities transactions and will render to the Advisor and the Fund’s Board of Directors such periodic and special reports as they may request;

(iii) maintain a policy and practice of conducting its investment advisory services hereunder independently of the commercial banking operations of its affiliates. When the Sub-Advisor makes investment recommendations for the Fund, its investment advisory personnel will not inquire or take into consideration whether the issuer of securities proposed for purchase or sale for the Fund’s account are customers of the commercial department of its affiliates; and

(iv) treat confidentially and as proprietary information of the Fund all records and other information relative to the Fund, and the Fund’s prior, current or potential shareholders, and will not use such records and information for any purpose other than performance of its responsibilities and duties hereunder, except after prior notification to and approval in writing by the Fund, which approval shall not be unreasonably withheld and may not be withheld where the Sub-Advisor may be exposed to civil or criminal contempt proceedings for failure to comply, when requested to divulge such information by duly constituted authorities, or when so requested by the Fund.

4. Services Not Exclusive . Nothing in this Agreement shall prevent the Sub-Advisor or any officer, employee or other affiliate thereof from acting as investment advisor for any other person, firm or corporation, or from engaging in any other lawful activity, and shall not in any way limit or restrict the Sub-Advisor or any of its officers, employees or agents from buying, selling or trading any securities for its or their own accounts or for the accounts of others for whom it or they may be acting; provided, however, that the Sub-Advisor will undertake no activities which, in its judgment, will adversely affect the performance of its obligations under this Agreement.

5. Books and Records . In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Sub-Advisor hereby agrees that all records which it maintains for the Fund are the property of the Fund and further agrees to surrender promptly to the Fund any such records upon the Fund’s request. The Sub-Advisor further agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records required to be maintained by Rule 31a-1 under the 1940 Act (to the extent such books and records are not maintained by the Advisor).

6. Expenses . During the term of this Agreement, the Sub-Advisor will bear all costs and expenses of its employees and any overhead incurred by the Sub-Advisor in connection with its duties hereunder; provided that the Board of Directors of the Fund may approve reimbursement to the Sub-Advisor of the pro-rata portion of the salaries, bonuses, health insurance, retirement benefits and all similar employment costs for the time spent on Fund

 

3


operations (including, without limitation, compliance matters) (other than the provision of investment advice and administrative services required to be provided hereunder) of all personnel employed by the Sub-Advisor who devote substantial time to the Fund operations or the operations of other investment companies advised or sub-advised by the Sub-Advisor.

7. Compensation .

(a) The Advisor agrees to pay to the Sub-Advisor and the Sub-Advisor agrees to accept as full compensation for all services rendered by the Sub-Advisor as such, a monthly fee in arrears at an annual rate equal to the amount set forth in Schedule A hereto. For any period less than a month during which this Agreement is in effect, the fee shall be prorated according to the proportion which such period bears to a full month of 28, 29, 30 or 31 days, as the case may be.

(b) For purposes of this Agreement, the net assets of the Fund shall be calculated pursuant to the procedures adopted by resolutions of the Directors of the Fund for calculating the value of the Fund’s assets or delegating such calculations to third parties.

8. Indemnity .

(a) The Fund may, in the discretion of the Board of Directors of the Fund, indemnify the Sub-Advisor, and each of the Sub-Advisor’s directors, officers, employees, agents, associates and controlling persons and the directors, partners, members, officers, employees and agents thereof (including any individual who serves at the Sub-Advisor’s request as director, officer, partner, member, trustee or the like of another entity) (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 counsel fees (all as provided in accordance with applicable state law) 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 such Indemnitee may be or may have been involved as a party or otherwise or with which such Indemnitee may be or may have been threatened, while acting in any capacity set forth herein or thereafter by reason of such Indemnitee having acted in any such capacity, except with respect to any matter as to which such Indemnitee shall have been adjudicated not to have acted in good faith in the reasonable belief that such Indemnitee’s action was in the best interest of the Fund and furthermore, in the case of any criminal proceeding, so long as such Indemnitee had no reasonable cause to believe that the conduct was unlawful; provided, however, that (1) no Indemnitee shall be indemnified hereunder against any liability to the Fund or its shareholders or any expense of such Indemnitee arising by reason of (i) willful misfeasance, (ii) bad faith, (iii) gross negligence or (iv) reckless disregard of the duties involved in the conduct of such Indemnitee’s position (the conduct referred to in such clauses (i) through (iv) being sometimes referred to herein as “disabling conduct”), (2) as to any matter disposed of by settlement or a compromise payment by such Indemnitee, pursuant to a consent decree or otherwise, no indemnification either for said payment or for any other expenses shall be provided unless there has been a determination that such settlement or compromise is in the best interests of the Fund and that such Indemnitee appears to have acted in good faith in the reasonable belief that such Indemnitee’s action was in the best interest of the Fund and did not involve disabling conduct by such Indemnitee and (3) with respect to any

 

4


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 was authorized by a majority of the full Board of Directors of the Fund.

(b) The Fund shall make advance payments in connection with the expenses of defending any action with respect to which indemnification might be sought hereunder if the Fund receives a written affirmation of the Indemnitee’s good faith belief that the standard of conduct necessary for indemnification has been met and a written undertaking to reimburse the Fund unless it is subsequently determined that such Indemnitee is entitled to such indemnification and if the Directors of the Fund determine that the facts then known to them would not preclude indemnification. In addition, at least one of the following conditions must be met: (A) the Indemnitee shall provide a security for such Indemnitee undertaking, (B) the Fund shall be insured against losses arising by reason of any unlawful advance, or (C) a majority of a quorum consisting of Directors of the Fund who are neither “interested persons” of the Fund (as defined in Section 2(a)(19) of the 1940 Act) nor parties to the proceeding (“Disinterested Non-Party Directors”) or an independent legal counsel in a written opinion, shall determine, based on a review of readily available facts (as opposed to a full trial-type inquiry), that there is reason to believe that the Indemnitee ultimately will be found entitled to indemnification.

(c) All determinations with respect to the standards for indemnification hereunder shall be made (1) by a final decision on the merits by a court or other body before whom the proceeding was brought that such Indemnitee is not liable by reason of disabling conduct, or (2) in the absence of such a decision, by (i) a majority vote of a quorum of the Disinterested Non-Party Directors of the Fund, or (ii) if such a quorum is not obtainable or even, if obtainable, if a majority vote of such quorum so directs, independent legal counsel in a written opinion. All determinations that advance payments in connection with the expense of defending any proceeding shall be authorized shall be made in accordance with the immediately preceding clause (2) above.

The rights accruing to any Indemnitee under these provisions shall not exclude any other right to which such Indemnitee may be lawfully entitled.

9. Limitation on Liability .

(a) The Sub-Advisor will not be liable for any error of judgment or mistake of law or for any loss suffered by the Advisor or by the Fund in connection with the performance of this Agreement, except a loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services or a loss resulting from willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard by it of its duties under this Agreement. As used in this Section 9(a), the term “Sub-Advisor” shall include any affiliates of the Sub-Advisor performing services for the Fund contemplated hereby and partners, directors, officers and employees of the Sub-Advisor and such affiliates.

10. Duration and Termination . This Agreement shall become effective as of the date hereof and, unless sooner terminated with respect to the Fund as provided herein, shall continue in effect for a period of two years. Thereafter, if not terminated, this Agreement shall continue in

 

5


effect with respect to the Fund for successive periods of 12 months, provided such continuance is specifically approved at least annually by both (a) the vote of a majority of the Fund’s Board of Directors or a vote of a majority of the outstanding voting securities of the Fund at the time outstanding and entitled to vote and (b) by the vote of a majority of the Directors, who are not parties to this Agreement or interested persons (as such term is defined in the 1940 Act) of any such party, cast in person at a meeting called for the purpose of voting on such approval. Notwithstanding the foregoing, this Agreement may be terminated by the Fund or the Advisor at any time, without the payment of any penalty, upon giving the Sub-Advisor 60 days’ notice (which notice may be waived by the Sub-Advisor), provided that such termination by the Fund or the Advisor shall be directed or approved by the vote of a majority of the Directors of the Fund in office at the time or by the vote of the holders of a majority of the voting securities of the Fund at the time outstanding and entitled to vote, or by the Sub-Advisor on 60 days’ written notice (which notice may be waived by the Fund and the Advisor), and will terminate automatically upon any termination of the Advisory Agreement between the Fund and the Advisor. This Agreement will also immediately terminate in the event of its assignment. (As used in this Agreement, the terms “majority of the outstanding voting securities,” “interested person” and “assignment” shall have the same meanings of such terms in the 1940 Act.)

11. Notices . Any notice under this Agreement shall be in writing to the other party at such address as the other party may designate from time to time for the receipt of such notice and shall be deemed to be received on the earlier of the date actually received or on the fourth day after the postmark if such notice is mailed first class postage prepaid.

12. Amendment of this Agreement . This Agreement may be amended by the parties only if such amendment is specifically approved by the vote of the Board of Directors of the Fund, including a majority of those Directors who are not parties to this Agreement or interested persons of any such party cast in person at a meeting called for the purpose of voting on such approval and, where required by the 1940 Act, by a vote of a majority of the outstanding voting securities of the Fund.

13. Miscellaneous . The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. This Agreement shall be binding on, and shall inure to the benefit of the parties hereto and their respective successors.

14. Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of New York for contracts to be performed entirely therein without reference to choice of law principles thereof and in accordance with the applicable provisions of the 1940 Act. To the extent that the applicable laws of the State of New York, or any of the provisions, conflict with the applicable provisions of the 1940 Act, the latter shall control.

15. Counterparts . This Agreement may be executed in counterparts by the parties hereto, each of which shall constitute an original counterpart, and all of which, together, shall constitute one Agreement.

 

6


IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their duly authorized officers designated below as of the day and year first above written.

 

BLACKROCK ADVISORS, LLC
By:  

/s/ [illegible]

  Name:
  Title:
BLACKROCK INVESTMENT MANAGEMENT, LLC
By:  

/s/ [illegible]

  Name:
  Title:

 

AGREED AND ACCEPTED

as of the date first set forth above

BLACKROCK, MUNIASSETS FUND, INC.
By:  

/s/ Donald C. Burke

  Name:   Donald C. Burke
  Title:   Vice President

 

7


Schedule A

Sub-Investment Advisory Fee

59% of the monthly advisory fee received by the Advisor from the Fund

 

8

Exhibit 9

AGREEMENT BETWEEN

THE BANK OF NEW YORK

AND

EACH OF THE INVESTMENT COMPANIES

LISTED ON SCHEDULE A ATTACHED HERETO


Table of Contents

 

ARTICLE I DEFINED TERMS

   1
Section 1.01.   

“Account”

   1
Section 1.02.   

“Affiliate”

   2
Section 1.03.   

“Agreement”

   2
Section 1.04.   

“Authorized Person(s)”

   2
Section 1.05.   

“Bank Account”

   2
Section 1.06.   

“Banking Institution”

   2
Section 1.07.   

“Board”

   2
Section 1.08.   

“Business Day”

   3
Section 1.09.   

“Commission”

   3
Section 1.10.   

“DR”

   3
Section 1.11.   

“Domestic Subcustodian”

   3
Section 1.12.   

“Eligible Securities Depository”

   3
Section 1.13.   

“Foreign Subcustodian”

   3
Section 1.14.   

“Fund”

   4
Section 1.15.   

“Institutional Client”

   4
Section 1.16.   

“Interest Bearing Deposits”

   4
Section 1.17.   

“Investment Company Act”

   4
Section 1.18.   

“Loans”

   4
Section 1.19.   

“Overdraft”

   4
Section 1.20.   

“Overdraft Notice”

   4
Section 1.21.   

“Person”

   4
Section 1.22.   

“Procedural Agreement”

   5
Section 1.23.   

“Proper Instructions”

   5
Section 1.24.   

“Property”

   5
Section 1.25.   

“Securities System”

   5
Section 1.26.   

“Segregated Account”

   6
Section 1.27.   

“Series”

   6
Section 1.28.   

“Shareholder Servicing Agent”

   6
Section 1.29.   

“Shares”

   6
Section 1.30.   

“Subcustodian”

   6
Section 1.31.   

“Terminating Fund”

   6

ARTICLE II APPOINTMENT OF CUSTODIAN

   7

ARTICLE III POWERS AND DUTIES OF CUSTODIAN

   7
Section 3.01.   

Safekeeping

   7
Section 3.02.   

Manner of Holding Securities

   7
Section 3.03.   

Security Purchases and Sales

   9
Section 3.04.   

Exchanges of Securities

   11
Section 3.05.   

Depositary Receipts

   12
Section 3.06.   

Exercise of Rights; Tender Offers

   13
Section 3.07.   

Stock Dividends, Rights, Etc

   13
Section 3.08.   

Options

   14
Section 3.09.   

Futures Contracts

   14

 

i


Section 3.10.

  

Borrowings

   15

Section 3.11.

  

Interest Bearing Deposits

   15

Section 3.12.

  

Foreign Exchange Transactions

   17

Section 3.13.

  

Securities Loans

   18

Section 3.14.

  

Collections

   18

Section 3.15.

  

Dividends, Distributions and Redemptions

   20

Section 3.16.

  

Proceeds from Shares Sold

   20

Section 3.17.

  

Proxies, Notices, Etc

   21

Section 3.18.

  

Bills and Other Disbursements

   21

Section 3.19.

  

Nondiscretionary Functions

   21

Section 3.20.

  

Bank Accounts

   21

Section 3.21.

  

Deposit of Fund Assets in Securities Systems

   22

Section 3.22.

  

Maintenance of Assets in Underlying Fund Systems

   24

Section 3.23.

  

Other Transfers

   25

Section 3.24.

  

Establishment of Segregated Account(s)

   25

Section 3.25.

  

Custodian’s Books and Records

   25

Section 3.26.

  

Opinion of Fund’s Independent Certified Public Accountants

   27

Section 3.27.

  

Reports by Independent Certified Public Accountants

   27

Section 3.28.

  

Overdrafts

   27

Section 3.29.

  

Reimbursement for Advances

   28

Section 3.30.

  

Claims

   29

ARTICLE IV PROPER INSTRUCTIONS AND RELATED MATTERS

   29

Section 4.01.

  

Proper Instructions

   29

Section 4.02.

  

Authorized Persons

   30

Section 4.03.

  

Persons Having Access to Assets of the Fund or Series

   31

Section 4.04.

  

Actions of Custodian Based on Proper Instructions

   31

ARTICLE V SUBCUSTODIANS

   32

Section 5.01.

  

Domestic Subcustodians

   32

Section 5.02.

  

Foreign Subcustodians

   32

Section 5.03.

  

Termination of a Subcustodian

   33

Section 5.04.

  

Eligible Securities Depositories

   33

ARTICLE VI STANDARD OF CARE; INDEMNIFICATION

   34

Section 6.01.

  

Standard of Care

   34

Section 6.02.

  

Liability of Custodian for Actions of Other Persons

   37

Section 6.03.

  

Indemnification

   38

Section 6.04.

  

Fund’s Right to Proceed

   40

ARTICLE VII COMPENSATION

   42

ARTICLE VIII TERMINATION

   42

Section 8.01.

  

Termination of Agreement as to One or More Funds

   42

Section 8.02.

  

Termination as to One or More Series

   44

ARTICLE IX MISCELLANEOUS

   44

Section 9.01.

  

Execution of Documents, Etc

   44

Section 9.02.

  

Representative Capacity; Nonrecourse Obligations

   45

Section 9.03.

  

Several Obligations of the Funds and the Series

   45

 

ii


Section 9.04.

  

Representations and Warranties

   45

Section 9.05.

  

Entire Agreement

   46

Section 9.06.

  

Waivers and Amendments

   47

Section 9.07.

  

Interpretation

   48

Section 9.08.

  

Captions

   48

Section 9.09.

  

Governing Law

   48

Section 9.10.

  

Notices

   49

Section 9.11.

  

Assignment

   49

Section 9.12.

  

Counterparts

   49

Section 9.13.

  

Confidentiality; Survival of Obligations

   49

Section 9.14.

  

Shareholder Communications

   50

 

iii


CUSTODIAN AGREEMENT

AGREEMENT made this 26th day of October, 2001 between each of the investment companies listed on Schedule A hereto, as the same may be amended from time to time and The Bank of New York (the “Custodian”).

WITNESSETH:

WHEREAS, each Fund (as defined in Section 1.14 below) desires to appoint the Custodian as custodian on its own behalf and, if a series fund, on behalf of each of its series, in accordance with the provisions of the Investment Company Act of 1940, as amended, and the rules and regulations thereunder, under the terms and conditions set forth in this Custodian Agreement (including any Schedules or Appendices hereto), and the Custodian has agreed to act as custodian for such Fund; and

WHEREAS, the Board of Directors/Trustees of each Fund has approved the appointment of the Custodian as “Foreign Custody Manager,” as such term is defined in Rule 17f-5 under the Investment Company Act of 1940, as amended, of such Fund, and the Custodian has agreed to assume the responsibilities of a Foreign Custody Manager under the terms and conditions of this Agreement and the guidelines and procedures adopted by the Board of Directors/Trustees of each Fund and annexed hereto as Schedule B.

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto agree as follows:

ARTICLE I

DEFINED TERMS

The following terms are defined as follows:

Section 1.01. “Account” shall mean an account of the Custodian established at a bank, Securities System or Subcustodian (as defined in Sections 1.25 and 1.30, respectively), which shall include only Property (as defined in Section 1.24) held as custodian or otherwise for a Fund or a series of a Fund. To the extent required by law, or in accord with standard industry practice in a particular market, an Account may be an omnibus account in the name of the Custodian or its nominee provided that the records of the Custodian shall indicate at all times the Fund or other customer for which Property is held in such Account and the respective interests therein.


Section 1.02. “Affiliate” shall mean any entity that controls, is controlled by, or is under common control with any other entity.

Section 1.03. “Agreement” shall mean this agreement between each of the Funds and the Custodian and all current or subsequent schedules and appendices hereto.

Section 1.04. “Authorized Person(s)” shall mean all persons authorized in writing by each Fund to give Proper Instructions (as defined in Section 1.23) or any other notice, request, direction, instruction, certificate or instrument on behalf of a Fund or a series thereof.

Section 1.05. “Bank Account” shall mean any demand deposit bank account (provided that demand may not be made by check), which will be an interest bearing bank account where permitted by law and agreed between the Custodian and a Fund, held on the books of the Custodian or a Subcustodian for the account of a Fund or a series of a Fund.

Section 1.06. “Banking Institution” shall mean a bank or trust company, including the Custodian, any Subcustodian or any subsidiary or Affiliate of the Custodian.

