BLACKROCK FUNDS^SM

STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information provides supplementary information pertaining to shares representing interests in the Money Market, U.S. Treasury Money Market, Municipal Money Market, New Jersey Municipal Money Market, North Carolina Municipal Money Market, Ohio Municipal Money Market, Pennsylvania Municipal Money Market, Virginia Municipal Money Market, Large Cap Value Equity, Large Cap Growth Equity, Mid-Cap Value Equity, Mid-Cap Growth Equity, Small Cap Value Equity, Small Cap Core Equity, Small Cap Growth Equity, Global Science & Technology Opportunities, International Opportunities, Investment Trust (formerly, Select Equity), Index Equity, Asset Allocation (formerly, Balanced), U.S. Opportunities, Dividend Achievers^TM, Exchange, Small/Mid-Cap Growth, Aurora, Legacy, Health Sciences, Global Resources, All-Cap Global Resources, Low Duration Bond, Intermediate Government Bond, Intermediate Bond, Core Bond Total Return, Core PLUS Total Return, Government Income, GNMA, Managed Income, International Bond, High Yield Bond, Intermediate PLUS Bond, Inflation Protected Bond, Tax-Free Income, Delaware Tax-Free Income, Ohio Tax-Free Income, Kentucky Tax-Free Income, New Jersey Tax-Free Income, Pennsylvania Tax-Free Income, Enhanced Income and UltraShort Municipal Portfolios (collectively, the “Portfolios”) of BlackRock Funds^SM (the “Fund”). The Money Market, U.S. Treasury Money Market, Municipal Money Market, New Jersey Municipal Money Market, North Carolina Municipal Money Market, Ohio Municipal Money Market, Pennsylvania Municipal Money Market and Virginia Municipal Money Market Portfolios are called “Money Market Portfolios,” the Municipal Money Market, New Jersey Municipal Money Market, North Carolina Municipal Money Market, Ohio Municipal Money Market, Pennsylvania Municipal Money Market and Virginia Municipal Money Market Portfolios are called “Municipal Money Market Portfolios,” the New Jersey Municipal Money Market, North Carolina Municipal Money Market, Ohio Municipal Money Market, Pennsylvania Municipal Money Market and Virginia Municipal Money Market Portfolios are called the “State-Specific Municipal Portfolios”, the Large Cap Value Equity, Large Cap Growth Equity, Mid-Cap Value Equity, Mid-Cap Growth Equity, Small Cap Value Equity, Small Cap Core Equity, Small Cap Growth Equity, Global Science & Technology Opportunities, International Opportunities, Investment Trust, Index Equity, Asset Allocation, U.S. Opportunities, Dividend Achievers^TM, Exchange, Small/Mid-Cap Growth, Aurora, Legacy, Health Sciences, Global Resources and All-Cap Global Resources Portfolios are called “Equity Portfolios” and the Low Duration Bond, Intermediate Government Bond, Intermediate Bond, Core Bond Total Return, Core PLUS Total Return, Government Income, GNMA, Managed Income, International Bond, High Yield Bond, Intermediate PLUS Bond, Inflation Protected Bond, Tax-Free Income, Delaware Tax-Free Income, Ohio Tax-Free Income, Kentucky Tax-Free Income, New Jersey Tax-Free Income, Pennsylvania Tax-Free Income, Enhanced Income and UltraShort Municipal Portfolios are called “Bond Portfolios.” The Equity Portfolios and the Bond Portfolios are also called “Non-Money Market Portfolios.” The Tax-Free Income, Delaware Tax-Free Income, Ohio Tax-Free Income, Kentucky Tax-Free Income, New Jersey Tax-Free Income and Pennsylvania Tax-Free Income Portfolios are called “Tax-Free Portfolios.” The Delaware Tax-Free Income, Ohio Tax-Free Income, Kentucky Tax-Free Income, New Jersey Tax-Free Income and Pennsylvania Tax-Free Income Portfolios are called “State-Specific Tax-Free Portfolios.” This Statement of Additional Information is not a prospectus, and should be read only in conjunction with the Prospectuses of the Fund dated January 31, 2005, each as amended from time to time (the “Prospectuses”). Certain information contained in the Fund’s and The U.S. Large Company Series of The DFA Investment Trust Company’s annual and semi-annual reports to shareholders is incorporated by reference herein. Prospectuses and current shareholder reports of the Fund may be obtained at no charge by calling toll-free (800) 441-7762. This Statement of Additional Information is dated January 31, 2005.

TABLE OF CONTENTS

	Page
INVESTMENT POLICIES	1
SPECIAL CONSIDERATIONS FOR STATE-SPECIFIC PORTFOLIOS	35
ADDITIONAL INVESTMENT LIMITATIONS	74
TRUSTEES AND OFFICERS	80
THE FUND	80
THE TRUST	87
SHAREHOLDER AND TRUSTEE LIABILITY OF THE FUND	95
INVESTMENT ADVISORY, ADMINISTRATION, DISTRIBUTION AND SERVICING ARRANGEMENTS	95
EXPENSES	121
PORTFOLIO TRANSACTIONS	121
PURCHASE AND REDEMPTION INFORMATION	130
VALUATION OF PORTFOLIO SECURITIES	148
PERFORMANCE INFORMATION	151
TAXES	195
ADDITIONAL INFORMATION CONCERNING SHARES	205
MISCELLANEOUS	206
FINANCIAL STATEMENTS	219
APPENDIX A	A-1
APPENDIX B	B-1
APPENDIX C	C-1

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INVESTMENT POLICIES

The following supplements information contained in the Prospectuses concerning the Portfolios’ investment policies. To the extent that an investment strategy is discussed in this Statement of Additional Information but not in the Prospectuses, such strategy is not a principal strategy of the Portfolios. Except as indicated, the information below relates only to those Portfolios that are authorized to invest in the instruments or securities described below.

The Index Equity Portfolio invests all of its investable assets in The U.S. Large Company Series (the “Index Master Portfolio”) of The DFA Investment Trust Company (the “Trust”). Accordingly, the following discussion relates to: (i) the investment policies of all the Portfolios including the Index Equity Portfolio; and (ii) where indicated, the investment policies of the Index Master Portfolio.

The Portfolios (other than the Tax-Free Portfolios, the UltraShort Municipal Portfolio and the Municipal Money Market Portfolios) that are subject to Rule 35d-1 under the Investment Company Act of 1940, as amended (the “1940 Act”), will not change their investment policies required by that Rule without giving shareholders 60 days prior written notice.

Additional Information on Investment Strategies

Equity Portfolios. 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; general and limited partnerships and limited liability companies; and depositary receipts.

The Global Science & Technology Opportunities Portfolio may invest more than 25% of its total assets in any one industry or industries included in the science and/or technology sectors (as defined in its Prospectuses). This would expose the Global Science & Technology Opportunities Portfolio to the risks of that industry or industries to a greater extent than a mutual fund that did not so concentrate its investments.

From time to time each of the Equity Portfolios may invest in shares of companies through initial public offerings (IPOs). IPOs have the potential to produce, and have in fact produced, substantial gains for certain Portfolios. There is no assurance that any Portfolio will have continued access to profitable IPOs and therefore investors should not rely on these past gains as an indication of future performance. The investment performance of a Portfolio during periods when it is unable to invest significantly or at all in IPOs may be lower than during periods when it is able to do so. In addition, as a Portfolio increases in size, the impact of IPOs on its performance will generally decrease. Securities issued in IPOs are subject to many of the same risks as investing in companies with smaller market capitalizations. Securities issued in IPOs have no trading history, and information about the companies may be available for very limited periods. In addition, the prices of securities sold in IPOs may be highly volatile or may decline shortly after the initial public offering.

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

Index Equity and Index Master Portfolios. During normal market conditions, the Index Master Portfolio (in which all of the assets of the Index Equity Portfolio are invested) invests at least 95% of the value of its total assets in securities included in the Standard & Poor’s 500^® Composite Stock Price Index (the “S&P 500^® Index”)¹.

¹ “Standard & Poor’s”, “S&P”, “S&P500®”, “Standard & Poor’s 500®” and “500” are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by the Fund and The DFA Investment Trust Company.

The Index Master Portfolio intends to invest in all of the stocks that comprise the S&P 500^® Index in approximately the same proportions as they are represented in the Index. The Index Master Portfolio operates as an index portfolio and, therefore, is not actively managed (through the use of economic, financial or market analysis). Adverse performance will ordinarily not result in the elimination of a stock from the Index Master Portfolio. The Index Master Portfolio will remain fully invested in common stocks even when stock prices are generally falling. Ordinarily, portfolio securities will not be sold except to reflect additions or deletions of the stocks that comprise the S&P 500^® Index, including mergers, reorganizations and similar transactions and, to the extent necessary, to provide cash to pay redemptions of the Index Master Portfolio’s shares. The investment performance of the Index Master Portfolio and the Index Equity Portfolio is each expected to approximate the investment performance of the S&P 500^® Index, which tends to be cyclical in nature, reflecting periods when stock prices generally rise or fall. As a non-fundamental policy, under normal circumstances, the Index Master Portfolio will invest at least 80% of its net assets in securities of large U.S. companies. If the Index Master Portfolio changes this investment policy, the Index Master Portfolio will notify its shareholders at least 60 days in advance of the change and will change its name.

Neither the Index Equity Portfolio nor the Index Master Portfolio are sponsored, endorsed, sold or promoted by S&P. S&P makes no representation or warranty, express or implied, to the owners of the Index Equity Portfolio or the Index Master Portfolio or any member of the public regarding the advisability of investing in securities generally or in the Index Equity Portfolio or the Index Master Portfolio particularly or the ability of the S&P 500^® Index to track general stock market performance. S&P’s only relationship to the Index Equity Portfolio and the Index Master Portfolio is the licensing of certain trademarks and trade names of S&P and of the S&P 500^® Index which is determined, composed and calculated by S&P without regard to the Index Equity Portfolio or the Index Master Portfolio. S&P has no obligation to take the needs of the Index Equity Portfolio or the Index Master Portfolio or their respective owners into consideration in determining, composing or calculating the S&P 500^® Index. S&P is not responsible for and has not participated in the determination of the prices and amount of the Index Equity Portfolio or the Index Master Portfolio or the timing of the issuance or sale of the Index Equity Portfolio or the Index Master Portfolio or in the determination or calculation of the equation by which the Index Equity Portfolio or the Index Master Portfolio is to be converted into cash. S&P has no obligation or liability in connection with the administration, marketing or trading of the Index Equity Portfolio or Index Master Portfolio.

S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500^® INDEX OR ANY DATA INCLUDED THEREIN, AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEES, OWNERS OF THE PRODUCT, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500^® INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500^® INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

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 Global Science & Technology Opportunities 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 sector. As such, the Portfolio is not an appropriate investment for individuals who are not long-term investors and who, as their primary objective, require safety of principal or stable income from their investments. The 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.

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The Global Science & Technology Opportunities Portfolio’s concentration in the securities of science and technology related companies exposes it to the price movements of companies in those sectors more than a mutual fund that invests in many sectors. Because the Portfolio invests primarily in the science and technology sectors, there is the risk that the Portfolio will perform poorly during a downturn in one or both of those sectors. Funds that concentrate investments in a small number of sectors 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.

Asset Allocation Portfolio. Fixed income securities purchased by the Asset Allocation Portfolio may include domestic, dollar-denominated non-U.S. and non-dollar denominated non-U.S. debt securities, including bonds, debentures, notes, equipment lease and trust certificates, mortgage-related and asset-backed securities, guaranteed investment contracts (GICs), obligations issued or guaranteed by the U.S. Government or its agencies or instrumentalities and state and local municipal obligations. These securities will be rated “B” or higher at the time of purchase by Moody’s Investors Service, Inc. (“Moody’s”), Standard & Poor’s Ratings Group (“S&P”) or another nationally recognized statistical rating organization. If unrated, the securities will be determined at the time of purchase to be of comparable quality by the Portfolio’s sub-adviser.

The Asset Allocation Portfolio may also purchase zero-coupon bonds (i.e., discount debt obligations that do not make periodic interest payments) and state and local government obligations. Zero-coupon bonds are subject to greater market fluctuations from changing interest rates than debt obligations of comparable maturities which make current distributions of interest. Dividends paid by the Asset Allocation Portfolio that are derived from interest on municipal obligations will be taxable to shareholders.

Dividend Achievers^™ Portfolio. The Portfolio seeks to achieve its investment goal by investing at least 80% of its assets in common stocks included in the universe of common stocks which Mergent^®, a recognized provider of financial information, has identified as Dividend Achievers^™. Since 1979, Mergent^® has tracked companies that have consistent records of dividend increases. To qualify for the Dividend Achievers^™ universe, an issuer must have raised its annual regular cash dividend on a pre-tax basis for at least each the last ten consecutive years. These issuers are also subject to additional screening criteria applied by Mergent^® such as liquidity, asset size and number of shareholders. For more information, see Appendix C.

The Portfolio will be constructed from a broad universe of stocks that BlackRock Advisors, Inc. (“BlackRock”) believes to be value stocks and all stocks in the Dividend Achiever^™ universe. BlackRock screens these issuers utilizing BlackRock’s proprietary Quantitative Equity Model, which uses earnings momentum and valuation factors to rank stocks within a sector and industry based upon their expected return, to continuously evaluate Portfolio holdings. The earnings momentum factors attempt to capture the breadth and magnitude of changes to forecasted earnings expectations. The valuation factors attempt to measure each stock’s relative attractiveness to its sector peers based on fundamental measures of valuation.

BlackRock will consider the relative yield of a stock at the time of purchase. The Portfolio will seek to generate a gross yield in excess of the Russell 1000 Value Index. Achieving this objective will result in a portfolio that is overweight in certain market sectors relative to the Russell 1000 Value Index.

Overall, the Portfolio will be constructed with consideration of the characteristics of the Russell 1000 Value Index, such as style, sector, industry, capitalization and volatility. The Portfolio may invest up to 20% of its assets in common stocks of issuers that are not included in the Dividend Achievers^™ universe, and in fixed income securities when, in the opinion of the Portfolio management team, it is advantageous for the Portfolio to do so.

Seeking to achieve optimal risk/return tradeoff, the management team rebalances the Portfolio regularly. The team assesses each stock’s changing characteristics relative to its contribution to risk and yield. An issuer may be removed from the Portfolio if the management team believes that (1) the issuer has experienced or is expected to

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experience a fundamental change (e.g. bankruptcy, insolvency, or change in management) that renders it unsuitable for the Portfolio, or (2) an issuer’s rank, as determined by the investment model, has declined and the issuer is no longer considered to be an attractive investment relative to its peers, or (3) such removal presents the opportunity to manage the distribution of income or tax liability of the Portfolio. Changes in market price in a security may be a factor in removing a name from the Portfolio, but will not be the sole deciding factor.

While the Portfolio’s management team evaluates the Portfolio’s investments on a continuous basis, there will be at least two events that may initiate portfolio repositioning. Mergent^® annually (typically on or about January 31^st) reconstitutes the Dividend Achievers^™ universe and may add or delete certain issuers. Similarly, Russell annually (typically on or about June 30^th) reconstitutes the Russell 1000 Value Index and may add or delete issuers and change the sector weightings. Based upon these adjustments, the management team may choose to make changes to the portfolio composition. However, if the management team determines that it is inefficient or disadvantageous for the Portfolio to sell stock for tax or other reasons, the Portfolio will retain the stock subject to the Portfolio’s non-fundamental policy of investing 80% of its assets in stocks included in the Dividend Achievers^™ universe.

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; general and limited partnerships and limited liability companies; and depositary receipts. The Portfolio intends to invest primarily in common stocks. Common stock generally represents an equity ownership interest in an issuer. Although common stocks have historically generated higher average total returns than fixed-income securities over the long term, common stocks also have experienced significantly more volatility in those returns and have significantly under performed relative to fixed-income securities during certain periods. An adverse event, such as an unfavorable earnings report, may depress the value of a particular common stock held by the Portfolio. Also, prices of common stocks are sensitive to general movements in the stock market and a drop in the stock market may depress the price of common stocks to which the Portfolio has exposure. Common stock prices fluctuate for several reasons including changes in investors’ perceptions of the financial condition of an issuer or the general condition of the relevant stock market, or when political or economic events affecting the issuers occur. In addition, common stock prices may be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase.

An investment in the Portfolio’s shares is subject to investment risk, including the possible loss of the entire amount that you invest. Your investment in shares represents an indirect investment in the securities owned by the Portfolio, substantially all of which are traded on a national securities exchange or in the over-the-counter markets. The value of these securities, like other market investments, may move up or down, sometimes rapidly and unpredictably. Although the Portfolio can sell stocks of an issuer included in the Dividend Achievers^™ universe upon the occurrence of certain events or for tax planning as described herein, the Portfolio generally will not sell stocks of issuers solely due to changes in market price. Your shares at any point in time may be worth less than your original investment, even after taking into account the reinvestment of Portfolio dividends and distributions.

The Portfolio may, from time to time, invest a substantial portion of its assets in the securities of issuers in any single industry or sector of the economy if the companies selected through application of the Portfolio’s investment strategy result in such a focus. The Portfolio cannot predict the industries or sectors in which its investment strategy may cause it to focus. If the Portfolio invests heavily in an industry or sector, it may present more risks than if it were broadly diversified over numerous industries and sectors of the economy. A downturn in an industry or sector in which the Portfolio is invested would have a larger impact on the Portfolio than on an investment company that does not focus on such industry or sector.

The Portfolio may invest a significant portion of its assets in the financial services sector, which investments include the following risks:

(i) regulatory actions - financial services companies may suffer a setback if regulators change the rules under which they operate;

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(ii) changes in interest rates - unstable interest rates can have a disproportionate effect on the financial services sector;

(iii) concentration of loans - financial services companies whose securities the Portfolio may purchase may themselves have concentrated portfolios, such as a high level of loans to real estate developers, which makes them vulnerable to economic conditions that affect that sector; and

(iv) competition - financial services companies have been affected by increased competition, which could adversely affect the profitability or viability of such companies.

The Portfolio has been granted a revocable license by Mergent^® to use the Dividend Achievers^™ universe of common stocks. If Mergent^® revokes the Portfolio’s license to use the Dividend Achievers^™ universe, the board of trustees of the Portfolio may need to adopt a new investment goal and/or new investment strategies for the Portfolio. There is no assurance that the Portfolio would pursue or achieve its investment goal during the period in which it implements these replacement strategies. In addition, the Portfolio is not an index fund, so the performance of the Portfolio will differ from the composite performance of the Dividend Achievers^™ universe of stocks as a whole for various reasons, including the fact that: (i) the Portfolio will invest in a limited number of stocks included in the Dividend Achievers^™ universe of common stocks; (ii) the weightings of the common stocks in the Portfolio will be different than the weightings of the common stocks in the Dividend Achievers^™ universe; (iii) BlackRock may invest up to 20% of the Portfolio’s assets in common stocks that are not included in the Dividend Achievers^™ universe; (iv) there may be delays between the time changes to the composition of the Dividend Achievers^™ universe are announced by Mergent^® and the time the Portfolio is able to make such changes in its portfolio; and (v) unlike the Dividend Achievers^™ universe of stocks, shares of the Portfolio may have a sales charge and will have ongoing operating expenses and transaction costs. At times, the segment of the equity markets represented by the Dividend Achievers^™ universe (i.e., high dividend paying stocks) may be out of favor and underperform other segments (e.g., growth stocks).

Dividends on common stocks are not fixed but are declared at the discretion of an issuer’s board of directors. There is no guarantee that the issuers of the common stocks in which the Portfolio invests will declare dividends in the future or that if declared they will remain at current levels or increase over time. As described further in “Taxes,” “qualified dividend income” received by the Portfolio will generally be eligible for the reduced tax rate applicable to such dividends under the recently enacted the “Jobs and Growth Tax Relief Reconciliation Act of 2003” (the “Tax Act”). Unless subsequent legislation is enacted, the reduction to tax rates as set forth in the Tax Act will expire for taxable years beginning on or after January 1, 2009. Dividends received by the Portfolio from Real Estate Investment Trust (“REIT”) shares and certain foreign securities, if any, generally will not constitute “qualified dividend income” eligible for the reduced tax rate applicable to “qualified dividend income” and therefore it is possible that, depending upon the composition of the stocks in the Portfolio, a portion of the Portfolio’s distributions will not constitute qualifying dividends eligible for the reduced tax rate. A portion of the Portfolio’s dividends may be a return of capital which may, under certain circumstances, have certain adverse consequences to the Portfolio and its shareholders.

Health Sciences Portfolio. A variety of important factors are influencing the health sciences and related industries in significant ways. The aging of the overall population, and a focus on good health and prevention of illness, as well as increased attention to the diagnosis of diseases and deficiencies, have generated growth in the health science field.

Technological advances in the development of drugs, medical devices and procedures, and genetic engineering, have similarly fostered growth in the health care area. The focus of consumers and regulators on health care costs, managed health care programs, health maintenance organizations, and other service delivery arrangements have driven the industries further.

At the same time, these forces have heightened the difficulty of investing in health sciences companies. Shifts in consumer attitudes or regulatory policy, or new medical or technological developments, can have a substantial positive or negative effect on a company’s business. Changes in the financial infrastructure for health sciences may also affect the companies. For example, changes in Medicare/Medicaid and private insurance coverage, as well as the consolidation or break-up of individual companies themselves, influence the overall business prospects of the health sciences sector.

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Global Resources and All-Cap Global Resources Portfolios. Each Portfolio’s investments will be concentrated in energy and natural resources companies. Because each Portfolio is concentrated in these companies, it may present more risks than if it were broadly diversified over numerous industries and sectors of the economy. A downturn in the energy and natural resources industry would have a larger impact on the Portfolio than on an investment company that does not concentrate in such companies. Energy companies can be significantly affected by the supply of and demand for specific products and services, the supply and demand for oil and gas, the price of oil and gas, exploration and production spending, government regulation, world events and economic conditions. Natural resource companies can be significantly affecting by events relating to international political developments, energy conservation, the success of exploration projects, commodity prices, and tax and government regulations. At times, the performance of securities of energy and natural resources companies will lag the performance of other industries or the broader market as a whole.

Other risks inherent in investing in energy and natural resources companies include:

Supply and Demand Risk. A decrease in the production of natural gas, natural gas liquids (“NGLs”), crude oil, coal or other energy commodities or a decrease in the volume of such commodities available for transportation, mining, processing, storage or distribution may adversely impact the financial performance of energy and natural resources companies. Production declines and volume decreases could be caused by various factors, including catastrophic events affecting production, depletion of resources, labor difficulties, environmental proceedings, increased regulations, equipment failures and unexpected maintenance problems, import supply disruption, increased competition from alternative energy sources or commodity prices. Alternatively, a sustained decline in demand for such commodities could also adversely affect the financial performance of energy and natural resources companies. Factors which could lead to a decline in demand include economic recession or other adverse economic conditions, higher fuel taxes or governmental regulations, increases in fuel economy, consumer shifts to the use of alternative fuel sources, changes in commodity prices, or weather.

Depletion and Exploration Risk. Many energy and natural resources companies are either engaged in the production of natural gas, NGLs, crude oil, refined petroleum products or coal, or are engaged in transporting, storing, distributing and processing these items on behalf of shippers. To maintain or grow their revenues, these companies or their customers need to maintain or expand their reserves through exploration of new sources of supply, through the development of existing sources, through acquisitions, or through long-term contracts to acquire reserves. The financial performance of energy and natural resources companies may be adversely affected if they, or the companies to whom they provide the service, are unable to cost-effectively acquire additional reserves sufficient to replace the natural decline.

Regulatory Risk. Energy and natural resources companies are subject to significant federal, state and local government regulation in virtually every aspect of their operations, including how facilities are constructed, maintained and operated, environmental and safety controls, and the prices they may charge for the products and services they provide. Various governmental authorities have the power to enforce compliance with these regulations and the permits issued under them, and violators are subject to administrative, civil and criminal penalties, including civil fines, injunctions or both. Stricter laws, regulations or enforcement policies could be enacted in the future which would likely increase compliance costs and may adversely affect the financial performance of energy and natural resources companies.

Commodity Pricing Risk. The operations and financial performance of energy and natural resources companies may be directly affected by energy commodity prices, especially those energy and natural resources companies which own the underlying energy commodity. Commodity prices fluctuate for several reasons, including changes in market and economic conditions, the impact of weather on demand, levels of domestic production and imported commodities, energy conservation, domestic and foreign governmental regulation and taxation and the availability of local, intrastate and interstate transportation systems. Volatility of commodity prices, which may lead to a reduction in production or supply, may also negatively impact the performance of energy and natural resources companies which are solely involved in the transportation, processing, storing, distribution or marketing of commodities. Volatility of commodity prices may also make it more difficult for energy and natural resources companies to raise capital to the extent the market perceives that their performance may be directly or indirectly tied to commodity prices.

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Bond Portfolios. Each Bond Portfolio will normally invest at least 80% of the value of its total assets in debt securities. The Tax-Free Portfolios will invest, during normal market conditions, at least 80% of their total assets in obligations issued by or on behalf of states, territories and possessions of the United States, the District of Columbia and their political sub-divisions, agencies, instrumentalities and authorities and related tax-exempt derivative securities the interest on which is exempt from regular Federal income tax (“Municipal Obligations”) and is not an item of tax preference for purposes of the Federal alternative minimum tax. The UltraShort Municipal Portfolio will invest, during normal market conditions, at least 80% of its total assets in Municipal Obligations, except that the interest on the Municipal Obligations in which the UltraShort Municipal Portfolio will invest may be an item of tax preference for purposes of the Federal alternative minimum tax. Each State-Specific Tax-Free Portfolio also intends to invest at least 80% of its total assets in Municipal Obligations the interest on which is exempt from the applicable state income tax (“State-Specific Obligations”). In addition, the New Jersey Tax-Free Income Portfolio intends to invest at least 80% of its total assets in New Jersey State-Specific Obligations and in obligations issued by the U.S. Government, its agencies and instrumentalities, which are statutorily free from New Jersey or local taxation under the laws of the United States (“U.S. Government Obligations”).

Inflation Protected Bond Portfolio. The Inflation Protected Bond Portfolio will, and other Bond Portfolios may, invest in inflation-indexed bonds, which are fixed income securities whose principal value is periodically adjusted according to the rate of inflation. Two structures are common. The U.S. Treasury and some other issuers use a structure that accrues inflation into the principal value of the bond. Most other issuers pay out the CPI accruals as part of a semiannual coupon.

Inflation-indexed securities issued by the U.S. Treasury have maturities of five, ten or thirty years, although it is possible that securities with other maturities will be issued in the future. The U.S. Treasury securities pay interest on a semi-annual basis, equal to a fixed percentage of the inflation-adjusted principal amount. For example, if a Fund purchased an inflation-indexed bond with a par value of $1,000 and a 3% real rate of return coupon (payable 1.5% semi-annually), and inflation over the first six months were 1%, the mid-year par value of the bond would be $1,010 and the first semi-annual interest payment would be $15.15 ($1,010 times 1.5%). If inflation during the second half of the year resulted in the whole years’ inflation equaling 3%, the end-of-year par value of the bond would be $1,030 and the second semi-annual interest payment would be $15.45 ($1,030 times 1.5%).

If the periodic adjustment rate measuring inflation falls, the principal value of inflation-indexed bonds will be adjusted downward, and consequently the interest payable on these securities (calculated with respect to a smaller principal amount) will be reduced. Repayment of the original bond principal upon maturity (as adjusted for inflation) is guaranteed in the case of U.S. Treasury inflation-indexed bonds, even during a period of deflation. However, the current market value of the bonds is not guaranteed, and will fluctuate. The Inflation Protected Bond Portfolio may also invest in other inflation related bonds which may or may not provide a similar guarantee. If a guarantee of principal is not provided, the adjusted principal value of the bond repaid at maturity may be less than the original principal.

The value of inflation-indexed bonds is expected to change in response to changes in real interest rates. Real interest rates in turn are tied to the relationship between nominal interest rates and the rate of inflation. Therefore, if inflation were to rise at a faster rate than nominal interest rates, real interest rates might decline, leading to an increase in value of inflation-indexed bonds. In contrast, if nominal interest rates increased at a faster rate than inflation, real interest rates might rise, leading to a decrease in value of inflation-indexed bonds.

While these securities are expected to be protected from long-term inflationary trends, short-term increases in inflation may lead to a decline in value. If interest rates rise due to reasons other than inflation (for example, due to changes in currency exchange rates), investors in these securities may not be protected to the extent that the increase is not reflected in the bond’s inflation measure.

The periodic adjustment of U.S. inflation-indexed bonds is tied to the Consumer Price Index for Urban Consumers (“CPI-U”), which is calculated monthly by the U.S. Bureau of Labor Statistics. The CPI-U is a measurement of changes in the cost of living, made up of components such as housing, food, transportation and

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energy. Inflation-indexed bonds issued by a foreign government are generally adjusted to reflect a comparable inflation index, calculated by that government. There can be no assurance that the CPI-U or any foreign inflation index will accurately measure the real rate of inflation in the prices of goods and services. Moreover, there can be no assurance that the rate of inflation in a foreign country will be correlated to the rate of inflation in the United States.

Any increase in the principal amount of an inflation-indexed bond will be considered taxable ordinary income, even though investors do not receive their principal until maturity.

Municipal Investments. The two principal classifications of Municipal Obligations are “general obligation” securities and “revenue” securities. General obligation securities are secured by the issuer’s pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue securities are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise tax or other specific revenue source such as the user of the facility being financed. Revenue securities include private activity bonds which are not payable from the unrestricted revenues of the issuer. Consequently, the credit quality of private activity bonds is usually directly related to the credit standing of the corporate user of the facility involved. Municipal Obligations may also include “moral obligation” bonds, which are normally issued by special purpose public authorities. If the issuer of moral obligation bonds is unable to meet its debt service obligations from current revenues, it may draw on a reserve fund the restoration of which is a moral commitment but not a legal obligation of the state or municipality which created the issuer.

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

Also included within the general category of Municipal Obligations are participation certificates in a lease, an installment purchase contract, or a conditional sales contract (“lease obligations”) entered into by a state or political subdivision to finance the acquisition or construction of equipment, land, or facilities. Although lease obligations are not general obligations of the issuer for which the state or other governmental body’s unlimited taxing power is pledged, certain lease obligations are backed by a covenant to appropriate money to make the lease obligation payments. However, under certain lease obligations, the state or governmental body has no obligation to make these payments in future years unless money is appropriated on a yearly basis. Although “non appropriation” lease obligations are secured by the leased property, disposition of the property in the event of foreclosure might prove difficult.

The amount of information regarding the financial condition of issuers of Municipal Obligations may be less extensive than the information for public corporations, and the secondary market for Municipal Obligations may be less liquid than that for taxable obligations. Accordingly, the ability of a Portfolio to buy and sell Municipal Obligations may, at any particular time and with respect to any particular securities, be limited. In addition, Municipal Obligations purchased by the Portfolios include obligations backed by letters of credit and other forms of credit enhancement issued by domestic and non-U.S. banks, as well as other financial institutions. Changes in the credit quality of these institutions could cause loss to a Tax-Free Portfolio and the UltraShort Municipal Portfolio and affect their share prices.

Opinions relating to the validity of Municipal Obligations and to the exemption of interest thereon from Federal and state income tax are rendered by counsel to the respective issuers and sponsors of the obligations at the time of issuance. The Fund and its service providers will rely on such opinions and will not review independently the underlying proceedings relating to the issuance of Municipal Obligations, the creation of any tax-exempt derivative securities, or the bases for such opinions.

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Money Market Portfolios and Enhanced Income Portfolio.

The Money Market Portfolio and the Enhanced Income Portfolio may invest in a broad range of short-term, high quality, U.S. dollar-denominated instruments, such as government, bank, commercial and other obligations that are available in the money markets. In particular, the Portfolios may invest in:

(a) U.S. dollar-denominated obligations issued or supported by the credit of U.S. or non-U.S. banks or savings institutions with total assets in excess of $1 billion (including obligations of non-U.S. branches of such banks);

(b) high quality commercial paper and other obligations issued or guaranteed by U.S. and non-U.S. corporations and other issuers rated (at the time of purchase) A-2 or higher by S&P, Prime-2 or higher by Moody’s or F-2 or higher by Fitch Investors Service, Inc., as well as high quality corporate bonds rated (at the time of purchase) A or higher by those rating agencies;

(c) unrated notes, paper and other instruments that are of comparable quality to the instruments described in (b) above as determined by the Portfolio’s sub-adviser;

(d) asset-backed securities (including interests in pools of assets such as mortgages, installment purchase obligations and credit card receivables);

(e) securities issued or guaranteed as to principal and interest by the U.S. Government or by its agencies or authorities and related custodial receipts;

(f) dollar-denominated securities issued or guaranteed by non-U.S. governments or their political subdivisions, agencies or authorities;

(g) funding agreements issued by highly-rated U.S. insurance companies;

(h) securities issued or guaranteed by state or local governmental bodies;

(i) repurchase agreements relating to the above instruments; and

(j) municipal bonds and notes whose principal and interest payments are guaranteed by the U.S. Government or one of its agencies or authorities or which otherwise depend on the credit of the United States.

The U.S. Treasury Money Market Portfolio pursues its objective by investing exclusively in short-term bills, notes and other obligations issued or guaranteed by the U.S. Treasury and repurchase agreements relating to such obligations.

The Municipal Money Market Portfolio pursues its objective by investing primarily in short-term Municipal Obligations.

The Municipal Money Market Portfolios seek to achieve their investment objectives by primarily investing in:

(a) fixed and variable rate notes and similar debt instruments rated MIG-2, VMIG-2 or Prime-2 or higher by Moody’s, SP-2 or A-2 or higher by S&P, or F-2 or higher by Fitch;

(b) tax-exempt commercial paper and similar debt instruments rated Prime-2 or higher by Moody’s, A-2 or higher by S&P, or F-2 or higher by Fitch;

(c) municipal bonds rated A or higher by Moody’s, S&P or Fitch;

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(d) unrated notes, paper or other instruments that are of comparable quality to the instruments described above, as determined by the Portfolios’ sub-adviser under guidelines established by the Fund’s Board of Trustees; and

(e) municipal bonds and notes which are guaranteed as to principal and interest by the U.S. Government or an agency or instrumentality thereof or which otherwise depend directly or indirectly on the credit of the United States.

All securities acquired by the Money Market Portfolios will be determined at the time of purchase by the Portfolios’ sub-adviser, under guidelines established by the Fund’s Board of Trustees, to present minimal credit risks and will be “Eligible Securities” as defined by the SEC. Eligible Securities are (a) securities that either (i) have short-term debt ratings at the time of purchase in the two highest rating categories by at least two unaffiliated nationally recognized statistical rating organizations (“NRSROs”) (or one NRSRO if the security is rated by only one NRSRO), or (ii) are comparable in priority and security with an instrument issued by an issuer which has such ratings, and (b) securities that are unrated (including securities of issuers that have long-term but not short-term ratings) but are of comparable quality as determined in accordance with guidelines approved by the Board of Trustees.

Reverse Repurchase Agreements and Other Borrowings. Each Equity and Bond Portfolio (including the Index Master Portfolio) is authorized to borrow money. If the securities held by a 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 each 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 1940 Act. Certain Portfolios may use the proceeds of reverse repurchase agreements to purchase additional securities that meet the Portfolios’ investment guidelines. The Index Master Portfolio does not intend to invest in reverse repurchase agreements. The Bond Portfolios (except the Tax-Free Portfolios) and the Asset Allocation Portfolio may utilize reverse repurchase agreements when it is anticipated that the interest income to be earned from the investment of the proceeds of the transaction is greater than the interest expense of the transaction. 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 a 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 adviser or sub-adviser will designate liquid assets on its books and records in an amount equal to the amount of the Portfolio’s commitments to the extent required by SEC guidelines. A 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 (33% in the case of the Index Master Portfolio). In addition, each Bond Portfolio (except the Tax-Free Portfolios) and the Asset Allocation Portfolio may borrow up to an additional 5% of its total assets for temporary purposes. Whenever borrowings exceed 5% of a Portfolio’s total assets, the Equity Portfolios (other than the Index Master Portfolio and the Asset Allocation Portfolio) will not make any investments.

The Money Market and U.S. Treasury Money Market Portfolios may enter into reverse repurchase agreements for temporary purposes (such as to obtain cash to meet redemption requests when the liquidation of portfolio securities is deemed disadvantageous or inconvenient).

To take advantage of attractive opportunities in the mortgage market and to enhance current income, the Asset Allocation Portfolio and each Bond Portfolio (except the Tax-Free Portfolios) may enter into dollar roll transactions. A dollar roll transaction involves a sale by the Portfolio of a mortgage-backed or other security concurrently with an agreement by the Portfolio to repurchase a similar security at a later date at an agreed-upon price. The securities that are repurchased will bear the same interest rate and a similar maturity as those sold, but pools of mortgages collateralizing those securities may have different prepayment histories than those sold. During the period between the sale and repurchase, a Portfolio will not be entitled to receive interest and principal payments on the securities sold. Proceeds of the sale will be invested in additional instruments for the Portfolio, and the income from these investments will generate income for the Portfolio. If such income does not exceed the income, capital appreciation and gain or loss that would have been realized on the securities sold as part of the dollar roll, the

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use of this technique will diminish the investment performance of a Portfolio compared with what the performance would have been without the use of dollar rolls. At the time a Portfolio enters into a dollar roll transaction, the adviser or sub-adviser will designate assets on its books and records in an amount equal to the amount of the Portfolio’s commitments and will subsequently monitor the account to ensure that its value is maintained. A Portfolio’s dollar rolls, together with its reverse repurchase agreements and other borrowings, will not exceed, in the aggregate, 33 ¹/3% of the value of its total assets.

Dollar roll transactions involve the risk that the market value of the securities a Portfolio is required to purchase may decline below the agreed upon repurchase price of those securities. If the broker/dealer to whom a Portfolio sells securities becomes insolvent, the Portfolio’s right to purchase or repurchase securities may be restricted. Successful use of mortgage dollar rolls may depend upon the sub-adviser’s ability to correctly predict interest rates and prepayments. There is no assurance that dollar rolls can be successfully employed.

Variable and Floating Rate Instruments. The Asset Allocation and Bond Portfolios may purchase rated and unrated variable and floating rate instruments. These instruments may include variable amount master demand notes that permit the indebtedness thereunder to vary in addition to providing for periodic adjustments in the interest rate. The Portfolios may invest up to 10% of their total assets in leveraged inverse floating rate debt instruments (“inverse floaters”), including tender option bonds. The interest rate of an inverse floater resets in the opposite direction from the market rate of interest on a security or index to which it is related. An inverse floater may be considered to be leveraged to the extent that its interest rate varies by a magnitude that exceeds the magnitude of the change in the index rate of interest. The higher degree of leverage inherent in inverse floaters is associated with greater volatility in their market values.

Each Money Market Portfolio may purchase variable and floating rate instruments. Variable and floating rate instruments are subject to the credit quality standards described in the Prospectuses. The Money Market Portfolios invest in variable or floating rate notes only when the adviser or sub-adviser deems the investment to involve minimal credit risk. In some cases, the Money Market Portfolios may require that the obligation to pay the principal of the instrument be backed by a letter of credit or guarantee. Such instruments may carry stated maturities in excess of 13 months provided that the maturity-shortening provisions stated in Rule 2a-7 are satisfied. Although a particular variable or floating rate demand instrument may not be actively traded in a secondary market, in some cases, a Money Market Portfolio may be entitled to principal on demand and may be able to resell such notes in the dealer market.

Variable and floating rate demand instruments held by a Money Market Portfolio may have maturities of more than 13 months provided: (i) the Portfolio is entitled to the payment of principal and interest at any time, or during specified intervals not exceeding 13 months, upon giving the prescribed notice (which may not exceed 30 days), and (ii) the rate of interest on such instruments is adjusted at periodic intervals which may extend up to 13 months. Variable and floating rate notes that do not provide for payment within seven days may be deemed illiquid and subject to a 10% limitation on illiquid investments.

In determining a Portfolio’s average weighted portfolio maturity and whether a long-term variable rate demand instrument has a remaining maturity of 13 months or less, the instrument will be deemed by a Portfolio to have a maturity equal to the longer of the period remaining until its next interest rate adjustment or the period remaining until the principal amount can be recovered through demand. In determining a Portfolio’s average weighted portfolio maturity and whether a long-term floating rate demand instrument has a remaining maturity of 13 months or less, the instrument will be deemed by a Portfolio to have a maturity equal to the period remaining until the principal amount can be recovered through demand. Variable and floating notes are not typically rated by credit rating agencies, but their issuers must satisfy the Portfolio’s quality and maturity requirements.

With respect to purchasable variable and floating rate instruments, the adviser or sub-adviser will consider the earning power, cash flows and liquidity ratios of the issuers and guarantors of such instruments and, if the instruments are subject to a demand feature, will monitor their financial status to meet payment on demand. Such instruments may include variable amount master demand notes that permit the indebtedness thereunder to vary in addition to providing for periodic adjustments in the interest rate. The absence of an active secondary market with respect to particular variable and floating rate instruments could make it difficult for a Portfolio to dispose of a variable or floating rate note if the issuer defaulted on its payment obligation or during periods that the Portfolio is not entitled to exercise its demand rights, and the Portfolio could, for these or other reasons, suffer a loss with respect to such instruments.

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Bank Loans. Bank loans are generally non-investment grade floating rate instruments. Usually, they are freely callable at the issuer’s option. Each Bond Portfolio may invest in fixed and floating rate loans (“Loans”) arranged through private negotiations between a corporate borrower or a non-U.S. sovereign entity and one or more financial institutions (“Lenders”). A Bond Portfolio may invest in such Loans in the form of participations in Loans (“Participations”) and assignments of all or a portion of Loans from third parties (“Assignments”). A Bond Portfolio considers these investments to be investments in debt securities for purposes of its investment policies. Participations typically will result in the Bond Portfolio having a contractual relationship only with the Lender, not with the borrower. The Portfolio will have the right to receive payments of principal, interest and any fees to which it is entitled only from the Lender selling the Participation and only upon receipt by the Lender of the payments from the borrower. In connection with purchasing Participations, the Portfolio generally will have no right to enforce compliance by the borrower with the terms of the loan agreement relating to the Loans, nor any rights of set-off against the borrower, and the Portfolio may not benefit directly from any collateral supporting the Loan in which it has purchased the Participation. As a result, the Portfolio will assume the credit risk of both the borrower and the Lender that is selling the Participation. In the event of the insolvency of the Lender selling the Participation, the Portfolio may be treated as a general creditor of the Lender and may not benefit from any set-off between the Lender and the borrower. The Portfolio will acquire Participations only if the Lender interpositioned between the Portfolio and the borrower is determined by the Portfolio’s sub-adviser to be creditworthy. When the Portfolio purchases Assignments from Lenders, the Portfolio will acquire direct rights against the borrower on the Loan, and will not have exposure to a counterparty’s credit risk. The Bond Portfolios may enter into Participations and Assignments on a forward commitment or “when-issued” basis, whereby a Portfolio would agree to purchase a Participation or Assignment at set terms in the future. For more information on forward commitments and when-issued securities, see “-When- Issued Purchases and Forward Commitments” below.

A Bond Portfolio may have difficulty disposing of Assignments and Participations. In certain cases, the market for such instruments is not highly liquid, and therefore the Portfolio anticipates that in such cases such instruments could be sold only to a limited number of institutional investors. The lack of a highly liquid secondary market may have an adverse impact on the value of such instruments and on the Portfolio’s ability to dispose of particular Assignments or Participations in response to a specific economic event, such as deterioration in the creditworthiness of the borrower. Assignments and Participations will not be considered illiquid so long as it is determined by the Portfolios’ adviser or sub-adviser that an adequate trading market exists for these securities. To the extent that liquid Assignments and Participations that a Portfolio holds become illiquid, due to the lack of sufficient buyers or market or other conditions, the percentage of the Portfolio’s assets invested in illiquid assets would increase.

Preferred Stock. In addition to the Equity Portfolios, the Bond Portfolios each may invest in preferred stocks. Preferred stock has a preference over common stock in liquidation (and generally dividends as well) but is subordinated to the liabilities of the issuer in all respects. As a general rule, the market value of preferred stock with a fixed dividend rate and no conversion element varies inversely with interest rates and perceived credit risk, while the market price of convertible preferred stock generally also reflects some element of conversion value. Because preferred stock is junior to debt securities and other obligations of the issuer, deterioration in the credit quality of the issuer will cause greater changes in the value of a preferred stock than in a more senior debt security with similar stated yield characteristics. Unlike interest payments on debt securities, preferred stock dividends are payable only if declared by the issuer’s board of directors. Preferred stock also may be subject to optional or mandatory redemption provisions.

Convertible Securities. In addition to the Equity Portfolios, the Bond Portfolios each may invest in convertible securities. A convertible security is a bond, debenture, note, preferred stock or other security that may be converted into or exchanged for a prescribed amount of common stock or other equity security of the same or a different issuer within a particular period of time at a specified price or formula. A convertible security entitles the holder to receive interest paid or accrued on debt or the dividend paid on preferred stock until the convertible security matures or is redeemed, converted or exchanged. Before conversion, convertible securities have characteristics similar to nonconvertible income securities in that they ordinarily provide a stable stream of income with generally higher yields than those of common stocks of the same or similar issuers, but lower yields than

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comparable nonconvertible securities. The value of a convertible security is influenced by changes in interest rates, with investment value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors also may have an effect on the convertible security’s investment value. Convertible securities rank senior to common stock in a corporation’s capital structure but are usually subordinated to comparable nonconvertible securities. Convertible securities may be subject to redemption at the option of the issuer at a price established in the convertible security’s governing instrument. The High Yield Bond Portfolio will treat investments in convertible debt securities as debt securities for purposes of its investment policies.

Pay-in-kind Bonds. The Bond and Equity Portfolios may invest in Pay-in-kind, or PIK, bonds. PIK bonds are bonds which pay interest through the issuance of additional debt or equity securities. Similar to zero coupon obligations, pay-in-kind bonds also carry additional risk as holders of these types of securities realize no cash until the cash payment date unless a portion of such securities is sold and, if the issuer defaults, a Portfolio may obtain no return at all on its investment. The market price of pay-in-kind bonds is affected by interest rate changes to a greater extent, and therefore tends to be more volatile, than that of securities which pay interest in cash. Additionally, current federal tax law requires the holder of certain pay-in-kind bonds to accrue income with respect to these securities prior to the receipt of cash payments. To maintain its qualification as a regulated investment company and avoid liability for federal income and excise taxes, each Portfolio may be required to distribute income accrued with respect to these securities and may have to dispose of portfolio securities under disadvantageous circumstances in order to generate cash to satisfy these distribution requirements.

Money Market Obligations of Domestic Banks, Non-U.S. Banks and Non-U.S. Branches of U.S. Banks. Each 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 non-U.S. banks or savings institutions having total assets at the time of purchase in excess of $1 billion. These obligations may be general obligations of the parent bank or may be limited to the issuing branch or subsidiary by the terms of a specific obligation or by government regulation. The assets of a bank or savings institution will be deemed to include the assets of its domestic and non-U.S. branches for purposes of each Portfolio’s investment policies. Investments in short-term bank obligations may include obligations of non-U.S. banks and domestic branches of non-U.S. banks, and also non-U.S. branches of domestic banks.

The Index Master Portfolio may purchase obligations of U.S. banks and savings and loan associations and dollar-denominated obligations of U.S. subsidiaries and branches of non-U.S. banks, such as certificates of deposit (including marketable variable rate certificates of deposit) and bankers’ acceptances. Bank certificates of deposit will only be acquired by the Index Master Portfolio if the bank has assets in excess of $1 billion.

To the extent consistent with their investment objectives, the Portfolios (except the Tax-Free Portfolios) may invest in debt obligations of domestic or non-U.S. corporations and banks, and may acquire commercial obligations issued by Canadian corporations and Canadian counterparts of U.S. corporations, as well as Europaper, which is U.S. dollar-denominated commercial paper of a non-U.S. issuer. The Bond Portfolios and the Money Market Portfolio may also make interest-bearing savings deposits in commercial and savings banks in amounts not in excess of 5% of their respective total assets.

Mortgage Related and Asset-Backed Securities. The Asset Allocation and Bond Portfolios (except the Tax-Free Portfolios) may make significant investments, and the other Equity Portfolios may from time to time invest, in residential and commercial mortgage-related and other asset-backed securities (i.e., securities backed by home equity loans, installment sale contracts, credit card receivables or other assets) issued by governmental entities and private issuers. The Money Market Portfolios, to the extent consistent with their investment objectives, may invest in these instruments to a lesser extent.

Asset-backed securities are generally issued as pass-through certificates, which represent undivided fractional ownership interests in an underlying pool of assets, or as debt instruments, which are also known as collateralized obligations, and are generally issued as the debt of a special purpose entity organized solely for the purpose of owning such assets and issuing such debt. Asset-backed securities are often backed by a pool of assets representing the obligations of a number of different parties.

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The yield characteristics of certain mortgage-related and asset-backed securities may differ from traditional debt securities. One such major difference is that all or a principal part of the obligations may be prepaid at any time because the underlying assets (i.e., loans) may be prepaid at any time. As a result, a decrease in interest rates in the market may result in increases in the level of prepayments as borrowers, particularly mortgagors, refinance and repay their loans. An increased prepayment rate with respect to a mortgage-related or asset-backed security subject to such a prepayment feature will have the effect of shortening the maturity of the security. If a Portfolio has purchased such a mortgage-related or asset-backed security at a premium, a faster than anticipated prepayment rate could result in a loss of principal to the extent of the premium paid. Conversely, an increase in interest rates may result in lengthening the anticipated maturity of such a security because expected prepayments are reduced. A prepayment rate that is faster than expected will reduce the yield to maturity of such a security, while a prepayment rate that is slower than expected may have the opposite effect of increasing yield to maturity.

In general, the assets supporting non-mortgage asset-backed securities are of shorter maturity than the assets supporting mortgage-related securities. Like other fixed-income securities, when interest rates rise the value of an asset-backed security generally will decline; however, when interest rates decline, the value of an asset-backed security with prepayment features may not increase as much as that of other fixed-income securities, and, as noted above, changes in market rates of interest may accelerate or retard prepayments and thus affect maturities.

These characteristics may result in a higher level of price volatility for asset-backed securities with prepayment features under certain market conditions. In addition, while the trading market for short-term mortgages and asset-backed securities is ordinarily quite liquid, in times of financial stress the trading market for these securities sometimes becomes restricted.

The relationship between prepayments and interest rates may give some high-yielding mortgage- related and asset-backed securities less potential for growth in value than conventional bonds with comparable maturities. During periods of falling interest rates, the reinvestment of prepayment proceeds by a Portfolio will generally be at lower rates than the rates that were carried by the obligations that have been prepaid. Because of these and other reasons, mortgage-related and other asset-backed security’s total return and maturity may be difficult to predict precisely.

A Portfolio from time to time may purchase in the secondary market (i) certain mortgage pass-through securities packaged and master serviced by PNC Mortgage Securities Corp. (“PNC Mortgage”) (or Sears Mortgage if PNC Mortgage succeeded to the rights and duties of Sears Mortgage) or Midland Loan Services, Inc. (“Midland”), or (ii) mortgage-related securities containing loans or mortgages originated by PNC Bank, National Association (“PNC Bank”) or its affiliates. It is possible that under some circumstances, PNC Mortgage, Midland or other affiliates could have interests that are in conflict with the holders of these mortgage-backed securities, and such holders could have rights against PNC Mortgage, Midland or their affiliates. For example, if PNC Mortgage, Midland or their affiliates engaged in negligence or willful misconduct in carrying out its duties as a master servicer, then any holder of the mortgage-backed security could seek recourse against PNC Mortgage, Midland or their affiliates, as applicable. Also, as a master servicer, PNC Mortgage, Midland or their affiliates may make certain representations and warranties regarding the quality of the mortgages and properties underlying a mortgage-backed security. If one or more of those representations or warranties is false, then the holders of the mortgage-backed securities could trigger an obligation of PNC Mortgage, Midland or their affiliates, as applicable, to repurchase the mortgages from the issuing trust. Finally, PNC Mortgage, Midland or their affiliates may own securities that are subordinate to the senior mortgage-backed securities owned by a Portfolio.

The GNMA Portfolio will invest primarily in GNMA Mortgage Pass-Through Certificates (also known as “Ginnie Maes”), and may make significant investments in other residential and commercial mortgage-related and other asset-backed securities (i.e., securities backed by home equity loans, installment sale contracts, credit card receivables or other assets) issued by governmental entities and private issuers.

The GNMA Portfolio may acquire several types of mortgage-related securities. Ginnie Maes are typically mortgage pass-through certificates, which provide the holder with a pro rata interest in the underlying mortgages.

To maintain greater flexibility, the GNMA Portfolio may invest in instruments which have the characteristics of futures contracts. These instruments may take a variety of forms, such as debt securities with interest or principal payments determined by reference to the value of a commodity at a future point in time. The risks of such investments could reflect the risks of investing in futures, including volatility and illiquidity.

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Each Money Market Portfolio may invest in mortgage-related securities issued by the U.S. Government or its agencies or instrumentalities or issued by private companies.

There are a number of important differences among the agencies and instrumentalities of the U.S. Government that issue mortgage-related securities and among the securities that they issue. Mortgage-related securities guaranteed by the Government National Mortgage Association (“GNMA”) include Ginnie Maes, which are guaranteed as to the timely payment of principal and interest by GNMA and such guarantee is backed by the full faith and credit of the United States. GNMA is a wholly-owned U.S. Government corporation within the Department of Housing and Urban Development. GNMA certificates also are supported by the authority of GNMA to borrow funds from the U.S. Treasury to make payments under its guarantee. Mortgage-related securities issued by the Federal National Mortgage Association (“FNMA”) include FNMA guaranteed Mortgage Pass-Through Certificates (also known as “Fannie Maes”) which are solely the obligations of the FNMA, are not backed by or entitled to the full faith and credit of the United States and are supported by the right of the issuer to borrow from the Treasury. FNMA is a government-sponsored organization owned entirely by private stockholders. Fannie Maes are guaranteed as to timely payment of principal and interest by FNMA. Mortgage-related securities issued by the Federal Home Loan Mortgage Corporation (“FHLMC”) include FHLMC Mortgage Participation Certificates (also known as “Freddie Macs” or “PCs”). FHLMC is a corporate instrumentality of the United States, created pursuant to an Act of Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs, which are not guaranteed by the United States or by any Federal Home Loan Banks and do not constitute a debt or obligation of the United States or of any Federal Home Loan Bank, are supported by the right of the issuer to borrow from the Treasury. Freddie Macs entitle the holder to timely payment of interest, which is guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or timely payment of all principal payments on the underlying mortgage loans. When FHLMC generally does not guarantee timely payment of principal, FHLMC may remit the amount due on account of its guarantee of ultimate payment of principal at any time after default on an underlying mortgage, but in no event later than one year after it becomes payable. FHLMC “Gold” PCs are guaranteed as to timely payment of interest and principal by FHLMC and represent 100% of the current fixed-rate production of the majority of FHLMC fixed-rate securities outstanding.

The Portfolios may invest in multiple class pass-through securities, including collateralized mortgage obligations (“CMOs”) and real estate mortgage investment conduit (“REMIC”) pass-through or participation certificates (“REMIC Certificates”). These multiple class securities may be issued by GNMA, U.S. Government agencies or instrumentalities, including FNMA and FHLMC, or by trusts formed by private originators of, or investors in, mortgage loans. In general, CMOs and REMICs are debt obligations of a legal entity that are collateralized by, and multiple class pass-through securities represent direct ownership interests in, a pool of residential or commercial mortgage loans or mortgage pass-through securities (the “Mortgage Assets”), the payments on which are used to make payments on the CMOs or multiple pass-through securities. Investors may purchase beneficial interests in CMOs and REMICs, which are known as “regular” interests or “residual” interests. The residual in a CMO or REMIC structure generally represents the interest in any excess cash flow or tax liability remaining after making required payments of principal of and interest on the CMOs or REMICs, as well as the related administrative expenses of the issuer. Residual interests generally are junior to, and may be significantly more volatile than, “regular” CMO and REMIC interests. The Portfolios do not currently intend to purchase residual interests. The markets for CMOs and REMICs may be more illiquid than those of other securities.

Each class of CMOs or REMIC Certificates, often referred to as a “tranche,” is issued at a specific adjustable or fixed interest rate and must be fully retired no later than its final distribution date. Principal prepayments on the Mortgage Assets underlying the CMOs or REMIC Certificates may cause some or all of the classes of CMOs or REMIC Certificates to be retired substantially earlier than their final distribution dates. Generally, interest is paid or accrues on all classes of CMOs or REMIC Certificates on a monthly basis.

The principal of and interest on the Mortgage Assets may be allocated among the several classes of CMOs or REMIC Certificates in various ways. In certain structures (known as “sequential pay” CMOs or REMIC Certificates), payments of principal, including any principal prepayments, on the Mortgage Assets generally are applied to the classes of CMOs or REMIC Certificates in the order of their respective final distribution dates. Thus, no payment of principal will be made on any class of sequential pay CMOs or REMIC Certificates until all other classes having an earlier final distribution date have been paid in full.

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Additional structures of CMOs or REMIC Certificates include, among others, “parallel pay” CMOs and REMIC Certificates. Parallel pay CMOs or REMIC Certificates are those which are structured to apply principal payments and prepayments of the Mortgage Assets to two or more classes concurrently on a proportionate or disproportionate basis. These simultaneous payments are taken into account in calculating the final distribution date of each class. A wide variety of REMIC Certificates may be issued in the parallel pay or sequential pay structures. These securities include accrual certificates (also known as “Z-Bonds”), which only accrue interest at a specified rate until all other certificates having an earlier final distribution date have been retired and are converted thereafter to an interest-paying security.

Classes of CMOs include interest only (“IOs”), principal only (“POs”), planned amortization classes (“PACs”) and targeted amortization classes (“TACs”). IOs and POs are stripped mortgage-backed securities representing interests in a pool of mortgages the cash flow from which has been separated into interest and principal components. IOs (interest only securities) receive the interest portion of the cash flow while POs (principal only securities) receive the principal portion. IOs and POs can be extremely volatile in response to changes in interest rates. As interest rates rise and fall, the value of IOs tends to move in the same direction as interest rates. POs perform best when prepayments on the underlying mortgages rise since this increases the rate at which the investment is returned and the yield to maturity on the PO. When payments on mortgages underlying a PO are slow, the life of the PO is lengthened and the yield to maturity is reduced.

The scheduled principal payments for PAC Certificates generally have the highest priority on each payment date after interest due has been paid to all classes entitled to receive interest currently. Shortfalls, if any, are added to the amount payable on the next payment date. The PAC Certificate payment schedule is taken into account in calculating the final distribution date of each class of PAC. In order to create PAC tranches, one or more tranches generally must be created that absorb most of the volatility in the underlying mortgage assets. These tranches (often called “supports” or “companion” tranches) tend to have market prices and yields that are more volatile than the PAC classes.

TACs are similar to PACs in that they require that specified amounts of principal be applied on each payment date to one or more classes of REMIC Certificates. A PAC’s payment schedule, however, remains in effect as long as prepayment rates on the underlying mortgages do not exceed certain ranges. In contrast, a TAC provides investors with protection, to a certain level, against either faster than expected or slower than expected prepayment rates, but not both. TACs thus provide more cash flow stability than a regular sequential paying class, but less than a PAC. TACs also tend to have market prices and yields that are more volatile than PACs.

FNMA REMIC Certificates are issued and guaranteed as to timely distribution of principal and interest by FNMA. In addition, FNMA will be obligated to distribute on a timely basis to holders of FNMA REMIC Certificates required installments of principal and interest and to distribute the principal balance of each class of REMIC Certificates in full, whether or not sufficient funds are otherwise available.

For FHLMC REMIC Certificates, FHLMC guarantees the timely payment of interest, and also guarantees the ultimate payment of principal as payments are required to be made on the underlying mortgage participation certificates (“PCs”). PCs represent undivided interests in specified level payment, residential mortgages or participations therein purchased by FHLMC and placed in a PC pool. With respect to principal payments on PCs, FHLMC generally guarantees ultimate collection of all principal of the related mortgage loans without offset or deduction. FHLMC also guarantees timely payment of principal on certain PCs, referred to as “Gold PCs.”

U.S. Government Obligations. The Asset Allocation and Bond Portfolios (and, to the extent consistent with their investment objectives, the Equity and Money Market Portfolios) may purchase obligations issued or guaranteed by the U.S. Government and U.S. Government agencies and instrumentalities. Obligations of certain agencies and instrumentalities of the U.S. Government are supported by the full faith and credit of the U.S. Treasury. Others are supported by the right of the issuer to borrow from the U.S. Treasury; and still others are supported only by the credit of the agency or instrumentality issuing the obligation. No assurance can be given that the U.S. Government will provide financial support to U.S. Government-sponsored instrumentalities if it is not

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obligated to do so by law. Certain U.S. Treasury and agency securities may be held by trusts that issue participation certificates (such as Treasury income growth receipts (“TIGRs”) and certificates of accrual on Treasury certificates (“CATs”)). These certificates, as well as Treasury receipts and other stripped securities, represent beneficial ownership interests in either future interest payments or the future principal payments on U.S. Government obligations. These instruments are issued at a discount to their “face value” and may (particularly in the case of stripped mortgage-backed securities) exhibit greater price volatility than ordinary debt securities because of the manner in which their principal and interest are returned to investors.

Examples of the types of U.S. Government obligations that may be held by the Portfolios include U.S. Treasury Bills, Treasury Notes, and Treasury Bonds and the obligations of the Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Government National Mortgage Association, Federal National Mortgage Association, Federal Financing Bank, General Services Administration, Student Loan Marketing Association, Central Bank for Cooperatives, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal Intermediate Credit Banks, Federal Land Banks, Farm Credit Banks System, Maritime Administration, Tennessee Valley Authority, and Washington D.C. Armory Board. The Portfolios may also invest in mortgage-related securities issued or guaranteed by U.S. Government agencies and instrumentalities, including such instruments as obligations of the GNMA, FNMA and FHLMC.

The Index Master Portfolio may purchase (i) debt securities issued by the U.S. Treasury which are direct obligations of the U.S. Government, including bills, notes and bonds, and (ii) obligations issued or guaranteed by U.S. Government-sponsored instrumentalities and federal agencies, including FNMA, Federal Home Loan Bank and the Federal Housing Administration.

Supranational Organization Obligations. The Portfolios may purchase debt securities of supranational organizations such as the World Bank, which are chartered to promote economic development.

Lease Obligations. The Portfolios (other than the Index Master Portfolio) may hold participation certificates in a lease, an installment purchase contract, or a conditional sales contract (“lease obligations”).

The adviser or sub-adviser will monitor the credit standing of each borrower and each entity providing credit support and/or a put option relating to lease obligations. In determining whether a lease obligation is liquid, the adviser or sub-adviser will consider, among other factors, the following: (i) whether the lease can be cancelled; (ii) the degree of assurance that assets represented by the lease could be sold; (iii) the strength of the lessee’s general credit (e.g., its debt, administrative, economic, and financial characteristics); (iv) in the case of a municipal lease, 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.

The Municipal Money Market Portfolios will only invest in lease obligations with puts that (i) may be exercised at par on not more than seven days notice, and (ii) are issued by institutions deemed by the sub-adviser to present minimal credit risks. Such obligations will be considered liquid. However, a number of puts are not exercisable at the time the put would otherwise be exercised if the municipal borrower is not contractually obligated to make payments (e.g., an event of nonappropriation with a “nonappropriation” lease obligation). Under such circumstances, the lease obligation while previously considered liquid would become illiquid, and a Portfolio might lose its entire investment in such 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 a 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 a Portfolio. Issuers of municipal securities might seek protection under the bankruptcy laws. In the event of bankruptcy of such an issuer, a Portfolio could experience delays and limitations with respect to the collection of

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principal and interest on such municipal leases and a 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 Fund might take possession of and manage the assets securing the issuer’s obligations on such securities, which may increase a Portfolio’s operating expenses and adversely affect the net asset value of a Portfolio. When the lease contains a non-appropriation clause, however, the failure to pay would not be a default and a Portfolio would not have the right to take possession of the assets. Any income derived from a Portfolio’s ownership or operation of such assets may not be tax-exempt. In addition, a 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 a Portfolio may exercise its rights by taking possession of such assets, because as a regulated investment company a Portfolio is subject to certain limitations on its investments and on the nature of its income.

Commercial Paper. The Money Market Portfolios may purchase commercial paper rated in one of the two highest rating categories of a nationally recognized statistical rating organization (“NRSRO”). The Non-Money Market Portfolios, except the High Yield Bond Portfolio and the Index Master 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 a Portfolio’s adviser or sub-adviser, “high quality” issues rated “A-2”, “Prime-2” or “F-2” by S&P, Moody’s or Fitch, respectively. The High Yield Bond Portfolio may purchase commercial paper of any rating. The Index Master Portfolio may purchase commercial paper rated (at the time of purchase) “A-1” or better by S&P or “Prime-1” by Moody’s, or, if not rated, issued by a corporation having an outstanding unsecured debt issue rated “Aaa” by Moody’s or “AAA” by S&P, and having a maximum maturity of nine months. These ratings symbols are described in Appendix A.

Commercial paper purchasable by each 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. Each Equity and Bond 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 a Portfolio to possible loss because of adverse market action, expenses and/or delays in connection with the disposition of the underlying obligations.

Each Money Market Portfolio may enter into repurchase agreements. The securities held subject to a repurchase agreement by a Money Market Portfolio may have stated maturities exceeding 13 months, so long as the repurchase agreement itself matures in less than 13 months.

The repurchase price under the repurchase agreements generally equals the price paid by a Portfolio involved plus interest negotiated on the basis of current short-term rates (which may be more or less than the rate on securities underlying the repurchase agreement). The financial institutions with which a Portfolio may enter into repurchase agreements will be banks and non-bank dealers, if such banks and non-bank dealers are deemed creditworthy by the Portfolio’s adviser or sub-adviser. A 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 and any accrued premium). 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 Portfolios 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, a Portfolio will seek to dispose of such securities, which action could involve costs or delays. If the

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seller becomes insolvent and subject to liquidation or reorganization under applicable bankruptcy or other laws, a Portfolio’s ability to dispose of the underlying securities may be restricted. Finally, it is possible that a 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, a Portfolio may suffer a loss to the extent proceeds from the sale of the underlying securities are less than the repurchase price.

Certain of the Money Market Portfolios may enter into repurchase agreements in which the collateral may include IO or PO securities related to CMOs issued by U.S. Government agencies and instrumentalities. IOs and POs are subject to the risks described in “-Stripped and Zero Coupon Obligations” below and CMOs are subject to the risks described in “-Mortgage Related and Asset-Backed Securities” above.

The Index Master Portfolio may enter into repurchase agreements, but will not enter into a repurchase agreement with a duration of more than seven days if, as a result, more than 10% of the value of its total assets would be so invested. The Index Master Portfolio will also only invest in repurchase agreements with a bank if the bank has at least $1 billion in assets and is approved by the Investment Committee of Dimensional Fund Advisors Inc. (“DFA”). DFA will monitor the market value of transferred securities plus any accrued interest thereon so that the value of such securities will at least equal the repurchase price. The securities underlying the repurchase agreements will be limited to U.S. Government and agency obligations described under “-U.S. Government Obligations” above.

Investment Grade Debt Obligations. Each of the Money Market Portfolios and Enhanced Income Portfolio may invest in investment grade securities in the rating categories specified in the Prospectuses and above in “-Money Market Portfolios.” The Non-Money Market Portfolios, except the Index Master Portfolio and the Intermediate Government Bond, Government Income and GNMA Portfolios, may invest in “investment grade securities,” which are securities rated in the four highest rating categories of an NRSRO or deemed to be of equivalent quality by a Portfolio’s adviser or sub-adviser. The Intermediate Government Bond, Government Income and GNMA Portfolios may invest in debt securities rated Aaa by Moody’s or AAA by S&P. It should be noted that debt obligations rated in the lowest of the top four ratings (i.e., “Baa” by Moody’s or “BBB” by S&P) are considered to have some speculative characteristics and are more sensitive to economic change than higher rated securities. If an investment grade security of a Portfolio is subsequently downgraded below investment grade, the Portfolio’s adviser or sub-adviser will consider such an event in determining whether the Portfolio should continue to hold the security. Subject to its investment strategies, there is no limit on the amount of such downgraded securities a Portfolio may hold, although under normal market conditions the adviser and sub-adviser do not expect to hold these securities to a material extent.

The Index Master Portfolio may invest in non-convertible corporate debt securities which are issued by companies whose commercial paper is rated “Prime-1” by Moody’s or “A-1” by S&P and dollar-denominated obligations of non-U.S. issuers issued in the U.S. If the issuer’s commercial paper is unrated, then the debt security would have to be rated at least “AA” by S&P or “Aa2” by Moody’s. If there is neither a commercial paper rating nor a rating of the debt security, then the Index Master Portfolio’s investment adviser must determine that the debt security is of comparable quality to equivalent issues of the same issuer rated at least “AA” or “Aa2.”

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

Non-Investment Grade Securities. Each of the Asset Allocation, Aurora, Global Resources, All-Cap Global Resources, High Yield Bond, Low Duration Bond, Core PLUS Total Return, Intermediate PLUS Bond and Inflation Protected Bond Portfolios may invest in non-investment grade or “high yield” fixed income or convertible securities commonly known to investors as “junk bonds.”

High yield securities are bonds that are issued by a company whose credit rating (based on rating agencies’ evaluation of the likelihood of repayment) necessitates offering a higher coupon and yield on its issues when selling them to investors who may otherwise be hesitant in purchasing the debt of such a company. While generally providing greater income and opportunity for gain, non-investment grade debt securities may be subject to greater risks than securities which have higher credit ratings, including a high risk of default, and their yields will fluctuate

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over time. High yield securities will generally be in the lower rating categories of recognized rating agencies (rated “Ba” or lower by Moody’s or “BB” or lower by S&P) or will be non-rated. The credit rating of a high yield security does not necessarily address its market value risk, and ratings may from time to time change, positively or negatively, to reflect developments regarding the issuer’s financial condition. High yield securities are considered to be speculative with respect to the capacity of the issuer to timely repay principal and pay interest or dividends in accordance with the terms of the obligation and may have more credit risk than higher rated securities.

While the market values of high yield securities tend to react less to fluctuations in interest rates than do those of higher rated securities, the values of high yield securities often reflect individual corporate developments and have a high sensitivity to economic changes to a greater extent than do higher rated securities. Issuers of high yield securities are often in the growth stage of their development and/or involved in a reorganization or takeover. The companies are often highly leveraged (have a significant amount of debt relative to shareholders’ equity) and may not have available to them more traditional financing methods, thereby increasing the risk associated with acquiring these types of securities. In some cases, obligations with respect to high yield securities are subordinated to the prior repayment of senior indebtedness, which will potentially limit a Portfolio’s ability to fully recover principal or to receive interest payments when senior securities are in default. Thus, investors in high yield securities have a lower degree of protection with respect to principal and interest payments then do investors in higher rated securities.

During an economic downturn, a substantial period of rising interest rates or a recession, highly leveraged issuers of high yield securities may experience financial distress possibly resulting in insufficient revenues to meet their principal and interest payment obligations, to meet projected business goals and to obtain additional financing. An economic downturn could also disrupt the market for lower-rated securities and adversely affect the value of outstanding securities, the Portfolio’s net asset value and the ability of the issuers to repay principal and interest. If the issuer of a security held by a Portfolio defaulted, the Portfolio may not receive full interest and principal payments due to it and could incur additional expenses if it chose to seek recovery of its investment.

