BLACKROCK FUNDS
485APOS, 2000-11-14
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<PAGE>

 As filed with the Securities and Exchange Commission on November 14, 2000
                                                       Registration No. 33-26305
--------------------------------------------------------------------------------

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   Form N-1A

            REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933      [X]

                        PRE-EFFECTIVE AMENDMENT NO. ___                  [_]

                        POST-EFFECTIVE AMENDMENT NO. 58                  [X]

                                      and

        REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940  [X]

                                AMENDMENT NO. 60                         [X]

                 _____________________________________________

                               BLACKROCK FUNDS(SM)


               (Exact Name of Registrant as Specified in Charter)

<TABLE>
<S>                                   <C>                                 <C>
Bellevue Corporate Center             Brian Kindelan, Esq.                copy to:
400 Bellevue Parkway                  BlackRock Advisors, Inc.            Sarah E. Cogan, Esq.
Suite 100                             1600 Market Street, 28th Floor      Simpson Thacher & Bartlett
Wilmington, Delaware 19809            Philadelphia, PA  19103             425 Lexington Avenue
(Address of Principal                 (Name and Address of                New York, New York  10017
  Executive Offices)                    Agent for Service)
Registrant's Telephone Number
(800) 441-7762
</TABLE>

                 _____________________________________________

It is proposed that this filing will become effective (check appropriate box)
     [_] immediately upon filing pursuant to paragraph (b)
     [_] on (date) pursuant to paragraph (b)
     [_] 60 days after filing pursuant to paragraph (a)(1)
     [_] on (date) pursuant to paragraph (a)(1)
     [_] 75 days after filing pursuant to paragraph (a)(2)
     [X] on January 28, 2001 pursuant to paragraph (a)(2) of rule 485.

If appropriate, check the following box:

     [_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>

                               EXPLANATORY NOTE
                               ----------------

The prospectuses for the Service, Investor A, Investor B, Investor C and
Institutional Shares of the Low Duration Bond, Intermediate Government Bond,
Intermediate Bond, Core Bond, High Yield Bond, GNMA, Government Income, Managed
Income, International Bond, Tax-Free Income, Pennsylvania Tax-Free Income, New
Jersey Tax-Free Income, Ohio Tax-Free Income, Kentucky Tax-Free Income, Delaware
Tax-Free Income, Money Market, Municipal Money Market, U.S. Treasury Money
Market, Ohio Municipal Money Market, Pennsylvania Municipal Money Market, North
Carolina Municipal Money Market, Virginia Municipal Money Market, New Jersey
Municipal Money Market, Large Cap Value Equity, Large Cap Growth Equity, Index
Equity, Small Cap Value Equity, Mid-Cap Value Equity, International Equity,
International Emerging Markets, International Small Cap Equity, Balanced, Small
Cap Growth Equity, Mid-Cap Growth Equity, Micro-Cap Equity and Select Equity
Portfolios, each dated January 28, 2000, are incorporated by reference to the
Registrant's filing of Post-Effective Amendment No. 50 to its Registration
Statement on Form N-1A on January 28, 2000.

The prospectus for the BlackRock Shares of the Low Duration Bond, Core Bond,
Intermediate Bond and High Yield Bond Portfolios, dated January 28, 2000, is
incorporated by reference to the Registrant's filing of Post-Effective Amendment
No. 50 to its Registration Statement on Form N-1A on January 28, 2000.

The prospectuses for the shares of the BlackRock Strategic Portfolio I,
BlackRock Strategic Portfolio II and the Multi-Sector Mortgage Securities
Portfolio III, each dated December 6, 1999, are incorporated by reference to the
Registrant's filing of Post-Effective Amendment No. 49 to its Registration
Statement on Form N-1A on December 6, 1999.

The prospectus for the shares of the Multi-Sector Mortgage Securities Portfolio
IV, dated January 28, 2000, is incorporated by reference to the Registrant's
filing of Post-Effective Amendment No. 50 to its Registration Statement on Form
N-1A on January 28, 2000.

The prospectus for the Hilliard Lyons Shares of the Money Market Portfolio and
the Municipal Money Market Portfolio, dated October 5, 1999, is incorporated by
reference to the Registrant's filing of Post-Effective Amendment No. 47 to its
Registration Statement on Form N-1A on October 5, 1999.

The prospectuses for the Service, Investor A, Investor B, Investor C and
Institutional Shares of the Global Science & Technology Portfolio are
incorporated by reference to the Registrant's filing of Post-Effective Amendment
No. 54 to its Registration Statement on Form N-1A on May 10, 2000.

The prospectuses for the Service, Investor A, Investor B, Investor C and
Institutional Shares of the European Equity and Asia Pacific Equity Portfolios
and BlackRock Shares of the Select Equity Portfolio are incorporated by
reference to the Registrant's filing of Post-Effective Amendment No. 55 to its
Registration Statement on Form N-1A on June 6, 2000.
<PAGE>

                                                                               2

The prospectus for the Institutional Shares of the Core Equity Portfolio is
incorporated by reference to the Registrant's filing of Post-Effective Amendment
No. 57 to its Registration Statement on Form N-1A on October 27, 2000.

The statement of additional information for the Service, Investor A, Investor B,
Investor C and Institutional Shares of the Low Duration Bond, Intermediate
Government Bond, Intermediate Bond, Core Bond, High Yield Bond, Government
Income, Managed Income, International Bond, Tax-Free Income, Pennsylvania Tax-
Free Income, New Jersey Tax-Free Income, Ohio Tax-Free Income, Kentucky Tax-Free
Income, Delaware Tax-Free Income, GNMA, Money Market, Municipal Money Market,
U.S. Treasury Money Market, Ohio Municipal Money Market, Pennsylvania Municipal
Money Market, North Carolina Municipal Money Market, Virginia Municipal Money
Market, New Jersey Municipal Money Market, Large Cap Value Equity, Large Cap
Growth Equity, Index Equity, Small Cap Value Equity, Mid-Cap Value Equity,
International Equity, International Emerging Markets, International Small Cap
Equity, Balanced, Small Cap Growth Equity, Mid-Cap Growth Equity, Select Equity
and Micro-Cap Equity Portfolios, and the BlackRock Shares of the Low Duration
Bond, Core Bond, Intermediate Bond and High Yield Bond Portfolios, dated January
28, 2000, is incorporated by reference to the Registrant's filing of Post-
Effective Amendment No. 50 to its Registration Statement on Form N-1A on January
28, 2000.

The statements of additional information for the shares of the BlackRock
Strategic Portfolio I, the BlackRock Strategic Portfolio II and the Multi-Sector
Mortgage Securities Portfolio III, dated December 6, 1999, are incorporated by
reference to the Registrant's filing of Post-Effective Amendment No. 49 to its
Registration Statement on Form N-1A on December 6, 1999.

The statement of additional information for the shares of the Multi-Sector
Mortgage Securities Portfolio IV, dated January 28, 2000, is incorporated by
reference to the Registrant's filing of Post-Effective Amendment No. 50 to its
Registration Statement on Form N-1A on January 28, 2000.

The statement of additional information for Hilliard Lyons Shares of the Money
Market Portfolio and the Municipal Money Market Portfolio, dated October 5,
1999, is incorporated by reference to the Registrant's filing of Post-Effective
Amendment No. 47 to its Registration Statement on Form N-1A on October 5, 1999.

The statement of additional information for the Service, Investor A, Investor B,
Investor C and Institutional Shares of the Global Science & Technology Portfolio
is incorporated by reference to the Registrant's filing of Post-Effective
Amendment No. 54 to its Registration Statement on Form N-1A on May 10, 2000.

The statement of additional information for the Service, Investor A, Investor B,
Investor C and Institutional Shares of the European Equity and Asia Pacific
Equity Portfolios is incorporated by reference to the Registrant's filing of
Post-Effective Amendment No. 55 to its Registration Statement on Form N-1A on
June 6, 2000.
<PAGE>

                                                                               3

The statement of additional information for the Institutional Shares of the Core
Equity Portfolio is incorporated by reference to the Registrant's filing of
Post-Effective Amendment No. 57 to its Registration Statement on Form N-1A on
October 27, 2000.
<PAGE>

[GRAPHIC]

          |
NOT FDIC- | May lose value
INSURED   | No bank guarantee
          |


                                    Global

                                Communications

                                   Portfolio

                         =============================
                         I N V E S T O R   S H A R E S

              BlackRock Funds/sm/ is a mutual fund family with 42
              investment portfolios. BlackRock Funds are sold
              principally through licensed investment professionals.





              P R O S P E C T U S

              January __, 2001


              [LOGO] BLACKROCK
                         FUNDS

              The Securities and Exchange Commission has not approved or
              disapproved these securities or passed upon the adequacy of this
              prospectus. Any representation to the contrary is a criminal
              offense.
<PAGE>





Table of
Contents

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

How to find the information you need

<TABLE>
<S>                                                                          <C>
How to find the information you need........................................   1
Global Communications Portfolio.............................................   2
</TABLE>

About Your Investment

<TABLE>
<S>                                                                         <C>
How to Buy/Sell Shares.....................................................   9
Dividends/Distributions/Taxes..............................................  21
Services for Shareholders..................................................  23
</TABLE>
<PAGE>

How to Find the
Information You Need
About BlackRock Funds

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


This is the BlackRock Global Communications Portfolio Prospectus. It has been
written to provide you with the information you need to make an informed
decision about whether to invest in BlackRock Funds (the Company).

If you have questions after reading the prospectus, ask your registered
representative for help. Your investment professional has been trained to help
you decide which investments are right for you.
                                                                             1
<PAGE>

             BlackRock
[LOGO]       Global Communications
             Portfolio

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


  IMPORTANT DEFINITIONS


 Earnings Growth: The
 rate of growth in a
 company's earnings per
 share from period to
 period. Security
 analysts attempt to
 identify companies with
 earnings growth
 potential because a
 pattern of earnings
 growth generally causes
 share prices to
 increase.

 Equity Security: A
 security, such as
 stock, representing
 ownership of a company.
 Bonds, in comparison,
 are referred to as
 fixed income or debt
 securities because they
 represent indebtedness
 to the bondholders, not
 ownership (although
 convertible bonds are
 fixed income securities
 that are convertible to
 equity according to
 their terms).

 Fundamental Analysis: A
 method of stock market
 analysis that
 concentrates on
 "fundamental"
 information about the
 company (such as its
 income statement,
 balance sheet, earnings
 and sales history,
 products and
 management) to attempt
 to forecast future
 stock value.

 Growth Companies: All
 stocks are generally
 divided into the
 categories of "growth"
 or "value," although
 there are times when a
 growth fund and value
 fund may own the same
 stock. Growth stocks
 are companies whose
 earnings growth
 potential appears to
 the manager to be
 greater than the market
 in general and whose
 revenue growth is
 expected to continue
 for an extended period.
 These stocks typically
 pay relatively low
 dividends and sell at
 relatively high prices.
 Value stocks are
 companies that appear
 to the manager to be
 undervalued by the
 market as measured by
 certain financial
 formulas.

 Investment Style:
 Refers to the guiding
 principles of a mutual
 fund's investment
 choices. The investment
 style of this fund is
 global science and
 technology growth,
 referring to the type
 of securities the
 managers will choose
 for this fund.

 Market Capitalization:
 Market capitalization
 refers to the market
 value of a company and
 is calculated by
 multiplying the number
 of shares outstanding
 by the current price
 per share.

Investment Goal
The fund seeks long-term capital appreciation.

Primary Investment Strategies
In pursuit of this goal, the fund manager will invest primarily in equity
securities of U.S. and foreign companies selected for their rapid and
sustainable growth potential from the development, manufacture or sale of
emerging or established communication technology services and equipment. The
fund can also purchase securities issued by companies outside of the
communication technology sector if such companies may benefit from the use of
communication technology. The fund normally invests at least 65% of its total
assets in equity securities issued by these companies and normally invests at
least 80% of its total assets in equity securities.

The fund primarily buys common stock but also can invest in preferred stock and
securities convertible into common and preferred stock. The fund may also
invest in Rule 144A securities, which are privately placed securities purchased
by qualified institutional buyers. From time to time the fund may invest in
shares of companies through initial public offerings (IPOs).

The fund manager will invest in U.S. and foreign companies (including companies
located in emerging market countries) with market capitalizations greater than
$25 million that he believes offer the best opportunities for growth and high
investment returns. The manager screens for stocks whose medium to long term
growth prospects he believes are superior to broad market averages. Once these
candidates have been identified, the manager uses fundamental analysis to
examine each company for financial strength before deciding to purchase the
stock.

The manager, in an attempt to reduce portfolio risk, will diversify by
investing in at least three countries, one of which may be the U.S. Some of the
industries that are likely to be represented in the fund's portfolio holdings
include:
  . local and wide area network services or equipment companies
  . land-based, satellite and wireless carriers
  . communications equipment manufacturers
  . internet-related services or equipment, including internet service
    providers, web hosting and web content providers and internet portals
2
<PAGE>

  . fiber optic transmission
  . communications software development
  . cable and other pay television services or equipment
  . video conferencing
  . data processing and delivery
  . paging
  . semiconductors
  . microwave
  . telephone utilities and large long distance carriers
  . [wireless voice and data equipment and services]
  . [broadband infrastructure]
  . [digital cable services and equipment]
  . [optical components and integrated circuits]

The fund generally will sell a stock when, in the fund manager's opinion, there
is a deterioration in the company's fundamentals, the company fails to meet
performance expectations or the stock's relative price momentum declines
meaningfully.

It is possible that in extreme market conditions the fund temporarily may
invest some or all of its assets in high quality money market securities. The
reason for acquiring money market securities would be to avoid market losses.
However, if market conditions improve, this strategy could result in reducing
the potential gain from the market upswing, thus reducing the fund's
opportunity to achieve its investment objective. As part of its normal
operations, the fund may hold these securities pending investments or when it
expects to need cash to pay redeeming shareholders. The fund will not deviate
from its normal strategies if it holds high quality money market securities
pending investments.

The fund manager may, when consistent with the fund's investment objective, use
options or futures (commonly known as derivatives). An option is the right to
buy or sell a security at a specific price on or before a specific date. A
future is an agreement to buy or sell a security at a specific price on a
specific date. The primary purpose of using derivatives is to attempt to reduce
risk to the fund as a whole (hedge) but they may also be used to maintain
liquidity and commit cash pending investment. The fund manager also may, but
under normal market conditions generally does not intend to, use derivatives
for speculation to increase returns.

The fund may also use forward foreign currency exchange contracts (obligations
to buy or sell a currency at a set rate in
the future) to hedge against movements in the value of foreign currencies.

The fund may lend some of its securities on a short-term basis in order to earn
income. The fund will receive collateral in cash or
                                                                             3
<PAGE>

high quality securities equal to the current value of the loaned securities.
The fund earns interest on the securities it lends and income when it invests
the collateral for the loaned securities. These loans will be limited to 33
1/3% of the value of the fund's total assets.

The fund may engage in active and frequent trading of portfolio securities to
achieve its principal investment strategies.

Should the Company's Board of Trustees determine that the investment objective
of the fund should be changed, shareholders will be given at least 30 days
notice before any such change is made.

Key Risks

Key Risks
The main risk of any investment in stocks is that values fluctuate in price.
The value of your investment can go up or down depending upon market
conditions, which means you could lose money.

The fund's focus on stocks in the communication technology sector makes it
more susceptible to factors affecting that sector and more volatile than funds
that invest in many different sectors. Therefore, a downturn in the
communication technology sector could hurt the fund's performance to a greater
extent than a fund that invests in many sectors.

In addition, investing in communication technology companies exposes the fund
to special risks. For example, rapid advances in communication technology
might cause existing products to become obsolete, and the fund's returns could
suffer to the extent it holds an affected company's shares. Companies in a
number of communication technology industries are also subject to more
government regulations and approval processes than many other industries. This
fact may affect a company's overall profitability and cause its stock price to
be more volatile. Additionally, communication technology companies are
dependent upon consumer and business acceptance as new technologies evolve.

The fund may invest in companies that have relatively small market
capitalizations. These organizations will normally have more limited product
lines, markets and financial resources and will be dependent upon a more
limited management group than larger capitalized companies. In addition, it is
more difficult to get information on smaller companies, which tend to be less
well known, have shorter operating histories, do not have significant
ownership by large investors and are followed by relatively few securities
analysts. The securities of smaller capitalized companies are often traded in
the over-the-counter markets and may have fewer market makers and wider price
spreads. This may result in greater price movements and less ability to sell
the
4
<PAGE>

fund's investment than if the fund held the securities of larger, more
established companies.

Foreign securities involve risks not typically associated with investing in
U.S. securities. These risks include but are not limited to: currency risks
(the risk that the value of dividends or interest paid by foreign securities,
or the value of the securities themselves, may fall if currency exchange rates
change), the risk that a security's value will be hurt by changes in foreign
political or social conditions, the possibility of heavy taxation,
nationalization or expropriation of assets and more difficulty obtaining
information on foreign securities or companies. In addition, a portfolio of
foreign securities may be harder to sell and may be subject to wider price
movements than comparable investments in U.S. companies. There is less
government regulation of foreign securities markets.

In addition, political and economic structures in emerging market countries may
be undergoing rapid change and these countries may lack the social, political
and economic stability of more developed countries. As a result some of the
risks described above, including the risks of nationalization or expropriation
of assets and the existence of smaller, more volatile and less regulated
markets, may be increased. The value of many investments in emerging market
countries recently has dropped significantly due to economic and political
turmoil in many of these countries.

Because different kinds of stocks go in and out of favor depending on market
conditions, this fund's performance may be better or worse than other funds
with different investment styles.

IPOs and companies that have recently gone public have the potential to produce
substantial gains for the fund. However, there is no assurance that the fund
will have access to profitable IPOs. Furthermore, stocks of some newly-public
companies may decline shortly after the initial public offering.

While the fund manager chooses stocks he believes have above average earnings
growth potential, there is no guarantee that the shares will increase in value.

On January 1, 1999, eleven European countries implemented a new currency unit
called the "Euro" which is expected to replace the existing national currencies
of these countries by July 1, 2002. Full implementation of the Euro may be
delayed and difficulties with the conversion may significantly impact European
capital markets, resulting in increased volatility in European and world
markets. Individual issuers may suffer substantial losses if they or their
suppliers are not adequately prepared for the transition, which could hurt the
value of shares of the fund.

The fund's investment in Rule 144A securities could have the effect of
increasing the level of illiquidity in the fund during any
                                                                             5
<PAGE>


period that qualified institutional buyers become uninterested in purchasing
these types of securities.

The fund's use of derivatives may reduce returns and/or increase volatility.
Volatility is the characteristic of a security or a market to fluctuate
significantly in price within a short time period.

Forward foreign currency exchange contracts do not eliminate movements in the
value of foreign securities but rather allow the fund to establish a fixed
rate of exchange for a future point in time. This strategy can have the effect
of reducing returns and minimizing opportunities for gain.

The fund may invest more than 25% of its assets in securities whose issuers
are located in a single country. These investments would make the fund more
dependent upon the political and economic circumstances of that country than a
mutual fund that owns stocks of companies in many countries.

The expenses of the fund can be expected to be higher than those of other
funds investing primarily in domestic securities because the costs
attributable to investing abroad are usually higher.

Securities loans involve the risk of a delay in receiving additional
collateral from the borrower if the value of the securities go up while they
are on loan. There is also the risk of delay in recovering the loaned
securities and of losing rights to the collateral if a borrower goes bankrupt.

Higher than normal portfolio turnover may result in increased transaction
costs to the fund, including brokerage commissions, dealer mark-ups and other
transaction costs on the sale of the securities and on reinvestment in other
securities. The sale of fund securities may result in the recognition of
capital gain or loss. Given the frequency of sales, such gain or loss will
likely be short-term capital gain or loss. Unlike long-term capital gain,
short-term capital gain of individuals is taxable at the same rates as
ordinary income. These effects of higher than normal portfolio turnover may
adversely affect fund performance.

When you invest in this fund you are not making a bank deposit. Your
investment is not insured or guaranteed by the Federal Deposit Insurance
Corporation or by any bank or governmental agency.

Expenses and Fees

Expenses and Fees
The tables below explain your pricing options and describe the fees and
expenses that you may pay if you buy and hold Investor A, B and C Shares of
the fund.


6
<PAGE>

Shareholder Fees (Fees paid directly from your investment)

<TABLE>
<CAPTION>
                               A Shares B Shares C Shares
<S>                            <C>      <C>      <C>
Maximum Sales Charge (Load)
 Imposed on Purchases*           5.0%    0.0%    0.0%
(as percentage of offering
 price)
Maximum Deferred Sales
 Charge (Load)                   0.0%    4.5%**  1.00%***
(as percentage of offering
 price)
</TABLE>
  * Reduced front-end sales charges may be available. A CDSC of up to 1.00% is
    assessed on certain redemptions of Investor A Shares that are purchased
    with no initial sales charge as part of an investment of $1,000,000 or
    more.
 ** The CDSC is 4.5% if shares are redeemed in less than one year. The CDSC for
    Investor B Shares decreases for redemptions made in subsequent years. After
    six years there is no CDSC on B Shares. (See page 13 for complete schedule
    of CDSCs.)
*** There is no CDSC on C Shares after one year.

Annual Fund Operating Expenses
(Expenses that are deducted from fund assets)

<TABLE>
<CAPTION>
                               A Shares B Shares C Shares
<S>                            <C>      <C>      <C>
Advisory Fees
Distribution and service
 (12b-1) fees
Other expenses/1/
Total annual fund operating
 expenses
Fee waivers and expense
 reimbursements*
Net Expenses*
</TABLE>
 * BlackRock, BIL and BlackRock Distributors, Inc., the fund's distributor,
   have contractually agreed to waive or reimburse fees or expenses in order to
   limit fund expenses to   % (for Investor A Shares) and   % (for Investor B
   and C Shares) of average daily net assets until    , 2001. The fund may have
   to repay some of these waivers and reimbursements to BlackRock and BIL in
   the following two years. See the "Management" section on pages 19 and 20 for
   a discussion of these waivers and reimbursements.
 /1/The fund is newly organized and, accordingly, "Other expenses" are based on
   estimated amounts for the current fiscal year.

Example:
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. We are assuming an initial
investment of $10,000, 5% total return each year with no changes in operating
expenses, redemption at the end of each time period and, with respect to B
Shares and C Shares only, no redemption at the end of each time period.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:

<TABLE>
<CAPTION>
                 1 Year 3 Years
<S>              <C>    <C>
A Shares*
B Shares**
   Redemption
B Shares
   No Redemption
C Shares**
   Redemption
C Shares
   No Redemption
</TABLE>
  * Reflects imposition of sales charge.
 ** Reflects deduction of CDSC.
  IMPORTANT DEFINITIONS


 Advisory Fees: Fees
 paid to the investment
 adviser for portfolio
 management services.

 Distribution Fees: A
 method of charging
 distribution-related
 expenses against fund
 assets.

 Other Expenses: Include
 administration,
 transfer agency,
 custody, professional
 fees and registration
 fees.

 Service Fees: Fees that
 are paid to BlackRock
 and/or its affiliates
 for shareholder account
 service and
 maintenance.

                                                                             7
<PAGE>

As a shareholder you pay certain fees and expenses. Shareholder fees are paid
out of your investment and annual fund operating expenses are paid out of fund
assets.

This prospectus offers shareholders different ways to invest with three
separate pricing options. You need to understand your choices so that you can
choose the pricing option that is most suitable for you. As shown above, with
one option (Investor A Shares) you pay a one-time front-end transaction fee
each time you buy shares. The other options (Investor B and Investor C Shares)
have no front-end charges but have higher on-going fees, which are paid over
the life of the investment, and have a contingent deferred sales charge (CDSC)
that you may pay when you redeem your shares. Which option should you choose?
It depends on your individual circumstances. You should know that the lowest
sales charge won't necessarily be the least expensive option over time. For
example, if you intend to hold your shares long term it may cost less to buy A
Shares than B or C Shares.

Fund Management
The fund is managed by a team of investment professionals at BlackRock
Advisors, Inc. (BlackRock) and BlackRock International, Ltd. (BIL). The team
includes the following individuals who have day-to-day responsibility: Thomas
Callan, Michael Carey, Kenneth Anderson and David Stanistreet.

Thomas Callan has been a Managing Director with BlackRock since 1996 and served
as an equity analyst for PNC Bank from 1993 to 1996. He has co-managed the fund
since its inception.

Michael Carey has been a Vice President with BlackRock since 2000, an equity
analyst with BlackRock since 1996 and served as a fixed income analyst for PNC
Bank from 1993 to 1996. He has co-managed the fund since its inception.

Kenneth Anderson, Director and international equity investment manager at BIL,
is primarily responsible for European equity research and portfolio management.
Prior to joining BIL in 2000, Mr. Anderson was an investment director and the
deputy head of the Scottish Widows Investment Management European equity team.
He has co-managed the fund since its inception.

David Stanistreet, Director and international equity investment manager at BIL,
is primarily responsible for European equity research and portfolio management.
Prior to joining BIL in 2000, Mr. Stanistreet had been an investment director
of the Scottish Widows Investment Management European equity team since 1997.
From 1995 to 1997, Mr. Stanistreet was head of European equities at Royal
Insurance Asset Management (which merged in 1996 to become Royal & Sun
Alliance). He has co-managed the fund since its inception.


8
<PAGE>

[GRAPHIC]    About Your Investment

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




Buying Shares from a Registered Investment Professional

BlackRock Funds believes that investors can benefit from the advice and ongoing
assistance of a registered investment professional. Accordingly, when you buy
or sell BlackRock Funds Investor Shares, you may pay a sales charge, which is
used to compensate your investment professional for services provided to you.

As a shareholder you pay certain fees and expenses. Shareholder fees are paid
directly from your investment and annual fund operating expenses are paid out
of fund assets and are reflected in the fund's price.

Your registered representative can help you to buy shares by telephone. Before
you place your order make sure that you have read the prospectus and have a
discussion with your registered representative about the details of your
investment

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

What Price Per Share Will You Pay?

The price of mutual fund shares generally changes every business day. A mutual
fund is a pool of investors' money that is used to purchase a portfolio of
securities, which in turn is owned in common by the investors. Investors put
money into a mutual fund by buying shares. If a mutual fund has a portfolio
worth $50 million and has 5 million shares outstanding, the net asset value
(NAV) per share is $10. When you buy Investor Shares you pay the NAV/share plus
the sales charge if you are purchasing Investor A Shares.

The fund's investments are valued based on market value, or where market
quotations are not readily available, based on fair value as determined in good
faith by or under the direction of the Company's Board of Trustees. Under some
circumstances certain short-term debt securities will be valued using the
amortized cost method.

Since the NAV changes daily, the price you pay for your shares depends on the
time that your order is received by the BlackRock Funds' transfer agent, whose
job it is to keep track of shareholder records.

PFPC, the Company's transfer agent, will probably receive your order from your
registered representative, who takes your order. However, you can also fill out
a purchase application and mail it
                                                                             9
<PAGE>


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


to the transfer agent with your check. Please call (800) 441-7762 for a
purchase application. Purchase orders received by the transfer agent before the
close of regular trading on the New York Stock Exchange (NYSE) (currently 4
p.m. (Eastern time)) on each day the NYSE is open will be priced based on the
NAV calculated at the close of trading on that day plus any applicable sales
charge. NAV is calculated separately for each class of shares of the fund at 4
p.m. (Eastern time) each day the NYSE is open. Shares will not be priced on
days the NYSE is closed. Purchase orders received after the close of trading
will be priced based on the next calculation of NAV. The foreign securities and
certain other securities held by the fund may trade on days when the NYSE is
closed. In these cases, net asset value of shares may change when fund shares
cannot be bought or sold.

When you place a purchase order, you need to specify whether you want Investor
A, B or C Shares. If you do not specify a class, you will receive Investor A
Shares.

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

When Must You Pay?

Payment for an order must be made by your registered representative in Federal
funds or other immediately available funds by 4 p.m. (Eastern time) on the
third business day following PFPC's receipt of the order. If payment is not
received by this time, the order will be canceled and you and your registered
representative will be responsible for any loss to the fund. For shares
purchased directly from the transfer agent, a check payable to BlackRock Funds
and bearing the name of the fund must accompany a completed purchase
application. The Company does not accept third-party checks. You may also wire
Federal funds to the transfer agent to purchase shares, but you must call PFPC
at (800) 441-7762 before doing so to confirm the wiring instructions.

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

How Much is the Minimum Investment?

The minimum investment for the initial purchase of Investor Shares is $500.
There is a $50 minimum for all later investments. The Company permits a lower
initial investment if you are an employee of the Company or one of its service
providers or if you participate in the Automatic Investment Plan in which you
make regular, periodic investments through a savings or checking account. Your
investment professional can

10
<PAGE>


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

advise you on how to begin an Automatic Investment Plan. The Company won't
accept a purchase order of $1 million or more for Investor B or Investor C
Shares. The Company may reject any purchase order, modify or waive the minimum
investment requirements and suspend and resume the sale of any share class of
the Company at any time.

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

Which Pricing Option Should You Choose?

BlackRock Funds offers different pricing options to investors in the form of
different share classes. Your registered representative can help you decide
which option works best for you. Through this prospectus, you can choose from
Investor A, B, or C Shares.

A Shares (Front-End Load)
 . One time sales charge paid at time of purchase
 . Lower ongoing distribution fees
 . Free exchange with other A Shares in BlackRock Funds family
 . Advantage: Makes sense for investors who have long-term investment horizon
  because ongoing distribution fees are less than for other Investor Share
  classes.
 . Disadvantage: You pay sales charge up-front, and therefore you start off
  owning fewer shares.

B Shares (Back-End Load)
 . No front-end sales charge when you buy shares
 . You pay sales charge when you redeem shares. It is called a contingent
  deferred sales charge (CDSC) and it declines over 6 years to zero from a high
  of 4.5%.
 . Higher ongoing distribution fees than A Shares
 . Free exchange with other B Shares in BlackRock Funds family
 . Automatically convert to A Shares eight years from purchase
 . Advantage: No up-front sales charge so you start off owning more shares.
 . Disadvantage: You pay higher ongoing distribution fees than on A Shares each
  year you own shares, which means that you can expect lower total performance
  per share.

C Shares (Level Load)
 . No front-end sales charge when you buy shares
 . Contingent deferred sales charge (CDSC) of 1.00% if shares are redeemed
  within 12 months of purchase
 . Higher ongoing distribution fees than A Shares


                                                                             11
<PAGE>


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 . Free exchange with other C Shares in BlackRock Funds family
 . Advantage: No up-front sales charge so you start off owning more shares.
  These shares may make sense for investors who have a shorter investment
  horizon relative to A or B Shares.
 . Disadvantage: You pay higher ongoing distribution fees than on A shares each
  year you own shares, which means that you can expect lower total performance
  per share. Shares do not convert to A Shares.

Investor B Shares received through the reinvestment of dividends and
distributions convert to A Shares 8 years after the reinvestment or at the same
time as the conversion of the investor's most recently purchased B Shares that
were not received through reinvestment (whichever is earlier).

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

How Much is the Sales Charge?

The table below shows the schedule of front-end sales charges that you may pay
if you buy and sell Investor A, B and C Shares of the fund.

12
<PAGE>


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Purchase of Investor A Shares

The following table shows the front-end sales charges that you may pay if you
buy Investor A Shares. The offering price for Investor A Shares includes any
front-end sales charge.


<TABLE>
<CAPTION>
  AMOUNT OF                SALES CHARGE AS SALES CHARGE AS
  TRANSACTION AT           % OF OFFERING   % OF NET ASSET
  OFFERING PRICE           PRICE*          VALUE*
  <S>                      <C>             <C>
  Less than $50,000        5.00%           5.26%
  $50,000 but less than
   $100,000                4.75%           4.99%
  $100,000 but less than
   $250,000                4.50%           4.71%
  $250,000 but less than
   $500,000                3.50%           3.83%
  $500,000 but less than
   $1,000,000              2.50%           2.56%
  $1 million or more       0.00%           0.00%
</TABLE>
 * There is no initial sales charge on purchases of $1,000,000 or more of
   Investor A Shares; however, you will pay a CDSC of 1.00% of the offering
   price or the net asset value of the shares on the redemption date (whichever
   is less) for shares redeemed within 18 months after purchase.

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

Purchase of Investor B Shares

Investor B Shares are subject to a CDSC at the rates shown in the chart below if
they are redeemed within six years of purchase. The CDSC is based on the
offering price or the net asset value of the B Shares on the redemption date
(whichever is less). The amount of any CDSC an investor must pay depends on the
number of years that elapse between the date of purchase and the date of
redemption.

<TABLE>
<CAPTION>
                                         CONTINGENT DEFERRED
                                         SALES CHARGE (AS %
                                         OF DOLLAR AMOUNT
  NUMBER OF YEARS                        SUBJECT TO THE
  ELAPSED SINCE PURCHASE                 CHARGE)
  <S>                                    <C>
  Up to one year                         4.50%
  More than one but less than two years  4.00%
  More than two but less than three
   years                                 3.50%
  More than three but less than four
   years                                 3.00%
  More than four but less than five
   years                                 2.00%
  More than five but less than six
   years                                 1.00%
  More than six years                    0.00%
</TABLE>

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

Purchase of Investor C Shares

Investor C Shares are subject to a CDSC of 1.00% if they are redeemed within 12
months after purchase. The 1.00% is based on the offering price or the net
asset value of the C Shares on the redemption date (whichever is less). There
is no CDSC on C Shares redeemed after 12 months.

Purchase of Investor A Shares



                                                                             13
<PAGE>


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


When an investor redeems Investor B Shares or Investor C Shares, the redemption
order is processed so that the lowest CDSC is charged. Investor B Shares and
Investor C Shares that are not subject to the CDSC are redeemed first. After
that, the Company redeems the Shares that have been held the longest.

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

Can the Sales Charge be Reduced or Eliminated?

There are several ways in which the sales charge can be reduced or eliminated.
Purchases of Investor A Shares at certain fixed dollar levels, known as
"breakpoints," cause a reduction in the front-end sale charge. The CDSC on
Investor B Shares can be reduced depending on how long you own the shares.
(Schedules of these reductions are listed above in the "Purchase of Investor A
Shares" and "Purchase of Investor B Shares" sections.) Purchases by certain
individuals and groups may be combined in determining the sales charge on
Investor A Shares. The following are also ways the sales charge can be reduced
or eliminated.

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

Right of Accumulation (Investor A Shares)

Investors have a "right of accumulation" under which the current value of an
investor's existing Investor A Shares in any fund that is subject to a front-
end sales charge, or the total amount of an initial investment in such shares
less redemptions (whichever is greater), may be combined with the amount of the
current purchase in the same fund in determining the amount of the sales
charge. In order to use this right, the investor must alert the Company's
transfer agent, PFPC, of the existence of previously purchased shares.

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

Letter of Intent (Investor A Shares)

An investor may qualify for a reduced front-end sales charge immediately by
signing a "Letter of Intent" stating the investor's intention to buy a
specified amount of Investor A Shares within the next 13 months that would, if
bought all at once, qualify the investor for a reduced sales charge. The Letter
of Intent may be signed anytime within 90 days after the first investment to be
covered by the letter. The initial investment must meet the minimum initial
purchase requirement and represent at least 5% of the total intended purchase.
The investor must tell PFPC that later purchases are subject to the

14
<PAGE>


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

Letter of Intent. During the term of the Letter of Intent, PFPC will hold
Investor A Shares representing 5% of the indicated amount in an escrow account
for payment of a higher sales load if the full amount indicated in the Letter
of Intent is not purchased. Any redemptions made during the term of the Letter
of Intent will be subtracted from the amount of the total purchase indicated in
the letter. If the full amount indicated is not purchased within the 13-month
period, and the investor does not pay the higher sales load within 20 days,
PFPC will redeem enough of the Investor A Shares held in escrow to pay the
difference.

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

Reinvestment Privilege (Investor A Shares)

Upon redeeming Investor A Shares, an investor has a one-time right, for a period
of up to 60 days, to reinvest the proceeds in A Shares of another fund without
any sales charge. To exercise this right, PFPC must be notified of the
reinvestment in writing at the time of purchase by the purchaser or his or her
registered representative. Investors should consult a tax adviser concerning
the tax consequences of using this reinvestment privilege.

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

Quantity Discounts (Investor A Shares)

In addition to quantity discounts for individuals which we discussed above,
there are ways for you to reduce the front-end sales charge by combining your
order with the orders of certain members of your family and members of certain
groups you may belong to. For more information on these discounts, please
contact PFPC at (800) 441-7762 or see the SAI.

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

Waiving the Sales Charge (Investor A Shares)

Certain investors, including some people associated with the Company and its
service providers, may buy Investor A Shares without paying a sales charge. For
more information on the waivers, please contact PFPC at (800) 441-7762 or see
the SAI.








                                                                             15
<PAGE>


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

Waiving the Contingent Deferred Sales Charge (Investor B and Investor C
Shares)

The CDSC on Investor B and Investor C Shares is not charged in certain
circumstances, including share exchanges (see page 22) and redemptions made in
connection with certain retirement plans and in connection with certain
shareholder services offered by the Company. For more information on these
waivers, please contact PFPC at (800) 441-7762 or see the SAI.

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

Distribution and Service Plan

The Company has adopted a plan under Rule 12b-1 of the Investment Company Act
of 1940 (the Plan) that allows the Company to pay distribution fees for the
sale of its shares and shareholder servicing and processing fees for certain
services provided to its shareholders.

Under the Plan, Investor Shares pay a fee (distribution fees) to BlackRock
Distributors, Inc. (the Distributor) or affiliates of PNC Bank for
distribution and sales support services. The distribution fees may be used to
pay the Distributor for distribution services and to pay the Distributor and
PNC Bank affiliates for sales support services provided in connection with the
sale of Investor Shares. The distribution fees may also be used to pay
brokers, dealers, financial institutions and industry professionals (Service
Organizations) for sales support services and related expenses. All Investor A
Shares pay a maximum distribution fee of .10% per year of the average daily
net asset value of the fund. All Investor B and C Shares pay a maximum of .75%
per year. The Plan also allows the Distributor, PNC Bank affiliates and other
companies that receive fees from the Company to make payments relating to
distribution and sales support activities out of their past profits or other
sources.

Under the Plan, the Company also may enter into arrangements with Service
Organizations (including PNC Bank and its affiliates). Under these
arrangements, Service Organizations will provide certain support services to
their customers who own Investor Shares. The Company may pay a shareholder
servicing fee of up to .25% per year of the average daily net asset value of
Investor Shares owned by each Service Organization's customers. All Investor
Shares pay this shareholder servicing fee.

16
<PAGE>


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

In return for the fee, Service Organizations may provide one or more of the
following services to their customers who own Investor Shares:

 (1) Responding to customer questions on the services performed by the Service
     Organization and investments in Investor Shares;
 (2) Assisting customers in choosing and changing dividend options, account
     designations and addresses; and
 (3) Providing other similar shareholder liaison services.

For a separate shareholder processing fee paid by all Investor Shares of up to
 .15% per year of the average daily net asset value of Investor Shares owned by
each Service Organization's customers, Service Organizations may provide one or
more of these additional services:

 (1) Processing purchase and redemption requests from customers and placing
     orders with the Company's transfer agent or the Distributor;
 (2) Processing dividend payments from the Company on behalf of customers;
 (3) Providing sub-accounting for Investor Shares beneficially owned by
     customers or the information necessary for sub-accounting; and
 (4) Providing other similar services.

The shareholder servicing fees and shareholder processing fees payable pursuant
to the Plan are fees payable for the administration and servicing of
shareholder accounts and not costs which are primarily intended to result in
the sale of the fund's shares.

Because the fees paid by the Company under the Plan are paid out of Company
assets on an on-going basis, over time these fees will increase the cost of
your investment and may cost you more than paying other types of sales charges.


                                                                             17
<PAGE>


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

How to Sell Shares

You can redeem shares at any time (although certain verification may be required
for redemptions in excess of $25,000 or in certain other cases). The Company
will redeem your shares at the next net asset value (NAV) calculated after your
order is received by the fund's transfer agent minus any applicable CDSC.
Except when CDSCs are applied, BlackRock Funds will not charge for redemptions.
Shares may be redeemed by sending a written redemption request to BlackRock
Funds c/o PFPC, P.O. Box 8907, Wilmington, DE 19899-8907.

You can also make redemption requests through your registered investment
professional, who may charge for this service. Shareholders should indicate
whether they are redeeming Investor A, Investor B or Investor C Shares. If a
shareholder owns more than one class of the fund and does not indicate which
class he or she is redeeming, the fund will redeem shares so as to minimize the
CDSC charged.

Unless another option is requested, payment for redeemed shares is normally
made by check mailed within seven days after PFPC receives the redemption
request. If the shares to be redeemed have been recently purchased by check,
PFPC may delay the payment of redemption proceeds for up to 15 days after the
purchase date until the check has cleared.

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

Expedited Redemptions

If a shareholder has given authorization for expedited redemption, shares can be
redeemed by telephone and the proceeds sent by check to the shareholder or by
Federal wire transfer to a single previously designated bank account. You are
responsible for any charges imposed by your bank for this service. Once
authorization is on file, PFPC will honor requests by telephone at (800) 441-
7762. The Company is not responsible for the efficiency of the Federal wire
system or the shareholder's firm or bank. The Company may refuse a telephone
redemption request if it believes it is advisable to do so and may use
reasonable procedures to make sure telephone instructions are genuine. The fund
and its service providers will not be liable for any loss that results from
acting upon telephone instructions that they reasonably believed to be genuine
in accordance with those procedures. The Company may alter the terms of or
terminate this expedited redemption privilege at any time. Any redemption
request of $25,000 or more must be in writing.

18
<PAGE>


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

The Company's Rights

The Company may:

  . Suspend the right of redemption if trading is halted or restricted on the
    NYSE or under other emergency conditions described in the Investment
    Company Act of 1940,
  . Postpone date of payment upon redemption if trading is halted or
    restricted on the NYSE or under other emergency conditions described in
    the Investment Company Act of 1940 or as described in the third paragraph
    in the section "How to Sell Shares" above,
  . Redeem shares involuntarily in certain cases, such as when the value of a
    shareholder account falls below a specified level, as described below,
  . Redeem shares for property other than cash if conditions exist which make
    cash payments undesirable

in accordance with its rights under the Investment Company Act of 1940.

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

Accounts with Low Balances

The Company may redeem a shareholder's account in the fund at any time the net
asset value of the account in such fund falls below the required minimum
initial investment (usually $500 for Investor Shares) as the result of a
redemption or an exchange request. The shareholder will be notified in writing
that the value of the account is less than the required amount and the
shareholder will be allowed 30 days to make additional investments before the
redemption is processed.

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

Management

BlackRock Funds' Co-Advisers are BlackRock Advisors, Inc. (BlackRock) and
BlackRock International, Ltd. (BIL). BlackRock was organized in 1994 to perform
advisory services for investment companies and is located at 345 Park Avenue,
New York, NY 10154. BlackRock is a wholly-owned subsidiary of BlackRock, Inc.,
one of the largest publicly traded investment management firms in the United
States with $190.8 billion of assets under management as of September 30, 2000.
BlackRock, Inc. is a majority-owned indirect subsidiary of The PNC Financial
Services Group, Inc., one of the largest diversified financial services
companies in the United States. BIL is located at 7 Castle Street,
















                                                                             19
<PAGE>


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

Edinburgh, Scotland EH2 3AH. BIL was formed in 1995 and is a registered
investment adviser with the SEC and a member of the Investment Management
Regulatory Organization (IMRO) in the U.K. As of June 30, 2000, BIL managed
over $7 billion in international securities. BIL is the international equity
arm of BlackRock.

For their investment advisory services, BlackRock and BIL are entitled to fees
computed daily and payable monthly.

The total annual advisory fee that can be paid to BlackRock and BIL (as a
percentage of average daily net assets) is as follows:
<TABLE>
<CAPTION>
  AVERAGE DAILY NET      INVESTMENT
  ASSETS                 ADVISORY FEE
  <S>                    <C>
  First $1 billion            %
  $1 billion-$2 billion       %
  $2 billion-$3 billion       %
  more than $3 billion        %
</TABLE>
BlackRock and BIL will divide this fee as they may agree from time to time.

As discussed above, BlackRock, BIL and the Distributor have agreed to cap the
fund's net expenses at the levels shown in the fund's expense table.

To achieve this cap, BlackRock, BIL and the Company have entered into an
expense limitation agreement. The agreement sets a limit on certain of the
operating expenses of the fund through     , 2001 and requires BlackRock and
BIL to waive or reimburse fees or expenses if these operating expenses exceed
that limit. The expense limit (which applies to expenses charged on fund assets
as a whole, but not expenses separately charged to the different share classes
of the fund) as a percentage of average daily net assets is   %.

If within two years following a waiver or reimbursement, the operating expenses
of the fund are less than the expense limit for the fund, the fund is required
to repay BlackRock and BIL up to the amount of fees waived or expenses
reimbursed under the agreement if: (1) the fund has more than $50 million in
assets, (2) BlackRock and BIL continue to be the fund's investment advisers and
(3) the Board of Trustees of the Company has approved in advance the payments
to BlackRock and BIL at the previous quarterly meeting of the Board.

In addition, through     , 2001, BlackRock and the Distributor have
contractually agreed to waive distribution and

  IMPORTANT DEFINITIONS


 Adviser: The Adviser of
 a mutual fund is
 responsible for the
 overall investment man-
 agement of the fund.
 The Co-Advisers for the
 fund are BlackRock
 Advisors, Inc. and
 BlackRock Internation-
 al, Ltd.

20
<PAGE>


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

service fees on Investor A Shares in the amount of .095% of average daily net
assets for the fund.

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

Dividends and Distributions

BlackRock Funds makes two kinds of distributions to shareholders: dividends and
net capital gain.

Dividends are the net investment income derived by the fund and are paid within
10 days after the end of each quarter. The Company's Board of Trustees may
change the timing of dividend payments.

Net capital gain occurs when the fund manager sells securities at a profit. Net
capital gain (if any) is distributed to shareholders at
least annually at a date determined by the Company's Board of Trustees.

Your distributions will be reinvested at net asset value in new shares of the
same class of the fund unless you instruct PFPC in writing to pay them in cash.
There are no sales charges on these reinvestments.

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

Taxation of Distributions

Distributions paid out of the fund's "net capital gain" will be taxed to
shareholders as long-term capital gains, regardless of how long a shareholder
has owned shares. All other distributions will be taxed to shareholders as
ordinary income.

Your annual tax statement from the Company will present in detail the tax
status of your distributions for each year.

If more than half of the total asset value of the fund is invested in foreign
stock or securities, the fund may elect to "pass through" to its shareholders
the amount of foreign taxes paid. In such case each shareholder would be
required to include his proportionate share of such taxes in his income and may
be entitled to deduct or credit such taxes in computing his taxable income.

Distributions paid by the fund with respect to certain qualifying dividends
received by the fund from domestic corporations may be eligible for the
Corporate dividends received deduction.

Use of the exchange privilege will be treated as a taxable event because it may
be deemed a redemption and subsequent purchase of the shares involved, and
therefore may be subject to federal, state and local income tax.




                                                                             21
<PAGE>


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


Because every investor has an individual tax situation, and also because the
tax laws are subject to periodic changes, you should always consult your tax
professional about federal, state and local tax consequences of owning shares
of the Company.
22
<PAGE>

[GRAPHIC]    Services for Shareholders

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

BlackRock Funds offers shareholders many special features which can enable
investors to have greater investment flexibility as well as more access to
information about the Company.

Additional information about these features is available by calling PFPC at
(800) 441-7762.

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

Exchange Privilege

BlackRock Funds offers 42 different funds, enough to meet virtually any
investment need. Once you are a shareholder, you have the right to exchange
Investor A, B, or C Shares from one fund to another to meet your changing
financial needs. For example, if you are in a fund that has an investment
objective of long term capital growth and you are nearing retirement, you may
want to switch into another fund that has current income as an investment
objective. For information on the Company's other funds, please call PFPC at
(800) 441-7762.

You can exchange $500 (or any other applicable minimum) or more from one
BlackRock Fund into another. Investor A, Investor B and Investor C Shares of
each fund may be exchanged for shares of the same class of other funds which
offer that class of shares, based on their respective net asset values. (You
can exchange less than $500 if you already have an account in the fund into
which you are exchanging.) Because different funds have different sales
charges, the exchange of Investor A Shares may be subject to the difference
between the sales charge already paid and the higher sales charge (if any)
payable on the shares acquired as a result of the exchange. For Federal income
tax a share exchange is a taxable event and a capital gain or loss may be
realized. Please consult your tax or other financial adviser before making an
exchange request.

The exchange of Investor B and Investor C Shares will not be subject to a CDSC.
The CDSC will continue to be measured from the date of the original purchase
and will not be affected by the exchange.

To make an exchange, you must send a written request to PFPC at P.O. Box 8907,
Wilmington, DE 19899-8907. You can also make exchanges via telephone
automatically, unless you previously indicated that you did not want this
option. If so, you




                                                                             23
<PAGE>


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

may not use telephone exchange privileges until completing a Telephone Exchange
Authorization Form. To receive a copy of the form contact PFPC. The Company has
the right to reject any telephone request.

In general, there are no limits on the number of exchanges you can make.
However, the Company may suspend or terminate your exchange privilege at any
time and generally will do so if you make more than five exchanges out of any
fund in any twelve month period.

The Company reserves the right to modify, limit the use of, or terminate the
exchange privilege at any time.

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

Automatic Investment Plan (AIP)

If you would like to establish a regular, affordable investment program,
BlackRock Funds makes it easy to set up. As an investor in any BlackRock Fund
portfolio, you can arrange for periodic investments in that fund through
automatic deductions from a checking or savings account by completing the AIP
Application Form. The minimum investment amount for an automatic investment
plan is $50. AIP Application Forms are available from PFPC.

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

Retirement Plans

Shares may be purchased in conjunction with individual retirement accounts
(IRAs) and rollover IRAs where PNC Bank or any of its affiliates acts as
custodian. For more information about applications or annual fees, please
contact the Fund Agent, PFPC Inc., at P.O. Box 8907, Wilmington, DE 19899-8907
or call 1-800-441-7762. To determine if you are eligible for an IRA and whether
an IRA will benefit you, you should consult with a tax adviser.

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

Market Timing

The fund is not designed for market time organizations or other entities using
programmed or frequent exchanges. The Company reserves the right to reject any
specific purchase order, including an order made by a market timer.

Any redemption that is made as a result of this activity will be subject to any
and all redemption fees.

24
<PAGE>


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


Statements

Every BlackRock shareholder automatically receives regular account statements.
In addition, for tax purposes, shareholders also receive a yearly statement
describing the characteristics of any dividends or other distributions
received.

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

Reinvestment Privilege

Upon redemption of Investor A Shares, B Shares or C Shares, a shareholder has a
one-time right, to be exercised within 60 days, to reinvest the redemption
proceeds in the fund at NAV. Shares will be purchased on a current basis. PFPC
must be notified of the reinvestment in writing by the purchaser, or by the
broker/dealer, at the time the purchase is made. An investor should consult
with a tax adviser concerning the tax consequences of this reinvestment
privilege.

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

Important Notice Regarding Delivery of Shareholder Documents

The Securities and Exchange Commission permits mutual funds to deliver only one
copy of shareholder documents, including prospectuses and shareholder reports,
to fund investors with multiple accounts at the same residential or post office
box address. This practice is commonly called "householding" and is intended to
eliminate duplicate mailings of shareholder documents.

Mailings of your BlackRock Funds shareholder documents may be householded
indefinitely unless you instruct us otherwise.


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

Systematic Withdrawal Plan (SWP)

This feature can be used by investors who want to receive regular distributions
from their accounts. To start a SWP a shareholder must have a current
investment of $10,000 or more in a fund. Shareholders can elect to receive cash
payments of $50 or more monthly, every other month, quarterly, semi-annually or
annually. Shareholders may sign up by completing the SWP Application Form which
may be obtained from PFPC. Shareholders should realize that if withdrawals
exceed income the invested principal in their account will be depleted.

To participate in the SWP, shareholders must have their dividends automatically
reinvested and may not hold share certificates. Shareholders may change or
cancel the SWP at any







                                                                             25
<PAGE>


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

time, upon written notice to PFPC. If an investor purchases additional Investor
A Shares of a fund at the same time he or she redeems shares through the SWP,
that investor may lose money because of the sales charge involved. No CDSC will
be assessed on redemptions of Investor B or Investor C Shares made through the
SWP that do not exceed 12% of the account's net asset value on an annualized
basis. For example, monthly, quarterly and semi-annual SWP redemptions of
Investor B or Investor C Shares will not be subject to the CDSC if they do not
exceed 1%, 3% and 6%, respectively, of an account's net asset value on the
redemption date. SWP redemptions of Investor B or Investor C Shares in excess
of this limit will still pay the applicable CDSC.
26
<PAGE>

For more information:
This prospectus contains important information you should know before you
invest. Read it carefully and keep it for future reference.
More information about the BlackRock Funds is available free, upon request,
including:

Annual/Semi-Annual Reports
These reports contain additional information about the fund's investments. The
annual report describes the fund's performance, lists portfolio holdings and
discusses recent market conditions, economic trends and fund investment
strategies that significantly affected the fund's performance during the last
fiscal year.

Statement of Additional Information (SAI)
A Statement of Additional Information dated January __, 2001 has been filed with
the Securities and Exchange Commission (SEC). The SAI, which includes additional
information about the BlackRock Funds, may be obtained free of charge, along
with the Company's annual and semi-annual reports, by calling (800) 441-7762.
The SAI, as supplemented from time to time, is incorporated by reference into
this prospectus.

Shareholder Account Service Representatives
Representatives are available to discuss account balance information, mutual
fund prospectuses, literature, programs and services available. Hours: 9 a.m. to
6 p.m. (Eastern time), Monday-Friday. Call: (800) 441-7762

Purchases and Redemptions
Call your registered representative or (800) 441-7762.

World Wide Web
Access general fund information and specific fund performance. Request mutual
fund prospectuses and literature. Forward mutual fund inquiries. Available 24
hours a day, 7 days a week. http://www.blackrock.com

Email
Request prospectuses, SAI, Annual or Semi-Annual Reports and literature. Forward
mutual fund inquiries. Available 24 hours a day, 7 days a week. Mail to:
[email protected]

Written Correspondence
Post Office Address: BlackRock Funds c/o PFPC Inc., P.O. Box 8907, Wilmington,
DE 19899-8907 Street Address: BlackRock Funds, c/o PFPC Inc., 400 Bellevue
Parkway, Wilmington, DE 19809

Internal Wholesalers/Broker Dealer Support
Available to support investment professionals 9 a.m. to 6 p.m. (Eastern time),
Monday-Friday. Call (888) 8BLACKROCK

Securities and Exchange Commission (SEC)
You may also view and copy information about the BlackRock Funds, including the
SAI, by visiting the EDGAR Database on the SEC Web site (http://www.sec.gov) or
the SEC's Public Reference Room in Washington, D.C. Information about the
operation of the public reference room can be obtained by calling the SEC
directly at 1-202-942-8090. Copies of this information can be obtained, for a
duplicating fee, by electronic request at the following E-mail address:
[email protected], or by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-0102.


INVESTMENT COMPANY ACT FILE NO. 811-05742



[GRAPHIC]

[LOGO] BLACKROCK
           FUNDS
<PAGE>

[GRAPHIC]

          |
NOT FDIC- | May lose value
INSURED   | No bank guarantee
          |


                                    Global

                                Communications

                                   Portfolio

                          ===========================
                          S E R V I C E   S H A R E S

                BlackRock Funds/sm/ (the Company) is a mutual fund
                family with 42 investment portfolios.





                P R O S P E C T U S

                January __, 2001


                [LOGO] BLACKROCK
                           FUNDS

                The Securities and Exchange Commission has not approved or
                disapproved these securities or passed upon the adequacy of this
                prospectus. Any representation to the contrary is a criminal
                offense.

<PAGE>




Table of
Contents

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

How to find the information you need

<TABLE>
<S>                                                                          <C>
Global Communications Portfolio.............................................   1
</TABLE>


About Your Investment

<TABLE>
<S>                                                                         <C>
Buying Shares..............................................................   8
Selling Shares.............................................................  11
Dividends/Distributions/Taxes..............................................  15
</TABLE>
<PAGE>

             BlackRock
[GRAPHIC]    Global Communications
             Portfolio

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

Investment Goal
The fund seeks long-term capital appreciation.

Primary Investment Strategies
In pursuit of this goal, the fund manager will invest primarily in equity
securities of U.S. and foreign companies selected for their rapid and
sustainable growth potential from the development, manufacture or sale of
emerging or established communication technology services and equipment. The
fund can also purchase securities issued by companies outside of the
communication technology sector if such companies may benefit from the use of
communication technology. The fund normally invests at least 65% of its total
assets in equity securities issued by these companies and normally invests at
least 80% of its total assets in equity securities.

The fund primarily buys common stock but also can invest in preferred stock and
securities convertible into common and preferred stock. The fund may also
invest in Rule 144A securities, which are privately placed securities purchased
by qualified institutional buyers. From time to time the fund may invest in
shares of companies through initial public offerings (IPOs).

The fund manager will invest in U.S. and foreign companies (including companies
located in emerging market countries) with market capitalizations greater than
$25 million that he believes offer the best opportunities for growth and high
investment returns. The manager screens for stocks whose medium to long term
growth prospects he believes are superior to broad market averages. Once these
candidates have been identified, the manager uses fundamental analysis to
examine each company for financial strength before deciding to purchase the
stock.

The manager, in an attempt to reduce portfolio risk, will diversify by
investing in at least three countries, one of which may be the U.S. Some of the
industries that are likely to be represented in the fund's portfolio holdings
include:
    . local and wide area network services or equipment companies
    . land-based, satellite and wireless carriers
    . communications equipment manufacturers

  IMPORTANT DEFINITIONS


 Earnings Growth: The
 rate of growth in a
 company's earnings per
 share from period to
 period. Security
 analysts attempt to
 identify companies with
 earnings growth
 potential because a
 pattern of earnings
 growth generally causes
 share prices to
 increase.

 Equity Security: A
 security, such as
 stock, representing
 ownership of a company.
 Bonds, in comparison,
 are referred to as
 fixed income or debt
 securities because they
 represent indebtedness
 to the bondholders, not
 ownership (although
 convertible bonds are
 fixed income securities
 that are convertible to
 equity according to
 their terms).

 Fundamental Analysis: A
 method of stock market
 analysis that
 concentrates on
 "fundamental"
 information about the
 company (such as its
 income statement,
 balance sheet, earnings
 and sales history,
 products and
 management) to attempt
 to forecast future
 stock value.

 Growth Companies: All
 stocks are generally
 divided into the
 categories of "growth"
 or "value," although
 there are times when a
 growth fund and value
 fund may own the same
 stock. Growth stocks
 are companies whose
 earnings growth
 potential appears to
 the manager to be
 greater than the market
 in general and whose
 revenue growth is
 expected to continue
 for an extended period.
 These stocks typically
 pay relatively low
 dividends and sell at
 relatively high prices.
 Value stocks are
 companies that appear
 to the manager to be
 undervalued by the
 market as measured by
 certain financial
 formulas.

 Investment Style:
 Refers to the guiding
 principles of a mutual
 fund's investment
 choices. The investment
 style of this fund is
 global science and
 technology growth,
 referring to the type
 of securities the
 managers will choose
 for this fund.


                                                                             1
<PAGE>

    . internet-related services or equipment, including internet service
      providers, web hosting and web content providers and internet portals
    . fiber optic transmission
    . communications software development
    . cable and other pay television services or equipment
    . video conferencing
    . data processing and delivery
    . paging
    . semiconductors
    . microwave
    . telephone utilities and large long distance carriers
    . [wireless voice and data equipment and services]
    . [broadband infrastructure]
    . [digital cable services and equipment]
    . [optical components and integrated circuits]

The fund generally will sell a stock when, in the fund manager's opinion, there
is a deterioration in the company's fundamentals, the company fails to meet
performance expectations or the stock's relative price momentum
declines meaningfully.

It is possible that in extreme market conditions the fund temporarily may
invest some or all of its assets in high quality money market securities. The
reason for acquiring money market securities would be to avoid market losses.
However, if market conditions improve, this strategy could result in reducing
the potential gain from the market upswing, thus reducing the fund's
opportunity to achieve its investment objective. As part of its normal
operations, the fund may hold these securities pending investments or when it
expects to need cash to pay redeeming shareholders. The fund will not deviate
from its normal strategies if it holds high quality money market securities
pending investments.

The fund manager may, when consistent with the fund's investment objective, use
options or futures (commonly known as derivatives). An option is the right to
buy or sell a security at a specific price on or before a specific date. A
future is an agreement to buy or sell a security at a specific price on a
specific date. The primary purpose of using derivatives is to attempt to reduce
risk to the fund as a whole (hedge) but they may also be used to maintain
liquidity and commit cash pending investment. The fund manager also may, but
under normal market conditions generally does not intend to, use derivatives
for speculation to increase returns.

The fund may also use forward foreign currency exchange contracts (obligations
to buy or sell a currency at a set rate in the future) to hedge against
movements in the value of foreign currencies.

  IMPORTANT DEFINITIONS


 Market Capitalization:
 Market capitalization
 refers to the market
 value of a company and
 is calculated by
 multiplying the number
 of shares outstanding
 by the current price
 per share.


2
<PAGE>

The fund may lend some of its securities on a short-term basis in order to earn
income. The fund will receive collateral in cash or high quality securities
equal to the current value of the loaned securities. The fund earns interest on
the securities it leads and income when it invests the collateral for the
loaned securities. These loans will be limited to 33 1/3% of the value of the
fund's total assets.

The fund may engage in active and frequent trading of portfolio securities to
achieve its principal investment strategies.

Should the Company's Board of Trustees determine that the investment objective
of the fund should be changed, shareholders will be given at least 30 days
notice before any such change is made.

Key Risks

Key Risks
The main risk of any investment in stocks is that values fluctuate in price.
The value of your investment can go up or down depending upon market
conditions, which means you could lose money.

The fund's focus on stocks in the communication technology sector makes it more
susceptible to factors affecting that sector and more volatile than funds that
invest in many different sectors. Therefore, a downturn in the communication
technology sector could hurt the fund's performance to a greater extent than a
fund that invests in many sectors.

In addition, investing in communication technology companies exposes the fund
to special risks. For example, rapid advances in communication technology might
cause existing products to become obsolete, and the fund's returns could suffer
to the extent it holds an affected company's shares. Companies in a number of
communication technology industries are also subject to more government
regulations and approval processes than many other industries. This fact may
affect a company's overall profitability and cause its stock price to be more
volatile. Additionally, communication technology companies are dependent upon
consumer and business acceptance as new technologies evolve.

The fund may invest in companies that have relatively small market
capitalizations. These organizations will normally have more limited product
lines, markets and financial resources and will be dependent upon a more
limited management group than larger capitalized companies. In addition, it is
more difficult to get information on smaller companies, which tend to be less
well known, have shorter operating histories, do not have significant ownership
by large investors and are followed by relatively few securities analysts. The
securities of smaller capitalized companies are often traded in the over-the-
counter markets and
                                                                             3
<PAGE>

may have fewer market makers and wider price spreads. This may result in
greater price movements and less ability to sell the fund's investment than if
the fund held the securities of larger, more established companies.

Foreign securities involve risks not typically associated with investing in
U.S. securities. These risks include but are not limited to: currency risks
(the risk that the value of dividends or interest paid by foreign securities,
or the value of the securities themselves, may fall if currency exchange rates
change), the risk that a security's value will be hurt by changes in foreign
political or social conditions, the possibility of heavy taxation,
nationalization or expropriation of assets and more difficulty obtaining
information on foreign securities or companies. In addition, a portfolio of
foreign securities may be harder to sell and may be subject to wider price
movements than comparable investments in U.S. companies. There is less
government regulation of foreign securities markets.

In addition, political and economic structures in emerging market countries may
be undergoing rapid change and these countries may lack the social, political
and economic stability of more developed countries. As a result some of the
risks described above, including the risks of nationalization or expropriation
of assets and the existence of smaller, more volatile and less regulated
markets, may be increased. The value of many investments in emerging market
countries recently has dropped significantly due to economic and political
turmoil in many of these countries.

Because different kinds of stocks go in and out of favor depending on market
conditions, this fund's performance may be better or worse than other funds
with different investment styles.

IPOs and companies that have recently gone public have the potential to produce
substantial gains for the fund. However, there is no assurance that the fund
will have access to profitable IPOs. Furthermore, stock of some newly-public
companies may decline shortly after the initial public offering.

While the fund manager chooses stocks he believes have above-average earnings
growth potential, there is no guarantee that the shares will increase in value.

On January 1, 1999, eleven European countries implemented a new currency unit
called the "Euro" which is expected to replace the existing national currencies
of these countries by July 1, 2002. Full implementation of the Euro may be
delayed and difficulties with the conversion may significantly impact European
capital markets, resulting in increased volatility in European and world
capital markets. Individual issuers may suffer substantial losses if they or
their suppliers are not
4
<PAGE>

adequately prepared for the transition, which could hurt the value of shares of
the fund.

The fund's investment in Rule 144A securities could have the effect of
increasing the level of illiquidity in the fund during any period that
qualified institutional buyers become uninterested in purchasing these types of
securities.

The fund's use of derivatives may reduce returns and/or increase volatility.
Volatility is the characteristic of a security or a market to fluctuate
significantly in price within a short time period.

Forward foreign currency exchange contracts do not eliminate movements in the
value of foreign securities but rather allow the fund to establish a fixed rate
of exchange for a future point in time. This strategy can have the effect of
reducing returns and minimizing opportunities for gain.

The fund may invest more than 25% of its assets in securities whose issuers are
located in a single country. These investments would make the fund more
dependent upon the political and economic circumstances of that country than a
mutual fund that owns stocks of companies in many countries.

The expenses of the fund can be expected to be higher than those of other funds
investing primarily in domestic securities because the costs attributable to
investing abroad are usually higher.

Securities loans involve the risk of a delay in receiving additional collateral
from the borrower if the value of the securities go up while they are on loan.
There is also the risk of delay in recovering the loaned securities and of
losing rights to the collateral if a borrower goes bankrupt.

Higher than normal portfolio turnover may result in increased transaction costs
to the fund, including brokerage commissions, dealer mark-ups and other
transaction costs on the sale of the securities and on reinvestment in other
securities. The sale of fund securities may result in the recognition of
capital gain or loss. Given the frequency of sales, such gain or loss will
likely be short-term capital gain or loss. Unlike long-term capital gain,
short-term capital gain of individuals is taxable at the same rates as ordinary
income. These effects of higher then normal portfolio turnover may adversely
affect fund performance.

When you invest in this fund you are not making a bank deposit. Your investment
is not insured or guaranteed by the Federal Deposit Insurance Corporation or by
any bank or governmental agency.

                                                                             5
<PAGE>

Expenses and Fees

Expenses and Fees
The table below describes the fees and expenses that you may pay if you buy
and hold Service Shares of the fund.

Annual Fund Operating Expenses
(Expenses that are deducted from fund assets)

<TABLE>
<S>                                      <C>
Advisory Fees                              %
Distribution and service (12b-1) fees      %
Other expenses/1/                          %
Total annual fund operating expenses       %
Fee waivers and expense reimbursements*  --
Net Expenses*                              %
</TABLE>

 *  BlackRock and BIL have contractually agreed to waive or reimburse fees or
    expenses in order to limit fund expenses to   % of average daily net
    assets until    , 2002. The fund may have to repay some of these waivers
    and reimbursements to BlackRock and BIL in the following two years. See
    the "Management" section on page 14 for a discussion of these waivers and
    reimbursements.
 /1/The fund is newly organized and, accordingly, "Other expenses" are based
    on estimated amounts for the current fiscal year.

Example:
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. We are assuming an initial
investment of $10,000, 5% total return each year with no changes in operating
expenses and redemption at the end of each time period. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:

<TABLE>
<CAPTION>
                1 Year 3 Years
<S>             <C>    <C>
Service Shares   $      $
</TABLE>

Fund Management
The fund is managed by a team of investment professionals at BlackRock
Advisors, Inc. (BlackRock) and BlackRock International, Ltd. (BIL). The team
includes the following individuals who have day-to-day responsibility: Thomas
Callan, Michael Carey, Kenneth Anderson and David Stanistreet.

Thomas Callan has been a Managing Director with BlackRock since 1996 and
served as an equity analyst for PNC Bank from 1993 to 1996. He has co-managed
the fund since its inception.

Michael Carey has been a Vice President with BlackRock since 2000, an equity
analyst with BlackRock since 1996 and served as a fixed income analyst for PNC
Bank from 1993 to 1996. He has co-managed the fund since its inception.

Kenneth Anderson, Director and international equity investment manager at BIL,
is primarily responsible for European equity research and portfolio
management. Prior to joining BIL in 2000, Mr. Anderson was an investment
director and the deputy

  IMPORTANT DEFINITIONS


 Advisory Fees: Fees
 paid to the investment
 adviser for portfolio
 management services.

 Other Expenses: Include
 administration,
 transfer agency,
 custody, professional
 fees and registration
 fees.

 Service Fees: Fees that
 are paid to BlackRock
 and /or its affiliates
 for shareholder account
 service and
 maintenance.

6
<PAGE>

head of the Scottish Widows Investment Management European equity team. He has
co-managed the fund since its inception.

David Stanistreet, Director and international equity investment manager at BIL,
is primarily responsible for European equity research and portfolio management.
Prior to joining BIL in 2000, Mr. Stanistreet had been an investment director
of the Scottish Widows Investment Management European equity team since 1997.
From 1995 to 1997, Mr. Stanistreet was head of European equities at Royal
Insurance Asset Management (which merged in 1996 to become Royal & Sun
Alliance). He has co-managed the fund since its inception.
                                                                             7
<PAGE>

             About Your Investment
[GRAPHIC]

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

Buying Shares

Service Shares are offered without a sales charge to financial institutions
(such as banks and brokerage firms) acting on behalf of their customers,
certain persons who were shareholders of the Compass Capital Group of Funds at
the time of its combination with The PNC(R) Fund in 1996 and investors that
participate in the Capital Directions SM asset allocation program. Service
Shares will normally be held by institutions or in the name of nominees of
institutions on behalf of their customers. Service Shares are normally
purchased through a customer's account at an institution through procedures
established by the institution. In these cases, confirmation of share purchases
and redemptions will be sent to the institutions. A customer's ownership of
shares will be recorded by the institution and reflected in the account
statements provided by the institutions to their customers. Investors wishing
to purchase Service Shares should contact their institutions.

Purchase orders may be placed through PFPC, the Company's transfer agent, by
calling (800) 441-7450.

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

What Price Per Share
Will You Pay?

The price of mutual fund shares generally changes every business day. A mutual
fund is a pool of investors' money that is used to purchase a portfolio of
securities, which in turn is owned in common by the investors. Investors put
money into a mutual fund by buying shares. If a mutual fund has a portfolio
worth $50 million and has 5 million shares outstanding, the net asset value
(NAV) per share is $10.

The fund's investments are valued based on market value, or where market
quotations are not readily available, based on fair value as determined in good
faith by or under the direction of the Company's Board of Trustees. Under some
circumstances certain short-term debt securities will be valued using the
amortized cost method.

Since the NAV changes daily, the price you pay for your shares depends on the
time that your order is received by the BlackRock Funds' transfer agent, whose
job it is to keep track of shareholder records.

Purchase orders received by the transfer agent before the close of regular
trading on the New York Stock Exchange (NYSE) (currently 4 p.m. (Eastern time))
on each day the NYSE is open


8
<PAGE>


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

will be priced based on the NAV calculated at the close of trading on that day
plus any applicable sales charge. NAV is calculated separately for each class
of shares of the fund at 4 p.m. (Eastern time) each day the NYSE is open.
Shares will not be priced on days the NYSE is closed. Purchase orders received
after the close of trading will be priced based on the next calculation of
NAV. Foreign securities and certain other securities held by the fund may
trade on days when the NYSE is closed. In these cases, net asset value of
shares may change when fund shares cannot be bought or sold.

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

Paying for Shares

Payment for Service Shares must normally be made in Federal funds or other
funds immediately available by 4 p.m. (Eastern time) on the first business day
following PFPC's receipt of the order. Payment may also, at the discretion of
the Company, be made in the form of securities that are permissible
investments for the fund.

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

How Much is the
Minimum Investment

The minimum investment for the initial purchase of Service Shares is $5,000;
however, institutions may set a higher minimum for their customers. There is
no minimum requirement for later investments. The fund does not accept third
party checks as payment for shares.

The fund may reject any purchase order, modify or waive the minimum initial or
subsequent investment requirements and suspend and resume the sale of any
share class of the fund at any time.

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

Distribution and
Service Plan

The Company has adopted a plan under Rule 12b-1 of the Investment Company Act
of 1940 (the Plan) that allows the Company to pay distribution fees for the
sale of its shares and shareholder servicing and processing fees for certain
services provided to its shareholders. The Company does not make distribution
payments under the Plan with respect to Service Shares.

Under the Plan, the Company may enter into arrangements with brokers, dealers,
financial institutions and industry professionals (Service Organizations)
(including PNC Bank and its affiliates).











                                                                            9
<PAGE>


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

Under these arrangements, Service Organizations will provide certain support
services to their customers who own Service Shares. The Company may pay a
shareholder servicing fee of up to .15% per year of the average daily net asset
value of Service Shares owned by each Service Organization's customers. All
Service Shares pay this shareholder servicing fee.

In return for that fee, Service Organizations may provide one or more of the
following services to their customers who own Service Shares:

    (1) Responding to customer questions on the services performed by the
        Service Organization and investments in Service Shares;
    (2) Assisting customers in choosing and changing dividend options,
        account designations and addresses; and
    (3) Providing other similar shareholder liaison services.

For a separate shareholder processing fee paid by all Service Shares of up to
 .15% per year of the average daily net asset value of Service Shares owned by
each Service Organization's customers, Service Organizations may provide one or
more of these additional services:

    (1) Processing purchase and redemption requests from customers and
        placing orders with the Company's transfer agent or the Company's
        distributor;
    (2) Processing dividend payments from the Company on behalf of customers;
    (3) Providing sub-accounting for Service Shares beneficially owned by
        customers or the information necessary for sub-accounting; and
    (4) Providing other similar services.

The shareholder servicing fees and shareholder processing fees payable pursuant
to the Plan are fees payable for the administration and servicing of
shareholder accounts and not costs which are primarily intended to result in
the sale of the fund's shares.

Because the fees paid by the Company under the Plan are paid out of Company
assets on an on-going basis, over time these fees will increase the cost of
your investment and may cost you more than paying other types of sales charges.

10
<PAGE>


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

Selling Shares

Customers of institutions may redeem Service Shares in accordance with the
procedures applicable to their accounts with the institutions. These procedures
will vary according to the type of account and the institution involved and
customers should consult their account managers in this regard. Institutions
are responsible for transmitting redemption orders to PFPC and crediting their
customers' accounts with redemption proceeds on a timely basis. In the case of
shareholders holding share certificates the certificates must accompany the
redemption request.

Institutions may place redemption orders by telephoning PFPC at (800) 441-7450.
Shares are redeemed at their net asset value per share next determined after
PFPC's receipt of the redemption order. The fund, the administrators and the
distributor will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. The fund and its service providers will
not be liable for any loss; liability, cost or expense for acting upon
telephone instructions that are reasonably believed to be genuine in accordance
with such procedures.

Payment for redeemed shares for which a redemption order is received by PFPC
before 4 p.m. (Eastern time) on a business day is normally made in Federal
funds wired to the redeeming institution on the next business day, provided
that the fund's custodian is also open for business. Payment for redemption
orders received after 4 p.m. (Eastern time) or on a day when the fund's
custodian is closed is normally wired in Federal funds on the next business day
following redemption on which the fund's custodian is open for business. The
fund reserves the right to wire redemption proceeds within seven days after
receiving a redemption order if, in the judgement of BlackRock Advisors, Inc.,
an earlier payment could adversely affect the fund. No charge for wiring
redemption payments is imposed by the Company, although institutions may charge
their customer accounts for redemption services. Information relating to such
redemption services and charges, if any, should be obtained by customers from
their institutions.

Persons who were shareholders of the Compass Capital Group of Funds at the time
of its combination with the PNC(R) Fund may redeem for cash some or all of
their shares of the fund at any time by sending a written redemption request in
proper form to BlackRock Funds, c/o PFPC Inc., P.O. Box 8950, Wilmington,

                                                                             11
<PAGE>


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

DE 19899-8950. They may also redeem shares by telephone if they have signed up
for the expedited redemption privilege.

During periods of substantial economic market change telephone redemptions may
be difficult to complete. Redemption requests may also be mailed to PFPC at
P.O. Box 8950, Wilmington, DE 19899-8950.

The fund is not responsible for the efficiency of the Federal wire system or
the shareholder's firm or bank. The fund does not currently charge for wire
transfers. The shareholder is responsible for any charges imposed by the
shareholder's bank. To change the name of the single, designated bank account
to receive wire redemption proceeds, it is necessary to send a written request
to BlackRock Funds c/o PFPC, P.O. Box 8950, Wilmington, DE 19899-8950.

The Company may refuse a telephone redemption request if it believes it is
advisable to do so and may use reasonable procedures to make sure telephone
instructions are genuine.

Persons who were shareholders of an investment portfolio of the Compass Capital
Group of Funds at the time of the portfolio
combination with The PNC(R) Fund may also purchase and redeem Service Shares of
the same fund and for the same account in which they held shares on that date
through the procedures described in this section.

If a shareholder acquiring Service Shares on or after May 1, 1998 (other than a
former shareholder of The Compass Capital Group) no longer meets the
eligibility standards for purchasing Service Shares (as described in "Buying
Shares" above), then the shareholder's Service Shares will be converted to
Investor A Shares of the fund having the same total net asset value as the
shares converted. Investor A Shares are currently authorized to bear additional
service and distribution fees at the total annual rate of .20% of average daily
net assets. If a shareholder acquiring Service Shares on or after May 1, 1998
later becomes eligible to purchase Institutional Shares (other than due to
changes in market value), then the shareholder's Service Shares will be
converted to Institutional Shares of the fund having the same total net asset
value as the shares converted.
12
<PAGE>


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

The Company's Rights

The Company may:
    .Suspend the right of redemption if trading is halted or restricted on
     the NYSE or under other emergency conditions described in the Investment
     Company Act of 1940,
    .Postpone date of payment upon redemption if trading is halted or
     restricted on the NYSE or under other emergency conditions described in
     the Investment Company Act of 1940 or as described in the third
     paragraph in the section "Selling Shares" above,
    .Redeem shares involuntarily in certain cases, such as when the value of
     a shareholder account falls below a specified level, as described below,
     and
    .Redeem shares for property other than cash if conditions exist which
     make cash payments undesirable

in accordance with its rights under the Investment Company Act of 1940.

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

Accounts with Low
Balances

The Company may redeem a shareholder's account in the fund at any time the net
asset value of the account in such fund falls below $5,000 as the result of a
redemption. The shareholder will be notified in writing that the value of the
account is less than the required amount and the shareholder will be allowed 30
days to make additional investments before the redemption is processed. If a
customer has agreed with an institution to maintain a minimum balance in his or
her account, and the balance in the account falls below the minimum, the
customer may be obligated to redeem all or part of his or her shares in the
fund to the extent necessary to maintain the minimum balance required.










                                                                             13
<PAGE>


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

Market Timing

The fund is not designed for market timing organizations or other entities using
programmed or frequent purchases or redemptions. The Company reserves the right
to reject any specific purchase order, including an order made by a market
timer.


Important Notice Regarding Delivery of Shareholder Documents

The Securities and Exchange Commission permits mutual funds to deliver only one
copy of shareholder documents, including prospectuses and shareholder reports,
to fund investors with multiple accounts at the same residential or post office
box address. This practice is commonly called "householding" and is intended to
eliminate duplicate mailings of shareholder documents.

Mailings of your BlackRock Funds shareholder documents may be householded
indefinitely unless you instruct us otherwise.


Management

BlackRock Funds' Co-Advisers are BlackRock Advisors, Inc. (BlackRock) and
BlackRock International, Ltd. (BIL). BlackRock was organized in 1994 to perform
advisory services for investment companies and is located at 345 Park Avenue,
New York, NY 10154. BlackRock is a wholly-owned subsidiary of BlackRock, Inc.,
one of the largest publicly traded investment management firms in the United
States with $190.8 billion of assets under management as of September 30, 2000.
BlackRock, Inc. is a majority-owned indirect subsidiary of The PNC Financial
Services Group, Inc., one of the largest diversified financial services
companies in the United States. BIL is located at 7 Castle Street, Edinburgh,
Scotland EH2 3AH. BIL was formed in 1995 and is a registered investment adviser
with the SEC and a member of the Investment Management Regulatory Organization
(IMRO) in the U.K. As of June 30, 2000, BIL managed over $7 billion in
international equities. BIL is the international equity arm of BlackRock.

For their investment advisory services, BlackRock and BIL are entitled to fees
computed daily and payable monthly. The total annual advisory fee that can be
paid to BlackRock and BIL (as a percentage of average daily net assets) is as
follows:

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

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



  IMPORTANT DEFINITIONS


 Adviser: The Adviser of
 a mutual fund is
 responsible for the
 overall investment
 management of the fund.
 The Co-Advisers for
 BlackRock Funds are
 BlackRock Advisors,
 Inc. and BlackRock
 International, Ltd.

14
<PAGE>


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


<TABLE>
<CAPTION>
  AVERAGE DAILY NET      INVESTMENT
  ASSETS                 ADVISORY FEE
  <S>                    <C>
  First $1 billion              %
  $1 billion-$2 billion         %
  $2 billion-$3 billion         %
  more than $3 billion          %
</TABLE>


BlackRock and BIL will divide this fee as they may agree from time to time.

As discussed above, BlackRock and BIL have agreed to cap the fund's net
expenses at the levels shown in the fund's expense table.

To achieve this cap, BlackRock, BIL and the Company have entered into an
expense limitation agreement. The agreement sets a limit on certain of the
operating expenses of the fund through     , 2002 and requires BlackRock and
BIL to waive or reimburse fees or expenses if these operating expenses exceed
that limit. The expense limit (which applies to expenses charged on fund assets
as a whole, but not expenses separately charged to the different share classes
of the fund) as a percentage of average daily net assets is   %.

If within two years following a waiver or reimbursement, the operating expenses
of the fund are less than the expense limit for the fund, the fund is required
to repay BlackRock and BIL up to the amount of fees waived or expenses
reimbursed under the agreement if: (1) the fund has more than $50 million in
assets, (2) BlackRock and BIL continue to be the fund's investment advisers and
(3) the Board of Trustees of the Company has approved in advance the payments
to BlackRock and BIL at the previous quarterly meeting of the Board.

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

Dividends and Distributions

BlackRock Funds makes two kinds of distributions to shareholders: dividends and
net capital gain.

Dividends are the net investment income derived by the fund and are paid within
10 days after the end of each quarter. The Company's Board of Trustees may
change the timing of dividend payments.











                                                                             15
<PAGE>


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


Net capital gain occurs when the fund manager sells securities at a profit. Net
capital gain (if any) is distributed to shareholders at least annually at a
date determined by the Company's Board of Trustees.

Your distributions will be reinvested at net asset value in new shares of the
same class of the fund unless you instruct PFPC in writing to pay them in cash.
There are no sales charges on these reinvestments.

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

Taxation of Distributions

Distributions paid out of the fund's "net capital gain" will be taxed to
shareholders as long-term capital gains, regardless of how long a shareholder
has owned shares. All other distributions will be taxed to shareholders as
ordinary income.

Your annual tax statement from the Company will present in detail the tax
status of your distributions for each year.

If more than half of the total asset value of the fund is invested in foreign
stock or securities, the fund may elect to "pass through" to its shareholders
the amount of foreign taxes paid. In such case, each shareholders would be
required to include his proportionate share of such taxes in his income and may
be entitled to deduct or credit such taxes when computing his taxable income.

Distributions paid by the fund with respect to certain qualifying dividends
received by the fund from domestic corporations may be eligible for the
corporate dividends received deduction.

Because every investor has an individual tax situation, and also because the
tax laws are subject to periodic changes, you should always consult your tax
professional about federal, state and local tax consequences of owning shares
of the Company.