Section 1.07. “Board” shall mean the Board of Directors or Trustees, as applicable, of a Fund.

 

2


Section 1.08. “Business Day” shall mean any day on which the New York Stock Exchange or the Custodian is open for business that is not a Saturday or Sunday.

Section 1.09. “Commission” shall mean the U.S. Securities and Exchange Commission.

Section 1.10. “DR” shall mean an American Depositary Receipt, European Depositary Receipt, or Global Depositary Receipt or similar instrument issued by a depositary to represent the underlying securities held by the depositary.

Section 1.11. “Domestic Subcustodian” shall mean any bank as defined in Section 2(a)(5) of the Investment Company Act (as defined in Section 1.17) meeting the requirements of a custodian under Section 17(f) of the Investment Company Act and the rules and regulations thereunder, that acts on behalf of one or more Funds, or on behalf of the Custodian as custodian for one or snore Funds, as a Subcustodian for purposes of holding cash, securities and other assets of such Funds and performing other functions of the Custodian within the United States.

Section 1.12. “Eligible Securities Depository” shall mean a system for the central handling of securities as defined in Rule 17f-4 under the Investment Company Act that meets the requirements of an “eligible securities depository” under Rule 17f-7 under the Investment Company Act, as such may be amended or interpreted from time to time by the Commission.

Section 1.13. “Foreign Subcustodian” shall mean (i) any bank, trust company, or other entity meeting the requirements of an “eligible foreign custodian” under the rules and regulations under Section 17(f) of the Investment Company Act or by order of the Commission exempted therefrom, or (ii) any bank as defined in Section 2(a)(5) of the Investment Company Act meeting the requirements of a custodian under Section 17(f) of the Investment Company Act and the rules and regulations thereunder to act on behalf of one or more Funds as a Subcustodian for purposes of holding cash, securities and other assets of such Fund(s) and performing other functions of the Custodian in countries other than the United States.

 

3


Section 1.14. “Fund” shall mean any registered, open-end or closed-end investment company listed on Schedule A hereto as it shall be amended from time to time. Collectively, they shall be referred to as the “Funds.”

Section 1.15. “Institutional Client” shall mean a major commercial bank, corporation, insurance company, or substantially similar institution that purchases or sells securities and makes substantial use of custodial services.

Section 1.16. “Interest Bearing Deposits” shall mean interest bearing fixed term and call deposits.

Section 1.17. “Investment Company Act” shall mean the Investment Company Act of 1940, as amended, and the rules and regulations thereunder.

Section 1.18. “Loans” shall mean corporate loans or participation interests therein, or assignments thereof.

Section 1.19. “Overdraft” shall mean any payment or transfer of funds on behalf of a Fund or series of a Fund for which there are, at the close of business on the date of such payment or transfer, insufficient funds held by the Custodian on behalf of such Fund or series thereof.

Section 1.20. “Overdraft Notice” shall mean any written notification of an Overdraft by facsimile transmission or any other such manner as a Fund and the Custodian may agree in writing.

Section 1.21. “Person” shall mean the Custodian or any Subcustodian or Securities System, or any Eligible Securities Depository used by any such Subcustodian, or any nominee of the Custodian or any Subcustodian.

 

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Section 1.22. “Procedural Agreement” shall mean any futures margin procedural agreement among a Fund or series of a Fund, the Custodian and any futures commission merchant.

Section 1.23. “Proper Instructions” shall mean: (i) either a tested telex or a written (including, without limitation, facsimile transmission) request, direction, instruction or certification signed or initialed by or on behalf of the applicable Fund or series of a Fund by one or more Authorized Persons; (ii) a telephonic or other oral communication by one or more Authorized Persons; or (iii) a communication effected directly between an electro-mechanical or electronic device or system (including, without limitation, computers) by or on behalf of the applicable Fund that is transmitted in compliance with the security procedures established for such communications by the Custodian and the Fund; provided, however, that communications purporting to be given by an Authorized Person shall be considered Proper Instructions only if the Custodian reasonably believes such communications to have been given by an Authorized Person with respect to the transaction involved. Proper Instructions shall include all information necessary to permit the Custodian to fulfill its duties and obligations thereunder. Proper Instructions provided by facsimile transmission or under subsection (ii) shall be subject to a commercially reasonable authentication procedure, such as call back.

Section 1.24. “Property” shall mean any securities or other assets of a Fund or series that are accepted by the Custodian for safekeeping, or cash accepted by the Custodian for deposit on behalf of a Fund or series of a Fund.

Section 1.25. “Securities System” shall mean (i) the Depository Trust Company, including its Mortgage Backed Securities Division and/or (ii) any book-entry system as provided in (1) Subpart O of Treasury Circular No. 300, 31 CFR 306, (2) Subpart B of 31 CFR Part 350,

 

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(3) the book-entry regulations of federal agencies substantially in the form of Subpart O, (4) any other domestic clearing agency registered with the Commission under Section 17A of the Securities Exchange Act of 1934, as amended, which acts as a securities depository. Each such Securities System shall be approved by each Fund’s Board.

Section 1.26. “Segregated Account” shall mean an account established for and on behalf of a Fund in which may be held Property that is maintained: (i) for the purposes set forth in Section 3.08, 3.09, and 3.10, hereof; (ii) for the purposes of compliance by the Fund with the procedures required by Investment Company Act Release No. 10666, or any subsequent release or releases of the Commission relating to the maintenance of Segregated Accounts by registered investment companies, or (iii) for any other lawful purposes as may be deemed necessary by the Fund.

Section 1.27. “Series” shall mean the one or more series of shares into which a Fund may be organized, each of which shall represent an interest in a separate portfolio of Property and shall include all of the existing and additional Series now or hereafter listed on Schedule A.

Section 1.28. “Shareholder Servicing Agent” shall mean a Fund’s transfer agent or person performing comparable duties.

Section 1.29. “Shares” shall mean all classes of shares of a Fund or Series.

Section 1.30. “Subcustodian” shall mean any duly appointed Domestic Subcustodian or Foreign Subcustodian.

Section 1.31. “Terminating Fund” shall mean a Fund or Series that has terminated the Agreement with the Custodian or as to which the Custodian has terminated the Agreement, all in accordance with the provisions of Section 8.01.

 

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ARTICLE II

APPOINTMENT OF CUSTODIAN

Each Fund hereby appoints the Custodian as custodian and as Foreign Custody Manager for the term and subject to the provisions of this Agreement. Custodian’s duties and obligations as Foreign Custody Manager and with respect to Eligible Securities Depositories shall be as set forth in this Agreement, including Schedule B hereto. Each Fund shall deliver to the Custodian or a Subcustodian, or shall cause to be delivered to the Custodian or a Subcustodian, Property owned by such Fund and, where applicable, shall specify to which of its Series such Property is to be specifically allocated.

ARTICLE III

POWERS AND DUTIES OF CUSTODIAN

With respect to Property of each Fund or Series, the Custodian shall have and perform the following powers and duties:

Section 3.01. Safekeeping . The Custodian shall from time to time receive delivery of Property of a Fund or Series and shall maintain, hold and, with respect to Property that is not cash, keep safely all Property of each Fund or each Series that has been delivered to and accepted by the Custodian. Custodian shall accept and maintain Property received in the form of cash as a deposit obligation of the Custodian or a Subcustodian.

Section 3.02. Manner of Holding Securities .

(a) The Custodian shall at all times hold securities of each Fund or Series (i) by physical possession of the share certificates or other instruments representing such securities in registered or bearer form, or (ii) in book-entry form by a Securities System or by a transfer agent or registrar of another investment company (an “Underlying Fund System”), or (iii) with respect to Loans, by possession of all documents, certificates and other such instruments, including any schedule of payments (“Financing Documents”) as are delivered to the Custodian.

 

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(b) Upon receipt of Proper Instructions, the Custodian shall open an Account in the name of each Fund or Series and shall hold registered securities of each Fund or Series (i) in the name or any nominee name of the Custodian, a Subcustodian or the Fund, or (ii) in street name. In carrying out the foregoing obligation, the Custodian shall, to the extent permitted by law and, where Custodian deems it advisable based upon any legal advice Custodian has obtained with respect to a particular market and upon other factors the Custodian deems appropriate, hold registered securities of each Fund or Series in a manner that is appropriate to the Fund’s tax domicile and that takes into consideration the best interests of the Fund with respect to regulatory matters relating to custody; and provided further that the Custodian shall, on an ongoing basis, provide accurate information to a Fund and such other persons as a Fund may designate with respect to the registration status of each Fund’s securities, and an accurate record of securities held by each Fund and such Fund’s respective interest therein.

(c) The Custodian may hold Property for all of its customers, including a Fund or Series, with any Foreign Subcustodian in an Account that is identified as belonging to the Custodian for the benefit of its customers or in a depository account, including an omnibus account, with an Eligible Securities Depository; provided, however, that (i) the records of the Custodian with respect to Property of any Fund or Series that are maintained in such Account or depository account shall identify such Property as belonging to the applicable Fund or Series and (ii) to the extent permitted and customary in the market in which the Account or depository account is maintained, the Custodian shall require that Property so held by a Foreign Subcustodian or Eligible Securities Depository be held separately from any assets of the Custodian or such Foreign Subcustodian.

 

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(d) The Custodian shall send each Fund a written statement, advice or notification of any transfers of any Property of the Fund to or from an Account or an account at an Eligible Securities Depository (a “depository account”). Each such statement, advice or notification shall identify the Property transferred and the entity that has custody of the Property. Unless a Fund provides the Custodian with a written exception or objection to any such statement, advice or notification within ninety (90) days of Fund’s receipt thereof, the Fund shall be deemed to have approved such statement, advice or notification. To the extent permitted by law and the terms of this Agreement, the Custodian shall not be liable for the contents of any such statement, advice or notification that has been approved by a Fund.

Section 3.03. Security Purchases and Sales .

(a) Upon receipt of Proper Instructions, insofar as funds are available for the purpose, the Custodian shall pay for and receive securities purchased for the account of a Fund or Series, payment being made by the Custodian only: (i) upon receipt of the securities, certificates, or other acceptable evidence of ownership (1) by the Custodian, or (2) by a clearing corporation of a national securities exchange of which the Custodian is a member, (3) by a Securities System or (4) by an Underlying Fund System; or (ii) otherwise in accordance with (I) Proper Instructions, (2) applicable law, (3) generally accepted trading practices, or (4) the terms of any instrument representing the purchase. With respect to a clearing corporation or Securities System, securities may be held only with an entity approved by a Fund’s Board. Notwithstanding the foregoing, in the case of U.S. repurchase agreements entered into by a Fund, the Custodian may release funds to a Securities System or to a Domestic Subcustodian prior to

 

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the receipt of advice from the Securities System or Domestic Subcustodian that the securities underlying such repurchase agreement have been transferred by book entry into the Account of the Custodian maintained with such Securities System or Domestic Subcustodian, so long as such payment instructions to the Securities System or Domestic Subcustodian require that the Securities System or Domestic Subcustodian may make payment of such funds to the other party to the repurchase agreement only upon transfer by book-entry of the securities underlying the repurchase agreement into the Account. In the case of time deposits, call account deposits, currency deposits, and other deposits, contracts or options pursuant to Sections 3.08, 3.09, 3.11 and 3.12, the Custodian may not make payment therefor without receiving an instrument or other document evidencing said deposit except in accordance with standard industry practice.

(b) Upon receipt of Proper Instructions, the Custodian shall make delivery of securities that have been sold for the account of a Fund or Series, but only: (i) against payment therefor (1) in the form of cash, by a certified check, bank cashier’s check, bank credit, or bank wire transfer, (2) by credit to the Account of the Custodian with a clearing corporation of a national securities exchange of which the Custodian is a member, or (3) by credit to the Account of the Custodian with a Securities System subject to final end-of-day settlement in accordance with the rules of the applicable Securities System; or (ii) otherwise in accordance with (1) Proper Instructions, (2) applicable law, (3) generally accepted trading practices, or (4) the terms of any instrument representing the sale.

(c) In the case of the purchase or sale of securities the settlement of which occurs outside of the United States or the receipt of which and payment therefor take place in different countries, such securities shall be delivered and paid for in accordance with local custom and practice generally accepted by Institutional Clients in the applicable country or

 

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countries. In the case of securities held in physical form, if standard industry practice in the country so requires, such securities shall be delivered and paid for in accordance with “street delivery custom” to a broker or its clearing agent (for example, against delivery to the Custodian or a Subcustodian of a receipt for such securities) provided that the Custodian shall take reasonable steps (which shall not include the institution of legal proceedings except pursuant to Section 6.03(c)) in its discretion to seek to ensure prompt collection of the payment for, or the return of, such securities by the broker or its clearing agent, and provided further that the Custodian shall not be responsible for the selection of or the failure or inability to perform of such broker or its clearing agent.

Section 3.04. Exchanges of Securities . Upon receipt of Proper Instructions, the Custodian shall, to the extent permitted by applicable law and in accord with standard industry practice in the relevant market, exchange securities held by the Custodian for the account of any Fund or Series for other securities in connection with any reorganization, recapitalization, stock split, change of par value, conversion or other event relating to the securities or the issuer of such securities, and to deposit any such securities in accordance with the terms of any reorganization or protective plan. With respect to tender or exchange offers, the Custodian shall transmit promptly to a Fund all written information actually received by the Corporate Actions Department or other applicable department of the Custodian, or from a Subcustodian, an Eligible Securities Depository, or a Securities System, or directly from issuers of the securities whose tender or exchange is sought and from the parties (or their agents) making the tender or exchange offer. If the Fund desires to take action with respect to any tender offer, exchange offer, or any other similar transaction, the Fund shall notify the Custodian, within a time period set by the Custodian and communicated promptly to the Fund, prior to the date on which the Custodian is

 

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to take such action. Without receiving such instructions, the Custodian may surrender securities in temporary form for definitive securities, may surrender securities for transfer into a name or nominee name as permitted in Section 3.02(b), and may surrender securities for a different number of certificates or instruments representing the same number of shares or same principal amount of indebtedness, provided that the securities to be issued will be delivered to the Custodian or nominee of the Custodian and further provided that the Custodian shall, consistent with local market practice, at the time of surrendering the securities or instruments (i) receive a receipt or other instrument or document evidencing the ownership thereof or (ii) take other reasonable steps to seek to ensure proper delivery of the securities and adequate protection of a Fund’s ownership interest in the securities.

Section 3.05. Depositary Receipts . Upon receipt of Proper Instructions, the Custodian shall instruct a Subcustodian appointed pursuant to Article V hereof to surrender securities to the depositary that holds securities of an issuer that are represented by DRs for such securities against a written receipt therefor adequately describing such securities and written evidence satisfactory to the Subcustodian that the depositary has acknowledged receipt of instructions to issue DRs with respect to such securities in the name of the Custodian, or a nominee of the Custodian, for delivery to the Custodian in [ Location of Custodian ], or at such other place as the Custodian may from time to time designate.

Upon receipt of Proper Instructions, the Custodian shall surrender DRs to the issuer thereof against a written receipt therefor adequately describing the DRs surrendered and written evidence satisfactory to the Custodian that the issuer of the DRs has acknowledged receipt of instructions to cause its depositary to deliver the securities underlying such DRs to a Subcustodian.

 

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Section 3.06. Exercise of Rights; Tender Offers . Upon receipt of Proper Instructions, the Custodian shall deliver to the issuer or trustee thereof, or to the agent of either, warrants, puts, calls, rights or similar securities, for the purpose of being exercised or sold, provided that the new Property, if any, acquired by such action is to be delivered to the Custodian, and, upon receipt of Proper Instructions, to deposit securities upon invitations for tenders of securities, provided that the consideration for such securities is to be paid or delivered to the Custodian, or the tendered securities are to be returned to the Custodian. Notwithstanding any provision of this Agreement to the contrary, the Custodian shall take all commercially reasonable action, unless otherwise directed to the contrary in Proper Instructions, to comply with the terms of all mandatory or compulsory exchanges, calls, tenders, redemptions, or similar rights of security ownership of which the Custodian has actual knowledge, and shall promptly notify each applicable Fund of such action in writing by facsimile transmission or in such other manner as such Fund and the Custodian may agree in writing.

Section 3.07. Stock Dividends, Rights, Etc . The Custodian shall receive and collect all stock dividends, rights, foreign tax reclaims and other items of a like nature, and deal with the same pursuant to Proper Instructions relative thereto. Custodian duties and obligations under this Section 3.07 may from time to time be limited by written agreement between the Custodian and a Fund or Series. With respect to securities held by the Custodian in street name, Custodian’s duties and obligations under this Section 3.07 shall be limited to those stock dividends, foreign tax reclaims and other items of a like nature that the Custodian is able, using commercially reasonable methods (which shall not include the institution of legal proceedings except pursuant to Section 6.03(c)) in its discretion, to receive and collect from the record holders of such securities. The Custodian’s further duties and obligations with respect to tax reclaims shall be as set forth in Schedule C hereto.

 

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Section 3.08. Options . Upon receipt of Proper Instructions and in accordance with the provisions of any agreement between the Custodian, any registered broker-dealer and, if necessary, a Fund on its own behalf or on behalf of any applicable Series relating to compliance with the rules of the Options Clearing Corporation or of any registered national securities exchange or similar organization(s), the Custodian shall: (i) receive and retain confirmations or other documents, if any, evidencing the purchase or writing of an option on a security or securities index by the applicable Fund or Series; (ii) deposit and maintain Property in a Segregated Account; and (iii) pay, release and/or transfer such Property in accordance with notices or other communications evidencing the expiration, termination or exercise of such options furnished by the Options Clearing Corporation, the securities or options exchange on which such options are traded, or such other organization as may be responsible for handling such option transactions. Each Fund or Series (severally and not jointly) and the broker-dealer shall he responsible for the sufficiency of assets held in any Segregated Account established in compliance with applicable margin maintenance requirements and the performance of other terms of any option contract, or releases of the Commission or interpretive positions of the Commission staff.