The secondary markets for high yield securities are not as liquid as the secondary markets for higher rated securities. The secondary markets for high yield securities are concentrated in relatively few market makers and participants in the markets are mostly institutional investors, including insurance companies, banks, other financial institutions and mutual funds. In addition, the trading volume for high yield securities is generally lower than that for higher rated securities and the secondary markets could contract under adverse market or economic conditions independent of any specific adverse changes in the condition of a particular issuer. Under certain economic and/or market conditions, a Portfolio may have difficulty disposing of certain high yield securities due to the limited number of investors in that sector of the market. An illiquid secondary market may adversely affect the market price of the high yield security, which may result in increased difficulty selling the particular issue and obtaining accurate market quotations on the issue when valuing a Portfolio’s assets. Market quotations on high yield securities are available only from a limited number of dealers, and such quotations may not be the actual prices available for a purchase or sale.

The high yield markets may react strongly to adverse news about an issuer or the economy, or to the perception or expectation of adverse news, whether or not it is based on fundamental analysis. Additionally, prices for high yield securities may be affected by legislative and regulatory developments. These developments could adversely affect a Portfolio’s net asset value and investment practices, the secondary market for high yield securities, the financial condition of issuers of these securities and the value and liquidity of outstanding high yield securities, especially in a thinly traded market. For example, federal legislation requiring the divestiture by federally insured savings and loan associations of their investments in high yield bonds and limiting the deductibility of interest by certain corporate issuers of high yield bonds adversely affected the market in the past.

When the secondary market for high yield securities becomes more illiquid, or in the absence of readily available market quotations for such securities, the relative lack of reliable objective data makes it more difficult to value a Portfolio’s securities, and judgment plays a more important role in determining such valuations. Increased illiquidity in the junk bond market, in combination with the relative youth and growth of the market for such securities, also may affect the ability of a Portfolio to dispose of such securities at a desirable price. Additionally, if the secondary markets for high yield securities contract due to adverse economic conditions or for other reasons, certain of a Portfolio’s liquid securities may become illiquid and the proportion of the Portfolio’s assets invested in illiquid securities may significantly increase.

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The rating assigned by a rating agency evaluates the safety of a non-investment grade security’s principal and interest payments, but does not address market value risk. Because such ratings of the ratings agencies may not always reflect current conditions and events, in addition to using recognized rating agencies and other sources, the sub-adviser performs its own analysis of the issuers whose non-investment grade securities a Portfolio holds. Because of this, the Portfolio’s performance may depend more on the sub-adviser’s own credit analysis than in the case of mutual funds investing in higher-rated securities. For a description of these ratings, see Appendix A.

In selecting non-investment grade securities, the adviser or sub-adviser considers factors such as those relating to the creditworthiness of issuers, the ratings and performance of the securities, the protections afforded the securities and the diversity of the Portfolio. The sub-adviser continuously monitors the issuers of non-investment grade securities held by the Portfolio for their ability to make required principal and interest payments, as well as in an effort to control the liquidity of the Portfolio so that it can meet redemption requests. If a security’s rating is reduced below the minimum credit rating that is permitted for a Portfolio, the Portfolio’s sub-adviser will consider whether the Portfolio should continue to hold the security.

In the event that a Portfolio investing in high yield securities experiences an unexpected level of net redemptions, the Portfolio could be forced to sell its holdings without regard to the investment merits, thereby decreasing the assets upon which the Portfolio’s rate of return is based.

The costs attributable to investing in the high yield markets are usually higher for several reasons, such as higher investment research costs and higher commission costs.

The Core PLUS Total Return, Intermediate PLUS Bond and Inflation Protected Bond Portfolios may invest in securities rated in the category “C” and above or determined by the sub-adviser to be of comparable quality. Securities rated “C” are considered highly speculative and may be used to cover a situation where the issuer has filed a bankruptcy petition but debt service payments are continued. While such debt will likely have some quality and protective characteristics, those are outweighed by large uncertainties or major risk exposure to adverse conditions.

The High Yield Bond Portfolio may invest in securities of any rating and may invest up to 10% of its assets (measured at the time of investment) in distressed securities that are in default or the issuers of which are in bankruptcy. Investments in distressed securities are speculative and involve significant risk. Distressed securities frequently do not produce income while they are outstanding and may require the Portfolio to bear certain extraordinary expenses in order to protect and recover its investment. Therefore, to the extent the Portfolio seeks capital appreciation through investment in distressed securities, the Portfolio’s ability to achieve current income for its shareholders may be diminished. The Portfolio also will be subject to significant uncertainty as to when and in what manner and for what value the obligations evidenced by the distressed securities will eventually be satisfied (e.g., through a liquidation of the obligor’s assets, an exchange offer or plan of reorganization involving the distressed securities or a payment of some amount in satisfaction of the obligation). In addition, even if an exchange offer is made or a plan of reorganization is adopted with respect to distressed securities held by the Portfolio, there can be no assurance that the securities or other assets received by the Portfolio in connection with such exchange offer or plan of reorganization will not have a lower value or income potential than may have been anticipated when the investment was made. Moreover, any securities received by the Portfolio upon completion of an exchange offer or plan of reorganization may be restricted as to resale. As a result of the Portfolio’s participation in negotiations with respect to any exchange offer or plan of reorganization with respect to an issuer of distressed securities, the Portfolio may be restricted from disposing of such securities.

Mezzanine Investments. Each of the Asset Allocation, Aurora, Global Resources, All-Cap Global Resources, Intermediate PLUS Bond, Inflation Protected Bond, Low Duration, Core PLUS Total Return and High Yield Bond Portfolios, consistent with its restrictions on investing in securities of a specific credit quality, may invest in certain high yield securities known as mezzanine investments, which are subordinated debt securities which are generally issued in private placements in connection with an equity security (e.g., with attached warrants). Such mezzanine investments may be issued with or without registration rights. Similar to other high yield securities,

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maturities of mezzanine investments are typically seven to ten years, but the expected average life is significantly shorter at three to five years. Mezzanine investments are usually unsecured and subordinate to other obligations of the issuer.

Collateralized Bond Obligations. The High Yield Bond Portfolio may invest in collateralized bond obligations (“CBOs”), which are structured products backed by a diversified pool of high yield public or private fixed income securities. In addition, each Bond and Equity Portfolio may invest in CBOs to the extent that the securities underlying the CBO meet the credit quality requirements of the Portfolio. The pool of securities is typically separated into tranches representing different degrees of credit quality. The top tranche of CBOs, which represents the highest credit quality in the pool, has the greatest collateralization and pays the lowest interest rate. Lower CBO tranches represent lower degrees of credit quality and pay higher interest rates to compensate for the attendant risks. The bottom tranche specifically receives the residual interest payments (i.e., money that is left over after the higher tiers have been paid) rather than a fixed interest rate. The return on the bottom tranche of CBOs is especially sensitive to the rate of defaults in the collateral pool.

When-Issued Purchases and Forward Commitments. Each Portfolio (other than the Index Master 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 a 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 a 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 a Portfolio agrees to purchase securities on this basis, the adviser or sub-adviser will designate liquid assets on its books and records in an amount equal to the amount of the Portfolio’s commitments to the extent required by SEC guidelines. It may be expected that the market value of a 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.

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

The market value of the securities underlying a commitment to purchase securities, and any subsequent fluctuations in their market value, is taken into account when determining the market value of a 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. Each Equity and Bond Portfolio (except the Index Master Portfolio, which may only acquire warrants as a result of corporate actions involving its holdings of other equity securities) 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 a 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. A 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 a Portfolio in units or attached to other securities are not subject to this restriction.

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Non-U.S. Investments. The Money Market Portfolio and the Non-Money Market Portfolios may invest in non-U.S. securities. Investing in non-U.S. securities involves risks not typically associated with investing in securities of companies organized and operated in the United States. Because non-U.S. securities generally are denominated and pay dividends or interest in non-U.S. currencies, the value of a Portfolio that invests in non-U.S. securities as measured in U.S. dollars will be affected favorably or unfavorably by changes in exchange rates.

A Portfolio’s investments in non-U.S. securities may also be adversely affected by changes in non-U.S. 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 a Portfolio’s operations.

In general, less information is publicly available with respect to non-U.S. issuers than is available with respect to U.S. companies. Most non-U.S. 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 non-U.S. stock exchanges has increased in recent years, it remains appreciably below that of the New York Stock Exchange. Accordingly, a Portfolio’s non-U.S. 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.

Investments in non-dollar denominated securities may be on either a currency hedged or unhedged basis, and the Portfolios may hold from time to time various non-U.S. currencies pending investment or conversion into U.S. dollars. Some of these instruments may have the characteristics of futures contracts. In addition, certain Portfolios may engage in non-U.S. currency exchange transactions to seek to protect against changes in the level of future exchange rates which would adversely affect the Portfolio’s performance. These investments and transactions involving non-U.S. securities, currencies, options (including options that relate to non-U.S. currencies), futures, hedging and cross-hedging are described below and under “-Interest Rate Transactions and Currency Swaps,” “-Non-U.S. Currency Transactions” and “-Options and Futures Contracts.”

To maintain greater flexibility, a Portfolio may invest in instruments which have the characteristics of futures contracts. These instruments may take a variety of forms, such as debt securities with interest or principal payments determined by reference to the value of a currency or commodity at a future point in time. The risks of such investments could reflect the risks of investing in futures, currencies and securities, including volatility and illiquidity.

Non-U.S. investments of the Bond Portfolios (and, to the extent stated in its Prospectuses, the Money Market Portfolio) may include: (a) debt obligations issued or guaranteed by non-U.S. sovereign governments or their agencies, authorities, instrumentalities or political subdivisions, including a non-U.S. state, province or municipality; (b) debt obligations of supranational organizations such as the World Bank, Asian Development Bank, European Investment Bank, and European Economic Community; (c) debt obligations of non-U.S. banks and bank holding companies; (d) debt obligations of domestic banks and corporations issued in non-U.S. currencies; (e) debt obligations denominated in the Euro; and (f) non-U.S. corporate debt securities and commercial paper. Such securities may include loan participations and assignments, convertible securities and zero-coupon securities.

Political and economic structures in emerging market 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 a 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.

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The expense ratios of the Portfolios investing significantly in non-U.S. securities 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 custody of non-U.S. securities, higher commissions paid on comparable transactions on non-U.S. markets and additional costs arising from delays in settlements of transactions involving non-U.S. securities.

Brady Bonds. A Portfolio’s emerging market debt securities may include emerging market governmental debt obligations commonly referred to as Brady Bonds. Brady Bonds are securities created through the exchange of existing commercial bank loans to sovereign entities for new obligations in connection with debt restructurings under a debt restructuring plan introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady (the “Brady Plan”). Brady Plan debt restructurings have been implemented in a number of countries, including: Argentina, Bolivia, Brazil, Bulgaria, Costa Rica, the Dominican Republic, Ecuador, Jordan, Mexico, Niger, Nigeria, Panama, Peru, the Philippines, Poland, Uruguay, and Venezuela.

Brady Bonds may be collateralized or uncollateralized, are issued in various currencies (primarily the U.S. dollar) and are actively traded in the over-the-counter secondary market. Brady Bonds are not considered to be U.S. Government securities. U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed rate par bonds or floating rate discount bonds, are generally collateralized in full as to principal by U.S. Treasury zero-coupon bonds having the same maturity as the Brady Bonds. Interest payments on these Brady Bonds generally are collateralized on a one-year or longer rolling-forward basis by cash or securities in an amount that, in the case of fixed rate bonds, is equal to at least one year of interest payments or, in the case of floating rate bonds, initially is equal to at least one year’s interest payments based on the applicable interest rate at that time and is adjusted at regular intervals thereafter. Certain Brady Bonds are entitled to “value recovery payments” in certain circumstances, which in effect constitute supplemental interest payments but generally are not collateralized. Brady Bonds are often viewed as having three or four valuation components: (i) the collateralized repayment of principal at final maturity; (ii) the collateralized interest payments; (iii) the uncollateralized interest payments; and (iv) any uncollateralized repayment of principal at maturity (the uncollateralized amounts constitute the “residual risk”).

Most Mexican Brady Bonds issued to date have principal repayments at final maturity fully collateralized by U.S. Treasury zero-coupon bonds (or comparable collateral denominated in other currencies) and interest coupon payments collateralized on an 18-month rolling-forward basis by funds held in escrow by an agent for the bondholders. A significant portion of the Venezuelan Brady Bonds and the Argentine Brady Bonds issued to date have repayments at final maturity collateralized by U.S. Treasury zero-coupon bonds (or comparable collateral denominated in other currencies) and/or interest coupon payments collateralized on a 14-month (for Venezuela) or 12-month (for Argentina) rolling-forward basis by securities held by the Federal Reserve Bank of New York as collateral agent.

Brady Bonds involve various risk factors described above associated with investing in non-U.S. securities, including the history of defaults with respect to commercial bank loans by public and private entities of countries issuing Brady Bonds. There can be no assurance that Brady Bonds in which the Portfolios may invest will not be subject to restructuring arrangements or to requests for new credit, which may cause the Portfolios to suffer a loss of interest or principal on any of its holdings.

ADRs, EDRs and GDRs. Each Equity and Bond Portfolio (other than the Index Master 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 non-U.S. corporation. EDRs, which are sometimes referred to as Continental Depository Receipts, are receipts issued in Europe, typically by non-U.S. banks and trust companies, that evidence ownership of either non-U.S. 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 “-Non-U.S. Investments.”

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Options and Futures Contracts. To the extent consistent with its investment objective, each Equity and Bond Portfolio (other than the Index Master Portfolio) may write (i.e., sell) covered call options, buy call options, write secured put options and buy put options for the purpose of hedging or earning additional income, which may be deemed speculative or, with respect to the Low Duration Bond, Core Bond Total Return, Core PLUS Total Return, Managed Income, International Bond, High Yield Bond, Enhanced Income, UltraShort Municipal, Intermediate PLUS Bond, Inflation Protected Bond, Health Sciences, Global Resources, All-Cap Global Resources, Global Science & Technology Opportunities, Asset Allocation and International Opportunities Portfolios, cross-hedging. Each of the Low Duration Bond, Core Bond Total Return, Core PLUS Total Return, Managed Income, International Bond, High Yield Bond, Enhanced Income, UltraShort Municipal, Intermediate PLUS Bond, Inflation Protected Bond, Health Sciences, Global Resources, All-Cap Global Resources, Global Science & Technology Opportunities, Asset Allocation and International Opportunities Portfolios may also purchase exchange-listed and over-the-counter put and call options on non-U.S. currencies, and the Health Sciences, Global Resources, All-Cap Global Resources, Core PLUS Total Return and International Bond Portfolios may write covered call options on up to 100% of the currencies in its portfolio. 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, in the case of the Low Duration Bond, Core Bond Total Return, Core PLUS Total Return, Managed Income, International Bond, High Yield Bond, Enhanced Income, UltraShort Municipal, Intermediate PLUS Bond, Inflation Protected Bond, Health Sciences, Global Resources, All-Cap Global Resources, Global Science & Technology Opportunities, Asset Allocation and International Opportunities Portfolios, non-U.S. currencies, and may or may not be listed on a securities exchange and may or may not be issued by the Options Clearing Corporation. A Portfolio will not purchase put and call options when the aggregate premiums on outstanding options exceed 5% of its total assets at the time of purchase, and will not write options on more than 25% of the value of its total assets (measured at the time an option is written). There is no limit on the amount of a Portfolio’s assets that can be put at risk through the use of options. 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.

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. A 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 a 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 are designated on the adviser’s or sub-adviser’s books and records in an amount equal to the amount of the Portfolio’s commitments to the extent required by SEC guidelines) upon conversion or exchange of other securities held by it. For a call option on an index, the option is covered if a Portfolio maintains with its custodian liquid assets equal to the contract value. A call option is also covered if a 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 designated on the adviser’s or sub-adviser’s books and records to the extent required by SEC guidelines.

When a Portfolio purchases an option, the premium paid by it is recorded as an asset of the Portfolio. When a Portfolio writes a put option, in return for receipt of the premium, it assumes the obligation to pay the strike price for the instrument underlying the option if the other party to the option chooses to exercise it. When a 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 a 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 a Portfolio expires on the stipulated expiration date or if the Portfolio enters into a closing purchase transaction, it will realize a gain (or

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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 a 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.

To the extent consistent with its investment objective, each Equity and Bond Portfolio may also invest in futures contracts and options on futures contracts (interest rate futures contracts, index futures contracts, or non-U.S. exchange futures contracts as applicable). These instruments are described in Appendix B to this Statement of Additional Information. There is no limit on the amount of a Portfolio’s assets that can be put at risk through the use of futures contracts and the value of a Portfolio’s futures contracts and options on futures contracts may equal or exceed 100% of its total assets.

To maintain greater flexibility, each of the Bond Portfolios may invest in instruments which have characteristics similar to futures contracts. These instruments may take a variety of forms, such as debt securities with interest or principal payments determined by reference to the value of a commodity at a future point in time. The risks of such investments could reflect the risks of investing in futures and securities, including volatility and illiquidity.

Futures contracts obligate a Portfolio, at maturity, to take or make delivery of securities, the cash value of a securities index or a stated quantity of a non-U.S. currency. A 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. A 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, a Portfolio may utilize futures contracts in anticipation of changes in the composition of its holdings or in currency exchange rates.

A Portfolio may purchase and sell put and call options on futures contracts traded on an exchange or board of trade. When a 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 a 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 a Portfolio’s position in a futures contract or related option, the adviser or sub-adviser will designate liquid assets on its books and records in an amount equal to the amount of the Portfolio’s commitments 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 a Portfolio and the price of the futures contract or option; (b) possible lack of a liquid secondary market for a futures contract and the resulting inability to close a futures contract when desired; (c) losses caused by unanticipated market movements, which are potentially unlimited; (d) the adviser’s or 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.

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The Fund and the Portfolios have claimed exclusions from the definition of the term “commodity pool operator” under the Commodity Exchange Act and, therefore, are not subject to registration or regulation as commodity pool operators under the Act.

Interest Rate Transactions, Currency Swaps and Swaptions. In addition to the Equity Portfolios, the Asset Allocation and Bond Portfolios may enter into interest rate swaps, may purchase or sell interest rate caps and floors and may enter into options on swap agreements (“swaptions”). The Portfolios may enter into these transactions primarily to preserve a return or spread on a particular investment or portion of their holdings, as a duration management technique or to protect against an increase in the price of securities a Portfolio anticipates purchasing at a later date. They may also be used for speculation to increase returns.

In order to protect against currency fluctuations, the Health Sciences, Global Resources, All-Cap Global Resources, Global Science & Technology Opportunities, International Opportunities, Asset Allocation, Low Duration Bond, Core Bond Total Return, Core PLUS Total Return, Managed Income, International Bond, High Yield Bond, Enhanced Income, UltraShort Municipal, Intermediate PLUS Bond and Inflation Protected Bond Portfolios may enter into currency swaps. Currency swaps involve the exchange of the rights of the Portfolios and another party to make or receive payments in specified currencies.

The Bond and Asset Allocation Portfolios may enter into interest rate swaps, caps, floors and swaptions on either an asset-based or liability-based basis, depending on whether a Portfolio is hedging its assets or its liabilities. Swap agreements are two-party contracts entered into primarily by institutional investors for periods ranging from a few weeks to more than one year. In a standard “swap” transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments, which may be adjusted for an interest factor. The gross returns to be exchanged or “swapped” between the parties are generally calculated with respect to a “notional amount,” i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate or in a “basket” of securities representing a particular index. Forms of swap agreements include interest rate caps, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate, or “cap”; and interest rate floors, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates fall below a specified rate, or “floor”.

A Portfolio will usually enter into interest rate swaps on a net basis, i.e., the two payment streams are netted out, with the Portfolio receiving or paying, as the case may be, only the net amount of the two payments. In contrast, currency swaps usually involve the delivery of the entire principal value of one designated currency in exchange for the other designated currency.

A swaption is a contract that gives a counterparty the right (but not the obligation) to enter into a new swap agreement or to shorten, extend, cancel or otherwise modify an existing swap agreement, at some designated future time on specified terms. The Portfolios may write (sell) and purchase put and call swaptions.

Whether the Portfolios’ use of swap agreements or swaptions will be successful in furthering their investment objectives will depend on the adviser’s or sub-adviser’s ability to predict correctly whether certain types of investments are likely to product greater returns than other investments. Because they are two-party contracts and because they may have terms of greater than seven days, swap agreements may be considered to be illiquid. Moreover, a Portfolio bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty. A Portfolio will enter into swap agreements only with counterparties that meet certain standards of creditworthiness. If there is a default by the other party to such a transaction, a Portfolio will have contractual remedies pursuant to the agreements related to the transaction. The swap market has grown substantially in recent years with a large number of banks and investment banking firms acting both as principals and as agents utilizing standardized swap documentation. As a result, the swap market has become relatively liquid. Caps and floors are less liquid than swaps.

The swaps market is largely unregulated. It is possible that developments in the swaps market, including potential government regulation, could adversely affect a Portfolio’s ability to terminate existing swap agreements or to realize amounts to be received under such agreements.

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Depending on the terms of the particular option agreement, a Portfolio will generally incur a greater degree of risk when it writes a swaption than it will incur when it purchases a swaption. When a Portfolio purchases a swaption, it risks losing only the amount of the premium it has paid should it decide to let the option expire unexercised. However, when a Portfolio writes a swaption, upon exercise of the option the Portfolio will become obligated according to the terms of the underlying agreement.

A Portfolio will accrue the net amount of the excess, if any, of its obligations over its entitlements with respect to each interest rate or currency swap or swaption on a daily basis and its adviser or sub-adviser will designate liquid assets on its books and records in an amount having an aggregate net asset value at least equal to the accrued excess to the extent required by SEC guidelines. If the other party to an interest rate swap defaults, a Portfolio’s risk of loss consists of the net amount of interest payments that the Portfolio is contractually entitled to receive. Because currency swaps usually involve the delivery of the entire principal value of one designated currency in exchange for the other designated currency, the entire principal value of a currency swap is subject to the risk that the other party to the swap will default on its contractual delivery obligations.

Credit Default Swaps. To the extent consistent with their investment strategies, the Bond and Asset Allocation Portfolios may, for hedging or leveraging purposes, make use of credit default swaps, which are contracts whereby one party makes periodic payments to a counterparty in exchange for the right to receive from the counterparty a payment equal to the par (or other agreed-upon) value of a referenced debt obligation in the event of a default by the issuer of the debt obligation. The use of credit default swaps may be limited by the Portfolios’ limitations on illiquid investments. When used for hedging purposes, the Portfolio would be the buyer of a credit default swap contract. In that case, the Portfolio would be entitled to receive the par (or other agreed-upon) value of a referenced debt obligation from the counterparty to the contract in the event of a default by a third party, such as a U.S. or non-U.S. issuer, on the debt obligation. In return, the Portfolio would pay to the counterparty a periodic stream of payments over the term of the contract provided that no event of default has occurred. If no default occurs, the Portfolio would have spent the stream of payments and received no benefit from the contract. Credit default swaps involve the risk that the investment may expire worthless and would generate income only in the event of an actual default by the issuer of the underlying obligation (as opposed to a credit downgrade or other indication of financial instability). It would also involve credit risk - that the seller may fail to satisfy its payment obligations to the Portfolio in the event of a default.

When the Portfolio is the seller of a credit default swap contract, it receives the stream of payments but is obligated to pay upon default of the referenced debt obligation. As the seller, the Portfolio would effectively add leverage to its portfolio because, in addition to its total assets, the Portfolio would be subject to investment exposure on the notional amount of the swap.

In addition to the risks applicable to derivatives generally, credit default swaps involve special risks because they are difficult to value, are highly susceptible to liquidity and credit risk, and generally pay a return to the party that has paid the premium only in the event of an actual default by the issuer of the underlying obligation (as opposed to a credit downgrade or other indication of financial difficulty).

Non-U.S. Currency Transactions. Each of the Health Sciences, Global Resources, All-Cap Global Resources, Global Science & Technology Opportunities, Asset Allocation, International Opportunities, Low Duration Bond, Core Bond Total Return, Core PLUS Total Return, Managed Income, International Bond, High Yield Bond, Enhanced Income, UltraShort Municipal, Intermediate PLUS Bond and Inflation Protected Bond Portfolios may engage in non-U.S. currency exchange transactions to protect against uncertainty in the level of future exchange rates. Those Portfolios may engage in non-U.S. currency exchange transactions in connection with the purchase and sale of portfolio securities (transaction hedging) and to protect the value of specific portfolio positions (position hedging). The Portfolios may purchase or sell a non-U.S. currency on a spot (or cash) basis at the prevailing spot rate in connection with the settlement of transactions in portfolio securities denominated in that non-U.S. currency, and may also enter into contracts to purchase or sell non-U.S. currencies at a future date (“forward contracts”).

Forward non-U.S. 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 a Portfolio to establish a rate of exchange for a

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future point in time. A Portfolio may use forward non-U.S. currency exchange contracts to hedge against movements in the value of non-U.S. currencies relative to the U.S. dollar in connection with specific portfolio transactions or with respect to portfolio positions. A Portfolio generally may enter into forward non-U.S. 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, a Portfolio may enter into a forward non-U.S. 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 non-U.S. currency relative to the U.S. dollar or other non-U.S. currency.

Second, when a Portfolio’s adviser or sub-adviser anticipates that a particular non-U.S. 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 non-U.S. currency approximating the value of some or all of the Portfolio’s securities denominated in such non-U.S. currency. With respect to any forward non-U.S. 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 non-U.S. currency, they also limit potential gains which might result from increases in the value of such currency. A Portfolio will also incur costs in connection with forward non-U.S. currency exchange contracts and conversions of non-U.S. currencies and U.S. dollars.

A 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 a Portfolio is engaging in proxy hedging. A 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, a Portfolio may hold both Canadian government bonds and Japanese government bonds, and the adviser or sub-adviser may believe that Canadian dollars will deteriorate against Japanese yen. The Portfolio would sell Canadian dollars to reduce its exposure to that currency and buy Japanese yen. This strategy would be a hedge against a decline in the value of Canadian dollars, although it would expose the Portfolio to declines in the value of the Japanese yen 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 a Portfolio than would otherwise be incurred, even when the currency transactions are used for hedging purposes.

Liquid assets equal to the amount of the Portfolio’s assets that could be required to consummate forward contracts will be segregated on the books and records of the adviser or sub-adviser to the extent required by SEC guidelines. For the purpose of determining the adequacy of the securities so segregated, the 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 added.

Stand-by Commitments. Under a stand-by commitment for a Municipal Obligation, a dealer agrees to purchase at the Portfolio’s option a specified Municipal Obligation at a specified price. Stand-by commitments for Municipal Obligations may be exercisable by a Portfolio at any time before the maturity of the underlying Municipal Obligations and may be sold, transferred or assigned only with the instruments involved. It is expected that such stand-by commitments will generally be available without the payment of any direct or indirect consideration. However, if necessary or advisable, a Portfolio may pay for such a stand-by commitment either separately in cash or by paying a higher price for Municipal Obligations which are acquired subject to the commitment for Municipal Obligations (thus reducing the yield to maturity otherwise available for the same securities). The total amount paid

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in either manner for outstanding stand-by commitments for Municipal Obligations held by a Portfolio will not exceed  ¹/2 of 1% of the value of such Portfolio’s total assets calculated immediately after each stand-by commitment is acquired.

Stand-by commitments will only be entered into with dealers, banks and broker-dealers which, in an adviser’s or sub-adviser’s opinion, present minimal credit risks. A Portfolio will acquire stand-by commitments solely to facilitate portfolio liquidity and not to exercise its rights thereunder for trading purposes. Stand-by commitments will be valued at zero in determining net asset value. Accordingly, where a Portfolio pays directly or indirectly for a stand-by commitment, its cost will be reflected as an unrealized loss for the period during which the commitment is held by such Portfolio and will be reflected as a realized gain or loss when the commitment is exercised or expires.

Each Tax-Free and Municipal Money Market Portfolio and the Core PLUS Total Return, UltraShort Municipal, Intermediate PLUS Bond and Inflation Protected Bond Portfolios may acquire stand-by commitments with respect to Municipal Obligations held by it. The acquisition of a stand-by commitment may increase the cost, and thereby reduce the yield, of the Municipal Obligations to which the commitment relates.

Tax-Exempt Derivatives. The Municipal Money Market Portfolios and the Tax-Free Portfolios (collectively, the “Money and Non-Money Market Municipal Portfolios”) and the Core PLUS Total Return, UltraShort Municipal, Intermediate PLUS Bond and Inflation Protected Bond Portfolios may hold tax-exempt derivatives which may be in the form of tender option bonds, participations, beneficial interests in a trust, partnership interests or other forms. It is intended that any such tax-exempt derivatives held by the New Jersey Municipal Money Market Portfolio and the New Jersey Tax-Free Income Portfolio shall comply with the requirements of N.J.S.A. 54A:6-14.1. A number of different structures have been used. For example, interests in long-term fixed-rate municipal debt obligations, held by a bank as trustee or custodian, are coupled with tender option, demand and other features when the tax-exempt derivatives are created. Together, these features entitle the holder of the interest to tender (or put) the underlying municipal debt obligation to a third party at periodic intervals and to receive the principal amount thereof. In some cases, municipal debt obligations are represented by custodial receipts evidencing rights to receive specific future interest payments, principal payments, or both, on the underlying securities held by the custodian. Under such arrangements, the holder of the custodial receipt has the option to tender the underlying securities at their face value to the sponsor (usually a bank or broker dealer or other financial institution), which is paid periodic fees equal to the difference between the securities’ fixed coupon rate and the rate that would cause the securities, coupled with the tender option, to trade at par on the date of a rate adjustment. A participation interest gives the Fund an undivided interest in a Municipal Obligation in the proportion the Fund’s participation bears to the total principal amount of the Municipal Obligation, and typically provides for a repurchase feature for all or any part of the full principal amount of the participation interest, plus accrued interest. Trusts and partnerships are typically used to convert long-term fixed rate high quality bonds of a single state or municipal issuer into variable or floating rate demand instruments. The Money and Non-Money Market Municipal Portfolios and the UltraShort Municipal, Intermediate PLUS Bond and Inflation Protected Bond Portfolios may hold tax-exempt derivatives, such as participation interests and custodial receipts, for municipal debt obligations which give the holder the right to receive payment of principal subject to the conditions described above. It is intended that any such tax-exempt derivatives held by the New Jersey Municipal Money Market Portfolio and the New Jersey Tax-Free Income Portfolio shall comply with the requirements of N.J.S.A. 54A:6-14.1. The Internal Revenue Service has not ruled on whether the interest received on tax-exempt derivatives in the form of participation interests or custodial receipts is tax-exempt, and accordingly, purchases of any such interests or receipts are based on the opinions of counsel to the sponsors of such derivative securities. Neither the Fund nor its investment adviser or sub-advisers will review the proceedings related to the creation of any tax-exempt derivatives or the basis for such opinions.

Tax-Exempt Preferred Shares. The Tax-Free Portfolios and the Core PLUS Total Return, UltraShort Municipal, Intermediate PLUS Bond and Inflation Protected Bond Portfolios may invest in preferred interests of other investment funds that pay dividends that are exempt from regular Federal income tax. Such funds in turn invest in municipal bonds and other assets that pay interest or make distributions that are exempt from regular Federal income tax, such as revenue bonds issued by state or local agencies to fund the development of low-income, multi-family housing. Investment in such tax-exempt preferred shares involves many of the same issues as investing in other open- or closed-end investment companies as discussed below. These investments also have additional

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risks, including liquidity risk, the absence of regulation governing investment practices, capital structure and leverage, affiliated transactions and other matters, and concentration of investments in particular issuers or industries. The Tax-Free Portfolios and the UltraShort Municipal Portfolio will treat investments in tax-exempt preferred shares as investments in municipal bonds.

Securities Lending. A Portfolio may seek additional income by lending securities on a short-term basis. Voting rights may pass with the lending of securities. The trustees of the Fund will call loans of securities to vote proxies or otherwise obtain rights to vote or consent if a material event affecting the investment occurs. The securities lending agreements will require that the loans be secured by collateral in cash, U.S. Government securities or (except for the Index Master Portfolio) irrevocable bank letters of credit maintained on a current basis equal in value to at least the market value of the loaned securities. A 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.

A 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 a 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 non-U.S. 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 non-U.S. banks or savings institutions with total assets in excess of $1 billion (including obligations of non-U.S. branches of such banks) (i.e., CD’s, BA’s and time deposits); (d) repurchase agreements relating to the above instruments, as well as corporate debt; and (e) unaffiliated and, to the extent permitted by SEC guidelines, affiliated 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.

PFPC Trust Company acts as the lending agent for the Portfolios and is paid a fee for the provision of these services. The lending agent has hired BlackRock Capital Management, Inc. (“BCM”), a wholly-owned subsidiary of BlackRock, Inc., and pays BCM to provide advisory services with respect to the collateral of all of the clients of its securities lending program. The lending agent may invest such collateral in short-term investments, including the Institutional Money Market Trust (the “Trust”), a portfolio of money market securities, or high-quality, short-term instruments with a maturity date not to exceed 397 days. BCM serves as investment adviser to the Trust, but receives no fees from the Trust for these services. Administrative and accounting services are provided by PFPC Inc., an indirect wholly-owned subsidiary of The PNC Financial Services Group, Inc. PFPC, Inc. is paid a fee from the Trust at an annual rate not to exceed 0.10% of the Trust’s average daily net assets.

While the Index Master Portfolio may earn additional income from lending securities, such activity is incidental to the investment objective of the Index Master Portfolio. The value of securities loaned may not exceed 33 ¹/3% of the value of the Index Master Portfolio’s total assets. In connection with such loans, the Index Master Portfolio will receive collateral consisting of cash or U.S. Government securities which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. In addition, the Index Master Portfolio will be able to terminate the loan at any time and will receive reasonable interest on the loan, as well as amounts equal to any dividends, interest or other distributions on the loaned securities. In the event of the bankruptcy of the borrower, the Trust could experience a delay in recovering the loaned securities. Management of the Trust believes that this risk can be controlled through careful monitoring procedures.

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, 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 a Portfolio, a rated security may cease to be rated. A Portfolio’s adviser or sub-adviser will consider

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such an event in determining whether the Portfolio should continue to hold the security. Subject to its other investment strategies, there is no limit on the amount of unrated securities a Portfolio may hold, although under normal market conditions the adviser and sub-adviser do not expect to hold these securities to a material extent.

Investment Companies. In connection with the management of their daily cash positions, the Equity Portfolios (other than the Index Master Portfolio) and the Core PLUS Total Return, Enhanced Income, UltraShort Municipal, Intermediate PLUS Bond and Inflation Protected Bond Portfolios 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. Such Portfolios may also invest in securities issued by other investment companies with similar investment objectives, including investing in Exchange Traded Funds, which are typically open-end funds or unit investment trusts listed on a stock exchange. The Bond Portfolios may invest in securities issued by other investment companies within the limits prescribed by the 1940 Act and set forth below. These may include ETFs. The Health Sciences, Global Resources, All-Cap Global Resources, International Opportunities and the Core PLUS Total Return Portfolios may purchase shares of investment companies investing primarily in non-U.S. securities, including so-called “country funds” and ETFs. Country funds have portfolios consisting exclusively of securities of issuers located in one foreign country. The Index Master Portfolio may also invest in Standard & Poor’s Depository Receipts (SPARS) and shares of other investment companies that are structured to seek a similar correlation to the performance of the S&P 500^® Index. Securities of other investment companies will be acquired within limits prescribed by the 1940 Act. As a shareholder of another investment company, a 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 Money Market Portfolios may invest in securities issued by other investment companies which invest in short-term, high quality debt securities and which determine their net asset value per share based on the amortized cost or penny-rounding method of valuation. Securities of other investment companies will be acquired by a Portfolio within the limits prescribed by the 1940 Act. As a shareholder of another investment company, a 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.

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

Stripped and Zero Coupon Obligations. To the extent consistent with their investment objectives, the Bond and Equity Portfolios may purchase Treasury receipts and other “stripped” securities that evidence ownership in either the future interest payments or the future principal payments on U.S. Government and other obligations. These participations, which may be issued by the U.S. Government (or a U.S. Government agency or instrumentality) or by private issuers such as banks and other institutions, are issued at a discount to their “face value,” and may include stripped mortgage-backed securities (“SMBS”). Stripped securities, particularly SMBS, may exhibit greater price volatility than ordinary debt securities because of the manner in which their principal and interest are returned to investors, and they are often illiquid. The International Bond Portfolio also may purchase “stripped” securities that evidence ownership in the future interest payments or principal payments on obligations of non-U.S. governments.

SMBS are usually structured with two or more classes that receive different proportions of the interest and principal distributions from a pool of mortgage-backed obligations. A common type of SMBS will have one class receiving all of the interest (“IO” or interest-only), while the other class receives all of the principal (“PO” or principal-only). However, in some cases, one class will receive some of the interest and most of the principal while the other class will receive most of the interest and the remainder of the principal. If the underlying obligations experience greater than anticipated prepayments of principal, a Portfolio may fail to fully recoup its initial investment in these securities even if the securities have received the highest rating by a nationally recognized statistical rating organization. The market value of SMBS can be extremely volatile in response to changes in interest rates. The yields on a class of SMBS that receives all or most of the interest are generally higher than prevailing market yields on other mortgage-related obligations because their cash flow patterns are also volatile and there is a greater risk that the initial investment will not be fully recouped.

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Each Bond and Equity Portfolio may invest in zero-coupon bonds, which are normally issued at a significant discount from face value and do not provide for periodic interest payments. Zero-coupon bonds may experience greater volatility in market value than similar maturity debt obligations which provide for regular interest payments. Additionally, current federal tax law requires the holder of certain zero-coupon bonds to accrue income with respect to these securities prior to the receipt of cash payments. To maintain its qualification as a regulated investment company and avoid liability for federal income and excise taxes, a Portfolio may be required to distribute income accrued with respect to these securities and may have to dispose of portfolio securities under disadvantageous circumstances in order to generate cash to satisfy these distribution requirements. See “Taxes.”

Funding Agreements. The Bond and Equity Portfolios and the Money Market Portfolio may invest in guaranteed investment contracts (“GICs”) and similar funding agreements. In connection with these investments, a Portfolio makes cash contributions to a deposit fund of an insurance company’s general account. The insurance company then credits to the Portfolio on a monthly basis guaranteed interest, which is based on an index (such as LIBOR). The funding agreements provide that this guaranteed interest will not be less than a certain minimum rate. The purchase price paid for a funding agreement becomes part of the general assets of the insurance company, and the contract is paid from the general assets of the insurance company. Generally, funding agreements are not assignable or transferable without the permission of the issuing insurance companies, and an active secondary market in some funding agreements does not currently exist.

Short Sales. The Portfolios may only make short sales of securities “against-the-box.” A short sale is a transaction in which a Portfolio sells a security it does not own in anticipation that the market price of that security will decline. The Portfolios may make short sales both as a form of hedging to offset potential declines in long positions in similar securities and in order to maintain portfolio flexibility. In a short sale “against-the-box,” at the time of sale, the Portfolio owns or has the immediate and unconditional right to acquire the identical or similar security at no additional cost. When selling short “against-the-box,” a Portfolio forgoes an opportunity for capital appreciation in the security.

Interest Rate and Extension Risk. The value of fixed income securities in the Portfolios can be expected to vary inversely with changes in prevailing interest rates. Fixed income securities with longer maturities, which tend to produce higher yields, are subject to potentially greater capital appreciation and depreciation than securities with shorter maturities. The Portfolios are not restricted to any maximum or minimum time to maturity in purchasing individual portfolio securities, and the average maturity of a Portfolio’s assets will vary. Although the Bond Portfolios’ sub-adviser will normally attempt to structure each Portfolio to have a comparable duration to its benchmark as stated in the Prospectuses, there can be no assurance that it will be able to do so at all times.

Liquidity Management. Each Money Market Portfolio and the Enhanced Income and UltraShort Municipal Portfolios may hold uninvested cash reserves pending investment during temporary defensive periods or if, in the opinion of the Portfolios’ sub-adviser, suitable obligations are unavailable. During normal market periods, no more than 20% of a Portfolio’s assets will be held uninvested. Uninvested cash reserves may not earn income.

As a temporary defensive measure if its adviser or sub-adviser determines that market conditions warrant, each Equity Portfolio (other than the Index Master Portfolio) may invest without limitation in high quality money market instruments. The Equity Portfolios may also invest in high quality money market instruments pending investment or to meet anticipated redemption requests. The Asset Allocation Portfolio may also invest in these securities in furtherance of its investment objective. The Index Master Portfolio may invest a portion of its assets, normally not more than 5% of its net assets, in certain short-term fixed income obligations in order to maintain liquidity or to invest temporarily uncommitted cash balances. High quality money market instruments include U.S. government obligations, U.S. government agency obligations, dollar denominated obligations of non-U.S. issuers, bank obligations, including U.S. subsidiaries and branches of non-U.S. 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.

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Illiquid Securities. No Equity or Bond Portfolio will invest more than 15% (10% with respect to the Index Master Portfolio) and no Money Market Portfolio will invest more than 10% of the value of its net assets in securities that are illiquid. GICs, variable and floating rate instruments that cannot be disposed of within seven days, and 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. Each Equity, Bond and Money Market 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 a Portfolio during any period that qualified institutional buyers become uninterested in purchasing these restricted securities.

Any securities that are thinly traded or whose resale is restricted can be difficult to sell at the desired time and price. Some of these securities are new and complex, and trade only among institutions; the markets for these securities are still developing, and may not function as efficiently as established markets. Owning a large percentage of restricted or illiquid securities could hamper the fund’s ability to raise cash to meet redemptions. Also, because there may not be an established market price for these securities, the fund may have to estimate their value, which means that their valuation (and, to a much smaller extent, the valuation of the fund) may have a subjective element. Transactions in restricted or illiquid securities may entail registration expense and other transaction costs that are higher than those for transactions in unrestricted or liquid securities. Where registration is required for restricted or illiquid securities a considerable time period may elapse between the time the fund decides to sell the security and the time it is actually permitted to sell the security under an effective registration statement. If during such period, adverse market conditions were to develop, the fund might obtain less favorable pricing terms that when it decided to sell the security.

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

REITs. In pursuing its investment strategy, an Equity Portfolio may invest in shares of REITs. REITs possess certain risks which differ from an investment in common stocks. REITs are financial vehicles that pool investor’s capital to purchase or finance real estate. REITs may concentrate their investments in specific geographic areas or in specific property types, i.e., hotels, shopping malls, residential complexes and office buildings. The market value of REIT shares and the ability of the REITs to distribute income may be adversely affected by several factors, including rising interest rates, changes in the national, state and local economic climate and real estate conditions, perceptions of prospective tenants of the safety, convenience and attractiveness of the properties, the ability of the owners to provide adequate management, maintenance and insurance, the cost of complying with the Americans with Disabilities Act, increased competition from new properties, the impact of present or future environmental legislation and compliance with environmental laws, changes in real estate taxes and other operating expenses, adverse changes in governmental rules and fiscal policies, adverse changes in zoning laws and other factors beyond the control of the issuers of the REITs. In addition, distributions received by a Portfolio from REITs may consist of dividends, capital gains and/or return of capital. As REITs generally pay a higher rate of dividends (on a pre-tax basis) than operating companies, to the extent application of the Portfolio’s investment strategy results in the Portfolio investing in REIT shares, the percentage of the Portfolio’s dividend income received from REIT shares will likely exceed the percentage of the Portfolio’s portfolio which is comprised of REIT shares. Generally, dividends received by a Portfolio from REIT shares and distributed to the Portfolio’s shareholders will not constitute “qualified dividend income” eligible for the reduced tax rate applicable to qualified dividend income; therefore, the tax rate applicable to that portion of the dividend income attributable to REIT shares held by the Portfolio that shareholders of the Portfolio receive will be taxed at a higher rate than dividends eligible for the reduced tax rate applicable to qualified dividend income.

Portfolio Turnover Rates. A 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 (i.e., 100% or more) may result in increased transaction costs to a Portfolio, including brokerage commissions, dealer mark-ups and other transaction costs on the sale of the securities and reinvestment in other securities. The sale of a Portfolio’s securities may result in the recognition of capital gain or loss. Given the frequency of sales,

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such gain or loss will likely be short-term capital gain or loss. Unlike long-term capital gain, short-term capital gain of individuals is taxable at the same rates as ordinary income. These effects of higher than normal portfolio turnover may adversely affect a Portfolio’s performance.

SPECIAL CONSIDERATIONS FOR STATE-SPECIFIC PORTFOLIOS

This information regarding the State-Specific Portfolios is derived from official statements of certain issuers published in connection with their issuance of securities and from other publicly available information, and is believed to be accurate. No independent verification has been made of any of the following information.

Special Considerations Regarding Investments in Ohio State-Specific Obligations. The Ohio Municipal Money Market and Ohio Tax-Free Income Portfolios (the “Ohio Portfolios”) will each invest most of its net assets in securities issued by or on behalf of (or in certificates of participation in lease-purchase obligations of) the State of Ohio, political subdivisions of the State, or agencies or instrumentalities of the State or its political subdivisions (“Ohio State-Specific Obligations”). The Ohio Portfolios are therefore susceptible to general or particular economic, political or regulatory factors that may affect issuers of Ohio State-Specific Obligations. The following information constitutes only a brief summary of some of the many complex factors that may have an effect. The information does not apply to “conduit” obligations on which the public issuer itself has no financial responsibility. This information is derived from official statements of certain Ohio issuers published in connection with their issuance of securities and from other publicly available information, and is believed to be accurate. No independent verification has been made of any of the following information.

Generally, the creditworthiness of Ohio State-Specific Obligations of local issuers is unrelated to that of obligations of the State itself, and the State has no responsibility to make payments on those local obligations.

There may be specific factors that at particular times apply in connection with investment in particular Ohio State-Specific Obligations or in those obligations of particular Ohio issuers. It is possible that the investment may be in particular Ohio State-Specific Obligations, or in those of particular issuers, as to which those factors apply. However, the information below is intended only as a general summary, and is not intended as a discussion of any specific factors that may affect any particular obligation or issuer.

Much of this information is as of January 3, 2005, particularly debt figures and other statistics.

Ohio is the seventh most populous state. The Census count for 2000 was 11,353,140, up from 10,847,100 in 1990.

While diversifying more into the service and other non-manufacturing areas, the Ohio economy continues to rely in part on durable goods manufacturing largely concentrated in motor vehicles and machinery, including electrical machinery. As a result, general economic activity, as in many other industrially-developed states, tends to be more cyclical than in some other states and in the nation as a whole. Agriculture is an important segment of the economy, with over half the State’s area devoted to farming and a significant portion of total employment in agribusiness.

In earlier years, the State’s overall unemployment rate was commonly somewhat higher than the national figure. For example, the reported 1990 average monthly State rate was 5.7%, compared to the 5.5% national figure. However, then through 1998 the annual State rates were below the national rates (4.3% vs. 4.5% in 1998), but were again slightly higher in 1999 (4.3% vs. 4.2%) and 2000 (4.0% vs. 4.0%), lower in 2001 (4.2% vs. 4.7%) and in 2002 (5.7% vs. 5.8%) and higher in 2003 (6.1% vs. 6.0%). In October 2004, the State unemployment rate was higher than the national rate (6.3% vs. 5.5%). The unemployment rate and its effects vary among geographic areas of the State.

There can be no assurance that future national, regional or state-wide economic difficulties, and the resulting impact on State or local government finances generally, will not adversely affect the market value of Ohio State-Specific Obligations held in the Ohio Portfolios or the ability of particular obligors to make timely payments of debt service on (or lease payments relating to) those Obligations.

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The State operates on the basis of a fiscal biennium for its appropriations and expenditures, and is precluded by law from ending its July 1 to June 30 fiscal year or fiscal biennium in a deficit position. Most State operations are financed through the General Revenue Fund (“GRF”), for which the personal income and sales-use taxes are the major sources. Growth and depletion of GRF ending fund balances show a consistent pattern related to national economic conditions, with the ending fiscal year balance reduced during less favorable and increased during more favorable economic periods. The State has well-established procedures for, and has timely taken, necessary actions to ensure resource/expenditure balances during less favorable economic periods such as the current fiscal biennium. Those procedures include general and selected reductions in appropriations spending.

Recent biennium ending GRF balances were:

Biennium	Fund Balance		Cash Balance
1992-93	$	111,013,000	$	393,634,000
1994-95		928,019,000		1,312,234,000
1996-97		834,933,000		1,367,750,000
1998-99		976,778,000		1,512,528,000
2000-01		219,414,000		817,069,000
2002-03		52,338,000		396,539,000

Actions have been and may be taken by the State during less favorable economic periods to ensure resource/expenditure balances (particularly in the GRF), some of which are described below. None of those actions were or are being applied to appropriations or expenditures needed for debt service or lease payments relating to any State obligations.

The appropriations acts for the 2004-05 biennium include all necessary appropriations for debt service on State obligations and for lease payments relating to lease obligations issued by the Ohio Building Authority and the Treasurer of State, and previously by the Ohio Public Facilities Commission.

The following is a selective general discussion of State finances, particularly GRF receipts and expenditures, for the recent and the current bienniums.

1992-93. State and national fiscal uncertainties necessitated several actions to achieve positive GRF ending balances. An interim appropriations act was enacted effective July 1, 1991, that included appropriations for both years of the biennium for debt service and lease rental payments on State obligations payable from the GRF, even though most other GRF appropriations were made for only one month. The general appropriations act for the entire biennium was then passed on July 11, 1991. Included in the GRF resources appropriated was a transfer of $200,000,000 from the Budget Stabilization fund (“BSF”) to the GRF.

To address a projected fiscal year 1992 imbalance, the Governor ordered most State agencies to reduce GRF spending in the final six months of that fiscal year by a total of $184,000,000, the entire $100,400,000 BSF balance and additional amounts from certain other funds were transferred to the GRF, and other revenue and spending actions were taken.

Steps to ensure positive biennium-ending GRF balances for fiscal year 1993 included the Governor ordering selected GRF spending reductions totaling $350,000,000 and tax revisions that produced additional revenue of $194,500,000. As a first step toward BSF replenishment, $21,000,000 from the GRF ending balance was deposited in the BSF.

1994-95. Expenditures were below those authorized, primarily as the result of lower than expected Medicaid spending, and tax receipts (primarily auto sales/use) were significantly above estimates. Transfers from the biennium-ending GRF fund balance included $535,200,000 to the BSF and $322,800,000 to other funds, including a family services stabilization fund in anticipation of possible federal programs changes.

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1996-97. From a higher than forecasted mid-biennium GRF fund balance, $100,000,000 was transferred for elementary and secondary school computer network purposes and $30,000,000 to a new State transportation infrastructure fund. Approximately $400,800,000 served as a basis for temporary 1996 personal income tax reductions aggregating that amount. Of the GRF biennium-ending fund balance, $250,000,000 was directed to school buildings, $94,400,000 to the school computer network, $44,200,000 to school textbooks and instructional materials and a distance learning program, $34,400,000 to the BSF, and $262,900,000 to the State Income Tax Reduction Fund (“ITRF”).

1998-99. GRF appropriations of approximately $36 billion provided for significant increases in funding for primary and secondary education. Of the first fiscal year (ended on June 30, 1998) ending fund balance of over $1.08 billion, approximately $701,400,000 was transferred to the ITRF, $200,000,000 into public school assistance programs, and $44,184,200 into the BSF. Of the GRF biennium-ending fund balance, $325,700,000 was transferred to school building assistance, $293,185,000 to the ITRF, $85,400,000 to SchoolNet (a program to supply computers for classrooms), $4,600,000 to interactive video distance learning, and $46,374,000 to the BSF.

2000-01. The State’s financial situation varied substantially in the 2000-01 biennium. The first fiscal year of the biennium ended with a GRF cash balance of $1,506,211,000 and a fund balance of $855,845,000. A transfer of $49,200,000 from that balance increased the BSF to $1,002,491,000 (or 5% of GRF revenue for the preceding fiscal year). An additional $610,400,000 was transferred to the State Income Tax Reduction Fund.

In the middle of the second year of the biennium, the State enacted supplemental appropriations of $645,300,000 to address shortfalls in its Medicaid and disability assistance programs. The State’s share of this additional funding was $247,600,000, with $125,000,000 coming from fiscal year 2001 GRF spending reductions and the remainder from available GRF moneys. The reductions were implemented by OBM prior to March 1, 2001, by a 1 to 2% cut applying to most State departments and agencies. Expressly excluded from the reductions, in addition to debt service and lease rental payments relating to State obligations, were elementary and secondary education.

In March 2001, new lowered revenue estimates for fiscal year 2001 and for fiscal years 2002 and 2003 were announced. Based on indications that the Ohio economy continued to be affected by the national economic downturn, GRF revenue estimates for fiscal year 2001 were reduced by $288,000,000. In addition, OBM projected higher than previously anticipated Medicaid expenditures. Among the more significant steps taken to ensure the positive GRF ending fund balance at June 30, 2001, were further spending reductions (with the same exceptions mentioned above for debt service and education) and authorization to transfer from the BSF to the GRF amounts necessary to ensure an ending GRF fund balance of $188,200,000. The State ended fiscal year 2001 with a GRF fund balance of $219,414,000, making that transfer unnecessary.

2002-03. Ongoing and rigorous consideration was given by the Governor and the General Assembly to revenues and expenditures throughout fiscal years 2002-03, primarily as a result of continuing economic conditions. Budgetary pressures during this period were primarily due to continuing lower than previously anticipated levels of receipts from certain major revenue sources.

Consideration came in four general time frames – the June 2001 biennial appropriation act, late fall and early winter 2001, late spring and summer 2002 and late winter/spring 2003. Significant remedial steps included authorization to draw down and use the entire BSF balance, increased cigarette taxes and use of tobacco settlement moneys previously earmarked for other purposes.

The biennial GRF appropriations act passed in June 2001 provided for biennial GRF expenditures of approximately $45.1 billion without increases in any major State taxes. Some of the major program funding increases over the original appropriations for the preceding 2000-01 biennium were: Medicaid, 29%; primary and secondary education, 17%; adult and juvenile corrections, 6.2%; mental health and mental retardation, 2.8%; and higher education, 2.4%.

That original appropriations act provided for the following uses of certain reserves, aimed at achieving fiscal year and biennium ending positive GRF fund balances, based on then current estimates and projections:

• Transfer of up to $150,000,000 from the BSF to the GRF for increased Medicaid costs.

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• An additional $10,000,000 transfer from the BSF to an emergency purposes fund.

• Transfer to the GRF in fiscal year 2002 of the entire $100,000,000 balance in the Family Services Stabilization Fund.

Necessary GRF debt service and lease rental appropriations for the biennium were requested in the Governor’s proposed budget, incorporated in the related appropriations bills as introduced, and included in the versions as passed by the House and the Senate and in the act as passed and signed. The same was true for separate appropriations acts that included lease-rental appropriations for certain OBA-financed projects for the departments of Transportation and Public Safety, and Bureau of Workers’ Compensation.

The Ohio economy continued to be negatively affected by the national economic downturn and by national and international events, and in October 2001 OBM lowered its GRF revenue estimates. Based on reduced revenue collections in certain categories (particularly personal income taxes and, at that time, sales taxes), OBM then projected GRF revenue shortfalls of $709,000,000 for fiscal year 2002 and $763,000,000 for fiscal year 2003. Executive and legislative actions were taken based on those new estimates, including:

• The Governor promptly ordered reduced appropriations spending by most State agencies (expressly excepted were appropriations for or relating to debt service on State obligations), and limits on hiring and major purchases. Reductions were at the annual rate of 6% for most State agencies (including higher education institutions), with lesser reductions for correctional and other institutional agencies, and with exemptions for primary and secondary education and the adjutant general.

• December 2001 legislation, the more significant aspects of which included:

• Authorizing transfer of up to $248,000,000 from the BSF to the GRF during the current biennium. This was in addition to the $160,000,000 in transfers from the BSF provided for in the original appropriations act (and would reduce the BSF balance to approximately $604,000,000).

• Reallocating to the GRF a $260,000,000 portion of tobacco settlement receipts in fiscal years 2002 and 2003, intended to be replenished from settlement receipts in fiscal years 2013 and 2014.

• Reducing appropriation spending authorizations for the legislative and judicial branches.

• Making certain tax-related changes (including accelerating the time for certain payments).

• Authorizing Ohio’s participation in a multi-state lottery game, estimated to generate $40,000,000 annually beginning in fiscal year 2003.

Continuing economic conditions, among other factors, then led OBM in the spring of 2002 to project a higher than previously estimated GRF revenue shortfall. Among areas of continuing concern were lower than anticipated levels of receipts from personal income and corporate franchise taxes. These updated GRF shortfall estimates were approximately $763,000,000 in fiscal year 2002 and $1.15 billion in fiscal year 2003. Further executive and legislative actions were taken for fiscal year 2002 to ensure a positive GRF fund balance for fiscal year 2002 and the biennium. In addition to further administrative and management steps, such as additional restraints on spending, those actions included legislation providing for among other things:

• Authorization of additional transfers to the GRF from the BSF of its entire previously unappropriated balance ($607,000,000) as needed in fiscal years 2002 and 2003, and of $50,800,000 of unclaimed funds to the GRF.

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• $50,000,000 reduction in the fiscal year 2002 ending GRF balance (to $100,000,000 from its previously budgeted level of $150,000,000).

• Increased cigarette tax by 31¢ per pack (to a total 55¢ a pack), estimated by OBM to produce approximately $283,000,000 in fiscal year 2003.

• Transfers to the GRF of $345,000,000 from tobacco settlement money received in fiscal years 2002 and 2003. That amount had previously been earmarked and appropriated for elementary and secondary school facilities construction; moneys for that purpose will instead by provided by way of $345,000,000 in additionally authorized general obligation bonds.

• Extension of the State income tax to Ohio-based trusts (a “sunset” provision ends this tax December 31, 2004), and exemption of certain Ohio business taxes from recent federal tax law “economic stimulus changes” by modifying existing State law tie-ins to the federal tax base. The combination produced approximately $283,000,000 in fiscal year 2003.

• Selective additional appropriation cuts for certain departments.

Certain other provisions of the legislation were aimed at the future, rather than the 2002-03 biennium, including the indexing of State income tax brackets to the Gross Domestic Product beginning in July 2005.

Several categories of fiscal year 2002 GRF tax receipts were below those in the prior fiscal year. Overall, total GRF tax receipts were 1.1% below those in fiscal year 2001. Fiscal year 2002 nevertheless did end with positive GRF balances of $108,306,000 (fund) and $619,217,000 (cash). This was accomplished by the remedial steps described above, including significant transfers from the BSF ($534,300,000) and from tobacco settlement moneys ($289,600,000). The fiscal year ending BSF balance was $427,904,000, with that entire balance appropriated for GRF use if needed in fiscal year 2003.

On July 1, 2002, the first day of the new fiscal year, the Governor issued an executive order directing a total of approximately $375,000,000 in GRF spending cutbacks for fiscal year 2003 (based on prior appropriations) by agencies and departments in his administration, as well as limitations on hiring, travel and major purchases. This cutback order reflected and was consistent with prior budget balancing discussions between the Governor and General Assembly. Annual cutbacks ranged generally from 7.5% to 15%, with allocation of amounts and manners determined by the OBM Director in consultation with the affected agencies and departments. Excluded from those cutbacks were elementary and secondary education, higher education, alcohol and drug addiction services, and the adjutant general. Also expressly excluded were appropriations for debt service including lease rental contracts and all State office building rent, and ad valorem property tax relief payments (made to local taxing entities).

Based on continuing reduced revenue collections (particularly, personal income taxes and sales tax receipts for the holidays) and projected additional Medicaid spending of $40,000,000, OBM in late January announced an additional GRF shortfall of $720,000,000 for fiscal year 2003. The Governor ordered immediate additional reductions in appropriations spending intended to generate an estimated $121,600,000 of GRF savings through the end of the fiscal year (expressly excepted were appropriations for or relating to debt service on State obligations). The Governor also proposed for the General Assembly’s prompt consideration the following additional revenue enhancements, transfers and expenditure reductions for fiscal year 2003 requiring legislative authorization to achieve the indicated financial effects as estimated by OBM:

• A 2.5% reduction in local government fund distributions to most subdivisions and local libraries, producing an estimated $30,000,000 savings. This reduction is in addition to the prior local government fund distribution adjustments noted below.

• Transfers to the GRF from unclaimed funds ($35,000,000) and various rotary funds ($21,400,000).

• A one-month acceleration in sales tax collections by vendors filing electronically, to produce $286,000,000.

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• An additional increase in the cigarette tax of 45 cents per pack (to a total of $1.00 a pack), to produce approximately $140,000,000.

• A doubling of the current taxes on spirituous liquor and beer and wine, to net an additional $18,700,000.

The Governor proposed enactment of these legislative authorizations by March 1, 2003 in order to produce the indicated financial effects by the June 30 end of the fiscal year and biennium. The General Assembly gave its final approval on February 25, 2003, to legislation authorizing the first three elements (see above) of the Governor’s proposal, but that legislation did not include the proposed additional taxes on cigarettes and spirituous liquor and beer and wine.

OBM projected at the time that the Governor’s proposal to the General Assembly and the additional expenditure reductions ordered by the Governor in January 2003, coupled with the previously authorized transfer to the GRF of the then available and unused balance in the BSF, would result in a positive GRF fund balance at June 30, 2003. To offset the General Assembly’s enactment of legislation that did not include the proposed additional taxes on cigarettes and liquor, beer and wine, the Governor on March 25 ordered additional reductions in GRF appropriations spending aggregating $142.5 million for the balance of fiscal year 2003. Included were reductions (generally at an annualized rate of 2.5%) of $90.6 million in State foundation and parity aid to school districts and an additional $9.3 million in Department of Education administration spending, $39.2 million in instructional support to higher education institutions, and other selected reductions totaling $3.4 million. The Governor also identified approximately $20 million in excess food stamp administration funds available to offset the need for further expenditure reductions. Expressly excepted from those reductions were appropriations for or relating to debt service on State obligations.

Based on the Administration’s continuing monitoring of revenues, and as an anticipated step in the then ongoing 2004-05 biennial budget and appropriations process, OBM reported revised revenue estimates to the General Assembly on June 11, 2003. Those estimates revised fiscal year 2003 revenues downward by an additional $200,000,000 from OBM’s January 2003 adjusted baseline, based primarily on updated income and sales tax receipts through May 31. The Governor and OBM addressed this additional fiscal year 2003 revenue shortfall through additional expenditure controls and by drawing upon $193,000,000 of federal block grant aid made available to the State prior to June 30 under a federal law effective on May 28, 2003.

The State ended the 2002-03 biennium with a GRF fund and cash balances of $52,338,000 and $396,539,000, respectively, and a balance in the BSF of $180,705,000.

Additional appropriations actions during the 2002-03 biennium, affecting most subdivisions and local libraries in the State, relate to the various local government assistance funds. The original appropriations act capped the amount to be distributed in fiscal years 2002 and 2003 to essentially the equivalent monthly payment amounts in fiscal years 2000 and 2001. Subsequent legislation amended the level to the lesser of those prior fiscal year amounts or the amount that would have been distributed under the standard formula.

Current Biennium. The GRF appropriations bill for the 2004-05 biennium (beginning July 1, 2003) was passed by the General Assembly on June 19, 2003 and promptly signed (with selective vetoes) by the Governor June 26. Necessary GRF debt service and lease-rental appropriations for the entire biennium were requested in the Governor’s proposed budget, incorporated in the related appropriations bill as introduced and in the bill’s versions as passed by the House and the Senate, and in the Act as passed and signed. (The same is true for the separate transportation and public safety and Bureau of Workers’ Compensation appropriations acts containing lease-rental appropriations for certain OBA-financed ODOT, DPS and BWC projects.)

The Act provides for total GRF biennial expenditures of approximately $48.8 billion. Those authorized GRF expenditures for fiscal year 2004 are approximately 5.8% higher than the actual fiscal year 2003 expenditures (taking into account fiscal year 2003 expenditure reductions), and for fiscal year 2005 are approximately 3.5% higher than for fiscal year 2004. The following are examples of increases in authorized GRF biennial expenditures compared with actual 2002-03 expenditures in major program categories: primary and secondary education, 5.1%; higher education, 4.4%; mental health and mental retardation, 4.1%; Medicaid, 19.9%; and adult and juvenile corrections, 5.7%.

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The above expenditure levels reflect among other expenditure controls in the Act: Medicaid cost containment measures including pharmacy cost management initiatives, limited expenditure growth for institutional services and implementation of managed care for higher-cost populations; continued phase-out of certain tangible personal property tax relief payments to local governments; the closing by consolidation of three institutional facilities during the biennium; adjustments in eligibility guidelines for subsidized child care from 185% to 150% of the federal poverty level and freezing certain reimbursement rates; no compensation increases for most State employees in fiscal year 2004 and limited one-time increases in fiscal year 2005; and continued limitation on local government assistance fund distributions to most subdivisions and local libraries to the lesser of the equivalent monthly payments in fiscal years 2000 and 2001 or the amount that would have been distributed under the standard formula.

The GRF expenditure authorizations for the 2004-05 biennium also reflect and are supported by revenue enhancement actions contained in the Act including:

• A one-cent increase in the State sales tax (to six percent) for the biennium (expiring June 30, 2005), projected to generate approximately $1.25 billion in each fiscal year to which it applies.

• Expansion of the sales tax base to include dry-cleaning/laundry services, towing, personal care and other services, and satellite television, projected in the aggregate to produce approximately $69,000,000 annually. (The inclusion of satellite television in the sales tax base, projected to produce approximately $21,000,000 annually, is subject to a legal challenge.)

• Moving local telephone companies from the public utility tax base to the corporate franchise and sales tax, projected to produce approximately $29,000,000 annually.

• Elimination of the sales tax exemption for WATS and 800 telecom services coupled with the enactment of a more limited exemption for call centers, projected to produce approximately $64,000,000 annually.

• Adjustments in the corporate franchise tax through the adoption of the Uniform Division of Income for Tax Purposes Act (UDITPA) for apportionment of business income among states, and an increase in the corporate alternative minimum tax, projected in the aggregate to produce approximately $35,000,000 annually.

The Act also authorizes and OMB plans to transfer into the GRF on or before June 30, 2004, up to $242,800,000 of proceeds received from the national tobacco settlement. In addition, the Act reflects the draw down during the biennium of an additional $582,000,000 of federal block grant and Medicaid assistance aid made available to the State under a federal law effective May 28, 2003.

Based on regular monthly monitoring of revenues and expenditures, OBM on March 8, 2004, announced revised GRF revenue projections for fiscal years 2004 and 2005 based primarily on reduced revenue collections from personal income taxes. In response to OBM reducing its GRF revenue projection by $247,100,000 (1.02%) for fiscal year 2004 and by $372,700,000 (1.48%) for fiscal year 2005, the Governor on March 8 ordered fiscal year 2004 expenditure reductions of approximately $100,000,000. On July 1, the Governor ordered fiscal year 2005 expenditure cuts of approximately $118 million in addition to a reduction of $50,000,000 in State spending on Medicaid reflecting an increased Federal share of certain Medicaid services. Those annualized reductions are 1% for corrections, youth services, mental health, and mental retardation and developmental disabilities; and 4% in fiscal year 2004 and 6% in fiscal year 2005 for other departments and agencies. Expressly excluded from those reductions are debt service and lease rental payments relating to State obligations, State basic aid to elementary and secondary education, instructional subsidies and scholarships for public higher education, in-home care for seniors and certain job creation programs. The balance of those revenue reductions have been and will be offset by GRF expenditure lapses and, for fiscal year 2005, elimination of an anticipated $100,000,000 year-end transfer to the BSF while maintaining a 0.5% year-end GRF fund balance. The State ended fiscal year 2004 with a GRF fund balance of $157,509,000 and a GRF cash balance of $533,132,000.

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Litigation pending in the Ohio Court of Claims contests the Ohio Department of Human Services (“ODHS”, now Ohio Department of Job and Family Services (“ODJFS”)) former Medicaid financial eligibility rules for married couples when one spouse is living in a nursing facility and the other resides in the community. ODHS promulgated new eligibility rules effective January 1, 1996. ODHS appealed an order of the federal court directing it to provide notice to persons potentially affected by the former rules from 1990 through 1995, and the Court of Appeals ruled in favor of ODHS; plaintiff’s petition for certiorari was not granted by the U.S. Supreme Court. As to the Court of Claims case, it is not possible to state the period (beyond the current fiscal year) during which necessary additional Medicaid expenditures would have to be made. Plaintiffs have estimated total additional Medicaid expenditures at $600,000,000 for the retroactive period and, based on current law, it is estimated that the State’s share of those additional expenditures would be approximately $240,000,000. The Court of Appeals has certified the class action and notice has been sent to the members of the class. Trial for liability only was completed in the Court of Claims in January 2003 and all post-trial briefs have been filed with that Court. In March 2004, the trial court issued a decision finding no liability with respect to ODJFS. The plaintiff class has filed an appeal from that decision to the Franklin County Court of Appeals. That appeal is currently pending.

The incurrence or assumption of debt by the State without a popular vote is, with limited exceptions, prohibited by the State Constitution. The State may incur debt to cover casual deficits or to address failures in revenues or to meet expenses not otherwise provided for, but limited in amount to $750,000. The Constitution expressly precludes the State from assuming the debts of any county, city, town or township, or of any corporation. (An exception in both cases is for debts incurred to repel invasion, suppress insurrection, or defend the State in war.) The Constitution provides that “Except the debts above specified . . . no debt whatever shall hereafter be created by, or on behalf of the state.”

By 17 constitutional amendments approved from 1921 to present, Ohio voters have authorized the incurrence of State general obligation (“GO”) debt and the pledge of taxes or excises to its payment. All related to the financing of capital facilities, except for three that funded bonuses for veterans and one that funded coal technology research and development. Currently, tax supported general obligation debt of the State is authorized to be incurred for the following purposes: highways, local infrastructure, coal development, natural resources, higher education, common schools, and conservation. Although supported by the general obligation pledge, highway debt is backed by a pledge of and has always been paid from the State’s motor fuel taxes and other highway user receipts that are constitutionally restricted in use to highway related purposes.

A 1999 constitutional amendment provides an annual debt service “cap” applicable to future issuances of State general obligations and other State direct obligations payable from the GRF or net State lottery proceeds. Generally, new bonds may not be issued if future fiscal year debt service on those new and the then outstanding bonds of those categories would exceed 5% of the total estimated GRF revenues plus net State lottery proceeds during the fiscal year of issuance. Those direct obligations of the State include, for example, special obligation bonds that are paid from GRF appropriations, but exclude bonds such as highway bonds that are paid from highway user receipts. Pursuant to the amendment and implementing legislation, the Governor has designated the OBM Director as the State official to make the 5% determinations and certifications. Application of the cap may be waived in a particular instance by a three-fifths vote of each house of the General Assembly and may be changed by future constitutional amendments.

In addition to its issuance of highway bonds, the State has also financed selected highway infrastructure projects by entering into agreements that call for payments to be made from federal transportation funds allocated to the State, subject to biennial appropriations by the General Assembly. Annual State payments under those agreements reach a maximum of $79,602,448 in fiscal year 2005. In the event of any insufficiency in those anticipated federal allocations to make payments on State bonds, the payments are to be made from any lawfully available federal moneys appropriated to ODOT for the purpose, and in the case of continued insufficiency the ODOT Director is to request a General Assembly appropriation for the purpose.

State agencies also have participated in office building and non-highway transportation projects that have local as well as State use and benefit, in connection with which the State has entered into lease-purchase agreements

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with terms ranging from 7 to 20 years. Certificates of Participation (“COPs”) have been issued that represent fractionalized interests in or are payable from the State’s anticipated payments. The number and amount of COPs issued in connection with those agreements have varied and will continue to vary. The maximum annual payment under those agreements, primarily made from GRF appropriations, is $3,265,375 in fiscal year 2023. Payments by the State are subject to biennial appropriations by the General Assembly with the lease terms subject to renewal if appropriations are made. Generally, the OBM Director’s approval of such agreements is required, particularly if COPs are to be publicly-offered in connection with those agreements.