16
<PAGE>


For more information:
This prospectus contains important information you should know before you
invest. Read it carefully and keep it for future reference. More information
about the BlackRock Funds is available free, upon request, including:

Annual/Semi-Annual Reports
These reports contain additional information about the fund's investments. The
annual report describes the fund's performance, lists portfolio holdings and
discusses recent market conditions, economic trends and fund investment
strategies that significantly affected the fund's performance during the last
fiscal year.

Statement of Additional Information (SAI)
A Statement of Additional Information dated January __, 2001 has been filed with
the Securities and Exchange Commission (SEC). The SAI, which includes additional
information about the BlackRock Funds, may be obtained free of charge, along
with the Company's annual and semi-annual reports, by calling (800) 441-7450.
The SAI, as supplemented from time to time, is incorporated by reference into
this prospectus.

Shareholder Account Service Representatives
Representatives are available to discuss account balance information, mutual
fund prospectuses, literature, programs and services available. Hours: 9 a.m. to
6 p.m. (Eastern time), Monday-Friday. Call: (800) 441-7450

Purchases and Redemptions
Call your registered representative or (800) 441-7450.

World Wide Web
Access general fund information and specific fund performance. Request mutual
fund prospectuses and literature. Forward mutual fund inquiries. Available 24
hours a day, 7 days a week. http://www.blackrock.com

Email
Request prospectuses, SAI, Annual or Semi-Annual Reports and literature. Forward
mutual fund inquiries. Available 24 hours a day, 7 days a week. Mail to:
[email protected]

Written Correspondence
Post Office Address: BlackRock Funds c/o PFPC Inc.,
P.O. Box 8950, Wilmington, DE 19899-8950
Street Address: BlackRock Funds, c/o PFPC Inc.,
400 Bellevue Parkway, Wilmington, DE 19809

Internal Wholesalers/Broker Dealer Support
Available to support investment professionals 9 a.m. to 6 p.m. (Eastern time),
Monday-Friday. Call (888) 8BLACKROCK

Securities and Exchange Commission (SEC)
You may also view and copy information about the BlackRock Funds, including the
SAI, by visiting the EDGAR database on the SEC Web site (http://www.sec.gov) or
the SEC's Public Reference Room in Washington, D.C. Information about the
operation of the public reference room can be obtained by calling the SEC
directly at 1-202-942-8090. Copies of this information can be obtained, for a
duplicating fee, by electronic request at the following E-mail address:
[email protected], or by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-0102.

INVESTMENT COMPANY ACT FILE NO. 811-05742


{GRAPHIC]

[LOGO] BLACKROCK
           FUNDS

<PAGE>


[GRAPHIC]

          |
NOT FDIC- | May lose value
INSURED   | No bank guarantee
          |


                                    Global

                                Communications

                                   Portfolio

                    =======================================
                    I N S T I T U T I O N A L   S H A R E S

                BlackRock Funds/sm/ (the Company) is a mutual fund
                family with 42 investment portfolios.





                P R O S P E C T U S

                January __, 2001


                [LOGO] BLACKROCK
                           FUNDS

                The Securities and Exchange Commission has not approved or
                disapproved these securities or passed upon the adequacy of this
                prospectus. Any representation to the contrary is a criminal
                offense.


<PAGE>




Table of
Contents

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

How to find the information you need

<TABLE>
<S>                                                                          <C>
Global Communications Portfolio.............................................   1
</TABLE>

About Your Investment

<TABLE>
<S>                                                                         <C>
Buying Shares..............................................................   8
Selling Shares.............................................................   9
Dividends/Distributions/Taxes..............................................  13
</TABLE>
<PAGE>

             BlackRock
[LOGO]       Global Communications
             Portfolio

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


  IMPORTANT DEFINITIONS

 Earnings Growth: The
 rate of growth in a
 company's earnings per
 share from period to
 period. Security
 analysts attempt to
 identify companies with
 earnings growth
 potential because a
 pattern of earnings
 growth generally causes
 share prices to
 increase.

 Equity Security: A
 security, such as
 stock, representing
 ownership of a company.
 Bonds, in comparison,
 are referred to as
 fixed income or debt
 securities because they
 represent indebtedness
 to the bondholders, not
 ownership (although
 convertible bonds are
 fixed income securities
 that are convertible to
 equity according to
 their terms).

 Fundamental Analysis: A
 method of stock market
 analysis that
 concentrates on
 "fundamental"
 information about the
 company (such as its
 income statement,
 balance sheet, earnings
 and sales history,
 products and
 management) to attempt
 to forecast future
 stock value.

 Growth Companies: All
 stocks are generally
 divided into the
 categories of "growth"
 or "value," although
 there are times when a
 growth fund and value
 fund may own the same
 stock. Growth stocks
 are companies whose
 earnings growth
 potential appears to
 the manager to be
 greater than the market
 in general and whose
 revenue growth is
 expected to continue
 for an extended period.
 These stocks typically
 pay relatively low
 dividends and sell at
 relatively high prices.
 Value stocks are
 companies that appear
 to the manager to be
 undervalued by the
 market as measured by
 certain financial
 formulas.

 Investment Style:
 Refers to the guiding
 principles of a mutual
 fund's investment
 choices. The investment
 style of this fund is
 global science and
 technology growth,
 referring to the type
 of securities the
 managers will choose
 for this fund.

 Market Capitalization:
 Market capitalization
 refers to the market
 value of a company and
 is calculated by
 multiplying the number
 of shares outstanding
 by the current price
 per share.


Investment Goal
The fund seeks long-term capital appreciation.

Primary Investment Strategies
In pursuit of this goal, the fund manager will invest primarily in equity
securities of U.S. and foreign companies selected for their rapid and
sustainable growth potential from the development, manufacture or sale of
emerging or established communication technology services and equipment. The
fund can also purchase securities issued by companies outside of the
communication technology sector if such companies may benefit from the use of
communication technology. The fund normally invests at least 65% of its total
assets in equity securities issued by these companies and normally invests at
least 80% of its total assets in equity securities.

The fund primarily buys common stock but also can invest in preferred stock and
securities convertible into common and preferred stock. The fund may also
invest in Rule 144A securities, which are privately placed securities purchased
by qualified institutional buyers. From time to time the fund may invest in
shares of companies through initial public offerings (IPOs).

The fund manager will invest in U.S. and foreign companies (including companies
located in emerging market countries) with market capitalizations greater than
$25 million that he believes offer the best opportunities for growth and high
investment returns. The manager screens for stocks whose medium to long term
growth prospects he believes are superior to broad market averages. Once these
candidates have been identified, the manager uses fundamental analysis to
examine each company for financial strength before deciding to purchase the
stock.

The manager, in an attempt to reduce portfolio risk, will diversify by
investing in at least three countries, one of which may be the U.S. Some of the
industries that are likely to be represented in the fund's portfolio holdings
include:
  . local and wide area network services or equipment companies
  . land-based, satellite and wireless carriers
  . communications equipment manufacturers
                                                                             1
<PAGE>

  . internet-related services or equipment, including internet service
    providers, web hosting and web content providers and internet portals
  . fiber optic transmission
  . communications software development
  . cable and other pay television services or equipment
  . video conferencing
  . data processing and delivery
  . paging
  . semiconductors
  . microwave
  . telephone utilities and large long distance carriers
  . [wireless voice and data equipment and services]
  . [broadband infrastructure]
  . [digital cable services and equipment]
  . [optical components and integrated circuits]

The fund generally will sell a stock when, in the fund manager's opinion, there
is a deterioration in the company's fundamentals, the company fails to meet
performance expectations or the stock's relative price momentum
declines meaningfully.

It is possible that in extreme market conditions the fund temporarily may
invest some or all of its assets in high quality money market securities. The
reason for acquiring money market securities would be to avoid market losses.
However, if market conditions improve, this strategy could result in reducing
the potential gain from the market upswing, thus reducing the fund's
opportunity to achieve its investment objective. As part of its normal
operation, the fund may hold these securities pending investments or when it
expects to need cash to pay redeeming shareholders. The fund will not deviate
from its normal strategies if it holds high quality money market securities
pending investments.

The fund manager may, when consistent with the fund's investment objective, use
options or futures (commonly known as derivatives). An option is the right to
buy or sell a security at a specific price on or before a specific date. A
future is an agreement to buy or sell a security at a specific price on a
specific date. The primary purpose of using derivatives is to attempt to reduce
risk to the fund as a whole (hedge) but they may also be used to maintain
liquidity and commit cash pending investment. The fund manager also may, but
under normal market conditions generally does not intend to, use derivatives
for speculation to increase returns.

The fund may also use forward foreign currency exchange contracts (obligations
to buy or sell a currency at a set rate in the future) to hedge against
movements in the value of foreign currencies.
2
<PAGE>


The fund may lend some of its securities on a short-term basis in order to earn
income. The fund will receive collateral in cash or high quality securities
equal to the current value of the loaned securities. The fund earns interest on
the securities it lends and income when it invests the collateral for the
loaned securities. These loans will be limited to 33 1/3% of the value of the
fund's total assets.

The fund may engage in active and frequent trading of portfolio securities to
achieve its principal investment strategies.

Should the Company's Board of Trustees determine that the investment objective
of the fund should be changed, shareholders will be given at least 30 days
notice before any such change is made.

Key Risks

Key Risks
The main risk of any investment in stocks is that values fluctuate in price.
The value of your investment can go up or down depending upon market
conditions, which means you could lose money.

The fund's focus on stocks in the communication technology sector makes it more
susceptible to factors affecting that sector and more volatile than funds that
invest in many different sectors. Therefore, a downturn in the communication
technology sector could hurt the fund's performance to a greater extent than a
fund that invests in many sectors.

In addition, investing in communication technology companies exposes the fund
to special risks. For example, rapid advances in communication technology might
cause existing products to become obsolete, and the fund's returns could suffer
to the extent it holds an affected company's shares. Companies in a number of
communication technology industries are also subject to more government
regulations and approval processes than many other industries. This fact may
affect a company's overall profitability and cause its stock price to be more
volatile. Additionally, communication technology companies are dependent upon
consumer and business acceptance as new technologies evolve.

The fund may invest in companies that have relatively small market
capitalizations. These organizations will normally have more limited product
lines, markets and financial resources and will be dependent upon a more
limited management group than larger capitalized companies. In addition, it is
more difficult to get information on smaller companies, which tend to be less
well known, have shorter operating histories, do not have significant ownership
by large investors and are followed by relatively few securities analysts. The
securities of smaller capitalized companies are often traded in the over-the-
counter markets and
                                                                             3
<PAGE>

may have fewer market makers and wider price spreads. This may result in
greater price movements and less ability to sell the fund's investment than if
the fund held the securities of larger, more established companies.

Foreign securities involve risks not typically associated with investing in
U.S. securities. These risks include but are not limited to: currency risks
(the risk that the value of dividends or interest paid by foreign securities,
or the value of the securities themselves, may fall if currency exchange rates
change), the risk that a security's value will be hurt by changes in foreign
political or social conditions, the possibility of heavy taxation,
nationalization or expropriation of assets and more difficulty obtaining
information on foreign securities or companies. In addition, a portfolio of
foreign securities may be harder to sell and may be subject to wider price
movements than comparable investments in U.S. companies. There is less
government regulation of foreign securities markets.

In addition, political and economic structures in emerging markets countries
may be undergoing rapid change and these countries may lack the social,
political and economic stability of more developed countries. As a result some
of the risks described above, including the risks of nationalization or
expropriation of assets and the existence of smaller, more volatile and less
regulated markets, may be increased. The value of many investments in emerging
market countries recently has dropped significantly due to economic and
political turmoil in many of these countries.

Because different kinds of stocks go in and out of favor depending on market
conditions, this fund's performance may be better or worse than other funds
with different investment styles.

IPOs and companies that have recently gone public have the potential to
produce substantial gains for the fund. However, there is no assurance that
the fund will have access to profitable IPOs. Furthermore, stocks of some
newly-public companies may decline shortly after the initial public offering.

While the fund manager chooses stocks he believes have above-average earnings
growth potential, there is no guarantee that the shares will increase in
value.

On January 1, 1999, eleven European countries implemented a new currency unit
call the "Euro" which is expected to replace the existing national currencies
of these countries by July 1, 2002. Full implementation of the Euro may be
delayed and difficulties with the conversion may significantly impact European
capital markets, resulting in increased volatility in European and world
capital markets. Individual issuers may suffer substantial losses if they or
their suppliers are not
4
<PAGE>

adequately prepared for the transition, which could hurt the value of shares of
the fund.

The fund's investment in Rule 144A securities could have the effect of
increasing the level of illiquidity in the fund during any period that
qualified institutional buyers become uninterested in purchasing these types of
securities.

The fund's use of derivatives may reduce returns and/or increase volatility.
Volatility is the characteristic of a security or a market to fluctuate
significantly in price within a short time period.

Forward foreign currency exchange contracts do not eliminate movements in the
value of foreign securities but rather allow the fund to establish a fixed rate
of exchange for a future point in time. This strategy can have the effect of
reducing returns and minimizing opportunities for gain.

The fund may invest more than 25% of its assets in securities whose issuers are
located in a single country. These investments would make the fund more
dependent upon the political and economic circumstances of that country than a
mutual fund that owns stocks of companies in many countries.

The expenses of the fund can be expected to be higher than those of other funds
investing primarily in domestic securities because the costs attributable to
investing abroad are usually higher.

Securities loans involve the risk of a delay in receiving additional collateral
from the borrower if the value of the securities go up while they are on loan.
There is also the risk of delay in recovering the loaned securities and of
losing rights to the collateral if a borrower goes bankrupt.

Higher than normal portfolio turnover may result in increased transaction costs
to the fund, including brokerage commissions, dealer mark-ups and other
transaction costs on the sale of the securities and on reinvestment in other
securities. The sale of fund securities may result in the recognition of
capital gain or loss. Given the frequency of sales, such gain or loss will
likely be short-term capital gain or loss. Unlike long-term capital gain,
short-term capital gain of individuals is taxable at the same rates as ordinary
income. These effects of higher than normal portfolio turnover may adversely
affect fund performance.

When you invest in this fund you are not making a bank deposit. Your investment
is not insured or guaranteed by the Federal Deposit Insurance Corporation or by
any bank or governmental agency.
                                                                             5
<PAGE>






Expenses and Fees

Expenses and Fees
The table below describes the fees and expenses that you may pay if you buy
and hold Institutional Shares of the fund.

  IMPORTANT DEFINITIONS

 Advisory Fees: Fees
 paid to the investment
 adviser for portfolio
 management services.

 Other Expenses: Include
 administration,
 transfer agency,
 custody, professional
 fees and registration
 fees.

Annual Fund Operating Expenses
(Expenses that are deducted from fund assets)

<TABLE>
<S>                                      <C>
Advisory Fees                              %
Other expenses/1/                          %
Total annual fund operating expenses       %
Fee waivers and expense reimbursements*    %
Net Expenses*
</TABLE>
 * BlackRock and BIL have contractually agreed to waive or reimburse fees or
   expenses in order to limit fund expenses to   % of average daily net assets
   until     , 2002. The fund may have to repay some of these waivers and
   reimbursements to BlackRock and BIL in the following two years. See the
   "Management" section on page 12 for a discussion of these waivers and
   reimbursements.
 /1/The fund is newly organized and, accordingly, "Other expenses" are based
   on estimated amounts for the current fiscal year.

Example:
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. We are assuming an initial
investment of $10,000, 5% total return each year with no changes in operating
expenses and redemption at the end of each time period. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:

<TABLE>
<CAPTION>
                      1 Year 3 Years
<S>                   <C>    <C>
Institutional Shares   $       $
</TABLE>

Fund Management
The fund is managed by a team of investment professionals at BlackRock
Advisors, Inc. (BlackRock) and BlackRock International, Ltd. (BIL). The team
includes the following individuals who have day-to-day responsibility: Thomas
Callan, Michael Carey, Kenneth Anderson and David Stanistreet.

Thomas Callan has been a Managing Director with BlackRock since 1996 and
served as an equity analyst for PNC Bank from 1993 to 1996. He has co-managed
the fund since its inception.

Michael Carey has been a Vice President with BlackRock since 2000, an equity
analyst with BlackRock since 1996 and served as a fixed income analyst for PNC
Bank from 1993 to 1996. He has co-managed the fund since its inception.

Kenneth Anderson, Director and international equity investment manager at BIL,
is primarily responsible for European equity research and portfolio
management. Prior to joining BIL in 2000, Mr. Anderson was an investment
director and the deputy head of the Scottish Widows Investment Management
European equity team. He has co-managed the fund since its inception.
6
<PAGE>

David Stanistreet, Director and international equity investment manager at BIL,
is primarily responsible for European equity research and portfolio management.
Prior to joining BIL in 2000, Mr. Stanistreet had been an investment director
of the Scottish Widows Investment Management European equity team since 1997.
From 1995 to 1997, Mr. Stanistreet was head of European equities at Royal
Insurance Asset Management (which merged in 1996 to become Royal & Sun
Alliance). He has co-managed the fund since its inception.
                                                                             7
<PAGE>

             About Your Investment
[LOGO]

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


Buying Shares

Institutional Shares are offered to:

 . Institutional investors
 . Trust departments of PNC Bank and its affiliates on behalf of clients for
   whom the bank:
  . acts in a fiduciary capacity (excluding participant-directed employee
    benefit plans)
  . otherwise has investment discretion or
  . acts as custodian for at least $2 million in assets
 . Individuals with a minimum investment of $2 million

Purchase orders may be placed through PFPC, the Company's transfer agent, by
telephoning (800) 441-7450.

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

What Price Per Share Will You Pay?

The price of mutual fund shares generally changes every business day. A mutual
fund is a pool of investors' money that is used to purchase a portfolio of
securities, which in turn is owned in common by the investors. Investors put
money into a mutual fund by buying shares. If a mutual fund has a portfolio
worth $50 million and has 5 million shares outstanding, the net asset value
(NAV) per share is $10.

The fund's investments are valued based on market value, or where market
quotations are not readily available, based on fair value as determined in good
faith by or under the direction of the Company's Board of Trustees. Under some
circumstances certain short-term debt securities will be valued using the
amortized cost method.

Since the NAV changes daily, the price you pay for your shares depends on the
time that your order is received by the BlackRock Funds' transfer agent, whose
job it is to keep track of shareholder records.

Purchase orders received by the transfer agent before the close of regular
trading on the New York Stock Exchange (NYSE) (currently 4 p.m. (Eastern time))
on each day the NYSE is open will be priced based on the NAV calculated at the
close of trading on that day plus any applicable sales charge. NAV is
calculated separately for each class of shares of the fund at 4 p.m. (Eastern
time) each day the NYSE is open. Shares will not


8
<PAGE>


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

be priced on days the NYSE is closed. Purchase orders received after the close
of trading will be priced based on the next calculation of NAV. Foreign
securities and certain other securities held by the fund may trade on days
when the NYSE is closed. In these cases, net asset value of shares may change
when fund shares cannot be bought or sold.

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

Paying for Shares

Payment for Institutional Shares must normally be made in Federal funds or
other funds immediately available by 4 p.m. (Eastern time) on the first
business day following PFPC's receipt of the order. Payment may also, at the
discretion of the Company, be made in the form of securities that are
permissible investments for the fund.

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

How Much is the Minimum Investment?

The minimum investment for the initial purchase of Institutional Shares is:

 . $5,000 for institutions
 . $500,000 for registered investment advisers
 . $2 million for individuals

There is no minimum requirement for later investments. The Company does not
accept third party checks as payment for shares.

The Company may reject any purchase order, modify or waive the minimum initial
or subsequent investment requirements and suspend and resume the sale of any
share class of the Company at any time.

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


Selling Shares

Shareholders may place redemption orders by telephoning PFPC at (800) 441-7450.
Shares are redeemed at their net asset value per share next determined after
PFPC's receipt of the redemption order. The fund, the administrators and the
distributor will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. The fund and its service providers will
not be liable for any loss; liability, cost or expense for acting upon
telephone instructions that are











                                                                            9
<PAGE>


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

reasonably believed to be genuine in accordance with such procedures.

Payment for redeemed shares for which a redemption order is received by PFPC
before 4 p.m. (Eastern time) on a business day is normally made in Federal
funds wired to the redeeming shareholder on the next business day, provided
that the fund's custodian is also open for business. Payment for redemption
orders received after 4 p.m. (Eastern time) or on a day when the fund's
custodian is closed is normally wired in Federal funds on the next business day
following redemption on which the fund's custodian is open for business. The
fund reserves the right to wire redemption proceeds within seven days after
receiving a redemption order if, in the judgement of BlackRock Advisors, Inc.,
an earlier payment could adversely affect the fund. No charge for wiring
redemption payments is imposed by the Company.

During periods of substantial economic market change telephone redemptions may
be difficult to complete. Redemption requests may also be mailed to PFPC at
P.O. Box 8950, Wilmington, DE 19899-8950.

The Company may refuse a telephone redemption request if it believes it is
advisable to do so.

If a shareholder acquiring Institutional Shares on or after May 1, 1998 no
longer meets the eligibility standards for purchasing Institutional Shares as
described in "Buying Shares" above (other than due to changes in market value),
then the shareholder's Institutional Shares will be converted to shares of
another class of the fund having the same total net asset value as the shares
converted. If, at the time of conversion, an institution offering Service
Shares of the fund is acting on the shareholder's behalf, then the
shareholder's Institutional Shares will be converted to Service Shares. If not,
then the shareholder's Institutional Shares will be converted to Investor A
Shares. Service Shares are currently authorized to bear additional service and
processing fees at the total annual rate of .30% of average daily net assets,
while Investor A Shares are currently authorized to bear additional service,
processing and distribution fees at the total annual rate of .50% of average
daily net assets.


10
<PAGE>


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


The Company's Rights

The Company may:

 .Suspend the right of redemption if trading is halted or restricted on the
  NYSE or under other emergency conditions described in the Investment Company
  Act of 1940,
 .Postpone date of payment upon redemption if trading is halted or restricted
  on the NYSE or under other emergency conditions described in the Investment
  Company Act of 1940 or as described in the second paragraph in the section
  "Selling Shares" above,
 .Redeem shares involuntarily in certain cases, such as when the value of a
  shareholder account falls below a specified level, as described below, and
 .Redeem shares for property other than cash if conditions exist which make
  cash payments undesirable

in accordance with its rights under the Investment Company Act of 1940.

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

Accounts with Low Balances

The Company may redeem a shareholder's account in the fund at any time the net
asset value of the account in such fund falls below $5,000 as the result of a
redemption. The shareholder will be notified in writing that the value of the
account is less than the required amount and the shareholder will be allowed 30
days to make additional investments before the redemption is processed.

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

Market Timing

The fund is not designed for market timing organizations or other entities using
programmed or frequent purchases or redemptions. The Company reserves the right
to reject any specific purchase order, including an order made by a market
timer.

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

Important Notice Regarding Delivery of Shareholder Documents

The Securities and Exchange Commission permits mutual funds to deliver only one
copy of shareholder documents, including prospectuses and shareholder reports,
to fund investors with multiple accounts at the same residential or post office
box address. This practice is commonly called "householding" and is









                                                                             11
<PAGE>


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

intended to eliminate duplicate mailings of shareholder documents.

Mailings of your BlackRock Funds shareholder documents may be householded
indefinitely unless you instruct us otherwise.

--------------------------------------------------------------------------------
Management

BlackRock Funds' Co-Advisers are BlackRock Advisors, Inc. (BlackRock) and
BlackRock International, Ltd. (BIL). BlackRock was organized in 1994 to perform
advisory services for investment companies and is located at 345 Park Avenue,
New York, NY 10154. BlackRock is a wholly-owned subsidiary of BlackRock, Inc.,
one of the largest publicly traded investment management firms in the United
States with $190.8 billion of assets under management as of September 30, 2000.
BlackRock, Inc. is a majority-owned indirect subsidiary of The PNC Financial
Services Group, Inc., one of the largest diversified financial services
companies in the United States. BIL is located at 7 Castle Street, Edinburgh,
Scotland EH2 3AH. BIL was formed in 1995 and is a registered investment adviser
with the SEC and a member of the Investment Management Regulatory Organization
(IMRO) in the U.K. As of June 30, 2000, BIL managed over $7 billion in
international equities. BIL is the international equity arm of BlackRock.

For their investment advisory services, BlackRock and BIL are entitled to fees
computed daily and payable monthly.

The total annual advisory fee that can be paid to BlackRock and BIL (as a
percentage of average daily net assets) is as follows:

<TABLE>
<CAPTION>
  AVERAGE DAILY NET      INVESTMENT
  ASSETS                 ADVISORY FEE
  <S>                    <C>
  First $1 billion             %
  $1 billion-$2 billion         %
  $2 billion-$3 billion         %
  more than $3 billion          %
</TABLE>

BlackRock and BIL will divide this fee as they may agree from time to time.

As discussed above, BlackRock and BIL have agreed to cap the fund's net
expenses at the levels shown in the fund's expense table.

IMPORTANT DEFINITIONS

Adviser: The Adviser of a mutual
fund is responsible for the overall
investment management of the Fund.
The Co-Adviser for the fund are
BlackRock Advisors, Inc. and
BlackRock International, Ltd.



12
<PAGE>


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


To achieve this cap, BlackRock, BIL and the Company have entered into an
expense limitation agreement. The agreement sets a limit on certain of the
operating expenses of the fund through     , 2002 and requires BlackRock and
BIL to waive or reimburse fees or expenses if these operating expenses exceed
that limit. The expense limit (which applies to expenses charged
on fund assets as a whole, but not expenses separately charged to the different
share classes of the fund) as a percentage of average daily net assets is   %.

If within two years following a waiver or reimbursement the operating expenses
of the fund are less than the expense limit for the fund, the fund is required
to repay BlackRock and BIL up to the amount of fees waived or expenses
reimbursed under the agreement if: (1) the fund has more than $50 million in
assets, (2) BlackRock and BIL continue to be the fund's investment advisers and
(3) the Board of Trustees of the Company has approved in advance the payments
to BlackRock and BIL at the previous quarterly meeting of the Board.

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

Dividends and Distributions

BlackRock Funds makes two kinds of distributions to shareholders: dividends and
net capital gain.

Dividends are the net investment income derived by the fund and are paid within
10 days after the end of each quarter. The Company's Board of Trustees may
change the timing of dividend payments.

Net capital gain occurs when the fund manager sells securities at a profit. Net
capital gain (if any) is distributed to shareholders at least annually at a
date determined by the Company's Board of Trustees.

Your distributions will be reinvested at net asset value in new shares of the
same class of the fund unless you instruct PFPC in writing to pay them in cash.
There are no sales charges on these reinvestments.








                                                                             13
<PAGE>


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



Taxation of Distributions

Distributions paid out of the fund's "net capital gain" will be taxed to
shareholders as long-term capital gain regardless of how long a shareholder has
owned shares. All other distributions will be taxed to shareholders as ordinary
income.

Your annual tax statement from the Company will present in detail the tax
status of your distributions for each year.

If more than half of the total asset value of the fund is invested in foreign
stock or securities, the fund may elect to "pass through" to its shareholders
the amount of foreign taxes paid. In such case each shareholder would be
required to include his proportionate share of such taxes in his income and may
be entitled to deduct or credit such taxes in computing his taxable income.

Distributions paid by the fund with respect to certain qualifying dividends
received by the fund from domestic corporations may be eligible for the
corporate dividends received deduction.

Because every investor has an individual tax situation, and also because the
tax laws are subject to periodic changes, you should always consult your tax
professional about federal, state and local tax consequences of owning shares
of the Company.






14
<PAGE>

For more information:
This prospectus contains important information you should know before you
invest. Read it carefully and keep it for future reference. More information
about the BlackRock Funds is available free, upon request, including:

Annual/Semi-Annual Reports
These reports contain additional information about the fund's investments. The
annual report describes the fund's performance, lists portfolio holdings and
discusses recent market conditions, economic trends and fund investment
strategies that significantly affected the fund's performance during the last
fiscal year.

Statement of Additional Information (SAI)
A Statement of Additional Information dated January __, 2001 has been filed with
the Securities and Exchange Commission (SEC). The SAI, which includes additional
information about the BlackRock Funds, may be obtained free of charge, along
with the Company's annual and semi-annual reports, by calling (800) 441-7450.
The SAI, as supplemented from time to time, is incorporated by reference into
this prospectus.

Shareholder Account Service Representatives
Representatives are available to discuss account balance information, mutual
fund prospectuses, literature, programs and services available. Hours: 9 a.m. to
6 p.m. (Eastern time), Monday-Friday. Call: (800) 441-7450

Purchases and Redemptions
Call your registered representative or (800) 441-7450.

World Wide Web
Access general fund information and specific fund performance. Request mutual
fund prospectuses and literature. Forward mutual fund inquiries. Available 24
hours a day, 7 days a week. http://www.blackrock.com

Email
Request prospectuses, SAI, Annual or Semi-Annual Reports and literature. Forward
mutual fund inquiries. Available 24 hours a day, 7 days a week. Mail to:
[email protected]

Written Correspondence
Post Office Address: BlackRock Funds c/o PFPC Inc., P.O. Box 8950,
Wilmington, DE 19899-8950
Street Address: BlackRock Funds, c/o PFPC Inc., 400 Bellevue Parkway,
Wilmington, DE 19809

Internal Wholesalers/Broker Dealer Support
Available to support investment professionals 9 a.m. to 6 p.m. (Eastern time),
Monday-Friday. Call (888) 8BLACKROCK

Securities and Exchange Commission (SEC)
You may also view and copy information about the BlackRock Funds, including the
SAI, by visiting the EDGAR database on the SEC Web site (http://www.sec.gov) or
the SEC's Public Reference Room in Washington, D.C. Information about the
operation of the public reference room can be obtained by calling the SEC
directly at 1-202-942-8090. Copies of this information can be obtained, for a
duplicating fee, by electronic request at the following E-mail address:
[email protected], or by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-0102.


INVESTMENT COMPANY ACT FILE NO. 811-05742



[GRAPHIC]

[LOGO] BLACKROCK
           FUNDS
<PAGE>

THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND
    MAY BE CHANGED.  WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE.  THIS
STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL THESE SECURITIES AND
IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
                           OR SALE IS NOT PERMITTED.

                               BLACKROCK FUNDS/SM/

                      STATEMENT OF ADDITIONAL INFORMATION

     This Statement of Additional Information provides supplementary information
pertaining to shares representing interests in the Global Communications
Portfolio (the "Portfolio") of BlackRock FundsSM (the "Fund").  This Statement
of Additional Information is not a prospectus, and should be read only in
conjunction with the Prospectuses of the Portfolio dated January __, 2001, as
amended from time to time (the "Prospectuses").  Prospectuses of the Portfolio
may be obtained from the Fund's distributor at no charge by calling toll-free
(800) 441-7379.  This Statement of Additional Information is dated January __,
2001.
<PAGE>

                               TABLE OF CONTENTS

                                                     Page

INVESTMENT POLICIES................................    1
ADDITIONAL INVESTMENT LIMITATIONS..................   10
TRUSTEES AND OFFICERS..............................   11
SHAREHOLDER AND TRUSTEE LIABILITY OF THE FUND......   14
INVESTMENT ADVISORY, ADMINISTRATION, DISTRIBUTION
  AND SERVICING ARRANGEMENTS.......................   14
EXPENSES...........................................   18
PORTFOLIO TRANSACTIONS.............................   18
PURCHASE AND REDEMPTION INFORMATION................   19
VALUATION OF PORTFOLIO SECURITIES..................   29
PERFORMANCE INFORMATION............................   30
TAXES..............................................   34
ADDITIONAL INFORMATION CONCERNING SHARES...........   36
MISCELLANEOUS......................................   37
APPENDIX A.........................................  A-1
APPENDIX B.........................................  B-1


No person has been authorized to give any information or to make any
representations not contained in this Statement of Additional Information or the
Prospectuses in connection with the offering made by the Prospectuses and, if
given or made, such information or representations must not be relied upon as
having been authorized by the Fund or its distributor.  The Prospectuses do not
constitute an offering by the Fund or by the Fund's distributor in any
jurisdiction in which such offering may not lawfully be made.
<PAGE>

                              INVESTMENT POLICIES

     The following supplements information contained in the Prospectuses
concerning the Portfolio's investment policies.  To the extent that an
investment strategy is discussed in this Statement of Additional Information but
not in the Prospectuses, such strategy is not a principal strategy of the
Portfolio.

Additional Information on Investment Strategy

     The Portfolio may invest more than 25% of its total assets in any one
industry or industries included in the communication  technology sector (as
defined in the Prospectuses).  This would expose the Portfolio to the risks of
that industry or industries to a greater extent than a mutual fund that did not
so concentrate its investments.

     Equity securities include common stock and preferred stock (including
convertible preferred stock); bonds, notes and debentures convertible into
common or preferred stock; stock purchase warrants and rights; equity interests
in trusts and partnerships; and depositary receipts.

     From time to time the Portfolio may invest in shares of companies through
initial public offerings (IPOs).  IPOs have the potential to produce, and have
in fact produced, substantial gains.  There is no assurance that the Portfolio
will have continued access to profitable IPOs and therefore investors should not
rely on these past gains as an indication of future performance.  Stocks of some
newly-public companies may decline shortly after the initial public offering.

Additional Information on Portfolio Investments

     Communication Technology Companies.  Companies in the rapidly changing
field of communication technology face special risks.  For example, their
products or services may not prove commercially successful or may become
obsolete quickly.  The value of the Portfolio's shares may be susceptible to
factors affecting the communication technology area and to greater risk and
market fluctuation than an investment in a fund that invests in a broader range
of portfolio securities not concentrated in any particular sector.  As such, the
Portfolio is not an appropriate investment for individuals who are not long-term
investors and who, as their primary objective, require safety of principal or
stable income from their investments. The communication technology area may be
subject to greater governmental regulation than many other areas and changes in
governmental policies and the need for regulatory approvals may have a material
adverse effect on this area.  Additionally, companies in this area may be
subject to risks of developing technologies, competitive pressures and other
factors and are dependent upon consumer and business acceptance as new
technologies evolve.

     Certain of the companies in which the Portfolio invests may allocate
greater than usual amounts to research and product development.  The securities
of such companies may experience above-average price movements associated with
the perceived prospects of success of the research and development programs.
Companies in which the Portfolio invests could be adversely affected by lack of
commercial acceptance of a new product or products or by technological change
and obsolescence, or by the loss of patent protection or other proprietary
rights.  In addition, communication technology companies are also subject to the
risk of service disruptions, and the risk of losses arising out of litigation
related to such disruptions.

     The Portfolio's concentration in the securities of communication technology
related companies exposes it to the price movements of companies in this sector
more than a mutual fund that invests in many sectors.  Because the Portfolio
invests primarily in the communication technology sector, there is the risk that
the Portfolio will perform poorly during a downturn in that sector.  Funds that
concentrate investments in one sector may be subject to rapidly changing asset
inflows and outflows.  The volatile nature of the communication technology area
could cause price appreciation in a particular security or securities that
results in that investment increasing its concentration in the Portfolio, in
some cases, well above the level at which it was originally purchased.

     Foreign Investments.  Investing in foreign securities involves risks not
typically associated with investing in securities of companies organized and
operated in the United States.  Because foreign securities generally are
<PAGE>

denominated and pay dividends or interest in foreign currencies, the value of
the Portfolio that invests in foreign securities as measured in U.S. dollars
will be affected favorably or unfavorably by changes in exchange rates.

     The Portfolio's investments in foreign securities may also be adversely
affected by changes in foreign political or social conditions, diplomatic
relations, confiscatory taxation, expropriation, limitation on the removal of
funds or assets, or imposition of (or change in) exchange control regulations.
In addition, changes in government administrations or economic or monetary
policies in the U.S. or abroad could result in appreciation or depreciation of
portfolio securities and could favorably or adversely affect the Portfolio's
operations.

     In general, less information is publicly available with respect to foreign
issuers than is available with respect to U.S. companies.  Most foreign
companies are also not subject to the uniform accounting and financial reporting
requirements applicable to issuers in the United States.  While the volume of
transactions effected on foreign stock exchanges has increased in recent years,
it remains appreciably below that of the New York Stock Exchange.  Accordingly,
the Portfolio's foreign investments may be less liquid and their prices may be
more volatile than comparable investments in securities in U.S. companies.  In
addition, there is generally less government supervision and regulation of
securities exchanges, brokers and issuers in foreign countries than in the
United States.

     The Portfolio may invest its assets in countries with emerging economies or
securities markets.  Political and economic structures in many of these
countries may be undergoing significant evolution and rapid development, and
these countries may lack the social, political and economic stability
characteristic of more developed countries.  Some of these countries may have in
the past failed to recognize private property rights and have at times
nationalized or expropriated the assets of private companies.  As a result the
risks described above, including the risks of nationalization or expropriation
of assets, may be heightened.  In addition, unanticipated political or social
developments may affect the value of investments in these countries and the
availability to the Portfolio of additional investments in emerging market
countries.  The small size and inexperience of the securities markets in certain
of these countries and the limited volume of trading in securities in these
countries may make investments in the countries illiquid and more volatile than
investments in Japan or most Western European countries.  There may be little
financial or accounting information available with respect to issuers located in
certain emerging market countries, and it may be difficult to assess the value
or prospects of an investment in such issuers.

     The expense ratio of the Portfolio can be expected to be higher than those
of portfolios investing primarily in domestic securities.  The costs
attributable to investing abroad are usually higher for several reasons, such as
the higher cost of investment research, higher cost of custody of foreign
securities, higher commissions paid on comparable transactions on foreign
markets and additional costs arising from delays in settlements of transactions
involving foreign securities.

     ADRs, EDRs and GDRs.  The Portfolio may invest in both sponsored and
unsponsored American Depository Receipts ("ADRs"), European Depository Receipts
("EDRs"), Global Depository Receipts ("GDRs") and other similar global
instruments.  ADRs typically are issued by an American bank or trust company and
evidence ownership of underlying securities issued by a foreign corporation.
EDRs, which are sometimes referred to as Continental Depository Receipts, are
receipts issued in Europe, typically by foreign banks and trust companies, that
evidence ownership of either foreign or domestic underlying securities.  GDRs
are depository receipts structured like global debt issues to facilitate trading
on an international basis.  Unsponsored ADR, EDR and GDR programs are organized
independently and without the cooperation of the issuer of the underlying
securities.  As a result, available information concerning the issuer may not be
as current as for sponsored ADRs, EDRs and GDRs, and the prices of unsponsored
ADRs, EDRs and GDRs may be more volatile than if such instruments were sponsored
by the issuer.  Investments in ADRs, EDRs and GDRs present additional investment
considerations as described under "Foreign Investments."

     The Euro.  On January 1, 1999, 11 European countries implemented a new
currency unit, the Euro, which is expected to replace the existing national
currencies of these countries by July 1, 2002, and to reshape financial markets,
banking systems and monetary policies in Europe and other parts of the world.
The countries that initially converted or tied their currencies to the Euro are
Austria, Belgium, France, Germany, Luxembourg, the Netherlands, Ireland,
Finland, Italy, Portugal and Spain.  Implementation of this plan means that
financial transactions and market information, including share quotations and
company accounts, in participating countries will be denominated in

                                       2
<PAGE>

Euros. Participating governments will issue their bonds in Euros, and monetary
policy for participating countries will be uniformly managed by a new central
bank, the European Central Bank.

     Although it is not possible to predict the impact of the Euro
implementation plan on the Portfolio, the transition to the Euro may change the
economic environments and behavior of investors, particularly in European
markets.  For example, investors may begin to view those countries using the
Euro as a single entity, and the Portfolio's advisers may need to adapt their
investment strategy accordingly.  The process of implementing the Euro also may
adversely affect financial markets world-wide and may result in changes in the
relative strength and value of the U.S. dollar or other major currencies, as
well as possible adverse tax consequences.  The transition to the Euro is likely
to have a significant impact on fiscal and monetary policy in the participating
countries and may produce unpredictable effects on trade and commerce generally.
These resulting uncertainties could create increased volatility in financial
markets world-wide.

     Foreign Currency Transactions.  Forward foreign currency exchange contracts
involve an obligation to purchase or sell a specified currency at a future date
at a price set at the time of the contract.  Forward currency contracts do not
eliminate fluctuations in the values of portfolio securities but rather allow
the Portfolio to establish a rate of exchange for a future point in time.  The
Portfolio may use forward foreign currency exchange contracts to hedge against
movements in the value of foreign currencies relative to the U.S. dollar in
connection with specific portfolio transactions or with respect to portfolio
positions.  The Portfolio may enter into forward foreign currency exchange
contracts when deemed advisable by its advisers under two circumstances.  First,
when entering into a contract for the purchase or sale of a security, the
Portfolio may enter into a forward foreign currency exchange contract for the
amount of the purchase or sale price to protect against variations, between the
date the security is purchased or sold and the date on which payment is made or
received, in the value of the foreign currency relative to the U.S. dollar or
other foreign currency.

     Second, when the Portfolio's advisers anticipate that a particular foreign
currency may decline relative to the U.S. dollar or other leading currencies, in
order to reduce risk, the Portfolio may enter into a forward contract to sell,
for a fixed amount, the amount of foreign currency approximating the value of
some or all of the Portfolio's securities denominated in such foreign currency.
With respect to any forward foreign currency contract, it will not generally be
possible to match precisely the amount covered by that contract and the value of
the securities involved due to the changes in the values of such securities
resulting from market movements between the date the forward contract is entered
into and the date it matures.  In addition, while forward contracts may offer
protection from losses resulting from declines in the value of a particular
foreign currency, they also limit potential gains which might result from
increases in the value of such currency.  The Portfolio will also incur costs in
connection with forward foreign currency exchange contracts and conversions of
foreign currencies and U.S. dollars.

     The Portfolio may also engage in proxy hedging transactions to reduce the
effect of currency fluctuations on the value of existing or anticipated holdings
of portfolio securities.  Proxy hedging is often used when the currency to which
the Portfolio is exposed is difficult to hedge or to hedge against the dollar.
Proxy hedging entails entering into a forward contract to sell a currency whose
changes in value are generally considered to be linked to a currency or
currencies in which some or all of the Portfolio's securities are, or are
expected to be, denominated, and to buy U.S. dollars.  Proxy hedging involves
some of the same risks and considerations as other transactions with similar
instruments.  Currency transactions can result in losses to the Portfolio if the
currency being hedged fluctuates in value to a degree or in a direction that is
not anticipated.  In addition, there is the risk that the perceived linkage
between various currencies may not be present or may not be present during the
particular time that the Portfolio is engaging in proxy hedging.  The Portfolio
may also cross-hedge currencies by entering into forward contracts to sell one
or more currencies that are expected to decline in value relative to other
currencies to which the Portfolio has or in which the Portfolio expects to have
portfolio exposure.  For example, the Portfolio may hold both French government
bonds and German government bonds, and the advisers may believe that French
francs will deteriorate against German marks.  The Portfolio would sell French
francs to reduce its exposure to that currency and buy German marks.  This
strategy would be a hedge against a decline in the value of French francs,
although it would expose the Portfolio to declines in the value of the German
mark relative to the U.S. dollar.

     In general, currency transactions are subject to risks different from those
of other portfolio transactions, and can result in greater losses to the
Portfolio than would otherwise be incurred, even when the currency transactions
are used for hedging purposes.

                                       3
<PAGE>

     A separate account of the Portfolio consisting of liquid assets equal to
the amount of the Portfolio's assets that could be required to consummate
forward contracts entered into under the second circumstance, as set forth
above, will be established with the Fund's custodian.  For the purpose of
determining the adequacy of the securities in the account, the deposited
securities will be valued at market or fair value.  If the market or fair value
of such securities declines, additional cash or securities will be placed in the
account daily so that the value of the account will equal the amount of such
commitments by the Portfolio.

     Reverse Repurchase Agreements and Other Borrowings.  The Portfolio is
authorized to borrow money.  If the securities held by the Portfolio should
decline in value while borrowings are outstanding, the net asset value of the
Portfolio's outstanding shares will decline in value by proportionately more
than the decline in value suffered by the Portfolio's securities.  Borrowings
may be made by the Portfolio through reverse repurchase agreements under which
the Portfolio sells portfolio securities to financial institutions such as banks
and broker-dealers and agrees to repurchase them at a particular date and price.
Such Agreements are considered to be borrowings under the Investment Company Act
of 1940 (the "1940 Act").  The Portfolio will use the proceeds of reverse
repurchase agreements to purchase other securities either maturing, or under an
agreement to resell, on a date simultaneous with or prior to the expiration of
the reverse repurchase agreement.  This use of reverse repurchase agreements may
be regarded as leveraging and, therefore, speculative.  Reverse repurchase
agreements involve the risks that the interest income earned in the investment
of the proceeds will be less than the interest expense, that the market value of
the securities sold by the Portfolio may decline below the price of the
securities the Portfolio is obligated to repurchase and that the securities may
not be returned to the Portfolio.  During the time a reverse repurchase
agreement is outstanding, the Portfolio will maintain a segregated account with
the Fund's custodian containing cash, U.S. Government or other appropriate
liquid securities having a value at least equal to the repurchase price.  The
Portfolio's reverse repurchase agreements, together with any other borrowings,
will not exceed, in the aggregate, 331/3% of the value of its total assets.
Whenever borrowings exceed 5% of the Portfolio's total assets, it will not make
any investments.

     Money Market Obligations of Domestic Banks, Foreign Banks and Foreign
Branches of U.S. Banks.  The Portfolio may purchase bank obligations, such as
certificates of deposit, notes, bankers' acceptances and time deposits,
including instruments issued or supported by the credit of U.S. or foreign banks
or savings institutions having total assets at the time of purchase in excess of
$1 billion.  These obligations may be general obligations of the parent bank or
may be limited to the issuing branch or subsidiary by the terms of a specific
obligation or by government regulation.  The assets of a bank or savings
institution will be deemed to include the assets of its domestic and foreign
branches for purposes of the Portfolio's investment policies.  Investments in
short-term bank obligations may include obligations of foreign banks and
domestic branches of foreign banks, and also foreign branches of domestic banks.

     Supranational Organization Obligations.  The Portfolio may purchase debt
securities of supranational organizations such as the European Coal and Steel
Community, the European Economic Community and the World Bank, which are
chartered to promote economic development.

     Lease Obligations.  The Portfolio may hold participation certificates in a
lease, an installment purchase contract, or a conditional sales contract ("lease
obligations").

     The advisers will monitor the credit standing of each municipal borrower
and each entity providing credit support and/or a put option relating to lease
obligations.  In determining whether a lease obligation is liquid, the advisers
will consider, among other factors, the following: (i) whether the lease can be
cancelled; (ii) the degree of assurance that assets represented by the lease
could be sold; (iii) the strength of the lessee's general credit (e.g., its
debt, administrative, economic, and financial characteristics); (iv) the
likelihood that the municipality would discontinue appropriating funding for the
leased property because the property is no longer deemed essential to the
operations of the municipality (e.g., the potential for an "event of
nonappropriation"); (v) legal recourse in the event of failure to appropriate;
(vi) whether the security is backed by a credit enhancement such as insurance;
and (vii) any limitations which are imposed on the lease obligor's ability to
utilize substitute property or services other than those covered by the lease
obligation.

     Municipal leases, like other municipal debt obligations, are subject to the
risk of non-payment.  The ability of issuers of municipal leases to make timely
lease payments may be adversely impacted in general economic

                                       4
<PAGE>

downturns and as relative governmental cost burdens are allocated and
reallocated among federal, state and local governmental units. Such non-payment
would result in a reduction of income to the Portfolio, and could result in a
reduction in the value of the municipal lease experiencing non-payment and a
potential decrease in the net asset value of the Portfolio. Issuers of municipal
securities might seek protection under the bankruptcy laws. In the event of
bankruptcy of such an issuer, the Portfolio could experience delays and
limitations with respect to the collection of principal and interest on such
municipal leases and the Portfolio may not, in all circumstances, be able to
collect all principal and interest to which it is entitled. To enforce its
rights in the event of a default in lease payments, the Portfolio might take
possession of and manage the assets securing the issuer's obligations on such
securities, which may increase the Portfolio's operating expenses and adversely
affect the net asset value of the Portfolio. When the lease contains a
non-appropriation clause, however, the failure to pay would not be a default and
the Portfolio would not have the right to take possession of the assets. Any
income derived from the Portfolio's ownership or operation of such assets may
not be tax-exempt. In addition, the Portfolio's intention to qualify as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended, may limit the extent to which the Portfolio may exercise its rights by
taking possession of such assets, because as a regulated investment company the
Portfolio is subject to certain limitations on its investments and on the nature
of its income.

     Commercial Paper.  The Portfolio may purchase commercial paper rated (at
the time of purchase) "A-1" by S&P or "Prime-1" by Moody's or, when deemed
advisable by the Portfolio's advisers, "high quality" issues rated "A-2" or
"Prime-2" by S&P or Moody's, respectively.  These ratings symbols are described
in Appendix A.

     Commercial paper purchasable by the Portfolio includes "Section 4(2)
paper," a term that includes debt obligations issued in reliance on the "private
placement" exemption from registration afforded by Section 4(2) of the
Securities Act of 1933.  Section 4(2) paper is restricted as to disposition
under the Federal securities laws, and is frequently sold (and resold) to
institutional investors such as the Fund through or with the assistance of
investment dealers who make a market in the Section 4(2) paper, thereby
providing liquidity.  Certain transactions in Section 4(2) paper may qualify for
the registration exemption provided in Rule 144A under the Securities Act of
1933.

     Repurchase Agreements.  The Portfolio may agree to purchase securities from
financial institutions subject to the seller's agreement to repurchase them at
an agreed upon time and price ("repurchase agreements").  Repurchase agreements
are, in substance, loans.  Default by or bankruptcy of a seller would expose the
Portfolio to possible loss because of adverse market action, expenses and/or
delays in connection with the disposition of the underlying obligations.

     The repurchase price under the repurchase agreements generally equals the
price paid by the Portfolio involved plus interest negotiated on the basis of
current short-term rates (which may be more or less than the rate on securities
underlying the repurchase agreement).  The financial institutions with which the
Portfolio may enter into repurchase agreements will be banks and non-bank
dealers of U.S. Government securities that are listed on the Federal Reserve
Bank of New York's list of reporting dealers, if such banks and non-bank dealers
are deemed creditworthy by the Portfolio's advisers.  The Portfolio's advisers
will continue to monitor creditworthiness of the seller under a repurchase
agreement, and will require the seller to maintain during the term of the
agreement the value of the securities subject to the agreement to equal at least
the repurchase price (including accrued interest).  In addition, the Portfolio's
advisers will require that the value of this collateral, after transaction costs
(including loss of interest) reasonably expected to be incurred on a default, be
equal to or greater than the repurchase price (including accrued premium)
provided in the repurchase agreement.  The accrued premium is the amount
specified in the repurchase agreement or the daily amortization of the
difference between the purchase price and the repurchase price specified in the
repurchase agreement.  The Portfolio's advisers will mark-to-market daily the
value of the securities.  Securities subject to repurchase agreements will be
held by the Fund's custodian (or sub-custodian) in the Federal Reserve/Treasury
book-entry system or by another authorized securities depository.  Repurchase
agreements are considered to be loans by the Portfolio under the 1940 Act.

     The use of repurchase agreements involves certain risks.  For example, if
the seller of securities under a repurchase agreement defaults on its obligation
to repurchase the underlying securities, as a result of its bankruptcy or
otherwise, the Portfolio will seek to dispose of such securities, which action
could involve costs or delays.  If the seller becomes insolvent and subject to
liquidation or reorganization under applicable bankruptcy or other laws, the
Portfolio's ability to dispose of the underlying securities may be restricted.
Finally, it is possible that the Portfolio may not be able to substantiate its
interest in the underlying securities.  To minimize this risk, the securities

                                       5
<PAGE>

underlying the repurchase agreement will be held by the custodian at all times
in an amount at least equal to the repurchase price, including accrued interest.
If the seller fails to repurchase the securities, the Portfolio may suffer a
loss to the extent proceeds from the sale of the underlying securities are less
than the repurchase price.

     Investment Grade Debt Obligations.  The Portfolio may invest in "investment
grade securities," which are securities rated in the four highest rating
categories of an NRSRO  or deemed to be of equivalent quality by the Portfolio's
co-advisers.  It should be noted that debt obligations rated in the lowest of
the top four ratings (i.e., "Baa" by Moody's or "BBB" by S&P) are considered to
have some speculative characteristics and are more sensitive to economic change
than higher rated securities.  If an investment grade security of the Portfolio
is subsequently downgraded below investment grade, the Portfolio's co-adviser(s)
will consider such an event in determining whether the Portfolio should continue
to hold the security.  Subject to its other investment strategies, there is no
limit on the amount of such downgraded securities the Portfolio may hold,
although under normal market conditions the co-advisers do not expect to hold
these securities to a material extent.

     See Appendix A to this Statement of Additional Information for a
description of applicable securities ratings.

     When-Issued Purchases and Forward Commitments.  The Portfolio may purchase
securities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment," including "TBA" (to be announced) basis.  These
transactions involve a commitment by the Portfolio to purchase or sell
particular securities with payment and delivery taking place at a future date
(perhaps one or two months later), and permit the Portfolio to lock in a price
or yield on a security it owns or intends to purchase, regardless of future
changes in interest rates or market action.  When-issued and forward commitment
transactions involve the risk, however, that the price or yield obtained in a
transaction may be less favorable than the price or yield available in the
market when the securities delivery takes place.

     When the Portfolio agrees to purchase securities on this basis, the
custodian will set aside liquid assets equal to the amount of the commitment in
a separate account.  Normally, the custodian will set aside portfolio securities
to satisfy a purchase commitment, and in such a case the Portfolio may be
required subsequently to place additional assets in the separate account in
order to ensure that the value of the account remains equal to the amount of the
Portfolio's commitments.  It may be expected that the market value of the
Portfolio's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash.  Because the Portfolio's liquidity and ability to manage its portfolio
might be affected when it sets aside cash or portfolio securities to cover such
purchase commitments, the Portfolio expects that its forward commitments and
commitments to purchase when-issued or TBA securities will not exceed 25% of the
value of its total assets absent unusual market conditions.

     If deemed advisable as a matter of investment strategy, the Portfolio may
dispose of or renegotiate a commitment after it has been entered into, and may
sell securities it has committed to purchase before those securities are
delivered to the Portfolio on the settlement date.  In these cases the Portfolio
may realize a taxable capital gain or loss.

     When the Portfolio engages in when-issued, TBA or forward commitment
transactions, it relies on the other party to consummate the trade.  Failure of
such party to do so may result in the Portfolio's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.

     The market value of the securities underlying a commitment to purchase
securities, and any subsequent fluctuations in their market value, is taken into
account when determining the market value of the Portfolio starting on the day
the Portfolio agrees to purchase the securities.  The Portfolio does not earn
interest on the securities it has committed to purchase until they are paid for
and delivered on the settlement date.

     Rights Offerings and Warrants to Purchase.  The Portfolio may participate
in rights offerings and may purchase warrants, which are privileges issued by
corporations enabling the owners to subscribe to and purchase a specified number
of shares of the corporation at a specified price during a specified period of
time.  Subscription rights normally have a short life span to expiration.  The
purchase of rights or warrants involves the risk that the Portfolio could lose
the purchase value of a right or warrant if the right to subscribe to additional
shares is not

                                       6
<PAGE>

exercised prior to the rights' and warrants' expiration. Also, the purchase of
rights and/or warrants involves the risk that the effective price paid for the
right and/or warrant added to the subscription price of the related security may
exceed the value of the subscribed security's market price such as when there is
no movement in the level of the underlying security. The Portfolio will not
invest more than 5% of its net assets, taken at market value, in warrants, or
more than 2% of its net assets, taken at market value, in warrants not listed on
the New York or American Stock Exchanges. Warrants acquired by the Portfolio in
units or attached to other securities are not subject to this restriction.

     Options and Futures Contracts.  To the extent consistent with its
investment objective, the Portfolio may write (i.e. sell) covered call options,
buy put options, buy call options and write secured put options for the purpose
of hedging or earning additional income, which may be deemed speculative or
cross-hedging.  For the payment of a premium, the purchaser of an option obtains
the right to buy (in the case of a call option) or to sell (in the case of a put
option) the item which is the subject of the option at a stated exercise price
for a specific period of time.  These options may relate to particular
securities, securities indices, or foreign currencies, and may or may not be
listed on a securities exchange and may or may not be issued by the Options
Clearing Corporation.  While the Portfolio will not purchase put and call
options when the aggregate premiums on outstanding options exceed 5% of its net
assets at the time of purchase, and will not write options on more than 25% of
the value of its net assets (measured at the time an option is written), there
is no limit on the amount of the Portfolio's assets that can be put at risk
through the use of options.  Options trading is a highly specialized activity
that entails greater than ordinary investment risks.  In addition, unlisted
options are not subject to the protections afforded purchasers of listed options
issued by the Options Clearing Corporation, which performs the obligations of
its members if they default.

     To the extent consistent with its investment objective, the Portfolio may
also invest in futures contracts and options on futures contracts (interest rate
futures contracts or index futures contracts, as applicable) to commit funds
awaiting investment or maintain cash liquidity or, except with respect to the
Index Master Portfolio, for other hedging purposes.  These instruments are
described in Appendix B to this Statement of Additional Information.  The value
of the Portfolio's contracts may equal or exceed 100% of its total assets,
although the Portfolio will not purchase or sell a futures contract unless
immediately afterwards the aggregate amount of margin deposits on its existing
futures positions plus the amount of premiums paid for related futures options
entered into for other than bona fide hedging purposes is 5% or less of its net
assets.  There is no limit on the amount of the Portfolio's assets that can be
put at risk through the use of futures contracts.

     Futures contracts obligate the Portfolio, at maturity, to take or make
delivery of securities, the cash value of a securities index or a stated
quantity of a foreign currency.  The Portfolio may sell a futures contract in
order to offset an expected decrease in the value of its portfolio positions
that might otherwise result from a market decline or currency exchange
fluctuation.  The Portfolio may do so either to hedge the value of its
securities portfolio as a whole, or to protect against declines occurring prior
to sales of securities in the value of the securities to be sold.  In addition,
the Portfolio may utilize futures contracts in anticipation of changes in the
composition of its holdings or in currency exchange rates.

     The Portfolio may purchase and sell call and put options on futures
contracts traded on an exchange or board of trade.  When the Portfolio purchases
an option on a futures contract, it has the right to assume a position as a
purchaser or a seller of a futures contract at a specified exercise price during
the option period.  When the Portfolio sells an option on a futures contract, it
becomes obligated to sell or buy a futures contract if the option is exercised.
In connection with the Portfolio's position in a futures contract or related
option, the Fund will create a segregated account of liquid assets or will
otherwise cover its position in accordance with applicable SEC requirements.

     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 the Portfolio 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 advisers' 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.

                                       7
<PAGE>

     The Fund intends to comply with the regulations of the Commodity Futures
Trading Commission exempting the Portfolio from registration as a "commodity
pool operator."

     Options trading is a highly specialized activity which entails greater than
ordinary investment risks.  Options on particular securities may be more
volatile than the underlying securities, and therefore, on a percentage basis,
an investment in the underlying securities themselves.  The Portfolio will write
call options only if they are "covered."  In the case of a call option on a
security, the option is "covered" if the Portfolio owns the security underlying
the call or has an absolute and immediate right to acquire that security without
additional cash consideration (or, if additional cash consideration is required,
liquid assets in such amount as are held in a segregated account by its
custodian) upon conversion or exchange of other securities held by it.  For a
call option on an index, the option is covered if the Portfolio maintains with
its custodian liquid assets equal to the contract value.  A call option is also
covered if the Portfolio holds a call on the same security or index as the call
written where the exercise price of the call held is (i) equal to or less than
the exercise price of the call written, or (ii) greater than the exercise price
of the call written provided the difference is maintained by the Portfolio in
liquid assets in a segregated account with its custodian.

     When the Portfolio purchases a put option, the premium paid by it is
recorded as an asset of the Portfolio.  When the Portfolio writes an option, an
amount equal to the net premium (the premium less the commission) received by
the Portfolio is included in the liability section of the Portfolio's statement
of assets and liabilities as a deferred credit.  The amount of this asset or
deferred credit will be subsequently marked-to-market to reflect the current
value of the option purchased or written.  The current value of the traded
option is the last sale price or, in the absence of a sale, the mean between the
last bid and asked prices.  If an option purchased by the Portfolio expires
unexercised the Portfolio realizes a loss equal to the premium paid.  If the
Portfolio enters into a closing sale transaction on an option purchased by it,
the Portfolio will realize a gain if the premium received by the Portfolio on
the closing transaction is more than the premium paid to purchase the option, or
a loss if it is less.  If an option written by the Portfolio expires on the
stipulated expiration date or if the Portfolio enters into a closing purchase
transaction, it will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold) and the
deferred credit related to such option will be eliminated.  If an option written
by the Portfolio is exercised, the proceeds of the sale will be increased by the
net premium originally received and the Portfolio will realize a gain or loss.

     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 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 Options Clearing Corporation as a result of trades on
that Exchange would continue to be exercisable in accordance with their terms.

     Securities Lending.  The Portfolio may seek additional income by lending
securities on a short-term basis.  The securities lending agreements will
require that the loans be secured by collateral in cash, U.S. Government
securities or irrevocable bank letters of credit maintained on a current basis
equal in value to at least the market value of the loaned securities.  The
Portfolio may not make such loans in excess of 33 1/3% of the value of its total
assets.  Securities loans involve risks of delay in receiving additional
collateral or in recovering the loaned securities, or possibly loss of rights in
the collateral if the borrower of the securities becomes insolvent.

     The Portfolio would continue to accrue interest on loaned securities and
would also earn income on investment collateral for such loans.  Any cash
collateral received by the Portfolio in connection with such loans may be
invested in a broad range of high quality, U.S. dollar-denominated money market
instruments that meet Rule

                                       8
<PAGE>

2a-7 restrictions for money market funds. Specifically, cash collateral may be
invested in any of the following instruments: (a) securities issued or
guaranteed as to principal and interest by the U.S. Government or by its
agencies or instrumentalities and related custodial receipts; (b) "first tier"
quality commercial paper and other obligations issued or guaranteed by U.S. and
foreign corporations and other issuers rated (at the time of purchase) in the
highest rating category by at least two NRSRO's, or one if only rated by one
NRSRO; (c) U.S. dollar- denominated obligations issued or supported by the
credit of U.S. or foreign banks or savings institutions with total assets in
excess of $1 billion (including obligations of foreign branches of such banks)
(i.e. CD's, BA's and time deposits); (d) repurchase agreements relating to the
above instruments, as well as corporate debt; and (e) unaffiliated money market
funds. Any such investments must be rated "first tier" and must have a maturity
of 397 days or less from the date of purchase.

     Yields and Ratings.  The yields on certain obligations are dependent on a
variety of factors, including general market conditions, conditions in the
particular market for the obligation, the financial condition of the issuer, the
size of the offering, the maturity of the obligation and the ratings of the
issue.  The ratings of Moody's, Duff & Phelps Credit Co. ("Duff & Phelps"),
Fitch Investor Services, Inc. ("Fitch") and S&P represent their respective
opinions as to the quality of the obligations they undertake to rate.  Ratings,
however, are general and are not absolute standards of quality.  Consequently,
obligations with the same rating, maturity and interest rate may have different
market prices.  Subsequent to its purchase by the Portfolio, a rated security
may cease to be rated.  The Portfolio's co-advisers will consider such an event
in determining whether the Portfolio should continue to hold the security.
Subject to its other investment strategies, there is not limit on the amount of
unrated securities the Portfolio may hold, although under normal markets
conditions the co-advisers do not expect to hold these securities to a material
extent.

     Investment Companies.  In connection with the management of their daily
cash positions, the Portfolio may invest in securities issued by other
investment companies which invest in short-term debt securities and which seek
to maintain a $1.00 net asset value per share.  The Portfolio may also invest in
securities issued by other investment companies with similar investment
objectives.  The Portfolio may purchase shares of investment companies investing
primarily in foreign securities, including so-called "country funds." Country
funds have portfolios consisting exclusively of securities of issuers located in
one foreign country.  Securities of other investment companies will be acquired
within limits prescribed by the Investment Company Act of 1940 (the "1940 Act").
As a shareholder of another investment company, the Portfolio would bear, along
with other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees.  These expenses would be in addition to the
advisory fees and other expenses the Portfolio bears directly in connection with
its own operations.

     The Portfolio currently intends to limit its investments so that, as
determined immediately after a securities purchase is made:  (i) not more than
5% of the value of its total assets will be invested in the securities of any
one investment company; (ii) not more than 10% of the value of its total assets
will be invested in the aggregate in securities of investment companies as a
group; and (iii) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Portfolio or by the Fund as a whole.

     Liquidity Management.  As a temporary defensive measure if its advisers
determine that market conditions warrant, the Portfolio may invest without
limitation in high quality money market instruments.  During the course of its
normal operations the Portfolio may also invest in high quality money market
instruments pending investment or to meet anticipated redemption requests.
High quality money market instruments include U.S. government obligations, U.S.
government agency obligations, dollar denominated obligations of foreign
issuers, bank obligations, including U.S. subsidiaries and branches of foreign
banks, corporate obligations, commercial paper, repurchase agreements and
obligations of supranational organizations.  Generally, such obligations will
mature within one year from the date of settlement, but may mature within two
years from the date of settlement.

     Illiquid Securities.  The Portfolio will not invest more than 15% of the
value of its net assets in securities that are illiquid.  Repurchase agreements
and time deposits that do not provide for payment within seven days after
notice, without taking a reduced price, are subject to these limits.  The
Portfolio may purchase securities which are not registered under the Securities
Act of 1933 (the "1933 Act") but which can be sold to "qualified institutional
buyers" in accordance with Rule 144A under the 1933 Act.  These securities will
not be considered illiquid so long as it is determined by the advisers that an
adequate trading market exists for the securities.  This investment practice

                                       9
<PAGE>

could have the effect of increasing the level of illiquidity in the Portfolio
during any period that qualified institutional buyers become uninterested in
purchasing these restricted securities.

     Guarantees.  The Portfolio may purchase securities which contain guarantees
issued by an entity separate from the issuer of the security.  Generally, the
guarantor of a security (often an affiliate of the issuer) will fulfill an
issuer's payment obligations under a security if the issuer is unable to do so.

     Portfolio Turnover Rates.  The Portfolio's annual portfolio turnover rate
will not be a factor preventing a sale or purchase when the advisers believe
investment considerations warrant such sale or purchase.  Portfolio turnover may
vary greatly from year to year as well as within a particular year.  High
portfolio turnover rates (i.e., 100% or more) will generally result in higher
transaction costs to the Portfolio and may result in the realization of short-
term capital gains that are taxable to shareholders as ordinary income.

                       ADDITIONAL INVESTMENT LIMITATIONS

     The Portfolio is subject to the investment limitations enumerated in this
subsection which may be changed only by a vote of the holders of a majority of
the Portfolio's outstanding shares (as defined below under "Miscellaneous").

     The Portfolio may not:

     1. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or
certificates of deposit for any such securities) if more than 5% of the value of
the Portfolio's total assets would (taken at current value) be invested in the
securities of such issuer, or more than 10% of the issuer's outstanding voting
securities would be owned by the Portfolio or the Fund, except that up to 25% of
the value of the Portfolio's total assets may (taken at current value) be
invested without regard to these limitations. For purposes of this limitation, a
security is considered to be issued by the entity (or entities) whose assets and
revenues back the security. A guarantee of a security shall not be deemed to be
a security issued by the guarantors when the value of all securities issued and
guaranteed by the guarantor, and owned by the Portfolio, does not exceed 10% of
the value of the Portfolio's total assets.

     2. Purchase any securities which would cause 25% or more of the value of
the Portfolio's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry, provided that (a) the Portfolio may cause 25% or more of
its total assets at the time of purchase to be invested in the securities of one
or more issuers conducting their principal business activities in a single
industry in the communication technology sector, as defined in the Prospectuses;
(b) there is no limitation with respect to (i) instruments issued or guaranteed
by the United States, any state, territory or possession of the United States,
the District of Columbia or any of their authorities, agencies,
instrumentalities or political subdivisions, and (ii) repurchase agreements
secured by the instruments described in clause (i); (c) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents; and
(d) utilities will be divided according to their services; for example, gas, gas
transmission, electric and gas, electric and telephone will each be considered a
separate industry.

     3. Borrow money or issue senior securities, except that the Portfolio may
borrow from banks and enter into reverse repurchase agreements for temporary
purposes in amounts up to one-third of the value of its total assets at the time
of such borrowing; or mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and then in amounts not in excess of one-
third of the value of the Portfolio's total assets at the time of such
borrowing. No Portfolio will purchase securities while its aggregate borrowings
(including reverse repurchase agreements and borrowings from banks) in excess of
5% of its total assets are outstanding. Securities held in escrow or separate
accounts in connection with the Portfolio's investment practices are not deemed
to be pledged for purposes of this limitation.

     4. Purchase or sell real estate, except that the Portfolio may purchase
securities of issuers which deal in real estate and may purchase securities
which are secured by interests in real estate.

                                       10
<PAGE>

     5. Acquire any other investment company or investment company security
except in connection with a merger, consolidation, reorganization or acquisition
of assets or where otherwise permitted by the 1940 Act.

     6. Act as an underwriter of securities within the meaning of the Securities
Act of 1933 except to the extent that the purchase of obligations directly from
the issuer thereof, or the disposition of securities, in accordance with the
Portfolio's investment objective, policies and limitations may be deemed to be
underwriting.

     7. Write or sell put options, call options, straddles, spreads, or any
combination thereof, except for transactions in options on securities,
securities indices and foreign currencies, futures contracts, options on futures
contracts, and futures and forward contract on foreign currencies.

     8. Purchase securities of companies for the purpose of exercising control.

     9. Purchase securities on margin, make short sales of securities or
maintain a short position, except that (a) this investment limitation shall not
apply to the Portfolio's transactions in futures contracts and related options
or the Portfolio's sale of securities short against the box, and (b) the
Portfolio may obtain short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities.

     10. Purchase or sell commodity contracts, or invest in oil, gas or mineral
exploration or development programs, except that the Portfolio may, to the
extent appropriate to its investment policies, purchase securities of companies
engaging in whole or in part in such activities and may enter into futures
contracts and related options.

     11. Make loans, except that the Portfolio may purchase and hold debt
instruments and enter into repurchase agreements in accordance with its
investment objective and policies and may lend portfolio securities.

     12. Purchase or sell commodities except that the Portfolio may, to the
extent appropriate to its investment policies, purchase securities of companies
engaging in whole or in part in such activities, may engage in currency
transactions and may enter into futures contracts and related options.

                              TRUSTEES AND OFFICERS

     The business and affairs of the Fund are managed under the direction of its
Board of Trustees. The trustees and executive officers of the Fund, and their
business addresses and principal occupations during the past five years, are:

<TABLE>
<CAPTION>
                                                          Principal Occupation
Name and Address              Position with Fund          During Past Five Years
----------------              ------------------          ----------------------
<S>                           <C>                         <C>
William O. Albertini          Trustee and Chairman of     Retired; Executive Vice President and Chief Financial
698 Strafford Circle          the Audit Committee         Officer from August 1997 - April 1999, Bell Atlantic
Strafford, PA  19087                                      Global Wireless (global wireless communications);
Age:  56                                                  Executive Vice President, Chief Financial Officer and
                                                          Director from February 1995 - August 1997, Vice
                                                          President and Chief Financial Officer from January 1991
                                                          - February 1995, Bell Atlantic Corporation (a
                                                          diversified telecommunications company); Director,
                                                          American Water Works, Inc. (water utility) since May
                                                          1990; Director, Triumph Group, Inc. (aviation
                                                          manufacturing, repair and maintenance services) since
                                                          May 1999; Director, Midwest Independent Transmission
                                                          Operator, Inc. (electrical transmission operator) since
                                                          December 1998; Trustee, The Carl E. & Emily I. Weller
                                                          Foundation since October 1991.

</TABLE>


                                       11
<PAGE>

<TABLE>
<CAPTION>
                                                          Principal Occupation
Name and Address              Position with Fund          During Past Five Years
----------------              ------------------          ----------------------
<S>                           <C>                         <C>
Raymond J. Clark              Trustee, President and      Treasurer of Princeton University since 1987; Trustee,
Office of the Treasurer       Treasurer                   The Compass Capital Group of Funds from 1987 to 1996;
Princeton University                                      Trustee, Chemical Bank, New Jersey Advisory Board from
3 New South Building                                      1994 until 1995; Chairman of Board of Trustees,
P.O. Box 35                                               American Red Cross - Central N.J. Chapter; Trustee,
Princeton, NJ 08540                                       Medical Center of Princeton; and Trustee, United
Age: 64                                                   Way-Greater Mercer County from 1996-1997.


Laurence D. Fink*             Trustee                     Chairman and Chief Executive Officer, Chairman of the
BlackRock, Inc.                                           Management Committee and Co-Chair of the Investment
345 Park Avenue                                           Strategy Group, of BlackRock, Inc.; Chairman of the
New York, NY 10154                                        Board and Director of BlackRock's closed-end investment
Age:  47                                                  companies; Director of BlackRock's offshore funds;
                                                          Member of Asset Liability Committee of PNC Bank, N.A.;
                                                          Vice Chairman of the Board of Trustees of Mount
                                                          Sinai-New York University Medical Center and Health
                                                          System; Member of the Board of Trustees of Phoenix
                                                          House;  formerly Managing Director of the First Boston
                                                          Corporation, Director of VIMRx Pharmaceuticals, Inc.
                                                          and Innovir Laboratories, Inc., and Trustee of New York
                                                          University Medical Center, Dwight-Englewood School and
                                                          National Outdoor School.


Robert M. Hernandez           Trustee and Chairman of     Director since 1991, Vice Chairman and Chief Financial
USX Corporation               the Nominating Committee    Officer  since 1994, Executive Vice
600 Grant Street                                          President -Accounting and Finance and Chief Financial
6105 USX Tower                                            Officer from 1991 to 1994, USX Corporation (a
Pittsburgh, PA  15219                                     diversified company principally engaged in energy and
Age:  55                                                  steel businesses); Director and Chairman of the
                                                          Executive Committee, ACE Limited (insurance company);
                                                          Director, Transtar, Inc. (transportation company) since
                                                          1996; and Director and Chairman of the Board, RTI
                                                          International Metals, Inc. since 1990.


David R. Wilmerding, Jr.      Chairman of the Board       Chairman, Gee, Wilmerding & Associates, Inc.
One Aldwyn Center                                         (investment advisers) since February 1989; Director,
Villanova, PA  19085                                      Beaver Management Corporation (land management
Age:  64                                                  corporation); Managing General Partner, Chestnut Street
                                                          Exchange Fund; Director, Independence Square Income
                                                          Securities, Inc.; Director, The Mutual Fire, Marine and
                                                          Inland Insurance Company; Director, U.S. Retirement
                                                          Communities, Inc.; Director, Trustee or Managing
                                                          General Partner of a number of investment companies
                                                          advised by BIMC and its affiliates.


Anne Ackerley                 Assistant Secretary         Managing Director, BlackRock Advisors, Inc. since
BlackRock Advisors, Inc.                                  [September] 2000; First Vice President and Operating
345 Park Avenue                                           Officer, Mergers and Acquisitions Group (1997-2000),
New York, NY 10154                                        First Vice President and Operating Officer, Public
Age:  [to come]                                           Finance Group (1995-1997), and First Vice President,
                                                          Emerging Markets Fixed Income Research (1994-1995),
                                                          Merrill Lynch & Co
</TABLE>

* This trustee may be deemed an "interested person" of the Fund as defined in
the 1940 Act.

                                       12
<PAGE>

<TABLE>
<CAPTION>
                                                          Principal Occupation
Name and Address              Position with Fund          During Past Five Years
----------------              ------------------          ----------------------
<S>                           <C>                         <C>
Ellen L. Corson               Assistant Treasurer         Vice President and Director of Mutual Fund Accounting
PFPC Inc.                                                 and Administration, PFPC Inc. since November 1997;
103 Bellevue Parkway                                      Assistant Vice President, PFPC Inc. from March 1997 to
Wilmington, DE  19809                                     November 1997; Senior Accounting Officer, PFPC Inc.
Age:  35                                                  from March 1993 to March 1997.

Brian P. Kindelan             Secretary                   Vice President and Senior Counsel, BlackRock Advisors,
BlackRock Advisors, Inc.                                  Inc. since April 1998; Senior Counsel, PNC Bank Corp.
1600 Market Street                                        from May 1995 to April 1998; Associate, Stradley,
28th Fl.                                                  Ronon, Stevens & Young, LLP from March 1990 to May 1995.
Philadelphia, PA 19103
Age:  40

</TABLE>

     The Fund pays trustees who are not affiliated with BlackRock Advisors, Inc.
("BlackRock") or BlackRock Distributors, Inc. ("BDI" or the "Distributor")
$20,000 annually ($30,000 annually in the event that the assets of the Fund
exceed $40 billion) and $350 per Portfolio for each full in-person meeting of
the Board that they attend.  The Fund pays the Chairman and Vice Chairman of the
Board an additional $10,000 and $5,000 per year, respectively, for their service
in such capacities.  Trustees who are not affiliated with BlackRock or the
Distributor are reimbursed for any expenses incurred in attending meetings of
the Board of Trustees or any committee thereof.  The term of office of each
trustee will automatically terminate when such trustee reaches 72 years of age.
No officer, director or employee of BlackRock, BlackRock Institutional
Management Corporation ("BIMC"), BlackRock Financial Management, Inc. ("BFM"),
BlackRock International, Ltd. ("BIL"), PFPC Inc. ("PFPC") (with BlackRock, the
"Administrators"), BDI, or PNC Bank, National Association ("PNC Bank") currently
receives any compensation from the Fund.  As of the date of this Statement of
Additional Information, the trustees and officers of the Fund, as a group, owned
less than 1% of the outstanding shares of each class of the Portfolio.

     The table below sets forth the compensation actually received from the Fund
and the Fund Complex of which the Fund is a part by the trustees for the fiscal
year ended September 30, 1999:

<TABLE>
<CAPTION>




                                                                Pension or                            Total Compensation
                                          Aggregate        Retirement Benefits   Estimated Annual    from Registrant and
                                         Compensation        Accrued as Part       Benefits upon        Fund Complex/1/
Name of Person, Position               from Registrant       of Fund Expenses       Retirement         Paid to Trustees
--------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>                   <C>                   <C>                <C>
David R. Wilmerding, Jr., Chairman       $82,850                   N/A                  N/A              (3)/2/ $98,850
 of the Board
--------------------------------------------------------------------------------------------------------------------------
William O. Albertini, Trustee and        $72,850                   N/A                  N/A              (1)/2/ $72,850
 Chairman of the Audit Committee
--------------------------------------------------------------------------------------------------------------------------
Raymond J. Clark, Trustee,               $72,850                   N/A                  N/A              (1)/2/ $72,850
 President and Treasurer
--------------------------------------------------------------------------------------------------------------------------
Robert M. Hernandez, Trustee and         $72,850                   N/A                  N/A              (1)/2/ $72,850
 Chairman of the Nominating
 Committee
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

____________________
1.   A Fund Complex means two or more investment companies that hold themselves
     out to investors as related companies for purposes of investment and
     investment services, or have a common investment adviser or have an
     investment adviser that is an affiliated person of the investment adviser
     of any of the other investment companies.

                                       13
<PAGE>

2.   Total number of investment company boards trustees served on within the
     Fund Complex.

                 SHAREHOLDER AND TRUSTEE LIABILITY OF THE FUND

     Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust.  However, the Fund's Declaration of Trust provides that
shareholders shall not be subject to any personal liability in connection with
the assets of the Fund for the acts or obligations of the Fund, and that every
note, bond, contract, order or other undertaking made by the Fund shall contain
a provision to the effect that the shareholders are not personally liable
thereunder.  The Declaration of Trust provides for indemnification out of the
trust property of any shareholder held personally liable solely by reason of his
being or having been a shareholder and not because of his acts or omissions or
some other reason.  The Declaration of Trust also provides that the Fund shall,
upon request, assume the defense of any claim made against any shareholder for
any act or obligation of the Fund, and shall satisfy any judgment thereon.

     The Declaration of Trust further provides that all persons having any claim
against the trustees or Fund shall look solely to the trust property for
payment; that no trustee of the Fund shall be personally liable for or on
account of any contract, debt, tort, claim, damage, judgment or decree arising
out of or connected with the administration or preservation of the trust
property or the conduct of any business of the Fund; and that no trustee shall
be personally liable to any person for any action or failure to act except by
reason of his own bad faith, willful misfeasance, gross negligence or reckless
disregard of his duties as a trustee.  With the exception stated, the
Declaration of Trust provides that a trustee is entitled to be indemnified
against all liabilities and expenses reasonably incurred by him in connection
with the defense or disposition of any proceeding in which he may be involved or
with which he may be threatened by reason of his being or having been a trustee,
and that the Fund will indemnify officers, representatives and employees of the
Fund to the same extent that trustees are entitled to indemnification.

                      INVESTMENT ADVISORY, ADMINISTRATION,

                    DISTRIBUTION AND SERVICING ARRANGEMENTS

     Advisory Agreement.  The advisory services provided by BlackRock and BIL
are described in the Prospectuses.

     For their advisory services, BlackRock and BIL are entitled to total fees,
computed daily and payable monthly, at the maximum annual rates set forth below
(to be divided among them as they may agree).

                    Maximum Annual Contractual Fee Rate
                             (Before Waivers)

--------------------------------------------------------------------------------
                                                   Investment
Average Daily Net Assets                          Advisory Fee
----------------------------                  ----------------------------------
first $1 billion                                       %
$1 billion -- $2 billion                               %
$2 billion -- $3 billion                               %
greater than $3 billion                                %

     Under the Advisory Contract, BlackRock and BIL are not liable for any error
of judgment or mistake of law or for any loss suffered by the Fund or the
Portfolio in connection with the performance of the Advisory Contract.  Under
the Advisory Contract, BlackRock and BIL are liable for a loss resulting from
willful misfeasance, bad faith or gross negligence in the performance of their
respective duties or from reckless disregard of their respective duties and
obligations thereunder. The Advisory Contract is terminable as to the Portfolio
by vote of the Fund's Board of Trustees or by the holders of a majority of the
outstanding voting securities of the relevant Portfolio, at any time without
penalty, on 60 days' written notice to BlackRock and BIL.  BlackRock and BIL may
also terminate their advisory relationship with respect to the Portfolio  on 60
days' written notice to the Fund.

                                       14
<PAGE>

     Administration Agreement.  BlackRock and PFPC serve as the Fund's co-
administrators pursuant to an administration agreement (the "Administration
Agreement").  PFPC has agreed to maintain office facilities for the Fund;
furnish the Fund with statistical and research data, clerical, accounting, and
bookkeeping services; provide and supervise the operation of an automated data
processing system to process purchase and redemption orders; prepare and file
certain reports required by regulatory authorities; prepare and file federal and
state tax returns; prepare and file material requested by state securities
regulators; calculate various contractual expenses; compute the Portfolio's net
asset value, net income and net capital gain or loss; and serve as a liaison
with the Fund's independent public accountants.  The Administrators may from
time to time voluntarily waive administration fees with respect to the Portfolio
and may voluntarily reimburse the Portfolio for expenses.

     Under the Administration Agreement, the Fund pays to BAI and PFPC on behalf
of the Portfolio a fee, computed daily and payable monthly, at an aggregate
annual rate of (i) .085% of the first $500 million of the Portfolio's average
daily net assets, .075% of the next $500 million of the Portfolio's average
daily net assets and .065% of the average daily net assets of the Portfolio in
excess of $1 billion and (ii) .145% of the first $500 million of average daily
net assets allocated to each class of shares of  the Portfolio, .135% of the
next $500 million of such average daily net assets and .125% of the average
daily net assets allocated to each class of shares of the Portfolio in excess of
$1 billion.

     Under the Administration Agreement, BlackRock is responsible for: (i) the
supervision and coordination of the performance of the Fund's service providers;
(ii) the negotiation of service contracts and arrangements between the Fund and
its service providers; (iii) acting as liaison between the trustees of the Fund
and the Fund's service providers; and (iv) providing ongoing business management
and support services in connection with the Fund's operations.  Pursuant to the
terms of the Administration Agreement, BlackRock has delegated certain of its
duties thereunder to BDI.