Section 3.09. Futures Contracts . Upon receipt of Proper Instructions, or pursuant to the provisions of any Procedural Agreement among a Fund, the Custodian, and any futures commission merchant regarding “margin,” the Custodian shall: (i) receive and retain confirmations, if any, evidencing the purchase or sale of a futures contract or an option on a futures contract by the applicable Fund; (ii) segregate and maintain in a Segregated Account

 

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Property designated as initial, maintenance or variation margin deposits intended to secure the performance by the applicable Fund or Series of its obligations under any futures contracts purchased or sold or any options on futures contracts written by the Fund, in accordance with the provisions of any Procedural Agreement designed to comply with the rules of the Commodity Futures Trading Commission and/or any commodity exchange or contract market (such as the Chicago Board of Trade), or any similar organization(s), regarding such margin deposits; and (iii) release assets from and/or transfer assets into such margin accounts only in accordance with any such Procedural Agreement. Alternatively, the Custodian may deliver assets in accordance with Proper Instructions to a futures commission merchant for purposes of the margin requirements in accordance with Rule 17f-6 under he Investment Company Act. If delivery is made in accordance with Proper Instructions, Custodian shall be deemed to have acted in accordance with Rule 17f-6. Each Fund or Series (severally and not jointly) and such futures commission merchant shall be responsible for the sufficiency of assets held in the Segregated Account in compliance with applicable margin maintenance requirements and the performance of any futures contract or option on a futures contract in accordance with its terms.

Section 3.10. Borrowings . Upon receipt of Proper Instructions, the Custodian shall deliver securities of any Fund or Series thereof to lenders or their agents or otherwise establish a Segregated Account at the Custodian as agreed to by the applicable Fund or Series and the Custodian and, where applicable, any third-party lender, as collateral for borrowings effected by such Fund, provided that such borrowed money is payable to or upon the Custodian’s order as Custodian for the applicable Fund and concurrently with the delivery of such securities.

Section 3.11. Interest Bearing Deposits . Upon receipt of Proper Instructions directing the Custodian to purchase Interest Bearing Deposits for the account of a Fund or Series, the

 

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Custodian shall purchase such Interest Bearing Deposits in the name of the Custodian on behalf of the applicable Fund or Series with such Banking Institutions and in such amounts as the applicable Fund or Series may direct pursuant to Proper Instructions. Such Interest Bearing Deposits may be denominated in U.S. dollars or other currencies, as the applicable Fund or Series may determine and direct pursuant to Proper Instructions. The Custodian shall include in its records with respect to the assets of each Fund or Series appropriate notation as to the amount and currency of each such Interest Bearing Deposit, the accepting Banking Institution and all other appropriate details, and shall receive and retain such forms of advice or receipt, if any, evidencing such Interest Bearing Deposit as may be forwarded to the Custodian by the Banking Institution. The responsibilities of the Custodian to each Fund for Interest Bearing Deposits accepted on the Custodian’s books in the United States on behalf of a Fund or Series shall be that of an U.S. bank for a similar deposit.

With respect to Interest Bearing Deposits other than those accepted on the Custodian’s books (i) the Custodian shall be responsible for the collection of income as set forth in Section 3.14 and the transmission of cash and instructions to and from such Interest Bearing Deposit; and (ii) except upon the request of a Fund and as agreed by the Custodian, the Custodian shall have no duty with respect to the selection of the Banking Institution. So long as the Custodian acts in accordance with Proper Instructions, the Custodian shall have no responsibility for the failure of such Banking Institution to pay upon demand. As mutually agreed from time to time by a Fund and the Custodian, the Custodian shall be responsible for the prudent selection and monitoring of a Banking Institution. The Custodian shall not be liable for the insolvency of any Banking Institution that is not a branch or Affiliate of the Custodian. Upon receipt of Proper Instructions, the Custodian shall take such commercially reasonable actions as the applicable Fund deems

 

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necessary or appropriate to cause each such Interest Bearing Deposit to be insured to the maximum extent possible by all applicable deposit insurers including, without limitation, the Federal Deposit Insurance Corporation (it being understood and acknowledged that such deposits are not eligible for “pass-through” insurance).

Section 3.12. Foreign Exchange Transactions .

(a) Foreign Exchange Transactions Other Than as Principal . Upon receipt of Proper Instructions, the Custodian shall settle foreign exchange contracts or options to purchase and sell foreign currencies for spot and future delivery on behalf of and for the account of a Fund or Series with such currency brokers or Banking Institutions as the applicable Fund or Series may determine and direct pursuant to Proper Instructions. The Custodian shall be responsible for the transmission of cash to and receipt of cash from the currency broker or Banking Institution with which the contract or option is made, the safekeeping of all certificates and other documents and agreements delivered to the Custodian or a Subcustodian evidencing or relating to such foreign exchange transactions and the maintenance of proper records as set forth in Section 3.25. Except as agreed upon in writing by the Custodian and a Fund from time to time, the Custodian shall have no duty under this Section 3.12(a) with respect to the selection of the currency brokers or Banking Institutions with which the Fund or a Series deals or, so long as the Custodian acts in accordance with Proper Instructions, for the failure of selected brokers or Banking Institutions to comply with the terms of any contract or option.

(b) Foreign Exchange Contracts as Principal . The Custodian shall not be obligated to enter into foreign exchange transactions as principal. However, if the Custodian has made available to a Fund its services as a principal in foreign exchange transactions, upon receipt of Proper Instructions, the Custodian shall enter as principal into foreign exchange contracts or

 

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options to purchase and sell foreign currencies for spot and future delivery on behalf of and for the account of a Fund or Series. When acting as principal, the Custodian shall be responsible for the prudent selection of the currency brokers or Banking Institutions and the failure of such currency brokers or Banking Institutions to comply with the terms of any contract or option. In cases where the Custodian, or its subsidiaries, Affiliates, or Subcustodians enter into a separate master foreign exchange contract with a Fund that covers foreign exchange transactions for an Account, the terms and conditions of that foreign exchange contract and, to the extent not inconsistent, this Agreement, shall apply to such transactions.

Section 3.13. Securities Loans . Upon receipt of Proper Instructions, the Custodian shall deliver securities of any Fund in connection with loans of securities by such Fund, to the borrower thereof or a securities lending agent identified by the Fund, upon, or, upon Proper Instructions, prior to, the receipt of cash collateral, if any, for such borrowing. In the event U.S. Government securities are to be used as collateral, the Custodian will not release the securities to be loaned until it has received confirmation that such collateral has been delivered to the Custodian. The Custodian and each Fund understand that the timing of receipt of such confirmation will normally require that the delivery of securities to be loaned will be made one day after receipt of collateral in the form of U.S. Government securities. To the extent the Custodian acts as lending agent for a Fund, each party’s duties and obligations with respect to that arrangement will be governed by a separate written agreement mutually agreed upon by the Fund and the Custodian.

Section 3.14. Collections . Consistent with standard industry practice in the applicable market, the Custodian shall, and shall cause any Subcustodian to, take all commercially reasonable steps (which shall not include the institution of legal proceedings except pursuant to

 

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Section 6.03(C)) at its discretion to: (i) collect amounts due and payable to each Fund or Series with respect to portfolio securities and other assets of each such Fund or Series; (ii) promptly credit to the Account of each applicable Fund or Series all income and other payments relating to portfolio securities and other assets held by the Custodian hereunder no later than upon Custodian’s receipt of such income or payments or as otherwise agreed in writing by the Custodian and the applicable Fund; (iii) promptly endorse and deliver any instruments required by standard industry practice in each market to effect such collections; and (iv) pursuant to Proper Instructions, promptly execute ownership and other certificates and affidavits for all federal, state and foreign tax purposes in connection with receipt of income, capital gains or other payments with respect to portfolio securities and other assets of each applicable Fund or Series, or in connection with the purchase, sale or transfer of such securities or other assets. The Custodian shall promptly notify each applicable Fund in accordance with standard operating procedures if any amount payable with respect to portfolio securities or other assets of the Fund or Series is not received by the Custodian when due. The Custodian shall not be responsible for the collection of amounts due and payable with respect to portfolio securities or other assets that are in default. With respect to amounts due and payable on portfolio securities held by the Custodian in street name, Custodian’s duties and obligations under this Section 3.14 shall be limited to the collection of amounts of which Custodian has actual knowledge and that it is able, using commercially reasonable methods, to collect from the record holder of such securities. Subject to the provisions of any separate written agreement entered into by the Custodian and a Fund pursuant to Section 3.13, income due each Fund or Series on securities loaned shall be the responsibility of such Fund or Series, provided that the Custodian shall use all commercially reasonable methods to assist the Fund or Series to collect such income.

 

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Section 3.15. Dividends, Distributions and Redemptions . Upon receipt of Proper Instructions, the Custodian shall promptly release funds or securities to the Shareholder Servicing Agent or otherwise apply funds or securities, insofar as available, for the payment of dividends or other distributions to Fund shareholders. Upon receipt of Proper Instructions, the Custodian shall release funds or securities, insofar as available, to the Shareholder Servicing Agent or as such Shareholder Servicing Agent shall otherwise instruct for payment to Fund shareholders who have delivered to such Shareholder Servicing. Agent a request for repurchase or redemption of their shares of capital stock of such Fund.

Section 3.16. Proceeds from Shares Sold . The Custodian shall receive funds representing cash payments received for Shares issued or sold from time to time by a Fund or Series and shall promptly credit such funds to the Account(s) of the applicable Fund or Series. The Custodian shall promptly notify each applicable Fund or Series of Custodian’s receipt of cash in payment for Shares issued by such Fund or Series by facsimile transmission or in such other manner as the Fund or Series and Custodian may agree in writing. Upon receipt of Proper Instructions, the Custodian shall: (i) deliver all federal funds received by the Custodian in payment for Shares in payment for such investments as may be set forth in such Proper Instructions and at a time agreed upon between the Custodian and the applicable Fund or Series; and (ii) make federal funds received by the Custodian available to the applicable Fund or Series as of specified times agreed upon from time to time by the applicable Fund or Series and the Custodian, in the amount received in payment for Shares which are deposited to the Accounts of each applicable Fund or Series.

 

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Section 3.17. Proxies, Notices, Etc . The Custodian shall provide each Fund or Series with proxy services in accordance with the terms and conditions set forth in Schedule D to this Agreement.

Section 3.18. Bills and Other Disbursements . Upon receipt of Proper Instructions, the Custodian shall pay or cause to be paid, insofar as funds are available for the purpose, bills, statements, or other obligations of each Fund or Series.

Section 3.19. Nondiscretionary Functions . The Custodian shall attend to all non-discretionary details in connection with the sale, exchange, substitution, purchase, transfer or other dealings with securities or other assets of each Fund held by the Custodian, except as otherwise directed from time to time pursuant to Proper Instructions.

Section 3.20. Bank Accounts .

(a) Accounts with the Custodian and any Subcustodians . The Custodian shall open and operate a Bank Account on the books of the Custodian or any Subcustodian or a Banking Institution other than the Custodian or any Subcustodian provided that such Bank Account(s) shall be in the name of the Custodian or a nominee of the Custodian, for the account of a Fund or Series, and shall be subject only to the draft or order of the Custodian; provided, however, that such Bank Accounts in countries other than the United States may be held in an Account of the Custodian containing only assets held by the Custodian as a fiduciary or custodian for customers, and provided further, that the records of the Custodian shall indicate at all times the Fund or other customer for which Property is held in such Account and the respective interests therein. Such Bank Accounts may be denominated in either U.S. Dollars or other currencies. The responsibilities of the Custodian to each applicable Fund or Series for deposits accepted on the Custodian’s books in the United States shall be that of a U.S. bank for a

 

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similar deposit. The responsibilities of the Custodian to each applicable Fund or Series for deposits accepted on any Subcustodian’s books shall be governed by the provisions of Section 6.01. Except upon the request of a Fund and as agreed by the Custodian, the Custodian shall have no duty with respect to the selection of a Banking Institution. As mutually agreed from time to time by a Fund and the Custodian, the Custodian shall be responsible for the prudent selection and monitoring of a Banking Institution. The Custodian shall not be liable for the insolvency of any Subcustodian or Banking Institution that is not a branch or Affiliate of the Custodian.

(b) Deposit Insurance . Upon receipt. of Proper Instructions, the Custodian shall take such commercially reasonable actions as the applicable Fund deems necessary or appropriate to cause each deposit account established by the Custodian pursuant to this Section 3.20 to be insured to the maximum extent possible by all applicable government deposit insurers including, without limitation, the Federal Deposit Insurance Corporation.

Section 3.21. Deposit of Fund Assets in Securities Systems . The Custodian may deposit and/or maintain securities owned by a Fund or Series in a Securities System provided that such Fund’s Board has specifically approved such Securities System prior to its use. Use of a Securities System shall be in accordance with applicable Federal Reserve Board and Commission rules and regulations, if any, and Custodian’s duties and obligations with. respect to securities deposited or maintained therein will at all times be subject to the rules and procedures of the applicable Securities System. To the extent permitted by the foregoing, use of a Securities System shall also be subject to the following provisions:

(a) The Custodian may deposit and/or maintain Fund securities, either directly or through one or more Subcustodians appointed by the Custodian ( provided that any such Subcustodian shall be qualified to act as a custodian of such Fund pursuant to the Investment

 

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Company Act and the rules and regulations thereunder), in a Securities System provided that such securities are represented in an Account of the Custodian or such Subcustodian in the Securities System, which Account shall not include any assets of the Custodian or Subcustodian other than assets held as a fiduciary, custodian, or otherwise for customers and shall be so designated on the books and records of the Securities System.

(b) The Securities System shall be obligated to comply with the directions of the Custodian or Subcustodian, as the case may be, with respect to the securities held in such Account.

(c) Each Fund or Series hereby designates the Custodian, or the Custodian’s or Securities System’s nominee, as the case may be, as the party in whose name or nominee name any securities deposited by the Custodian in the Account at the Securities System are to be registered.

(d) The books and records of the Custodian with respect to securities of a Fund or Series that are maintained in a Securities System shall identify by book-entry those securities belonging to the Fund or Series.

(e) Upon receipt of Proper Instructions and subject to the provisions of Section 3.03, the Custodian shall pay for securities purchased for the account of any Fund or Series upon (i) receipt of advice from the Securities System that such securities have been transferred to the Account of the Custodian, and (ii) the making of an entry on the records of the Custodian to reflect such payment and transfer for the account of such Fund or Series. The Custodian shall transfer securities sold for the account of any Fund or Series upon (i) receipt of an advice from the Securities System that payment for such securities has been transferred to the Account of the Custodian, and (ii) the making of an entry on the records of the Custodian to

 

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reflect such transfer and payment for the account of such Fund or Series. Copies of all advises from the Securities System of transfers of securities for the account of a Fund or Series shall identify the Fund or Series, be maintained for the Fund or Series by the Custodian or Subcustodian as referred to in Section 121(a), and be provided to the Fund or Series at its request. The Custodian shall furnish to each Fund or Series confirmation of each transfer to or from the account of such Fund or Series in the form of a written report or notice and shall furnish to each Fund or Series copies of daily transaction reports reflecting each day’s transactions in the Securities System for the account of that Fund or Series on the next succeeding Business Day. Such transaction reports shall be delivered to each applicable Fund or Series, or any Subcustodian designated by such Fund or Series, pursuant to Proper Instructions by computer or in any other manner as such Fund or Series and the Custodian may agree in writing.

(f) The Custodian shall provide each Fund with any report obtained by the Custodian or Subcustodian as referred to in Section 3.21(a) on the Securities System’s accounting system, internal accounting control and procedures for safeguarding securities deposited in the Securities System.

(g) Upon receipt of Proper Instructions, the Custodian shall terminate the use of any such Securities System on behalf of that Fund or Series as promptly as practicable and shall take all actions reasonably practicable to safeguard the securities of any Fund or Series maintained with such Securities System.

Section 3.22. Maintenance of Assets in Underlying Fund Systems . The Custodian may maintain securities owned by each Fund or Series by book-entry in an Underlying Fund System provided that the Custodian’s books and records identify the specific type and amount of securities so held and the Custodian reconciles those records against the book-entry records of the Underlying Fund System on a monthly basis.

 

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Section 3.23. Other Transfers . Upon receipt of Proper Instructions, the Custodian shall deliver securities, funds and other Property of each Fund to a Subcustodian or another custodian of such Fund; and, upon receipt of Proper Instructions, make such other disposition of securities, funds or other Property of such Fund in a manner other than, or for purposes other than, as enumerated elsewhere in this Agreement, provided that Proper Instructions relating to such disposition shall include a statement of the amount of securities to be delivered and the name of the person or persons to whom delivery is to be made.

Section 3.24. Establishment of Segregated Account(s) . Upon receipt of Proper Instructions, the Custodian shall establish and maintain on its books a Segregated Account for and on behalf of a Fund or Series in which Segregated Account may he held Property of such Fund or Series, including securities maintained by the Custodian in a Securities System pursuant to Section 3.21 hereof, said Segregated Account to be maintained: (i) for the purposes set forth in Section 3.08, 3.09, and 3.10, hereof; (ii) for the purposes of compliance by the Fund with the procedures required by Investment Company Act Release No. 10666 (pub. avail. Apr. 18, 1979), or any subsequent release or releases of the Commission relating to the maintenance of Segregated Accounts by registered investment companies, or (iii) for any other lawful purposes as may be deemed necessary by the Fund.

Section 3.25. Custodian’s Books and Records . The Custodian shall provide any assistance reasonably requested by a Fund in the preparation of reports to such Fund’s shareholders and others, audits of accounts, and other ministerial matters of like nature. The Custodian shall maintain complete and accurate records with respect to securities and other

 

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assets held for the account of each Fund or Series as required by the rules and regulations of the Commission applicable to investment companies registered under the Investment Company Act, including, without limitation: (i) journals or other records of original entry containing a detailed and itemized daily record of all receipts and deliveries of securities (including certificate and transaction identification numbers, if any), and all receipts and disbursements of cash; (ii) ledgers or other records reflecting (I) securities in transfer, (2) securities in physical possession, (3) securities borrowed, loaned or collateralizing obligations of each Fund, (4) monies borrowed and monies loaned (together with a record of the collateral therefor and substitutions of such collateral), (5) dividends and interest received, (6) the amount of tax withheld by any person in respect of any collection made by the Custodian or any Subcustodian, and (7) the amount of reclaims or refunds for foreign taxes paid; and (iii) canceled checks and bank records related thereto. The Custodian shall keep such other books and records of each Fund or Series as such Fund or Series shall reasonably request and Custodian shall agree, which agreement shall not be unreasonably withheld. All such books and records maintained by the Custodian shall be maintained in a form acceptable to the applicable Fund or Series and in compliance with the rules and regulations of the Commission, including, but not limited to, hooks and records required to be maintained by Section 31(a) of the Investment Company Act and the rules and regulations from time to time adopted thereunder. All books and records maintained by the Custodian pursuant to this Agreement shall at all times be available upon reasonable prior notice during normal business hours for inspection and use by such Fund or Series and its agents, including, without limitation, its independent certified public accountants. Notwithstanding the preceding sentence, no Fund or Series shall take any actions or cause the Custodian to take any actions that would cause the Custodian, either directly or indirectly, to violate any applicable laws, regulations or orders.