A statewide economic development program assists the financing of facilities and equipment for industry, commerce, research and distribution, including technology innovation, by providing loans and loan guarantees. The law authorizes the issuance of State bonds and notes secured by a pledge of portions of the State profits from liquor sales. The General Assembly has authorized the issuance of these obligations with a general maximum of $500,000,000 to be outstanding at any one time (excluding bonds issued to meet guarantees, if any). The aggregate amount from the liquor profits to be used in any fiscal year in connection with these bonds (excluding bonds issued to meet guarantees, if any) may not exceed $45,000,000. The total of unpaid guaranteed loan amounts and unpaid principal of direct loans may not exceed $800,000,000. A 1996 issue of $168,740,000 of taxable bonds refunded outstanding bonds and provided additional loan moneys for facilities and equipment (i.e., the State’s direct loan program), $101,980,000 of taxable forward purchase bonds were issued in 1998 to refund, as of 2006, term bonds of the 1996 issue stated to mature in 2016 and 2021. In 2003, the State issued $50,000,000 in bonds for innovation Ohio projects and $50,000,000 for research and development projects, followed by a 2004 issuance of $50,000,000 for its direct loan program. Pursuant to a 2000 constitutional amendment, the State has issued a first series of $50,000,000 of bonds for revitalization purposes that are also payable from State liquor profits. The maximum annual debt service on all state bonds payable from State liquor profits is $30,740,289 in fiscal year 2006.

Certain State agencies issue revenue bonds that are payable from revenues from or relating to revenue producing facilities, such as those issued by the Ohio Turnpike Commission. By judicial interpretation, such revenue bonds do not constitute “debt” under the constitutional provisions described above. The Constitution authorizes State bonds for certain housing purposes (issued by the Ohio Housing Finance Agency) to which tax moneys may not be obligated or pledged.

Litigation, similar to that in other states, has been pending in Ohio courts since 1991 questioning the constitutionality of Ohio’s system of school funding and compliance with the constitutional requirement that the State provide a “thorough and efficient system of common schools.” On December 11, 2002, the Ohio Supreme Court, in a 4-3 decision on a motion to reconsider its own decision rendered in September 2001, concluded (as it had in its 1997 and 2000 opinions in that litigation) that the State did not comply with that requirement, even after again noting and crediting significant State steps in recent years.

In its prior decisions, the Ohio Supreme Court stated as general base threshold requirements that every school district have enough funds to operate, an ample number of teachers, sound and safe buildings, and equipment sufficient for all students to be afforded an educational opportunity.

With particular respect to funding sources, the Court concluded in 1997 and 2000 decisions that property taxes no longer may be the primary means of school funding in Ohio.

On March 4, 2003, the plaintiffs filed with the original trial court a motion to schedule and conduct a conference to address compliance with the orders of the court in that case, the State petitioned the Ohio Supreme Court to issue a writ prohibiting that conference on compliance, and the trial court subsequently petitioned the Ohio Supreme Court for guidance as to the proper course to follow. On May 16, 2003, the Supreme Court granted that writ and ordered the dismissal of the motion before the trial court. And on October 20, 2003, the United States Supreme Court declined to accept the plaintiff’s subsequent petition requesting further review of the case.

The General Assembly has taken several steps, including significantly increasing State funding for public schools, as discussed below. In addition, at the November 1999 election electors approved a constitutional amendment authorizing the issuance of State general obligation debt for school buildings and for higher education facilities. December 2000 legislation addressed certain mandated programs and reserves, characterized by the plaintiffs and the Court as “unfunded mandates.”

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Under the current financial structure, Ohio’s 612 public school districts and 49 joint vocational school districts receive a major portion (but less than 50%) of their operating moneys from State subsidy appropriations (the primary portion of which is known as the Foundation Program) distributed in accordance with statutory formulas that take into account both local needs and local taxing capacity. The Foundation Program amounts have steadily increased in recent years, including small aggregate increases even in those fiscal years in which appropriations cutbacks were imposed.

School districts also rely upon receipts from locally voted taxes. In part because of provisions of some State laws, such as that partially limiting the increase (without further vote of the local electorate) in voted property tax collections that would otherwise result from increased assessed valuations, some school districts have expressed varying degrees of difficulty in meeting mandated and discretionary increased costs. Local electorates have largely determined the total moneys available for their schools. Locally elected boards of education and their school administrators are responsible for managing school programs and budgets within statutory requirements.

The State’s present school subsidy formulas are structured to encourage both program quality and local taxing effort. Until the late 1970’s, although there were some temporary school closings, most local financial difficulties that arose were successfully resolved by the local districts themselves by some combination of voter approval of additional property tax levies, adjustments in program offerings, or other measures. For more than 20 years, requirements of law and levels of State funding have sufficed to prevent school closings for financial reasons, which in any case are prohibited by current law.

To broaden the potential local tax revenue base, local school districts also may submit for voter approval income taxes on the district income of individuals and estates. Many districts have submitted the question, and income taxes are currently approved in 127 districts.

Original State basic aid appropriations for the 1992-93 biennium of $9.5 billion provided for 1.5% and 4.8% increases in the two fiscal years of the biennium over appropriations in the preceding biennium. The reduction in appropriations spending for fiscal year 1992 included a 2.5% overall reduction in annual Foundation Program appropriations, and a 6% reduction in other primary and secondary education programs. The reductions were in varying amounts, and had varying effects, with respect to individual districts; there were no reductions for the 172 districts with the lowest per pupil tax valuations. Foundation payments were excluded from the Governor’s fiscal year 1993 cutback order.

Subsequent biennial school funding State appropriations from the GRF and Lottery Profits Education Fund (but excluding federal and other special revenue funds) were:

• 1994-95 – $8.9 billion provided for 2.4% and 4.6% increases, respectively, in State aid in the biennium’s two fiscal years.

• 1996-97 – $10.1 billion representing a 13.6% increase over the preceding biennium total.

• 1998-99 – $11.6 billion (18.3% over the previous biennium).

• 2000-01 – $13.3 billion (15% over the previous biennium).

• 2002-03 – $15.2 billion (17% over the previous biennium before the expenditure reductions).

State appropriations for the purpose made for the 2004-05 biennium were $15.7 billion (3.3% over the previous biennium), and represented an increase of 0.01% in fiscal year 2004 over 2003 and 2.2% in fiscal year 2005 over 2004 when compared to original State appropriations.

Those total State 2004-05 biennial appropriations excluded non-GRF and federal appropriations, but include appropriations from the GRF and the lottery profits education fund (LPEF). The amount of lottery profits transferred to the LPEF totaled, $655,036,000 in fiscal year 2001, $635,150,000 in fiscal year 2002, $671,352,000 in fiscal year 2003 and $648,106,000 in fiscal year 2004. Ohio participation in the multi-state lottery commenced in

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May 2002. A constitutional provision requires that net lottery profits be paid into LPEF to be used solely for the support of elementary, secondary, vocational and special education purposes, including application to debt service on general obligation bonds to finance common school facilities.

In response to the 1997 Ohio Supreme Court decision holding certain provisions for local school district borrowing unconstitutional, the General Assembly created the school district solvency assistance program. Beginning in fiscal year 1999, local school districts in fiscal emergency status as certified by the Auditor of State could apply for an advancement of future year Foundation Program distributions. The amount advanced was then deducted, interest free, from the district’s foundation payments over the following two-year period. Six school districts received a total of approximately $12,100,000 in solvency assistance advancements during fiscal year 1999, with another six districts receiving a total of approximately $8,657,000 in fiscal year 2000. This solvency assistance program was held to be not in compliance with the Constitution by the Supreme Court. In fiscal year 2001 four districts received approximately $3,800,000 under a restructured solvency assistance program. The program was further modified in December 2000 to allow districts that experience an unforeseen catastrophic event to apply for a grant. In fiscal year 2002, three districts received catastrophic grants totaling $2,569,970 and one district received a solvency advance in the amount of $421,000. In fiscal year 2003, three districts received solvency advances in the amount of $8,742,000 and no districts received catastrophic grants.

Legislation was enacted in 1996 to address school districts in financial straits. It is similar to that for municipal “fiscal emergencies” and “fiscal watch”, but is particularly tailored to certain school districts and their then existing or potential fiscal problems. There are currently eight school districts in fiscal emergency status and twelve in fiscal watch status. New legislation has created a third, more preliminary, category of “fiscal caution.” A current listing of school districts in each status is on the Internet at http://www.auditor.state.oh.us.

Ohio’s 943 incorporated cities and villages rely primarily on property and municipal income taxes to finance their operations. With other subdivisions, they also receive local government support and property tax relief moneys from State resources.

For those few municipalities and school districts that on occasion have faced significant financial problems, there are statutory procedures for a joint State/local commission to monitor the fiscal affairs and for development of a financial plan to eliminate deficits and cure any defaults. (Similar procedures have recently been extended to counties and townships.) Fourteen municipalities and one township are in “fiscal emergency” status and six municipalities in preliminary “fiscal watch” status.

At present the State itself does not levy ad valorem taxes on real or tangible personal property. Those taxes are levied by political subdivisions and local taxing districts. The Constitution has since 1934 limited the amount of the aggregate levy of ad valorem property taxes on particular property, without a vote of the electors or municipal charter provision, to 1% of true value in money, and statutes limit the amount of that aggregate levy without a vote or charter provision to 10 mills per $1 of assessed valuation—commonly referred to in the context of Ohio local government finance as the “ten-mill limitation.”

Special Considerations Regarding Investment in Pennsylvania State-Specific Obligations. The concentration of investments in Pennsylvania State-Specific Obligations by the Pennsylvania Municipal Money Market and Pennsylvania Tax-Free Income Portfolios raises special investment considerations. In particular, changes in the economic condition and governmental policies of the Commonwealth of Pennsylvania and its municipalities could adversely affect the value of those Portfolios and their portfolio securities. This section briefly describes current economic trends in Pennsylvania, as described in the Official Statement, dated as of December 8, 2004, relating to the Commonwealth of Pennsylvania General Obligation Bonds, Fourth Series of 2004 and Third Refunding Series of 2004.

Greater than projected growth in the national economy during the second half of 2003 and continuing in early 2004 contributed to actual Commonwealth General Fund revenues exceeding the budget estimate, as re-certified in December 2003, for fiscal year 2004 by $636.7 million or 2.9%. Total General Fund revenues collected in fiscal year 2004, less reserves for tax refunds, totaled $21,813.4 million. Revenues in excess of the budget estimate were achieved in various tax and revenue categories including: (i) total corporation taxes, which exceeded the estimate by 6.1% or $252 million; (ii) personal income tax receipts, which were over estimate by 1.5% or $117.8

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million; and (iii) non-tax revenues which exceeded the estimate by 26% or $158.9 million. Greater than expected Commonwealth revenues, along with prior year lapses totaling $142.5 million and a beginning balance of $196.2 million, were utilized to support total appropriations, less current year lapses and including supplemental appropriations, totaling $21,885.4 million. The preliminary unappropriated surplus for fiscal year 2004 of $266.8 million was reduced by the statutorily required 25% transfer to the Budget Stabilization Reserve Fund, which transfer totaled $66.7 million. Additionally, a supplemental transfer from the unappropriated surplus to the Budget Stabilization Reserve Fund totaling $123.3 million was completed in fiscal year 2004. Included with the fiscal year 2004 supplemental appropriations enacted in July 2004 was the substitution of approximately $250 million of available excess Commonwealth General Fund revenues for previously committed fiscal year 2004 intergovernmental transfer funds, thereby preserving additional intergovernmental transfer funds as a reserve for future use. The budgetary basis unappropriated surplus balance, following the required and supplemental transfer to the Budget Stabilization Reserve Fund, at the end of fiscal year 2004 was $76.8 million. The budgetary basis unappropriated surplus balance at the close of fiscal year 2002 was $142.8 million. General obligation debt of the Commonwealth outstanding as of June 30, 2002 totaled approximately $6.9 billion.

Pennsylvania has historically been dependent on heavy industry, although the past thirty years have witnessed declines in the coal, steel and railroad industries. Recent sources of economic growth in Pennsylvania have led to diversification of the Commonwealth’s economy. Relative growth has been experienced in the service sector, including trade, medical and health services, education and financial institutions. Agriculture continues to be an important component of the Commonwealth’s economic structure, with nearly one-third of the Commonwealth’s total land area devoted to cropland, pasture and farm woodlands.

The population of Pennsylvania experienced a slight increase in the period 1994 through 2003. Persons 65 or older comprise 15.4% of Pennsylvania’s population, compared with 12.3% of the United States population. The Commonwealth is highly urbanized, with almost 79% of the Commonwealth’s 2003 mid-year population estimate residing in metropolitan statistical areas. The two largest metropolitan statistical areas, those containing the Cities of Philadelphia and Pittsburgh, together comprise almost 44% of the Commonwealth’s total population.

The Commonwealth utilizes the fund method of accounting, and over 150 funds have been established for purposes of recording receipts and disbursements of the Commonwealth, of which the General Fund is the largest. Most of the Commonwealth’s operating and administrative expenses are payable from the General Fund. The major tax sources for the General Fund are the sales tax, the personal income tax, the corporate net income tax and the capital stock and franchise tax. Major expenditures of the Commonwealth include funding for education, public health and welfare and transportation.

The constitution of the Commonwealth provides that operating budget appropriations of the Commonwealth may not exceed the actual and estimated revenues and available surplus in the fiscal year for which funds are appropriated. Annual budgets are enacted for the General Fund (the principal operating fund of the Commonwealth) and for certain special revenue funds which together represent the majority of expenditures of the Commonwealth.

The Commonwealth maintains two contributory benefit pension plans. The State Employees’ Retirement System (“SERS”) covers all state employees and employees of certain state-related organizations. The Public School Employees’ Retirement System (“PSERS”) covers all public school employees. Membership in the applicable retirement system is generally mandatory for the covered employees. Employers and employees contribute jointly to these retirement programs. Annual actuarial valuations are required by state law. The employer’s contribution rate is computed to fully amortize the unfunded actuarial accrued liability of the respective plan as determined by its actuary. The unfunded actuarial accrued liability measures the present value of benefits estimated to be due in the future for current employees based on assumptions relating to mortality, pay levels, retirement experience and employee turnover, less the present value of assets available to pay those benefits based on assumptions of normal cost, supplemental annuity amortization, and employer and member contributions. At the close of fiscal year 2001, the unfunded actuarial accrued liability was ($3,846) million for SERS and ($6,913) for PSERS. At the close of fiscal year 2003, the unfunded actuarial accrued liability for SERS was ($1,286) and for PERS was ($1,543) million.

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Certain litigation is pending against the Commonwealth that could adversely affect the ability of the Commonwealth to pay debt service on its obligations including suits relating to the following matters: (a) in 1987, the Supreme Court of Pennsylvania held the statutory scheme for county funding of the judicial system to be in conflict with the constitution of the Commonwealth, but stayed judgment pending enactment by the legislature of funding consistent with the opinion; (b) two corporations have challenged different aspects of the Pennsylvania capital stock/franchise tax; (c) the School District of Philadelphia and others have brought suit in Federal court to declare the Commonwealth’s system of funding public schools to be racially discriminatory and therefore illegal; by agreement of the parties that suit is in civil suspense; and (d) dozens of cases have been brought challenging the Department of Revenue’s assessment of insurance companies to provide funds due to Pennsylvania residents insured from other, insolvent, insurance companies or companies in default, but these cases are being held pending litigation at the administrative boards.

The City of Philadelphia (“Philadelphia”) experienced severe financial difficulties during the early 1990’s which impaired its access to public credit markets. Philadelphia experienced a series of general fund deficits for fiscal years 1988 through 1992. Legislation was enacted in 1991 to create an Intergovernmental Cooperation Authority (the “Authority”) to provide deficit reduction financing and fiscal oversight for Philadelphia. In order for the Authority to issue bonds on behalf of Philadelphia, Philadelphia and the Authority entered into an intergovernmental cooperation agreement providing the Authority with certain oversight powers with respect to the fiscal affairs of Philadelphia. Philadelphia currently is operating under a five year plan approved by the Authority on July 7, 2004. The unaudited fund balance deficit of Philadelphia’s General Fund as of June 30, 2004, was approximately $46.8 million.

The Authority’s power to issue further bonds to finance capital projects or deficit expired on December 31, 1994, and its power to issue debt to finance a cash flow deficit expired December 31, 1995. Its ability to refund outstanding bonds is unrestricted. The Authority had $770.7 million in special tax revenue bonds outstanding as of June 30, 2004.

As of December 8, 2004, Moody’s rated the long-term general obligation bonds of the Commonwealth “Aa2,” Standard & Poor’s rated such bonds “AA” and Fitch rated such bonds “AA.” There can be no assurance that the economic conditions on which these ratings are based will continue or that particular bond issues may not be adversely affected by changes in economic or political conditions.

Special Considerations Regarding Investment in North Carolina State-Specific Obligations. The concentration of investments in North Carolina State-Specific Obligations by the North Carolina Municipal Money Market Portfolio (the “Fund”) raises special investment considerations. In particular, changes in the economic condition and governmental policies of North Carolina (the “State”) and its political subdivisions, agencies, instrumentalities, and authorities could adversely affect the value of the Fund and its portfolio securities. This section briefly describes current economic trends in the State, and constitutes only a brief summary of some of the many complex factors that may have an effect. The information set forth below is derived from official statements prepared in connection with the debt offerings of State issuers and other sources that are generally available to investors. No independent verification has been made of the following information.

The State has three major operating funds: the General Fund, the Highway Fund, and the Highway Trust Fund. The State derives most of its revenue from taxes, including individual income taxes, corporation income taxes, sales and use taxes, highway use taxes on motor vehicle rentals, corporation franchise taxes, piped natural gas excise taxes, alcoholic beverage taxes, insurance taxes, estate taxes, tobacco products taxes, and other taxes, e.g., gift taxes, freight car taxes, and various privilege taxes. A streamlined sales tax collection system has been adopted to improve collection efforts, particularly as to out-of-state catalog and internet sales. The State receives other non-tax revenues which are also deposited in the General Fund. The most important are federal funds collected by State agencies, university fees and tuition, interest earned by the State Treasurer on investments of General Fund moneys, and revenues from the judicial branch. The proceeds from the motor fuel tax, highway use tax, and motor vehicle license tax are deposited in the Highway Fund and the Highway Trust Fund.

Extraordinary events occurred during fiscal year 1999-2000 that caused significant stress on the budget for the fiscal year. In the fall of 1999, the State was the victim of two major hurricanes, Dennis and Floyd, in a period of a few weeks. In response to the devastation caused by these storms, a special session of the General Assembly

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was convened in December 1999 to create relief programs to address the damages, culminating in the enactment of legislation appropriating $836.6 million for disaster relief programs. The General Assembly funded the $836.6 million for Hurricane Floyd relief programs from $228.7 million of reallocated appropriations from department operating budgets and $607.9 million from unspent capital improvement appropriations and reserves, including $286 million from the Budget Stabilization Reserve, and the unappropriated fund balance. In addition, during 1998 and 1999, the State settled two major lawsuits involving taxes held to be illegally collected. The total amount paid for these settlements was $1.24 billion, $400 million of which was paid in fiscal year 1998-99 and another $600 million of which was paid in fiscal year 1999-2000. Additionally, actual revenues received during fiscal year 1999-2000 were below budget due in part to the hurricanes and a major winter storm in early 2000 that paralyzed much of the State for over a week.

On account of the stress caused by these events on the budget for fiscal year 1999-2000, certain adjustments were made to assure that the budget for the fiscal year would remain balanced and to assure that the budget for fiscal year 2000-01 would be balanced. In addition, approximately $98.7 million of tax refunds not paid before June 30, 2000 resulted in overstated revenues for fiscal year 1999-2000 by that amount. Due to the presence of these revenues, additional adjustments to balance the budget for fiscal year 1999-2000 were not required. The payment of these refunds after June 30, 2000, resulted in a decrease in revenues for fiscal year 2000-01 by a like amount. In the past, payments for teacher salaries for services rendered in a fiscal year have been funded as an expenditure in that fiscal year’s budget, even though payments would be made after June 30. The State deferred funding of $271 million required for the payment of teacher salaries to be paid after fiscal year 1999-2000 to fund a reserve to pay the final $240 million settlement payment on one of the lawsuits referred to above. This final payment settling these cases was made by the State on July 10, 2000. In the budget for fiscal year 2000-01, the State reduced by $252 million the budgeted contributions to the State plans for employee’s retirement ($191.3 million), retiree health benefits ($50 million), and death benefits ($10.9 million). This reduction was provided from the realization of a portion of the gains from the investment of amounts previously contributed to the plans and excess available reserves set aside for this purpose.

Fiscal year 1999-2000 ended with a positive General Fund balance of $447.5 million. Along with additional reserves, $37.5 million was reserved in the Savings Reserve Account, $117.7 million was reserved in the Retirees’ Health Premiums Reserve, $7.1 million was reserved in the Repairs and Renovations Reserve Account, and $1.1 million was reserved in the Clean Water Management Trust Fund. Additionally, $240.0 million was reserved in the Intangibles Tax Refunds Reserve. After additional reserves, there was no balance remaining in the unreserved General Fund at the end of fiscal year 1999-2000. The ending General Fund balance did not include $541.9 million of unexpended funds designated to relief of Hurricane Floyd victims, which funds were to be expended during subsequent fiscal years.

On June 30, 2000, the General Assembly adopted a $14.1 billion budget for fiscal year 2000-01, an increase of 4.1% from the previous year, with no new taxes or tax relief, although a streamlined sales tax collection system was implemented to improve collections, particularly as to out-of-state catalog and internet sales. Continuing to focus on education, the General Assembly approved a $3.1 billion bond referendum for construction and renovation at the State’s 16 university campuses and 59 community colleges. North Carolina’s citizens approved the $3.1 billion bond package – the largest in State history – on November 7, 2000. The bonds will be issued over five years and paid back over 20 years. The General Assembly also authorized 6.5% raises for teachers in the public schools, bringing the State’s teachers’ salaries up to the national average. State employees received 4.2% raises and $500 bonuses disbursed in October 2000. The General Assembly placed $170 million over the next two years in reserve to help cover expected cost increases in the state employee’s health insurance plan, and an additional $120 million was set aside to replenish the depleted State Emergency Reserves. The General Assembly also placed in reserve $100 million for the Repairs and Renovations Reserve Account, $14.9 million in the Reserve for Capital Improvements, $120 million in the Savings Reserve Account, and $30 million in the Clean Water Management Trust Fund.

On August 24, 2000, the State Supreme Court issued an order in the Chrysler Credit case denying the State’s request for discretionary review of a decision of the State Court of Appeals. As a result, the State was required to refund $20.5 million of taxes previously paid by Chrysler. On November 1, 2000, the State Court of Appeals issued an order accepting the State’s motion to dismiss an appeal previously filed by the State in the Ford Motor Credit case. As a result, the State was required to refund $38.2 of taxes previously paid by Ford.

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On May 1, 2001, the State Office of State Budget, Planning and Management and the Fiscal Research Division of the State General Assembly estimated there would be a General Fund revenue shortfall of $697.1 million from the authorized 2000-01 fiscal year budget, and a total budget shortfall for fiscal year 2000-01 of approximately $850 million. The shortfall was attributed to four major factors: (1) the State was required to refund approximately $123 million of income tax refunds in the 2000-01 budget year that should have been refunded in the prior year, creating a corresponding decrease in revenues; (2) the State was required to refund approximately $63.3 million in taxes and fees arising from lawsuits involving privilege fees charged to major automobile finance companies and involving the intangibles tax previously levied by the State, creating an $18.3 million reduction in individual income taxes and a $45 million reduction in privilege taxes; (3) the State’s share of the federal Medicaid program generated expenses approximately $108 million greater than the budgeted appropriation for this purpose; and (4) decreased revenues attributable to a general slow down of the national economy resulted in a forecasted general revenue shortfall of $300 to $450 million, particularly affecting revenues from taxes associated with the State’s manufacturing sector. Also, the general economic slow down and its effects on capital markets lead to decreases in taxes attributable to capital gains income. The slow down resulted in decreased forecasted revenues in several categories, including individual income taxes, corporate income taxes, and sales taxes.

In response to the budget shortfall, the Governor, as Director of the Budget, issued Executive Order No. 3 directing a number of actions to be taken to insure the State met its constitutional requirement of a balanced budget. Specifically, the Governor identified budgetary resources that would cover a budget shortfall of up to approximately $1 billion. These resources consisted of a combination of reversions of unexpended appropriations, the diversion of other resources from their otherwise appropriated use, and the identification and use of available reserves.

At the end of fiscal year 2000-01, General Fund revenues, including tax, non-tax, diverted funds, and delayed reimbursements, fell short of estimated revenue by $598.4 million. Individual income tax fell short of estimates by $259.4 million, sales and use tax payments fell short of estimates by $177.7 million, and corporate income and franchise tax payments fell short of estimates by $149.3 million. With lowered available investment balances in the General Fund, investment earnings fell short of estimates by $43.1 million. Nevertheless, as a result of the actions taken pursuant to Executive Order No. 3, fiscal year 2000-01 ended June 30, 2001, with a positive General Fund balance of $871.3 million. Along with additional reserves, $157.5 million was reserved in the Savings Reserve Account, and $53.9 million was reserved in the Retirees’ Health Premiums Reserve. After additional reserves, there was no balance remaining in the unreserved General Fund at the end of fiscal year 2000-01. The ending General Fund balance included $448.6 million of unexpended funds designated to relief of Hurricane Floyd victims, which funds were to be expended during subsequent fiscal years, and $178.5 million of unexpended budgetary shortfall funds reserved pursuant to Executive Order No. 3 restricting State expenditures.

On September 21, 2001, the General Assembly adopted a $14.5 billion budget for fiscal year 2001-02. Due to the need to increase revenues, the budget contained several new and increased taxes, including the following: a two-year half-cent increase in the statewide sales tax; a two-year increase to 8.25% of the income tax rate for taxable incomes of single and married individuals over $120,000 and $200,000, respectively; a 6% telecommunications tax on out-of-state long distance calls, with the tax on in-state long distance calls dropping from 6.5% to 6%; a 5% tax on satellite television; a 1% gross premiums tax for HMOs and Blue Cross/Blue Shield; and a 3% increase on liquor taxes. Additionally, tuition for students attending the University of North Carolina was raised 9%. The budget increased spending on education and human services while trimming 400 positions from the State’s payrolls. The General Assembly included in the budget $25 million to reduce class size, $93 million for teacher bonuses, and another $44 million to help struggling students meet testing standards. Teachers and school administrators received salary increases averaging close to 3%, while community college instructors and professional staff received a 1.25% salary increase. Each state employee got a $625 raise. The General Assembly provided $15 million for the One North Carolina Fund for the Governor to use to provide incentives in the recruitment of industries to the State. The budget established a mental health trust fund and provided $47.5 million in funding to be used to renovate existing mental health and substance abuse facilities and to help patients move from institutional to community treatment. The General Assembly set aside $181 million to replenish the depleted State Emergency Reserves and placed in reserve $125 million for the Repairs and Renovations Reserve Account and $40 million for the Clean Water Management Trust Fund.

Due to many factors, an overall budget shortfall in the General Fund for fiscal year 2001-02 of $1.6 billion was projected. The shortfall was primarily a result of an under-realization of budgeted revenues and an increase in

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Medicaid expenditures exceeding budgeted appropriations. In particular, State personal income tax collections in April 2002 were $595 million, which was over $250 million less than in 2001 and over $350 million less than projected for the fiscal year 2001-02 budget. Overall, tax collections declined 6% from the previous fiscal year while the fiscal year 2001-02 budget had projected a 4% revenue increase, a difference of 10 percentage points. Medicaid expenditures were expected to exceed well $100 million of budgeted appropriations. Both the under-realization of revenues and the increased Medicaid expenditures were attributed to the on-going national and regional economic recession, the severity of which was deepened by the impact of the September 11, 2001, terrorist attacks.

In response to the projected budgetary shortfall, the Governor invoked his constitutional authority to insure that the State would meet its constitutional requirement of a balanced budget by issuing Executive Order No. 19, which rescinded previous Executive Order No. 3 and identified over $1.3 billion of resources available if needed to balance the budget. Executive Order No. 19 reduced expenditures for use by State agencies and for capital improvement projects and transferred funds from General Fund reserves and non-General Fund receipts and reserves. Following the issuance of Executive Order No. 19, the Governor ordered the transfer of an additional $200 million from the Hurricane Floyd relief fund and the Tobacco Trust Fund to cover any remaining budgetary shortfall for fiscal year 2001-02.

As of the close of the 2001-02 fiscal year, the General Fund reported a total fund balance of $393.9 million, with reserves of over $390 million and an unreserved fund balance of $3.8 million. For fiscal year 2001-02, the State experienced a shortfall in tax and non-tax receipts of $1.55 billion. As with other state governments, the slowing national and state economy resulted in a general decline in tax collections. Individual income taxes fell short by over $1 billion, corporate income taxes by $177 million, sales and use taxes by $90.5 million, and franchise taxes by $192.7 million. Inheritance and capital gains taxes were similarly lower than budget expectations. In an effort to meet the State constitutional mandate of balancing the General Fund budget, reductions of $789.2 million were implemented, with the remainder of the budget funded by $437.7 million of non-General Fund dollars, and $239.3 million transferred from the Savings Reserve account.

On September 20, 2002, the General Assembly adopted a $14.3 billion budget for fiscal year 2002-03, a more than 2% reduction in the budget from the previous year but an increase of 4% over actual spending of $13.7 billion during last year’s fiscal crises. The budget used $800 million in non-recurring revenue to fund ongoing expenses, including $333 million in reimbursements withheld from local governments. To replace that revenue, the General Assembly granted counties the authority to approve an additional half-cent local-option sales tax. This budget included revenue growth of only 1.8% over last year, which was a far more conservative growth projection than had been used in past years. The budget contained over $100 million in unidentified future cuts to be made by various State departments and agencies, and the heads of those departments and agencies were given additional management flexibility to cut programs. The budget provided no raises for state employees but did grant 10 bonus vacation days. Teachers and principals received career step raises. The State Board of Education was required to cut $42 million from its budget, and appropriations for local partnerships with the Smart Start program were reduced by $20 million. Nevertheless, the budget provided $26.8 million to reduce the student-teacher ratio in both kindergarten and first grade classrooms and $28 million to expand a voluntary pre-kindergarten program to prepare at-risk 4-year olds. The budget for the children’s health insurance program, Health Choice, was increased by $7.7 million, while spending for area mental health programs was reduced by $3 million. Three prison facilities were closed, and many positions with the Department of Correction were eliminated, including 23 chaplain positions. The State’s public universities received full funding for enrollment growth, at $66.8 million, and $4.5 million in additional financial aid for students. Individual campuses, however, shared the burden of a $50.2 million spending reduction statewide, amounting to 2.9% for each institution. University tuition increased 8% for in-state students and 12% for out-of-state students. The State’s community colleges received $9 million less than the year before, with more than half of the cuts to be determined by the system’s board. Nevertheless, the 59-campus system also got a $52 million increase for enrollment growth. Community college students also saw a tuition increase.

The conservative revenue growth projections used for the fiscal year 2002-03 budget were more in line with actual revenues, which spared the State from a mid-year fiscal emergency for the first time in three years. As of the close of the 2002-03 fiscal year, the General Fund reported a total fund balance of $603.9 million, with reserves of over $353 million and an unreserved fund balance of $250.5 million. Key factors improving the fiscal year-end General Fund balance were higher corporate income and sales tax collections, the accelerated repeal of local

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government reimbursements, increased transfers from other funds, and significant spending reductions by State agencies. Additionally, the State received $136.9 million in federal fiscal relief in June 2003, which is the first of two equal flexible grant payments. The second flexible grant payment of $136.9 million was received in October 2003.

On June 30, 2003, the General Assembly adopted a $14.8 billion budget for fiscal year 2003-04. Due to the current budget difficulties, the General Assembly made permanent a .5% State sales tax increase which was due to expire at the end of fiscal year 2002-03. Additionally, the fiscal year 2003-04 budget reduced spending for positions, programs, and general administration at most levels of State government, including at the Departments of Agriculture, Labor, Environment and Natural Resources, Justice, Corrections, Cultural Resources, Insurance, Revenue, and the Administrative Office of the Courts. Teachers received a pay increase averaging 1.81%, while other State employees received a one-time bonus of $550. An initiative to reduce second grade class sizes received $25.3 million, and $96 million in projected bonuses under the State’s ABC’s plan was funded. State and local boards of education found funding reduced for administrative positions and transportation costs, although an increase of $5 million was earmarked for funding low-wealth schools. University tuition increased 5% for both in-state and out-of-state students, while community college tuition increased 3.2% for in-state students and 8.2% for out-of-state students. The State university system received $46.6 million to fund the additional 518 positions needed to meet a projected 4.5% enrollment increase, while need-based financial aid increased by $5.1 million. An additional $2.8 million was provided to increase aid for in-state students attending private colleges. The community colleges also received $32 million in increased funding for staff and supplies to meet enrollment growth. Funding was reduced for many services provided by the State Department of Health and Human Services, including reduced funding of inflationary increases for Medicaid providers and public agencies and cuts to the Smart Start child care program. The fiscal year 2003-04 budget increased funding to the Health Choice insurance program by $12.2 million. Various licensing fees were also implemented for health and child care facilities. The General Assembly set aside $150 million for the State Emergency Reserves and placed in reserve $50 million for the Repairs and Renovations Reserve Account and $12.5 million for the Mental Health Trust Fund; however, $38 million was cut from the Clean Water Management Trust Fund.

In December 2003, the Governor called a Special Session of the General Assembly at which the General Assembly appropriated $24 million for economic development. The General Assembly also appropriated $20 million for the One North Carolina Fund, $4.1 million to the community college system for new and expanding industry training, and $20 million to the North Carolina Rural Economic Development Center.

The State ended fiscal year 2003-04 with an over-collection of revenues of $242.4 million, which was 1.7% of the budgeted revenue forecast. The major tax categories that exceeded the budgeted forecast were individual income, corporate income, and sales and use tax. In addition, unexpended appropriation or reversions of $159 million were realized, and the State received $136.9 million in federal fiscal relief in October 2003. Therefore, the State closed fiscal year 2003-04 with a $289.4 million unreserved fund balance after transferring $116.7 million to the Rainy Day Fund and $76.8 million to the Repair and Renovation Reserve.

On July 18, 2004, the General Assembly adopted a $15.9 billion budget for fiscal year 2004-05. State workers will receive their first pay raises in three years – the greater of $1,000 or 2.5% of their current salaries. Teachers will get an average raise of 2.5%. State university faculty will also receive an average 2.5% raise, while community college faculty will get a 4.5% raise. Retired State employees will get a 1.7% cost of living adjustment. The budget provides public schools with over $50 million to hire up to 1,100 new teachers to reduce third-grade class sizes, $7.5 million to improve test scores in the State’s poorest school districts, and $9.1 million to add 2,000 students to the State’s More at Four pre-kindergarten program. Another $4 million is provided to hire 80 school nurses. $6.6 million is budgeted to provide health insurance for children of the working poor, $4 million is provided to hire 75 to 100 additional child abuse care workers, and $3 million will be used to increase the foster care and adoption assistance reimbursements by $25 per child per month. Twenty-four independent, nonprofit community healthcare centers serving poor patients will receive $5 million, while $2 million will be distributed among 100 shelters for domestic violence victims. $2.7 million will be used to add over 1,400 prison beds at correctional facilities throughout the State. Another $8.6 million will be used for economic development to fund the State Biotechnology Center in the Research Triangle Park, the Global TransPark in Kinston, and a Motorsports Testing and Research Center Complex near Charlotte. Another $30 million is allocated to a fund for underground storage tank cleanup.

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The General Assembly also approved the issuance of $468 million in special indebtedness over two years to fund a cancer hospital, a cardiovascular center, a health promotion center, a genetics data center, and a pharmacy school at several State universities. The funds will also be used to pay for several other projects at State universities and to preserve land for State parks and to protect land near military bases from encroachment. The funds will also be used to build new juvenile detention facilities. No more than $310 million of this special indebtedness may be issued during the 2004-05 fiscal year. The fiscal impact of the $468 million of special indebtedness on the General Fund is expected to be zero because of the annual transfer of revenue from other sources to the General Fund in an amount to cover the estimated debt service. The debt service for the State universities projects and the juvenile detention facilities will be reimbursed from the special revenue funds known as the Health and Wellness Trust Fund and the Tobacco Trust Fund. The debt service for the State parks projects is fully funded by the streams of revenue available to the special revenue funds known as the Parks and Recreation Trust Fund, the Natural Heritage Trust Fund, and the Clean Water Management Trust Fund. The special indebtedness is non-voted debt that is generally secured only by an interest in State property being acquired or improved (e.g., certificates of participation and lease-purchase revenue bonds). With this type of debt, there is no pledge of the State’s faith, credit, or taxing power to secure the debt, which is why voter approval is not required. If the State defaulted on its repayments, no deficiency judgment could be rendered against the State, but the State property that serves as security could be disposed of to generate funds to satisfy the debt. Failure to repay the debt would have negative consequences for the State’s credit rating. Article 9 of Chapter 142 of the State’s General Statutes prohibits the issuance of special indebtedness except for projects specifically authorized by the General Assembly. The use of alternative financing methods provides financing flexibility to the State and permits the State to take advantage of changing financial and economic environments.

In November 2004, the Governor announced that Dell, Inc. will build a computer manufacturing facility in the State. Dell, a leading manufacturer and distributor of personal computers and related products, plans to build and equip a state-of-the-art, 400,000 square-foot manufacturing and distribution facility in the Piedmont Triad region. Dell currently has two U.S. factories in Nashville, Tennessee, and Austin, Texas. The North Carolina General Assembly convened a one-day special session on November 4, 2004, and approved an economic incentive for computer manufacturing companies that, in the case of Dell, will provide up to $225 million in tax credits over the next fifteen years. For each year in which Dell meets the required performance targets, the State will provide a grant equal to 75% of the State personal income withholding taxes derived from the creation of new jobs.

The foregoing results are presented on a budgetary basis. Accounting principles applied to develop data on a budgetary basis differ significantly from those principles used to present financial statements in conformity with generally accepted accounting principles. For example, based on a modified accrual basis, the General Fund balance as of June 30, 2000, was positive $265.7 million, as of June 30, 2001, it was negative $32.4 million, as of June 30, 2002, it was negative $349 million, as of June 30, 2003, it was negative $167 million and as of June 30, 2004, it was negative $196 million.

Under the State’s constitutional and statutory scheme, the Governor is required to prepare and propose a biennial budget to the General Assembly. The General Assembly is responsible for considering the budget proposed by the Governor and enacting the final budget, which must be balanced. In enacting the final budget, the General Assembly may modify the budget proposed by the Governor as it deems necessary. The Governor is responsible for administering the budget enacted by the General Assembly.

The State budget is based upon a number of existing and assumed State and non-State factors, including State and national economic conditions, international activity, federal government policies and legislation, and the activities of the State’s General Assembly. Such factors are subject to change which may be material and affect the budget. The Congress of the United States is considering a number of matters affecting the federal government’s relationship with the state governments that, if enacted into law, could affect fiscal and economic policies of the states, including North Carolina.

In 1998, the State, along with forty-five other states, signed the Master Settlement Agreement (“MSA”) with the nation’s largest tobacco companies to settle existing and potential claims of the states for damages arising from the use of the companies’ tobacco products. Under the MSA, the tobacco companies are required to adhere to a variety of marketing, advertising, lobbying, and youth access restrictions, support smoking cessation and prevention programs, and provide payments to the states in perpetuity. The amount that the State will actually

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receive from this settlement remains uncertain, but projections are that the state will receive approximately $4.6 billion through the year 2025. In the early years of the MSA, participating states received initial payments that were distinct from annual payments. The initial payments were made for five years: 1998 and 2000 through 2003. The annual payments began in 2000 and will continue indefinitely. However, these payments are subject to a number of adjustments including an inflation adjustment and a volume adjustment. Some adjustments (e.g., inflation) should result in an increase in the payments while others (e.g., domestic cigarette sales volume) may decrease the payments. Also, future payments may be impacted by continuing and potential litigation against the tobacco industry and changes in the financial condition of the tobacco companies. In 1999, the General Assembly approved legislation implementing the terms of the MSA in the State. The Golden LEAF, Inc., a nonprofit foundation, was created to distribute half of the settlement funds received by the State. The legislation directed that these funds be used for the purposes of providing economic impact assistance to economically affected or tobacco-dependent regions of the State. However, the foundation’s share of the payments may be diverted by the General Assembly prior to the funds being received by the State Specific Account. The foundation is reported as a discretely presented component unit. In 2000, the State enacted legislation establishing the Health and Wellness Trust Fund and the Tobacco Trust Fund and created commissions charged with managing these funds. Each fund will receive a quarter of the tobacco settlement payments. The purpose of the Health and Wellness Trust Fund is to finance programs and initiatives to improve the health and wellness of the people of North Carolina. An eighteen-member Health and Wellness Trust Fund Commission will administer this fund. The primary purpose of the Tobacco Trust Fund is to compensate the tobacco-related segment of the State’s economy for the economic hardship it is expected to experience as a result of the MSA. An eighteen-member Tobacco Trust Fund Commission will administer this fund.

The economic profile of the State consists of a combination of services, trade, agriculture, manufacturing, and tourism. Non-agricultural wage and salary employment accounted for approximately 3,867,400 jobs as of October 2004. The largest segment of jobs was approximately 1,238,100 in various service categories, followed by 724,800 in trade, transportation, and utilities, and 576,500 in manufacturing. Based on October 2004 data from the United States Bureau of Labor Statistics, the State ranked eleventh among the states in non-agricultural employment, thirteenth in services employment, eleventh in trade employment, and eighth in manufacturing employment. According to the U.S. Department of Commerce, Bureau of Economic Analysis, per capita income in the State during the period from 1993 to 2003 grew from $19,770 to $27,711, an increase of 40%. During the same period, according to the North Carolina Employment Security Commission, the seasonally-adjusted labor force grew from 3,549,800 to 4,192,900, an increase of 18%, and it has undergone significant changes during this period, as the State has moved from an agricultural economy to a service and goods-producing economy. As reported by the North Carolina Employment Security Commission, the seasonally-adjusted unemployment rate in November 2004 was 5.0% of the labor force, as compared to the nationwide unemployment rate for the same period of 5.4%.

The following are cases pending in which the State faces the risk of either a loss of revenue or an unanticipated expenditure. In the opinion of the Department of State Treasurer after consultation with the State Attorney General, an adverse decision in any of these cases would not materially adversely affect the State’s ability to meet its financial obligations.

1. Hoke County, et al. v. State of North Carolina, et al. (formerly Leandro, et al. v. State of North Carolina and State Board of Education) – Funding of Public Education. In 1994, students and boards of education in five counties in the State filed suit requesting a declaration that the public education system of North Carolina, including its system of funding, violates the State constitution by failing to provide adequate or substantially equal educational opportunities, by denying due process of law, and by violating various statutes relating to public education. Five other school boards and students intervened and alleged claims for relief on the basis of the high proportion of at-risk and high-cost students in their counties’ systems. The suit is similar to a number of suits in other states, some of which resulted in holdings that the respective systems of public education funding were unconstitutional under the applicable state law.

The State filed a motion to dismiss, which was denied. On appeal the State Supreme Court upheld the present funding system against the claim that it unlawfully discriminated against low wealth counties but remanded the case for trial on the claim for relief based on the Court’s conclusion that the constitution guarantees every child the opportunity to obtain a sound basic education. The trial on the claim of one plaintiff’s county was held in the fall of 1999. In rulings issued in the fall of 2000 and spring of 2001, the trial court concluded that at-risk children in the State are constitutionally entitled to such pre-kindergarten educational programs as may be necessary to prepare

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them for higher levels of education, and ordered an investigation into why certain school systems succeed without additional funding. Following the State’s filing of an appeal of these rulings, the trial court re-opened the trial and called additional witnesses in the fall of 2001.

On April 4, 2002, the trial court issued its final order in the case, reaffirming its prior rulings and finding that the State must take all necessary actions to provide each child with the “sound basic education” guaranteed by the State Constitution. The trial court’s order directed the State to provide written reports every 90 days on the steps it has taken to comply with the order. On July 30, 2004, the State Supreme Court affirmed the majority of the trial court’s orders, thereby directing the executive and legislative branches to take corrective action necessary to ensure that every child has the opportunity to obtain a sound, basic education. The Supreme Court did agree with the State that the trial court exceeded its authority in ordering pre-kindergarten programs for at-risk children. The State is now undertaking measures to respond to the trial court’s directives. The magnitude of State resources which may ultimately be required cannot be determined at this time; however, the total cost could exceed $100 million.

2. N.C. School Boards Association, et al. v. Richard H. Moore, State Treasurer, et al. – Use of Administration Payments. On December 14, 1998, plaintiffs, including the county school boards of Wake, Durham, Johnston, Buncombe, Edgecombe, and Lenoir Counties, filed suit requesting a declaration that certain payments to State administrative agencies must be distributed to the public schools on the theory that such amounts are fines which under the North Carolina Constitution must be paid to the schools. The trial court ruled in favor of plaintiffs on December 14, 2001.

In its order, the trial court concluded that specifically identified monetary payments assessed and collected by state agencies are civil fines or penalties whose disposition is controlled by Article IX, Section 7 of the State Constitution. The trial court also concluded the statutes under which these funds are distributed are “unconstitutional and void” to the extent they provide that the money is to “go to agencies or for purposes other than the public schools.” Based upon these conclusions of law, the trial court directed the “clear proceeds” of the affected civil fines and penalties be remitted to the public schools.

The trial court also declared “unconstitutional and void” the portions of the State Civil Penalty and Forfeiture Fund and the State School Technology Fund which operate to collect in a central fund and equitably distribute civil fines and penalties to the State’s school system for the purpose of supporting local school technology plans. The order required state agencies to remit civil fines and penalties directly to the local board(s) of education in the county in which the violation leading to the payment occurred for use in the board(s) discretion.

Finally, the trial court determined a three-year statute of limitations applies, allowing the order to be enforced retroactively from the date the civil action was filed to include all affected civil fines and penalties collected by State agencies since December 1995. However, the court stayed the operation and enforcement of the order pending appeal. On appeal, the State Court of Appeals rendered a decision in September 2003 mostly favorable to the State. Discretionary review of this appeal was granted by the State Supreme Court on February 5, 2004.

For the last fiscal year for which information was available to them, plaintiffs alleged liability of approximately $84 million. Until this matter is resolved, any refunds and interest will continue to accrue. The State Attorney General’s Office believes that sound legal arguments support the State’s position on this matter.

3. Southeast Compact Commission – Disposal of Low-Level Radioactive Waste. North Carolina and seven other southeastern states created the Southeast Interstate Low-Level Radioactive Waste Management Compact to plan and develop a site for the disposal of low-level radioactive waste generated in the member states. North Carolina was assigned responsibility for development of the first disposal site, with costs to be distributed equitably among the Compact members. In 1997, the Compact Commission discontinued funding of the development of the North Carolina site, alleging that the State was not actively pursuing the permitting and development of the proposed site. North Carolina withdrew from the Compact in 1999. The Compact subsequently petitioned the United States Supreme Court to allow the filing of its complaint against the State demanding repayment of $80 million of Compact payments expended on the permitting of the site, plus $10 million of future lost income, interest, and attorneys’ fees. The United States Supreme Court denied the Compact’s petition in August 2001. On August 5, 2002, the Compact, with the addition of four member states as plaintiffs, filed a new

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motion requesting the United States Supreme Court to accept the claim under its original jurisdiction. On June 16, 2003, the United States Supreme Court accepted jurisdiction of the case, and the State filed an answer and motion to dismiss. On November 17, 2003, the motion to dismiss was denied, and the United States Supreme Court appointed a special master with authority to determine when additional pleadings will be filed in the case. The Special Master heard oral arguments on dispositive motions filed by both sides on September 3, 2004. The State Attorney General’s office believes that sound legal arguments support the State’s position on this matter.

4. Philip Morris USA Inc. v. Tolson – Refund of Corporate Income Tax. On June 13, 2000, Philip Morris filed an action for a refund of approximately $30 million in corporate income taxes paid for 1989 through 1991. An order of the Augmented Tax Review Board in the 1970’s allowed it to apportion its income under a modified formula, which included a more favorable property factor. When the law changed in 1989 to move to double weighting of the sales factor, Philip Morris incorporated this change into its formula. The Board’s order did not permit double weighting. Philip Morris argued that the principle of in pari materia required incorporation of the amendment, and that failure to allow double weighting violated the equal protection and separation of powers clauses. The Wake County Superior Court recently ruled that Philip Morris was required to use the formula approved by the Board without double weighting the sales factor unless the statutory formula (without the modified property factor) produced a more favorable result. Philip Morris is expected to appeal this ruling.

5. State Employees Association of North Carolina v. State of North Carolina; Stone v. State of North Carolina – Diversion of Employer’s Retirement System Contribution. On May 22, 2001, SEANC filed an action demanding repayment of approximately $129 million in employer retirement contributions to the State retirement system. The Governor withheld, and subsequently used, the withheld funds under his constitutional authority to balance the State budget. The trial court dismissed the action on May 23, 2001, for lack of standing, among other things. Plaintiffs appealed to the State Court of Appeals, and on December 3, 2002, the Court of Appeals affirmed the trial court’s dismissal of the action for lack of standing. On June 13, 2003, the State Supreme Court reversed the lower courts on the issue of standing and remanded the case back to the Court of Appeals for further consideration. In June 2002, the Stone case was filed on behalf of individual State employees and retirees seeking repayment of the withheld employer contribution and a prohibition against future diversions. A class comprised of all members of the retirement system has been certified, and the case is proceeding through class notification and toward trial. The State Attorney General’s office believes that sound legal arguments support the State’s defense of these cases.

6. Cabarrus County v. Tolson – Diversion of Local Government Tax Reimbursements and Shared Revenue. On September 17, 2002, six counties and three municipalities filed suit against the State Secretary of Revenue demanding that the State release payments of local tax reimbursements and shared revenues in excess of $200 million and a prohibition against future diversions. The Governor, in the exercise of his constitutional responsibility to balance the State budget, withheld tax revenues designated by statute for payment to local governments. Summary judgment was granted in favor of the State on all issues, and Plaintiffs have filed notice of appeal to the State Court of Appeals. The State Attorney General’s office believes that sound legal arguments support the State’s defense of this action.

7. Goldston, et al. v. State of North Carolina – Diversion of Highway Trust Funds. On November 14, 2002, a former Secretary of the Department of Transportation and a retired State Senator sued the Governor and the State for using Highway Trust Fund money in the State’s General Fund. The Governor’s Executive Order No. 19 transferred $80 million from the Highway Trust Fund to the General Fund for purposes of balancing the State budget. Also, the General Assembly in its 2002 Special Session authorized this transfer and the transfer of an additional $125 million during fiscal year 2003 in the form of a loan to be repaid with interest through 2009. The suit alleges that these actions are unlawful and unconstitutional and requests a declaration that taxes collected for purposes of Highway Trust Fund expenditures cannot be used for other purposes. Summary judgement was granted in favor of the State on all issues, and Plaintiffs have filed notice of appeal to the State Court of Appeals. The State Attorney General’s office believes that sound legal arguments support the State’s defense of this action.

8. Diana Coley, et al. v. State of North Carolina, et al. (formerly Edward N. Rodman, et al. v. State of North Carolina, et al.) – Retroactive Income Tax Rates. On April 25, 2003, Plaintiffs filed suit against the State and the Secretary of Revenue challenging the constitutionality of retroactively applying the 2001 increase in the highest rate of North Carolina’s state income tax to the entire 2001 tax year. Plaintiffs seek refunds, for

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themselves and a proposed class of similarly situated taxpayers, of all taxes paid for the year 2001 in excess of the prior 7.75% maximum rate, on the theory that a retroactive mid-year tax increase violates the State and federal constitutions. Plaintiffs claim the total amount of taxes involved exceeds $76 million, plus interest. On June 30, 2004, the trial court granted summary judgment in favor of the State on all issues. Plaintiffs have filed notice of appeal with the State Court of Appeals. The State Attorney General’s office has filed a motion to dismiss and believes sound legal arguments support dismissal of the case.

9. Medical Mutual Insurance Corporation of North Carolina v. The Board of Governors of the University of North Carolina and its Constituent Institution, East Carolina University, the East Carolina School of Medicine, et al. – Insurance Policy Termination Premium. On March 18, 2003, Medical Mutual Insurance Corporation of North Carolina (“MMI”) filed this action in Wake County Superior Court against the Board of Governors of the University of North Carolina, East Carolina University Brody School of Medicine (“ECM”), and various doctors. In 2002, in order to raise additional capital, MMI demanded that all policy holders, including ECM, purchase guaranteed capital shares under threat of termination or nonrenewal of policies. In the face of MMI’s demand, ECM decided to purchase insurance for almost all of its healthcare professionals from another insurance company. In this lawsuit, MMI claims that ECM’s decision not to purchase insurance for all its healthcare professionals from MMI triggered an obligation to pay a termination fee to MMI of approximately $26.7 million. ECM believes that MMI is not entitled to any further payments. The State Attorney General’s Office believes that no fee may be owed because of MMI’s termination of the contract; however, in the event that a fee is owed, the State Attorney General’s Office believes that it would be substantially less than $26.7 million. The suit is pending in Superior Court and related administrative proceedings before the State Department of Insurance are ongoing. In August 2004, the trial court entered an order referring the case to arbitration. The State has appealed the arbitration order, and the State Court of Appeals has agreed to hear the case. The parties are also engaged in settlement discussions.

10. DirecTV, Inc. and EchoStar Satellite Corp. v. State of North Carolina, et al. – Refund of Sales Tax. On September 30, 2003, DirecTV and Echostar filed an action for a $32 million refund of State sales tax paid. The State General Assembly recently enacted a provision to impose the sales tax on satellite TV service providers. Plaintiffs claim this tax, which is not imposed on cable television providers, is unconstitutional in that it violates the Commerce Clause (because it is discriminatory and not fairly related to benefits provided by the State), the equal protection clause and North Carolina’s uniformity of taxation constitutional requirement. It is the State’s position that although cable providers are not subject to this tax, they are subject to city and county franchise taxes. The tax on satellite companies was enacted to equalize the tax burden on these various forms of entertainment. The case has been designated as exceptional under the State’s Rules of Civil Procedure, and the parties are currently conducting discovery.

11. Lessie J. Dunn, et al. v. State of North Carolina, et al. – Tax on Non-State Municipal Bonds. On February 9, 2004, Plaintiffs, on behalf of a class of all others similarly situated, filed suit alleging that the State’s imposition and collection of State income tax on interest received by certain taxpayers on municipal bonds issued by non-North Carolina State and local governments constitutes a violation of the Commerce Clause of the United States Constitution. A similar case recently filed in Ohio was ultimately unsuccessful. The State Attorney General’s Office has filed an answer in the case, and discovery is in progress. The State Attorney General’s Office believes that sound legal arguments support the defense of this case.

The State is also involved in numerous other claims and legal proceedings, many of which normally occur in governmental operations. A review of the status of outstanding lawsuits involving the State by the State Attorney General did not disclose any other proceedings that are expected to have a material adverse effect on the financial position of the State.

In its 1996 Short Session, the North Carolina General Assembly approved State general obligation bonds in the amount of $950 million for highways and $1.8 billion for schools. These bonds were approved by the voters of the State in November 1996. In March 1997, the State issued $450 million of the authorized school bonds. In November 1997, the State issued $250 million of the authorized highway bonds. In April 1998, the State issued an additional $450 million of the authorized school bonds. In April 1999, the State again issued an additional $450 million of the authorized school bonds. In September 2000, the State issued an additional $295 million of the authorized school bonds, and another $100 million of the authorized school bonds were issued in March 2001. In

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May 2002, the State issued the final $55 million of the authorized school bonds. In November 2003, the State issued an additional $400 million of the authorized highway bonds. The remaining $300 million of the authorized highway bonds were issued by the State in September 2004.

On November 3, 1998, North Carolina voters approved the issuance of $800 million in clean water bonds and $200 million in natural gas facilities bonds. The clean water bonds provide grants and loans for needed water and sewer improvement projects for the State’s municipalities, and fund programs to reduce pollution in the State’s waterways. The natural gas bonds provide grants, loans and other financing for local distribution companies or state or local government agencies to build natural gas facilities, in part to help attract industry to the State’s rural regions. In September 1999, the State issued a total of $197.4 million of authorized clean water bonds and natural gas facilities bonds, $177.4 million of which were a combination of clean water bonds ($172.4 million) and natural gas facilities bonds ($5 million) and $20 million of which were solely natural gas facilities bonds. In October 1999, the State issued an additional $2.6 million of the authorized clean water bonds. In September 2000, the State issued an additional $5 million of the authorized natural gas facilities bonds. In March 2001, the State issued an additional $30 million of the authorized clean water bonds. In March 2002, the State issued an additional $204.4 million of the authorized clean water bonds and an additional $35 million of the authorized natural gas facilities bonds. In April 2002, the State issued an additional $10.6 million of the authorized clean water bonds. In December 2002, the State issued an additional $18.8 million of the authorized clean water bonds and an additional $50 million of the authorized natural gas facilities bonds. In January 2003, the State issued an additional $2.9 million of the authorized clean water bonds. In April 2003, the State issued an additional $33 million of the authorized natural gas facilities bonds. In May 2003, the State issued an additional $3.65 million of the authorized clean water bonds. In March 2004, the State issued an additional $36 million of the authorized natural gas facilities bonds. A total of $16 million of the authorized natural gas bonds remains unissued.

On November 7, 2000, North Carolina voters approved the issuance of $3.1 billion in general obligation higher education bonds to finance improvements to the facilities of the 16 public universities and 59 community colleges in the State. In March 2001, the State issued $250 million of the authorized higher education bonds. In May 2002, the State issued an additional $300 million of the authorized higher education bonds.

In March 2003, the State issued bonds representing a consolidation of the clean water bonds and the higher education bonds in the approximate amount of $320 million. In April 2003, the State issued approximately $283.3 million of additional consolidated public improvement bonds. These two issuances consisted of a total of $38.4 million of the clean water bonds and 564.9 million of the higher education bonds. In March 2004, the State issued approximately $707.9 million of additional consolidated public improvement bonds. This issuance consisted of a total of $90.8 million of the clean water bonds and $617.1 million of the higher education bonds. An additional $15.255 million of the clean water bonds was issued separately by the State in March 2004. A total of approximately $210 million of the authorized clean water bonds remains unissued, and a total of approximately $1,368 million of the authorized higher education bonds remains unissued.

In addition, the State refinanced over $1,265 million of its existing debt in 2002, 2003 and 2004 to improve cash flow and to take advantage of lower interest rates by reducing its future debt service payments.

It is anticipated that in January 2005 the State will issue $705.5 million of additional consolidated public improvement bonds, consisting of a total of $41 million of the clean water bonds and $664.5 million of the higher education bonds, along with the remaining $16 million of the authorized natural gas bonds and an additional $109.5 million in refunding bonds.

Hurricane Floyd struck North Carolina on September 16, 1999, causing significant flood and wind damage and some loss of life. The effects of the storm and its aftermath have been, and continue to be, felt in the eastern part of the State. The final estimate of property damage caused by the storm and its aftermath is $6 billion. In the opinion of the Offices of the Governor and the State Treasurer, notwithstanding the devastation caused by Hurricane Floyd, the storm and its consequences should not have a material adverse impact upon the ability of the State to meet its financial obligations, including timely payment of principal and interest on the State’s general obligation bonds.

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Hurricane Isabel came ashore near Ocracoke on the Outer Banks of the State on September 18, 2003. The storm hammered the fragile Outer Banks and raked across the northeastern portion of the State, causing widespread destruction to homes, business, and farms. 47 of the State’s 100 counties were declared disaster areas. The State Department of Agriculture reports that damage to crops, livestock, and farm structures in the State exceeds $152 million. Damage to timber in the State is estimated at $565 million, with more than 833,000 acres sustaining some level of damage. By the end of December 2003, more than $155 million in federal and State disaster assistance to individuals, households, local governments, and private nonprofits has been approved. The federal government covers 75 percent of the costs; the State pays the other 25 percent.

The State suffered the effects of six tropical weather systems in 2004. In August, Hurricanes Alex, Bonnie and Charley caused flooding and widespread power outages in eastern North Carolina. In September, Hurricanes Frances, Ivan, and Jeanne devastated central and western North Carolina with torrential rainfall that spawned flash flooding and numerous debris flows, including mudslides and rock falls. Only Hurricanes Frances and Ivan have met the criteria necessary to achieve a Federal Disaster Declaration, while Hurricanes Alex, Bonnie, Charley and Jeanne met the criteria necessary for a State Disaster Declaration. Preliminary estimates indicate that these storms caused over $230 million in damages that are eligible for state and federal governmental assistance. The State’s share is estimated to be approximately $90 million. In order to match federal funds available to the State for federal disaster recovery services, the Governor ordered State agencies to revert 0.75% of their 2004-05 budgets to provide an estimated $120 million for storm relief.

Currently, Standard & Poor’s and Fitch both rate the State’s general obligation bonds as AAA. On August 19, 2002, Moody’s downgraded the State’s general obligation bonds from Aaa, its highest rating, to Aa1 with stable outlook, one step below Aaa. Moody’s cited the State’s “continued budget pressure, its reliance on non-recurring revenues, and its weakened balance sheet” as reasons for this downgrade. This represents the first time since 1960 that the State has had less than a AAA rating on its general obligation bonds. In September 2004, Moody’s revised the State’s outlook from stable to positive and noted the following:

“This rating reflects the State’s slowly stabilizing economy, its improving tax revenues, its conservative debt policy, and its effective financial management. While general fund balances remain negative, flexible cash reserves outside the general fund are ample, and pension funding is exceptionally strong. Moody’s expects that the state will continue to take actions to restore structural balance and rebuild reserves.”

Special Considerations Regarding Investment in Virginia State-Specific Obligations. The Virginia State-Specific Money Market Portfolio will invest primarily in Virginia State-Specific Obligations. For this reason, the Portfolio is affected by political, economic, regulatory or other developments that constrain the taxing, revenue-collecting and spending authority of Virginia issuers or otherwise affect the ability of Virginia issuers to pay interest, principal or any premium. The following information constitutes only a brief summary of certain of these developments and does not purport to be a complete description of them. The information has been obtained from recent official statements prepared by the Commonwealth of Virginia relating to its securities, and no independent investigation has been undertaken to verify its accuracy. Moreover, the information relates only to the state itself and not to the numerous special purpose or local government units whose issues may also be held by the Portfolio. The credits represented by such issues may be affected by a wide variety of local factors or structuring concerns, and no disclosure is made here relating to such matters.

The rate of economic growth in the Commonwealth of Virginia has increased steadily over the past decade. Per capita income in Virginia has been consistently above national levels during that time. The services sector in Virginia generates the largest number of jobs, followed by wholesale and retail trade, state and local government and manufacturing. Because of Northern Virginia, with its proximity to Washington, D.C., and Hampton Roads, which has the nation’s largest concentration of military installations, the Federal government has a greater economic impact on Virginia relative to its size than any state other than Alaska and Hawaii.

According to statistics published by the U.S. Department of Labor, Virginia typically has one of the lowest unemployment rates in the nation. This is generally attributed to the balance among the various sectors represented in the economy. Virginia is one of twenty-one states with a right-to-work law and is generally regarded as having a favorable business climate marked by few strikes or other work stoppages. Virginia is also one of the least

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unionized among the industrialized states. While overall employment has shown growth over the last five years, years 2001-03 saw little or no job growth, at 0.0%, -0.6% and 0.2% respectively. However, in June 2004, Virginia’s nonagricultural employment level was 3,617,600, a 2.3% increase over June 2003 and more than two times the 1.1% June 2004 national annual rate of job creation. This renewed job growth was aided by strong growth in the sectors of technology, business and professional services, defense contracting, construction and tourism.

Virginia’s state government operates on a two-year budget. The Constitution vests the ultimate responsibility and authority for levying taxes and appropriating revenue in the General Assembly, but the Governor has broad authority to manage the budgetary process. Once an appropriation act becomes law, revenue collections and expenditures are constantly monitored by the Governor, assisted by the Secretary of Finance and the Department of Planning and Budget, to ensure that a balanced budget is maintained. If projected revenue collections fall below amounts appropriated at any time, the Governor must reduce expenditures and withhold allotments of appropriations (other than for debt service and other specified purposes) to restore balance. Virginia law provides that up to 15% of a general fund appropriation to an agency may be withheld if required. An amendment to the Constitution, effective January 1, 1993, established a Revenue Stabilization Fund. This Fund is used to offset a portion of anticipated shortfalls in revenues in years when appropriations based on previous forecasts exceed expected revenues in subsequent forecasts. The Revenue Stabilization Fund consists of an amount not to exceed 10% of Virginia’s average annual tax revenues derived from taxes on income and retail sales for the three preceding fiscal years.

General Fund revenues are principally comprised of direct taxes. In recent fiscal years, most of the total tax revenues have been derived from five major taxes imposed by Virginia on individual and fiduciary income, sales and use, corporate income, public service corporations and premiums of insurance companies. Historically, balances in the General Fund have decreased in some years, for example in fiscal years 1995, 2001, 2002 and 2003, and have increased at varying rates in other years, such as fiscal years 1996, 1997, 1998, 1999, 2000 and 2004. In fiscal year 2004, the General Fund revenues and other sources exceeded expenditures and other uses by $554.8 million, resulting in a 100% increase in the General Fund balance over fiscal year 2003. Overall revenue increased by 8.7%, while non-tax revenues increased by 13.0%. Overall expenditures rose by a rate of 2.5% in fiscal year 2004, compared to a 0.6% decrease in fiscal year 2003. The fiscal year 2003 amounts are unaudited.

In September 1991, the Debt Capacity Advisory Committee was created by the Governor through an executive order. The committee is charged with annually estimating the amount of tax-supported debt that may prudently be authorized, consistent with the financial goals, capital needs and policies of Virginia. The committee annually reviews the outstanding debt of all agencies, institutions, boards and authorities of Virginia for which Virginia has either a direct or indirect pledge of tax revenues or moral obligation. The Committee provides its recommendations on the prudent use of such obligations to the Governor and the General Assembly.

The Constitution of Virginia prohibits the creation of debt by or on behalf of Virginia that is backed by Virginia’s full faith and credit, except as provided in Section 9 of Article X. Section 9 of Article X contains several different provisions for the issuance of general obligation and other debt, and Virginia is well within its limit for each:

Section 9(a) provides that the General Assembly may incur general obligation debt to meet certain types of emergencies; subject to limitations on amount and duration, to meet casual deficits in the revenue or in anticipation of the collection of revenues of Virginia; and to redeem a previous debt obligation of Virginia. Total indebtedness issued pursuant to Section 9(a)(2) may not exceed 30% of an amount equal to 1.15 times the annual tax revenues derived from taxes on income and retail sales, as certified by the Auditor of Public Accounts for the preceding fiscal year and such debt shall mature within 12 months from the date such debt is incurred.

Section 9(b) provides that the General Assembly may authorize the creation of general obligation debt for capital projects. Such debt is required to be authorized by an affirmative vote of a majority of each house of the General Assembly and approved in a statewide election. The outstanding amount of such debt is limited to an amount equal to 1.15 times the average annual tax revenues derived from taxes on income and retail sales, as certified by the Auditor of Public Accounts for the three preceding fiscal years less the total amount of bonds outstanding. The amount of 9(b) debt that may be authorized in any single fiscal year is limited to 25% of the limit on all 9(b) debt less the amount of 9(b) debt authorized in the current and prior three fiscal years.

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Section 9(c) provides that the General Assembly may authorize the creation of general obligation debt for revenue-producing capital projects (so-called “double-barrel” debt). Such debt is required to be authorized by an affirmative vote of two-thirds of each house of the General Assembly and approved by the Governor. The Governor must certify before the enactment of the authorizing legislation and again before the issuance of the debt that the net revenues pledged are expected to be sufficient to pay principal of and interest on the debt. The outstanding amount of 9(c) debt is limited to an amount equal to 1.15 times the average annual tax revenues derived from taxes on income and retail sales, as certified by the Auditor of Public Accounts for the three preceding fiscal years. While the debt limits under Sections 9(b) and 9(c) are each calculated as the same percentage of the same average tax revenues, these debt limits are separately computed and apply separately to each type of debt.

Section 9(d) provides that the restrictions of Section 9 are not applicable to any obligation incurred by Virginia or any of its institutions, agencies or authorities if the full faith and credit of Virginia is not pledged or committed to the payment of such obligation. There are currently outstanding various types of such 9(d) revenue bonds. Certain of these bonds, however, are paid in part or in whole from revenues received as appropriations by the General Assembly from general tax revenues, while others are paid solely from revenues of the applicable project. The repayment of debt issued by the Virginia Public Building Authority, the Virginia College Building Authority 21^st Century College and Equipment Program, the Innovative Technology Authority and the Virginia Biotechnology Research Park Authority is supported in large part by General Fund appropriations.

The Commonwealth Transportation Board is a substantial issuer of bonds for highway projects. These bonds are secured by and are payable from funds appropriated by the General Assembly from the Transportation Trust Fund for such purpose. The Transportation Trust Fund was established by the General Assembly in 1986 as a special non-reverting fund administered and allocated by the Transportation Board to provide increased funding for construction, capital and other needs of state highways, airports, mass transportation and ports. The Virginia Port Authority has also issued bonds that are secured by a portion of the Transportation Trust Fund.

Virginia is involved in numerous leases that are subject to appropriation of funding by the General Assembly. Virginia also finances the acquisition of certain personal property and equipment through installment purchase agreements.

Bonds issued by the Virginia Housing Development Authority, the Virginia Resources Authority and the Virginia Public School Authority are designed to be self-supporting from their individual loan programs. A portion of the Virginia Housing Development Authority bonds, Virginia Public School Authority bonds and the Virginia Resources Authority bonds are secured in part by a moral obligation pledge of Virginia. Should the need arise, Virginia may consider funding deficiencies in the respective debt service reserves for such moral obligation debt but the General Assembly is not legally required to make any appropriation for such purpose. To date, none of these authorities has advised Virginia that any such deficiencies exist.

As of June 30, 2002, local government in Virginia was comprised of 95 counties, 39 incorporated cities, and 190 incorporated towns. Virginia is unique among the several states in that cities and counties are independent, and their land areas do not overlap. The largest expenditures by local governments in Virginia are for education, but local governments also provide other services such as water and sewer, police and fire protection and recreational facilities. The Virginia Constitution imposes numerous restrictions on local indebtedness, affecting both its incurrence and amount.

Most recently, Moody’s has rated the long-term general obligation bonds of Virginia Aaa, and Standard & Poor’s has rated such bonds AAA. There can be no assurance that the economic conditions on which these ratings are based will continue or that particular bond issues may not be adversely affected by changes in economic or political conditions. On September 4, 2003, Moody’s placed the Commonwealth of Virginia’s General Obligation bond rating on Watchlist for possible downgrade, citing, among other things, a weak economy, the phase-out on automobile taxes, and significant revenue shortfalls.

On December 17, 2003, Governor Warner presented the 2004 Budget Bill for the 2004-06 biennium. The 2004 Budget Bill included a number of actions to balance a projected shortfall of $1.9 billion over the biennium between projected revenues and spending requirements. The general fund revenues for 2005 and 2006 at that time were projected to be $27.2 billion, consisting of $13.4 billion in fiscal year 2005 and $13.8 billion in fiscal year 2006.