     The Administration Agreement provides that BlackRock and PFPC will not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund or the Portfolio in connection with the performance of the
Administration Agreement, except a loss resulting from willful misfeasance, bad
faith or gross negligence in the performance of their respective duties or from
reckless disregard of their respective duties and obligations thereunder.  In
addition, the Fund will indemnify each of BAI and PFPC and their affiliates
against any loss arising in connection with their provision of services under
the Administration Agreement, except that neither BAI nor PFPC nor their
affiliates shall be indemnified against any loss arising out of willful
misfeasance, bad faith, gross negligence or reckless disregard of their
respective duties under the Administration Agreement.

     The Fund and its service providers may engage third party plan
administrators who provide trustee, administrative and recordkeeping services
for certain employee benefit, profit-sharing and retirement plans as agent for
the Fund with respect to such plans, for the purpose of accepting orders for the
purchase and redemption of shares of the Fund.

     Custodian and Transfer Agency Agreements.  Pursuant to the terms of a
custodian agreement (the "Custodian Agreement") between the Fund and PNC Bank,
as of January 1, 1999 PNC Bank has assigned its rights and delegated its duties
as the Fund's custodian to its affiliate, PFPC Trust Company ("PTC"). Under the
Custodian Agreement, PTC or a sub-custodian (i) maintains a separate account or
accounts in the name of the Portfolio, (ii) holds and transfers portfolio
securities on account of the Portfolio, (iii) accepts receipts and makes
disbursements of money on behalf of the Portfolio, (iv) collects and receives
all income and other payments and distributions on account of the Portfolio's
securities and (v) makes periodic reports to the Board of Trustees concerning
the Portfolio's operations.  PTC is authorized to select one or more banks or
trust companies to serve as sub-custodian on behalf of the Fund, provided that,
with respect to sub-custodians other than sub-custodians for foreign securities,
PTC remains responsible for the performance of all its duties under the
Custodian Agreement and holds the Fund harmless from the acts and omissions of
any sub-custodian.  Citibank, N.A. serves as the international sub-custodian for
various Portfolios of the Fund.

     For its services to the Fund under the Custodian Agreement, PTC receives a
fee which is calculated based upon each investment portfolio's average gross
assets.  PTC is also entitled to out-of-pocket expenses and certain transaction
charges.

                                       15
<PAGE>

     PFPC, which has its principal offices at 400 Bellevue Parkway, Wilmington,
DE 19809 and is an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Fund pursuant to a Transfer Agency Agreement (the
"Transfer Agency Agreement"), under which PFPC (i) issues and redeems Service,
Investor, and Institutional classes of shares in the Portfolio, (ii) addresses
and mails all communications by the Portfolio to record owners of its shares,
including reports to shareholders, dividend and distribution notices and proxy
materials for its meetings of shareholders, (iii) maintains shareholder accounts
and, if requested, sub-accounts and (iv) makes periodic reports to the Board of
Trustees concerning the operations of the Portfolio.  PFPC may, on 30 days'
notice to the Fund, assign its duties as transfer and dividend disbursing agent
to any other affiliate of PNC Bank Corp.  For its services with respect to the
Fund's Institutional and Service Shares under the Transfer Agency Agreement,
PFPC receives fees at the annual rate of .03% of the average net asset value of
outstanding Institutional and Service Shares in the Portfolio, plus per account
fees and disbursements.  For its services under the Transfer Agency Agreement
with respect to Investor Shares, PFPC receives per account fees.  Until further
notice, the transfer agency fees for each series of Investor Shares in the
Portfolio will not exceed the annual rate of .10% of the series' average daily
net assets.

     Distributor and Distribution and Service Plan.  The Fund has entered into a
distribution agreement with the Distributor under which the Distributor, as
agent, offers shares of the Portfolio on a continuous basis.  The Distributor
has agreed to use appropriate efforts to effect sales of the shares, but it is
not obligated to sell any particular amount of shares.  The Distributor's
principal business address is 3200 Horizon Drive, King of Prussia, PA 19406.

     Pursuant to the Fund's Amended and Restated Distribution and Service Plan
(the "Plan"), the Fund may pay the Distributor and/or BlackRock or any other
affiliate of PNC Bank fees for distribution and sales support services.
Currently, as described further below, only Investor A Shares, Investor B Shares
and Investor C Shares bear the expense of distribution fees under the Plan.  In
addition, the Fund may pay BlackRock fees for the provision of personal services
to shareholders and the processing and administration of shareholder accounts.
BlackRock, in turn, determines the amount of the service fee and shareholder
processing fee to be paid to brokers, dealers, financial institutions and
industry professionals (collectively, "Service Organizations").  The Plan
provides, among other things, that:  (i) the Board of Trustees shall receive
quarterly reports regarding the amounts expended under the Plan and the purposes
for which such expenditures were made; (ii) the Plan will continue in effect for
so long as its continuance is approved at least annually by the Board of
Trustees in accordance with Rule 12b-1 under the 1940 Act; (iii) any material
amendment thereto must be approved by the Board of Trustees, including the
trustees who are not "interested persons" of the Fund (as defined in the 1940
Act) and who have no direct or indirect financial interest in the operation of
the Plan or any agreement entered into in connection with the Plan (the "12b-1
Trustees"), acting in person at a meeting called for said purpose; (iv) any
amendment to increase materially the costs which any class of shares may bear
for distribution services pursuant to the Plan shall be effective only upon
approval by a vote of a majority of the outstanding shares of such class and by
a majority of the 12b-1 Trustees; and (v) while the Plan remains in effect, the
selection and nomination of the Fund's trustees who are not "interested persons"
of the Fund shall be committed to the discretion of the Fund's non-interested
trustees.

     The Plan is terminable as to any class of shares without penalty at any
time by a vote of a majority of the 12b-1 Trustees, or by vote of the holders of
a majority of the shares of such class.

     With respect to Investor A Shares, the front-end sales charge and the
distribution fee payable under the Plan (at a maximum annual rate of .10% of the
average daily net asset value of the Portfolio's outstanding Investor A Shares)
are used to pay commissions and other fees payable to Service Organizations and
other broker/dealers who sell Investor A Shares.

     With respect to Investor B Shares, Service Organizations and other
broker/dealers receive commissions from the Distributor for selling Investor B
Shares, which are paid at the time of the sale.  The distribution fees payable
under the Plan (at a maximum annual rate of .75% of the average daily net asset
value of the Portfolio's outstanding Investor B Shares) are intended to cover
the expense to the Distributor of paying such up-front commissions, as well as
to cover ongoing commission payments to broker/dealers.  The contingent deferred
sales charge is calculated to charge the investor with any shortfall that would
occur if Investor B Shares are redeemed prior to the expiration of the
conversion period, after which Investor B Shares automatically convert to
Investor A Shares.

                                       16
<PAGE>

     With respect to Investor C Shares, Service Organizations and other
broker/dealers receive commissions from the Distributor for selling Investor C
Shares, which are paid at the time of the sale.  The distribution fees payable
under the Plan (at a maximum annual rate of .75% of the average daily net asset
value of the Portfolio's outstanding Investor C Shares) are intended to cover
the expense to the Distributor of paying such up-front commissions, as well as
to cover ongoing commission payments to the broker/dealers.  The contingent
deferred sales charge is calculated to charge the investor with any shortfall
that would occur if Investor C Shares are redeemed within 12 months of purchase.

     The Fund is not required or permitted under the Plan to make distribution
payments with respect to Service or Institutional Shares. However, the Plan
permits BDI, BlackRock, PFPC and other companies that receive fees from the Fund
to make payments relating to distribution and sales support activities out of
their past profits or other sources available to them.  The Distributor,
BlackRock and their affiliates may pay affiliated and unaffiliated financial
institutions, broker/dealers and/or their salespersons certain compensation for
the sale and distribution of shares of the Fund or for services to the Fund.
These payments ("Additional Payments") would be in addition to the payments by
the Fund described in this Statement of Additional Information for distribution
and shareholder servicing and processing.  These Additional Payments may take
the form of "due diligence" payments for a dealer's examination of the Portfolio
and payments for providing extra employee training and information relating to
Portfolio; "listing" fees for the placement of the Portfolio on a dealer's list
of mutual funds available for purchase by its customers; "finders" or "referral"
fees for directing investors to the Fund; "marketing support" fees for providing
assistance in promoting the sale of the Funds' shares; and payments for the sale
of shares and/or the maintenance of share balances.  In addition, the
Distributor, BlackRock and their affiliates may make Additional Payments to
affiliated and unaffiliated entities for subaccounting, administrative and/or
shareholder processing services that are in addition to the shareholder
servicing and processing fees paid by the Fund.  The Additional Payments made by
the Distributor, BlackRock and their affiliates may be a fixed dollar amount,
may be based on the number of customer accounts maintained by a financial
institution or broker/dealer, or may be based on a percentage of the value of
shares sold to, or held by, customers of the affiliated and unaffiliated
financial institutions or dealers involved, and may be different for different
institutions and dealers.  Furthermore, the Distributor, BlackRock and their
affiliates may contribute to various non-cash and cash incentive arrangements to
promote the sale of shares, and may sponsor various contests and promotions
subject to applicable NASD regulations in which participants may receive prizes
such as travel awards, merchandise and cash.  The Distributor, BlackRock and
their affiliates may also pay for the travel expenses, meals, lodging and
entertainment of broker/dealers, financial institutions and their salespersons
in connection with educational and sales promotional programs subject to
applicable NASD regulations.

     Service Organizations may charge their clients additional fees for account-
related services.

     The Fund intends to enter into service arrangements with Service
Organizations pursuant to which Service Organizations will render certain
support services to their customers ("Customers") who are the beneficial owners
of Service, Investor A, Investor B and Investor C Shares.  Such services will be
provided to Customers who are the beneficial owners of Shares of such classes
and are intended to supplement the services provided by the Fund's
Administrators and transfer agent to the Fund's shareholders of record.  In
consideration for payment of a service fee of up to .25% (on an annualized
basis) of the average daily net asset value of the Investor A, Investor B and
Investor C Shares owned beneficially by their Customers and .15% (on an
annualized basis) of the average daily net asset value of the Service Shares
beneficially owned by their Customers, Service Organizations may provide general
shareholder liaison services, including, but not limited to (i) answering
customer inquiries regarding account status and history, the manner in which
purchases, exchanges and redemptions of shares may be effected and certain other
matters pertaining to the Customers' investments; and (ii) assisting Customers
in designating and changing dividend options, account designations and
addresses.  In consideration for payment of a shareholder processing fee of up
to a separate .15% (on an annualized basis) of the average daily net asset value
of Service, Investor A, Investor B and Investor C Shares owned beneficially by
their Customers, Service Organizations may provide one or more of these
additional services to such Customers:  (i) providing necessary personnel and
facilities to establish and maintain Customer accounts and records; (ii)
assistance in aggregating and processing purchase, exchange and redemption
transactions; (iii) placement of net purchase and redemption orders with the
Distributor; (iv) arranging for wiring of funds; (v) transmitting and receiving
funds in connection with Customer orders to purchase or redeem shares; (vi)
processing dividend payments; (vii) verifying and guaranteeing Customer
signatures in connection with redemption orders and transfers and changes in
Customer-designated accounts, as necessary; (viii) providing periodic statements

                                       17
<PAGE>

showing Customers' account balances and, to the extent practicable, integrating
such information with other Customer transactions otherwise effected through or
with a Service Organization; (ix) furnishing (either separately or on an
integrated basis with other reports sent to a shareholder by a Service
Organization) monthly and year-end statements and confirmations of purchases,
exchanges and redemptions; (x) transmitting on behalf of the Fund, proxy
statements, annual reports, updating prospectuses and other communications from
the Fund to Customers; (xi) receiving, tabulating and transmitting to the Fund
proxies executed by Customers with respect to shareholder meetings; (xii)
providing subaccounting with respect to shares beneficially owned by Customers
or the information to the Fund necessary for subaccounting; (xiii) providing
sub-transfer agency services; and (xiv) providing such other similar services as
the Fund or a Customer may request.

     Code of Ethics.  The Fund, BlackRock and BFM, and the Distributor have
adopted codes of ethics under Rule 17j-1 of the 1940 Act.  These codes of ethics
permit personnel subject to the codes to invest in securities, including
securities that may be purchased or held by the Fund.

                                    EXPENSES

     Expenses are deducted from the total income of the Portfolio before
dividends and distributions are paid.  These expenses include, but are not
limited to, fees paid to BlackRock, PFPC, transfer agency fees, fees and
expenses of officers and trustees who are not affiliated with BlackRock, the
Distributor or any of their affiliates, taxes, interest, legal fees, custodian
fees, auditing fees, distribution fees, shareholder processing fees, shareholder
servicing fees, fees and expenses in registering and qualifying the Portfolio
and its shares for distribution under federal and state securities laws,
expenses of preparing prospectuses and statements of additional information and
of printing and distributing prospectuses and statements of additional
information to existing shareholders, expenses relating to shareholder reports,
shareholder meetings and proxy solicitations, fidelity bond and trustees and
officers liability insurance premiums, the expense of independent pricing
services and other expenses which are not expressly assumed by BlackRock or the
Fund's service providers under their agreements with the Fund.  Any general
expenses of the Fund that do not belong to a particular investment portfolio
will be allocated among all investment portfolios by or under the direction of
the Board of Trustees in a manner the Board determines to be fair and equitable.

                             PORTFOLIO TRANSACTIONS

     In executing portfolio transactions, the advisers seek to obtain the best
price and most favorable execution for the Portfolio, taking into account such
factors as the price (including the applicable brokerage commission or dealer
spread), size of the order, difficulty of execution and operational facilities
of the firm involved.  While the advisers generally seek reasonably competitive
commission rates, payment of the lowest commission or spread is not necessarily
consistent with obtaining the best price and execution in particular
transactions.  Payments of commissions to brokers who are affiliated persons of
the Fund (or affiliated persons of such persons) will be made in accordance with
Rule 17e-1 under the 1940 Act.

     No Portfolio has any obligation to deal with any broker or group of brokers
in the execution of Portfolio transactions.  The advisers may, consistent with
the interests of the Portfolio, select brokers on the basis of the research,
statistical and pricing services they provide to the Portfolio and the advisers'
other clients.  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
advisers under the investment advisory contract.  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 advisers determine
in good faith that such commission is reasonable in terms either of the
transaction or the overall responsibility of the advisers to the Portfolio and
their  other clients and that the total commissions paid by the Portfolio will
be reasonable in relation to the benefits to the Portfolio over the long-term.
The advisory fees that the Portfolio pays to the advisers will not be reduced as
a consequence of the advisers' receipt of brokerage and research services. To
the extent the Portfolio's portfolio transactions are used to obtain such
services, the brokerage commissions paid by the Portfolio will exceed those that
might otherwise be paid by an amount which cannot be presently determined. Such
services generally would be useful and of value to the advisers in serving one
or more of their other clients and, conversely, such services obtained by the
placement of brokerage business of other clients generally would be useful to
the advisers in carrying out their obligations to the Portfolio. While such
services are not expected to reduce the expenses of the advisers, the advisers
would, through use of the services, avoid the

                                       18
<PAGE>

additional expenses which would be incurred if they should attempt to develop
comparable information through their own staffs.

     Commission rates for brokerage transactions on foreign stock exchanges are
generally fixed.  In addition, the advisers may take into account the sale of
shares of the Fund in allocating purchase and sale orders for portfolio
securities to brokers (including brokers that are affiliated with them or
Distributor).

     Over-the-counter issues, including corporate debt and U.S. Government
securities, are normally traded on a "net" basis without a stated commission,
through dealers acting for their own account and not as brokers.  The Portfolio
will primarily engage in transactions with these dealers or deal directly with
the issuer unless a better price or execution could be obtained by using a
broker.  Prices paid to a dealer with respect to both foreign and domestic
securities will generally include a "spread," which is the difference between
the prices at which the dealer is willing to purchase and sell the specific
security at the time, and includes the dealer's normal profit.

     Purchases of money market instruments by the Portfolio are made from
dealers, underwriters and issuers.  The Portfolio does not currently expect to
incur any brokerage commission expense on such transactions because money market
instruments are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission.  The price of the
security, however, usually includes a profit to the dealer.

     Securities purchased in underwritten offerings include a fixed amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount.  When securities are purchased or sold directly from or
to an issuer, no commissions or discounts are paid.

     The advisers may seek to obtain an undertaking from issuers of commercial
paper or dealers selling commercial paper to consider the repurchase of such
securities from the Portfolio prior to maturity at their original cost plus
interest (sometimes adjusted to reflect the actual maturity of the securities),
if it believes that the Portfolio's anticipated need for liquidity makes such
action desirable.  Any such repurchase prior to maturity reduces the possibility
that the Portfolio would incur a capital loss in liquidating commercial paper,
especially if interest rates have risen since acquisition of such commercial
paper.

     Investment decisions for the Portfolio and for other investment accounts
managed by the advisers are made independently of each other in light of
differing conditions.  However, the same investment decision may be made for two
or more such accounts.  In such cases, simultaneous transactions are inevitable.
Purchases or sales are then averaged as to price and allocated as to amount in a
manner deemed equitable to each such account.  While in some cases this practice
could have a detrimental effect upon the price or value of the security as far
as the Portfolio is concerned, in other cases it could be beneficial to the
Portfolio.  The Portfolio will not purchase securities during the existence of
any underwriting or selling group relating to such securities of which BlackRock
and BFM, PTC, the Administrators, the Distributor or any affiliated person (as
defined in the 1940 Act) thereof is a member except pursuant to procedures
adopted by the Board of Trustees in accordance with Rule 10f-3 under the 1940
Act.  In no instance will portfolio securities be purchased from or sold to
BlackRock Advisors, Inc., BFM, PNC Bank, PTC, PFPC, the Distributor or any
affiliated person of the foregoing entities except as permitted by SEC exemptive
order or by applicable law.

     The portfolio turnover rate of the Portfolio is calculated by dividing the
lesser of the Portfolio's annual sales or purchases of portfolio securities
(exclusive of purchases or sales of securities whose maturities at the time of
acquisition were one year or less) by the monthly average value of the
securities held by the Portfolio during the year.

                      PURCHASE AND REDEMPTION INFORMATION

Investor Shares

     Purchase of Shares.  The minimum investment for the initial purchase of
shares is $500; there is a $50 minimum for subsequent investments.  Purchases
through the Automatic Investment Plan are subject to a lower initial purchase
minimum.  In addition, the minimum initial investment for employees of the Fund,
the Fund's

                                       19
<PAGE>

investment advisers, Distributor or transfer agent or employees of their
affiliates is $100, unless payment is made through a payroll deduction program
in which case the minimum investment is $25.

     Purchases Through Brokers.  It is the responsibility of brokers to transmit
purchase orders and payment on a timely basis.  Generally, if payment is not
received within the periods described in the Prospectuses, the order will be
canceled, notice thereof will be given, and the broker and its customers will be
responsible for any loss to the Fund or its shareholders.  Orders of less than
$500 may be mailed by a broker to the transfer agent.

     The Fund has authorized one or more brokers to receive on its behalf
purchase and redemption orders.  Such brokers are authorized to designate other
intermediaries to receive purchase and redemption orders on the Fund's behalf,
and the Fund will be deemed to have received a purchase or redemption order when
an authorized broker or, if applicable, a broker's authorized designee, receives
the order.  Such customer orders will be priced at the Fund's net asset value
next computed after they are received by an authorized broker or the broker's
authorized designee.

     Purchases Through the Transfer Agent.  Investors may also purchase Investor
Shares by completing and signing the Account Application Form and mailing it to
the transfer agent, together with a check in at least the minimum initial
purchase amount payable to BlackRock Funds.  The Fund does not accept third
party checks for initial or subsequent investments.  An Account Application Form
may be obtained by calling (800) 441-7762.  The name of the Portfolio with
respect to which shares are purchased must also appear on the check or Federal
Reserve Draft.  Investors may also wire Federal funds in connection with the
purchase of shares.  The wire instructions must include the name of the
Portfolio, specify the class of Investor Shares and include the name of the
account registration and the shareholder account number.  Before wiring any
funds, an investor must call PFPC at (800) 441-7762 in order to confirm the wire
instructions.

     Other Purchase Information.  Shares of the Portfolio of the Fund are sold
on a continuous basis by BDI as the Distributor.  BDI maintains its principal
offices at 3200 Horizon Drive, King of Prussia, PA 19406.  Purchases may be
effected on weekdays on which the New York Stock Exchange is open for business
(a "Business Day").  Shares of the Portfolio will not be priced on the following
days when the NYSE is closed:  New Year's Day, Martin Luther King, Jr.'s
Birthday, Washington's Birthday, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.  Payment for orders which are not
received or accepted will be returned after prompt inquiry.  The issuance of
shares is recorded on the books of the Fund.  No certificates will be issued for
shares.  Payments for shares of the Portfolio may, in the discretion of the
Fund's investment advisers, be made in the form of securities that are
permissible investments for that Portfolio.  The Fund reserves the right to
reject any purchase order, to modify or waive the minimum initial or subsequent
investment requirement and to suspend and resume the sale of any share class of
any Portfolio at any time.

     Unless a sales charge waiver applies, Investor B shareholders pay a
contingent deferred sales charge if they redeem during the first six years after
purchase, and Investor C shareholders pay a contingent deferred sales charge if
they redeem during the first twelve months after purchase.  Investors expecting
to redeem during these periods should consider the cost of the applicable
contingent deferred sales charge in addition to the aggregate annual Investor B
or Investor C distribution fees, as compared with the cost of the initial sales
charges applicable to the Investor A Shares.

Dealer Reallowances

     The following are the front-end sales loads reallowed to dealers as a
percentage of the offering price of Investor A Shares.

                                       20
<PAGE>

<TABLE>
<CAPTION>

                                                                          Reallowance or
                                                                          Placement Fees
               Amount of Transaction                                    to Dealers (as % of
                 at Offering Price                                       Offering Price)*
                 -----------------                                       ----------------
<S>                                                                             <C>
Less than $50,000                                                               4.50%
$50,000 but less than $100,000                                                  4.25
$100,000 but less than $250,000                                                 4.00
$250,000 but less than $500,000                                                 3.00
$500,000 but less than $1,000,000                                               2.00
$1 million but less than $3 million                                             1.00
$3 million but less than $15 million                                            0.50
$15 million and above                                                           0.25
</TABLE>

--------------
*    The Distributor may pay placement fees to dealers as shown on purchases of
     Investor A Shares of $1,000,000 or more.

     During special promotions, the entire sales charge may be reallowed to
dealers. Dealers who receive 90% or more of the sales charge may be deemed to be
"underwriters" under the 1933 Act. The amount of the sales charge not reallowed
to dealers may be paid to broker-dealer affiliates of PNC Bank Corp. who provide
sales support services. The Distributor, BlackRock, Inc. and/or their affiliates
may also pay additional compensation, out of their assets and not as an
additional charge to the Portfolio, to dealers in connection with the sale and
distribution of shares (such as additional payments based on new sales), and
may, subject to applicable NASD regulations, contribute to various non-cash and
cash incentive arrangements to promote the sale of shares, as well as sponsor
various educational programs, sales contests and promotions in which
participants may receive reimbursement of expenses, entertainment and prizes
such as travel awards, merchandise and cash.

     The following special purchase plans result in the waiver or reduction of
sales charges for Investor A, B or C shares.

Sales Charge Waivers--Investor A Shares

     Qualified Plans.  In general, the sales charge (as a percentage of the
offering price) payable by qualified employee benefit plans ("Qualified Plans")
having at least 20 employees eligible to participate in purchases of Investor A
Shares of the Portfolio aggregating less than $500,000 will be 1.00%.  No sales
charge will apply to purchases by such Qualified Plans of Investor A Shares
aggregating $500,000 and above.  The sales charge payable by Qualified Plans
having less than 20 employees eligible to participate in purchases of Investor A
Shares of the Portfolio aggregating less than $500,000 will be 2.50%.  The above
schedule will apply to purchases by such Qualified Plans of Investor A Shares
aggregating $500,000 and above.

     The Fund has established different waiver arrangements with respect to the
sales charge on Investor A Shares of the Portfolio for purchases through certain
Qualified Plans participating in programs whose sponsors or administrators have
entered into arrangements with the Fund.

     Investor A Shares of the Portfolio will be made available to plan
participants at net asset value with the waiver of the initial sales charge on
purchases through an eligible 401(k) plan participating in a Merrill Lynch
401(k) Program (an "ML 401(k) Plan") if:

          (i) the ML 401(k) Plan is record kept on a daily valuation basis by
     Merrill Lynch and, on the date the ML 401(k) Plan sponsor signs the Merrill
     Lynch Recordkeeping Service Agreement, the ML 401(k) Plan has $3 million or
     more in assets invested in broker/dealer funds not advised or managed by
     Merrill Lynch Asset Management, L.P. ("MLAM") that are made available
     pursuant to a Services Agreement between Merrill Lynch and the fund's
     principal underwriter or distributor and in funds advised or managed by
     MLAM (collectively, the "Applicable Investments"); or

          (ii) the ML 401(k) Plan is recordkept on a daily valuation basis by an
     independent recordkeeper whose services are provided through a contract or
     alliance arrangement with Merrill Lynch, and on the date the ML 401(k) Plan
     sponsor signs the Merrill Lynch Recordkeeping Service Agreement, the ML
     401(k) Plan has $3 million or more in assets, excluding money market funds,
     invested in Applicable Investments; or

                                       21
<PAGE>

          (iii) the ML 401(k) Plan has 500 or more eligible employees, as
     determined by the Merrill Lynch plan conversion manager, on the date the ML
     401(k) Plan sponsor signs the Merrill Lynch Recordkeeping Service
     Agreement.

     Other.  The following persons associated with the Fund, the Distributor,
the Fund's investment advisers or transfer agent and their affiliates may buy
Investor A Shares of the Portfolio without paying a sales charge to the extent
permitted by these firms:  (a) officers, directors and partners; (b) employees
and retirees; (c) registered representatives of brokers who have entered into
selling agreements with the Distributor; (d) spouses, children, parents and
siblings of any of the persons set forth in (a) through (c); and (e) any trust,
pension, profit-sharing or other benefit plan for any of the persons set forth
in (a) through (c).  The following persons may also buy Investor A Shares
without paying a sales charge:  (a) persons investing through an authorized
payroll deduction plan; (b) persons investing through an authorized investment
plan for organizations which operate under Section 501(c)(3) of the Internal
Revenue Code; (c) registered investment advisers, trust companies and bank trust
departments exercising discretionary investment authority with respect to
amounts to be invested in the Portfolio; (d) persons participating in a "wrap
account" or similar program under which they pay advisory fees to a broker-
dealer or other financial institution; and (e) persons participating in an
account or program under which they pay fees to a broker-dealer or other
financial institution for providing transaction processing and other
administrative services, but not investment advisory services.  Investors who
qualify for any of these exemptions from the sales charge must purchase Investor
A Shares.

Reduced Sales Charges--Investor A Shares

     Because of reductions in the front-end sales charge for purchases of
Investor A Shares aggregating $50,000 or more, it may be advantageous for
investors purchasing large quantities of Investor Shares to purchase Investor A
Shares.  In any event, the Fund will not accept any purchase order for
$1,000,000 or more of Investor B Shares or Investor C Shares.

     Quantity Discounts.  Larger purchases may reduce the sales charge price.
Upon notice to the investor's broker or the transfer agent, purchases of
Investor A Shares made at any one time by the following persons may be
considered when calculating the sales charge: (a) an individual, his or her
spouse and their children under the age of 21; (b) a trustee or fiduciary of a
single trust estate or single fiduciary account; or (c) any organized group
which has been in existence for more than six months, if it is not organized for
the purpose of buying redeemable securities of a registered investment company,
and if the purchase is made through a central administrator, or through a single
dealer, or by other means which result in economy of sales effort or expense.
An organized group does not include a group of individuals whose sole
organizational connection is participation as credit card holders of a company,
policyholders of an insurance company, customers of either a bank or
broker/dealer or clients of an investment adviser.  Purchases made by an
organized group may include, for example, a trustee or other fiduciary
purchasing for a single fiduciary account or other employee benefit plan
purchases made through a payroll deduction plan.

     Right of Accumulation.  Under the Right of Accumulation, the current value
of an investor's existing Investor A Shares that are subject to a front-end
sales charge or the total amount of an investor's initial investment in such
shares, less redemptions (whichever is greater) may be combined with the amount
of the investor's current purchase in determining the applicable sales charge.
In order to receive the cumulative quantity reduction, previous purchases of
Investor A Shares must be called to the attention of PFPC by the investor at the
time of the current purchase.

     Letter of Intent.  An investor may qualify for a reduced sales charge
immediately by signing a Letter of Intent stating the investor's intention to
invest during the next 13 months a specified amount in Investor A Shares which,
if made at one time, would qualify for a reduced sales charge.  The Letter of
Intent may be signed at any time within 90 days after the first investment to be
included in the Letter of Intent.  The initial investment must meet the minimum
initial investment requirement and represent at least 5% of the total intended
investment.  The investor must instruct PFPC upon making subsequent purchases
that such purchases are subject to a Letter of Intent.  All dividends and
capital gains of the Portfolio that are invested in additional Investor A Shares
of the same Portfolio are applied to the Letter of Intent.

                                       22
<PAGE>

     During the term of a Letter of Intent, the Fund's transfer agent will hold
Investor A Shares representing 5% of the indicated amount in escrow for payment
of a higher sales load if the full amount indicated in the Letter of Intent is
not purchased.  The escrowed Investor A Shares will be released when the full
amount indicated has been purchased.  Any redemptions made during the 13-month
period will be subtracted from the amount of purchases in determining whether
the Letter of Intent has been completed.

     If the full amount indicated is not purchased within the 13-month period,
the investor will be required to pay an amount equal to the difference between
the sales charge actually paid and the sales charge the investor would have had
to pay on his or her aggregate purchases if the total of such purchases had been
made at a single time. If remittance is not received within 20 days of the
expiration of the 13-month period, PFPC, as attorney-in-fact, pursuant to the
terms of the Letter of Intent, will redeem an appropriate number of Investor A
Shares held in escrow to realize the difference.

Investor B Shares

     Investor B Shares are subject to a deferred sales charge if they are
redeemed within six years of purchase. Dealers will generally receive
commissions equal to 4.00% of Investor B Shares sold by them plus ongoing fees
under the Fund's Amended and Restated Distribution and Service Plan.  Dealers
may not receive a commission in connection with sales of Investor B Shares to
certain retirement plans sponsored by the Fund, BlackRock or its affiliates, but
may receive fees under the Amended and Restated Distribution and Service Plan.
These commissions and payments may be different than the reallowances, placement
fees and commissions paid to dealers in connection with sales of Investor A
Shares and Investor C Shares.

Investor C Shares

     Investor C Shares are subject to a deferred sales charge of 1.00% based on
the lesser of the offering price or the net asset value of the Investor C Shares
on the redemption date if redeemed within twelve months after purchase.  Dealers
will generally receive commissions equal to 1.00% of the Investor C Shares sold
by them plus ongoing fees under the Fund's Amended and Restated Distribution and
Service Plan.  Dealers may not receive a commission in connection with sales of
Investor C Shares to certain retirement plans sponsored by the Fund, BlackRock
or its affiliates, but may receive fees under the Amended and Restated
Distribution and Service Plan.  These commissions and payments may be different
than the reallowances, placement fees and commissions paid to dealers in
connection with sales of Investor A Shares and Investor B Shares.

     Exemptions from and Reductions of the Contingent Deferred Sales Charge-
Investor B and Investor C Shares.  The contingent deferred sales charge on
Investor B Shares and Investor C Shares is not charged in connection with: (1)
exchanges described in "Exchange Privilege" below; (2) redemptions made in
connection with minimum required distributions from IRA, 403(b)(7) and Qualified
Plan accounts due to the shareholder reaching age 70 1/2; (3) redemptions made
with respect to certain retirement plans sponsored by the Fund, BlackRock or its
affiliates; (4) redemptions in connection with a shareholder's death or
disability (as defined in the Internal Revenue Code) subsequent to the purchase
of Investor B Shares or Investor C Shares; (5) involuntary redemptions of
Investor B Shares or Investor C Shares in accounts with low balances as
described in "Redemption of Shares" below; and (6) redemptions made pursuant to
the Systematic Withdrawal Plan, subject to the limitations set forth under
"Systematic Withdrawal Plan" below.  In addition, no contingent deferred sales
charge is charged on Investor B Shares or Investor C Shares acquired through the
reinvestment of dividends or distributions.  The Fund also waives the contingent
deferred sales charge on redemptions of Investor B Shares of the Portfolio
purchased through certain Qualified Plans participating in programs whose
sponsors or administrators have entered into arrangements with the Fund.

     Investor B Shares of the Portfolio will be made available to plan
participants at net asset value with the waiver of the contingent deferred sales
charge if the shares were purchased through an ML 401(k) Plan if:

          (i) the ML 401(k) Plan is recordkept on a daily valuation basis by
     Merrill Lynch and, on the date the ML 401(k) Plan sponsor signs the Merrill
     Lynch Recordkeeping Service Agreement, the ML 401(k) Plan has less than $3
     million in assets invested in Applicable Investments; or

                                       23
<PAGE>

          (ii) the ML 401(k) Plan is recordkept on a daily valuation basis by an
     independent recordkeeper whose services are provided through a contract or
     alliance arrangement with Merrill Lynch, and on the date the ML 401(k) Plan
     sponsor signs the Merrill Lynch Recordkeeping Service Agreement, the ML
     401(k) Plan has less than $3 million in assets, excluding money market
     funds, invested in Applicable Investments; or

          (iii) the ML 401(k) Plan has less than 500 eligible employees, as
     determined by the Merrill Lynch plan conversion manager, on the date the ML
     401(k) Plan sponsor signs the Merrill Lynch Recordkeeping Service
     Agreement.

     ML 401(k) Plans recordkept on a daily basis by Merrill Lynch or an
independent recordkeeper under a contract with Merrill Lynch that are currently
investing in Investor B shares of Non-Money Market Portfolios of the Fund
convert to Investor A shares once the ML 401(k) Plan has reached $5 million
invested in Applicable Investments.  The ML 401(k) Plan will receive a plan-
level share conversion.

     When an investor redeems Investor B Shares or Investor C Shares, the
redemption order is processed to minimize the amount of the contingent deferred
sales charge that will be charged. Investor B Shares and Investor C Shares are
redeemed first from those shares that are not subject to the deferred sales load
(i.e., shares that were acquired through reinvestment of dividends or
distributions) and after that from the shares that have been held the longest.

Shareholder Features

     Exchange Privilege.  Exchanges of Investor A Shares may be subject to the
difference between the sales charge previously paid on the exchanged shares and
the higher sales charge (if any) payable with respect to the shares acquired in
the exchange.  Unless an exemption applies, a front-end sales charge will be
charged in connection with exchanges of Investor A Shares of the Money Market
Portfolios for Investor A Shares of the Fund's Non-Money Market Portfolios.
Similarly, exchanges of Investor B or Investor C Shares of a Money Market
Portfolio for Investor B or Investor C Shares of a Non-Money Market Portfolio of
the Fund will also be subject to a CDSC, unless an exemption applies.  In
determining the holding period for calculating the contingent deferred sales
charge payable on redemption of Investor B and Investor C Shares, the holding
period of the Investor B or Investor C Shares originally held will be added to
the holding period of the Investor B or Investor C Shares acquired through
exchange.  No exchange fee is imposed by the Fund.

     Investor A Shares of Money Market Portfolios of the Fund that were (1)
acquired through the use of the exchange privilege and (2) can be traced back to
a purchase of shares in one or more investment portfolios of the Fund for which
a sales charge was paid, can be exchanged for Investor A Shares of the Portfolio
subject to differential sales charges as applicable.

     The exchange of Investor B and Investor C Shares will not be subject to a
CDSC, which will continue to be measured from the date of the original purchase
and will not be affected by exchanges.

     A shareholder wishing to make an exchange may do so by sending a written
request to PFPC at the address given above.  Shareholders are automatically
provided with telephone exchange privileges when opening an account, unless they
indicate on the Application that they do not wish to use this privilege.
Shareholders holding share certificates are not eligible to exchange Investor A
Shares by phone because share certificates must accompany all exchange requests.
To add this feature to an existing account that previously did not provide this
option, a Telephone Exchange Authorization Form must be filed with PFPC.  This
form is available from PFPC.  Once this election has been made, the shareholder
may simply contact PFPC by telephone at (800) 441-7762 to request the exchange.
During periods of substantial economic or market change, telephone exchanges may
be difficult to complete and shareholders may have to submit exchange requests
to PFPC in writing.

     If the exchanging shareholder does not currently own shares of the
investment portfolio whose shares are being acquired, a new account will be
established with the same registration, dividend and capital gain options and
broker of record as the account from which shares are exchanged, unless
otherwise specified in writing by the shareholder with all signatures guaranteed
by an eligible guarantor institution as defined below.  In order to

                                       24
<PAGE>

participate in the Automatic Investment Program or establish a Systematic
Withdrawal Plan for the new account, however, an exchanging shareholder must
file a specific written request.

     Any share exchange must satisfy the requirements relating to the minimum
initial investment requirement, and must be legally available for sale in the
state of the investor's residence.  For Federal income tax purposes, a share
exchange is a taxable event and, accordingly, a capital gain or loss may be
realized.  Before making an exchange request, shareholders should consult a tax
or other financial adviser and should consider the investment objective,
policies and restrictions of the investment portfolio into which the shareholder
is making an exchange.  Brokers may charge a fee for handling exchanges.

     The Fund reserves the right to suspend, modify or terminate the exchange
privilege at any time.  Notice will be given to shareholders of any material
modification or termination except where notice is not required.  The Fund
generally will  suspend or terminate the exchange privilege of a shareholder who
makes more than five exchanges out of any Portfolio in any twelve-month period
or when the proposed exchange would make it difficult for the Portfolio's
advisers to invest effectively in accordance with that Portfolio's investment
objective.

     The Fund reserves the right to reject any telephone exchange request.
Telephone exchanges may be subject to limitations as to amount or frequency, and
to other restrictions that may be established from time to time to ensure that
exchanges do not operate to the disadvantage of any portfolio or its
shareholders.  The Fund, the Administrators and the Distributor will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine.  The Fund, the Administrators and the Distributor will not be liable
for any loss, liability, cost or expense for acting upon telephone instructions
reasonably believed to be genuine in accordance with such procedures.  Exchange
orders may also be sent by mail to the shareholder's broker or to PFPC at P.O.
Box 8907, Wilmington, Delaware 19899-8907.

     By use of the exchange privilege, the investor authorizes the Fund's
transfer agent to act on telephonic or written exchange instructions from any
person representing himself to be the investor and reasonably believed by the
Fund's transfer agent to be genuine.  The records of the Fund's transfer agent
pertaining to such instructions are binding.  The exchange privilege may be
modified or terminated at any time upon 60 days' notice to affected
shareholders.  The exchange privilege is only available in states where the
exchange may legally be made.

     A front-end sales charge or a contingent deferred sales charge will be
imposed (unless an exemption from either sales charge applies) when Investor
Shares of a Money Market Portfolio are redeemed and the proceeds are used to
purchase Investor A Shares, Investor B Shares or Investor C Shares of a Non-
Money Market Portfolio.

     Automatic Investment Plan ("AIP").  Investor Share shareholders and certain
Service Share shareholders who were shareholders or the Compass Capital Group of
Funds at the time of its combination with The PNC(R) Fund in 1996 may arrange
for periodic investments in that Portfolio through automatic deductions from a
checking or savings account by completing the AIP Application Form which may be
obtained from PFPC.  The minimum pre-authorized investment amount is $50.

     Systematic Withdrawal Plan ("SWP").  The Fund offers a Systematic
Withdrawal Plan which may be used by Investor Share shareholders and certain
Service Share shareholders who were shareholders at the Compass Capital Group of
Funds at the time of its combination with The PNC(R) Fund in 1996 who wish to
receive regular distributions from their accounts.  Upon commencement of the
SWP, the account must have a current value of $10,000 or more in the Portfolio.
Shareholders may elect to receive automatic cash payments of $50 or more either
monthly, every other month, quarterly, semi-annually, or annually.  Automatic
withdrawals are normally processed on the 25th day of the application month or,
if such day is not a Business Day, on the next Business Day and are paid
promptly thereafter.  An investor may utilize the SWP by completing the SWP
Application Form which may be obtained from PFPC.

     Shareholders should realize that if withdrawals exceed income dividends
their invested principal in the account will be depleted.  To participate in the
SWP, shareholders must have their dividends automatically reinvested and may not
hold share certificates.  Shareholders may change or cancel the SWP at any time,
upon written notice to PFPC.  Purchases of additional Investor A Shares of the
Fund concurrently with withdrawals may be disadvantageous to investors because
of the sales charges involved and, therefore, are discouraged.  No

                                       25
<PAGE>

contingent deferred sales charge will be assessed on redemptions of Investor B
or Investor C Shares made through the SWP that do not exceed 12% of an account's
net asset value on an annualized basis. For example, monthly, quarterly and
semi-annual SWP redemptions of Investor B or Investor C Shares will not be
subject to the CDSC if they do not exceed 1%, 3% and 6%, respectively, of an
account's net asset value on the redemption date. SWP redemptions of Investor B
or Investor C Shares in excess of this limit are still subject to the applicable
CDSC.

     Redemption of Shares.  Except as noted below, a request for redemption must
be signed by all persons in whose names the shares are registered.  Signatures
must conform exactly to the account registration.  If the proceeds of the
redemption would exceed $25,000, or if the proceeds are not to be paid to the
record owner at the record address, or if the shareholder is a corporation,
partnership, trust or fiduciary, signature(s) must be guaranteed by any eligible
guarantor institution.

     A signature guarantee is designed to protect the shareholders and the
Portfolio against fraudulent transactions by unauthorized persons.  A signature
guarantee may be obtained from a domestic bank or trust company, recognized
broker, dealer, clearing agency,  savings association who are participants in a
medallion program by the Securities Transfer Association, credit unions,
national securities exchanges and registered securities associations.  The three
recognized medallion programs are Securities Transfer Agent Medallion Program
(STAMP), Stock Exchanges Medallion Program (SEMP) and New York Stock Exchange,
Inc. Medallion Signature Program (MSP).  Signature Guarantees which are not a
part of these programs will not be accepted.  Please note that a notary public
stamp or seal is not acceptable.

     Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption.  In some cases, however,
other documents may be necessary.  Shareholders holding Investor A Share
certificates must send their certificates with the redemption request.
Additional documentary evidence of authority is required by PFPC in the event
redemption is requested by a corporation, partnership, trust, fiduciary,
executor or administrator.

     Payment of Redemption Proceeds.  The Fund may suspend the right of
redemption or postpone the date of payment upon redemption for such periods as
are permitted under the 1940 Act, and may redeem shares involuntarily or make
payment for redemption in securities or other property when determined
appropriate in light of the Fund's responsibilities under the 1940 Act.

     The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase of the
Portfolio's shares by making payment in whole or in part in securities chosen by
the Fund and valued in the same way as they would be valued for purposes of
computing the Portfolio's net asset value.  If payment is made in securities, a
shareholder may incur transaction costs in converting these securities into
cash.  The Fund has elected, however, to be governed by Rule 18f-1 under the
1940 Act so that the Portfolio is obligated to redeem its shares solely in cash
up to the lesser of $250,000 or 1% of its net asset value during any 90-day
period for any one shareholder of the Portfolio.

     Under the 1940 Act, the Portfolio may suspend the right to redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange (the "NYSE") is closed (other than customary weekend and
holiday closings), or during which trading on the NYSE is restricted, or during
which (as determined by the SEC by rule or regulation) an emergency exists as a
result of which disposal or valuation of portfolio securities is not reasonably
practicable, or for such other periods as the SEC may permit.  (The Portfolio
may also suspend or postpone the recordation of the transfer of its shares upon
the occurrence of any of the foregoing conditions.)

     The Fund may redeem shares involuntarily to reimburse the Portfolio for any
loss sustained by reason of the failure of a shareholder to make full-payment
for shares purchased by the shareholder or to collect any charge relating to a
transaction effected for the benefit of a shareholder.  The Fund reserves the
express right to redeem shares of the Portfolio involuntarily at any time if the
Fund's Board of Trustees determines, in its sole discretion, that failure to do
so may have adverse consequences to the holders of shares in the Portfolio.
Upon such redemption the holders of shares so redeemed shall have no further
right with respect thereto other than to receive payment of the redemption
price.

                                       26
<PAGE>

Institutional Shares

     Purchase of Shares.  Institutional Shares are offered to institutional
investors, including (a) registered investment advisers with a minimum
investment of $500,000 and (b) the trust departments of PNC Bank and its
affiliates (collectively, "PNC") on behalf of clients for whom PNC (i) acts in a
fiduciary capacity (excluding participant-direct employee benefit plans) or
otherwise has investment discretion or (ii) acts as custodian with respect to at
least $2,000,000 in assets, and individuals with a minimum investment of
$2,000,000.  The minimum initial investment for institutions is $5,000.  There
is no minimum subsequent investment requirement.

     Payment for Institutional Shares must normally be made in Federal funds or
other funds immediately available to the Fund's custodian.  Payment may also, in
the discretion of the Fund, be made in the form of securities that are
permissible investments for the Portfolio.  The Fund does not accept third party
checks for initial or subsequent investments.

     In the event that a shareholder acquiring Institutional Shares on or after
May 1, 1998 ceases to meet the eligibility standards for purchasing
Institutional Shares (other than due to fluctuations in market value), then the
shareholder's Institutional Shares will, upon the direction of the Fund's
distributor, automatically be converted to shares of another class of the
Portfolio having the same aggregate net asset value as the shares converted.
If, at the time of conversion, an institution offering Service Shares of the
Portfolio is acting on the shareholder's behalf, then the shareholder's
Institutional Shares will be converted to Service Shares of the Portfolio.  If
not, then the shareholder's Institutional Shares will be converted to Investor A
Shares of the Portfolio.  Service Shares are currently authorized to bear
additional service and processing fees at the aggregate annual rate of .30% of
average daily net assets, while Investor A Shares are currently authorized to
bear additional service, processing and distribution fees at the aggregate
annual rate of .50% of average daily net assets.

     The Fund may in its discretion waive or modify the minimum investment
amount, may reject any order for Institutional Shares and may suspend and resume
the sale of shares of the Portfolio at any time.

     Redemption of Shares.  Payment for redeemed shares for which a redemption
order is received by PFPC before 4:00 p.m. (Eastern Time) on a Business Day is
normally made in Federal funds wired to the redeeming Institution on the next
Business Day, provided that the Fund's custodian is also open for business.
Payment for redemption orders received after 4:00 p.m. (Eastern Time) or on a
day when the Fund's custodian is closed is normally wired in Federal funds on
the next Business Day following redemption on which the Fund's custodian is open
for business.  The Fund reserves the right to wire redemption proceeds within
seven days after receiving a redemption order if, in the judgment of BlackRock,
an earlier payment could adversely affect the Portfolio.  No charge for wiring
redemption payments is imposed by the Fund.

     During periods of substantial economic or market change, telephone
redemptions may be difficult to complete.  Redemption requests may also be
mailed to PFPC at P.O. Box 8907, Wilmington, Delaware 19899-8907.

     The Fund may also suspend the right of redemption or postpone the date of
payment upon redemption for such periods as are permitted under the 1940 Act,
and may redeem shares involuntarily or make payment for redemption in securities
or other property when determined appropriate in light of the Fund's
responsibilities under the 1940 Act.

     Institutional Shares of the Portfolio may be purchased by customers of
broker-dealers and agents which have established a servicing relationship with
the Fund on behalf of their customers.  These broker-dealers and agents may
impose additional or different conditions on the purchase or redemption of
Portfolio shares by their customers and may charge their customers transaction,
account or other fees on the purchase and redemption of Portfolio shares.  Each
broker-dealer or agent is responsible for transmitting to its customers a
schedule of any such fees and information regarding any additional or different
conditions regarding purchases and redemptions.  Shareholders who are customers
of such broker-dealers or agents should consult them for information regarding
these fees and conditions.

                                       27
<PAGE>

Service Shares

     Purchase of Shares.  Purchase orders for the Portfolio may be placed by
telephoning PFPC at (800) 441-7450.

     In the event that a shareholder acquiring Service Shares on or after May 1,
1998 (other than a former shareholder of The Compass Capital Group as described
above) ceases to meet the eligibility standards for purchasing Service Shares,
then the shareholder's Service Shares will, upon the direction of the Fund's
distributor, automatically be converted to Investor A Shares of the Portfolio
having the same aggregate net asset value as the shares converted.  Investor A
Shares are currently authorized to bear additional service and distribution fees
at the aggregate annual rate of .20% of average daily net assets.  In the event
that a shareholder acquiring Service Shares on or after May 1, 1998 subsequently
satisfies the eligibility standards for purchasing Institutional Shares (other
than due to fluctuations in market value), then the shareholder's Service Shares
will, upon the direction of the Fund's distributor, automatically be converted
to Institutional Shares of Portfolio having the same aggregate net asset value
as the shares converted.

     The Fund may in its discretion waive or modify the minimum investment
amount, may reject any order for Service Shares and may suspend and resume the
sale of shares of any Portfolio at any time.

     Redemption of Shares.  Payment for redeemed shares for which a redemption
order is received by PFPC before 4:00 p.m. (Eastern Time) on a Business Day is
normally made in Federal funds wired to the redeeming Institution on the next
Business Day, provided that the fund's custodian is also open for business.
Payment for redemption orders received after 4:00 p.m. (Eastern Time) or on a
day when the Fund's custodian is closed is normally wired in Federal funds on
the next Business Day following redemption on which the Fund's custodian is open
for business.  The Fund reserves the right to wire redemption proceeds within
seven days after receiving a redemption order if, in the judgment of BlackRock,
Inc., an earlier payment could adversely affect the Portfolio.  No charge for
wiring redemption payments is imposed by the Fund, although Institutions may
charge their customer accounts for redemption services.  Information relating to
such redemption services and charges, if any, should be obtained by customers
from their Institution.

     During periods of substantial economic or market change, telephone
redemptions may be difficult to complete.  Redemption requests may also be
mailed to PFPC at 400 Bellevue Parkway, Wilmington, DE  19809.

     The Fund may redeem Service Shares in any Portfolio account if the account
balance drops below $5,000 as the result of redemption requests and the
shareholder does not increase the balance to at least $5,000 upon thirty days'
written notice.  If a customer has agreed with an Institution to maintain a
minimum balance in his or her account with the Institution, and the balance in
the account falls below that minimum, the customer may be obligated to redeem
all or part of his or her shares in the Portfolio to the extent necessary to
maintain the minimum balance required.

     The Fund may also suspend the right of redemption or postpone the date of
payment upon redemption for such periods as are permitted under the 1940 Act,
and may redeem shares involuntarily or make payment for redemption in securities
or other property when determined appropriate in light of the Fund's
responsibilities under the 1940 Act.

     Except as noted below, a request for redemption must be signed by all
persons in whose names the shares are registered.  Signatures must conform
exactly to the account registration.  If the proceeds of the redemption would
exceed $25,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the shareholder is a corporation, partnership, trust or
fiduciary, signature(s) must be guaranteed by any eligible guarantor
institution.  Eligible guarantor institutions generally include banks,
broker/dealers, credit unions, national securities exchanges, registered
securities associations, clearing agencies and savings associations.

     Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption.  In some cases, however,
other documents may be necessary.  Shareholders holding share certificates

                                       28
<PAGE>

must send their certificates with the redemption request. Additional documentary
evidence of authority is required by PFPC in the event redemption is requested
by a corporation, partnership, trust, fiduciary, executor or administer.

     If shareholder has given authorization for expedited redemption, shares can
be redeemed by telephone and the proceeds sent by check to the shareholder or by
Federal wire transfer to a single previously designated bank account.  Once
authorization is on file, PFPC will honor requests by any person by telephone at
(800) 441-7762 or other means.  The minimum amount that may be sent by check is
$500, while the minimum amount that may be wired is $10,000.  The Fund reserves
the right to change these minimums or to terminate these redemptions privileges.
If the proceeds of a redemption would exceed $25,000, the redemption request
must be in writing and will be subject to the signature guarantee requirement
described above.  This privilege may not be used to redeem shares in
certificated form.

     Persons who were shareholders of an investment portfolio of Compass Capital
Group of Funds at the time of the portfolio's combination with The PNC Fund may
also purchase and redeem Service Shares of the same Portfolio and for the same
account in which they held shares on that date through the procedures described
in this section.

Dividends and Distributions

     The Portfolio will distribute substantially all of its net investment
income and net realized capital gains, if any, to shareholders.  The net
investment income of the Portfolio is declared quarterly as a dividend to
investors who are shareholders of the Portfolio at the close of business on the
day of declaration.  All dividends are paid not later than ten days after the
end of each quarter.  Any net realized capital gains (including net short-term
capital gains) will be distributed by the Portfolio at least annually.  The
period for which dividends are payable and the time for payment are subject to
change by the Fund's Board of Trustees.

     Distributions are reinvested at net asset value in additional full and
fractional shares of the same class on which the distributions are paid, unless
a shareholder elects to receive distributions in cash.  This election, or any
revocation thereof, must be made in writing to PFPC, and will become effective
with respect to distributions paid after its receipt by PFPC.

                        VALUATION OF PORTFOLIO SECURITIES

     In determining the market value of portfolio investments, the Fund may
employ outside organizations, which may use, without limitation, a matrix or
formula method that takes into consideration market indexes, matrices, yield
curves and other specific adjustments.  This may result in the securities being
valued at a price different from the price that would have been determined had
the matrix or formula method not been used.  All cash, receivables and current
payables are carried on the Fund's books at their face value.  Other assets, if
any, are valued at fair value as determined in good faith under the supervision
of the Board of Trustees.

     Net asset value is calculated separately for each class of shares of the
Portfolio as of the close of regular trading hours on the NYSE (currently 4:00
p.m. Eastern Time) on each Business Day by dividing the value of all securities,
cash and other assets owned by the Portfolio that are allocated to a particular
class of shares, less the liabilities charged to that class, by the total number
of outstanding shares of the class.

     Valuation of securities held by the Portfolio is as follows:  securities
traded on a national securities exchange or on the NASDAQ National Market System
are valued at the last reported sale price that day; securities traded on a
national securities exchange or on the NASDAQ National Market System for which
there were no sales on that day and securities traded on other over-the-counter
markets for which market quotations are readily available are valued at the mean
of the bid and asked prices; an option or futures contract is valued at the last
sales price prior to 4:00 p.m. (Eastern Time), as quoted on the principal
exchange or board of trade on which such option or contract is traded, or in the
absence of a sale, the mean between the last bid and asked prices prior to 4:00
p.m. (Eastern Time); and securities for which market quotations are not readily
available are valued at fair market value as determined in good faith by or
under the direction of the Fund's Board of Trustees.  The amortized cost method
of valuation will also be used with respect to debt obligations with sixty days
or less remaining to maturity unless the

                                       29
<PAGE>

investment advisers under the supervision of the Board of Trustees determines
such method does not represent fair value.

     Valuation of securities of foreign issuers is as follows:  to the extent
sale prices are available, securities which are traded on a recognized stock
exchange, whether U.S. or foreign, are valued at the latest sale price on that
exchange prior to the time when assets are valued or prior to the close of
regular trading hours on the NYSE.  In the event that there are no sales, the
mean between the last available bid and asked prices will be used.  If a
security is traded on more than one exchange, the latest sale price on the
exchange where the stock is primarily traded is used.  An option or futures
contract is valued at the last sales price prior to 4:00 p.m. (Eastern Time), as
quoted on the principal exchange or board of trade on which such option or
contract is traded, or in the absence of a sale, the mean between the last bid
and asked prices prior to 4:00 p.m. (Eastern Time).  In the event that
application of these methods of valuation results in a price for a security
which is deemed not to be representative of the market value of such security,
the security will be valued by, under the direction of or in accordance with a
method specified by the Board of Trustees as reflecting fair value.  The
amortized cost method of valuation will be used with respect to debt obligations
with sixty days or less remaining to maturity unless the investment advisers
under the supervision of the Board of Trustees determines such method does not
represent fair value.  All other assets and securities held by the Portfolio
(including restricted securities) are valued at fair value as determined in good
faith by the Board of Trustees or by someone under its direction.  Any assets
which are denominated in a foreign currency are translated into U.S. dollars at
the prevailing market rates.

     Certain of the securities acquired by the Portfolio may be traded on
foreign exchanges or over-the-counter markets on days on which the Portfolio's
net asset value is not calculated.  In such cases, the net asset value of the
Portfolio's shares may be significantly affected on days when investors can
neither purchase nor redeem shares of the Portfolio.

     The Portfolio may use a pricing service, bank or broker/dealer experienced
in such matters to value the Portfolio's securities.

                            PERFORMANCE INFORMATION

     The Portfolio may quote performance in various ways.  All performance
information supplied by the Portfolio in advertising is historical and is not
intended to indicate future returns.

     Total Return.  For purposes of quoting and comparing the performance of
shares of the Portfolio to the performance of other mutual funds and to stock or
other relevant indexes in advertisements, sales literature, communications to
shareholders and other materials, performance may be stated in terms of total
return.  The total return for each class of the Portfolio will be calculated
independently of the other classes within that Portfolio.  Under the rules of
the SEC, funds advertising performance must include total return quotes
calculated according to the following formula:


             T = [(ERV  1/n)  - 1]
                   ---------
                       P
     Where:

     T    = average annual total return.

     ERV  = ending redeemable value at the end of the period covered by the
            computation of a hypothetical $1,000 payment made at the
            beginning of the period.

     P    = hypothetical initial payment of $1,000.

     n    = period covered by the computation, expressed in terms of years.

     In calculating the ending redeemable value for Investor A Shares the
maximum front-end sales charge is deducted from the initial $1,000 payment and
all dividends and distributions by the particular Portfolio are assumed to have
been reinvested at net asset value on the reinvestment dates during the period.
In calculating the ending

                                       30
<PAGE>

redeemable value for Investor B Shares the maximum contingent deferred sales
charge is deducted at the end of the period and all dividends and distributions
by the particular Portfolio are assumed to have been reinvested at net asset
value on the reinvestment dates during the period. In calculating the ending
redeemable value for Investor C Shares, the maximum contingent deferred sales
charge is deducted at the end of the period, and all dividends and distributions
by the particular Portfolio are assumed to have been reinvested at net asset
value on the reinvestment dates during the period. Total return, or "T" in the
formula above, is computed by finding the average annual compounded rates of
return over the specified periods that would equate the initial amount invested
to the ending redeemable value.

     The Portfolio may also from time to time include in advertisements, sales
literature, communications to shareholders and other materials a total return
figure that is not calculated according to the formula set forth above in order
to compare more accurately the performance of each class of shares with other
performance measures.  For example, in comparing the total return of shares with
data published by Lipper Analytical Services, Inc., CDA Investment Technologies,
Inc. or Weisenberger Investment Company Service, or with the performance of the
Standard & Poor's 500 Stock Index, EAFE, the Dow Jones Industrial Average or the
Shearson Lehman Hutton Government Corporate Bond Index, as appropriate, the
Portfolio may calculate the aggregate total return for its shares of a certain
class for the period of time specified in the advertisement or communication by
assuming the investment of $10,000 in such shares and assuming the reinvestment
of each dividend or other distribution at net asset value on the reinvestment
date.  Percentage increases are determined by subtracting the initial value of
the investment from the ending value and by dividing the remainder by the
beginning value.  The Portfolio may not, for these purposes, deduct from the
initial value invested or the ending value any amount representing front-end and
deferred sales charges charged to purchasers of Investor A, Investor B or
Investor C Shares.  The Investor A, Investor B and Investor C classes of the
Portfolio will, however, disclose, if appropriate, the maximum applicable sales
charges and will also disclose that the performance data does not reflect sales
charges and that inclusion of sales charges would reduce the performance quoted.

     In addition to average annual total returns, the Portfolio may quote
unaveraged or cumulative total returns reflecting the simple change in value of
an investment over a stated period.  Average annual and cumulative total returns
may be quoted as a percentage or as a dollar amount, and may be calculated for a
single investment, a series of investments, or a series of redemptions, over any
time period.  Total returns may be broken down into their components of income
and capital (including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to total
return.  Total returns may be quoted on a before-tax or after-tax basis and may
be quoted with or without taking sales charges into account.  Excluding the
sales charge from a total return calculation produces a higher total return
figure.  Total returns, yields, and other performance information may be quoted
numerically or in a table, graph or similar illustration.

     Performance information for each class of shares may be quoted in
advertisements and communications to shareholders.  Total return will be
calculated on an average annual total return basis for various periods.  Average
annual total return reflects the average annual percentage change in value of an
investment in shares of the Portfolio over the measuring period.  Total return
may also be calculated on an aggregate total return basis.  Aggregate total
return reflects the total percentage change in value over the measuring period.
Both methods of calculating total return assume that dividend and capital gain
distributions made by the Portfolio with respect to a class of shares are
reinvested in shares of the same class, and also reflect the maximum sales load
charged by the Portfolio with respect to a class of shares.  When, however, the
Portfolio compares the total return of a share class to that of other funds or
relevant indices, total return may also be computed without reflecting the sales
load.

     The performance of a class of the Portfolio's shares may be compared to the
performance of other mutual funds with similar investment objectives and to
relevant indices, as well as to ratings or rankings prepared by independent
services or other financial or industry publications that monitor the
performance of mutual funds.  The performance of a class of each of the
Portfolio's shares may be compared to data prepared by Lipper Analytical
Services, Inc., CDA Investment Technologies, Inc. and Weisenberger Investment
Company Service, and to the performance of the Dow Jones Industrial Average, the
"stocks, bonds and inflation index" published annually by Ibbotson Associates,
the Lipper International Fund Index, the Lipper Small Cap International Fund
Index, the Lehman Corporate Bond Index and the Financial Times World Stock
Index.  Performance information may also include evaluations of the Portfolio
and its share classes published by nationally recognized ranking services, and
information as reported in financial publications such as Business Week,
Fortune, Institutional Investor, Money

                                       31
<PAGE>

Magazine, Forbes, Barron's, The Wall Street Journal and The New York Times, or
in publications of a local or regional nature.

     In addition to providing performance information that demonstrates the
actual return of a class of shares, the Portfolio may provide other information
demonstrating hypothetical investment returns.  This information may include,
but is not limited to, illustrating the compounding effects of dividends in a
dividend investment plan or the impact on tax-deferring investing.

     Performance quotations for shares of the Portfolio represent past
performance and should not be considered representative of future results.  The
investment return and principal value of an investment in the Portfolio will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost.  Since performance will fluctuate, performance data
for shares of the Portfolio cannot necessarily be used to compare an investment
in such shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time.  Performance is generally a function of the kind and
quality of the instruments held in the Portfolio, portfolio maturity, operating
expenses and market conditions.  Any fees charged by brokers or other
institutions directly to their customer accounts in connection with investments
in shares will not be included in the Portfolio performance calculations.

     Other Information Regarding Investment Returns.  In addition to providing
performance information that demonstrates the total return or yield of shares of
a particular class of the Portfolio over a specified period of time, the Fund
may provide certain other information demonstrating hypothetical investment
returns.  Such information may include, but is not limited to, illustrating the
compounding effects of dividends in a dividend reinvestment plan or the impact
of tax-free investing.  The Fund may demonstrate, using certain specified
hypothetical data, the compounding effect of dividend reinvestment on
investments in the Portfolio.

     Miscellaneous.  When comparing the Portfolio's performance to stock mutual
fund performance indices prepared by Lipper or other organizations, it is
important to remember the risk and return characteristics of each type of
investment.  For example, while stock mutual funds may offer higher potential
returns, they also carry the highest degree of share price volatility.

     From time to time, the Portfolio's performance may also be compared to
other mutual funds tracked by financial or business publications and
periodicals.  For example the Portfolio may quote Morningstar, Inc. in its
advertising materials.  Morningstar, Inc. is a mutual fund rating service that
rates mutual funds on the basis of risk-adjusted performance.  Rankings that
compare the performance of Portfolio to one another in appropriate categories
over specific periods of time may also be quoted in advertising.

     Ibbotson Associates of Chicago, Illinois ("Ibbotson") provides historical
returns of the capital markets in the United States, including common stocks,
small capitalization stocks, long-term corporate bonds, intermediate-term
government bonds, long-term government bonds, Treasury bills, the U.S. rate of
inflation (based on the Consumer Price Index), and combinations of various
capital markets.  The performance of these capital markets is based on the
returns of different indices.  The Portfolio may use the performance of these
capital markets in order to demonstrate general risk-versus-reward investment
scenarios.  Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets.  The risks associated with the
security types in any capital market may or may not correspond directly to those
of the Portfolio.  The Portfolio may also compare performance to that of other
compilations or indices that may be developed and made available in the future.

     The Fund may also from time to time include discussions or illustrations of
the effects of compounding in advertisements.  "Compounding" refers to the fact
that, if dividends or other distributions on the Portfolio investment are
reinvested by being paid in additional Portfolio shares, any future income or
capital appreciation of the Portfolio would increase the value, not only of the
original investment in the Portfolio, but also of the additional Portfolio
shares received through reinvestment.  The Fund may also include discussions or
illustrations of the potential investment goals of a prospective investor,
(including materials that describe general principles of investing, such as
asset allocation, diversification, risk tolerance, and goal setting,
questionnaires designed to help create a personal financial profile, worksheets
used to project savings needs based on assumed rates of inflation and
hypothetical rates of return and action plans offering investment alternatives)
investment management techniques, policies or investment suitability of the
Portfolio (such as value investing, market timing, dollar cost averaging, asset

                                       32
<PAGE>

allocation, constant ratio transfer, automatic account rebalancing, the
advantages and disadvantages of investing in tax-deferred and taxable
investments), economic and political conditions and the relationship between
sectors of the economy and the economy as a whole, the effects of inflation and
historical performance of various asset classes, including but not limited to,
stocks, bonds and Treasury bills.  From time to time advertisements, sales
literature, communications to shareholders or other materials may summarize the
substance of information contained in shareholder reports (including the
investment composition of the Portfolio), as well as the views of the
Portfolio's advisers as to current market, economy, trade and interest rate
trends, legislative, regulatory and monetary developments, investment strategies
and related matters believed to be of relevance to the Portfolio.  In addition,
selected indices may be used to illustrate historic performance of select asset
classes.  The Fund may also include in advertisements, sales literature,
communications to shareholders or other materials, charts, graphs or drawings
which illustrate the potential risks and rewards of investment in various
investment vehicles, including but not limited to, stocks, bonds, Treasury bills
and shares of the Portfolio.  In addition, advertisements, sales literature,
shareholder communications or other materials may include a discussion of
certain attributes or benefits to be derived by an investment in the Portfolio
and/or other mutual funds, benefits, characteristics or services associated with
a particular class of shares, shareholder profiles and hypothetical investor
scenarios, timely information on financial management, tax and retirement
planning and investment alternative to certificates of deposit and other
financial instruments.  Such advertisements or communicators may include
symbols, headlines or other material which highlight or summarize the
information discussed in more detail therein.  Materials may include lists of
representative clients of the Portfolio's investment advisers.  Materials may
refer to the CUSIP numbers of the various classes of the Portfolio and may
illustrate how to find the listings of the Portfolio in newspapers and
periodicals.  Materials may also include discussions of other Portfolio,
products, and services.

     Charts and graphs using net asset values, adjusted net asset values, and
benchmark indices may be used to exhibit performance.  An adjusted NAV includes
any distributions paid and reflects all elements of return.  Unless otherwise
indicated, the adjusted NAVs are not adjusted for sales charges, if any.

     The Portfolio may illustrate performance using moving averages.  A long-
term moving average is the average of each week's adjusted closing NAV for a
specified period.  A short-term moving average is the average of each day's
adjusted closing NAV for a specified period.  Moving Average Activity Indicators
combine adjusted closing NAVs from the last business day of each week with
moving averages for a specified period to produce indicators showing when an NAV
has crossed, stayed above, or stayed below its moving average.

     The Portfolio may quote various measures of volatility and benchmark
correlation in advertising.  In addition, the Portfolio may compare these
measures to those of other funds.  Measures of volatility seek to compare the
historical share price fluctuations or total returns to those of a benchmark.
Measures of benchmark correlation indicate how valid a comparative benchmark may
be.  All measures of volatility and correlation are calculated using averages of
historical data.

     Momentum indicators indicate the Portfolio's price movements over specific
periods of time.  Each point on the momentum indicator represents the
Portfolio's percentage change in price movements over that period.

     The Portfolio may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging.  In such a program, an
investor invests a fixed dollar amount in a fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low.  While such a strategy does not assure a profit or guard against loss in a
declining market, the investor's average cost per share can be lower than if
fixed numbers of shares are purchased at the same intervals.  In evaluating such
a plan, investors should consider their ability to continue purchasing shares
during periods of low price levels.  The Portfolio may be available for purchase
through retirement plans or other programs offering deferral of, or exemption
from, income taxes, which may produce superior after-tax returns over time.

     The Portfolio may advertise its current interest rate sensitivity,
duration, weighted average maturity or similar maturity characteristics.

     Advertisements and sales materials relating to the Portfolio may include
information regarding the background, experience and expertise of the investment
advisers and/or portfolio managers for the Portfolio.

                                       33
<PAGE>

                                      TAXES

     The following is only a summary of certain additional tax considerations
generally affecting the Portfolio and its shareholders that are not described in
the Prospectuses.  No attempt is made to present a detailed explanation of the
tax treatment of the Portfolio or its shareholders, and the discussion here and
in the Prospectuses is not intended as a substitute for careful tax planning.
Investors are urged to consult their tax advisers with specific reference to
their own tax situation.

     The Portfolio of the Fund has elected and intends to qualify for taxation
as a regulated investment company under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code").  As a regulated investment company, the
Portfolio generally is exempt from federal income tax on its net investment
income (i.e., its investment company taxable income as that term is defined in
the Code without regard to the deduction for dividends paid) and net capital
gain (i.e., the excess of its net long-term capital gain over its net short-term
capital loss) that it distributes to shareholders, provided that it distributes
an amount equal to at least the sum of (a) 90% of its net investment income and
(b) 90% of its net tax-exempt interest income, if any, for the year (the
"Distribution Requirement") and satisfies certain other requirements of the Code
that are described below.  Distributions of net investment income and net tax-
exempt interest income made during the taxable year or, under specified
circumstances, within twelve months after the close of the taxable year will
satisfy the Distribution Requirement.

     In addition to satisfaction of the Distribution Requirement, the Portfolio
must derive at least 90% of its gross income from dividends, interest, certain
payments with respect to securities loans and gains from the sale or other
disposition of stock or securities or foreign currencies (including, but not
limited to, gains from forward foreign currency exchange contacts), or from
other income derived with respect to its business of investing in such stock,
securities, or currencies (the "Income Requirement").

     In addition to the foregoing requirements, at the close of each quarter of
its taxable year, at least 50% of the value of the Portfolio's assets must
consist of cash and cash items, U.S. government securities, securities of other
regulated investment companies, and securities of other issuers (as to which the
Portfolio has not invested more than 5% of the value of its total assets in
securities of such issuer and as to which the Portfolio does not hold more than
10% of the outstanding voting securities of such issuer), and no more than 25%
of the value of the Portfolio's total assets may be invested in the securities
of any one issuer (other than U.S. Government securities and securities of other
regulated investment companies), or in two or more issuers which such Portfolio
controls and which are engaged in the same or similar trades or businesses.

     The Portfolio intends to distribute to shareholders any of its net capital
gain for each taxable year.  Such gain is distributed as a capital gain dividend
and is taxable to shareholders as long-term capital gain, regardless of the
length of time the shareholder has held his shares, whether such gain was
recognized by the Portfolio prior to the date on which a shareholder acquired
shares of the Portfolio and whether the distribution was paid in cash or
reinvested in shares.

     Under current law, ordinary income of individuals will be taxable at a
maximum marginal rate of 39.6%, but because of limitations on itemized
deductions otherwise allowable and the phase-out of personal exemptions, the
maximum effective marginal rate of tax for some taxpayers may be higher.  Under
recently enacted legislation, long-term capital gains of individuals are taxed
at a maximum rate of 20% with respect to capital assets held for more than one
year (10% for gains otherwise taxed at 15%).  Capital gains and ordinary income
of corporate taxpayers are both taxed at a maximum nominal rate of 35%.

     Investors should be aware that any loss realized upon the sale, exchange or
redemption of shares held for six months or less will be treated as a long-term
capital loss to the extent any capital gain dividends have been paid with
respect to such shares.  Any loss incurred on the sale or exchange of the
Portfolio's shares, held six months or less, will be disallowed to the extent of
exempt interest dividends paid with respect to such shares, and any loss not so
disallowed will be treated as a long-term capital loss to the extent of capital
gain dividends received with respect to such shares.

     The Portfolio may engage in hedging or derivatives transactions involving
foreign currencies, forward contracts, and options and futures contracts
(including options, futures and forward contracts on foreign currencies).

                                       34
<PAGE>

Such transactions will be subject to special provisions of the Code that, among
other things, may affect the character of gains and losses realized by the
Portfolio (that is, may affect whether gains or losses are ordinary or capital),
accelerate recognition of income of the Portfolio and defer recognition of
certain of the Portfolio's losses. These rules could therefore affect the
character, amount and timing of distributions to shareholders. In addition,
these provisions (1) will require the Portfolio to "mark-to-market" certain
types of positions in its portfolio (that is, treat them as if they were closed
out) and (2) may cause the Portfolio to recognize income without receiving cash
with which to pay dividends or make distributions in amounts necessary to
satisfy the Distribution Requirement and avoid the 4% excise tax (described
below). The Portfolio intends to monitor its transactions, will make the
appropriate tax elections and will make the appropriate entries in its books and
records when it acquires any option, futures contract, forward contract or
hedged investment in order to mitigate the effect of these rules.

     If the Portfolio purchases shares in a "passive foreign investment company"
(a "PFIC"), such Portfolio may be subject to U.S. federal income tax on a
portion of any "excess distribution" or gain from the disposition of such shares
even if such income is distributed as a taxable dividend by the Portfolio to its
shareholders.  Additional charges in the nature of interest may be imposed on
the Portfolio in respect of deferred taxes arising from such distributions or
gains.  If the Portfolio were to invest in a PFIC and elected to treat the PFIC
as a "qualified electing fund" under the Code (a "QEF"), in lieu of the
foregoing requirements, the Portfolio would be required to include in income
each year a portion of the ordinary earnings and net capital gain of the
qualified electing fund, even if not distributed to the Portfolio.
Alternatively, the Portfolio can elect to mark-to-market at the end of each
taxable year its shares in a PFIC; in this case, the Portfolio would recognize
as ordinary income any increase in the value of such shares, and as ordinary
loss any decrease in such value to the extent it did not exceed prior increases
included in income.  Under either election, the Portfolio might be required to
recognize in a year income in excess of its distributions from PFICs and its
proceeds from dispositions of PFIC stock during that year, and such income would
nevertheless be subject to the Distribution Requirement and would be taken into
account for purposes of the 4% excise tax (described below).

     Investment income that may be received by the Portfolio from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle any such Portfolio to a reduced rate of, or exemption from, taxes on
such income. If more than 50% of the value of the total assets at the close of
the taxable year of the Portfolio consists of stock or securities of foreign
corporations, such Portfolio may elect to "pass through" to the Portfolio's
shareholders the amount of foreign taxes paid by such Portfolio. If the
Portfolio so elects, each shareholder would be required to include in gross
income, even though not actually received, his pro rata share of the foreign
taxes paid by the Portfolio, but would be treated as having paid his pro rata
share of such foreign taxes and would therefore be allowed to either deduct such
amount in computing taxable income or use such amount (subject to various Code
limitations) as a foreign tax credit against federal income tax (but not both).
For purposes of the foreign tax credit limitation rules of the Code, each
shareholder would treat as foreign source income his pro rata share of such
foreign taxes plus the portion of dividends received from the Portfolio
representing income derived from foreign sources. No deduction for foreign taxes
could be claimed by an individual shareholder who does not itemize deductions.
In certain circumstances, a shareholder that (i) has held shares of the
Portfolio for less than a specified minimum period during which it is not
protected from risk of loss or (ii) is obligated to make payments related to the
dividends, will not be allowed a foreign tax credit for foreign taxes deemed
imposed on dividends paid on such shares.  Additionally, such Portfolio must
also meet this holding period requirement with respect to its foreign stocks and
securities in order for "creditable" taxes to flow-through. Each shareholder
should consult his own tax adviser regarding the potential application of
foreign tax credits.

     Ordinary income dividends paid by the Portfolio will qualify for the 70%
dividends-received deduction generally available to corporations to the extent
of the amount of "qualifying dividends" received by the Portfolio from domestic
corporations for the taxable year.  A dividend received by the Portfolio will
not be treated as a qualifying dividend (i) if it has been received with respect
to any share of stock that the Portfolio has held for less than 46 days (91 days
in the case of certain preferred stock) during the 90 day period beginning on
the date which is 45 days before the date on which such share becomes ex-
dividend with respect to such dividend (during the 180 day period beginning 90
days before such date in the case of certain preferred stock), (ii) to the
extent that the Portfolio is under an obligation to make related payments with
respect to positions in substantially similar or related property or (iii) to
the extent the stock on which the dividend is paid is treated as debt-financed.
Moreover, the dividends-

                                       35
<PAGE>

received deduction for a corporate shareholder may be disallowed if the
corporate shareholder fails to satisfy the foregoing requirements with respect
to its shares of the Portfolio.

     If for any taxable year any Portfolio does not qualify as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to shareholders, and all
distributions (including amounts derived from interest on Municipal Obligations)
will be taxable as ordinary dividends to the extent of such Portfolio's current
and accumulated earnings and profits.  Such distributions will be eligible for
the dividends received deduction in the case of corporate shareholders.

     A 4% non-deductible excise tax is imposed on regulated investment companies
that fail to currently distribute specified percentages of their ordinary
taxable income and capital gain net income (excess of capital gains over capital
losses).  The Portfolio intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and any capital gain net income
prior to the end of each calendar year to avoid liability for this excise tax.

     The Fund will be required in certain cases to withhold and remit to the
United States Treasury 31% of dividends and gross sale proceeds paid to any
shareholder (i) who has provided either an incorrect tax identification number
or no number at all, (ii) who is subject to backup withholding by the Internal
Revenue Service for failure to report the receipt of interest or dividend income
properly, or (iii) who has failed to certify to the Fund when required to do so
that he is not subject to backup withholding or that he is an "exempt
recipient."

     Shareholders will be advised annually as to the Federal income tax
consequences of distributions made by the Portfolio each year.

     The foregoing general discussion of federal income tax consequences is
based on the Code and the regulations issued thereunder as in effect on the date
of this Statement of Additional Information.  Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.

     Although the Portfolio expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
located or in which it is otherwise deemed to be conducting business, the
Portfolio may be subject to the tax laws of such states or localities.
Shareholders should consult their tax advisors about state and local tax
consequences, which may differ from the federal income tax consequences
described above.

                    ADDITIONAL INFORMATION CONCERNING SHARES

     Shares of each class of the Portfolio of the Fund bear their pro rata
portion of all operating expenses paid by the Portfolio, except transfer agency
fees, certain administrative/servicing fees and amounts payable under the Fund's
Amended and Restated Distribution and Service Plan.  Each share of the Portfolio
of the Fund has a par value of $.001, represents an interest in that Portfolio
and is entitled to the dividends and distributions earned on that Portfolio's
assets that are declared in the discretion of the Board of Trustees. The Fund's
shareholders are entitled to one vote for each full share held and proportionate
fractional votes for fractional shares held, and will vote in the aggregate and
not by class, except where otherwise required by law or as determined by the
Board of Trustees.

     Shares of the Fund have noncumulative voting rights and, accordingly, the
holders of more than 50% of the Fund's outstanding shares (irrespective of
class) may elect all of the trustees.  Shares have no preemptive rights and only
such conversion and exchange rights as the Board may grant in its discretion.
When issued for payment, shares will be fully paid and non-assessable by the
Fund.

     There will normally be no meetings of shareholders for the purpose of
electing trustees unless and until such time as required by law.  At that time,
the trustees then in office will call a shareholders meeting to elect trustees.
Except as set forth above, the trustees shall continue to hold office and may
appoint successor trustees.

                                       36
<PAGE>

The Fund's Declaration of Trust provides that meetings of the shareholders of
the Fund shall be called by the trustees upon the written request of
shareholders owning at least 10% of the outstanding shares entitled to vote.

     Rule 18f-2 under the 1940 Act provides that any matter required by the
provisions of the 1940 Act or applicable state law, or otherwise, to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Fund shall not be deemed to have been effectively acted upon
unless approved by the holders of a majority of the outstanding shares of each
investment portfolio affected by such matter.  Rule 18f-2 further provides that
an investment portfolio shall be deemed to be affected by a matter unless the
interests of each investment portfolio in the matter are substantially identical
or the matter does not affect any interest of the investment portfolio.  Under
the Rule, the approval of an investment advisory agreement, a distribution plan
subject to Rule 12b-1 under the 1940 Act or any change in a fundamental
investment policy would be effectively acted upon with respect to an investment
portfolio only if approved by a majority of the outstanding shares of such
investment portfolio.  However, the Rule also provides that the ratification of
the appointment of independent accountants, the approval of principal
underwriting contracts and the election of Trustees may be effectively acted
upon by shareholders of the Fund voting together in the aggregate without regard
to a particular investment portfolio.

     The proceeds received by the Portfolio for each issue or sale of its
shares, and all net investment income, realized and unrealized gain and proceeds
thereof, subject only to the rights of creditors, will be specifically allocated
to and constitute the underlying assets of that Portfolio.  The underlying
assets of the Portfolio will be segregated on the books of account, and will be
charged with the liabilities in respect to that Portfolio and with a share of
the general liabilities of the Fund.  As stated herein, certain expenses of the
Portfolio may be charged to a specific class of shares representing interests in
that Portfolio.

     The Funds' Declaration of Trust authorizes the Board of Trustees, without
shareholder approval (unless otherwise required by applicable law), to:  (i)
sell and convey the assets belonging to a class of shares to another management
investment company for consideration which may include securities issued by the
purchaser and, in connection therewith, to cause all outstanding shares of such
class to be redeemed at a price which is equal to their net asset value and
which may be paid in cash or by distribution of the securities or other
consideration received from the sale and conveyance; (ii) sell and convert the
assets belonging to one or more classes of shares into money and, in connection
therewith, to cause all outstanding shares of such class to be redeemed at their
net asset value; or (iii) combine the assets belonging to a class of shares with
the assets belonging to one or more other classes of shares if the Board of
Trustees reasonably determines that such combination will not have a material
adverse effect on the shareholders of any class participating in such
combination and, in connection therewith, to cause all outstanding shares of any
such class to be redeemed or converted into shares of another class of shares at
their net asset value.  The Board of Trustees may authorize the liquidation and
termination of any Portfolio or class of shares.  Upon any liquidation of the
Portfolio, Shareholders of each class of the Portfolio are entitled to share pro
rata in the net assets belonging to that class available for distribution.

                                  MISCELLANEOUS

     The Fund.  The Fund was organized as a Massachusetts business trust on
December 22, 1988 and is registered under the 1940 Act as an open end,
diversified management investment company.  Effective January 31, 1998, the Fund
changed its name from Compass Capital FundsSM to BlackRock FundsSM.

     Counsel.  The law firm of Simpson Thacher & Bartlett, 425 Lexington Avenue,
New York, New York 10017, serves as the Fund's counsel.

     Independent Accountants. PricewaterhouseCoopers LLP, with offices located
at 2400 Eleven Penn Center, Philadelphia, Pennsylvania, serves as the Fund's
independent accountants.

     On October 20 , 2000, PNC Bank, which has its principal offices at 1600
Market Street, Philadelphia, Pennsylvania 19103, held of record approximately
72% of the Fund's outstanding shares, and may be deemed a controlling person of
the Fund under the 1940 Act.  PNC Bank is a national bank organized under the
laws of the United States.  All of the capital stock of PNC Bank is owned by PNC
Bancorp, Inc.  All of the capital stock of PNC Bancorp, Inc. is owned by The PNC
Financial Services Group, Inc. a publicly-held bank holding company.