 

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Section 3.26. Opinion of Fund’s Independent Certified Public Accountants . The Custodian shall take all commercially reasonable actions as a Fund may request to obtain from year to year favorable opinions from such Fund’s independent certified public accountants with respect to the Custodian’s activities hereunder in connection with the preparation of the Fund’s Form N-1A and the Fund’s Form N-SAR or other periodic reports to the Commission and with respect to any other requirements of the Commission.

Section 3.27. Reports by Independent Certified Public Accountants . At the request of a Fund, the Custodian shall deliver to such Fund a written report prepared by the Custodian’s independent certified public accountants with respect to the custodial services provided by the Custodian under this Agreement, including, without limitation, the Custodian’s accounting system, internal accounting controls and procedures for safeguarding Property, including Property deposited and/or maintained in a Securities System or Eligible Securities Depository or with a Subcustodian. Such report shall be of sufficient scope and in sufficient detail as may reasonably be required by any Fund and as may reasonably be obtained by the Custodian. Delivery by the Custodian of its then current SAS 70 Report shall constitute compliance with this Section 3.27.

Section 3.28. Overdrafts . In the event that the. Custodian is directed by Proper Instructions to make any payment or transfer of funds on behalf of a Fund for which there are, at the close of business on the date of such payment or transfer, insufficient funds held by the Custodian on behalf of such Fund, the Custodian may, in its discretion, provide an Overdraft to the applicable Fund, in an amount sufficient to allow the completion of such payment. Overdrafts

 

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may also arise by reason of the Custodian’s reversal of any provisional credit extended to a Fund. Any Overdraft provided hereunder (i) shall be payable on demand or at such time as shall be agreed upon by the applicable Fund and the Custodian; and (ii) shall accrue interest from the date of the Overdraft to the date of payment in full by the applicable Fund at a rate agreed upon in writing, from time to time, by the Custodian and the applicable Fund. The Custodian and each Fund acknowledge that the purpose of such Overdrafts is to support on a temporary basis the purchase or sale of securities for prompt delivery in accordance with the terms hereof, or to meet emergency cash needs not reasonably foreseeable by such Fund. The Custodian shall promptly provide an Overdraft Notice of any Overdraft by facsimile transmission or in such other manner as such Fund and the Custodian may agree in writing. If, pursuant to Proper Instructions, a Fund or Series requests the Custodian to take any action with respect to securities, which action involves the payment of money or which action may, in the reasonable opinion of the Custodian, result in the Custodian or its nominee assigned to the Fund or Series being liable for the payment of money or incurring liability in some other form, the Fund, or the Fund on behalf of a Series, shall, as a prerequisite to the Custodian agreeing to take such action, provide indemnity to the Custodian in an amount and form satisfactory to the Fund and the Custodian.

Section 3.29. Reimbursement for Advances . If, in carrying out Proper Instructions, the Custodian advances cash or securities or makes any payment from Custodian’s own funds for any purpose for the benefit of a Fund or Series, including the purchase or sale of foreign exchange or of contracts for foreign exchange, or in the event that the Custodian or its nominee shall incur or be assessed any taxes, charges, expenses, assessments, claims or liabilities in connection with the performance of this Agreement, except such as may arise from the Custodian’s or its nominee’s own negligence, fraud, willful default or willful misconduct, any

 

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Property held for the account of that Fund or Series shall be security for such advance or payment in an amount not to exceed the amount of such advance or payment. If the applicable Fund or Series fails to promptly repay the advance, the Custodian shall be entitled to use such Fund’s or Series’ available cash and to dispose of the Property of such Fund or Series to the extent necessary to obtain reimbursement in full for the amount of such advance or payment. The security interest granted to the Custodian under this Section 3.29 shall apply to all advances provided by the Custodian to a Fund or Series, including Overdrafts as defined in Section 1.19 and intraday overdrafts that arise and are settled during the same Business Day, for the period during which any such advance remains outstanding.

Section 3.30. Claims . The Custodian agrees that all claims upon a Fund with respect to subjects covered by the attached Schedule E shall be made in accordance with Schedule E. In the event that the Custodian needs to make a claim against a Fund pursuant to Schedule E, the Custodian must make such claim within ninety (90) Business Days of the event causing the necessary claim, or within such other period as may be mutually agreed upon from time to time by the Custodian and a Fund. Claims not covered by Schedule E shall be made within such period as may be mutually agreed upon from time to time by the Custodian and a Fund. The applicable Fund will research the cause and make payment if applicable, or forward the claim to the appropriate party.

ARTICLE IV

PROPER INSTRUCTIONS AND RELATED MATTERS

Section 4.01. Proper Instructions .

(a) Oral Communications . Proper Instructions in the form of oral communications shall be confirmed on the same day as such instructions are given by the

 

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applicable Fund or Series by tested telex or in a writing (including a facsimile transmission) signed or initialed by or on behalf of the applicable Fund or Series by one or more Authorized Persons, but the lack of such confirmation shall in no way affect any action taken by the Custodian in reasonable reliance upon such oral instructions prior to the Custodian’s receipt of such confirmation. Each Fund and the Custodian are hereby authorized to record any and all telephonic or other oral instructions communicated to the Custodian.

(b) Form of Proper Instructions . Proper Instructions may relate to specific transactions or to types or classes of transactions, and may be in the form of standing instructions. Proper Instructions may be transmitted electronically or by computer, provided that a Fund or Series has followed any relevant security procedures agreed to from time to time by the Fund and the Custodian. Each Fund shall be responsible for safeguarding any testkeys, identification codes or other security devices that the Custodian makes available to the Fund. The Custodian shall be without liability for relying on any instruction, including any instruction transmitted via facsimile, that it reasonably believes to be a Proper Instruction.

(c) Address for Proper Instructions . Proper Instructions shall be delivered to the Custodian at the address and/or telephone, telecopy or telex number, or appropriate electronic address, agreed upon from time to time by the Custodian and the applicable Fund.

Section 4.02. Authorized Persons . Concurrently with the execution of this Agreement and from time to time thereafter, as appropriate, each Fund shall deliver to the Custodian, duly certified as appropriate by a Treasurer or Secretary of such Fund, a certificate setting forth the names, titles, signatures and scope of authority of Authorized Person(s) of such Fund. Such certificate may be accepted and relied upon by the Custodian as conclusive evidence of the facts set forth therein and shall be considered to be in full force and effect until delivery to the

 

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Custodian of a similar certificate to the contrary. Upon delivery of a certificate that deletes the name(s) of a person previously authorized by a Fund to give Proper Instructions, such persons shall no longer be considered an Authorized Person or authorized to issue Proper Instructions for that Fund and the Custodian shall promptly notify the Fund of any outstanding notice, request, direction, instruction, certificate or instrument(s) signed by such person on behalf of such Fund.

Section 4.03. Persons Having Access to Assets of the Fund or Series . Notwithstanding anything to the contrary contained in this Agreement, no Authorized Person, Director, Trustee, officer, employee or agent of any Fund or Series shall have physical access to the assets of the Fund or Series held by the Custodian nor shall the Custodian deliver any assets of such Fund or Series for delivery to an account the Custodian knows or should know to be the account of such person; provided , however , that nothing in this Section 4.03 shall prohibit (i) any Authorized Person from giving Proper Instructions so long as such action does not result in delivery of or access to assets of any Fund or Series prohibited by this Section 4.03; or (ii) each Fund’s independent certified public accountants from examining or reviewing the assets of the Fund or Series held by the Custodian. Each Fund or Series shall deliver to the Custodian a written certificate (duly certified by the Secretary or Treasurer of the Fund) identifying all Authorized Persons, Directors, Trustees, officers, employees and agents of such Fund or Series.

Section 4.04. Actions of Custodian Based on Proper Instructions . So long as and to the extent that the Custodian acts in accordance with (a) Proper Instructions and (b) the terms of this Agreement, the Custodian shall not be responsible for the title, validity or genuineness of any property, or evidence of title thereof, received by it or delivered by it pursuant to this Agreement.

 

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ARTICLE V

SUBCUSTODIANS

The Custodian may, from time to time, in accordance with the relevant provisions of this Article V, select and appoint one or more Domestic Subcustodians and/or Foreign Subcustodians to act on behalf of a Fund or Series.

Section 5.01. Domestic Subcustodians . Upon receipt of Proper Instructions and in accordance therewith, the Custodian may from time to time select and appoint one or more Domestic Subcustodians to hold and maintain Property of a Fund or a Series in the United States. The Custodian may also, at any time and from time to time, without instructions from a Fund or Series, appoint a Domestic Subcustodian; provided , that , the Custodian shall notify each applicable Fund in writing of the identity and qualifications of any proposed Domestic Subcustodian at least thirty (30) days prior to appointment of such Domestic Subcustodian, and such Fund may, in its sole discretion, by written notice to the Custodian executed by an Authorized Person disapprove of the appointment of such Domestic Subcustodian. If, following notice by the Custodian to each applicable Fund regarding appointment of a Domestic Subcustodian and the expiration of thirty (30) days after the date of such notice, such Fund shall have failed to notify the Custodian of its disapproval thereof, the Custodian may, in its discretion, appoint such proposed Domestic Subcustodian as its Subcustodian.

Section 5.02. Foreign Subcustodians . The Custodian may, at any time and from time to time, select and appoint a Foreign Subcustodian, subject to the provisions of the 17f-5 Procedures and Guidelines included in Schedule B attached hereto. Each Foreign Subcustodian and the countries where it may hold securities and other assets of the applicable Funds shall be listed on Schedule F attached hereto, as it may be amended from time to time in accordance with the provisions of Section 9.06 hereof. Each Fund shall be responsible for informing the

 

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Custodian sufficiently in advance of a proposed investment of the Fund or one of its Series that is to be held in a country in which no Foreign Subcustodian is authorized to act, in order that there shall be sufficient time for the Custodian (i) to effect the appropriate arrangements with a proposed foreign subcustodian or (ii) to determine in its sole discretion and timely inform the Fund that such appropriate arrangements are not available through the Custodian.

Section 5.03. Termination of a Subcustodian . The Custodian shall monitor each Domestic Subcustodian and Foreign Subcustodian on a continuing basis and shall take all reasonable actions to ensure that each such Subcustodian performs all of its obligations in accordance with the terms and conditions of the subcustodian agreement between the Custodian and such Subcustodian. In the event that the Custodian determines that a Subcustodian has failed to substantially perform its obligations thereunder, the Custodian shall promptly notify each applicable Fund of such failure to perform. Upon receipt of Proper Instructions, the Custodian shall terminate a Subcustodian with respect to a Fund and either (i) select and appoint in its sole discretion a replacement Subcustodian in accordance with the provisions of Section 5.01 or Section 5.02, as the case may be, or (ii) determine in its sole discretion and inform the Fund in a timely manner that appropriate alternate arrangements are not available through the Custodian. In addition to the foregoing, the Custodian may, at any time in its discretion, upon written notification to each applicable Fund, terminate any Domestic Subcustodian or Foreign Subcustodian.

Section 5.04. Eligible Securities Depositories . The Custodian or a Subcustodian may at any time and from time to time place and maintain Property of a Fund or Series with an Eligible. Securities Depository subject to the provisions of this Agreement, including the 17f-7 Procedures and Guidelines included in Schedule B. Each Eligible Securities Depository through which the

 

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Custodian or any Subcustodian may hold securities and other assets of the Funds shall be listed on Schedule G attached hereto, as it may be amended from time to time. Each Fund or Series and the Custodian understand and acknowledge that a Fund or Series may maintain Property with an Eligible Securities Depository prior to the receipt of the initial risk analysis required by Schedule B and prior to its inclusion on Schedule G; provided , however , that such analysis shall be completed by the Custodian and provided to the Fund or Series as soon as practicable after such Property is placed with the Eligible Securities Depository.

ARTICLE VI

STANDARD OF CARE; INDEMNIFICATION

Section 6.01. Standard of Care .

(a) General Standard of Care . The Custodian shall be responsible for the performance only of those duties and obligations set forth in this Agreement, including any Schedules or Appendices hereto, and/or in Proper Instructions, and shall have no implied duties or obligations hereunder. The Custodian shall exercise reasonable care, diligence, and prudence in carrying out all of these duties and obligations. The Custodian shall be liable to each Fund or Series for all losses, damages and expenses suffered or incurred by such Fund or Series as a direct result of the failure of the Custodian to exercise such reasonable care, diligence and prudence, or as a result of the negligence, fraud, willful default or willful misconduct of the Custodian.

(b) General Limitation on Liability . The Custodian shall have no liability for any indirect, consequential, special or speculative losses, damages, or expenses incurred by a Fund or Series even if Custodian has been advised of the possibility of same and regardless of the form of action. The Custodian shall not be liable for any loss that results from (i) the general

 

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risk of investing or (ii) the risk of investing or holding assets in a particular country. The Custodian shall not be liable for the insolvency of a Securities System or Eligible Securities Depository, nor shall the Custodian be liable for the insolvency of any Subcustodian that is not a branch or Affiliate of the Custodian unless the Custodian was negligent in the appointment of such Subcustodian. The Custodian also shall not be liable for any loss, damage, cost, expense, liability or claim resulting from, or caused by, force majeure, including but not limited to, nationalization, expropriation, or other governmental actions such as currency restrictions or devaluations, strikes or work stoppages (except with respect to employees of the Custodian or a branch or affiliate of the Custodian), insurrection, revolution, acts of war or terrorism, or acts of God.

(c) Actions Prohibited by Applicable Law, Etc . In no event shall the Custodian incur liability hereunder if any Person is prevented, forbidden or delayed from performing, or omits to perform, any act that this Agreement provides shall be performed or omitted to be performed, by reason of: (i) any provision of any present or future law or regulation or order of the United States of America, or any state thereof, or of any foreign country, or political subdivision thereof or of any court of competent jurisdiction; or (ii) any act of God or war or other similar circumstance beyond the control of the Custodian, unless and to the extent that, in each case, such delay or nonperformance is caused by (1) the negligence, fraud, willful default or willful misconduct of the applicable Person, or (2) a malfunction or failure of equipment operated or used by the applicable Person other than a malfunction or failure beyond such Person’s control that could not reasonably be anticipated and/or prevented by such Person.

(d) Mitigation by Custodian . Upon the occurrence of any event that causes or that the Custodian believes or a Fund reasonably believes will imminently cause any loss,

 

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damage or expense to any Fund or Series, the Custodian (i) shall take and (ii) shall take all reasonable steps to cause any applicable Domestic Subcustodian or Foreign Subcustodian to take all commercially reasonable steps to mitigate the effects of such event and to avoid continuing harm to a Fund or Series. If the Custodian must seek Proper Instructions from a Fund or Series in order either to take such commercially reasonable steps itself or to take all reasonable steps to cause any applicable Domestic Subcustodian or Foreign Subcustodian to take all commercially reasonable steps and timely requests such Proper Instructions, but the applicable Fund or Series does not provide such Proper Instructions, the Custodian (both as to itself and with respect to any applicable Subcustodian) shall have no further obligations under this Section 6.01(d).

(e) Advice of Counsel . The Custodian shall be entitled to receive and act upon advice of counsel on all matters. The Custodian shall be without liability for any action reasonably taken or omitted in good faith pursuant to the advice of (i) counsel for the applicable Fund or Funds, or (ii) at the expense of the Custodian, such other counsel as the Custodian may choose; provided , however , with respect to the performance of any action or omission of any action upon such advice, the Custodian shall be required to conform to the standard of care set forth in Section 6.01(a).

(f) Liability for Past Records . The Custodian shall have no liability in respect of any loss, damage or expense suffered by a Fund, insofar as such loss, damage or expense arises from the performance of the Custodian’s duties hereunder by reason of the Custodian’s reliance upon records that were maintained for such Fund by entities other than the Custodian prior to the Custodian’s appointment as custodian for such Fund.

(g) Authorization to Take Action . Subject to the provisions of this Agreement, each Fund or Series authorizes the Custodian to take such actions as may be necessary to fulfill

 

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Custodian’s duties and obligations under this Agreement notwithstanding that Custodian or any of its divisions or Affiliates may have a material interest in a transaction or circumstances are such that Custodian may have a potential conflict of duty or interest in connection with a transaction, including a conflict arising from the fact that the Custodian or any of its Affiliates may provide brokerage services to other customers, act as financial adviser to the issuer of Property, act as a lender to the issuer of Property, act as agent for more than one customer in the same transaction, have a material interest in the issuance of Property or earn profits from any of the activities set forth above.

Section 6.02. Liability of Custodian for Actions of Other Persons .

(a) Domestic Subcustodians and Foreign Subcustodians . The Custodian shall be liable for the actions or omissions of any Domestic Subcustodian selected by the Custodian, or, subject to the provisions of the Rule 17f-5 Procedures and Guidelines included in Schedule B, any Foreign Subcustodian to the same extent as if such action or omission were performed by the Custodian itself. If a Fund directs the Custodian to appoint a specific Domestic Subcustodian, the Custodian shall, with respect to such Domestic Subcustodian, be responsible only for losses arising from its own negligence, fraud, willful default or willful misconduct. In the event of any loss, damage or expense suffered or incurred by a Fund caused by or resulting from the actions or omissions of any Domestic Subcustodian or Foreign Subcustodian for which the Custodian is liable, the Custodian shall reimburse such Fund in the amount of any such loss, damage or expense.

(b) Securities Systems . Notwithstanding the provisions of Sections 6.01 and 6.02(a) to the contrary, the Custodian shall only be liable to a Fund for any loss, damage or expense suffered or incurred by such Fund resulting from. the use by the Custodian or a

 

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Subcustodian of a Securities System to the extent the Custodian or Subcustodian, as applicable, is able to recover from the Securities System, unless such loss, damage or expense is caused by, or results from, the Custodian’s or Subcustodian’s negligence, fraud, willful default or willful misconduct in its interactions with the Securities System; provided , however , that in the event of any such toss, damage or expense, the Custodian shall, or cause its Subcustodians to, take all commercially reasonable steps to enforce such rights as it may have against the Securities System to protect the interests of the Fund.

(c) Eligible Securities Depositories . With respect to Eligible Securities Depositories, the Custodian shall be responsible only for those duties and obligations set forth in the 17f-7 Procedures and Guidelines included in Schedule B to this Agreement pursuant to the requirements of Rule 17f-7 under the Investment Company Act. The Custodian shall exercise reasonable care, diligence and prudence in carrying out its duties and responsibilities with respect to Eligible Securities Depositories.