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On May 7, 2004, the General Assembly passed a comprised budget for the 2004-06 biennium that included tax reforms that were projected to generate additional revenue of $616.3 million in fiscal year 2005 and $775.6 million in fiscal year 2006.

On June 6, 2004, Governor Warner returned the enrolled Budget Bill to the General Assembly with 43 recommended amendments. On June 16, 2004, the General Assembly adopted 27 of the 43 recommended amendments, and on June 25, 2004, Governor Warner signed House Bill 5001, as amended, and vetoed 8 items.

On December 17, 2004, Governor Warner presented his proposed amendments to the budget for fiscal year 2005 and fiscal year 2006. The 2005 Budget Bill reflects a revised revenue forecast that adds $450.8 million to projected revenues for fiscal year 2005 and $467.9 million to fiscal year 2006, a total of $918.7 million for the biennium. Governor Warner proposes to allocate the additional revenues for urgent one-time expenses including meeting transportation needs, increasing funding for Medicaid and paying for capital maintenance at Virginia colleges.

Special Considerations Regarding Investment in New Jersey State-Specific Obligations. The following information provides only a brief summary of the complex factors affecting the financial situation in New Jersey, does not purport to be a complete description and is largely based on information drawn from official statements relating to securities offerings of New Jersey municipal obligations available as of the date of this Statement of Additional Information. The accuracy and completeness of the information contained in such offering statements has not been independently verified.

New Jersey Economic Information and Trends. New Jersey’s economic base is diversified, consisting of a variety of manufacturing, construction and service industries, supplemented by rural areas with selective commercial agriculture.

During 2003, New Jersey’s economy continued to recover from the prior recessionary period. New Jersey’s employment increased by 1.6% in May 2004 from a year ago, continuing the positive year-to-year growth trend for the eleventh consecutive month since July 2003. With improving trends in payroll employment in New Jersey, the New Jersey unemployment rate fell to 4.9% in May 2004, and remains well below the 5.6% rate for the nation. New Jersey and the nation are expected to have economic momentum into 2005. New Jersey’s economy is expected to follow the national trend in 2005. New Jersey and the Nation may experience further near-term slow growth, and the expected pace of economic expansion may stall if consumers, investors, and businesses become more cautious than currently assumed. Nevertheless, the fundamentals of New Jersey’s economic health remain stable and the long-term prospects for economic growth of New Jersey in 2005 and beyond are favorable.

New Jersey’s Budget and Appropriation System - Current Operating Expenses.

The General Fund. New Jersey operates on a fiscal year ending on June 30. The General Fund is the fund into which all New Jersey revenues, not otherwise restricted by statute, are deposited and from which appropriations are made. The largest part of the total financial operations of New Jersey is accounted for in the General Fund. The Appropriations Act enacted by the New Jersey Legislature and approved by the Governor provides the basic framework for the operation of the General Fund. The undesignated General Fund balance at year end for fiscal year 2001 was $388.7 million, for fiscal year 2002 was $292.3 million and for fiscal year 2003 was $373.0 million. For fiscal years 2004 and 2005, the balances in the undesignated General Fund are estimated to be $534.0 and $109.6 million, respectively. The fund balances are available for appropriation in succeeding fiscal years.

Tax and Revenue Anticipation Notes. In fiscal year 1992, New Jersey initiated a program under which it issued tax and revenue anticipation notes to aid in providing effective cash flow management to fund imbalances which occur in the collection and disbursement of General Fund revenues and Property Tax Relief Fund revenues. New Jersey authorized the issuance of up to $3,100,000,000 of such notes for fiscal year 2005 and issued notes in the amount of $1,500,000,000 on August 12, 2004, which notes are payable on June 24, 2005. Such tax and revenue

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anticipation notes do not constitute a general obligation of New Jersey or a debt or liability within the meaning of the New Jersey Constitution. Such notes constitute special obligations of New Jersey payable solely from monies on deposit in the General Fund and Property Tax Relief Fund that are legally available for such payment.

New Jersey Capital Project Financings.

General Obligation Bonds. New Jersey finances certain capital projects through the sale of its general obligation bonds. These bonds are backed by the full faith and credit of New Jersey. Certain state tax revenues and certain other fees are pledged to meet the principal payments, interest payments and redemption premium payments, if any, required to fully pay the bonds. The aggregate outstanding general obligation bonded indebtedness of New Jersey as of June 30, 2004, was $3,236,099,741. The appropriation for the debt service obligation on outstanding projected indebtedness is $441.5 million for fiscal year 2005.

Pay-As-You-Go. In addition to payment from bond proceeds, capital projects can also be funded by appropriation of current revenues on a pay-as-you-go basis. In fiscal year 2005, the amount appropriated for this purpose is $1,120.5 million.

Other Long Term Debt Obligations of New Jersey.

Bonds Guaranteed by New Jersey. The New Jersey Sports and Exposition Authority (“NJSEA”) has issued State-guaranteed bonds of which $20,050,000 were outstanding as of June 30, 2004. To date, the NJSEA has not had a revenue deficiency requiring New Jersey to make debt service payments pursuant to its guarantee. It is anticipated that the NJSEA’s revenues will continue to be sufficient to pay debt service on these bonds without recourse to New Jersey’s guarantee.

“Moral Obligation” Bonds. The authorizing legislation for certain New Jersey entities provides for specific budgetary procedures with respect to certain of the obligations issued by such entities. Pursuant to such legislation, a designated official is required to certify any deficiency in a debt service reserve fund maintained to meet payments of principal of and interest on the obligations and a New Jersey appropriation in the amount of the deficiency is to be made. However, the New Jersey Legislature is not legally bound to make such an appropriation. Bonds issued pursuant to authorizing legislation of this type are sometimes referred to as “moral obligation” bonds. There is no statutory limitation on the amount of “moral obligation” bonds which may be issued by eligible New Jersey entities. Below is a discussion of those New Jersey authorities and instrumentalities that issue bonds that constitute a “moral obligation” of New Jersey.

New Jersey Housing and Mortgage Finance Agency. Neither the New Jersey Housing and Mortgage Finance Agency nor its predecessor agencies (the New Jersey Housing Finance Agency and the New Jersey Mortgage Finance Agency) have had a deficiency in a debt service reserve fund which required New Jersey to appropriate funds to meet its “moral obligation.” It is anticipated that this agency’s revenues will continue to be sufficient to pay debt service on its bonds.

South Jersey Port Corporation. New Jersey has periodically provided the South Jersey Port Corporation (the “SJPC”) with funds to cover debt service and property tax requirements, when earned revenues are anticipated to be insufficient to cover these obligations. For calendar years 2000 through 2004, New Jersey has made appropriations totaling $20,371,846 which covered deficiencies in revenues of the SJPC for debt service.

New Jersey Higher Education Student Assistance Authority. The New Jersey Higher Education Student Assistance Authority (“NJHESAA”) (successor to the Higher Education Assistance Authority) has not had a revenue deficiency that required New Jersey to appropriate funds to meet its “moral obligation.” It currently is anticipated that the NJHESAA’s revenues will continue to be sufficient to cover debt service on its bonds.

There is no statutory limitation on the amount of “moral obligation” bonds which may be issued by eligible New Jersey entities. As of June 30, 2004, outstanding “moral obligation” bonded indebtedness issued by New Jersey entities totaled $1,167,907,668 and fiscal year 2005 debt service subject to “moral obligation” was $53,999,749.

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Obligations Supported by New Jersey Revenue Subject to Annual Appropriation. New Jersey has entered into a number of leases and contracts described below (collectively, the “Agreements” and each an “Agreement”) with several governmental authorities to secure the financing of various New Jersey projects. Under the terms of the Agreements, New Jersey has agreed to make payments equal to the debt service on, and other costs related to, the obligations sold to finance the projects, including payments on swap agreements defined below. New Jersey’s obligations to make payments with respect to certain financings includes payments related to interest rate exchange agreements described below (“swap agreements”) entered into with respect to such financings. Under such swap agreements, the issuer is required to pay a fixed rate to the swap counter party and any swap termination payment. If the payments to an issuer under a swap agreement are not sufficient to pay the interest on the issuer’s related obligation, the issuer must pay such deficiency. New Jersey’s obligation to make payments under the Agreements is subject to and dependent upon annual appropriations being made by the New Jersey Legislature for such purposes. The New Jersey Legislature has no legal obligation to enact such appropriations, but has done so to date for all such obligations. Below is a discussion of those financings pursuant to which State authorities and instrumentalities have entered into Agreements with New Jersey to secure the financing of various State projects.

New Jersey Economic Development Authority. The New Jersey Economic Development Authority (“NJEDA”) issues bonds secured by Agreements pursuant to the following legislative programs: (i) Economic Recovery Bonds issued to finance various economic development purposes (with payments made by New Jersey pursuant to an Agreement being equivalent to payments due to New Jersey under an agreement with the Port Authority of New York and New Jersey); (ii) Pension Bonds issued for the purpose of financing the unfunded accrued pension liability for New Jersey’s retirement system; (iii) Market Transition Facility Bonds issued to pay current and anticipated liabilities and expenses of the Market Transition Facility, which issued private passenger automobile insurance policies for drivers who could not be insured by private insurance companies on a voluntary basis; (iv) the School Facility Construction Bonds (the principal amount of bonds authorized to be issued is $6 billion for the “Abbott” districts, $2.5 billion for all other districts and $100 million for county vocational school district projects), pursuant to which the NJEDA issues bonds to finance New Jersey’s share of costs for school facility construction projects and debt service on the bonds is paid pursuant to a contract between the NJEDA and the New Jersey Treasurer; (v) pursuant to the Motor Vehicle Security and Customer Service Act, the NJEDA is authorized to issue bonds to pay the costs of capital improvements for the New Jersey Motor Vehicle Commission facilities (authorized in an amount not exceeding $160 million); (vi) the lease financing program through which certain real property, office buildings and equipment are financed with NJEDA bonds (secured by Agreements between the New Jersey Treasurer and NJEDA) and (vii) pursuant to the Cigarette Tax Securitization Act of 2004, the NJEDA is authorized to issue bonds payable, and secured by, a portion, $0.0325 per cigarette, of the cigarette tax imposed pursuant to N.J.S.A. 54:40A-1 et seq.

Swap Agreements. The NJEDA has entered into a number of swap agreements with certain bond issues. In connection with the $375,000,000 State Pension Variable Rate Refunding Bonds, Series 2003, the NJEDA has entered into swap agreements for the purpose of converting the NJEDA’s variable rate exposure to a fixed rate. The outstanding aggregate principal amount of the bonds is equal to the aggregate notional amount of the swap agreements related thereto. In connection with School Facilities Construction Bonds, the NJEDA has entered into for six separate tranches of swap agreements in an aggregate notional amount of $3 billion in 2003 and three separate swap agreements with a notional amount of $750 million in 2004. These forward-starting swap agreements effectively hedge against rising interest rates a portion of the NJEDA’s future borrowings expense associated with bonds anticipated to be issued under the Educational Facilities Construction and Financing Act, enacted July 18, 2000, P.L. 2000, c.72. The NJEDA has entered into three separate swap agreements with an aggregate notional amount of $214,795,000 in connection with its Business Employment Incentive Program Bonds and are effectively a hedge against rising interest rates for a portion of NJEDA’s future borrowing expense associated with bonds anticipated to be issued under the Business Employment Incentives Program in fiscal year 2005.

New Jersey Educational Facilities Authority. The New Jersey Educational Facilities Authority issues bonds secured by Agreements pursuant to seven separate legislative programs to finance (i) the purchase of equipment to be leased to institutions of higher learning; (ii) grants to New Jersey’s public and private institutions of higher education for the development, construction and improvement of instructional, laboratory, communication and research facilities; (iii) grants to public and private institutions of higher education to develop a technology infrastructure within and among New Jersey’s institutions of higher education; (iv) capital projects at county colleges; (v) grants to public and private institutions of higher education to finance and refinance eligible

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educational facilities; (vi) grants to public libraries to finance the acquisition, expansion and rehabilitation of buildings to be used as public library facilities; and (vii) loans to public and private institutions of higher education and public and private secondary schools, military schools and boarding schools located within New Jersey to install automatic fire suppression systems.

New Jersey Transportation Trust Fund Authority. In July 1984, New Jersey created the New Jersey Transportation Trust Fund Authority (the “NJTTFA”) for the purpose of funding a portion of New Jersey’s share of the cost of improvements to its transportation system. The principal amount of the NJTTFA’s bonds, notes or other obligations which may be issued in any fiscal year generally may not exceed $650 million plus amounts carried over from prior fiscal years. The obligations issued by the NJTTFA are special obligations of the NJTTFA payable from a contract among the NJTTFA, the New Jersey Treasurer and the Commissioner of Transportation.

New Jersey Building Authority. The New Jersey Building Authority (“NJBA”) issues bonds for the acquisition, construction, renovation and rehabilitation of various New Jersey office buildings, historic buildings, and correctional facilities. Pursuant to a lease agreement, New Jersey makes rental payments to NJBA in amounts sufficient to pay debt service on the NJBA bonds.

New Jersey Sports and Exposition Authority. Legislation enacted in 1992 authorizes the New Jersey Sports and Exposition Authority (the “NJSEA”) to issue bonds for various purposes payable from a contract between the NJSEA and the New Jersey Treasurer. Pursuant to such contract, the NJSEA undertakes certain projects and the New Jersey Treasurer credits to the NJSEA amounts from the General Fund sufficient to pay debt service and other costs related to the bonds.

Garden State Preservation Trust. In July 1999, New Jersey established the Garden State Preservation Trust (“GSPT”) for the purpose of preserving, as open space, farmland and historic properties. Pursuant to the enabling act of the GSPT, the principal amount of bonds, notes or other obligations which may be issued prior to July 1, 2009, other than refunding bonds, cannot exceed $1.15 billion. After July 1, 2009, only refunding bonds can be issued. The obligations to be issued by the GSPT will be special obligations of the GSPT payable from amounts paid to it under a contract between GSPT and the New Jersey Treasurer.

New Jersey Health Care Facilities Financing Authority. Pursuant to Legislation, the New Jersey Health Care Facilities Financing Authority is authorized to acquire, construct and lease a project to the New Jersey Department of Human Services (“DHS”) and to issue bonds to finance each project, the debt service on which shall be paid by DHS, subject to appropriations by the New Jersey Legislature.

New Jersey Certificates of Participation. Beginning in April 1984, New Jersey, acting through the Director of the Division of Purchase and Property, has entered into a series of lease purchase agreements which provide for the acquisition of equipment, services and real property to be used by various departments and agencies of New Jersey. Certificates of Participation in such lease purchase agreements have been issued. A Certificate of Participation represents a proportionate interest of the owner thereof in the lease payments to be made by New Jersey under the terms of the lease purchase agreement.

New Jersey Supported School and County College Bonds. Legislation provides for future appropriations for New Jersey aid to local school districts equal to a portion of the debt service on bonds issued by such local school districts for construction and renovation of school facilities (P.L. 1968, c. 177; P.L. 1971, c. 10; and P.L. 1978, c. 74) and for New Jersey aid to counties equal to a portion of the debt service on bonds issued by or on behalf of counties for construction of county college facilities (P.L. 1971, c. 12, as amended). The New Jersey Legislature has no legal obligation to make such appropriations, but has done so to date for all obligations issued under these laws.

Department of Human Services Programs. The NJEDA issues revenue bonds from time to time on behalf of non-profit community services providers. The payment of debt service on these bonds as was as the payment of certain other provider expenses is made by New Jersey pursuant to service contracts between DHS and these providers.

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Conduit Indebtedness of New Jersey Authorities and Instrumentalities. Certain State authorities and instrumentalities are authorized to issue debt on behalf of various private and governmental entities on a conduit basis. Under such circumstances, neither the New Jersey authority or instrumentality acting as a conduit issuer nor the State of New Jersey is responsible for the repayment of such debt. The payment obligations with respect to such debt are solely that of the entity on whose behalf the debt was issued. Those State authorities and instrumentalities that issue debt on behalf of private and governmental entities on a conduit basis include: (i) the New Jersey Economic Development Authority; (ii) the New Jersey Health Care Facilities Financing Authority; (iii) the New Jersey Education Facilities Authority; (iv) the New Jersey Housing and Mortgage Finance Agency; (v) the New Jersey Environmental Infrastructure Trust; and (vi) the New Jersey Redevelopment Agency.

Counties and Municipalities.

Regulation of County and Municipal Finance. New Jersey’s county and municipal finance system is regulated by various statutes designed to assure that all county and municipal governments and their issuing authorities remain on a sound financial basis. Regulatory and remedial statutes are enforced by the Division of Local Government Services (the “Division”) in the New Jersey Department of Community Affairs.

The Local Budget Law (N.J.S.A. 40A:4-1 et seq.) (the “Local Budget Law”) imposes specific budgetary procedures upon counties and municipalities (“local units”). Every local unit must adopt an operating budget which is balanced on a cash basis, and items of revenue and appropriation must be examined by the Director of the Division (the “Director”). The accounts of each local unit must be independently audited by a registered municipal accountant. New Jersey law provides that budgets must be submitted in a form promulgated by the Division. The Division reviews all local unit annual budgets prior to adoption for compliance with the Local Budget Law. The Director is empowered (i) to require changes for compliance with law as a condition of approval; (ii) to disapprove budgets not in accordance with law; and (iii) to prepare the budget of a local unit, within the limits of the adopted budget of the previous year with suitable adjustments for legal compliance, if the local unit fails to adopt a budget in accordance with law. This process insures that every local unit annually adopts a budget balanced on a cash basis, within limitations on appropriations or tax levies, respectively, and making adequate provision for (i) principal of and interest on indebtedness falling due in the fiscal year, (ii) deferred charges, and (iii) other statutory expenditure requirements. The Director also oversees changes to local budgets after adoption as permitted by law, and enforces regulations pertaining to execution of adopted budgets and financial administration. In addition to the exercise of regulatory and oversight functions, the Division offers expert technical assistance to local units in all aspects of financial administration, including revenue collection and cash management procedures, contracting procedures, debt management and administrative analysis.

The Local Government Cap Law (N.J.S.A. 40A:4-45.1 et seq.) (the “Cap Law”) limits the year-to-year increase of the total appropriations of any local unit to either 5% or an index rate determined annually by the Director, whichever is less. However, where the index percentage rate exceeds 5%, the Cap Law permits the governing body of any local unit to approve the use of a higher percentage rate up to the index rate. Further, where the index percentage rate is less than 5%, the Cap Law also permits the governing body of any local unit to approve the use of a higher percentage rate up to 5%. Regardless of the rate utilized, certain exceptions exist to the Cap Law’s limitation on increases in appropriations. The principal exceptions to these limitations are: (i) municipal and county appropriations to pay debt service requirements; (ii) requirements to comply with certain other New Jersey or federal mandates; (iii) appropriations of private and public dedicated funds; (iv) amounts approved by referendum; and (v) in the case of municipalities only, to fund the preceding year’s cash deficit or to reserve for shortfalls in tax collections, and amounts required pursuant to contractual obligations for specified services. The Cap Law was re-enacted in 1990 with amendments and made a permanent part of the municipal finance system.

Regulation of the Issuance of Bonds by Counties and Municipalities. New Jersey law also regulates the issuance of debt by local units. The Local Budget Law limits the amount of tax anticipation notes that may be issued by local units and requires the repayment of such notes within 120 days of the end of the fiscal year (six months in the case of the counties) in which issued. The Local Bond Law (N.J.S.A. 40A:2-1 et seq.) governs the issuance of bonds and notes by the local units. No local unit is permitted to issue bonds for the payment of current expenses (other than fiscal year adjustment bonds). Local units may not issue bonds to pay outstanding bonds, except for refunding purposes, and then only with the approval of the Local Finance Board. Local units may issue bond anticipation notes for temporary periods not exceeding in the aggregate approximately ten years from the date

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of issue. The debt that any local unit may authorize is limited to a percentage of its equalized valuation basis. In the calculation of debt capacity, the Local Bond Law and certain other statutes permit the deduction of certain classes of debt (“statutory deduction”) from all authorized debt of the local unit in computing whether a local unit has exceeded its statutory debt limit. The Local Bond Law permits the issuance of certain obligations, including obligations issued for certain emergency or self liquidating purposes, notwithstanding the statutory debt limitation described above, but, with certain exceptions, it is then necessary to obtain the approval of the Local Finance Board.

School Districts.

Regulation of School District Finance. All New Jersey school districts are coterminous with the boundaries of one or more municipalities. They are characterized by the manner in which the board of education, the governing body of the school districts, takes office. Type I school districts, most commonly found in cities, have a board of education appointed by the mayor or the chief executive officer of the municipality constituting the school district. In a Type II school district, the board of education is elected by the voters of the district. Nearly all regional and consolidated school districts are Type II school districts. The New Jersey Department of Education has been empowered with authority to abolish an existing school board and create a State-operated school district where the existing school board has failed or is unable to take the corrective actions necessary to provide a thorough and efficient system of education in that school district pursuant to N.J.S.A. 18A:7A-15 et seq. (the “School Intervention Act”). The State-operated school district, under the direction of a New Jersey appointed superintendent, has all of the powers and authority of the local board of education and the local district superintendent.

New Jersey’s school districts operate under the same comprehensive review and regulation as do its counties and municipalities. Certain exceptions and differences are provided, but New Jersey’s supervision of school finance closely parallels that of local governments.

Regulation of the Issuance of Bonds by School Districts. School district bonds and temporary notes are issued in conformity with N.J.S.A. 18A:24-1 et seq. (the “School Bond Law”), which closely parallels the Local Bond Law (for further information relating to the Local Bond Law, see “Counties and Municipalities—Regulation of the Issuance of Bonds by Counties and Municipalities” herein). Although school districts are exempted from the 5% down payment provision generally applied to bonds issued by local units, they are subject to debt limits (which vary depending on the type of school system) and to New Jersey regulation of their borrowing.

School bonds are authorized by (i) an ordinance adopted by the governing body of a municipality within a Type I school district; (ii) adoption of a proposal by resolution by the board of education of a Type II school district having a board of school estimate; (iii) adoption of a proposal by resolution by the board of education and approval of the proposal by the legal voters of any other Type II school district; or (iv) adoption of a proposal by resolution by a capital project control board for projects in a State-operated school district.

If school bonds of a Type II school district will exceed the school district’s borrowing capacity, the school district (other than a regional school district) may use the balance of the municipal borrowing capacity. If the total amount of debt exceeds the school district’s borrowing capacity, the Commissioner and the Local Finance Board must approve the proposed authorization before it is submitted to the voters. All authorizations of debt in a Type II school district without a board of school estimate require an approving referendum, except where, after hearing, the Commissioner and the New Jersey Department of Education determine that the issuance of such debt is necessary to meet the constitutional obligation to provide a thorough and efficient system of public schools. When such obligations are issued, they are issued by, and in the name of, the school district.

In Type I and II school districts with a board of school estimate, that board examines the capital proposal of the board of education and certifies the amount of bonds to be authorized. When it is necessary to exceed the borrowing capacity of the municipality, the approval of a majority of the legally qualified voters of the municipality is required, together with the approval of the Commissioner and the Local Finance Board. When such bonds are issued by a Type I school district, they are issued by the municipality and identified as school bonds. When bonds are issued by a Type II school district having a board of school estimate, they are issued by, and in the name of, the school district.

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School District Lease Purchase Financings. School districts are permitted to enter into lease purchase agreements for the acquisition of equipment or for the acquisition of land and school buildings in order to undertake the construction or the improvement of the school buildings. Lease purchase agreements for equipment cannot exceed five years. Lease purchase agreements for school facilities must be approved by the Commissioner, the voters or the board of school estimate, as applicable. The payment of rent on an equipment lease and on a five year and under facilities lease purchase agreement is treated as a current expense and is within the cap on the school district’s budget. Under the Comprehensive Education Improvement and Financing Act, lease purchase payments on leases in excess of five years will be treated as debt service payments and therefore receive debt service aid if the school district is entitled and will be outside the school district’s spending limitation of the General Fund.

New Jersey School Bond Reserve Act. The New Jersey School Bond Reserve Act (N.J.S.A. 18A:56-17 et seq.) establishes a school bond reserve within the constitutionally dedicated Fund for the support of free public schools. Under this law, the reserve is maintained at an amount equal to 1.5 percent of the aggregate outstanding bonded indebtedness of counties, municipalities or school districts for school purposes (exclusive of bonds whose debt service is provided by New Jersey appropriations), but not in excess of monies available in such Fund. If a municipality, county or school district is unable to meet payment of the principal of or interest on any of its school bonds, the trustee of the school bond reserve will purchase such bonds at the face amount thereof or pay the holders thereof the interest due or to become due. There has never been an occasion to call upon this Fund.

Local Financing Authorities.

Regulation of Local Financing Authorities. The Local Authorities Fiscal Control Law (N.J.S.A. 40A:5A-1 et seq.) provides for State supervision of the fiscal operations and debt issuance practices of independent local authorities and special taxing districts by the New Jersey Department of Community Affairs. The Local Authorities Fiscal Control Law applies to all autonomous public bodies, created by local units, that are empowered (i) to issue bonds, (ii) to impose facility or service charges, or (iii) to levy taxes in their districts. This encompasses most autonomous local authorities (sewage, municipal utilities, parking, pollution control, improvement, etc.) and special taxing districts (fire, water, etc.). Authorities which are subject to differing New Jersey or federal financial restrictions are exempted, but only to the extent of that difference.

Financial control responsibilities over local authorities and special districts are assigned to the Local Finance Board and the Director. The Local Finance Board exercises approval over creation of new authorities and special districts as well as their dissolution. The Local Finance Board prescribes minimum audit requirements to be followed by authorities and special districts in the conduct of their annual audits. The Director reviews and approves annual budgets of authorities and special districts.

Regulation of the Issuance of Bonds by Local Financing Authorities. Certain local authorities are authorized to issue debt on behalf of various entities on a conduit basis. Under such circumstances, neither the local authority acting as a conduit issuer, the local unit creating such local authority nor the State of New Jersey is responsible for the repayment of such debt. The payment obligations with respect to such debt is solely that of the entity on whose behalf the debt was issued. The Local Finance Board reviews, conducts public hearings and issues findings and recommendations on any proposed project financing of an authority or district and on any proposed financing agreement between a local unit and an authority or special district.

Pollution Control Bonds. In the 1970’s, the New Jersey Legislature initiated a comprehensive statutory mechanism for the management of solid waste disposal within New Jersey that required each county to develop a plan for county-wide controlled flow of solid waste to a franchised location. The controlled flow of solid waste to a franchised location enabled the imposition of above-market-rate disposal fees. Most counties created independent local authorities or utilized existing local authorities in order to finance, with the proceeds of bonds, the technically complex and expensive infrastructure required to implement this statutory mechanism. Typically, the primary security for the amortization of the bonds was the above-market-rate disposal fees, although some bonds were further secured by a guaranty of the respective county. On May 1, 1997, in Atlantic Coast Demolition & Recycling, Inc. v. Board of Chosen Freeholders of Atlantic County, 112 F.3d 652 (3d Cir. 1997), the United States Court of Appeals for the Third Circuit held that New Jersey’s system of controlled flow of solid waste to franchised locations unconstitutionally discriminated against out-of-state operators of waste disposal facilities and, therefore, violated the Commerce Clause of the United States Constitution. Subsequently, the United States Supreme Court denied a

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petition for writ of certiorari. This decision has terminated controlled flow of solid waste to franchised locations within New Jersey. In the absence of controlled flow, franchisees facing competition from other operators of waste disposal facilities are unable to charge above-market-rate disposal fees. The reduction of such fees to competitive levels has reduced correspondingly the primary source of security for the outstanding bonds of the local authorities. The facts relevant to each local authority within New Jersey remain unique. Some local authorities have successfully implemented refunding and work-out financings. Other local authorities have eliminated revenue shortfalls through the imposition of special waste disposal taxes. In other cases, revenue shortfalls continue, but bond payment defaults by such local authorities have been avoided as a result of a New Jersey program by which New Jersey to date has voluntarily provided financial assistance to qualifying local authorities to satisfy bond payment obligations on a given bond payment date. However, no assurance can be given that such New Jersey subsidies will be made available to such local authorities in the future (or that sufficient funds will be made available to New Jersey for such purpose), particularly given recent New Jersey budget reductions.

Qualified Bonds. In 1976, legislation was enacted (P.L. 1976, c. 38 and c. 39) which provides for the issuance by municipalities and school districts of “qualified bonds.” Whenever a local board of education or the governing body of a municipality determines to issue bonds, it may file an application with the Local Finance Board, and, in the case of a local board of education, the Commissioner, to qualify bonds pursuant to P.L. 1976 c. 38 or c. 39. Upon approval of such an application, the New Jersey Treasurer shall withhold from certain New Jersey revenues or other New Jersey aid payable to the municipalities, or from New Jersey school aid payable to the school district, as appropriate, an amount sufficient to pay debt service on such bonds. These “qualified bonds” are not direct, guaranteed or moral obligations of New Jersey, and debt service on such bonds will be provided by New Jersey only if the above mentioned appropriations are made by New Jersey. As of June 30, 2004, the aggregate amounts of school district and municipal qualified bonds outstanding are $251,901,700 and $1,104,790,953, respectively.

Litigation of the State of New Jersey.

General. At any given time, there are various numbers of claims and cases pending against the State of New Jersey, State agencies and State employees, seeking recovery of monetary damages that are primarily paid out of the fund created pursuant to the New Jersey Tort Claims Act (N.J.S.A. 59:1-1 et seq.). New Jersey does not formally estimate its reserve representing potential exposure for these claims and cases. New Jersey is unable to estimate its exposure for these claims and cases.

New Jersey routinely receives notices of claim seeking substantial sums of money. The majority of these claims has historically proven to be of substantially less value than the amount originally claimed. Under the New Jersey Tort Claims Act, any tort litigation against New Jersey must be preceded by a notice of claim, which affords New Jersey the opportunity for a six-month investigation prior to the filing of any suit against it. In addition, at any given time, there are various numbers of contract and other claims against New Jersey and New Jersey agencies, including environmental claims asserted against New Jersey, among other parties, arising from the alleged disposal of hazardous waste. Claimants in such matters seek recovery of monetary damages or other relief that, if granted, would require the expenditure of funds. New Jersey is unable to estimate its exposure for these claims. At any given time, there are various numbers of claims and cases pending against the University of Medicine and Dentistry of New Jersey and its employees, seeking recovery of monetary damages that are primarily paid out of the Self Insurance Reserve Fund created pursuant to the New Jersey Tort Claims Act.

An independent study estimated an aggregate potential exposure of $101,627,000 for tort and medical malpractice claims pending as of June 30, 2004. In addition, at any given time, there are various numbers of contract and other claims against the University of Medicine and Dentistry of New Jersey, seeking recovery of monetary damages or other relief that, if granted, would require the expenditure of funds. New Jersey is unable to estimate its exposure for these claims.

Lawsuits currently pending or threatened in which New Jersey has the potential for either a significant loss of revenue or a significant unanticipated expenditure are described in official statements relating to securities offerings of New Jersey municipal obligations available as of the date of this Statement of Additional Information.

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Special Considerations Regarding Investment in Delaware State-Specific Obligations. The concentration of investments in Delaware State-Specific Obligations by the Delaware Tax-Free Income Portfolio raises special investment considerations. In particular, changes in the economic condition and governmental policies of the State of Delaware (“Delaware” or the “State”) and its political subdivisions, agencies, instrumentalities and authorities could adversely affect the value of the Delaware Tax-Free Income Portfolio. This section briefly describes recent economic trends in Delaware. The information set forth in this section relates only to the State itself and not to the special purpose or local government units whose issues may also be held by the Delaware Tax-Free Income Portfolio. The credits represented by such issuers may be affected by a wide variety of local factors or structuring concerns, and no disclosure is made herein relating to such matters.

Delaware enjoyed expansion throughout most sectors of its economy during the past decade. Much of Delaware’s success in maintaining a healthy economy over this period can be attributed to its increasingly diverse economic base. Once heavily reliant on the manufacturing base, Delaware has experienced gains in several of the service industries. Since 1993, construction, retail trade, information, education, health, leisure and hospitality have had an increase in the percent of Delaware jobs. Over the past ten years, professional and business services accounted for 17% of Delaware jobs, compared to 12% for the nation. Delaware also is pursuing high technology industry, including life sciences research and development, pharmaceuticals, agricultural biotechnology, human biotechnology and information technology.

Delaware experienced above-average population growth through the 1990s. Between 2002 and 2003, Delaware’s population increased 1.4% to 817,491 inhabitants, compared to 0.5% growth for the region and 1.0% growth for the nation. Net in-migration accounts for a significant share of the growth. Delaware’s total personal income grew 4.0% from 2002 to 2003 compared with 2.7% for the mid-Atlantic region and 3.2% for the nation. Delaware’s non-agricultural employment accounts for approximately 98% of the workforce. Delaware experienced a 1.6% rise in non-agricultural employment in the first ten months of 2004. The State’s unemployment rate for 2003 was 4.0%, lower than both the regional rate of 5.2% and the national rate of 6.0%. For the first ten months of 2004, the State’s unemployment rate was 3.7%, compared to the Mid-Atlantic rate of 4.8% and the national rate of 6.0%.

The State’s general obligation debt outstanding was $1,012.5 million on June 30, 2004, with approximately 80% scheduled to mature within ten years and approximately 93% scheduled to mature within fifteen years. Delaware’s debt burden reflects the centralized role of the State government in undertaking capital projects typically funded at local government levels elsewhere, such as correctional facilities and schools. There is no state constitutional debt limit applicable to Delaware. However, Delaware has instituted several measures designed to manage and reduce its indebtedness. In 1991, the State instituted new debt limits. New debt authorizations are limited to 5% of budgetary general fund revenue as projected on June 30 for the next fiscal year (the “5% rule”). Should revenue collections increase during the fiscal year, no additional authorizations are made. The debt limit also effectively eliminates the use of any “off balance sheet” financing instruments, such as certificates of participation. The June 2003 budgetary General Fund revenue estimate for fiscal 2005 was $2,765.1 million; thus a total of $138.3 million of new general obligation debt was available to be authorized under the 5% rule for fiscal 2005.

In April 2004, legislation was enacted that gives Delaware additional flexibility to use original issue premium earned on the sale of its bonds or notes. In addition to using proceeds attributable to such premium to satisfy future debt service, Delaware can apply the premium to refund or redeem existing bonds or notes, or can apply the premium to any of the purposes for which such bonds or notes were issued.

Delaware voluntarily retires its general obligation debt. Over the years, whenever revenues have permitted, the State has appropriated surplus cash for “pay-as-you-go” financing. Extraordinary revenue surpluses in the period from fiscal 1993-2001 allowed the State to appropriate cash on average at a rate of 52.6% of capital expenditures. With more modest revenue growth, the fiscal 2002 and 2003 pay-as-you-go financing levels were $11.0 million and $19.2 million, respectively. For fiscal 2004 and 2005 the pay-as-you-go financing levels are $142.0 million and $235.5 million, respectively. In the period 1995-2001, the State implemented a substantial debt reduction plan as surplus permitted. Tighter revenues in fiscal 2002, 2003 and 2004 precluded additional debt reduction efforts. Delaware has also undertaken a series of bond refundings to lower the overall debt service on its obligations. In fiscal 2004, savings of $2.9 million were realized after the State refunded $74.6 million of its general obligation bonds.

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Delaware budgets and controls its financial activities on the cash basis of accounting for its fiscal year (July 1 to June 30). State law requires Delaware to record its financial transactions in either of two major categories — the budgetary General Fund or the budgetary Special Funds. The General Fund provides for the cost of the State’s general operations and is credited with all tax and other revenue of Delaware not dedicated to Special Funds. All disbursements from the General Fund must be authorized by appropriations of the Delaware General Assembly. The Special Funds are designated for specific purposes, and the appropriate fund is credited with the tax or other revenue allocated to such fund and is charged with the related disbursements.

The Delaware Constitution limits annual appropriations by majority vote of both houses of the Delaware General Assembly to 98% of estimated budgetary General Fund revenue plus the unencumbered budgetary General Fund balance, if any, from the previous year. The State Constitution also provides for the deposit of the excess of any unencumbered budgetary General Funds at the end of the fiscal year into a reserve account (the “Budget Reserve Account”), provided that the amount of the Budget Reserve Account does not exceed 5% of the estimated budgetary general fund revenue used to determine the appropriation limit for that fiscal year. Transfers of $148.2 million were made to fund the Budget Reserve Account for fiscal 2005. Money from the account can be accessed only with the approval of a three-fifths vote of each house of the General Assembly and only to fund an unanticipated budgetary General Fund deficit or to provide funds required as a result of the enactment of legislation causing a reduction in revenue.

A coalition of state Attorneys General negotiated an agreement settling various states’ lawsuits against tobacco manufacturers, seeking to recover state funds expended on health care for smokers and for consumer fraud and other claims. The master settlement agreement could result in significant payments to the State through the year 2025. The size of payments to Delaware are subject to a number of possible offsets and adjustments as outlined in the settlement agreement. The State created a special fund called the “Delaware Health Fund” into which it deposits proceeds received as a result of the settlement agreement. As of October 1, 2004, approximately $140 million has been received by the State from participating manufacturers. The State has elected not to securitize future tobacco settlement payments.

Based upon June 2004 revenue forecasts, net budgetary general fund revenue for fiscal 2005 is projected to total $2,755.6 million, a 0.7% increase over fiscal 2004 when adjusted for tax law changes and other one-time events. The unadjusted growth rate is 12.3%.

The fiscal 2005 operation budget for the State totals $2,600.4 million, a 6.4% increase over fiscal 2004. Grants-in-aid appropriations of $40.0 million and the budgetary General Fund contribution to the capital budget of $235.0 million bring total appropriations to $2,875.4 million. This appropriations package is within the constitutionally-prescribed limit of 98% of revenues. The State’s fiscal 2005 capital budget totals $772.5 million, consisting of $138.3 million allocated for general obligation capital projects, $393.6 million allocated for the capital program of the Department of Transportation funded through the Transportation Trust Fund and $235.0 million allocated for “pay-as-you-go” capital projects.

The largest source of Delaware revenue is personal income tax. Other significant sources of revenue include franchise taxes and corporate fees, business and occupational gross receipt taxes, corporate income taxes, bank franchise taxes, lottery revenue and abandoned property revenue. Delaware does not levy ad valorem taxes on real or person property and does not impose a general sales or use tax. In May 1980, the Delaware Constitution was amended to limit tax and license fee increases and the imposition of new taxes or fees. Any tax or license fee increase or new tax or license fee must be passed by a three-fifths vote, of all members of each house of the General Assembly, rather than by a simple majority vote.

Delaware is a defendant in various suits involving contract/construction claims, tax refund claims, allegations of wrongful discharge and/or other employment-related claims, use of excessive force, civil rights violations, and automobile accident claims. Although Delaware believes it has valid defenses to these actions, Delaware has a potential aggregate exposure which could exceed $40.8 million.

Delaware is exposed to risks and losses related to employee health and accident, worker’s compensation, environmental and a portion of property and casualty claims. It is the policy of Delaware to self-insure its exposure when cost effective and to commercially insure on the exposures that are specialized.

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Special Considerations Regarding Investments in Kentucky State-Specific Obligations. Kentucky (“Kentucky or the “Commonwealth”) is a leader among the states in the production of tobacco. The tobacco industry has been under significant attack in recent years. In late 1998, the states, including Kentucky, certain commonwealths and territories, and the District of Columbia reached a Master Settlement Agreement with the major tobacco companies that will require payments from them worth approximately $250 billion over the next 25 years. Recently enacted legislation removes the government subsidy to the tobacco growers and replaces it with a payment by the cigarette manufacturers to the federal government over a ten-year period. Potential federal regulation of the tobacco industry, the Master Settlement Agreements with the states, and future litigation may adversely impact the tobacco industry, but the degree of the impact cannot be predicted with any certainty.

Kentucky is also a leader among the states in the production of coal. The coal severance tax is a significant revenue producer for the Commonwealth and its political subdivisions, and any substantial decrease in the production of coal or other minerals could result in revenue shortfalls.

The Commonwealth’s economy, once dominated by coal, horses, bourbon and tobacco, has become more diversified and now include manufacturing of industrial machinery, automobiles and automobile parts, consumer appliances and non-durable goods such as apparel. Kentucky’s non-manufacturing industries have grown considerably in recent years, with strong gains in air transportation, health and business services and retail trade. No single segment of the Commonwealth’s economy consists of as much as one-fourth of the overall state domestic product. The Kentucky economy is diversified to the extent that an economic decline in a single segment would not necessarily lead to the non-payment of debt service on Kentucky State-Specific Obligations. The Commonwealth’s parks, horse breeding and racing industry, symbolized by the Kentucky Derby, play an important role in expanding tourism in the Commonwealth.

During the past decade, manufacturing employment has declined in the entire U.S. but has grown in Kentucky. At the close of Kentucky’s fiscal year ended June 30, 2004, 14.8% of the state’s total non-agricultural employment was in the manufacturing sector compared to 9.8% nationally.

Both the nation and the Commonwealth experienced economic recovery during Kentucky’s fiscal year 2004. Kentucky experienced growth in total non-agricultural employment of 1.1% during fiscal year 2004, compared to an increase of 1.0% nationally. Personal income, the broadest measure of economic performance, grew 4.8% in Kentucky during fiscal year 2004 compared to 4.7% nationally. Kentucky’s state general fund receipts in fiscal year 2004 increased 2.9% over fiscal year 2003.

The Commonwealth relies heavily upon sales and use taxes, individual and corporate income taxes, property taxes, insurance premium taxes, alcoholic beverage taxes, corporate license taxes, cigarette taxes, mineral severance taxes, motor fuel taxes, motor vehicle usage taxes and horse racing taxes for its revenue. The cities, counties and other local governments are generally limited to property taxes, occupational license taxes, utility taxes, transit and restaurant meals taxes and various license fees for their revenue. Sales and use taxes and individual and corporate income taxes together account for approximately three-fourths of the General Fund revenue.

The Kentucky General Assembly is required by the Kentucky Constitution to adopt measures providing for the state’s revenues and appropriations for each fiscal year. The Governor is required by law to submit a biennial state budget to the General Assembly during the legislative session held in each even-numbered year. State budgets have generally been adopted by the General Assembly during those legislative sessions to be effective for a two-year period, commencing on the following July 1.

The Kentucky General Assembly has failed to enact a budget for the executive branch of state government for fiscal year 2004. In the absence of a legislatively enacted budget, the Governor adopted by executive order a plan to provide for the continued operation of state government, based generally on the expenditure levels in the legislative budget enacted for the prior fiscal year and authorizing the payment of all debt service due during the fiscal year ending June 30, 2005, on outstanding debt obligations of the state. The Kentucky Attorney General commenced litigation in state circuit court to determine the Governor’s power to expend state funds in the absence of legislatively enacted appropriations. The court issued interlocutory orders ruling that no state funds could be expended on new programs not previously authorized by the General Assembly, and that no state funds could be

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expended or state debt obligations issued for capital projects not previously authorized by the General Assembly. The court recently issued a final decision confirming the exclusive power of the General Assembly to appropriate the expenditure of state funds and ordering that, upon the expiration of the current executive spending plan on June 30, 2005, except for essential services no state funds may be expended in the absence of legislative appropriation. The court’s opinion does not define the scope of the term essential services and whether such term includes the payment of debt service on outstanding state debt obligations. No assurance can be given that there will not be a disruption in the payment of debt service on outstanding debt obligations of the Commonwealth in the event the General Assembly fails to enact a state budget for the fiscal year beginning July 1, 2005.

S&P currently assigns to Kentucky an issuer credit rating of AA- with a stable outlook. Moody’s currently assigns to Kentucky an issuer credit rating of Aa2 and a lease appropriation-backed debt rating of Aa3. Fitch currently assigns to Kentucky an issuer credit rating of AA-. A continuing failure of the General Assembly to enact a state budget is likely to adversely affect these ratings.

The Kentucky Tax-Free Income Portfolio will invest primarily in Kentucky State-Specific Obligations. Such obligations generally include tax-exempt securities issued by the Commonwealth, its counties and various other local authorities to finance long-term public purpose projects, such as schools, universities, government facilities, housing, transportation, utilities, hospitals and water and sewer facilities.

There are several general types of Kentucky State-Specific Obligations. General obligation securities are secured by the issuer’s pledge of its full faith, credit and/or taxing power for the payment of principal and interest. General obligations securities of the Commonwealth must be authorized by a two-thirds vote of the electorate of the issuer, and there are none outstanding at present.

Because of the limitations on incurring general obligation debt, the Commonwealth generally does not enter into a financial obligation of more than two year’s duration. Prior to 1996, no municipal issuer within the Commonwealth could enter into a financial obligation of more than one year’s duration. In 1996, the Kentucky Constitution was amended to permit local governments to issue general obligation indebtedness without voter approval, subject to prescribed limitations on the maximum amount of indebtedness based on the assessed value of taxable property within the jurisdiction and other eliminations and conditions. Local governments (exclusive of school districts) are now active issuers of general obligation indebtedness.

Revenue obligations are payable from and secured by a particular revenue stream, such as lease rentals, utility usage and connection charges, student registration or housing fees, bridge or highway tolls, parking fees and sports event gate receipts. Although revenue obligations of the Commonwealth or its political subdivisions may be payable from a specific project, there can be no assurances that economic difficulties and the resulting impact on state and local government finances will not adversely affect the market value of Kentucky State-Specific Obligations or the ability of the respective entities to pay debt service.

Industrial building revenue obligations are issued by local governments, but are secured by revenue derived from some form of contractual arrangement with a non-government user. Some revenue obligations, including industrial building revenue obligations, are secured by a mortgage on the real property. Improvement assessment obligations are obligations secured by a special assessment (e.g., a sewer charge) that the governmental issuer imposes on each owner of property benefited by the improvement (e.g., a sanitary sewer project). The assessments are similar to taxes and have a priority that is similar to a tax lien. Refunded or defeased bonds are secured by an escrow fund, which usually is invested in U.S. government securities and occasionally in bank certificates of deposit or similar instruments. Housing obligations, including bonds issued by the Kentucky Housing Corporation, are usually secured by mortgages pledged for the payment of the obligations. Local housing authorities sometimes issue obligations that are secured by mortgages and rentals from the operation of a housing project. Housing obligations may also have additional security in the form of federal guarantees of the mortgages or rentals constituting the primary security.

There are variations in the security of Kentucky State-Specific Obligations, both within a particular classification and between classifications, depending on numerous factors. For example, most local school construction is financed with obligations nominally issued by a larger city or county government, that holds legal title to the school facility, subject to a year-to-year renewable lease arrangement with the local school district. There is no reported instance in which a Kentucky school bond has gone into default.

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Similar arrangements are used to finance many city and county construction projects, but in these cases, the obligations are nominally issued in the name of a public corporation, that holds title to the project and leases the project back to the city or county on a year-to-year basis. In such situations, the rent that the nominal issuer receives from the actual user of the property financed by the obligations is the only source of any security for the payment of the obligations.

Overview of the Commonwealth’s Debt Authorities. The Commonwealth’s indebtedness is classified as either appropriation supported debt or non-appropriation supported debt.

Appropriation supported debt carries the name of the Commonwealth and is either (i) a general obligation of the Commonwealth or (ii) a project revenue obligation of one of its debt-issuing agencies or entities created by the Kentucky General Assembly to finance various projects that are subject to state appropriation for all or a portion of the debt service on the bonds.

General obligation bonds pledge the full faith, credit and taxing power of the Commonwealth for the repayment of the debt. The Kentucky Constitution requires voter approval by general referendum prior to the issuance of general obligation bonds in amounts exceeding $500,000. Kentucky has not issued general obligation bonds since 1966, and the Commonwealth has no general obligation bonds outstanding.

Project revenue notes and bonds are issued by various debt issuing authorities of the Commonwealth. The revenues produced by the projects funded by the debt are pledged as security for repayment of the debt. Project revenues are not a direct obligation of the Commonwealth. Project revenues are, in some cases, derived partially or solely from biennial appropriations of the Kentucky General Assembly. In other cases, the direct revenues generated from the project funded constitute the entire source of payment.

Non-appropriation or moral obligation debt carries the name of the Commonwealth for the benefit and convenience of other entities or agencies within the Commonwealth. The bonds are special obligations of the issuer, are secured by and payable solely from the sources pledged for the payment thereof and do not constitute a debt, liability, obligation or a pledge of the faith and credit of the Commonwealth. The General Assembly does not intend to appropriate any funds to fulfill the financial obligations represented by these types of bonds. In the event of a shortfall, however, the issuer generally covenants to request from the Governor and the General Assembly sufficient amounts to pay debt service.

Default Record. Neither the Commonwealth nor any of its agencies have ever defaulted in the payment of principal or interest on general obligation indebtedness or project revenue obligations.

Debt Issuing Entities of the Commonwealth. The following entities are active issuers of debt in the Commonwealth: State Property and Buildings Commission, Kentucky Asset/Liability Commission, Turnpike Authority of Kentucky, Kentucky Housing Corporation, Kentucky Infrastructure Authority, Kentucky Higher Education Student Loan Corporation, School Facilities Construction Commission, Kentucky Economic Development Finance Authority, Kentucky Local Correctional Facilities Construction Authority and the State Universities (consisting of nine universities). The ratings on each issuer vary.

The Kentucky Housing Corporation and the Kentucky Higher Education Student Loan Corporation issue obligations to finance projects that are not repaid by governmental appropriations. The General Assembly has placed specific debt limitations on the principal debt outstanding of the Kentucky Housing Corporation ($2.5 billion), and the Kentucky Higher Education Student Loan Corporation ($1.95 billion). The following issuers cannot incur debt without prior approval of the projects and appropriation of debt service by the General Assembly: State Property and Buildings Commission, Turnpike Authority of Kentucky and the nine state universities. The Kentucky Asset/Liability Commission may not incur debt without prior approval of the projects and appropriation of the debt service by the General Assembly, exclusive of cash flow borrowing within a fiscal year. The School Facilities Construction Commission cannot incur debt without appropriation of debt service by the General

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Assembly. The Kentucky Infrastructure Authority, in its revolving fund programs, cannot incur debt without appropriation of debt service. Without legislative approval, other programs of the Kentucky Infrastructure Authority are limited to $500,000,000 of debt outstanding. The debt of the Kentucky Local Correctional Facilities Construction Authority is limited to the level of debt service supported by court fees pledged to the payment of the debt service. No debt limitation is currently in effect for the Kentucky Economic Development Finance Authority, which acts as a conduit issuer of revenue bonds for the benefit of private businesses and nonprofit entities and for which the Commonwealth has no liability for the payment of the debt service.

ADDITIONAL INVESTMENT LIMITATIONS

Each Portfolio is subject to the investment limitations enumerated in this subsection which may be changed with respect to a particular Portfolio only by a vote of the holders of a majority of such Portfolio’s outstanding shares (as defined below under “Miscellaneous”). The Index Master Portfolio’s fundamental investment limitations are described separately.

Money Market Portfolios:

1. Each of the Money Market, Municipal Money Market and U.S. Treasury Money Market Portfolios may not 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 (taken at current value) would 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 (taken at current value) may 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 is not deemed to be a security issued by the guarantor 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. No Portfolio may borrow money or issue senior securities, except that each Portfolio may borrow from banks and (other than a Municipal Money Market Portfolio) 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 a Portfolio’s investment practices are not deemed to be pledged for purposes of this limitation.

3. Each of the 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 and New Jersey Municipal Money Market Portfolios may not purchase securities which would cause 25% or more of the value of its total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry. The Money Market Portfolio, on the other hand, may not purchase any securities which would cause, at the time of purchase, less than 25% of the value of its total assets to be invested in the obligations of issuers in the banking industry, or in obligations, such as repurchase agreements, secured by such obligations (unless the Portfolio is in a temporary defensive position) or which would cause, at the time of purchase, more than 25% of the value of its total assets to be invested in the obligations of issuers in any other industry. In applying the investment limitations stated in this paragraph, (i) there is no limitation with respect to the purchase of (a) instruments issued (as defined in Investment Limitation number 1 above) or guaranteed by the United States, any state, territory or possession of the United States, the District of Columbia or any of their authorities, agencies, instrumentalities or political subdivisions, (b) instruments issued by domestic banks (which may include U.S. branches of non-U.S. banks) and (c) repurchase agreements secured by the instruments described in clauses (a) and (b); (ii) wholly-owned finance companies will be considered to be in the industries of their parents if their activities are primarily related to financing the activities of the parents; and (iii) utilities will be divided according to their services, for example, gas, gas transmission, electric and gas, electric and telephone will be each considered a separate industry.

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4. Each of the Ohio Municipal Money Market, Pennsylvania Municipal Money Market, North Carolina Municipal Money Market, Virginia Municipal Money Market and New Jersey Municipal Money Market Portfolios will invest at least 80% of its net assets in AMT Paper and instruments the interest on which is exempt from regular Federal income tax, except during defensive periods or during periods of unusual market conditions.

5. The Municipal Money Market Portfolio will invest at least 80% of its net assets in instruments the interest on which is exempt from regular Federal income tax and is not an item of tax preference for purposes of Federal alternative minimum tax, except during defensive periods or during periods of unusual market conditions.

AMT Paper is defined as Municipal Obligations the interest on which is an item of tax preference for purposes of the Federal alternative minimum tax.

Non-Money Market Portfolios:

Each of the Non-Money Market Portfolios (other than the Health Sciences, Global Resources, All-Cap Global Resources, Inflation Protected Bond, Ohio Tax-Free Income, Pennsylvania Tax-Free Income, New Jersey Tax-Free Income, Delaware Tax Free Income and Kentucky Tax-Free Income Portfolios) 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.

Each of the Non-Money Market Portfolios may not:

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

Each Non-Money Market Portfolio (other than the Managed Income, Intermediate Government Bond, Low Duration Bond, Intermediate Bond, Government Income, International Bond, Core Bond Total Return, Core PLUS Total Return, High Yield Bond, Asset Allocation, GNMA, Enhanced Income, UltraShort Municipal, Intermediate PLUS Bond and Inflation Protected Bond Portfolios) may not:

3. Borrow money or issue senior securities, except that each 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

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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 a Portfolio’s investment practices are not deemed to be pledged for purposes of this limitation.

None of the Managed Income, Intermediate Government Bond, Low Duration Bond, Intermediate Bond, Government Income, Core Bond Total Return, Core PLUS Total Return, International Bond, High Yield Bond, Asset Allocation, GNMA, Enhanced Income, UltraShort Municipal, Intermediate PLUS Bond and Inflation Protected Bond Portfolios may:

4. Issue senior securities, borrow money or pledge its assets, except that a Portfolio may borrow from banks or enter into reverse repurchase agreements or dollar rolls in amounts aggregating not more than 33 ¹/3% of the value of its total assets (calculated when the loan is made) to take advantage of investment opportunities and may pledge up to 33 ¹/3% of the value of its total assets to secure such borrowings. Each Portfolio is also authorized to borrow an additional 5% of its total assets without regard to the foregoing limitations for temporary purposes such as clearance of portfolio transactions and share redemptions. For purposes of these restrictions, the purchase or sale of securities on a “when-issued,” delayed delivery or forward commitment basis, the purchase and sale of options and futures contracts and collateral arrangements with respect thereto are not deemed to be the issuance of a senior security, a borrowing or a pledge of assets.

All Portfolios:

No Portfolio may:

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

2. 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.

3. 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.

4. Write or sell put options, call options, straddles, spreads, or any combination thereof, except for transactions in options on securities and securities indices, futures contracts and options on futures contracts and, in the case of the Exchange, Small/Mid-Cap Growth, Aurora, Legacy, Health Sciences, Global Resources, All-Cap Global Resources, International Bond, Core PLUS Total Return, Intermediate PLUS Bond and Inflation Protected Bond Portfolios, currencies.

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

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

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

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8. Make loans, except that each 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.

9. Purchase or sell commodities except that each 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.

10. Notwithstanding the investment limitations of the Index Equity Portfolio, the Index Equity Portfolio may invest all of its assets in shares of an open-end management investment company with substantially the same investment objective, policies and limitations as the Portfolio.

In addition, in compliance with Rule 35d-1 under the 1940 Act, each Municipal Money Market and Tax-Free Portfolio’s, and the UltraShort Municipal Portfolio’s, requirement that it invest at least 80% of its assets in certain Municipal Obligations, as described in each Portfolio’s Prospectuses, is a fundamental policy that may be changed with respect to a particular Portfolio only by a vote of the holders of a majority of such Portfolio’s outstanding shares (as defined below under “Miscellaneous”).

Although the foregoing investment limitations would permit the Money Market Portfolios to invest in options, futures contracts and options on futures contracts, and to sell securities short against the box, those Portfolios do not currently intend to trade in such instruments or engage in such transactions during the next twelve months (except to the extent a portfolio security may be subject to a “demand feature” or “put” as permitted under SEC regulations for money market funds). Prior to making any such investments, a Money Market Portfolio would notify its shareholders and add appropriate descriptions concerning the instruments and transactions to its Prospectus.

Unless otherwise indicated, all limitations apply only at the time that a transaction is undertaken. Any change in the percentage of a Portfolio’s assets invested in certain securities or other instruments resulting from market fluctuations or other changes in the Portfolio’s total assets will not require the Portfolio to dispose of an investment until the adviser or sub-adviser determines that it is practicable to sell or close out the investment without undue market or tax consequences.

Index Master Portfolio:

The investment limitations of the Index Master Portfolio, the Portfolio in which the Index Equity Portfolio invests all of its investable assets, are separate from those of the Index Equity Portfolio. The Index Master Portfolio may not:

1. Invest in commodities or real estate, including limited partnership interests therein, although it may purchase and sell securities of companies which deal in real estate and securities which are secured by interests in real estate, and may purchase or sell financial futures contracts and options thereon;

2. Make loans of cash, except through the acquisition of repurchase agreements and obligations customarily purchased by institutional investors;

3. As to 75% of the total assets of the Index Master Portfolio, invest in the securities of any issuer (except obligations of the U.S. Government and its instrumentalities) if, as a result, more than 5% of the Index Master Portfolio’s total assets, at market, would be invested in the securities of such issuer;

4. Purchase or retain securities of an issuer if those officers and trustees of the Trust or officers and directors of the Trust’s investment adviser owning more than  ¹/2 of 1% of such securities together own more than 5% of such securities;

5. Borrow, except from banks and as a temporary measure for extraordinary or emergency purposes and then, in no event, in excess of 5% of the Index Master Portfolio’s gross assets valued at the lower of market or cost; provided that it may borrow amounts not exceeding 33% of its net assets from banks and pledge not more than 33% of such assets to secure such loans;

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6. Pledge, mortgage, or hypothecate any of its assets to an extent greater than 10% of its total assets at fair market value, except as described in (5) above;

7. Invest more than 10% of the value of its total assets in illiquid securities, which include certain restricted securities, repurchase agreements with maturities of greater than seven days, and other illiquid investments;

8. Engage in the business of underwriting securities issued by others;

9. Invest for the purpose of exercising control over management of any company;

10. Invest its assets in securities of any investment company, except in connection with a merger, acquisition of assets, consolidation or reorganization;

11. Invest more than 5% of its total assets in securities of companies which have (with predecessors) a record of less than three years’ continuous operation;

12. Acquire any securities of companies within one industry if, as a result of such acquisition, more than 25% of the value of its total assets would be invested in securities of companies within such industry;

13. Write or acquire options (except as described in (1) above) or interests in oil, gas or other mineral exploration, leases or development programs;

14. Purchase warrants; however, it may acquire warrants as a result of corporate actions involving its holdings of other equity securities;

15. Purchase securities on margin or sell short;

16. Acquire more than 10% of the voting securities of any issuer; or

17. Issue senior securities (as such term is defined in Section 18(f) of the 1940 Act), except as permitted under the 1940 Act.

The investment limitations described in (1) and (15) above do not prohibit the Index Master Portfolio from making margin deposits to the extent permitted under applicable regulations. Although (2) above prohibits cash loans, the Index Master Portfolio is authorized to lend portfolio securities. With respect to (7) above, pursuant to Rule 144A under the 1933 Act, the Index Master Portfolio may purchase certain unregistered (i.e., restricted) securities upon a determination that a liquid institutional market exists for the securities. If it is decided that a liquid market does exist, the securities will not be subject to the 10% limitation on holdings of illiquid securities stated in (7) above. While maintaining oversight, the Board of Trustees of the Trust has delegated the day-to-day function of making liquidity determinations to DFA, the Index Master Portfolio’s investment adviser. For Rule 144A securities to be considered liquid, there must be at least two dealers making a market in such securities. After purchase, the Board of Trustees of the Trust and DFA will continue to monitor the liquidity of Rule 144A securities.

Subject to future regulatory guidance, for purposes of those investment limitations identified above that are based on total assets, “total assets” refers to the assets that the Index Master Portfolio owns, and does not include assets which the Index Master Portfolio does not own but over which it has effective control. For example, when applying a percentage investment limitation that is based on total assets, the Index Master Portfolio will exclude from its total assets those assets which represent collateral received by the Index Master Portfolio for its securities lending transactions.

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Unless otherwise indicated, all limitations applicable to the Index Master Portfolio’s investments apply only at the time that a transaction is undertaken. Any subsequent change in a rating assigned by any rating service to a security or change in the percentage of the Index Master Portfolio’s assets invested in certain securities or other instruments resulting from market fluctuations or other changes in the Index Master Portfolio’s total assets will not require the Index Master Portfolio to dispose of an investment until DFA determines that it is practicable to sell or close out the investment without undue market or tax consequences. In the event that ratings services assign different ratings to the same security, DFA will determine which rating it believes best reflects the security’s quality and risk at that time, which may be the higher of the several assigned ratings.

Because the structure of the Index Master Portfolio is based on the relative market capitalizations of eligible holdings, it is possible that the Index Master Portfolio might include at least 5% of the outstanding voting securities of one or more issuers. In such circumstances, the Trust and the issuer would be deemed “affiliated persons” under the 1940 Act, and certain requirements of the 1940 Act regulating dealings between affiliates might become applicable.

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TRUSTEES AND OFFICERS

THE FUND

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:

Interested Trustees:

Name, Address and Age	Position(s) Held with Fund	Term of Office2 and Length of Time Served	Principal Occupation(s) During Past Five Years	Number of Portfolios in Fund Complex3 Overseen by Trustee	Other Directorships Held by Trustee
Laurence D. Fink4 BlackRock, Inc. 40 E. 52nd Street New York, NY 10022 Age: 51	Trustee and President	Since 2000	Director, Chairman and Chief Executive Officer of BlackRock, Inc. since its formation in 1998 and of BlackRock, Inc.’s predecessor entities since 1988; Chairman of the Management Committee; formerly, Managing Director of the First Boston Corporation, Member of its Management Committee, Co-head of its Taxable Fixed Income Division and Head of its Mortgage and Real Estate Products Group; Chairman of the Board of Nomura BlackRock Asset Management and several of BlackRock’s alternative investment vehicles; Director of several of BlackRock’s offshore funds; Co-Chairman of the Board of Trustees of Mount Sinai-NYU; Co-Chairman of the Board of Trustees of NYU Hospitals Center; member of the Board of Trustees of NYU; member of the Board of Executives of the New York Stock Exchange; and Trustee of the American Folk Art Museum.	55 (includes 50 Portfolios of the Fund and 5 Portfolios of BlackRock Bond Allocation Target Shares)	Director, BlackRock, Inc.

² Each Trustee holds office for an indefinite term until the earlier of (1) the next meeting of shareholders at which Trustees are elected and until his or her successor is elected and qualified and (2) such time as such Trustee resigns or his or her term as a Trustee is terminated in accordance with the Fund’s code of regulations and Declaration of Trust.

³ A Fund Complex means two or more registered investment companies that hold themselves out to investors as related companies for purposes of investment and investor services, that have a common investment adviser or that have an investment adviser that is an affiliated person of the investment adviser of any of the other registered investment companies.

⁴ Mr. Fink is an interested person of the Fund due to his position at BlackRock, Inc.

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Disinterested Trustees:

Name, Address and Age	Position(s) Held with Fund	Term of Office2 and Length of Time Served	Principal Occupation(s) During Past Five Years	Number of Portfolios in Fund Complex3 Overseen by Trustee	Other Directorships Held by Trustee
Honorable Stuart E. Eizenstat Covington & Burling 1201 Pennsylvania Avenue, NW Washington, DC 20004 Age: 61	Trustee and Chairman of the Nominating Committee	Since 2001	Partner, Covington & Burling (law firm) (2001-Present); Deputy Secretary of the Treasury (1999-2001), Under Secretary of State for Economic, Business and Agricultural Affairs (1997-1999), Chairman, International Board of Governors, Weizmann Institute of Science.	55 (includes 50 Portfolios of the Fund and 5 Portfolios of BlackRock Bond Allocation Target Shares)	Director, Mirant Corporation; Advisory Board member, The Coca-Cola Company; Advisory Board member, Group Menatep.
Robert M. Hernandez c/o BlackRock Funds, 100 Bellevue Parkway, Wilmington, DE 19809 Age: 60	Trustee, Vice Chairman of the Board and Chairman of the Audit Committee	Since 1996	Retired; Director of USX Corporation (a diversified company principally engaged in energy and steel businesses), 1991-2001; Vice Chairman and Chief Financial Officer 1994-2001, Executive Vice President - Accounting and Finance and Chief Financial Officer from 1991 to 1994.	55 (includes 50 Portfolios of the Fund and 5 Portfolios of BlackRock Bond Allocation Target Shares)	Director, ACE Limited (insurance company); Director and Chairman of the Board, RTI International Metals, Inc.; Director, Eastman Chemical Company.
Matina Horner c/o BlackRock Funds, 100 Bellevue Parkway, Wilmington, DE 19809 Age: 65	Trustee and Chairperson of the Governance Committee	Since 2004	Retired; Executive Vice President of Teachers Insurance and Annuity Association and College Retirement Equities Fund (TIAA-CREF), 1989-2003.	55 (includes 50 Portfolios of the Fund and 5 Portfolios of BlackRock Bond Allocation Target Shares)	Chair of the Board of the Massachusetts General Hospital Institute of Health Professions; Chair of the Board of the Greenwall Foundation; Trustee, Century Foundation (formerly The Twentieth Century Fund); Director, N STAR (formerly called Boston Edison); Director, The Neiman Marcus Group; Honorary Trustee, Massachusetts General Hospital Corporation.

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Name, Address and Age	Position(s) Held with Fund	Term of Office2 and Length of Time Served	Principal Occupation(s) During Past Five Years	Number of Portfolios in Fund Complex3 Overseen by Trustee	Other Directorships Held by Trustee
David R. Wilmerding, Jr. c/o BlackRock Funds, 100 Bellevue Parkway, Wilmington, DE 19809 Age: 69	Trustee and Chairman of the Board	Since 1996	Chairman, Wilmerding & Associates, Inc. (investment advisers) since 1989; Chairman Coho Partners, Ltd. (investment advisers) since 2003; Director, Beaver Management Corporation (land management corporation); Managing General Partner, Chestnut Street Exchange Fund	56 (includes 50 Portfolios of the Fund, 5 Portfolios of BlackRock Bond Allocation Target Shares and 1 Portfolio of Chestnut Street Exchange Fund, which is managed by BFM and BIMC.)

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Executive Officers:

Name, Address and Age	Position(s) Held with Fund	Term of Office5 and Length of Time Served	Principal Occupation(s) During Past Five Years
Paul Audet BlackRock, Inc. 40 E. 52nd Street New York, NY 10022 Age: 51	Treasurer	Since 2002	Managing Director and Chief Financial Officer of BlackRock, Inc. since 1998; Treasurer of BlackRock Liquidity Funds since 2001; Senior Vice President of PNC Bank Corp. from 1991 to 1998.
Anne Ackerley BlackRock, Inc. 40 E. 52nd Street New York, NY 10022 Age: 42	Vice President	Since 2003 (previo usly served as Assista nt Secreta ry since 2000)	Managing Director, BlackRock, Inc. since May 2000; First Vice President and Operating Officer, Mergers and Acquisitions Group (1997-2000), First Vice President and Operating Officer, Public Finance Group (1995-1997), and First Vice President, Emerging Markets Fixed Income Research (1994-1995), Merrill Lynch & Co.
Bart Battista BlackRock, Inc. 40 E. 52nd Street New York, NY 10022 Age: 45	Chief Compliance Officer and Anti-Money Laundering Compliance Officer	Since 2004	Chief Compliance Officer and Anti-Money Laundering Compliance Officer of BlackRock, Inc. since 2004; Managing Director (since 2003), and Director (1998-2002) of BlackRock, Inc.; Compliance Officer at Moore Capital Management from 1995 to 1998.
Ellen L. Corson PFPC Inc. 103 Bellevue Parkway Wilmington, DE 19809 Age: 40	Assistant Treasurer	Since 1998	Senior Director and Vice President of Fund Accounting and Administration, PFPC Inc. since 2003; Vice President and Director of Mutual Fund Accounting and Administration, PFPC Inc. since November 1997; Assistant Vice President, PFPC Inc. from March 1997 to November 1997; Senior Accounting Officer, PFPC Inc. from March 1993 to March 1997.

⁵ Each officer holds office for an indefinite term until the earlier of (1) the next meeting of trustees at which his or her successor is appointed and (2) such time as such officer resigns or his or her term as an officer is terminated in accordance with the Fund’s code of regulations and Declaration of Trust.

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Name, Address and Age	Position(s) Held with Fund	Term of Office5 and Length of Time Served	Principal Occupation(s) During Past Five Years
Brian P. Kindelan BlackRock Advisors, Inc. 100 Bellevue Parkway Wilmington, DE 19809 Age: 45	Secretary	Since 1997	Director and Senior Counsel (since January 2001), and Vice President and Senior Counsel (1998-2000), BlackRock Advisors, Inc.; Senior Counsel, PNC Bank Corp. from May 1995 to April 1998.
Vincent Tritto BlackRock, Inc. 40 E. 52nd Street New York, NY 10022 Age: 43	Assistant Secretary	Since 2003	Director and Assistant Secretary of BlackRock, Inc. since 2002. Formerly, Executive Director (2000-2002) and Vice President (1998-2000), Morgan Stanley & Co. Incorporated and Morgan Stanley Asset Management Inc. and officer of various Morgan Stanley-sponsored investment vehicles; Counsel (1998) and Associate (1988-1997), Rogers & Wells LLP, New York, NY.

The standing committees of the Board are the Audit Committee, the Nominating Committee and the Governance Committee.

The members of the Audit Committee are Ms. Horner and Messrs. Eizenstat, Hernandez and Wilmerding. Mr. Hernandez serves as Chairman. The Audit Committee is responsible for, among other things: (i) considering management’s recommendations of independent accountants for the Fund and evaluating such accountants’ performance, costs and financial stability; (ii) reviewing and coordinating audit plans prepared by the Fund’s independent accountants and management’s internal audit staff; and (iii) reviewing financial statements contained in periodic reports to shareholders with the Fund’s independent accountants and management. The Audit Committee met 4 times in the last fiscal year.

The members of the Nominating Committee are Ms. Horner and Messrs. Eizenstat, Hernandez and Wilmerding. Mr. Eizenstat serves as Chairman. The Nominating Committee is responsible for selecting and nominating “disinterested” trustees of the Fund. The Committee will consider nominees recommended by shareholders when a vacancy becomes available. Shareholders who wish to recommend a nominee should send nominations which include biographical information and sets forth the qualifications of the proposed nominee to the Fund’s Secretary. The Nominating Committee met 4 times in the last fiscal year.

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The members of the Governance Committee are Ms. Horner and Messrs. Eizenstat, Hernandez and Wilmerding. Ms. Horner serves as Chairwoman. The Governance Committee is responsible for, among other things, the scheduling and organization of board meetings, evaluating the structure and composition of the board and determining compensation of the Fund’s disinterested trustees. The Governance Committee met once in the last fiscal year.

