BLACKROCK FUNDS, 485APOS, 2000-02-15

BLACKROCK FUNDS
485APOS, 2000-02-15

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<PAGE>

As filed with the Securities and Exchange Commission on February 15, 2000
Registration No. 33- 26305
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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. 51 [x]

and

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

AMENDMENT NO. 53 [x]

_____________________________________________

BLACKROCK FUNDS(SM)

(Exact Name of Registrant as Specified in Charter)

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
(302) 792-2555
</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)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[X] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) 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 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,
<PAGE>
2

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.
<PAGE>

BLACKROCK FUNDS(SM)
GLOBAL SCIENCE AND
TECHNOLOGY PORTFOLIO
CROSS REFERENCE SHEET

Item Number Form N-1A, Prospectus
Part A Caption
- ------ -------------

1(a) Cover Page

1(b) Back Cover Page

2 The Portfolios - Investment Goal; - Primary Investment
Strategies; - Key Risks

3 The Portfolios - Expenses and Fees

4 The Portfolios - Investment Goal; - Primary Investment
Strategies; - Key Risks

5 Not Applicable

6 The Portfolios - Fund Management; - Management

7 About Your Investment - What Price Per Share Will You
Pay?; - When Must You Pay?; - How Much is the Minimum
Investment?; - How to Sell Shares; - Expedited
Redemptions; - Accounts With Low Balances; - Dividends
and Distributions; - Taxation of Distributions

8 About Your Investment - Which Pricing Option Should
You Choose?; How Much is the Sales Charge?; - Can the
Sales Charge be Reduced or Eliminated?; - Distribution
and Service Plan

9 N/A
<PAGE>

Item Number Form N-1A, Statement of Additional
Part B Information Caption
- ------ -------------------

10 Cover Page

11 Miscellaneous

12 Miscellaneous; Investment Policies; Additional
Investment Limitations

13 Trustees and Officers; Purchase and Redemption
Information

14 Trustees and Officers; Miscellaneous

15 Investment Advisory, Administration, Distribution and
Servicing Arrangements; Purchase and Redemption
Information

16 Portfolio Transactions

17 Shareholder and Trustee Liability of the Fund;
Additional Information Concerning Shares;
Miscellaneous

18 Purchase and Redemption Information; Valuation of
Portfolio Securities

19 Taxes

20 Investment Advisory, Administration, Distribution and
Servicing arrangements

21 Performance Information

22 N/A

Part C
------

Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>

Global Science

& Technology

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

BlackRock Funds(sm) is a mutual fund family with 37
investment portfolios. BlackRock Funds are sold
principally through licensed investment professionals.

P R O S P E C T U S

May , 2000
--

[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.

[GRAPHIC]

NOT FDIC-INSURED May lose value
No bank guarantee
<PAGE>

Table of
Contents

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How to find the information you need

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

About Your Investment

<TABLE>
<S> <C>
How to Buy/Sell Shares..................................................... 9
Dividends/Distributions/Taxes.............................................. 23
Services for Shareholders.................................................. 26
</TABLE>
<PAGE>

How to Find the
Information You Need
About BlackRock Funds

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This is the BlackRock Global Science & Technology 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
[LOGO] Global Science & Technology
Portfolio

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IMPORTANT DEFINITIONS

Earnings Growth: The
rate of growth in a
company's earnings per
share from period to
period. Security ana-
lysts attempt to iden-
tify companies with
earnings growth poten-
tial because a pattern
of earnings growth gen-
erally 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.

Fundamental Analysis: A
method of stock market
analysis that concen-
trates on "fundamental"
information about the
company (such as its
income statement, bal-
ance sheet, earnings
and sales history,
products and manage-
ment) to attempt to
forecast future stock
value.

Growth Companies: All
stocks are generally
divided into the cate-
gories of "growth" or
"value," although there
are times when a growth
fund and value fund may
own the same stock.
Growth stocks are com-
panies 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 div-
idends and sell at rel-
atively high prices.
Value stocks are compa-
nies that appear to the
manager to be underval-
ued 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 man-
agers will choose for
this fund.

Market Capitalization:
Market capitalization
refers to the market
value of a company and
is calculated by multi-
plying 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 secu-
rities of U.S. and foreign companies selected for their rapid and sustainable
growth potential from the development, advancement and use of science and/or
technology. The fund may also purchase securities of companies outside the
technology and science industries if such companies may benefit from the use of
scientific or technological discoveries and developments. 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 secu-
rities. 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 pur-
chased 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 that are expected to
offer the best opportunities for growth and high investment returns. The man-
ager screens for "growth" stocks from the universe of companies with market
capitalizations greater than $25 million. Generally, only companies in the top
35% of the technology and science sectors with earnings growth potential of 20%
or higher will be considered appropriate investments. The manager uses funda-
mental 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 invest-
ing 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: network storage components, digital media infrastructure, peripherals
and intelligent systems, broad band infrastructure, optical networks, wireless
broadband, e-business software, e-commerce services, e-tailors, e-networking
software, business to business e-commerce enterprise software, semiconductor,
virtual private network, interactive architects, biotech, genomics, combinato-
rial chemistry, ultra high-throughput screening, rational drug design, signal
transduction and gene therapy.
2
<PAGE>

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 mean-
ingfully.