(d) Reimbursement of Expenses . Each Fund shall reimburse the Custodian for all reasonable out-of-pocket expenses incurred by the Custodian on behalf of such Fund in connection with the fulfillment of its obligations under this Section 6.02; provided, however, that such reimbursement shall not apply to expenses occasioned by or resulting from the negligence, fraud, willful default or willful misconduct of the Custodian.

Section 6.03. Indemnification .

(a) Indemnification Obligations . Subject to the limitations set forth in this Agreement, each Fund or Series severally and not jointly agrees to indemnify and hold harmless the Custodian and its nominees, directors, officers, agents, and employees (collectively, the “Indemnitees”) from all loss, damage and expense (including reasonable attorneys’ fees),

 

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including but not limited to those arising out of claims of negligence made by third parties, suffered or incurred by the Indemnitees arising out of or related to actions taken by the Custodian on behalf of such Fund or Series in the performance of its duties and obligations under this Agreement; provided , however , that such indemnity shall not apply to any loss, damage and expense arising out of or related to the negligence, fraud, willful default or willful misconduct of any Indemnitee or to any consequential, special, or speculative loss, damage or expense. In addition, each Fund or Series agrees severally and not jointly to indemnify any Person against any liability incurred by reason of taxes assessed to such Person, or other loss, damage or expenses incurred by such Person, resulting solely from the fact that securities and other property of such Fund or Series are registered in the name of such Person; provided , however , that in no event shall such indemnification be applicable to income, franchise or similar taxes that may be imposed or assessed against any Person.

(b) Notice of Litigation, Right to Prosecute, Etc . No Fund or Series shall be liable for indemnification for losses or expenses arising out of litigation against an Indemnitee under this Section 6.03 if such Indemnitee shall have failed promptly to notify such Fund in writing of the commencement of any litigation or proceeding brought against such Indemnitee in respect of which indemnity may be sought under this Section 6.03 to the extent that such failure to notify shall have had a material adverse effect on such Fund or Series. With respect to claims in such litigation or proceedings for which indemnity by a Fund may be sought and subject to applicable law and the ruling of any court of competent jurisdiction, such Fund shall be entitled to participate in any such litigation or proceeding and, after written notice from such Fund to any Indemnitee, such Fund may assume the defense of such litigation or proceeding with counsel of its choice at its own expense in respect of that portion of the litigation for which such Fund may

 

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be subject to an indemnification obligation; provided , however , an Indemnitee shall be entitled to participate in (but not control) at its own cost and expense, the defense of any such litigation or proceeding if such Fund has not acknowledged in writing its obligation to indemnify the Indemnitee with respect to such litigation or proceeding. If such Fund is not permitted to participate in or control such litigation or proceeding under applicable law or by a ruling of a court of competent jurisdiction, such Indemnitee shall reasonably prosecute such litigation or proceeding. An Indemnitee shall not consent to the entry of any judgment or enter into any settlement in any such litigation or proceeding without providing each applicable Fund with adequate notice of any such settlement or judgment, and without each such Fund’s prior written consent, which consent shall not be unreasonably withheld. All Indemnitees shall submit written evidence to each applicable Fund with respect to any cost or expense for which they are seeking indemnification in such form and detail as such Fund may reasonably request. With respect to the Custodian, if a Fund has acknowledged. in writing its obligation to indemnify the Custodian, the Fund shall not settle for other than monetary damages a claim that materially affects the Custodian without the Custodian’s prior written consent.

(c) Commencement of Litigation . The Custodian may not commence any litigation on behalf of a Fund or Series except pursuant to Proper Instructions or with the applicable Fund’s prior written consent. Except where the Custodian is a necessary party to the litigation, a Fund or Series shall not instruct the Custodian to commence litigation without the Custodian’s prior consent, which consent shall not be unreasonably withheld.

Section 6.04. Fund’s Right to Proceed . Notwithstanding anything to the contrary contained herein, each Fund shall have, at its election upon reasonable notice to the Custodian, the right to enforce, to the extent permitted by any applicable agreement and applicable law, the

 

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Custodian’s rights against any Subcustodian, Securities System, Eligible Securities Depository or other Person for loss, damage or expense. caused such Fund by such Subcustodian, Securities System, Eligible Securities Depository or other Person, and shall be entitled to enforce the rights of the Custodian with respect to any claim against such Subcustodian, Securities System, Eligible Securities Depository or other Person, which the Custodian may have as a consequence of any such loss, damage or expense, if and to the extent that such Fund has not been made whole for any such loss or damage. If the Custodian makes such Fund whole for any such loss or damage, the Custodian shall retain the ability to enforce its rights directly against such Subcustodian, Securities System or other Person and the Fund shall provide the Custodian with reasonable cooperation in respect of such enforcement. Upon such Fund’s election to enforce any rights of the Custodian under this Section 6.04, such Fund shall reasonably prosecute all actions and proceedings directly relating to the rights of the Custodian in respect of the loss, damage or expense incurred by such Fund; provided that, so long as such Fund has acknowledged in writing its obligation to indemnify the Custodian under Section 6.03 hereof with respect to such claim, such Fund shall retain the right to settle, compromise and/or terminate any action or proceeding in respect of the loss, damage or expense incurred by such Fund without the Custodian’s consent and, provided further , that if such Fund has not made an acknowledgement of its obligation to indemnify, such Fund shall not settle, compromise or terminate any such action or proceeding without the written consent of the Custodian, which consent shall not be unreasonably withheld or delayed. The Custodian agrees to cooperate with each Fund and take all actions reasonably requested by such Fund in connection with such Fund’s enforcement of any rights of the Custodian. Each Fund agrees to reimburse the Custodian for all reasonable out-of-pocket expenses incurred by the Custodian on behalf of such Fund in connection with the fulfillment of

 

41


its obligations under this Section 6.04; provided , however , that such reimbursement shall not apply to expenses occasioned by or resulting from the negligence, fraud, willful default or willful misconduct of the Custodian. Each Fund agrees that it shall not settle for other than monetary damages a claim that materially affects the Custodian without the Custodian’s prior written consent.

ARTICLE VII

COMPENSATION

Each Fund shall compensate the Custodian in an amount, and at such times, as may be agreed upon in writing, from time to time, by the Custodian and such Fund.

ARTICLE VIII

TERMINATION

Section 8.01. Termination of Agreement as to One or More Funds . With respect to each Fund, this Agreement shall continue in full force and effect until the first to occur of: (i) termination by the Custodian by an instrument in writing delivered or mailed to such Fund, such termination to take effect not sooner than sixty (60) days after the date of such delivery; (ii) termination by such Fund by an instrument in writing delivered or mailed to the Custodian, such termination to take effect not sooner than sixty (60) days after the date of such delivery; or (iii) termination by such Fund by written notice delivered to the Custodian, based upon such Fund’s determination that there is a reasonable basis to conclude that the Custodian is insolvent or that the financial condition of the Custodian is deteriorating in any material respect, in which case termination shall take effect upon the Custodian’s receipt of such notice or at such later time as such Fund shall designate. In the event of termination pursuant to this Section 8.01 by any Fund, each Terminating Fund shall make payment of all accrued fees and unreimbursed expenses with

 

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respect to such Terminating Fund within a reasonable time following termination and delivery of a statement to the Terminating Fund setting forth. such fees and expenses. In the event of a termination by a Fund or the Custodian. each Fund shall identify in any notice of termination or in a subsequent writing, a successor custodian or custodians to which the Property of the Terminating Fund shall, upon termination of this Agreement with respect to such Terminating Fund, be delivered. In the event that securities and other assets of such Terminating Fund remain in the possession of the Custodian after the date of termination hereof with respect to such Terminating Fund owing to failure of the Terminating Fund to appoint a successor custodian (i) the Custodian shall be entitled to compensation for its services in accordance with the fee schedule most recently in effect, for such period as the Custodian retains possession of such securities and other assets, and the provisions of this Agreement relating to the duties and obligations of the Custodian and the Terminating Fund shall remain in full force and effect and (ii) the Custodian may (but shall be under no obligation to), upon 30 day’s written notice to the Terminating Fund appoint a successor custodian provided that such successor custodian is eligible to hold the Terminating Fund’s assets and the Terminating Fund shall not have objected to such appointment. In the event of the appointment of a successor custodian, it is agreed that the Property owned by a Terminating Fund and held by the Custodian, any Subcustodian or nominee shall be delivered to the successor custodian; and the Custodian agrees to cooperate with such Terminating Fund in the execution of documents and performance of other actions necessary or desirable in order to substitute the successor custodian for the Custodian under this Agreement. Upon the transfer of the assets of a Terminating Fund to a successor custodian, the Custodian may deduct from such assets prior to the transfer an amount equal to the sum of any unpaid fees or expenses to which the Custodian is entitled by reason of its services as Custodian.

 

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Section 8.02. Termination as to One or More Series . This Agreement may be terminated as to one or more Series of a Fund (but less than all Series) by delivery of an amended Schedule A deleting such Series pursuant to Section 9.06 hereof, in which case termination as to such deleted Series shall take effect thirty (30) days after the date of such delivery. The execution and delivery of an amended Schedule A which deletes one or more Series shall constitute a termination of this Agreement only with respect to such deleted Series, shall he governed by the preceding provisions of Section 8.01 as to the identification of a successor custodian and the delivery of Property of the Series so deleted, and shall not affect the obligations of the Custodian and any Fund hereunder with respect to the other Series set forth in Schedule A, as amended from time to time.

ARTICLE IX

MISCELLANEOUS

Section 9.01. Execution of Documents, Etc .

(a) Actions by each Fund . Upon request, each Fund shall execute and deliver to the Custodian such proxies, powers of attorney or other instruments as may be reasonable and necessary or desirable in connection with the performance by the Custodian or any Subcustodian of their respective obligations to such Fund under this Agreement or any applicable subcustodian agreement with respect to such Fund, provided that the exercise by the Custodian or any Subcustodian of any such rights shall in all events be in compliance with the terms of this Agreement.

(b) Actions by Custodian . Upon receipt of Proper Instructions, the Custodian shall execute and deliver to each applicable Fund or to such other parties as such Fund(s) may designate in such Proper Instructions, all such documents, instruments or agreements as may be reasonable and necessary or desirable in order to effectuate any of the transactions contemplated hereby.

 

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Section 9.02. Representative Capacity; Nonrecourse Obligations . A copy of the articles of incorporation, declaration of trust or other organizational document of each Fund is on file with the secretary of the state of the Fund’s formation, and notice is hereby given that this Agreement is not executed on behalf of the directors or trustees of any Fund as individuals, and the obligations of this Agreement are not binding upon any of the directors, trustees, officers, shareholders or partners of any Fund individually, but are binding only upon the Property of each Fund or Series. The Custodian agrees that no shareholder, director, trustee, officer or partner of any Fund may be held personally liable or responsible for any obligations of any Fund arising out of this Agreement.

Section 9.03. Several Obligations of the Funds and the Series . With respect to any obligations of a Fund on its own behalf or on behalf of any of its Series arising out of this Agreement, including, without limitation, the obligations arising under Sections 3.28, 6.03, 6.04 and Article VII hereof, the Custodian shall look for payment or satisfaction of any obligation solely to the assets and property of the applicable Fund or Series to which such obligation relates as though each Fund had separately contracted with the Custodian by separate written instrument on its own behalf and with respect to each of its Series.

Section 9.04. Representations and Warranties .

(a) Representations and Warranties of Each Fund . Each Fund hereby severally and not jointly represents and warrants that each of the following shall be true, correct and complete with respect to each Fund at all times during the term of this Agreement: (1) the Fund is duly organized under the laws of its jurisdiction of organization and is registered as an open-end

 

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management investment company or closed-end management investment company, as the case may be, under the Investment Company Act, and (ii) the execution, delivery and performance by the Fund of this Agreement are (1) within its power, (2) have been duly authorized by all necessary action, and (3) will not (a) contribute to or result in a breach of or default under or conflict with any existing law, order, regulation or ruling of any governmental or regulatory agency or authority, or (b) violate any provision of the Fund’s articles of incorporation, declaration of trust or other organizational document, or bylaws, or any amendment thereof or any provision of its most recent Prospectus or, if any, Statement of Additional Information.

(b) Representations and Warranties of the Custodian . The Custodian hereby represents and warrants to each Fund that each of the following shall be true, correct and complete at all times during the term of this Agreement: (i) the Custodian is duly organized under the laws of its jurisdiction of organization and qualifies to act as a custodian and foreign custody manager to open-end management investment companies or closed-end investment companies, as the case may be. under the provisions of the Investment Company Act; and (ii) the execution, delivery and performance by the Custodian of this Agreement are (1) within its power, (2) have been duly authorized by all necessary action, and (3) will not (a) contribute to or result in a breach of or default under or conflict with any existing law, order, regulation or ruling of any governmental or regulatory agency or authority, or (b) violate any provision of the Custodian’s corporate charter, or other organizational document, or bylaws, or any amendment thereof.

Section 9.05. Entire Agreement . This Agreement constitutes the entire understanding and agreement of each Fund, on the one hand, and the Custodian, on the other, with respect to the subject matter hereof and, accordingly, supersedes as of the effective date of this Agreement any custodian agreement heretofore in effect between each Fund and the Custodian.

 

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Section 9.06. Waivers and Amendments . No provision of this Agreement may be waived, amended or terminated except by a statement in writing signed by the party against which enforcement of such waiver, amendment or termination is sought; provided , however : (i) Schedule A listing each Fund and each Series for which the Custodian serves as custodian may be amended from time to time to add one or more Funds or one or more Series of one or more Funds, by each applicable Fund’s execution and delivery to the Custodian of an amended Schedule A and the execution of such amended Schedule A by the Custodian, in which case such amendment shall take effect it immediately upon execution by the Custodian. Schedule A may also be amended from time to time to delete one or more Funds or one or more Series (but less than all of the Series) of one or more Funds, by each applicable Fund’s execution and delivery to the Custodian of an amended Schedule A, in which case such amendment shall take effect thirty (30) days after such delivery, unless otherwise agreed by the Custodian and each applicable Fund in writing; (ii) Schedule B setting forth the 17f-5/17f-7 Procedures and Guidelines may be amended only by an instrument in writing executed by each applicable Fund and the Custodian; (iii) Schedule C setting forth the Custodian’s duties and obligations with respect to tax services may be amended only by an instrument in writing executed by each applicable Fund and the Custodian; (iv) Schedule D setting forth the Custodian’s duties and obligations with respect to proxy services may be amended only by an instrument in writing executed by each applicable Fund and the Custodian; (v) Schedule E relating to claims may be amended only by an instrument in writing executed by each applicable Fund and the Custodian; and (vi) Schedule F setting forth the foreign subcustodian bank network used by each Fund or Series may be amended by the Custodian at any time upon prompt written notice to each applicable Fund,

 

47


Section 9.07. Interpretation . In connection with the operation of this Agreement, the Custodian and any Fund may agree from time to time on such provisions interpretative of or in addition to the provisions of this Agreement with respect to such Fund as may in their joint opinion be consistent with the general tenor of this Agreement. Any such interpretative or additional provisions shall be in a writing signed by both parties and shall be annexed hereto, provided that no such interpretative or additional provisions shall contravene any applicable federal or state regulations or any provision of the articles of incorporation or analogous governing document of the Fund. No interpretative or additional provisions made as provided in the preceding sentence shall be deemed to be an amendment of this Agreement or affect any other Fund.

Section 9.08. Captions . Headings contained in this Agreement, which are included as convenient references only, shall have no bearing upon the interpretation of the terms of the Agreement or the obligations of the parties hereto.

Section 9.09. Governing Law . Insofar as any question or dispute may arise in connection with this Agreement, the provisions of this Agreement shall be construed in accordance with and be governed by the laws of the State of New York without reference to the conflict of laws provisions of the State of New York.

 

48


Section 9.10. Notices . Except in the case of Proper Instructions, notices and other writings contemplated by this Agreement shall be delivered by hand or by facsimile transmission (provided that in the case of delivery by facsimile transmission, notice shall also be mailed postage prepaid) to the parties at the following addresses:

 

  1. If to any Fund:

c/o Merrill Lynch Investment Managers, L.P.

800 Scudders Mill Road

Plainsboro, New Jersey 08536

Attn: Donald C. Burke

Telephone: (609) 282-7085

Telefax: (609) 282-7231

 

  2. If to the Custodian:

The Bank of New York

One Campus Drive – 2nd Floor

Pleasantville, NY 10570

Attn: Jorge Ramos

Telephone: (914) 773-5229

Telefax: (914) 773-5262

or to such other address as a Fund or the Custodian may have designated in writing to the other.

Section 9.11. Assignment . This Agreement shall be binding on and shall inure to the benefit of each Fund severally and the Custodian and their respective successors and assigns, provided that , subject to the provisions of Section 8.01 hereof, neither the Custodian nor any Fund may assign this Agreement or any of its rights or obligations hereunder without the prior written consent of the other party.

Section 9.12. Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. With respect to each Fund, this Agreement shall become effective when an amended Schedule A including the Fund has been signed and delivered by such Fund to the Custodian.

Section 9.13. Confidentiality; Survival of Obligations . The parties hereto agree that each shall treat confidentially the terms and conditions of this Agreement and all information provided by each party to the other regarding its business and operations. All. confidential information provided by a party hereto, including non-public personal information within the

 

49


meaning of Securities and Exchange Commission Regulation S-P, shall be used by any other party hereto solely for the purpose of rendering services pursuant to this Agreement and, except as may be required in carrying out this Agreement, shall not be disclosed to any third party without the prior consent of such providing party. The foregoing shall not be applicable to any information that is publicly available when provided or thereafter becomes publicly available other than through a breach of this Agreement, or that is required to be disclosed by any bank examiner of the Custodian or any Subcustodian, any auditor of the parties hereto, by judicial or administrative process or otherwise by applicable law or regulation. The provisions of this Section 9.13 and Sections 9.01, 9.02, 9.03, 9.09, 3.27, 4.01(a), 4.04, 8.01, Article VI and Article VII hereof, and any other rights or obligations incurred or accrued by any party hereto prior to termination of this Agreement shall survive any termination of this Agreement.

Section 9.14. Shareholder Communications . Rule 14b-2 under the Securities Exchange Act of 1934, as amended, requires banks that hold securities for the account of customers to respond to requests by issuers of securities for the names, addresses and holdings of beneficial owners of securities of that issuer held by the bank unless the beneficial owner has expressly objected to disclosure of this information. In order to comply with the rule, the Custodian needs each Fund to indicate whether the Fund authorizes the Custodian to provide the Fund’s name, address, and share position to requesting companies whose stock the Fund owns. If a Fund tells the Custodian “no,” the Custodian will not provide this information to requesting companies. If the Fund tells the Custodian “yes” or does not check either “yes” or “no” below, the Custodian is required by the rule to treat the Fund as consenting to disclosure of this information for all securities owned by the Fund or any funds or accounts established by the Fund. Please indicate below whether the Funds consent or object by checking one of the alternatives below

 

YES   ¨    The Custodian is authorized to release each Fund’s name, address, and share positions.
NO   ¨    The Custodian is not authorized to release each Fund’s name, address, and share positions.