The following table shows the dollar range of equity securities owned by the Trustees in the Fund and in other investment companies overseen by the Trustees within the same family of investment companies as of December 31, 2004. Investment companies are considered to be in the same family if they share the same investment adviser or principal underwriter and hold themselves out to investors as related companies for purposes of investment and investor services.

Name of Trustee	Dollar Range of Equity Securities in the Fund	Aggregate Dollar Range of Equity Securities in All Registered Investment Companies Overseen by the Trustee in the Family of Investment Companies
Interested Trustees
Laurence D. Fink	International Opportunities over $100,000 Global Science & Technology Opportunities - $50,001-$100,000	Over $100,000
Disinterested Trustees
Stuart E. Eizenstat	None	None
Robert M. Hernandez	Pennsylvania Municipal Money Market – over $100,000	Over $100,000
Matina Horner	None	None
David R. Wilmerding, Jr.	None	None

Compensation

Trustees who are not affiliated with BlackRock Advisors, Inc. (“BlackRock”) or BlackRock Distributors, Inc. (“BDI” or the “Distributor”) receive from the BlackRock open-end funds (BlackRock Funds and BlackRock Bond Allocation Target Shares) the following: $20,000 annually, $2,500 for each meeting that they attend, whether by phone or in person, and $350 per Portfolio for each full in-person meeting of the Board that they attend; in addition, the Chairman and Vice Chairman of the open-end Boards receive an additional $10,000 and $5,000 per year, respectively, for their service in such capacities and trustees who are not affiliated with BlackRock or BDI receive from the BlackRock open-end funds (BlackRock Funds and BlackRock Bond Allocation Target Shares) the following: $1,500 for each committee meeting that they attend, whether by phone or in person, and the Audit Committee Chairman receives an additional $10,000 and each other committee chairperson an additional $5,000 per year, 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, PFPC Inc. (“PFPC”) (with BlackRock, the “Administrators”), BDI, PNC Bank, National Association (“PNC Bank”) or BlackRock, Inc. 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 Fund.

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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, 2004. Matina Horner became a trustee of the Fund on September 10, 2004.

	Aggregate Compensation from Registrant		Pension or Retirement Benefits Accrued as Part of Fund Expenses	Estimated Annual Benefits upon Retirement	Total Compensation from Registrant and Fund Complex Paid to Trustees
David R. Wilmerding, Jr., Trustee and Chairman of the Board	$	117,300	N/A	N/A	(2)1127,300
Honorable Stuart E. Eizenstat, Trustee and Chairman of the Nominating Committee	$	112,300	N/A	N/A	(1)1112,300
Robert M. Hernandez, Vice Chairman of the Board and Chairman of the Audit Committee	$	122,300	N/A	N/A	(1)1122,300
Matina Horner Trustee and Chairperson of the Governance Committee	$	0	N/A	N/A	(1)1           0

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

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THE TRUST

Trustees

The Board of Trustees of the Trust is responsible for establishing the Trust’s policies and for overseeing the management of the Trust.

The Board of Trustees of the Trust has two standing committees, the Audit Committee and the Portfolio Performance and Service Review Committee (the “Performance Committee”). The Audit Committee is comprised of George M. Constantinides, Roger G. Ibbotson and Abbie J. Smith. Each member of the Trust’s Audit Committee is a disinterested Trustee. The Audit Committee oversees the Trust’s accounting and financial reporting policies and practices, the Trust’s internal controls and other oversight functions as requested by the Board of Trustees. The Audit Committee also acts as a liaison between the Trust’s independent certified public accountants and the full Board. There were three Audit Committee meetings held during the fiscal year ended November 30, 2004.

The Performance Committee is comprised of Messrs. Constantinides and Ibbotson, Ms. Smith, John P. Gould, Robert C. Merton and Myron S. Scholes. Each member of the Trust’s Performance Committee is a disinterested Trustee. The Performance Committee regularly reviews and monitors the investment performance of the Trust’s series, including the Index Master Portfolio, and reviews the performance of the Trust’s service providers. There were three Performance Committee meetings held during the fiscal year ended November 30, 2004.

Certain biographical information for each disinterested Trustee and each interested Trustee of the Trust is set forth in the tables below, including a description of each Trustee’s experience as a Trustee of the Trust and as a director or trustee of other funds, as well as other recent professional experience.

Disinterested Trustees

Name, Address and Age	Position Held with the Trust	Term of Office1 and Length of Service	Principal Occupation(s) During Past 5 Years	Portfolios within the DFA Fund Complex2 Overseen	Other Directorships of Public Companies Held
George M. Constantinides Graduate School of Business University of Chicago 1101 E. 58th Street Chicago, IL 60637 Date of Birth: 9/22/47	Trustee	Since inception	Leo Melamed Professor of Finance, Graduate School of Business, University of Chicago.	75 portfolios in 4 investment companies
John P. Gould Graduate School of Business University of Chicago 1101 E. 58th Street Chicago, IL 60637 Date of Birth: 1/19/39	Trustee	Since inception	Steven G. Rothmeier Distinguished Service Professor of Economics, Graduate School of Business, University of Chicago. Member of the Boards of Milwaukee Mutual Insurance Company and UNext.com. Formerly, Senior Vice President, Lexecon Inc. (economics, law, strategy and finance consulting). Formerly, President, Cardean University (division of UNext.com). Formerly, Trustee, First Prairie Funds (registered investment company).	75 portfolios in 4 investment companies	Trustee, Harbor Fund (registered investment company) (13 portfolios).

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Name, Address and Age	Position Held with the Trust	Term of Office1 and Length of Service	Principal Occupation(s) During Past 5 Years	Portfolios within the DFA Fund Complex2 Overseen	Other Directorships of Public Companies Held
Roger G.Ibbotson Yale School of Management P.O. Box 208200 New Haven, CT 06520-8200 Date of Birth: 5/27/43	Trustee	Since inception	Professor in Practice of Finance, Yale School of Management. Director, BIRR Portfolio Analysis, Inc. (software products). Chairman, Ibbotson Associates, Inc., Chicago, IL (software, data, publishing and consulting). Partner, Zebra Capital Management, LLC (hedge fund manager). Formerly, Director, Hospital Fund, Inc. (investment management services).	75 portfolios in 4 investment companies
Robert C. Merton Harvard Business School 397 Morgan Hall Soldiers Field Boston, MA 02163 Date of Birth: 7/31/44	Trustee	Since 2003	John and Natty McArthur University Professor, Graduate School of Business Administration, Harvard University (since 1998). Co-founder, Chief Science Officer, Integrated Finance Limited (since 2002). Director, MFRisk, Inc. (risk management software) (since 2001). Director, Peninsula Banking Group (bank) (since 2003). Director, Community First Financial Group (bank holding company) (since 2003).	75 portfolios in 4 investment companies	Director, Vical Incorporated (biopharmaceutical product development).
Myron S. Scholes Oak Hill Capital Management, Inc. 2775 Sand Hill Rd. Suite 220 Menlo Park, CA 94025 Date of Birth: 7/1/41	Trustee	Since inception	Frank E. Buck Professor Emeritus of Finance, Stanford University. Managing Partner, Oak Hill Capital Management (hedge fund) (private equity firm). Chairman, Oak Hill Platinum Partners (hedge fund). Director, Financial Engines. Director, Chicago Mercantile Exchange. Consultant, Arbor Investors. Formerly, Director, Smith Breeden Family of Funds.	75 portfolios in 4 investment companies	Director, American Century Fund Complex (registered investment companies) (38 portfolios) and Director, Chicago Mercantile Exchange Holdings Inc.
Abbie J. Smith 1101 E. 58th Street Chicago, IL 60637 Date of Birth: 4/30/53	Trustee	Since 2000	Boris and Irene Stern Professor of Accounting, Graduate School of Business, University of Chicago. Formerly, Marvin Bower Fellow, Harvard Business School.	75 portfolios in 4 investment companies	Director, HON Industries Inc. (office furniture) and Director, Ryder System, Inc. (transportation).

Interested Trustees

The following Interested Trustees are described as such because they are deemed to be “interested persons,” as that term is defined under the 1940 Act, due to their positions with DFA.

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Name, Address and Age	Position Held with the Trust	Term of Office1 and Length of Service	Principal Occupation(s) During Past 5 Years	Portfolios within the DFA Fund Complex2 Overseen	Other Directorships of Public Companies Held
David G. Booth 1299 Ocean Avenue Santa Monica, CA 90401 Date of Birth: 12/2/46	Trustee, President, Chairman, Chief Executive Officer and Chief Investment Officer	Since inception	President, Chairman, Chief Executive Officer and Chief Investment Officer (beginning in 2003) and Director/Trustee of the following companies: the Trust, DFA, DFA Securities Inc., DFA Australia Limited, Dimensional Fund Advisors Canada Inc., DFA Investment Dimensions Group Inc., Dimensional Investment Group Inc. and Dimensional Emerging Markets Value Fund Inc. Director of Dimensional Fund Advisors Ltd. and formerly, Chief Investment Officer. Director, President and Chief Investment Officer (beginning in 2003) of DFA Australia Limited. Formerly, Director of Dimensional Funds PLC. Limited Partner, Oak Hill Partners. Director, University of Chicago Business School. Formerly, Director, SA Funds (registered investment company), and formerly, Director, Assante Corporation (investment management).	75 portfolios in 4 investment companies
Rex A. Sinquefield* 1299 Ocean Avenue Santa Monica, CA 90401 Date of Birth: 9/7/44	Trustee and Chairman	Since inception	Chairman and Director (and prior to 2003, Chief Investment Officer), DFA, DFA Securities Inc., DFA Investment Dimensions Group Inc., Dimensional Investment Group Inc. and Dimensional Emerging Markets Value Fund Inc. Trustee and Chairman of the Trust. Director and formerly President, Dimensional Fund Advisors Ltd. Director (and prior to 2003, Chief Investment Officer), DFA Australia Limited. Director, Dimensional Fund Advisors Canada Inc. Director, Dimensional Funds PLC. Trustee, St. Louis University. Life Trustee and Member of Investment Committee, DePaul University. Director, The German St. Vincent Orphan Home. Member of Investment Committee, Archdiocese of St. Louis.	75 portfolios in 4 investment companies

¹ Each Trustee holds office for an indefinite term until his or her successor is elected and qualified.

² Each Trustee is a director or trustee of each of the four registered investment companies within the DFA Fund Complex, which are: the Trust, Dimensional Emerging Markets Value Fund Inc., DFA Investment Dimensions Group Inc. and Dimensional Investment Group Inc. (together, the “DFA Funds”).

^* Rex A. Sinquefield and Jeanne C. Sinquefield are husband and wife.

Information relating to each Trustee’s ownership (including the ownership of his or her immediate family) in the series of the Trust and in all registered investment companies in the DFA Fund Complex as of December 31, 2004 is set forth in the chart below:

Name	Dollar Range of Fund Shares Owned		Aggregate Dollar Range of Shares Owned in All Funds Overseen by Trustee in Family of Investment Companies
Disinterested Trustees:
George M. Constantinides	$	0	$	0
John P. Gould	$	0	$	0
Roger G. Ibbotson	$	0	$	0
Robert C. Merton	$	0	$	0
Myron S. Scholes	$	0	$	50,001 – 100,000

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Name	Dollar Range of Fund Shares Owned		Aggregate Dollar Range of Shares Owned in All Funds Overseen by Trustee in Family of Investment Companies
Abbie J. Smith	$	0	$	0
Interested Trustees:
David G. Booth	$	0	over $	100,0000
Rex A. Sinquefield	$	0	over $	100,0000

Set forth below is a table listing, for each Trustee entitled to receive compensation, the compensation received from the Trust during the fiscal year ended November 30, 2004 and the total compensation received from the four DFA Funds for which DFA served as investment adviser during that same fiscal year:

Trustee	Aggregate Compensation from the Trust*		Pension or Retirement Benefits as Part of Trust Expenses	Estimated Annual Benefits upon Retirement	Total Compensation from the Trust and DFA Fund Complex†
George M. Constantinides	$	32,636	N/A	N/A	$	75,000
John P. Gould	$	32,636	N/A	N/A	$	75,000
Roger G. Ibbotson	$	32,636	N/A	N/A	$	75,000
Robert C. Merton	$	32,636	N/A	N/A	$	75,000
Myron S. Scholes	$	32,636	N/A	N/A	$	75,000
Abbie J. Smith	$	32,636	N/A	N/A	$	75,000

^* Under a deferred compensation plan (the “Plan”) adopted effective January 1, 2002, the disinterested Trustees of the Trust may defer receipt of all or a portion of the compensation for serving as members of the four Boards of Directors/Trustees of the DFA Funds. Amounts deferred under the Plan are treated as though equivalent dollar amounts had been invested in shares of a cross-section of the DFA Funds (the “Reference Funds”). The amounts ultimately received by the disinterested Trustees under the Plan will be directly linked to the investment performance of the Reference Funds. Deferral of fees in accordance with the Plan will have a negligible effect on a fund’s assets, liabilities, and net income per share, and will not obligate a fund to retain the services of any disinterested Trustee or to pay any particular level of compensation to the disinterested Trustee. The total amount of deferred compensation accrued by the disinterested Trustees from the DFA Fund Complex who participated in the Plan during the fiscal year ended November 30, 2004, is as follows: $75,000 (Mr. Gould), $75,000 (Mr. Ibbotson), $75,000 (Mr. Morton) and $75,000 (Ms. Smith). A disinterested Trustee’s deferred compensation will be distributed at the earlier of: (a) January in the year after the disinterested Trustee’s resignation from the Boards of Directors/Trustees, or death or disability; or (b) five years following the first deferral, in such amounts as the disinterested Trustee has specified. The obligations of the DFA Funds to make payments under the Plan will be unsecured general obligations of the DFA Funds, payable out of the general assets and property of the DFA Funds.

^† The term DFA Fund Complex refers to all registered investment companies for which DFA performs advisory or administrative services and for which the individuals listed above serve as directors or trustees on the boards of such companies.

Officers

Below is the name, address, age, information regarding positions with the Trust and the principal occupation for each officer of the Trust. Each of the officers listed below holds the same office (except as otherwise noted) in the following entities: DFA, DFA Securities Inc., DFA Investment Dimensions Group Inc., Dimensional Investment Group Inc., the Trust and Dimensional Emerging Markets Value Fund Inc. (collectively, the “DFA Entities”).

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Name, Address and Age	Position Held with the Trust	Term of Office1 and Length of Service	Principal Occupation(s) During Past 5 Years
Arthur H. Barlow Santa Monica, CA Date of Birth: 11/7/55	Vice President	Since 1993	Vice President of all the DFA Entities.
Valerie A. Brown Santa Monica, CA Date of Birth: 1/24/67	Vice President and Assistant Secretary	Since 2001	Vice President and Assistant Secretary of all the DFA Entities. Prior to April 2001, legal counsel for DFA (since March 2000). Associate, Jones, Day, Reavis & Pogue from October 1991 to February 2000.
Stephen A. Clark Santa Monica, CA Date of Birth: 8/20/72	Vice President	Since 2004	Vice President of all the DFA Entities. April 2001 to April 2004, Portfolio Manager of Dimensional Fund Advisors Inc. Formerly, Graduate Student at the University of Chicago (September 2000 to March 2001); Associate of US Bancorp Piper Jaffrey (September 1999 to September 2000), and an Analyst and later an Associate of John Nuveen & Co. (August to September 1999).
Truman A. Clark Santa Monica, CA Date of Birth: 4/8/41	Vice President	Since 1996	Vice President of all the DFA Entities, except Dimensional Fund Advisors Ltd.
Christopher S. Crossan Santa Monica, CA Date of Birth: 12/21/65	Vice President and Chief Compliance Officer	Since 2004	Vice President of all the DFA Entities. Formerly, Senior Compliance Officer, INVESCO Institutional, Inc. and its affiliates (August 2000 to January 2004); Branch Chief, Investment Company and Investment Advisor Inspections, Securities and Exchange Commission (April 1994 to August 2000).
James L. Davis Santa Monica, CA Date of Birth: 11/29/56	Vice President	Since 1999	Vice President of all the DFA Entities, except Dimensional Fund Advisors Ltd. Formerly at Kansas State University, Arthur Andersen & Co. and Phillips Petroleum Co.
Robert T. Deere Santa Monica, CA Date of Birth: 10/8/57	Vice President	Since 1994	Vice President of all the DFA Entities.
Robert W. Dintzner Santa Monica, CA Date of Birth: 3/18/70	Vice President	Since 2001	Vice President of all the DFA Entities, except Dimensional Fund Advisors Ltd. Prior to April 2001, marketing supervisor and marketing coordinator for DFA.
Richard A. Eustice Santa Monica, CA Date of Birth: 8/5/65	Vice President and Assistant Secretary	Since 1998	Vice President and Assistant Secretary of all the DFA Entities, except Dimensional Fund Advisors Ltd.
Eugene F. Fama, Jr. Santa Monica, CA Date of Birth: 1/21/61	Vice President	Since 1993	Vice President of all the DFA Entities, except Dimensional Fund Advisors Ltd.
Damon S. Fisher Santa Monica, CADate of Birth: 8/2/68	Vice President	Since 2004	Vice President of all the DFA Entities. Prior to April 2004, institutional client service representative of Dimensional Fund Advisors Inc.
Gretchen A. Flicker Santa Monica, CA Date of Birth: 6/9/71	Vice President	Since 2004	Vice President of all the DFA Entities. Prior to April 2004, institutional client service representative of Dimensional Fund Advisors Inc.

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Name, Address and Age	Position Held with the Trust	Term of Office1 and Length of Service	Principal Occupation(s) During Past 5 Years
Glenn S. Freed Santa Monica, CA Date of Birth: 11/24/61	Vice President	Since 2001	Vice President of all the DFA Entities, except Dimensional Fund Advisors Ltd. and DFA Australia Limited. Formerly, Professor and Associate Dean of the Leventhal School of Accounting (September 1998 to August 2001) and Academic Director Master of Business Taxation Program (June 1996 to August 2001) at the University of Southern California Marshall School of Business.
Henry F. Gray Santa Monica, CA Date of Birth: 9/22/67	Vice President	Since 2000	Vice President of all the DFA Entities, except Dimensional Fund Advisors Ltd. Prior to July 2000, portfolio manager.
Kamyab Hashemi-Nejad Santa Monica, CA Date of Birth: 1/22/61	Vice President, Controller and Assistant Treasurer	Since 1997	Vice President, Controller and Assistant Treasurer, of all the DFA Entities.
Christine W. Ho Santa Monica, CA Date of Birth: 11/29/67	Vice President	Since 2004	Vice President of all the DFA Entities. Prior to April 2004, Assistant Controller of Dimensional Fund Advisors Inc.
Jeff J. Jeon Santa Monica, CA Date of Birth: 11/11/73	Vice President	Since 2004	Vice President of all the DFA Entities. Prior to April 2004, counsel of Dimensional Fund Advisors Inc. Formerly, an Associate at Gibson, Dunn & Crutcher LLP (September 1997 to August 2001).
Patrick Keating Date of Birth: 12/21/54	Vice President	Since 2003	Vice President of all the DFA Entities. Formerly, Director, President and Chief Executive Officer, Assante Asset Management Inc. (October 2000 to December 2002); Director, Assante Capital Management (October 2000 to December 2002); President and Chief Executive Officer, Assante Capital Management (October 2000 to April 2001); Executive Vice President, Assante Corporation (May 2001 to December 2002); Director, Assante Asset Management Ltd. (September 1997 to December 2002); President and Chief Executive Officer, Assante Asset Management Ltd. (September 1998 to May 2001); Executive Vice President, Loring Ward (financial services company) (January 1996 to September 1998).
Joseph F. Kolerich Santa Monica, CA Date of Birth: 11/7/71	Vice President	Since 2004	Vice President of all the DFA Entities. From April 2001 to April 2004, Portfolio Manager for Dimensional Fund Advisors Inc. Formerly, a trader at Lincoln Capital Fixed Income Management (formerly Lincoln Capital Management Company).
Michael F. Lane Santa Monica, CA Date of Birth: 7/11/67	Vice President	Since 2004	Vice President of all the DFA Entities. Formerly, Vice President of Advisor Services at TIAA-CREF (July 2001 to September 2004); AEGON, President, Advisor Resources (September 1994 to June 2001).
Heather H. Mathews Santa Monica, CA Date of Birth: 12/12/69	Vice President	Since 2004	Vice President of all the DFA Entities and Dimensional Fund Advisors Ltd. Prior to April 2004, Portfolio Manager for Dimensional Fund Advisors Inc. Formerly, Graduate Student at Harvard University (August 1998 to June 2000).

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Name, Address and Age	Position Held with the Trust	Term of Office1 and Length of Service	Principal Occupation(s) During Past 5 Years
David M. New Date of Birth: 2/9/60	Vice President	Since 2003	Vice President of all the DFA Entities and Client Service Manager prior to becoming a Vice President; Director of Research, Wurts and Associates (investment consulting firm) from December 2000 to June 2002; and President, Kobe Investment Research from August 1999 to November 2000.
Catherine L. Newell Santa Monica, CA Date of Birth: 5/7/64	Vice President, Secretary, General Counsel and Chief Legal Officer	Since 2000	Vice President and Secretary of all the DFA Entities, except DFA Australia Limited for which she is Vice President and Assistant Secretary. Director, Dimensional Funds PLC. Vice President and Assistant Secretary of all the DFA Entities (1997-2000).
David A. Plecha Santa Monica, CA Date of Birth: 10/26/61	Vice President	Since 1993	Vice President of all the DFA Entities.
Eduardo A. Repetto Santa Monica, CA Date of Birth: 1/28/67	Vice President	Since 2002	Vice President of all the DFA Entities, except Dimensional Fund Advisors Ltd. and DFA Australia Limited. Research Associate for DFA (June 2000 to April 2002). Research scientist (August 1998 to June 2000) and Faculty–Postdoctural Fellow (August 1997 to August 1998), California Institute of Technology.
Michael T. Scardina Santa Monica, CA Date of Birth: 10/12/55	Vice President, Chief Financial Officer and Treasurer	Since 1993	Vice President, Chief Financial Officer and Treasurer of all the DFA Entities. Director, Dimensional Funds, PLC.
David E. Schneider Santa Monica, CA Date of Birth: 1/26/46	Vice President	Since 2001	Vice President of all the DFA Entities, except Dimensional Fund Advisors Ltd. and DFA Australia Limited. Prior to 2001 and currently, Regional Director of DFA.
John C. Siciliano Santa Monica, CA Date of Birth: 8/24/54	Vice President	Since 2001	Vice President of all the DFA Entities. Director, Dimensional Funds PLC. Managing Principal, Payden & Rygel Investment Counsel from April 1998 through December 2000, and Co-Head, North American Corporate Finance for Dresdner Kleinwort Benson N.A., from October 1995 to April 1998.
Jeanne C. Sinquefield, Ph.D.* Santa Monica, CA Date of Birth: 12/2/46	Executive Vice President	Since 1988	Executive Vice President of all the DFA Entities.
Grady M. Smith Santa Monica, CA Date of Birth: 5/26/56	Vice President	Since 2004	Vice President of all the DFA Entities. From August 2001 to April 2004, Portfolio Manager of Dimensional Fund Advisors Inc. Formerly, Principal of William M. Mercer, Incorporated (July 1995 to June 2001).
Carl G. Snyder Santa Monica, CA Date of Birth: 6/8/63	Vice President	Since 2000	Vice President of all the DFA Entities, except Dimensional Fund Advisors Ltd. Prior to July 2000, portfolio manager.
Lawrence R. Spieth Santa Monica, CA Date of Birth: 11/10/47	Vice President	Since 2004	Vice President of all the DFA Entities. Prior to April 2004, institutional client service representative of Dimensional Fund Advisors Inc.

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Name, Address and Age	Position Held with the Trust	Term of Office1 and Length of Service	Principal Occupation(s) During Past 5 Years
Bradley G. Steiman Santa Monica, CA Date of Birth: 3/25/73	Vice President	Since 2004	Vice President of all the DFA Entities and Dimensional Funds Canada Inc. (since June 2003). Prior to April 2002, Regional Director of Dimensional Fund Advisors Inc. Formerly, Vice President and General Manager of Assante Global Advisors (July 2000 to April 2002); Vice President of Assante Asset Management Inc. (March 2000 to July 2000); and Private Client Manager at Loring Ward Investment Counsel Ltd. (June 1997 to February 2002).
Karen Umland Date of Birth: 3/10/66	Vice President	Since 1997	Vice President of all the DFA Entities, DFA Australia Limited and Dimensional Fund Advisors Ltd.
Carol W. Wardlaw Santa Monica, CA Date of Birth: 8/7/58	Vice President	Since 2004	Vice President of all the DFA Entities. Prior to April 2004, institutional client service representative of Dimensional Fund Advisors Inc.
Weston J. Wellington Santa Monica, CA Date of Birth: 3/1/51	Vice President	Since 1997	Vice President of all the DFA Entities, except Dimensional Fund Advisors Ltd.
Daniel M. Wheeler Santa Monica, CA Date of Birth: 3/3/45	Vice President	Since 2001	Vice President of all the DFA Entities, except Dimensional Fund Advisors Ltd. and DFA Australia Limited. Prior to 2001 and currently, Director of Financial Advisors Services of DFA.

¹ Each officer holds office for an indefinite term at the pleasure of the Board of Trustees and until his or her successor is elected and qualified.

^* Rex A. Sinquefield and Jeanne C. Sinquefield are husband and wife.

As of December 31, 2004, the Trustees and officers as a group own less than 1% of the Trust’s outstanding stock.

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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, BIMC, BFM, BIL and, with respect to the Index Master Portfolio, Dimensional Fund Advisors Inc. (“DFA”), and the fees received by BlackRock and DFA for such services, are described in the Prospectuses.

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

MAXIMUM ANNUAL CONTRACTUAL FEE RATE FOR THE LARGE CAP VALUE EQUITY, LARGE CAP GROWTH

EQUITY, SMALL CAP VALUE EQUITY, SMALL CAP GROWTH EQUITY AND DIVIDEND ACHIVERS^TM

PORTFOLIOS AND THE INVESTMENT TRUST (BEFORE WAIVERS)

Average Daily Net Assets	Investment Advisory Fee
first $1 billion	.550	%
$1 billion — $2 billion	.500
$2 billion — $3 billion	.475
Greater than $3 billion	.450

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MAXIMUM ANNUAL CONTRACTUAL FEE RATE FOR THE LEGACY PORTFOLIO (BEFORE WAIVERS)

Average Daily Net Assets	Investment Advisory Fee
first $1 billion	.650	%
$1 billion — $2 billion	.600
$2 billion — $3 billion	.575
Greater than $3 billion	.550

MAXIMUM ANNUAL CONTRACTUAL FEE RATE FOR THE AURORA PORTFOLIO (BEFORE WAIVERS)

Average Daily Net Assets	Investment Advisory Fee
first $1 billion	.850	%
$1 billion — $2 billion	.800
$2 billion — $3 billion	.750
Greater than $3 billion	.700

MAXIMUM ANNUAL CONTRACTUAL FEE RATE FOR THE SMALL/MID-CAP GROWTH, HEALTH SCIENCES,

GLOBAL RESOURCES AND ALL-CAP GLOBAL RESOURCES PORTFOLIOS (BEFORE WAIVERS)

Average Daily Net Assets	Investment Advisory Fee
first $1 billion	.750	%
$1 billion — $2 billion	.700
$2 billion — $3 billion	.675
Greater than $3 billion	.650

MAXIMUM ANNUAL CONTRACTUAL FEE RATE FOR THE MID-CAP VALUE EQUITY AND

MID-CAP GROWTH EQUITY PORTFOLIOS (BEFORE WAIVERS)

Average Daily Net Assets	Investment Advisory Fee
first $1 billion	.800	%
$1 billion — $2 billion	.700
$2 billion — $3 billion	.675
greater than $3 billion	.625

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MAXIMUM ANNUAL CONTRACTUAL FEE RATE FOR THE ASSET ALLOCATION PORTFOLIO (BEFORE WAIVERS)

Average Daily Net Assets	Investment Advisory Fee		Sub-Advisory Fee to BFM
first $1 billion	.550	%	.400	%
$1 billion — $2 billion	.500		.350
$2 billion — $3 billion	.475		.325
greater than $3 billion	.450		.300

MAXIMUM ANNUAL CONTRACTUAL FEE RATE FOR THE

INTERNATIONAL OPPORTUNITIES PORTFOLIO (BEFORE WAIVERS)

Average Daily Net Assets	Investment Advisory Fee		Sub-Advisory Fee to BIL
first $1 billion	1.00	%	.85	%
$1 billion — $2 billion	.95		.80
$2 billion — $3 billion	.90		.75
greater than $3 billion	.85		.70

MAXIMUM ANNUAL CONTRACTUAL FEE RATE

FOR THE U.S. OPPORTUNITIES PORTFOLIO (BEFORE WAIVERS)

Average Daily Net Assets	Investment Advisory Fee
first $1 billion	1.100	%
$1 billion — $2 billion	1.050
$2 billion — $3 billion	1.025
greater than $3 billion	1.000

MAXIMUM ANNUAL CONTRACTUAL FEE RATE FOR THE

GLOBAL SCIENCE & TECHNOLOGY OPPORTUNITIES PORTFOLIO (BEFORE WAIVERS)

Average Daily Net Assets	Investment Advisory Fee
first $1 billion	.90	%
$1 billion—$2 billion	.85
$2 billion—$3 billion	.80
greater than $3 billion	.75

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MAXIMUM ANNUAL CONTRACTUAL FEE RATE

FOR THE BOND PORTFOLIOS (BEFORE WAIVERS)

	Each Bond Portfolio Except the Enhanced Income, International Bond, GNMA, UltraShort Municipal, Inflation Protected Bond, DE Tax-Free Income and KY Tax-Free Income Portfolios				International Bond, GNMA, DE Tax-Free Income and KY Tax-Free Income Portfolios
Average Daily Net Assets	Investment Advisory Fee		Sub-Advisory Fees to BFM		Investment Advisory Fee		Sub- Advisory Fees to BFM
first $1 billion	.500	%	.350	%	.550	%	.400	%
$1 billion—$2 billion	.450		.300		.500		.350
$2 billion—$3 billion	.425		.275		.475		.325
greater than $3 billion	.400		.250		.450		.300

MAXIMUM ANNUAL CONTRACTUAL FEE RATE

FOR THE INFLATION PROTECTED BOND PORTFOLIO (BEFORE WAIVERS)

Average Daily Net Assets	Investment Advisory Fee		Sub-Advisory Fee to BFM
first $1 billion	.400	%	.250	%
$1 billion — $2 billion	.375		.225
$2 billion — $3 billion	.350		.200
greater than $3 billion	.325		.175

MAXIMUM ANNUAL CONTRACTUAL FEE RATE

FOR THE MONEY MARKET PORTFOLIOS (BEFORE WAIVERS)

Average Daily Net Assets	Investment Advisory Fee		Sub-Advisory Fee to BIMC
first $1 billion	.450	%	.400	%
$1 billion — $2 billion	.400		.350
$2 billion — $3 billion	.375		.325
greater than $3 billion	.350		.300

The investment advisory fee for the Enhanced Income Portfolio is .40%, .45% for the UltraShort Municipal Portfolio, 1.00% for the Small Cap Core Equity Portfolio and .50% for the Exchange Portfolio. The subadvisory fee for the Enhanced Income Portfolio is .15% and .28% for the UltraShort Municipal Portfolio.

BlackRock, a majority-owned indirect subsidiary of The PNC Financial Services Group, Inc., renders advisory services to each of the Portfolios, except the Index Equity Portfolio, pursuant to an Investment Advisory Agreement. From the commencement of operations of each Portfolio that existed prior to that time (other than the New Jersey Municipal Money Market, New Jersey Tax-Free Income, Core Bond Total Return, Low Duration Bond and International Bond Portfolios) until January 4, 1996 (June 1, 1996, in the case of the Index Equity Portfolio), BIMC served as adviser.

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From July 1, 1991 to December 31, 1995, Midlantic Bank, N.A. (“Midlantic Bank”) served as investment adviser to the predecessor portfolios of the International Bond, New Jersey Tax-Free Income and New Jersey Municipal Money Market Portfolios. From January 1, 1996, through January 12, 1996 (February 12, 1996, with respect to the predecessor portfolio of the International Bond Portfolio): (i) BlackRock and Morgan Grenfell Investment Services Limited (“Morgan Grenfell”) served as investment adviser and sub-adviser, respectively, to the predecessor portfolio to the International Bond Portfolio; (ii) BIMC served as investment adviser to the predecessor portfolio to the New Jersey Municipal Money Market Portfolio; and (iii) BFM served as investment adviser to the predecessor portfolio to the New Jersey Tax-Free Income Portfolio pursuant to interim advisory and sub-advisory agreements approved by the shareholders of the Compass Capital Group of Funds. From December 9, 1992, to January 13, 1996, BFM served as investment adviser to the predecessor portfolio of the Core Bond Total Return Portfolio. From July 17, 1992, to January 13, 1996, BFM served as investment adviser to the predecessor portfolio of the Low Duration Bond Portfolio.

BFM renders sub-advisory services to the Asset Allocation, Managed Income, Intermediate Government Bond, Tax-Free Income, Ohio Tax-Free Income, Pennsylvania Tax-Free Income, Low Duration Bond, Intermediate Bond, New Jersey Tax-Free Income, Delaware Tax-Free Income, Kentucky Tax-Free Income, Core Bond Total Return, Core PLUS Total Return, Government Income, International Bond, High Yield Bond, GNMA, Enhanced Income, UltraShort Municipal, Intermediate PLUS Bond and Inflation Protected Bond Portfolios pursuant to Sub-Advisory Agreements. Until January 26, 2001, BFM rendered sub-advisory services to the Large Cap Value Equity, Mid-Cap Value Equity, Small Cap Value Equity, Investment Trust, Large Cap Growth Equity, Mid-Cap Growth Equity, Small Cap Growth Equity, U.S. Opportunities, and International Opportunities Portfolios. From May 15, 2000, to January 26, 2001, BFM rendered sub-advisory services to the Global Science & Technology Opportunities Portfolio. BIL renders sub-advisory services to the International Opportunities Portfolio pursuant to a sub-advisory agreement. BIMC renders sub-advisory services to the Money Market, U.S. Treasury Money Market, Municipal Money Market, Ohio Municipal Money Market, Pennsylvania Municipal Money Market, North Carolina Municipal Money Market, Virginia Municipal Money Market and New Jersey Municipal Money Market Portfolios pursuant to Sub-Advisory Agreements. DFA renders advisory services to the Index Master Portfolio, the registered investment company in which the Index Equity Portfolio invests all of its assets, pursuant to an Investment Management Agreement. The Investment Advisory Agreement with BlackRock, the Investment Advisory Agreement with BIL and the above-referenced Sub-Advisory Agreements are collectively referred to as the “Advisory Contracts.”

The Advisory Contracts were most recently approved by the Fund’s Board of Trustees at an in-person meeting of the Board held on February 10, 2004, including a majority of the Trustees who are not parties to the agreements or interested persons of any such party (as such term is defined in the 1940 Act). In determining to approve the Advisory Contracts, the Trustees met with the relevant investment advisory personnel from BlackRock, BIMC, BFM and BIL and considered information relating to the education, experience and number of investment professionals and other personnel who would provide services under the applicable agreement. The Trustees also took into account the time and attention to be devoted by senior management to the Portfolios. The Trustees evaluated the level of skill required to manage the Portfolios and concluded that the human resources to be available at BlackRock, BIMC, BFM and BIL were appropriate to fulfill effectively the duties of BlackRock, BIMC, BFM and BIL on behalf of the Portfolios under the Advisory Contracts. The Trustees also considered the business reputation of BlackRock, BIMC, BFM and BIL, their financial resources and professional liability insurance coverage and concluded that BlackRock, BIMC, BFM and BIL would be able to meet any reasonably foreseeable obligations under the Advisory Contracts.

The Trustees received information concerning the investment philosophy and investment process to be applied by BlackRock, BIMC, BFM and BIL in managing the Portfolios. In this connection, the Trustees considered the advisers’ in-house research capabilities as well as other resources available to their personnel. The Trustees concluded that the advisers’ investment process, research capabilities and philosophy were well suited to the Portfolios, given the Portfolios’ investment objectives and policies. The Trustees considered the scope of the services provided by BlackRock, BIMC, BFM and BIL to the Portfolios under the Advisory Contracts relative to services provided by third parties to other funds. The Trustees noted that the advisers’ standard of care was comparable to that found in most investment company advisory agreements. The Trustees concluded that the scope

99

of the advisers’ services to be provided to the Portfolios was consistent with the Portfolios’ operational requirements, including, in addition to its investment objectives, compliance with investment restrictions, tax and reporting requirements and related shareholder services.

The Trustees considered the quality of the services to be provided by BlackRock, BIMC, BFM and BIL to the Portfolios. The Trustees also evaluated the procedures of BlackRock, BIMC, BFM and BIL designed to fulfill their fiduciary duty to the Portfolios with respect to possible conflicts of interest, including their code of ethics (regulating the personal trading of its officers and employees) (see “—Code of Ethics” below), the procedures by which BlackRock, BIMC, BFM and BIL allocate trades among their various investment advisory clients, the integrity of the systems in place to ensure compliance with the foregoing and the record of BlackRock, BIMC, BFM and BIL in these matters. The Trustees also received information concerning standards of BlackRock, BIMC, BFM and BIL with respect to the execution of portfolio transactions. See “Portfolio Transactions” below.

In approving the Advisory Contracts, the Trustees also gave substantial consideration to the fees payable under the agreements. The Trustees reviewed information concerning fees paid to investment advisers of similar funds. The Trustees also considered the fees of the Portfolios as a percentage of assets at different asset levels and possible economies of scale to BlackRock, BIMC, BFM and BIL. In evaluating the Portfolios’ advisory fees, the Trustees also took into account the complexity of investment management for the Portfolios relative to other types of funds. The Trustees concluded that the fees to be paid pursuant to the Advisory Contracts were fair and reasonable in light of the services provided, the types of Portfolios and fees paid by similar funds.

PNC Bank served as sub-adviser for the Money Market Portfolio from October 4, 1989 (commencement of operations), to January 4, 1996; for the Municipal Money Market Portfolio from September 10, 1993 to January 4, 1996; for the U.S. Treasury Money Market Portfolio from November 1, 1989 (commencement of operations), to January 4, 1996; for the Ohio Municipal Money Market Portfolio from June 1, 1993 (commencement of operations), to January 4, 1996; for the Pennsylvania Municipal Money Market Portfolio from June 1, 1993 (commencement of operations), to January 4, 1996; for the North Carolina Municipal Money Market Portfolio from May 4, 1993 (commencement of operations), to January 4, 1996; for the Virginia Municipal Money Market Portfolio from July 25, 1994 (commencement of operations), to January 4, 1996; and for the New Jersey Municipal Money Market Portfolio from January 13, 1996, to June 6, 1996. From April 4, 1990 (commencement of operations), to January 4, 1996, PNC Bank served as sub-adviser to the Asset Allocation Portfolio. From March 1, 1993, to January 4, 1996, PNC Equity Advisors Company (a predecessor entity of BlackRock) (“PEAC”) served as sub-adviser to the Investment Trust Portfolio. From March 29, 1995, to June 1, 1996, PEAC served as sub-adviser to the Index Equity Portfolio. From July 1, 1996, through December 31, 1996, Morgan Grenfell served as sub-adviser to the International Bond Portfolio.

Under the relevant Advisory Contracts, BlackRock, BIMC, BFM and BIL are not liable for any error of judgment or mistake of law or for any loss suffered by the Fund or a Portfolio in connection with the performance of the Advisory Contracts. Under the Advisory Contracts, BlackRock, BIMC, BFM, BIL and DFA 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 (except the Advisory Contract relating to the Index Master Portfolio) is terminable as to a 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, BIMC, BFM or BIL, as the case may be. BlackRock, BIMC, BFM and BIL may also terminate their advisory relationship with respect to a Portfolio on 60 days’ written notice to the Fund. The Advisory Contract relating to the Index Master Portfolio is terminable by vote of the Trust’s Board of Trustees or by the holders of a majority of the outstanding voting securities of the Index Master Portfolio at any time without penalty on 60 days’ written notice to DFA. DFA may also terminate its advisory relationship with respect to the Index Master Portfolio on 90 days’ written notice to the Trust. Each of the Advisory Contracts terminates automatically in the event of its assignment.

For the period from October 1, 2003, through September 30, 2004 (for the period March 4, 2004, through September 30, 2004, for the Enhanced Income Portfolio, and for the period August 18, 2004, through September 30, 2004, for the Intermediate PLUS Bond Portfolio, and for the period June 28, 2004, through September 30, 2004, for the Inflation Protected Bond Portfolio, and for the period March 3, 2004, through September 30, 2004, for the UltraShort Municipal Portfolio and for the period September 8, 2004, through September 30, 2004, for the Dividend

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Achievers^™ Portfolio), the Fund paid BlackRock advisory fees (after waivers), and BlackRock waived advisory fees and reimbursed expenses, as follows:

Portfolios	Fees Paid (After Waivers)		Waivers		Reimbursements
Money Market	$	5,135,508	$	5,142,094	$	0
U. S. Treasury Money Market		1,005,473		1,493,392		0
Municipal Money Market		1,004,436		1,513,210		0
New Jersey Municipal Money Market		232,248		475,556		0
North Carolina Municipal Money Market		39,272		328,500		0
Ohio Municipal Money Market		210,979		424,920		0
Pennsylvania Municipal Money Market		975,970		1,270,585		0
Virginia Municipal Money Market		0		75,421		7,977
Enhanced Income		0		73,891		83,398
Low Duration Bond		4,690,729		4,289,773		0
Intermediate Government Bond		1,097,362		458,981		0
Intermediate Bond		2,758,239		1,928,329		0
Intermediate PLUS Bond		0		15,174		72,318
Core Bond Total Return		6,538,392		5,211,255		0
Core PLUS Total Return		608,870		793,297		0
Government Income		388,906		568,430		0
Inflation Protected Bond		0		21,113		94,627
Managed Income		3,763,953		608,395		0
GNMA		684,512		881,135		0
International Bond		1,767,793		94,170		0
High Yield Bond		2,191,024		865,521		0
UltraShort Municipal		0		93,894		79,619
Tax-Free Income		1,215,962		903,123		0
Pennsylvania Tax-Free Income		2,981,721		790,267		0
New Jersey Tax-Free Income		662,583		231,134		0
Ohio Tax-Free Income		422,969		170,509		0
Delaware Tax-Free Income		406,572		87,068		0
Kentucky Tax-Free Income		501,110		106,334		0
Large Cap Value Equity		1,422,000		115,217		0
Large Cap Growth Equity		502,721		114,659		0
Dividend Achievers		0		661		62,817
Mid-Cap Value Equity		305,741		6,178		0
Mid-Cap Growth Equity		1,095,761		0		0
Small Cap Value Equity		721,863		34,574		0
Small Cap Core Equity		2,598		47,609		32,212
Small Cap Growth Equity		2,397,602		0		0
U.S. Opportunities		1,167,054		0		0
Global Science & Technology Opportunities		261,799		41,767		0
International Opportunities		2,425,980		118,546		0
Investment Trust		479,146		91,554		19,203
Asset Allocation		650,694		111,760		0

For the period from October 1, 2002, through September 30, 2003, the Fund paid BlackRock advisory fees (after waivers), and BlackRock waived advisory fees and reimbursed expenses, as follows:

Portfolios	Fees Paid (After Waivers)		Waivers		Reimbursements
Money Market	$	6,911,967	$	6,912,046	$	0
U.S. Treasury Money Market		1,282,148		2,318,008		0

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Portfolios	Fees Paid (After Waivers)	Waivers	Reimbursements
Municipal Money Market	1,137,931	2,014,341	0
New Jersey Municipal Money Market	201,914	584,075	0
North Carolina Municipal Money Market	21,885	707,104	0
Ohio Municipal Money Market	179,515	521,228	0
Pennsylvania Municipal Money Market	865,446	1,583,467	0
Virginia Municipal Money Market	1,659	325,965	0
Low Duration Bond	3,025,091	3,190,661	0
Intermediate Government Bond	865,501	851,507	0
Intermediate Bond	2,268,823	1,809,243	0
Core Bond Total Return	5,253,514	4,809,012	0
Core PLUS Total Return	236,405	448,362	0
Government Income	551,823	645,703	0
Managed Income	3,397,073	1,661,407	0
GNMA	769,788	1,007,985	0
International Bond	903,367	0	0
High Yield Bond	1,621,779	620,504	0
Tax-Free Income	1,003,134	858,459	0
Pennsylvania Tax-Free Income	2,659,113	1,805,515	0
New Jersey Tax-Free Income	438,114	366,040	0
Ohio Tax-Free Income	350,868	303,294	0
Delaware Tax-Free Income	291,123	152,995	0
Kentucky Tax-Free Income	481,147	241,241	0
Large Cap Value Equity	1,818,065	488,538	0
Large Cap Growth Equity	801,286	189,689	0
Mid-Cap Value Equity	432,067	23,503	0
Mid-Cap Growth Equity	1,122,299	35,068	0
Small Cap Value Equity	728,977	42,733	0
Small Cap Core Equity	0	9,700	4,163
Small Cap Growth Equity	1,566,909	94,355	0
U.S. Opportunities	1,013,727	62,879	0
Global Science & Technology Opportunities	182,268	80,037	0
International Opportunities	1,171,610	121,595	0
Investment Trust	565,388	202,909	0
Asset Allocation	722,052	164,894	0

For the period from October 1, 2001, through September 30, 2002 (from December 7, 2001, through September 30, 2002, in the case of Core PLUS Total Return Portfolio, and January 2, 2002, through September 30, 2002, in the case of Small Cap Core Equity Portfolio), the Fund paid BlackRock advisory fees (after waivers), and BlackRock waived advisory fees and reimbursed expenses, as follows:

Portfolios	Fees Paid (After Waivers)		Waivers		Reimbursements
Money Market	$	8,274,785	$	7,729,225	$	0
U.S. Treasury Money Market		1,723,625		2,777,685		0
Municipal Money Market		1,238,713		2,099,051		0
New Jersey Municipal Money Market		220,592		562,667		0
North Carolina Municipal Money Market		36,606		578,231		0
Ohio Municipal Money Market		180,071		470,470		0
Pennsylvania Municipal Money Market		1,117,182		1,857,728		0
Virginia Municipal Money Market		0		265,282		0
Low Duration Bond		1,392,862		1,470,012		0
Intermediate Government Bond		962,763		779,737		0

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Portfolios	Fees Paid (After Waivers)	Waivers	Reimbursements
Intermediate Bond	2,735,742	1,935,147	0
Core Bond Total Return	5,034,144	4,180,505	0
Core PLUS Total Return	79,409	213,576	0
Government Income	128,799	188,393	0
Managed Income	4,498,725	1,435,130	0
GNMA	507,127	574,069	0
International Bond	772,312	0	0
High Yield Bond	942,546	376,620	0
Tax-Free Income	1,054,968	783,020	0
Pennsylvania Tax-Free Income	2,963,667	1,816,462	0
New Jersey Tax-Free Income	445,615	337,400	0
Ohio Tax-Free Income	319,067	238,432	0
Delaware Tax-Free Income	300,674	153,209	0
Kentucky Tax-Free Income	546,410	251,834	0
Large Cap Value Equity	6,129,797	575,502	0
Large Cap Growth Equity	2,952,107	262,175	0
Mid-Cap Value Equity	1,550,453	0	0
Mid-Cap Growth Equity	2,907,698	0	0
Small Cap Value Equity	1,879,168	43,425	0
Small Cap Core Equity	0	7,207	51,940
Small Cap Growth Equity	3,974,192	148,693	0
U.S. Opportunities	1,957,395	87,139	0
Global Science & Technology Opportunities	383,877	56,646	0
International Opportunities	1,257,367	133,079	0
Investment Trust	3,236,334	370,981	0
Asset Allocation	1,848,939	92,462	0

With respect to the SSR Funds listed below that reorganized with BlackRock funds, for such SSR Fund’s three most recent fiscal years, such SSR Fund paid State Street Research & Management Company advisory fees:

	Fees Paid For Fiscal Year Ended Payments
Fund	2004		2003		2002
Asset Allocation Fund	$	4,250,653	$	4,180,605	$	4,846,212
Aurora Fund		29,179,140		21,291,705		26,372,557
Emerging Growth Fund		2,550,085		857,754		817,708
Exchange Fund		1,515,452		1,419,580		1,568,988
Global Resources Fund		2,882,773		1,276,075		1,254,667
Health Sciences Fund		361,824		197,394		175,996
Legacy Fund		2,172,192		1,872,758		2,020,997
Mid-Cap Value Fund		3,273,789		2,645,618		2,435,130

For the period from October 1, 2003, through September 30, 2004, BlackRock paid sub-advisory fees to the specified Portfolios’ sub-advisers, after waivers, and such sub-advisers waived sub-advisory fees, as follows:

Portfolios	Fees Paid (After Waivers)		Waivers
Low Duration Bond	$	1,773,897	$	0
Intermediate Bond		1,043,982		0
Intermediate Government Bond		377,481		0
Intermediate PLUS Bond		—		—
Core Bond Total Return		2,479,532		0

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Portfolios	Fees Paid (After Waivers)	Waivers
Core PLUS Total Return	229,889	0
Inflation Protected Bond	—	—
Managed Income	1,324,205	0
Government Income	146,760	0
GNMA	259,192	0
International Bond	671,133	0
High Yield Bond	2,184,019	0
UltraShort Municipal	—	—
Tax-Free Income	460,217	0
Pennsylvania Tax-Free Income	1,041,467	0
New Jersey Tax-Free Income	227,378	0
Ohio Tax-Free Income	145,241	0
Delaware Tax-Free Income	142,947	0
Kentucky Tax-Free Income	176,100	0

For the period from October 1, 2002, through September 30, 2003, BlackRock paid sub-advisory fees to the specified Portfolios’ sub-advisers, after waivers, and such sub-advisers waived sub-advisory fees, as follows:

Portfolios	Fees Paid (After Waivers)		Waivers
Low Duration Bond	$	1,078,862	$	0
Intermediate Bond		832,596		0
Intermediate Government Bond		330,287		0
Core Bond Total Return		1,934,053		0
Core PLUS Total Return		112,372		0
Managed Income		1,288,076		0
Government Income		198,386		0
GNMA		288,944		0
International Bond		335,028		0
High Yield Bond		1,509,797		0
Tax-Free Income		378,167		0
Pennsylvania Tax-Free Income		1,011,468		0
New Jersey Tax-Free Income		165,610		0
Ohio Tax-Free Income		131,240		0
Delaware Tax-Free Income		108,220		0
Kentucky Tax-Free Income		181,141		0

For the period from October 1, 2001, through September 30, 2002 (from December 7, 2001, through September 30, 2002, in the case of Core PLUS Total Return Portfolio), BlackRock paid sub-advisory fees to the specified Portfolios’ sub-advisers, after waivers, and such sub-advisers waived sub-advisory fees, as follows:

Portfolios	Fees Paid (After Waivers)		Waivers
Low Duration Bond	$	524,558	$	0
Intermediate Bond		1,053,854		0
Intermediate Government Bond		365,353		0
Core Bond Total Return		1,930,748		0
Core PLUS Total Return		13,197		0
Managed Income		1,769,623		0
Government Income		48,275		0
GNMA		191,668		0

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Portfolios	Fees Paid (After Waivers)	Waivers
International Bond	293,661	0
High Yield Bond	938,221	0
Tax-Free Income	400,292	0
Pennsylvania Tax-Free Income	1,162,899	0
New Jersey Tax-Free Income	168,986	0
Ohio Tax-Free Income	121,222	0
Delaware Tax-Free Income	112,900	0
Kentucky Tax-Free Income	203,948	0

For the services it provides as investment adviser to the Index Master Portfolio, DFA is paid a monthly fee calculated at the annual rate of .025% of the Index Master Portfolio’s average daily net assets. For the fiscal years ending November 30, 2002, 2003 and 2004, the Index Master Portfolio paid advisory fees to DFA totaling $692,785, $652,087 and $823,267, respectively.

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 each 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 a Portfolio and may voluntarily reimburse the Portfolios for expenses.

Under the Administration Agreement, the Fund pays to BAI and PFPC on behalf of each Portfolio a fee, computed daily and payable monthly, at an aggregate annual rate of (i) .085% of the first $500 million of each Portfolio’s average daily net assets, .075% of the next $500 million of each Portfolio’s average daily net assets and .065% of the average daily net assets of each 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 each Portfolio (.095% with respect to the Money Market Portfolios and .035% with respect to BlackRock Shares), .135% of the next $500 million of such average daily net assets (.085% with respect to the Money Market Portfolios and .025% with respect to BlackRock Shares) and .125% of the average daily net assets allocated to each class of shares of each Portfolio in excess of $1 billion (.075% with respect to the Money Market Portfolios and .015% with respect to BlackRock Shares).

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

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 a 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.

PFPC serves as the administrative services agent for the Index Master Portfolio pursuant to an Administration and Accounting Services Agreement. The services provided by PFPC are subject to supervision by the executive officers and the Board of Trustees of the Trust, and include day-to-day keeping and maintenance of certain records, calculation of the offering price of the shares, preparation of reports and acting as liaison with the Trust’s custodians and dividend and disbursing agent. For these services, PFPC is entitled to compensation from the Index Master Portfolio at the annual rate of .015% of the Index Master Portfolio’s average daily net assets. The Index Equity Portfolio bears its pro rata portion of the Index Master Portfolio’s administrative services expenses.

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For the period from October 1, 2003, through September 30, 2004 (for the period March 4, 2004, through September 30, 2004, for the Enhanced Income Portfolio, and for the period August 18, 2004, through September 30, 2004, for the Intermediate PLUS Bond Portfolio, and for the period June 28, 2004, through September 30, 2004, for the Inflation Protected Bond Portfolio, and for the period March 3, 2004, through September 30, 2004, for the UltraShort Municipal Portfolio and for the period September 8, 2004, through September 30, 2004, for the Dividend Achievers^™ Portfolio), the Fund paid the Administrators combined administration fees (after waivers), and the Administrators waived combined administration fees and reimbursed expenses, as follows:

Portfolios	Fees Paid (After Waivers)		Waivers	Reimbursements
Money Market	$	3,798,896	156,608	$	0
U. S. Treasury Money Market		884,509	106,717		0
Municipal Money Market		937,939	58,026		0
New Jersey Municipal Money Market		246,425	36,696		0
North Carolina Municipal Money Market		115,317	31,792		0
Ohio Municipal Money Market		216,406	37,957		0
Pennsylvania Municipal Money Market		753,916	144,247		0
Virginia Municipal Money Market		7,329	22,839		0
Enhanced Income		5,392	25,264		0
Low Duration Bond		2,841,445	393,389		0
Intermediate Government Bond		467,703	248,188		0
Intermediate Bond		1,447,876	186,262		0
Intermediate PLUS Bond		0	3,642		0
Core Bond Total Return		3,491,016	462,796		0
Core PLUS Total Return		248,786	87,802		0
Government Income		431,800	2,095		0
Inflation Protected Bond		17	6,330		0
Managed Income		1,180,693	769,713		0
GNMA		614,237	15,654		0
International Bond		763,589	3,410		0
High Yield Bond		1,253,961	41,266		0
Ultra Short Municipal		3,195	27,415		0
Tax-Free Income		847,415	42,835		0
Pennsylvania Tax-Free Income		1,030,435	660,347		0
New Jersey Tax-Free Income		246,886	163,901		0
Ohio Tax-Free Income		172,969	100,064		0
Delaware Tax-Free Income		142,436	64,002		0
Kentucky Tax-Free Income		159,811	94,272		0
Large Cap Value Equity		467,222	175,780		0
Large Cap Growth Equity		187,602	706,444		0
Dividend Achievers		0	276		0
Mid-Cap Value Equity		67,151	22,549		0
Mid-Cap Growth Equity		281,127	34,006		0
Small Cap Value Equity		307,855	8,059		0
Small Cap Core Equity		5,308	6,203		0
Small Cap Growth Equity		994,653	6,742		0
U.S. Opportunities		230,141	14,002		0
Global Science & Technology Opportunities		64,392	13,229		0
International Opportunities		469,215	115,595		0
Investment Trust		172,428	66,294		0
Index Equity		1,532,332	1,846,799		0
Asset Allocation		268,815	50,182		0

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For the period from October 1, 2002, through September 30, 2003, the Fund paid the Administrators combined administration fees (after waivers), and the Administrators waived combined administration fees and reimbursed expenses, as follows:

Portfolios	Fees Paid (After Waivers)		Waivers	Reimbursements
Money Market	$	5,154,702	212,941	$	0
U.S. Treasury Money Market		1,378,577	29,100		0
Municipal Money Market		1,240,761	0		0
New Jersey Municipal Money Market		314,397	0		0
North Carolina Municipal Money Market		291,596	0		0
Ohio Municipal Money Market		280,296	0		0
Pennsylvania Municipal Money Market		974,804	0		0
Virginia Municipal Money Market		127,681	3,369		0
Low Duration Bond		2,194,434	240,894		0
Intermediate Government Bond		789,827	0		0
Intermediate Bond		1,361,234	95,379		0
Core Bond Total Return		3,299,634	300,859		0
Core PLUS Total Return		136,977	27,405		0
Government Income		469,726	12,483		0
Managed Income		2,188,766	53,824		0
GNMA		714,937	4,382		0
International Bond		377,590	0		0
High Yield Bond		937,942	13,845		0
Tax-Free Income		856,432	0		0
Pennsylvania Tax-Free Income		1,978,575	3,793		0
New Jersey Tax-Free Income		369,930	0		0
Ohio Tax-Free Income		300,886	0		0
Delaware Tax-Free Income		185,734	0		0
Kentucky Tax-Free Income		302,122	0		0
Large Cap Value Equity		962,857	0		0
Large Cap Growth Equity		414,530	0		0
Mid-Cap Value Equity		131,006	0		0
Mid-Cap Growth Equity		332,812	0		0
Small Cap Value Equity		322,848	0		0
Small Cap Core Equity		0	2,230		0
Small Cap Growth Equity		694,810	0		0
U.S. Opportunities		225,108	0		0
Global Science & Technology Opportunities		67,032	0		0
International Opportunities		297,578	0		0
Investment Trust		321,327	0		0
Index Equity		1,539,175	1,668,278		0
Asset Allocation		370,908	0		0

For the period from October 1, 2001, through September 30, 2002 (from December 7, 2001, through September 30, 2002 in the case of Core PLUS Total Return Portfolio, and January 2, 2002, through September 30, 2002, in the case of Small Cap Core Equity Portfolio), the Fund paid the Administrators combined administration fees (after waivers), and the Administrators waived combined administration fees and reimbursed expenses, as follows:

Portfolios	Fees Paid (After Waivers)		Waivers		Reimbursements
Money Market	$	6,001,604	$	0	$	0
U.S. Treasury Money Market		1,698,457		0		0

107

Portfolios	Fees Paid (After Waivers)	Waivers	Reimbursements
Municipal Money Market	1,286,761	0	0
New Jersey Municipal Money Market	313,303	0	0
North Carolina Municipal Money Market	245,935	0	0
Ohio Municipal Money Market	260,216	0	0
Pennsylvania Municipal Money Market	1,157,746	0	0
Virginia Municipal Money Market	106,113	2,865	0
Low Duration Bond	1,103,009	35,836	0
Intermediate Government Bond	801,550	0	0
Intermediate Bond	1,625,798	87,216	0
Core Bond Total Return	3,380,935	164,506	0
Core PLUS Total Return	71,612	11,461	0
Government Income	145,908	0	0
Managed Income	2,685,173	0	0
GNMA	452,137	0	0
International Bond	332,967	0	0
High Yield Bond	569,625	6,440	0
Tax-Free Income	845,474	0	0
Pennsylvania Tax-Free Income	2,107,654	0	0
New Jersey Tax-Free Income	360,188	0	0
Ohio Tax-Free Income	256,449	0	0
Delaware Tax-Free Income	189,806	0	0
Kentucky Tax-Free Income	333,811	0	0
Large Cap Value Equity	2,657,222	0	0
Large Cap Growth Equity	1,317,009	0	0
Mid-Cap Value Equity	445,755	0	0
Mid-Cap Growth Equity	835,963	0	0
Small Cap Value Equity	803,994	0	0
Small Cap Core Equity	1,658	1,658	0
Small Cap Growth Equity	1,668,197	0	0
U.S. Opportunities	427,493	0	0
Global Science & Technology Opportunities	112,581	0	0
International Opportunities	319,803	0	0
Investment Trust	1,462,630	0	0
Index Equity	3,655,489	0	0
Asset Allocation	810,286	0	0

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.

In addition, pursuant to a Shareholders’ Administrative Services Agreement, BlackRock provides certain shareholder liaison services in connection with the Fund’s investor service center. The Fund reimburses BlackRock for its costs in maintaining the service center, which costs include, among other things, employee salaries, leasehold expenses, and other out-of-pocket expenses.

Pursuant to an agreement between PFPC and BDI, BDI provides assistance and services with respect to various aspects of the Fund’s administrative operations but receives no compensation from the Fund for the provision of such services.

Custodian and Transfer Agency Agreements. Pursuant to the terms of a custodian agreement (the “Custodian Agreement”) between the Fund and PFPC Trust Company (“PTC”), an affiliate of BlackRock, PTC or a sub-custodian (i) maintains a separate account or accounts in the name of each Portfolio, (ii) holds and transfers portfolio securities on account of each Portfolio, (iii) accepts receipts and makes disbursements of money on behalf of each Portfolio, (iv) collects and receives all income and other payments and distributions on account of each Portfolio’s securities and (v) makes periodic reports to the Board of Trustees concerning each 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,

108

provided that, with respect to sub-custodians other than sub-custodians for non-U.S. 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 and has been appointed by the Board of Trustees as the Fund’s “foreign custody manager” under Rule 17f-5 of the 1940 Act. As foreign custody manager, Citibank, N.A. selects and monitors foreign sub-custodian banks and furnishes information relevant to the selection of foreign depositories.

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 as follows: .01% of the first $250 million of each Portfolio’s average gross assets, .009% of the next $250 million of each Portfolio’s average gross assets, .0075% of the next $250 million of each Portfolio’s average gross assets, .007% of the next $250 million of each Portfolio’s average gross assets, .006% of the next $250 million of each Portfolio’s average gross assets and .005% of each Portfolio’s average gross assets in excess of $1.25 billion. PTC is also entitled to out-of-pocket expenses and certain transaction charges. PTC has undertaken to waive its custody fees with respect to the Index Equity Portfolio, which invests substantially all of its assets in the Index Master Portfolio.

PFPC, which has its principal offices at 301 Bellevue Parkway, Wilmington, DE 19809 and is an affiliate of BlackRock, 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 HL, Service, Investor, Institutional and BlackRock classes of shares in each Portfolio, (ii) addresses and mails all communications by each 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 each 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 Investor, HL, Institutional and Service Shares under the Transfer Agency Agreement, PFPC receives fees at the annual rate of .018% of the average net asset value of outstanding shares in each class in each Portfolio, plus per account fees and disbursements. For its services with respect to the Fund’s BlackRock Shares under the Transfer Agency Agreement, PFPC receives fees at the annual rate of .005% of the average net asset value of outstanding BlackRock Shares in each Portfolio, plus per account fees and disbursements.

PTC serves as the Trust’s custodian and PFPC serves as the Trust’s transfer and dividend disbursing agent. The Index Equity Portfolio bears its pro rata portion of the Index Master Portfolio’s custody and transfer and dividend disbursing fees and expenses.

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 each 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 760 Moore Road, King of Prussia, PA 19406. The Distributor is an affiliate of BlackRock.

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 HL Shares, 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 to brokers, dealers, financial institutions and industry professionals (including BlackRock, Hilliard Lyons and their affiliates) (collectively, “Service Organizations”) fees for the provision of personal services to shareholders. Effective July 1, 2004, the Fund eliminated its shareholder processing fee. In the past, BlackRock has retained a portion of the shareholder servicing fees and a significant portion of the shareholder processing fees paid by the Fund. 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

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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 HL Shares and 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 each Portfolio’s outstanding HL Shares or Investor A Shares, as applicable) are used to pay commissions and other fees payable to Service Organizations and other broker/dealers who sell HL Shares and/or 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 each Portfolio’s outstanding Investor B Shares) are intended to cover the expense to the Distributor of paying such up-front commissions, as well as to cover ongoing commission payments to broker/dealers. The contingent deferred sales charge is calculated to charge the investor with any shortfall that would occur if Investor B Shares are redeemed prior to the expiration of the conversion period, after which Investor B Shares automatically convert to Investor A Shares.

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

The Fund is not required or permitted under the Plan to make distribution payments with respect to Service, Institutional or BlackRock Shares. However, the Plan permits BDI, BlackRock, PFPC, their affiliates 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 (and not as an additional charge to the Portfolios). BDI, 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 and its shareholders. 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. These Additional Payments may take the form of, among other things, “due diligence” payments for a dealer’s examination of the Portfolios and payments for providing extra employee training and information relating to Portfolios; “listing” fees for the placement of the Portfolios 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; payments for the sale of shares and/or the maintenance of share balances; CUSIP fees; maintenance fees and set-up fees regarding the establishment of new accounts. In addition, BDI, 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 fees paid by the Fund. The Additional Payments made by BDI, 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. The Additional Payments described above are made from BDI’s, BlackRock’s, PFPC’s or their affiliates’ own assets pursuant to agreements with brokers and do not change the price paid by investors for the purchase of the Fund’s shares or the amount the Fund will receive as proceeds from such sales.

Additional Payments may be made, at the discretion of BDI, BlackRock, PFPC or their affiliates to financial firms that sell shares of the Fund. As of the date of this Statement of Additional Information, BDI, BlackRock and PFPC anticipate that the firms that will receive the Additional Payments described above for distribution services and/or educational support include: Citigroup, Fidelity, Merrill Lynch, MetLife and UBS. The level

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of payments made to a financial firm in any year will vary and normally will not exceed the sum of (a) 0.25% of such year’s Fund sales by that financial firm and (b) 0.12% of the assets attributable to that financial firm invested in equity portfolios of the Fund and 0.10% of the assets invested in fixed-income portfolios of the Fund. In lieu of payments pursuant to the foregoing formula, BDI, BlackRock, PFPC or their affiliates may make payments of an agreed upon amount which will not exceed the amount that would have been payable pursuant to the formula.

If investment advisers, distributors or affiliates of mutual funds pay bonuses and incentives in differing amounts, financial firms and their financial consultants may have financial incentives for recommending a particular mutual fund over other mutual funds. In addition, depending on the arrangements in place at any particular time, a financial firm and its financial consultants may also have a financial incentive for recommending a particular share class over other share classes. You should consult your financial advisor and review carefully any disclosure by the financial firm as to compensation received by your financial advisor for more information about Additional Payments.

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. Subject to applicable NASD regulations, the Distributor, BlackRock and their affiliates may also (i) 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, (ii) sponsor speakers, educational seminars and charitable events and (iii) provide other sales and marketing conferences and other resources to broker/dealers, financial institutions and their salespersons.

BlackRock, Inc., the parent company of BAI, has agreed to pay PNC Bank, National Association and PNC Bank, Delaware (including Hilliard Lyons Asset Management, Wealth Management, Hawthorn and Institutional Investment Group) fees for administration and servicing with respect to assets of the Fund attributable to shares held by customers of such entities. These assets are predominantly in the Institutional Share Class of the Funds, with respect to which the Fund does not pay shareholder servicing and shareholder providing fees under the Plan. The fees are paid according to the following schedule: Money Market Portfolios -.15% of net assets; Bond Portfolios -.20% of net assets (except that with respect to the Enhanced Income, UltraShort Municipal and Inflation Protected Bond Portfolios, the fee is .05% of net assets); and Equity Portfolios -.25% of net assets (except that with respect to the Index Equity Portfolio, the fee is .04% of net assets).

Service Organizations may charge their clients additional fees for account-related services. Service Organizations may charge their customers a processing or service fee in connection with the purchase or redemption of Fund shares. The amount and applicability of such a fee is determined and disclosed to its customers by each individual Service Organization. Processing or service fees typically are fixed, nominal dollar amounts and are in addition to the sales and other charges described in the Prospectuses and this Statement of Additional Information. Your Service Organization will provide you with specific information about any processing or service fees you will be charged.

Pursuant to the Plan, the Fund enters 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 BlackRock Shares of the Small Cap Value Equity Portfolio, and HL Shares, Service, Investor A, Investor B and Investor C Shares of all Portfolios. 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 BlackRock Shares of the Small Cap Value Equity Portfolio, and HL Shares, Service Shares, Investor A, Investor B and Investor C Shares of all Portfolios owned beneficially 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.

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To the extent a shareholder is not associated with a Service Organization, the shareholder servicing fees will be paid to BlackRock, and BlackRock will provide services. For the fiscal year ended September 30, 2004, BlackRock retained an aggregate of $74,410.62, $241,771.32 and $1,777,261.96 in distribution, shareholder servicing and shareholder processing fees, respectively.