                                       37
<PAGE>

     Shareholder Approvals.  As used in this Statement of Additional Information
and in the Prospectuses, a "majority of the outstanding shares" of a class,
series or Portfolio means, with respect to the approval of an investment
advisory agreement, a distribution plan or a change in a fundamental investment
policy, the lesser of (1) 67% of the shares of the particular class, series or
Portfolio represented at a meeting at which the holders of more than 50% of the
outstanding shares of such class, series or Portfolio are present in person or
by proxy, or (2) more than 50% of the outstanding shares of such class, series
or Portfolio.

                                       38
<PAGE>

                                   APPENDIX A

Commercial Paper Ratings
------------------------

     A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market.  The following summarizes the rating categories used by Standard and
Poor's for commercial paper:

     "A-1" - Issue's degree of safety regarding timely payment is strong.  Those
issues determined to possess extremely strong safety characteristics are denoted
"A-1+."

     "A-2" - Issue's capacity for timely payment is satisfactory.  However, the
relative degree of safety is not as high as for issues designated "A-1."

     "A-3" - Issue has an adequate capacity for timely payment.  It is, however,
somewhat more vulnerable to the adverse effects of changes in circumstances than
an obligation carrying a higher designation.

     "B" - Issue has only a speculative capacity for timely payment.

     "C" - Issue has a doubtful capacity for payment.

     "D" - Issue is in payment default.

     Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of 9 months.  The following summarizes the rating categories used by
Moody's for commercial paper:

     "Prime-1" - Issuer or related supporting institutions are considered to
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 earning
coverage of fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternate liquidity.

     "Prime-2" - Issuer or related supporting institutions are considered to
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 alternative liquidity is
maintained.

     "Prime-3" - Issuer or related supporting institutions have an acceptable
capacity for repayment of short-term promissory obligations.  The effects 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.

     "Not Prime" - Issuer does not fall within any of the Prime rating
categories.

     The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3."  Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category.  The following summarizes the rating categories used by Duff & Phelps
for commercial paper:

     "D-1+" - Debt possesses highest certainty of timely payment.  Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.

                                      A-1
<PAGE>

     "D-1" - Debt possesses very high certainty of timely payment.  Liquidity
factors are excellent and supported by good fundamental protection factors.
Risk factors are minor.

     "D-1-" - Debt possesses high certainty of timely payment.  Liquidity
factors are strong and supported by good fundamental protection factors.  Risk
factors are very small.

     "D-2" - Debt possesses good certainty of timely payment.  Liquidity factors
and company fundamentals are sound.  Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good.  Risk factors
are small.

     "D-3" - Debt possesses satisfactory liquidity, and other protection factors
qualify issue as investment grade.  Risk factors are larger and subject to more
variation.  Nevertheless, timely payment is expected.

     "D-4" - Debt possesses speculative investment characteristics.  Liquidity
is not sufficient to ensure against disruption in debt service.  Operating
factors and market access may be subject to a high degree of variation.

     "D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.

     Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years.  The
following summarizes the rating categories used by Fitch for short-term
obligations:

     "F-1+" - Securities possess exceptionally strong credit quality.  Issues
assigned this rating are regarded as having the strongest degree of assurance
for timely payment.

     "F-1" - Securities possess very strong credit quality.  Issues assigned
this rating reflect an assurance of timely payment only slightly less in degree
than issues rated "F-1+."

     "F-2" - Securities possess good credit quality.  Issues assigned this
rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as the "F-1+" and "F-1" categories.

     "F-3" - Securities possess fair credit quality.  Issues assigned this
rating have characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause these
securities to be rated below investment grade.

     "F-S" - Securities possess weak credit quality.  Issues assigned this
rating have characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial and
economic conditions.

     "D" - Securities are in actual or imminent payment default.

     Fitch may also use the symbol "LOC" with its short-term ratings to indicate
that the rating is based upon a letter of credit issued by a commercial bank.

     Thomson BankWatch short-term ratings assess the likelihood of an untimely
or incomplete payment of principal or interest of unsubordinated instruments
having a maturity of one year or less which are issued by United States
commercial banks, thrifts and non-bank banks; non-United States banks; and
broker-dealers.  The following summarizes the ratings used by Thomson BankWatch:

     "TBW-1" - This designation represents Thomson BankWatch's highest rating
category and indicates a very high degree of likelihood that principal and
interest will be paid on a timely basis.

     "TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."

                                      A-2
<PAGE>

     "TBW-3" - This designation represents the lowest investment grade category
and indicates that while the debt is more susceptible to adverse developments
(both internal and external) than obligations with higher ratings, capacity to
service principal and interest in a timely fashion is considered adequate.

     "TBW-4" - This designation indicates that the debt is regarded as non-
investment grade and therefore speculative.

     IBCA assesses the investment quality of unsecured debt with an original
maturity of less than one year which is issued by bank holding companies and
their principal bank subsidiaries.  The following summarizes the rating
categories used by IBCA for short-term debt ratings:

     "A1+" - Obligations which posses a particularly strong credit feature are
supported by the highest capacity for timely repayment.

     "A1" - Obligations are supported by the highest capacity for timely
repayment.

     "A2" - Obligations are supported by a satisfactory capacity for timely
repayment.

     "A3" - Obligations are supported by a satisfactory capacity for timely
repayment.

     "B" - Obligations for which there is an uncertainty as to the capacity to
ensure timely repayment.

     "C" - Obligations for which there is a high risk of default or which are
currently in default.

Corporate and Municipal Long-Term Debt Ratings
----------------------------------------------

     The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:

     "AAA" - This designation represents the highest rating assigned by Standard
& Poor's to a debt obligation and indicates an extremely strong capacity to pay
interest and repay principal.

     "AA" - Debt is considered to have a very strong capacity to pay interest
and repay principal and differs from AAA issues only in small degree.

     "A" - Debt is considered to have a strong capacity to pay interest and
repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher-rated categories.

     "BBB" - Debt is regarded as having an adequate capacity to pay interest and
repay principal.  Whereas such issues normally exhibit 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.

     "BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation.  "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation.  While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.

     "BB" - Debt has less near-term vulnerability to default than other
speculative issues.  However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.  The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.

     "B" - Debt 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

                                      A-3
<PAGE>

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

     "C" - This rating is typically 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" - This rating is reserved for income bonds on which no interest is
being paid.

     "D" - Debt is in payment default.  This rating 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.  "D" rating is also used upon
the filing of a  bankruptcy petition if debt service payments are jeopardized.

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

     "r" - This rating is attached to highlight derivative, hybrid, and certain
other obligations that S & P believes may experience high volatility or high
variability in expected returns due to non-credit risks.  Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities.  The absence of an "r" symbol
should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.

     The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:

     "Aaa" - Bonds are judged to be of the best quality.  They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged."  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 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 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 considered 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," "B," "Caa," "Ca," and "C" - Bonds that possess one of these ratings
provide questionable protection of interest and principal ("Ba" indicates some
speculative elements; "B" indicates a general lack of characteristics of

                                      A-4
<PAGE>

desirable investment; "Caa" represents a poor standing; "Ca" represents
obligations which are speculative in a high degree; and "C" represents the
lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in default.

     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.

     (P) - When applied to forward delivery bonds, indicates that the rating is
provisional pending delivery of the bonds.  The rating may be revised prior to
delivery if changes occur in the legal documents or the underlying credit
quality of the bonds.

     Note:  Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols, Aa1, A1, Ba1 and B1.

     The following summarizes the long-term debt ratings used by Duff & Phelps
for corporate and municipal long-term debt:

     "AAA" - Debt is considered to be of the highest credit quality.  The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.

     "AA" - Debt is considered of high credit quality.  Protection factors are
strong.  Risk is modest but may vary slightly from time to time because of
economic conditions.

     "A" - Debt possesses protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.

     "BBB" - Debt possesses below average protection factors but such protection
factors are still considered sufficient for prudent investment.  Considerable
variability in risk is present during economic cycles.

     "BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these ratings
is considered to be below investment grade.  Although below investment grade,
debt rated "BB" is deemed likely to meet obligations when due.  Debt rated "B"
possesses the risk that obligations will not be met when due.  Debt rated "CCC"
is well below investment grade and has considerable uncertainty as to timely
payment of principal, interest or preferred dividends.  Debt rated "DD" is a
defaulted debt obligation, and the rating "DP" represents preferred stock with
dividend arrearages.

     To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.

     The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:

     "AAA" - Bonds considered to be investment grade and of the highest credit
quality.  The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.

     "AA" - Bonds considered to be investment grade and of very high credit
quality.  The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA."  Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated "F-1+."

     "A" - Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

                                      A-5
<PAGE>

     "BBB" - Bonds considered to be investment grade and of satisfactory credit
quality.  The obligor's ability to pay interest and repay principal is
considered to be adequate.  Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment.  The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.

     "BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" - Bonds that possess one
of these ratings are considered by Fitch to be speculative investments.  The
ratings "BB" to "C" represent Fitch's assessment of the likelihood of timely
payment of principal and interest in accordance with the terms of obligation for
bond issues not in default.  For defaulted bonds, the rating "DDD" to "D" is an
assessment of the ultimate recovery value through reorganization or liquidation.

     To provide more detailed indications of credit quality, the Fitch ratings
from and including "AA" to "BBB" may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within these major rating
categories.

     IBCA assesses the investment quality of unsecured debt with an original
maturity of more than one year which is issued by bank holding companies and
their principal bank subsidiaries.  The following summarizes the rating
categories used by IBCA for long-term debt ratings:

     "AAA" - Obligations for which there is the lowest expectation of investment
risk.  Capacity for timely repayment of principal and interest is substantial
such that adverse changes in business, economic or financial conditions are
unlikely to increase investment risk substantially.

     "AA" - Obligations for which there is a very low expectation of investment
risk.  Capacity for timely repayment of principal and interest is substantial,
such that adverse changes in business, economic or financial conditions may
increase investment risk, albeit not very significantly.

     "A" - Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.

     "BBB" - Obligations for which there is currently a low expectation of
investment risk.  Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial conditions
are more likely to lead to increased investment risk than for obligations in
other categories.

     "BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of these
ratings where it is considered that speculative characteristics are present.
"BB" represents the lowest degree of speculation and indicates a possibility of
investment risk developing.  "C" represents the highest degree of speculation
and indicates that the obligations are currently in default.

     IBCA may append a rating of plus (+) or minus (-) to a rating to denote
relative status within major rating categories.

     Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers.  The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:

     "AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is extremely high.

     "AA" - This designation indicates a very strong ability to repay principal
and interest on a timely basis with limited incremental risk compared to issues
rated in the highest category.

     "A" - This designation indicates that the ability to repay principal and
interest is strong.  Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.

                                      A-6
<PAGE>

     "BBB" - This designation represents Thomson BankWatch's lowest investment
grade category and indicates an acceptable capacity to repay principal and
interest.  Issues rated "BBB" are, however, more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.

     "BB," "B," "CCC," and "CC," - These designations are assigned by Thomson
BankWatch to non-investment grade long-term debt.  Such issues are regarded as
having speculative characteristics regarding the likelihood of timely payment of
principal and interest.  "BB" indicates the lowest degree of speculation and
"CC" the highest degree of speculation.

     "D" - This designation indicates that the long-term debt is in default.

     PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may include a
plus or minus sign designation which indicates where within the respective
category the issue is placed.

Municipal Note Ratings
----------------------

     A Standard and Poor's rating reflects the liquidity concerns and market
access risks unique to notes due in three years or less.  The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:

     "SP-1" - The issuers of these municipal notes exhibit very strong or strong
capacity to pay principal and interest.  Those issues determined to possess
overwhelming safety characteristics are given a plus (+) designation.

     "SP-2" - The issuers of these municipal notes exhibit satisfactory capacity
to pay principal and interest.

     "SP-3" - The issuers of these municipal notes exhibit speculative capacity
to pay principal and interest.

     Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG").  Such
ratings recognize the differences between short-term credit risk and long-term
risk.  The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:

     "MIG-1"/"VMIG-1" - Loans bearing this designation are of the best quality,
enjoying strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.

     "MIG-2"/"VMIG-2" - Loans bearing this designation are of high quality, with
margins of protection ample although not so large as in the preceding group.

     "MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable quality,
with all security elements accounted for but 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" - Loans bearing this designation are of adequate quality,
carrying specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.

     "SG" - Loans bearing this designation are of speculative quality and lack
margins of protection.

     Fitch and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.

                                      A-7
<PAGE>

                                   APPENDIX B

     The Portfolio may enter into certain futures transactions.  Such
transactions are described in this Appendix.

     I.  Interest Rate Futures Contracts
         -------------------------------

     Use of Interest Rate Futures Contracts.  Bond prices are established in
     --------------------------------------
both the cash market and the futures market.   In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade.  In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date.  Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships.  Accordingly, the Portfolio may use interest rate
futures contracts as a defense, or hedge, against anticipated interest rate
changes and not for speculation.  As described below, this would include the use
of futures contract sales to protect against expected increases in interest
rates and futures contract purchases to offset the impact of interest rate
declines.

     The Portfolio could accomplish a similar result to that which it hopes to
achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline.  However, because
of the liquidity that is often available in the futures market, the protection
is more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Portfolio, by using futures contracts.

     Description of Interest Rate Futures Contracts.  An interest rate futures
     ----------------------------------------------
contract sale would create an obligation by the Portfolio, as seller, to deliver
the specific type of financial instrument called for in the contract at a
specific future time for a specified price.  A futures contract purchase would
create an obligation by the Portfolio, as purchaser, to take delivery of the
specific type of financial instrument at a specific future time at a specific
price.  The specific securities delivered or taken, respectively, at settlement
date, would not be determined until at or near that date.  The determination
would be in accordance with the rules of the exchange on which the futures
contract sale or purchase was made.

     Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities.  Closing out a futures contract sale is effected by the Portfolio
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date.  If the price
of the sale exceeds the price of the offsetting purchase, the Portfolio is
immediately paid the difference and thus realizes a gain.  If the offsetting
purchase price exceeds the sale price, the Portfolio pays the difference and
realizes a loss.  Similarly, the closing out of a futures contract purchase is
effected by the Portfolio entering into a futures contract sale.  If the
offsetting sale price exceeds the purchase price, the Portfolio realizes a gain,
and if the purchase price exceeds the offsetting sale price, the Portfolio
realizes a loss.

     Interest rate futures contracts are traded in an auction environment on the
floors of several exchanges -- principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange.  Each exchange
guarantees performance under contract provisions through a clearing corporation,
a nonprofit organization managed by the exchange membership.

     A public market now exists in futures contracts covering various financial
instruments including long-term U.S. Treasury Bonds and Notes; Government
National Mortgage Association (GNMA) modified pass-through mortgage backed
securities; three-month U.S. Treasury Bills; and ninety-day commercial paper.
The Portfolio may trade in any interest rate futures contracts for which there
exists a public market, including, without limitation, the foregoing
instruments.

     With regard to the Portfolio, the advisers also anticipate engaging in
transactions, from time to time, in foreign stock index futures such as the ALL-
ORDS (Australia), CAC-40 (France), TOPIX (Japan) and the FTSE-100 (United
Kingdom).

                                      B-1
<PAGE>

     II.  Index Futures Contracts
          -----------------------

     General.  A stock or bond index assigns relative values to the stocks or
     -------
bonds included in the index, which fluctuates with changes in the market values
of the stocks or bonds included.  Some stock index futures contracts are based
on broad market indexes, such as Standard & Poor's 500 or the New York Stock
Exchange Composite Index.  In contrast, certain exchanges offer futures
contracts on narrower market indexes, such as the Standard & Poor's 100 or
indexes based on an industry or market indexes, such as Standard & Poor's 100 or
indexes based on an industry or market segment, such as oil and gas stocks.
Futures contracts are traded on organized exchanges regulated by the Commodity
Futures Trading Commission.  Transactions on such exchanges are cleared through
a clearing corporation, which guarantees the performance of the parties to each
contract.  With regard to the Portfolio, to the extent consistent with its
investment objective, the advisers anticipate engaging in transactions, from
time to time, in foreign stock index futures such as the ALL-ORDS (Australia),
CAC-40 (France), TOPIX (Japan) and the FTSE-100 (United Kingdom).

     The Portfolio may sell index futures contracts in order to offset a
decrease in market value of its portfolio securities that might otherwise result
from a market decline.  The Portfolio may do so either to hedge the value of its
portfolio as a whole, or to protect against declines, occurring prior to sales
of securities, in the value of the securities to be sold.  Conversely, the
Portfolio may purchase index futures contracts in anticipation of purchases of
securities.  A long futures position may be terminated without a corresponding
purchase of securities.

     In addition, the Portfolio may utilize index futures contracts in
anticipation of changes in the composition of its portfolio holdings.  For
example, in the event that the Portfolio expects to narrow the range of industry
groups represented in its holdings it may, prior to making purchases of the
actual securities, establish a long futures position based on a more restricted
index, such as an index comprised of securities of a particular industry group.
The Portfolio may also sell futures contracts in connection with this strategy,
in order to protect against the possibility that the value of the securities to
be sold as part of the restructuring of the portfolio will decline prior to the
time of sale.

     III.  Futures Contracts on Foreign Currencies
           ---------------------------------------

     A futures contract on foreign currency creates a binding obligation on one
party to deliver, and a corresponding obligation on another party to accept
delivery of, a stated quantity of foreign currency, for an amount fixed in U.S.
dollars (or another currency).  Foreign currency futures may be used by the
Portfolio to hedge against exposure to fluctuations in exchange rates between
different currencies arising from multinational transactions.

     IV.  Margin Payments
          ---------------

     Unlike purchase or sales of portfolio securities, no price is paid or
received by the Portfolio upon the purchase or sale of a futures contract.
Initially, the Portfolio will be required to deposit with the broker or in a
segregated account with a custodian an amount of liquid assets known as initial
margin, based on the value of the contract.  The nature of initial margin in
futures transactions is different from that of margin in security transactions
in that futures contract margin does not involve the borrowing of funds by the
customer to finance the transactions.  Rather, the initial margin is in the
nature of a performance bond or good faith deposit on the contract which is
returned to the Portfolio upon termination of the futures contract assuming all
contractual obligations have been satisfied.  Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the underlying instruments fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
marking-to-the-market.  For example, when a particular Portfolio has purchased a
futures contract and the price of the contract has risen in response to a rise
in the underlying instruments, that position will have increased in value and
the Portfolio will be entitled to receive from the broker a variation margin
payment equal to that increase in value.  Conversely, where the Portfolio has
purchased a futures contract and the price of the future contract has declined
in response to a decrease in the underlying instruments, the position would be
less valuable and the Portfolio would be required to make a variation margin
payment to the broker.  Prior to expiration of the futures contract, the
advisers may elect to close the position by taking an opposite position, subject
to the availability of a secondary market, which will operate to terminate the
Portfolio's position in the futures contract.  A final determination of
variation margin is then made, additional cash is required to be paid by or
released to the Portfolio, and the Portfolio realizes a loss or gain.

                                      B-2
<PAGE>

     V.  Risks of Transactions in Futures Contracts
         ------------------------------------------

     There are several risks in connection with the use of futures by the
Portfolio as a hedging device.  One risk arises because of the imperfect
correlation between movements in the price of the futures and movements in the
price of the instruments which are the subject of a hedge.  The price of the
future may move more than or less than the price of the instruments being
hedged.  If the price of the futures moves less than the price of the
instruments which are the subject of the hedge, the hedge will not be fully
effective but, if the price of the instruments being hedged has moved in an
unfavorable direction, the Portfolio would be in a better position than if it
had not hedged at all.  If the price of the instruments being hedged has moved
in a favorable direction, this advantage will be partially offset by the loss on
the futures.  If the price of the futures moves more than the price of the
hedged instruments, the Portfolio involved will experience either a loss or gain
on the futures which will not be completely offset by movements in the price of
the instruments which are the subject of the hedge.  To compensate for the
imperfect correlation of movements in the price of instruments being hedged and
movements in the price of futures contracts, the Portfolio may buy or sell
futures contracts in a greater dollar amount than the dollar amount of
instruments being hedged if the volatility over a particular time period of the
prices of such instruments has been greater than the volatility over such time
period of the futures, or if otherwise deemed to be appropriate by the advisers.
Conversely, the Portfolio may buy or sell fewer futures contracts if the
volatility over a particular time period of the prices of the instruments being
hedged is less than the volatility over such time period of the futures contract
being used, or if otherwise deemed to be appropriate by the advisers.  It is
also possible that, where the Portfolio has sold futures to hedge its portfolio
against a decline in the market, the market may advance and the value of
instruments held in the Portfolio may decline.  If this occurred, the Portfolio
would lose money on the futures and also experience a decline in value in its
portfolio securities.

     When futures are purchased to hedge against a possible increase in the
price of securities or a currency before the Portfolio is able to invest its
cash (or cash equivalents) in an orderly fashion, it is possible that the market
may decline instead; if the Portfolio then concludes not to invest its cash at
that time because of concern as to possible further market decline or for other
reasons, the Portfolio will realize a loss on the futures contract that is not
offset by a reduction in the price of the instruments that were to be purchased.

     In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the instruments
being hedged, the price of futures may not correlate perfectly with movement in
the cash market due to certain market distortions.  Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through off-setting transactions which could distort the normal relationship
between the cash and futures markets.  Second, with respect to financial futures
contracts, the liquidity of the futures market depends on participants entering
into off-setting transactions rather than making or taking delivery.  To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced thus producing distortions.  Third, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market.  Therefore, increased
participation by speculators in the futures market may also cause temporary
price distortions.  Due to the possibility of price distortion in the futures
market, and because of the imperfect correlation between the movements in the
cash market and movements in the price of futures, a correct forecast of general
market trends or interest rate movements by the advisers may still not result in
a successful hedging transaction over a short time frame.

     Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures.  Although the
Portfolio intends to purchase or sell futures only on exchanges or boards of
trade where there appear to be active secondary markets, there is no assurance
that a liquid secondary market on any exchange or board of trade will exist for
any particular contract or at any particular time.  In such event, it may not be
possible to close a futures investment position, and in the event of adverse
price movements, the Portfolio would continue to be required to make daily cash
payments of variation margin.  However, in the event futures contracts have been
used to hedge portfolio securities, such securities will not be sold until the
futures contract can be terminated.  In such circumstances, an increase in the
price of the securities, if any, may partially or completely offset losses on
the futures contract.  However, as described above, there is no guarantee that
the price of the securities will in fact correlate with the price movements in
the futures contract and thus provide an offset on a futures contract.

     Further, it should be noted that the liquidity of a secondary market in a
futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day.  Once the daily limit has
been reached in the

                                      B-3
<PAGE>

contract, no trades may be entered into at a price beyond the limit, thus
preventing the liquidation of open futures positions. The trading of futures
contracts is also subject to the risk of trading halts, suspensions, exchange or
clearing house equipment failures, government intervention, insolvency of a
brokerage firm or clearing house or other disruptions of normal activity, which
could at times make it difficult or impossible to liquidate existing positions
or to recover excess variation margin payments.

     Successful use of futures by the Portfolio is also subject to the advisers'
ability to predict correctly movements in the direction of the market.  For
example, if a particular Portfolio has hedged against the possibility of a
decline in the market adversely affecting securities held by it and securities
prices increase instead, the Portfolio will lose part or all of the benefit to
the increased value of its securities which it has hedged because it will have
offsetting losses in its futures positions.  In addition, in such situations, if
the Portfolio has insufficient cash, it may have to sell securities to meet
daily variation margin requirements.  Such sales of securities may be, but will
not necessarily be, at increased prices which reflect the rising market.  The
Portfolio may have to sell securities at a time when it may be disadvantageous
to do so.

     The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing.  As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor.  For example, if at the time
of purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out.  A 15% decrease would result in a
loss equal to 150% of the original margin deposit, before any deduction for the
transaction costs, if the contract were closed out.  Thus, a purchase or sale of
a futures contract may result in losses in excess of the amount invested in the
contract.

     VI.  Options on Futures Contracts
          ----------------------------

     The Portfolio may purchase and write options on the futures contracts
described above.  A futures option gives the holder, in return for the premium
paid, the right to buy (call) from or sell (put) to the writer of the option a
futures contract at a specified price at any time during the period of the
option.  Upon exercise, the writer of the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price.  Like the buyer or seller of a futures contract, the holder, or writer,
of an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing an option of the same series,
at which time the person entering into the closing transaction will realize a
gain or loss.  The Portfolio will be required to deposit initial margin and
variation margin with respect to put and call options on futures contracts
written by it pursuant to brokers' requirements similar to those described
above.  Net option premiums received will be included as initial margin
deposits.  As an example, in anticipation of a decline in interest rates, the
Portfolio may purchase call options on futures contracts as a substitute for the
purchase of futures contracts to hedge against a possible increase in the price
of securities which the Portfolio intends to purchase.  Similarly, if the value
of the securities held by the Portfolio is expected to decline as a result of an
increase in interest rates, the Portfolio might purchase put options or sell
call options on futures contracts rather than sell futures contracts.

     Investments in futures options involve some of the same considerations that
are involved in connection with investments in futures contracts (for example,
the existence of a liquid secondary market).  In addition, the purchase or sale
of an option also entails the risk that changes in the value of the underlying
futures contract will not correspond to changes in the value of the option
purchased.  Depending on the pricing of the option compared to either the
futures contract upon which it is based, or upon the price of the securities or
currencies being hedged, an option may or may not be less risky than ownership
of the futures contract or such securities or currencies.  In general, the
market prices of options can be expected to be more volatile than the market
prices on the underlying futures contract.  Compared to the purchase or sale of
futures contracts, however, the purchase of call or put options on futures
contracts may frequently involve less potential risk to the Portfolio because
the maximum amount at risk is the premium paid for the options (plus transaction
costs).  The writing of an option on a futures contract involves risks similar
to those risks relating to the sale of futures contracts.

     VII.  Other Matters
           -------------

     Accounting for futures contracts will be in accordance with generally
accepted accounting principles.

                                      B-4
<PAGE>

NOT FDIC-| May lose value
INSURED  | No bank guarantee

                                  CORE PLUS

                                 TOTAL RETURN

                                   PORTFOLIO

                         =============================
                         I N V E S T O R   S H A R E S


                 BlackRock Funds/sm/ is a mutual fund family with 42 investment
                 portfolios. BlackRock Funds are sold principally through
                 licensed investment professionals.



                 P R O S P E C T U S

                 January __, 2001

                 [LOGO] BLACKROCK
                            FUNDS

The securities described in this prospectus have been registered with the
Securities and Exchange Commission (SEC). The SEC, however, has not judged these
securities for their investment merit and has not determined the accuracy or
adequacy of this prospectus. Anyone who tells you otherwise is committing a
criminal offense.
<PAGE>




                 Table of
                 Contents

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<TABLE>
<S>                                                                          <C>
How to find the information you need


How to find the information you need........................................   1
Core PLUS Total Return Portfolio............................................   2

About Your Investment

Buying Shares...............................................................  10
How to Sell Shares..........................................................  18
Dividends/Distributions/Taxes...............................................  22
Services for Shareholders...................................................  23
</TABLE>
<PAGE>

How to Find the
Information You Need
About BlackRock Funds

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


This is the BlackRock Core PLUS Total Return Portfolio Prospectus. It has been
written to provide you with the information you need to make an informed
decision about whether to invest in BlackRock Funds (the Company).

If you have questions after reading the prospectus, ask your registered repre-
sentative for help. Your investment professional has been trained to help you
decide which investments are right for you.
                                                                             1
<PAGE>

             BlackRock
[GRAPHIC]    Core PLUS Total Return
             Portfolio

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

Investment Goal
The fund seeks to realize a total return that exceeds that of the Lehman Broth-
ers Aggregate Index (the benchmark).

Primary Investment Strategies
In pursuit of this goal, the fund normally invests at least 80% of its total
assets in bonds. Additionally, under normal market conditions, the fund's aver-
age duration will be within (+/-)20% of the duration of the benchmark.

The fund invests primarily in dollar-denominated investment grade bonds, but
may invest up to 20% of its total assets in any combination of non-investment
grade bonds (high yield or junk bonds), bonds denominated in foreign currencies
and bonds of foreign (including emerging market) issuers.

The management team evaluates several categories of the bond market and indi-
vidual securities within these categories. The fund manager selects bonds from
several categories including: U.S. Treasuries and agency securities, commercial
and residential mortgage-backed securities, asset-backed securities and corpo-
rate bonds. Securities are purchased for the fund when the manager believes
that they have the potential for above-average total return. The fund measures
its performance against the benchmark.

Non-investment grade bonds acquired by the fund will generally be in the lower
rating categories of the major rating agencies (BB or lower by Standard &
Poor's or Ba or lower by Moody's) or will be determined by the fund manager to
be of similar quality. Split rated bonds will be considered to have the higher
credit rating.

A security will be sold if, in the opinion of the fund manager, the risk of
continuing to hold the security is unacceptable when compared to its total
return potential.

The fund manager may, when consistent with the fund's investment objective, use
options or futures (commonly known as derivatives). An option is the right to
buy or sell a security at a specific price on or before a specific date. A
future is an agreement to buy or sell a security at a specific price on a spe-
cific date. The primary purpose of using derivatives is to attempt to reduce
risk

 IMPORTANT DEFINITIONS

 Asset-Backed Securi-
 ties: Bonds that are
 backed by a pool of
 assets, usually loans
 such as installment
 sale contracts or
 credit card receiv-
 ables.
 Bonds: Debt obligations
 such as bonds and
 debentures, U.S. Gov-
 ernment securities,
 debt obligations of
 domestic and foreign
 corporations, debt
 obligations of foreign
 governments and their
 political subdivisions,
 asset-backed securi-
 ties, various mortgage-
 backed securities (both
 residential and commer-
 cial), other floating
 or variable rate obli-
 gations, municipal
 obligations and zero
 coupon debt securities.
 Commercial Mortgage-
 Backed Securities
 (CMBS): Bonds that are
 backed by a mortgage
 loan or pool of loans
 secured by commercial
 property, not residen-
 tial mortgages.
 Duration: A mathemati-
 cal calculation of the
 average life of a bond
 (or bonds in a bond
 fund) that serves as a
 useful measure of its
 price risk. Each year
 of duration represents
 an expected 1% change
 in the price of a bond
 for every 1% change in
 interest rates. For
 example, if a bond fund
 has an average duration
 of four years, its
 price will fall about
 4% when interest rates
 rise by one percentage
 point. Conversely, the
 bond fund's price will
 rise about 4% when
 interest rates fall by
 one percentage point.
 Duration, which mea-
 sures price sensitivity
 to interest rate
 changes, is not neces-
 sarily equal to average
 maturity.
 High Yield Bond: Some-
 times referred to as
 "junk bonds" these are
 debt securities, which
 are rated less than
 investment grade (below
 the fourth highest rat-
 ing of the major rating
 agencies). These secu-
 rities generally pay
 more interest than
 higher rated securi-
 ties. The higher yield
 is an incentive to
 investors who otherwise
 may be hesitant to pur-
 chase the debt of such
 a low rated issuer.

2
<PAGE>

to the fund as a whole (hedge) but they may also be used to maintain liquidity,
commit cash pending investment or for speculation to increase returns. The fund
may also enter into interest rate or foreign currency transactions as a hedging
technique. In these transactions, the fund exchanges its right to pay or
receive interest or currencies with another party for their right to pay or
receive interest or another currency in the future.

The fund can borrow money to buy additional securities. This practice is known
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securities
and agrees to buy them back at a particular date and price). The fund normally
may borrow up to 33 1/3% of the value of its total assets.

The fund may lend some of its securities on a short-term basis in order to earn
income. The fund will receive collateral in cash or high quality securities
equal to the current value of the loaned securities. The fund earns interest on
the securities it lends and income when it invests the collateral for the
loaned securities. These loans will be limited to 33 1/3% of the value of the
fund's total assets.

The "total return" sought by the fund consists of income earned on the fund's
investments, plus capital appreciation, if any, which generally arises from
decreases in interest rates or improving credit fundamentals for a particular
sector or security.

The fund may engage in active and frequent trading of portfolio securities to
achieve its principal investment strategies.

Should the Company's Board of Trustees determine that the investment objective
of the fund should be changed, shareholders will be given at least 30 days
notice before any such change is made.

Key Risks
While the fund manager chooses bonds he believes can provide above average
total returns, there is no guarantee that shares of the fund will not lose val-
ue. This means you could lose money.

Two of the main risks of investing in the fund are interest rate risk and
credit risk. Typically, when interest rates rise, there is a corresponding
decline in the market value of bonds such as those held by the fund. Credit
risk refers to the possibility that the issuer of the bond will not be able to
make principal and interest payments.

The fund may make investments in residential and commercial mortgage-backed
securities and other asset-backed securities. The characteristics of these
mortgage-backed and asset-backed securities differ from traditional fixed
income securities.

 IMPORTANT DEFINITIONS


 Investment Grade: Secu-
 rities which are rated
 in the four highest
 categories by at least
 one of the major rating
 agencies or determined
 by the fund manager to
 be of similar quality.
 Generally, the higher
 the rating of a bond,
 the higher the likeli-
 hood that interest and
 principal payments will
 be made on time.

 Lehman Brothers Aggre-
 gate Index: An unman-
 aged index comprised of
 more than 5,000 taxable
 bonds. This is an index
 of investment grade
 bonds. All securities
 included must be rated
 investment grade by
 Moody's or Standard &
 Poor's.

 Mortgage-Backed Securi-
 ties: Asset-backed
 securities based on a
 particular type of
 asset, a mortgage.
 There is a wide variety
 of mortgage backed
 securities involving
 commercial or residen-
 tial, fixed rate or
 adjustable rate mort-
 gages and mortgages
 issued by banks or gov-
 ernment agencies.

 Total Return: A way of
 measuring fund perfor-
 mance. Total return is
 based on a calculation
 that takes into account
 income dividends, capi-
 tal gain distributions
 and the increase or
 decrease in share
 price.



Key Risks
                                                                             3
<PAGE>

A main difference is that the principal on mortgage- or asset-backed securi-
ties may normally be prepaid at any time, which will reduce the yield and mar-
ket value of these securities. Asset-backed securities and CMBS generally
experience less prepayment than residential mortgage-backed securities. In
periods of falling interest rates, the rate of prepayments tends to increase
(as does price fluctuation) as borrowers are motivated to pay off debt and
refinance at new lower rates. During such periods, reinvestment of the prepay-
ment proceeds by the manager will generally be at lower rates of return than
the return on the assets which were prepaid. Certain commercial mortgage-
backed securities are issued in several classes with different levels of yield
and credit protection. The fund's investments in commercial mortgage-backed
securities with several classes may be in the lower classes that have less
credit protection.

Certain asset-backed securities are based on loans that are unsecured, which
means that there is no collateral to seize if the underlying borrower
defaults. Other asset-based securities may not have the benefit of as much
collateral as mortgage-backed securities.

The fund may invest up to 20% of its total assets in bonds of foreign issuers.
Foreign securities involve risks not typically associated with investing in
U.S. securities. These risks include but are not limited to: currency risks
(the risk that the value of interest paid on foreign securities, or the value
of the securities them
selves, may fall if currency exchange rates change), the risk that a
security's value will be hurt by changes in foreign political or social condi-
tions, the possibility of heavy taxation, nationalization or expropriation of
assets and more difficulty obtaining information on foreign securities or com-
panies. In addition, a portfolio of foreign securities may be harder to sell
and may be subject to wider price movements than comparable investments in
U.S. companies. There is also less government regulation of foreign securities
markets.

In addition, political and economic structures in developing countries may be
undergoing rapid change and these countries may lack the social, political and
economic stability of more developed countries. As a result, some of the risks
described above, including the risks of nationalization or expropriation of
assets and the existence of smaller, more volatile and less regulated markets,
may be increased for investing in emerging market countries. The value of many
investments in emerging market countries recently has dropped significantly
due to economic and political turmoil in many of these countries.

On January 1, 1999, eleven European countries implemented a new currency unit
call the "Euro" which is expected to replace the existing national currencies
of these countries by July 1,
4
<PAGE>

2002. Full implementation of the Euro may be delayed and difficulties with the
conversion may significantly impact European capital markets, resulting in
increased volatility in European and world capital markets. Individual issuers
may suffer substantial losses if they or their suppliers are not adequately
prepared for the transition, which could hurt the value of shares of the fund.

Non-investment grade bonds carry greater risks than securities which have
higher credit ratings, including a high risk of default. The yields of non-
investment grade securities will move up and down over time. The credit rating
of a high yield security does not necessarily address its market value risk.
Ratings and market value may change from time to time, positively or negative-
ly, to reflect new developments regarding the issuer. These companies are often
young and growing and have a lot of debt. High yield bonds are considered spec-
ulative, meaning there is a significant risk that companies issuing these secu-
rities may not be able to repay principal and pay interest or dividends on
time. In addition, other creditors of a high yield issuer may have the right to
be paid before the high yield bond holder.

During an economic downturn, a period of rising interest rates or a recession,
issuers of high yield securities who have a lot of debt may experience finan-
cial problems. They may not have enough cash to make their principal and inter-
est payments. An economic downturn could also hurt the market for lower-rated
securities and the fund.

The market for high yield bonds is not as liquid as the markets for higher
rated securities. This mean that it may be harder to buy and sell high yield
bonds, especially on short notice. The market could also be hurt by legal or
tax changes.

Treasury obligations differ only in their interest rates, maturities and times
of issuance. Obligations of U.S. Government agencies and authorities are sup-
ported by varying degrees of credit. No assurance can be given that the U.S.
Government will provide financial support to its agencies and authorities if it
is not obligated by law to do so.

The fund's use of derivatives, interest rate and foreign currency transactions
may reduce the fund's returns and/or increase volatility. Volatility is the
characteristic of a security or a market to fluctuate significantly in price
within a short period of time.

Leverage is a speculative technique which may expose the fund to greater risk
and increase its costs. Increases and decreases in the value of the fund's
portfolio will be magnified when the fund uses leverage. For example, leverage
may cause greater swings in the fund's net asset value. The fund will also have
to pay interest
                                                                             5
<PAGE>

on its borrowings, reducing the fund's return. This interest expense may be
greater than the fund's return on the underlying investment.

Securities loans involve the risk of a delay in receiving additional collat-
eral from the borrower if the value of the securities goes up while they are
on loan. There is also the risk of delay in recovering the loaned securities
and of losing rights to the collateral if a borrower goes bankrupt.

Higher than normal portfolio turnover may result in increased transaction
costs to the fund, including brokerage commissions, dealer mark-ups and other
transaction costs on the sale of the securities and on reinvestment in other
securities. The sale of fund securities may result in the recognition of capi-
tal gain or loss. Given the frequency of sales, such gain or loss will likely
be short-term capital gain or loss. Unlike long-term capital gain, short-term
capital gain of individuals is taxable at the same rates as ordinary income.
These effects of higher than normal portfolio turnover may adversely affect
fund performance.

When you invest in this fund you are not making a bank deposit. Your invest-
ment is not insured or guaranteed by the Federal Deposit Insurance Corporation
or by any bank or governmental agency.


Expenses and Fees
The tables below explain your pricing options and describe the fees and
expenses that you may pay if you buy and hold Investor A, B and C Shares of
the fund.

Shareholder Fees (Fees paid directly from your investment)

<TABLE>
<CAPTION>
                               A Shares B Shares C Shares

<S>                            <C>      <C>      <C>
Maximum Front-End Sales
 Charge*                         4.0%    0.0%    0.0%
(as percentage of offering
 price)
Maximum Deferred Sales Charge    0.0%    4.5%**  1.00%***
(as percentage of offering
 price)
</TABLE>
  * Reduced front-end sales charges may be available. A CDSC of up to 0.75% is
    assessed on certain redemptions of Investor A Shares that are purchased
    with no initial sales charge as part of an investment of $1,000,000 or
    more.
 ** The CDSC is 4.5% if shares are redeemed in less than one year. The CDSC
    for Investor B Shares decreases for redemptions made in subsequent years.
    After six years there is no CDSC on B Shares. (See page 13 for complete
    schedule of CDSCs.)
*** There is no CDSC on C Shares after one year.

6
<PAGE>

Annual Fund Operating Expenses
(Expenses that are deducted from fund assets)

<TABLE>
<CAPTION>
                                         A Shares B Shares C Shares

<S>                                      <C>      <C>      <C>
Advisory fees                                %        %        %
Distribution and service
 (12b-1) fees                                %        %        %
Other expenses/1/                            %        %        %
Total annual fund operating
 expenses                                    %        %        %
Fee waivers and expense reimbursements*      %        %        %
Net expenses*                                %        %        %
</TABLE>
  *   BlackRock and BlackRock Distributors, Inc., the fund's distributor, have
      contractually agreed to waive or reimburse fees or expenses in order to
      limit fund expenses to  % (for Investor A Shares) and  % (for Investor B
      and C Shares) of average daily net assets until       , 2002. The fund
      may have to repay some of these waivers and reimbursements to BlackRock
      in the following two years. See the "Management" section on pages 19 and
      20 for a discussion of these waivers and reimbursements.
  /1/The fund is newly organized and, accordingly, "Other expenses" are based
    on estimated amounts for the current fiscal year.

Example:
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. We are assuming an initial
investment of $10,000, 5% total return each year with no changes in operating
expenses, redemption at the end of each time period and, with respect to B
Shares and C Shares only, no redemption at the end of each time period.
Although your actual cost may be higher or lower, based on these assumptions
your costs would be:

<TABLE>
<CAPTION>
                 1 Year 3 Years

<S>              <C>    <C>
A Shares*         $       $
B Shares**
   Redemption     $       $
B Shares
   No Redemption  $       $
C Shares**
   Redemption     $       $
C Shares
   No Redemption  $       $
</TABLE>
  * Reflects imposition of sales charge.
 ** Reflects deduction of CDSC.

As a shareholder you pay certain fees and expenses. Shareholder transaction
fees are paid out of your investment and annual fund operating expenses are
paid out of fund assets.

This prospectus offers shareholders different ways to invest with three sepa-
rate pricing options. You need to understand your choices so that you can
choose the pricing option that is most suitable for you. With one option (In-
vestor A Shares) you pay a one-time front-end transaction fee each time you buy
shares. The other options (Investor B and Investor C Shares) have no front-end
charges but have higher on-going fees, which are paid over the life
 IMPORTANT DEFINITIONS


 Advisory Fees: Fees
 paid to the investment
 adviser for portfolio
 management services.

 Service Fees: Fees that
 are paid to BlackRock
 and /or its affiliates
 for shareholder account
 service and mainte-
 nance.

 Distribution Fees: A
 method of charging dis-
 tribution-related
 expenses against fund
 assets.

 Other Expenses: Include
 administration, trans-
 fer agency, custody,
 professional fees and
 registration fees.


                                                                             7
<PAGE>

of the investment, and have a contingent deferred sales charge (CDSC) that you
may pay when you redeem your Shares. Which option should you choose? It depends
on your individual circumstances. You should know that the lowest sales charge
won't necessarily be the least expensive option over time. For example, if you
intend to hold your shares long term it may cost less to buy A Shares than B or
C Shares.

Fund Management
The fund is managed by a team of investment professionals at BlackRock Finan-
cial Management, Inc. (BFM), including the following individuals who have day-
to-day responsibility: Keith Anderson, Managing Director of BFM since 1988,
Scott Amero, Managing Director of BFM since 1990 and Rajiv Sobti, Managing
Director of BFM since March 1998. Prior to joining BFM, Rajiv Sobti was a Man-
aging Director and head of Quantitative Research with Donaldson Lufkin & Jen-
rette for 12 years. Keith Anderson, Scott Amero and Rajiv Sobti have been port-
folio co-managers since the fund's inception.

Past Performance of Institutional Accounts
The investment results shown below represent the gross historical performance
of certain institutional accounts managed by BFM and were calculated pursuant
to Association for Investment Management and Research (AIMR) guidelines. These
institutional accounts have substantially similar investment objectives, poli-
cies and strategies to those of the fund. Keith Anderson, Scott Amero and Rajiv
Sobti were the portfolio managers responsible for this performance. Keith
Anderson, Scott Amero and Rajiv Sobti continue to be primarily responsible for
the institutional accounts and intend to utilize a substantially similar
investment approach for the fund.



                                  [BAR CHART]


                                        Institutional  Lehman Brothers
                                           Accounts     Aggregate Index
                                           --------     ---------------

One Year 9/30/99-9/30/2000                   7.700%         6.990%
Two Years 9/30/1998-9/30/2000                4.210%         3.240%
Since Inception 3/31/1998-9/30/2000          5.870%         5.270%


[to be updated as of 12/31/2000]
8
<PAGE>

The performance information is provided to illustrate the past performance of
BFM in managing substantially similar institutional accounts and does not rep-
resent the performance of the fund, which has no history of operations. Invest-
ors should realize that this past performance data is not an indication of
future performance of the fund.

The data represents accounts with assets as of December 31, 2000 of $    mil-
lion representing    % of total assets under management. The data includes all
accounts with substantially similar investment objectives, policies and strate-
gies to those of the fund.

The performance numbers above do not reflect the deductions for investment
advisory fees, transaction costs and other expenses. If such fees and expenses
were deducted, the performance of the institutional accounts would be less than
the performance shown. The performance results reflect dividend reinvestment
and are calculated on a settlement date basis through December 31, 2000.

The index used for comparison is the Lehman Brothers Aggregate Index, an unman-
aged index with no expenses, which is comprised of more than 5,000 taxable
investment grade bonds rated by Moody's or Standard and Poor's.

The institutional accounts that are included in the data above are not subject
to the same types of expenses as the fund and are not subject to the same
diversification requirements, tax restrictions and other investment limitations
imposed on the fund by the Investment Company Act of 1940 or Subchapter M of
the Internal Revenue Code of 1986. The performance results of the institutional
accounts could have been adversely affected if the institutional accounts had
been regulated as investment companies under the federal tax and securities
laws. In addition, differences in the Securities and Exchange Commission and
AIMR methodology for calculating performance could result in difference perfor-
mance data for identical time periods.
                                                                             9
<PAGE>

             About Your Investment
[GRAPHIC]

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

Buying Shares from a Registered Investment Professional

BlackRock Funds believes that investors can benefit from the advice and ongoing
assistance of a registered investment professional. Accordingly, when you buy
or sell BlackRock Funds Investor Shares, you may pay a sales charge, which is
used to compensate your investment professional for services provided to you.

As a shareholder you pay certain fees and expenses. Shareholder fees are paid
directly from your investment and annual fund operating expenses are paid out
of fund assets and are reflected in the fund's price.

Your registered representative can help you to buy shares by telephone. Before
you place your order make sure that you have read the prospectus and have a
discussion with your registered representative about the details of your
investment.

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

What Price Per Share Will You Pay?

The price of mutual fund shares generally changes every business day. A mutual
fund is a pool of investors' money that is used to purchase a portfolio of
securities, which in turn is owned in common by the investors. Investors put
money into a mutual fund by buying shares. If a mutual fund has a portfolio
worth $50 million and has 5 million shares outstanding, the net asset value
(NAV) per share is $10. When you buy Investor Shares you pay the NAV/share
plus the sales charge if you are purchasing Investor A Shares.

The fund's investments are valued based on market value, or where market quo-
tations are not readily available, based on fair value as determined in good
faith by or under the direction of the Company's Board of Trustees. Under some
circumstances certain short-term debt securities will be valued using the
amortized cost method.

Since the NAV changes daily, the price of your shares depends on the time that
your order is received by the BlackRock Funds' transfer agent, whose job it is
to keep track of shareholder records.

PFPC, the Company's transfer agent, will probably receive your order from your
registered representative, who takes your order. However, you can also fill
out a purchase application and mail it to the transfer agent with your check.
Please call (800) 441-7762



10
<PAGE>


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

for a purchase application. Purchase orders received by the transfer agent
before the close of regular trading on the New York Stock Exchange (NYSE)
(currently 4 p.m. (Eastern time)) on each day the NYSE is open will be priced
based on the NAV calculated at the close of trading on that day plus any
applicable sales charge. NAV is calculated separately for each class of shares
of each fund at 4 p.m. (Eastern time) each day the NYSE is open. Shares will
not be priced on days the NYSE is closed. Purchase orders received after the
close of trading will be priced based on the next calculation of NAV. Foreign
securities and certain other securities held by a fund may trade on days when
the NYSE is closed. In these cases, net asset value of shares may change when
fund shares cannot be bought or sold.

When you place a purchase order, you need to specify whether you want Investor
A, B or C Shares. If you do not specify a class, you will receive Investor A
Shares.

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

When Must You Pay?

Payment for an order must be made by your registered representative in Federal
funds or other immediately available funds by 4 p.m. (Eastern time) on the
third business day following PFPC's receipt of the order. If payment is not
received by this time, the order will be cancelled and you and your registered
representative will be responsible for any loss to a fund. For shares pur-
chased directly from the transfer agent, a check payable to BlackRock Funds
and bearing the name of the fund you are purchasing must accompany a completed
purchase application. The Company does not accept third-party checks. You may
also wire Federal funds to the transfer agent to purchase shares, but you must
call PFPC at (800) 441-7762 before doing so to confirm the wiring instruc-
tions.

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

How Much is the Minimum Investment?

The minimum investment for the initial purchase of Investor Shares is $500.
There is a $50 minimum for all later investments. The Company permits a lower
initial investment if you are an employee of the Company or one of its service
providers or you participate in the Automatic Investment Plan in which you
make regular, periodic investments through a savings or checking account. Your
investment professional can advise you on how to begin an Automatic Investment
Plan. The Company won't accept a purchase order of $1 million or more for
Investor








                                                                            11
<PAGE>


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

B or Investor C Shares. The Company may reject any purchase order, modify or
waive the minimum investment requirements and suspend and resume the sale of
any share class of the Company at any time.


Which Pricing Option Should You Choose?

BlackRock Funds offers different pricing options to investors in the form of
different share classes. Your registered representative can help you decide
which option works best for you. Through
this prospectus, you can choose from Investor A, B, or C Shares.

A Shares (Front-End Load)
 .One time sales charge paid at time of purchase
 .Lower ongoing distribution fees
 .Free exchange with other A Shares in BlackRock Funds family
 .Advantage: Makes sense for investors who have long-term investment horizon
  because ongoing distribution fees are less than for other Investor Share
  classes.
 .Disadvantage: You pay sales charge up-front, and therefore you start off
  owning fewer shares.

B Shares (Back-End Load)
 .No front-end sales charge when you buy shares
 .You pay sales charge when you redeem shares. It is called a contingent
  deferred sales charge (CDSC) and it declines over 6 years to zero from a
  high of 4.5%.
 .Higher ongoing distribution fees than A Shares
 .Free exchange with other B Shares in BlackRock Funds family
 .Automatically convert to A Shares seven years from purchase
 .Advantage: No up-front sales charge so you start off owning more shares.
 .Disadvantage: You pay higher ongoing distribution fees than on A Shares each
  year you own shares, which means that you can expect lower total performance
  per share.

C Shares (Level Load)
 .No front-end sales charge when you buy shares
 .Contingent deferred sales charge (CDSC) of 1.00% if shares are redeemed
  within 12 months of purchase
 .Higher ongoing distribution fees than A Shares
 .Free exchange with other C Shares in BlackRock Funds family

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

13
<PAGE>


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

 .Advantage: No up-front sales charge so you start off owning more shares.
  These shares may make sense for investors who have a shorter investment
  horizon relative to A or B Shares.
 .Disadvantage: You pay higher ongoing distribution fees than on A shares each
  year you own shares, which means that you can expect lower total performance
  per share. Shares do not convert to A Shares.

Investor B Shares received through the reinvestment of dividends and distribu-
tions convert to A Shares 7 years after the reinvestment or at the same time as
the conversion of the investor's most recently purchased B Shares that were not
received through reinvestment (whichever is earlier).

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

How Much is the Sales Charge?

The tables below show the schedule of sales charges that you may pay if you buy
and sell Investor A, B and C Shares of a fund.

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

Purchase of Investor A Shares

The following tables show the front-end sales charges that you may pay if you
buy Investor A Shares. The offering price for Investor A Shares includes any
front-end sales charge.

<TABLE>
<CAPTION>
  AMOUNT OF                SALES CHARGE AS SALES CHARGE AS
  TRANSACTION AT           % OF OFFERING   % OF NET ASSET
  OFFERING PRICE           PRICE*          VALUE*
  <S>                      <C>             <C>
  Less than $50,000        4.00%           4.17%
  $50,000 but less than
   $100,000                3.75%           3.90%
  $100,000 but less than
   $250,000                3.50%           3.63%
  $250,000 but less than
   $500,000                2.50%           2.56%
  $500,000 but less than
   $1,000,000              1.50%           1.52%
  $1 million or more       0.0%            0.0%
</TABLE>

* There is no initial sales charge on purchases of $1,000,000 or more of
  Investor A shares; however you will pay a contingent deferred sales charge of
  0.75% of the offering price or the net asset value of the shares on the
  redemption date (whichever is less) for shares redeemed within 18 months
  after purchase.









                                                                             13
<PAGE>


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


Purchase of Investor B Shares

Investor B Shares are subject to a CDSC at the rates shown in the chart below if
they are redeemed within six years of purchase. The CDSC is based on the offer-
ing price or the net asset value of the B Shares on the redemption date (which-
ever is less). The amount of any CDSC an investor must pay depends on the num-
ber of years that elapse between the date of purchase and the date of
redemption.

<TABLE>
<CAPTION>
                                         CONTINGENT DEFERRED
                                         SALES CHARGE (AS %
                                         OF DOLLAR AMOUNT
  NUMBER OF YEARS                        SUBJECT TO THE
  ELAPSED SINCE PURCHASE                 CHARGE)
  <S>                                    <C>
  Up to one year                         4.50%
  More than one but less than two years  4.00%
  More than two, but less than three
   years                                 3.50%
  More than three but less than four
   years                                 3.00%
  More than four but less than five
   years                                 2.00%
  More than five but less than six
   years                                 1.00%
  More than six years                    0.00%
</TABLE>

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

Purchase of Investor C Shares

Investor C Shares are subject to a CDSC of 1.00% if they are redeemed within 12
months after purchase. The 1.00% is based on the offering price or the net
asset value of the C Shares on the redemption date (whichever is less). There
is no CDSC on C Shares redeemed after 12 months.




17
<PAGE>


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


When an investor redeems Investor B Shares or Investor C Shares, the redemption
order is processed so that the lowest CDSC is charged. Investor B Shares and
Investor C Shares that are not subject to the CDSC are redeemed first. After
that, the Company redeems the Shares that have been held the longest.

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

Can the Sales Charge be Reduced or Eliminated?

There are several ways in which the sales charge can be reduced or eliminated.
Purchases of Investor A Shares at certain fixed dollar levels, known as "break-
points," cause a reduction in the front-end sale charge. The CDSC on Investor B
Shares can be reduced depending on how long you own the shares. (Schedules of
these reductions are listed above in the "Purchase of Investor A Shares" and
"Purchase of Investor B Shares" sections.) Purchases by certain individuals and
groups may be combined in determining the sales charge on Investor A Shares.
The following are also ways the sales charge can be reduced or eliminated.

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

Right of Accumulation (Investor A Shares)

Investors have a "right of accumulation" under which the current value of an
investor's existing Investor A Shares in any fund that is subject to a front-
end sales charge, or the total amount of an initial investment in such shares
less redemptions (whichever is greater), may be combined with the amount of the
current purchase in the same fund in determining the amount of the sales
charge. In order to use this right, the investor must alert the Company's
transfer agent, PFPC, of the existence of previously purchased shares.

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

Letter of Intent (Investor A Shares)

An investor may qualify for a reduced front-end sales charge immediately by
signing a "Letter of Intent" stating the investor's intention to buy a speci-
fied amount of Investor A Shares within the next 13 months that would, if
bought all at once, qualify the investor for a reduced sales charge. The Letter
of Intent may be signed anytime within 90 days after the first investment to be
covered by the letter. The initial investment must meet the minimum initial
purchase requirement and represent at least 5% of the total intended purchase.
The investor must tell PFPC that later purchases are subject to the Letter of
Intent. During the







                                                                             15
<PAGE>


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

term of the Letter of Intent, PFPC will hold Investor A Shares representing 5%
of the indicated amount in an escrow account for payment of a higher sales
load if the full amount indicated in the Letter of Intent is not purchased.
Any redemptions made during the term of the Letter of Intent will be sub-
tracted from the amount of the total purchase indicated in the letter. If the
full amount indicated is not purchased within the 13-month period, and the
investor does not pay the higher sales load within 20 days, PFPC will redeem
enough of the Investor A Shares held in escrow to pay the difference.

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

Reinvestment Privilege (Investor A Shares)

Upon redeeming Investor A Shares, an investor has a one-time right, for a
period of up to 60 days, to reinvest the proceeds in A Shares of another fund
without any sales charge. To exercise this right, PFPC must be notified of the
reinvestment in writing at the time of purchase by the purchaser or his or her
registered representative. Investors should consult a tax adviser concerning
the tax consequences of using this reinvestment privilege.

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

Quantity Discounts (Investor A Shares)

In addition to quantity discounts for individuals which we discussed above,
there are ways for you to reduce the front-end sales charge by combining your
order with the orders of certain members of your family and members of certain
groups you may belong to. For more information on these discounts, please con-
tact PFPC at (800) 441-7762 or see the SAI.

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

Waiving the Sales Charge (Investor A Shares)

Certain investors, including some people associated with the Company and its
service providers, may buy Investor A Shares without paying a sales charge.
For more information on the waivers, please contact PFPC at (800) 441-7762 or
see the SAI.



17
<PAGE>


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

Waiving the Contingent Deferred Sales Charge (Investor B and Investor C Shares)

The CDSC on Investor B and Investor C Shares is not charged in certain circum-
stances, including share exchanges and redemptions made in connection with cer-
tain retirement plans and in connection with certain shareholder services
offered by the Company. For more information on these waivers, please contact
PFPC at (800) 441-7762 or see the SAI.

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

Distribution and Service Plan

The Company has adopted a plan under Rule 12b-1 of the Investment Company Act of
1940 (the Plan) that allows the Company to pay distribution fees for the sale
of its shares and shareholder servicing and processing fees for certain serv-
ices provided to its shareholders.

Under the Plan, Investor Shares pay a fee (distribution fees) to BlackRock Dis-
tributors, Inc. (the Distributor) or affiliates of PNC Bank for distribution
and sales support services. The distribution fees may be used to pay the Dis-
tributor for distribution services and to pay the Distributor and PNC Bank
affiliates for sales support services provided in connection with the sale of
Investor Shares. The distribution fees may also be used to pay brokers, deal-
ers, financial institutions and industry professionals (Service Organizations)
for sales support services and related expenses. All Investor A Shares pay a
maximum distribution fee of .10% per year of the average daily net asset value
of the fund. All Investor B and C Shares pay a maximum of .75% per year. The
Plan also allows the Distributor, PNC Bank affiliates and other companies that
receive fees from the Company to make payments relating to distribution and
sales support activities out of their past profits or other sources.

Under the Plan, the Company may also enter into arrangements with Service Orga-
nizations (including PNC Bank and its affiliates). Under these arrangements,
Service Organizations will provide certain support services to their customers
who own Investor Shares. The Company may pay a shareholder servicing fee of up
to .25% per year of the average daily net asset value of Investor Shares owned
by each Service Organization's customers. All Investor Shares pay this share-
holder servicing fee.

In return for the fee, Service Organizations may provide one or more of the
following services to their customers who own Investor Shares:

                                                                             17
<PAGE>


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


    (1) Responding to customer questions on the services performed by the
        Service Organization and investments in Investor Shares;
    (2) Assisting customers in choosing and changing dividend options,
        account designations and addresses; and
    (3) Providing other similar shareholder liaison services.

For a separate shareholder processing fee paid by all Investor Shares of up to
 .15% per year of the average daily net asset value of Investor Shares owned by
each Service Organization's customers, Service Organizations may provide one
or more of these additional services:

    (1) Processing purchase and redemption requests from customers and plac-
        ing orders with the Company's transfer agent or the Distributor;
    (2) Processing dividend payments from the Company on behalf of customers;
    (3) Providing sub-accounting for Investor Shares beneficially owned by
        customers or the information necessary for sub-accounting; and
    (4) Providing other similar services.

The shareholder servicing fees and shareholder processing fees payable pursu-
ant to the Plan are fees payable for the administration and servicing of
shareholder accounts and not costs which are primarily intended to result in
the sale of the fund's shares.

Because the fees paid by the Company under the Plan are paid out of Company
assets on an on-going basis, over time these fees will increase the cost of
your investment and may cost you more than paying other types of sales
charges.


How to Sell Shares

You can redeem shares at any time (although certain verification may be
required for redemptions in excess of $25,000 or in certain other cases). The
Company will redeem your shares at the next net asset value (NAV) calculated
after your order is received by the fund's transfer agent minus any applicable
CDSC. Except when CDSCs are applied, BlackRock Funds will not charge for
redemptions. Shares may be redeemed by sending a written redemption request to
BlackRock Funds c/o PFPC, P.O. Box 8907, Wilmington, DE 19899-8907.





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

18
<PAGE>


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

You can also make redemption requests through your registered investment pro-
fessional, who may charge for this service. Share holders should indicate
whether they are redeeming Investor A, Investor B or Investor C Shares. If a
shareholder owns more than one class of the fund and does not indicate which
class he or she is redeeming, the fund will redeem shares so as to minimize the
CDSC charged.

Unless another option is requested, payment for redeemed shares is normally
made by check mailed within seven days after PFPC receives the redemption
request. If the shares to be redeemed have been recently purchased by check,
PFPC may delay the payment of redemption proceeds for up to 15 days after the
purchase date until the check has cleared.

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

Expedited Redemptions

If a shareholder has given authorization for expedited redemption, shares can be
redeemed by telephone and the proceeds sent by check to the shareholder or by
Federal wire transfer to a single previously designated bank account. You are
responsible for any charges imposed by your bank for this service. Once autho-
rization is on file, PFPC will honor requests by telephone at (800) 441-7762.
The Company is not responsible for the efficiency of the Federal wire system or
the shareholder's firm or bank. The Company may refuse a telephone redemption
request if it believes it is advisable to do so and may use reasonable proce-
dures to make sure telephone instructions are genuine. The Company and its
service providers will not be liable for any loss that results from acting upon
telephone instructions that they reasonably believed to be genuine in accor-
dance with those procedures. The Company may alter the terms of or terminate
this expedited redemption privilege at any time. Any redemption request of
$25,000 or more must be in writing.

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

The Company's Rights

The Company may:
  .Suspend the right of redemption if trading is halted or restricted on the
   NYSE or under other emergency conditions described in the Investment Com-
   pany Act of 1940,
  .Postpone date of payment upon redemption if trading is halted or
   restricted on the NYSE or under other emergency conditions described in
   the Investment Company









                                                                             19
<PAGE>


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

   Act of 1940 or as described in the third paragraph in the section "How to
   Sell Shares" above,
  .Redeem shares involuntarily in certain cases, such as when the value of a
   shareholder account falls below a specified level, as described below, and
  .Redeem shares for property other than cash if conditions exist which make
   cash payments undesirable

in accordance with its rights under the Investment Company Act of 1940.

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

Accounts with Low Balances

The Company may redeem a shareholder's account in the fund at any time the net
asset value of the account in the fund falls below the required minimum initial
investment (usually $500 for Investor Shares) as the result of a redemption or
an exchange request. The shareholder will be notified in writing that the value
of the account is less than the required amount and the shareholder will be
allowed 30 days to make additional investments before the redemption is proc-
essed.

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

Management

BlackRock Funds' Adviser is BlackRock Advisors, Inc. (BlackRock). BlackRock was
organized in 1994 to perform advisory services for investment companies and is
located at 345 Park Avenue, New York, NY 10154. BlackRock is a wholly-owned
subsidiary of BlackRock, Inc., one of the largest publicly traded investment
management firms in the United States with $190.8 billion of assets under man-
agement as of September 30, 2000. BlackRock, Inc. is a majority-owned indirect
subsidiary of The PNC Financial Services Group, Inc., one of the largest diver-
sified financial services companies in the United States. BlackRock Financial
Management, Inc. (BFM), an affiliate of BlackRock located at 345 Park Avenue,
New York, New York 10154, acts as sub-adviser to the fund.


20
<PAGE>


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


For their investment advisory and sub-advisory services, BlackRock and BFM are
entitled to fees computed daily and payable monthly.

The total annual advisory fee that can be paid to BlackRock (as a percentage of
average daily net assets) is as follows:

Maximum Annual Contractual Fee Rate (Before Waivers)

<TABLE>
<CAPTION>
                           INVESTMENT
                           ADVISORY
  AVG DAILY NET ASSETS     FEE
  <S>                      <C>        <C>
  first $1 billion                    %
  $1 billion--$2 billion              %
  $2 billion--$3 billion              %
  greater than $3 billion             %
</TABLE>

As discussed above, BlackRock and the Distributor have agreed to cap the fund's
net expenses (excluding interest expense) at the levels shown in the expense
table.

To achieve this cap, BlackRock and the Company have entered into an expense
limitation agreement. The agreement sets a limit on certain of the operating
expenses of the fund through        , 2002 and requires BlackRock to waive or
reimburse fees or expenses if these operating expenses exceed that limit. The
expense limit (which applies to expenses charged on fund assets as a whole, but
not expenses separately charged to the different share classes of the fund) as
a percentage of average daily net assets is   %.

If within two years following a waiver or reimbursement, the operating expenses
of the fund are less than the expense limit for the fund, the fund is required
to repay BlackRock up to the amount of fees waived or expenses reimbursed under
the agreement if: (1) the fund has more than $50 million in assets, (2) Black-
Rock continues to be the fund's investment adviser and (3) the Board of Trust-
ees of the Company has approved in advance the payments to BlackRock at the
previous quarterly meeting of the Board.

In addition, through        , 2002 BlackRock and the Distributor have contrac-
tually agreed to waive distribution and service fees on Investor A Shares in
the amount of .095% of average daily net assets for the fund.

 IMPORTANT DEFINITIONS


 Adviser: The Adviser of
 a mutual fund is
 responsible for the
 overall investment man-
 agement of the Fund.
 The Adviser for the
 fund is BlackRock Advi-
 sors, Inc.

 Sub-Adviser: The sub-
 adviser of a fund is
 responsible for its
 day-to-day management
 and will generally make
 all buy and sell deci-
 sions. Sub-advisers
 also provide research
 and credit analysis.
 The sub-adviser for the
 fund is BlackRock
 Financial Management,
 Inc.

                                                                             21
<PAGE>


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


Dividends and Distributions

BlackRock Funds makes two kinds of distributions to shareholders: dividends and
net capital gain.

Dividends are the net investment income derived by the fund and are paid within
10 days after the end of each month. The Company's Board of Trustees may change
the timing of dividend payments.

Net capital gain occurs when the fund manager sells securities at a profit. Net
capital gain (if any) is distributed to shareholders at least annually at a
date determined by the Company's Board of Trustees.

Your distributions will be reinvested at net asset value in new shares of the
same class of the fund unless you instruct PFPC in writing to pay them in cash.
There are no sales charges on these reinvestments.

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

Taxation of Distributions

Distributions paid out of the fund's "net capital gain" will be taxed to share-
holders as long-term capital gain, regardless of how long a shareholder has
owned shares. All other distributions other than exempt-interest dividends will
be taxed to shareholders as ordinary income.

Dividends paid with respect to interest on securities issued by the U.S. gov-
ernment and its agencies may be exempt from some types of state and local tax-
es.

Your annual tax statement from the Company will present in detail the tax sta-
tus of your distributions for each year.

Use of the exchange privilege will be treated as a taxable event because it may
be deemed a redemption and subsequent purchase of Shares involved, and there-
fore may be subject to federal, state and local income tax.

If more than half of the total asset value of the fund is invested in foreign
securities, the fund may elect to "pass through" to its shareholders the amount
of foreign taxes paid. In such case, each shareholder would be required to
include his proportionate share of such taxes in his income and may be entitled
to deduct or credit such taxes when computing his taxable income.

Because every investor has an individual tax situation, and also because the
tax laws are subject to periodic changes, you should always consult your tax
professional about federal, state and local tax consequences of owning shares
of the Company.


22
<PAGE>

             Services for Shareholders
[GRAPHIC]

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

BlackRock Funds offers shareholders many special features which can enable
investors to have greater investment flexibility as well as more access to
information about the Company.

Additional information about these features is available by calling PFPC at
(800) 441-7762.

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

Exchange Privilege

BlackRock Funds offers 42 different funds, enough to meet virtually any invest-
ment need. Once you are a shareholder, you have the right to exchange Investor
A, B, or C Shares from one fund to another to meet your changing financial
needs. For example, if you are in a fund that has an investment objective of
long term capital growth and you are nearing retirement, you may want to switch
into another fund that has current income as an investment objective. For
information on the Company's other funds, please call PFPC at (800) 441-7762.

You can exchange $500 (or any other applicable minimum) or more from one Black-
Rock Fund into another. Investor A, Investor B and Investor C Shares of each
fund may be exchanged for shares of the same class of other funds which offer
that class of shares, based on their respective net asset values. (You can
exchange less than $500 if you already have an account in the fund into which
you are exchanging.) Because different funds have different sales charges, the
exchange of Investor A Shares may be subject to the difference between the
sales charge already paid and the higher sales charge (if any) payable on the
shares acquired as a result of the exchange. For Federal income tax a share
exchange is a taxable event and a capital gain or loss may be realized. Please
consult your tax or other financial adviser before making an exchange request.

The exchange of Investor B and Investor C Shares will not be subject to a CDSC.
The CDSC will continue to be measured from the date of the original purchase
and will not be affected by the exchange.

To make an exchange, you must send a written request to PFPC at P.O. Box 8907,
Wilmington, DE 19899-8907. You can also make exchanges via telephone automati-
cally, unless you previously indicated that you did not want this option. If
so, you may not use telephone exchange privileges until completing a Tele-



                                                                             23
<PAGE>


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

phone Exchange Authorization Form. To receive a copy of the form contact PFPC.
The Company has the right to reject any telephone request.

In general, there are no limits on the number of exchanges you can make. How-
ever, the Company may suspend or terminate your exchange privilege at any time
and generally will do so if you make more than five exchanges out of any fund
in any twelve month period.

The Company reserves the right to modify, limit the use of, or terminate the
exchange privilege at any time.

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

Automatic Investment Plan (AIP)

If you would like to establish a regular, affordable investment program, Black-
Rock Funds makes it easy to set up. As an investor in any BlackRock Fund port-
folio, you can arrange for periodic investments in that fund through automatic
deductions from a checking or savings account by completing the AIP
Application Form. The minimum investment amount for an automatic investment
plan is $50. AIP Application Forms are available from PFPC.

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

Retirement Plans

Shares may be purchased in conjunction with individual retirement accounts
(IRAs) and rollover IRAs where PNC Bank or any of its affiliates acts as cus-
todian. For more information about applications or annual fees, please contact
the Fund Agent, PFPC Inc., at P.O. Box 8907, Wilmington, DE 19899-8907 or call
1-800-441-7762. To determine if you are eligible for an IRA and whether an IRA
will benefit you, you should consult with a tax adviser.

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

Market Timing

The fund is not designed for market timing organizations or other entities
using programmed or frequent exchanges. The Company reserves the right to
reject any specific purchase order, including an order made by a market timer.

Any redemption that is made as a result of this activity will be subject to
any and all redemption fees.



24
<PAGE>


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


Reinvestment Privilege

Upon redemption of Investor A Shares, B Shares or C Shares, a shareholder has a
one-time right, to be exercised within 60 days, to reinvest the redemption pro-
ceeds in the fund at NAV. Shares will be purchased on a current basis. PFPC
must be notified of the reinvestment in writing by the purchaser, or by the
broker/dealer, at the time the purchase is made. An investor should consult
with a tax adviser concerning the tax consequences of this reinvestment privi-
lege.

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

Important Notice Regarding Delivery of Shareholder Documents

The Securities and Exchange Commission permits mutual funds to deliver only one
copy of shareholder documents, including prospectuses and shareholder reports,
to fund investors with multiple accounts at the same residential or post office
box address. This practice is commonly called "householding" and is intended to
eliminate duplicate mailings of shareholder documents.

Mailings of your BlackRock Funds shareholder documents may be householded
indefinitely unless you instruct us otherwise.

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

Statements

Every BlackRock shareholder automatically receives regular account statements.
In addition, for tax purposes, shareholders also receive a yearly statement
describing the characteristics of any dividends or other distributions
received.

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

Systematic Withdrawal Plan (SWP)

This feature can be used by investors who want to receive regular distributions
from their accounts. To start a SWP a shareholder must have a current invest-
ment of $10,000 or more in a fund. Shareholders can elect to receive cash pay-
ments of $50 or more monthly, every other month, quarterly, semi-annually or
annually. Shareholders may sign up by completing the SWP Application Form which
may be obtained from PFPC. Shareholders should realize that if withdrawals
exceed income the invested principal in their account will be depleted.

To participate in the SWP, shareholders must have their dividends automatically
reinvested and may not hold share certifi-

Reinvestment Privilege


Important Notice Regarding Delivery of Shareholder Documents







                                                                             25
<PAGE>


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

cates. Shareholders may change or cancel the SWP at any time, upon written
notice to PFPC. If an investor purchases additional
Investor A Shares of a fund at the same time he or she redeems shares through
the SWP, that investor may lose money because of the sales charge involved. No
CDSC will be assessed on redemptions of Investor B or Investor C Shares made
through the SWP that do not exceed 12% of the account's net asset value on an
annualized basis. For example, monthly, quarterly and semi-annual SWP redemp-
tions of Investor B or Investor C Shares will not be subject to the CDSC if
they do not exceed 1%, 3% and 6%, respectively, of an account's net asset value
on the redemption date. SWP redemptions of Investor B or Investor C Shares in
excess of this limit will still pay the applicable CDSC.









136
<PAGE>

For More Information:
This prospectus contains important information you should know before you
invest. Read it carefully and keep it for future reference.
More information about the BlackRock Funds is available free, upon request,
including:

Annual/Semi-Annual Report
These reports contain additional information about the fund's investments. The
annual report describes the fund's performance, lists portfolio holdings, and
discusses recent market conditions, economic trends and fund investment
strategies that significantly affected the fund's performance for the last
fiscal year.

Statement of Additional Information (SAI)
A Statement of Additional Information, dated January __, 2001, has been filed
with the Securities and Exchange Commission (SEC). The SAI, which includes
additional information about the BlackRock Funds, may be obtained free of
charge, along with the Company's annual and semi-annual reports, by calling
(800) 441-7762. The SAI, as supplemented from time to time, is incorporated by
reference into this Prospectus.

Shareholder Account Service Representatives
Representatives are available to discuss account balance information, mutual
fund prospectuses, literature, programs and services available. Hours: 9 a.m. to
6 p.m. (Eastern time), Monday-Friday.
Call: (800) 441-7762

Purchases and Redemptions
Call your registered representative or (800) 441-7762.

World Wide Web
Access general fund information and specific fund performance. Request mutual
fund prospectuses and literature. Forward mutual fund inquiries. Available 24
hours a day, 7 days a week. http://www.blackrock.com

E-Mail
Request prospectuses, SAI, Annual or Semi-Annual Reports and literature. Forward
mutual fund inquiries. Available 24 hours a day, 7 days a week. Mail to:
[email protected]

Written Correspondence
Post Office Address: BlackRock Funds c/o PFPC, Inc. PO Box 8907, Wilmington, DE
19899-8907 Street Address: BlackRock Funds, c/o PFPC, Inc. 400 Bellevue Parkway,
Wilmington, DE 19809

Internal Wholesalers/Broker Dealer Support
Available to support investment professionals 9 a.m. to 6 p.m. (Eastern time),
Monday-Friday. Call: (888) 8BLACKROCK

Securities and Exchange Commission (SEC)
You may also view and copy public information about the BlackRock Funds,
including the SAI, by visiting the EDGAR database on the SEC Web site
(http://www.sec.gov) or the SEC's Public Reference Room in Washington, D.C.
Information about the operation of the public reference room can be obtained by
calling the SEC directly at 1-202-942-8090. Copies of this information can be
obtained, for a duplicating fee, by electronic request at the following E-mail
address: [email protected], or by writing to the Public Reference Section of
the SEC, Washington, D.C. 20549-0102.

INVESTMENT COMPANY ACT FILE NO. 811-05742

[GRAPHIC]

[LOGO]  BLACKROCK
            FUNDS
<PAGE>
[GRAPHIC]

NOT FDIC- | May lose value
INSURED   | No bank guarantee

                                Core PLUS Total
                               Return Portfolio

                         ============================
                         S E R V I C E    S H A R E S

                         BlackRock Funds/sm/ is a mutual fund family with 42
                         investment portfolios.




                         P R O S P E C T U S

                         January __, 2001


                         [GRAPHIC]  BLACKROCK
                                        FUNDS

                         The securities described in this prospectus have been
                         registered with the Securities and Exchange Commission
                         (SEC). The SEC, however, has not judged these
                         securities for their investment merit and has not
                         determined the accuracy or adequacy of this prospectus.
                         Anyone who tells you otherwise is committing a criminal
                         offense.
<PAGE>

Table of
Contents

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<S>                                                                          <C>
How to find the information you need

How to find the information you need........................................   1
Core PLUS Total Return......................................................   2

About Your Investment

How to Buy/Sell Shares......................................................   9
Dividends/Distributions/Taxes...............................................  17
</TABLE>
<PAGE>

How to Find the
Information You Need
About BlackRock Funds

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


This is the BlackRock Core PLUS Total Return Portfolio Prospectus. It has been
written to provide you with the information you need to make an informed deci-
sion about whether to invest in BlackRock Funds (the Company).


                                                                             1
<PAGE>

             BlackRock
[GRAPHIC]    Core PLUS Total Return
             Portfolio

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

Investment Goal
The fund seeks to realize a total return that exceeds that of the Lehman
Brothers Aggregate Index (the benchmark).

Primary Investment Strategies
In pursuit of this goal, the fund normally invests at least 80% of its total
assets in bonds. Additionally, under normal market conditions, the fund's
average duration will be within (+/-) 20% of the duration of the benchmark.


The fund invests primarily in dollar-denominated investment grade bonds, but
may invest up to 20% of its total assets in any combination of non-investment
grade bonds (high yield or junk bonds), bonds denominated in foreign curren-
cies and bonds of foreign (including emerging market) issuers.

The management team evaluates categories of the bond market and individual
securities within those categories. The fund manager selects bonds from sev-
eral categories including: U.S. Treasuries and agency securities, commercial
and residential mortgage-backed securities, asset-backed securities and corpo-
rate bonds. Securities are purchased for the fund when the manager believes
that they have the potential for above-average total return. The fund measures
its performance against the benchmark.


Non-investment grade bonds acquired by the fund will generally be in the lower
rating categories of the major rating agencies (BB or lower by Standard &
Poor's or Ba or lower by Moody's) or will be determined by the fund manager to
be of similar quality. Split rated bonds will be considered to have the higher
credit rating.

The fund manager may, when consistent with the fund's investment objective,
use options or futures (commonly known as derivatives). An option is the right
to buy or sell a security at a specific price on or before a specific date. A
future is an agreement to buy or sell a security at a specific price on a spe-
cific date. The primary purpose of using derivatives is to attempt to reduce
risk to the fund as a whole (hedge) but they may also be used to maintain
liquidity, commit cash pending investment or for speculation to increase
returns. The fund may also enter into interest rate or foreign currency trans-
actions as a hedging technique. In these

 IMPORTANT DEFINITIONS


 Asset-Backed Securi-
 ties: Bonds that are
 backed by a pool of
 assets, usually loans
 such as installment
 sale contracts or
 credit card
 receivables.

 Bonds: Debt obligations
 such as bonds and
 debentures, U.S. Gov-
 ernment securities,
 debt obligations of
 domestic and foreign
 corporations, debt
 obligations of foreign
 governments and their
 political subdivisions,
 asset-backed securi-
 ties, various mortgage-
 backed securities (both
 residential and commer-
 cial), other floating
 or variable rate obli-
 gations, municipal
 obligations and zero
 coupon debt securities.

 Commercial Mortgage-
 Backed Securities
 (CMBS): Bonds that are
 backed by a mortgage
 loan or pools of loans
 secured by commercial
 property, not residen-
 tial mortgages.

 Duration: A mathemati-
 cal calculation of the
 average life of a bond
 (or bonds in a bond
 fund) that serves as a
 useful measure of its
 price risk. Each year
 of duration represents
 an expected 1% change
 in the price of a bond
 for every 1% change in
 interest rates. For
 example, if a bond fund
 has an average duration
 of four years, its
 price will fall about
 4% when interest rates
 rise by one percentage
 point. Conversely, the
 bond fund's price will
 rise about 4% when
 interest rates fall by
 one percentage point.
 Duration, which mea-
 sures price sensitivity
 to interest rate
 changes, is not neces-
 sarily equal to average
 maturity.


 High Yield Bond: Some-
 times referred to as
 "junk bonds" these are
 debt securities, which
 are rated less than
 investment grade (below
 the fourth highest rat-
 ing of the major rating
 agencies). These secu-
 rities generally pay
 more interest than
 higher rated securi-
 ties. The higher yield
 is an incentive to
 investors who otherwise
 may be hesitant to pur-
 chase the debt of such
 a low rated issuer.
2
<PAGE>

transactions, the fund exchanges its right to pay or receive interest or cur-
rencies with another party for their right to pay or receive interest or
another currency in the future.

The fund can borrow money to buy additional securities. This practice is known
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securities
and agrees to buy them back at a particular date and price). The fund normally
may borrow up to 33 1/3% of the value of its total assets.

The fund may lend some of its securities on a short-term basis in order to earn
income. The fund will receive collateral in cash or high quality securities
equal to the current value of the loaned securities. The fund earns interest on
the securities it lends and income when it invests the collateral for the
loaned securities. These loans will be limited to 33 1/3% of the value of the
fund's total assets.

The "total return" sought by the fund consists of income earned on the fund's
investments, plus capital appreciation, if any, which generally arises from
decreases in interest rates or improving credit fundamentals for a particular
sector or security.

The fund may engage in active and frequent trading of portfolio securities to
achieve its principal investment strategies.

Should the Company's Board of Trustees determine that the investment objective
of the fund should be changed, shareholders will be given at least 30 days
notice before any such change is made.

Key Risks

Key Risks
While the fund manager chooses bonds he believes can provide above average cur-
rent income, there is no guarantee that shares of the fund will not lose value.
This means you could lose money.

Two of the main risks of investing in the fund are interest rate risk and
credit risk. Typically, when interest rates rise, there is a corresponding
decline in the market value of bonds such as those held by the fund. Credit
risk refers to the possibility that the issuer of the bond will not be able to
make principal and interest payments.

The fund may make investments in residential and commercial mortgage-backed
securities and other asset-backed securities. The characteristics of these
mortgage-backed and asset-backed securities differ from traditional fixed
income securities.

A main difference is that the principal on mortgage- or asset-backed securities
may normally be prepaid at any time, which will reduce the yield and market
value of these securities. Asset-backed securities and CMBS generally experi-
ence less prepayment than residential mortgage-backed securities. In periods of
falling interest rates, the rate of prepayments tends to increase
 IMPORTANT DEFINITIONS


 Investment Grade: Secu-
 rities which are rated
 in the four highest
 categories by at least
 one of the major rating
 agencies or determined
 by the fund manager to
 be of similar quality.
 Generally, the higher
 the rating of a bond,
 the higher the likeli-
 hood that interest and
 principal payments will
 be made on time.

 Lehman Brothers Aggre-
 gate Index: An unman-
 aged index comprised of
 more than 5,000 taxable
 bonds. This is an index
 of investment grade
 bonds; all securities
 included must be rated
 investment grade by
 Moody's or Standard &
 Poor's.

 Mortgage-Backed Securi-
 ties: Asset-backed
 securities based on a
 particular type of
 asset, a mortgage.
 There is a wide variety
 of mortgage backed
 securities involving
 commercial or residen-
 tial, fixed rate or
 adjustable rate mort-
 gages and mortgages
 issued by banks or gov-
 ernment agencies.

 Total Return: A way of
 measuring fund perfor-
 mance. Total return is
 based on a calculation
 that takes into account
 income dividends, capi-
 tal gain distributions
 and the increase or
 decrease in share
 price.

                                                                             3
<PAGE>

(as does price fluctuation) as borrowers are motivated to pay off debt and
refinance at new lower rates. During such periods, reinvestment of the prepay-
ment proceeds by the manager will generally be at lower rates of return than
the return on the assets which were prepaid. Certain commercial mortgage-
backed securities are issued in several classes with different levels of yield
and credit protection. The fund's investments in commercial mortgage-backed
securities with several classes may be in the lower classes that have less
credit protection.