 

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— S IGNATURES F OLLOW

 

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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed in its name and on its behalf on the day and year first above written.

 

Each of the Investment Companies Listed on Schedule A Attached Hereto     The Bank of New York
By:  

/s/ Donald Burke

    By:  

/s/ Jorge Ramos

Name:   Donald Burke     Name:   Jorge Ramos
Title:   Treasurer     Title:   Vice President
Date:   October 26, 2001     Date:   October 26, 2001

 

52

Exhibit. 13(b)

EXECUTION COPY

ADMINISTRATIVE SERVICES AGREEMENT

THIS AGREEMENT (the “Agreement”) is dated as of December 29, 2000 by and among STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company (“State Street”), and each entity listed on Schedule I hereto, together with any other entity which may from time to time become a party to this Agreement by execution of an Instrument of Accession substantially in the form attached as Exhibit 1 hereto (each a “Fund” and collectively, the “Funds”).

WHEREAS, each Fund is, unless otherwise noted, registered as an open-end or closed-end, management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”); and

WHEREAS, each Fund desires to retain State Street to furnish certain accounting and other administrative services, and State Street is willing to furnish such services, on the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:

 

1. INTERPRETATION

 

1.1 In this Agreement:

“Agreement” means this Agreement including the recitals hereto and the Schedules and Exhibits, as the same may be amended from time to time by agreement of the parties.

“Authorized Person” means any person authorized by a Fund to give Proper Instructions on behalf of the Fund and in respect of whom State Street has not received written notice from the Fund that such authorization has been revoked.

“Authorized Price Sources” means pricing sources designated by a Fund on State Street’s standard form price source authorization, as the same may be amended by the Fund and State Street from time to time or as otherwise designated by the Fund or an Authorized Person, including, without limitation, the investment adviser to the Fund.

“Business Day” means any day on which the New York Stock Exchange is open for trading or on which banking institutions in the City of New York are open for business.

“Charter Documents” means a Fund’s Articles of Incorporation or Declaration of Trust, as the case may be, and By-Laws.

“Compliance Monitoring Services” means the agreed investment compliance checks as may be carried out by State Street in respect of a Fund on a daily (or other periodic) basis pursuant to the provisions of the Compliance Monitoring Services Addendum attached

 

1


hereto as Exhibit 2. “Constitutive Documents” means, collectively, a Fund’s Charter Documents and Prospectus, as defined herein.

“Existing Service” means a Service which is described in the Service Level Agreement or which is determined by the JSC (as defined in Section 15) to be an Existing Service.

“Historic Fund Records” means the books, records, data files, documents and other information maintained by or on behalf of each Fund as part of the Services prior to the effective date of this Agreement and which are necessary for the provision of the Services by State Street hereunder.

“MLIM” means Merrill Lynch Investment Managers, L.P.

“New Service” means a Service other than an Existing Service.

“Proper Instructions” means instructions (which may be standing instructions) received by State Street from an Authorized Person, in any of the following forms:

 

  (i) in writing signed by the Authorized Person; or

 

  (ii) in a tested communication; or

 

  (iii) in a communication utilizing access codes effected between electro mechanical or electronic devices as may be agreed upon by the parties in writing from time to time; or

 

  (iv) by such other means as may be agreed upon in writing from time to time by State Street and the party giving such instruction including, without limitation, oral instructions.

“Prospectus” means a Fund’s currently effective registration statement under the Securities Act of 1933, as amended (the “1933 Act”), and the 1940 Act and the Fund’s Prospectus(es) and Statement(s) of Additional Information relating to all portfolios and all amendments and supplements thereto as in effect from time to time.

“Service Level Agreement” means the Service Level Agreement of even date herewith between State Street and MLIM relating to the provision of the Services, as amended from time to time.

“Services” means the accounting and other administrative services described in Sections 3 and 4 hereof.

 

1.2 References herein to a Fund shall be deemed to include each portfolio or class of share of such Fund, as applicable. For purposes of any liability or indemnification provision hereunder each separate portfolio of an investment company shall be considered a Fund.

 

1.3 In this Agreement references to “persons” shall include legal as well as natural entities, references importing the singular shall include the plural (and vice versa), use of the masculine pronoun shall include the feminine and numbered schedules, exhibits, sections or sub-sections shall (unless the contrary intention appears) be construed as references to such schedules and exhibits hereto and sections or sub-sections herein bearing those numbers. The Schedules and Exhibits are hereby incorporated herein by reference.

 

2


2. APPOINTMENT

 

2.1 Each Fund hereby retains State Street and State Street agrees to provide the Services, in each case subject to and in accordance with the terms and conditions set forth in this Agreement and subject to the control, supervision and direction of the Fund and the review and comment by the Fund’s auditors and legal counsel and in accordance with such procedures as may be established from time to time between the Fund and State Street. State Street confirms that it shall offer employment to substantially all of those persons employed by, and in good standing with, the Mutual Fund Accounting Department of MLIM as of the date hereof.

 

2.2 In the event that a Fund establishes one or more additional series of shares with respect to which it desires to have State Street render Services under the terms hereof, it shall so notify State Street in writing and thereafter such series will be subject to the terms and conditions of this Agreement, and shall be maintained and accounted for by State Street on a discrete basis.

 

2.3 Subject to obtaining the prior written approval of each Fund, State Street may assign, delegate or otherwise transfer any or all of its rights and obligations under this Agreement to a third party, provided that State Street’s liability to the Funds shall not be affected thereby.

 

2.4 It is hereby acknowledged and agreed by each Fund that this Agreement is entered into by the Fund as a principal contracting party and not as agent for any other party and nothing contained herein shall be interpreted as creating any contractual obligations on the part of State Street towards any shareholders of the Fund.

 

2.5 State Street shall not be responsible for any duties or obligations which it has not specifically undertaken pursuant to this Agreement and no such duties or obligations shall be implied or inferred.

 

2.6 This Agreement and the Services to be provided by State Street hereunder shall be revised by the parties from time to time to comply with changes in any law, rule or regulation applicable to the Funds.

 

2.7 If any literature, including, but not limited to, brochures, advertising materials, web site contents and marketing materials, issued by or on behalf of a Fund contains any reference to State Street, other than literature merely identifying State Street as providing accounting or administrative services to the Fund, or if any literature issued by State Street contains any reference to a Fund, then the Fund or State Street, as the case may be, will obtain the other party’s prior written consent to such reference before its publication in any form.

 

3. ACCOUNTING SERVICES

 

3.1

State Street shall maintain the books of account and other financial records of each Fund in accordance with applicable law, including Section 31(a) of the 1940 Act and rules thereunder, other than records maintained by the Fund’s custodian (as agreed among the

 

3


 

Fund, State Street and the custodian) and shall perform the following duties in the manner prescribed by the Constitutive Documents and further in accordance with such written procedures, including, but not limited to, the Service Level Agreement, as may be established between the Fund and State Street from time to time:

 

  3.1.1 Record general ledger entries;

 

  3.1.2 Calculate daily net income;

 

  3.1.3 Reconcile activity to the trial balance;

 

  3.1.4 Calculate and publish daily net asset value;

 

  3.1.5 Prepare account balances; and

 

  3.1.6 Provide such other accounting services as may be required to enable each Fund to maintain its books and records in compliance with applicable law and generally accepted accounting principles.

 

3.2 Each Fund shall provide timely prior written notice to State Street of any modification in the manner in which such calculations are to be performed. For purposes of calculating the net asset value of a Fund, State Street shall value the Fund’s portfolio securities utilizing prices obtained from Authorized Price Sources. State Street shall not be responsible for any revisions to the methods of calculation prescribed by the Constitutive Documents or the Fund unless and until such revisions are communicated in writing to State Street.

 

4. ADMINISTRATIVE SERVICES

 

4.1 State Street shall provide the following additional administrative services to each Fund in the manner prescribed by the Constitutive Documents and further in accordance with such written procedures, including, but not limited to, the Service Level Agreement, as may be established between the Fund and State Street from time to time:

 

  4.1.1 Oversee the maintenance by the Fund’s custodian of certain books and records of the Fund as required under Rule 31a-1(b) of the 1940 Act;

 

  4.1.2 Calculate, submit for approval by officers of the Fund and arrange for payment of the Fund’s expenses;

 

  4.1.3 Prepare for review and approval by officers of the Fund financial information for the Fund’s semi-annual and annual reports, proxy statements and other communications required or otherwise to be sent to Fund shareholders;

 

  4.1.4

Prepare and file, following review by an officer of and legal counsel for the Fund, the Fund’s periodic financial reports required to be filed with the Securities and Exchange Commission (“SEC”) on Form N-

 

4


 

SAR and prepare financial information required by Form N-1A, Form N-2 and other regulatory filings and such other financial reports, forms or filings as may be mutually agreed upon;

 
  4.1.5 Prepare reports relating to the business and affairs of the Fund as may be mutually agreed upon and not otherwise prepared by the Fund’s investment adviser, custodian, legal counsel or independent accountants;
 
  4.1.6 Make such reports and recommendations to the Board of Directors of the Fund (the “Board”) concerning the performance of the Fund’s independent accountants as the Board may reasonably request;
 
  4.1.7 Make such reports and recommendations to the Board concerning the performance and fees of the Fund’s custodian and transfer and dividend disbursing agent (the “Transfer Agent”) as the Board may reasonably request or deem appropriate;
 
  4.1.8 Consult with the Fund’s officers, independent accountants, legal counsel, custodian and Transfer Agent in establishing and following the accounting policies of the Fund;
 
  4.1.9 Provide Compliance Monitoring Services to assist the Fund’s investment adviser in complying with Internal Revenue Code mandatory qualification requirements, the requirements of the 1940 Act and Fund prospectus limitations as may be mutually agreed upon;
 
  4.1.10 Assist the Fund in the handling of routine regulatory examinations and work closely with the Fund’s legal counsel in response to any non-routine regulatory matters;
 
  4.1.11 Assist the Fund in the preparation of reports to the Board of Directors and with any other work of a routine or non-routine nature that requires information maintained or accessible through the Fund’s accounting and financial records.

 

4.2 State Street shall be responsible for the provision of the office facilities and the personnel required by it to perform the Services contemplated herein. State Street shall also provide reasonable facilities for use by the Fund’s auditors in connection with any periodic inspection of the books and records maintained by State Street hereunder.

 

5. SERVICE LEVEL AGREEMENT

 

5.1 In conjunction with this Agreement, State Street and MLIM shall enter into a Service Level Agreement which specifies key performance indicators and delivery benchmarks in respect of the Services and which reflects the performance goals of the parties from time to time.

 

5


5.2 Subject at all times to the terms and conditions of this Agreement, State Street shall use all reasonable endeavors to provide the Services in accordance with the Service Level Agreement.

 

5.3 Each Fund shall use all reasonable endeavors to fulfill its duties and obligations under the Service Level Agreement and to cause any third parties referenced therein to do likewise. State Street shall have no liability for any loss, liability, claim, cost or expense to the extent resulting from or caused by the failure of a Fund or any other party referenced in the Service Level Agreement to comply with the terms thereof. For avoidance of doubt, the preceding sentence shall not relieve State Street of liability to the extent any such loss or expense arises from its own negligence, bad faith, fraud, willful default or willful misconduct in the discharge of its duties hereunder.

 

5.4 The liability of State Street in respect of its obligations under the Service Level Agreement shall be governed by the terms of this Agreement. In no event shall a failure by State Street to comply with any term or condition of the Service Level Agreement constitute a breach or violation of this Agreement giving rise to financial penalties, damages or contractual or other remedies, except as set out in this Section 5. However, the fact that State Street has met the key performance indicators or delivery benchmarks of the Service Level Agreement shall not relieve State Street of any liability that it might otherwise have under this Agreement arising from or as a result of its fraud, willful default, negligence or willful misconduct in the performance of its duties hereunder. It is the intention of State Street and each Fund that the remedy for any:

 

  5.4.1 failure by State Street, a Fund or any third party referenced in the Service Level Agreement to meet the performance indicators, delivery benchmarks or other aspects of the Service Level Agreement; or

 

  5.4.2 consistent failure by State Street, a Fund or any third party referenced in the Service Level Agreement to fulfill its duties and obligations under the Service Level Agreement in a material respect; or

 

  5.4.3 dispute relating to the Service Level Agreement, shall be referral of the matter to the JSC (as defined below) for attempted resolution or, where applicable, termination of this Agreement in accordance with Section 20.6.4.

 

5.5 The purpose of the referral to the JSC is to resolve the inability of the relevant party to meet the provisions of the Service Level Agreement. It shall be the responsibility of the JSC to develop and oversee implementation of procedural or operational changes which will enable the Service Level Agreement to be more regularly met; revise the obligations of the parties under the Service Level Agreement to more adequately meet the service requirements of the Funds; or otherwise develop a solution aimed at ensuring that the inability to meet the Service Level Agreement will be less likely to occur in the future.

 

5.6

If a matter is referred to the JSC pursuant to Section 5.4 and despite implementation of the JSC’s recommendations, a party consistently fails to meet in a material respect its

 

6


 

obligations under the Service Level Agreement that were the subject of the referral or any revised obligations agreed as a result of the referral (other than for reasons outside the party’s reasonable control), then the matter shall be referred to the senior executive of the Global Investor Services Group of State Street and the First Vice President — MLIM Operations (or their equivalents following any reorganization) (together the “Executive Officers”) for resolution. The referral shall expressly cite this Section 5 and state that the relevant Fund(s) or State Street, as the case may be, may exercise its right to terminate this Agreement should the matter not be resolved.

 

5.7 If the Executive Officers are unable to resolve the matter within thirty (30) Business Days of the referral, and if (but only if) all relevant parties agree in writing within five (5) Business Days of the aforementioned deadline, the matter may be submitted to a mutually-acceptable Professional Mediator (as defined in Section 26.5 below) to attempt to facilitate a resolution within thirty (30) Business Days of the referral. Any such mediation shall be conducted in accordance with the provisions of Sections 26.4 through 26.6 below.

 

5.8 If either (i) following a failure by the Executive Officers to resolve the matter, the relevant Fund(s) and State Street do not agree on use of a Professional Mediator or (ii) the matter has not been resolved within thirty (30) Business Days of the conclusion of such mediation effort, then the relevant Fund(s) or State Street, as the case may be, shall be entitled to terminate this Agreement in accordance with Sections 20.4.3 and 20.6.4, respectively.

 

5.9 Nothing in this Section 5 shall limit the liability of State Street for any failure to perform the Services in accordance with the standard of care set forth in Section 11 and the terms of this Agreement as distinct from a failure by State Street to meet key performance indicators or delivery benchmarks of the Service Level Agreement. The fact that the Service Level Agreement performance metrics have been met shall not excuse State Street from liability that it would otherwise have under the terms of this Agreement.

 

6. NECESSARY INFORMATION

 

6.1 Each Fund will promptly deliver to State Street copies of each of the following documents and all future amendments and supplements thereto, if any:

 

  6.1.1 The Fund’s Charter Documents;

 

  6.1.2 The Fund’s Prospectus;

 

  6.1.3 Certified copies of the resolutions of the Board authorizing (1) the Fund to enter into this Agreement and (2) certain individuals on behalf of the Fund to (a) give Proper Instructions to State Street pursuant to this Agreement and (b) sign checks and pay expenses;

 

  6.1.4 A copy of the investment advisory agreement between the Fund and its investment adviser; and

 

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  6.1.5 Such other certificates, documents or opinions which State Street may, in its reasonable discretion, deem necessary or appropriate in the proper performance of its duties.

 

6.2 Each Fund shall provide or cause to be provided to State Street such additional data and information as State Street may reasonably require in order to discharge its duties under this Agreement, including, without limitation, the information detailed in the Service Level Agreement. State Street shall have no liability for the failure to provide, any error in the provision of, or any delay in providing, any of the Services to the extent the provision of such Services is dependent upon receipt of the aforesaid information and the same has not been provided in a materially complete, accurate and timely manner. For avoidance of doubt, the preceding sentence shall not relieve State Street of liability to the extent any such loss or expense arises from its own negligence, bad faith, fraud, willful default or willful misconduct in the discharge of its duties hereunder.

 

6.3 Each Fund shall assure that its custodian and other service providers make available to State Street such information in respect of the Fund as State Street may reasonably require for the performance of the Services.

 

6.4 Each Fund shall use all reasonable endeavors to ensure that any information provided or caused to be provided to State Street pursuant to this Agreement, including the Service Level Agreement, shall be provided in a complete, accurate and timely manner so as to enable State Street to duly render the Services.

 

6.5 In the course of discharging its duties hereunder, State Street may rely on the information provided to it by or on behalf of a Fund or by any persons authorized by a Fund including, without limitation, any other service providers to the Fund or any Authorized Price Sources.

 

6.6 Each Fund acknowledges and agrees that except as otherwise expressly set forth in the Service Level Agreement, State Street shall have no responsibility for, or duty to review, confirm or otherwise perform any investigation as to the completeness, accuracy or sufficiency of any information provided to it by the Fund, any persons authorized by the Fund or any other service providers to the Fund, including, without limitation, any Authorized Price Sources and shall be without liability for any loss, liability, claim, expense or damage suffered or incurred by any person as a result of State Street having relied upon and utilized such information in good faith. For avoidance of doubt, the preceding sentence shall not relieve State Street of liability to the extent any such loss or expense arises from its own negligence, bad faith, fraud, willful default or willful misconduct in the discharge of its duties hereunder. State Street will promptly notify a Fund in the event it becomes aware that any information received by it is incomplete, inaccurate or insufficient or in the event of a failure or delay by any party to provide information required by State Street to discharge its duties under this Agreement.

 

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7. RECONCILIATION

 

7.1 Each Fund represents and warrants to State Street that it has completed or caused to be completed a full reconciliation of the Historic Fund Records and except as otherwise disclosed in writing to State Street such records are accurate and complete in all material respects.

 

7.2 To the extent the Historic Fund Records remain unreconciled as of the effective date of this Agreement, each Fund shall ensure that the outstanding items are reconciled as soon as practicable or otherwise promptly redressed, in each case at the expense of the Fund. State Street shall provide all reasonable assistance to each Fund (at the expense of the Fund) to reconcile any outstanding items.