It is possible that in extreme market conditions the fund 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. The fund may also hold these securities pending
investments or when it expects to need cash to pay redeeming shareholders.

The fund's manager may, when consistent with the fund's investment objective,
use options or futures (commonly known as derivatives). 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 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 curren-
cies.

The fund may lend some of its securities on a short-term basis in order to earn
extra income. The fund will receive collateral in cash or high quality securi-
ties equal to the current value of 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 condi-
tions, which means you could lose money.

The fund's focus on stocks in the science and technology sectors makes it more
susceptible to factors affecting those sectors and more volatile than funds
that invest in many different sectors. Therefore, a downturn in the science
and/or technology sectors could hurt the fund's performance to a greater extent
than a more broadly diversified fund. In addition, investing in science and
technology companies exposes the fund to special risks. For example, rapid
advances in science and 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 science and technology
industries are also subject to
3
<PAGE>

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, science and technology companies are
dependent upon consumer and business acceptance as new technologies evolve.

The fund may invest in companies that have relatively small market capitaliza-
tions. These organizations will normally have more limited product lines, mar-
kets and financial resources and will be dependent upon a more limited manage-
ment group than larger capitalized companies. In addition, it is more
difficult to get information on smaller companies, which tend to be less well
known, 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 move-
ments 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 or expropri-
ation 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 less government regulation of foreign securities mar-
kets.

In addition, political and economic structures in emerging market countries
may be undergoing rapid change and these countries may lack the social, polit-
ical and economic stability of more developed countries. As a result some of
the risks described above, including the risks of nationalization or expropri-
ation 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 pro-
duce substantial gains for the fund. However, there is no assurance that the
fund will have access to profitable IPOs.

4
<PAGE>

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 reshape financial markets, banking sys-
tems and monetary policies in Europe and other parts of the world. While it is
impossible to predict the impact of the "Euro," it is possible that it could
increase volatility in financial markets worldwide which could hurt the value
of shares of the fund.

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

The fund's use of derivatives may reduce returns and/or increase volatility.
Volatility is defined as the characteristic of a security or a market to fluc-
tuate significantly in price within a short time period. Forward foreign cur-
rency 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, from time to time, invest more than 25% of its assets in securi-
ties 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 coun-
tries.

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
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 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.

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
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
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.

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* 5.0% 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 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.

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 May , 2001. The fund may
have to repay some of these waivers and reimbursements to BlackRock in the
following two years. See the "Management" section on page 20 for a
discussion of these waivers and reimbursements.
/1/"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 dis-
tribution-related
expenses against fund
assets.

Other Expenses: Include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

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

7
<PAGE>

Fund Management
The fund is co-managed by Thomas Callan and Jean Rosenbaum.

Thomas Callan has been a Managing Director with BlackRock Financial Management,
Inc. (BFM) since 1996 and served as an equity analyst for PNC Bank from 1993-
1996. He has co-managed the fund since its inception.

Jean Rosenbaum has been a Vice President with BFM since 2000, an equity analyst
with BFM since 1997, and served as an equity analyst with PNC Bank from 1994 to
1997. She has co-managed the fund since its inception.

8
<PAGE>

[GRAPHIC] About Your Investment

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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

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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 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 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>

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to the transfer agent with your check. Please call (800) 441-7762 for a pur-
chase 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 immedi-
ately available funds by 4 p.m. (Eastern time) on the third business day fol-
lowing 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

10
<PAGE>

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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 B or Investor C Shares. The fund 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 fees
.Free exchange with other A Shares in BlackRock Funds family
.Advantage: Makes sense for investors who have long-term investment horizon
because ongoing fees are less than for other Investor Share classes.
.Disadvantage: You pay sales charge up-front, and therefore you start off own-
ing 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 from a high of 4.5%.
.Higher ongoing 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 fees than on A Shares each year you own
shares, which means that you can expect lower total performance per share.

11
<PAGE>

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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 fees than A Shares
.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 rel-
ative to A or B Shares.
.Disadvantage: You pay higher ongoing 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 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).

If a shareholder acquiring Investor A Shares on or after May 1, 1998 later
meets the requirements for purchasing Institutional Shares of a fund (other
than due to changes in market value), then the shareholder's Investor A Shares
will automatically be converted to Institutional Shares of the same fund having
the same total net asset value as the shares converted.

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
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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 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.

Purchase of Investor A Shares

13
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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 "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

14
<PAGE>

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

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 rein-
vestment in writing at the time of purchase by the purchaser or his or her reg-
istered 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.

