EXHIBIT 99.(G)(2)
SUB-INVESTMENT ADVISORY AGREEMENT
---------------------------------
AGREEMENT dated as of August ___, 1999, between The BlackRock
Strategic Municipal Trust, a Delaware business trust (the "Trust"), BlackRock
Advisors, Inc. a Delaware corporation (the "Adviser"), and BlackRock Financial
Management, Inc., a Delaware corporation (the "Sub-Adviser").
WHEREAS, the Adviser has agreed to furnish investment advisory
services to the Trust, a closed-end management investment company registered
under the Investment Company Act of 1940 (the "Act");
WHEREAS, the Adviser wishes to retain the Sub-Adviser to provide it
with sub-advisory services as described below in connection with Adviser's
advisory activities on behalf of the Trust;
WHEREAS, the advisory agreement between the Adviser and the Trust
dated _______, 1999 (such Agreement or the most recent successor agreement
between such parties relating to advisory services to the Trust is referred to
herein as the "Advisory Agreement") contemplates that the Adviser may sub-
contract investment advisory services with respect to the Trust to a sub-
adviser pursuant to a sub-advisory agreement agreeable to the Trust and approved
in accordance with the provisions of the Act; and
WHEREAS, this Agreement has been approved in accordance with the
provisions of the Act, and the Sub-Adviser 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 Adviser hereby appoints the Sub-Adviser to act
-----------
as sub-adviser with respect to the Trust and the Sub-Adviser accepts such
appointment and agrees to render the services herein set forth for the
compensation herein provided.
2. Services of the Sub-Adviser. Subject to the oversight and
---------------------------
supervision of the Adviser and the Trust's Board of Trustees, the Sub-Adviser
will supervise the day-to-day operations of the Trust and perform the following
services: (a) provide investment research and credit analysis concerning the
Trust's investments, (b) conduct a continual program of investment of the
Trust's assets, (c) determine what portion of the Trust's assets will be
invested in cash, cash equivalents and money market instruments, (d) place
orders for all purchases and sales of the investments made for the Trust, and
(e) maintain the books and records as are required to support Trust investment
operations (in conjunction with record-keeping and accounting functions
performed by Adviser). At the request of the Adviser, the Sub-Adviser will
also, subject to the oversight and supervision of the Adviser and the Trust's
Board of Trustees, perform any of the services described in Section 3 of the
Advisory Agreement. In addition, the Sub-Adviser will keep the Trust and the
Adviser informed of developments materially affecting the Trust and shall, on
its own initiative, furnish to the Trust from time to time whatever information
the Sub-Adviser believes appropriate for this purpose. The Sub-Adviser will
communicate to the Adviser on each day that a purchase or sale of an instrument
is effected for the Trust or at such other times as the Adviser may direct (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 will be
effected, (d) the CUSIP number of the instrument, if any, and (e) such other
information as the Adviser may reasonably require for purposes of fulfilling its
obligations to the Trust under the Advisory Agreement. The Sub-Adviser will
provide the services rendered by it under this Agreement in accordance with the
Trust's investment objectives, policies and restrictions (as currently in effect
and as they may be amended or supplemented from time to time) as stated in the
Trust's Prospectus and Statement of Additional Information and the resolutions
of the Trust's Board of Trustees.