Certain asset-backed securities are based on loans that are unsecured, which
means that there is no collateral to seize if the underlying borrower
defaults. Other asset-based securities may not have the benefit of as much
collateral as mortgage-backed securities.

The fund may invest up to 20% of its total assets in bonds of foreign issuers.
Foreign securities involve risks not typically associated with investing in
U.S. securities. These risks include but are not limited to: currency risks
(the risk that the value of interest paid on foreign securities, or the value
of the securities themselves, may fall if currency exchange rates change), the
risk that a security's value will be hurt by changes in foreign political or
social conditions, the possibility of heavy taxation, nationalization or
expropriation of assets and more difficulty obtaining information on foreign
securities or companies. In addition, a portfolio of foreign securities may be
harder to sell and may be subject to wider price movements than comparable
investments in U.S. companies. There is also less government regulation of
foreign securities markets.

In addition, political and economic structures in developing countries may be
undergoing rapid change and these countries may lack the social, political and
economic stability of more developed countries. As result some of the risks
described above, including the risks of nationalization or expropriation of
assets and the existence of smaller, more volatile and less regulated markets,
may be increased for investing in emerging market countires. The value of many
investments in emerging market countries recently has dropped significantly
due to economic and political turmoil in many of these countries.

On January 1, 1999, eleven European countries implemented a new currency unit
call the "Euro" which is expected to replace the existing national currencies
of these countries by July 1, 2002. Full implementation of the Euro may be
delayed and difficulties with the conversion may significantly impact European
capital markets, resulting in increased volatility in European and world capi-
tal markets. Individual issuers may suffer substantial losses if they or their
suppliers are not adequately prepared for the transition, which could hurt the
value of shares of the fund.
4
<PAGE>

Non-investment grade bonds carry greater risks than securities which have
higher credit ratings, including a high risk of default. The yields of non-
investment grade securities will move up and down over time. The credit rating
of a high yield security does not necessarily address its market value risk.
Ratings and market value may change from time to time, positively or negative-
ly, to reflect new developments regarding the issuer. These companies are often
young and growing and have a lot of debt. High yield bonds are considered spec-
ulative, meaning there is a significant risk that companies issuing these secu-
rities may not be able to repay principal and pay interest or dividends on
time. In addition, other creditors of a high yield issuer may have the right to
be paid before the high yield bond holder.

During an economic downturn, a period of rising interest rates or a recession,
issuers of high yield securities who have a lot of debt may experience finan-
cial problems. They may not have enough cash to make their principal and inter-
est payments. An economic downturn could also hurt the market for lower-rated
securities and the fund.

The market for high yield bonds is not as liquid as the markets for higher
rated securities. This mean that it may be harder to buy and sell high yield
bonds, especially on short notice. The market could also be hurt by legal or
tax changes.

Treasury obligations differ only in their interest rates, maturities and times
of issuance. Obligations of U.S. Government agencies and authorities are sup-
ported by varying degrees of credit. No assurance can be given that the U.S.
Government will provide financial support to its agencies and authorities if it
is not obligated by law to do so.

The fund's use of derivatives, interest rate and foreign currency transactions
may reduce the fund's returns and/or increase volatility. Volatility is defined
as the characteristic of a security or a market to fluctuate significantly in
price within a short period of time.

Leverage is a speculative technique which may expose the fund to greater risk
and increase its costs. Increases and decreases in the value of the fund's
portfolio will be magnified when the fund uses leverage. For example, leverage
may cause greater swings in the fund's net asset value. The fund will also have
to pay interest on its borrowings, reducing the fund's return. The interest
expense may be greater than the fund's return in the underlying investment.

Securities loans involve the risk of a delay in receiving additional collateral
from the borrower if the value of the securities goes up
while they are on loan. There is also the risk of delay in recover-
                                                                             5
<PAGE>

ing the loaned securities and of losing rights to the collateral if a borrower
goes bankrupt.

Higher than normal portfolio turnover may result in increased transaction
costs to the fund, including brokerage commissions, dealer mark-ups and other
transaction costs on the sale of the securities and on reinvestment in other
securities. The sale of fund securities may result in the recognition of capi-
tal gain or loss. Given the frequency of sales, such gain or loss will likely
be short-term capital gain or loss. Unlike long-term capital gain, short-term
capital gain of individuals is taxable at the same rate as ordinary income.
These effects of higher than normal portfolio turnover may adversely affect
fund performance.

When you invest in this fund you are not making a bank deposit. Your invest-
ment is not insured or guaranteed by the Federal Deposit Insurance Corporation
or by any bank or governmental agency.

Expenses and Fees


Expenses and Fees
As a shareholder you pay certain fees and expenses. Annual fund
operating expenses are paid out of fund assets.

The table below describes the fees and expenses that you may pay if you buy
and hold Service Shares of the fund.


Annual Fund Operating Expenses
(Expenses that are deducted from fund assets)

<TABLE>
<S>                                      <C>
Advisory fees                              %
Distribution and service (12b-1) fees      %
Other expenses/1/                          %
Total annual fund operating expenses       %
Fee waivers and expense reimbursements*    %
Net expenses*                              %
</TABLE>
 *  BlackRock has contractually agreed to waive or reimburse fees or expenses
    in order to limit fund expenses to . % of average daily net assets until
       , 2002. The fund may have to repay some of these waivers and reimburse-
    ments to BlackRock in the following two years. See the "Management" sec-
    tion on page    for a discussion of these waivers and reimbursements.
 /1/The fund is newly organized and, accordingly, "Other expenses" are based
   on estimated amounts for the current fiscal year..

Example:
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. We are assuming an initial
investment of $10,000, 5% total return each year with no changes in operating
expenses and redemption at the end of each time period. Although your actual
cost may be higher or lower, based on these assumptions your costs would be:

<TABLE>
<CAPTION>
                1 Year 3 Years

<S>             <C>    <C>
Service Shares    $       $
</TABLE>



 IMPORTANT DEFINITIONS


 Advisory Fees: Fees
 paid to the investment
 adviser for portfolio
 management services.

 Service Fees: Fees that
 are paid to BlackRock
 and /or its affiliates
 for shareholder account
 service and mainte-
 nance.

 Other Expenses: Include
 administration, trans-
 fer agency, custody,
 professional fees and
 registration fees.

6
<PAGE>

Fund Management

The fund is managed by a team of investment professionals at BlackRock Finan-
cial Management, Inc. (BFM), including the following individuals who have day-
to-day responsibility: Keith Anderson, Managing Director of BFM since 1988,
Scott Amero, Managing Director of BFM since 1990 and Rajiv Sobti, Managing
Director of BFM since March 1998. Prior to joining BFM, Rajiv Sobti was a Man-
aging Director and head of Quantitative Research with Donaldson Lufkin & Jen-
rette for 12 years. Keith Anderson, Scott Amero and Rajiv Sobti have been port-
folio co-managers since the fund's inception.

Past Performance of Institutional Accounts
The investment results shown below represent the gross historical performance
of certain institutional accounts managed by BFM and were calculated pursuant
to Association for Investment Management and Research (AIMR) guidelines. These
institutional accounts have substantially similar investment objectives, poli-
cies and strategies to those of the fund. Keith Anderson, Scott Amero and Rajiv
Sobti were the portfolio managers responsible for this performance. Keith
Anderson, Scott Amero and Rajiv Sobti continue to be primarily responsible for
the institutional accounts and intend to utilize a substantially similar
investment approach for the fund. The performance information is provided to
illustrate the past performance of BFM in managing substantially similar insti-
tutional accounts and does not represent the performance of the fund, which has
no history of operations. Investors should realize that this past performance
data is not an indication of future performance of the fund.


                                  [BAR CHART]


                                        Institutional  Lehman Brothers
                                           Accounts     Aggregate Index
                                           --------     ---------------

One Year 9/30/99-9/30/2000                   7.700%         6.990%
Two Years 9/30/1998-9/30/2000                4.210%         3.240%
Since Inception 3/31/1998-9/30/2000          5.870%         5.270%


[to be updated as of 12/31/2000]
                                                                             7
<PAGE>

The data represents accounts with assets as of December 31, 2000 of $    mil-
lion representing    % of total assets under management. The data includes all
accounts with substantially similar investment objectives, policies and strat-
egies to those of the fund.

The performance numbers above do not reflect the deductions for investment
advisory fees, transaction costs and other expenses. If such fees and expenses
were deducted, the performance of the institutional accounts would be less
than the performance shown. The performance results reflect dividend reinvest-
ment and are calculated on a settlement date basis through December 31, 2000.

The index used for comparison is the Lehman Brothers Aggregate Index, an
unmanaged index with no expenses, which is comprised of more than 5,000 tax-
able investment grade bonds rated by Moody's or Standard and Poor's.

The institutional accounts that are included in the data above are not subject
to the same types of expenses as the fund and are not subject to the same
diversification requirements, tax restrictions and other investment limita-
tions imposed on the fund by the Investment Company Act of 1940 or Subchapter
M of the Internal Revenue Code of 1986. The performance results of the insti-
tutional accounts could have been adversely affected if the institutional
accounts had been regulated as investment companies under the federal tax and
securities laws. In addition, differences in the Securities and Exchange Com-
mission and AIMR methodology for calculating performance could result in dif-
ference performance data for identical time periods.

8
<PAGE>

             About Your Investment
[GRAPHIC]

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

Buying Shares

Service Shares are offered without a sales charge to financial institutions
(such as banks and brokerage firms) acting on behalf of their customers, cer-
tain persons who were shareholders of the Compass Capital Group of Funds at the
time of its combination with The PNC(R) Fund in 1996 and investors that partic-
ipate in the Capital DirectionsSM asset allocation program. Service Shares will
normally be held by institutions or in the name of nominees of institutions on
behalf of their customers. Service Shares are normally purchased through a cus-
tomer's account at an institution through procedures established by the insti-
tution. In these cases, confirmation of share purchases and redemptions will be
sent to the institutions. A customer's ownership of shares will be recorded by
the institution and reflected in the account statements provided by the insti-
tutions to their customers. Investors wishing to purchase Service Shares should
contract their institutions.

Purchase orders may be placed through PFPC, the Company's transfer agent, by
calling (800) 441-7450.

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

What Price Per Share Will You Pay?

The price of mutual fund shares generally changes every business day. A mutual
fund is a pool of investors' money that is used to purchase a portfolio of
securities, which in turn is owned in common by the investors. Investors put
money into a mutual fund by buying shares. If a mutual fund has a portfolio
worth $50 million and has 5 million shares outstanding, the net asset value
(NAV) per share is $10.

The fund's investments are valued based on market value, or where market quota-
tions are not readily available, based on fair value as determined in good
faith by or under the direction of the Company's Board of Trustees. Under some
circumstances certain short-term debt securities will be valued using the amor-
tized cost method.







                                                                             9
<PAGE>


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


Since the NAV changes daily, the price of your shares depends on the time that
your order is received by the BlackRock Funds' transfer agent, whose job it is
to keep track of shareholder records.

Purchase orders received by the transfer agent before the close of regular
trading on the New York Stock Exchange (NYSE) (currently 4 p.m. (Eastern time))
on each day the NYSE is open will be priced based on the NAV calculated at the
close of trading on that day. NAV is calculated separately for each class of
shares of each fund at 4 p.m. (Eastern time) each day the NYSE is open. Shares
will not be priced on days the NYSE is closed. Purchase orders received after
the close of trading will be priced based on the next calculation of NAV. For-
eign securities and certain other securities held by a fund may trade on days
when the NYSE is closed. In these cases, net asset value of shares may change
when fund shares cannot be bought or sold.

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

Paying for Shares

Payment for Service Shares must normally be made in Federal funds or other funds
immediately available by 4 p.m. (Eastern time) on the first business day fol-
lowing PFPC's receipt of the order. Payment may also, at the discretion of the
Company, be made in the form of securities that are permissible investments for
the fund.

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

How Much is the Minimum Investment?

The minimum investment for the initial purchase of Service Shares is $5,000;
however, institutions may set a higher minimum for their customers. There is no
minimum requirement for later investments. The Company does not accept third
party checks as payment for shares.

The Company may reject any purchase order, modify or waive the minimum initial
or subsequent investment requirements and suspend and resume the sale of any
share class of the Company at any time.




10
<PAGE>


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

                                                                Distribution and
                                                                    Service Plan

The Company has adopted a plan under Rule 12b-1 of the Investment Company Act of
1940 (the Plan) that allows the Company to pay distribution fees for the sale
of its shares and shareholder servicing and processing fees for certain serv-
ices provided to its shareholders. The Company does not make distribution pay-
ments under the Plan with respect to Service Shares.

Under the Plan, the Company may enter into arrangements with brokers, dealers,
financial institutions and industry professionals (Service Organizations) (in-
cluding PNC Bank and its affiliates). Under these arrangements, Service Organi-
zations will provide certain support services to their customers who own Serv-
ice Shares. The Company may pay a shareholder servicing fee of up to .15% per
year of the average daily net asset value of Service Shares owned by each Serv-
ice Organization's customers. All Service Shares pay this shareholder servicing
fee.

In return for that fee, Service Organizations may provide one or more of the
following services to their customers who own Service Shares:

    (1) Responding to customer questions on the services performed by the
        Service Organization and investments in Service Shares;
    (2) Assisting customers in choosing and changing dividend options,
        account designations and addresses; and
    (3) Providing other similar shareholder liaison services.

For a separate shareholder processing fee paid by all Service Shares of up to
 .15% per year of the average daily net asset value of Service Shares owned by
each Service Organization's customers, Service Organizations may provide one or
more of these additional services:

    (1) Processing purchase and redemption requests from customers and plac-
        ing orders with the Company's transfer agent or the Company's dis-
        tributor;
    (2) Processing dividend payments from the Company on behalf of customers;
    (3) Providing sub-accounting for Service Shares beneficially owned by
        customers or the information necessary for sub-accounting; and
    (4) Providing other similar services.

                                                                             11
<PAGE>


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


The shareholder servicing fees and shareholder processing fees payable pursuant
to the Plan are fees payable for the administration and servicing of share-
holder accounts and not costs which are primarily intended to result in the
sale of the fund's shares.

Because the fees paid by the Company under the Plan are paid out of Company
assets on an on-going basis, over time these fees will increase the cost of
your investment and may cost you more than paying other types of sales charges.

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

Selling Shares

Customers of institutions may redeem Service Shares in accordance with the pro-
cedures applicable to their accounts with the institutions. These procedures
will vary according to the type of account and the institution involved and
customers should consult their account managers in this regard. Institutions
are responsible for transmitting redemption orders to PFPC and crediting their
customers' accounts with redemption proceeds on a timely basis. In the case of
shareholders holding share certificates the certificates must accompany the
redemption request.

Institutions may place redemption orders by telephoning PFPC at (800) 441-7450.
Shares are redeemed at their net asset value per share next determined after
PFPC's receipt of the redemption order. The fund, the administrators and the
distributor will employ reasonable procedures to confirm that instructions com-
municated by telephone are genuine. The fund and its service providers will not
be liable for any loss, liability, cost or expense for acting upon telephone
instructions that are reasonably believed to be genuine in accordance with such
procedures.

Payment for redeemed shares for which a redemption order is received by PFPC
before 4 p.m. (Eastern time) on a business day is normally made in Federal
funds wired to the redeeming institution on the next business day, provided
that the fund's custodian is also open for business. Payment for redemption
orders received after 4 p.m. (Eastern time) or on a day when the fund's custo-
dian is closed is normally wired in Federal funds on the next business day fol-
lowing redemption on which the fund's custodian is open for business. The fund
reserves the right to wire redemption proceeds within seven days after receiv-
ing a redemption order if, in the judgement of BlackRock Advisors, Inc., an
earlier payment could adversely affect the fund. No charge for wiring redemp-
tion payments is imposed by the Company, although institu


12
<PAGE>


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

tions may charge their customer accounts for redemption services. Information
relating to such redemption services and charges, if any, should be obtained by
customers from their institutions.

Persons who were shareholders of the Compass Capital Group of Funds at the time
of its combination with The PNC(R) Fund may redeem for cash some or all of
their shares of the fund at any time by sending a written redemption request in
proper form to BlackRock Funds, c/o PFPC Inc., P.O. Box 8950, Wilmington, DE
19899-8950. They may also redeem shares by telephone if they have signed up for
the expedited redemption privilege.

During periods of substantial economic or market change, telephone redemptions
may be difficult to complete. Redemption requests may also be mailed to PFPC at
P.O. Box 8950, Wilmington, DE 19899-8950.

The fund is not responsible for the efficiency of the Federal wire system or
the shareholder's firm or bank. The fund does not currently charge for wire
transfers. The shareholder is responsible for any charges imposed by the share-
holder's bank. To change the name of the single, designated bank account to
receive wire redemption proceeds, it is necessary to send a written request to
BlackRock Funds c/o PFPC, Box 8950, Wilmington, DE 19899-8950.

The Company may refuse a telephone redemption request if it believes it is
advisable to do so and may use reasonable procedures to make sure telephone
instructions are genuine. The Company may alter the terms of or terminate this
expedited redemption privilege at any time.

Persons who were shareholders of an investment portfolio of the Compass Capital
Group of Funds at the time of the portfolio combination with The PNC(R) Fund
may also purchase and redeem Service Shares of the same fund and for the same
account in which they held shares on that date through the procedures described
in this section.

If a shareholder acquiring Service Shares on or after May 1, 1998 (other than a
former shareholder of The Compass Capital Group) no longer meets the eligibil-
ity standards for purchasing Service Shares, then the shareholder's Service
Shares will be converted to Investor A Shares of the fund having the same total
net asset value as the shares converted. Investor A Shares are

                                                                              13


<PAGE>


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

currently authorized to bear additional service and distribution fees at the
total annual rate of .20% of average daily net assets. If a shareholder acquir-
ing Service Shares on or after May 1, 1998 later becomes eligible to purchase
Institutional Shares (other than due to changes in market value), then the
shareholder's Service Shares will be converted to Institutional Shares of the
fund having the same total net asset value as the shares converted.

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

The Company's
Rights

The Company may:


  . Suspend the right of redemption if trading is halted or restricted on the
    NYSE or under other emergency conditions described in the Investment Com-
    pany Act of 1940,
  . Postpone date of payment upon redemption if trading is halted or
    restricted on the NYSE or under other emergency conditions described in
    the Investment Company Act of 1940 or as described in the section "Sell-
    ing Shares" above,
  . Redeem shares involuntarily in certain cases, such as when the value of a
    shareholder account falls below a specified level, as described below,
    and
  . Redeem shares for property other than cash if conditions exist which make
    cash payments undesirable

in accordance with its rights under the Investment Company Act of 1940.

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

Accounts with Low
Balances

The Company may redeem a shareholder's account in the fund at any time the net
asset value of the account in the fund falls below $5,000 as the result of a
redemption or an exchange request. The shareholder will be notified in writing
that the value of the account is less than the required amount and the share-
holder will be allowed 30 days to make additional investments before the
redemption is processed. If a customer has agreed with an institution to main-
tain a minimum balance in his or her account, and the balance in the account
falls below the minimum, the customer may be obligated to redeem all or part of
his or her shares in the fund to the extent necessary to maintain the minimum
balance required.

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

Market Timing

The fund is not designed for market timing organizations or other entities using
programmed or frequent purchases or redemptions. The Company reserves the right
to reject any specific purchase order, including an order made by a market tim-
er.


14
<PAGE>


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


Important Notice Regarding Delivery of Shareholder Documents

The Securities and Exchange Commission permits mutual funds to deliver only one
copy of shareholder documents, including prospectuses and shareholder reports,
to fund investors with multiple accounts at the same residential or post office
box address. This practice is commonly called "householding" and is intended to
eliminate duplicate mailings of shareholder documents.

Mailings of your BlackRock Funds shareholder documents may be householded
indefinitely unless you instruct us otherwise.

                                                                              15
<PAGE>


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


Management

BlackRock Funds' Adviser is BlackRock Advisors, Inc. (BlackRock). BlackRock was
organized in 1994 to perform advisory services for investment companies and is
located at 345 Park Avenue, New York, NY 10154. BlackRock is a wholly-owned
subsidiary of BlackRock, Inc., one of the largest publicly traded investment
management firms in the United States with $190.8 billion of assets under man-
agement as of September 30, 2000. BlackRock, Inc. is a majority-owned indirect
subsidiary of The PNC Financial Services Group, Inc., one of the largest diver-
sified financial services companies in the United States. BlackRock Financial
Management, Inc. (BFM), an affiliate of BlackRock located at 345 Park Avenue,
New York, New York 10154, acts as sub-adviser to the fund.

For their investment advisory and sub-advisory services, BlackRock and BFM are
entitled to fees computed daily and payable monthly.

The total annual advisory fee that can be paid to BlackRock (as a percentage of
average daily net assets) is as follows:

Maximum Annual Contractual Fee Rate (Before Waivers)

<TABLE>
<CAPTION>
                           INVESTMENT
  AVG DAILY NET ASSETS     ADVISORY FEE
  <S>                      <C>
  First $1 billion           %
  $1 billion--$2 billion     %
  $2-billion--$3 billion     %
  greater than $3 billion    %
</TABLE>


As discussed above, BlackRock has agreed to cap the fund's net expense (exclud-
ing interest expense) at the levels shown in the expense table.

To achieve this cap, BlackRock and the Company have entered into an expense
limitation agreement. The agreement sets a limit on certain of the operating
expenses of the fund through       , 2002 and requires BlackRock to waive or
reimburse fees or expenses if these operating expenses exceed that limit. The
expense limit (which applies to expenses charged on fund assets as a whole, but
not expenses separately charged to the different share classes of the fund) as
a percentage of average daily net assets is   %.


 IMPORTANT DEFINITIONS


 Adviser: The Adviser of
 a mutual fund is
 responsible for the
 overall investment man-
 agement of the Fund.
 The Adviser for Black-
 Rock Funds is BlackRock
 Advisors, Inc.

 Sub-Adviser: The sub-
 adviser of a fund is
 responsible for its
 day-to-day management
 and will generally make
 all buy and sell deci-
 sions. Sub-advisers
 also provide research
 and credit analysis.
 The sub-adviser for the
 fund is BlackRock
 Financial Management,
 Inc.

16
<PAGE>


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


If within two years following a waiver or reimbursement, the operating expenses
of the fund are less than the expense limit for the fund, the fund is required
to repay BlackRock up to the amount of fees waived or expenses reimbursed under
the agreement if: (1) the fund has more than $50 million in assets, (2) Black-
Rock continues to be the fund's investment adviser and (3) the Board of Trust-
ees of the Company has approved in advance the payments to BlackRock at the
previous quarterly meeting of the Board.

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

Dividends and Distributions

Black Rock Funds makes two kinds of distributions to shareholders: dividends and
net capital gain.

Dividends are the net investment income derived by the fund and are paid within
10 days after the end of each month. The Company's Board of Trustees may change
the timing of dividend payments.

Net capital gain occurs when the fund manager sells securities at a profit. Net
capital gain (if any) is distributed to shareholders at least annually at a
date determined by the Company's Board of Trustees.

Your distributions will be reinvested at net asset value in new shares of the
same class of the fund unless you instruct PFPC in writing to pay them in cash.
There are no sales charges on these reinvestments.

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

Taxation of Distributions

Distributions paid out of the fund's "net capital gain" will be taxed to share-
holders as long-term capital gain, regardless of how long a shareholder has
owned shares. All other distributions other than exempt-interest dividends will
be taxed to shareholders as ordinary income.

Dividends paid with respect to interest on securities issued by the U.S. gov-
ernment and its agencies may be exempt from some types of state and local tax-
es.

Your annual tax statement from the Company will present in detail the tax sta-
tus of your distributions for each year.



                                                                             17
<PAGE>


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


If more than half of the total asset value of the fund is invested in foreign
securities, the fund may elect to "pass through" to its shareholders the amount
of foreign taxes paid. In such case, each shareholder would be required to
include his proportionate share of such taxes in his income and may be entitled
to deduct or credit such taxes when computing his taxable income.

Because every investor has an individual tax situation, and also because the
tax laws are subject to periodic changes, you should always consult your tax
professional about federal, state and local tax consequences of owning shares
of the Company.

18
<PAGE>


For More Information:
This prospectus contains important information you should know before you
invest. Read it carefully and keep it for future reference.
More information about the BlackRock Funds is available free, upon request,
including:

Annual/Semi-Annual Report
These reports contain additional information about the fund's investments. The
annual report describes the fund's performance, lists portfolio holdings, and
discusses recent market conditions, economic trends and fund investment
strategies that significantly affected the fund's performance for the last
fiscal year.

Statement of Additional Information (SAI)
A Statement of Additional Information, dated January __, 2001 has been filed
with the Securities and Exchange Commission (SEC). The SAI, which includes
additional information about the BlackRock Funds, may be obtained free of
charge, along with the Company's annual and semi-annual reports, by calling
(800) 441-7450. The SAI, as supplemented from time to time, is incorporated by
reference into this Prospectus.

Shareholder Account Service Representatives
Representatives are available to discuss account balance information, mutual
fund prospectuses, literature, programs and services available. Hours: 9 a.m. to
6 p.m. (Eastern time), Monday-Friday, Call: (800) 441-7450

Purchases and Redemptions
Call your registered representative or (800) 441-7450.

World Wide Web
Access general fund information and specific fund performance. Request mutual
fund prospectuses and literature. Forward mutual fund inquiries. Available 24
hours a day, 7 days a week. http://www.blackrock.com

E-Mail
Request prospectuses, SAI, Annual or Semi-Annual Reports and literature. Forward
mutual fund inquiries. Available 24 hours a day, 7 days a week. Mail to:
[email protected]

Written Correspondence
Post Office Address: BlackRock Funds c/o PFPC, Inc. PO Box 8950, Wilmington, DE
19899-8950 Street Address: BlackRock Funds, c/o PFPC, Inc. 400 Bellevue Parkway,
Wilmington, DE 19809

Internal Wholesalers/Broker Dealer Support
Available to support investment professionals 9 a.m. to 6 p.m. (Eastern time),
Monday-Friday, Call: (888) 8BLACKROCK

Securities and Exchange Commission (SEC)
You may also view and copy information about the BlackRock Funds, including the
SAI, by visiting the EDGAR database on the SEC Web site (http://www.sec.gov) or
the SEC's Public Reference Room in Washington, D.C. Information about the
operation of the public reference room can be obtained by calling the SEC
directly at 1-202-942-8090. Copies of this information can be obtained, for a
duplicating fee, by electronic request at the following E-mail address:
[email protected], or by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-0102.

INVESTMENT COMPANY ACT FILE NO. 811-05742


[GRAPHIC]

[LOGO]  BLACKROCK
            FUNDS

<PAGE>

[GRAPHIC]

----------------------------
NOT FDIC-  May lose value
INSURED    No bank guarantee
----------------------------


                        Core PLUS Total Return Portfolio

                              INSTITUTIONAL SHARES

               BlackRock Funds(SM)is a mutual fund family with 42

                            investment portfolios.



PROSPECTUS

January _, 2001


[LOGO OF BLACKROCK FUNDS]

The securities described in this prospectus have been registered with the
Securities and Exchange Commission (SEC). The SEC, however, has not judged these
securities for their investment merit and has not determined the accuracy or
adequacy of this prospectus. Anyone who tells you otherwise is committing a
criminal offense.
<PAGE>

Table of
Contents

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

How to find the information you need

How to find the information you need........................................   1
Core PLUS Total Return......................................................   2

About Your Investment

How to Buy/Sell Shares......................................................   9
Dividends/Distributions/Taxes...............................................  14
<PAGE>

How to Find the
Information You Need
About BlackRock Funds

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

This is the BlackRock Core PLUS Total Return Portfolio Prospectus. It has been
written to provide you with the information you need to make an informed deci-
sion about whether to invest in BlackRock Funds (the Company).

                                                                             1
<PAGE>

             BlackRock
[GRAPHIC]    Core PLUS Total Return
             Portfolio

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

Investment Goal
The fund seeks to realize a total return that exceeds that of the Lehman Broth-
ers Aggregate Index (the benchmark).

Primary Investment Strategies
In pursuit of this goal, the fund normally invests at least 80% of its total
assets in bonds. Additionally, under normal market conditions, the fund's aver-
age duration will be within (+/-)20% of the duration of the benchmark.

The fund invests primarily in dollar-denominated investment grade bonds, but
may invest up to 20% of its total assets in any combination of non-investment
grade bonds (high yield or junk bonds), bonds denominated in foreign currencies
and bonds of foreign (including emerging market) issuers.

The portfolio management team evaluates several categories of the bond market
and individual securities within these categories. The fund manager selects
bonds from several categories including: U.S. Treasuries and agency securities,
commercial and residential mortgage-backed securities, asset-backed securities
and corporate bonds. Securities are purchased for the fund when the manager
believes that they have the potential for above-average total return. The fund
measures its performance against the benchmark.

Non-investment grade bonds acquired by the fund will generally be in the lower
rating categories of the major rating agencies (BB or lower by Standard &
Poor's or Ba or lower by Moody's) or will be determined by the fund manager to
be of similar quality. Split rated bonds will be considered to have the higher
credit rating.

The fund manager may, when consistent with the fund's investment objective, use
options or futures (commonly known as derivatives). An option is the right to
buy or sell a security at a specific price on or before a specific date. A
future is an agreement to buy or sell a security at a specific price on a spe-
cific date. The primary purpose of using derivatives is to attempt to reduce
risk to the fund as a whole (hedge) but they may also be used to maintain
liquidity, commit cash pending investment or for speculation to increase
returns. The fund may also enter into interest rate or foreign currency trans-
actions as a hedging technique. In these

 IMPORTANT DEFINITIONS


 Asset-Backed Securi-
 ties: Bonds that are
 backed by a pool of
 assets, usually loans
 such as installment
 sale contracts or
 credit card receiv-
 ables.

 Bonds: Debt obligations
 such as bonds and
 debentures, U.S. Gov-
 ernment securities,
 debt obligations of
 domestic and foreign
 corporations, debt
 obligations of foreign
 governments and their
 political subdivisions,
 asset-backed securi-
 ties, various mort-
 gaged-backed securities
 (both residential and
 commercial), other
 floating or variable
 rate obligations,
 municipal obligations
 and zero coupon debt
 securities.

 Commercial Mortgage-
 Backed Securities
 (CMBS): Bonds that are
 backed by a mortgage
 loan or pools of loans
 secured by commercial
 property, not residen-
 tial mortgages.

 Duration: A mathemati-
 cal calculation of the
 average life of a bond
 (or bonds in a bond
 fund) that serves as a
 useful measure of its
 price risk. Each year
 of duration represents
 an expected 1% change
 in the price of a bond
 for every 1% change in
 interest rates. For
 example, if a bond fund
 has an average duration
 of four years, its
 price will fall about
 4% when interest rates
 rise by one percentage
 point. Conversely, the
 bond fund's price will
 rise about 4% when
 interest rates fall by
 one percentage point.
 Duration, which mea-
 sures price sensitivity
 to interest rate
 changes, is not neces-
 sarily equal to average
 maturity.
 High Yield Bond: Some-
 times referred to as
 "junk bonds" these are
 debt securities, which
 are rated less than
 investment grade (below
 the fourth highest rat-
 ing of the major rating
 agencies). These secu-
 rities generally pay
 more interest than
 higher rated securi-
 ties. The higher yield
 is an incentive to
 investors who otherwise
 may be hesitant to pur-
 chase the debt of such
 a low rated issuer.

 Investment Grade: Secu-
 rities which are rated
 in the four highest
 categories by at least
 one of the major rating
 agencies or determined
 by the fund manager to
 be of similar quality.
 Generally, the higher
 the rating of a bond,
 the higher the likeli-
 hood that interest and
 principal payments will
 be made on time.

2
<PAGE>

 IMPORTANT DEFINITIONS


 Lehman Brothers Aggre-
 gate Index: An unman-
 aged index comprised of
 more than 5,000 taxable
 bonds. This is an index
 of investment grade
 bonds; all securities
 included must be rated
 investment grade by
 Moody's or Standard &
 Poor's.

 Mortgage-Backed Securi-
 ties: Asset-backed
 securities based on a
 particular type of
 asset, a mortgage.
 There is a wide variety
 of mortgage backed
 securities involving
 commercial or residen-
 tial, fixed rate or
 adjustable rate mort-
 gages and mortgages
 issued by banks or gov-
 ernment agencies.

 Total Return: A way of
 measuring fund perfor-
 mance. Total return is
 based on a calculation
 that takes into account
 income dividends, capi-
 tal gain distributions
 and the increase or
 decrease in share
 price.
transactions, the fund exchanges its right to pay or receive interest or cur-
rencies with another party for their right to pay or receive interest or
another currency in the future.

The fund can borrow money to buy additional securities. The practice is known
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securities
and agrees to buy them back at a particular date and price). The fund normally
may borrow up to 33 1/3% of the value of its total assets.

The fund may lend some of its securities on a short-term basis in order to earn
income. The fund will receive collateral in cash or high quality securities
equal to the current value of the loaned securities. The fund earns interest on
the securities it lends and income when it invests the collateral for the
loaned securities. These loans will be limited to 33 1/3% of the value of the
fund's total assets.

The "total return" sought by the fund consists of income earned on the fund's
investments, plus capital appreciation, if any, which generally arises from
decreases in interest rates or improving credit fundamentals for a particular
sector or security.

The fund may engage in active and frequent trading of portfolio securities to
achieve its principal investment strategies.

Should the Company's Board of Trustees determine that the investment objective
of the fund should be changed, shareholders will be given at least 30 days
notice before any such change is made.

Key Risks

Key Risks
While the fund manager chooses bonds he believes can provide above average
total returns, there is no guarantee that shares of the fund will not lose val-
ue. This means you could lose money.

Two of the main risks of investing in the fund are interest rate risk and
credit risk. Typically, when interest rates rise, there is a corresponding
decline in the market value of bonds such as those held by the fund. Credit
risk refers to the possibility that the issuer of the bond will not be able to
make principal and interest payments.

The fund may make investments in residential and commercial mortgage-backed
securities and other asset-backed securities. The characteristics of these
mortgage-backed and asset-backed securities differ from traditional fixed
income securities.

A main difference is that the principal on mortgage- or asset-backed securities
may normally be prepaid at any time, which will reduce the yield and market
value of these securities. Asset-

                                                                             3
<PAGE>

backed securities and CMBS generally experience less prepayment than residen-
tial mortgage-backed securities. In periods of falling interest rates, the
rate of prepayments tends to increase (as does price fluctuation) as borrowers
are motivated to pay off debt and refinance at new lower rates. During such
periods, reinvestment of the prepayment proceeds by the manager will generally
be at lower rates of return than the return on the assets which were prepaid.
Certain commercial mortgage-backed securities are issued in several classes
with different levels of yield and credit protection. The fund's investments
in commercial mortgage-backed securities with several classes may be in the
lower classes that have less credit protection.

Certain asset-backed securities are based on loans that are unsecured, which
means that there is no collateral to seize if the underlying borrower
defaults. Other asset-based securities may not have the benefit of as much
collateral as mortgage-backed securities.

The fund may invest up to 20% of its total assets in bonds of foreign issuers.
Foreign securities involve risks not typically associated with investing in
U.S. securities. These risks include but are not limited to: currency risks
(the risk that the value of interest paid on foreign securities, or the value
of the securities themselves, may fall if currency exchange rates change), the
risk that a security's value will be hurt by changes in foreign political or
social conditions, the possibility of heavy taxation, nationalization or
expropriation of assets and more difficulty obtaining information on foreign
securities or companies. In addition, a portfolio of foreign securities may be
harder to sell and may be subject to wider price movements than comparable
investments in U.S.
companies. There is also less government regulation of foreign securities mar-
kets.

In addition, political and economic structures in developing countries may be
undergoing rapid change and these countries may lack the social, political and
economic stability of more developed countries. As result some of the risks
described above, including the risks of nationalization or expropriation of
assets and the existence of smaller, more volatile and less regulated markets,
may be increased. The value of many investments in emerging market countries
recently has dropped significantly due to economic and political turmoil in
many of these countries.

On January 1, 1999, eleven European countries implemented a new currency unit
call the "Euro" which is expected to replace the existing national currencies
of these countries by July 1, 2002. Full implementation of the Euro may be
delayed and difficulties with the conversion may significantly impact European
capital markets, resulting in increased volatility in European and world capi-
tal markets. Individual issuers may suffer substantial losses if they or their
suppliers are not adequately prepared for the transition, which could hurt the
value of shares of the fund.

4
<PAGE>

Non-investment grade bonds carry greater risks than securities which have
higher credit ratings, including a high risk of default. The yields of non-
investment grade securities will move up and down over time. The credit rating
of a high yield security does not necessarily address its market value risk.
Ratings and market value may change from time to time, positively or negative-
ly, to reflect new developments regarding the issuer. These companies are often
young and growing and have a lot of debt. High yield bonds are considered spec-
ulative, meaning there is a significant risk that companies issuing these secu-
rities may not be able to repay principal and pay interest or dividends on
time. In addition, other creditors of a high yield issuer may have the right to
be paid before the high yield bond holder.

During an economic downturn, a period of rising interest rates or a recession,
issuers of high yield securities who have a lot of debt may experience finan-
cial problems. They may not have enough cash to make their principal and inter-
est payments. An economic downturn could also hurt the market for lower-rated
securities and the fund.

The market for high yield bonds is not as liquid as the markets for higher
rated securities. This mean that it may be harder to buy and sell high yield
bonds, especially on short notice. The market could also be hurt by legal or
tax changes.

Treasury obligations differ only in their interest rates, maturities and times
of issuance. Obligations of U.S. Government agencies and authorities are sup-
ported by varying degrees of credit. No assurance can be given that the U.S.
Government will provide financial support to its agencies and authorities if it
is not obligated by law to do so.

The fund's use of derivatives, interest rate and foreign currency transactions
may reduce the fund's returns and/or increase volatility. Volatility is defined
as the characteristic of a security or a market to fluctuate significantly in
price within a short period of time.

Leverage is a speculative technique which may expose the fund to greater risk
and increase its costs. Increases and decreases in the value of the fund's
portfolio will be magnified when the fund uses leverage. For example, leverage
may cause greater swings in the fund's net asset value. The fund will also have
to pay interest on its borrowings, reducing the fund's return. This interest
expense may be greater than the fund's return on the underlying investment.

Securities loans involve the risk of a delay in receiving additional collateral
from the borrower if the value of the securities goes up

                                                                             5
<PAGE>

while they are on loan. There is also the risk of delay in recovering the
loaned securities and of losing rights to the collateral if a borrower goes
bankrupt.

Higher than normal portfolio turnover may result in increased transaction costs
to the fund, including brokerage commissions, dealer mark-ups and other trans-
action costs on the sale of the securities and on reinvestment in other securi-
ties. The sale of fund securities may result in the recognition of capital gain
or loss. Given the frequency of sales, such gain or loss will likely be short-
term capital gain or loss. Unlike long-term capital gain, short-term capital
gain of individuals is taxable at the same rates as ordinary income. These
effects of higher than normal portfolio turnover may adversely affect fund per-
formance.

When you invest in this fund you are not making a bank deposit. Your investment
is not insured or guaranteed by the Federal Deposit Insurance Corporation or by
any bank or governmental agency.

Expenses and Fees

Expenses and Fees
As a shareholder you pay certain fees and expenses. Shareholder transaction
fees are paid out of your investment and annual fund operating expenses are
paid out of fund assets.

The table below describes the fees and expenses that you may pay if you buy and
hold Institutional Shares of the fund.

IMPORTANT DEFINITIONS

Advisory Fees: Fees paid to the investment adviser for portfolio management
services.

Other Expenses: Include administration, transfer agency, custody, professional
fees and registration fees.


Annual Fund Operating Expenses
(Expenses that are deducted from fund assets)

<TABLE>
<S>                                      <C>
Advisory fees                              %
Other expenses/1/                          %
Total annual fund operating expenses       %
Fee waivers and expense reimbursements*    %
Net expenses*                              %
</TABLE>
  *  BlackRock has contractually agreed to waive or reimburse fees or expenses
     in order to limit fund expenses to  % of average daily net assets until
           , 2002. The fund may have to repay some of these waivers and reim-
     bursements to BlackRock in the following two years. See the "Management"
     section of page   for a discussion of these waivers and reimbursements.
  /1/ The fund is newly organized and, accordingly, "Other expenses" are based
      on estimated amounts for the current fiscal year.

Example:
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. We are assuming an initial
investment of $10,000, 5% total return each year with no changes in operating
expenses and redemption at the end of each time period. Although your actual
cost may be higher or lower, based on these assumptions your costs would be:

<TABLE>
<CAPTION>
                      1 Year 3 Years

<S>                   <C>    <C>
Institutional Shares     $     $
</TABLE>









6
<PAGE>

Fund Management
The fund is managed by a team of investment professionals at BlackRock Finan-
cial Management, Inc. (BFM), including the following individuals who have day-
to-day responsibility: Keith Anderson, Managing Director of BFM since 1988,
Scott Amero, Managing Director of BFM since 1990 and Rajiv Sobti, Managing
Director of BFM since March 1998. Prior to joining BFM, Rajiv Sobti was a Man-
aging Director and head of Quantitative Research with Donaldson Lufkin & Jen-
rette for 12 years. Keith Anderson, Scott Amero and Rajiv Sobti have been port-
folio co-managers since the fund's inception.

Past Performance of Institutional Accounts
The investment results shown below represent the gross historical performance
of certain institutional accounts managed by BFM and were calculated pursuant
to Association for Investment Management and Research (AIMR) guidelines. These
institutional accounts have substantially similar investment objectives, poli-
cies and strategies to those of the fund. Keith Anderson, Scott Amero and Rajiv
Sobti were the portfolio managers responsible for this performance. Keith
Anderson, Scott Amero and Rajiv Sobti continue to be primarily responsible for
the institutional accounts and intend to utilize a substantially similar
investment approach for the fund. The performance information is provided to
illustrate the past performance of BFM in managing substantially similar insti-
tutional accounts and does not represent the performance of the fund, which has
no history of operations. Investors should realize that this past performance
data is not an indication of future performance of the fund.



                                  [BAR CHART]


                                        Institutional  Lehman Brothers
                                           Accounts     Aggregate Index
                                           --------     ---------------

One Year 9/30/99-9/30/2000                   7.700%         6.990%
Two Years 9/30/1998-9/30/2000                4.210%         3.240%
Since Inception 3/31/1998-9/30/2000          5.870%         5.270%


[to be updated as of 12/31/2000]
                                                                             7
<PAGE>

The data represents accounts with assets as of December 31, 2000 of $    mil-
lion representing    % of total assets under management. The data includes all
accounts with substantially similar investment objectives, policies and strat-
egies to those of the fund. [The asset-weighted composite dispersion for 2000
was    %. Only institutional accounts that have been managed for the full year
are included in the dispersion calculation.]

The performance numbers above do not reflect the deductions for investment
advisory fees, transaction costs and other expenses. If such fees and expenses
were deducted, the performance of the institutional accounts would be less
than the performance shown. The performance results reflect dividend reinvest-
ment and are calculated on a settlement date basis through December 31, 2000.

The index used for comparison is the Lehman Brothers Aggregate Index, an
unmanaged index with no expenses, which is comprised of more than 5,000 tax-
able investment grade bonds rated by Moody's or Standard and Poor's.

The institutional accounts that are included in the data above are not subject
to the same types of expenses as the fund and are not subject to the same
diversification requirements, tax restrictions and other investment limita-
tions imposed on the fund by the Investment Company Act of 1940 or Subchapter
M of the Internal Revenue Code of 1986. The performance results of the insti-
tutional accounts could have been adversely affected if the institutional
accounts had been regulated as investment companies under the federal tax and
securities laws. In addition, differences in the Securities and Exchange Com-
mission and AIMR methodology for calculating performance could result in dif-
ference performance data for identical time periods.

8
<PAGE>

             About Your Investment
[GRAPHIC]

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

Buying Shares

Institutional Shares are offered to:

   .Institutional investors
   .Trust departments of PNC Bank and its affiliates on behalf of clients for
    whom the bank:
    .acts in a fiduciary capacity (excluding participant-directed employee
     benefit plans)
    .otherwise has investment discretion or
    .acts as custodian for at least $2 million in assets
   .Individuals with a minimum investment of $2 million

Purchase orders may be placed through PFPC, the Company's transfer agent, by
calling (800) 441-7450.

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

What Price Per Share Will You Pay?

The price of mutual fund shares generally changes every business day. A mutual
fund is a pool of investors' money that is used to purchase a portfolio of
securities, which in turn is owned in common by the investors. Investors put
money into a mutual fund by buying shares. If a mutual fund has a portfolio
worth $50 million and has 5 million shares outstanding, the net asset value
(NAV) per share is $10.

The fund's investments are valued based on market value, or where market quota-
tions are not readily available, based on fair value as determined in good
faith by or under the direction of the Company's Board of Trustees. Under some
circumstances certain short-term debt securities will be valued using the amor-
tized cost method.

Since the NAV changes daily, the price of your shares depends on the time that
your order is received by the BlackRock Funds' transfer agent, whose job it is
to keep track of shareholder records.

Purchase orders received by the transfer agent before the close of regular
trading on the New York Stock Exchange (NYSE) (currently 4 p.m. (Eastern time))
on each day the NYSE is open will be priced based on the NAV calculated at the
close of trading on that day. NAV is calculated separately for each class of
shares of each fund at 4 p.m. (Eastern time) each day the NYSE is open.

                                                                             9
<PAGE>


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

Shares will not be priced on days the NYSE is closed. Purchase orders received
after the close of trading will be priced based on the next calculation of NAV.
Foreign securities and certain other securities held by a fund may trade on
days when the NYSE is closed. In these cases, net asset value of shares may
change when fund shares cannot be bought or sold.

Certain financial institutions may buy and sell Institutional Shares on behalf
of their customers. The institutions may charge a fee for this service and may
impose additional conditions on owning fund shares. Shareholders should contact
their institutions for more information.

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

Paying for Shares

Payment for Institutional Shares must normally be made in Federal funds or other
funds immediately available by 4 p.m. (Eastern time) on the first business day
following PFPC's receipt of the order. Payment may also, at the discretion of
the Company, be made in the form of securities that are permissible investments
for the fund.

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

How Much is the Minimum Investment?

The minimum investment for the initial purchase of Institutional Shares is:

  . $5,000 for institutions
  . $500,000 for registered investment advisers
  . $2 million for individuals

There is no minimum requirement for later investments. The Company does not
accept third party checks as payment for shares.

The Company may reject any purchase order, modify or waive the minimum initial
or subsequent investment requirements and suspend and resume the sale of any
share class of the Company at any time.

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

Selling Shares

Shareholders may place redemption orders by telephoning PFPC at (800) 441-7450.
Shares are redeemed at their net asset value per share next determined after
PFPC's receipt of the redemption order. The fund, its administrators and dis-
tributor will employ reasonable procedures to confirm that instructions

10
<PAGE>


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

communicated by telephone are genuine. The fund and its service providers will
not be liable for any loss, liability, cost or expense for acting upon tele-
phone instructions that are reasonably believed to be genuine in accordance
with such procedures.

Payment for redeemed shares for which a redemption order is received by PFPC
before 4 p.m. (Eastern time) on a business day is normally made in Federal
funds wired to the redeeming shareholder on the next business day, provided
that the fund's custodian is also open for business. Payment for redemption
orders received after 4 p.m. (Eastern time) or on a day when the fund's custo-
dian is closed is normally wired in Federal funds on the next business day fol-
lowing redemption on which the fund's custodian is open for business. The fund
reserves the right to wire redemption proceeds within seven days after receiv-
ing a redemption order if, in the judgement of BlackRock Advisors, Inc., an
earlier payment could adversely affect the fund. No charge for wiring redemp-
tion payments is imposed by the Company.

During periods of substantial economic or market change, telephone redemptions
may be difficult to complete. Redemption requests may also be mailed to PFPC at
P.O. Box 8950, Wilmington, DE 19899-8950.

The Company may refuse a telephone redemption request if it believes it is
advisable to do so.

If a shareholder acquiring Institutional Shares on or after May 1, 1998 no
longer meets the eligibility standards for purchasing Institutional Shares as
described in "Buying Shares" above (other than due to changes in market value),
then the shareholder's Institutional Shares will be converted to shares of
another class of the fund having the same total net asset value as the shares
converted. If, at the time of conversion, an institution offering Service
Shares of the fund is acting on the shareholder's behalf, then the sharehold-
er's Institutional Shares will be converted to Service Shares. If not, then the
shareholder's Institutional Shares will be converted to Investor A Shares.
Service Shares are currently authorized to bear additional service and process-
ing fees at the total annual rate of .30% of average daily net assets, while
Investor A Shares are currently authorized to bear additional service, process-
ing and distribution fees at the total annual rate of .50% of average daily net
assets.

                                                                             11
<PAGE>


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

The Company's Rights

The Company may:
    . Suspend the right of redemption if trading is halted or restricted on
    the NYSE or under other emergency conditions described in the Investment
    Company Act of 1940,
    . Postpone date of payment upon redemption if trading is halted or
    restricted on the NYSE or under other emergency conditions described in
    the Investment Company Act of 1940 or as described in the section "Sell-
    ing Shares" above,
    . Redeem shares involuntarily in certain cases, such as when the value of
    a shareholder account falls below a specified level, as described below,
    and
    . Redeem shares for property other than cash if conditions exist which
    make cash payments undesirable

in accordance with its rights under the Investment Company Act of 1940.

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

Accounts with Low Balances

The Company may redeem a shareholder's account in the fund at any time the net
asset value of the account in the fund falls below $5,000 as the result of a
redemption. The shareholder will be notified in writing that the value of the
account is less than the required amount and the shareholder will be allowed 30
days to make additional investments before the redemption is processed.

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

Market Timing

The fund is not designed for market timing organizations or other entities using
programmed or frequent purchases or redemptions. The Company reserves the right
to reject any specific purchase order, including an order made by a market tim-
er.

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

Important Notice Regarding Delivery of Shareholder Documents

The Securities and Exchange Commission permits mutual funds to deliver only one
copy of shareholder documents, including prospectuses and shareholder reports,
to fund investors with multiple accounts at the same residential or post office
box address. This practice is commonly called "householding" and is intended to
eliminate duplicate mailings of shareholder documents.

12
<PAGE>


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

    Mailings of your BlackRock Funds shareholder documents may be householded
    indefinitely unless you instruct us otherwise.

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

Management

BlackRock Funds' Adviser is BlackRock Advisors, Inc. (BlackRock). BlackRock was
organized in 1994 to perform advisory services for investment companies and is
located at 345 Park Avenue, New York, NY 10154. BlackRock is a wholly-owned
subsidiary of BlackRock, Inc., one of the largest publicly traded investment
management firms in the United States with $190.8 billion of assets under man-
agement as of September 30, 2000. BlackRock, Inc. is a majority-owned indirect
subsidiary of The PNC Financial Services Group, Inc., one of the largest diver-
sified financial services companies in the United States. BlackRock Financial
Management, Inc. (BFM), an affiliate of BlackRock located at 345 Park Avenue,
New York, New York 10154, acts as sub-adviser to the fund.

For their investment advisory and sub-advisory services, BlackRock and BFM are
entitled to fees computed daily and payable monthly.

The total annual advisory fee that can be paid to BlackRock (as a percentage of
average daily net assets) is as follows:

Maximum Annual Contractual Fee Rate (Before Waivers)

<TABLE>
<CAPTION>
                           INVESTMENT
                           ADVISORY
  AVG DAILY NET ASSETS     FEE
  <S>                      <C>
  First $1 billion         %
  $1 billion-$2 billion    %
  $2-billion-$3 billion    %
  greater than $3 billion  %
</TABLE>

As discussed above, BlackRock has agreed to cap the fund's net expenses (ex-
cluding interest expense) at the levels shown in the expense table.

To achieve this cap, BlackRock and the Company have entered into an expense
limitation agreement. The agreement sets a limit on certain of the operating
expenses of the fund through      , 2002 and requires BlackRock to waive or
reimburse


 IMPORTANT DEFINITIONS


 Adviser: The Adviser of a mutual fund is responsible for the overall
 investment management of the Fund. The Adviser for BlackRock Funds is
 BlackRock Advisors, Inc.

 Sub-Adviser: The sub-adviser of a fund is responsible for its day-to-day
 management and will generally make all buy and sell decisions. Sub-advisers
 also provide research and credit analysis. The sub-adviser for the fund is
 BlackRock Financial Management, Inc.


                                                                             13
<PAGE>


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

fees or expenses if these operating expenses exceed that limit. The expense
limit (which applies to expenses charged on fund assets as a whole, but not
expenses separately charged to the different share classes of the fund)
is    %.

If within two years following a waiver or reimbursement, the operating expenses
of the fund are less than the expense limit for the fund, the fund is required
to repay BlackRock up to the amount of fees waived or expenses reimbursed under
the agreement if: (1) the fund has more than $50 million in assets, (2) Black-
Rock continues to be the fund's investment adviser and (3) the Board of Trust-
ees of the Company has approved in advance the payments to BlackRock at the
previous quarterly meeting of the Board.

Dividends and Distributions

BlackRock Funds makes two kinds of distributions to shareholders: dividends and
net capital gain.

Dividends are the net investment income derived by the fund and are paid within
10 days after the end of each month. The Company's Board of Trustees may change
the timing of dividend payments.

Net capital gain occurs when the fund manager sells securities at a profit. Net
capital gain (if any) is distributed to shareholders at least annually at a
date determined by the Company's Board of Trustees.

Your distributions will be reinvested at net asset value in new shares of the
same class of the fund unless you instruct PFPC in writing to pay them in cash.
There are no sales charges on these reinvestments.

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

Taxation of Distributions

Distributions paid out of the fund's "net capital gain" will be taxed to share-
holders as long-term capital gain, regardless of how long a shareholder has
owned shares. All other distributions other than exempt-interest dividends will
be taxed to shareholders as ordinary income.

Dividends paid with respect to interest on securities issued by the U.S. gov-
ernment and its agencies may also be exempt from some types of state and local
taxes.

14
<PAGE>


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

Your annual tax statement from the Company will present in detail the tax sta-
tus of your distributions for each year.

If more than half of the total asset value of the fund is invested in foreign
securities, the fund may elect to "pass through" to its shareholders the amount
of foreign taxes paid. In such case, each shareholder would be required to
include his proportionate share of such taxes in his income and may be entitled
to deduct or credit such taxes when computing his taxable income.

Because every investor has an individual tax situation, and also because the
tax laws are subject to periodic changes, you should always consult your tax
professional about federal, state and local tax consequences of owning shares
of the Company.

                                                                             15
<PAGE>

For More Information:
This prospectus contains important information you should know before you
invest. Read it carefully and keep it for future reference.
More information about the BlackRock Funds is available free, upon request,
including:

Annual/Semi-Annual Report
These reports contain additional information about the funds investments. The
annual report describes the funds performance, lists portfolio holdings, and
discusses recent market conditions, economic trends and fund investment
strategies that significantly affected the funds performance for the last
fiscal year.

Statement of Additional Information (SAI)
A Statement of Additional Information, dated January _, 2001 has been filed with
the Securities and Exchange Commission (SEC). The SAI, which includes additional
information about the BlackRock Funds, may be obtained free of charge, along
with the Companys annual and semi-annual reports, by calling (800) 441-7450.
The SAI, as supplemented from time to time, is incorporated by reference into
this Prospectus.

Shareholder Account Service Representatives
Representatives are available to discuss account balance information, mutual
fund prospectuses, literature, programs and services available. Hours: 9 a.m. to
6 p.m. (Eastern time), Monday-Friday.
Call: (800) 441-7450

Purchases and Redemptions
Call your registered representative or (800) 441-7450.

World Wide Web
Access general fund information and specific fund performance. Request mutual
fund prospectuses and literature. Forward mutual fund inquiries. Available 24
hours a day, 7 days a week. http://www.blackrock.com

E-Mail
Request prospectuses, SAI, Annual or Semi-Annual Reports and literature. Forward
mutual fund inquiries. Available 24 hours a day, 7 days a week. Mail to:
[email protected]

Written Correspondence
Post Office Address: BlackRock Funds c/o PFPC, Inc. PO Box 8950, Wilmington, DE
19899-8950
Street Address: BlackRock Funds, c/o PFPC, Inc. 400 Bellevue Parkway,
Wilmington, DE 19809

Internal Wholesalers/Broker Dealer Support
Available to support investment professionals 9 a.m. to 6 p.m. (Eastern time),
Monday-Friday. Call: (888) 8BLACKROCK

Securities and Exchange Commission (SEC)
You may also view and copy information about the BlackRock Funds, including the
SAI, by visiting the EDGAR database on the SEC Web site (http://www.sec.gov) or
the SEC's Public Reference Room in Washington, D.C. Information about the
operation of the public reference room can be obtained by calling the SEC
directly at 1-202-942-8090. Copies of this information can be obtained, for a
duplicating fee, by electronic request at the following E-mail address:
[email protected], or by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-0102.

INVESTMENT COMPANY ACT FILE NO. 811-05742

                                                                       [GRAPHIC]

                                                       [LOGO OF BLACKROCK FUNDS]
<PAGE>

[GRAPHIC]


----------------------------
NOT FDIC-  May lose value
INSURED    No bank guarantee
----------------------------



                        Core PLUS Total Return Portfolio

                                BLACKROCK SHARES

    BlackRock Funds(SM)is a mutual fund family with 42 investment portfolios.




PROSPECTUS

January _, 2001


[LOGO OF BLACKROCK FUNDS]

The securities described in this prospectus have been registered with the
Securities and Exchange Commission (SEC). The SEC, however, has not judged these
securities for their investment merit and has not determined the accuracy or
adequacy of this prospectus. Anyone who tells you otherwise is committing a
criminal offense.
<PAGE>




Table of
Contents

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<S>                                                                          <C>
How to find the information you need........................................   1
Core PLUS Total Return Bond.................................................   2

About Your Investment

How to Buy/Sell Shares......................................................   9
Dividends/Distributions/Taxes...............................................  14
</TABLE>
<PAGE>

How to Find the
Information You Need
About BlackRock Funds

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


This is the BlackRock Core PLUS Total Return Portfolio Prospectus. It has been
written to provide you with the information you need to make an informed deci-
sion about whether to invest in BlackRock Funds (the Company).

                                                                             1
<PAGE>

             BlackRock
[GRAPHIC]    Core PLUS Total Return
             Portfolio

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

Investment Goal
The fund seeks to realize a total return that exceeds that of the Lehman Broth-
ers Aggregate Index (the benchmark).

Primary Investment Strategies
In pursuit of this goal, the fund normally invests at least 80% of its total
assets in bonds. Additionally, under normal market conditions, the fund's aver-
age duration will be within (+/-)20% of the duration of the benchmark.

The fund invests primarily in dollar denominated investment grade bonds, but
may invest up to 20% of its total assets in any combination of non-investment
grade bonds (high yield or junk bonds), bonds denominated in foreign currencies
and bonds of foreign (including emerging market) issuers.

The management team evaluates several categories of the bond market and indi-
vidual securities within these categories. The fund manager selects bonds from
several categories including: U.S. Treasuries and agency securities, commercial
and residential mortgage-backed securities, asset-backed securities and corpo-
rate bonds. Securities are purchased for the fund when the manager believes
that they have the potential for above-average total return. The fund measures
its performance against the benchmark.

Non-investment grade bonds acquired by the fund will generally be in the lower
rating categories of the major rating agencies (BB or lower by Standard &
Poor's or Ba or lower by Moody's) or will be determined by the fund manager to
be of similar quality. Split rated bonds will be considered to have the higher
credit rating.

The fund manager may, when consistent with the fund's investment objective, use
options or futures (commonly known as derivatives). An option is the right to
buy or sell a security at a specific price on or before a specific date. A
future is an agreement to buy or sell a security at a specific price on a spe-
cific date. The primary purpose of using derivatives is to attempt to reduce
risk to the fund as a whole (hedge) but they may also be used to maintain
liquidity, commit cash pending investment or for speculation to increase
returns. The fund may also enter into interest rate or foreign currency trans-
actions as a hedging technique. In these

 IMPORTANT DEFINITIONS


 Asset-Backed Securi-
 ties: Bonds that are
 backed by a pool of
 assets, usually loans
 such as installment
 sale contracts or
 credit card receiv-
 ables.

 Bonds: Debt obligations
 such as bonds and
 debentures, U.S. Gov-
 ernment securities,
 debt obligations of
 domestic and foreign
 corporations, debt
 obligations of foreign
 governments and their
 political subdivisions,
 asset-backed securi-
 ties, various mortgage-
 backed securities (both
 residential and commer-
 cial), other floating
 or variable rate obli-
 gations, municipal
 obligations and zero
 coupon debt securities.

 Commercial Mortgage-
 Backed Securities
 (CMBS): Bonds that are
 backed by a mortgage
 loan or pools of loans
 secured by commercial
 property, not residen-
 tial mortgages.

 Duration: A mathemati-
 cal calculation of the
 average life of a bond
 (or bonds in a bond
 fund) that serves as a
 useful measure of its
 price risk. Each year
 of duration represents
 an expected 1% change
 in the price of a bond
 for every 1% change in
 interest rates. For
 example, if a bond fund
 has an average duration
 of four years, its
 price will fall about
 4% when interest rates
 rise by one percentage
 point. Conversely, the
 bond fund's price will
 rise about 4% when
 interest rates fall by
 one percentage point.
 Duration, which mea-
 sures price sensitivity
 to interest rate
 changes, is not neces-
 sarily equal to average
 maturity.

 High Yield Bond: Some-
 times referred to as
 "junk bonds" these are
 debt securities, which
 are rated less than
 investment grade (below
 the fourth highest rat-
 ing of the major rating
 agencies). These secu-
 rities generally pay
 more interest than
 higher rated securi-
 ties. The higher yield
 is an incentive to
 investors who otherwise
 may be hesitant to pur-
 chase the debt of such
 a low rated issuer.

 Investment Grade: Secu-
 rities which are rated
 in the four highest
 categories by at least
 one of the major rating
 agencies or determined
 by the fund manager to
 be of similar quality.
 Generally, the higher
 the rating of a bond,
 the higher the likeli-
 hood that interest and
 principal payments will
 be made on time.

2
<PAGE>

transactions, the fund exchanges its right to pay or receive interest or cur-
rencies with another party for their right to pay or receive interest or
another currency in the future.

The fund can borrow money to buy additional securities. This practice is known
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securities
and agrees to buy them back at a particular date and price). The fund normally
may borrow up to 33 1/3% of the value of its total assets.

The fund may lend some of its securities on a short-term basis in order to earn
income. The fund will receive collateral in cash or high quality securities
equal to the current value of the loaned securities. The fund earns interest on
the securities it lends and income when it invests the collateral for the
loaned securities. These loans will be limited to 33 1/3% of the value of the
fund's total assets.

The "total return" sought by the fund consists of income earned on the fund's
investments, plus capital appreciation, if any, which generally arises from
decreases in interest rates or improving credit fundamentals for a particular
sector or security.

The fund may engage in active and frequent trading of portfolio securities to
achieve its principal investment strategies.

Should the Company's Board of Trustees determine that the investment objective
of the fund should be changed, shareholders will be given at least 30 days
notice before any such change is made.

Key Risks

Key Risks
While the fund manager chooses bonds he believes can provide above average
total returns, there is no guarantee that shares of the fund will not lose val-
ue. This means you could lose money.

Two of the main risks of investing in the fund are interest rate risk and
credit risk. Typically, when interest rates rise, there is a corresponding
decline in the market value of bonds such as those held by the fund. Credit
risk refers to the possibility that the issuer of the bond will not be able to
make principal and interest payments.

The fund may make investments in residential and commercial mortgage-backed
securities and other asset-backed securities. The characteristics of these
mortgage-backed and asset-backed securities differ from traditional fixed
income securities.

A main difference is that the principal on mortgage- or asset-backed securities
may normally be prepaid at any time, which will reduce the yield and market
value of these securities. Asset-

 IMPORTANT DEFINITIONS


 Lehman Brothers Aggre-
 gate Index: An unman-
 aged index comprised of
 more than 5,000 taxable
 bonds. This is an index
 of investment grade
 bonds; all securities
 included must be rated
 investment grade by
 Moody's or Standard &
 Poor's.

 Mortgage-Backed Securi-
 ties: Asset-backed
 securities based on a
 particular type of
 asset, a mortgage.
 There is a wide variety
 of mortgage backed
 securities involving
 commercial or residen-
 tial, fixed rate or
 adjustable rate mort-
 gages and mortgages
 issued by banks or gov-
 ernment agencies.

 Total Return: A way of
 measuring fund perfor-
 mance. Total return is
 based on a calculation
 that takes into account
 income dividends, capi-
 tal gain distributions
 and the increase or
 decrease in share
 price.




                                                                             3
<PAGE>

backed securities and CMBS generally experience less prepayment than residen-
tial mortgage-backed securities. In periods of falling interest rates, the
rate of prepayments tends to increase (as does price fluctuation) as borrowers
are motivated to pay off debt and refinance at new lower rates. During such
periods, reinvestment of the prepayment proceeds by the manager will generally
be at lower rates of return than the return on the assets which were prepaid.
Certain commercial mortgage-backed securities are issued in several classes
with different levels of yield and credit protection. The fund's investments
in commercial mortgage-backed securities with several classes may be in the
lower classes that have less credit protection.

Certain asset-backed securities are based on loans that are unsecured, which
means that there is no collateral to seize if the underlying borrower
defaults. Other asset-based securities may not have the benefit of as much
collateral as mortgage-backed securities.

The fund may invest up to 20% of its total assets in bonds of foreign issuers.
Foreign securities involve risks not typically associated with investing in
U.S. securities. These risks include but are not limited to: currency risks
(the risk that the value of interest paid on foreign securities, or the value
of the securities themselves, may fall if currency exchange rates change), the
risk that a security's value will be hurt by changes in foreign political or
social conditions, the possibility of heavy taxation, nationaliza-
tion or expropriation of assets and more difficulty obtaining information on
foreign securities or companies. In addition, a portfolio of foreign securi-
ties may be harder to sell and may be subject to wider price movements than
comparable investments in U.S. companies. There is also less government regu-
lation of foreign securities markets.

In addition, political and economic structures in developing countries may be
undergoing rapid change and these countries may lack the social, political and
economic stability of more developed countries. As result some of the risks
described above, including the risks of nationalization or expropriation of
assets and the existence of smaller, more volatile and less regulated markets,
may be increased. The value of many investments in emerging market countries
recently has dropped significantly due to economic and political turmoil in
many of these countries.

On January 1, 1999, eleven European countries implemented a new currency unit
call the "Euro" which is expected to replace the existing national currencies
of these countries by July 1, 2002. Full implementation of the Euro may be
delayed and difficulties with the conversion may significantly impact European
capital markets, resulting in increased volatility in European and world capi-
tal markets. Individual issuers may suffer substantial
4
<PAGE>

losses if they or their suppliers are not adequately prepared for the transi-
tion, which could hurt the value of shares of the fund.

Non-investment grade bonds carry greater risks than securities which have
higher credit ratings, including a high risk of default. The yields of non-
investment grade securities will move up and down over time. The credit rating
of a high yield security does not necessarily address its market value risk.
Ratings and market value may change from time to time, positively or negative-
ly, to reflect new developments regarding the issuer. These companies are often
young and growing and have a lot of debt. High yield bonds are considered spec-
ulative, meaning there is a significant risk that companies issuing these secu-
rities may not be able to repay principal and pay interest or dividends on
time. In addition, other creditors of a high yield issuer may have the right to
be paid before the high yield bond holder.

During an economic downturn, a period of rising interest rates or a recession,
issuers of high yield securities who have a lot of debt may experience finan-
cial problems. They may not have enough cash to make their principal and inter-
est payments. An economic downturn could also hurt the market for lower-rated
securities and the fund.

The market for high yield bonds is not as liquid as the markets for higher
rated securities. This mean that it may be harder to buy and sell high yield
bonds, especially on short notice. The market could also be hurt by legal or
tax changes.

Treasury obligations differ only in their interest rates, maturities and times
of issuance. Obligations of U.S. Government agencies and authorities are sup-
ported by varying degrees of credit. No assurance can be given that the U.S.
Government will provide financial support to its agencies and authorities if it
is not obligated by law to do so.

The fund's use of derivatives, interest rate and foreign currency transactions
may reduce the fund's returns and/or increase volatility. Volatility is defined
as the characteristic of a security or a market to fluctuate significantly in
price within a short period of time.

Leverage is a speculative technique which may expose the fund to greater risk
and increase its costs. Increases and decreases in the value of the fund's
portfolio will be magnified when the fund uses leverage. For example, leverage
may cause greater swings in the fund's net asset value. The fund will also have
to pay interest on its borrowings, reducing the fund's return. This interest
expense may be greater than the fund's return on the underlying investment.

Securities loans involve the risk of a delay in receiving additional collateral
from the borrower if the value of the securities goes up
                                                                             5
<PAGE>

while they are on loan. There is also the risk of delay in recovering the
loaned securities and of losing rights to the collateral if a borrower goes
bankrupt.

Higher than normal portfolio turnover may result in increased transaction
costs to the fund, including brokerage commissions, dealer mark-ups and other
transaction costs on the sale of the securities and on reinvestment in other
securities. The sale of fund securities may result in the recognition of capi-
tal gain or loss. Given the frequency of sales, such gain or loss will likely
be short-term capital gain or loss. Unlike long-term capital gain, short-term
capital gain of individuals is taxable at the same rates as ordinary income.
These effects of higher than normal portfolio turnover may adversely affect
fund performance.

When you invest in this fund you are not making a bank deposit. Your invest-
ment is not insured or guaranteed by the Federal Deposit Insurance Corporation
or by any bank or governmental agency.

Expenses and Fees
As a shareholder you pay certain fees and expenses. Shareholder transaction
fees are paid out of your investment and annual fund operating expenses are
paid out of fund assets.

The table below describes the fees and expenses that you may pay if you buy
and hold BlackRock Shares of the fund.

Annual Fund Operating Expenses
(Expenses that are deducted from fund assets)

<TABLE>
<S>                                       <C>
Advisory Fees                               %
Other expenses/1/                           %
Total annual fund operating expenses        %
Fee waivers and expense  reimbursements*    %
Net Expenses*                               %
</TABLE>
 *  BlackRock has contractually agreed to waive or reimburse fees or expenses
    in order to limit fund expenses to  % of average daily net assets until
        , 2002. The fund may have to repay some of these waivers and reim-
    bursements to BlackRock in the following two years. See the "Management"
    section on page   for a discussion of these waivers and reimbursements.
 /1/The fund is newly organized and, accordingly, "Other expenses" are based
   on estimated amounts for the current fiscal year.

Example:
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. We are assuming an initial
investment of $10,000, 5% total return each year with no changes in operating
expenses and redemption at the end of each time period. Although your actual
cost may be higher or lower, based on these assumptions your costs would be:

<TABLE>
<CAPTION>
                  1 Year 3 Years

<S>               <C>    <C>
BlackRock Shares   $       $
</TABLE>

 IMPORTANT DEFINITIONS

 Advisory Fees: Fees
 paid to the investment
 adviser for portfolio
 management services.

 Other Expenses: Include
 administration, trans-
 fer agency, custody,
 professional fees and
 registration fees.

6
<PAGE>

Fund Management
The fund is managed by a team of investment professionals at BlackRock Finan-
cial Management, Inc. (BFM), including the following individuals who have day-
to-day responsibility: Keith Anderson, Managing Director of BFM since 1988,
Scott Amero, Managing Director of BFM since 1990 and Rajiv Sobti, Managing
Director of BFM since March 1998. Prior to joining BFM, Rajiv Sobti was a Man-
aging Director and head of Quantitative Research with Donaldson Lufkin & Jen-
rette for 12 years. Keith Anderson, Scott Amero and Rajiv Sobti have been port-
folio co-managers since the fund's inception.

Past Performance of Institutional Accounts
The investment results shown below represent the gross historical performance
of certain institutional accounts managed by BFM and were calculated pursuant
to Association for Investment Management and Research (AIMR) guidelines. These
institutional accounts have substantially similar investment objectives, poli-
cies and strategies to those of the fund. Keith Anderson, Scott Amero and Rajiv
Sobti were the portfolio managers responsible for this performance. Keith
Anderson, Scott Amero and Rajiv Sobti continue to be primarily responsible for
the institutional accounts and intend to utilize a substantially similar
investment approach for the fund. The performance information is provided to
illustrate the past performance of BFM in managing substantially similar insti-
tutional accounts and does not represent the performance of the fund, which has
no history of operations. Investors should realize that this past performance
data is not an indication of future performance of the fund.







                                  [BAR CHART]


                                        Institutional  Lehman Brothers
                                           Accounts     Aggregate Index
                                           --------     ---------------

One Year 9/30/99-9/30/2000                   7.700%         6.990%
Two Years 9/30/1998-9/30/2000                4.210%         3.240%
Since Inception 3/31/1998-9/30/2000          5.870%         5.270%

[to be updated as of 12/31/2000]
                                                                             7
<PAGE>

The data represents accounts with assets as of December 31, 2000 of $    mil-
lion representing    % of total assets under management. The data includes all
accounts with substantially similar investment objectives, policies and strat-
egies to those of the fund.

The performance numbers above do not reflect the deductions for investment
advisory fees, transaction costs and other expenses. If such fees and expenses
were deducted, the performance of the institutional accounts would be less
than the performance shown. The performance results reflect dividend reinvest-
ment and are calculated on a settlement date basis through December 31, 2000.

The index used for comparison is the Lehman Brothers Aggregate Index, an
unmanaged index with no expenses, which is comprised of more than 5,000 tax-
able investment grade bonds rated by Moody's or Standard and Poor's.

The institutional accounts that are included in the data above are not subject
to the same types of expenses as the fund and are not subject to the same
diversification requirements, tax restrictions and other investment limita-
tions imposed on the fund by the Investment Company Act of 1940 or Subchapter
M of the Internal Revenue Code of 1986. The performance results of the insti-
tutional accounts could have been adversely affected if the institutional
accounts had been regulated as investment companies under the federal tax and
securities laws. In addition, differences in the Securities and Exchange Com-
mission and AIMR methodology for calculating performance could result in dif-
ference performance data for identical time periods.
8
<PAGE>

             About Your Investment
[GRAPHIC]

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


Buying Shares

BlackRock Shares are offered without a sales charge to institutional investors
with a minimum investment of $5,000,000.

Purchase orders may be placed through PFPC, the Company's transfer agent, by
calling (800) 441-7450.

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

What Price Per Share Will You Pay?

The price of mutual fund shares generally changes every business day. A mutual
fund is a pool of investors' money that is used to purchase a portfolio of
securities, which in turn is owned in common by the investors. Investors put
money into a mutual fund by buying shares. If a mutual fund has a portfolio
worth $50 million and has 5 million shares outstanding, the net asset value
(NAV) per share is $10.

The fund's investments are valued based on market value, or where market quota-
tions are not readily available, based on fair value as determined in good
faith by or under the direction of the Company's Board of Trustees. Under some
circumstances certain short-term debt securities will be valued using the amor-
tized cost method.

Since the NAV changes daily, the price of your shares depends on the time that
your order is received by the BlackRock Funds' transfer agent, whose job it is
to keep track of shareholder records.

Purchase orders received by the transfer agent before the close of regular
trading on the New York Stock Exchange (NYSE) (currently 4 p.m. (Eastern time))
on each day the NYSE is open will be priced based on the NAV calculated at the
close of trading on that day. NAV is calculated separately for each class of
shares of each fund at 4 p.m. (Eastern time) each day the NYSE is open. Shares
will not be priced on days the NYSE is closed. Purchase orders received after
the close of trading will be priced based on the next calculation of NAV. For-
eign securities and certain other securities held by a fund may trade on days
when the NYSE is closed. In these cases, net asset value of shares may change
when fund shares cannot be bought or sold.



                                                                             9
<PAGE>


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


Paying for Shares

Payment for BlackRock Shares must normally be made in Federal funds or other
funds immediately available by 4 p.m. (Eastern time) on the first business day
following PFPC's receipt of the order. Payment may also, at the discretion of
the Company, be made in the form of securities that are permissible investments
for the respective fund.


How Much is the Minimum Investment?

The minimum investment for the initial purchase of BlackRock Shares is
$5,000,000. There is no minimum requirement for later investments. The Company
does not accept third party checks as payment for shares.

The Company may reject any purchase order, modify or waive the minimum initial
or subsequent investment requirements and suspend and resume the sale of any
share class of the Company at any time.


Selling Shares

Shareholders may place redemption orders by telephoning PFPC at (800) 441-7450.
Shares are redeemed at their net asset value per share next determined after
PFPC's receipt of the redemption order. The fund, its administrators and dis-
tributor will employ reasonable procedures to confirm that instructions commu-
nicated by telephone are genuine. The fund and its service providers will not
be liable for any loss, liability, cost or expense for acting upon telephone
instructions that are reasonably believed to be genuine in accordance with such
procedures.

Payment for redeemed shares for which a redemption order is received by PFPC
before 4 p.m. (Eastern time) on a business day is normally made in Federal
funds wired to the redeeming shareholder on the next business day, provided
that the fund's custodian is also open for business. Payment for redemption
orders received after 4 p.m. (Eastern time) or on a day when the fund's custo-
dian is closed is normally wired in Federal funds on the next business day fol-
lowing redemption on which the fund's custodian is open for business. The fund
reserves the right to wire redemption proceeds within seven days after receiv-
ing a redemption order if, in the judgement of BlackRock Advisors, Inc., an
earlier payment could adversely affect the fund. No charge for wiring redemp-
tion payments is imposed by the Company.

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10
<PAGE>


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During periods of substantial economic or market change, telephone redemptions
may be difficult to complete. Redemption requests may also be mailed to PFPC at
P.O. Box 8950, Wilmington, DE 19899-8950.

The Company may refuse a telephone redemption request if it believes it is
advisable to do so.

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

The Company's Rights

The Company may:
    . Suspend the right of redemption if trading is halted or restricted on
      the NYSE or under other emergency conditions described in the Invest-
      ment Company Act of 1940,
    . Postpone date of payment upon redemption if trading is halted or
      restricted on the NYSE or under other emergency conditions described in
      the Investment Company Act of 1940 or as described in the section
      "Selling Shares" above,
    . Redeem shares involuntarily in certain cases, such as when the value of
      a shareholder account falls below a specified level, as described
      below, and
    . Redeem shares for property other than cash if conditions exist which
      make cash payments undesirable

in accordance with its rights under the Investment Company Act of 1940.

--------------------------------------------------------------------------------
Market Timing


The fund is not designed for market timing organizations or other entities using
programmed or frequent purchases or redemptions. The Company reserves the right
to reject any specific purchase order, including an order made by a market tim-
er.

--------------------------------------------------------------------------------
Important Notice Regarding Delivery of Shareholder Documents


The Securities and Exchange Commission permits mutual funds to deliver only one
copy of shareholder documents, including prospectuses and shareholder reports,
to fund investors with multiple accounts at the same residential or post office
box address. This practice is commonly called "householding" and is intended to
eliminate duplicate mailings of shareholder documents.

Mailings of your BlackRock Funds shareholder documents may be householded
indefinitely unless you instruct us otherwise.









                                                                             11
<PAGE>


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


Accounts with Low Balances
The Company may redeem a shareholder's account in the fund at any time the net
asset value of the account in the fund falls below $5,000,000 as the result of
a redemption. The shareholder will be notified in writing that the value of the
account is less than the required amount and the shareholder will be allowed 30
days to make additional investments before the redemption is processed.



Management
BlackRock Funds' Adviser is BlackRock Advisors, Inc. (BlackRock). BlackRock was
organized in 1994 to perform advisory services for investment companies and is
located at 345 Park Avenue, New York, NY 10154. BlackRock is a wholly-owned
subsidiary of BlackRock, Inc., one of the largest publicly traded investment
management firms in the United States with $190.8 billion of assets under man-
agement as of September 30, 2000. BlackRock, Inc. is a majority-owned indirect
subsidiary of The PNC Financial Services Group, Inc., one of the largest diver-
sified financial services companies in the United States. BlackRock Financial
Management, Inc. (BFM), an affiliate of BlackRock located at 345 Park Avenue,
New York, New York 10154, acts as sub-adviser to the fund.

For their investment advisory and sub-advisory services, BlackRock and BFM are
entitled to fees computed daily and payable monthly.

The total annual advisory fee that can be paid to BlackRock (as a percentage of
average daily net assets is as follows:

Maximum Annual Contractual Fee Rate (Before Waivers)

<TABLE>
<CAPTION>
                           INVESTMENT
                           ADVISORY
  AVG DAILY NET ASSETS     FEE
  <S>                      <C>
  First $1 billion           %
  $1 billion-$2 billion      %
  $2 billion-$3 billion      %
  greater than $3 billion    %
</TABLE>

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



 IMPORTANT DEFINITIONS


 Adviser: The Adviser of a mutual fund is responsible for the overall investment
 management of the Fund. The Adviser for BlackRock Funds is BlackRock Advisors,
 Inc.

 Sub-Adviser: The subadviser of a fund is responsible for its day-to-day
 management and will generally make all buy and sell decisions. Sub-advisers
 also provide research and credit analysis. The sub-adviser for the fund is
 BlackRock Financial Management, Inc.

12
<PAGE>


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


As discussed above, BlackRock has agreed to cap the fund's net expenses (ex-
cluding interest expense) at the levels shown in the expense table.

To achieve this cap, BlackRock and the Company have entered into an expense
limitation agreement. The agreement sets a limit on certain of the operating
expenses of the fund through       , 2002 and requires BlackRock to waive or
reimburse fees or expenses if these operating expenses exceed that limit. The
expense limit (which applies to expenses charged on fund assets as a whole, but
not expenses separately charged to the different share classes of the fund) as
a percentage of average daily net assets is  %.

If within two years following a waiver or reimbursement, the operating expenses
of the fund are less than the expense limit for that fund, the fund is required
to repay BlackRock up to the amount of fees waived or expenses reimbursed under
the agreement if: (1) the fund has more than $50 million in assets, (2) Black-
Rock continues to be the fund's investment adviser and (3) the Board of Trust-
ees of the Company has approved in advance the payments to BlackRock at the
previous quarterly meeting of the Board.
                                                                             13
<PAGE>


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


Dividends and Distributions

BlackRock Funds makes two kinds of distributions to shareholders: dividends and
net capital gain.

Dividends are the net investment income derived by the fund and are paid within
10 days after the end of each month. The Company's Board of Trustees may change
the timing of dividend payments.

Net capital gain occurs when the fund manager sells securities at a profit. Net
capital gain (if any) is distributed to shareholders at least annually at a
date determined by the Company's Board of Trustees.

Your distributions will be reinvested at net asset value in new shares of the
same class of the fund unless you instruct PFPC in writing to pay them in cash.
There are no sales charges on these reinvestments.


Taxation of Distributions

Distributions paid out of the fund's "net capital gain" will be taxed to share-
holders as long-term capital gain, regardless of how long a shareholder has
owned shares. All other distributions other than exempt-interest dividends will
be taxed to shareholders as ordinary income.

Dividends paid with respect to interest on securities issued by the U.S. gov-
ernment and its agencies may be exempt from some types of state and local tax-
es.

Your annual tax statement from the Company will present in detail the tax sta-
tus of your distributions for each year.

If more than half of the total asset value of the fund is invested in foreign
securities, the fund may elect to "pass through" to its shareholders the amount
of foreign taxes paid. In such case, each shareholder would be required to
include his proportionate share of such taxes in his income and may be entitled
to deduct or credit such taxes when computing his taxable income.

Because every investor has an individual tax situation, and also because the
tax laws are subject to periodic changes, you should always consult your tax
professional about federal, state and local tax consequences of owning shares
of the Company.
--------------------------------------------------------------------------------

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

14
<PAGE>

For More Information:
This prospectus contains important information you should know before you
invest. Read it carefully and keep it for future reference.
More information about the BlackRock Funds is available free, upon request,
including:

Annual/Semi-Annual Report
These reports contain additional information about the funds investments. The
annual report describes the funds performance, lists portfolio holdings, and
discusses recent market conditions, economic trends and fund investment
strategies that significantly affected the funds performance for the last
fiscal year.