15
<PAGE>

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

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 (see page 26) and redemptions made in con-
nection with certain retirement plans and in connection with certain share-
holder 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 and other fees
for the sale of its shares and for certain services provided to its sharehold-
ers. Under the Plan, Investor Shares pay a fee (distribution fees) to Black-
Rock Distributors, Inc. (the Distributor) or affiliates of PNC Bank for dis-
tribution 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 bro-
kers, dealers, financial institutions and industry professionals (Service
Organizations) for sales support services and related expenses. Investor A
Shares pay a maximum distribution fee of .10% per year of the average daily
net asset value of the fund. Investor B and C Shares pay a maximum of .75% per
year. The Plan also allows the Distributor, PNC Bank affiliates and other com-
panies that receive fees from the Company to make payments relating to distri-
bution and sales support activities out of their past profits or other sourc-
es.

Under the Plan, the Company may enter into arrangements with Service Organiza-
tions (including PNC Bank and its affiliates). Under these arrangements, Serv-
ice 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.

16
<PAGE>

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

In return for that fee, Service Organizations may provide one or more of the
following services:

(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 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 cus-
tomers 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 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.

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 to make sure that 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

18
<PAGE>

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

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 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 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.

- -------------------------------------------------------------------------------
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.
.Postpone date of payment upon redemption if trading is halted or
restricted on the NYSE or under other emergency conditions or as described
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 ini-
tial investment 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' Adviser is BlackRock Advisors, Inc. (BlackRock). BlackRock was
organized in 1994 to perform advisory services for investment companies and is
located at 345

19
<PAGE>

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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 the fund is
responsible for its
day-to-day management
and will generally make
all buy and sell deci-
sions. The sub-adviser
also provides research
and credit analysis.
The sub-adviser for the
fund is BlackRock
Financial Management,
Inc.
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 $164.5 billion of assets under management as
of December 31, 1999. BlackRock, Inc. is a majority-owned subsidiary of PNC
Bank Corp., one of the largest diversified 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 maximum annual advisory fee that can be paid to BlackRock (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>

As discussed above, BlackRock 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 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 May , 2001 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)
BlackRock
continues to be the fund's investment adviser and (3) the Board of Trustees of
the Company has approved the payments to BlackRock on a quarterly basis.
20
<PAGE>

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

In addition, through May , 2001, BlackRock and the Distributor have contractu-
ally agreed to waive distribution and 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 share-
holders 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 sta-
tus 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 Corpo-
rate dividends received deduction.

Use of the exchange privilege will be treated as a taxable event and may be
subject to federal, state and local income tax.

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.

21
<PAGE>

[GRAPHIC] Services for Shareholders

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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 37 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.

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

22
<PAGE>

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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 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. Howev-
er, 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 custo-
dian. For more information about applications or annual fees, please contact
the Distributor at Four Falls Corporate Center, 6th floor, West Conshohocken,
PA 19428-2961. To determine if you are eligible for an IRA and whether an IRA
will benefit you, you should consult with a tax adviser.

Automatic Investment
Plan (AIP)

Retirement Plans

23
<PAGE>

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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.

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 certificates. Shareholders may change or can-
cel 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 redemptions of Investor B or Investor C Shares will not be sub-
ject 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.

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

24
<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 May , 2000 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. 20549-6009.

INVESTMENT COMPANY ACT FILE NO. 811-05742

[LOGO] BlackRock Funds
<PAGE>

Global Science

& Technology

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 37 investment
portfolios.

P R O S P E C T U S

May , 2000
--

[LOGO] BlackRock Funds

[GRAPHIC]

NOT FDIC-INSURED May lose value
No bank guarantee
<PAGE>

Table of
Contents

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

How to find the information you need

<TABLE>
<S> <C>
Global Science & Technology Portfolio....................................... 1
</TABLE>

About Your Investment

<TABLE>
<S> <C>
Buying Shares.............................................................. 6
Selling Shares............................................................. 7
Dividends/Distributions/Taxes.............................................. 11
</TABLE>
<PAGE>

BlackRock
[LOGO] Global Science & Technology
Portfolio

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

IMPORTANT DEFINITIONS

Market Capitalization:
Market capitalization
refers to the market
value of a company and
is calculated by multi-
plying 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 secu-
rities of U.S. and foreign companies selected for their rapid and sustainable
growth potential from the development, advancement and use of science and/or
technology. The fund may also purchase securities of companies outside the
technology and science industries if such companies may benefit from the use of
scientific or technological discoveries and developments. 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 secu-
rities. 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 pur-
chased by qualified institutional buyers. From time to time the fund may invest
in shares of companies through initial public offerings (IPOs).

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

2
<PAGE>

could suffer to the extent it holds an affected company's shares. Companies in
a number of science and technology industries are also subject to more govern-
ment 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, science and technology companies are dependent
upon consumer and business acceptance as new technologies evolve.