For the twelve months ended September 30, 2004, the Portfolios’ share classes bore the following distribution, shareholder servicing and shareholder processing fees under the Plan:

Portfolios - BlackRock Shares	Net Distribution Fees	Distribution Waivers	Net Shareholder Servicing Fees	Shareholder Servicing Waivers	Net Shareholder Processing Fees	Shareholder Processing Waivers
Small Cap Value Equity	N/A	N/A	1,043	—	N/A	—
Portfolios – Hilliard Lyons Shares	Net Distribution Fees	Distribution Waivers	Net Shareholder Servicing Fees	Shareholder Servicing Waivers	Net Shareholder Processing Fees	Shareholder Processing Waivers
Money Market	—	131,406	328,910	—	153,788	—
Municipal Money Market	—	141,353	—	353,384	162,056	478
Portfolios – Investor A Shares	Net Distribution Fees	Distribution Waivers	Net Shareholder Servicing Fees	Shareholder Servicing Waivers	Net Shareholder Processing Fees	Shareholder Processing Waivers
Money Market	—	406,854	1,016,216	—	453,890	—
U. S. Treasury Money Market	—	46,352	115,793	—	52,463	—
Municipal Money Market	—	6,591	16,476	—	231	7,222
New Jersey Municipal Money Market	—	14,454	36,192	—	478	16,403
North Carolina Municipal Money Market	—	331	828	—	—	376
Ohio Municipal Money Market	—	26,269	65,570	—	28,454	—
Pennsylvania Municipal Money Market	—	35,557	88,393	—	—	40,726
Virginia Municipal Money Market	N/A	N/A	N/A	N/A	N/A	N/A
Low Duration Bond	1,185	98,861	251,106	—	117,305	—
Intermediate Government Bond	605	51,702	131,843	—	60,282	—
Intermediate Bond	440	39,636	100,200	—	45,773	—
Core Bond Total Return	1,315	126,698	322,408	—	142,673	—
Core PLUS Total Return	—	8	21	—	10	—
Government Income	949	107,471	273,130	—	117,943	—
Managed Income	546	42,597	107,803	—	50,085	—
GNMA	223	19,082	48,501	—	22,209	—
International Bond	945	104,722	264,390	—	112,626	—
High Yield Bond	903	71,127	180,692	—	82,911	—
Enhanced Income	—	—	—	—	—	—
Inflation Protected Bond	—	8	20	—	—	—

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Portfolios – Investor A Shares	Net Distribution Fees	Distribution Waivers	Net Shareholder Servicing Fees	Shareholder Servicing Waivers	Net Shareholder Processing Fees	Shareholder Processing Waivers
Intermediate Plus	—	—	—	—	—	—
Tax-Free Income PLUS Bond	30	7,873	20,356	—	9,275	—
Pennsylvania Tax-Free Income	407	34,454	88,767	—	40,459	—
New Jersey Tax-Free Income	64	5,868	14,853	—	6,627	—
Ohio Tax-Free Income	74	5,358	14,037	—	6,573	—
Delaware Tax-Free Income	106	15,079	27,676	—	11,893	—
Kentucky Tax-Free Income	55	5,315	13,393	—	5,936	—
UltraShort Municipal	—	—	—	—	—	—
Large Cap Value Equity	757	63,888	148,182	—	66,242	—
Large Cap Growth Equity	328	24,550	62,863	—	30,000	—
Mid-Cap Value Equity	46	4,235	10,408	—	4,917	—
Mid-Cap Growth Equity	296	28,475	74,536	—	33,553	—
Small Cap Value Equity	465	39,380	100,964	—	46,663	—
Small Cap Growth Equity	1,320	129,014	328,202	—	144,899	—
Small Cap Core Equity	4	1,690	4,221	—	1,504	—
U.S. Opportunities Equity	342	31,959	82,961	—	38,102	—
Global Science and Technology Opp. Equity	140	11,755	30,762	—	14,741	—
International Opportunities Equity	493	72,522	183,191	—	73,839	—
Investment Trust	206	19,203	48,205	—	22,115	—
Index Equity	4,269	307,441	767,303	—	385,063	—
Asset Allocation	911	76,367	194,898	—	91,891	—

Portfolios – Investor B Shares	Net Distribution Fees	Distribution Waivers	Net Shareholder Servicing Fees	Shareholder Servicing Waivers	Net Shareholder Processing Fees	Shareholder Processing Waivers
Money Market	72,634	—	219	24,191	5	11,375
U. S. Treasury Money Market	—	—	—	—	—	—
Municipal Money Market	—	—	—	—	—	—
New Jersey Municipal Money Market	—	—	—	—	—	—
North Carolina Municipal Money Market	—	—	—	—	—	—
Ohio Municipal Money Market	—	—	—	—	—	—
Pennsylvania Municipal Money Market	—	—	—	—	—	—
Virginia Municipal Money Market	—	—	—	—	—	—
Low Duration Bond	560,018	—	186,652	—	86,009	—
Intermediate Government Bond	92,777	—	31,022	—	14,118	—
Intermediate Bond	103,887	—	34,618	—	15,551	—
Core Bond Total Return	472,887	—	157,548	—	72,801	—
Core PLUS Total Return	603	—	201	—	86	—
Government Income	370,353	—	123,699	—	57,169	—
Managed Income	73,645	—	24,557	—	11,237	—
GNMA	226,242	—	75,424	—	35,079	—
International Bond	115,131	—	38,422	—	16,885	—
High Yield Bond	785,156	—	261,535	—	122,195	—
Enhanced Income	—	—	—	—	—	—
Inflation Protected Bond	26	—	9	—	—	—
Intermediate PLUS Bond	—	—	—	—	—	—
Tax-Free Income	49,450	—	16,384	—	7,616	—
Pennsylvania Tax-Free Income	164,923	—	50,650	—	20,638	—

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Portfolios – Investor B Shares	Net Distribution Fees	Distribution Waivers	Net Shareholder Servicing Fees	Shareholder Servicing Waivers	Net Shareholder Processing Fees	Shareholder Processing Waivers
New Jersey Tax-Free Income	91,422	—	30,338	—	13,833	—
Ohio Tax-Free Income	78,735	—	26,293	—	11,832	—
Delaware Tax-Free Income	64,121	—	21,363	—	9,580	—
Kentucky Tax-Free Income	29,678	—	9,916	—	4,436	—
UltraShort Municipal	—	—	—	—	—	—
Large Cap Value Equity	150,098	—	47,551	—	21,590	—
Large Cap Growth Equity	109,883	—	36,695	—	17,044	—
Mid-Cap Value Equity	57,922	—	19,194	—	8,755	—
Mid-Cap Growth Equity	275,322	—	92,479	—	42,748	—
Small Cap Value Equity	121,243	—	41,953	—	19,145	—
Small Cap Growth Equity	206,974	—	69,152	—	32,408	—
Small Cap Core Equity	8,106	—	1,442	—	492	—
U.S. Opportunities Equity	332,450	—	112,488	—	52,112	—
Global Science and Technology Opp. Equity	119,879	—	40,018	—	19,358	—
International Opportunities Equity	319,564	—	106,719	—	47,498	—
Investment Trust	165,625	—	55,405	—	25,349	—
Index Equity	1,494,836	—	496,879	—	228,918	—
Asset Allocation	318,481	—	105,790	—	47,894	—

Portfolios – Investor C Shares	Net Distribution Fees	Distribution Waivers	Net Shareholder Servicing Fees	Shareholder Servicing Waivers	Net Shareholder Processing Fees	Shareholder Processing Waivers
Money Market	8,459	—	—	24,191	—	1,356
U. S. Treasury Money Market	—	—	—	—	—	—
Municipal Money Market	—	—	—	—	—	—
New Jersey Municipal Money Market	—	—	—	—	—	—
North Carolina Municipal Money Market	—	—	—	—	—	—
Ohio Municipal Money Market	—	—	—	—	—	—
Pennsylvania Municipal Money Market	—	—	—	—	—	—
Virginia Municipal Money Market	—	—	—	—	—	—
Low Duration Bond	1,166,910	—	388,974	—	183,636	—
Intermediate Government Bond	122,758	—	40,917	—	19,107	—
Intermediate Bond	110,698	—	36,899	—	16,726	—
Core Bond Total Return	659,113	—	219,700	—	99,262	—
Core PLUS Total Return						—
Government Income	206,303	—	68,375	—	31,324	—
Managed Income	6,168	—	2,056	—	912	—
GNMA	353,908	—	117,968	—	54,776	—
International Bond	212,671	—	70,898	—	29,380	—
High Yield Bond	550,918	—	181,759	—	84,946	—
Enhanced Income	—	—	—	—	—	—
Inflation Protected Bond	1	—	—	—	—	—
Intermediate PLUS Bond	—	—	—	—	—	—
Tax-Free Income	25,544	—	8,590	—	3,700	—
Pennsylvania Tax-Free Income	15,309	—	5,103	—	2,373	—
New Jersey Tax-Free Income	19,620	—	6,536	—	2,729	—
Ohio Tax-Free Income	41,270	—	13,757	—	6,204	—
Delaware Tax-Free Income	112,703	—	37,567	—	16,962	—

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Portfolios – Investor C Shares	Net Distribution Fees	Distribution Waivers	Net Shareholder Servicing Fees	Shareholder Servicing Waivers	Net Shareholder Processing Fees	Shareholder Processing Waivers
Kentucky Tax-Free Income	9,808	—	3,269	—	1,448	—
UltraShort Municipal						—
Large Cap Value Equity	45,964	—	15,446	—	6,866	—
Large Cap Growth Equity	21,030	—	7,008	—	3,162	—
Mid-Cap Value Equity	18,106	—	6,009	—	2,679	—
Mid-Cap Growth Equity	100,159	—	33,351	—	15,604	—
Small Cap Value Equity	50,262	—	16,751	—	7,543	—
Small Cap Growth Equity	112,829	—	37,607	—	17,228	—
Small Cap Core Equity	4,328	—	2,702	—	634	—
U.S. Opportunities Equity	169,265	—	56,312	—	26,167	—
Global Science and Technology Opp. Equity	30,661	—	10,205	—	4,338	—
International Opportunities Equity	340,641	—	113,485	—	48,187	—
Investment Trust	16,009	—	5,329	—	2,279	—
Index Equity	2,327,323	—	778,546	—	354,937	—
Asset Allocation	38,200	—	12,753	—	5,732	—

Portfolios – Service Shares	Net Distribution Fees	Net Shareholder Servicing Fees	Shareholder Servicing Waivers	Net Shareholder Processing Fees	Shareholder Processing Waivers
New Jersey Municipal Money Market	N/A	109,381	—	70,676	—
North Carolina Municipal Money Market	N/A	351	—	217	—
Ohio Municipal Money Market	N/A	28,696	—	19,086	—
Pennsylvania Municipal Money Market	N/A	65,075	—	43,968	—
Virginia Municipal Money Market	N/A	—	968	645	323
Low Duration Bond	N/A	534,735	—	321,798	—
Intermediate Government Bond	N/A	1,924	—	1,189	—
Intermediate Bond	N/A	126,676	—	75,585	—
Core Bond Total Return	N/A	252,245	—	157,890	—
Core PLUS Total Return	N/A	18	—	—	—
Government Income	N/A	—	—	—	—
Managed Income	N/A	150,427	—	99,372	—
GNMA	N/A	3,410	—	2,053	—
International Bond	N/A	125,492	—	76,667	—
High Yield Bond	N/A	180,971	—	114,189	—
Enhanced Income	N/A	—	—	—	—
Inflation Protected Bond	N/A	—	—	—	—
Intermediate PLUS Bond	N/A	—	—	—	—
Tax - Free Income	N/A	4,577	—	2,864	—
Pennsylvania Tax-Free Income	N/A	10,681	—	6,679	—
New Jersey Tax-Free Income	N/A	27,325	—	17,286	—
Ohio Tax-Free Income	N/A	667	—	259	—
Delaware Tax-Free Income	N/A	—	—	—	—
Kentucky Tax-Free Income	N/A	333	—	176	—
UltraShort Municipal	N/A	—	—	—	—
Large Cap Value Equity	N/A	100,042	—	71,674	—
Large Cap Growth Equity	N/A	61,766	—	42,321	—
Mid-Cap Value Equity	N/A	7,840	—	5,491	—
Mid-Cap Growth Equity	N/A	22,537	—	15,472	—

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Portfolios – Service Shares	Net Distribution Fees	Net Shareholder Servicing Fees	Shareholder Servicing Waivers	Net Shareholder Processing Fees	Shareholder Processing Waivers
Small Cap Value Equity	N/A	7,049	—	4,906	—
Small Cap Growth Equity	N/A	52,504	—	33,632	—
Small Cap Core Equity	N/A	—	—	—	—
U.S. Opportunities Equity	N/A	3,406	—	392	—
Global Science and Technology Opp. Equity	N/A	182	—	124	—
International Equity	N/A	13,178	—	10,288	—
International Opportunities Equity	N/A	18,751	—	8,383	—
Investment Trust	N/A	2,776	—	1,715	—
Index Equity	N/A	152,414	—	102,345	—
Asset Allocation	N/A	3,835	—	2,433	—

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

Proxy Voting Policies. The Fund has delegated proxy voting responsibilities to BlackRock and its affiliates, subject to the general oversight of the Fund’s Board of Trustees. The Fund expects BlackRock and its affiliates to vote proxies related to the Fund’s portfolio securities for which the Fund has voting authority consistent with the Fund’s best interests. BlackRock has adopted its own proxy voting policies (the “Proxy Voting Policy”) to be used in voting the Fund’s proxies, which are summarized below.

BlackRock recognizes that implicit in the initial decision to retain or invest in the security of a corporation is approval of its existing corporate ownership structure, its management, and its operations. Accordingly, proxy proposals that would change the existing status of a corporation are reviewed carefully and supported only when it seems clear that the proposed changes are likely to benefit the corporation and its shareholders. Notwithstanding this favorable predisposition, BlackRock assesses management on an ongoing basis both in terms of its business capability and its dedication to the shareholders to ensure that BlackRock’s continued confidence remains warranted. If BlackRock determines that management is acting on its own behalf instead of for the well being of the corporation, it will vote to support the shareholder.

BlackRock’s proxy voting policy and its attendant recommendations attempt to generalize a complex subject. Specific fact situations, including differing voting practices in jurisdictions outside the United States, might warrant departure from these guidelines. With respect to voting proxies of non-U.S. companies, a number of logistical problems may arise that may have a detrimental effect on BlackRock’s ability to vote such proxies in the best interests of the Fund. Accordingly, BlackRock may determine not to vote proxies if it believes that the restrictions or other detriments associated with such vote outweigh the benefits that will be derived by voting on the company’s proposal.

Additionally, situations may arise that involve an actual or perceived conflict of interest. For example, BlackRock may manage assets of a pension plan of a company whose management is soliciting proxies, or a BlackRock employee may have a close relative who serves as a director or executive of a company that is soliciting proxies. BlackRock’s policy in all cases is to vote proxies based on its clients’ best interests and not the product of the conflict.

BlackRock has engaged Institutional Shareholder Services (“ISS”) to assist it in the voting of proxies. ISS analyzes all proxy solicitations BlackRock receives for its clients and advises BlackRock how, based upon BlackRock’s guidelines, the relevant votes should be cast.

Below is a summary of some of the procedures described in the Proxy Voting Policy.

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Routine Matters. BlackRock will generally support routine proxy proposals, amendments, or resolutions if they do not measurably change the structure, management control, or operation of the issuer and they are consistent with industry standards as well as the corporate laws of the state of incorporation of the issuer.

Social Issues. If BlackRock has determined that management is generally socially responsible, it will generally vote against social issue proposals, which are generally proposed by shareholders who believe that the corporation’s internally adopted policies are ill-advised or misguided.

Financial/Corporate Issues. BlackRock will generally vote in favor of proposals that seek to change a corporation’s legal, business or financial structure provided the position of current shareholders is preserved or enhanced.

Shareholder Rights. Proposals in this category are made regularly both by management and shareholders. They can be generalized as involving issues that transfer or realign board or shareholder voting power. BlackRock will generally oppose any proposal aimed solely at thwarting potential takeover offers by requiring, for example, super-majority approval. At the same time it believes stability and continuity promote profitability. Individual proposals may have to be carefully assessed in the context of their particular circumstances.

Copies of the proxy voting record of the Portfolios are available without charge, upon request, by calling 1-800-699-1236 and are posted on the Commission’s website at http://www.sec.gov and reflect the twelve-month period beginning July 1 and ending June 30.

In the case of the Trust, the Board of Trustees has delegated the authority to vote proxies for the portfolio securities held by the Index Master Portfolio to DFA in accordance with the Proxy Voting Policies and Procedures (the “Voting Policies”) and Proxy Voting Guidelines (“Voting Guidelines”) adopted by DFA.

The Investment Committee at DFA is generally responsible for overseeing DFA’s proxy voting process. The Investment Committee may designate one or more of its members to oversee specific, on going compliance with respect to the Voting Policies and may designate other personnel of DFA to vote proxies on behalf of the Index Master Portfolio, including all authorized traders of DFA.

DFA votes proxies in a manner consistent with the best interests of the Index Master Portfolio. Generally, DFA analyzes proxy statements on behalf of the Index Master Portfolio in accordance with the Voting Policies and the Voting Guidelines. Most proxies that DFA receives will be voted in accordance with the predetermined Voting Guidelines. Since nearly all proxies are voted in accordance with the Voting Guidelines, it normally will not be necessary for DFA to make an actual determination of how to vote a particular proxy, thereby largely eliminating conflicts of interest for DFA during the proxy voting process. However, the Proxy Policies do address the procedures to be followed if a conflict of interest arises between the interests of the Index Master Portfolio and the interests of DFA or its affiliates. If an Investment Committee member has actual knowledge of a conflict of interest and recommends a vote contrary to the Voting Guidelines, DFA, prior to voting, will fully disclose the conflict to a disinterested Trustee of the Trust and vote the proxy in accordance with the direction of such disinterested Trustee.

The Voting Guidelines summarize DFA’s positions on various issues and give a general indication as to how DFA will vote proxies on each issue. DFA will usually vote proxies in accordance with the Voting Guidelines. However, DFA reserves the right to vote certain issues counter to the Voting Guidelines if, after a review of the matter (which analysis will be documented in writing), DFA believes that the Index Master Portfolio’s best interests would be served by such vote. To the extent that the Voting Guidelines do not address a potential voting issue DFA will vote on such issue in a manner that is consistent with the spirit of the Voting Guidelines and that DFA believes would be in the best interest in the Index Master Portfolio. Pursuant to the Voting Guidelines DFA generally votes FOR matters such as: (i) routine business decisions (such as stock splits, name changes and setting the number of directors); (ii) reverse anti-takeover amendments; (iii) auditors; (iv) directors; (v) proposals establishing or increasing indemnification of directors; (vi) proposals eliminating or reducing director’s liability; (vii) equal access to the proxy; (viii) the right to act by written consent of shareholders and to hold special meetings of shareholders; (ix) the separation of audit and consulting responsibilities; and (x) confidential voting. As provided in the Voting Guidelines, DFA generally votes AGAINST matters such as: (i) anti-takeover measures (such as reincorporation to facilitate a takeover defense, adoption of fair price amendments, institution of classified boards of directors,

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elimination of cumulative voting and creation of a super majority provisions); (ii) the issuance of a new class of stock with unequal voting rights; (iii) blank check preferred stock proposals; (iv) other employee compensation plans; and (v) various shareholder amendments. The Voting Guidelines also provide that DFA will generally consider on an individual basis such proposals as: (i) increasing authorized common stock; (ii) establishing or increasing a stock option plan or other employee compensation plan; (iii) approving a reorganization or merger; (iv) approving a proposal by a dissident shareholder in a proxy battle and (v) issues related to independent directors.

Under certain circumstances, DFA may not be able to vote proxies or DFA may find that the expected economic costs from voting outweigh the benefits associated with voting. Generally DFA may not vote proxies on non-U.S. securities due to local restrictions, customs or anticipated expenses.

Copies of the proxy voting record of the Index Master Portfolio are available without charge, upon request, by calling collect: (310) 395-8005 and are posted on the Commission’s website at http://www.sec.gov and reflect the twelve-month period beginning July 1, 2003 and ending June 30, 2004.

Disclosure of Portfolio Holdings. The Board of Trustees and BlackRock have each approved Portfolio Information Distribution Guidelines (the “Guidelines”) regarding the disclosure of the Fund’s portfolio securities and other portfolio information. The purpose of the Guidelines is to ensure that (i) shareholders and prospective shareholders of the Fund have equal access to portfolio holdings and characteristics and (ii) third parties (such as consultants, intermediaries and third party data providers) receive such information no more frequently than shareholders and prospective shareholders.

Asset and Return Information. Data on NAV’s, asset levels (by total Portfolio and share class), accruals, yields, capital gains, dividends and Portfolio returns (net of fees by share class) are available to shareholders, prospective shareholders, consultants, intermediaries and third party data providers upon request, as soon as such data is available. Data on number of shareholders (total and by share class) and benchmark returns (including performance measures such as standard deviation, information ratio, Sharpe ratio, alpha, and beta) are available to shareholders, prospective shareholders, consultants, intermediaries and third party data providers as soon as such data is released after month-end.

Portfolio Characteristics. Examples of portfolio characteristics include sector allocation, credit quality breakdown, maturity distribution, duration and convexity measures, average credit quality, average maturity, average coupon, top 10 holdings with percent of the Portfolio held, average market capitalization, capitalization range, ROE, P/E, P/B, P/CF, P/S and EPS.

1. Month-end portfolio characteristics are available to shareholders, prospective shareholders, intermediaries and consultants on the fifth calendar day after month-end.⁶

2. Fund Fact Sheets, which contain certain portfolio characteristics, are available to shareholders, prospective shareholders, intermediaries and consultants on a quarterly basis and will be posted to the Fund’s website immediately upon becoming available.

Portfolio Holdings. In addition to position description, portfolio holdings may also include ticker if equity, face amount or quantity, CUSIP or SEDOL, market value, market price, yield, weighted average life, duration and convexity of each security in a Portfolio as of a specific date.

1. Month-end portfolio holdings are available to shareholders, prospective shareholders, intermediaries and consultants on the 20^th calendar day after month-end.⁶

2. Quarter-end portfolio holdings are available to third party data providers (e.g., Lipper, Morningstar, Bloomberg, Thomson and S&P) on the 20^th calendar day after quarter-end.⁶

⁶ The precise number of days specified above may vary slightly from period to period depending on whether the fifth or the 20^th calendar day falls on a weekend or holiday

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Other Information. To the extent other Fund information such as attribution analyses or security-specific information (e.g., information about Portfolio holdings where an issuer has been downgraded, been acquired or declared bankruptcy) is provided on an individual basis, such information shall also be made available to existing and prospective shareholders through the Fund’s website. The executive officers of the Fund may authorize disclosure of the Fund’s portfolio securities and other portfolio information.

Implementation. All Fund and BlackRock employees must adhere to the Guidelines when responding to inquiries from shareholders, prospective shareholders, consultants, intermediaries and third party data providers. With respect to requests for portfolio information, BlackRock maintains a request log that is reviewed regularly. The Fund’s Chief Compliance Officer (“CCO”) is responsible for oversight of compliance with the Guidelines and will recommend to the Board of Trustees any changes to the Guidelines that he deems necessary or appropriate to ensure the Fund’s and BlackRock’s compliance.

Ongoing Arrangements. As of January 31, 2005, the Fund has ongoing arrangements with the following entities to make available portfolio holdings information:

1. PFPC Trust Company pursuant to the Fund’s Amended and Restated Custodian Agreement under which the Fund’s portfolio holdings information is provided daily on a real-time basis.

2. PFPC Inc. pursuant to the Fund’s Amended and Restated Administration Agreement under which the Fund’s portfolio holdings information is provided daily on a real-time basis.

3. Deloitte & Touche LLP, the Fund’s independent registered public accountant, whereby the Fund’s portfolio holdings information is provided in connection with the preparation of the Fund’s semi-annual and annual financial statements.

With respect to each such arrangement, the Fund has a legitimate business purpose for the release of information. The release of the information is subject to confidential treatment to prohibit the entity from sharing with an unauthorized source or trading upon the information provided. The Fund, BlackRock and their affiliates do not receive any compensation or other consideration in connection with such arrangements.

Disclosure by the Index Master Portfolio. DFA and the Board of Trustees of the Trust Company (the “Trust’s Board”) have adopted a policy (the “Policy”) to govern disclosure of the portfolio holdings of the Index Master Portfolio (“Holdings Information”), and to prevent the misuse of material non-public Holdings Information. DFA has determined that the Policy and its procedures (1) are reasonably designed to ensure that disclosure of Holdings Information is in the best interests of the shareholders of the Index Master Portfolio, and (2) appropriately address the potential for material conflicts of interest.

Disclosure of Holdings Information as Required by Applicable Law. Holdings Information (whether a partial listing of portfolio holdings or a complete listing of portfolio holdings) shall be disclosed to any person as required by applicable law, rules and regulations.

Online Disclosure of Portfolio Holdings Information. The Index Master Portfolio generally discloses its ten largest portfolio holdings and the percentages that each of these ten largest portfolio holdings represent of the Index Master Portfolio’s total assets (collectively, “ten largest holdings”), as of the most recent calendar quarter-end, online at DFA’s public website, www.dfaus.com, 30 calendar days after the end of each calendar quarter. This online disclosure may also include information regarding the Index Master Portfolio’s industry allocations.

The Index Master Portfolio generally discloses its complete Holdings Information (other than cash and cash equivalents), as of month-end, online at DFA’s public website, www.dfaus.com, three months following the month-end.

Disclosure of Holdings Information to Recipients. Each of DFA’s Chairmen, Director of Global Institutional Services, Executive Vice President and General Counsel (together, the “Designated Persons”) may authorize disclosing non-public Holdings Information more frequently or at different periods than as described

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above solely to those financial advisors, registered accountholders, authorized consultants, authorized custodians, or third-party data service providers (each a “Recipient”) who: (1) specifically request the more current non-public Holdings Information, and (2) execute a Use and Nondisclosure Agreement (each a “Nondisclosure Agreement). Each Nondisclosure Agreement subjects the Recipient to a duty of confidentiality with respect to the non-public Holdings Information, and prohibits the Recipient from trading based on the non-public Holdings Information. Any non-public Holdings Information that is disclosed shall not include any material information about the Index Master Portfolio’s trading strategies or pending portfolio transactions.

As of January 12, 2005, DFA and the Trust had ongoing arrangements with the following Recipients to make available non-public Holdings Information relating to the Index Master Portfolio. The non-public Holdings Information provided to Recipients under the non-disclosure Agreements is not subject to a time delay before dissemination.

Recipient	Business Purpose	Frequency
PFPC Trust Company	Index Master Portfolio Custodian	Daily
PFPC Inc.	Index Master Portfolio Transfer Agent	Daily
BlackRock Advisors, Inc.	Administering the Index Equity Portfolio	Quarterly
Evaluation Associates LLC	Monitoring and evaluating DFA and exposure-risk control	Quarterly
Fincom Technologies, LLC	Monitoring and evaluating DFA and exposure-risk control	Quarterly
Northern Trust Company	Monitoring DFA and exposure-risk control	Upon request
Bank of New York	Monitoring DFA and exposure-risk control	Upon request
Consulting Services Group LLC	Evaluation of DFA	Upon request
CTC Consulting Inc.	Evaluation of DFA	Upon request
Finance-Doc AG	Evaluation of DFA	Upon request
RBS Asset Management Ltd.	Evaluation of DFA	Upon request
Segal Advisors, Inc.	Evaluation of DFA	Upon request

In addition, certain employees of DFA and its subsidiaries receive Holdings Information on a quarterly, monthly or daily basis, or upon request, in order to perform their business functions. None of the Index Master Portfolio, DFA or any other party receives any compensation in connection with these arrangements.

The Policy includes the following procedures to ensure that disclosure of Holdings Information is in the best interests of shareholders, and to address any conflicts between the interests of shareholders, on the one hand, and the interests of DFA, DFAS or any affiliated person of the Trust, DFA or DFAS, on the other. In order to protect the interests of shareholders of the Index Master Portfolio, and to ensure no adverse effect on shareholders, in the limited circumstances where a Designated Person is considering making non-public Holdings Information available to a Recipient, DFA’s Director of Global Institutional Services and the Chief Compliance Officer of the Trust will consider any conflicts of interest. If the Chief Compliance Officer, following appropriate due diligence, determines that (1) the Index Master Portfolio has a legitimate business purpose for providing the non-public Holdings Information to a Recipient, and (2) disclosure of non-public Holdings Information to the Recipient would be in the best interests of shareholders and will not adversely affect the shareholders, then the Chief Compliance Officer may approve the proposed disclosure.

The Chief Compliance Officer documents all disclosures of non-public Holdings Information (including the legitimate business purpose for the disclosure), and periodically reports to the Trust’s Board on such

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arrangements. The Chief Compliance Officer is also responsible for ongoing monitoring of the distribution and use of non-public Holdings Information. Such arrangements are reviewed by the Chief Compliance Officer on an annual basis. Specifically, the Chief Compliance Officer requests an annual certification from each Recipient that the Recipient has complied with all terms contained in the Nondisclosure Agreement. Recipients who fail to provide the requested certifications are prohibited from receiving non-public Holdings Information.

The Trust’s Board exercises continuing oversight of the disclosure of Holdings Information by: (1) overseeing the implementation and enforcement of the Policy by the Chief Compliance Officer of DFA and of the Trust; (2) considering reports and recommendations by the Chief Compliance Officer concerning the implementation of the Policy and any material compliance matters that may arise in connection with the Policy; and (3) considering whether to approve or ratify any amendments to the Policy. DFA and the Trust’s Board reserve the right to amend the Policy at any time, and from time to time without prior notice, in their sole discretion.

Prohibitions on Disclosure of Portfolio Holdings and Receipt of Compensation. No person is authorized to disclose Holdings Information or other investment positions (whether online at www.dfaus.com, in writing, by fax, by e-mail, orally or by other means) except in accordance with the Policy. In addition, no person is authorized to make disclosure pursuant to the Policy if such disclosure is otherwise in violation of the antifraud provisions of the federal securities laws.

The Policy prohibits the Index Master Portfolio, DFA or an affiliate thereof from receiving any compensation or other consideration of any type for the purpose of obtaining disclosure of non-public Holdings Information or other investment positions. “Consideration” includes any agreement to maintain assets in the Index Master Portfolio or in other investment companies or accounts managed by DFA or by any affiliated person of DFA.

The Policy and its procedures are intended to provide useful information concerning the Index Master Portfolio to existing and prospective shareholders, while at the same time preventing the improper use of Holdings Information. However, there can be no assurance that the furnishing of any Holdings Information is not susceptible to inappropriate uses, particularly in the hands of sophisticated investors, or that the Holdings Information will not in fact be misused in other ways, beyond the control of DFA.

EXPENSES

Expenses are deducted from the total income of each 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 servicing fees, fees and expenses in registering and qualifying the Portfolios and their 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 a 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 the Trust with respect to the Index Master Portfolio (or affiliated persons of such persons), will be made in accordance with Rule 17e-1 under the 1940 Act. With respect to the Index Master Portfolio, commissions paid on such transactions would be commensurate with the rate of commissions paid on similar transactions to brokers that are not so affiliated.

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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 a Portfolio, select brokers on the basis of the research, statistical and pricing services they provide to a 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 a Portfolio and its other clients and that the total commissions paid by a Portfolio will be reasonable in relation to the benefits to a Portfolio over the long-term. The advisory fees that the Portfolios pay 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 Portfolios’ portfolio transactions are used to obtain such services, the brokerage commissions paid by the Portfolios 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 Portfolios. 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.

With respect to the Index Master Portfolio, DFA will seek to acquire and dispose of securities in a manner which would cause as little fluctuation in the market prices of stocks being purchased or sold as possible in light of the size of the transactions being effected, and brokers will be selected with this goal in view. DFA monitors the performance of brokers which effect transactions for the Index Master Portfolio to determine the effect that the Index Master Portfolio’s trading has on the market prices of the securities in which the Index Master Portfolio invests. DFA also checks the rate of commission being paid by the Index Master Portfolio to its brokers to ascertain that they are competitive with those charged by other brokers for similar services. Transactions also may be placed with brokers who provide DFA with investment research, such as reports concerning individual issuers, industries and general economic and financial trends and other research services. The Investment Management Agreement permits DFA knowingly to pay commissions on such transactions which are greater than another broker might charge if DFA, in good faith, determines that the commissions paid are reasonable in relation to the research or brokerage services provided by the broker or dealer when viewed in terms of either a particular transaction or DFA’s overall responsibilities to the Trust.

Commission rates for brokerage transactions on non-U.S. stock exchanges are generally fixed.

During the 12 months ended September 30, 2004, the following Portfolios paid brokerage commissions as follows:

Portfolios	Brokerage Commissions
Large Cap Value Equity	$	502,196
Large Cap Growth Equity		207,664
Dividend Achievers		1,046
Mid-Cap Value Equity		312,503
Mid-Cap Growth Equity		177,227
Small Cap Value Equity		890,786
Small Cap Core Equity		29,200
Small Cap Growth Equity		2,365,277
U.S. Opportunities Equity		553,365
Global Science & Technology Opportunities		250,428
International Opportunities Equity		1,902,919
Investment Trust		173,045

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Portfolios	Brokerage Commissions
Asset Allocation	177,084
Enhanced Income	356
Low Duration Bond	63,884
Intermediate Government Bond	7,716
Intermediate Bond	25,976
Intermediate PLUS Bond	213
Core Bond Total Return	122,185
Core PLUS Total Return	11,979
Government Income	38,570
Inflation Protected Bond	49
GNMA	45,358
Managed Income	54,503
High Yield Bond	4,507
International Bond	10,803
Tax-Free Income	11,231
Pennsylvania Tax-Free Income	15,541
New Jersey Tax-Free Income	3,942
Ohio Tax-Free Income	2,301
Delaware Tax-Free Income	1,715
Kentucky Tax-Free Income	2,334

During the 12 months ended September 30, 2003, the following Portfolios paid brokerage commissions as follows:

Portfolios	Brokerage Commissions
Large Cap Value Equity	$	2,941,041
Large Cap Growth Equity		801,914
Mid-Cap Value Equity		731,020
Mid-Cap Growth Equity		1,072,457
Small Cap Value Equity		1,900,206
Small Cap Core Equity		8,867
Small Cap Growth Equity		3,461,067
U.S. Opportunities		1,107,585
Global Science & Technology Opportunities		428,479
International Opportunities		525,050
Investment Trust		577,817
Asset Allocation		436,437
Low Duration Bond		22,425
Intermediate Government Bond		9,158
Intermediate Bond		22,998
Core Bond Total Return		91,691
Core PLUS Total Return		14,772
Government Income		28,355
Managed Income		55,736
GNMA		15,999
High Yield Bond		0
International Bond		5,664
Tax-Free Income		4,726
Pennsylvania Tax-Free Income		11,131
New Jersey Tax-Free Income		2,099
Ohio Tax-Free Income		1,754
Delaware Tax-Free Income		1,133
Kentucky Tax-Free Income		1,670

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During the 12 months ended September 30, 2002, the following Portfolios paid brokerage commissions as follows:

Portfolios	Brokerage Commissions
Large Cap Value Equity	$	5,839,477
Large Cap Growth Equity		2,177,186
Mid-Cap Value Equity		2,432,276
Mid-Cap Growth Equity		2,505,079
Small Cap Value Equity		4,517,019
Small Cap Core Equity		10,838
Small Cap Growth Equity		5,518,530
U.S. Opportunities		2,948,552
Global Science & Technology Opportunities		678,982
International Opportunities		876,493
Investment Trust		2,882,447
Asset Allocation		924,407
Low Duration Bond		14,330
Intermediate Government Bond		5,763
Intermediate Bond		21,247
Core Bond Total Return		81,565
Core PLUS Total Return		2,185
Government Income		10,488
Managed Income		54,557
GNMA		16,121
High Yield Bond		840
International Bond		4,102
Tax-Free Income		10,348
Pennsylvania Tax-Free Income		26,511
New Jersey Tax-Free Income		6,132
Ohio Tax-Free Income		3,606
Delaware Tax-Free Income		6,855
Kentucky Tax-Free Income		5,944

For the Index Master Portfolio’s fiscal years ended November 30, 2002, 2003 and 2004, the Index Master Portfolio paid brokerage commissions totaling $94,734, $80,760 and $44,310, respectively.

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 Portfolios 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 non-U.S. 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 a Portfolio are made from dealers, underwriters and issuers. The Portfolios do not currently expect to incur any brokerage commission expense on such transactions because

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money market instruments are generally traded on a “net” basis with dealers acting as principal for their own accounts without a stated commission. The price of the security, however, usually includes a profit to the dealer. Each Money Market Portfolio intends to purchase only securities with remaining maturities of 13 months or less as determined in accordance with the rules of the SEC. As a result, the portfolio turnover rates of a Money Market Portfolio will be relatively high. However, because brokerage commissions will not normally be paid with respect to investments made by a Money Market Portfolio, the turnover rates should not adversely affect the Portfolio’s net asset values or net income.

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-advisers may seek to obtain an undertaking from issuers of commercial paper or dealers selling commercial paper to consider the repurchase of such securities from a Portfolio prior to maturity at their original cost plus interest (sometimes adjusted to reflect the actual maturity of the securities), if it believes that a Portfolio’s anticipated need for liquidity makes such action desirable. Any such repurchase prior to maturity reduces the possibility that a 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 each Portfolio and for other investment accounts managed by the adviser or sub-advisers are made independently of each other in light of differing conditions. BlackRock allocates investments among client accounts in a fair and equitable manner. A variety of factors will be considered in making such allocations. These factors include: (i) investment objectives or strategies for particular accounts, (ii) tax considerations of an account, (iii) risk or investment concentration parameters for an account, (iv) supply or demand for a security at a given price level, (v) size of available investment, (vi) cash availability and liquidity requirements for accounts, (vii) regulatory restrictions, (viii) minimum investment size of an account, (ix) relative size of account, and (x) such other factors as may be approved by BlackRock’s general counsel. Moreover, investments may not be allocated to one client account over another based on any of the following considerations: (i) to favor one client account at the expense of another, (ii) to generate higher fees paid by one client account over another or to produce greater performance compensation to BlackRock, (iii) to develop or enhance a relationship with a client or prospective client, (iv) to compensate a client for past services or benefits rendered to BlackRock or to induce future services or benefits to be rendered to BlackRock, or (v) to manage or equalize investment performance among different client accounts.

Equity securities will generally be allocated among client accounts within the same investment mandate on a pro rata basis. This pro-rata allocation may result in a Portfolio receiving less of a particular security than if pro-ration had not occurred. All allocations of equity securities will be subject, where relevant, to share minimums established for accounts and compliance constraints.

Initial public offerings of securities may be over-subscribed and subsequently trade at a premium in the secondary market. When BlackRock is given an opportunity to invest in such an initial offering or “hot issue,” the supply of securities available for client accounts is often less than the amount of securities the accounts would otherwise take. In order to allocate these investments fairly and equitably among client accounts over time, each portfolio manager or a member of his or her respective investment team will indicate to BlackRock’s trading desk their level of interest in a particular offering with respect to eligible clients accounts for which that team is responsible. Initial public offerings of U.S. equity securities will be identified as eligible for particular client accounts that are managed by portfolio teams who have indicated interest in the offering based on market capitalization of the issuer of the security and the investment mandate of the client account and in the case of international equity securities, the country where the offering is taken place and the investment mandate of the client account. Generally, shares received during the initial public offering will be allocated among participating client accounts within each investment mandate on a pro rata basis. In situations where supply is too limited to be allocated among all accounts for which the investment is eligible, portfolio managers may rotate such investment opportunities among one or more accounts so long as the rotation system provides for fair access for all client accounts over time.

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Because different accounts may have differing investment objectives and policies, BlackRock may buy and sell the same securities at the same time for different clients based on the particular investment objective, guidelines and strategies of those accounts. For example, BlackRock may decide that it may be entirely appropriate for a growth fund to sell a security at the same time a value fund is buying that security. There may be circumstances when purchases or sales of portfolio securities for one or more clients will have an adverse effect on other clients. For example, sales of a security by BlackRock on behalf of one or more of its clients may decrease the market price of such security, adversely impacting other BlackRock clients that still hold the security.

In certain instances, BlackRock may find it efficient for purposes of achieving best execution, to aggregate certain contemporaneous purchases or sale orders of its advisory accounts (a/k/a “bunching”). In general, all contemporaneous trades for client accounts under management by the same portfolio manager or investment team will be bunched in a single order if the trader believes the bunched trade would provide each client with an opportunity to achieve a more favorable execution at a potentially lower execution cost. The costs associated with a bunched order will be shared pro rata among the clients in the bunched order. Generally, if an order for a particular portfolio manager or management team is filled at several different prices through multiple trades, all accounts participating in the order will receive the average price except in the case of certain international markets where average pricing is not permitted. While in some cases this practice could have a detrimental effect upon the price or value of the security as far as a Portfolio is concerned, in other cases it could be beneficial to the Portfolio. Transactions effected by BlackRock on behalf of more than one of its clients during the same period may increase the demand for securities being purchased or the supply of securities being sold, causing an adverse effect on price. The trader will give the bunched order to the broker dealer that the trader has identified as being able to provide the best execution of the order. Orders for purchase or sale of securities will be placed within a reasonable amount of time of the order receipt and bunched orders will be kept bunched only long enough to execute the order.

A Portfolio will not purchase securities during the existence of any underwriting or selling group relating to such securities of which BlackRock, BIMC, BFM, PNC Bank, PTC, BIL, 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., BIMC, BFM, PNC Bank, PTC, BIL, 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 a Portfolio is calculated by dividing the lesser of a 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. The Index Master Portfolio ordinarily will not sell portfolio securities except to reflect additions or deletions of stocks that comprise the S&P 500^® Index, including mergers, reorganizations and similar transactions and, to the extent necessary, to provide cash to pay redemptions of the Index Master Portfolio’s shares.

The Fund is required to identify any securities of its regular brokers or dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents held by the Fund as of the end of its most recent fiscal year. As of September 30, 2004, the following Portfolios held the following securities:

Portfolio	Security	Value
Money Market
Morgan Stanley & Co.	Commercial Paper	$	9,987,144
Merrill Lynch & Co., Inc.	Master Notes		24,320,000
Morgan Stanley & Co., Inc.	Master Notes		50,000,000
Merrill Lynch & Co., Inc.	Municipal Bonds		50,000,000
Morgan Stanley & Co.	Repurchase Agreement		260,700,000
U.S. Treasury Money Market
Deutsche Bank Securities, Inc.	Repurchase Agreement		90,000,000
J.P. Morgan Chase & Co.	Repurchase Agreement		90,000,000
Morgan Stanley & Co., Inc.	Repurchase Agreement		92,008,000
UBS Securities LLC	Repurchase Agreement		90,000,000

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Portfolio	Security	Value
Enhanced Income
The Bear Stearns Co., Inc.	Commercial Mortgage Backed Security	366,310
Credit Suisse First Boston Corp.	Commercial Mortgage Backed Security	155,082
Goldman Sachs Group, Inc.	Commercial Mortgage Backed Security	194,369
Merrill Lynch & Co., Inc.	Commercial Mortgage Backed Security	640,904
Bank of America Securities LLC	Corporate Bonds	19,739
Low Duration Bond
J.P. Morgan Chase & Co.	Corporate Bonds	3,440,913
The Bear Stearns Co., Inc.	Commercial Mortgage Backed Security	20,624,792
Goldman Sachs Group, Inc.	Commercial Mortgage Backed Security	42,929,160
Bank of America Securities LLC	Corporate Bonds	2,146,597
Citigroup Global Markets, Inc.	Corporate Bonds	5,217,108
Lehman Brothers Holdings, Inc.	Commercial Mortgage Backed Security	8,107,496
Intermediate Government Bond
Credit Suisse First Boston Corp.	Commercial Mortgage Backed Security	3,652,241
J.P. Morgan Chase & Co.	Commercial Mortgage Backed Security	1,824,966
Goldman Sachs Group, Inc.	Commercial Mortgage Backed Security	6,841,356
Lehman Brothers Holdings, Inc.	Commercial Mortgage Backed Security	2,640,045
Intermediate Bond
Bank of America Corp.	Corporate Bond	9,094,729
The Bear Stearns Co., Inc.	Commercial Mortgage Backed Security	10,134,613
Barclays Investments, Inc.	Corporate Bond	1,965,892
Citigroup, Inc.	Corporate Bond	17,317,581
Credit Suisse First Boston Corp.		11,355,010
Goldman Sachs Group, Inc.	Corporate Bond	1,077,689
J.P. Morgan Chase & Co.	Corporate Bonds	12,018,945
Lehman Brothers Holdings, Inc.	Corporate Bond	656,844
Lehman Brothers Holdings, Inc.	Commercial Mortgage Backed Security	14,989,449
UBS AG	Corporate Bond	573,465
Intermediate PLUS Bond
The Bear Stearns Co., Inc.	Commercial Mortgage Backed Security	125,884
Credit Suisse First Boston Corp.	Commercial Mortgage Backed Security	145,595
Morgan Stanley	Commercial Mortgage Backed Security	97,328
Bank of America Corp.	Corporate Bond	376,661
Barclays Investments, Inc.	Corporate Bond	36,746
J.P. Morgan Chase & Co.	Corporate Bond	463,713
Citigroup, Inc.	Corporate Bond	424,620
Goldman Sachs Group, Inc.	Corporate Bond	67,708
UBS Securities LLC	Corporate Bond	12,073
Lehman Brothers Holdings, Inc.	Commercial Mortgage Backed Security	111,592
Goldman Sachs Group, Inc.	Commercial Mortgage Backed Security	222,327
UBS Paine Webber	Corporate Bond	12,073
Core Bond Total Return
Bank of America Corp.	Commercial Mortgage Backed Security	9,530,345
Bank of America Corp.	Corporate Bond	14,784,839
Barclays PLC	Corporate Bond	7,434,864
Citigroup, Inc.	Commercial Mortgage Backed Security	7,526,910
Citigroup, Inc.	Corporate Bond	39,630,158

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Portfolio	Security	Value
Credit Suisse First Boston Corp.	Commercial Mortgage Backed Security	2,464,428
Goldman Sachs Group, Inc.	Commercial Mortgage Backed Security	18,294,028
Greenwich Capital Markets, Inc.	Asset Backed Security	13,781,463
HSBC Securities	Corporate Bond	9,173,343
J.P. Morgan Chase & Co.	Corporate Bond	24,435,787
Lehman Brothers Holdings, Inc.	Commercial Mortgage Backed Security	13,084,777
Lehman Brothers Holdings, Inc.	Corporate Bond	193,126
Merrill Lynch & Co., Inc.	Commercial Mortgage Backed Security	7,363,642
Morgan Stanley	Commercial Mortgage Backed Security	11,445,397
Royal Bank of Scotland Group PLC	Corporate Bond	4,433,287
UBS Securities LLC	Corporate Bond	1,678,139
UBS Securities LLC	Commercial Mortgage Backed Security	89,388
Core PLUS Total Return
Bank of America Corp.	Corporate Bond	2,560,173
Bank of America Corp.	Commercial Mortgage Backed Security	1,102,282
Barclays Investments, Inc.	Corporate Bond	753,285
Citigroup, Inc.	Corporate Bond	5,011,181
Credit Suisse First Boston Corp., Commercial Mortgage Backed Division	Commercial Mortgage Backed Security	362,227
Goldman Sachs Group, Inc.	Commercial Mortgage Backed Security	2,521,331
HSBC Securities	Corporate Bond	1,098,163
J.P. Morgan Chase & Co.	Commercial Mortgage Backed Security	2,182,118
J.P. Morgan Chase & Co.	Corporate Bond	3,147,701
Lehman Brothers Holdings, Inc.	Corporate Bond	894,358
Lehman Brothers Holdings, Inc.	Commercial Mortgage Backed Security	2,932,058
Morgan Stanley	Commercial Mortgage Backed Security	947,505
Royal Bank of Scotland Group PLC	Corporate Bond	193,445
UBS Paine Webber	Corporate Bond	48,292
Government Income Bond
Goldman Sachs Group, Inc.	Commercial Mortgage Backed Security	2,106,083
Managed Income Bond
Bank of America Corp.	Commercial Mortgage Backed Security
Bank of America Corp.	Corporate Bond	4,084,841
Barclays PLC	Corporate Bond	912,516
The Bear Stearns Co., Inc.	Commercial Mortgage Backed Security	5,252,800
The Bear Stearns Co., Inc.	Corporate Bond	969,144
Citigroup, Inc.	Corporate Bond	11,383,881
HSBC Securities	Corporate Bond	1,996,660
J.P. Morgan Chase & Co.	Corporate Bond	7,211,512
Lehman Brothers Holdings, Inc.	Corporate Bond	380,734
Lehman Brothers Holdings, Inc.	Commercial Mortgage Backed Security	9,066,182
Morgan Stanley	Commercial Mortgage Backed Security	8,052,986
Royal Bank of Scotland Group PLC	Corporate Bond	1,608,339
International Bond
Morgan Stanley	Commercial Mortgage Backed Security	752,771
Lehman Brothers Holdings, Inc.	Commercial Mortgage Backed Security	2,081,861
Citigroup, Inc.	Corporate Bond	1,762,628
Greenwich Capital Markets, Inc.	Asset Backed Security	1,990,770
Large Cap Value Equity
Bank of America Corp.	Common Stock	10,581,186

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Portfolio	Security	Value
The Bear Stearns Co., Inc.	Short Term Investments	2,313,226
Citigroup, Inc.	Common Stock	11,316,780
Goldman Sachs Group, Inc.	Common Stock	2,004,660
Goldman Sachs Group, Inc.	Short Term Investments	1,004,677
J.P. Morgan Chase & Co.	Common Stock	6,359,502
Lehman Brothers Holdings, Inc.	Common Stock	1,586,428
Merrill Lynch & Co., Inc.	Common Stock	2,386,560
Merrill Lynch & Co., Inc.	Short Term Investments	76,913
Morgan Stanley	Short Term Investments	2,936,091
Large Cap Growth Equity
The Bear Stearns Co., Inc.	Short Term Investments	819,378
Citigroup, Inc.	Common Stock	683,860
Morgan Stanley	Short Term Investments	1,698,268
Merrill Lynch & Co., Inc.	Short Term Investments	1,606,509
Dividend Achievers
Bank of America Corp.	Common Stock	73,661
J.P. Morgan Chase & Co.	Common Stock	18,872
Citigroup, Inc.	Common Stock	80,518
Goldman Sachs Group, Inc.	Common Stock	9,324
Mid Cap Value Equity
The Bear Stearns Co., Inc.	Common Stock	567,403
The Bear Stearns Co., Inc.	Short Term Investments	395,555
Goldman Sachs Group, Inc.	Short Term Investments	435,895
Merrill Lynch & Co., Inc.	Short Term Investments	53,772
Morgan Stanley	Short Term Investments	1,018,026
UBS AG	Short Term Investments	187,132
Mid Cap Growth Equity
Merrill Lynch & Co., Inc.	Short Term Investments	4,232,993
UBS AG	Short Term Investments	704,255
Small Cap Value Equity
Goldman Sachs Group, Inc.	Short Term Investments	635,480
Merrill Lynch & Co., Inc.	Short Term Investments	1,683,360
Morgan Stanley	Short Term Investments	314,942
UBS AG	Short Term Investments	276,734
Small Cap Growth Equity
Merrill Lynch & Co., Inc.	Short Term Investments	3,173,889
UBS AG	Short Term Investments	1,131,494
Investment Trust
Bank of America Corp.	Common Stock	2,019,178
The Bear Stearns Co., Inc.	Common Stock	519,318
The Bear Stearns Co., Inc.	Short Term Investments	565,972
Citigroup, Inc.	Common Stock	2,638,376
Goldman Sachs Group, Inc.	Common Stock	745,920
J.P. Morgan Chase & Co.	Common Stock	1,702,511
Morgan Stanley	Short Term Investments	1,587,850
Merrill Lynch & Co., Inc.	Short Term Investments	852,759
UBS AG	Short Term Investments	1,044,449

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Portfolio	Security	Value
Asset Allocation
Bank of America Corp.	Common Stock	1,863,190
Bank of America Corp.	Commercial Mortgage-Backed Security	98,251
Bank of America Corp.	Corporate Bond	285,029
Barclays Investments, Inc.	Corporate Bond	97,988
The Bear Stearns Co., Inc.	Common Stock	519,318
The Bear Stearns Co., Inc.	Short Term Investments	17,528
Citigroup, Inc.	Common Stock	2,444,248
Citigroup, Inc.	Corporate Bond	589,748
Credit Suisse First Boston Corp.	Repurchase Agreement	65,175
Goldman Sachs Group, Inc.	Common Stock	717,948
HSBC Holdings.	Corporate Bond	347,600
J.P. Morgan Chase & Co.	Common Stock	1,572,831
J.P. Morgan Chase & Co.	Corporate Bond	404,119
Lehman Brothers, Inc.	Repurchase Agreement	908,425
Morgan Stanley	Corporate Bond	1,689,321
Merrill Lynch & Co., Inc.	Short Term Investments	1,156,046
UBS AG	Corporate Bond	42,255
UBS AG	Short Term Investments	291,625

PURCHASE AND REDEMPTION INFORMATION

The Fund has authorized one or more brokers and/or financial institutions (“Authorized Persons”) to receive on its behalf purchase and redemption orders that are in “good form” in accordance with the policies of those Authorized Persons. Such Authorized Persons 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 Persons or, if applicable, such Authorized Person’s authorized designee, receives the order. Such customer orders will be priced at a Portfolio’s net asset value next computed after they are received by an Authorized Person or such Authorized Person’s authorized designee. Financial institutions may include retirement plan service providers who aggregate purchase and redemption instructions received from numerous retirement plans or plan participants.

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 in the prospectuses, the order will be canceled, notice thereof will be given, and the broker and its customers will be responsible for any loss to the Fund or its shareholders. Orders of less than $500 may be mailed by a broker to the transfer agent.

Other Purchase Information. Shares of each Portfolio of the Fund are sold on a continuous basis by BDI as the Distributor. BDI maintains its principal offices at 760 Moore Road, King of Prussia, PA 19406. Purchases may be effected on weekdays on which the New York Stock Exchange is open for business (a “Business Day”). 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 a 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.

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Unless a sales charge waiver applies, Investor B shareholders of a Bond or Equity Portfolio 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 certain of the Funds’ Non-Money Market Investor A Shares. In case where the Distributor acts as dealer, it will not receive a placement fee on purchases of over $1 million of Investor A Shares. For the tables below, the reallowance or placement fees indicated will apply up to the indicated breakpoint (so that, for example, a sale of $4 million worth of Investor A Shares in the Low Duration Bond Portfolio will result in a placement fee of .50% on the first $3 million and .25% on the final $1 million).

LOW DURATION BOND PORTFOLIO:

Amount of Transaction at Offering Price	Reallowance or Placement Fees to Dealers (as % of Offering Price)*
Less than $50,000	2.50	%
$50,000 but less than $100,000	2.25
$100,000 but less than $250,000	2.00
$250,000 but less than $500,000	1.25
$500,000 but less than $1,000,000	0.75
$1 million but less than $3 million	0.50
$3 million but less than $15 million	0.25
$15 million and above	0.15

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

INFLATION PROTECTED BOND PORTFOLIO:

Amount of Transaction at Offering Price	Reallowance or Placement Fees to Dealers (as % of Offering Price)*
Less than $50,000	2.50	%
$50,000 but less than $100,000	2.25
$100,000 but less than $250,000	2.00
$250,000 but less than $500,000	1.25
$500,000 but less than $1,000,000	0.75
$1 million but less than $3 million	0.15
$3 million but less than $15 million	0.10
$15 million and above	0.05

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

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INTERMEDIATE GOVERNMENT BOND, INTERMEDIATE BOND, CORE BOND TOTAL RETURN, CORE PLUS TOTAL RETURN, GNMA, INTERMEDIATE PLUS BOND, TAX-FREE INCOME, PENNSYLVANIA TAX -FREE INCOME, NEW JERSEY TAX-FREE INCOME, OHIO TAX-FREE INCOME, DELAWARE TAX-FREE INCOME AND KENTUCKY TAX-FREE INCOME PORTFOLIOS:

Amount of Transaction at Offering Price	Reallowance or Placement Fees to Dealers (as % of Offering Price)*
Less than $50,000	3.50	%
$50,000 but less than $100,000	3.25
$100,000 but less than $250,000	3.00
$250,000 but less than $500,000	2.00
$500,000 but less than $1,000,000	1.00
$1 million but less than $3 million	0.50
$3 million but less than $15 million	0.25
$15 million and above	0.15

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

LARGE CAP VALUE EQUITY, LARGE CAP GROWTH EQUITY, LEGACY AND ASSET ALLOCATION PORTFOLIOS AND INVESTMENT TRUST:

Amount of Transaction at Offering Price	Reallowance or Placement Fees to Dealers (as % of Offering Price)*
Less than $50,000	5.00	%
$50,000 but less than $100,000	4.00
$100,000 but less than $250,000	3.00
$250,000 but less than $500,000	2.00
$500,000 but less than $1,000,000	1.75
$1 million but less than $3 million	0.75
$3 million but less than $15 million	0.50
$15 million and above	0.25

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

GOVERNMENT INCOME AND MANAGED INCOME PORTFOLIOS:

Amount of Transaction at Offering Price	Reallowance or Placement Fees to Dealers (as % of Offering Price)*
Less than $50,000	4.00	%
$50,000 but less than $100,000	3.75

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Amount of Transaction at Offering Price	Reallowance or Placement Fees to Dealers (as % of Offering Price)*
$100,000 but less than $250,000	3.50
$250,000 but less than $500,000	2.50
$500,000 but less than $1,000,000	1.50
$1 million but less than $3 million	0.50
$3 million but less than $15 million	0.25
$15 million and above	0.15

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

INTERNATIONAL OPPORTUNITIES PORTFOLIO:

Amount of Transaction at Offering Price	Reallowance or Placement Fees to Dealers (as % of 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

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

INTERNATIONAL BOND AND HIGH YIELD BOND PORTFOLIOS:

Amount of Transaction at Offering Price	Reallowance or Placement Fees to Dealers (as % of 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	0.75
$3 million but less than $15 million	0.50
$15 million and above	0.25

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

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MID-CAP VALUE EQUITY, MID-CAP GROWTH EQUITY, SMALL CAP VALUE EQUITY, SMALL CAP CORE EQUITY, SMALL CAP GROWTH EQUITY, GLOBAL SCIENCE & TECHNOLOGY OPPORTUNITIES, U.S. OPPORTUNITIES, DIVIDEND ACHIEVERS^™, SMALL/MID-CAP GROWTH, AURORA, HEALTH SCIENCES, GLOBAL RESOURCES AND ALL-CAP GLOBAL RESOURCES PORTFOLIOS:

Amount of Transaction at Offering Price	Reallowance or Placement Fees to Dealers (as % of Offering Price)*
Less than $50,000	5.00	%
$50,000 but less than $100,000	4.00
$100,000 but less than $250,000	3.00
$250,000 but less than $500,000	2.00
$500,000 but less than $1,000,000	1.75
$1 million but less than $3 million	1.00
$3 million but less than $15 million	0.50
$15 million and above	0.25

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

ENHANCED INCOME AND ULTRASHORT MUNICIPAL PORTFOLIOS:

Amount of Transaction at Offering Price	Reallowance or Placement Fees to Dealers (as % of Offering Price)*
Less than $50,000	2.50	%
$50,000 but less than $100,000	2.25
$100,000 but less than $250,000	2.00
$250,000 but less than $500,000	1.25
$500,000 but less than $1,000,000	0.75
$1 million but less than $3 million	0.15
$3 million but less than $15 million	0.10
$15 million and above	0.05

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

INDEX EQUITY PORTFOLIO:

Amount of Transaction at Offering Price	Reallowance or Placement Fees to Dealers (as % of Offering Price)
Less than $50,000	2.50	%
$50,000 but less than $100,000	2.25

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Amount of Transaction at Offering Price	Reallowance or Placement Fees to Dealers (as % of Offering Price)*
$100,000 but less than $250,000	2.00
$250,000 but less than $500,000	1.25
$500,000 but less than $1,000,000	0.75
$1 million but less than $3 million	0.00
$3 million but less than $15 million	0.00
$15 million and above	0.00

No placement fee is paid to dealers for purchases of Investor A Shares of the Index Equity Portfolio in excess of $1,000,000.

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. Furthermore, the Distributor, BlackRock and their affiliates may, out of their assets and not as an additional charge to the Portfolios, 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. The compensation arrangements described above generally are made available to all qualified financial institutions, broker/dealers and salespersons when such arrangements are in effect, subject to applicable NASD regulations.

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

Sales Charge Waivers For Each of the Equity and Bond Portfolios—Investor A Shares

Qualified Plans. In general, no sales charge will apply to purchases by authorized qualified employee benefit plans (“Qualified Plans”) of Investor A Shares. BlackRock may pay placement fees to dealers, up to the following amounts, on purchases of Investor A Shares of all Non-Money Market Portfolios (except the Index Equity Portfolio) by Qualified Plans:

Less than $3,000,000	1.00	%
$3 million but less than $15 million	0.50	%
$15 million and above	0.25	%

For the table above, the placement fees indicated will apply up to the indicated breakpoint (so that, for example, a sale of $4 million worth of Investor A Shares will result in a placement fee of up to 1.00% on the first $3 million and .50% on the final $1 million).

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 each of the Bond and Equity Portfolios 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)

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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 a 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; (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; and (f) MetLife employees. Investors who qualify for any of these exemptions from the sales charge must purchase Investor A Shares.

The CDSC related to purchases of $1,000,000 or more of Investor A Shares is not charged if the dealer receives a placement fee over time during the 18 months after purchase.

Reduced Sales Charges For Each of the Equity and Bond Portfolios—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 a purchase order of $100,000 or more for Investor B Shares or $1 million or more for 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 in any of the Non-Money Market Portfolios that are subject to a front-end sales charge 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.

Reinstatement Privilege. Upon redemption of Investor A, B or C Shares of a Non-Money Market Portfolio a shareholder has a one-time right, to be exercised within 60 days, to reinvest the redemption proceeds in Investor A Shares of the same Portfolio without paying any front-end sales charge (although any redemption of Investor B or C Shares will be subject to any applicable CDSC). Former SSR Fund shareholders have a right, to be exercised once and within 120 days of a redemption of their SSR Fund shares, to reinvest the proceeds in Investor A Shares of the BlackRock fund into which such SSR fund reorganized without paying a front-end sales charge. 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 reinstatement 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 of a Non-Money Market Portfolio 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 investor must instruct PFPC upon making subsequent purchases that such purchases are subject to a Letter of Intent. All dividends and capital gains of a Portfolio that are invested in additional Investor A Shares of the same Portfolio are applied to the Letter of Intent.

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During the term of a Letter of Intent, the Fund’s transfer agent will hold Investor A Shares representing up to 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 of the Non-Money Market Portfolios 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 of the Non-Money Market Portfolios are subject to a deferred sales charge of 1% based on the lesser of the original cost or the net asset value of the Investor C Shares on the redemption date if redeemed within twelve months after purchase. Dealers will generally immediately receive commissions equal to 1% 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 of the Non-Money Market Portfolios is not charged in connection with: (1) redemptions of Investor B and Investor C Shares purchased through certain authorized Qualified Plans; (2) exchanges described in “Exchange Privilege” below; (3) redemptions made in connection with minimum required distributions due to the shareholder reaching age 70 ¹/2 from IRA and 403(b)(7) accounts; (4) redemptions made with respect to certain retirement plans sponsored by the Fund, BlackRock or its affiliates; (5) redemptions in connection with a shareholder’s death (including in connection with the distribution of account assets to a beneficiary of the decedent) or disability (as defined in the Internal Revenue Code) subsequent to the purchase of Investor B Shares or Investor C Shares; (6) involuntary redemptions of Investor B Shares or Investor C Shares in accounts with low balances as described in “Redemption of Shares” below; (7) redemptions made pursuant to the Systematic Withdrawal Plan, subject to the limitations set forth under “Systematic Withdrawal Plan” below; and (8) redemptions when a shareholder can demonstrate hardship, in the absolute discretion of the Fund. In addition, no contingent deferred sales charge is charged on Investor B Shares or Investor C Shares acquired through the reinvestment of dividends or distributions.

Investor B Shares of the Intermediate Government Bond and Managed Income Portfolios purchased from December 1, 1999, to December 31, 1999, are subject to a CDSC at the rates shown in the chart below:

Number of Years Elapsed Since Purchase	Contingent Deferred Sales Charge (as % of Dollar Amount Subject to the Charge)
Up to one year	3.50	%
More than one but less than two years	3.00
More than two but less than three years	2.00
More than three but less than four years	1.00
More than four years	0.00

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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. 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.

Unless an exemption applies, a front-end sales charge will be charged in connection with exchanges of Investor A Shares of a Money Market Portfolio for Investor A Shares of the Fund’s Non-Money Market Portfolios. 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 be exercised at NAV. However, a CDSC will be charged in connection with the redemption of the Investor B or Investor C Shares of the Non-Money Market Portfolio received in the exchange. In determining the holding period for calculating the contingent deferred sales charge payable on redemption of Investor B and Investor C Shares of the Non-Money Market Portfolios, 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.

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 a portfolio subject to differential sales charges as applicable.

A shareholder wishing to make an exchange may do so by sending a written request to the Fund c/o PFPC at the following address: PFPC Inc., P.O. Box 9819, Providence, RI 02940-8019. 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. To add this feature to an existing account that previously did not provide this option, a Telephone Exchange Authorization Form must be filed with PFPC. This form is available from PFPC. Once this election has been made, the shareholder may simply contact PFPC by telephone at (800) 441-7762 to request the exchange. During periods of substantial economic or market change, telephone exchanges may be difficult to complete and shareholders may have to submit exchange requests to PFPC in writing.

If the exchanging shareholder does not currently own shares of the investment portfolio whose shares are being acquired, a new account will be established with the same registration, dividend and capital gain options and broker of record as the account from which shares are exchanged, unless otherwise specified in writing by the shareholder with all signatures guaranteed by an eligible guarantor institution as defined below. In order to participate in the Automatic Investment Program or establish a Systematic Withdrawal Plan for the new account, however, an exchanging shareholder must file a specific written request.

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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 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 9819, Providence, RI 02940-8019.

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.

The redemption of shares of one Portfolio and the subsequent investment in another Portfolio generally will be treated as two separate transactions. Therefore, a front-end sales charge will be imposed (unless an exemption applies) on the purchase of Investor A Shares of a Non-Money Market Portfolio with the proceeds of a redemption of Investor Shares of a Money Market Portfolio. In addition, when Investor Shares of a Money Market Portfolio are redeemed and the proceeds are used to purchase Investor B Shares or Investor C Shares of a Non-Money Market Portfolio, a contingent deferred sales charge will be imposed (unless an exemption applies) when the Investor B Shares or Investor C Shares of the Non-Money Market Portfolio are redeemed.

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^® 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 to shareholders 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 a Portfolio. Shareholders may elect to receive automatic cash payments of $50 or more - either monthly, quarterly, semi-annually or annually. You may choose any day for the withdrawal. If no day is specified, the withdrawals will be processed on the 25th day of the month or, if such a day is not a Business Day, on the prior Business Day and are paid promptly thereafter. An investor may utilize the SWP by completing the Systematic Withdrawal Plan Application Form which may be obtained by visiting our website at www.blackrock.com/funds.

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. Shareholders may change or cancel the SWP at any time, upon written notice to the Fund at (800) 441-7762. 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 the original investment 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.

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For this reason, a shareholder may not participate in the Automatic Investment Plan (see “Services for Shareholders—Automatic Investment Plan” in the Fund’s Prospectus) and the Systematic Withdrawal Plan at the same time.

Dividend Allocation Plan. The Dividend Allocation Plan allows shareholders to elect to have all their dividends and any other distributions from the Fund or any Eligible Fund (which includes the Fund and other funds as designated by the Distributor from time to time) automatically invested at net asset value in one other such Eligible Fund designated by the shareholder, provided the account into which the dividends and distributions are directed is initially funded with the requisite minimum amount.

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. Additional documentary evidence of authority is required by PFPC in the event redemption is requested by a corporation, partnership, trust, fiduciary, executor or administrator.

Investor A shareholders of the Money Market Portfolios may redeem their shares through the checkwriting privilege. Upon receipt of the checkwriting application and signature card by PFPC, checks will be forwarded to the investor. The minimum amount of a check is $100. If more than one shareholder owns the account, each shareholder must sign each check, unless an election has been made to permit check writing by a limited number of signatures and such election is on file with PFPC. Investor A Shares represented by a check redemption will continue to earn daily income until the check is presented for payment. PNC bank, as the investor’s agent, will cause the Fund to redeem a sufficient number of Investor A Shares owned to cover the check. When redeeming Investor A Shares by check, an investor should make certain that there is an adequate number of Investor A Shares in the account to cover the amount of the check. If an insufficient number of Investor A Shares is held or if checks are not properly endorsed, they may not be honored and a $15 service charge will be incurred. Checks may not be presented for cash payments at the offices of PNC Bank. This limitation does not affect checks used for the payment of bills or cash at other banks. However, a shareholder cannot close an account by writing a checkwriting check.

Computation of Public Offering Prices for Investor A Shares of the Non-Money Market Portfolios. An illustration of the computation of the public offering price per Investor A Share of the respective Non-Money Market Portfolios, based on the value of such Portfolios’ net assets as of September 30, 2004, follows:

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	Enhanced Income Portfolio		Low Duration Bond Portfolio		Intermediate Government Bond Portfolio		Intermediate Bond Portfolio		Intermediate PLUS Bond Portfolio		Core Bond Total Return Portfolio		Core Plus Total Return Portfolio		Government Income Portfolio
Net Assets	$	100	$	87,316,844	$	43,499,809	$	33,977,061	$	101	$	132,560,983	$	8,915	$	126,332,058
Outstanding Shares		10		8,648,435		4,152,950		3,551,562		10		13,597,126		861		11,300,770
Net Asset Value Per Share	$	9.93	$	10.10	$	10.47	$	9.57	$	10.06	$	9.75	$	10.35	$	11.18
Maximum Sales Charge, 4.00% of offering price (3.00% for Enhanced Income Portfolio and Low Duration Bond and 4.50% for Government Income)*		0.31		0.31		0.44		0.40		0.42		0.41		0.43		0.53
Offering to Public	$	10.24	$	10.41	$	10.91	$	9.97	$	10.48	$	10.16	$	10.78	$	11.71

* The maximum sales charge as a percentage of the net asset value per share for each portfolio at September 30, 2004, was as follows: Enhanced Income Portfolio 3.12%; Low Duration Bond Portfolio 3.07%; Intermediate Government Bond Portfolio 4.20%; Intermediate Bond Portfolio 4.18%; Intermediate PLUS Bond Portfolio 4.17%; Core Bond Total Return Portfolio 4.21%; Core Plus Total Return Portfolio 4.15%; and Government Income Portfolio 4.74%.

	Inflation Protected Bond Portfolio		GNMA Portfolio		Managed Income Portfolio		International Bond Portfolio		High Yield Bond Portfolio		UltraShort Municipal Portfolio		Tax-Free Income Portfolio
Net Assets	$	93,431	$	18,080,054	$	35,461,965	$	123,145,166	$	72,805,744	$	100	$	7,710,791
Outstanding Shares		8,902		1,822,688		3,406,295		10,786,241		8,941,044		10		693,696
Net Asset Value Per Share	$	10.50	$	9.92	$	10.41	$	11.42	$	8.14	$	9.98	$	11.12
Maximum Sales Charge, 4.00% of offering price (3.00% for Inflation Protected Bond and UltraShort Municipal and 4.50% for Managed Income and 5.00% for International Bond and High Yield Bond)*		0.32		0.41		0.49		0.60		0.43		0.31		0.46
Offering to Public	$	10.82	$	10.33	$	10.90	$	12.02	$	8.57	$	10.29	$	11.58

* The maximum sales charge as a percentage of the net asset value per share for each portfolio at September 30, 2004, was as follows: Inflation Protected Bond Portfolio 3.08%; GNMA Portfolio 4.13%; Managed Income Portfolio 4.71%; International Bond Portfolio 5.25%; High Yield Bond Portfolio 5.28%; UltraShort Municipal Portfolio 3.11% and Tax-Free Income Portfolio 4.14%.

	Pennsylvania Tax-Free Income Portfolio		New Jersey Tax- Free Income Portfolio		Ohio Tax-Free Income Portfolio		Delaware Tax- Free Income Portfolio		Kentucky Tax- Free Income Portfolio
Net Assets	$	33,769,357	$	6,192,655	$	5,042,513	$	12,894,747	$	5,482,365
Outstanding Shares		3,162,108		529,456		463,275		1,272,360		563,513
Net Asset Value Per Share	$	10.68	$	11.70	$	10.88	$	10.13	$	9.73
Maximum Sales Charge, 4.00% of offering price*		0.45		0.49		0.45		0.42		0.41
Offering to Public	$	11.13	$	12.19	$	11.33	$	10.55	$	10.14

* The maximum sales charge as a percentage of the net asset value per share for each portfolio at September 30, 2004, was as follows: Pennsylvania Tax-Free Income Portfolio 4.21%; New Jersey Tax-Free Income Portfolio 4.19%; Ohio Tax-Free Income Portfolio 4.14%; Delaware Tax-Free Income Portfolio 4.15%; and Kentucky Tax-Free Income Portfolio 4.21%.

	Large Cap Value Equity Portfolio		Large Cap Growth Equity Portfolio		Dividend Achievers Portfolio		Mid-Cap Value Equity Portfolio		Mid-Cap Growth Equity Portfolio		Small Cap Value Equity Portfolio
Net Assets	$	54,310,733	$	18,985,208	$	100	$	4,251,930	$	27,777,082	$	35,240,328
Outstanding Shares		4,273,955		2,208,046		10		309,907		3,362,602		2,349,465
Net Asset Value Per Share	$	12.71	$	8.60	$	9.96	$	13.72	$	8.26	$	15.00
Maximum Sales Charge, 5.75% of offering price*		0.78		0.52		0.61		0.84		0.50		0.92
Offering to Public	$	13.49	$	9.12	$	10.57	$	14.56	$	8.76	$	15.92

* The maximum sales charge as a percentage of the net asset value per share for each portfolio at September 30, 2004, was as follows: Large Cap Value Equity Portfolio 6.14%; Large Cap Growth Equity Portfolio 6.05%; Dividend Achievers Portfolio 6.12%; Mid-Cap Value Equity Portfolio 6.12%; Mid-Cap Growth Equity Portfolio 6.05%; and Small Cap Value Equity Portfolio 4.73%.