Statement of Additional Information (SAI)
A Statement of Additional Information, dated January _, 200 , has been filed
with the Securities and Exchange Commission (SEC). The SAI, which includes
additional information about the BlackRock Funds, may be obtained free of
charge, along with the Companys annual and semi-annual reports, by calling
(800) 441-7450. The SAI, as supplemented from time to time, is incorporated by
reference into this Prospectus.

Shareholder Account Service Representatives
Representatives are available to discuss account balance information, mutual
fund prospectuses, literature, programs and services available. Hours: 9 a.m. to
6 p.m. (Eastern time), Monday-Friday.
Call: (800) 441-7450

Purchases and Redemptions
Call your registered representative or (800) 441-7450.

World Wide Web
Access general fund information and specific fund performance. Request mutual
fund prospectuses and literature. Forward mutual fund inquiries. Available 24
hours a day, 7 days a week. http://www.blackrock.com

E-Mail
Request prospectuses, SAI, Annual or Semi-Annual Reports and literature. Forward
mutual fund inquiries. Available 24 hours a day, 7 days a week. Mail to:
[email protected]

Written Correspondence
Post Office Address: BlackRock Funds c/o PFPC, Inc. PO Box 8950, Wilmington, DE
19899-8950
Street Address: BlackRock Funds, c/o PFPC, Inc. 400 Bellevue Parkway,
Wilmington, DE 19809

Internal Wholesalers/Broker Dealer Support
Available to support investment professionals 9 a.m. to 6 p.m. (Eastern time),
Monday-Friday. Call: (888) 8BLACKROCK

Securities and Exchange Commission (SEC)
You may also view and copy information about the BlackRock Funds, including the
SAI, by visiting the EDGAR database on the SEC Web site (http://www.sec.gov) or
the SECs Public Reference Room in Washington, D.C. Information about the
operation of the public reference room can be obtained by calling the SEC
directly at 1-202-942-8090. Copies of this information can be obtained, for a
duplicating fee, by electronic request at the following E-mail address:
[email protected], or by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-0102.


                                                                       [GRAPHIC]

                                                       [LOGO OF BLACKROCK FUNDS]


INVESTMENT COMPANY ACT FILE NO. 811-05742
<PAGE>

THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND
    MAY BE CHANGED.  WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE.  THIS
STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL THESE SECURITIES AND
IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
                           OR SALE IS NOT PERMITTED.

                                BLACKROCK FUNDS/SM/

                       STATEMENT OF ADDITIONAL INFORMATION

     This Statement of Additional Information provides supplementary information
pertaining to shares representing interests in the Core PLUS Total Return
Portfolio (the "Portfolio") of BlackRock FundsSM (the "Fund"). This Statement of
Additional Information is not a prospectus, and should be read only in
conjunction with the Prospectuses of the Portfolio dated January ___, 2001, as
amended from time to time (the "Prospectuses"). Prospectuses of the Portfolio
may be obtained from the Fund's distributor at no charge by calling toll-free
(800) 441-7379. This Statement of Additional Information is dated January ___,
2001.
<PAGE>

                                TABLE OF CONTENTS

                                                                  Page

INVESTMENT POLICIES..............................................    1

ADDITIONAL INVESTMENT LIMITATIONS................................   19

TRUSTEES AND OFFICERS............................................   21

SHAREHOLDER AND TRUSTEE LIABILITY OF THE FUND....................   23

INVESTMENT ADVISORY, ADMINISTRATION, DISTRIBUTION AND SERVICING
ARRANGEMENTS.....................................................   23

EXPENSES.........................................................   27

PORTFOLIO TRANSACTIONS...........................................   28

PURCHASE AND REDEMPTION INFORMATION..............................   29

VALUATION OF PORTFOLIO SECURITIES................................   38

PERFORMANCE INFORMATION..........................................   39

TAXES............................................................   44

ADDITIONAL INFORMATION CONCERNING SHARES.........................   46

MISCELLANEOUS....................................................   47

APPENDIX A.......................................................  A-1

APPENDIX B.......................................................  B-1


No person has been authorized to give any information or to make any
representations not contained in this Statement of Additional Information or the
Prospectuses in connection with the offering made by the Prospectuses and, if
given or made, such information or representations must not be relied upon as
having been authorized by the Fund or its distributor. The Prospectuses do not
constitute an offering by the Fund or by the Fund's distributor in any
jurisdiction in which such offering may not lawfully be made.
<PAGE>

                               INVESTMENT POLICIES

     The following supplements information contained in the Prospectuses
concerning the Portfolio's investment policies. To the extent that an investment
strategy is discussed in this Statement of Additional Information but not in the
Prospectuses, such strategy is not a principal strategy of the Portfolio.

Additional Information on Portfolio Investments

     Foreign Investments. Investing in foreign securities involves risks not
typically associated with investing in securities of companies organized and
operated in the United States. Because foreign securities generally are
denominated and pay dividends or interest in foreign currencies, the value of
the Portfolio that invests in foreign securities as measured in U.S. dollars
will be affected favorably or unfavorably by changes in exchange rates.

     The Portfolio's investments in foreign securities may also be adversely
affected by changes in foreign political or social conditions, diplomatic
relations, confiscatory taxation, expropriation, limitation on the removal of
funds or assets, or imposition of (or change in) exchange control regulations.
In addition, changes in government administrations or economic or monetary
policies in the U.S. or abroad could result in appreciation or depreciation of
portfolio securities and could favorably or adversely affect the Portfolio's
operations.

     In general, less information is publicly available with respect to foreign
issuers than is available with respect to U.S. companies. Most foreign companies
are also not subject to the uniform accounting and financial reporting
requirements applicable to issuers in the United States. While the volume of
transactions effected on foreign stock exchanges has increased in recent years,
it remains appreciably below that of the New York Stock Exchange. Accordingly,
the Portfolio's foreign investments may be less liquid and their prices may be
more volatile than comparable investments in securities in U.S. companies. In
addition, there is generally less government supervision and regulation of
securities exchanges, brokers and issuers in foreign countries than in the
United States.

     The Portfolio may invest its assets in countries with emerging economies or
securities markets. Political and economic structures in many of these countries
may be undergoing significant evolution and rapid development, and these
countries may lack the social, political and economic stability characteristic
of more developed countries. Some of these countries may have in the past failed
to recognize private property rights and have at times nationalized or
expropriated the assets of private companies. As a result the risks described
above, including the risks of nationalization or expropriation of assets, may be
heightened. In addition, unanticipated political or social developments may
affect the value of investments in these countries and the availability to the
Portfolio of additional investments in emerging market countries. The small size
and inexperience of the securities markets in certain of these countries and the
limited volume of trading in securities in these countries may make investments
in the countries illiquid and more volatile than investments in Japan or most
Western European countries. There may be little financial or accounting
information available with respect to issuers located in certain emerging market
countries, and it may be difficult to assess the value or prospects of an
investment in such issuers.

     The expense ratio of the Portfolio can be expected to be higher than those
of portfolios investing primarily in domestic securities. The costs attributable
to investing abroad are usually higher for several reasons, such as the higher
cost of investment research, higher cost of custody of foreign securities,
higher commissions paid on comparable transactions on foreign markets and
additional costs arising from delays in settlements of transactions involving
foreign securities.

     Brady Bonds. The Portfolio's emerging market debt securities may include
emerging market governmental debt obligations commonly referred to as Brady
Bonds. Brady Bonds are debt securities, generally denominated in U.S. dollars,
issued under the framework of the Brady Plan, an initiative announced by U.S.
Treasury Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations
(primarily emerging market countries) to restructure their outstanding external
indebtedness (generally, commercial bank debt). Brady Bonds are created through
the exchange of existing commercial bank loans to foreign entities for new
obligations in connection with debt restructuring. A significant amount of the
Brady Bonds that the Portfolio may purchase have no or limited
collateralization, and the Portfolio will be relying for payment of interest and
(except in the case of principal collateralized Brady Bonds) principal primarily
on the willingness and ability of the foreign government to make

                                       1
<PAGE>

payment in accordance with the terms of the Brady Bonds. A substantial portion
of the Brady Bonds and other sovereign debt securities in which the Portfolio
may invest are likely to be acquired at a discount.

     ADRs, EDRs and GDRs. The Portfolio may invest in both sponsored and
unsponsored American Depository Receipts ("ADRs"), European Depository Receipts
("EDRs"), Global Depository Receipts ("GDRs") and other similar global
instruments. ADRs typically are issued by an American bank or trust company and
evidence ownership of underlying securities issued by a foreign corporation.
EDRs, which are sometimes referred to as Continental Depository Receipts, are
receipts issued in Europe, typically by foreign banks and trust companies, that
evidence ownership of either foreign or domestic underlying securities. GDRs are
depository receipts structured like global debt issues to facilitate trading on
an international basis. Unsponsored ADR, EDR and GDR programs are organized
independently and without the cooperation of the issuer of the underlying
securities. As a result, available information concerning the issuer may not be
as current as for sponsored ADRs, EDRs and GDRs, and the prices of unsponsored
ADRs, EDRs and GDRs may be more volatile than if such instruments were sponsored
by the issuer. Investments in ADRs, EDRs and GDRs present additional investment
considerations as described under "Foreign Investments."

     The Euro. On January 1, 1999, 11 European countries implemented a new
currency unit, the Euro, which is expected to replace the existing national
currencies of these countries by July 1, 2002, and to reshape financial markets,
banking systems and monetary policies in Europe and other parts of the world.
The countries that initially converted or tied their currencies to the Euro are
Austria, Belgium, France, Germany, Luxembourg, the Netherlands, Ireland,
Finland, Italy, Portugal and Spain. Implementation of this plan means that
financial transactions and market information, including share quotations and
company accounts, in participating countries will be denominated in Euros.
Participating governments will issue their bonds in Euros, and monetary policy
for participating countries will be uniformly managed by a new central bank, the
European Central Bank.

     Although it is not possible to predict the impact of the Euro
implementation plan on the Portfolio, the transition to the Euro may change the
economic environments and behavior of investors, particularly in European
markets. For example, investors may begin to view those countries using the Euro
as a single entity, and the Portfolio's adviser and/or sub-adviser may need to
adapt their investment strategy accordingly. The process of implementing the
Euro also may adversely affect financial markets world-wide and may result in
changes in the relative strength and value of the U.S. dollar or other major
currencies, as well as possible adverse tax consequences. The transition to the
Euro is likely to have a significant impact on fiscal and monetary policy in the
participating countries and may produce unpredictable effects on trade and
commerce generally. These resulting uncertainties could create increased
volatility in financial markets world-wide.

     Foreign Currency Transactions. Forward foreign currency exchange contracts
involve an obligation to purchase or sell a specified currency at a future date
at a price set at the time of the contract. Forward currency contracts do not
eliminate fluctuations in the values of portfolio securities but rather allow
the Portfolio to establish a rate of exchange for a future point in time. The
Portfolio may use forward foreign currency exchange contracts to hedge against
movements in the value of foreign currencies relative to the U.S. dollar in
connection with specific portfolio transactions or with respect to portfolio
positions. The Portfolio may enter into forward foreign currency exchange
contracts when deemed advisable by its adviser and/or sub-adviser under two
circumstances. First, when entering into a contract for the purchase or sale of
a security, the Portfolio may enter into a forward foreign currency exchange
contract for the amount of the purchase or sale price to protect against
variations, between the date the security is purchased or sold and the date on
which payment is made or received, in the value of the foreign currency relative
to the U.S. dollar or other foreign currency.

     Second, when the Portfolio's adviser and/or sub-adviser anticipate that a
particular foreign currency may decline relative to the U.S. dollar or other
leading currencies, in order to reduce risk, the Portfolio may enter into a
forward contract to sell, for a fixed amount, the amount of foreign currency
approximating the value of some or all of the Portfolio's securities denominated
in such foreign currency. With respect to any forward foreign currency contract,
it will not generally be possible to match precisely the amount covered by that
contract and the value of the securities involved due to the changes in the
values of such securities resulting from market movements between the date the
forward contract is entered into and the date it matures. In addition, while
forward contracts may offer protection from losses resulting from declines in
the value of a particular foreign currency, they also limit potential

                                       2
<PAGE>

gains which might result from increases in the value of such currency. The
Portfolio will also incur costs in connection with forward foreign currency
exchange contracts and conversions of foreign currencies and U.S. dollars.

     The Portfolio may also engage in proxy hedging transactions to reduce the
effect of currency fluctuations on the value of existing or anticipated holdings
of portfolio securities. Proxy hedging is often used when the currency to which
the Portfolio is exposed is difficult to hedge or to hedge against the dollar.
Proxy hedging entails entering into a forward contract to sell a currency whose
changes in value are generally considered to be linked to a currency or
currencies in which some or all of the Portfolio's securities are, or are
expected to be, denominated, and to buy U.S. dollars. Proxy hedging involves
some of the same risks and considerations as other transactions with similar
instruments. Currency transactions can result in losses to the Portfolio if the
currency being hedged fluctuates in value to a degree or in a direction that is
not anticipated. In addition, there is the risk that the perceived linkage
between various currencies may not be present or may not be present during the
particular time that the Portfolio is engaging in proxy hedging. The Portfolio
may also cross-hedge currencies by entering into forward contracts to sell one
or more currencies that are expected to decline in value relative to other
currencies to which the Portfolio has or in which the Portfolio expects to have
portfolio exposure. For example, the Portfolio may hold both French government
bonds and German government bonds, and the adviser and/or sub-adviser may
believe that French francs will deteriorate against German marks. The Portfolio
would sell French francs to reduce its exposure to that currency and buy German
marks. This strategy would be a hedge against a decline in the value of French
francs, although it would expose the Portfolio to declines in the value of the
German mark relative to the U.S. dollar.

     In general, currency transactions are subject to risks different from those
of other portfolio transactions, and can result in greater losses to the
Portfolio than would otherwise be incurred, even when the currency transactions
are used for hedging purposes.

     A separate account of the Portfolio consisting of liquid assets equal to
the amount of the Portfolio's assets that could be required to consummate
forward contracts entered into under the second circumstance, as set forth
above, will be established with the Fund's custodian. For the purpose of
determining the adequacy of the securities in the account, the deposited
securities will be valued at market or fair value. If the market or fair value
of such securities declines, additional cash or securities will be placed in the
account daily so that the value of the account will equal the amount of such
commitments by the Portfolio.

     Reverse Repurchase Agreements and Other Borrowings. The Portfolio is
authorized to borrow money. If the securities held by the Portfolio should
decline in value while borrowings are outstanding, the net asset value of the
Portfolio's outstanding shares will decline in value by proportionately more
than the decline in value suffered by the Portfolio's securities. Borrowings may
be made by the Portfolio through reverse repurchase agreements under which the
Portfolio sells portfolio securities to financial institutions such as banks and
broker-dealers and agrees to repurchase them at a particular date and price.
Such Agreements are considered to be borrowings under the Investment Company Act
of 1940 (the "1940 Act"). The Portfolio will use the proceeds of reverse
repurchase agreements to purchase other securities either maturing, or under an
agreement to resell, on a date simultaneous with or prior to the expiration of
the reverse repurchase agreement. This use of reverse repurchase agreements may
be regarded as leveraging and, therefore, speculative. Reverse repurchase
agreements involve the risks that the interest income earned in the investment
of the proceeds will be less than the interest expense, that the market value of
the securities sold by the Portfolio may decline below the price of the
securities the Portfolio is obligated to repurchase and that the securities may
not be returned to the Portfolio. During the time a reverse repurchase agreement
is outstanding, the Portfolio will maintain a segregated account with the Fund's
custodian containing cash, U.S. Government or other appropriate liquid
securities having a value at least equal to the repurchase price. The
Portfolio's reverse repurchase agreements, together with any other borrowings,
will not exceed, in the aggregate, 331/3% of the value of its total assets.
Whenever borrowings exceed 5% of the Portfolio's total assets, it will not make
any investments.

     Variable and Floating Rate Instruments. The Portfolio may purchase rated
and unrated variable and floating rate instruments. These instruments may
include variable amount master demand notes that permit the indebtedness
thereunder to vary in addition to providing for periodic adjustments in the
interest rate. The Portfolio may invest up to 10% of its total assets in
leveraged inverse floating rate debt instruments ("inverse floaters"). The
interest rate of an inverse floater resets in the opposite direction from the
market rate of interest to which it is indexed. An inverse floater may be
considered to be leveraged to the extent that its interest rate varies by a
magnitude that

                                       3
<PAGE>

exceeds the magnitude of the change in the index rate of interest. The higher
degree of leverage inherent in inverse floaters is associated with greater
volatility in their market values. Issuers of unrated variable and floating rate
instruments must satisfy the same criteria as set forth above for the Portfolio.
The absence of an active secondary market with respect to particular variable
and floating rate instruments, however, could make it difficult for the
Portfolio to dispose of a variable or floating rate instrument if the issuer
defaulted on its payment obligation or during periods when the Portfolio is not
entitled to exercise its demand rights.

     With respect to purchasable variable and floating rate instruments, the
Portfolio's adviser and/or sub-adviser will consider the earning power, cash
flows and liquidity ratios of the issuers and guarantors of such instruments
and, if the instruments are subject to a demand feature, will monitor their
financial status to meet payment on demand. Such instruments may include
variable amount master demand notes that permit the indebtedness thereunder to
vary in addition to providing for periodic adjustments in the interest rate. The
absence of an active secondary market with respect to particular variable and
floating rate instruments could make it difficult for the Portfolio to dispose
of a variable or floating rate note if the issuer defaulted on its payment
obligation or during periods that the Portfolio is not entitled to exercise its
demand rights, and the Portfolio could, for these or other reasons, suffer a
loss with respect to such instruments. In determining average-weighted portfolio
maturity, an instrument will be deemed to have a maturity equal to either the
period remaining until the next interest rate adjustment or the time the
Portfolio involved can recover payment of principal as specified in the
instrument, depending on the type of instrument involved.

     Preferred Stock. The Portfolio may invest in preferred stocks. Preferred
stock has a preference over common stock in liquidation (and generally dividends
as well) but is subordinated to the liabilities of the issuer in all respects.
As a general rule, the market value of preferred stock with a fixed dividend
rate and no conversion element varies inversely with interest rates and
perceived credit risk, while the market price of convertible preferred stock
generally also reflects some element of conversion value. Because preferred
stock is junior to debt securities and other obligations of the issuer,
deterioration in the credit quality of the issuer will cause greater changes in
the value of a preferred stock than in a more senior debt security with similar
stated yield characteristics. Unlike interest payments on debt securities,
preferred stock dividends are payable only if declared by the issuer's board of
directors. Preferred stock also may be subject to optional or mandatory
redemption provisions.

     Convertible Securities. The Portfolio may invest in convertible securities.
A convertible security is a bond, debenture, note, preferred stock or other
security that may be converted into or exchanged for a prescribed amount of
common stock or other equity security of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Before conversion, convertible securities have
characteristics similar to nonconvertible income securities in that they
ordinarily provide a stable stream of income with generally higher yields than
those of common stocks of the same or similar issuers, but lower yields than
comparable nonconvertible securities. The value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. Convertible securities rank senior to
common stock in a corporation's capital structure but are usually subordinated
to comparable nonconvertible securities. Convertible securities may be subject
to redemption at the option of the issuer at a price established in the
convertible security's governing instrument. The Portfolio will treat
investments in convertible debt securities as debt securities for purposes of
its investment policies.

     Pay-in-kind Bonds. The Portfolio may invest in Pay-in-kind, or PIK, bonds.
PIK bonds are bonds which pay interest through the issuance of additional debt
or equity securities. Similar to zero coupon obligations, pay-in-kind bonds also
carry additional risk as holders of these types of securities realize no cash
until the cash payment date unless a portion of such securities is sold and, if
the issuer defaults, the Portfolio may obtain no return at all on its
investment. The market price of pay-in-kind bonds is affected by interest rate
changes to a greater extent, and therefore tends to be more volatile, than that
of securities which pay interest in cash. Additionally, current federal tax law
requires the holder of certain pay-in-kind bonds to accrue income with respect
to these securities prior to the receipt of cash payments. To maintain its
qualification as a regulated investment company and avoid liability for federal
income and excise taxes, the Portfolio may be required to distribute income
accrued with respect to these securities and may have to dispose of portfolio
securities under disadvantageous circumstances in order to generate cash to
satisfy these distribution requirements.

                                       4
<PAGE>

     Money Market Obligations of Domestic Banks, Foreign Banks and Foreign
Branches of U.S. Banks. The Portfolio may purchase bank obligations, such as
certificates of deposit, notes, bankers' acceptances and time deposits,
including instruments issued or supported by the credit of U.S. or foreign banks
or savings institutions having total assets at the time of purchase in excess of
$1 billion. These obligations may be general obligations of the parent bank or
may be limited to the issuing branch or subsidiary by the terms of a specific
obligation or by government regulation. The assets of a bank or savings
institution will be deemed to include the assets of its domestic and foreign
branches for purposes of the Portfolio's investment policies. Investments in
short-term bank obligations may include obligations of foreign banks and
domestic branches of foreign banks, and also foreign branches of domestic banks.

     To the extent consistent with its investment objectives, the Portfolio may
invest in debt obligations of domestic or foreign corporations and banks, and
may acquire commercial obligations issued by Canadian corporations and Canadian
counterparts of U.S. corporations, as well as Europaper, which is U.S. dollar-
denominated commercial paper of a foreign issuer. The Portfolios may also make
interest-bearing savings deposits in commercial and savings banks in amounts not
in excess of 5% of its respective total assets.

     Mortgage Related and Asset-Backed Securities. The Portfolio may make
significant investments in residential and commercial mortgage-related and other
asset-backed securities (i.e., securities backed by home equity loans,
installment sale contracts, credit card receivables or other assets) issued by
governmental entities and private issuers.

     Asset-backed securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in an underlying pool
of assets, or as debt instruments, which are also known as collateralized
obligations, and are generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and issuing such debt.
Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties.

     Non-mortgage asset-backed securities involve risks that are not presented
by mortgage-related securities. Primarily, these securities do not have the
benefit of the same security interest in the underlying collateral. Credit card
receivables are generally unsecured, and the debtors are entitled to the
protection of a number of state and Federal consumer credit laws which give
debtors the right to set off certain amounts owed on the credit cards, thereby
reducing the balance due. Most issuers of automobile receivables permit the
servicers to retain possession of the underlying obligations. If the servicer
were to sell these obligations to another party, there is a risk that the
purchaser would acquire an interest superior to that of the holders of the
related automobile receivables. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of the automobile receivables may not have an
effective security interest in all of the obligations backing such receivables.
Therefore, there is a possibility that recoveries on repossessed collateral may
not, in some cases, be able to support payments on these securities.

     The yield and maturity characteristics of mortgage-related and other asset-
backed securities differ from traditional debt securities. A major difference is
that the principal amount of the obligations may normally be prepaid at any time
because the underlying assets (i.e., loans) generally may be prepaid at any
time. In calculating the average weighted maturity of the Portfolio, the
maturity of mortgage-related and other asset-backed securities held by the
Portfolio will be based on estimates of average life which take prepayments into
account. The average life of a mortgage-related instrument, in particular, is
likely to be substantially less than the original maturity of the mortgage pools
underlying the securities as the result of scheduled principal payments and
mortgage prepayments. In general, the collateral supporting non-mortgage asset-
backed securities is of shorter maturity than mortgage loans and is less likely
to experience substantial prepayments. Like other fixed-income securities, when
interest rates rise the value of an asset-backed security generally will
decline; however, when interest rates decline, the value of an asset-backed
security with prepayment features may not increase as much as that of other
fixed-income securities.

     The relationship between prepayments and interest rates may give some high-
yielding mortgage- related and asset-backed securities less potential for growth
in value than conventional bonds with comparable maturities. In addition, in
periods of falling interest rates, the rate of prepayments tends to increase.
During such periods, the reinvestment of prepayment proceeds by the Portfolio
will generally be at lower rates than the rates that were carried by the
obligations that have been prepaid. Because of these and other reasons, an
asset-backed security's total return

                                       5
<PAGE>

and maturity may be difficult to predict precisely. To the extent that the
Portfolio purchases asset-backed securities at a premium, prepayments (which may
be made without penalty) may result in loss of the Portfolio's principal
investment to the extent of premium paid.

     The Portfolio may from time to time purchase in the secondary market
certain mortgage pass-through securities packaged and master serviced by PNC
Mortgage Securities Corp. ("PNC Mortgage") or Midland Loan Services, Inc.
("Midland") (or Sears Mortgage if PNC Mortgage succeeded to rights and duties of
Sears Mortgage) or mortgage-related securities containing loans or mortgages
originated by PNC Bank or its affiliates. It is possible that under some
circumstances, PNC Mortgage, Midland or their affiliates could have interests
that are in conflict with the holders of these mortgage-backed securities, and
such holders could have rights against PNC Mortgage, Midland or their
affiliates.

     There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities guaranteed
by the Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed as
to the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the United States. GNMA is a wholly-owned
U.S. Government corporation within the Department of Housing and Urban
Development. GNMA certificates also are supported by the authority of GNMA to
borrow funds from the U.S. Treasury to make payments under its guarantee.
Mortgage-related securities issued by the Federal National Mortgage Association
("FNMA") include FNMA guaranteed Mortgage Pass-Through Certificates (also known
as "Fannie Maes") which are solely the obligations of the FNMA, are not backed
by or entitled to the full faith and credit of the United States and are
supported by the right of the issuer to borrow from the Treasury. FNMA is a
government-sponsored organization owned entirely by private stockholders. Fannie
Maes are guaranteed as to timely payment of principal and interest by FNMA.
Mortgage-related securities issued by the Federal Home Loan Mortgage Corporation
("FHLMC") include FHLMC Mortgage Participation Certificates (also known as
"Freddie Macs" or "Pcs"). FHLMC is a corporate instrumentality of the United
States, created pursuant to an Act of Congress, which is owned entirely by
Federal Home Loan Banks. Freddie Macs are not guaranteed by the United States or
by any Federal Home Loan Banks and do not constitute a debt or obligation of the
United States or of any Federal Home Loan Bank. Freddie Macs entitle the holder
to timely payment of interest, which is guaranteed by the FHLMC. FHLMC
guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. When FHLMC does not guarantee timely
payment of principal, FHLMC may remit the amount due on account of its guarantee
of ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.

     The Portfolio may invest in multiple class pass-through securities,
including collateralized mortgage obligations ("CMOs") and real estate mortgage
investment conduit ("REMIC") pass-through or participation certificates ("REMIC
Certificates"). These multiple class securities may be issued by U.S. Government
agencies or instrumentalities, including FNMA and FHLMC, or by trusts formed by
private originators of, or investors in, mortgage loans. In general, CMOs and
REMICs are debt obligations of a legal entity that are collateralized by, and
multiple class pass-through securities represent direct ownership interests in,
a pool of residential or commercial mortgage loans or mortgage pass-through
securities (the "Mortgage Assets"), the payments on which are used to make
payments on the CMOs or multiple pass-through securities. Investors may purchase
beneficial interests in CMOs and REMICs, which are known as "regular" interests
or "residual" interests. The residual in a CMO or REMIC structure generally
represents the interest in any excess cash flow remaining after making required
payments of principal of and interest on the CMOs or REMICs, as well as the
related administrative expenses of the issuer. Residual interests generally are
junior to, and may be significantly more volatile than, "regular" CMO and REMIC
interests. The Portfolio does not currently intend to purchase residual
interests. The markets for CMOs and REMICs may be more illiquid than those of
other securities.

     Each class of CMOs or REMIC Certificates, often referred to as a "tranche,"
is issued at a specific adjustable or fixed interest rate and must be fully
retired no later than its final distribution date. Principal prepayments on the
Mortgage Assets underlying the CMOs or REMIC Certificates may cause some or all
of the classes of CMOs or REMIC Certificates to be retired substantially earlier
than their final distribution dates. Generally, interest is paid or accrues on
all classes of CMOs or REMIC Certificates on a monthly basis.

                                       6
<PAGE>

     The principal of and interest on the Mortgage Assets may be allocated among
the several classes of CMOs or REMIC Certificates in various ways. In certain
structures (known as "sequential pay" CMOs or REMIC Certificates), payments of
principal, including any principal prepayments, on the Mortgage Assets generally
are applied to the classes of CMOs or REMIC Certificates in the order of their
respective final distribution dates. Thus, no payment of principal will be made
on any class of sequential pay CMOs or REMIC Certificates until all other
classes having an earlier final distribution date have been paid in full.

     Additional structures of CMOs or REMIC Certificates include, among others,
"parallel pay" CMOs and REMIC Certificates. Parallel pay CMOs or REMIC
Certificates are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.

     A wide variety of REMIC Certificates may be issued in the parallel pay or
sequential pay structures. These securities include accrual certificates (also
known as "Z-Bonds"), which only accrue interest at a specified rate until all
other certificates having an earlier final distribution date have been retired
and are converted thereafter to an interest-paying security, and planned
amortization class ("PAC") certificates, which are parallel pay REMIC
Certificates which generally require that specified amounts of principal be
applied on each payment date to one or more classes of REMIC Certificates (the
"PAC Certificates"), even though all other principal payments and prepayments of
the Mortgage Assets are then required to be applied to one or more other classes
of the Certificates. The scheduled principal payments for the PAC Certificates
generally have the highest priority on each payment date after interest due has
been paid to all classes entitled to receive interest currently. Shortfalls, if
any, are added to the amount payable on the next payment date. The PAC
Certificate payment schedule is taken into account in calculating the final
distribution date of each class of PAC. In order to create PAC tranches, one or
more tranches generally must be created that absorb most of the volatility in
the underlying Mortgage Assets. These tranches tend to have market prices and
yields that are much more volatile than the PAC classes.

     FNMA REMIC Certificates are issued and guaranteed as to timely distribution
of principal and interest by FNMA. In addition, FNMA will be obligated to
distribute on a timely basis to holders of FNMA REMIC Certificates required
installments of principal and interest and to distribute the principal balance
of each class of REMIC Certificates in full, whether or not sufficient funds are
otherwise available.

     For FHLMC REMIC Certificates, FHLMC guarantees the timely payment of
interest, and also guarantees the ultimate payment of principal as payments are
required to be made on the underlying mortgage participation certificates
("Pcs"). Pcs represent undivided interests in specified level payment,
residential mortgages or participations therein purchased by FHLMC and placed in
a PC pool. With respect to principal payments on Pcs, FHLMC generally guarantees
ultimate collection of all principal of the related mortgage loans without
offset or deduction. FHLMC also guarantees timely payment of principal on
certain Pcs, referred to as "Gold Pcs."

     U.S. Government Obligations. The Bond Portfolio may purchase obligations
issued or guaranteed by the U.S. Government and U.S. Government agencies and
instrumentalities. Obligations of certain agencies and instrumentalities of the
U.S. Government are supported by the full faith and credit of the U.S. Treasury.
Others are supported by the right of the issuer to borrow from the U.S.
Treasury; and still others are supported only by the credit of the agency or
instrumentality issuing the obligation. No assurance can be given that the U.S.
Government will provide financial support to U.S. Government-sponsored
instrumentalities if it is not obligated to do so by law. Certain U.S. Treasury
and agency securities may be held by trusts that issue participation
certificates (such as Treasury income growth receipts ("TIGRs") and certificates
of accrual on Treasury certificates ("CATs")). The Portfolio may purchase these
certificates, as well as Treasury receipts and other stripped securities, which
represent beneficial ownership interests in either future interest payments or
the future principal payments on U.S. Government obligations. These instruments
are issued at a discount to their "face value" and may (particularly in the case
of stripped mortgage-backed securities) exhibit greater price volatility than
ordinary debt securities because of the manner in which their principal and
interest are returned to investors.

     Examples of the types of U.S. Government obligations which the Portfolio
may hold include U.S. Treasury bills, Treasury instruments and Treasury bonds
and the obligations of Federal Home Loan Banks, Federal Farm Credit Banks,
Federal Land Banks, the Federal Housing Administration, the Farmers Home
Administration, the Export-

                                       7
<PAGE>

Import Bank of the United States, the Small Business Administration, FNMA, GNMA,
the General Services Administration, the Student Loan Marketing Association, the
Central Bank for Cooperatives, FHLMC, the Federal Intermediate Credit Banks, the
Maritime Administration, the International Bank for Reconstruction and
Development (the "World Bank"), the Asian-American Development Bank and the
Inter-American Development Bank.

     Supranational Organization Obligations. The Portfolio may purchase debt
securities of supranational organizations such as the European Coal and Steel
Community, the European Economic Community and the World Bank, which are
chartered to promote economic development.

     Lease Obligations.  The Portfolio may hold participation certificates in a
lease, an installment purchase contract, or a conditional sales contract ("lease
obligations").

     The Portfolio's adviser and/or sub-adviser will monitor the credit standing
of each municipal borrower and each entity providing credit support and/or a put
option relating to lease obligations. In determining whether a lease obligation
is liquid, the adviser and/or sub-adviser will consider, among other factors,
the following: (i) whether the lease can be cancelled; (ii) the degree of
assurance that assets represented by the lease could be sold; (iii) the strength
of the lessee's general credit (e.g., its debt, administrative, economic, and
financial characteristics); (iv) the likelihood that the municipality would
discontinue appropriating funding for the leased property because the property
is no longer deemed essential to the operations of the municipality (e.g., the
potential for an "event of nonappropriation"); (v) legal recourse in the event
of failure to appropriate; (vi) whether the security is backed by a credit
enhancement such as insurance; and (vii) any limitations which are imposed on
the lease obligor's ability to utilize substitute property or services other
than those covered by the lease obligation.

     Municipal leases, like other municipal debt obligations, are subject to the
risk of non-payment. The ability of issuers of municipal leases to make timely
lease payments 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 non-payment would result in a reduction
of income to the Portfolio, and could result in a reduction in the value of the
municipal lease experiencing non-payment and a potential decrease in the net
asset value of the Portfolio. Issuers of municipal securities might seek
protection under the bankruptcy laws. In the event of bankruptcy of such an
issuer, the Portfolio could experience delays and limitations with respect to
the collection of principal and interest on such municipal leases and the
Portfolio may not, in all circumstances, be able to collect all principal and
interest to which it is entitled. To enforce its rights in the event of a
default in lease payments, the Portfolio might take possession of and manage the
assets securing the issuer's obligations on such securities, which may increase
the Portfolio's operating expenses and adversely affect the net asset value of
the Portfolio. When the lease contains a non-appropriation clause, however, the
failure to pay would not be a default and the Portfolio would not have the right
to take possession of the assets. Any income derived from the Portfolio's
ownership or operation of such assets may not be tax-exempt. In addition, the
Portfolio's intention to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended, may limit the extent to which the
Portfolio may exercise its rights by taking possession of such assets, because
as a regulated investment company the Portfolio is subject to certain
limitations on its investments and on the nature of its income.

     Commercial Paper. The Portfolio may purchase commercial paper rated (at the
time of purchase) "A-1" by S&P or "Prime-1" by Moody's or, when deemed advisable
by the Portfolio's adviser and/or sub-adviser, "high quality" issues rated "A-2"
or "Prime-2" by S&P or Moody's, respectively. These ratings symbols are
described in Appendix A.

     Commercial paper purchasable by the Portfolio includes "Section 4(2)
paper," a term that includes debt obligations issued in reliance on the "private
placement" exemption from registration afforded by Section 4(2) of the
Securities Act of 1933. Section 4(2) paper is restricted as to disposition under
the Federal securities laws, and is frequently sold (and resold) to
institutional investors such as the Fund through or with the assistance of
investment dealers who make a market in the Section 4(2) paper, thereby
providing liquidity. Certain transactions in Section 4(2) paper may qualify for
the registration exemption provided in Rule 144A under the Securities Act of
1933.

     Repurchase Agreements. The Portfolio may agree to purchase securities from
financial institutions subject to the seller's agreement to repurchase them at
an agreed upon time and price ("repurchase agreements"). Repurchase agreements
are, in substance, loans. Default by or bankruptcy of a seller would expose the
Portfolio to possible loss

                                       8
<PAGE>

because of adverse market action, expenses and/or delays in connection with the
disposition of the underlying obligations.

     The repurchase price under the repurchase agreements generally equals the
price paid by the Portfolio involved plus interest negotiated on the basis of
current short-term rates (which may be more or less than the rate on securities
underlying the repurchase agreement). The financial institutions with which the
Portfolio may enter into repurchase agreements will be banks and non-bank
dealers of U.S. Government securities that are listed on the Federal Reserve
Bank of New York's list of reporting dealers, if such banks and non-bank dealers
are deemed creditworthy by the Portfolio's adviser and/or sub-adviser. The
Portfolio's adviser and/or sub-adviser will continue to monitor creditworthiness
of the seller under a repurchase agreement, and will require the seller to
maintain during the term of the agreement the value of the securities subject to
the agreement to equal at least the repurchase price (including accrued
interest). In addition, the Portfolio's adviser and/or sub-adviser will require
that the value of this collateral, after transaction costs (including loss of
interest) reasonably expected to be incurred on a default, be equal to or
greater than the repurchase price (including accrued premium) provided in the
repurchase agreement. The accrued premium is the amount specified in the
repurchase agreement or the daily amortization of the difference between the
purchase price and the repurchase price specified in the repurchase agreement.
The Portfolio's adviser and/or sub-adviser will mark-to-market daily the value
of the securities. Securities subject to repurchase agreements will be held by
the Fund's custodian (or sub-custodian) in the Federal Reserve/Treasury book-
entry system or by another authorized securities depository. Repurchase
agreements are considered to be loans by the Portfolio under the 1940 Act.

     The use of repurchase agreements involves certain risks. For example, if
the seller of securities under a repurchase agreement defaults on its obligation
to repurchase the underlying securities, as a result of its bankruptcy or
otherwise, the Portfolio will seek to dispose of such securities, which action
could involve costs or delays. If the seller becomes insolvent and subject to
liquidation or reorganization under applicable bankruptcy or other laws, the
Portfolio's ability to dispose of the underlying securities may be restricted.
Finally, it is possible that the Portfolio may not be able to substantiate its
interest in the underlying securities. To minimize this risk, the securities
underlying the repurchase agreement will be held by the custodian at all times
in an amount at least equal to the repurchase price, including accrued interest.
If the seller fails to repurchase the securities, the Portfolio may suffer a
loss to the extent proceeds from the sale of the underlying securities are less
than the repurchase price.

     Investment Grade Debt Obligations. The Portfolio may invest in "investment
grade securities," which are securities rated in the four highest rating
categories of an NRSRO or deemed to be of equivalent quality by the Portfolio's
adviser and/or sub-adviser. It should be noted that debt obligations rated in
the lowest of the top four ratings (i.e., "Baa" by Moody's or "BBB" by S&P) are
considered to have some speculative characteristics and are more sensitive to
economic change than higher rated securities. If an investment grade security of
the Portfolio is subsequently downgraded below investment grade, the Portfolio's
adviser and/or sub-adviser(s) will consider such an event in determining whether
the Portfolio should continue to hold the security. Subject to its other
investment strategies, there is no limit on the amount of such downgraded
securities the Portfolio may hold, although under normal market conditions the
adviser and/or sub-adviser do not expect to hold these securities to a material
extent.

     See Appendix A to this Statement of Additional Information for a
description of applicable securities ratings.

     Non-Investment Grade Securities. The Portfolio may invest in non-
investment grade or "high yield" fixed income or convertible securities commonly
known to investors as "junk bonds."

     High yield securities are bonds that are issued by a company whose credit
rating (based on rating agencies' evaluation of the likelihood of repayment)
necessitates offering a higher coupon and yield on its issues when selling them
to investors who may otherwise be hesitant in purchasing the debt of such a
company. While generally providing greater income and opportunity for gain,
non-investment grade debt securities may be subject to greater risks than
securities which have higher credit ratings, including a high risk of default,
and their yields will fluctuate over time. High yield securities will generally
be in the lower rating categories of recognized rating agencies (rated "Ba" or
lower by Moody's or "BB" or lower by S&P) or will be non-rated. The credit
rating of a high yield security does not necessarily address its market value
risk, and ratings may from time to time change, positively or negatively, to
reflect developments regarding the issuer's financial condition. High yield
securities are considered to be

                                       9
<PAGE>

speculative with respect to the capacity of the issuer to timely repay principal
and pay interest or dividends in accordance with the terms of the obligation and
may have more credit risk than higher rated securities.

     While the market values of high yield securities tend to react less to
fluctuations in interest rates than do those of higher rated securities, the
values of high yield securities often reflect individual corporate developments
and have a high sensitivity to economic changes to a greater extent than do
higher rated securities. Issuers of high yield securities are often in the
growth stage of their development and/or involved in a reorganization or
takeover. The companies are often highly leveraged (have a significant amount of
debt relative to shareholders' equity) and may not have available to them more
traditional financing methods, thereby increasing the risk associated with
acquiring these types of securities. In some cases, obligations with respect to
high yield securities are subordinated to the prior repayment of senior
indebtedness, which will potentially limit the Portfolio's ability to fully
recover principal or to receive interest payments when senior securities are in
default. Thus, investors in high yield securities have a lower degree of
protection with respect to principal and interest payments then do investors in
higher rated securities.

     During an economic downturn, a substantial period of rising interest rates
or a recession, highly leveraged issuers of high yield securities may experience
financial distress possibly resulting in insufficient revenues to meet their
principal and interest payment obligations, to meet projected business goals and
to obtain additional financing. An economic downturn could also disrupt the
market for lower-rated securities and adversely affect the value of outstanding
securities, the Portfolio's net asset value and the ability of the issuers to
repay principal and interest. If the issuer of a security held by the Portfolio
defaulted, the Portfolio may not receive full interest and principal payments
due to it and could incur additional expenses if it chose to seek recovery of
its investment.

     The secondary markets for high yield securities are not as liquid as the
secondary markets for higher rated securities. The secondary markets for high
yield securities are concentrated in relatively few market makers and
participants in the markets are mostly institutional investors, including
insurance companies, banks, other financial institutions and mutual funds. In
addition, the trading volume for high yield securities is generally lower than
that for higher rated securities and the secondary markets could contract under
adverse market or economic conditions independent of any specific adverse
changes in the condition of a particular issuer. Under certain economic and/or
market conditions, the Portfolio may have difficulty disposing of certain high
yield securities due to the limited number of investors in that sector of the
market. An illiquid secondary market may adversely affect the market price of
the high yield security, which may result in increased difficulty selling the
particular issue and obtaining accurate market quotations on the issue when
valuing the Portfolio's assets. Market quotations on high yield securities are
available only from a limited number of dealers, and such quotations may not be
the actual prices available for a purchase or sale.

     The high yield markets may react strongly to adverse news about an issuer
or the economy, or to the perception or expectation of adverse news, whether or
not it is based on fundamental analysis. Additionally, prices for high yield
securities may be affected by legislative and regulatory developments. These
developments could adversely affect the Portfolio's net asset value and
investment practices, the secondary market for high yield securities, the
financial condition of issuers of these securities and the value and liquidity
of outstanding high yield securities, especially in a thinly traded market. For
example, federal legislation requiring the divestiture by federally insured
savings and loan associations of their investments in high yield bonds and
limiting the deductibility of interest by certain corporate issuers of high
yield bonds adversely affected the market in recent years.

     When the secondary market for high yield securities becomes more illiquid,
or in the absence of readily available market quotations for such securities,
the relative lack of reliable objective data makes it more difficult to value
the Portfolio's securities, and judgment plays a more important role in
determining such valuations. Increased illiquidity in the junk bond market, in
combination with the relative youth and growth of the market for such
securities, also may affect the ability of the Portfolio to dispose of such
securities at a desirable price. Additionally, if the secondary markets for high
yield securities contract due to adverse economic conditions or for other
reasons, certain of the Portfolio's liquid securities may become illiquid and
the proportion of the Portfolio's assets invested in illiquid securities may
significantly increase.

     The rating assigned by a rating agency evaluates the safety of a non-
investment grade security's principal and interest payments, but does not
address market value risk. Because such ratings of the ratings agencies may not
always reflect current conditions and events, in addition to using recognized
rating agencies and other sources, the

                                       10
<PAGE>

sub-adviser performs its own analysis of the issuers whose non-investment grade
securities the Portfolio holds. Because of this, the Portfolio's performance may
depend more on the sub-adviser's own credit analysis than in the case of mutual
funds investing in higher-rated securities. For a description of these ratings,
see Appendix A.

     In selecting non-investment grade securities, the adviser and/or sub-
adviser considers factors such as those relating to the creditworthiness of
issuers, the ratings and performance of the securities, the protections afforded
the securities and the diversity of the Portfolio. The adviser and/or sub-
adviser continuously monitors the issuers of non-investment grade securities
held by the Portfolio for their ability to make required principal and interest
payments, as well as in an effort to control the liquidity of the Portfolio so
that it can meet redemption requests. If a security's rating is reduced below
the minimum credit rating that is permitted for the Portfolio, the Portfolio's
adviser and/or sub-adviser will consider whether the Portfolio should continue
to hold the security.

     In the event that the Portfolio investing in high yield securities
experiences an unexpected level of net redemptions, the Portfolio could be
forced to sell its holdings without regard to the investment merits, thereby
decreasing the assets upon which the Portfolio's rate of return is based.

     The costs attributable to investing in the high yield markets are usually
higher for several reasons, such as higher investment research costs and higher
commission costs.

     The Portfolio may invest in securities rated in the category "C" and above
or determined by the adviser and/or sub-adviser to be of comparable quality.
Securities rated "C" are considered highly speculative and may be used to cover
a situation where the issuer has filed a bankruptcy petition but debt service
payments are continued. While such debt will likely have some quality and
protective characteristics, those are outweighed by large uncertainties or major
risk exposure to adverse conditions.

     Collateralized Bond Obligations. The Portfolio may invest in collateralized
bond obligations ("CBOs"), which are structured products backed by a diversified
pool of high yield public or private fixed income securities. The pool of high
yield securities is typically separated into tranches representing different
degrees of credit quality. The top tranche of CBOs, which represents the highest
credit quality in the pool, has the greatest collateralization and pays the
lowest interest rate. Lower CBO tranches represent lower degrees of credit
quality and pay higher interest rates to compensate for the attendant risks. The
bottom tranche specifically receives the residual interest payments (i.e., money
that is left over after the higher tiers have been paid) rather than a fixed
interest rate. The return on the bottom tranche of CBOs is especially sensitive
to the rate of defaults in the collateral pool.

     When-Issued Purchases and Forward Commitments. The Portfolio may purchase
securities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment," including "TBA" (to be announced) basis. These
transactions involve a commitment by the Portfolio to purchase or sell
particular securities with payment and delivery taking place at a future date
(perhaps one or two months later), and permit the Portfolio to lock in a price
or yield on a security it owns or intends to purchase, regardless of future
changes in interest rates or market action. When-issued and forward commitment
transactions involve the risk, however, that the price or yield obtained in a
transaction may be less favorable than the price or yield available in the
market when the securities delivery takes place.

     When the Portfolio agrees to purchase securities on this basis, the
custodian will set aside liquid assets equal to the amount of the commitment in
a separate account. Normally, the custodian will set aside portfolio securities
to satisfy a purchase commitment, and in such a case the Portfolio may be
required subsequently to place additional assets in the separate account in
order to ensure that the value of the account remains equal to the amount of the
Portfolio's commitments. It may be expected that the market value of the
Portfolio's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash. Because the Portfolio's liquidity and ability to manage its portfolio
might be affected when it sets aside cash or portfolio securities to cover such
purchase commitments, the Portfolio expects that its forward commitments and
commitments to purchase when-issued or TBA securities will not exceed 25% of the
value of its total assets absent unusual market conditions.

     If deemed advisable as a matter of investment strategy, the Portfolio may
dispose of or renegotiate a commitment after it has been entered into, and may
sell securities it has committed to purchase before those securities

                                       11
<PAGE>

are delivered to the Portfolio on the settlement date. In these cases the
Portfolio may realize a taxable capital gain or loss.

     When the Portfolio engages in when-issued, TBA or forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such party to do so may result in the Portfolio's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.

     The market value of the securities underlying a commitment to purchase
securities, and any subsequent fluctuations in their market value, is taken into
account when determining the market value of the Portfolio starting on the day
the Portfolio agrees to purchase the securities. The Portfolio does not earn
interest on the securities it has committed to purchase until they are paid for
and delivered on the settlement date.

     Rights Offerings and Warrants to Purchase. The Portfolio may participate in
rights offerings and may purchase warrants, which are privileges issued by
corporations enabling the owners to subscribe to and purchase a specified number
of shares of the corporation at a specified price during a specified period of
time. Subscription rights normally have a short life span to expiration. The
purchase of rights or warrants involves the risk that the Portfolio could lose
the purchase value of a right or warrant if the right to subscribe to additional
shares is not exercised prior to the rights' and warrants' expiration. Also, the
purchase of rights and/or warrants involves the risk that the effective price
paid for the right and/or warrant added to the subscription price of the related
security may exceed the value of the subscribed security's market price such as
when there is no movement in the level of the underlying security. The Portfolio
will not invest more than 5% of its net assets, taken at market value, in
warrants, or more than 2% of its net assets, taken at market value, in warrants
not listed on the New York or American Stock Exchanges. Warrants acquired by the
Portfolio in units or attached to other securities are not subject to this
restriction.

     Options and Futures Contracts. To the extent consistent with its investment
objective, the Portfolio may write (i.e. sell) covered call options, buy put
options, buy call options and write secured put options for the purpose of
hedging or earning additional income, which may be deemed speculative or
cross-hedging. For the payment of a premium, the purchaser of an option obtains
the right to buy (in the case of a call option) or to sell (in the case of a put
option) the item which is the subject of the option at a stated exercise price
for a specific period of time. These options may relate to particular
securities, securities indices, or foreign currencies, and may or may not be
listed on a securities exchange and may or may not be issued by the Options
Clearing Corporation. While the Portfolio will not purchase put and call options
when the aggregate premiums on outstanding options exceed 5% of its net assets
at the time of purchase, and will not write options on more than 25% of the
value of its net assets (measured at the time an option is written), there is no
limit on the amount of the Portfolio's assets that can be put at risk through
the use of options. Options trading is a highly specialized activity that
entails greater than ordinary investment risks. In addition, unlisted options
are not subject to the protections afforded purchasers of listed options issued
by the Options Clearing Corporation, which performs the obligations of its
members if they default.

     To the extent consistent with its investment objective, the Portfolio may
also invest in futures contracts and options on futures contracts (interest rate
futures contracts or index futures contracts, as applicable) to commit funds
awaiting investment or maintain cash liquidity or, except with respect to the
Index Master Portfolio, for other hedging purposes. These instruments are
described in Appendix B to this Statement of Additional Information. The value
of the Portfolio's contracts may equal or exceed 100% of its total assets,
although the Portfolio will not purchase or sell a futures contract unless
immediately afterwards the aggregate amount of margin deposits on its existing
futures positions plus the amount of premiums paid for related futures options
entered into for other than bona fide hedging purposes is 5% or less of its net
assets. There is no limit on the amount of the Portfolio's assets that can be
put at risk through the use of futures contracts.

     To maintain greater flexibility, the Portfolio may invest in instruments
which have the characteristics of futures contracts. These instruments may take
a variety of forms, such as debt securities with interest or principal payments
determined by reference to the value of a commodity at a future point in time.
The risks of such investments could reflect the risks of investing in futures
and securities, including volatility and illiquidity.

     Futures contracts obligate the Portfolio, at maturity, to take or make
delivery of securities, the cash value of a securities index or a stated
quantity of a foreign currency. The Portfolio may sell a futures contract in
order to offset

                                       12
<PAGE>

an expected decrease in the value of its portfolio positions that might
otherwise result from a market decline or currency exchange fluctuation. The
Portfolio may do so either to hedge the value of its securities portfolio as a
whole, or to protect against declines occurring prior to sales of securities in
the value of the securities to be sold. In addition, the Portfolio may utilize
futures contracts in anticipation of changes in the composition of its holdings
or in currency exchange rates.

     The Portfolio may purchase and sell call and put options on futures
contracts traded on an exchange or board of trade. When the Portfolio purchases
an option on a futures contract, it has the right to assume a position as a
purchaser or a seller of a futures contract at a specified exercise price during
the option period. When the Portfolio sells an option on a futures contract, it
becomes obligated to sell or buy a futures contract if the option is exercised.
In connection with the Portfolio's position in a futures contract or related
option, the Fund will create a segregated account of liquid assets or will
otherwise cover its position in accordance with applicable SEC requirements.

     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 the Portfolio 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 adviser and/or sub-adviser' 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.

     The Fund intends to comply with the regulations of the Commodity Futures
Trading Commission exempting the Portfolio from registration as a "commodity
pool operator."

     Options trading is a highly specialized activity which entails greater than
ordinary investment risks. Options on particular securities may be more volatile
than the underlying securities, and therefore, on a percentage basis, an
investment in the underlying securities themselves. The Portfolio will write
call options only if they are "covered." In the case of a call option on a
security, the option is "covered" if the Portfolio owns the security underlying
the call or has an absolute and immediate right to acquire that security without
additional cash consideration (or, if additional cash consideration is required,
liquid assets in such amount as are held in a segregated account by its
custodian) upon conversion or exchange of other securities held by it. For a
call option on an index, the option is covered if the Portfolio maintains with
its custodian liquid assets equal to the contract value. A call option is also
covered if the Portfolio holds a call on the same security or index as the call
written where the exercise price of the call held is (i) equal to or less than
the exercise price of the call written, or (ii) greater than the exercise price
of the call written provided the difference is maintained by the Portfolio in
liquid assets in a segregated account with its custodian.

     When the Portfolio purchases a put option, the premium paid by it is
recorded as an asset of the Portfolio. When the Portfolio writes an option, an
amount equal to the net premium (the premium less the commission) received by
the Portfolio is included in the liability section of the Portfolio's statement
of assets and liabilities as a deferred credit. The amount of this asset or
deferred credit will be subsequently marked-to-market to reflect the current
value of the option purchased or written. The current value of the traded option
is the last sale price or, in the absence of a sale, the mean between the last
bid and asked prices. If an option purchased by the Portfolio expires
unexercised the Portfolio realizes a loss equal to the premium paid. If the
Portfolio enters into a closing sale transaction on an option purchased by it,
the Portfolio will realize a gain if the premium received by the Portfolio on
the closing transaction is more than the premium paid to purchase the option, or
a loss if it is less. If an option written by the Portfolio expires on the
stipulated expiration date or if the Portfolio enters into a closing purchase
transaction, it will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold) and the
deferred credit related to such option will be eliminated. If an option written
by the Portfolio is exercised, the proceeds of the sale will be increased by the
net premium originally received and the Portfolio will realize a gain or loss.

     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;

                                       13
<PAGE>

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 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 Options Clearing
Corporation as a result of trades on that Exchange would continue to be
exercisable in accordance with their terms.

     Interest Rate Transactions and Currency Swaps. The Portfolio may enter into
interest rate swaps and may purchase or sell interest rate caps and floors. The
Portfolio may enter into these transactions primarily to preserve a return or
spread on a particular investment or portion of their holdings, as a duration
management technique or to protect against an increase in the price of
securities the Portfolio anticipates purchasing at a later date. The Portfolio
intends to use these transactions as a hedge and not as a speculative
investment.

     In addition, the Portfolio may engage in foreign currency exchange
transactions to protect against uncertainty in the level of future exchange
rates. The Portfolio may engage in foreign currency exchange transactions in
connection with the purchase and sale of portfolio securities (transaction
hedging) and to protect the value of specific portfolio positions (position
hedging). The Portfolio may purchase or sell a foreign currency on a spot (or
cash) basis at the prevailing spot rate in connection with the settlement of
transactions in portfolio securities denominated in that foreign currency, and
may also enter into contracts to purchase or sell foreign currencies at a future
date ("forward contracts") and purchase and sell foreign currency futures
contracts (futures contracts). The Portfolio may also purchase exchange-listed
and over-the-counter call and put options on futures contracts and on foreign
currencies, and may write covered call options on up to 100% of the currencies
in its portfolio. In order to protect against currency fluctuations, the
Portfolio may enter into currency swaps. Currency swaps involve the exchange of
the rights of the Portfolio and another party to make or receive payments in
specified currencies.

     The Portfolio may enter into interest rate swaps, caps and floors on either
an asset-based or liability-based basis, depending on whether the Portfolio is
hedging its assets or its liabilities. Interest rate swaps involve the exchange
by the Portfolio with another party of their respective commitments to pay or
receive interest (e.g., an exchange of floating rate payments for fixed rate
payments). The purchase of an interest rate floor entitles the purchaser, to the
extent that a specified index falls below a predetermined interest rate, to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The purchase of an interest rate cap entitles
the purchaser, to the extent that a specified index exceeds a predetermined
interest rate, to receive payments of interest on a notional principal amount
from the party selling such interest rate cap. The Portfolio may also enter into
currency swaps, which involve the exchange of the rights of the Portfolio and
another party to make or receive payments in specified currencies.

     The Portfolio will usually enter into interest rate swaps on a net basis,
i.e., the two payment streams are netted out, with the Portfolio receiving or
paying, as the case may be, only the net amount of the two payments. In
contrast, currency swaps usually involve the delivery of the entire principal
value of one designated currency in exchange for the other designated currency.

     The Portfolio will accrue the net amount of the excess, if any, of its
obligations over its entitlements with respect to each interest rate or currency
swap on a daily basis and will deliver an amount of liquid assets having an
aggregate net asset value at least equal to the accrued excess to a custodian
that satisfies the requirements of the 1940 Act. If the other party to an
interest rate swap defaults, the Portfolio's risk of loss consists of the net
amount of interest payments that the Portfolio is contractually entitled to
receive. Because currency swaps usually involve the delivery of the entire
principal value of one designated currency in exchange for the other designated
currency, the entire principal value of a currency swap is subject to the risk
that the other party to the swap will default on its contractual delivery
obligations. The Portfolio will not enter into any interest rate or currency
swap unless the unsecured commercial paper, senior debt or claims paying ability
of the other party is rated either "A" or "A-1" or better by S&P, Duff & Phelps
or Fitch, or "A" or "P-1" or better by Moody's.

                                       14
<PAGE>

     The Portfolio will enter into currency or interest rate swap, cap and floor
transactions only with institutions deemed the creditworthy by the Portfolio's
adviser and/or sub-adviser. If there is a default by the other party to such a
transaction, the Portfolio will have contractual remedies pursuant to the
agreements related to the transaction. The swap market has grown substantially
in recent years with a large number of banks and investment banking firms acting
both as principals and as agents utilizing standardized swap documentation. As a
result, the swap market has become relatively liquid. Caps and floors are more
recent innovations and, accordingly, they are less liquid than swaps.

     Stand-by Commitments. Under a stand-by commitment for a Municipal
Obligation, a dealer agrees to purchase at the Portfolio's option a specified
Municipal Obligation at a specified price. Stand-by commitments for Municipal
Obligations may be exercisable by the Portfolio at any time before the maturity
of the underlying Municipal Obligations and may be sold, transferred or assigned
only with the instruments involved. It is expected that such stand-by
commitments will generally be available without the payment of any direct or
indirect consideration. However, if necessary or advisable, the Portfolio may
pay for such a stand-by commitment either separately in cash or by paying a
higher price for Municipal Obligations which are acquired subject to the
commitment for Municipal Obligations (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding stand-by commitments for Municipal Obligations held by
the Portfolio will not exceed 1/2 of 1% of the value of the Portfolio's total
assets calculated immediately after each stand-by commitment is acquired.

     Stand-by commitments will only be entered into with dealers, banks and
broker-dealers which, in a sub-adviser's opinion, present minimal credit risks.
The Portfolio will acquire stand-by commitments solely to facilitate portfolio
liquidity and not to exercise its rights thereunder for trading purposes.
Stand-by commitments will be valued at zero in determining net asset value.
Accordingly, where the Portfolio pays directly or indirectly for a stand-by
commitment, its cost will be reflected as an unrealized loss for the period
during which the commitment is held by the Portfolio and will be reflected as a
realized gain or loss when the commitment is exercised or expires.

     Municipal Investments. The two principal classifications of Municipal
Obligations are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities 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 source such as the user of the
facility being financed. Revenue securities include private activity bonds which
are not payable from the unrestricted revenues of the issuer. Consequently, the
credit quality of private activity bonds is usually directly related to the
credit standing of the corporate user of the facility involved. Municipal
Obligations may also include "moral obligation" bonds, which are normally issued
by special purpose public authorities. If the issuer of moral obligation bonds
is unable to meet its debt service obligations from current revenues, it may
draw on a reserve fund the restoration of which is a moral commitment but not a
legal obligation of the state or municipality which created the issuer.

     Also included within the general category of Municipal Obligations are
participation certificates in a lease, an installment purchase contract, or a
conditional sales contract ("lease obligations") entered into by a state or
political subdivision to finance the acquisition or construction of equipment,
land, or facilities. Although lease obligations are not general obligations of
the issuer for which the state or other governmental body's unlimited taxing
power is pledged, certain lease obligations are backed by a covenant to
appropriate money to make the lease obligation payments. However, under certain
lease obligations, the state or governmental body has no obligation to make
these payments in future years unless money is appropriated on a yearly basis.
Although "non-appropriation" lease obligations are secured by the leased
property, disposition of the property in the event of foreclosure might prove
difficult. These securities represent a relatively new type of financing that is
not yet as marketable as more conventional securities.

     The Portfolio may acquire "stand-by commitments" with respect to Municipal
Obligations held by it. Under a stand-by commitment, a dealer agrees to
purchase, at the Portfolio's option, specified Municipal Obligations at a
specified price. The acquisition of a stand-by commitment may increase the cost,
and thereby reduce the yield, of the Municipal Obligations to which the
commitment relates. The Portfolio may also invest in tax-exempt derivative
securities relating to Municipal Obligations, including tender option bonds,
participations, beneficial interests in trusts and partnership interests.

                                       15
<PAGE>

     The amount of information regarding the financial condition of issuers of
Municipal Obligations may be less extensive than the information for public
corporations, and the secondary market for Municipal Obligations may be less
liquid than that for taxable obligations. Accordingly, the ability of the
Portfolio to buy and sell Municipal Obligations may, at any particular time and
with respect to any particular securities, be limited. In addition, Municipal
Obligations purchased by the Portfolio include obligations backed by letters of
credit and other forms of credit enhancement issued by domestic and foreign
banks, as well as other financial institutions. Changes in the credit quality of
these institutions could cause loss to the Portfolio and affect its share price.

     Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from Federal and state income tax are rendered by
counsel to the respective issuers and sponsors of the obligations at the time of
issuance. The Fund and its service providers will rely on such opinions and will
not review independently the underlying proceedings relating to the issuance of
Municipal Obligations, the creation of any tax-exempt derivative securities, or
the bases for such opinions.

     Tax-Exempt Derivatives. The Portfolio may hold tax-exempt derivatives which
may be in the form of tender option bonds, participations, beneficial interests
in a trust, partnership interests or other forms. A number of different
structures have been used. For example, interests in long-term fixed- rate
municipal debt obligations, held by a bank as trustee or custodian, are coupled
with tender option, demand and other features when the tax-exempt derivatives
are created. Together, these features entitle the holder of the interest to
tender (or put) the underlying municipal debt obligation to a third party at
periodic intervals and to receive the principal amount thereof. In some cases,
municipal debt obligations are represented by custodial receipts evidencing
rights to receive specific future interest payments, principal payments, or
both, on the underlying securities held by the custodian. Under such
arrangements, the holder of the custodial receipt has the option to tender the
underlying securities at their face value to the sponsor (usually a bank or
broker dealer or other financial institution), which is paid periodic fees equal
to the difference between the securities' fixed coupon rate and the rate that
would cause the securities, coupled with the tender option, to trade at par on
the date of a rate adjustment. A participation interest gives the Fund an
undivided interest in a Municipal Obligation in the proportion the Fund's
participation bears to the total principal amount of the Municipal Obligation,
and typically provides for a repurchase feature for all or any part of the full
principal amount of the participation interest, plus accrued interest. Trusts
and partnerships are typically used to convert long-term fixed rate high quality
bonds of a single state or municipal issuer into variable or floating rate
demand instruments. The purchase of an interest in the trust can be financed
through the trust at short term municipal interest rates in which the fund
receives the difference of the underlying coupon and short term municipal rates.
Since the fund borrows money in order to finance this trade it should be
considered "leverage." The Portfolio may hold tax-exempt derivatives, such as
participation interests and custodial receipts, for municipal debt obligations
which give the holder the right to receive payment of principal subject to the
conditions described above. The Internal Revenue Service has not ruled on
whether the interest received on tax-exempt derivatives in the form of
participation interests or custodial receipts is tax-exempt, and accordingly,
purchases of any such interests or receipts are based on the opinions of counsel
to the sponsors of such derivative securities. Neither the Fund nor the adviser
and/or sub-adviser will review the proceedings related to the creation of any
tax-exempt derivatives or the basis for such opinions.

     Tax-Exempt Preferred Shares. The Portfolio may invest in preferred
interests of other investment funds that pay dividends that are exempt from
regular Federal income tax. Such funds in turn invest in municipal bonds and
other assets that pay interest or make distributions that are exempt from
regular Federal income tax, such as revenue bonds issued by state or local
agencies to fund the development of low-income, multi-family housing. Investment
in such tax-exempt preferred shares involves many of the same issues as
investing in other open- or closed-end investment companies as discussed below.
These investments also have additional risks, including liquidity risk, the
absence of regulation governing investment practices, capital structure and
leverage, affiliated transactions and other matters, and concentration of
investments in particular issuers or industries. Revenue bonds issued by state
or local agencies to finance the development of low-income, multi-family housing
involve special risks in addition to those associated with municipal bonds
generally, including that the underlying properties may not generate sufficient
income to pay expenses and interest costs. Such bonds are generally non-recourse
against the property owner, may be junior to the rights of others with an
interest in the properties, may pay interest that changes based in part on the
financial performance of the property, may be prepayable without penalty and may
be used to finance the construction of housing developments which, until
completed and rented, do not generate income to pay interest. Increases in
interest rates payable on senior obligations may make it more difficult for
issuers to meet payment obligations on

                                       16
<PAGE>

subordinated bonds. The Portfolio will treat investments in tax-exempt preferred
shares as investments in municipal bonds.

     Securities Lending. The Portfolio may seek additional income by lending
securities on a short-term basis. The securities lending agreements will require
that the loans be secured by collateral in cash, U.S. Government securities or
irrevocable bank letters of credit maintained on a current basis equal in value
to at least the market value of the loaned securities. The Portfolio may not
make such loans in excess of 33 1/3% of the value of its total assets.
Securities loans involve risks of delay in receiving additional collateral or in
recovering the loaned securities, or possibly loss of rights in the collateral
if the borrower of the securities becomes insolvent.

     The Portfolio would continue to accrue interest on loaned securities and
would also earn income on investment collateral for such loans. Any cash
collateral received by the Portfolio in connection with such loans may be
invested in a broad range of high quality, U.S. dollar-denominated money market
instruments that meet Rule 2a-7 restrictions for money market funds.
Specifically, cash collateral may be invested in any of the following
instruments: (a) securities issued or guaranteed as to principal and interest by
the U.S. Government or by its agencies or instrumentalities and related
custodial receipts; (b) "first tier" quality commercial paper and other
obligations issued or guaranteed by U.S. and foreign corporations and other
issuers rated (at the time of purchase) in the highest rating category by at
least two NRSRO's, or one if only rated by one NRSRO; (c) U.S. dollar-
denominated obligations issued or supported by the credit of U.S. or foreign
banks or savings institutions with total assets in excess of $1 billion
(including obligations of foreign branches of such banks) (i.e. CD's, BA's and
time deposits); (d) repurchase agreements relating to the above instruments, as
well as corporate debt; and (e) unaffiliated money market funds. Any such
investments must be rated "first tier" and must have a maturity of 397 days or
less from the date of purchase.

     Yields and Ratings. The yields on certain obligations are dependent on a
variety of factors, including general market conditions, conditions in the
particular market for the obligation, the financial condition of the issuer, the
size of the offering, the maturity of the obligation and the ratings of the
issue. The ratings of Moody's, Duff & Phelps Credit Co. ("Duff & Phelps"), Fitch
Investor Services, Inc. ("Fitch") and S&P represent their respective opinions as
to the quality of the obligations they undertake to rate. Ratings, however, are
general and are not absolute standards of quality. Consequently, obligations
with the same rating, maturity and interest rate may have different market
prices. Subsequent to its purchase by the Portfolio, a rated security may cease
to be rated. The Portfolio's adviser and/or sub-adviser will consider such an
event in determining whether the Portfolio should continue to hold the security.
Subject to its other investment strategies, there is not limit on the amount of
unrated securities the Portfolio may hold, although under normal markets
conditions the adviser and/or sub-adviser do not expect to hold these securities
to a material extent.

     Investment Companies. In connection with the management of their daily cash
positions, the Portfolio may invest in securities issued by other investment
companies which invest in short-term debt securities and which seek to maintain
a $1.00 net asset value per share. The Portfolio may also invest in securities
issued by other investment companies with similar investment objectives. The
Portfolio may purchase shares of investment companies investing primarily in
foreign securities, including so-called "country funds." Country funds have
portfolios consisting exclusively of securities of issuers located in one
foreign country. Securities of other investment companies will be acquired
within limits prescribed by the Investment Company Act of 1940 (the "1940 Act").
As a shareholder of another investment company, the Portfolio would bear, along
with other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory fees and other expenses the Portfolio bears directly in connection with
its own operations.

     The Portfolio currently intends to limit its investments so that, as
determined immediately after a securities purchase is made: (i) not more than 5%
of the value of its total assets will be invested in the securities of any one
investment company; (ii) not more than 10% of the value of its total assets will
be invested in the aggregate in securities of investment companies as a group;
and (iii) not more than 3% of the outstanding voting stock of any one investment
company will be owned by the Portfolio or by the Fund as a whole.

     Stripped and Zero Coupon Obligations. To the extent consistent with their
investment objectives, the Portfolio may purchase Treasury receipts and other
"stripped" securities that evidence ownership in either the future interest
payments or the future principal payments on U.S. Government and other
obligations. These participations, which may be issued by the U.S. Government
(or a U.S. Government agency or instrumentality) or by private issuers

                                       17
<PAGE>

such as banks and other institutions, are issued at a discount to their "face
value," and may include stripped mortgage-backed securities ("SMBS"). Stripped
securities, particularly SMBS, may exhibit greater price volatility than
ordinary debt securities because of the manner in which their principal and
interest are returned to investors, and they are often illiquid. The Portfolio
also may purchase "stripped" securities that evidence ownership in the future
interest payments or principal payments on obligations of foreign governments.

     SMBS are usually structured with two or more classes that receive different
proportions of the interest and principal distributions from a pool of mortgage-
backed obligations. A common type of SMBS will have one class receiving all of
the interest ("IO" or interest-only), while the other class receives all of the
principal ("PO" or principal-only). However, in some cases, one class will
receive some of the interest and most of the principal while the other class
will receive most of the interest and the remainder of the principal. If the
underlying obligations experience greater than anticipated prepayments of
principal, the Portfolio may fail to fully recoup its initial investment. The
market value of SMBS can be extremely volatile in response to changes in
interest rates. The yields on a class of SMBS that receives all or most of the
interest are generally higher than prevailing market yields on other mortgage-
related obligations because their cash flow patterns are also volatile and there
is a greater risk that the initial investment will not be fully recouped.

     The Portfolio may invest in zero-coupon bonds, which are normally issued at
a significant discount from face value and do not provide for periodic interest
payments. Zero-coupon bonds may experience greater volatility in market value
than similar maturity debt obligations which provide for regular interest
payments. Additionally, current federal tax law requires the holder of certain
zero-coupon bonds to accrue income with respect to these securities prior to the
receipt of cash payments. To maintain its qualification as a regulated
investment company and avoid liability for federal income and excise taxes, the
Portfolio may be required to distribute income accrued with respect to these
securities and may have to dispose of portfolio securities under disadvantageous
circumstances in order to generate cash to satisfy these distribution
requirements. See "Taxes."

     Guaranteed Investment Contracts. The Portfolio may make limited investments
in guaranteed investment contracts ("GICs") issued by highly rated U.S.
insurance companies. Under these contracts, the Portfolio makes cash
contributions to a deposit fund of the insurance company's general account. The
insurance company then credits to the Portfolio, on a monthly basis, interest
which is based on an index (such as the Salomon Brothers CD Index), but is
guaranteed not to be less than a certain minimum rate. The Portfolio does not
expect to invest more than 5% of its net assets in GICs at any time during the
current fiscal year.

     Dollar Roll Transactions. To take advantage of attractive opportunities in
the mortgage market and to enhance current income, the Portfolio may enter into
dollar roll transactions. A dollar roll transaction involves a sale by the
Portfolio of a mortgage-backed or other security concurrently with an agreement
by the Portfolio to repurchase a similar security at a later date at an agreed-
upon price. The securities that are repurchased will bear the same interest rate
and stated maturity as those sold, but pools of mortgages collateralizing those
securities may have different prepayment histories than those sold. During the
period between the sale and repurchase, the Portfolio will not be entitled to
receive interest and principal payments on the securities sold. Proceeds of the
sale will be invested in additional instruments for the Portfolio, and the
income from these investments will generate income for the Portfolio. If such
income does not exceed the income, capital appreciation and gain or loss that
would have been realized on the securities sold as part of the dollar roll, the
use of this technique will diminish the investment performance of the Portfolio
compared with what the performance would have been without the use of dollar
rolls. At the time the Portfolio enters into a dollar roll transaction, it will
place in a segregated account maintained with its custodian cash, U.S.
Government securities or other liquid securities having a value equal to the
repurchase price (including accrued interest) and will subsequently monitor the
account to ensure that its value is maintained. The Portfolio's dollar rolls,
together with its reverse repurchase agreements and other borrowings, will not
exceed, in the aggregate, 33 1/3% of the value of its total assets.

     Dollar roll transactions involve the risk that the market value of the
securities the Portfolio is required to purchase may decline below the agreed
upon repurchase price of those securities. If the broker/dealer to whom the
Portfolio sells securities becomes insolvent, the Portfolio's right to purchase
or repurchase securities may be restricted. Successful use of mortgage dollar
rolls may depend upon the adviser and/or sub-adviser's ability to correctly
predict interest rates and prepayments. There is no assurance that dollar rolls
can be successfully employed.

                                       18
<PAGE>

     Short Sales. The Portfolio may only make short sales of securities
"against-the-box." A short sale is a transaction in which the Portfolio sells a
security it does not own in anticipation that the market price of that security
will decline. The Portfolio may make short sales both as a form of hedging to
offset potential declines in long positions in similar securities and in order
to maintain portfolio flexibility. In a short sale "against-the-box," at the
time of sale, the Portfolio owns or has the immediate and unconditional right to
acquire the identical security at no additional cost. When selling short
"against-the-box," the Portfolio forgoes an opportunity for capital appreciation
in the security.

     Interest Rate and Extension Risk. The value of fixed income securities in
the Portfolio can be expected to vary inversely with changes in prevailing
interest rates. Fixed income securities with longer maturities, which tend to
produce higher yields, are subject to potentially greater capital appreciation
and depreciation than securities with shorter maturities. The Portfolio is not
restricted to any maximum or minimum time to maturity in purchasing individual
portfolio securities, and the average maturity of the Portfolio's assets will
vary. Although the Portfolio's adviser and/or sub-adviser will normally attempt
to structure the Portfolio to have a comparable duration to its benchmark as
stated, there can be no assurance that it will be able to do so at all times.

     Liquidity Management. As a temporary defensive measure if its adviser
and/or sub-adviser determines that market conditions warrant, the Portfolio may
invest without limitation in high quality money market instruments. During the
course of its normal operations the Portfolio may also invest in high quality
money market instruments pending investment or to meet anticipated redemption
requests. High quality money market instruments include U.S. government
obligations, U.S. government agency obligations, dollar denominated obligations
of foreign issuers, bank obligations, including U.S. subsidiaries and branches
of foreign banks, corporate obligations, commercial paper, repurchase agreements
and obligations of supranational organizations. Generally, such obligations will
mature within one year from the date of settlement, but may mature within two
years from the date of settlement.

     Illiquid Securities. The Portfolio will not invest more than 15% of the
value of its net assets in securities that are illiquid. Repurchase agreements
and time deposits that do not provide for payment within seven days after
notice, without taking a reduced price, are subject to these limits. The
Portfolio may purchase securities which are not registered under the Securities
Act of 1933 (the "1933 Act") but which can be sold to "qualified institutional
buyers" in accordance with Rule 144A under the 1933 Act. These securities will
not be considered illiquid so long as it is determined by the adviser and/or
sub-adviser that an adequate trading market exists for the securities. This
investment practice could have the effect of increasing the level of illiquidity
in the Portfolio during any period that qualified institutional buyers become
uninterested in purchasing these restricted securities.

     Guarantees. The Portfolio may purchase securities which contain guarantees
issued by an entity separate from the issuer of the security. Generally, the
guarantor of a security (often an affiliate of the issuer) will fulfill an
issuer's payment obligations under a security if the issuer is unable to do so.

     Portfolio Turnover Rates. The Portfolio's annual portfolio turnover rate
will not be a factor preventing a sale or purchase when the adviser and/or sub-
adviser believe investment considerations warrant such sale or purchase.
Portfolio turnover may vary greatly from year to year as well as within a
particular year. High portfolio turnover rates (i.e., 100% or more) will
generally result in higher transaction costs to the Portfolio and may result in
the realization of short-term capital gains that are taxable to shareholders as
ordinary income.

                        ADDITIONAL INVESTMENT LIMITATIONS

     The Portfolio is subject to the investment limitations enumerated in this
subsection which may be changed only by a vote of the holders of a majority of
the Portfolio's outstanding shares (as defined below under "Miscellaneous").

     The Portfolio may not:

1. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or
certificates of deposit for any such securities) if more than 5% of the value of
the Portfolio's total assets would (taken at current value) be invested in the
securities of such issuer, or more than 10%

                                       19
<PAGE>

of the issuer's outstanding voting securities would be owned by the Portfolio or
the Fund, except that up to 25% of the value of the Portfolio's total assets may
(taken at current value) be invested without regard to these limitations. For
purposes of this limitation, a security is considered to be issued by the entity
(or entities) whose assets and revenues back the security. A guarantee of a
security shall not be deemed to be a security issued by the guarantors when the
value of all securities issued and guaranteed by the guarantor, and owned by the
Portfolio, does not exceed 10% of the value of the Portfolio's total assets.

2. Purchase any securities which would cause 25% or more of the value of the
Portfolio's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry, provided that (a) the Portfolio may cause 25% or more of
its total assets at the time of purchase to be invested in the securities of one
or more issuers conducting their principal business activities in a single
industry in the communication technology sector, as defined in the Prospectuses;
(b) there is no limitation with respect to (i) instruments issued or guaranteed
by the United States, any state, territory or possession of the United States,
the District of Columbia or any of their authorities, agencies,
instrumentalities or political subdivisions, and (ii) repurchase agreements
secured by the instruments described in clause (i); (c) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents; and
(d) utilities will be divided according to their services; for example, gas, gas
transmission, electric and gas, electric and telephone will each be considered a
separate industry.

3. Issue senior securities, borrow money or pledge its assets, except that the
Portfolio may borrow from banks or enter into reverse repurchase agreements or
dollar rolls in amounts aggregating not more than 33 1/3% of the value of its
total assets (calculated when the loan is made) to take advantage of investment
opportunities and may pledge up to 33 1/3% of the value of its total assets to
secure such borrowings. The Portfolio is also authorized to borrow an additional
5% of its total assets without regard to the foregoing limitations for temporary
purposes such as clearance of portfolio transactions and share redemptions. For
purposes of these restrictions, the purchase or sale of securities on a
"when-issued," delayed delivery or forward commitment basis, the purchase and
sale of options and futures contracts and collateral arrangements with respect
thereto are not deemed to be the issuance of a senior security, a borrowing or a
pledge of assets.

4. Purchase or sell real estate, except that the Portfolio may purchase
securities of issuers which deal in real estate and may purchase securities
which are secured by interests in real estate.

5. Acquire any other investment company or investment company security except in
connection with a merger, consolidation, reorganization or acquisition of assets
or where otherwise permitted by the 1940 Act.

6. Act as an underwriter of securities within the meaning of the Securities Act
of 1933 except to the extent that the purchase of obligations directly from the
issuer thereof, or the disposition of securities, in accordance with the
Portfolio's investment objective, policies and limitations may be deemed to be
underwriting.

7. Write or sell put options, call options, straddles, spreads, or any
combination thereof, except for transactions in options on securities,
securities indices and foreign currencies, futures contracts, options on futures
contracts, and futures and forward contracts on foreign currencies.

8.  Purchase securities of companies for the purpose of exercising control.

9. Purchase securities on margin, make short sales of securities or maintain a
short position, except that (a) this investment limitation shall not apply to
the Portfolio's transactions in futures contracts and related options or the
Portfolio's sale of securities short against the box, and (b) the Portfolio may
obtain short-term credit as may be necessary for the clearance of purchases and
sales of portfolio securities.

10. Purchase or sell commodity contracts, or invest in oil, gas or mineral
exploration or development programs, except that the Portfolio may, to the
extent appropriate to its investment policies, purchase securities of companies
engaging in whole or in part in such activities and may enter into futures
contracts and related options.

                                       20
<PAGE>

11. Make loans, except that the Portfolio may purchase and hold debt instruments
and enter into repurchase agreements in accordance with its investment objective
and policies and may lend portfolio securities.

12. Purchase or sell commodities except that the Portfolio may, to the extent
appropriate to its investment policies, purchase securities of companies
engaging in whole or in part in such activities, may engage in currency
transactions and may enter into futures contracts and related options.

                              TRUSTEES AND OFFICERS

     The business and affairs of the Fund are managed under the direction of its
Board of Trustees. The trustees and executive officers of the Fund, and their
business addresses and principal occupations during the past five years, are:

<TABLE>
<CAPTION>
                                                          Principal Occupation
Name and Address              Position with Fund          During Past Five Years
--------------------------    -------------------------   -------------------------------------------------------
<S>                           <C>                         <C>
William O. Albertini          Trustee and Chairman of     Retired; Executive Vice President and Chief
698 Strafford Circle          the Audit Committee         Financial Officer from August 1997 - April 1999,
Strafford, PA  19087                                      Bell Atlantic Global Wireless (global wireless
Age:  56                                                  communications); Executive Vice President, Chief
                                                          Financial Officer and Director from February 1995 -
                                                          August 1997, Vice President and Chief Financial
                                                          Officer from January 1991 - February 1995, Bell
                                                          Atlantic Corporation (a diversified
                                                          telecommunications company); Director, American
                                                          Water Works, Inc. (water utility) since May 1990;
                                                          Director, Triumph Group, Inc. (aviation
                                                          manufacturing, repair and maintenance services)
                                                          since May 1999; Director, Midwest Independent
                                                          Transmission Operator, Inc. (electrical
                                                          transmission operator) since December 1998;
                                                          Trustee, The Carl E. & Emily I. Weller Foundation
                                                          since October 1991.

Raymond J. Clark              Trustee, President and      Treasurer of Princeton University since 1987; Trustee,
Office of the Treasurer       Treasurer                   The Compass Capital Group of Funds from 1987 to 1996;
Princeton University                                      Trustee, Chemical Bank, New Jersey Advisory Board from
3 New South Building                                      1994 until 1995; Chairman of Board of Trustees, American
P.O. Box 35                                               Red Cross - Central N.J. Chapter; Trustee, Medical
Princeton, NJ 08540                                       Center of Princeton; and Trustee, United Way-Greater
Age: 64                                                   Mercer County from 1996-1997.

Laurence D. Fink*             Trustee                     Chairman and Chief Executive Officer, Chairman of the
BlackRock, Inc.                                           Management Committee and Co-Chair of the Investment
345 Park Avenue                                           Strategy Group, of BlackRock, Inc.; Chairman of the
New York, NY 10154 Age:  47                               Board and Director of BlackRock's closed-end investment
                                                          companies; Director of BlackRock's offshore funds;
                                                          Member of Asset Liability Committee of PNC Bank, N.A.;
                                                          Vice Chairman of the Board of Trustees of Mount
                                                          Sinai-New York University Medical Center and Health
                                                          System; Member of the Board of Trustees of Phoenix
                                                          House;  formerly Managing Director of the First Boston
                                                          Corporation, Director of VIMRx Pharmaceuticals, Inc. and
                                                          Innovir Laboratories, Inc., and Trustee of New York
                                                          University Medical Center,
-------------------------------------
* This trustee may be deemed an `interested person" of the Fund as defined in the 1940 Act.
</TABLE>

                                       21
<PAGE>

<TABLE>
<CAPTION>
                                                          Principal Occupation
Name and Address                Position with Fund        During Past Five Years
--------------------------      ------------------------  ---------------------------------------------------------
<S>                           <C>                         <C>
                                                          Dwight-Englewood School and National Outdoor School.