 

7.3 State Street shall have no liability to a Fund or any other person and shall be indemnified and held harmless by each Fund from and against any loss, liability, damage, claim, cost or expense resulting from or caused by its good faith reliance on the accuracy and completeness of the Historic Fund Records.

 

8. PROPER INSTRUCTIONS

 

8.1 Each Fund shall provide State Street with an incumbency certificate specifying the names, specimen signatures and powers of all Authorized Persons in respect of the Fund. State Street may rely upon the identity and authority of such persons until it receives written notice from the relevant Fund to the contrary.

 

8.2 Each Fund will give State Street all necessary instructions to enable State Street to fulfill its obligations under this Agreement at such times and in such form as mutually agreed upon, including, without limitation, as State Street may request.

 

8.3 State Street shall have no responsibility or liability to a Fund and shall be indemnified and held harmless by the Fund, if a subsequent written confirmation of an oral Proper Instruction fails to conform to the oral instructions received by State Street. State Street shall promptly seek written confirmation of any oral instruction received by it.

 

8.4 State Street shall have no obligation to act in accordance with purported instructions to the extent they conflict with applicable law or regulation, provided that State Street shall not be under any obligation to ensure that any instruction received by it would not contravene any such laws or regulations.

 

8.5 State Street shall not be liable for any loss resulting from a delay while it obtains clarification of any Proper Instructions which it reasonably deems to be incomplete or unclear, provided that it promptly seeks such clarification.

 

8.6 State Street shall be held harmless by a Fund in acting upon any instruction, notice, request, consent, certificate or instrument reasonably believed by it to be genuine and to be signed or otherwise given by the proper party or parties.

 

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8.7 If a Fund instructs State Street to take any action (including, without limitation, the initiation of legal proceedings) which may involve the payment of money or liability on the part of State Street, State Street may refrain from acting in accordance with such instruction until it has received indemnity, security or both reasonably satisfactory to it and sufficient to hold it harmless from and against any loss, liability or expense which State Street may incur as a result of taking such action.

 

9. PROFESSIONAL ADVICE

When deemed necessary for the proper performance of its duties under this Agreement with respect to specific and non-routine matters involving one or more of the Funds, State Street may, with the consent of a Fund (which consent shall not be unreasonably withheld), seek legal, tax, financial, administrative or other advice of a reputable professional adviser and State Street shall be reimbursed in respect of any costs and expenses properly incurred in obtaining and receiving any such advice. State Street shall have no liability to a Fund for any loss, liability, claim, cost, expense, tax or assessment arising as a direct or indirect result of having relied on such advice in good faith.

 

10. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS

Each Fund assumes responsibility for complying with all securities, tax, commodities and other laws, rules and regulations applicable to it in the conduct of its business.

 

11. STANDARD OF CARE; LIMITATION OF LIABILITY

 

11.1 State Street shall at all times exercise reasonable care and diligence and act in good faith in the performance of its duties hereunder, provided, however, that State Street shall be without liability to any Fund or any agent thereof for any loss, liability, damage, claim, cost or expense unless caused by its own fraud, willful default, negligence or willful misconduct or that of its agents, delegates or employees. State Street shall be responsible for the performance of only such duties as are explicitly set forth in this Agreement and shall have no responsibility for the actions or activities of any other party (save its agents, delegates or employees), including other service providers to a Fund.

 

11.2 Each Fund, severally but not jointly, hereby indemnifies and secures harmless (to the maximum extent permitted by law) State Street from and against all claims, actions, costs, charges, losses, damages and expenses (including without limitation legal fees and amounts reasonably paid in settlement) which State Street may incur or sustain (other than by reason of State Street’s bad faith, willful default or negligence or that of its agents, delegates or employees) in connection with the performance of its duties for that particular Fund under this Agreement or otherwise arising from any act or omission of that particular Fund or any other person (including any predecessor service provider to the Fund) prior to the effective date of this Agreement.

 

11.3

If State Street (the “Indemnified Party”) shall seek indemnification from a Fund (the “Indemnifying Party”) in respect of a claim or liability asserted by a third party, the Indemnified Party shall give written notice thereof to the Indemnifying Party promptly after it receives notice of the claim or liability being asserted, but the failure to do so shall

 

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not relieve the Indemnifying Party from any liability except to the extent that it is prejudiced by the failure or delay in giving such notice. Such notice shall summarize the basis for the claim for indemnification and any claim or liability being asserted by the third party. Within 15 days after receiving such notice, the Indemnifying Party shall give written notice to the Indemnified Party stating whether it disputes the claim for indemnification and whether it will defend against the third-party claim or liability at its own cost and expense. If the Indemnifying Party fails to give notice that it disputes an indemnification claim within 15 days after receipt of notice thereof, it shall be deemed to have accepted and agreed to the claim. The Indemnifying Party shall be entitled to direct the defense against the third-party claim or liability with counsel selected by it (subject to the consent of the Indemnified Party, which consent shall not be unreasonably withheld) as long as the Indemnifying Party is conducting a good faith and diligent defense. The Indemnified Party shall at all times have the right to fully participate in the defense of a third-party claim or liability at its own expense directly or through counsel. If no such notice of intent to dispute and defend a third-party claim or liability is given by the Indemnifying Party, or if such good faith and diligent defense is not being or ceases to be conducted by the Indemnifying Party, the Indemnified Party shall have the right, at the expense of the Indemnifying Party, to undertake the defense of such claim or liability (with counsel selected by the Indemnified Party), and to compromise or settle it, exercising reasonable business judgment. Except as otherwise provided in the immediately preceding sentence, neither the Indemnified Party nor the Indemnifying Party shall settle or confess any claim or make any compromise in any case in which the Indemnifying Party will be asked to indemnify the Indemnified Party, except with the prior written consent of both parties. The Indemnified Party shall at all times make available such information and assistance as the Indemnifying Party may reasonably request and shall cooperate with the Indemnifying Party in such defense, at the expense of the Indemnifying Party.

 

11.4 In no event shall any party be liable for any loss arising by reason of the occurrence of a Force Majeure Event (as defined in Section 12) which prevents, hinders or delays it from or in performing its obligations under this Agreement.

 

11.5 State Street shall not be liable for any liabilities, damages, losses, claims, taxes, duties, costs or expenses (including, without limitation, legal fees) whatsoever incurred or suffered by a Fund at any time as a result of the failure of the Fund or any other person (other than State Street, its employees, agents or delegates) to comply with the laws or regulations of any country or jurisdiction. For avoidance of doubt, the preceding sentence shall not relieve State Street of liability to the extent such other person’s failure to comply with laws or regulations is the direct result of State Street’s negligence, bad faith, fraud, willful default or willful misconduct in the discharge of its duties hereunder.

 

11.6 The provisions herein regarding indemnification, liability and limits thereon shall survive following the expiration or termination of this Agreement to the extent relating to any claim or right of action arising in connection with the performance of this Agreement and each Fund and State Street shall enter into such documents as shall be necessary to ensure the survival of the same.

 

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11.7 Each Fund acknowledges that except as otherwise expressly set forth in this Agreement, State Street’s duties under this Agreement do not include any obligation to monitor the compliance of the Fund or any other person whatsoever with any restriction or guideline imposed by its Constitutive Documents or by law or regulation or otherwise with regard to the investment of the assets of the Fund. In no event shall State Street have any duty to enforce compliance by the Fund or any other person whatsoever with any such restrictions or guidelines.

 

11.8 Each Fund acknowledges and agrees that State Street shall provide Compliance Monitoring Services, if any, on a contractual basis only in accordance with the terms of the Compliance Monitoring Services Addendum attached hereto as Exhibit 2. The Compliance Monitoring Services are provided by State Street as a supplement to and not in place or in lieu of a Fund’s own compliance program and/or that of the investment advisers of the Fund.

 

11.9 State Street shall have no liability to a Fund or otherwise for any loss or liability resulting from State Street’s performance or non-performance of the Compliance Monitoring Services except as expressly set forth in the Compliance Monitoring Services Addendum.

 

11.10 In no event shall State Street or any Fund be liable for any special, indirect, incidental, punitive or consequential damages of any kind whatsoever, even if advised of the possibility of such damages. The limitation on liability imposed by this Section 11.10 shall not be construed to relieve State Street of liability to a Fund in circumstances where (i) it is otherwise liable to the Fund under the terms of this Agreement for losses resulting from an inaccurate Net Asset Value calculation and (ii) the liability of the Fund arises from its obligation to compensate shareholders for direct loss resulting from the purchase or redemption of shares at such inaccurate Net Asset Value.

 

12. FORCE MAJEURE

 

12.1 If a party is prevented, hindered or delayed from or in performing any of its obligations under this Agreement by a Force Majeure Event (as defined below) then:

 

  12.1.1 that party’s obligations under this Agreement shall be suspended for so long as the Force Majeure Event continues and to the extent that party is so prevented, hindered or delayed;

 

  12.1.2 as soon as reasonably possible after commencement of the Force Majeure Event that party shall notify the other party in writing of the occurrence of the Force Majeure Event, the date of commencement of the Force Majeure Event and the effects of the Force Majeure Event on its ability to perform its obligations under this Agreement; and

 

  12.1.3 as soon as reasonably possible after the cessation of the Force Majeure Event that party shall notify the other party in writing of the cessation of the Force Majeure Event and shall resume performance of its obligations under this Agreement.

 

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12.2 For the purposes of this Section 12 and Section 11.4, “Force Majeure Event” means any event beyond the reasonable control of a party including, without limitation, acts of God, war damage, enemy action, riot, civil commotion, rebellion, act of any government or any other competent authority or compliance with any law or governmental order, rule, regulation or direction. For avoidance of doubt, provided that State Street has exercised reasonable care and diligence and complied with its obligations under Section 12.3 and 13 below, a Force Majeure Event shall include any failure or malfunction of any telecommunications, computer or other electrical, mechanical or technological application, service or system to the extent any such failure is beyond State Street’s reasonable control.

 

12.3 Each party hereto shall use all reasonable efforts to mitigate the effects of any Force Majeure Event.

 

13. CONTINGENCY MEASURES

 

13.1 State Street shall maintain in a separate and safe place additional copies of all records required to be maintained pursuant to this Agreement or additional tapes, disks or other sources of information necessary to reproduce all such records.

 

13.2 Within twelve (12) months of the date hereof, State Street shall establish and maintain a disaster recovery back-up facility available for its use in providing the Services required hereunder in the event circumstances beyond State Street’s control result in State Street not being able to process the necessary work at its principal facility. State Street shall, from time to time, upon request from a Fund provide written evidence and details of its arrangement with respect to such back-up facility. State Street further agrees to provide each Fund from time to time on request with a copy of the disaster recovery and contingency plans of State Street and to make its staff available to discuss such plans on request. Nothing in this Section shall relieve State Street of any liability that it might otherwise have under this Agreement arising from or as a result of its fraud, willful default, negligence or willful misconduct in the performance of its duties hereunder, provided, however, that the aggregate liability of State Street to any Fund in relation to the maintenance of a disaster recovery back-up facility during the initial twelve (12) months of this Agreement shall not at any time exceed an amount equal to ten (10) per cent of the fee paid or accrued and payable by such Fund (as of the date of the liability) in respect of the accounting and administrative services provided pursuant to the Agreement.

 

13.3 State Street shall at all times employ a then current version of one of the leading commercially available virus detection software programs to test the on-site hardware and software applications utilized by it to deliver the Services to determine that such hardware and software does not contain any computer code designed to disrupt, disable, harm, or otherwise impede operation. With respect to any applications utilized on a remote basis, State Street shall use commercially reasonable efforts to obtain a similar representation or commitment from the third party provider of such application.

 

13.4

State Street shall at its expense retain a firm of independent auditors to perform an annual audit of the internal accounting controls and procedures employed by State Street in the

 

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performance of the Services and to issue a detailed report thereon and shall provide to each Fund a copy of such report within ten (10) Business Days of its issue by the independent auditors. The first such annual audit shall be carried out in the fourth quarter of 2001. State Street shall also allow each Fund’s independent auditors and the corresponding personnel of each Fund’s investment adviser reasonable access to perform their own audit of State Street’s internal accounting controls, provided, however, that the frequency and scope of such audits shall be as agreed by the JSC from time to time.

 

13.5 Upon request of a Fund, State Street shall from time to time as appropriate, furnish to such Fund a letter setting forth the insurance coverage maintained by State Street, any changes in such coverage which may have occurred from the date of the last such request and any claim relating to the Fund which State Street may have made under such insurance.

 

14. FEES AND EXPENSES

 

14.1 In consideration of the provision of the Services by State Street, each Fund (or Merrill Lynch Investment Managers, L.P., for those Funds identified on Schedule 1 hereto as Funds for which its investment adviser pays accounting costs) shall pay to State Street such fees and shall reimburse State Street such expenses as may be agreed by the parties from time to time in a separate written fee schedule.

 

14.2 Each Fund will bear all expenses that are incurred in its operation and not specifically assumed by State Street. Expenses to be borne by each Fund, include, but are not limited to: organizational expenses; cost of services of independent accountants and outside legal and tax counsel (including such counsel’s review of the Fund’s registration statement, proxy materials, federal and state tax qualification as a regulated investment company and other reports and materials prepared by State Street under this Agreement); cost of any services contracted for by the Fund directly from parties other than State Street; cost of trading operations and brokerage fees, commissions and transfer taxes in connection with the purchase and sale of securities for the Fund; investment advisory fees; taxes, insurance premiums and other fees and expenses applicable to its operation; costs incidental to any meetings of shareholders including, but not limited to, legal and independent accountants’ fees, proxy filing fees and the costs of preparation, printing and mailing of any proxy materials; costs incidental to Board meetings, including fees and expenses of Board members; the salary and expenses of any officer, director\trustee or employee of the Fund; costs incidental to the preparation, printing and distribution of the Fund’s registration statements and any amendments thereto and shareholder reports; cost of typesetting and printing of prospectuses; cost of preparation and filing of the Fund’s tax returns, Form N-1A or N-2, and all notices, registrations and amendments associated with applicable federal and state tax and securities laws; all applicable registration fees and filing fees required under federal and state securities laws; and fidelity bond and directors’ and officers’ liability insurance.

 

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15. JOINT SERVICES COMMITTEE

 

15.1 Following the signing of this Agreement, State Street and the Funds, in conjunction with MLIM and Princeton Administrators, L.P. (collectively, the “MLIM Group”) which have entered into separate Administrative Services Agreements with State Street, shall establish a Joint Services Committee (the “JSC”) comprised of an equal number of representatives appointed to represent State Street and the MLIM Group (the “Committee Members”). For purposes of this section, the MLIM Group shall be treated as one entity in terms of their ability to appoint representatives to the JSC. Except as otherwise agreed, a meeting shall not be validly constituted unless an equal number of representatives from the MLIM Group and State Street are present. The JSC shall continue in existence after termination of this Agreement until such time as all activities performed by State Street under this Agreement have been transferred to a successor service provider. All parties shall be entitled from time to time to replace any of their representatives (and shall notify one another of their intention to do so). The JSC shall monitor the progress and performance of this Agreement in relation to the Services and shall meet on a regular basis no less frequently than quarterly unless otherwise agreed. Each of State Street and the MLIM Group shall also be entitled to convene meetings of the JSC by giving notice to all members of the JSC. A representative of the Funds shall chair all meetings of the JSC. The minutes shall be kept by State Street and, subject to review of all parties, issued to the MLIM Group. The JSC shall establish its own procedures and each party shall use all reasonable endeavors to meet the actions agreed at those meetings and cooperate with the other to provide personnel, resources and actions to meet their obligations under this Agreement.

 

15.2 State Street shall provide to the JSC and the representative(s) of the MLIM Group a monthly report in such form as the Committee Members shall agree (the “Key Performance Indicator Report”) showing the following performance levels achieved by State Street in providing the relevant Services including, but not limited to:

 

  15.2.1 the average performance in the previous 12 months;

 

  15.2.2 the month with the highest and lowest performance levels in the previous 12 months; and

 

  15.2.3 the performance in each month since the previous meeting.

 

15.3 The JSC shall be responsible for:

 

  15.3.1 determining whether a Service is an Existing Service or a New Service and, for this purpose, a Service shall be determined to be an Existing Service if, although that Service is not described in a Service Level Agreement, it is a service which a Fund can demonstrate (to the reasonable satisfaction of State Street) has been provided or made available prior to the date of this Agreement by MLIM to one or more of the Funds.

 

  15.3.2 oversight of the performance of the Services;

 

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  15.3.3 oversight of the performance by State Street, each Fund and third parties of their duties under the Service Level Agreement;

 

  15.3.4 determining when and where revisions need to be made to this Agreement and to the Service Level Agreement(s) to more adequately meet or address the service requirements of the Funds from time to time; and

 

  15.3.5 determining changes to be made in the Services as a result of changes in any law, rule or regulation applicable to the Funds.

 

16. REPRESENTATIONS AND WARRANTIES OF STATE STREET

 

16.1 State Street represents and warrants to each Fund that:

 

  16.1.1 It is a Massachusetts trust company, duly organized and existing under the laws of The Commonwealth of Massachusetts;

 

  16.1.2 It has the corporate power and authority to carry on its business in The Commonwealth of Massachusetts and the State of New Jersey;

 

  16.1.3 All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement;

 

  16.1.4 No legal or administrative proceedings have been instituted or threatened which would impair State Street’s ability to perform its duties and obligations under this Agreement; and

 

  16.1.5 Its entrance into this Agreement shall not cause a material breach or be in material conflict with any other agreement or obligation of State Street or any law or regulation applicable to it.

 

17. REPRESENTATIONS AND WARRANTIES OF THE FUNDS

 

17.1 Each Fund represents and warrants to State Street that:

 

  17.1.1 It is a corporation or business trust, as the case may be, duly organized, existing and in good standing under the laws of the jurisdiction of its incorporation or establishment;

 

  17.1.2 It has the requisite corporate or trust power and authority under applicable laws and by its Constitutive Documents to enter into and perform this Agreement;

 

  17.1.3 All requisite proceedings have been taken to authorize it to enter into and perform this Agreement;

 

  17.1.4 It is an investment company properly registered under the 1940 Act;

 

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  17.1.5 A registration statement under the 1933 Act and the 1940 Act has been filed and, if the Fund is offering securities in a transaction that requires registration under the 1933 Act, will be effective and remain effective during the term of this Agreement as required by applicable law. The Fund also warrants to State Street that as of the effective date of this Agreement, all necessary filings under the securities laws of the states in which the Fund offers or sells its shares have been made;

 

  17.1.6 No legal or administrative proceedings have been instituted or threatened which would impair the Fund’s ability to perform its duties and obligations under this Agreement; and

 

  17.1.7 Its entrance into this Agreement will not cause a material breach or be in material conflict with any other agreement or obligation of the Fund or any law or regulation applicable to it.