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	Small Cap Core Equity Portfolio		Small Cap Growth Equity Portfolio		U.S. Opportunities Portfolio		Global Science & Technology Opportunities Portfolio
Net Assets	$	3,153,710	$	131,795,175	$	31,282,489	$	9,929,419
Outstanding Shares		214,363		9,713,690		1,581,761		1,871,041
Net Asset Value Per Share	$	14.71	$	13.57	$	19.78	$	5.31
Maximum Sales Charge, 5.75% of offering price (5.00% for International Equity)*		0.90		0.83		1.21		0.32
Offering to Public	$	15.61	$	14.40	$	20.99	$	5.63

* The maximum sales charge as a percentage of the net asset value per share for each portfolio at September 30, 2004, was as follows: Small Cap Core Equity Portfolio 6.12%; Small Cap Growth Equity Portfolio 6.12%; U.S. Opportunities Portfolio 6.12%; Global Science & Technology Opportunities Portfolio 6.03%.

	International Opportunities Equity Portfolio		Investment Trust Portfolio		Index Equity Portfolio
Net Assets	$	99,879,318	$	17,631,853	$	312,605,650
Outstanding Shares		4,200,341		1,495,708		14,650,506
Net Asset Value Per Share	$	23.78	$	11.79	$	21.34
Maximum Sales Charge, 5.00% of offering price for International Opportunities, 5.75% for Investment Trust and 3.00% for Index Equity*		1.25		0.72		0.66
Offering to Public	$	25.03	$	12.51	$	22.00

* The maximum sales charge as a percentage of the net asset value per share for each portfolio at September 30, 2004, was as follows: International Opportunities Portfolio 5.26%; Investment Trust Portfolio 6.11%; and Index Equity Portfolio 3.09%.

	Asset Allocation Portfolio
Net Assets	$	63,938,781
Outstanding Shares		4,555,379
Net Asset Value Per Share	$	14.04
Maximum Sales Charge, 5.75% of offering price*		0.86
Offering to Public	$	14.90

* The maximum sales charge as a percentage of the net asset value per share for the Asset Allocation Portfolio at September 30, 2004, was 4.70%.

Total front-end sales charges paid by shareholders of Investor A Shares of the Portfolios for the year ended September 30, 2004, were as follows:

Portfolios	Front-End Sales Charges
Low Duration Bond	108,616.65
Intermediate Government Bond	21,396.69
Intermediate Bond	107,134.96
Intermediate PLUS Bond	—

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Portfolios	Front-End Sales Charges
Core Bond Total Return	89,103.32
Core PLUS Total Return	100.23
Government Income	227,039.11
Managed Income	11,150.71
Inflation Protected Bond	1,848.01
GNMA	86,224.99
UltraShort Municipal	—
High Yield Bond	352,245.14
International Bond	444,266.00
Tax-Free Income	9,519.73
Pennsylvania Tax-Free Income	49,390.60
New Jersey Tax-Free Income	40,695.68
Ohio Tax-Free Income	14,021.14
Delaware Tax-Free Income	114,862.71
Kentucky Tax-Free Income	35,806.02
Large Cap Value Equity	19,975.23
Large Cap Growth Equity	12,924.35
Dividend Achievers	—
Mid-Cap Value Equity	8,342.35
Mid-Cap Growth Equity	16,615.05
Small Cap Value Equity	41,156.02
Small Cap Core Equity	87,871.58
Small Cap Growth Equity	119,664.88
U.S. Opportunities	51,146.18
Global Science & Technology Opportunities	69,453.09
International Opportunities	470,605.08
Investment Trust	19,119.79
Index Equity	102,341.29
Asset Allocation	24,094.27
Enhanced Income	—

Total front-end sales charges paid by shareholders of Investor A Shares of the Portfolios for the year ended September 30, 2003, were as follows:

Portfolios	Front-End Sales Charges
Low Duration Bond	$	354,828.31
Intermediate Government Bond		101,741.16
Intermediate Bond		99,285.03
Core Bond Total Return		239,377.16
Core PLUS Total Return		0.00
Government Income		473,984.31
Managed Income		26,986.76
GNMA		235,816.79
High Yield Bond		1,030,307.43
International Bond		345,921.29
Tax-Free Income		32,281.22
Pennsylvania Tax-Free Income		43,305.42
New Jersey Tax-Free Income		76,206.43
Ohio Tax-Free Income		22,753.54
Delaware Tax-Free Income		89,771.01

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Portfolios	Front-End Sales Charges
Kentucky Tax-Free Income	34,329.23
Large Cap Value Equity	13,893.11
Large Cap Growth Equity	15,994.82
Mid-Cap Value Equity	2,910.17
Mid-Cap Growth Equity	17,062.28
Small Cap Value Equity	16,257.48
Small Cap Growth Equity	30,521.35
Small Cap Core Equity	0.00
U.S. Opportunities	56,350.49
Global Science & Technology Opportunities	15,595.13
International Opportunities	81,969.77
Investment Trust	11,769.60
Index Equity	103,850.05
Asset Allocation	18,861.93

Total front-end sales charges paid by shareholders of Investor A Shares of the Portfolios for the year ended September 30, 2002, were as follows:

Portfolios	Front-End Sales Charges
Low Duration Bond	$	201,555.52
Intermediate Government Bond		46,761.39
Intermediate Bond		49,118.75
Core Bond Total Return		137,122.14
Core PLUS Total Return		0.00
Government Income		235,283.20
Managed Income		25,242.17
GNMA		134,106.96
High Yield Bond		294,129.93
International Bond		131,970.69
Tax-Free Income		16,109.14
Pennsylvania Tax-Free Income		40,314.91
New Jersey Tax-Free Income		64,329.38
Ohio Tax-Free Income		44,533.13
Delaware Tax-Free Income		26,514.27
Kentucky Tax-Free Income		8,321.12
Large Cap Value Equity		18,301.20
Large Cap Growth Equity		24,493.59
Mid-Cap Value Equity		15,228.31
Mid-Cap Growth Equity		38,601.68
Small Cap Value Equity		18,401.20
Small Cap Growth Equity		27,778.41
Small Cap Core Equity		0.00
U.S. Opportunities		17,998.65
Global Science & Technology Opportunities		23,852.88
International Opportunities		81,358.90
Investment Trust		20,153.79
Index Equity		121,268.19
Asset Allocation		31,442.49

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Institutional and BlackRock Shares

Purchase of Shares. Employees of BlackRock and Trustees of the Fund may buy BlackRock or Institutional Shares of the fund without regard to any existing minimum investment requirements. The Fund may in its discretion waive or modify the minimum investment amount, may reject any order for Institutional and BlackRock Shares and may suspend and resume the sale of shares of any Portfolio at any time.

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

Service Shares

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

The following is applicable only to 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:

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. 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 Fund reserves the right 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.

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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.

DCC&S. Qualified Plans may be able to invest in shares of the Portfolios through the Defined Contribution Clearance and Settlement system (“DCC&S”) of the National Securities Clearing Corporation. Institutions qualifying to trade on DCC&S include broker/dealers, trust companies and third party administrators. Please contact the Fund for information on agreements, procedures, sales charges and fees related to DCC&S transactions.

Hilliard Lyons Shares (“HL Shares”)

Purchase of Shares. The minimum investment for the initial purchase of HL Shares is $1,000; there is a $100 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 a Portfolio, a Portfolio’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.

Other Purchase Information. HL Shares of the Portfolios of the Fund are sold on a continuous basis by BDI as the Distributor. BDI maintains its principal offices at 760 Moore Road, King of Prussia, PA 19406. Purchases may be effected on weekdays on which the New York Stock Exchange is open for business (a “Business Day”). 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 a 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.

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. 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.

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The Fund reserves the right, if conditions exist which make cash payments undesirable, to honor any request for redemption or repurchase of a 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 a 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 a 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 a Portfolio.

With respect to the Index Master Portfolio, when the Trustees of the Trust determine that it would be in the best interests of the Index Master Portfolio, the Index Master Portfolio may pay the redemption price in whole or in part by a distribution of portfolio securities from the Index Master Portfolio of the shares being redeemed in lieu of cash in accordance with Rule 18f-1 under the 1940 Act. Investors, such as the Index Equity Portfolio, may incur brokerage charges and other transaction costs selling securities that were received in payment of redemptions.

Under the 1940 Act, a 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 or portfolio securities is not reasonably practicable, or for such other periods as the SEC may permit. (A 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 a 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 each 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.

Dividends and Distributions

Equity Portfolios. Each of the Equity Portfolios of the Fund will distribute substantially all of its net investment income and (except with respect to the Exchange Portfolio) net realized capital gains, if any, to shareholders. The net investment income of each of the Equity Portfolios is declared quarterly as a dividend to investors who are shareholders of the Portfolio at the close of business on the record day. 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 each Portfolio of the Fund 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.

The Index Equity Portfolio seeks its investment objective by investing all of its assets in the Index Master Portfolio (which is taxable as a partnership for federal income tax purposes). The Index Equity Portfolio is allocated its distributive share of the income, gains (including capital gains), losses, deductions and credits of the Index Master Portfolio. The Index Equity Portfolio’s distributive share of such items, plus gain, if any, on the redemption of shares of the Index Master Portfolio, less the Index Equity Portfolio’s expenses incurred in operations, will constitute the Index Equity Portfolio’s net income from which dividends are distributed as described above.

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Bond Portfolios. Each of the Bond Portfolios will distribute substantially all of its net investment income and net realized capital gains, if any, to shareholders. All distributions are reinvested at net asset value in the form of additional full and fractional shares of the same class of shares of the relevant Portfolio unless a shareholder elects otherwise. Dividends may only be directed to one other Portfolio. Such election, or any revocation thereof, must be made in writing to PFPC, and will become effective with respect to dividends paid after its receipt by PFPC. Each Portfolio declares a dividend each day on “settled” shares (i.e., shares for which the particular Portfolio has received payment in Federal funds) on the first Business Day after a purchase order is placed with the Fund. Payments by check are normally converted to Federal funds within two Business Days of receipt. Over the course of a year, substantially all of the Portfolio’s net investment income will be declared as dividends. The amount of the daily dividend for each Portfolio will be based on periodic projections of its net investment income. All dividends are paid within ten days after the end of each month. Net realized capital gains (including net short-term capital gains), if any, will be distributed by each Portfolio at least annually.

Money Market Portfolios. Shareholders are entitled to dividends and distributions arising from the net income and capital gains, if any, earned on investments held by the Money Market Portfolio in which they invest. Each Money Market Portfolio’s net income is declared daily as a dividend. Shareholders whose purchase orders are executed at 12:30 p.m. (Eastern Time) receive dividends for that day. On the other hand, shareholders whose redemption orders have been received by 12:30 p.m. (Eastern Time) do not receive dividends for that day, while shareholders of each Portfolio whose redemption orders are received after 12:30 p.m. (Eastern Time) do receive dividends for that day.

Dividends are paid monthly by check, or by wire transfer if requested in writing by the shareholder, within ten business days after the end of the month. Net short-term capital gains, if any, will be distributed 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. The Portfolios do not expect to realize net long-term capital gains.

Dividends are reinvested in additional full and fractional Investor Shares of the same class on which the dividends are paid, unless a shareholder elects to receive dividends in cash. Such election, or any revocation thereof, must be made in writing to PFPC, and will become effective with respect to dividends paid after receipt by PFPC.

VALUATION OF PORTFOLIO SECURITIES

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

Money Market Portfolios. The Fund seeks to maintain for each of the Money Market Portfolios a net asset value of $1.00 per share for purposes of purchase and redemptions and values their portfolio securities on the basis of the amortized cost method of valuation.

Under this method the market value of an instrument is approximated by amortizing the difference between the acquisition cost and value at maturity of the instrument on a straight-line basis over the remaining life of the instrument. The effect of changes in the market value of a security as a result of fluctuating interest rates is not taken into account. The market value of debt securities usually reflects yields generally available on securities of similar quality. When such yields decline, market values can be expected to increase, and when yields increase, market values can be expected to decline.

As indicated, the amortized cost method of valuation may result in the value of a security being higher or lower than its market price, the price a Money Market Portfolio would receive if the security were sold prior to maturity. The Fund’s Board of Trustees has established procedures for the purpose of maintaining a constant net asset value of $1.00 per share for each Money Market Portfolio, which include a review of the extent of any deviation of net asset value per share, based on available market quotations, from the $1.00 amortized cost per share.

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Should that deviation exceed  ¹/2 of 1% for a Money Market Portfolio, the Fund’s Board of Trustees will promptly consider whether any action should be initiated to eliminate or reduce material dilution or other unfair results to shareholders. Such action may include redeeming shares in kind, selling portfolio securities prior to maturity, reducing or withholding dividends, shortening the average portfolio maturity, reducing the number of outstanding shares without monetary consideration, and utilizing a net asset value per share as determined by using available market quotations.

Each Money Market Portfolio will maintain a dollar-weighted average portfolio maturity of 90 days or less, will not purchase any instrument with a deemed maturity under Rule 2a-7 of the 1940 Act greater than 13 months, and will limit portfolio investments, including repurchase agreements, to those instruments that the adviser or sub-adviser determines present minimal credit risks pursuant to guidelines adopted by the Fund’s Board of Trustees. There can be no assurance that a constant net asset value will be maintained for any Money Market Portfolio.

Equity Portfolios. Net asset value is calculated separately for each class of shares of each Equity 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 a Portfolio that are allocated to a particular class of shares, less the liabilities charged to that class, by the total number of outstanding shares of the class.

Valuation of securities held by each Equity 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 or the NASDAQ official closing price (“NOCP”), if applicable; securities traded on a national securities exchange 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 may 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 non-U.S. issuers is as follows: to the extent sale prices are available, securities which are traded on a recognized stock exchange, whether U.S. or non-U.S., 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 Portfolios (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 non-U.S. currency are translated into U.S. dollars at the prevailing market rates.

Certain of the securities acquired by the Portfolios may be traded on non-U.S. exchanges or over-the-counter markets on days on which a 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.

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

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The valuation of securities held by the Index Master Portfolio is discussed in its Registration Statement.

Bond Portfolios. Net asset value is calculated separately for each class of shares of each Bond Portfolio as of the close of regular trading hours on the NYSE on each Business Day by dividing the value of all securities, cash and other assets owned by a Portfolio that are allocated to a particular class of shares, less the liabilities charged to that class, by the total number of outstanding shares of the class.

Valuation of securities held by each Bond Portfolio is as follows: fixed income securities are valued by using market quotations or prices provided by market makers; a portion of the fixed income securities are valued utilizing one or more pricing services approved by the Board of Trustees; an option or futures contract is valued at the last sales price prior to 4:00 p.m. (Eastern Time), as quoted on the principal exchange or board of trade on which such option or futures contract is traded, or in the absence of a sale, the mean between the last bid and asked prices prior to 4:00 p.m. (Eastern Time); the amortized cost method of valuation 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 that such method does not represent fair value. 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. All other assets and securities (including securities for which market quotations are not readily available) held by the Portfolios (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 securities that are denominated in a non-U.S. currency are translated into U.S. dollars at the prevailing market rates. Certain of the securities acquired by the Portfolios may be traded on non-U.S. 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.

Fair Value. When the exchange or market on which a security or other asset is traded does not open for trading for an entire trading day, and no other market prices are available, market quotations are not readily available. Market quotations may not be reliable when there is a substantial time differential between the close of trading for the asset and the time as of which the Fund values its assets and when significant events have occurred in the markets or in related instruments such as ADRs. When market quotations are not readily available or are believed by BlackRock to be unreliable, the Fund’s investments are valued at fair value (“Fair Value Assets”).

Fair Value Assets generally are valued by BlackRock in accordance with procedures approved by the Board of Trustees. BlackRock may conclude that a market quotation is not readily available or is unreliable if a security or other asset does not have a price source due to its lack of liquidity, if BlackRock believes a market quotation from a broker-dealer is unreliable (e.g., where it varies significantly from a recent trade), where the security or other asset is thinly traded or where there is a significant event subsequent to the most recent market quotation. For these purpose, a “significant event” is deemed to occur if the BlackRock Portfolio Management Group and/or the Pricing Group determines, in its business judgment prior to or at the time of pricing the Fund’s assets, that it is highly likely that the event will cause a material change to the last closing market price of one or more assets held by the Fund.

BlackRock’s Pricing Group will submit its recommendations regarding the valuation and/or valuation methodologies for Fair Value Assets to BlackRock’s Valuation Committee. The Valuation Committee may accept, modify or reject any recommendations. The pricing of all Fair Value Assets shall be subsequently reported to and ratified by the Board.

When determining the price for a Fair Value Asset, the Valuation Committee (or the Pricing Group) shall seek to determine the price that the Fund might reasonably expect to receive from the current sale of that asset in an arm’s-length transaction. The price generally may not be determined based on what the Fund might reasonably expect to receive for selling an asset at a later time or if it holds the asset to maturity. Fair value determinations shall be based upon all available factors that the Valuation Committee (or Pricing Group) deems relevant.

Fair value represents a good faith approximation of the value of a security. The fair value of one or more securities may not, in retrospect, be the prices at which those assets could have been sold during the period in which

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the particular fair values were used in determining a Portfolio’s net asset value. As a result, a Portfolio’s sale or redemption of its shares at net asset value, at a time when a holding or holdings are valued at fair value, may have the effect of diluting or increasing the economic interest of existing shareholders.

PERFORMANCE INFORMATION

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

Each of the Money Market Portfolios may advertise its “yield”, “effective yield” and total return for each class of Investor Shares. These performance figures are based on historical earnings and are not intended to indicate future performance. “Yield” refers to the income generated by an investment in a particular class of a Portfolio’s Investor shares over a seven-day period. This income is then “annualized.” That is, the amount of income generated by the investment during that week is assumed to be generated each week over a 52-week period and is shown as a percentage of the investment. “Effective yield” is calculated similarly but, when annualized, the income earned by an investment in a particular class of a Portfolio’s Investor Shares is assumed to be reinvested. The “effective yield” will be slightly higher than the “yield” because of the compounded effect of this assumed reinvestment. A Municipal Portfolio’s “tax equivalent yield” may also be quoted, which shows the level of taxable yield needed to produce an after-tax equivalent to the Portfolio’s tax-free yield for a particular class of Investor Shares.

The performance of each class of Investor Shares of a Portfolio may be compared to the performance of 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. For example, the yield of a particular class of Investor Shares of a Portfolio may be compared to data prepared by Lipper Analytical Services, Inc., CDA Investment Technologies, Inc. and Weisenberger Investment Company Service. Performance information may also include evaluations of the Portfolios published in nationally recognized ranking services, and information as reported by 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.

Performance quotations for shares of a Portfolio represent past performance and should not be considered as representative of future results. The yield of any investment is generally a function of portfolio quality and maturity, type of investment and operating expenses. Yields will fluctuate and are not necessarily representative of future results. Any fees charged by affiliates of the Portfolio’s investment adviser or other institutions directly to their customers’ accounts in connection with investments in the Portfolios will not be included in the Portfolios’ calculations of yield and performance.

Each Money Market Portfolio’s current and effective yields for Service, HL, Investor A, Investor B, Investor C and Institutional Shares are computed separately using standardized methods required by the SEC. The annualized yield for a class of Service, HL, Investor A, Investor B, Investor C or Institutional Shares is computed by: (a) determining the net change in the value of a hypothetical account having a balance of one share at the beginning of a seven-calendar day period; (b) dividing the net change by the value of the account at the beginning of the period to obtain the base period return; and (c) annualizing the results (i.e., multiplying the base period return by 365/7). The net change in the value of the account reflects the value of additional shares purchased with dividends declared and all dividends declared on both the original share and such additional shares, but does not include realized gains and losses or unrealized appreciation and depreciation. Compound effective yields are computed by adding 1 to the base period return (calculated as described above) raising the sum to a power equal to 365/7 and subtracting 1. In addition, a standardized “tax-equivalent current yield” may be quoted for Service, HL, Investor A, Investor B, Investor C and Institutional Shares in the Municipal Money Market, Ohio Municipal Money Market, Pennsylvania Municipal Money Market, North Carolina Municipal Money Market, Virginia Municipal Money Market and New Jersey Municipal Money Market Portfolios, which is computed separately for each class by: (a) dividing that portion of the Fund’s yield (as calculated above) that is exempt from Federal or State income tax by one minus a stated Federal or state income tax rate; and (b) adding the quotient to that portion of the Fund’s yield

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that is not tax-exempt. A standardized “tax equivalent effective yield quotation” may be computed separately for each class by: (a) dividing the portion of the Portfolio’s effective yield for shares (as calculated above) that is exempt from Federal or state income tax by one minus a stated Federal or state income tax rate; and (b) adding the figure resulting from (a) above to that portion, if any, of the effective yield that is not exempt from Federal and state income tax.

The annualized yield information for each Money Market Portfolio for the seven-day period ended September 30, 2004, before waivers was as follows:

Portfolio	Yield		Effective Yield		Tax-Equivalent Current Yield (assumes a Federal income tax rate of 35%)		Tax-Equivalent Effective Yield (assumes a Federal income tax rate of 35%)
Money Market
Institutional Shares	1.25	%	1.26	%	—		—
Service Shares	0.97	%	0.97	%	—		—
Investor A Shares	1.15	%	1.16	%	—		—
Investor B Shares	0.22	%	0.22	%	—		—
Investor C Shares	0.27	%	0.27	%	—		—
Hilliard Lyons Shares	0.95	%	0.95	%	—		—
U.S. Treasury Money Market
Institutional Shares	0.96	%	0.96	%	—		—
Service Shares	0.70	%	0.70	%	—		—
Investor A Shares	0.73	%	0.73	%	—		—
Municipal Money Market
Institutional Shares	0.88	%	0.88	%	1.35	%	1.35	%
Service Shares	0.62	%	0.62	%	0.95	%	0.95	%
Investor A Shares	0.59	%	0.59	%	0.91	%	0.91	%
Hilliard Lyons Shares	0.86	%	0.86	%	1.32	%	1.32	%
New Jersey Municipal Money Market
Institutional Shares	0.74	%	0.74	%	1.14	%	1.14	%
Service Shares	0.52	%	0.52	%	0.80	%	0.80	%
Investor A Shares	0.43	%	0.43	%	0.66	%	0.66	%
North Carolina Municipal Money Market
Institutional Shares	0.78	%	0.78	%	1.20	%	1.20	%
Service Shares	0.56	%	0.56	%	0.86	%	0.86	%
Investor A Shares	0.55	%	0.55	%	0.85	%	0.85	%
Ohio Municipal Money Market
Institutional Shares	0.87	%	0.87	%	1.34	%	1.34	%
Service Shares	0.60	%	0.60	%	0.92	%	0.92	%
Investor A Shares	0.66	%	0.66	%	1.02	%	1.02	%
Pennsylvania Municipal Money Market
Institutional Shares	0.79	%	0.79	%	1.22	%	1.22	%
Service Shares	0.58	%	0.58	%	0.89	%	0.89	%
Investor A Shares	0.75	%	0.75	%	1.15	%	1.15	%
Virginia Municipal Money Market
Institutional Shares	0.39	%	0.39	%	0.60	%	0.60	%

At September 30, 2004, there were no Investor A shares outstanding with respect to the Virginia Municipal Money Market Portfolio.

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At September 30, 2004, there were no Investor B shares outstanding, except with respect to the Money Market Portfolio.

At September 30, 2004, there were no Investor C shares outstanding, except with respect to the Money Market Portfolio.

At September 30, 2004, there were no Service shares outstanding with respect to the Virginia Municipal Money Market Portfolio.

The annualized yield information for each Money Market Portfolio for the seven-day period ended September 30, 2004, after waivers was as follows:

Portfolios	Yield		Effective Yield		Tax-Equivalent Current Yield (assumes a Federal income tax rate of 35%)		Tax-Equivalent Effective Yield (assumes a Federal income tax rate of 35%)
Money Market
Institutional Shares	1.46	%	1.47	%	—		—
Service Shares	1.13	%	1.14	%	—		—
Investor A Shares	1.27	%	1.28	%	—		—
Investor B Shares	0.64	%	0.64	%	—		—
Investor C Shares	0.64	%	0.64	%	—		—
Hilliard Lyons Shares	1.07	%	1.08	%	—		—
U.S. Treasury Money Market
Institutional Shares	1.23	%	1.24	%	—		—
Service Shares	0.93	%	0.93	%	—		—
Investor A Shares	0.91	%	0.91	%	—		—
Municipal Money Market
Institutional Shares	1.14	%	1.15	%	1.75	%	1.77	%
Service Shares	0.84	%	0.84	%	1.29	%	1.29	%
Investor A Shares	0.76	%	0.76	%	1.17	%	1.17	%
Hilliard Lyons Shares	1.03	%	1.04	%	1.58	%	1.60	%
New Jersey Municipal Money Market
Institutional Shares	1.12	%	1.13	%	1.72	%	1.74	%
Service Shares	0.84	%	0.84	%	1.29	%	1.29	%
Investor A Shares	0.72	%	0.72	%	1.11	%	1.11	%
North Carolina Municipal Money Market
Institutional Shares	1.21	%	1.22	%	1.86	%	1.88	%
Service Shares	0.92	%	0.92	%	1.42	%	1.42	%
Investor A Shares	0.88	%	0.88	%	1.35	%	1.35	%
Ohio Municipal Money Market
Institutional Shares	1.24	%	1.25	%	1.91	%	1.92	%
Service Shares	0.93	%	0.93	%	1.43	%	1.43	%
Investor A Shares	0.93	%	0.93	%	1.43	%	1.43	%
Pennsylvania Municipal Money Market
Institutional Shares	1.12	%	1.13	%	1.72	%	1.74	%
Service Shares	0.84	%	0.84	%	1.29	%	1.29	%
Investor A Shares	0.98	%	0.98	%	1.51	%	1.51	%
Virginia Municipal Money Market
Institutional Shares	1.20	%	1.21	%	1.85	%	1.86	%

The fees which may be imposed by institutions on their Customers are not reflected in the calculations of yields for the Money Market Portfolios. Yields on Institutional Shares will generally be higher than yields on Service Shares; yields on Service Shares will generally be higher than yields on HL and Investor A Shares; and yields on HL and Investor A Shares will generally be higher than yields on Investor B Shares and Investor C Shares.

153

From time to time, in advertisements, sale literature, reports to shareholders and other materials, the yields of a Money Market Portfolio’s Service, Investor A, Investor B, Investor C, Institutional or HL Shares may be quoted and compared to those of other mutual funds with similar investment objectives and relevant securities indexes. For example, the yield of a Portfolio’s Service, HL, Investor A, Investor B, Investor C or Institutional Shares may be compared to the Donoghue’s Money Fund Average, which is an average compiled by IBC/Donoghue’s MONEY FUND REPORT^®, a widely-recognized independent publication that monitors the performance of money market funds, the average yields reported by the Bank Rate Monitor from money market deposit accounts offered by the 50 leading banks and thrift institutions in the top five standard metropolitan statistical areas, or to the data prepared by Lipper Analytical Services, Inc., a widely-recognized independent service that monitors the performance of mutual funds. Yield may also be compared to yields set forth in the weekly statistical release H.15(519) or the monthly statistical release designated G.13(415) published by the Board of Governors of the Federal Reserve system. In addition, each Money Market Portfolio may quote from time to time its total return in accordance with SEC regulations.

Total Return. For purposes of quoting and comparing the performance of shares of the Non-Money Market Portfolios 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 a Non-Money Market Portfolio will be calculated independently of the other classes within that Portfolio. Under the rules of the SEC, funds advertising performance must include total return quotes calculated according to the following formula:

		T = [(ERV1/n) – 1]             P
Where:	T =		average annual total return.
	ERV =		ending redeemable value at the end of the period covered by the computation of a hypothetical $1,000 payment made at the beginning of the period.
	P =		hypothetical initial payment of $1,000.
	n =		period covered by the computation, expressed in terms of years.

In calculating the ending redeemable value for Investor A Shares of the Fund’s Non-Money Market Portfolios, 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 of the Non-Money Market Portfolios, 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 of the Fund’s Non-Money Market Portfolios, 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.

Performance information presented for the following Non-Money Market Portfolios includes performance information for a corresponding predecessor portfolio which transferred its assets and liabilities to the related Non-Money Market Portfolio pursuant to a reorganization consummated on January 13, 1996 (February 13, 1996 with respect to the International Bond Portfolio):

154

Non-Money Market Portfolio	Predecessor Portfolio	Commencement of Operations of Predecessor Portfolio
New Jersey Tax-Free Income Portfolio	Compass Capital Group New Jersey Municipal Bond Fund	July 1, 1991
International Bond Portfolio	Compass Capital Group International Fixed Income Fund	July 1, 1991
Core Bond Total Return Portfolio	BFM Institutional Trust Core Fixed Income Portfolio	December 9, 1992
Low Duration Bond Portfolio	BFM Institutional Trust Short Duration Portfolio	July 17, 1992

In connection with the conversion of various common trust funds maintained by PNC Bank and PNC Bank, Delaware (“PNC-DE”), an affiliate of PNC Bank, into the Fund between May 1 and May 15, 1998 (the “CTF Conversion”), the Delaware Tax-Free Income Portfolio was established to receive the assets of the DE Tax-Free Income Fund of PNC-DE, the Kentucky Tax-Free Income Portfolio was established to receive the assets of the KY Tax-Free Income Fund of PNC Bank and the GNMA Portfolio was established to receive the assets of the GNMA Fund of PNC Bank. Performance information presented for the following Non-Money Market Portfolios includes performance information for a corresponding predecessor common trust fund which transferred its assets and liabilities to the related Non-Money Market Portfolio pursuant to the CTF Conversion:

Non-Money Market Portfolio	Predecessor Portfolio	Commencement of Operations of Predecessor Portfolio
Delaware Tax-Free Income Portfolio	PNC-DE Tax-Free Income Fund	October 20, 1965
Kentucky Tax Free Income Portfolio	PNC KY Tax-Free Income Fund	September 6, 1966
GNMA Portfolio	PNC GNMA Fund	June 1, 1990

Performance information presented for the Delaware Tax-Free Income Portfolio, the Kentucky Tax-Free Income Portfolio and the GNMA Portfolio is shown for 1 year, 3 year, 5 year and 10 year periods and is based upon the performance of the DE Tax-Free Income Fund, the KY Tax-Free Income Fund and the GNMA Fund, respectively, for periods prior to the CTF Conversion.

In connection with the reorganizations of various mutual funds advised by State Street Research & Management Company (“SSR Funds”) on January 31, 2005 (the “SSR Reorganizations”), the Exchange, Small/Mid-Cap Growth, Aurora, Legacy, Health Sciences and Global Resources Portfolios were established to receive the assets of certain SSR Funds, and the Mid-Cap Value Equity and Asset Allocation Portfolios also received assets of certain SSR Funds. Performance information presented for the following Portfolios includes performance information for a corresponding SSR Fund which transferred its assets and liabilities to the related Portfolio pursuant to the SSR Reorganizations:

155

Portfolio	SSR Fund	Commencement of Operations of SSR Fund
Exchange Portfolio	State Street Research Exchange Trust	12/17/1976
Small/Mid-Cap Growth Portfolio	State Street Research Emerging Growth Fund	10/4/1993
Aurora Portfolio	State Street Research Aurora Fund	2/13/1995
Legacy Portfolio	State Street Research Legacy Fund	12/31/1997
Health Sciences Portfolio	State Street Research Health Sciences Fund	12/21/1999
Global Resources Portfolio	State Street Research Global Resources Fund	3/2/1990
Mid-Cap Value Equity Portfolio	State Street Research Mid-Cap Value Fund	8/25/1986
Asset Allocation Portfolio	State Street Research Asset Allocation Fund	12/29/1988

Performance information presented for the Exchange, Small/Mid-Cap Growth, Aurora, Legacy, Health Sciences, Global Resources, Mid-Cap Value Equity and Asset Allocation Portfolios is shown for 1 year, 3 year, 5 year and 10 year periods and is based upon the performance of the applicable SSR Fund for periods prior to the SSR Reorganizations.

Each Non-Money Market Portfolio presents performance information for each class thereof since the commencement of operations of that Portfolio (or the related predecessor portfolio), rather than the date such class was introduced. As a result, where a Portfolio includes performance information of a related predecessor portfolio, the Fund Inception Date indicated in the following tables is the inception date of the related predecessor portfolio. Performance information for each class introduced after the commencement of operations of the related Portfolio (or predecessor portfolio) is therefore based on the performance history of a predecessor class or predecessor classes. If a class of shares in a Portfolio (the “Subsequent Class”) has more than one predecessor class, the performance data predating the introduction of the Subsequent Class is based initially on the performance of the Portfolio’s first operational predecessor class (the “Initial Class”); thereafter, the performance of the Subsequent Class is based upon the performance of any other predecessor class or classes which were introduced after the Initial Class and which had total operating expenses more similar to those of the Subsequent Class. Performance information is restated to reflect the current maximum front-end sales charge (in the case of Investor A Shares) or the maximum contingent deferred sales charge (in the case of Investor B and C Shares) when presented inclusive of sales charges. Additional performance information is presented which does not reflect the deduction of sales charges. Historical expenses reflected in performance information are based upon the distribution, shareholder servicing and processing fees and other expenses actually incurred during the periods presented and have not been restated, in cases in which the performance information for a particular class includes the performance history of a predecessor class or predecessor classes, to reflect the ongoing expenses currently borne by the particular class.

156

Based on the foregoing, the average annual total returns for each Non-Money Market Portfolio for periods ended September 30, 2004, were as follows:

			Institutional Shares
			Total Return (NAV)
	Fund Inception Date	Class Intro Date	1 Year	3 Year Ann.	5 Year Ann.	10 Year Ann. (or Share Fund Inception Ann. If shorter)
Investment Trust	9/13/1993	9/13/1993	17.11	2.80	-5.33	7.82
Large Cap Value Equity	4/20/1992	4/20/1992	19.67	2.49	0.97	9.50
Large Cap Growth Equity	11/1/1989	11/1/1989	9.05	-0.66	-11.75	5.26
Dividend Achievers	9/8/2004	9/8/2004	N/A	N/A	N/A	-6.43
Legacy	12/31/1997	12/31/1997	11.03	3.43	-2.14	3.46
Mid-Cap Value Equity	8/25/1986	6/1/1993	28.09	14.39	12.75	13.70
Mid-Cap Growth Equity	12/27/1996	12/27/1996	15.72	5.36	-0.60	8.41
Aurora	2/13/1995	2/13/1995	22.75	14.80	18.33	21.05
Small/Mid-Cap Growth	10/4/1993	10/4/1993	3.14	9.08	5.95	9.13
Small Cap Value Equity	4/13/1992	4/13/1992	20.87	12.95	11.15	11.18
Small Cap Core Equity	1/2/2002	1/2/2002	24.41	N/A	N/A	15.73
Small Cap Growth Equity	9/14/1993	9/14/1993	18.43	7.34	-1.38	10.24
Global Science & Technology Opportunities	5/15/2000	5/15/2000	-1.10	7.05	N/A	-13.09
Global Resources	3/2/1990	6/1/1993	66.68	36.93	28.34	17.25
Health Sciences	12/21/1999	10/16/2000	15.02	15.16	N/A	18.70
U.S. Opportunities	5/1/1998	5/1/1998	22.83	5.26	4.99	19.61
International Opportunities	9/26/1997	9/26/1997	22.59	18.09	15.84	17.22
Asset Allocation	12/29/1988	6/1/1993	13.81	8.47	6.75	9.85
Index Equity	4/20/1992	4/20/1992	13.71	3.87	-1.48	10.81
Enhanced Income	3/4/2004	3/19/2004	N/A	N/A	N/A	1.03
Low Duration Bond	7/17/1992	7/17/1992	1.03	3.04	5.09	5.69
Intermediate Government Bond	4/20/1992	4/20/1992	2.01	4.33	6.44	6.56
Intermediate Bond	9/17/1993	9/17/1993	2.57	5.54	7.30	7.04
Intermediate PLUS Bond	8/18/2004	8/18/2004	N/A	N/A	N/A	5.21
Core Bond Total Return	12/9/1992	12/9/1992	3.68	5.73	7.47	7.56
Core PLUS Total Return	12/7/2001	12/7/2001	2.91	N/A	N/A	6.02
Government Income	10/3/94	N/A	N/A	N/A	N/A	N/A
Inflation Protected Bond	6/28/2004	6/28/2004	N/A	N/A	N/A	22.66
GNMA	5/18/1998	5/18/1998	3.97	5.28	7.23	7.65
Managed Income	11/1/1989	11/1/1989	3.51	5.76	7.46	7.45
International Bond	7/1/1991	6/10/1996	7.20	7.91	8.60	9.60
High Yield Bond	11/19/1998	11/19/1998	13.03	13.50	7.33	7.26
UltraShort Municipal	3/3/2004	3/19/2004	N/A	N/A	N/A	0.15
Tax-Free Income	5/14/1990	1/21/1993	3.46	3.98	5.28	6.21
Delaware Tax-Free Income	5/11/1998	5/11/1998	3.82	5.03	6.13	5.73
Ohio Tax-Free Income	12/1/1992	12/1/1992	4.82	5.31	6.55	6.49
Kentucky Tax-Free Income	5/11/1998	5/11/1998	4.01	4.25	5.25	5.36
New Jersey Tax-Free Income	7/1/1991	5/4/1998	4.10	4.89	5.96	5.89
Pennsylvania Tax-Free Income	12/1/1992	12/1/1992	2.82	4.16	5.31	5.94

157

Return Before Taxes

			Service Shares
			Total Return (NAV)
	Fund Inception Date	Class Intro Date	1 Year	3 Year Ann.	5 Year Ann.	10 Year Ann. (or Share Fund Inception Ann. If shorter)
Investment Trust	9/13/1993	9/15/1993	16.83	2.49	-5.62	7.50
Large Cap Value Equity	4/20/1992	7/29/1993	19.25	2.16	0.67	9.19
Large Cap Growth Equity	11/1/1989	7/29/1993	8.59	-1.01	-12.04	4.93
Dividend Achievers	9/8/2004	9/8/2004	N/A	N/A	N/A	-6.43
Legacy	12/31/1997	12/31/1997	10.73	3.11	-2.53	3.09
Mid-Cap Value Equity	8/25/1986	8/25/1986	27.68	14.00	12.40	13.38
Mid-Cap Growth Equity	12/27/1996	12/27/1996	15.42	5.04	-0.90	8.08
Aurora	2/13/1995	2/13/1995	22.39	14.43	17.89	20.67
Small/Mid-Cap Growth	10/4/1993	2/1/1994	2.84	8.82	5.62	8.82
Small Cap Value Equity	4/13/1992	7/29/1993	20.45	12.59	10.82	10.85
Small Cap Core Equity	1/2/2002	1/2/2002	24.07	N/A	N/A	15.62
Small Cap Growth Equity	9/14/1993	9/15/1993	18.07	7.01	-1.64	9.88
Global Science & Technology Opportunities	5/15/2000	5/15/2000	-1.29	6.73	N/A	-13.31
Global Resources	3/2/1990	3/2/1990	66.27	36.31	27.84	16.86
Health Sciences	12/21/1999	12/21/1999	14.69	14.84	N/A	18.44
U.S. Opportunities	5/1/1998	5/1/1998	22.50	4.93	4.64	19.23
International Opportunities	9/26/1997	9/26/1997	22.20	17.76	15.46	16.85
Asset Allocation	12/29/1988	12/29/1988	13.38	8.12	6.43	9.56
Index Equity	4/20/1992	7/29/1993	13.20	3.41	-1.91	10.41
Enhanced Income	3/4/2004	3/19/2004	N/A	N/A	N/A	1.41
Low Duration Bond	7/17/1992	1/12/1996	0.73	2.74	4.78	5.41
Intermediate Government Bond	4/20/1992	7/29/1993	1.71	3.99	6.10	6.24
Intermediate Bond	9/17/1993	9/23/1993	2.26	5.22	6.99	6.73
Intermediate PLUS Bond	8/18/2004	8/18/2004	N/A	N/A	N/A	3.45
Core Bond Total Return	12/9/1992	1/12/1996	3.38	5.42	7.15	7.28
Core PLUS Total Return	12/7/2001	12/7/2001	3.78	N/A	N/A	6.23
Government Income	10/3/94	N/A	N/A	N/A	N/A	N/A
Inflation Protected Bond	6/28/2004	6/28/2004	N/A	N/A	N/A	16.02
GNMA	5/18/1998	5/18/1998	3.67	4.97	6.89	7.31
Managed Income	11/1/1989	7/29/1993	3.20	5.45	7.14	7.14
International Bond	7/1/1991	7/1/1991	6.89	7.62	8.29	9.33
High Yield Bond	11/19/1998	11/19/1998	12.71	13.21	7.01	6.91
UltraShort Municipal	3/3/2004	3/19/2004	N/A	N/A	N/A	-0.28
Tax-Free Income	5/14/1990	7/29/1993	3.16	3.64	4.95	5.89
Delaware Tax-Free Income	5/11/1998	5/11/1998	3.51	4.72	5.82	5.41
Ohio Tax-Free Income	12/1/1992	7/29/1993	4.60	5.03	6.25	6.18
Kentucky Tax-Free Income	5/11/1998	5/11/1998	3.69	3.94	4.96	5.05
New Jersey Tax-Free Income	7/1/1991	7/1/1991	3.79	4.57	5.64	5.69
Pennsylvania Tax-Free Income	12/1/1992	7/29/1993	2.51	3.85	4.98	5.62

158

Return Before Taxes

			Investor A Shares
			Total Return (NAV)				Total Return (Load Adjusted)
	Fund Inception Date	Class Intro Date	1 Year	3 Year Ann.	5 Year Ann.	10 Year Ann. (or Share Fund Inception Ann. If shorter)	1 Year	3 Year Ann.	5 Year Ann.	10 Year Ann. (or Share Fund Inception Ann. If shorter)
Investment Trust	9/13/1993	10/13/1993	16.60	2.31	-5.78	7.33	11.35	0.74	-6.65	6.84
Large Cap Value Equity	4/20/1992	5/2/1992	19.19	2.05	0.52	9.03	13.81	0.50	-0.40	8.53
Large Cap Growth Equity	11/1/1989	3/14/1992	8.59	-1.14	-12.17	4.78	3.74	-2.64	-12.97	4.29
Dividend Achievers	9/8/2004	9/8/2004	N/A	N/A	N/A	-6.43	N/A	N/A	N/A	-56.33
Legacy	12/31/1997	12/31/1997	10.73	3.11	-2.53	3.09	4.36	1.10	-3.68	2.19
Mid-Cap Value Equity	8/25/1986	8/25/1986	27.68	14.00	12.40	13.38	20.34	11.78	11.07	12.71
Mid-Cap Growth Equity	12/27/1996	12/27/1996	15.20	4.83	-1.10	7.87	9.99	3.22	-2.01	7.23
Aurora	2/13/1995	2/13/1995	22.39	14.43	17.89	20.67	15.36	12.20	16.49	19.93
Small/Mid-Cap Growth	10/4/1993	2/1/1994	2.84	8.82	5.62	8.82	-3.08	6.69	4.38	8.18
Small Cap Value Equity	4/13/1992	6/2/1992	20.38	12.45	10.66	10.69	14.98	10.74	9.65	10.18
Small Cap Core Equity	1/2/2002	1/2/2002	23.90	N/A	N/A	15.56	17.72	N/A	N/A	13.41
Small Cap Growth Equity	9/14/1993	9/15/1993	18.00	6.86	-1.84	9.70	12.71	5.25	-2.75	9.20
Global Science & Technology Opportunities	5/15/2000	5/15/2000	-1.30	6.63	N/A	-13.46	-6.18	4.83	N/A	-14.48
Global Resources	3/2/1990	3/2/1990	66.27	36.31	27.84	16.86	56.71	33.65	26.31	16.17
Health Sciences	12/21/1999	12/21/1999	14.69	14.84	N/A	18.44	8.09	12.59	N/A	16.98
U.S. Opportunities	5/1/1998	5/1/1998	22.33	4.79	4.51	19.08	16.22	3.01	3.45	18.13
International Opportunities	9/26/1997	9/26/1997	22.11	17.55	15.32	16.65	15.98	15.56	14.14	15.79
Asset Allocation	12/29/1988	12/29/1988	13.38	8.12	6.43	9.56	6.86	6.01	5.17	8.91
Index Equity	4/20/1992	6/2/1992	13.10	3.26	-2.06	10.25	9.71	2.21	-2.65	9.91
Enhanced Income	3/4/2004	3/19/2004	N/A	N/A	N/A	0.12	N/A	N/A	N/A	-5.05
Low Duration Bond	7/17/1992	1/12/1996	0.69	2.68	4.67	5.29	-2.36	1.63	4.04	4.97
Intermediate Government Bond	4/20/1992	5/11/1992	1.54	3.80	5.97	6.11	-2.49	2.40	5.12	5.68
Intermediate Bond	9/17/1993	5/20/1994	2.23	5.17	6.86	6.59	-1.84	3.77	5.99	6.16
Intermediate PLUS Bond	8/18/2004	8/18/2004	N/A	N/A	N/A	5.21	N/A	N/A	N/A	-25.80
Core Bond Total Return	12/9/1992	1/31/1996	3.33	5.32	7.04	7.15	-0.83	3.89	6.17	6.71
Core PLUS Total Return	12/7/2001	12/7/2001	3.25	N/A	N/A	5.90	-0.92	N/A	N/A	4.36
Government Income	10/3/1994	10/3/1994	3.34	6.36	8.26	7.96	-1.27	4.73	7.27	7.46
Inflation Protected Bond	6/28/2004	6/28/2004	N/A	N/A	N/A	21.36	N/A	N/A	N/A	7.79
GNMA	5/18/1998	5/18/1998	3.50	4.81	6.81	7.18	-0.65	3.40	5.94	6.74
Managed Income	11/1/1989	2/5/1992	3.03	5.27	6.97	6.95	-1.61	3.67	5.98	6.46
International Bond	7/1/1991	4/22/1996	6.74	7.45	8.12	9.18	1.43	5.64	7.01	8.62
High Yield Bond	11/19/1998	11/19/1998	12.70	12.99	6.83	6.77	7.02	11.07	5.75	5.83
UltraShort Municipal	3/3/2004	3/19/2004	N/A	N/A	N/A	0.38	N/A	N/A	N/A	-4.79
Tax-Free Income	5/14/1990	5/14/1990	3.10	3.53	4.82	5.72	-1.04	2.15	3.96	5.29
Delaware Tax-Free Income	5/11/1998	5/11/1998	3.35	4.55	5.64	5.24	-0.82	3.12	4.78	4.81
Ohio Tax-Free Income	12/1/1992	12/1/1992	4.34	4.82	6.05	6.02	0.20	3.41	5.20	5.59
Kentucky Tax-Free Income	5/11/1998	5/11/1998	3.53	3.77	4.76	4.87	-0.64	2.38	3.91	4.43
New Jersey Tax-Free Income	7/1/1991	1/26/1996	3.63	4.40	5.47	5.53	-0.50	3.00	4.61	5.10
Pennsylvania Tax-Free Income	12/1/1992	12/1/1992	2.44	3.68	4.83	5.46	-1.62	2.29	3.97	5.03

159

Return Before Taxes

			Investor B Shares
			Total Return (NAV)				Total Return (Load Adjusted)
	Fund Inception Date	Class Intro Date	1 Year	3 Year Ann.	5 Year Ann.	10 Year Ann. (or Share Fund Inception Ann. If shorter)	1 Year	3 Year Ann.	5 Year Ann.	10 Year Ann. (or Share Fund Inception Ann. If shorter)
Investment Trust	9/13/1993	3/27/1996	15.70	1.60	-6.47	6.65	11.20	0.45	-6.76	6.65
Large Cap Value Equity	4/20/1992	1/18/1996	18.34	1.27	-0.25	8.30	13.84	0.12	-0.57	8.30
Large Cap Growth Equity	11/1/1989	1/24/1996	7.76	-1.90	-12.83	4.08	3.26	-3.06	-13.09	4.08
Dividend Achievers	9/8/2004	9/8/2004	N/A	N/A	N/A	-6.43	N/A	N/A	N/A	56.41
Legacy	12/31/1997	1/1/1999	9.97	2.39	-3.22	2.35	4.97	1.43	-3.61	2.35
Mid-Cap Value Equity	8/25/1986	1/1/1999	26.81	13.24	11.61	12.56	21.81	12.46	11.35	12.56
Mid-Cap Growth Equity	12/27/1996	12/27/1996	14.39	4.07	-1.81	7.12	9.89	2.98	-1.99	7.12
Aurora	2/13/1995	1/1/1999	21.53	13.62	17.05	19.78	16.53	12.84	16.83	19.78
Small/Mid-Cap Growth	10/4/1993	1/1/1999	2.17	8.05	4.93	8.06	-2.83	7.18	4.59	8.06
Small Cap Value Equity	4/13/1992	10/3/1994	19.45	11.60	9.83	9.89	14.95	10.77	9.56	9.89
Small Cap Core Equity	1/2/2002	1/2/2002	23.06	N/A	N/A	15.28	18.56	N/A	N/A	14.27
Small Cap Growth Equity	9/14/1993	1/18/1996	17.00	6.04	-2.54	8.99	12.50	5.00	-2.77	8.99
Global Science & Technology Opportunities	5/15/2000	5/15/2000	-2.10	5.73	N/A	-14.14	-6.51	4.68	N/A	-14.54
Global Resources	3/2/1990	1/1/1999	65.12	35.42	26.98	16.03	60.12	34.88	26.80	16.03
Health Sciences	12/21/1999	10/16/2000	13.91	14.04	N/A	17.83	8.91	13.26	N/A	17.60
U.S. Opportunities	5/1/1998	5/1/1998	21.35	3.99	3.73	18.22	16.85	2.90	3.46	18.22
International Opportunities	9/26/1997	9/26/1997	21.18	16.67	14.48	15.81	16.68	15.80	14.24	15.81
Asset Allocation	12/29/1988	1/1/1999	12.62	7.37	5.68	8.76	7.62	6.50	5.35	8.76
Index Equity	4/20/1992	2/7/1996	12.25	2.49	-2.78	9.55	7.75	1.37	-3.17	9.55
Low Duration Bond	7/17/1992	11/18/1996	-0.06	1.88	3.87	4.67	-4.50	0.76	3.53	4.67
Intermediate Government Bond	4/20/1992	10/11/1996	0.79	3.07	5.15	5.46	-3.64	1.97	4.83	5.46
Intermediate Bond	9/17/1993	2/5/1998	1.46	4.35	6.06	6.06	-2.89	3.28	5.75	6.06
Intermediate PLUS Bond	8/18/2004	8/18/2004	N/A	N/A	N/A	5.21	N/A	N/A	N/A	-28.66
Core Bond Total Return	12/9/1992	3/18/1996	2.56	4.57	6.25	6.47	-1.82	3.52	5.93	6.47
Core PLUS Total Return	12/7/2001	12/7/2001	2.38	N/A	N/A	5.15	-2.07	N/A	N/A	4.01
Government Income	10/3/1994	10/3/1994	2.57	5.56	7.46	7.17	-1.87	4.51	7.16	7.17
Inflation Protected Bond	6/28/2004	6/28/2004	N/A	N/A	N/A	21.78	N/A	N/A	N/A	2.77
GNMA	5/18/1998	5/18/1998	2.74	4.05	5.97	6.36	-1.70	3.00	5.65	6.36
Managed Income	11/1/1989	7/15/1997	2.26	4.49	6.17	6.37	-2.07	3.43	5.85	6.37
International Bond	7/1/1991	4/19/1996	5.94	6.65	7.31	8.49	1.44	5.61	7.01	8.49
High Yield Bond	11/19/1998	11/19/1998	11.87	12.20	6.04	5.97	7.37	11.27	5.77	5.86
Tax-Free Income	5/14/1990	7/18/1996	2.24	2.73	4.02	5.07	-2.21	1.64	3.68	5.07
Delaware Tax-Free Income	5/11/1998	5/11/1998	2.68	3.80	4.88	4.47	-1.78	2.71	4.55	4.47
Ohio Tax-Free Income	12/1/1992	10/13/1994	3.57	4.04	5.26	5.23	-0.93	2.95	4.94	5.23
Kentucky Tax-Free Income	5/11/1998	5/11/1998	2.76	3.00	3.98	4.09	-1.72	1.91	3.64	4.09
New Jersey Tax-Free Income	7/1/1991	7/2/1996	2.85	3.62	4.68	4.89	-1.61	2.54	4.35	4.89
Pennsylvania Tax-Free Income	12/1/1992	10/3/1994	1.69	2.96	4.11	4.73	-2.72	1.86	3.76	4.73

160

Return Before Taxes

			Investor C Shares
			Total Return (NAV)				Total Return (Load Adjusted)
	Fund Inception Date	Class Intro Date	1 Year	3 Year Ann.	5 Year Ann.	10 Year Ann. (or Share Fund Inception Ann. If shorter)	1 Year	3 Year Ann.	5 Year Ann.	10 Year Ann. (or Share Fund Inception Ann. If shorter)
Investment Trust	9/13/1993	9/27/1996	15.78	1.59	-6.47	6.65	14.78	1.59	-6.47	6.65
Large Cap Value Equity	4/20/1992	8/16/1996	18.36	1.28	-0.23	8.31	17.36	1.28	-0.23	8.31
Large Cap Growth Equity	11/1/1989	1/24/1997	7.77	-1.87	-12.85	4.07	6.77	-1.87	-12.85	4.07
Dividend Achievers	9/8/2004	9/8/2004	N/A	N/A	N/A	-6.43	N/A	N/A	N/A	20.80
Legacy	12/31/1997	12/31/1997	9.97	2.39	-3.22	2.35	8.97	2.39	-3.22	2.35
Mid-Cap Value Equity	8/25/1986	6/1/1993	26.84	13.26	11.64	12.59	25.84	13.26	11.63	12.59
Mid-Cap Growth Equity	12/27/1996	12/27/1996	14.39	4.07	-1.80	7.13	13.39	4.07	-1.80	7.13
Aurora	2/13/1995	2/13/1995	21.57	13.62	17.05	19.78	20.57	13.62	17.04	19.78
Small/Mid-Cap Growth	10/4/1993	2/1/1994	2.16	8.07	4.97	8.08	1.16	8.07	4.96	8.08
Small Cap Value Equity	4/13/1992	10/1/1996	19.53	11.60	9.84	9.89	18.53	11.60	9.84	9.89
Small Cap Core Equity	1/2/2002	1/2/2002	23.06	N/A	N/A	15.28	22.06	N/A	N/A	15.28
Small Cap Growth Equity	9/14/1993	9/6/1996	17.09	6.07	-2.52	9.00	16.09	6.07	-2.52	9.00
Global Science & Technology Opportunities	5/15/2000	5/15/2000	-2.10	5.73	N/A	-14.14	-3.08	5.73	N/A	-14.14
Global Resources	3/2/1990	6/1/1993	65.12	35.49	26.99	16.04	64.12	35.49	26.97	16.04
Health Sciences	12/21/1990	10/16/2000	13.82	14.00	N/A	17.77	12.82	14.00	N/A	17.77
U.S. Opportunities	5/1/1998	5/1/1998	21.30	3.99	3.71	18.21	20.30	3.99	3.71	18.21
International Opportunities	9/26/1997	9/26/1997	21.12	16.67	14.48	15.81	20.12	16.67	14.48	15.81
Asset Allocation	12/29/1988	6/1/1993	12.58	7.35	5.67	8.75	11.58	7.35	5.67	8.75
Index Equity	4/20/1992	8/14/1996	12.26	2.49	-2.79	9.55	11.26	2.49	-2.79	9.55
Low Duration Bond	7/17/1992	2/24/1997	-0.06	1.88	3.87	4.67	-1.05	1.88	3.87	4.67
Intermediate Government Bond	4/20/1992	10/8/1996	0.79	3.10	5.17	5.47	-0.19	3.10	5.17	5.47
Intermediate Bond	9/17/1993	10/16/1998	1.35	4.35	6.06	6.06	0.39	4.35	6.06	6.06
Intermediate PLUS Bond	8/18/2004	8/18/2004	N/A	N/A	N/A	5.21	N/A	N/A	N/A	-3.34
Core Bond Total Return	12/9/1992	2/28/1997	2.56	4.53	6.24	6.47	1.58	4.53	6.24	6.47
Core PLUS Total Return	12/7/2001	12/7/2001	2.38	N/A	N/A	5.16	1.39	N/A	N/A	5.16
Government Income	10/3/1994	2/28/1997	2.57	5.57	7.43	7.15	1.59	5.57	7.43	7.15
Inflation Protected Bond	6/28/2004	6/28/2004	N/A	N/A	N/A	23.14	N/A	N/A	N/A	18.67
GNMA	5/18/1998	5/18/1998	2.85	4.06	5.95	6.35	1.86	4.06	5.95	6.35
Managed Income	11/1/1989	11/22/1999	2.17	4.50	6.12	6.35	1.21	4.50	6.12	6.35
International Bond	7/1/1991	9/11/1996	5.94	6.64	7.34	8.50	4.94	6.64	7.34	8.50
High Yield Bond	11/19/1998	11/19/1998	11.86	12.19	6.06	5.97	10.86	12.19	6.06	5.97
Tax-Free Income	5/14/1990	2/28/1997	2.24	2.73	4.02	5.07	1.25	2.73	4.02	5.07
Delaware Tax-Free Income	5/11/1998	5/11/1998	2.58	3.77	4.86	4.46	1.59	3.77	4.86	4.46
Ohio Tax-Free Income	12/1/1992	8/26/1998	3.66	4.08	5.28	5.24	2.66	4.08	5.28	5.24
Kentucky Tax-Free Income	5/11/1998	5/11/1998	2.86	2.99	4.04	4.11	1.87	2.99	4.04	4.11
New Jersey Tax-Free Income	7/1/1991	12/9/1998	2.85	3.61	4.71	4.90	1.86	3.61	4.71	4.90
Pennsylvania Tax-Free Income	12/1/1992	8/14/1998	1.69	2.95	4.09	4.75	0.71	2.95	4.09	4.75

161

Return Before Taxes

		Black Rock Shares
			Total Return (NAV)
	Fund Inception Date	Class Intro Date	1 Year	3 Year Ann.	5 Year Ann.	10 Year Ann. (or Share Fund Inception Ann., If Shorter)
Small Cap Value Equity	4/13/1992	4/12/2004	20.95	12.98	11.16	11.19
Exchange	12/17/1976	12/17/1976	9.71	3.77	-1.16	11.25
Enhanced Income	3/4/2004	3/4/2004	N/A	N/A	N/A	1.01
Low Duration Bond	7/17/1992	6/3/1997	1.18	3.23	5.25	5.81
Intermediate Bond	9/17/1993	5/1/1998	2.72	5.70	7.46	7.15
Intermediate PLUS Bond	8/18/2004	8/18/2004	N/A	N/A	N/A	4.96
Core Bond Total Return	12/9/1992	5/1/1997	3.83	5.95	7.67	7.70
Core PLUS Total Return	12/7/2001	12/7/2001	3.65	N/A	N/A	6.40
Government Income	10/3/1994	2/7/2003	3.85	6.70	8.47	8.06
Inflation Protected Bond	6/28/2004	6/28/2004	N/A	N/A	N/A	21.06
GNMA	5/18/1998	12/20/2002	4.02	5.33	7.26	7.66
International Bond	7/1/1991	5/18/2004	7.29	7.93	8.61	9.60
High Yield Bond	11/19/1998	11/19/1998	13.20	13.67	7.49	7.39
UltraShort Municipal	3/3/2004	3/3/2004	N/A	N/A	N/A	0.28
Tax-Free Income	5/14/1990	12/22/2003	3.58	4.02	5.31	6.22

162

Return After Taxes On Distributions

			Institutional Shares
			Total Return (NAV)
	Fund Inception Date	Class Intro Date	1 Year	3 Year Ann.	5 Year Ann.	10 Year Ann. (or Share Fund Inception Ann. If shorter)
Investment Trust	9/13/1993	9/13/1993	16.91	2.60	-6.39	6.28
Large Cap Value Equity	4/20/1992	4/20/1992	19.15	1.94	-0.26	7.12
Large Cap Growth Equity	11/1/1989	11/1/1989	9.05	-0.66	-12.96	3.61
Dividend Achievers	9/8/2004	9/8/2004	N/A	N/A	N/A	-6.43
Legacy	12/31/1997	12/31/1997	11.03	3.43	-2.14	3.46
Mid-Cap Value Equity	8/25/1986	6/1/1993	27.73	13.12	10.66	11.08
Mid-Cap Growth Equity	12/27/1996	12/27/1996	15.72	5.36	-5.43	4.96
Aurora	2/13/1995	2/13/1995	22.74	14.76	17.51	19.28
Small/Mid-Cap Growth	10/4/1993	10/4/1993	3.14	9.08	4.72	7.44
Small Cap Value Equity	4/13/1992	4/13/1992	17.74	9.61	8.68	8.53
Small Cap Core Equity	1/2/2002	1/2/2002	24.04	N/A	N/A	15.61
Small Cap Growth Equity	9/14/1993	9/14/1993	18.43	7.34	-3.98	8.43
Global Science & Technology Opportunities	5/15/2000	5/15/2000	-1.10	7.05	N/A	-13.09
Global Resources	3/2/1990	6/1/1993	65.60	36.63	28.15	16.47
Health Sciences	12/21/1999	10/16/2000	13.09	14.49	N/A	17.54
U.S. Opportunities	5/1/1998	5/1/1998	22.83	5.00	1.75	16.72
International Opportunities	9/26/1997	9/26/1997	22.57	18.08	15.00	15.84
Asset Allocation	12/29/1988	6/1/1993	12.94	7.30	4.73	7.38
Index Equity	4/20/1992	4/20/1992	13.20	3.43	-1.88	9.58
Enhanced Income	3/4/2004	3/19/2004	N/A	N/A	N/A	0.36
Low Duration Bond	7/17/1992	7/17/1992	0.18	1.76	3.33	3.60
Intermediate Government Bond	4/20/1992	4/20/1992	0.70	2.60	4.38	4.30
Intermediate Bond	9/17/1993	9/17/1993	0.85	3.40	4.96	4.54
Intermediate PLUS Bond	8/18/2004	8/18/2004	N/A	N/A	N/A	5.21
Core Bond Total Return	12/9/1992	12/9/1992	1.65	3.36	4.99	4.79
Core PLUS Total Return	12/7/2001	12/7/2001	1.39	N/A	N/A	4.21
Government Income	10/3/94	N/A	N/A	N/A	N/A	N/A
Inflation Protected Bond	6/28/2004	6/28/2004	N/A	N/A	N/A	22.66
GNMA	5/18/1998	5/18/1998	2.06	2.79	4.62	4.98
Managed Income	11/1/1989	11/1/1989	1.29	3.52	5.05	4.80
International Bond	7/1/1991	6/10/1996	5.90	6.15	5.80	6.34
High Yield Bond	11/19/1998	11/19/1998	10.22	9.61	3.08	3.05
UltraShort Municipal	3/3/2004	3/19/2004	N/A	N/A	N/A	0.15
Tax-Free Income	5/14/1990	1/21/1993	3.46	3.97	5.28	6.17
Delaware Tax-Free Income	5/11/1998	5/11/1998	3.82	5.03	6.13	5.69
Ohio Tax-Free Income	12/1/1992	12/1/1992	4.82	5.31	6.54	6.48
Kentucky Tax-Free Income	5/11/1998	5/11/1998	4.01	4.25	5.24	5.31
New Jersey Tax-Free Income	7/1/1991	5/4/1998	4.09	4.86	5.94	5.87
Pennsylvania Tax-Free Income	12/1/1992	12/1/1992	2.82	4.15	5.31	5.93

163

Return After Taxes On Distributions

			Service Shares
			Total Return (NAV)
	Fund Inception Date	Class Intro Date	1 Year	3 Year Ann.	5 Year Ann.	10 Year Ann. (or Share Fund Inception Ann. If shorter)
Investment Trust	9/13/1993	9/15/1993	16.69	2.45	-6.56	6.09
Large Cap Value Equity	4/20/1992	7/29/1993	18.85	1.72	-0.45	6.93
Large Cap Growth Equity	11/1/1989	7/29/1993	8.59	-1.01	-13.25	3.33
Dividend Achievers	9/8/2004	9/8/2004	N/A	N/A	N/A	-6.43
Legacy	12/31/1997	12/31/1997	10.73	3.11	-2.53	3.09
Mid-Cap Value Equity	8/25/1986	8/25/1986	27.43	12.77	10.36	10.84
Mid-Cap Growth Equity	12/27/1996	12/27/1996	15.42	5.04	-5.78	4.59
Aurora	2/13/1995	2/13/1995	22.39	14.39	17.07	18.90
Small/Mid-Cap Growth	10/4/1993	2/1/1994	2.84	8.82	4.36	7.10
Small Cap Value Equity	4/13/1992	7/29/1993	17.31	9.26	8.42	8.30
Small Cap Core Equity	1/2/2002	1/2/2002	23.70	N/A	N/A	15.49
Small Cap Growth Equity	9/14/1993	9/15/1993	18.07	7.01	-4.28	8.07
Global Science & Technology Opportunities	5/15/2000	5/15/2000	-1.29	6.73	N/A	-13.31
Global Resources	3/2/1990	3/2/1990	65.25	36.03	27.66	16.07
Health Sciences	12/21/1999	12/21/1999	12.75	14.17	N/A	17.27
U.S. Opportunities	5/1/1998	5/1/1998	22.50	4.71	1.41	16.36
International Opportunities	9/26/1997	9/26/1997	22.18	17.75	14.61	15.48
Asset Allocation	12/29/1988	12/29/1988	12.62	6.91	4.43	7.16
Index Equity	4/20/1992	7/29/1993	12.82	3.07	-2.20	9.30
Enhanced Income	3/4/2004	3/19/2004	N/A	N/A	N/A	0.11
Low Duration Bond	7/17/1992	1/12/1996	-0.01	1.57	3.14	3.43
Intermediate Government Bond	4/20/1992	7/29/1993	0.51	2.37	4.17	4.11
Intermediate Bond	9/17/1993	9/23/1993	0.65	3.20	4.76	4.35
Intermediate PLUS Bond	8/18/2004	8/18/2004	N/A	N/A	N/A	3.45
Core Bond Total Return	12/9/1992	1/12/1996	1.45	3.17	4.80	4.62
Core PLUS Total Return	12/7/2001	12/7/2001	2.36	N/A	N/A	4.49
Government Income	10/3/94	N/A	N/A	N/A	N/A	N/A
Inflation Protected Bond	6/28/2004	6/28/2004	N/A	N/A	N/A	16.02
GNMA	5/18/1998	5/18/1998	1.87	2.60	4.41	4.78
Managed Income	11/1/1989	7/29/1993	1.09	3.32	4.85	4.61
International Bond	7/1/1991	7/1/1991	5.64	6.00	5.64	6.19
High Yield Bond	11/19/1998	11/19/1998	10.02	9.46	2.89	2.84
UltraShort Municipal	3/3/2004	3/19/2004	N/A	N/A	N/A	-0.28
Tax-Free Income	5/14/1990	7/29/1993	3.16	3.63	4.95	5.85
Delaware Tax-Free Income	5/11/1998	5/11/1998	3.51	4.72	5.81	5.37
Ohio Tax-Free Income	12/1/1992	7/29/1993	4.60	5.02	6.24	6.17
Kentucky Tax-Free Income	5/11/1998	5/11/1998	3.69	3.93	4.95	5.01
New Jersey Tax-Free Income	7/1/1991	7/1/1991	3.77	4.54	5.62	5.67
Pennsylvania Tax-Free Income	12/1/1992	7/29/1993	2.51	3.85	4.98	5.61

164

Return After Taxes On Distributions

			Investor A Shares
			Total Return (NAV)				Total Return (Load Adjusted)
	Fund Inception Date	Class Intro Date	1 Year	3 Year Ann.	5 Year Ann.	10 Year Ann. (or Share Fund Inception Ann. If shorter)	1 Year	3 Year Ann.	5 Year Ann.	10 Year Ann. (or Share Fund Inception Ann. If shorter)
Investment Trust	9/13/1993	10/13/1993	16.48	2.16	-7.03	5.77	11.23	0.60	-7.88	5.29
Large Cap Value Equity	4/20/1992	5/2/1992	18.81	1.65	-0.54	6.83	13.44	0.11	-1.45	6.34
Large Cap Growth Equity	11/1/1989	3/14/1992	8.59	-1.14	-13.38	3.19	3.74	-2.64	-14.18	2.72
Dividend Advisers	9/8/2004	9/8/2004	9/8/2004	N/A	N/A	N/A	6.48	N/A	N/A	-56.33
Legacy	12/31/1997	12/31/1997	10.73	3.11	-2.53	3.09	4.36	1.10	-3.68	2.19
Mid-Cap Value Equity	8/25/1986	8/25/1986	23.21	8.94	5.95	5.83	17.63	7.29	4.98	5.21
Mid-Cap Growth Equity	12/27/1996	12/27/1996	15.20	4.83	-6.01	4.35	9.99	3.22	-6.87	3.74
Aurora	2/13/1995	2/13/1995	22.39	14.39	17.07	18.90	15.35	12.15	15.69	18.18
Small/Mid-Cap Growth	10/4/1993	2/1/1994	2.84	8.82	4.36	7.10	-3.08	6.69	3.13	6.47
Small Cap Value Equity	4/13/1992	6/2/1992	17.23	9.12	8.28	8.19	11.97	7.46	7.29	7.69
Small Cap Core Equity	1/2/2002	1/2/2002	23.53	N/A	N/A	15.44	17.37	N/A	N/A	13.28
Small Cap Growth Equity	9/14/1993	9/15/1993	18.00	6.86	-4.51	7.88	12.71	5.25	-5.39	7.38
Global Science & Technology Opportunities	5/15/2000	5/15/2000	-1.30	6.63	N/A	-13.46	-6.18	4.83	N/A	-14.48
Global Resources	3/2/1990	3/2/1990	65.25	36.03	27.66	16.07	55.75	33.38	26.16	15.39
Health Sciences	12/21/1999	12/21/1999	12.75	14.17	N/A	17.27	6.26	11.94	N/A	15.83
U.S. Opportunities	5/1/1998	5/1/1998	22.33	4.60	1.29	16.22	16.22	2.82	0.26	15.28
International Opportunities	9/26/1997	9/26/1997	22.09	17.55	14.47	15.31	15.96	15.56	13.30	14.47
Asset Allocation	12/29/1988	12/29/1988	12.62	6.91	4.43	7.16	6.15	4.82	3.21	6.53
Index Equity	4/20/1992	6/2/1992	12.75	2.97	-2.30	9.20	9.37	1.92	-2.89	8.87
Enhanced Income	3/4/2004	3/19/2004	N/A	N/A	N/A	-0.29	N/A	N/A	N/A	-5.44
Low Duration Bond	7/17/1992	1/12/1996	-0.03	1.55	3.08	3.36	-3.06	0.51	2.46	3.05
Intermediate Government Bond	4/20/1992	5/11/1992	0.40	2.26	4.11	4.04	-3.58	0.88	3.27	3.62
Intermediate Bond	9/17/1993	5/20/1994	0.63	3.19	4.69	4.27	-3.38	1.81	3.83	3.84
Intermediate PLUS Bond	8/18/2004	8/18/2004	N/A	N/A	N/A	5.21	N/A	N/A	N/A	-25.80
Core Bond Total Return	12/9/1992	1/31/1996	1.42	3.11	4.74	4.55	-2.66	1.70	3.88	4.12
Core PLUS Total Return	12/7/2001	12/7/2001	1.85	N/A	N/A	4.22	-2.26	N/A	N/A	2.71
Government Income	10/3/1994	10/3/1994	1.81	4.34	6.19	5.34	-2.74	2.74	5.21	4.86
Inflation Protected Bond	6/28/2004	6/28/2004	N/A	N/A	N/A	21.02	N/A	N/A	N/A	7.50
GNMA	5/18/1998	5/18/1998	1.76	2.52	4.39	4.72	-2.32	1.13	3.55	4.29
Managed Income	11/1/1989	2/5/1992	0.98	3.22	4.75	4.50	-3.57	1.64	3.78	4.02
International Bond	7/1/1991	4/22/1996	5.58	5.88	5.52	6.09	0.33	4.10	4.44	5.55
High Yield Bond	11/19/1998	11/19/1998	10.06	9.30	2.79	2.75	4.51	7.44	1.74	1.85
UltraShort Municipal	3/3/2004	3/19/2004	N/A	N/A	N/A	0.38	N/A	N/A	N/A	-4.79
Tax-Free Income	5/14/1990	5/14/1990	3.10	3.53	4.82	5.68	-1.04	2.14	3.96	5.25
Delaware Tax-Free Income	5/11/1998	5/11/1998	3.35	4.54	5.64	5.20	-0.82	3.11	4.78	4.77
Ohio Tax-Free Income	12/1/1992	12/1/1992	4.34	4.82	6.05	6.01	0.20	3.40	5.19	5.58
Kentucky Tax-Free Income	5/11/1998	5/11/1998	3.53	3.76	4.76	4.82	-0.64	2.38	3.91	4.39
New Jersey Tax-Free Income	7/1/1991	1/26/1996	3.61	4.37	5.45	5.51	-0.52	2.97	4.60	5.08
Pennsylvania Tax-Free Income	12/1/1992	12/1/1992	2.44	3.67	4.82	5.45	-1.62	2.28	3.97	5.02