The fund may invest in companies that have relatively small market capitaliza-
tions. These organizations will normally have more limited product lines, mar-
kets and financial resources and will be dependent upon a more limited manage-
ment group than larger capitalized companies. In addition, it is more difficult
to get information on smaller companies, which tend to be less well known, do
not have significant ownership by large investors and are followed by rela-
tively few securities analysts. The securities of smaller capitalized companies
are often traded in the over-the-counter markets and may have fewer market mak-
ers 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 or expropria-
tion and more difficulty obtaining information on foreign securities or compa-
nies. 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, politi-
cal 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 mar-
kets, may be increased. The value of many investments in emerging market coun-
tries 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,
3
<PAGE>

there is no assurance that the fund will have access to profitable IPOs.

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

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 quali-
fied institutional buyers become uninterested in purchasing these types of
securities.

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

Securities loans involve the risk of a delay in receiving additional collat-
eral 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 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.
4
<PAGE>

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. 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.

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 May ,
2001. The fund may have to repay some of these waivers and reimbursements to
BlackRock in the following two years. See the "Management" section on page
10 for a discussion of these waivers and reimbursements.
/1/"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 co-managed by Thomas Callan and JeanRosenbaum.

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.
5
<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 ben-
efit 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 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.

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

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

Will You Pay?
6
<PAGE>

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

of trading will be priced based on the next calculation of NAV. Foreign secu-
rities 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 busi-
ness day following PFPC's receipt of the order. Payment may also, at the dis-
cretion 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 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.

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

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 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

7
<PAGE>

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

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 busi-
ness. 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
(other than due to changes in market value), then the shareholder's Institu-
tional 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 con-
version, an institution offering Service Shares of the fund is acting on the
shareholder's behalf, then the shareholder's Institutional Shares will be con-
verted 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.
8
<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
.Postpone date of payment upon redemption if trading is halted or restricted
on the NYSE or under other emergency conditions or as described in the sec-
tion "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
.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

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

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.
The Company's Rights

9
<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 $164.5 billion of assets under man-
agement as of December 31, 1999. BlackRock, Inc. is a majority-owned subsidiary
of PNC Bank Corp., one of the largest diversified 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 maximum annual advisory fee that can be paid to BlackRock (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>

As discussed above, BlackRock has agreed to cap the fund's net expenses at the
levels shown in the fund's 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 May , 2001 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

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.

10
<PAGE>

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

of fees waived or expenses reimbursed under the agreement if: (1) the fund has
more than $50 million in assets, (2) BlackRock continues to be the fund's
investment adviser and (3) the Board of Trustees of the Company has approved
the payments to BlackRock on a quarterly basis.

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

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.

11
<PAGE>

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

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 will be taxed to shareholders as ordinary
income.

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
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 corpo-
rate dividends received deduction.

12
<PAGE>

Statement of Additional Information (SAI)
A Statement of Additional Information dated May --, 2000 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:
8:30 a.m. to 5:30 p.m. (Eastern time), Monday-Friday. Call: (800) 441-7450

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

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. 20549-6009.

INVESTMENT COMPANY ACT FILE NO. 811-05742

[LOGO] BlackRock Funds
<PAGE>

Global Science

& Technology

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 37 investment
portfolios.

P R O S P E C T U S

May , 2000
--

[LOGO] BlackRock Funds

[GRAPHIC]

NOT FDIC-INSURED May lose value
No bank guarantee
<PAGE>

Table of
Contents

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

How to find the information you need

<TABLE>
<S> <C>
Global Science & Technology Portfolio....................................... 1
</TABLE>

About Your Investment

<TABLE>
<S> <C>
Buying Shares.............................................................. 7
Selling Shares............................................................. 10
Dividends/Distributions/Taxes.............................................. 14
</TABLE>
<PAGE>

BlackRock
[LOGO] Global Science & Technology
Portfolio

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

IMPORTANT DEFINITIONS

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

Investment Goal
The fund seeks long-term capital appreciation.

Primary Investment Strategies

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 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 poten-
tial gain from the market upswing, thus reducing the fund's opportunity to
achieve its investment objective. The fund may also hold these securities
pending investments or when it expects to need cash to pay redeeming share-
holders.

The fund's manager may, when consistent with the fund's investment objective,
use options or futures (commonly known as derivatives). 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 invest-
ment or 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 extra income. The fund will receive collateral in cash or high quality
securities equal to the current value of 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

The fund's focus on stocks in the science and technology sectors makes it more
susceptible to factors affecting those sectors and more volatile than funds
that invest in many different sectors. Therefore, a downturn in the science
and/or technology sectors could hurt the fund's performance to a greater
extent than a more broadly diversified fund. In addition, investing in science
and technology companies exposes the fund to special risks. For example, rapid
advances in science and 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 science and technology
industries are also subject to more government regulations and approval
processes than many other industries. This fact may affect a

2
<PAGE>

company's overall profitability and cause its stock price to be more volatile.
Additionally, science and technology companies are dependent upon consumer and
business acceptance as new technologies evolve.