Robert M. Hernandez             Trustee and Chairman of   Director since 1991, Vice Chairman and Chief Financial
USX Corporation                 the Nominating Committee  Officer  since 1994, Executive Vice
600 Grant Street                                          President -Accounting and Finance and Chief Financial
6105 USX Tower                                            Officer from 1991 to 1994, USX Corporation (a
Pittsburgh, PA  15219                                     diversified company principally engaged in energy and
Age:  55                                                  steel businesses); Director and Chairman of the
                                                          Executive Committee, ACE Limited (insurance company);
                                                          Director, Transtar, Inc. (transportation company) since
                                                          1996; and Director and Chairman of the Board, RTI
                                                          International Metals, Inc. since 1990.

David R. Wilmerding, Jr.      Chairman of the Board       Chairman, Gee, Wilmerding & Associates, Inc. (investment
One Aldwyn Center                                         adviser) since February 1989; Director, Beaver
Villanova, PA  19085                                      Management Corporation (land management corporation);
Age:  64                                                  Managing General Partner, Chestnut Street Exchange Fund;
                                                          Director, Independence Square Income Securities, Inc.;
                                                          Director, The Mutual Fire, Marine and Inland Insurance
                                                          Company; Director, U.S. Retirement Communities, Inc.;
                                                          Director, Trustee or Managing General Partner of a
                                                          number of investment companies advised by BIMC and its
                                                          affiliates.

Anne Ackerley                 Assistant Secretary         Managing Director, BlackRock Advisors, Inc. since
BlackRock Advisors, Inc.                                  [September] 2000; First Vice President and Operating
345 Park Avenue                                           Officer, Mergers and Acquisitions Group (1997-2000),
New York, NY 10154                                        First Vice President and Operating Officer, Public
Age:  [to come]                                           Finance Group (1995-1997), and First Vice President,
                                                          Emerging Markets Fixed Income Research (1994-1995),
                                                          Merrill Lynch & Co.

Ellen L. Corson               Assistant Treasurer         Vice President and Director of Mutual Fund Accounting
PFPC Inc.                                                 and Administration, PFPC Inc. since November 1997;
103 Bellevue Parkway                                      Assistant Vice President, PFPC Inc. from March 1997 to
Wilmington, DE  19809                                     November 1997; Senior Accounting Officer, PFPC Inc. from
Age:  35                                                  March 1993 to March 1997.

Brian P. Kindelan             Secretary                   Vice President and Senior Counsel, BlackRock Advisors,
BlackRock Advisors, Inc.                                  Inc. since April 1998; Senior Counsel, PNC Bank Corp.
1600 Market Street                                        from May 1995 to April 1998; Associate, Stradley, Ronon,
28th Fl.                                                  Stevens & Young, LLP from March 1990 to May 1995.
Philadelphia, PA 19103
Age:  40

</TABLE>


     The Fund pays trustees who are not affiliated with BlackRock Advisors, Inc.
("BlackRock") or BlackRock Distributors, Inc. ("BDI" or the "Distributor")
$20,000 annually ($30,000 annually in the event that the assets of the Fund
exceed $40 billion) and $350 per Portfolio for each full in-person meeting of
the Board that they attend. The Fund pays the Chairman and Vice Chairman of the
Board an additional $10,000 and $5,000 per year, respectively, for their service
in such capacities. Trustees who are not affiliated with BlackRock or the
Distributor are reimbursed for any expenses incurred in attending meetings of
the Board of Trustees or any committee thereof. The term of office of each
trustee will automatically terminate when such trustee reaches 72 years of age.
No officer, director or employee of BlackRock, BlackRock Institutional
Management Corporation ("BIMC"), BlackRock Financial Management, Inc. ("BFM"),
BlackRock International, Ltd. ("BIL"), PFPC Inc. ("PFPC") (with BlackRock, the
"Administrators"), BDI,

                                       22
<PAGE>

or PNC Bank, National Association ("PNC Bank") currently receives any
compensation from the Fund. As of the date of this Statement of Additional
Information, the trustees and officers of the Fund, as a group, owned less than
1% of the outstanding shares of each class of the Portfolio.

     The table below sets forth the compensation actually received from the Fund
and the Fund Complex of which the Fund is a part by the trustees for the fiscal
year ended September 30, 1999:

<TABLE>
<CAPTION>
                                                                Pension or                            Total Compensation
                                          Aggregate        Retirement Benefits   Estimated Annual    from Registrant and
                                         Compensation        Accrued as Part       Benefits upon        Fund Complex1
Name of Person, Position               from Registrant       of Fund Expenses       Retirement         Paid to Trustees
-----------------------------------  -------------------  --------------------  ------------------   ---------------------
<S>                                  <C>             <C>                   <C>                <C>
David R. Wilmerding, Jr., Chairman          $82,850                N/A                  N/A             (3)2 $98,850
of the Board

William O. Albertini, Trustee and           $72,850                N/A                  N/A             (1)2 $72,850
Chairman of the Audit Committee

Raymond J. Clark, Trustee,                  $72,850                N/A                  N/A             (1)2 $72,850
President and Treasurer

Robert M. Hernandez, Trustee and            $72,850                N/A                  N/A             (1)2 $72,850
Chairman of the Nominating
Committee

</TABLE>

--------------------
1. A Fund Complex means two or more investment companies that hold themselves
   out to investors as related companies for purposes of investment and
   investment services, or have a common investment adviser and/or sub-adviser
   or have an investment adviser and/or sub-adviser that is an affiliated person
   of the investment adviser and/or sub-adviser of any of the other investment
   companies.

2. Total number of investment company boards trustees served on within the Fund
  Complex.

                 SHAREHOLDER AND TRUSTEE LIABILITY OF THE FUND

     Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. However, the Fund's Declaration of Trust provides that
shareholders shall not be subject to any personal liability in connection with
the assets of the Fund for the acts or obligations of the Fund, and that every
note, bond, contract, order or other undertaking made by the Fund shall contain
a provision to the effect that the shareholders are not personally liable
thereunder. The Declaration of Trust provides for indemnification out of the
trust property of any shareholder held personally liable solely by reason of his
being or having been a shareholder and not because of his acts or omissions or
some other reason. The Declaration of Trust also provides that the Fund shall,
upon request, assume the defense of any claim made against any shareholder for
any act or obligation of the Fund, and shall satisfy any judgment thereon.

     The Declaration of Trust further provides that all persons having any claim
against the trustees or Fund shall look solely to the trust property for
payment; that no trustee of the Fund shall be personally liable for or on
account of any contract, debt, tort, claim, damage, judgment or decree arising
out of or connected with the administration or preservation of the trust
property or the conduct of any business of the Fund; and that no trustee shall
be personally liable to any person for any action or failure to act except by
reason of his own bad faith, willful misfeasance, gross negligence or reckless
disregard of his duties as a trustee. With the exception stated, the Declaration
of Trust provides that a trustee is entitled to be indemnified against all
liabilities and expenses reasonably incurred by him in connection with the
defense or disposition of any proceeding in which he may be involved or with
which he may be threatened by reason of his being or having been a trustee, and
that the Fund will indemnify officers, representatives and employees of the Fund
to the same extent that trustees are entitled to indemnification.

                      INVESTMENT ADVISORY, ADMINISTRATION,
                     DISTRIBUTION AND SERVICING ARRANGEMENTS

                                       23
<PAGE>

     Advisory Agreement.  The advisory services provided by BlackRock and
BlackRock Financial Management, Inc. ("BFM") are described in the Prospectuses.

     For their advisory services, BlackRock and BFM are entitled to total fees,
computed daily and payable monthly, at the maximum annual rates set forth below
(to be divided among them as they may agree).

                    Maximum Annual Contractual Fee Rate
                             (Before Waivers)
----------------------------------------------------------------------
                                                   Investment
Average Daily Net Assets                         Advisory Fee
----------------------------------------------------------------------
first $1 billion                                       %
$1 billion -- $2 billion                               %
$2 billion -- $3 billion                               %
greater than $3 billion                                %

     Under the Advisory Contract, BlackRock and BFM are not liable for any error
of judgment or mistake of law or for any loss suffered by the Fund or the
Portfolio in connection with the performance of the Advisory Contract. Under the
Advisory Contract, BlackRock and BFM are liable for a loss resulting from
willful misfeasance, bad faith or gross negligence in the performance of their
respective duties or from reckless disregard of their respective duties and
obligations thereunder. The Advisory Contract is terminable as to the Portfolio
by vote of the Fund's Board of Trustees or by the holders of a majority of the
outstanding voting securities of the relevant Portfolio, at any time without
penalty, on 60 days' written notice to BlackRock and BFM. BlackRock and BFM may
also terminate their advisory relationship with respect to the Portfolio on 60
days' written notice to the Fund.

     Administration Agreement. BlackRock and PFPC serve as the Fund's co-
administrators pursuant to an administration agreement (the "Administration
Agreement"). PFPC has agreed to maintain office facilities for the Fund; furnish
the Fund with statistical and research data, clerical, accounting, and
bookkeeping services; provide and supervise the operation of an automated data
processing system to process purchase and redemption orders; prepare and file
certain reports required by regulatory authorities; prepare and file federal and
state tax returns; prepare and file material requested by state securities
regulators; calculate various contractual expenses; compute the Portfolio's net
asset value, net income and net capital gain or loss; and serve as a liaison
with the Fund's independent public accountants. The Administrators may from time
to time voluntarily waive administration fees with respect to the Portfolio and
may voluntarily reimburse the Portfolio for expenses.

     Under the Administration Agreement, the Fund pays to BAI and PFPC on behalf
of the Portfolio a fee, computed daily and payable monthly, at an aggregate
annual rate of (i) .085% of the first $500 million of the Portfolio's average
daily net assets, .075% of the next $500 million of the Portfolio's average
daily net assets and .065% of the average daily net assets of the Portfolio in
excess of $1 billion and (ii) .145% of the first $500 million of average daily
net assets allocated to each class of shares of the Portfolio (.035% with
respect to BlackRock shares), .135% of the next $500 million of such average
daily net assets (.025% with respect to BlackRock Shares) and .125% of the
average daily net assets allocated to each class of shares of the Portfolio in
excess of $1 billion (.015% with respect to BlackRock Shares).

     Under the Administration Agreement, BlackRock is responsible for: (i) the
supervision and coordination of the performance of the Fund's service providers;
(ii) the negotiation of service contracts and arrangements between the Fund and
its service providers; (iii) acting as liaison between the trustees of the Fund
and the Fund's service providers; and (iv) providing ongoing business management
and support services in connection with the Fund's operations. Pursuant to the
terms of the Administration Agreement, BlackRock has delegated certain of its
duties thereunder to BDI.

     The Administration Agreement provides that BlackRock and PFPC will not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund or the Portfolio in connection with the performance of the
Administration Agreement, except a loss resulting from willful misfeasance, bad
faith or gross negligence in the performance of their respective duties or from
reckless disregard of their respective duties and obligations thereunder. In
addition, the Fund will indemnify each of BAI and PFPC and their affiliates
against any loss arising in connection

                                       24
<PAGE>

with their provision of services under the Administration Agreement, except that
neither BAI nor PFPC nor their affiliates shall be indemnified against any loss
arising out of willful misfeasance, bad faith, gross negligence or reckless
disregard of their respective duties under the Administration Agreement.

     The Fund and its service providers may engage third party plan
administrators who provide trustee, administrative and recordkeeping services
for certain employee benefit, profit-sharing and retirement plans as agent for
the Fund with respect to such plans, for the purpose of accepting orders for the
purchase and redemption of shares of the Fund.

     Custodian and Transfer Agency Agreements. Pursuant to the terms of a
custodian agreement (the "Custodian Agreement") between the Fund and PNC Bank,
as of January 1, 1999 PNC Bank has assigned its rights and delegated its duties
as the Fund's custodian to its affiliate, PFPC Trust Company ("PTC"). Under the
Custodian Agreement, PTC or a sub-custodian (i) maintains a separate account or
accounts in the name of the Portfolio, (ii) holds and transfers portfolio
securities on account of the Portfolio, (iii) accepts receipts and makes
disbursements of money on behalf of the Portfolio, (iv) collects and receives
all income and other payments and distributions on account of the Portfolio's
securities and (v) makes periodic reports to the Board of Trustees concerning
the Portfolio's operations. PTC is authorized to select one or more banks or
trust companies to serve as sub-custodian on behalf of the Fund, provided that,
with respect to sub-custodians other than sub-custodians for foreign securities,
PTC remains responsible for the performance of all its duties under the
Custodian Agreement and holds the Fund harmless from the acts and omissions of
any sub-custodian. Citibank, N.A. serves as the international sub-custodian for
various Portfolios of the Fund.

     For its services to the Fund under the Custodian Agreement, PTC receives a
fee which is calculated based upon each investment portfolio's average gross
assets. PTC is also entitled to out-of-pocket expenses and certain transaction
charges.

     PFPC, which has its principal offices at 400 Bellevue Parkway, Wilmington,
DE 19809 and is an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Fund pursuant to a Transfer Agency Agreement (the
"Transfer Agency Agreement"), under which PFPC (i) issues and redeems Service,
Investor, and Institutional classes of shares in the Portfolio, (ii) addresses
and mails all communications by the Portfolio to record owners of its shares,
including reports to shareholders, dividend and distribution notices and proxy
materials for its meetings of shareholders, (iii) maintains shareholder accounts
and, if requested, sub-accounts and (iv) makes periodic reports to the Board of
Trustees concerning the operations of the Portfolio. PFPC may, on 30 days'
notice to the Fund, assign its duties as transfer and dividend disbursing agent
to any other affiliate of PNC Bank Corp. For its services with respect to the
Fund's Institutional and Service Shares under the Transfer Agency Agreement,
PFPC receives fees at the annual rate of .03% of the average net asset value of
outstanding Institutional and Service Shares in the Portfolio, plus per account
fees and disbursements. For its services under the Transfer Agency Agreement
with respect to Investor Shares, PFPC receives per account fees. Until further
notice, the transfer agency fees for each series of Investor Shares in the
Portfolio will not exceed the annual rate of .10% of the series' average daily
net assets.

     Distributor and Distribution and Service Plan. The Fund has entered into a
distribution agreement with the Distributor under which the Distributor, as
agent, offers shares of the Portfolio on a continuous basis. The Distributor has
agreed to use appropriate efforts to effect sales of the shares, but it is not
obligated to sell any particular amount of shares. The Distributor's principal
business address is 3200 Horizon Drive, King of Prussia, PA 19406.

     Pursuant to the Fund's Amended and Restated Distribution and Service Plan
(the "Plan"), the Fund may pay the Distributor and/or BlackRock or any other
affiliate of PNC Bank fees for distribution and sales support services.
Currently, as described further below, only Investor A Shares, Investor B Shares
and Investor C Shares bear the expense of distribution fees under the Plan. In
addition, the Fund may pay BlackRock fees for the provision of personal services
to shareholders and the processing and administration of shareholder accounts.
BlackRock, in turn, determines the amount of the service fee and shareholder
processing fee to be paid to brokers, dealers, financial institutions and
industry professionals (collectively, "Service Organizations"). The Plan
provides, among other things, that: (i) the Board of Trustees shall receive
quarterly reports regarding the amounts expended under the Plan and the purposes
for which such expenditures were made; (ii) the Plan will continue in effect for
so long as its continuance is approved at least annually by the Board of
Trustees in accordance with Rule 12b-1 under the 1940 Act; (iii) any

                                       25
<PAGE>

material amendment thereto must be approved by the Board of Trustees, including
the trustees who are not "interested persons" of the Fund (as defined in the
1940 Act) and who have no direct or indirect financial interest in the operation
of the Plan or any agreement entered into in connection with the Plan (the
"12b-1 Trustees"), acting in person at a meeting called for said purpose; (iv)
any amendment to increase materially the costs which any class of shares may
bear for distribution services pursuant to the Plan shall be effective only upon
approval by a vote of a majority of the outstanding shares of such class and by
a majority of the 12b-1 Trustees; and (v) while the Plan remains in effect, the
selection and nomination of the Fund's trustees who are not "interested persons"
of the Fund shall be committed to the discretion of the Fund's non-interested
trustees.

     The Plan is terminable as to any class of shares without penalty at any
time by a vote of a majority of the 12b-1 Trustees, or by vote of the holders of
a majority of the shares of such class.

     With respect to Investor A Shares, the front-end sales charge and the
distribution fee payable under the Plan (at a maximum annual rate of .10% of the
average daily net asset value of the Portfolio's outstanding Investor A Shares)
are used to pay commissions and other fees payable to Service Organizations and
other broker/dealers who sell Investor A Shares.

     With respect to Investor B Shares, Service Organizations and other
broker/dealers receive commissions from the Distributor for selling Investor B
Shares, which are paid at the time of the sale. The distribution fees payable
under the Plan (at a maximum annual rate of .75% of the average daily net asset
value of the Portfolio's outstanding Investor B Shares) are intended to cover
the expense to the Distributor of paying such up-front commissions, as well as
to cover ongoing commission payments to broker/dealers. The contingent deferred
sales charge is calculated to charge the investor with any shortfall that would
occur if Investor B Shares are redeemed prior to the expiration of the
conversion period, after which Investor B Shares automatically convert to
Investor A Shares.

     With respect to Investor C Shares, Service Organizations and other
broker/dealers receive commissions from the Distributor for selling Investor C
Shares, which are paid at the time of the sale. The distribution fees payable
under the Plan (at a maximum annual rate of .75% of the average daily net asset
value of the Portfolio's outstanding Investor C Shares) are intended to cover
the expense to the Distributor of paying such up-front commissions, as well as
to cover ongoing commission payments to the broker/dealers. The contingent
deferred sales charge is calculated to charge the investor with any shortfall
that would occur if Investor C Shares are redeemed within 12 months of purchase.

     The Fund is not required or permitted under the Plan to make distribution
payments with respect to Service, Institutional or BlackRock Shares. However,
the Plan permits BDI, BlackRock, PFPC and other companies that receive fees from
the Fund to make payments relating to distribution and sales support activities
out of their past profits or other sources available to them. The Distributor,
BlackRock and their affiliates may pay affiliated and unaffiliated financial
institutions, broker/dealers and/or their salespersons certain compensation for
the sale and distribution of shares of the Fund or for services to the Fund.
These payments ("Additional Payments") would be in addition to the payments by
the Fund described in this Statement of Additional Information for distribution
and shareholder servicing and processing. These Additional Payments may take the
form of "due diligence" payments for a dealer's examination of the Portfolio and
payments for providing extra employee training and information relating to
Portfolio; "listing" fees for the placement of the Portfolio on a dealer's list
of mutual funds available for purchase by its customers; "finders" or "referral"
fees for directing investors to the Fund; "marketing support" fees for providing
assistance in promoting the sale of the Funds' shares; and payments for the sale
of shares and/or the maintenance of share balances. In addition, the
Distributor, BlackRock and their affiliates may make Additional Payments to
affiliated and unaffiliated entities for subaccounting, administrative and/or
shareholder processing services that are in addition to the shareholder
servicing and processing fees paid by the Fund. The Additional Payments made by
the Distributor, BlackRock and their affiliates may be a fixed dollar amount,
may be based on the number of customer accounts maintained by a financial
institution or broker/dealer, or may be based on a percentage of the value of
shares sold to, or held by, customers of the affiliated and unaffiliated
financial institutions or dealers involved, and may be different for different
institutions and dealers. Furthermore, the Distributor, BlackRock and their
affiliates may contribute to various non-cash and cash incentive arrangements to
promote the sale of shares, and may sponsor various contests and promotions
subject to applicable NASD regulations in which participants may receive prizes
such as travel awards, merchandise and cash. The Distributor, BlackRock and
their affiliates may also pay for the travel

                                       26
<PAGE>

expenses, meals, lodging and entertainment of broker/dealers, financial
institutions and their salespersons in connection with educational and sales
promotional programs subject to applicable NASD regulations.

     Service Organizations may charge their clients additional fees for account-
related services.

     The Fund intends to enter into service arrangements with Service
Organizations pursuant to which Service Organizations will render certain
support services to their customers ("Customers") who are the beneficial owners
of Service, Investor A, Investor B and Investor C Shares. Such services will be
provided to Customers who are the beneficial owners of Shares of such classes
and are intended to supplement the services provided by the Fund's
Administrators and transfer agent to the Fund's shareholders of record. In
consideration for payment of a service fee of up to .25% (on an annualized
basis) of the average daily net asset value of the Investor A, Investor B and
Investor C Shares owned beneficially by their Customers and .15% (on an
annualized basis) of the average daily net asset value of the Service Shares
beneficially owned by their Customers, Service Organizations may provide general
shareholder liaison services, including, but not limited to (i) answering
customer inquiries regarding account status and history, the manner in which
purchases, exchanges and redemptions of shares may be effected and certain other
matters pertaining to the Customers' investments; and (ii) assisting Customers
in designating and changing dividend options, account designations and
addresses. In consideration for payment of a shareholder processing fee of up to
a separate .15% (on an annualized basis) of the average daily net asset value of
Service, Investor A, Investor B and Investor C Shares owned beneficially by
their Customers, Service Organizations may provide one or more of these
additional services to such Customers: (i) providing necessary personnel and
facilities to establish and maintain Customer accounts and records; (ii)
assistance in aggregating and processing purchase, exchange and redemption
transactions; (iii) placement of net purchase and redemption orders with the
Distributor; (iv) arranging for wiring of funds; (v) transmitting and receiving
funds in connection with Customer orders to purchase or redeem shares; (vi)
processing dividend payments; (vii) verifying and guaranteeing Customer
signatures in connection with redemption orders and transfers and changes in
Customer-designated accounts, as necessary; (viii) providing periodic statements
showing Customers' account balances and, to the extent practicable, integrating
such information with other Customer transactions otherwise effected through or
with a Service Organization; (ix) furnishing (either separately or on an
integrated basis with other reports sent to a shareholder by a Service
Organization) monthly and year-end statements and confirmations of purchases,
exchanges and redemptions; (x) transmitting on behalf of the Fund, proxy
statements, annual reports, updating prospectuses and other communications from
the Fund to Customers; (xi) receiving, tabulating and transmitting to the Fund
proxies executed by Customers with respect to shareholder meetings; (xii)
providing subaccounting with respect to shares beneficially owned by Customers
or the information to the Fund necessary for subaccounting; (xiii) providing
sub-transfer agency services; and (xiv) providing such other similar services as
the Fund or a Customer may request.

     Code of Ethics. The Fund, BlackRock and BFM, and the Distributor have
adopted codes of ethics under Rule 17j-1 of the 1940 Act. These codes of ethics
permit personnel subject to the codes to invest in securities, including
securities that may be purchased or held by the Fund.

                                    EXPENSES

     Expenses are deducted from the total income of the Portfolio before
dividends and distributions are paid. These expenses include, but are not
limited to, fees paid to BlackRock, PFPC, transfer agency fees, fees and
expenses of officers and trustees who are not affiliated with BlackRock, the
Distributor or any of their affiliates, taxes, interest, legal fees, custodian
fees, auditing fees, distribution fees, shareholder processing fees, shareholder
servicing fees, fees and expenses in registering and qualifying the Portfolio
and its shares for distribution under federal and state securities laws,
expenses of preparing prospectuses and statements of additional information and
of printing and distributing prospectuses and statements of additional
information to existing shareholders, expenses relating to shareholder reports,
shareholder meetings and proxy solicitations, fidelity bond and trustees and
officers liability insurance premiums, the expense of independent pricing
services and other expenses which are not expressly assumed by BlackRock or the
Fund's service providers under their agreements with the Fund. Any general
expenses of the Fund that do not belong to a particular investment portfolio
will be allocated among all investment portfolios by or under the direction of
the Board of Trustees in a manner the Board determines to be fair and equitable.

                                       27
<PAGE>

                             PORTFOLIO TRANSACTIONS

     In executing portfolio transactions, the adviser and/or sub-adviser seek to
obtain the best price and most favorable execution for the Portfolio, taking
into account such factors as the price (including the applicable brokerage
commission or dealer spread), size of the order, difficulty of execution and
operational facilities of the firm involved. While the adviser and/or sub-
adviser generally seek reasonably competitive commission rates, payment of the
lowest commission or spread is not necessarily consistent with obtaining the
best price and execution in particular transactions. Payments of commissions to
brokers who are affiliated persons of the Fund (or affiliated persons of such
persons) will be made in accordance with Rule 17e-1 under the 1940 Act.

     No Portfolio has any obligation to deal with any broker or group of brokers
in the execution of Portfolio transactions. The adviser and/or sub-adviser may,
consistent with the interests of the Portfolio, select brokers on the basis of
the research, statistical and pricing services they provide to the Portfolio and
the adviser's and/or sub-adviser's other clients. 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 adviser and/or sub-adviser under the
investment advisory contract. 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 adviser and/or sub-adviser determine in good
faith that such commission is reasonable in terms either of the transaction or
the overall responsibility of the adviser and/or sub-adviser to the Portfolio
and their other clients and that the total commissions paid by the Portfolio
will be reasonable in relation to the benefits to the Portfolio over the long-
term. The advisory fees that the Portfolio pays to the adviser and/or sub-
adviser will not be reduced as a consequence of the adviser's and/or sub-
adviser's receipt of brokerage and research services. To the extent the
Portfolio's portfolio transactions are used to obtain such services, the
brokerage commissions paid by the Portfolio will exceed those that might
otherwise be paid by an amount which cannot be presently determined. Such
services generally would be useful and of value to the adviser and/or sub-
adviser in serving one or more of their other clients and, conversely, such
services obtained by the placement of brokerage business of other clients
generally would be useful to the adviser and/or sub-adviser in carrying out
their obligations to the Portfolio. While such services are not expected to
reduce the expenses of the adviser and/or sub-adviser, the adviser and/or sub-
adviser would, through use of the services, avoid the additional expenses which
would be incurred if they should attempt to develop comparable information
through their own staffs.

     Commission rates for brokerage transactions on foreign stock exchanges are
generally fixed. In addition, the adviser and/or sub-adviser may take into
account the sale of shares of the Fund in allocating purchase and sale orders
for portfolio securities to brokers (including brokers that are affiliated with
them or Distributor).

     Over-the-counter issues, including corporate debt and U.S. Government
securities, are normally traded on a "net" basis without a stated commission,
through dealers acting for their own account and not as brokers. The Portfolio
will primarily engage in transactions with these dealers or deal directly with
the issuer unless a better price or execution could be obtained by using a
broker. Prices paid to a dealer with respect to both foreign and domestic
securities will generally include a "spread," which is the difference between
the prices at which the dealer is willing to purchase and sell the specific
security at the time, and includes the dealer's normal profit.

     Purchases of money market instruments by the Portfolio are made from
dealers, underwriters and issuers. The Portfolio does not currently expect to
incur any brokerage commission expense on such transactions because money market
instruments are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission. The price of the
security, however, usually includes a profit to the dealer.

     Securities purchased in underwritten offerings include a fixed amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. When securities are purchased or sold directly from or
to an issuer, no commissions or discounts are paid.

     The adviser and/or sub-adviser may seek to obtain an undertaking from
issuers of commercial paper or dealers selling commercial paper to consider the
repurchase of such securities from the Portfolio prior to maturity at their
original cost plus interest (sometimes adjusted to reflect the actual maturity
of the securities), if it believes that the Portfolio's anticipated need for
liquidity makes such action desirable. Any such repurchase prior to maturity
reduces the possibility that the Portfolio would incur a capital loss in
liquidating commercial paper, especially if interest rates have risen since
acquisition of such commercial paper.

                                       28
<PAGE>

     Investment decisions for the Portfolio and for other investment accounts
managed by the adviser and/or sub-adviser are made independently of each other
in light of differing conditions. However, the same investment decision may be
made for two or more such accounts. In such cases, simultaneous transactions are
inevitable. Purchases or sales are then averaged as to price and allocated as to
amount in a manner deemed equitable to each such account. While in some cases
this practice could have a detrimental effect upon the price or value of the
security as far as the Portfolio is concerned, in other cases it could be
beneficial to the Portfolio. The Portfolio will not purchase securities during
the existence of any underwriting or selling group relating to such securities
of which BlackRock and BFM, PTC, the Administrators, the Distributor or any
affiliated person (as defined in the 1940 Act) thereof is a member except
pursuant to procedures adopted by the Board of Trustees in accordance with Rule
10f-3 under the 1940 Act. In no instance will portfolio securities be purchased
from or sold to BlackRock Advisors, Inc., BFM, PNC Bank, PTC, PFPC, the
Distributor or any affiliated person of the foregoing entities except as
permitted by SEC exemptive order or by applicable law.

     The portfolio turnover rate of the Portfolio is calculated by dividing the
lesser of the Portfolio's annual sales or purchases of portfolio securities
(exclusive of purchases or sales of securities whose maturities at the time of
acquisition were one year or less) by the monthly average value of the
securities held by the Portfolio during the year.

                       PURCHASE AND REDEMPTION INFORMATION

Investor Shares

     Purchase of Shares. The minimum investment for the initial purchase of
shares is $500; there is a $50 minimum for subsequent investments. Purchases
through the Automatic Investment Plan are subject to a lower initial purchase
minimum. In addition, the minimum initial investment for employees of the Fund,
the Fund's investment adviser and/or sub-adviser, Distributor or transfer agent
or employees of their affiliates is $100, unless payment is made through a
payroll deduction program in which case the minimum investment is $25.

     Purchases Through Brokers. It is the responsibility of brokers to transmit
purchase orders and payment on a timely basis. Generally, if payment is not
received within the periods described in the Prospectuses, the order will be
canceled, notice thereof will be given, and the broker and its customers will be
responsible for any loss to the Fund or its shareholders. Orders of less than
$500 may be mailed by a broker to the transfer agent.

     The Fund has authorized one or more brokers to receive on its behalf
purchase and redemption orders. Such brokers are authorized to designate other
intermediaries to receive purchase and redemption orders on the Fund's behalf,
and the Fund will be deemed to have received a purchase or redemption order when
an authorized broker or, if applicable, a broker's authorized designee, receives
the order. Such customer orders will be priced at the Fund's net asset value
next computed after they are received by an authorized broker or the broker's
authorized designee.

     Purchases Through the Transfer Agent. Investors may also purchase Investor
Shares by completing and signing the Account Application Form and mailing it to
the transfer agent, together with a check in at least the minimum initial
purchase amount payable to BlackRock Funds. The Fund does not accept third party
checks for initial or subsequent investments. An Account Application Form may be
obtained by calling (800) 441-7762. The name of the Portfolio with respect to
which shares are purchased must also appear on the check or Federal Reserve
Draft. Investors may also wire Federal funds in connection with the purchase of
shares. The wire instructions must include the name of the Portfolio, specify
the class of Investor Shares and include the name of the account registration
and the shareholder account number. Before wiring any funds, an investor must
call PFPC at (800) 441-7762 in order to confirm the wire instructions.

     Other Purchase Information. Shares of the Portfolio of the Fund are sold on
a continuous basis by BDI as the Distributor. BDI maintains its principal
offices at 3200 Horizon Drive, King of Prussia, PA 19406. Purchases may be
effected on weekdays on which the New York Stock Exchange is open for business
(a "Business Day"). Shares of the Portfolio will not be priced on the following
days when the NYSE is closed: New Year's Day, Martin Luther King, Jr.'s
Birthday, Washington's Birthday, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Payment for orders which are not
received or accepted will be returned after prompt inquiry. The issuance of
shares is recorded on the books of the Fund. No certificates will be issued for
shares. Payments for shares of the Portfolio may, in the discretion of the
Fund's investment adviser and/or sub-adviser, be

                                       29
<PAGE>

made in the form of securities that are permissible investments for that
Portfolio. The Fund reserves the right to reject any purchase order, to modify
or waive the minimum initial or subsequent investment requirement and to suspend
and resume the sale of any share class of any Portfolio at any time.

     Unless a sales charge waiver applies, Investor B shareholders pay a
contingent deferred sales charge if they redeem during the first six years after
purchase, and Investor C shareholders pay a contingent deferred sales charge if
they redeem during the first twelve months after purchase. Investors expecting
to redeem during these periods should consider the cost of the applicable
contingent deferred sales charge in addition to the aggregate annual Investor B
or Investor C distribution fees, as compared with the cost of the initial sales
charges applicable to the Investor A Shares.

Dealer Reallowances

     The following are the front-end sales loads reallowed to dealers as a
percentage of the offering price of Investor A Shares.


                                                Reallowance or
                                                Placement Fees
       Amount of Transaction                  to Dealers (as % of
         at Offering Price                      Offering Price)*
-------------------------------------  --------------------------------
Less than $50,000                                     4.50%
$50,000 but less than $100,000                        4.25
$100,000 but less than $250,000                       4.00
$250,000 but less than $500,000                       3.00
$500,000 but less than $1,000,000                     2.00
$1 million but less than $3 million                   1.00
$3 million but less than $15 million                  0.50
$15 million and above                                 0.25

-----------------------
*  The Distributor may pay placement fees to dealers as shown on purchases of
   Investor A Shares of $1,000,000 or more.

     During special promotions, the entire sales charge may be reallowed to
dealers. Dealers who receive 90% or more of the sales charge may be deemed to be
"underwriters" under the 1933 Act. The amount of the sales charge not reallowed
to dealers may be paid to broker-dealer affiliates of PNC Bank Corp. who provide
sales support services. The Distributor, BlackRock, Inc. and/or their affiliates
may also pay additional compensation, out of their assets and not as an
additional charge to the Portfolio, to dealers in connection with the sale and
distribution of shares (such as additional payments based on new sales), and
may, subject to applicable NASD regulations, contribute to various non-cash and
cash incentive arrangements to promote the sale of shares, as well as sponsor
various educational programs, sales contests and promotions in which
participants may receive reimbursement of expenses, entertainment and prizes
such as travel awards, merchandise and cash.

     The following special purchase plans result in the waiver or reduction of
sales charges for Investor A, B or C shares.

Sales Charge Waivers--Investor A Shares

     Qualified Plans. In general, the sales charge (as a percentage of the
offering price) payable by qualified employee benefit plans ("Qualified Plans")
having at least 20 employees eligible to participate in purchases of Investor A
Shares of the Portfolio aggregating less than $500,000 will be 1.00%. No sales
charge will apply to purchases by such Qualified Plans of Investor A Shares
aggregating $500,000 and above. The sales charge payable by Qualified Plans
having less than 20 employees eligible to participate in purchases of Investor A
Shares of the Portfolio aggregating less than $500,000 will be 2.50%. The above
schedule will apply to purchases by such Qualified Plans of Investor A Shares
aggregating $500,000 and above.

                                       30
<PAGE>

     The Fund has established different waiver arrangements with respect to the
sales charge on Investor A Shares of the Portfolio for purchases through certain
Qualified Plans participating in programs whose sponsors or administrators have
entered into arrangements with the Fund.

     Investor A Shares of the Portfolio will be made available to plan
participants at net asset value with the waiver of the initial sales charge on
purchases through an eligible 401(k) plan participating in a Merrill Lynch
401(k) Program (an "ML 401(k) Plan") if:

       (i)    the ML 401(k) Plan is record kept on a daily valuation basis by
  Merrill Lynch and, on the date the ML 401(k) Plan sponsor signs the Merrill
  Lynch Recordkeeping Service Agreement, the ML 401(k) Plan has $3 million or
  more in assets invested in broker/dealer funds not advised or managed by
  Merrill Lynch Asset Management, L.P. ("MLAM") that are made available pursuant
  to a Services Agreement between Merrill Lynch and the fund's principal
  underwriter or distributor and in funds advised or managed by MLAM
  (collectively, the "Applicable Investments"); or

       (ii)   the ML 401(k) Plan is recordkept on a daily valuation basis by an
  independent recordkeeper whose services are provided through a contract or
  alliance arrangement with Merrill Lynch, and on the date the ML 401(k) Plan
  sponsor signs the Merrill Lynch Recordkeeping Service Agreement, the ML 401(k)
  Plan has $3 million or more in assets, excluding money market funds, invested
  in Applicable Investments; or

       (iii)  the ML 401(k) Plan has 500 or more eligible employees, as
  determined by the Merrill Lynch plan conversion manager, on the date the ML
  401(k) Plan sponsor signs the Merrill Lynch Recordkeeping Service Agreement.

     Other. The following persons associated with the Fund, the Distributor, the
Fund's investment adviser and/or sub-adviser or transfer agent and their
affiliates may buy Investor A Shares of the Portfolio without paying a sales
charge to the extent permitted by these firms: (a) officers, directors and
partners; (b) employees and retirees; (c) registered representatives of brokers
who have entered into selling agreements with the Distributor; (d) spouses,
children, parents and siblings of any of the persons set forth in (a) through
(c); and (e) any trust, pension, profit-sharing or other benefit plan for any of
the persons set forth in (a) through (c). The following persons may also buy
Investor A Shares without paying a sales charge: (a) persons investing through
an authorized payroll deduction plan; (b) persons investing through an
authorized investment plan for organizations which operate under Section
501(c)(3) of the Internal Revenue Code; (c) registered investment adviser and/or
sub-adviser, trust companies and bank trust departments exercising discretionary
investment authority with respect to amounts to be invested in the Portfolio;
(d) persons participating in a "wrap account" or similar program under which
they pay advisory fees to a broker-dealer or other financial institution; and
(e) persons participating in an account or program under which they pay fees to
a broker-dealer or other financial institution for providing transaction
processing and other administrative services, but not investment advisory
services. Investors who qualify for any of these exemptions from the sales
charge must purchase Investor A Shares.

Reduced Sales Charges--Investor A Shares

     Because of reductions in the front-end sales charge for purchases of
Investor A Shares aggregating $50,000 or more, it may be advantageous for
investors purchasing large quantities of Investor Shares to purchase Investor A
Shares. In any event, the Fund will not accept any purchase order for $1,000,000
or more of Investor B Shares or Investor C Shares.

     Quantity Discounts. Larger purchases may reduce the sales charge price.
Upon notice to the investor's broker or the transfer agent, purchases of
Investor A Shares made at any one time by the following persons may be
considered when calculating the sales charge: (a) an individual, his or her
spouse and their children under the age of 21; (b) a trustee or fiduciary of a
single trust estate or single fiduciary account; or (c) any organized group
which has been in existence for more than six months, if it is not organized for
the purpose of buying redeemable securities of a registered investment company,
and if the purchase is made through a central administrator, or through a single
dealer, or by other means which result in economy of sales effort or expense. An
organized group does not include a group of individuals whose sole
organizational connection is participation as credit card holders of a company,
policyholders of an insurance company, customers of either a bank or
broker/dealer or clients of an investment adviser and/or sub-

                                       31
<PAGE>

adviser. Purchases made by an organized group may include, for example, a
trustee or other fiduciary purchasing for a single fiduciary account or other
employee benefit plan purchases made through a payroll deduction plan.

     Right of Accumulation. Under the Right of Accumulation, the current value
of an investor's existing Investor A Shares that are subject to a front-end
sales charge or the total amount of an investor's initial investment in such
shares, less redemptions (whichever is greater) may be combined with the amount
of the investor's current purchase in determining the applicable sales charge.
In order to receive the cumulative quantity reduction, previous purchases of
Investor A Shares must be called to the attention of PFPC by the investor at the
time of the current purchase.

     Letter of Intent. An investor may qualify for a reduced sales charge
immediately by signing a Letter of Intent stating the investor's intention to
invest during the next 13 months a specified amount in Investor A Shares which,
if made at one time, would qualify for a reduced sales charge. The Letter of
Intent may be signed at any time within 90 days after the first investment to be
included in the Letter of Intent. The initial investment must meet the minimum
initial investment requirement and represent at least 5% of the total intended
investment. The investor must instruct PFPC upon making subsequent purchases
that such purchases are subject to a Letter of Intent. All dividends and capital
gains of the Portfolio that are invested in additional Investor A Shares of the
same Portfolio are applied to the Letter of Intent.

     During the term of a Letter of Intent, the Fund's transfer agent will hold
Investor A Shares representing 5% of the indicated amount in escrow for payment
of a higher sales load if the full amount indicated in the Letter of Intent is
not purchased. The escrowed Investor A Shares will be released when the full
amount indicated has been purchased. Any redemptions made during the 13-month
period will be subtracted from the amount of purchases in determining whether
the Letter of Intent has been completed.

     If the full amount indicated is not purchased within the 13-month period,
the investor will be required to pay an amount equal to the difference between
the sales charge actually paid and the sales charge the investor would have had
to pay on his or her aggregate purchases if the total of such purchases had been
made at a single time. If remittance is not received within 20 days of the
expiration of the 13-month period, PFPC, as attorney-in-fact, pursuant to the
terms of the Letter of Intent, will redeem an appropriate number of Investor A
Shares held in escrow to realize the difference.

Investor B Shares

     Investor B Shares are subject to a deferred sales charge if they are
redeemed within six years of purchase. Dealers will generally receive
commissions equal to 4.00% of Investor B Shares sold by them plus ongoing fees
under the Fund's Amended and Restated Distribution and Service Plan. Dealers may
not receive a commission in connection with sales of Investor B Shares to
certain retirement plans sponsored by the Fund, BlackRock or its affiliates, but
may receive fees under the Amended and Restated Distribution and Service Plan.
These commissions and payments may be different than the reallowances, placement
fees and commissions paid to dealers in connection with sales of Investor A
Shares and Investor C Shares.

Investor C Shares

     Investor C Shares are subject to a deferred sales charge of 1.00% based on
the lesser of the offering price or the net asset value of the Investor C Shares
on the redemption date if redeemed within twelve months after purchase. Dealers
will generally receive commissions equal to 1.00% of the Investor C Shares sold
by them plus ongoing fees under the Fund's Amended and Restated Distribution and
Service Plan. Dealers may not receive a commission in connection with sales of
Investor C Shares to certain retirement plans sponsored by the Fund, BlackRock
or its affiliates, but may receive fees under the Amended and Restated
Distribution and Service Plan. These commissions and payments may be different
than the reallowances, placement fees and commissions paid to dealers in
connection with sales of Investor A Shares and Investor B Shares.

     Exemptions from and Reductions of the Contingent Deferred Sales Charge-
Investor B and Investor C Shares. The contingent deferred sales charge on
Investor B Shares and Investor C Shares is not charged in

                                       32
<PAGE>

connection with: (1) exchanges described in "Exchange Privilege" below; (2)
redemptions made in connection with minimum required distributions from IRA,
403(b)(7) and Qualified Plan accounts due to the shareholder reaching age 70
1/2; (3) redemptions made with respect to certain retirement plans sponsored by
the Fund, BlackRock or its affiliates; (4) redemptions in connection with a
shareholder's death or disability (as defined in the Internal Revenue Code)
subsequent to the purchase of Investor B Shares or Investor C Shares; (5)
involuntary redemptions of Investor B Shares or Investor C Shares in accounts
with low balances as described in "Redemption of Shares" below; and (6)
redemptions made pursuant to the Systematic Withdrawal Plan, subject to the
limitations set forth under "Systematic Withdrawal Plan" below. In addition, no
contingent deferred sales charge is charged on Investor B Shares or Investor C
Shares acquired through the reinvestment of dividends or distributions. The Fund
also waives the contingent deferred sales charge on redemptions of Investor B
Shares of the Portfolio purchased through certain Qualified Plans participating
in programs whose sponsors or administrators have entered into arrangements with
the Fund.

     Investor B Shares of the Portfolio will be made available to plan
participants at net asset value with the waiver of the contingent deferred sales
charge if the shares were purchased through an ML 401(k) Plan if:

          (i)   the ML 401(k) Plan is recordkept on a daily valuation basis by
  Merrill Lynch and, on the date the ML 401(k) Plan sponsor signs the Merrill
  Lynch Recordkeeping Service Agreement, the ML 401(k) Plan has less than $3
  million in assets invested in Applicable Investments; or

          (ii)  the ML 401(k) Plan is recordkept on a daily valuation basis by
  an independent recordkeeper whose services are provided through a contract or
  alliance arrangement with Merrill Lynch, and on the date the ML 401(k) Plan
  sponsor signs the Merrill Lynch Recordkeeping Service Agreement, the ML 401(k)
  Plan has less than $3 million in assets, excluding money market funds,
  invested in Applicable Investments; or

          (iii) the ML 401(k) Plan has less than 500 eligible employees, as
  determined by the Merrill Lynch plan conversion manager, on the date the ML
  401(k) Plan sponsor signs the Merrill Lynch Recordkeeping Service Agreement.

     ML 401(k) Plans recordkept on a daily basis by Merrill Lynch or an
independent recordkeeper under a contract with Merrill Lynch that are currently
investing in Investor B shares of Non-Money Market Portfolios of the Fund
convert to Investor A shares once the ML 401(k) Plan has reached $5 million
invested in Applicable Investments. The ML 401(k) Plan will receive a plan-
level share conversion.

     When an investor redeems Investor B Shares or Investor C Shares, the
redemption order is processed to minimize the amount of the contingent deferred
sales charge that will be charged. Investor B Shares and Investor C Shares are
redeemed first from those shares that are not subject to the deferred sales load
(i.e., shares that were acquired through reinvestment of dividends or
distributions) and after that from the shares that have been held the longest.

Shareholder Features

     Exchange Privilege. Exchanges of Investor A Shares may be subject to the
difference between the sales charge previously paid on the exchanged shares and
the higher sales charge (if any) payable with respect to the shares acquired in
the exchange. Unless an exemption applies, a front-end sales charge will be
charged in connection with exchanges of Investor A Shares of the Money Market
Portfolios for Investor A Shares of the Fund's Non-Money Market Portfolios.
Similarly, exchanges of Investor B or Investor C Shares of a Money Market
Portfolio for Investor B or Investor C Shares of a Non-Money Market Portfolio of
the Fund will also be subject to a CDSC, unless an exemption applies. In
determining the holding period for calculating the contingent deferred sales
charge payable on redemption of Investor B and Investor C Shares, the holding
period of the Investor B or Investor C Shares originally held will be added to
the holding period of the Investor B or Investor C Shares acquired through
exchange. No exchange fee is imposed by the Fund.

     Investor A Shares of Money Market Portfolios of the Fund that were (1)
acquired through the use of the exchange privilege and (2) can be traced back to
a purchase of shares in one or more investment portfolios of the Fund

                                       33
<PAGE>

for which a sales charge was paid, can be exchanged for Investor A Shares of the
Portfolio subject to differential sales charges as applicable.

     The exchange of Investor B and Investor C Shares will not be subject to a
CDSC, which will continue to be measured from the date of the original purchase
and will not be affected by exchanges.

     A shareholder wishing to make an exchange may do so by sending a written
request to PFPC at the address given above. Shareholders are automatically
provided with telephone exchange privileges when opening an account, unless they
indicate on the Application that they do not wish to use this privilege.
Shareholders holding share certificates are not eligible to exchange Investor A
Shares by phone because share certificates must accompany all exchange requests.
To add this feature to an existing account that previously did not provide this
option, a Telephone Exchange Authorization Form must be filed with PFPC. This
form is available from PFPC. Once this election has been made, the shareholder
may simply contact PFPC by telephone at (800) 441-7762 to request the exchange.
During periods of substantial economic or market change, telephone exchanges may
be difficult to complete and shareholders may have to submit exchange requests
to PFPC in writing.

     If the exchanging shareholder does not currently own shares of the
investment portfolio whose shares are being acquired, a new account will be
established with the same registration, dividend and capital gain options and
broker of record as the account from which shares are exchanged, unless
otherwise specified in writing by the shareholder with all signatures guaranteed
by an eligible guarantor institution as defined below. In order to participate
in the Automatic Investment Program or establish a Systematic Withdrawal Plan
for the new account, however, an exchanging shareholder must file a specific
written request.

     Any share exchange must satisfy the requirements relating to the minimum
initial investment requirement, and must be legally available for sale in the
state of the investor's residence. For Federal income tax purposes, a share
exchange is a taxable event and, accordingly, a capital gain or loss may be
realized. Before making an exchange request, shareholders should consult a tax
or other financial adviser and/or sub-adviser and should consider the investment
objective, policies and restrictions of the investment portfolio into which the
shareholder is making an exchange. Brokers may charge a fee for handling
exchanges.

     The Fund reserves the right to suspend, modify or terminate the exchange
privilege at any time. Notice will be given to shareholders of any material
modification or termination except where notice is not required. The Fund
generally will suspend or terminate the exchange privilege of a shareholder who
makes more than five exchanges out of any Portfolio in any twelve-month period
or when the proposed exchange would make it difficult for the Portfolio's
adviser and/or sub-adviser to invest effectively in accordance with that
Portfolio's investment objective.

     The Fund reserves the right to reject any telephone exchange request.
Telephone exchanges may be subject to limitations as to amount or frequency, and
to other restrictions that may be established from time to time to ensure that
exchanges do not operate to the disadvantage of any portfolio or its
shareholders. The Fund, the Administrators and the Distributor will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine. The Fund, the Administrators and the Distributor will not be liable for
any loss, liability, cost or expense for acting upon telephone instructions
reasonably believed to be genuine in accordance with such procedures. Exchange
orders may also be sent by mail to the shareholder's broker or to PFPC at P.O.
Box 8907, Wilmington, Delaware 19899-8907.

     By use of the exchange privilege, the investor authorizes the Fund's
transfer agent to act on telephonic or written exchange instructions from any
person representing himself to be the investor and reasonably believed by the
Fund's transfer agent to be genuine. The records of the Fund's transfer agent
pertaining to such instructions are binding. The exchange privilege may be
modified or terminated at any time upon 60 days' notice to affected
shareholders. The exchange privilege is only available in states where the
exchange may legally be made.

     A front-end sales charge or a contingent deferred sales charge will be
imposed (unless an exemption from either sales charge applies) when Investor
Shares of a Money Market Portfolio are redeemed and the proceeds are used to
purchase Investor A Shares, Investor B Shares or Investor C Shares of a Non-
Money Market Portfolio.

                                       34
<PAGE>

     Automatic Investment Plan ("AIP"). Investor Share shareholders and certain
Service Share shareholders who were shareholders or the Compass Capital Group of
Funds at the time of its combination with The PNC(R) Fund in 1996 may arrange
for periodic investments in that Portfolio through automatic deductions from a
checking or savings account by completing the AIP Application Form which may be
obtained from PFPC. The minimum pre-authorized investment amount is $50.

     Systematic Withdrawal Plan ("SWP"). The Fund offers a Systematic Withdrawal
Plan which may be used by Investor Share shareholders and certain Service Share
shareholders who were shareholders at the Compass Capital Group of Funds at the
time of its combination with The PNC(R) Fund in 1996 who wish to receive regular
distributions from their accounts. Upon commencement of the SWP, the account
must have a current value of $10,000 or more in the Portfolio. Shareholders may
elect to receive automatic cash payments of $50 or more either monthly, every
other month, quarterly, semi-annually, or annually. Automatic withdrawals are
normally processed on the 25th day of the application month or, if such day is
not a Business Day, on the next Business Day and are paid promptly thereafter.
An investor may utilize the SWP by completing the SWP Application Form which may
be obtained from PFPC.

     Shareholders should realize that if withdrawals exceed income dividends
their invested principal in the account will be depleted. To participate in the
SWP, shareholders must have their dividends automatically reinvested and may not
hold share certificates. Shareholders may change or cancel the SWP at any time,
upon written notice to PFPC. Purchases of additional Investor A Shares of the
Fund concurrently with withdrawals may be disadvantageous to investors because
of the sales charges involved and, therefore, are discouraged. No contingent
deferred sales charge will be assessed on redemptions of Investor B or Investor
C Shares made through the SWP that do not exceed 12% of an account's net asset
value on an annualized basis. For example, monthly, quarterly and semi-annual
SWP redemptions of Investor B or Investor C Shares will not be subject to the
CDSC if they do not exceed 1%, 3% and 6%, respectively, of an account's net
asset value on the redemption date. SWP redemptions of Investor B or Investor C
Shares in excess of this limit are still subject to the applicable CDSC.

     Redemption of Shares. Except as noted below, a request for redemption must
be signed by all persons in whose names the shares are registered. Signatures
must conform exactly to the account registration. If the proceeds of the
redemption would exceed $25,000, or if the proceeds are not to be paid to the
record owner at the record address, or if the shareholder is a corporation,
partnership, trust or fiduciary, signature(s) must be guaranteed by any eligible
guarantor institution.

     A signature guarantee is designed to protect the shareholders and the
Portfolio against fraudulent transactions by unauthorized persons. A signature
guarantee may be obtained from a domestic bank or trust company, recognized
broker, dealer, clearing agency, savings association who are participants in a
medallion program by the Securities Transfer Association, credit unions,
national securities exchanges and registered securities associations. The three
recognized medallion programs are Securities Transfer Agent Medallion Program
(STAMP), Stock Exchanges Medallion Program (SEMP) and New York Stock Exchange,
Inc. Medallion Signature Program (MSP). Signature Guarantees which are not a
part of these programs will not be accepted. Please note that a notary public
stamp or seal is not acceptable.

     Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents may be necessary. Shareholders holding Investor A Share
certificates must send their certificates with the redemption request.
Additional documentary evidence of authority is required by PFPC in the event
redemption is requested by a corporation, partnership, trust, fiduciary,
executor or administrator.

     Payment of Redemption Proceeds. The Fund may suspend the right of
redemption or postpone the date of payment upon redemption for such periods as
are permitted under the 1940 Act, and may redeem shares involuntarily or make
payment for redemption in securities or other property when determined
appropriate in light of the Fund's responsibilities under the 1940 Act.

     The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase of the
Portfolio's shares by making payment in whole or in part in securities chosen by
the Fund and valued in the same way as they would be valued for purposes of
computing the Portfolio's net asset value. If payment is made in securities, a
shareholder may incur transaction costs in converting these securities into

                                       35
<PAGE>

cash. The Fund has elected, however, to be governed by Rule 18f-1 under the 1940
Act so that the Portfolio is obligated to redeem its shares solely in cash up to
the lesser of $250,000 or 1% of its net asset value during any 90-day period for
any one shareholder of the Portfolio.

     Under the 1940 Act, the Portfolio may suspend the right to redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange (the "NYSE") is closed (other than customary weekend and
holiday closings), or during which trading on the NYSE is restricted, or during
which (as determined by the SEC by rule or regulation) an emergency exists as a
result of which disposal or valuation of portfolio securities is not reasonably
practicable, or for such other periods as the SEC may permit. (The Portfolio may
also suspend or postpone the recordation of the transfer of its shares upon the
occurrence of any of the foregoing conditions.)

     The Fund may redeem shares involuntarily to reimburse the Portfolio for any
loss sustained by reason of the failure of a shareholder to make full-payment
for shares purchased by the shareholder or to collect any charge relating to a
transaction effected for the benefit of a shareholder. The Fund reserves the
express right to redeem shares of the Portfolio involuntarily at any time if the
Fund's Board of Trustees determines, in its sole discretion, that failure to do
so may have adverse consequences to the holders of shares in the Portfolio. Upon
such redemption the holders of shares so redeemed shall have no further right
with respect thereto other than to receive payment of the redemption price.

Institutional and BlackRock Shares

     Purchase of Shares. Institutional Shares are offered to institutional
investors, including (a) registered investment adviser and/or sub-adviser with a
minimum investment of $500,000 and (b) the trust departments of PNC Bank and its
affiliates (collectively, "PNC") on behalf of clients for whom PNC (i) acts in a
fiduciary capacity (excluding participant-direct employee benefit plans) or
otherwise has investment discretion or (ii) acts as custodian with respect to at
least $2,000,000 in assets, and individuals with a minimum investment of
$2,000,000. The minimum initial investment for institutions is $5,000. There is
no minimum subsequent investment requirement.

     BlackRock Shares are offered to institutional investors with a minimum
investment of $5,000,000. There is no minimum subsequent investment requirement.

     Payment for Institutional and BlackRock Shares must normally be made in
Federal funds or other funds immediately available to the Fund's custodian.
Payment may also, in the discretion of the Fund, be made in the form of
securities that are permissible investments for the respective Portfolios. The
Fund does not accept third party checks for initial or subsequent investments.

     In the event that a shareholder acquiring Institutional Shares on or after
May 1, 1998 ceases to meet the eligibility standards for purchasing
Institutional Shares (other than due to fluctuations in market value), then the
shareholder's Institutional Shares will, upon the direction of the Fund's
distributor, automatically be converted to shares of another class of the
Portfolio having the same aggregate net asset value as the shares converted. If,
at the time of conversion, an institution offering Service Shares of the
Portfolio is acting on the shareholder's behalf, then the shareholder's
Institutional Shares will be converted to Service Shares of the Portfolio. If
not, then the shareholder's Institutional Shares will be converted to Investor A
Shares of the Portfolio. Service Shares are currently authorized to bear
additional service and processing fees at the aggregate annual rate of .30% of
average daily net assets, while Investor A Shares are currently authorized to
bear additional service, processing and distribution fees at the aggregate
annual rate of .50% of average daily net assets.

     The Fund may in its discretion waive or modify the minimum investment
amount, may reject any order for Institutional and BlackRock Shares and may
suspend and resume the sale of shares of any Portfolio at any time.

     Redemption of Shares. Payment for redeemed shares for which a redemption
order is received by PFPC before 4:00 p.m. (Eastern Time) on a Business Day is
normally made in Federal funds wired to the redeeming Institution on the next
Business Day, provided that the Fund's custodian is also open for business.
Payment for redemption orders received after 4:00 p.m. (Eastern Time) or on a
day when the Fund's custodian is closed is normally wired in Federal funds on
the next Business Day following redemption on which the Fund's custodian is

                                       36
<PAGE>

open for business. The Fund reserves the right to wire redemption proceeds
within seven days after receiving a redemption order if, in the judgment of
BlackRock, an earlier payment could adversely affect a Portfolio. No charge for
wiring redemption payments is imposed by the Fund.

     During periods of substantial economic or market change, telephone
redemptions may be difficult to complete. Redemption requests may also be mailed
to PFPC at P.O. Box 8907, Wilmington, Delaware 19899-8907.

     The Fund may also suspend the right of redemption or postpone the date of
payment upon redemption for such periods as are permitted under the 1940 Act,
and may redeem shares involuntarily or make payment for redemption in securities
or other property when determined appropriate in light of the Fund's
responsibilities under the 1940 Act.

     Institutional Shares of the Portfolios may be purchased by customers of
broker-dealers and agents which have established a servicing relationship with
the Fund on behalf of their customers. These broker-dealers and agents may
impose additional or different conditions on the purchase or redemption of
Portfolio shares by their customers and may charge their customers transaction,
account or other fees on the purchase and redemption of Portfolio shares. Each
broker-dealer or agent is responsible for transmitting to its customers a
schedule of any such fees and information regarding any additional or different
conditions regarding purchases and redemptions. Shareholders who are customers
of such broker-dealers or agents should consult them for information regarding
these fees and conditions.

Service Shares

     Purchase of Shares.  Purchase orders for the Portfolio may be placed by
telephoning PFPC at (800) 441-7450.

     In the event that a shareholder acquiring Service Shares on or after May 1,
1998 (other than a former shareholder of The Compass Capital Group as described
above) ceases to meet the eligibility standards for purchasing Service Shares,
then the shareholder's Service Shares will, upon the direction of the Fund's
distributor, automatically be converted to Investor A Shares of the Portfolio
having the same aggregate net asset value as the shares converted. Investor A
Shares are currently authorized to bear additional service and distribution fees
at the aggregate annual rate of .20% of average daily net assets. In the event
that a shareholder acquiring Service Shares on or after May 1, 1998 subsequently
satisfies the eligibility standards for purchasing Institutional Shares (other
than due to fluctuations in market value), then the shareholder's Service Shares
will, upon the direction of the Fund's distributor, automatically be converted
to Institutional Shares of Portfolio having the same aggregate net asset value
as the shares converted.

     The Fund may in its discretion waive or modify the minimum investment
amount, may reject any order for Service Shares and may suspend and resume the
sale of shares of any Portfolio at any time.

     Redemption of Shares. Payment for redeemed shares for which a redemption
order is received by PFPC before 4:00 p.m. (Eastern Time) on a Business Day is
normally made in Federal funds wired to the redeeming Institution on the next
Business Day, provided that the fund's custodian is also open for business.
Payment for redemption orders received after 4:00 p.m. (Eastern Time) or on a
day when the Fund's custodian is closed is normally wired in Federal funds on
the next Business Day following redemption on which the Fund's custodian is open
for business. The Fund reserves the right to wire redemption proceeds within
seven days after receiving a redemption order if, in the judgment of BlackRock,
Inc., an earlier payment could adversely affect the Portfolio. No charge for
wiring redemption payments is imposed by the Fund, although Institutions may
charge their customer accounts for redemption services. Information relating to
such redemption services and charges, if any, should be obtained by customers
from their Institution.

     During periods of substantial economic or market change, telephone
redemptions may be difficult to complete. Redemption requests may also be mailed
to PFPC at 400 Bellevue Parkway, Wilmington, DE 19809.

     The Fund may redeem Service Shares in any Portfolio account if the account
balance drops below $5,000 as the result of redemption requests and the
shareholder does not increase the balance to at least $5,000 upon thirty days'

                                       37
<PAGE>

written notice. If a customer has agreed with an Institution to maintain a
minimum balance in his or her account with the Institution, and the balance in
the account falls below that minimum, the customer may be obligated to redeem
all or part of his or her shares in the Portfolio to the extent necessary to
maintain the minimum balance required.

     The Fund may also suspend the right of redemption or postpone the date of
payment upon redemption for such periods as are permitted under the 1940 Act,
and may redeem shares involuntarily or make payment for redemption in securities
or other property when determined appropriate in light of the Fund's
responsibilities under the 1940 Act.

     Except as noted below, a request for redemption must be signed by all
persons in whose names the shares are registered. Signatures must conform
exactly to the account registration. If the proceeds of the redemption would
exceed $25,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the shareholder is a corporation, partnership, trust or
fiduciary, signature(s) must be guaranteed by any eligible guarantor
institution. Eligible guarantor institutions generally include banks,
broker/dealers, credit unions, national securities exchanges, registered
securities associations, clearing agencies and savings associations.

     Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents may be necessary. Shareholders holding share certificates must
send their certificates with the redemption request. Additional documentary
evidence of authority is required by PFPC in the event redemption is requested
by a corporation, partnership, trust, fiduciary, executor or administer.

     If shareholder has given authorization for expedited redemption, shares can
be redeemed by telephone and the proceeds sent by check to the shareholder or by
Federal wire transfer to a single previously designated bank account. Once
authorization is on file, PFPC will honor requests by any person by telephone at
(800) 441-7762 or other means. The minimum amount that may be sent by check is
$500, while the minimum amount that may be wired is $10,000. The Fund reserves
the right to change these minimums or to terminate these redemptions privileges.
If the proceeds of a redemption would exceed $25,000, the redemption request
must be in writing and will be subject to the signature guarantee requirement
described above. This privilege may not be used to redeem shares in certificated
form.

     Persons who were shareholders of an investment portfolio of Compass Capital
Group of Funds at the time of the portfolio's combination with The PNC Fund may
also purchase and redeem Service Shares of the same Portfolio and for the same
account in which they held shares on that date through the procedures described
in this section.

Dividends and Distributions

     The Portfolio will distribute substantially all of its net investment
income and net realized capital gains, if any, to shareholders. All
distributions are reinvested at net asset value in the form of additional full
and fractional shares of the same class of shares of the Portfolio unless a
shareholder elects otherwise. Such election, or any revocation thereof, must be
made in writing to PFPC, and will become effective with respect to dividends
paid after its receipt by PFPC. The Portfolio declares a dividend each day on
"settled" shares (i.e., shares for which the Portfolio has received payment in
Federal funds) on the first Business Day after a purchase order is placed with
the Fund. Payments by check are normally converted to Federal funds within two
Business Days of receipt. Over the course of a year, substantially all of the
Portfolio's net investment income will be declared as dividends. The amount of
the daily dividend for the Portfolio will be based on periodic projections of
its net investment income. All dividends are paid within ten days after the end
of each month. Net realized capital gains (including net short-term capital
gains), if any, will be distributed by the Portfolio at least annually.

                        VALUATION OF PORTFOLIO SECURITIES

     Net asset value is calculated separately for each class of shares of the
Portfolio as of the close of regular trading hours on the NYSE on each Business
Day by dividing the value of all securities, cash and other assets owned by a
Portfolio that are allocated to a particular class of shares, less the
liabilities charged to that class, by the total number of outstanding shares of
the class.

                                       38
<PAGE>

     Valuation of securities held by the Portfolio is as follows: domestic
securities traded on a national securities exchange or on the NASDAQ National
Market system are valued at the last reported sale price that day; domestic
securities traded on a national securities exchange or on the NASDAQ National
Market System for which there were no sales on that day are valued at the mean
of the bid and asked prices; foreign securities traded on a recognized stock
exchange, whether U.S. or foreign, are valued at the latest sale price on that
exchange prior to the time when assets are valued or prior to the close of
regular trading hours on the NYSE (if a security is traded on more than one
exchange, the latest sale price on the exchange where the stock is primarily
traded is used); foreign securities traded on a recognized stock exchange for
which there were no sales on that day are valued at the mean of the bid and
asked prices; other securities are valued on the basis of valuations provided by
a pricing service approved by the Board of Trustees, provided that if the
investment adviser or sub-adviser concludes that the price provided by a pricing
service does not represent the fair value of a security, such security will be
valued at fair value determined by the adviser and/or sub-adviser or sub-adviser
based on quotations or the equivalent thereof received from dealers; an option
or futures contract is valued at the last sales price prior to 4:00 p.m.
(Eastern Time), as quoted on the principal exchange or board of trade on which
such option or futures contract is traded, or in the absence of a sale, the mean
between the last bid and asked prices prior to 4:00 p.m. (Eastern Time); the
amortized cost method of valuation is used with respect to debt obligations with
sixty days or less remaining to maturity; and securities for which market
quotations are not readily available are valued at fair market value as
determined in good faith by or under the direction of the Fund's Board of
Trustees. Any securities which are denominated in a foreign currency are
translated into U.S. dollars at the prevailing market rates.

     Certain of the securities acquired by the Portfolio may be traded on
foreign exchanges or over-the-counter markets on days on which the Portfolio's
net asset value is not calculated. In such cases, the net asset value of the
Portfolio's shares may be significantly affected on days when investors can
neither purchase nor redeem shares of the Portfolio.

     The Portfolio may use a pricing service, bank or broker/dealer experienced
in such matters to value the Portfolio's securities.

                             PERFORMANCE INFORMATION

     The Portfolio may quote performance in various ways. All performance
information supplied by the Portfolio in advertising is historical and is not
intended to indicate future returns.

     Total Return. For purposes of quoting and comparing the performance of
shares of the Portfolio to the performance of other mutual funds and to stock or
other relevant indexes in advertisements, sales literature, communications to
shareholders and other materials, performance may be stated in terms of total
return. The total return for each class of the Portfolio will be calculated
independently of the other classes within that Portfolio. Under the rules of the
SEC, funds advertising performance must include total return quotes calculated
according to the following formula:


                               T = [(ERV 1/n) - 1]
                                     -------
                                        P
Where:

T =   average annual total return.

ERV = ending redeemable value at the end of the period covered by the
      computation of a hypothetical $1,000 payment made at the beginning of the
      period.

P =   hypothetical initial payment of $1,000.

n =   period covered by the computation, expressed in terms of years.


     In calculating the ending redeemable value for Investor A Shares the
maximum front-end sales charge is deducted from the initial $1,000 payment and
all dividends and distributions by the particular Portfolio are assumed to have
been reinvested at net asset value on the reinvestment dates during the period.
In calculating the ending

                                       39
<PAGE>

redeemable value for Investor B Shares the maximum contingent deferred sales
charge is deducted at the end of the period and all dividends and distributions
by the particular Portfolio are assumed to have been reinvested at net asset
value on the reinvestment dates during the period. In calculating the ending
redeemable value for Investor C Shares, the maximum contingent deferred sales
charge is deducted at the end of the period, and all dividends and distributions
by the particular Portfolio are assumed to have been reinvested at net asset
value on the reinvestment dates during the period. Total return, or "T" in the
formula above, is computed by finding the average annual compounded rates of
return over the specified periods that would equate the initial amount invested
to the ending redeemable value.

     The Portfolio may also from time to time include in advertisements, sales
literature, communications to shareholders and other materials a total return
figure that is not calculated according to the formula set forth above in order
to compare more accurately the performance of each class of shares with other
performance measures. For example, in comparing the total return of shares with
data published by Lipper Analytical Services, Inc., CDA Investment Technologies,
Inc. or Weisenberger Investment Company Service, or with the performance of the
Standard & Poor's 500 Stock Index, EAFE, the Dow Jones Industrial Average or the
Shearson Lehman Hutton Government Corporate Bond Index, as appropriate, the
Portfolio may calculate the aggregate total return for its shares of a certain
class for the period of time specified in the advertisement or communication by
assuming the investment of $10,000 in such shares and assuming the reinvestment
of each dividend or other distribution at net asset value on the reinvestment
date. Percentage increases are determined by subtracting the initial value of
the investment from the ending value and by dividing the remainder by the
beginning value. The Portfolio may not, for these purposes, deduct from the
initial value invested or the ending value any amount representing front-end and
deferred sales charges charged to purchasers of Investor A, Investor B or
Investor C Shares. The Investor A, Investor B and Investor C classes of the
Portfolio will, however, disclose, if appropriate, the maximum applicable sales
charges and will also disclose that the performance data does not reflect sales
charges and that inclusion of sales charges would reduce the performance quoted.

     In addition to average annual total returns, the Portfolio may quote
unaveraged or cumulative total returns reflecting the simple change in value of
an investment over a stated period. Average annual and cumulative total returns
may be quoted as a percentage or as a dollar amount, and may be calculated for a
single investment, a series of investments, or a series of redemptions, over any
time period. Total returns may be broken down into their components of income
and capital (including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to total
return. Total returns may be quoted on a before-tax or after-tax basis and may
be quoted with or without taking sales charges into account. Excluding the sales
charge from a total return calculation produces a higher total return figure.
Total returns, yields, and other performance information may be quoted
numerically or in a table, graph or similar illustration.

     Performance information for each class of shares may be quoted in
advertisements and communications to shareholders. Total return will be
calculated on an average annual total return basis for various periods. Average
annual total return reflects the average annual percentage change in value of an
investment in shares of the Portfolio over the measuring period. Total return
may also be calculated on an aggregate total return basis. Aggregate total
return reflects the total percentage change in value over the measuring period.
Both methods of calculating total return assume that dividend and capital gain
distributions made by the Portfolio with respect to a class of shares are
reinvested in shares of the same class, and also reflect the maximum sales load
charged by the Portfolio with respect to a class of shares. When, however, the
Portfolio compares the total return of a share class to that of other funds or
relevant indices, total return may also be computed without reflecting the sales
load.

     The yield of a class of shares of each of the Portfolio is computed by
dividing the Portfolio's net income per share allocated to that class during a
30-day (or one month) period by the maximum offering price per share on the last
day of the period and annualizing the result on a semi-annual basis.

     The performance of a class of the Portfolio's shares may be compared to the
performance of other mutual funds with similar investment objectives and to
relevant indices, as well as to ratings or rankings prepared by independent
services or other financial or industry publications that monitor the
performance of mutual funds. The performance of a class of each of the
Portfolio's shares may be compared to data prepared by Lipper Analytical
Services, Inc., CDA Investment Technologies, Inc. and Weisenberger Investment
Company Service, and to the performance of the T-Bill Index, the "stocks, bonds
and inflation index" published annually by Ibbotson Associates and the Lehman
Government Corporate Bond Index. Performance information may also include
evaluations of the

                                       40
<PAGE>

Portfolio and its share classes published by nationally recognized ranking
services, and information as reported in financial publications such as Business
Week, Fortune, Institutional Investor, Money Magazine, Forbes, Barron's, The
Wall Street Journal and The New York Times, or in publications of a local or
regional nature.

     In addition to providing performance information that demonstrates the
actual yield or return of a class of shares, the Portfolio may provide other
information demonstrating hypothetical investment returns. This information may
include, but is not limited to, illustrating the compounding effects of
dividends in a dividend investment plan or the impact on tax-deferring
investing.

     Performance quotations for shares of the Portfolio represent past
performance and should not be considered representative of future results. The
investment return and principal value of an investment in the Portfolio will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Since performance will fluctuate, performance data for
shares of the Portfolio cannot necessarily be used to compare an investment in
such shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Performance is generally a function of the kind and
quality of the instruments held in the Portfolio, portfolio maturity, operating
expenses and market conditions. Any fees charged by brokers or other
institutions directly to their customer accounts in connection with investments
in shares will not be included in the Portfolio performance calculations.

     Portfolio Yield. The Portfolio may advertise the yields on its Service,
Investor A, Investor B, Investor C, Institutional and BlackRock Shares. Under
the rules of the SEC, each such Portfolio advertising the respective yields for
its Service, Investor A, Investor B, Investor C, Institutional and BlackRock
Shares must calculate yield using the following formula:


                            YIELD = 2 [(a-b + 1)6 -1]
                                        ---
                                        cd

Where:  a =    dividends and interest earned during  the period

        b =    expenses accrued for the period (net of reimbursements)

        c =    the average daily number of shares outstanding during the period
               that were entitled to receive dividends

        d =    the maximum offering price per share on the last day of the
               period

     For the purpose of determining net investment income earned during the
period (variable "a" in the formula), dividend income on equity securities held
by the Portfolio is recognized by accruing 1/360th of the stated dividend rate
of the security each day that the security is in the Portfolio. Except as noted
below, interest earned on any debt obligations held by the Portfolio is
calculated by computing the yield to maturity of each obligation held by the
Portfolio based on the market value of the obligation (including actual accrued
interest) at the close of business on the last business day of each month, or,
with respect to obligations purchased during the month, the purchase price (plus
actual accrued interest) and dividing the result by 360 and multiplying the
quotient by the market value of the obligation (including actual accrued
interest) in order to determine the interest income on the obligation for each
day of the subsequent month that the obligation is held by the Portfolio. For
purposes of this calculation, it is assumed that each month contains 30 days.
The maturity of an obligation with a call provision is the next call date on
which the obligation reasonably may be expected to be called or, if none, the
maturity date.

     With respect to debt obligations purchased at a discount or premium, the
formula generally calls for amortization of the discount or premium. However,
interest earned on tax-exempt obligations that are issued without original issue
discount and have a current market discount is calculated by using the coupon
rate of interest instead of the yield to maturity. In the case of tax-exempt
obligations that are issued with original issue discount but which have
discounts based on current market value that exceed the then-remaining portion
of the original issue discount (market discount), the yield to maturity is the
imputed rate based on the original issue discount calculation. On the other
hand,

                                       41
<PAGE>

in the case of tax-exempt obligations that are issued with original issue
discount but which have discounts based on current market value that are less
than the then-remaining portion of the original issue discount (market premium),
the yield to maturity is based on the market value.

     With respect to mortgage or other receivables-backed obligations which are
expected to be subject to monthly payments of principal and interest ("pay
downs"), (a) gain or loss attributable to actual monthly pay downs are accounted
for as an increase or decrease to interest income during the period; and (b) the
Portfolio may elect either (i) to amortize the discount and premium on the
remaining security, based on the cost of the security, to the weighted-average
maturity date, if such information is available, or to the remaining term of the
security, if any, if the weighted-average maturity date is not available, or
(ii) not to amortize discount or premium on the remaining security. The
amortization schedule will be adjusted monthly to reflect changes in the market
values of debt obligations.

     Undeclared earned income will be subtracted from the maximum offering price
per share (variable "d" in the formula). Undeclared earned income is the net
investment income which, at the end of the base period, has not been declared as
a dividend, but is reasonably expected to be and is declared and paid as a
dividend shortly thereafter. In the case of Investor A Shares of the Portfolio,
the Portfolio's maximum offering price per share for purposes of the formula
includes the maximum front-end sales charge imposed by the Portfolio --
currently as much as 5.00% of the per share offering price.

     Other Information Regarding Investment Returns. In addition to providing
performance information that demonstrates the total return or yield of shares of
a particular class of the Portfolio over a specified period of time, the Fund
may provide certain other information demonstrating hypothetical investment
returns. Such information may include, but is not limited to, illustrating the
compounding effects of dividends in a dividend reinvestment plan or the impact
of tax-free investing. The Fund may demonstrate, using certain specified
hypothetical data, the compounding effect of dividend reinvestment on
investments in the Portfolio.

     Miscellaneous. Yields on shares of the Portfolio may fluctuate daily and do
not provide a basis for determining future yields. Because such yields will
fluctuate, they cannot be compared with yields on savings account or other
investment alternatives that provide an agreed to or guaranteed fixed yield for
a stated period of time. In comparing the yield of the Portfolio to another,
consideration should be given to each Portfolio's investment policies, including
the types of investments made, lengths of maturities of the portfolio
securities, market conditions, operating expenses and whether there are any
special account charges which may reduce the effective yield. The fees which may
be imposed by Service Organizations and other institutions on their customers
are not reflected in the calculations of total returns or yields for the
Portfolio.

     When comparing the Portfolio's performance to bond mutual fund performance
indices prepared by Lipper or other organizations, it is important to remember
the risk and return characteristics of each type of investment.

     From time to time, the Portfolio's performance may also be compared to
other mutual funds tracked by financial or business publications and
periodicals. For example the Portfolio may quote Morningstar, Inc. in its
advertising materials. Morningstar, Inc. is a mutual fund rating service that
rates mutual funds on the basis of risk-adjusted performance. Rankings that
compare the performance of Portfolio to one another in appropriate categories
over specific periods of time may also be quoted in advertising.

     Ibbotson Associates of Chicago, Illinois ("Ibbotson") provides historical
returns of the capital markets in the United States, including common stocks,
small capitalization stocks, long-term corporate bonds, intermediate-term
government bonds, long-term government bonds, Treasury bills, the U.S. rate of
inflation (based on the Consumer Price Index), and combinations of various
capital markets. The performance of these capital markets is based on the
returns of different indices. The Portfolio may use the performance of these
capital markets in order to demonstrate general risk-versus-reward investment
scenarios. Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risks associated with the
security types in any capital market may or may not correspond directly to those
of the Portfolio. The Portfolio may also compare performance to that of other
compilations or indices that may be developed and made available in the future.

     The Fund may also from time to time include discussions or illustrations of
the effects of compounding in advertisements. "Compounding" refers to the fact
that, if dividends or other distributions on the Portfolio investment

                                       42
<PAGE>

are reinvested by being paid in additional Portfolio shares, any future income
or capital appreciation of the Portfolio would increase the value, not only of
the original investment in the Portfolio, but also of the additional Portfolio
shares received through reinvestment. The Fund may also include discussions or
illustrations of the potential investment goals of a prospective investor,
(including materials that describe general principles of investing, such as
asset allocation, diversification, risk tolerance, and goal setting,
questionnaires designed to help create a personal financial profile, worksheets
used to project savings needs based on assumed rates of inflation and
hypothetical rates of return and action plans offering investment alternatives)
investment management techniques, policies or investment suitability of the
Portfolio (such as value investing, market timing, dollar cost averaging, asset
allocation, constant ratio transfer, automatic account rebalancing, the
advantages and disadvantages of investing in tax-deferred and taxable
investments), economic and political conditions and the relationship between
sectors of the economy and the economy as a whole, the effects of inflation and
historical performance of various asset classes, including but not limited to,
stocks, bonds and Treasury bills. From time to time advertisements, sales
literature, communications to shareholders or other materials may summarize the
substance of information contained in shareholder reports (including the
investment composition of the Portfolio), as well as the views of the
Portfolio's adviser and/or sub-adviser as to current market, economy, trade and
interest rate trends, legislative, regulatory and monetary developments,
investment strategies and related matters believed to be of relevance to the
Portfolio. In addition, selected indices may be used to illustrate historic
performance of select asset classes. The Fund may also include in
advertisements, sales literature, communications to shareholders or other
materials, charts, graphs or drawings which illustrate the potential risks and
rewards of investment in various investment vehicles, including but not limited
to, stocks, bonds, Treasury bills and shares of the Portfolio. In addition,
advertisements, sales literature, shareholder communications or other materials
may include a discussion of certain attributes or benefits to be derived by an
investment in the Portfolio and/or other mutual funds, benefits, characteristics
or services associated with a particular class of shares, shareholder profiles
and hypothetical investor scenarios, timely information on financial management,
tax and retirement planning and investment alternative to certificates of
deposit and other financial instruments. Such advertisements or communicators
may include symbols, headlines or other material which highlight or summarize
the information discussed in more detail therein. Materials may include lists of
representative clients of the Portfolio's investment adviser and/or sub-
adviser. Materials may refer to the CUSIP numbers of the various classes of the
Portfolio and may illustrate how to find the listings of the Portfolio in
newspapers and periodicals. Materials may also include discussions of other
Portfolio, products, and services.

     Charts and graphs using net asset values, adjusted net asset values, and
benchmark indices may be used to exhibit performance. An adjusted NAV includes
any distributions paid and reflects all elements of return. Unless otherwise
indicated, the adjusted NAVs are not adjusted for sales charges, if any.

     The Portfolio may illustrate performance using moving averages. A long-
term moving average is the average of each week's adjusted closing NAV for a
specified period. A short-term moving average is the average of each day's
adjusted closing NAV for a specified period. Moving Average Activity Indicators
combine adjusted closing NAVs from the last business day of each week with
moving averages for a specified period to produce indicators showing when an NAV
has crossed, stayed above, or stayed below its moving average.

     The Portfolio may quote various measures of volatility and benchmark
correlation in advertising. In addition, the Portfolio may compare these
measures to those of other funds. Measures of volatility seek to compare the
historical share price fluctuations or total returns to those of a benchmark.
Measures of benchmark correlation indicate how valid a comparative benchmark may
be. All measures of volatility and correlation are calculated using averages of
historical data.

     Momentum indicators indicate the Portfolio's price movements over specific
periods of time. Each point on the momentum indicator represents the Portfolio's
percentage change in price movements over that period.

     The Portfolio may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a program, an
investor invests a fixed dollar amount in a fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low. While such a strategy does not assure a profit or guard against loss in a
declining market, the investor's average cost per share can be lower than if
fixed numbers of shares are purchased at the same intervals. In evaluating such
a plan, investors should consider their ability to continue purchasing shares
during periods of low price levels. The Portfolio may be available

                                       43
<PAGE>

for purchase through retirement plans or other programs offering deferral of, or
exemption from, income taxes, which may produce superior after-tax returns over
time.

     The Portfolio may advertise its current interest rate sensitivity,
duration, weighted average maturity or similar maturity characteristics.

     Advertisements and sales materials relating to the Portfolio may include
information regarding the background, experience and expertise of the investment
adviser and/or sub-adviser and/or portfolio managers for the Portfolio.

                                      TAXES

     The following is only a summary of certain additional tax considerations
generally affecting the Portfolio and its shareholders that are not described in
the Prospectuses. No attempt is made to present a detailed explanation of the
tax treatment of the Portfolio or its shareholders, and the discussion here and
in the Prospectuses is not intended as a substitute for careful tax planning.
Investors are urged to consult their tax adviser and/or sub-adviser with
specific reference to their own tax situation.

     The Portfolio of the Fund has elected and intends to qualify for taxation
as a regulated investment company under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"). As a regulated investment company, the
Portfolio generally is exempt from federal income tax on its net investment
income (i.e., its investment company taxable income as that term is defined in
the Code without regard to the deduction for dividends paid) and net capital
gain (i.e., the excess of its net long-term capital gain over its net short-term
capital loss) that it distributes to shareholders, provided that it distributes
an amount equal to at least the sum of (a) 90% of its net investment income and
(b) 90% of its net tax-exempt interest income, if any, for the year (the
"Distribution Requirement") and satisfies certain other requirements of the Code
that are described below. Distributions of net investment income and net tax-
exempt interest income made during the taxable year or, under specified
circumstances, within twelve months after the close of the taxable year will
satisfy the Distribution Requirement.