3. Covenants. In the performance of its duties under this Agree
---------
ment, the Sub-Adviser shall at all times conform to, and act in accordance with,
any requirements imposed by:
(a) (i) the provisions of the Act and the Investment Advisers Act
of 1940, as amended 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 Agreement and Declaration of Trust and By-Laws
of the Trust, as such documents are amended from time to time; (iv) the
investment objectives and policies of the Trust as set forth in its Registration
2
Statement on Form N-2; and (v) any policies and determinations of the Board of
Trustees of the Trust;
(b) will 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-Adviser will attempt to obtain the best
price and the most favorable execution of its orders. In placing orders, the
Sub-Adviser 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-Adviser may select brokers
on the basis of the research, statistical and pricing services they provide to
the Trust and other clients of the Adviser or the Sub-Adviser. 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-Adviser 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-Adviser determines in good faith that such commission is reasonable in
terms either of the transaction or the overall responsibility of the Adviser and
the Sub-Adviser to the Trust's and their other clients and that the total
commissions paid by the Trust will be reasonable in relation to the benefits to
the Trust over the long-term. In addition, the Sub-Adviser is authorized to
take into account the sale of shares of the Trust in allocating purchase and
sale orders for portfolio securities to brokers or dealers (including brokers
and dealers that are affiliated with the Adviser or the Sub-Adviser), provided
that the Sub-Adviser believes that the quality of the transaction and the
commission are comparable to what they would be with other qualified firms. In
no instance, however, will the Trust's securities be purchased from or sold to
the Adviser, the Sub-Adviser or any affiliated person thereof, except to the
extent permitted by the SEC or by applicable law;
(c) will maintain books and records (to the extent such books and
records are not maintained by the Adviser) with respect to the Trust's
securities transactions and will render to the Adviser and the Trust's Board of
Trustees such periodic and special reports as they may request;
(d) will maintain a policy and practice of conducting its
investment advisory services hereunder independently of the commercial banking
operations of its affiliates. When the Sub-Adviser makes investment
recommendations for the Trust, its investment advisory personnel will not
inquire or take into
3
consideration whether the issuer of securities proposed for purchase or
sale for the Trust's account are customers of the commercial department of its
affiliates; and
(e) will treat confidentially and as proprietary information of
the Trust all records and other information relative to the Trust, and the
Trust'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 Trust, which approval shall not be unreasonably withheld and may not be
withheld where the Sub-Adviser 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 Trust.
4. Services Not Exclusive. Nothing in this Agreement shall prevent
----------------------
the Sub-Adviser or any officer, employee or other affiliate thereof from acting
as investment adviser 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-Adviser 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-Adviser 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 Act, the Sub-Adviser hereby agrees that all records which it
maintains for the Trust are the property of the Trust and further agrees to
surrender promptly to the Trust any such records upon the Trust's request. The
Sub-Adviser further agrees to preserve for the periods prescribed by Rule 31a-2
under the Act the records required to be maintained by Rule 31a-1 under the Act
(to the extent such books and records are not maintained by the Adviser).
6. Agency Cross Transactions. From time to time, the Sub-Adviser or
-------------------------
brokers or dealers affiliated with it may find themselves in a position to buy
for certain of their brokerage clients (each an "Account") securities which the
Sub-Adviser's investment advisory clients wish to sell, and to sell for certain
of their brokerage clients securities which advisory clients wish to buy. Where
one of the parties is an advisory client, the Adviser or the affiliated broker
or dealer cannot participate in this type of transaction (known as a cross
transaction) on behalf of an advisory client and retain commissions from both
parties to the transaction without
4
the advisory client's consent. This is because in a situation where the Sub-
Adviser is making the investment decision (as opposed to a brokerage client who
makes his own investment decisions), and the Sub-Adviser or an affiliate is
receiving commissions from one or both sides of the transaction, there is a
potential conflicting division of loyalties and responsibilities on the Sub-
Adviser's part regarding the advisory client. The Securities and Exchange
Commission has adopted a rule under the Investment Advisers Act of 1940, as
amended which permits the Sub-Adviser or its affiliates to participate on behalf
of an Account in agency cross transactions if the advisory client has given
written consent in advance. By execution of this Agreement, the Trust
authorizes the Sub-Adviser or its affiliates to participate in agency cross
transactions involving an Account. The Trust may revoke its consent at any time
by written notice to the Sub-Adviser.
7. Expenses. During the term of this Agreement, the Sub-Adviser
--------
will bear all costs and expenses of its employees and any overhead incurred by
the Sub-Adviser in connection with its duties hereunder except that the Trust or
the Advisor will reimburse the Sub-Adviser for all expenses incurred in
connection with the Sub-Adviser's performance of any of the administrative
services set forth in Paragraph 3 of the Advisory Agreement and that the Board
of Trustees of the Trust may approve reimbursement to the Sub-Adviser of the
pro-rata portion of the salaries, bonuses, health insurance, retirement benefits
and all similar employment costs for the time spent on Trust operations (other
than the provision of investment advice) of all personnel employed by the Sub-
Adviser who devote substantial time to the Trust operations or the operations of
other investment companies advised by the Sub-Adviser.