The fund may invest in companies that have relatively small market capitaliza-
tions. These organizations will normally have more limited product lines, mar-
kets and financial resources and will be dependent upon a more limited manage-
ment group than larger capitalized companies. In addition, it is more difficult
to get information on smaller companies, which tend to be less well known, do
not have significant ownership by large investors and are followed by rela-
tively few securities analysts. The securities of smaller capitalized companies
are often traded in the over-the-counter markets and may have fewer market mak-
ers 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 or expropria-
tion and more difficulty obtaining information on foreign securities or compa-
nies. 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 mar-
kets, may be increased. The value of many investments in emerging market coun-
tries 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.

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.
3
<PAGE>

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

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.
4
<PAGE>

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 May ,
2001. The fund may have to repay some of these waivers and reimbursements to
BlackRock in the following two years. See the "Management" section on page
13 for a discussion of these waivers and reimbursements.
/1/"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 co-managed by Thomas Callan and JeanRosenbaum.

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.

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

5
<PAGE>

About Your Investment
[LOGO]

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

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 Directions SM asset allocation program. Service Shares
will normally be held by institutions or in the name of nominees of institu-
tions 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 redemp-
tions 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 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?

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

6
<PAGE>

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

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. For-
eign 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 invest-
ments 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 and other fees
for the sale of its shares and for certain services provided to its sharehold-
ers. 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) (in-
cluding PNC Bank and its affiliates).

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7
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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.

In return for that fee, Service Organizations may provide one or more of the
following services:

(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 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.

8
<PAGE>

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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
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 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
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 custom-
ers 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, Wil-
mington,
9
<PAGE>

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

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 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, 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 eligibil-
ity standards for purchasing Service Shares, then the shareholder's Service
Shares will be converted to Investor A Shares of the same 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 same fund hav-
ing the same total net asset value as the shares converted.
10
<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
.Postpone date of payment upon redemption if trading is halted or
restricted on the NYSE or under other emergency conditions 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
.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 cus-
tomer 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.

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11
<PAGE>

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Market Timing

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

Management

For their investment advisory and sub-advisory services, BlackRock and BFM are
entitled to fees computed daily and payable monthly. The maximum annual advi-
sory fee that can be paid to BlackRock (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>

As discussed above, BlackRock has agreed to cap the fund's net expenses at the
levels shown in the fund's 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 May , 2001 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.

12
<PAGE>

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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)
BlackRock continues to be the fund's investment adviser and (3) the Board of
Trustees of the Company has approved the payments to BlackRock on a quarterly
basis.

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.

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13
<PAGE>

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Taxation of
Distributions

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
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 corpo-
rate dividends received deduction.

14
<PAGE>

Shareholder Account Service Representatives
Representatives are available to discuss account balance information, mutual
fund prospectuses, literature, programs and services available. Hours:
8:30 a.m. to 5:30 p.m. (Eastern time), Monday-Friday. Call: (800) 441-7450

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

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]

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

INVESTMENT COMPANY ACT FILE NO. 811-05742

[LOGO] BlackRock Funds
<PAGE>

BLACKROCK FUNDS(SM)

STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information provides supplementary information
pertaining to shares representing interests in the Global Science & Technology
Portfolio (the "Portfolio") of BlackRock Funds(SM) (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 May __, 2000, 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 May __, 2000.
<PAGE>

TABLE OF CONTENTS
Page

INVESTMENT POLICIES..........................................................1
ADDITIONAL INVESTMENT LIMITATIONS............................................8
TRUSTEES AND OFFICERS........................................................9
SHAREHOLDER AND TRUSTEE LIABILITY OF THE FUND...............................12
INVESTMENT ADVISORY, ADMINISTRATION, DISTRIBUTION AND
SERVICING ARRANGEMENTS.....................................................12
EXPENSES....................................................................16
PORTFOLIO TRANSACTIONS......................................................16
PURCHASE AND REDEMPTION INFORMATION.........................................17
VALUATION OF PORTFOLIO SECURITIES...........................................26
PERFORMANCE INFORMATION.....................................................26
TAXES.......................................................................30
ADDITIONAL INFORMATION CONCERNING SHARES....................................32
MISCELLANEOUS...............................................................33
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.

Additional Information on Investment Strategy

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.

Additional Information on Portfolio Investments

Science and Technology Companies. Companies in the rapidly changing fields of
technology and science 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
technology and science areas 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 industry. 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 technology and science areas 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 these areas. Additionally, companies in these areas 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. In
addition, 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.

The Portfolio's concentration in the securities of science and technology
related companies exposes it to the price movements of companies in one sector
more than a more broadly diversified mutual fund. Because the Portfolio invests
primarily in one 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 technology and science areas 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. For instance, even though
an investment may have been purchased at a time when it represented less than
25% of the portfolio, appreciation may cause that concentration to be
significantly greater than 25% at various times in a rising market.

Foreign Investments. Investing in foreign securities involves considerations
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.