     In addition to satisfaction of the Distribution Requirement, the Portfolio
must derive at least 90% of its gross income from dividends, interest, certain
payments with respect to securities loans and gains from the sale or other
disposition of stock or securities or foreign currencies (including, but not
limited to, gains from forward foreign currency exchange contacts), or from
other income derived with respect to its business of investing in such stock,
securities, or currencies (the "Income Requirement").

     In addition to the foregoing requirements, at the close of each quarter of
its taxable year, at least 50% of the value of the Portfolio's assets must
consist of cash and cash items, U.S. government securities, securities of other
regulated investment companies, and securities of other issuers (as to which the
Portfolio has not invested more than 5% of the value of its total assets in
securities of such issuer and as to which the Portfolio does not hold more than
10% of the outstanding voting securities of such issuer), and no more than 25%
of the value of the Portfolio's total assets may be invested in the securities
of any one issuer (other than U.S. Government securities and securities of other
regulated investment companies), or in two or more issuers which such Portfolio
controls and which are engaged in the same or similar trades or businesses.

     The Portfolio intends to distribute to shareholders any of its net capital
gain for each taxable year. Such gain is distributed as a capital gain dividend
and is taxable to shareholders as long-term capital gain, regardless of the
length of time the shareholder has held his shares, whether such gain was
recognized by the Portfolio prior to the date on which a shareholder acquired
shares of the Portfolio and whether the distribution was paid in cash or
reinvested in shares.

     Under current law, ordinary income of individuals will be taxable at a
maximum marginal rate of 39.6%, but because of limitations on itemized
deductions otherwise allowable and the phase-out of personal exemptions, the
maximum effective marginal rate of tax for some taxpayers may be higher. Under
recently enacted legislation, long-term capital gains of individuals are taxed
at a maximum rate of 20% with respect to capital assets held for more than

                                       44
<PAGE>

one year (10% for gains otherwise taxed at 15%). Capital gains and ordinary
income of corporate taxpayers are both taxed at a maximum nominal rate of 35%.

     Investors should be aware that any loss realized upon the sale, exchange or
redemption of shares held for six months or less will be treated as a long-term
capital loss to the extent any capital gain dividends have been paid with
respect to such shares. Any loss incurred on the sale or exchange of the
Portfolio's shares, held six months or less, will be disallowed to the extent of
exempt interest dividends paid with respect to such shares, and any loss not so
disallowed will be treated as a long-term capital loss to the extent of capital
gain dividends received with respect to such shares.

     The Portfolio may engage in hedging or derivatives transactions involving
foreign currencies, forward contracts, and options and futures contracts
(including options, futures and forward contracts on foreign currencies), and
short sales. Such transactions will be subject to special provisions of the Code
that, among other things, may affect the character of gains and losses realized
by the Portfolio (that is, may affect whether gains or losses are ordinary or
capital), accelerate recognition of income of the Portfolio and defer
recognition of certain of the Portfolio's losses. These rules could therefore
affect the character, amount and timing of distributions to shareholders. In
addition, these provisions (1) will require the Portfolio to "mark-to-market"
certain types of positions in its portfolio (that is, treat them as if they were
closed out) and (2) may cause the Portfolio to recognize income without
receiving cash with which to pay dividends or make distributions in amounts
necessary to satisfy the Distribution Requirement and avoid the 4% excise tax
(described below). The Portfolio intends to monitor its transactions, will make
the appropriate tax elections and will make the appropriate entries in its books
and records when it acquires any option, futures contract, forward contract or
hedged investment in order to mitigate the effect of these rules.

     If the Portfolio purchases shares in a "passive foreign investment company"
(a "PFIC"), such Portfolio may be subject to U.S. federal income tax on a
portion of any "excess distribution" or gain from the disposition of such shares
even if such income is distributed as a taxable dividend by the Portfolio to its
shareholders. Additional charges in the nature of interest may be imposed on the
Portfolio in respect of deferred taxes arising from such distributions or gains.
If the Portfolio were to invest in a PFIC and elected to treat the PFIC as a
"qualified electing fund" under the Code (a "QEF"), in lieu of the foregoing
requirements, the Portfolio would be required to include in income each year a
portion of the ordinary earnings and net capital gain of the qualified electing
fund, even if not distributed to the Portfolio. Alternatively, the Portfolio can
elect to mark-to-market at the end of each taxable year its shares in a PFIC; in
this case, the Portfolio would recognize as ordinary income any increase in the
value of such shares, and as ordinary loss any decrease in such value to the
extent it did not exceed prior increases included in income. Under either
election, the Portfolio might be required to recognize in a year income in
excess of its distributions from PFICs and its proceeds from dispositions of
PFIC stock during that year, and such income would nevertheless be subject to
the Distribution Requirement and would be taken into account for purposes of the
4% excise tax (described below).

     Investment income that may be received by the Portfolio from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle any such Portfolio to a reduced rate of, or exemption from, taxes on
such income. If more than 50% of the value of the total assets at the close of
the taxable year of the Portfolio consists of stock or securities of foreign
corporations, such Portfolio may elect to "pass through" to the Portfolio's
shareholders the amount of foreign taxes paid by such Portfolio. If the
Portfolio so elects, each shareholder would be required to include in gross
income, even though not actually received, his pro rata share of the foreign
taxes paid by the Portfolio, but would be treated as having paid his pro rata
share of such foreign taxes and would therefore be allowed to either deduct such
amount in computing taxable income or use such amount (subject to various Code
limitations) as a foreign tax credit against federal income tax (but not both).
For purposes of the foreign tax credit limitation rules of the Code, each
shareholder would treat as foreign source income his pro rata share of such
foreign taxes plus the portion of dividends received from the Portfolio
representing income derived from foreign sources. No deduction for foreign taxes
could be claimed by an individual shareholder who does not itemize deductions.
In certain circumstances, a shareholder that (i) has held shares of the
Portfolio for less than a specified minimum period during which it is not
protected from risk of loss or (ii) is obligated to make payments related to the
dividends, will not be allowed a foreign tax credit for foreign taxes deemed
imposed on dividends paid on such shares. Additionally, such Portfolio must also
meet this holding period requirement with respect to its foreign stocks and
securities in order for "creditable" taxes to flow-through. Each shareholder
should consult his own tax adviser and/or sub-adviser regarding the potential
application of foreign tax credits.

                                       45
<PAGE>

     Ordinary income dividends paid by the Portfolio will qualify for the 70%
dividends-received deduction generally available to corporations to the extent
of the amount of "qualifying dividends" received by the Portfolio from domestic
corporations for the taxable year. A dividend received by the Portfolio will not
be treated as a qualifying dividend (i) if it has been received with respect to
any share of stock that the Portfolio has held for less than 46 days (91 days in
the case of certain preferred stock) during the 90 day period beginning on the
date which is 45 days before the date on which such share becomes ex- dividend
with respect to such dividend (during the 180 day period beginning 90 days
before such date in the case of certain preferred stock), (ii) to the extent
that the Portfolio is under an obligation to make related payments with respect
to positions in substantially similar or related property or (iii) to the extent
the stock on which the dividend is paid is treated as debt-financed. Moreover,
the dividends-received deduction for a corporate shareholder may be disallowed
if the corporate shareholder fails to satisfy the foregoing requirements with
respect to its shares of the Portfolio.

     If for any taxable year any Portfolio does not qualify as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to shareholders, and all
distributions (including amounts derived from interest on Municipal Obligations)
will be taxable as ordinary dividends to the extent of such Portfolio's current
and accumulated earnings and profits. Such distributions will be eligible for
the dividends received deduction in the case of corporate shareholders.

     A 4% non-deductible excise tax is imposed on regulated investment companies
that fail to currently distribute specified percentages of their ordinary
taxable income and capital gain net income (excess of capital gains over capital
losses). The Portfolio intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and any capital gain net income
prior to the end of each calendar year to avoid liability for this excise tax.

     The Fund will be required in certain cases to withhold and remit to the
United States Treasury 31% of dividends and gross sale proceeds paid to any
shareholder (i) who has provided either an incorrect tax identification number
or no number at all, (ii) who is subject to backup withholding by the Internal
Revenue Service for failure to report the receipt of interest or dividend income
properly, or (iii) who has failed to certify to the Fund when required to do so
that he is not subject to backup withholding or that he is an "exempt
recipient."

     Shareholders will be advised annually as to the Federal income tax
consequences of distributions made by the Portfolio each year.

     The foregoing general discussion of federal income tax consequences is
based on the Code and the regulations issued thereunder as in effect on the date
of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.

     Although the Portfolio expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
located or in which it is otherwise deemed to be conducting business, the
Portfolio may be subject to the tax laws of such states or localities.
Shareholders should consult their tax advisors about state and local tax
consequences, which may differ from the federal income tax consequences
described above.

                    ADDITIONAL INFORMATION CONCERNING SHARES

     Shares of each class of the Portfolio of the Fund bear their pro rata
portion of all operating expenses paid by the Portfolio, except transfer agency
fees, certain administrative/servicing fees and amounts payable under the Fund's
Amended and Restated Distribution and Service Plan. Each share of the Portfolio
of the Fund has a par value of $.001, represents an interest in that Portfolio
and is entitled to the dividends and distributions earned on that Portfolio's
assets that are declared in the discretion of the Board of Trustees. The Fund's
shareholders are entitled to one vote for each full share held and proportionate
fractional votes for fractional shares held, and will vote in the aggregate and
not by class, except where otherwise required by law or as determined by the
Board of Trustees.

                                       46
<PAGE>

     Shares of the Fund have noncumulative voting rights and, accordingly, the
holders of more than 50% of the Fund's outstanding shares (irrespective of
class) may elect all of the trustees. Shares have no preemptive rights and only
such conversion and exchange rights as the Board may grant in its discretion.
When issued for payment, shares will be fully paid and non-assessable by the
Fund.

     There will normally be no meetings of shareholders for the purpose of
electing trustees unless and until such time as required by law. At that time,
the trustees then in office will call a shareholders meeting to elect trustees.
Except as set forth above, the trustees shall continue to hold office and may
appoint successor trustees. The Fund's Declaration of Trust provides that
meetings of the shareholders of the Fund shall be called by the trustees upon
the written request of shareholders owning at least 10% of the outstanding
shares entitled to vote.

     Rule 18f-2 under the 1940 Act provides that any matter required by the
provisions of the 1940 Act or applicable state law, or otherwise, to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Fund shall not be deemed to have been effectively acted upon
unless approved by the holders of a majority of the outstanding shares of each
investment portfolio affected by such matter. Rule 18f-2 further provides that
an investment portfolio shall be deemed to be affected by a matter unless the
interests of each investment portfolio in the matter are substantially identical
or the matter does not affect any interest of the investment portfolio. Under
the Rule, the approval of an investment advisory agreement, a distribution plan
subject to Rule 12b-1 under the 1940 Act or any change in a fundamental
investment policy would be effectively acted upon with respect to an investment
portfolio only if approved by a majority of the outstanding shares of such
investment portfolio. However, the Rule also provides that the ratification of
the appointment of independent accountants, the approval of principal
underwriting contracts and the election of Trustees may be effectively acted
upon by shareholders of the Fund voting together in the aggregate without regard
to a particular investment portfolio.

     The proceeds received by the Portfolio for each issue or sale of its
shares, and all net investment income, realized and unrealized gain and proceeds
thereof, subject only to the rights of creditors, will be specifically allocated
to and constitute the underlying assets of that Portfolio. The underlying assets
of the Portfolio will be segregated on the books of account, and will be charged
with the liabilities in respect to that Portfolio and with a share of the
general liabilities of the Fund. As stated herein, certain expenses of the
Portfolio may be charged to a specific class of shares representing interests in
that Portfolio.

     The Funds' Declaration of Trust authorizes the Board of Trustees, without
shareholder approval (unless otherwise required by applicable law), to: (i) sell
and convey the assets belonging to a class of shares to another management
investment company for consideration which may include securities issued by the
purchaser and, in connection therewith, to cause all outstanding shares of such
class to be redeemed at a price which is equal to their net asset value and
which may be paid in cash or by distribution of the securities or other
consideration received from the sale and conveyance; (ii) sell and convert the
assets belonging to one or more classes of shares into money and, in connection
therewith, to cause all outstanding shares of such class to be redeemed at their
net asset value; or (iii) combine the assets belonging to a class of shares with
the assets belonging to one or more other classes of shares if the Board of
Trustees reasonably determines that such combination will not have a material
adverse effect on the shareholders of any class participating in such
combination and, in connection therewith, to cause all outstanding shares of any
such class to be redeemed or converted into shares of another class of shares at
their net asset value. The Board of Trustees may authorize the liquidation and
termination of any Portfolio or class of shares. Upon any liquidation of the
Portfolio, Shareholders of each class of the Portfolio are entitled to share pro
rata in the net assets belonging to that class available for distribution.

                                  MISCELLANEOUS

     The Fund. The Fund was organized as a Massachusetts business trust on
December 22, 1988 and is registered under the 1940 Act as an open end,
diversified management investment company. Effective January 31, 1998, the Fund
changed its name from Compass Capital FundsSM to BlackRock FundsSM.

     Counsel.  The law firm of Simpson Thacher & Bartlett, 425 Lexington Avenue,
New York, New York 10017, serves as the Fund's counsel.

                                       47
<PAGE>

     Independent Accountants. PricewaterhouseCoopers LLP, with offices located
at 2400 Eleven Penn Center, Philadelphia, Pennsylvania, serves as the Fund's
independent accountants.

     On October 20, 2000, PNC Bank, which has its principal offices at 1600
Market Street, Philadelphia, Pennsylvania 19103, held of record approximately
[72%] of the Fund's outstanding shares, and may be deemed a controlling person
of the Fund under the 1940 Act. PNC Bank is a national bank organized under the
laws of the United States. All of the capital stock of PNC Bank is owned by PNC
Bancorp, Inc. All of the capital stock of PNC Bancorp, Inc. is owned by The PNC
Financial Services Group, Inc. a publicly-held bank holding company.

     Shareholder Approvals. As used in this Statement of Additional Information
and in the Prospectuses, a "majority of the outstanding shares" of a class,
series or Portfolio means, with respect to the approval of an investment
advisory agreement, a distribution plan or a change in a fundamental investment
policy, the lesser of (1) 67% of the shares of the particular class, series or
Portfolio represented at a meeting at which the holders of more than 50% of the
outstanding shares of such class, series or Portfolio are present in person or
by proxy, or (2) more than 50% of the outstanding shares of such class, series
or Portfolio.

                                       48
<PAGE>

                                   APPENDIX A

Commercial Paper Ratings
------------------------

     A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market. The following summarizes the rating categories used by Standard and
Poor's for commercial paper:

     "A-1" - Issue's degree of safety regarding timely payment is strong. Those
issues determined to possess extremely strong safety characteristics are denoted
"A-1+."

     "A-2" - Issue's capacity for timely payment is satisfactory. However, the
relative degree of safety is not as high as for issues designated "A-1."

     "A-3" - Issue has an adequate capacity for timely payment. It is, however,
somewhat more vulnerable to the adverse effects of changes in circumstances than
an obligation carrying a higher designation.

     "B" - Issue has only a speculative capacity for timely payment.

     "C" - Issue has a doubtful capacity for payment.

     "D" - Issue is in payment default.

     Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of 9 months. The following summarizes the rating categories used by
Moody's for commercial paper:

     "Prime-1" - Issuer or related supporting institutions are considered to
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 earning
coverage of fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternate liquidity.

     "Prime-2" - Issuer or related supporting institutions are considered to
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 alternative liquidity is
maintained.

     "Prime-3" - Issuer or related supporting institutions have an acceptable
capacity for repayment of short-term promissory obligations. The effects 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.

     "Not Prime" - Issuer does not fall within any of the Prime rating
categories.

     The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:

     "D-1+" - Debt possesses highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.

                                      A-1
<PAGE>

     "D-1" - Debt possesses very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental protection factors. Risk
factors are minor.

     "D-1-" - Debt possesses high certainty of timely payment. Liquidity factors
are strong and supported by good fundamental protection factors. Risk factors
are very small.

     "D-2" - Debt possesses good certainty of timely payment. Liquidity factors
and company fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk factors
are small.

     "D-3" - Debt possesses satisfactory liquidity, and other protection factors
qualify issue as investment grade. Risk factors are larger and subject to more
variation. Nevertheless, timely payment is expected.

     "D-4" - Debt possesses speculative investment characteristics. Liquidity is
not sufficient to ensure against disruption in debt service. Operating factors
and market access may be subject to a high degree of variation.

     "D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.

     Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years. The following
summarizes the rating categories used by Fitch for short-term obligations:

     "F-1+" - Securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of assurance
for timely payment.

     "F-1" - Securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree than
issues rated "F-1+."

     "F-2" - Securities possess good credit quality. Issues assigned this rating
have a satisfactory degree of assurance for timely payment, but the margin of
safety is not as great as the "F-1+" and "F-1" categories.

     "F-3" - Securities possess fair credit quality. Issues assigned this rating
have characteristics suggesting that the degree of assurance for timely payment
is adequate; however, near-term adverse changes could cause these securities to
be rated below investment grade.

     "F-S" - Securities possess weak credit quality. Issues assigned this rating
have characteristics suggesting a minimal degree of assurance for timely payment
and are vulnerable to near-term adverse changes in financial and economic
conditions.

     "D" - Securities are in actual or imminent payment default.

     Fitch may also use the symbol "LOC" with its short-term ratings to indicate
that the rating is based upon a letter of credit issued by a commercial bank.

     Thomson BankWatch short-term ratings assess the likelihood of an untimely
or incomplete payment of principal or interest of unsubordinated instruments
having a maturity of one year or less which are issued by United States
commercial banks, thrifts and non-bank banks; non-United States banks; and
broker-dealers. The following summarizes the ratings used by Thomson BankWatch:

     "TBW-1" - This designation represents Thomson BankWatch's highest rating
category and indicates a very high degree of likelihood that principal and
interest will be paid on a timely basis.

     "TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."

                                      A-2
<PAGE>

     "TBW-3" - This designation represents the lowest investment grade category
and indicates that while the debt is more susceptible to adverse developments
(both internal and external) than obligations with higher ratings, capacity to
service principal and interest in a timely fashion is considered adequate.

     "TBW-4" - This designation indicates that the debt is regarded as non-
investment grade and therefore speculative.

     IBCA assesses the investment quality of unsecured debt with an original
maturity of less than one year which is issued by bank holding companies and
their principal bank subsidiaries. The following summarizes the rating
categories used by IBCA for short-term debt ratings:

     "A1+" - Obligations which posses a particularly strong credit feature are
supported by the highest capacity for timely repayment.

     "A1" - Obligations are supported by the highest capacity for timely
repayment.

     "A2" - Obligations are supported by a satisfactory capacity for timely
repayment.

     "A3" - Obligations are supported by a satisfactory capacity for timely
repayment.

     "B" - Obligations for which there is an uncertainty as to the capacity to
ensure timely repayment.

     "C" - Obligations for which there is a high risk of default or which are
currently in default.

Corporate and Municipal Long-Term Debt Ratings
----------------------------------------------

     The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:

     "AAA" - This designation represents the highest rating assigned by Standard
& Poor's to a debt obligation and indicates an extremely strong capacity to pay
interest and repay principal.

     "AA" - Debt is considered to have a very strong capacity to pay interest
and repay principal and differs from AAA issues only in small degree.

     "A" - Debt is considered to have a strong capacity to pay interest and
repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher-rated categories.

     "BBB" - Debt is regarded as having an adequate capacity to pay interest and
repay principal. Whereas such issues normally exhibit 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.

     "BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.

     "BB" - Debt has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.

     "B" - Debt 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

                                      A-3
<PAGE>

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

     "C" - This rating is typically 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" - This rating is reserved for income bonds on which no interest is
being paid.

     "D" - Debt is in payment default. This rating 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. "D" rating is also used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.

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

     "r" - This rating is attached to highlight derivative, hybrid, and certain
other obligations that S & P believes may experience high volatility or high
variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities. The absence of an "r" symbol should
not be taken as an indication that an obligation will exhibit no volatility or
variability in total return.

     The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:

     "Aaa" - Bonds are judged to be of the best quality. They carry the smallest
degree of investment risk and are generally referred to as "gilt edged."
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 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 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 considered 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," "B," "Caa," "Ca," and "C" - Bonds that possess one of these ratings
provide questionable protection of interest and principal ("Ba" indicates some
speculative elements; "B" indicates a general lack of characteristics of

                                      A-4
<PAGE>

desirable investment; "Caa" represents a poor standing; "Ca" represents
obligations which are speculative in a high degree; and "C" represents the
lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in default.

     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.

     (P) - When applied to forward delivery bonds, indicates that the rating is
provisional pending delivery of the bonds. The rating may be revised prior to
delivery if changes occur in the legal documents or the underlying credit
quality of the bonds.

     Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols, Aa1,
A1, Ba1 and B1.

     The following summarizes the long-term debt ratings used by Duff & Phelps
for corporate and municipal long-term debt:

     "AAA" - Debt is considered to be of the highest credit quality. The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.

     "AA" - Debt is considered of high credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time because of
economic conditions.

     "A" - Debt possesses protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.

     "BBB" - Debt possesses below average protection factors but such protection
factors are still considered sufficient for prudent investment. Considerable
variability in risk is present during economic cycles.

     "BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these ratings
is considered to be below investment grade. Although below investment grade,
debt rated "BB" is deemed likely to meet obligations when due. Debt rated "B"
possesses the risk that obligations will not be met when due. Debt rated "CCC"
is well below investment grade and has considerable uncertainty as to timely
payment of principal, interest or preferred dividends. Debt rated "DD" is a
defaulted debt obligation, and the rating "DP" represents preferred stock with
dividend arrearages.

     To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.

     The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:

     "AAA" - Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.

     "AA" - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated "F-1+."

     "A" - Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

                                      A-5
<PAGE>

     "BBB" - Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have an adverse impact on these bonds, and
therefore, impair timely payment. The likelihood that the ratings of these bonds
will fall below investment grade is higher than for bonds with higher ratings.

     "BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" - Bonds that possess one
of these ratings are considered by Fitch to be speculative investments. The
ratings "BB" to "C" represent Fitch's assessment of the likelihood of timely
payment of principal and interest in accordance with the terms of obligation for
bond issues not in default. For defaulted bonds, the rating "DDD" to "D" is an
assessment of the ultimate recovery value through reorganization or liquidation.

     To provide more detailed indications of credit quality, the Fitch ratings
from and including "AA" to "BBB" may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within these major rating
categories.

     IBCA assesses the investment quality of unsecured debt with an original
maturity of more than one year which is issued by bank holding companies and
their principal bank subsidiaries. The following summarizes the rating
categories used by IBCA for long-term debt ratings:

     "AAA" - Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial
such that adverse changes in business, economic or financial conditions are
unlikely to increase investment risk substantially.

     "AA" - Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial,
such that adverse changes in business, economic or financial conditions may
increase investment risk, albeit not very significantly.

     "A" - Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.

     "BBB" - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial conditions
are more likely to lead to increased investment risk than for obligations in
other categories.

     "BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of these
ratings where it is considered that speculative characteristics are present.
"BB" represents the lowest degree of speculation and indicates a possibility of
investment risk developing. "C" represents the highest degree of speculation and
indicates that the obligations are currently in default.

     IBCA may append a rating of plus (+) or minus (-) to a rating to denote
relative status within major rating categories.

     Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes the
rating categories used by Thomson BankWatch for long-term debt ratings:

     "AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is extremely high.

     "AA" - This designation indicates a very strong ability to repay principal
and interest on a timely basis with limited incremental risk compared to issues
rated in the highest category.

     "A" - This designation indicates that the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.

                                      A-6
<PAGE>

     "BBB" - This designation represents Thomson BankWatch's lowest investment
grade category and indicates an acceptable capacity to repay principal and
interest. Issues rated "BBB" are, however, more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.

     "BB," "B," "CCC," and "CC," - These designations are assigned by Thomson
BankWatch to non-investment grade long-term debt. Such issues are regarded as
having speculative characteristics regarding the likelihood of timely payment of
principal and interest. "BB" indicates the lowest degree of speculation and "CC"
the highest degree of speculation.

     "D" - This designation indicates that the long-term debt is in default.

     PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may include a
plus or minus sign designation which indicates where within the respective
category the issue is placed.

Municipal Note Ratings
----------------------

     A Standard and Poor's rating reflects the liquidity concerns and market
access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:

     "SP-1" - The issuers of these municipal notes exhibit very strong or strong
capacity to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics are given a plus (+) designation.

     "SP-2" - The issuers of these municipal notes exhibit satisfactory capacity
to pay principal and interest.

     "SP-3" - The issuers of these municipal notes exhibit speculative capacity
to pay principal and interest.

     Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:

     "MIG-1"/"VMIG-1" - Loans bearing this designation are of the best quality,
enjoying strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.

     "MIG-2"/"VMIG-2" - Loans bearing this designation are of high quality, with
margins of protection ample although not so large as in the preceding group.

     "MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable quality,
with all security elements accounted for but 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" - Loans bearing this designation are of adequate quality,
carrying specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.

     "SG" - Loans bearing this designation are of speculative quality and lack
margins of protection.

     Fitch and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.

                                      A-7
<PAGE>

                                   APPENDIX B

     The Portfolio may enter into certain futures transactions. Such
transactions are described in this Appendix.

     I.  Interest Rate Futures Contracts
         -------------------------------

     Use of Interest Rate Futures Contracts.  Bond prices are established in
     --------------------------------------
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Portfolio may use interest rate
futures contracts as a defense, or hedge, against anticipated interest rate
changes and not for speculation. As described below, this would include the use
of futures contract sales to protect against expected increases in interest
rates and futures contract purchases to offset the impact of interest rate
declines.

     The Portfolio could accomplish a similar result to that which it hopes to
achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because of
the liquidity that is often available in the futures market, the protection is
more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Portfolio, by using futures contracts.

     Description of Interest Rate Futures Contracts.  An interest rate futures
     ----------------------------------------------
contract sale would create an obligation by the Portfolio, as seller, to deliver
the specific type of financial instrument called for in the contract at a
specific future time for a specified price. A futures contract purchase would
create an obligation by the Portfolio, as purchaser, to take delivery of the
specific type of financial instrument at a specific future time at a specific
price. The specific securities delivered or taken, respectively, at settlement
date, would not be determined until at or near that date. The determination
would be in accordance with the rules of the exchange on which the futures
contract sale or purchase was made.

     Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by the Portfolio
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
of the sale exceeds the price of the offsetting purchase, the Portfolio is
immediately paid the difference and thus realizes a gain. If the offsetting
purchase price exceeds the sale price, the Portfolio pays the difference and
realizes a loss. Similarly, the closing out of a futures contract purchase is
effected by the Portfolio entering into a futures contract sale. If the
offsetting sale price exceeds the purchase price, the Portfolio realizes a gain,
and if the purchase price exceeds the offsetting sale price, the Portfolio
realizes a loss.

     Interest rate futures contracts are traded in an auction environment on the
floors of several exchanges -- principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. Each exchange
guarantees performance under contract provisions through a clearing corporation,
a nonprofit organization managed by the exchange membership.

     A public market now exists in futures contracts covering various financial
instruments including long-term U.S. Treasury Bonds and Notes; Government
National Mortgage Association (GNMA) modified pass-through mortgage backed
securities; three-month U.S. Treasury Bills; and ninety-day commercial paper.
The Portfolio may trade in any interest rate futures contracts for which there
exists a public market, including, without limitation, the foregoing
instruments.

     With regard to the Portfolio, the adviser and/or sub-adviser also
anticipate engaging in transactions, from time to time, in foreign stock index
futures such as the ALL-ORDS (Australia), CAC-40 (France), TOPIX (Japan) and the
FTSE-100 (United Kingdom).

                                      B-1
<PAGE>

     II.  Index Futures Contracts
          -----------------------

     General.  A stock or bond index assigns relative values to the stocks or
     -------
bonds included in the index, which fluctuates with changes in the market values
of the stocks or bonds included. Some stock index futures contracts are based on
broad market indexes, such as Standard & Poor's 500 or the New York Stock
Exchange Composite Index. In contrast, certain exchanges offer futures contracts
on narrower market indexes, such as the Standard & Poor's 100 or indexes based
on an industry or market indexes, such as Standard & Poor's 100 or indexes based
on an industry or market segment, such as oil and gas stocks. Futures contracts
are traded on organized exchanges regulated by the Commodity Futures Trading
Commission. Transactions on such exchanges are cleared through a clearing
corporation, which guarantees the performance of the parties to each contract.
With regard to the Portfolio, to the extent consistent with its investment
objective, the adviser and/or sub-adviser anticipate engaging in transactions,
from time to time, in foreign stock index futures such as the ALL- ORDS
(Australia), CAC-40 (France), TOPIX (Japan) and the FTSE-100 (United Kingdom).

     The Portfolio may sell index futures contracts in order to offset a
decrease in market value of its portfolio securities that might otherwise result
from a market decline. The Portfolio may do so either to hedge the value of its
portfolio as a whole, or to protect against declines, occurring prior to sales
of securities, in the value of the securities to be sold. Conversely, the
Portfolio may purchase index futures contracts in anticipation of purchases of
securities. A long futures position may be terminated without a corresponding
purchase of securities.

     In addition, the Portfolio may utilize index futures contracts in
anticipation of changes in the composition of its portfolio holdings. For
example, in the event that the Portfolio expects to narrow the range of industry
groups represented in its holdings it may, prior to making purchases of the
actual securities, establish a long futures position based on a more restricted
index, such as an index comprised of securities of a particular industry group.
The Portfolio may also sell futures contracts in connection with this strategy,
in order to protect against the possibility that the value of the securities to
be sold as part of the restructuring of the portfolio will decline prior to the
time of sale.

     III.  Futures Contracts on Foreign Currencies
           ---------------------------------------

     A futures contract on foreign currency creates a binding obligation on one
party to deliver, and a corresponding obligation on another party to accept
delivery of, a stated quantity of foreign currency, for an amount fixed in U.S.
dollars (or another currency). Foreign currency futures may be used by the
Portfolio to hedge against exposure to fluctuations in exchange rates between
different currencies arising from multinational transactions.

     IV.  Margin Payments
          ---------------

     Unlike purchase or sales of portfolio securities, no price is paid or
received by the Portfolio upon the purchase or sale of a futures contract.
Initially, the Portfolio will be required to deposit with the broker or in a
segregated account with a custodian an amount of liquid assets known as initial
margin, based on the value of the contract. The nature of initial margin in
futures transactions is different from that of margin in security transactions
in that futures contract margin does not involve the borrowing of funds by the
customer to finance the transactions. Rather, the initial margin is in the
nature of a performance bond or good faith deposit on the contract which is
returned to the Portfolio upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the underlying instruments fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
marking-to-the-market. For example, when a particular Portfolio has purchased a
futures contract and the price of the contract has risen in response to a rise
in the underlying instruments, that position will have increased in value and
the Portfolio will be entitled to receive from the broker a variation margin
payment equal to that increase in value. Conversely, where the Portfolio has
purchased a futures contract and the price of the future contract has declined
in response to a decrease in the underlying instruments, the position would be
less valuable and the Portfolio would be required to make a variation margin
payment to the broker. Prior to expiration of the futures contract, the adviser
and/or sub-adviser may elect to close the position by taking an opposite
position, subject to the availability of a secondary market, which will operate
to terminate the Portfolio's position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid by or released to the Portfolio, and the Portfolio realizes a loss or
gain.

                                      B-2
<PAGE>

     V.  Risks of Transactions in Futures Contracts
         ------------------------------------------

     There are several risks in connection with the use of futures by the
Portfolio as a hedging device. One risk arises because of the imperfect
correlation between movements in the price of the futures and movements in the
price of the instruments which are the subject of a hedge. The price of the
future may move more than or less than the price of the instruments being
hedged. If the price of the futures moves less than the price of the instruments
which are the subject of the hedge, the hedge will not be fully effective but,
if the price of the instruments being hedged has moved in an unfavorable
direction, the Portfolio would be in a better position than if it had not hedged
at all. If the price of the instruments being hedged has moved in a favorable
direction, this advantage will be partially offset by the loss on the futures.
If the price of the futures moves more than the price of the hedged instruments,
the Portfolio involved will experience either a loss or gain on the futures
which will not be completely offset by movements in the price of the instruments
which are the subject of the hedge. To compensate for the imperfect correlation
of movements in the price of instruments being hedged and movements in the price
of futures contracts, the Portfolio may buy or sell futures contracts in a
greater dollar amount than the dollar amount of instruments being hedged if the
volatility over a particular time period of the prices of such instruments has
been greater than the volatility over such time period of the futures, or if
otherwise deemed to be appropriate by the adviser and/or sub-adviser.
Conversely, the Portfolio may buy or sell fewer futures contracts if the
volatility over a particular time period of the prices of the instruments being
hedged is less than the volatility over such time period of the futures contract
being used, or if otherwise deemed to be appropriate by the adviser and/or
sub-adviser. It is also possible that, where the Portfolio has sold futures to
hedge its portfolio against a decline in the market, the market may advance and
the value of instruments held in the Portfolio may decline. If this occurred,
the Portfolio would lose money on the futures and also experience a decline in
value in its portfolio securities.

     When futures are purchased to hedge against a possible increase in the
price of securities or a currency before the Portfolio is able to invest its
cash (or cash equivalents) in an orderly fashion, it is possible that the market
may decline instead; if the Portfolio then concludes not to invest its cash at
that time because of concern as to possible further market decline or for other
reasons, the Portfolio will realize a loss on the futures contract that is not
offset by a reduction in the price of the instruments that were to be purchased.

     In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the instruments
being hedged, the price of futures may not correlate perfectly with movement in
the cash market due to certain market distortions. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through off-setting transactions which could distort the normal relationship
between the cash and futures markets. Second, with respect to financial futures
contracts, the liquidity of the futures market depends on participants entering
into off-setting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced thus producing distortions. Third, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause temporary
price distortions. Due to the possibility of price distortion in the futures
market, and because of the imperfect correlation between the movements in the
cash market and movements in the price of futures, a correct forecast of general
market trends or interest rate movements by the adviser and/or sub-adviser may
still not result in a successful hedging transaction over a short time frame.

     Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Portfolio
intends to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, the Portfolio would continue to be required to make daily cash
payments of variation margin. However, in the event futures contracts have been
used to hedge portfolio securities, such securities will not be sold until the
futures contract can be terminated. In such circumstances, an increase in the
price of the securities, if any, may partially or completely offset losses on
the futures contract. However, as described above, there is no guarantee that
the price of the securities will in fact correlate with the price movements in
the futures contract and thus provide an offset on a futures contract.

     Further, it should be noted that the liquidity of a secondary market in a
futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the

                                      B-3
<PAGE>

contract, no trades may be entered into at a price beyond the limit, thus
preventing the liquidation of open futures positions. The trading of futures
contracts is also subject to the risk of trading halts, suspensions, exchange or
clearing house equipment failures, government intervention, insolvency of a
brokerage firm or clearing house or other disruptions of normal activity, which
could at times make it difficult or impossible to liquidate existing positions
or to recover excess variation margin payments.

     Successful use of futures by the Portfolio is also subject to the adviser
and/or sub-adviser' ability to predict correctly movements in the direction of
the market. For example, if a particular Portfolio has hedged against the
possibility of a decline in the market adversely affecting securities held by it
and securities prices increase instead, the Portfolio will lose part or all of
the benefit to the increased value of its securities which it has hedged because
it will have offsetting losses in its futures positions. In addition, in such
situations, if the Portfolio has insufficient cash, it may have to sell
securities to meet daily variation margin requirements. Such sales of securities
may be, but will not necessarily be, at increased prices which reflect the
rising market. The Portfolio may have to sell securities at a time when it may
be disadvantageous to do so.

     The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if at the time
of purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit, before any deduction for the
transaction costs, if the contract were closed out. Thus, a purchase or sale of
a futures contract may result in losses in excess of the amount invested in the
contract.

     VI.  Options on Futures Contracts
          ----------------------------

     The Portfolio may purchase and write options on the futures contracts
described above. A futures option gives the holder, in return for the premium
paid, the right to buy (call) from or sell (put) to the writer of the option a
futures contract at a specified price at any time during the period of the
option. Upon exercise, the writer of the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price. Like the buyer or seller of a futures contract, the holder, or writer, of
an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing an option of the same series,
at which time the person entering into the closing transaction will realize a
gain or loss. The Portfolio will be required to deposit initial margin and
variation margin with respect to put and call options on futures contracts
written by it pursuant to brokers' requirements similar to those described
above. Net option premiums received will be included as initial margin deposits.
As an example, in anticipation of a decline in interest rates, the Portfolio may
purchase call options on futures contracts as a substitute for the purchase of
futures contracts to hedge against a possible increase in the price of
securities which the Portfolio intends to purchase. Similarly, if the value of
the securities held by the Portfolio is expected to decline as a result of an
increase in interest rates, the Portfolio might purchase put options or sell
call options on futures contracts rather than sell futures contracts.

     Investments in futures options involve some of the same considerations that
are involved in connection with investments in futures contracts (for example,
the existence of a liquid secondary market). In addition, the purchase or sale
of an option also entails the risk that changes in the value of the underlying
futures contract will not correspond to changes in the value of the option
purchased. Depending on the pricing of the option compared to either the futures
contract upon which it is based, or upon the price of the securities or
currencies being hedged, an option may or may not be less risky than ownership
of the futures contract or such securities or currencies. In general, the market
prices of options can be expected to be more volatile than the market prices on
the underlying futures contract. Compared to the purchase or sale of futures
contracts, however, the purchase of call or put options on futures contracts may
frequently involve less potential risk to the Portfolio because the maximum
amount at risk is the premium paid for the options (plus transaction costs). The
writing of an option on a futures contract involves risks similar to those risks
relating to the sale of futures contracts.

     VII.  Other Matters
           -------------

     Accounting for futures contracts will be in accordance with generally
accepted accounting principles.

                                      B-4
<PAGE>

                               BLACKROCK FUNDS(SM)
                                     PART C
                               OTHER INFORMATION


Item 23.  Exhibits

               (1)  Articles of Incorporation

                    (a)  Declaration of Trust of the Registrant dated December
                         22, 1988 is incorporated herein by reference to Exhibit
                         (1)(a) of Post-Effective Amendment No. 33 to
                         Registrant's Registration Statement on Form N-1A filed
                         on January 27, 1998.

                    (b)  Amendment No. 1 to Declaration of Trust dated May 4,
                         1989 is incorporated herein by reference to Exhibit
                         (1)(b) of Post-Effective Amendment No. 33 to
                         Registrant's Registration Statement on Form N-1A filed
                         on January 27, 1998.

                    (c)  Amendment No. 2 to the Declaration of Trust dated
                         December 23, 1993 is incorporated herein by reference
                         to Exhibit (1)(c) of Post-Effective Amendment No. 33 to
                         Registrant's Registration Statement on Form N-1A filed
                         on January 27, 1998.

                    (d)  Amendment No. 3 to the Declaration of Trust dated
                         January 5, 1996 is incorporated by reference to Exhibit
                         1(d) of Post-Effective Amendment No. 23 to Registrant's
                         Registration Statement on Form N-1A (No. 33-26305)
                         filed on October 18, 1996.

                    (e)  Amendment No. 4 to the Declaration of Trust dated
                         December 23, 1997 is incorporated herein by reference
                         to Exhibit (1)(e) of Post-Effective Amendment No. 33 to
                         Registrant's Registration Statement on Form N-1A filed
                         on January 27, 1998.

               (2)  By-laws

                    (a)  Amended and Restated Code of Regulations of the
                         Registrant is incorporated herein by reference to
                         Exhibit 2(a) of Post-Effective Amendment No. 42 to
                         Registrant's Registration Statement on Form N-1A filed
                         on June 11, 1999.

               (3)  Instruments Defining Rights of Security Holders

                    (a)  Sections V, VIII and IX of Registrant's Declaration of
                         Trust dated December 22, 1988 are incorporated herein
                         by reference to Exhibit (1)(a) of Post-Effective
                         Amendment No. 33 to Registrant's Registration Statement
                         on Form N-1A filed on January 27, 1998;
<PAGE>

                                                                               2



                         Article II of Registrant's Code of Regulations is
                         incorporated herein by reference to Exhibit (2) of
                         Post-Effective Amendment No. 33 to Registrant's
                         Registration Statement on Form N-1A filed on January
                         27, 1998.

               (4)  Investment Advisory Contracts

                    (a)  Investment Advisory Agreement between Registrant and
                         PNC Asset Management Group, Inc. relating to all
                         Portfolios except the Multi-Sector Mortgage Securities
                         Portfolio III and Index Equity Portfolio is
                         incorporated herein by reference to Exhibit (5)(a) of
                         Post-Effective Amendment No. 21 to Registrant's
                         Registration Statement on Form N-1A filed on May 30,
                         1996.

                    (b)  Investment Advisory Agreement between Registrant and
                         BlackRock Financial Management, Inc. with respect to
                         the Multi-Sector Mortgage Securities Portfolio III is
                         incorporated herein by reference to Exhibit (5)(b) of
                         Post-Effective Amendment No. 21 to Registrant's
                         Registration Statement on Form N-1A filed on May 30,
                         1996.

                    (c)  Addendum No. 1 to Investment Advisory Agreement between
                         Registrant and PNC Asset Management Group, Inc. with
                         respect to the Mid-Cap Value Equity and Mid-Cap Growth
                         Equity Portfolios is incorporated herein by reference
                         to Exhibit 5(c) of Post-Effective Amendment No. 27 to
                         Registrant's Registration Statement on Form N-1A filed
                         on January 28, 1997.

                    (d)  Form of Addendum No. 1 to Investment Advisory Agreement
                         between Registrant and BlackRock Financial Management,
                         Inc. with respect to BlackRock Strategic Portfolio I
                         and BlackRock Strategic Portfolio II is incorporated
                         herein by reference to Exhibit 5(d) of Post-Effective
                         Amendment No. 26 to Registrant's Registration Statement
                         on Form N-1A filed on December 18, 1996.

                    (e)  Form of Addendum No. 2 to Investment Advisory Agreement
                         between Registrant and PNC Asset Management Group, Inc.
                         with respect to the International Small Cap Equity
                         Portfolio is incorporated herein by reference to
                         Exhibit 5(e) of Post-Effective Amendment No. 30 to
                         Registrant's Registration Statement on Form N-1A filed
                         on August 19, 1997.

                    (f)  Sub-Advisory Agreement between PNC Asset Management
                         Group, Inc. and BlackRock Financial Management, Inc.
                         with respect to the Managed Income, Tax-Free Income,
                         Intermediate
<PAGE>

                                                                               3

                         Government Bond, Ohio Tax-Free Income, Pennsylvania
                         Tax-Free Income, Low Duration Bond, Intermediate Bond,
                         Government Income, New Jersey Tax-Free Income and Core
                         Bond Portfolios is incorporated herein by reference to
                         Exhibit (5)(c) of Post-Effective Amendment No. 21 to
                         Registrant's Registration Statement on Form N-1A filed
                         on May 30, 1996.

                    (g)  Sub-Advisory Agreement between PNC Asset Management
                         Group, Inc. and Provident Capital Management, Inc. with
                         respect to the Large Cap Value Equity, Small Cap Value
                         Equity and Select Equity Portfolios is incorporated
                         herein by reference to Exhibit (5)(c) of Post-Effective
                         Amendment No. 21 to Registrant's Registration Statement
                         on Form N-1A filed on May 30, 1996.

                    (h)  Sub-Advisory Agreement between PNC Asset Management
                         Group, Inc. and PNC Equity Advisors Company with
                         respect to the Large Cap Growth Equity and Small Cap
                         Growth Equity Portfolios is incorporated herein by
                         reference to Exhibit (5)(c) of Post-Effective Amendment
                         No. 21 to Registrant's Registration Statement on Form
                         N-1A filed on May 30, 1996.

                    (i)  Sub-Advisory Agreement between PNC Asset Management
                         Group, Inc. and PNC Institutional Management
                         Corporation with respect to the Money Market, U.S.
                         Treasury Money Market, Municipal Money Market,
                         Pennsylvania Municipal Money Market, Ohio Municipal
                         Money Market, North Carolina Municipal Money Market,
                         Virginia Municipal Money Market and New Jersey
                         Municipal Money Market Portfolios is incorporated
                         herein by reference to Exhibit (5)(c) of Post-Effective
                         Amendment No. 21 to Registrant's Registration Statement
                         on Form N-1A filed on May 30, 1996.

                    (j)  Sub-Advisory Agreement between PNC Asset Management
                         Group, Inc. and CastleInternational Asset Management
                         Limited with respect to the International Equity and
                         International Emerging Markets Portfolios is
                         incorporated herein by reference to Exhibit (5)(c) of
                         Post-Effective Amendment No. 21 to Registrant's
                         Registration Statement on Form N-1A filed on May 30,
                         1996.

                    (k)  Sub-Advisory Agreement among PNC Asset Management
                         Group, Inc., Provident Capital Management, Inc. and
                         BlackRock Financial Management, Inc. with respect to
                         the Balanced Portfolio is incorporated herein by
                         reference to Exhibit (5)(c) of Post-Effective Amendment
                         No. 21 to Registrant's Registration Statement on Form
                         N-1A filed on May 30, 1996.
<PAGE>

                                                                               4

                    (l)  Sub-Advisory Agreement between PNC Asset Management
                         Group, Inc. and Provident Capital Management, Inc. with
                         respect to the Mid-Cap Value Equity Portfolio is
                         incorporated herein by reference to Exhibit 5(k) of
                         Post-Effective Amendment No. 27 to Registrant's
                         Registration Statement on Form N-1A filed on January
                         28, 1997.

                    (m)  Sub-Advisory Agreement between PNC Asset Management
                         Group, Inc. and PNC Equity Advisors Company with
                         respect to the Mid-Cap Growth Equity Portfolio is
                         incorporated herein by reference to Exhibit 5(l) of
                         Post-Effective Amendment No. 27 to Registrant's
                         Registration Statement on Form N-1A filed on January
                         28, 1997.

                    (n)  Sub-Advisory Agreement between PNC Asset Management
                         Group, Inc. and BlackRock Financial Management, Inc.
                         with respect to the International Bond Portfolio is
                         incorporated herein by reference to Exhibit 5(m) of
                         Post-Effective Amendment No. 27 to Registrant's
                         Registration Statement on Form N-1A filed on January
                         28, 1997.

                    (o)  Form of Sub-Advisory Agreement between PNC Asset
                         Management Group, Inc. and CastleInternational Asset
                         Management Limited with respect to the International
                         Small Cap Equity Portfolio is incorporated herein by
                         reference to Exhibit 5(o) of Post-Effective Amendment
                         No. 30 to Registrant's Registration Statement on Form
                         N-1A filed on August 19, 1997.

                    (p)  Form of Addendum No. 3 to Investment Advisory Agreement
                         between Registrant and PNC Asset Management Group, Inc.
                         with respect to the Micro-Cap Equity Portfolio, GNMA
                         Portfolio, Delaware Tax-Free Income Portfolio and
                         Kentucky Tax-Free Income Portfolio is incorporated
                         herein by reference to Exhibit (5)(p) of Post-Effective
                         Amendment No. 33 to Registrant's Registration Statement
                         on Form N-1A filed on January 27, 1998.

                    (q)  Form of Sub-Advisory Agreement between PNC Asset
                         Management Group, Inc. and PNC Equity Advisors Company
                         with respect to the Micro-Cap Equity Portfolio is
                         incorporated herein by reference to Exhibit (5)(q) of
                         Post-Effective Amendment No. 33 to Registrant's
                         Registration Statement on Form N-1A filed on January
                         27, 1998.

                    (r)  Form of Sub-Advisory Agreement between BlackRock, Inc.
                         and BlackRock Financial Management, Inc. with respect
                         to the GNMA, Delaware Tax-Free Income and Kentucky Tax-
                         Free
<PAGE>

                                                                               5

                         Income Portfolios is incorporated herein by reference
                         to Exhibit (5)(r) of Post-Effective Amendment No. 34 to
                         Registrant's Registration Statement on Form N-1A filed
                         on February 13, 1998.

                    (s)  Form of Addendum No. 4 to Investment Advisory Agreement
                         between Registrant and BlackRock Advisors, Inc. with
                         respect to the High Yield Bond Portfolio is
                         incorporated herein by reference to Exhibit 5(s) of
                         Post-Effective Amendment No. 37 to Registrant's
                         Registration Statement on Form N-1A filed on August 7,
                         1998.

                    (t)  Form of Sub-Advisory Agreement between BlackRock
                         Advisors, Inc. and BlackRock Financial Management, Inc.
                         with respect to the High Yield Bond Portfolio is
                         incorporated herein by reference to Exhibit 5(t) of
                         Post-Effective Amendment No. 37 to Registrant's
                         Registration Statement on Form N-1A filed on August 7,
                         1998.

                    (u)  Form of Addendum No. 2 to Investment Advisory Agreement
                         between Registrant and BlackRock Financial Management,
                         Inc. with respect to the Multi-Sector Mortgage
                         Securities Portfolio IV is incorporated herein by
                         reference to Exhibit 4(u) of Post-Effective Amendment
                         No. 42 to Registrant's Registration Statement on Form
                         N-1A filed on June 11, 1999.

                    (v)  Form of Addendum No. 5 to Investment Advisory Agreement
                         between Registrant and BlackRock Advisors, Inc. with
                         respect to the Global Science & Technology Portfolio is
                         incorporated herein by reference to Exhibit 4(v) of
                         Post-Effective Amendment No. 54 to Registrant's
                         Registration Statement on Form N-1A filed on May 10,
                         2000.

                    (w)  Form of Sub-Advisory Agreement between BlackRock
                         Advisors, Inc. and BlackRock Financial Management, Inc.
                         with respect to the Global Science & Technology
                         Portfolio is incorporated herein by reference to
                         Exhibit 4(w) of Post-Effective Amendment No. 54 to
                         Registrant's Registration Statement on Form N-1A filed
                         on May 10, 2000.

                    (x)  Form of Advisory Agreement between Registrant and
                         BlackRock International, Ltd. with respect to the
                         European Equity and Asia Pacific Equity Portfolios is
                         incorporated herein by reference to Exhibit 4(x) of
                         Post-Effective Amendment No. 55 to Registrant's
                         Registration Statement on Form N-1A filed on June 6,
                         2000.

                    (y)  Form of Addendum No. 6 to Investment Advisory Agreement
                         between Registrant and BlackRock Advisors, Inc. with
                         respect to
<PAGE>

                                                                               6

                         the Core Equity Portfolio is incorporated herein by
                         reference to Exhibit 4(y) of Post-Effective Amendment
                         No. 56 to the Registrant's Registration Statement on
                         Form N-1A filed on August 16, 2000.

                    (z)  Form of Sub-Advisory Agreement between BlackRock
                         Advisors, Inc. and BlackRock Financial Management, Inc.
                         with respect to the Core Equity Portfolio is
                         incorporated herein by reference to Exhibit 4(z) of
                         Post-Effective Amendment No. 56 to the Registrant's
                         Registration Statement on Form N-1A filed on August 16,
                         2000.

                    (aa) Form of Addendum No. 7 to Investment Advisory Agreement
                         between Registrant and BlackRock Advisors, Inc. with
                         respect to the Core PLUS Total Return Portfolio.

                    (bb) Form of Sub-Advisory Agreement between BlackRock
                         Advisors, Inc. and BlackRock Financial Management, Inc.
                         with respect to the Core PLUS Total Return Portfolio.

                    (cc) Form of Co-Investment Advisory Agreement among
                         Registrant, BlackRock Advisors, Inc. and BlackRock
                         International, Ltd. with respect to the Global
                         Communications Portfolio.

               (5)  Underwriting Contracts

                    (a)  Distribution Agreement between Registrant and BlackRock
                         Distributors, Inc. dated as of June 25, 1999 is
                         incorporated herein by reference to Exhibit 5(a) of
                         Post-Effective Amendment No. 45 to Registrant's
                         Registration Statement on Form N-1A filed on August 24,
                         1999.

                    (b)  Form of Appendix A to Distribution Agreement between
                         Registrant and BlackRock Distributors, Inc.

               (6)  Bonus or Profit Sharing Contracts

                    None.

               (7)  Custodian Agreements

                    (a)  Custodian Agreement dated October 4, 1989 between
                         Registrant and PNC Bank, National Association is
                         incorporated herein by reference to Exhibit (8)(a) of
                         Post-Effective Amendment No. 33 to Registrant's
                         Registration Statement on Form N-1A filed on January
                         27, 1998.
<PAGE>

                                                                               7

                    (b)  Amendment No. 1 to Custodian Agreement between
                         Registrant and PNC Bank, National Association is
                         incorporated herein by reference to Exhibit (8)(b) of
                         Post-Effective Amendment No. 33 to Registrant's
                         Registration Statement on Form N-1A filed on January
                         27, 1998.

                    (c)  Amendment No. 2 dated March 1, 1993 to Custodian
                         Agreement between Registrant and PNC Bank, National
                         Association with respect to the Short-Term Bond,
                         Intermediate-Term Bond, Core Equity, Small Cap Growth
                         Equity and North Carolina Municipal Money Market
                         Portfolios is incorporated herein by reference to
                         Exhibit (8)(c) of Post-Effective Amendment No. 33 to
                         Registrant's Registration Statement on Form N-1A filed
                         on January 27, 1998.

                    (d)  Form of Appendix B to Custodian Agreement between
                         Registrant and PFPC Trust Company.

                    (e)  Sub-Custodian Agreement dated April 27, 1992 among the
                         Registrant, PNC Bank, National Association and The
                         Chase Manhattan Bank is incorporated herein by
                         reference to Exhibit (8)(e) of Post-Effective Amendment
                         No. 34 to Registrant's Registration Statement on Form
                         N-1A filed on February 13, 1998.

                    (f)  Global Custody Agreement between Barclays Bank PLC and
                         PNC Bank, National Association dated October 28, 1992
                         is incorporated herein by reference to Exhibit (8)(f)
                         of Post-Effective Amendment No. 33 to Registrant's
                         Registration Statement on Form N-1A filed on January
                         27, 1998.

                    (g)  Custodian Agreement between State Street Bank and Trust
                         Company and PNC Bank, National Association dated June
                         13, 1983 is incorporated herein by reference to Exhibit
                         (8)(g) of Post-Effective Amendment No. 34 to
                         Registrant's Registration Statement on Form N-1A filed
                         on February 13, 1998.

                    (h)  Amendment No. 1 to Custodian Agreement between State
                         Street Bank and Trust Company and PNC Bank, National
                         Association dated November 21, 1989 is incorporated
                         herein by reference to Exhibit (8)(h) of Post-Effective
                         Amendment No. 34 to Registrant's Registration Statement
                         on Form N-1A filed on February 13, 1998.

                    (i)  Subcustodial Services Agreement dated January 10, 1996
                         between PNC Bank, National Association and Citibank,
                         N.A. is incorporated herein by reference to Exhibit
                         8(j) of Post-Effective Amendment No. 27 to Registrant's
                         Registration Statement on Form N-1A filed on January
                         28, 1997.
<PAGE>

                                                                               8

               (8)  Other Material Contracts

                    (a)  Form of Administration Agreement among Registrant,
                         BlackRock Advisors, Inc. and PFPC Inc. is incorporated
                         herein by reference to Exhibit 8(a) of Post-Effective
                         Amendment No. 42 to Registrant's Registration Statement
                         on Form N-1A filed on June 11, 1999.

                    (b)  Forms of Appendix A and Appendix B to Administration
                         Agreement among Registrant, BlackRock Advisors, Inc.
                         and PFPC Inc.

                    (c)  Transfer Agency Agreement dated October 4, 1989 between
                         Registrant and PFPC Inc. is incorporated herein by
                         reference to Exhibit (9)(e) of Post-Effective Amendment
                         No. 33 to Registrant's Registration Statement on Form
                         N-1A filed on January 27, 1998.

                    (d)  Amendment No. 1 to Transfer Agency Agreement dated
                         October 4, 1989 between Registrant and PFPC Inc.
                         relating to the Tax-Free Income Portfolio is
                         incorporated herein by reference to Exhibit (9)(f) of
                         Post-Effective Amendment No. 33 to Registrant's
                         Registration Statement on Form N-1A filed on January
                         27, 1998.

                    (e)  Amendment No. 2 to Transfer Agency Agreement dated
                         October 4, 1989 between Registrant and PFPC Inc.
                         relating to the Pennsylvania Municipal Money Market,
                         Ohio Municipal Money Market, Intermediate Government,
                         Ohio Tax-Free Income, Pennsylvania Tax-Free Income,
                         Large Cap Value Equity, Index Equity and Small Cap
                         Value Equity Portfolios is incorporated herein by
                         reference to Exhibit (9)(g) of Post-Effective Amendment
                         No. 33 to Registrant's Registration Statement on Form
                         N-1A filed on January 27, 1998.

                    (f)  Amendment No. 3 to Transfer Agency Agreement dated
                         October 4, 1989 between Registrant and PFPC Inc.
                         relating to the Short-Term Bond, Intermediate-Term
                         Bond, Core Equity, Small Cap Growth Equity and North
                         Carolina Municipal Money Market Portfolios is
                         incorporated herein by reference to Exhibit (9)(h) of
                         Post-Effective Amendment No. 33 to Registrant's
                         Registration Statement on Form N-1A filed on January
                         27, 1998.

                    (g)  Amendment No. 4 to Transfer Agency Agreement dated
                         October 4, 1989 between Registrant and PFPC Inc.
                         relating to Series B Investor Shares of the Money
                         Market, Managed Income, Tax-Free Income, Intermediate
                         Government, Ohio Tax-Free Income, Pennsylvania Tax-Free
                         Income, Large Cap Value Equity, Large Cap Growth
                         Equity, Index Equity, Small Cap Value Equity,
<PAGE>

                                                                               9

                         Intermediate-Term Bond, Small Cap Growth Equity, Core
                         Equity, International Fixed Income, Government Income,
                         International Emerging Markets, International Equity
                         and Balanced Portfolios is incorporated herein by
                         reference to Exhibit (9)(i) of Post-Effective Amendment
                         No. 33 to Registrant's Registration Statement on Form
                         N-1A filed on January 27, 1998.

                    (h)  Form of Appendix C to Transfer Agency Agreement between
                         Registrant and PFPC Inc.

                    (i)  License Agreement dated as of December 1, 1995 between
                         the Registrant and Compass Capital Group, Inc. is
                         incorporated herein by reference to Exhibit 9(q) of
                         Post-Effective Amendment No. 27 to Registrant's
                         Registration Statement on Form N-1A filed on January
                         28, 1997.

                    (j)  Share Acquisition Agreement dated April 29, 1998 by and
                         among Registrant and PNC Bank, National Association and
                         PNC Bank, Delaware, respectively, each as trustee for
                         certain of the common trust funds listed therein is
                         incorporated herein by reference to Exhibit 9(l) of
                         Post-Effective Amendment No. 36 to Registrant's
                         Registration Statement on Form N-1A filed on April 29,
                         1998.

                    (k)  Form of Expense Limitation Agreement dated as of
                         January 28, 1999 between Registrant and BlackRock
                         Advisors, Inc. is incorporated herein by reference to
                         Exhibit 8(k) of Post-Effective Amendment No. 41 to
                         Registrant's Registration Statement on Form N-1A filed
                         on January 28, 1999.

                    (l)  Form of Expense Limitation Agreement dated as of June
                         6, 2000 between Registrant and BlackRock International,
                         Ltd. is incorporated herein by reference to Exhibit
                         8(l) of Post-Effective Amendment No. 55 to Registrant's
                         Registration Statement on Form N-1A filed on June 6,
                         2000.

                    (m)  Form of Amendment Agreement to Transfer Agency
                         Agreement dated October 4, 1989 between Registrant and
                         PFPC Inc. relating to internet services is incorporated
                         herein by reference to Exhibit 8(m) of Post-Effective
                         Amendment No. 56 to Registrant's Registration Statement
                         on Form N-1A filed on August 16, 2000.

                    (n)  Form of Amendment Agreement to Transfer Agency
                         Agreement.

               (9)  Legal Opinion

                    (a)  To be filed by Amendment.
<PAGE>

                                                                              10

               (10) Other Opinions

                    (a)  None.

               (11) Omitted Financial Statements

                    (a)  None.

               (12) Initial Capital Agreements

                    (a)  Form of Purchase Agreement between Registrant and
                         Registrant's distributor relating to Classes A-1, B-1,
                         C-1, D-2, E-2, F-2, G-2, H-2, I-1, I-2, J-1, J-2, K-2,
                         L-2, M-2, N-2, O-2, P-2, D-1, E-1, F-1, G-1, H-1, K-1,
                         L-1, M-1, N-1, O-1, P-1, A-2, B-2, C-2, I-2, J-2, A-3,
                         B-3, C-3, D-3, E-3, F-3, G-3, H-3, I-3, J-3, K-3, L-3,
                         M-3, N-3, O-3, P-3, Q-1, Q-2, Q-3, R-1, R-2, R-3, S-1,
                         S-2, S-3, T-1, T-2, T-3, U-1, U-2, U-3, A-4, D-4, E-4,
                         F-4, G-4, H-4, K-4, L-4, M-4, N-4, O-4, P-4, R-4, S-4,
                         T-4, U-4, W-4, X-4, Y-4, V-1, V-2, V-3, W-1, W-2, W-3,
                         X-1, X-2, X-3, Y-1, Y-2, Y-3, Z-1, Z-2, Z-3, AA-1,
                         AA-2, AA-3, AA-4, AA-5, BB-1, BB-2, BB-3, BB-4, BB-5,
                         CC-3, A-5, B-4, B-5, C-4, C-5, I-4, I-5, J-4, J-5,
                         Q-4, Q-5, V-4, V-5, Z-4, Z-5, X-1, X-3, D-5, E-5, F-5,
                         G-5, H-5, K-5, L-5, M-5, N-5, O-5, P-5, R-5, S-5, T-5,
                         U-5, W-5, X-5, Y-5, DD-1, DD-2, DD-3, DD-4, DD-5,
                         EE-1, EE-2, EE-3, EE-4, EE-5, R-6, BB-6, FF-3, GG-3,
                         HH-1, HH-2, HH-3, HH-4, HH-5, II-1, II-2, II-3, II-4,
                         II-5, S-6, JJ-1, JJ-2, JJ-3, JJ-4, JJ-5, KK-1, KK-2,
                         KK-3, KK-4, KK-5, LL-1, LL-2, LL-3, LL-4 and LL-5 is
                         incorporated herein by reference to Exhibit (13)(a) of
                         Post-Effective Amendment No. 34 to Registrant's
                         Registration Statement on Form N-1A filed on February
                         13, 1998.

                    (b)  Form of Purchase Agreement between Registrant and
                         Registrant's distributor relating to Classes MM-1, MM-
                         2, MM-3, MM-4, MM-5 and MM-6 is incorporated herein by
                         reference to Exhibit 13(b) of Post-Effective Amendment
                         No. 37 to Registrant's Registration Statement on Form
                         N-1A filed on August 7, 1998.

                    (c)  Form of Purchase Agreement between Registrant and
                         Registrant's distributor relating to Class NN-3 is
                         incorporated herein by reference to Exhibit 12(c) of
                         Post-Effective Amendment No. 42 to Registrant's
                         Registration Statement on Form N-1A filed on June 11,
                         1999.

                    (d)  Form of Purchase Agreement between Registrant and
                         Registrant's distributor relating to Classes A-7 and C-
                         7 is incorporated herein by reference to Exhibit 12(d)
                         of Post-Effective Amendment No. 43
<PAGE>

                                                                              11

                         to Registrant's Registration Statement on Form N-1A
                         filed on August 6, 1999.

                    (e)  Form of Purchase Agreement between Registrant and
                         Registrant's distributor relating to Classes OO-1, OO-
                         2, OO-3, OO-4 and OO-5 is incorporated herein by
                         reference to Exhibit 12(e) of Post-Effective Amendment
                         No. 54 to Registrant's Registration Statement on Form
                         N-1A filed on May 10, 2000.

                    (f)  Form of Purchase Agreement between Registrant and
                         Registrant's distributor relating to Classes PP-1, PP-
                         2, PP-3, PP-4 and PP-5, QQ-1, QQ-2, QQ-3, QQ-4, QQ-5
                         and U-6 is incorporated herein by reference to Exhibit
                         12(f) of Post-Effective Amendment No. 55 to
                         Registrant's Registration Statement on Form N-1A filed
                         on June 6, 2000.

                    (g)  Form of Purchase Agreement between Registrant and
                         Registrant's distributor relating to Class RR-3 is
                         incorporated herein by reference to Exhibit 12(g) of
                         Post-Effective Amendment No. 56 to Registrant's
                         Registration Statement on Form N-1A filed on August 16,
                         2000.

                    (h)  Form of Purchase Agreement between Registrant and
                         BlackRock Distributors, Inc. relating to shares of
                         Classes SS-1, SS-2, SS-3, SS-4 and SS-5.

                    (i)  Form of Purchase Agreement between Registrant and
                         BlackRock Distributors, Inc. relating to shares of
                         Classes TT-1, TT-2, TT-3, TT-4, TT-5 and TT-6.

               (13) Rule 12b-1 Plan

                    (a)  Amended and Restated Distribution and Service Plan for
                         Service, Series A Investor, Series B Investor, Series C
                         Investor, Institutional and BlackRock Shares is
                         incorporated herein by reference to Exhibit (15) of
                         Post-Effective Amendment No. 21 to Registrant's
                         Registration Statement on Form N-1A filed on May 30,
                         1996.

                    (b)  Form of Appendix A to Amended and Restated Distribution
                         and Service Plan.

               (14) Intentionally Omitted.

               (15) Rule 18f-3 Plan
<PAGE>

                                                                              12

                    (a)  Amended and Restated Plan Pursuant to Rule 18f-3 for
                         Operation of a Multi-Class Distribution System is
                         incorporated herein by reference to Exhibit 15(a) of
                         Post-Effective Amendment No. 45 to Registrant's
                         Registration Statement on Form N-1A filed on August 24,
                         1999.

               (16) Codes of Ethics

                    (a)  Code of Ethics of BlackRock Funds is incorporated
                         herein by reference to Exhibit 16(a) of Post-Effective
                         Amendment No. 55 to Registrant's Registration Statement
                         on Form N-1A filed on June 6, 2000.

                    (b)  Code of Ethics of BlackRock, Inc. is incorporated
                         herein by reference to Exhibit 16(b) of Post-Effective
                         Amendment No. 52 to Registrant's Registration Statement
                         on Form N-1A filed on March 23, 2000.

                    (c)  Code of Ethics of BlackRock Distributors, Inc.

               (99) (a)  Power of Attorney of David R. Wilmerding dated November
                         14, 2000 appointing Raymond J. Clark, Anne Ackerley and
                         Brian P. Kindelan as attorneys and agents.

                    (b)  Power of Attorney of William O. Albertini dated
                         November 14, 2000 appointing David R. Wilmerding,
                         Raymond J. Clark, Anne Ackerley and Brian P. Kindelan
                         as attorneys and agents.

                    (c)  Power of Attorney of Raymond J. Clark dated November
                         14, 2000 appointing David R. Wilmerding, Anne Ackerley
                         and Brian P. Kindelan as attorneys and agents.

                    (d)  Power of Attorney of Robert M. Hernandez dated November
                         14, 2000 appointing David R. Wilmerding, Raymond J.
                         Clark, Anne Ackerley and Brian P. Kindelan as attorneys
                         and agents.

                    (e)  Power of Attorney of Laurence Fink dated November 14,
                         2000 appointing David R. Wilmerding, Raymond J. Clark,
                         Anne Ackerley and Brian P. Kindelan as attorneys and
                         agents.

Item 24.       Persons Controlled by or under Common Control with the Fund.

               Unless indicated otherwise, ownership is at 100%.

               The Fund is controlled by PNC Bank, National Association, a
national bank organized under the laws of the United States. All of the capital
stock of PNC Bank, National
<PAGE>

                                                                              13

Association is owned by PNC Bancorp, Inc., the capital stock of which is owned
by The PNC Financial Services Group, Inc., a publicly held bank holding company.

          PNC Bank, National Association controls the following entities
organized under the laws of the state of [Delaware]:  409 Holding Inc.,
Bancshares Realty Co., CFRH Inc, CFCI, Inc, Continental Van Louhr Inc, Deerfield
Corp, EREP, Inc, Forest Hills Newark, Inc, Georgia Plant Corporation, Land
Holding Corp. of PA, Land Holding, Inc., Land Holding Corp of Ohio, Metal Corp.,
Monmouth Street Corporation, Montliquor, Inc., Midland Loan Services, Inc., ME
Investment Inc., Parkway Suisse Inc., Poseidon Corporation, PNC Affordable
Housing, Inc., PNC Community Partners, Inc., PNC Bank Capital Securities, LLC,
PNC Commercial Management, Inc., PNC Bank International, PNC Investment
Holdings, Inc., PNC BL Holding Inc., PNC Brokerage Corp., PNC Community
Development Corp., PNC Insurance Services (Kentucky), Inc., PNC Institutional
Capital Trust A, PNC Leasing LLC, PNC Vehicle Leasing LLC, PNC Title Holding
Company, LLC, PNC Reinsurance Corp., ThornHurst Corp., Spectra Services
Corporation, PNC Mortgage Securities Corp. and PNC Mortgage Corp. of America.

          PNC Bank, National Association controls 56% of the voting securities
Billing Zone ELC which is organized under the laws of the state of [Delaware].

          Midland Loan Services, Inc controls the following entities organized
under the laws of the state of [Delaware]:  MLS Investments, Inc., Ridge
Acquisition, L.P., Midland Realty Acceptance Corp., PNC Mortgage Acceptance
Corp., Financial Support Services, Inc., First Financial, LP, Midland Commercial
Financing Corp. and MCS Servicing Corp.

          PNC Leasing controls the following entities organized under the laws
of the state of [Delaware]:  Gallston Generation, LLC, Johnsonville Generation,
LLC and PNC Capital Leasing, LLC.

          PNC Mortgage Securities Corp. controls PNC Mortgage Funding Corp., a
corporation organized under the laws of the state of [Delaware].

          PNC Mortgage Corp. of America controls PNC Mortgage Partners Corp., a
corporation organized under the laws of the state of [Delaware].

          PNC Investment Holdings, Inc. controls PNC Asset Management, Inc., a
corporation organized under the laws of the state of [Delaware].

          PNC Asset Management, Inc. controls 70.4% of the voting securities of
BlackRock, Inc., a corporation organized under the laws of the state of
[Delaware], which directly and indirectly controls the following entities
organized under the laws of the state of [Delaware]:  BlackRock Advisors Inc.,
BlackRock Overseas Investment Corp., BlackRock Japan Holdings, Inc., BlackRock
International Ltd., BlackRock Institutional Management Corporation, BlackRock
Capital Management Inc., Advanced Investment Management, Inc., Provident
Advisers, Inc., BlackRock Funding, Inc., BlackRock Financial Management, Inc.,
BlackRock (Japan), Inc., Anthracite Securitization Corp., Risk Monitors, Inc.
<PAGE>

                                                                              14

          BlackRock Japan Holdings, Inc. controls 90% of the voting securities
of Nomura BlackRock Asset Management Co., Ltd., a corporation organized under
the laws of the state of [Delaware].

          BlackRock Advisors Inc. controls 95% of the voting securities of
Investment Technology, LLC, which is organized under the laws of the state of
[Delaware], and controls 28.25% of the voting securities of Trepo, LLC., which
is organized under the laws of the state of [Delaware].

Item 25.  Indemnification

          Indemnification of Registrant's principal underwriter against certain
losses is provided for in Section 7 of the Distribution Agreement incorporated
by reference herein as Exhibit 5(a).  Indemnification of Registrant's Custodian,
Transfer Agent and Administrators is provided for, respectively, in Section 22
of the Custodian Agreement incorporated by reference herein as Exhibit 7(a),
Section 17 of the Transfer Agency Agreement incorporated by reference herein as
Exhibit 8(c) and Section 11 of the Administration Agreement incorporated by
reference herein as Exhibit 8(a).  Registrant intends to obtain from a major
insurance carrier a trustees' and officers' liability policy covering certain
types of errors and omissions.  In addition, Section 9.3 of the Registrant's
Declaration of Trust incorporated by reference herein as Exhibit 1(a) provides
as follows:

          Indemnification of Trustees, Officers, Representatives and Employees.
          --------------------------------------------------------------------
     The Trust shall indemnify each of its Trustees against all liabilities and
     expenses (including amounts paid in satisfaction of judgments, in
     compromise, as fines and penalties, and as counsel fees) reasonably
     incurred by him in connection with the defense or disposition of any
     action, suit or other proceeding, whether civil or criminal, in which he
     may be involved or with which he may be threatened, while as a Trustee or
     thereafter, by reason of his being or having been such a Trustee except
                                                                      ------
     with respect to any matter as to which he shall have been adjudicated to
     have acted in bad faith, willful misfeasance, gross negligence or reckless
     disregard of his duties, provided that as to any matter disposed of by a
                              --------
     compromise payment by such person, pursuant to a consent decree or
     otherwise, no indemnification either for said payment or for any other
     expenses shall be provided unless the Trust shall have received a written
     opinion from independent legal counsel approved by the Trustees to the
     effect that if either the matter of willful misfeasance, gross negligence
     or reckless disregard of duty, or the matter of bad faith had been
     adjudicated, it would in the opinion of such counsel have been adjudicated
     in favor of such person.  The rights accruing to any person under these
     provisions shall not exclude any other right to which he may be lawfully
     entitled, provided that no person may satisfy any right of indemnity or
               --------
     reimbursement hereunder except out of the property of the Trust.  The
     Trustees may make advance payments in connection with the indemnification
     under this Section 9.3, provided that the indemnified person shall have
                             --------
     given a written undertaking to reimburse the Trust in the event it is
     subsequently determined that he is not entitled to such indemnification.
<PAGE>

                                                                              15

          The Trustee shall indemnify officers, representatives and employees of
     the Trust to the same extent that Trustees are entitled to indemnification
     pursuant to this Section 9.3.

          Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.  In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a trustee, officer or controlling person of Registrant in the successful
defense of any action, suit or proceeding) is asserted by such trustee, officer
or controlling person in connection with the securities being registered,
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 Act and will be governed by the final adjudication of such
issue.

          Section 9.6 of the Registrant's Declaration of Trust, filed herein as
Exhibit 1(a), also provides for the indemnification of shareholders of the
Registrant.  Section 9.6 states as follows:

          Indemnification of Shareholders.  In case any Shareholder or former
          -------------------------------
     Shareholder shall be held to be personally liable solely by reason of his
     being or having been a Shareholder and not because of his acts or omissions
     or for some other reason, the Shareholder or former Shareholder (or his
     heirs, executors, administrators or other legal representatives or, in the
     case of a corporation or other entity, its corporate or other general
     successor) shall be entitled out of the assets belonging to the classes of
     Shares with the same alphabetical designation as that of the Shares owned
     by such Shareholder to be held harmless from and indemnified against all
     loss and expense arising from such liability.  The Trust shall, upon
     request by the Shareholder, assume the defense of any claim made against
     any Shareholder for any act or obligations of the Trust and satisfy any
     judgment thereon from such assets.

Item 26.  Business and Other Connections of Investment Advisers

               (a)  BlackRock Advisors, Inc. is an indirect majority-owned
                    subsidiary of PNC Bank Corp. BlackRock Advisors, Inc. was
                    organized in 1994 for the purpose of providing advisory
                    services to investment companies. The list required by this
                    Item 26 of officers and directors of BlackRock Advisors,
                    Inc., together with information as to any other business,
                    profession, vocation or employment of a substantial nature
                    engaged in by such officers and directors during the past
                    two years, is incorporated by reference to Schedules A and D
                    of Form ADV, filed by BlackRock Advisors, Inc. pursuant to
                    the Investment Advisers Act of 1940 (SEC File No. 801-
                    47710).
<PAGE>

                                                                              16

               (b)  BlackRock Institutional Management Corporation (formerly PNC
                    Institutional Management Corporation) ("BIMC") is an
                    indirect majority-owned subsidiary of PNC Bank Corp. The
                    list required by this Item 26 of officers and directors of
                    BIMC, together with information as to any other business,
                    profession, vocation or employment of a substantial nature
                    engaged in by such officers and directors during the past
                    two years, is incorporated by reference to Schedules A and D
                    of Form ADV, filed by BIMC pursuant to the Investment
                    Advisers Act of 1940 (SEC File No. 801-13304).

               (c)  BlackRock Financial Management, Inc. ("BlackRock") is an
                    indirect majority-owned subsidiary of PNC Bank Corp.
                    BlackRock currently offers investment advisory services to
                    institutional investors such as pension and profit-sharing
                    plans or trusts, insurance companies and banks. The list
                    required by this Item 26 of officers and directors of
                    BlackRock, together with information as to any other
                    business, profession, vocation or employment of a
                    substantial nature engaged in by such officers and directors
                    during the past two years, is incorporated by reference to
                    Schedules A and D of Form ADV, filed by BlackRock pursuant
                    to the Investment Advisers Act of 1940 (SEC File No. 801-
                    48433).

               (d)  BlackRock International, Ltd. (formerly CastleInternational
                    Asset Management Limited) ("BIL") is an indirect majority-
                    owned subsidiary of PNC Bank Corp. The list required by this
                    Item 26 of officers and directors of BIL, together with
                    information as to any other business, profession, vocation
                    or employment of a substantial nature engaged in by such
                    officers and directors during the past two years, is
                    incorporated by reference to Schedules A and D of Form ADV,
                    filed by BIL pursuant to the Investment Advisers Act of 1940
                    (SEC File No. 801-51087).

Item 27.  Principal Underwriters

               (a)  Not applicable.

               (b)  The information required by this Item 27 with respect to
                    each director, officer or partner of BlackRock Distributors,
                    Inc. (formerly Compass Distributors, Inc.) is incorporated
                    by reference to Schedule A of FORM BD filed by BlackRock
                    Distributors, Inc. with the Securities and Exchange
                    Commission pursuant to the Securities Exchange Act of 1934
                    (File No. 8-48775).

               (c)  Not applicable.
<PAGE>

                                                                              17

Item 28.  Location of Accounts and Records

          (1)  PFPC Trust Company, 200 Stevens Drive, Lester, PA 19113 (records
               relating to its functions as custodian).

          (2)  BlackRock Distributors, Inc., Four Falls Corporate Center, 6th
               Floor, West Conshohocken, PA 19428-2961 (records relating to its
               functions as distributor).

          (3)  BlackRock Advisors, Inc. (formerly BlackRock, Inc.), 345 Park
               Avenue, New York, New York 10154 (records relating to its
               functions as investment adviser and co-administrator).

          (4)  BlackRock Institutional Management Corporation (formerly PNC
               Institutional Management Corporation), Bellevue Corporate Center,
               400 Bellevue Parkway, Wilmington, Delaware 19809 (records
               relating to its functions as investment sub-adviser).

          (5)  BlackRock Financial Management, Inc., 345 Park Avenue, New York,
               New York 10154; and 1600 Market Street, 27th Floor, Philadelphia,
               Pennsylvania 19103 (records relating to its functions as
               investment adviser and sub-adviser).

          (6)  PFPC Inc., Bellevue Corporate Center, 400 Bellevue Parkway,
               Wilmington, Delaware 19809 (records relating to its functions as
               co-administrator, transfer agent and dividend disbursing agent).

          (7)  The Chase Manhattan Bank, N.A., 1285 Avenue of the Americas, New
               York, New York 10019 (records relating to its function as sub-
               custodian).

          (8)  BlackRock International, Ltd. (formerly CastleInternational Asset
               Management Limited), 7 Castle Street, Edinburgh, Scotland, EH2
               3AM (records relating to its functions as investment sub-
               adviser).

          (9)  Citibank, N.A., 111 Wall Street, 23rd Floor, Zone 6, New York, NY
               10043 (records relating to its functions as sub-custodian).

          (10) BlackRock Financial Management, Inc., 1600 Market Street, 28th
               Floor, Philadelphia, PA 19103 (Registrant's declaration of trust,
               code of regulations and minute books).

Item 29.  Management Services

          None.

Item 30.  Undertakings

          None.
<PAGE>

                                   SIGNATURES

          Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Fund has duly caused this Post-Effective
Amendment to its Registration Statement to be signed on its behalf by the
undersigned, duly authorized, in the City of New York and the State of New York
on the 14th day of November, 2000.


                              BLACKROCK FUNDS(SM)
                              Fund



                              By /s/ Raymond J. Clark
                                 -------------------------------
                                 Raymond J. Clark
                                 President and Treasurer
                                 (Principal Executive Officer)

          Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
Signature                         Title                            Date
---------                         -----                            ----
<S>                              <C>                              <C>
/s/ Raymond J. Clark             Trustee, President and
-------------------------------                                   November 14, 2000
Raymond J. Clark                 Treasurer

/s/ David R. Wilmerding, Jr.     Chairman of the Board            November 14, 2000
-------------------------------
David R. Wilmerding, Jr.

/s/ William O. Albertini         Trustee                          November 14, 2000
-------------------------------
William O. Albertini

/s/ Robert M. Hernandez          Trustee                          November 14, 2000
-------------------------------
Robert M. Hernandez

/s/ Laurence Fink                Trustee                          November 14, 2000
-------------------------------
Laurence Fink
</TABLE>
<PAGE>

                                 EXHIBIT INDEX
                                 -------------

<TABLE>
<CAPTION>
Exhibit No.             Description
-----------             -----------
<S>                     <C>
4(aa)                   Form of Addendum No. 7 to Investment Advisory Agreement
                        between Registrant and BlackRock Advisors, Inc. with
                        respect to the Core PLUS Total Return Portfolio.

4(bb)                   Form of Sub-Advisory Agreement between BlackRock
                        Advisors, Inc. and BlackRock Financial Management, Inc.
                        with respect to the Core PLUS Total Return Portfolio.

4(cc)                   Form of Co-Investment Advisory Agreement among
                        Registrant, BlackRock Advisors, Inc. and BlackRock
                        International, Ltd. with respect to the Global
                        Communications Portfolio.

5(b)                    Form of Appendix A to the Distribution Agreement between
                        Registrant and BlackRock Distributors, Inc.

7(d)                    Form of Appendix B to the Custodian Agreement between
                        Registrant and PFPC Trust Company.

8(b)                    Forms of Appendix A and Appendix B to the Administration
                        Agreement among Registrant, BlackRock Advisors, Inc. and
                        PFPC Inc.

8(h)                    Form of Appendix C to the Transfer Agency Agreement
                        between Registrant and PFPC Inc.

8(n)                    Form of Amendment Agreement to Transfer Agency
                        Agreement.

12(h)                   Form of Purchase Agreement between Registrant and
                        BlackRock Distributors, Inc. relating to shares of
                        Classes SS-1, SS-2, SS-3, SS-4 and SS-5.

12(i)                   Form of Purchase Agreement between Registrant and
                        BlackRock Distributors, Inc. relating to shares of
                        Classes TT-1, TT-2, TT-3, TT-4, TT-5 and TT-6.

13(b)                   Form of Appendix A to Amended and Restated Distribution
                        and Service Plan.

16(c)                   Code of Ethics of BlackRock Distributors, Inc.
</TABLE>
<PAGE>

                                                                               2

<TABLE>
<S>                     <C>
99(a)                   Power of Attorney of David R. Wilmerding dated November
                        14, 2000 appointing Raymond J. Clark, Anne Ackerley and
                        Brian P. Kindelan as attorneys and agents.

99(b)                   Power of Attorney of William O. Albertini dated November
                        14, 2000 appointing David R. Wilmerding, Raymond J.
                        Clark, Anne Ackerley and Brian P. Kindelan as attorneys
                        and agents.

99(c)                   Power of Attorney of Raymond J. Clark dated November 14,
                        2000 appointing David R. Wilmerding, Anne Ackerley and
                        Brian P. Kindelan as attorneys and agents.

99(d)                   Power of Attorney of Robert M. Hernandez dated November
                        14, 2000 appointing David R. Wilmerding, Raymond J.
                        Clark, Anne Ackerley and Brian P. Kindelan as attorneys
                        and agents.

99(e)                   Power of Attorney of Laurence Fink dated November 14,
                        2000 appointing David R. Wilmerding, Raymond J. Clark,
                        Anne Ackerley and Brian P. Kindelan as attorneys and
                        agents.
</TABLE>


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