8. Compensation.
------------
(a) The Adviser agrees to pay to the Sub-Adviser and the Sub-
Adviser agrees to accept as full compensation for all services rendered by the
Sub-Adviser as such, a monthly fee in arrears at an annual rate equal to 0.35%
of the average weekly value of the Trust's Managed Assets. "Managed Assets"
means the total assets of the Trust minus the sum of accrued liabilities (other
than the aggregate indebtedness constituting financial leverage). 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.
5
(b) For purposes of this Agreement, the Managed Assets of the
Trust shall be calculated pursuant to the procedures adopted by resolutions of
the Trustees of the Trust for calculating the value of the Trust's assets or
delegating such calculations to third parties.
9. Indemnity.
---------
(a) The Trust hereby agrees to indemnify the Sub-Adviser and each
of the Sub-Adviser'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-Adviser'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 Trust 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 Trust 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 Trust 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
Trust 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
6
the prosecution of such action, suit or other proceeding by such Indemnitee was
authorized by a majority of the full Board of Trustees of the Trust.
(b) The Trust shall make advance payments in connection with the
expenses of defending any action with respect to which indemnification might be
sought hereunder if the Trust receives a written affirmation 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 Trust unless it is
subsequently determined that such Indemnitee is entitled to such indemnification
and if the trustees of the Trust 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 Trust shall be insured against losses arising by
reason of any lawful advance, or (C) a majority of a quorum consisting of
trustees of the Trust who are neither "interested persons" of the Trust (as
defined in Section 2(a)(19) of the Act) nor parties to the proceeding
("Disinterested Non-Party Trustees") 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 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 Trustees of the Trust,
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.
10. Limitation on Liability.
-----------------------
(a) The Sub-Adviser will not be liable for any error of judgment
or mistake of law or for any loss suffered by the Adviser or by the Trust 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
7
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.
(b) Notwithstanding anything to the contrary contained in this
Agreement, the parties hereto acknowledge and agree that, as provided in Section
5.1 of Article V of the Declaration of Trust, this Agreement is executed by the
Trustees and/or officers of the Trust, not individually but as such Trustees
and/or officers of the Trust, and the obligations hereunder are not binding upon
any of the Trustees or Shareholders individually but bind only the estate of the
Trust.
11. Duration and Termination. This Agreement shall become effective
------------------------
as of the date hereof and, unless sooner terminated with respect to the Trust 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 Trust 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 Trust's Board of Trustees or a vote of a majority of the
outstanding voting securities of the Trust at the time outstanding and entitled
to vote and (b) by the vote of a majority of the Trustees, who are not parties
to this Agreement or interested persons (as such term is defined in the 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 Trust or the Adviser at any time, without the payment of any penalty,
upon giving the Sub-Adviser 60 days' notice (which notice may be waived by the
Sub-Adviser), provided that such termination by the Trust or the Adviser shall
be directed or approved by the vote of a majority of the Trustees of the Trust
in office at the time or by the vote of the holders of a majority of the
outstanding voting securities of the Trust at the time outstanding and entitled
to vote, or by the Sub-Adviser on 60 days' written notice (which notice may be
waived by the Trust and the Adviser), and will terminate automatically upon any
termination of the Advisory Agreement between the Trust and the Adviser. 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 Act.)
12. 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
8
date actually received or on the fourth day after the postmark if such notice is
mailed first class postage prepaid.
13. Amendment of this Agreement. No provision of this Agreement may
---------------------------
be changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. Any amendment of this Agreement shall be
subject to the Act.
14. 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 other wise, 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.
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 Act.
16. Counterparts. This Agreement may be executed in counter parts by
------------
the parties hereto, each of which shall constitute an original counterpart, and
all of which, together, shall constitute one Agreement.
9
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, INC.
By:
-----------------------------
Name:
Title:
BLACKROCK FINANCIAL MANAGEMENT, INC.
By:
-----------------------------
Name:
Title:
THE BLACKROCK
STRATEGIC MUNICIPAL TRUST
By:
-----------------------------
Name:
Title:
10