1
<PAGE>

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 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 sub-adviser may need to adapt its 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 (including the "ECU" used in the
European Community) 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 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.

2
<PAGE>

Second, when the Portfolio's adviser or sub-adviser anticipates 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 Adviser 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 may 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, 33 1/3% of the value of its total assets.
Whenever borrowings exceed 5% of the Portfolio's total assets, the Portfolio
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

3
<PAGE>

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 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 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 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 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

4
<PAGE>

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 or sub-adviser. The Portfolio's adviser
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 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 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. 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.

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.

5
<PAGE>

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 the yield differential between two
securities, 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. 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). 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.

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 sub-adviser's 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.

6
<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 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

7
<PAGE>

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 or sub-adviser will consider
such an event in determining whether the Portfolio should continue to hold the
security.

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 sub-adviser
determines that market conditions warrant, the Portfolio may invest without
limitation in high quality money market instruments. 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 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.

Portfolio Turnover Rates. The Portfolio's annual portfolio turnover rate will
not be a factor preventing a sale or purchase when the adviser or sub-adviser
believes 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").

8
<PAGE>

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. 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.

3. 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.

4. 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.

5. 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.

6. Write or sell put options, call options, straddles, spreads, or any
combination thereof, except for transactions in options on securities,
securities indices, futures contracts and options on futures contracts.

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

8. 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.

9. 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.

10. 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.

11. 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:

9
<PAGE>

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

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

Anthony M. Santomero Vice Chairman of Deputy Dean from 1990 to 1994, Richard K. Mellon
The Wharton School the Board Professor of Finance since April 1984, Director,
University of Pennsylvania Wharton Financial Institutions Center since July
Room 2344 1995, and Dean's Advisory Council Member since
Steinberg Hall-Dietrich Hall July 1984, The Wharton School, University of
Philadelphia, Pennsylvania; Member of Financial Economists
PA 19104-6367 Roundtable since January 1997; Co-editor,
Age: 53 Brookings-Wharton Papers on Financial Services
since January 1997; Associate Editor, Journal of
Banking and Finance since June 1978; Associate
Editor, Journal of Economics and Business since
October 1979; Associate Editor, Journal of Money,
Credit and Banking since

</TABLE>

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

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

10
<PAGE>

<TABLE>
<CAPTION>
Principal Occupation
Name and Address Position with Fund During Past Five Years
- ---------------- ------------------ ----------------------
<S> <C> <C>
January 1980; Editorial Advisory Board, Open
Economics Review since November 1990; Director,
The Zweig Fund and The Zweig Total Return Fund.

David R. Wilmerding, Jr. Chairman of the Chairman, Gee, Wilmerding & Associates, Inc.
One Aldwyn Center Board (investment advisers) since February 1989;
Villanova, PA 19085 Director, Beaver Management Corporation (land
Age: 64 management 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.

Karen H. Sabath Assistant Secretary Managing Director, BlackRock Advisors, Inc. since
BlackRock Advisors, Inc. February 1998; President, Compass Capital Group,
345 Park Avenue Inc. from 1995 to March 1998; Managing Director
New York, NY 10154 of BlackRock Financial Management, Inc. since
Age: 34 1993; prior to 1993, Vice President of BlackRock
Financial Management, Inc.

Ellen L. Corson Assistant Treasurer Vice President and Director of Mutual Fund
PFPC Inc. Accounting and Administration, PFPC Inc. since
103 Bellevue Parkway November 1997; Assistant Vice President, PFPC
Wilmington, DE 19809 Inc. from March 1997 to November 1997; Senior
Age: 35 Accounting Officer, PFPC Inc. from March 1993 to
March 1997.

Brian P. Kindelan Secretary Vice President and Senior Counsel, BlackRock
BlackRock Financial Financial Management, Inc. since April 1998;
Management, Inc. Senior Counsel, PNC Bank Corp. from May 1995 to
1600 Market Street April 1998; Associate, Stradley, Ronon, Stevens &
28th Fl. 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:

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<PAGE>

Pension or Total Compensation
Aggregate Retirement Benefits Estimated from Registrant and
Compensation Accrued as Part Annual Benefits Fund Complex1
Name of Person, Position from Registrant of Fund Expenses upon Retirement Paid to Trustees
- ------------------------ ----------------- ----------------- --------------- -------------------
<S> <C> <C> <C> <C>
Anthony M. Santomero, Vice $77,850 N/A N/A (3)2 $84,850
Chairman of the Board

David R. Wilmerding, Jr., $82,850 N/A N/A (3)2 $98,850
Chairman of the Board

William O. Albertini, Trustee $72,850 N/A N/A (1)2 $72,850

Raymond J. Clark, Trustee $72,850 N/A N/A (1)2 $72,850

Robert M. Hernandez, Trustee $72,850 N/A N/A (1)2 $72,850
</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.

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 and Sub-Advisory Agreements. The advisory and sub-advisory services
provided by BlackRock and BFM, and the fees received for such services, are
described in the Prospectuses.