 

18. CONFIDENTIALITY

The parties hereto agree that each shall treat confidentially the terms and conditions of this Agreement and all information provided by each party to the other regarding its business and operations. All confidential information provided by a party hereto, including nonpublic personal information pursuant to Regulation S-P of the Securities and Exchange Commission, shall be used by any other party hereto solely for the purpose of rendering services pursuant to this Agreement and, except as may be required in carrying out this Agreement, shall not be disclosed to any third party without the prior consent of such provident party. The foregoing shall not be applicable to any information that is publicly available when provided or thereafter becomes publicly available other than through a breach of this Agreement, or that is required to be disclosed by any regulatory authority, any auditor or legal counsel of the parties hereto, by judicial or administrative process or otherwise by applicable law or regulation.

 

19. RECORDS

 

19.1 State Street is authorized to maintain all accounts, registers, corporate books and other documents and information on magnetic tape or disc or in accordance with any other mechanical or electronic system provided that they are capable of being reproduced in legible form in accordance with applicable laws.

 

19.2

In compliance with the requirements of Rule 31a-3 under the 1940 Act, State Street agrees that all records which it maintains for a Fund shall at all times remain the property of the Fund, shall be readily accessible during normal business hours, and shall be promptly surrendered upon the termination of the Agreement or otherwise on written request. State Street further agrees that all records which it maintains for a Fund pursuant to Rule 3la-1 under the 1940 Act will be preserved for the periods prescribed by Rule 31a-2 under the 1940 Act unless any such records are earlier surrendered as provided above. Records shall be surrendered in usable machine-readable form. State Street shall

 

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have the right to retain copies of such records subject to observance of its confidentiality obligations under this Agreement.

 

20. TERM; TERMINATION

 

20.1 This Agreement shall become effective as of the date of its execution and delivery and shall continue in full force and effect for an initial term of five (5) years (the “Initial Term”) with automatic one year renewals from year to year thereafter unless otherwise terminated in accordance with this provisions of this Section 20.

 

20.2 Upon termination of this Agreement, each Fund shall pay to State Street upon demand, such fees and reimbursable costs, expenses and disbursements as may be due as of the date of such termination.

 

20.3 State Street shall be entitled to resign its appointment hereunder in respect of a Fund:

 

  20.3.1 following expiration of the Initial Term, by giving not less than 270 days notice in writing to the Fund to expire at any time, provided, however, that State Street will use reasonable efforts in assisting the Fund to select a successor and if, after the expiration of the notice period, a new administrative services provider has not been appointed or is not ready to assume its duties, State Street shall continue its appointment hereunder for such additional period as may be mutually agreed between State Street and the Fund.

 

  20.3.2 with immediate effect at any time prior to the expiry of the Initial Term if:

 

  20.3.2.1 such Fund shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Fund seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property; or the Fund shall take any corporate action to authorize any of the preceding actions, provided, however, that State Street may not resign its position on the basis that a Fund is being liquidated or reorganized for reasons other than bankruptcy or insolvency; or

 

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20.5 In the event that a Fund terminates one or more series of shares with respect to which State Street renders Services or a Fund terminates State Street’s appointment pursuant to Section 20.4.2 above, it shall so notify State Street in writing.

 

20.6 Following any termination of this Agreement, State Street and each Fund agree to provide their committed cooperation to effect an orderly transition of State Street’s duties and responsibilities hereunder to a new administrative services provider(s) selected by the Fund or Funds as soon as may be reasonably practicable.

 

20.7 In the event this Agreement is terminated by one or more of the Funds pursuant to Section 20.4.2.4 or by State Street pursuant to Section 20.3.2.3, State Street shall pay one-half of the direct costs and expenses incurred by State Street and the Fund(s) in connection with such termination and the conversion to a successor administrative services provider and the Fund or Funds involved shall arrange for the payment of the balance.

 

21. NOTICES

Any notice or other communication authorized or required by this Agreement to be given to either party shall be in writing and deemed to have been given when delivered in person or by confirmed facsimile, or posted by certified mail, return receipt requested, to the following address (or such other address as a party may specify by written notice to the other): if to a Fund c/o Merrill Lynch Investment Managers, L.P., 500 College Road East, Plainsboro, NJ 08536, Attn: Treasurer, fax (609) 282-7231; and if to State Street: State Street Bank and Trust Company, 500 College Road East, Plainsboro, NJ 08536, Attn: Donald DeMarco, fax: 609-282-9239.

 

22. FURTHER ASSURANCE

Each party to this Agreement shall do and execute or procure to be done and executed all necessary acts, deeds, documents and things reasonably in its power to give effect to this Agreement.

 

23. NON-EXCLUSIVITY

 

23.1 The services of State Street to the Funds hereunder are not to be deemed exclusive and State Street and any affiliate shall be free to render similar services to others and to retain for its own use and benefit all fees or other monies payable thereby and neither State Street nor any affiliate shall be deemed to be affected with notice of or to be under any duty to disclose to the Funds any fact or thing which comes to the notice of State Street or that affiliate or any servant or agent of State Street or that affiliate in the course of State Street rendering similar services to others or in the course of its business in any other capacity or in any manner whatsoever otherwise than in the course of carrying out its duties hereunder.

 

23.2 Nothing herein contained shall prevent State Street or any affiliate from buying holding and dealing in any assets upon its own account or the account of others notwithstanding that similar assets may be held by State Street for the account of a Fund.

 

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24. NO PARTNERSHIP OR AGENCY

Nothing in this Agreement shall be construed as creating a partnership between State Street and a Fund or as constituting any party the agent of another party (save as expressly set out in this Agreement) for any purpose whatsoever and no party shall have the authority or power to bind another party or to contract in the name of or create a liability against another party in any way or for any purpose.

 

25. NON-WAIVER; FORBEARANCE

The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion or the failure of a party to exercise or any delay in exercising a right or remedy under this Agreement (including any right implied by law) shall not constitute a waiver of any such term, right or remedy or a waiver of any other rights or remedies and no single or partial exercise of any right or remedy under this Agreement shall prevent any further exercise of the right or remedy or the exercise of any other right or remedy.

 

26. DISPUTES

 

26.1 The parties desire to prevent both disputes and unanticipated issues arising under or relating to this Agreement. The parties further desire to resolve such disputes and unanticipated issues that nevertheless do occur by use of processes that are intended to avoid and prevent delaying or impairing in any way the performance by all parties of their respective obligations under this Agreement. Therefore, the parties have agreed to utilize the processes specified below in this Section 26 to resolve certain disputes, as described below, arising under or relating to this Agreement.

 

26.2 The parties agree that any issue(s) which may arise in connection with the Agreement shall initially be referred to the JSC, which shall establish a deadline for resolution of each matter submitted to it.

 

26.3 If the JSC has not fully resolved such issue(s) by the stated deadline, then the matter shall be referred to the Executive Officers for resolution.

 

26.4 If the Executive Officers are unable to resolve the matter within thirty (30) Business Days of the referral, and if (but only if) all relevant parties agree in writing within five (5) Business Days of the aforementioned deadline, then a mutually-acceptable Professional Mediator (as defined below) may be utilized to review the open issue(s) and attempt to facilitate a resolution within thirty (30) Business Days of referral of the issue(s). The parties will mutually determine the location, date, duration, and process for any such mediation effort, which shall be in all respects advisory to, and not binding on, the parties. State Street shall pay one-half of the costs of the Professional Mediator and the Fund or Funds involved shall arrange for the payment of the balance.

 

26.5 To be considered as the Professional Mediator, an individual must have experience in the investment and/or administrative services industry/ies (preferably both). Any individual employed during the last two (2) calendar years by any party or any party’s current primary legal, accounting, or consulting firm may not be utilized.

 

20


26.6 In order to enable and facilitate candor and completeness during, and the optimal potential benefits of, the mediation process, both (1) the parties’ respective contentions, communications, documents, and/or submissions, if any, during the mediation, and (2) the analysis, comments, and/or recommendations of the Professional Mediator, if any (x) will remain confidential among the parties (to the extent permissible under applicable law, State Street and each Fund hereby acknowledging that State laws and/or regulations may require the public availability of some or all information and documents relating to this Agreement) and (y) may not be asserted, admitted, or otherwise utilized by any party as evidence against another party in any later or simultaneous mediation, binding arbitration, litigation, or otherwise.

 

26.7 If either (i) following a failure by the Executive Officers to resolve the matter, the relevant parties do not agree on use of a Professional Mediator or (ii) the open issue(s) have not been resolved within thirty (30) Business Days of the conclusion of such mediation effort, then resolution between the parties’ will be deemed to have failed and each party shall be free to enforce of its legal rights under this Agreement in such manner as it shall deem fit.

 

27. REMEDIES ARE CUMULATIVE

Except as expressly provided in this Agreement, the rights and remedies contained in this Agreement are cumulative and not exclusive of any rights or remedies provided by law.

 

28. REPRODUCTION OF DOCUMENTS

This Agreement and all schedules, exhibits, attachments and amendments hereto may be reproduced by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process. The parties hereto each agree that any such reproduction shall be admissible in evidence as the original itself, subject to any challenge on the grounds that the reproduction has been materially altered so that it does not conform to the terms of the original agreement, in any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a party in the regular course of business, and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence.

 

29. VARIATION OF AGREEMENT

No variation, amendment or modification of this Agreement shall be valid unless it is in writing and signed for or on behalf of each party hereto.

 

30. ASSIGNABILITY

This Agreement shall not be assigned by either State Street or a Fund without the prior consent in writing of the other party, except that State Street may assign this Agreement to a successor of all or a substantial portion of its business, or to a party controlling, controlled by or under common control with State Street.

 

21


31. SUCCESSORS

This Agreement shall be binding on and shall inure to the benefit of the Fund and State Street and their respective successors and permitted assigns.

 

32. SEVERABILITY

In the event that any part of this Agreement shall be determined to be void or unenforceable for any reason, the remainder of this Agreement shall be unaffected thereby (unless the purpose of the agreement is substantially frustrated by such determination), and shall be enforceable in accordance with the remainder of its terms as if the void or unenforceable part were not part hereof.

 

33. COUNTERPARTS

This Agreement may be executed in any number of counterparts, each of which shall, when executed and delivered be an original, but all the counterparts taken together shall constitute one and the same agreement.

 

34. LIMITATION ON LIABILITY OF TRUSTEES

In relation to each Fund which is a business trust, this Agreement is executed and made by the Trustees of the Fund not individually, but as trustees under the Declarations of Trust of the Fund and the obligations of this Agreement are not binding upon any of such Trustees or upon any of the shareholders of the Fund individually, but bind only the trust estate of the Fund.

 

35. GOVERNING LAW

This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflicts of law principles thereof.

 

36. ENTIRE AGREEMENT

This Agreement constitutes the entire agreement between State Street and each Fund on the subject matter hereof and supersedes and terminates as of the date hereof, all prior oral or written agreements, arrangements or understandings between the parties.

[Remainder of Page Intentionally Blank]

 

22


SIGNATURE PAGE

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers designated below as of the date first written above.

 

STATE STREET BANK AND TRUST COMPANY
By:   / S / D ONALD D E M ARCO
Name: Title:  

Donald DeMarco

Senior Vice President

TERRY K. GLENN,

President

for and on behalf of the Funds listed on Schedule I hereto

/s/ Terry K. Glenn

 

23

Exhibit 16

POWER OF ATTORNEY

The undersigned officer and/or director of BlackRock MuniAssets Fund, Inc. (“MUA”) and BlackRock Apex Municipal Fund, Inc. (“APX” and together with MUA, the “Funds”), each a Maryland corporation formed under the laws of the State of Maryland, does constitute and appoint Anne Ackerley, Neal Andrews, Brendan Kyne and Howard Surloff, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting separately and without the other) to execute in the name and on behalf of the undersigned as such officer and/or director, a Registration Statement on Form N-14 (the “Registration Statement”), including any pre-effective amendments and/or any post-effective amendments thereto, and any other filings with federal, state or local authorities or any regulatory authorities or stock exchanges that may be deemed by the officers of the Funds to be necessary or desirable in connection with the transactions contemplated therein, such transactions including, but not limited to, the termination of APX’s registration under the Investment Company Act of 1940, as amended (the “1940 Act”), the delisting of APX’s securities from all stock exchanges and the dissolution of APX under applicable state law, and to file the same under the Securities Act of 1933, as amended, the 1940 Act, applicable state law or the rules of any regulatory authority or stock exchanges, or otherwise, with respect to the registration or offering of MUA’s shares of common stock, par value $0.10 per share and the completion of the other transactions contemplated by the Registration Statement and this Power of Attorney or necessary or incidental thereto; granting to such attorneys and agents and each of them, full power of substitution and revocation in the premises; and ratifying and confirming all that such attorneys and agents, or any of them, may do or cause to be done by virtue of these presents.

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


IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of this 1st day of September, 2010.

 

/ S / A NNE F. A CKERLEY

Anne F. Ackerley

President and Chief Executive Officer

/ S / N EAL J. A NDREWS

Neal J. Andrews

Chief Financial Officer

/ S / R ICHARD E. C AVANAGH

Richard E. Cavanagh

Director

/ S / K AREN P. R OBARDS

Karen P. Robards

Director

/ S / K ATHLEEN F. F ELDSTEIN

Kathleen F. Feldstein

Director

/ S / F RANK J. F ABOZZI

Frank J. Fabozzi

Director

/ S / H ENRY G ABBAY

Henry Gabbay

Director

/ S / R ICHARD S. D AVIS

Richard S. Davis

Director

/ S / R. G LENN H UBBARD

R. Glenn Hubbard

Director

/ S / J AMES T. F LYNN

James T. Flynn

Director

/ S / W. C ARL K ESTER

W. Carl Kester

Director

/ S / J ERROLD B. H ARRIS

Jerrold B. Harris

Director

Exhibit 17

[Proxy Card Front]

BlackRock Apex Municipal Fund, Inc.

100 Bellevue Parkway

Wilmington, Delaware 19809

FORM OF PROXY CARD

This proxy is solicited on behalf of the Board of Directors

The undersigned hereby appoints Anne F. Ackerley, Howard B. Surloff and Brian P. Kindelan as proxies, each with the power to appoint his substitute and hereby authorizes each of them to represent and to vote, as designated on the reverse hereof, all the shares of BlackRock Apex Municipal Fund, Inc. (the “Fund”), held of record by the undersigned on October 20, 2010 at the special meeting of shareholders of the Fund to be held on Friday, December 17, 2010 or any adjournment or postponement thereof.

This proxy, when properly executed, will be voted in the manner herein directed by the undersigned shareholder. If no direction is without limitations made, this proxy will be voted “FOR” the proposals.

By signing and dating the reverse side of this card, you authorize the proxies to vote the proposals as marked, or if not marked, to vote “FOR” the proposals, and to use their discretion to vote for any other matter as may properly come before the special meeting or any adjournment or postponement thereof. If you do not intend to personally attend the special meeting, please complete and return this card at once in the enclosed envelope.

(Continued and to be signed on the reverse side)


[Proxy Card Reverse]

Please mark boxes /X/ or [X] in blue or black ink.

 

  1. PROPOSAL 1: To approve an Agreement and Plan of Reorganization among BlackRock Apex Municipal Fund, Inc., BlackRock MuniAssets Fund, Inc. and MUA Merger Subsidiary, LLC and the termination of BlackRock Apex Municipal Fund, Inc.’s registration under the Investment Company Act of 1940.

FOR      ¨                         AGAINST      ¨                         ABSTAIN      ¨

 

  2. PROPOSAL 3: To approve a proposal to convert BlackRock Apex Municipal Fund, Inc.’s fundamental investment policy restricting BlackRock Apex Municipal Fund, Inc. from issuing senior securities or borrowing amounts in excess of 5% of its total assets taken at market value into a non-fundamental investment policy.

FOR      ¨                         AGAINST      ¨                         ABSTAIN      ¨

 

  Please sign exactly as name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney or as executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized person.
  Dated:   

 

  

 

  X   

 

  
     Signature   
  X   

 

  
     Signature, if held jointly   

Sign, Date, and Return the Proxy Card Promptly Using the Enclosed Envelope.


[Proxy Card Front]

BlackRock MuniAssets Fund, Inc.

100 Bellevue Parkway

Wilmington, Delaware 19809

FORM OF PROXY CARD

This proxy is solicited on behalf of the Board of Directors

The undersigned hereby appoints Anne F. Ackerley, Howard B. Surloff and Brian P. Kindelan as proxies, each with the power to appoint his substitute and hereby authorizes each of them to represent and to vote, as designated on the reverse hereof, all the shares of BlackRock MuniAssets Fund, Inc. (the “Fund”), held of record by the undersigned on October 20, 2010 at the special meeting of shareholders of the Fund to be held on Friday, December 17, 2010 or any adjournment or postponement thereof.

This proxy, when properly executed, will be voted in the manner herein directed by the undersigned shareholder. If no direction is without limitations made, this proxy will be voted “FOR” the proposals.

By signing and dating the reverse side of this card, you authorize the proxies to vote the proposals as marked, or if not marked, to vote “FOR” the proposals, and to use their discretion to vote for any other matter as may properly come before the special meeting or any adjournment or postponement thereof. If you do not intend to personally attend the special meeting, please complete and return this card at once in the enclosed envelope.

(Continued and to be signed on the reverse side)


[Proxy Card Reverse]

Please mark boxes /X/ or [X] in blue or black ink.

 

  1. PROPOSAL 2: To approve the issuance of additional shares of common stock of BlackRock MuniAssets Fund, Inc. in connection with an Agreement and Plan of Reorganization among BlackRock MuniAssets Fund, Inc., BlackRock Apex Municipal Fund, Inc. and MUA Merger Subsidiary, LLC.

FOR      ¨                         AGAINST      ¨                         ABSTAIN      ¨

 

  2. PROPOSAL 4: To approve a proposal to convert BlackRock MuniAssets Fund, Inc.’s fundamental investment policy restricting BlackRock MuniAssets Fund, Inc. from issuing senior securities or borrowing amounts in excess of 5% of its total assets taken at market value into a non-fundamental investment policy.

FOR      ¨                         AGAINST      ¨                         ABSTAIN      ¨

 

  Please sign exactly as name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney or as executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized person.
  Dated:   

 

  

 

  X   

 

  
     Signature   
  X   

 

  
     Signature, if held jointly   

Sign, Date, and Return the Proxy Card Promptly Using the Enclosed Envelope.