For their advisory and subadvisory services, BlackRock and BFM are entitled to
fees, computed daily on the Portfolio-by-portfolio basis and payable monthly, at
the maximum annual rates set forth below.

Maximum Annual Contractual Fee Rate
(Before Waivers)

Average Daily Net Assets Investment Sub-Advisory
Advisory Fee Fee to BFM

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<PAGE>

first $1 billion
$1 billion ---- $2 billion
$2 billion ---- $3 billion
greater than $3 billion

Under the Advisory Contracts, 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 Contracts. Under
the Advisory Contracts, 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. Each of the Advisory Contracts 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 as the
case may be. 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, .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

13
<PAGE>

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 Four Falls Corporate Center, 6th Floor, West
Conshohocken, PA 19428-2961.

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.

14
<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 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

15
<PAGE>

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.

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 adviser and sub-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 adviser and sub-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 adviser and sub-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 adviser's 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 sub-advisers under their respective
contracts. 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 or sub-adviser determines in good faith that such
commission is reasonable in terms either of the transaction or the overall
responsibility of the adviser or sub-adviser to the Portfolio and its 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 will not be reduced as a consequence
of the adviser's or sub-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 adviser or sub-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 adviser and sub-advisers in carrying out their obligations to
the Portfolio. While such services are not expected to reduce the expenses of
the adviser or sub-advisers, the advisers 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 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

16
<PAGE>

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 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.

Investment decisions for the Portfolio and for other investment accounts
managed by the adviser 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, sub-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 period described above, 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.

17
<PAGE>

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 Four Falls Corporate Center, 6th Floor, West Conshohocken, PA 19428-2961.
Purchases may be effected on weekdays on which the New York Stock Exchange is
open for business (a "Business 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, 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.

In the event that a shareholder acquiring Investor A Shares on or after May 1,
1998 at a future date meets the eligibility standards for purchasing
Institutional Shares (other than due to fluctuations in market value), then the
shareholders Investor A Shares will, upon the direction of the Fund's
distributor, automatically be converted to Institutional Shares of the Portfolio
having the same aggregate net asset value as the shares converted.

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

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<PAGE>

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

(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, sub-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 (and their
spouses and minor children); (b) employees and retirees (and their spouses and
minor children); (c) registered representatives of brokers who have entered into
selling agreements with the Distributor; (d) spouses or children of such
persons; 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

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<PAGE>

(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.

Reinvestment Privilege. Upon redemption of Investor A Shares (or Investor A
Shares of another Non-Money Market Portfolio of the Fund), a shareholder has a
one-time right, to be exercised within 60 days, to reinvest the redemption
proceeds without any sales charges. PFPC must be notified of the reinvestment in
writing by the purchaser, or by his or her broker, at the time purchase is made
in order to eliminate a sales charge. An investor should consult a tax adviser
concerning the tax consequences of use of the reinvestment privilege.

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 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

20
<PAGE>

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 Non-Money Market 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:

(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

21
<PAGE>

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 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 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 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, three times a year, 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.

22
<PAGE>

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.

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

23
<PAGE>

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.

Service Shares

Purchase of Shares. Purchase orders for the Portfolio may be placed by
telephoning PFPC at (800) 441-7450 no later than 12:00 noon (Eastern Time) on a
Business Day. Orders received before 12:00 noon (Eastern Time) will be executed
at 12:00 noon (Eastern Time). If payment for such orders is not received by 4:00
p.m. (Eastern Time), the order will be canceled and notice thereof will be given
to the Institution placing the order. Orders received after 12:00 noon (Eastern
Time) will not be accepted.

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 12:00 noon (Eastern Time) on a Business Day is
normally made in Federal funds wired to the redeeming Institution on the same
Business Day, provided that the fund's custodian is also open for business.
Payment for redemption orders received between 12:00 noon (Eastern Time) and
4:00 p.m. (Eastern Time) or on a day when the Fund's custodian is closed is
normally wired in Federal funds

24
<PAGE>

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.

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. 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.

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<PAGE>

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 investment adviser and/or sub-adviser
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 adviser and/or sub-adviser 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:

26
<PAGE>

ERV 1/n
T = [(-----) - 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 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 an Equity or Bond 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

27
<PAGE>

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
their 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
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

28
<PAGE>

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-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 adviser
and sub-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
adviser and/or portfolio manager for the Portfolio.

29
<PAGE>

TAXES

The following is only a summary of certain additional tax considerations
generally affecting the Portfolio and their 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, 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.

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<PAGE>

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-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

31
<PAGE>

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. 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.

32
<PAGE>

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 Funds(SM) to BlackRock Funds(SM).

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 May __, 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 PNC Bank Corp., 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.

33
<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.

"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.

A-1
<PAGE>

"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."

"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.

A-2
<PAGE>

"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 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.

A-3
<PAGE>

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
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.

A-4
<PAGE>

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.

"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.

A-5
<PAGE>

"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.

"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-6
<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 also anticipates 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).

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

B-1
<PAGE>

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 anticipates 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
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.

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

B-2
<PAGE>

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. 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. 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 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 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's
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

B-3
<PAGE>

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)
<PAGE>

of Post-Effective Amendment No. 33 to Registrant's Registration
Statement on Form N-1A filed on January 27, 1998; 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
<PAGE>

Income, Tax-Free Income, Intermediate 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>

(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 Income Portfolios
is incorporated herein by reference to Exhibit (5)(r) of Post-
Effective
<PAGE>

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 to be filed by amendment.

(w) Form of Sub-Advisory Agreement between BlackRock Advisors, Inc.
and BlackRock Financial Management, Inc. with respect to the
Global Science & Technology Portfolio to be filed by amendment.

(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. is incorporated herein by
reference to Exhibit 5(b) of Post-Effective Amendment No. 45 to
Registrant's Registration Statement on Form N-1A filed on August
24, 1999.
<PAGE>

(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.

(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 is incorporated herein by reference to Exhibit
7(d) of Post-Effective Amendment No. 42 to Registrant's
Registration Statement on Form N-1A filed on June 11, 1999.

(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
<PAGE>

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.

(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. are
incorporated herein by reference to Exhibit 8(b) of Post-
Effective Amendment No. 44 to Registrant's Registration Statement
on Form N-1A filed on August 11, 1999.

(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
<PAGE>

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,
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. is incorporated herein by reference to
Exhibit 8(h) of Post-Effective Amendment No. 42 to Registrant's
Registration Statement on Form N-1A filed on June 11, 1999.

(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
<PAGE>

Registrant's Registration Statement on Form N-1A filed on January
28, 1999.

(9) Legal Opinion

(a) Opinion of Counsel to be filed by amendment.

(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
<PAGE>

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 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
to be filed by amendment.

(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 is incorporated herein by reference to Exhibit 13(b)
of Post-Effective Amendment No. 44 to Registrant's Registration
Statement on Form N-1A filed on August 11, 1999.

(14) Intentionally Omitted.

(15) Rule 18f-3 Plan

(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.

(99) (a) Power of Attorney of David R. Wilmerding dated March 5, 1996
appointing David R. Wilmerding, Raymond J. Clark and Karen H.
Sabath as attorneys and agents is incorporated herein by
reference to such Power of Attorney filed in Post-Effective
Amendment No. 28 to Registrant's Registration Statement on form
N-1A filed on February 18, 1997.

(b) Power of Attorney of William O. Albertini dated March 5, 1996
appointing David R. Wilmerding, Raymond J. Clark and Karen H.
Sabath as attorneys and agents is incorporated herein by
reference to such Power
<PAGE>

of Attorney filed in Post-Effective Amendment No. 28 to
Registrant's Registration Statement on form N-1A filed on
February 18, 1997.

(c) Power of Attorney of Raymond J. Clark dated March 5, 1996
appointing David R. Wilmerding, Raymond J. Clark and Karen H.
Sabath as attorneys and agents is incorporated herein by
reference to such Power of Attorney filed in Post-Effective
Amendment No. 28 to Registrant's Registration Statement on form
N-1A filed on February 18, 1997.

(d) Power of Attorney of Robert M. Hernandez dated March 5, 1996
appointing David R. Wilmerding, Raymond J. Clark and Karen H.
Sabath as attorneys and agents is incorporated herein by
reference to such Power of Attorney filed in Post-Effective
Amendment No. 28 to Registrant's Registration Statement on form
N-1A filed on February 18, 1997.

(e) Power of Attorney of Anthony M. Santomero dated March 5, 1996
appointing David R. Wilmerding, Raymond J. Clark and Karen H.
Sabath as attorneys and agents is incorporated herein by
reference to such Power of Attorney filed in Post-Effective
Amendment No. 28 to Registrant's Registration Statement on form
N-1A filed on February 18, 1997.

Item 24. Persons Controlled by or under Common Control with the Fund.

None.

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
<PAGE>

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.

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
<PAGE>

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).

(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).
<PAGE>

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).

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).
<PAGE>

(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 15th day of February, 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:

Signature Title Date
--------- ----- ----

/s/ Raymond J. Clark Trustee, President and
- --------------------------
(Raymond J. Clark) Treasurer February 15, 2000

*David R. Wilmerding, Jr. Chairman of the Board February 15, 2000
- -------------------------
(David R. Wilmerding, Jr.)

*Anthony M. Santomero Vice-Chairman of the Board February 15, 2000
- -------------------------
(Anthony M. Santomero)

*William O. Albertini Trustee February 15, 2000
- -------------------------
(William O. Albertini)

*Robert M. Hernandez Trustee February 15, 2000
- -------------------------
(Robert M. Hernandez)

*By: /s/ Karen H. Sabath
------------------------------------------
Karen H. Sabath, Attorney-in-fact