165

Return After Taxes On Distributions

			Investor B Shares
			Total Return (NAV)				Total Return (Load Adjusted)
	Fund Inception Date	Class Intro Date	1 Year	3 Year Ann.	5 Year Ann.	10 Year Ann. (or Share Fund Inception Ann. If shorter)	1 Year	3 Year Ann.	5 Year Ann.	10 Year Ann. (or Share Fund Inception Ann. If shorter)
Investment Trust	9/13/1993	3/27/1996	15.67	1.59	-7.39	5.33	11.17	0.45	-7.70	5.33
Large Cap Value Equity	4/20/1992	1/18/1996	18.24	1.04	-1.12	6.31	13.74	-0.12	-1.45	6.31
Large Cap Growth Equity	11/1/1989	1/24/1996	7.76	-1.90	-14.09	2.48	3.26	-3.06	-14.36	2.48
Dividend Achievers	9/8/2004	9/8/2004	N/A	N/A	N/A	-6.43	N/A	N/A	N/A	-56.41
Legacy	12/31/1997	1/1/1999	9.97	2.39	-3.22	2.34	4.97	1.43	-3.61	2.34
Mid-Cap Value Equity	8/25/1986	1/1/1999	26.81	12.07	9.70	10.23	21.81	11.27	9.42	10.23
Mid-Cap Growth Equity	12/27/1996	12/27/1996	14.39	4.07	-6.82	3.53	9.89	2.98	-7.04	3.53
Aurora	2/13/1995	1/1/1999	21.52	13.57	16.21	18.02	16.52	12.79	15.99	18.02
Small/Mid-Cap Growth	10/4/1993	1/1/1999	2.17	8.05	3.59	6.29	-2.83	7.18	3.24	6.29
Small Cap Value Equity	4/13/1992	10/3/1994	16.10	8.12	7.41	7.41	11.60	7.23	7.12	7.41
Small Cap Core Equity	1/2/2002	1/2/2002	22.70	N/A	N/A	15.15	18.20	N/A	N/A	14.14
Small Cap Growth Equity	9/14/1993	1/18/1996	17.00	6.04	-5.29	7.11	12.50	5.00	-5.55	7.11
Global Science & Technology Opportunities	5/15/2000	5/15/2000	-2.10	5.73	N/A	-14.14	-6.51	4.68	N/A	-14.54
Global Resources	3/2/1990	1/1/1999	64.28	35.19	26.83	15.24	59.28	34.65	26.67	15.24
Health Sciences	12/21/1999	10/16/2000	11.94	13.36	N/A	16.66	6.94	12.57	N/A	16.43
U.S. Opportunities	5/1/1998	5/1/1998	21.35	3.90	0.54	15.38	16.85	2.81	0.23	15.38
International Opportunities	9/26/1997	9/26/1997	21.17	16.66	13.63	14.54	16.67	15.80	13.39	14.54
Asset Allocation	12/29/1988	1/1/1999	12.15	6.61	4.07	6.73	7.15	5.72	3.73	6.73
Index Equity	4/20/1992	2/7/1996	12.16	2.43	-2.84	8.69	7.66	1.31	-3.23	8.69
Low Duration Bond	7/17/1992	11/18/1996	-0.52	1.04	2.58	2.98	-4.96	-0.11	2.22	2.98
Intermediate Government Bond	4/20/1992	10/11/1996	-0.09	1.81	3.60	3.64	-4.51	0.69	3.25	3.64
Intermediate Bond	9/17/1993	2/5/1998	0.14	2.66	4.20	3.95	-4.22	1.56	3.86	3.95
Intermediate PLUS Bond	8/18/2004	8/18/2004	N/A	N/A	N/A	5.21	N/A	N/A	N/A	-28.66
Core Bond Total Return	12/9/1992	3/18/1996	0.93	2.65	4.26	4.14	-3.45	1.56	3.91	4.14
Core PLUS Total Return	12/7/2001	12/7/2001	1.26	N/A	N/A	3.74	-3.19	N/A	N/A	2.57
Government Income	10/3/1994	10/3/1994	1.32	3.85	5.70	4.86	-3.12	2.75	5.37	4.86
Inflation Protected Bond	6/28/2004	6/28/2004	N/A	N/A	N/A	21.62	N/A	N/A	N/A	2.62
GNMA	5/18/1998	5/18/1998	1.28	2.04	3.85	4.21	-3.16	0.95	3.51	4.21
Managed Income	11/1/1989	7/15/1997	0.49	2.73	4.26	4.15	-3.84	1.63	3.92	4.15
International Bond	7/1/1991	4/19/1996	5.04	5.36	5.02	5.67	0.54	4.30	4.69	5.67
High Yield Bond	11/19/1998	11/19/1998	9.53	8.83	2.31	2.27	5.03	7.84	2.00	2.14
Tax-Free Income	5/14/1990	7/18/1996	2.24	2.72	4.02	5.03	-2.21	1.63	3.67	5.03
Delaware Tax-Free Income	5/11/1998	5/11/1998	2.68	3.80	4.88	4.43	-1.78	2.71	4.54	4.43
Ohio Tax-Free Income	12/1/1992	10/13/1994	3.57	4.04	5.26	5.22	-0.93	2.95	4.93	5.22
Kentucky Tax-Free Income	5/11/1998	5/11/1998	2.76	2.99	3.98	4.04	-1.72	1.90	3.63	4.04
New Jersey Tax-Free Income	7/1/1991	7/2/1996	2.84	3.60	4.67	4.86	-1.63	2.51	4.33	4.86
Pennsylvania Tax-Free Income	12/1/1992	10/3/1994	1.69	2.95	4.10	4.72	-2.72	1.86	3.76	4.72

166

Return After Taxes On Distributions

			Investor C Shares
			Total Return (NAV)				Total Return (Load Adjusted)
	Fund Inception Date	Class Intro Date	1 Year	3 Year Ann.	5 Year Ann.	10 Year Ann. (or Share Fund Inception Ann. If shorter)	1 Year	3 Year Ann.	5 Year Ann.	10 Year Ann. (or Share Fund Inception Ann. If shorter)
Investment Trust	9/13/1993	9/27/1996	15.78	1.59	-7.39	5.33	14.78	1.59	-7.39	5.33
Large Cap Value Equity	4/20/1992	8/16/1996	18.25	1.04	-1.10	6.32	17.25	1.04	-1.10	6.32
Large Cap Growth Equity	11/1/1989	1/24/1997	7.77	-1.87	-14.11	2.47	6.77	-1.87	-14.11	2.47
Dividend Achievers	9/8/2004	9/8/2004	N/A	N/A	N/A	-6.43	N/A	N/A	N/A	20.80
Legacy	12/31/1997	12/31/1997	9.97	2.39	-3.22	2.34	8.97	2.39	-3.22	2.34
Mid-Cap Value Equity	8/25/1986	6/1/1993	26.84	12.09	9.75	10.27	25.84	12.09	9.75	10.27
Mid-Cap Growth Equity	12/27/1996	12/27/1996	14.39	4.07	-6.82	3.54	13.39	4.07	-6.82	3.54
Aurora	2/13/1995	2/13/1995	21.56	13.57	16.21	18.02	20.56	13.57	16.21	18.02
Small/Mid-Cap Growth	10/4/1993	2/1/1994	2.16	8.07	3.63	6.31	1.16	8.07	3.63	6.31
Small Cap Value Equity	4/13/1992	10/1/1996	16.18	8.12	7.42	7.42	15.18	8.12	7.42	7.42
Small Cap Core Equity	1/2/2002	1/2/2002	22.70	N/A	N/A	15.15	21.70	N/A	N/A	15.15
Small Cap Growth Equity	9/14/1993	9/6/1996	17.09	6.07	-5.28	7.12	16.09	6.07	-5.28	7.12
Global Science & Technology Opportunities	5/15/2000	5/15/2000	-2.10	5.73	N/A	-14.14	-3.08	5.73	N/A	-14.14
Global Resources	3/2/1990	6/1/1993	64.25	35.25	26.83	15.24	63.25	35.25	26.83	15.24
Health Sciences	12/21/1999	10/16/2000	11.85	13.32	N/A	16.60	10.85	13.32	N/A	16.60
U.S. Opportunities	5/1/1998	5/1/1998	21.30	3.90	0.52	15.36	20.30	3.90	0.52	15.36
International Opportunities	9/26/1997	9/26/1997	21.10	16.66	13.63	14.54	20.10	16.66	13.63	14.54
Asset Allocation	12/29/1988	6/1/1993	12.11	6.59	4.08	6.73	11.11	6.59	4.08	6.73
Index Equity	4/20/1992	8/14/1996	12.16	2.43	-2.85	8.68	11.16	2.43	-2.85	8.68
Low Duration Bond	7/17/1992	2/24/1997	-0.52	1.04	2.58	2.98	-1.51	1.04	2.58	2.98
Intermediate Government Bond	4/20/1992	10/8/1996	-0.09	1.84	3.61	3.65	-1.07	1.84	3.61	3.65
Intermediate Bond	9/17/1993	10/16/1998	0.04	2.66	4.20	3.95	-0.93	2.66	4.20	3.95
Intermediate PLUS Bond	8/18/2004	8/18/2004	N/A	N/A	N/A	5.21	N/A	N/A	N/A	-3.34
Core Bond Total Return	12/9/1992	2/28/1997	0.93	2.62	4.25	4.14	-0.04	2.62	4.25	4.14
Core PLUS Total Return	12/7/2001	12/7/2001	1.26	N/A	N/A	3.74	0.27	N/A	N/A	3.74
Government Income	10/3/1994	2/28/1997	1.32	3.85	5.66	4.84	0.33	3.85	5.66	4.84
Inflation Protected Bond	6/28/2004	6/28/2004	N/A	N/A	N/A	23.13	N/A	N/A	N/A	18.66
GNMA	5/18/1998	5/18/1998	1.38	2.04	3.84	4.21	0.39	2.04	3.84	4.21
Managed Income	11/1/1989	11/22/1999	0.40	2.73	4.21	4.13	-0.57	2.73	4.21	4.13
International Bond	7/1/1991	9/11/1996	5.03	5.35	5.05	5.69	4.03	5.35	5.05	5.69
High Yield Bond	11/19/1998	11/19/1998	9.52	8.83	2.33	2.28	8.52	8.83	2.33	2.28
Tax-Free Income	5/14/1990	2/28/1997	2.24	2.72	4.02	5.03	1.25	2.72	4.02	5.03
Delaware Tax-Free Income	5/11/1998	5/11/1998	2.58	3.76	4.86	4.42	1.59	3.76	4.86	4.42
Ohio Tax-Free Income	12/1/1992	8/26/1998	3.66	4.07	5.28	5.23	2.66	4.07	5.28	5.23
Kentucky Tax-Free Income	5/11/1998	5/11/1998	2.86	2.98	4.03	4.07	1.87	2.98	4.03	4.07
New Jersey Tax-Free Income	7/1/1991	12/9/1998	2.83	3.59	4.70	4.87	1.84	3.59	4.70	4.87
Pennsylvania Tax-Free Income	12/1/1992	8/14/1998	1.69	2.94	4.09	4.74	0.71	2.94	4.09	4.74

167

Return After Taxes On Distributions

		BlackRock Shares
			Total Return (NAV)
	Fund Inception Date	Class Intro Date	1 Year	3 Year Ann.	5 Year Ann.	10 Year Ann. (or Share Fund Inception Ann. If shorter)
Small Cap Value Equity	4/13/1992	4/12/2004	17.82	9.64	8.69	8.53
Exchange	12/17/1976	12/17/1976	9.24	3.36	-1.60	10.49
Enhanced Income	3/4/2004	3/4/2004	N/A	N/A	N/A	0.28
Low Duration Bond	7/17/1992	6/3/1997	0.28	1.90	3.43	3.67
Intermediate Bond	9/17/1993	5/1/1998	0.95	3.50	5.05	4.60
Intermediate PLUS Bond	8/18/2004	8/18/2004	N/A	N/A	N/A	3.51
Core Bond Total Return	12/9/1992	5/1/1997	1.74	3.53	5.13	4.88
Core PLUS Total Return	12/7/2001	12/7/2001	2.07	N/A	N/A	4.53
Government Income	10/3/1994	2/7/2003	2.10	4.56	6.33	5.41
Inflation Protected Bond	6/28/2004	6/28/2004	N/A	N/A	N/A	19.12
GNMA	5/18/1998	12/20/2002	2.05	2.81	4.63	4.99
International Bond	7/1/1991	5/18/2004	5.95	6.17	5.81	6.34
High Yield Bond	11/19/1998	11/19/1998	10.33	9.72	3.18	3.12
UltraShort Municipal	3/3/2004	3/3/2004	N/A	N/A	N/A	0.28
Tax-Free Income	5/14/1990	12/22/2003	3.58	4.01	5.31	6.18

168

Return After Taxes On Distributions

and Sale of Shares

			Institutional Shares
			Total Return (NAV)
	Fund Inception Date	Class Intro Date	1 Year	3 Year Ann.	5 Year Ann.	10 Year Ann. (or Share Fund Inception Ann. If shorter)
Investment Trust	9/13/1993	9/13/1993	11.36	2.29	-4.58	6.28
Large Cap Value Equity	4/20/1992	4/20/1992	12.87	1.88	0.36	7.13
Large Cap Growth Equity	11/1/1989	11/1/1989	5.88	-0.56	-9.45	4.33
Dividend Achievers	9/8/2004	9/8/2004	N/A	N/A	N/A	-4.23
Legacy	12/31/1997	12/31/1997	7.17	3.43	-1.81	2.98
Mid-Cap Value Equity	8/25/1986	6/1/1993	18.23	14.39	9.81	10.46
Mid-Cap Growth Equity	12/27/1996	12/27/1996	10.22	4.59	-2.73	5.70
Aurora	2/3/1995	2/3/1995	14.80	14.80	15.63	17.86
Small/Mid-Cap Growth	10/4/1993	10/4/1993	2.04	9.08	4.40	7.03
Small Cap Value Equity	4/13/1992	4/13/1992	14.93	9.66	8.47	8.37
Small Cap Core Equity	1/2/2002	1/2/2002	15.93	N/A	N/A	13.54
Small Cap Growth Equity	9/14/1993	9/14/1993	11.98	6.30	-2.07	8.43
Global Science & Technology Opportunities	5/15/2000	5/15/2000	-0.71	6.05	N/A	-10.68
Global Resources	3/2/1990	6/1/1993	43.16	36.93	25.32	15.13
Health Sciences	12/21/1999	10/16/2000	10.03	15.16	N/A	15.76
U.S. Opportunities	5/1/1998	5/1/1998	14.84	4.34	2.50	15.89
International Opportunities	9/26/1997	9/26/1997	14.70	15.72	13.33	14.34
Asset Allocation	12/29/1988	6/1/1993	9.21	8.47	4.70	7.21
Index Equity	4/20/1992	4/20/1992	9.01	3.07	-1.46	8.82
Enhanced Income	3/4/2004	3/19/2004	N/A	N/A	N/A	0.66
Low Duration Bond	7/17/1992	7/17/1992	0.67	1.82	3.25	3.55
Intermediate Government Bond	4/20/1992	4/20/1992	1.29	2.65	4.23	4.21
Intermediate Bond	9/17/1993	9/17/1993	1.98	3.48	4.83	4.47
Intermediate PLUS Bond	8/18/2004	8/18/2004	N/A	N/A	N/A	3.36
Core Bond Total Return	12/9/1992	12/9/1992	2.58	3.48	4.88	4.74
Core PLUS Total Return	12/7/2001	12/7/2001	1.99	N/A	N/A	4.07
Government Income	10/3/1994	N/A	N/A	N/A	N/A	N/A
Inflation Protected Bond	6/28/2004	6/28/2004	N/A	N/A	N/A	14.33
GNMA	5/18/1998	5/18/1998	2.55	2.99	4.57	4.89
Managed Income	11/1/1989	11/1/1989	2.58	3.61	4.93	4.73
International Bond	7/1/1991	6/10/1996	4.67	5.68	5.58	6.18
High Yield Bond	11/19/1998	11/19/1998	8.39	9.12	3.50	3.46
UltraShort Municipal	3/3/2004	3/19/2004	N/A	N/A	N/A	0.46
Tax-Free Income	5/14/1990	1/21/1993	3.80	4.08	5.25	6.07
Delaware Tax-Free Income	5/11/1998	5/11/1998	4.19	5.06	6.00	5.63
Ohio Tax-Free Income	12/1/1992	12/1/1992	4.78	5.27	6.37	6.34
Kentucky Tax-Free Income	5/11/1998	5/11/1998	4.14	4.35	5.22	5.29
New Jersey Tax-Free Income	7/1/1991	5/4/1998	4.39	4.91	5.85	5.78
Pennsylvania Tax-Free Income	12/1/1992	12/1/1992	3.53	4.25	5.27	5.85

169

Return After Taxes On Distributions

and Sale of Shares

			Service Shares Total Return (NAV)
	Fund Inception Date	Class Intro Date	1 Year	3 Year Ann.	5 Year Ann.	10 Year Ann. (or Share Fund Inception Ann. If shorter)
Investment Trust	9/13/1993	9/15/1993	11.11	2.12	-4.74	6.08
Large Cap Value Equity	4/20/1992	7/29/1993	12.58	1.67	0.18	6.94
Large Cap Growth Equity	11/1/1989	7/29/1993	5.59	-0.86	-9.65	4.09
Dividend Achievers	9/8/2004	9/8/2004	N/A	N/A	N/A	-4.23
Legacy	12/31/1997	12/31/1997	6.97	3.11	-2.13	2.66
Mid-Cap Value Equity	8/25/1986	8/25/1986	17.98	14.00	9.54	10.24
Mid-Cap Growth Equity	12/27/1996	12/27/1996	10.02	4.31	-2.98	5.41
Aurora	2/13/1995	2/13/1995	14.57	14.43	15.23	17.50
Small/Mid-Cap Growth	10/4/1993	2/1/1994	1.84	8.82	4.11	6.74
Small Cap Value Equity	4/13/1992	7/29/1993	14.67	9.35	8.23	8.16
Small Cap Core Equity	1/2/2002	1/2/2002	15.71	N/A	N/A	13.44
Small Cap Growth Equity	9/14/1993	9/15/1993	11.74	6.02	-2.28	8.12
Global Science & Technology Opportunities	5/15/2000	5/15/2000	-0.84	5.78	N/A	-10.85
Global Resources	3/2/1990	3/2/1990	42.90	36.31	24.86	14.76
Health Sciences	12/21/1999	12/21/1999	9.82	14.84	N/A	15.52
U.S. Opportunities	5/1/1998	5/1/1998	14.62	4.08	2.22	15.57
International Opportunities	9/26/1997	9/26/1997	14.44	15.43	12.98	14.00
Asset Allocation	12/29/1988	12/29/1988	8.94	8.12	4.40	6.99
Index Equity	4/20/1992	7/29/1993	8.66	2.73	-1.76	8.54
Enhanced Income	3/4/2004	3/19/2004	N/A	N/A	N/A	0.91
Low Duration Bond	7/17/1992	1/12/1996	0.47	1.63	3.06	3.38
Intermediate Government Bond	4/20/1992	7/29/1993	1.10	2.43	4.02	4.01
Intermediate Bond	9/17/1993	9/23/1993	1.79	3.28	4.63	4.28
Intermediate PLUS Bond	8/18/2004	8/18/2004	N/A	N/A	N/A	2.23
Core Bond Total Return	12/9/1992	1/12/1996	2.39	3.29	4.68	4.57
Core PLUS Total Return	12/7/2001	12/7/2001	2.55	N/A	N/A	4.29
Government Income	10/3/1994	N/A	N/A	N/A	N/A	N/A
Inflation Protected Bond	6/28/2004	6/28/2004	N/A	N/A	N/A	10.21
GNMA	5/18/1998	5/18/1998	2.35	2.80	4.35	4.69
Managed Income	11/1/1989	7/29/1993	2.39	3.42	4.73	4.54
International Bond	7/1/1991	7/1/1991	4.47	5.51	5.40	6.03
High Yield Bond	11/19/1998	11/19/1998	8.18	8.96	3.31	3.26
UltraShort Municipal	3/3/2004	3/19/2004	N/A	N/A	N/A	0.02
Tax-Free Income	5/14/1990	7/29/1993	3.50	3.75	4.92	5.75
Delaware Tax-Free Income	5/11/1998	5/11/1998	3.88	4.75	5.68	5.31
Ohio Tax-Free Income	12/1/1992	7/29/1993	4.53	4.98	6.06	6.03
Kentucky Tax-Free Income	5/11/1998	5/11/1998	3.83	4.03	4.92	4.99
New Jersey Tax-Free Income	7/1/1991	7/1/1991	4.06	4.59	5.53	5.58
Pennsylvania Tax-Free Income	12/1/1992	7/29/1993	3.23	3.95	4.95	5.53

170

Return After Taxes On Distributions

and Sale of Shares

			Investor A Shares Total Return (NAV)				Total Return (Load Adjusted)
	Fund Inception Date	Class Intro Date	1 Year	3 Year Ann.	5 Year Ann.	10 Year Ann. (or Share Fund Inception Ann. If shorter)	1 Year	3 Year Ann.	5 Year Ann.	10 Year Ann. (or Share Fund Inception Ann. If shorter)
Investment Trust	9/13/1993	10/13/1993	10.93	1.89	-5.16	5.77	7.51	0.55	-5.86	5.33
Large Cap Value Equity	4/20/1992	5/2/1992	12.53	1.60	0.09	6.84	9.03	0.28	-0.69	6.38
Large Cap Growth Equity	11/1/1989	3/14/1992	5.58	-0.96	-9.74	3.98	2.43	-2.24	-10.36	3.55
Dividend Achievers	9/8/2004	9/8/2004	N/A	N/A	N/A	-4.23	N/A	N/A	N/A	-41.36
Legacy	12/31/1997	12/31/1997	6.97	3.11	-2.13	2.66	2.84	0.94	-3.09	1.88
Mid-Cap Value Equity	8/25/1986	8/25/1986	17.98	14.00	9.54	10.24	13.20	9.40	8.38	9.63
Mid-Cap Growth Equity	12/27/1996	12/27/1996	9.88	4.13	-3.14	5.22	6.49	2.75	-3.87	4.66
Aurora	2/13/1995	2/13/1995	14.57	14.43	15.23	17.50	9.99	10.51	13.97	16.81
Small/Mid-Cap Growth	10/4/1993	2/1/1994	1.84	8.82	4.11	6.74	-2.00	5.74	3.03	6.16
Small Cap Value Equity	4/13/1992	6/2/1992	14.63	9.23	8.11	8.05	11.06	7.76	7.22	7.59
Small Cap Core Equity	1/2/2002	1/2/2002	15.60	N/A	N/A	13.39	11.58	N/A	N/A	11.50
Small Cap Growth Equity	9/14/1993	9/15/1993	11.70	5.89	-2.45	7.96	8.26	4.49	-3.20	7.50
Global Science & Technology Opportunities	5/15/2000	5/15/2000	-0.85	5.69	N/A	-10.97	-4.02	4.13	N/A	-11.75
Global Resources	3/2/1990	3/2/1990	42.90	36.31	24.86	14.76	36.70	29.44	23.46	14.11
Health Sciences	12/21/1999	12/21/1999	9.82	14.84	N/A	15.52	5.52	10.54	N/A	14.21
U.S. Opportunities	5/1/1998	5/1/1998	14.51	3.98	2.11	15.44	10.54	2.46	1.22	14.57
International Opportunities	9/26/1997	9/26/1997	14.39	15.25	12.86	13.85	10.40	13.49	11.80	13.07
Asset Allocation	12/29/1988	12/29/1988	8.94	8.12	4.40	6.99	4.68	4.43	3.33	6.41
Index Equity	4/20/1992	6/2/1992	8.59	2.63	-1.86	8.43	6.38	1.73	-2.35	8.12
Enhanced Income	3/4/2004	3/19/2004	N/A	N/A	N/A	0.08	N/A	N/A	N/A	-3.30
Low Duration Bond	7/17/1992	1/12/1996	0.45	1.60	3.00	3.31	-1.54	0.71	2.47	3.03
Intermediate Government Bond	4/20/1992	5/11/1992	0.99	2.31	3.96	3.93	-1.63	1.13	3.22	3.56
Intermediate Bond	9/17/1993	5/20/1994	1.76	3.26	4.55	4.20	-0.90	2.07	3.80	3.82
Intermediate PLUS Bond	8/18/2004	8/18/2004	N/A	N/A	N/A	3.36	N/A	N/A	N/A	-17.54
Core Bond Total Return	12/9/1992	1/31/1996	2.36	3.23	4.62	4.50	-0.35	2.01	3.87	4.11
Core PLUS Total Return	12/7/2001	12/7/2001	2.21	N/A	N/A	4.05	-0.50	N/A	N/A	2.74
Government Income	10/3/1994	10/3/1994	2.27	4.25	5.84	5.18	-0.74	2.87	4.98	4.75
Inflation Protected Bond	6/28/2004	6/28/2004	N/A	N/A	N/A	13.53	N/A	N/A	N/A	5.01
GNMA	5/18/1998	5/18/1998	2.25	2.71	4.33	4.62	-0.45	1.52	3.59	4.23
Managed Income	11/1/1989	2/5/1992	2.28	3.31	4.62	4.43	-0.75	1.95	3.77	4.00
International Bond	7/1/1991	4/22/1996	4.37	5.40	5.29	5.93	0.92	3.85	4.34	5.44
High Yield Bond	11/19/1998	11/19/1998	8.18	8.80	3.21	3.17	4.49	7.18	2.30	2.38
UltraShort Municipal	3/3/2004	3/19/2004	N/A	N/A	N/A	0.44	N/A	N/A	N/A	-2.94
Tax-Free Income	5/14/1990	5/14/1990	3.42	3.64	4.78	5.58	0.66	2.44	4.02	5.19
Delaware Tax-Free Income	5/11/1998	5/11/1998	3.72	4.58	5.50	5.13	0.95	3.34	4.75	4.74
Ohio Tax-Free Income	12/1/1992	12/1/1992	4.30	4.78	5.87	5.87	1.55	3.55	5.12	5.47
Kentucky Tax-Free Income	5/11/1998	5/11/1998	3.67	3.87	4.73	4.80	0.91	2.66	3.99	4.41
New Jersey Tax-Free Income	7/1/1991	1/26/1996	3.91	4.43	5.36	5.42	1.16	3.21	4.61	5.03
Pennsylvania Tax-Free Income	12/1/1992	12/1/1992	3.13	3.77	4.79	5.37	0.43	2.57	4.04	4.98

171

Return After Taxes On Distributions

and Sale of Shares

			Investor B Shares Total Return (NAV)				Total Return (Load Adjusted)
	Fund Inception Date	Class Intro Date	1 Year	3 Year Ann.	5 Year Ann.	10 Year Ann. (or Share Fund Inception Ann. If shorter)	1 Year	3 Year Ann.	5 Year Ann.	10 Year Ann. (or Share Fund Inception Ann. If shorter)
Investment Trust	9/13/1993	3/27/1996	10.23	1.36	-5.40	5.40	7.31	0.39	-5.64	5.40
Large Cap Value Equity	4/20/1992	1/18/1996	11.95	1.02	-0.44	6.33	9.02	0.04	-0.72	6.33
Large Cap Growth Equity	11/1/1989	1/24/1996	5.04	-1.61	-10.21	3.42	2.12	-2.59	-10.40	3.42
Dividend Achievers	9/8/2004	9/8/2004	N/A	N/A	N/A	-4.23	N/A	N/A	N/A	-41.43
Legacy	12/31/1997	1/1/1999	6.48	2.39	-2.71	2.01	3.23	1.22	-3.03	2.01
Mid-Cap Value Equity	8/25/1986	1/1/1999	17.43	13.24	8.94	9.66	14.18	10.01	8.70	9.66
Mid-Cap Growth Equity	12/27/1996	12/27/1996	9.36	3.48	-3.71	4.57	6.43	2.54	-3.87	4.57
Aurora	2/13/1995	1/1/1999	14.00	13.62	14.45	16.67	10.75	11.08	14.25	16.67
Small/Mid-Cap Growth	10/4/1993	1/1/1999	1.41	8.05	3.47	6.03	-1.84	6.17	3.17	6.03
Small Cap Value Equity	4/13/1992	10/3/1994	14.14	8.45	7.40	7.38	11.21	7.70	7.16	7.38
Small Cap Core Equity	1/2/2002	1/2/2002	15.06	N/A	N/A	13.14	12.13	N/A	N/A	12.26
Small Cap Growth Equity	9/14/1993	1/18/1996	11.05	5.18	-3.02	7.32	8.12	4.28	-3.22	7.32
Global Science & Technology Opportunities	5/15/2000	5/15/2000	-1.36	4.91	N/A	-11.49	-4.23	4.00	N/A	-11.79
Global Resources	3/2/1990	1/1/1999	42.19	35.42	24.08	13.97	38.94	30.58	23.94	13.97
Health Sciences	12/21/1999	10/16/2000	9.33	14.04	N/A	14.97	6.08	11.11	N/A	14.76
U.S. Opportunities	5/1/1998	5/1/1998	13.88	3.36	1.49	14.69	10.95	2.42	1.24	14.69
International Opportunities	9/26/1997	9/26/1997	13.78	14.46	12.10	13.14	10.86	13.70	11.89	13.14
Asset Allocation	12/29/1988	1/1/1999	8.44	7.37	4.04	6.55	5.19	5.18	3.75	6.55
Index Equity	4/20/1992	2/7/1996	7.99	2.10	-2.36	7.92	5.07	1.14	-2.69	7.92
Low Duration Bond	7/17/1992	11/18/1996	-0.04	1.09	2.51	2.92	-2.92	0.13	2.20	2.92
Intermediate Government Bond	4/20/1992	10/11/1996	0.50	1.86	3.44	3.54	-2.37	0.91	3.14	3.54
Intermediate Bond	9/17/1993	2/5/1998	1.27	2.74	4.06	3.88	-1.56	1.80	3.77	3.88
Intermediate PLUS Bond	8/18/2004	8/18/2004	N/A	N/A	N/A	3.36	N/A	N/A	N/A	-19.58
Core Bond Total Return	12/9/1992	3/18/1996	1.87	2.77	4.13	4.09	-0.98	1.84	3.84	4.09
Core PLUS Total Return	12/7/2001	12/7/2001	1.65	N/A	N/A	3.57	-1.24	N/A	N/A	2.57
Government Income	10/3/1994	10/3/1994	1.77	3.75	5.34	4.71	-1.11	2.83	5.06	4.71
Inflation Protected Bond	6/28/2004	6/28/2004	N/A	N/A	N/A	13.79	N/A	N/A	N/A	1.79
GNMA	5/18/1998	5/18/1998	1.76	2.23	3.79	4.11	-1.12	1.31	3.50	4.11
Managed Income	11/1/1989	7/15/1997	1.79	2.82	4.13	4.08	-1.03	1.89	3.84	4.08
International Bond	7/1/1991	4/19/1996	3.85	4.88	4.80	5.51	0.93	3.98	4.51	5.51
High Yield Bond	11/19/1998	11/19/1998	7.65	8.33	2.74	2.70	4.73	7.48	2.48	2.60
Tax-Free Income	5/14/1990	7/18/1996	2.59	2.84	3.98	4.92	-0.31	1.92	3.69	4.92
Delaware Tax-Free Income	5/11/1998	5/11/1998	3.02	3.83	4.74	4.36	0.12	2.91	4.45	4.36
Ohio Tax-Free Income	12/1/1992	10/13/1994	3.53	4.00	5.08	5.08	0.60	3.08	4.80	5.08
Kentucky Tax-Free Income	5/11/1998	5/11/1998	2.90	3.09	3.95	4.02	-0.01	2.17	3.66	4.02
New Jersey Tax-Free Income	7/1/1991	7/2/1996	3.13	3.65	4.58	4.77	0.23	2.73	4.29	4.77
Pennsylvania Tax-Free Income	12/1/1992	10/3/1994	2.83	3.05	4.06	4.64	-0.49	2.12	3.77	4.64

172

Return After Taxes On Distributions

and Sale of Shares

			Investor C Shares Total Return (NAV)				Total Return (Load Adjusted)
	Fund Inception Date	Class Intro Date	1 Year	3 Year Ann.	5 Year Ann.	10 Year Ann. (or Share Fund Inception Ann. If shorter)	1 Year	3 Year Ann.	5 Year Ann.	10 Year Ann. (or Share Fund Inception Ann. If shorter)
Investment Trust	9/13/1993	9/27/1996	10.26	1.35	-5.40	5.40	9.61	1.35	-5.40	5.40
Large Cap Value Equity	4/20/1992	8/16/1996	11.96	1.02	-0.43	6.34	11.31	1.02	-0.43	6.34
Large Cap Growth Equity	11/1/1989	1/24/1997	5.05	-1.58	-10.22	3.41	4.40	-1.58	-10.22	3.41
Dividend Achievers	9/8/2004	9/8/2004	N/A	N/A	N/A	-4.23	N/A	N/A	N/A	-14.03
Legacy	12/31/1997	12/31/1997	6.48	2.39	-2.71	2.01	5.83	2.04	-2.71	2.01
Mid-Cap Value Equity	8/25/1986	6/1/1993	17.45	13.26	8.98	9.69	16.80	10.72	8.98	9.69
Mid-Cap Growth Equity	12/27/1996	12/27/1996	9.36	3.48	-3.71	4.57	8.71	3.48	-3.71	4.57
Aurora	2/13/1995	2/13/1995	14.03	13.62	14.45	16.67	13.38	11.76	14.45	16.67
Small/Mid-Cap Growth	10/4/1993	2/1/1994	1.41	8.07	3.50	6.05	0.76	6.94	3.50	6.05
Small Cap Value Equity	4/13/1992	10/1/1996	14.19	8.45	7.41	7.38	13.54	8.45	7.41	7.38
Small Cap Core Equity	1/2/2002	1/2/2002	15.06	N/A	N/A	13.14	14.41	N/A	N/A	13.14
Small Cap Growth Equity	9/14/1993	9/6/1996	11.11	5.21	-3.00	7.33	10.46	5.21	-3.00	7.33
Global Science & Technology Opportunities	5/15/2000	5/15/2000	-1.36	4.91	N/A	-11.49	-2.00	4.91	N/A	-11.49
Global Resources	3/2/1990	6/1/1993	42.18	35.49	24.09	13.98	41.53	31.12	24.09	13.98
Health Sciences	12/21/1999	10/16/2000	9.27	14.00	N/A	14.92	8.62	11.76	N/A	14.92
U.S. Opportunities	5/1/1998	5/1/1998	13.85	3.36	1.48	14.68	13.20	3.36	1.48	14.68
International Opportunities	9/26/1997	9/26/1997	13.74	14.46	12.10	13.14	13.09	14.46	12.10	13.14
Asset Allocation	12/29/1988	6/1/1993	8.42	7.35	4.04	6.55	7.77	5.92	4.04	6.55
Index Equity	4/20/1992	8/14/1996	8.00	2.10	-2.37	7.91	7.35	2.10	-2.37	7.91
Enhanced Income	3/4/2004	3/19/2004	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
Low Duration Bond	7/17/1992	2/24/1997	-0.04	1.09	2.51	2.92	-0.68	1.09	2.51	2.92
Intermediate Government Bond	4/20/1992	10/8/1996	0.51	1.89	3.46	3.54	-0.13	1.89	3.46	3.54
Intermediate Bond	9/17/1993	10/16/1998	1.20	2.74	4.06	3.88	0.58	2.74	4.06	3.88
Intermediate PLUS Bond	8/18/2004	8/18/2004	N/A	N/A	N/A	3.36	N/A	N/A	N/A	-2.19
Core Bond Total Return	12/9/1992	2/28/1997	1.87	2.74	4.13	4.09	1.24	2.74	4.13	4.09
Core PLUS Total Return	12/7/2001	12/7/2001	1.66	N/A	N/A	3.57	1.01	N/A	N/A	3.57
Government Income	10/3/1994	2/28/1997	1.78	3.76	5.31	4.69	1.14	3.76	5.31	4.69
Inflation Protected Bond	6/28/2004	6/28/2004	N/A	N/A	N/A	14.63	N/A	N/A	N/A	11.87
GNMA	5/18/1998	5/18/1998	1.83	2.24	3.78	4.11	1.19	2.24	3.78	4.11
Managed Income	11/1/1989	11/22/1999	1.73	2.83	4.09	4.06	1.11	2.83	4.09	4.06
International Bond	7/1/1991	9/11/1996	3.85	4.88	4.82	5.53	3.20	4.88	4.82	5.53
High Yield Bond	11/19/1998	11/19/1998	7.64	8.33	2.76	2.71	6.99	8.33	2.76	2.71
Tax-Free Income	5/14/1990	2/28/1997	2.59	2.84	3.98	4.92	1.94	2.84	3.98	4.92
Delaware Tax-Free Income	5/11/1998	5/11/1998	2.95	3.80	4.72	4.35	2.31	3.80	4.72	4.35
Ohio Tax-Free Income	12/1/1992	8/26/1998	3.59	4.03	5.10	5.09	2.94	4.03	5.10	5.09
Kentucky Tax-Free Income	5/11/1998	5/11/1998	2.97	3.08	4.00	4.04	2.32	3.08	4.00	4.04
New Jersey Tax-Free Income	7/1/1991	12/9/1998	3.13	3.64	4.60	4.78	2.48	3.64	4.60	4.78
Pennsylvania Tax-Free Income	12/1/1992	8/14/1998	2.37	3.04	4.05	4.66	1.74	3.04	4.05	4.66

173

Return After Taxes On Distributions

and Sale of Shares

			BlackRock Shares Total Return (NAV)
	Fund Inception Date	Class Intro Date	1 Year	3 Year Ann.	5 Year Ann.	10 Year Ann. (or Share Fund Inception Ann. If shorter)
Small Cap Value Equity	4/13/1992	4/12/2004	14.98	9.68	8.48	838
Exchange	12/17/1976	12/17/1976	6.31	3.77	-1.22	9.60
Enhanced Income	3/4/2004	3/4/2004	N/A	N/A	N/A	0.65
Low Duration Bond	7/17/1992	6/3/1997	0.76	1.95	3.35	3.62
Intermediate Bond	9/17/1993	5/1/1998	2.08	3.58	4.92	4.53
Intermediate PLUS Bond	8/18/2004	8/18/2004	N/A	N/A	N/A	3.20
Core Bond Total Return	12/9/1992	5/1/1997	2.68	3.64	5.01	4.83
Core Plus Total Return	12/7/2001	12/7/2001	2.47	N/A	N/A	4.36
Government Income	10/3/1994	2/7/2003	2.59	4.47	5.98	5.25
Inflation Protected Bond	6/28/2004	6/28/2004	N/A	N/A	N/A	13.33
GNMA	5/18/1998	12/20/2002	2.58	3.01	4.58	4.90
International Bond	7/1/1991	5/18/2004	4.72	5.69	5.59	6.19
High Yield Bond	11/19/1998	11/19/1998	8.49	9.22	3.59	3.54
UltraShort Municipal	3/3/2004	3/3/2004	N/A	N/A	N/A	0.59
Tax-Free Income	5/14/1990	12/22/2003	3.93	4.13	5.27	6.09

174

*Notes

Performance information presented for Investor A, Investor B, Investor C and Service Shares of a Portfolio prior to their introduction dates does not reflect shareholder servicing, processing and/or distribution fees and certain other expenses borne by these share classes which, if reflected, would reduce the performance quoted. Performance information presented assumes the reinvestment of dividends and distributions. Performance information presented for Investor A, Investor B, Investor C and Service Shares of a Portfolio prior to their introduction as indicated in the table above is based upon historical expenses of the predecessor class or classes which do not reflect the actual expenses that an investor would incur as a holder of shares of these classes of the Portfolios. The ongoing fees and expenses borne by Investor B Shares and Investor C Shares are greater than those borne by Investor A Shares; the ongoing fees and expenses borne by a Portfolio’s Investor A, Investor B and Investor C Shares are greater than those borne by the Portfolio’s Service Shares; the ongoing fees and expenses borne by a Portfolio’s Investor A, Investor B, Investor C and Service Shares are greater than those borne by the Portfolio’s Institutional Shares; and the ongoing fees and expenses borne by a Portfolio’s Investor A, Investor B, Investor C, Service and Institutional Shares are greater than those borne by the Portfolio’s BlackRock Shares. Performance information presented for Institutional Shares of the Asset Allocation, Tax-Free Income, New Jersey Tax-Free Income and International Bond Portfolios prior to their introduction dates is based upon historical expenses of predecessor classes which are higher than the actual expenses that an investor would incur as a holder of Institutional Shares of the above-mentioned Portfolios. Accordingly, the performance information may be used in assessing each Portfolio’s performance history but does not reflect how the distinct classes would have performed on a relative basis prior to the introduction of these classes, which would require an adjustment to the ongoing expenses.

For each of the Delaware Tax-Free Income Portfolio, the Kentucky Tax-Free Income Portfolio and the GNMA Portfolio, performance presented in the tables above and in each table that follows is based upon the performance of the respective predecessor fund, adjusted for each class to reflect historical expenses (absent waivers and reimbursements).

For each of the Exchange, Small/Mid-Cap Growth, Aurora, Legacy, Health Sciences, Global Resources, Mid-Cap Value Equity and Asset Allocation Portfolios, performance presented in the tables above and in each table that follows is based upon the performance of the respective SSR Funds.

The original class or classes of shares of each Portfolio were as follows: Asset Allocation - Investor A Shares; Index Equity - Institutional Shares; Investment Trust - Institutional Shares; Large Cap Growth Equity - Institutional Shares; Large Cap Value Equity - Institutional Shares; Small Cap Value Equity - Institutional Shares; Small Cap Growth Equity - Institutional Shares; Low Duration Bond - Institutional Shares; Intermediate Government Bond - Institutional Shares; Intermediate Bond - Institutional Shares; Core Bond Total Return - Institutional Shares; Managed Income - Institutional Shares; Tax-Free Income - Investor A Shares; New Jersey Tax-Free Income - Service Shares; Pennsylvania Tax-Free Income - Investor A and Institutional Shares; Ohio Tax-Free Income - Investor A and Institutional Shares; Government Income - Investor A Shares; International Bond - Service Shares; Mid-Cap Growth Equity - Investor A, Investor B, Investor C, Institutional and Service Shares; Mid-Cap Value Equity - Investor A, Investor B, Investor C, Institutional and Service Shares; International Opportunities - Investor A, Investor B, Investor C, Institutional and Service Shares; Core PLUS Total Return - Investor A, Investor B, Investor C, Institutional, Service and BlackRock Shares; High Yield Bond - Investor A, Investor B, Investor C, Institutional, Service and BlackRock Shares; U.S. Opportunities - Investor A, Investor B, Investor C, Institutional and Service Shares; Global Science & Technology Opportunities - Investor A, Investor B, Investor C, Institutional and Service Shares; Enhanced Income - Investor A, Institutional, Service and BlackRock Shares; UltraShort Municipal - Investor A, Investor B, Institutional, Service and BlackRock Shares; Intermediate PLUS Bond - Investor A, Investor B, Investor C, Institutional, Service and BlackRock Shares; Inflation Protected Bond - Investor A,

175

Investor B, Investor C, Institutional, Service and BlackRock Shares; Dividend Achievers - Investor A, Investor B, Investor C, Institutional, Service and BlackRock Shares; Exchange - BlackRock Shares; Small/Mid-Cap Growth - Investor A, Investor B, Investor C, Institutional and Service Shares; Aurora - Investor A, Investor B, Investor C, Institutional and Service Shares; Legacy - Investor A, Investor B, Investor C, Institutional and Service Shares; Health Sciences - Investor A, Investor B, Investor C, Institutional and Service Shares; Global Resources - Investor A, Investor B, Investor C, Institutional and Service Shares.

The performance quoted reflects fee waivers that subsidize and reduce the total operating expenses of each Portfolio. The Portfolios’ returns would have been lower if there were not such waivers.

Each class of the Non-Money Market Portfolios 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 a Non-Money Market Portfolio’s shares with other performance measures. For example, in comparing the total return of a Non-Money Market Portfolio’s 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, a Non-Money Market 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 Non-Money Market Portfolio’s 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. A Non-Money Market 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, a Non-Money Market 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 the Equity and Bond Portfolios’ 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 a 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, a Portfolio compares the total return of a share class to that of other funds or relevant indices, total return may also be computed without reflecting the sales load.

The yield of a class of shares of each of the Bond Portfolios is computed by dividing the Portfolio’s net income per share allocated to that class during a 30-day (or one month) period by the maximum offering price per share on the last day of the period and annualizing the result on a semi-annual basis. Each Tax-Free Portfolio’s “tax-equivalent yield” may also be quoted, which shows the level of taxable yield needed to produce an after-tax equivalent to a Portfolio’s tax-free yield. This is done by increasing the Portfolio’s yield (calculated above) by the amount necessary to reflect the payment of Federal and/or state income tax at a stated tax rate. The yield of a class

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of shares of the Asset Allocation Portfolio is computed by dividing the net income allocated to that class during a 30-day (or one month) period by the maximum offering price per share on the last day of the period and annualizing the result on a semi-annual basis.

The performance of a class of a 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. For example, the performance of a class of each of the Bond Portfolio’s shares may be compared to data prepared by Lipper Analytical Services, Inc., CDA Investment Technologies, Inc. and Weisenberger Investment Company Service, and with the performance of the Lehman GNMA Index, the T-Bill Index, the “stocks, bonds and inflation index” published annually by Ibbotson Associates and the Lehman Government Corporate Bond Index. The performance of a class of each of the Equity 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 Portfolios 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 yield or return of a class of shares of particular Portfolio, a 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 a Portfolio represent past performance and should not be considered representative of future results. The investment return and principal value of an investment in a 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 a 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 a 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.

Non-Money Market Portfolio Yield. The Asset Allocation, Managed Income, Tax-Free Income, Intermediate Government Bond, Ohio Tax-Free Income, Pennsylvania Tax-Free Income, New Jersey Tax-Free Income, Delaware Tax-Free Income, Kentucky Tax-Free Income, Low Duration Bond, Intermediate Bond, Government Income, Core Bond Total Return, Core PLUS Total Return, High Yield Bond, GNMA, Enhanced Income, UltraShort Municipal, Intermediate PLUS, and Inflation Protected Bond Portfolios may advertise the yields on their Service, Investor A, Investor B, Investor C, Institutional and BlackRock Shares. Under the rules of the SEC, each such Portfolio advertising the respective yields for its Service, Investor A, Investor B, Investor C, Institutional and BlackRock Shares must calculate yield using the following formula:

Where:	a =	dividends and interest earned during the period.
	b =	expenses accrued for the period (net of reimbursements).
	c =	the average daily number of shares outstanding during the period that were entitled to receive dividends.
	d =	the maximum offering price per share on the last day of the period.

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For the purpose of determining net investment income earned during the period (variable “a” in the formula), dividend income on equity securities held by a Portfolio is recognized by accruing 1/360th of the stated dividend rate of the security each day that the security is in the Portfolio. Except as noted below, interest earned on any debt obligations held by the Portfolio is calculated by computing the yield to maturity of each obligation held by the Portfolio based on the market value of the obligation (including actual accrued interest) at the close of business on the last business day of each month, or, with respect to obligations purchased during the month, the purchase price (plus actual accrued interest) and dividing the result by 360 and multiplying the quotient by the market value of the obligation (including actual accrued interest) in order to determine the interest income on the obligation for each day of the subsequent month that the obligation is held by the Portfolio. For purposes of this calculation, it is assumed that each month contains 30 days. The maturity of an obligation with a call provision is the next call date on which the obligation reasonably may be expected to be called or, if none, the maturity date.

With respect to debt obligations purchased at a discount or premium, the formula generally calls for amortization of the discount or premium. However, interest earned on tax-exempt obligations that are issued without original issue discount and have a current market discount is calculated by using the coupon rate of interest instead of the yield to maturity. In the case of tax-exempt obligations that are issued with original issue discount but which have discounts based on current market value that exceed the then-remaining portion of the original issue discount (market discount), the yield to maturity is the imputed rate based on the original issue discount calculation. On the other hand, in the case of tax-exempt obligations that are issued with original issue discount but which have discounts based on current market value that are less than the then-remaining portion of the original issue discount (market premium), the yield to maturity is based on the market value.

With respect to mortgage or other receivables-backed obligations which are expected to be subject to monthly payments of principal and interest (“pay downs”), (a) gain or loss attributable to actual monthly pay downs are accounted for as an increase or decrease to interest income during the period; and (b) a Portfolio may elect either (i) to amortize the discount and premium on the remaining security, based on the cost of the security, to the weighted-average maturity date, if such information is available, or to the remaining term of the security, if any, if the weighted-average maturity date is not available, or (ii) not to amortize discount or premium on the remaining security. The amortization schedule will be adjusted monthly to reflect changes in the market values of debt obligations.

Undeclared earned income will be subtracted from the maximum offering price per share (variable “d” in the formula). Undeclared earned income is the net investment income which, at the end of the base period, has not been declared as a dividend, but is reasonably expected to be and is declared and paid as a dividend shortly thereafter. In the case of Investor A Shares of a Non-Money Market Portfolio, a Portfolio’s maximum offering price per share for purposes of the formula includes the maximum front-end sales charge imposed by the Portfolio — currently as much as 5.00% of the per share offering price.

Each of the Tax-Free Income, Ohio Tax-Free Income, New Jersey Tax-Free Income, Pennsylvania Tax-Free Income, Delaware Tax-Free Income and Kentucky Tax-Free Income Portfolios may advertise the tax-equivalent yield for shares of a specified class. Under the rules of the SEC, a Portfolio advertising its tax-equivalent yield must calculate such tax-equivalent yield by dividing that portion of the yield of the Portfolio which is tax-exempt by one minus a stated income tax rate and adding the product to that portion, if any, of the yield of the Portfolio which is not tax-exempt.

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The annualized yield information for the 30-day period ended September 30, 2004, for the Portfolios referenced below was as follows:

	After Waivers				Before Waivers
Portfolio	Yield		Tax-Equivalent Yield (assumes a Federal income tax rate of 35%)		Yield		Tax-Equivalent Yield (assumes a Federal income tax rate of 35%)
Enhanced Income
Institutional Shares	2.01	%	—	%	0.51	%	—	%
Service Shares	0.48		—		-0.92		—
Investor A Shares	0.47		—		-0.93		—
BlackRock Shares	2.13		—		0.69		—
Low Duration Bond
Institutional Shares	2.88		—		2.62		—
Service Shares	2.62		—		2.37		—
Investor A Shares	2.54		—		2.29		—
Investor B Shares	1.87		—		1.62		—
Investor C Shares	1.86		—		1.61		—
BlackRock Shares	3.03		—		2.75		—
Intermediate Government Bond
Institutional Shares	3.68		—		3.39		—
Service Shares	3.38		—		3.24		—
Investor A Shares	3.15		—		3.01		—
Investor B Shares	2.54		—		2.40		—
Investor C Shares	2.54		—		2.40		—
Intermediate Bond
Institutional Shares	3.46		—		3.22		—
Service Shares	3.20		—		2.97		—
Investor A Shares	3.07		—		2.84		—
Investor B Shares	2.46		—		2.23		—
Investor C Shares	2.45		—		2.22		—
BlackRock Shares	3.61		—		3.34		—
Intermediate PLUS Bond
Institutional Shares	2.63				-1.08
Service Shares	2.64		—		-1.07		—
Investor A Shares	2.53		—		-1.18		—
Investor B Shares	2.63		—		-1.08		—
Investor C Shares	2.63		—		-1.08		—
BlackRock Shares	3.90		—		0.16		—
Core Bond Total Return
Institutional Shares	4.04		—		3.81		—
Service Shares	3.78		—		3.56		—
Investor A Shares	3.63		—		3.41		—
Investor B Shares	3.03		—		2.81		—
Investor C Shares	3.03		—		2.81		—
BlackRock Shares	4.19		—		3.94		—
Core PLUS Total Return
Institutional Shares	2.71		—		2.42		—
Service Shares	3.70		—		3.41		—
Investor A Shares	3.53		—		3.24		—
Investor B Shares	2.95		—		2.66		—
Investor C Shares	2.50		—		2.21		—
BlackRock Shares	4.12		—		3.79		—
Government Income
Investor A Shares	3.67		—		3.35		—
Investor B Shares	3.09		—		2.77		—
Investor C Shares	3.09		—		2.77		—

179

	After Waivers		Before Waivers
Portfolio	Yield	Tax-Equivalent Yield (assumes a Federal income tax rate of 35%)	Yield	Tax-Equivalent Yield (assumes a Federal income tax rate of 35%)
BlackRock Shares	4.24		3.88
Inflation Protected Bond
Institutional Shares	-1.02	—	-5.31	—
Service Shares	-1.04	—	-5.33	—
Investor A Shares	-0.68	—	-4.97	—
Investor B Shares	-1.32	—	-5.61	—
Investor C Shares	-0.09	—	-4.38	—
BlackRock Shares	0.05	—	-4.28	—
GNMA
Institutional Shares	4.01	—	3.67	—
Service Shares	3.74	—	3.41	—
Investor A Shares	3.59	—	3.26	—
Investor B Shares	2.99	—	2.66	—
Investor C Shares	2.97	—	2.64	—
BlackRock Shares	4.15	—	3.78	—
Managed Income
Institutional Shares	4.71	—	4.55	—
Service Shares	4.42	—	4.30	—
Investor A Shares	4.11	—	4.09	—
Investor B Shares	3.57	—	3.55	—
Investor C Shares	3.57	—	3.55	—
High Yield Bond
Institutional Shares	6.73	—	6.53	—
Service Shares	6.47	—	6.28	—
Investor A Shares	6.17	—	5.98	—
Investor B Shares	5.71	—	5.52	—
Investor C Shares	5.69	—	5.50	—
BlackRock Shares	6.88	—	6.65	—
UltraShort Municipal
Institutional Shares	1.09	—	-0.97	-1.48
Service Shares	0.00	—	-2.03	-3.12
Investor A Shares	0.00	—	-2.03	-3.12
BlackRock Shares	1.16	—	-0.90	-1.38
Tax-Free Income
Institutional Shares	3.92	6.03	3.69	5.68
Service Shares	3.67	5.64	3.45	5.30
Investor A Shares	3.50	5.39	3.28	5.05
Investor B Shares	2.92	4.50	2.70	4.16
Investor C Shares	2.91	4.48	2.69	4.14
BlackRock Shares	4.07	6.26	3.81	5.86
Delaware Tax-Free Income
Institutional Shares	4.06	6.25	3.85	5.93
Investor A Shares	3.53	5.43	3.46	5.33
Investor B Shares	2.93	4.51	2.86	4.40
Investor C Shares	2.92	4.50	2.85	4.39
Ohio Tax-Free Income
Institutional Shares	3.95	6.08	3.69	5.68
Service Shares	3.62	5.57	3.42	5.26
Investor A Shares	3.42	5.26	3.30	5.07
Investor B Shares	2.80	4.31	2.68	4.12

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	After Waivers		Before Waivers
Portfolio	Yield	Tax-Equivalent Yield (assumes a Federal income tax rate of 35%)	Yield	Tax-Equivalent Yield (assumes a Federal income tax rate of 35%)
Investor C Shares	2.83	4.35	2.71	4.16
Kentucky Tax-Free Income
Institutional Shares	4.42	6.81	4.24	6.53
Service Shares	4.13	6.35	3.99	6.14
Investor A Shares	3.86	5.94	3.82	5.88
Investor B Shares	3.29	5.07	3.25	5.00
Investor C Shares	3.30	5.08	3.26	5.02
New Jersey Tax-Free Income
Institutional Shares	3.88	5.96	3.63	5.58
Service Shares	3.58	5.51	3.37	5.18
Investor A Shares	3.35	5.16	3.24	4.99
Investor B Shares	2.75	4.23	2.64	4.06
Investor C Shares	2.76	4.24	2.65	4.07
Pennsylvania Tax-Free Income
Institutional Shares	4.25	6.53	4.05	6.22
Service Shares	3.95	6.07	3.75	5.77
Investor A Shares	3.61	5.55	3.56	5.47
Investor B Shares	3.09	4.76	3.04	4.68
Investor C Shares	3.05	4.70	3.00	4.62

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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 a 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 a Non-Money Market Portfolio.

The Money and Non-Money Market Municipal Portfolios and the UltraShort Municipal Portfolio may illustrate in advertising, sales literature, communications to shareholders and other materials the benefits of tax-free investing. For example, Table 1 shows taxpayers how to translate Federal tax savings from investments the income on which is not subject to Federal income tax into an equivalent yield from a taxable investment. Similarly, Tables 2, 3, 4, 5, 6, 7 and 8 show Pennsylvania, Ohio, North Carolina, Virginia, New Jersey, Delaware and Kentucky shareholders the approximate yield that a taxable investment must earn at various income brackets to produce after-tax yields equivalent to those of the Pennsylvania Municipal Money Market and Pennsylvania Tax-Free Income Portfolios, the Ohio Municipal Money Market and Ohio Tax-Free Income Portfolios, the North Carolina Municipal Money Market Portfolio, the Virginia Municipal Money Market Portfolio, and the New Jersey Municipal Money Market and New Jersey Tax-Free Income Portfolios, the Delaware Tax-Free Income Portfolio and the Kentucky Tax-Free Income Portfolio, respectively. The yields below are for illustration purposes only and are not intended to represent current or future yields for the Money and Non-Money Market Municipal Portfolios and the UltraShort Municipal Portfolio, which may be higher or lower than the yields shown. The following information regarding tax rates and tax-exempt yields is as of January 1, 2005.

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TABLE 1 - Federal Only

2005 Taxable Income Bracket				Federal Marginal Tax Rate*		TAX-EXEMPT YIELD
Single Return		Joint Return				3.0%		3.5%		4.0%		4.5%		5.0%		5.5%		6.0%
$	0  –  7,300	$	0  –    14,600	10	%	3.33	%	3.89	%	4.44	%	5.00	%	5.56	%	6.11	%	6.67	%
	7,301  –   29,700		14,601  –    59,400	15	%	3.53	%	4.12	%	4.71	%	5.29	%	5.88	%	6.47	%	7.06	%
	29,701  –  71,950		59,401  –  119,950	25	%	4.00	%	4.67	%	5.33	%	6.00	%	6.67	%	7.33	%	8.00	%
	71,951  –  150,150		119,951  –  182,800	28	%	4.17	%	4.86	%	5.56	%	6.25	%	6.94	%	7.64	%	8.33	%
	150,151  –  326,450		182,801  –  326,450	33	%	4.48	%	5.22	%	5.97	%	6.72	%	7.46	%	8.21	%	8.96	%
	Over 326,450		Over 326,450	35	%	4.62	%	5.39	%	6.15	%	6.92	%	7.69	%	8.46	%	9.23	%

* Rates do not include the phase out of personal exemptions or itemized deductions. It is assumed that the investor is not subject to the alternative minimum tax. Where applicable, investors should consider that the benefit of certain itemized deductions and the benefit of personal exemptions are limited in the case of higher income individuals. For 2005, taxpayers with adjusted gross income in excess of a threshold amount of approximately $145,950 are subject to an overall limitation on certain itemized deductions, requiring a reduction in such deductions equal to the lesser of (i) 3% of adjusted gross income in excess of the threshold of approximately $145,950 or (ii) 80% of the amount of such itemized deductions otherwise allowable. For single taxpayers and married taxpayers filing jointly, the benefit of each personal exemption is phased out at the rate of two percentage points for each $2,500 (or fraction thereof) of adjusted gross income in the phase-out zone. For single taxpayers the range of adjusted gross income comprising the phase-out zone for 2005 is estimated to be from $145,950 to $268,450 and for married taxpayers filing a joint return from $218,950 to $341,450. The Federal tax brackets, the threshold amounts at which itemized deductions are subject to reduction, and the range over which personal exemptions are phased out will be further adjusted for inflation for each year after 2005. In tax years beginning after December 31, 2005, the limit on itemized deductions for high-income taxpayers will be phased out until it is fully repealed effective for tax years beginning after 2009.

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TABLE 2 - Federal and Pennsylvania

				Approx. Combined Federal and PA Marginal Tax Rate*		Tax-Exempt Yield
2005 Taxable Income Bracket*		Joint Return				3.0%		3.5%		4.0%		4.5%		5.0%		5.5%		6.0%
Single Return
$	0  –      7,150	$	0  –    14,300	12.76	%	3.44	%	4.01	%	4.59	%	5.16	%	5.73	%	6.30	%	6.88	%
	7,151  –    29,050		14,301  –    58,100	17.61	%	3.64	%	4.25	%	4.85	%	5.46	%	6.07	%	6.68	%	7.28	%
	29,051  –    70,350		58,101  –  117,250	27.30	%	4.13	%	4.81	%	5.50	%	6.19	%	6.88	%	7.57	%	8.25	%
	70,351  –  146,750		117,251  –  178,650	30.21	%	4.30	%	5.02	%	5.73	%	6.45	%	7.16	%	7.88	%	8.60	%
	146,751  –  319,100		178,651  –  319,100	35.06	%	4.62	%	5.39	%	6.16	%	6.93	%	7.70	%	8.47	%	9.24	%
	Over 319,100		Over 319,100	37.00	%	4.76	%	5.56	%	6.35	%	7.14	%	7.94	%	8.73	%	9.52	%

* The income amount shown is income subject to Federal income tax reduced by adjustments to income, exemptions, and itemized deductions (including the deduction for state income taxes). If the standard deduction is taken for Federal income tax purposes, the taxable equivalent yield required to equal a specified tax-exempt yield is at least as great as that shown in the table. It is assumed that the investor is not subject to the alternative minimum tax. Where applicable, investors should consider that the benefit of certain itemized deductions and the benefit of personal exemptions are limited in the case of higher income individuals. For 2004, taxpayers with adjusted gross income in excess of a threshold amount of approximately $142,700 are subject to an overall limitation on certain itemized deductions, requiring a reduction in such deductions equal to the lesser of (i) 3% of adjusted gross income in excess of the threshold of approximately $142,700 (ii) 80% of the amount of such itemized deductions otherwise allowable. The benefit of each personal exemption is phased out at the rate of two percentage points for each $2,500 (or fraction thereof) of adjusted gross income in the phase-out zone. For single taxpayers the range of adjusted gross income comprising the phase-out zone for 2004 is estimated to be from $142,700 to $265,200 and for married taxpayers filing a joint return from $214,050 to $336,550. The Federal tax brackets, the threshold amounts at which itemized deductions are subject to reduction, and the range over which personal exemptions are phased out will be further adjusted for inflation for each year after 2004. In tax years beginning after December 31, 2005, the limit on itemized deductions for high-income taxpayers will be phased out until it is fully repealed effective for tax years beginning after 2009.

184

TABLE 3 - Federal and Ohio

2005 Taxable Income Brackets*	Federal Marginal Tax Rate		Ohio Marginal Tax Rate*		Combined Rate		Tax Exempt Yield
							3%		3.5%		4%		4.5%		5%		5.5%		6%
							Taxable Equivalent Yield – Single Return
0  –      7,300	10	%	1.486	%	11.34	%	3.38	%	3.95	%	4.51	%	5.08	%	5.64	%	6.20	%	6.77	%
7,301  –    29,700	15	%	4.457	%	18.79	%	3.69	%	4.31	%	4.93	%	5.54	%	6.16	%	6.77	%	7.39	%
29,701  –    40,000	25	%	4.457	%	28.34	%	4.19	%	4.88	%	5.58	%	6.28	%	6.98	%	7.68	%	8.37	%
40,001  –    71,950	25	%	5.201	%	28.90	%	4.22	%	4.92	%	5.63	%	6.33	%	7.03	%	7.74	%	8.44	%
71,951  –    80,000	28	%	5.201	%	31.74	%	4.40	%	5.13	%	5.86	%	6.59	%	7.32	%	8.06	%	8.79	%
80,001  –  100,000	28	%	5.943	%	32.28	%	4.43	%	5.17	%	5.91	%	6.65	%	7.38	%	8.12	%	8.86	%
100,001  –  150,150	28	%	6.900	%	32.97	%	4.48	%	5.22	%	5.97	%	6.71	%	7.46	%	8.21	%	8.95	%
150,151  –  200,000	33	%	6.900	%	37.62	%	4.81	%	5.61	%	6.41	%	7.21	%	8.02	%	8.82	%	9.62	%
200,001  –  326,450	33	%	7.500	%	38.03	%	4.84	%	5.65	%	6.45	%	7.26	%	8.07	%	8.88	%	9.68	%
Over 326,450	35	%	7.500	%	39.88	%	4.99	%	5.82	%	6.65	%	7.49	%	8.32	%	9.15	%	9.98	%

185

2005 Taxable Income Brackets*	Federal Marginal Tax Rate		Ohio Marginal Tax Rate*		Combined Rate		Tax Exempt Yield
							3%		3.5%		4%		4.5%		5%		5.5%		6%
							Taxable Equivalent Yield – Joint Return
0   –    14,600	10	%	2.972	%	12.67	%	3.44	%	4.01	%	4.58	%	5.15	%	5.73	%	6.30	%	6.87	%
14,601  –    40,000	15	%	4.457	%	18.79	%	3.69	%	4.31	%	4.93	%	5.54	%	6.16	%	6.77	%	7.39	%
40,001  –    59,400	15	%	5.201	%	19.42	%	3.72	%	4.34	%	4.96	%	5.58	%	6.20	%	6.82	%	7.45	%
59,401  –    80,000	25	%	5.201	%	28.90	%	4.22	%	4.92	%	5.63	%	6.33	%	7.03	%	7.74	%	8.44	%
80,001  –  100,000	25	%	5.943	%	29.46	%	4.25	%	4.96	%	5.67	%	6.38	%	7.09	%	7.80	%	8.51	%
100,001  –  119,950	25	%	6.900	%	30.18	%	4.30	%	5.01	%	5.73	%	6.45	%	7.16	%	7.88	%	8.59	%
119,951  –  182,800	28	%	6.900	%	32.97	%	4.48	%	5.22	%	5.97	%	6.71	%	7.46	%	8.21	%	8.95	%
182,801  –  200,000	33	%	6.900	%	37.62	%	4.81	%	5.61	%	6.41	%	7.21	%	8.02	%	8.82	%	9.62	%
200,001  –  326,450	33	%	7.500	%	38.03	%	4.84	%	5.65	%	6.45	%	7.26	%	8.07	%	8.88	%	9.68	%
Over 326,450	35	%	7.500	%	39.88	%	4.99	%	5.82	%	6.65	%	7.49	%	8.32	%	9.15	%	9.98	%

^* The income brackets applicable to the state of Ohio do not correspond to the Federal taxable income brackets. In addition, Ohio taxable income will likely be different than Federal taxable income because it is computed by reference to Federal adjusted gross income with specifically-defined Ohio modifications and exemptions, and does not consider many of the deductions allowed from Federal adjusted gross income in computing Federal taxable income. No other state tax credits, exemptions or local taxes have been taken into account in arriving at the combined marginal tax rate. The income amount shown is income subject to Federal income tax reduced by adjustments to income, exemptions and itemized deductions (including the deduction for state and local income taxes). If the standard deduction is taken for Federal income tax purposes, the taxable equivalent yield required to equal a specified tax-exempt yield is at least as great as that shown in the table. It is assumed that the investor is not subject to the alternative minimum tax. Where applicable, investors should consider that the benefit of certain itemized deductions and the benefit of personal exemptions are limited in the case of higher income individuals. For 2005, taxpayers with adjusted gross income in excess of a threshold amount of approximately $145,950 are subject to an overall limitation on certain itemized deductions, requiring a reduction in such deductions equal to the lesser of (i) 3% of adjusted gross income in excess of the threshold of approximately $145,950 or (ii) 80% of the amount of such itemized deductions otherwise allocable. The benefit of each personal exemption is phased out at the rate of two percentage points for each $3,200 (or fraction thereof) of adjusted gross income in the phase-out zone. For single taxpayers the range of adjusted gross income comprising the phase-out zone for 2005 is estimated to be from $145,950 to $268,450 and for married taxpayers filing a joint return from $218,950 to $341,450. The Federal tax brackets, the threshold amounts at which itemized deductions are subject to reduction, and the range over which personal exemptions are phased out will be further adjusted for inflation for each year after 2005.

186

TABLE 4 - Federal and North Carolina

2005 Taxable Income Bracket (Projected)				Federal Marginal Tax Rate		North Carolina Marginal Tax Rate		Combined Federal and North Carolina Marginal Tax Rate*		Tax-Exempt Yield
										3.0%		3.5%		4.0%		4.5%		5.0%		5.5%		6.0%
Single Return		Joint Return
$	0  –      7,300	$	0  –    14,600	10	%	6	%	15.400	%	3.546	%	4.137	%	4.728	%	5.319	%	5.910	%	6.501	%	7.092	%
	7,301  –    12,750		14,601  –    21,250	15	%	6	%	20.100	%	3.755	%	4.380	%	5.006	%	5.632	%	6.258	%	6.884	%	7.509	%
	12,751  –    29,700		21,251  –    59,400	15	%	7	%	20.950	%	3.795	%	4.428	%	5.060	%	5.693	%	6.325	%	6.958	%	7.590	%
	29,701  –    60,000		59,401  –  100,000	25	%	7	%	30.250	%	4.301	%	5.018	%	5.735	%	6.452	%	7.168	%	7.885	%	8.602	%
	60,001  –    71,950		100,001  –  119,950	25	%	7.75	%	30.813	%	4.336	%	5.059	%	5.781	%	6.504	%	7.227	%	7.949	%	8.672	%
	71,951  –  120,000		119,951  –  182,800	28	%	7.75	%	33.580	%	4.517	%	5.269	%	6.022	%	6.775	%	7.528	%	8.281	%	9.033	%
	120,001  –  150,150			28	%	8.25	%	33.940	%	4.541	%	5.298	%	6.055	%	6.812	%	7.569	%	8.326	%	9.083	%
			182,801  –  200,000	33	%	7.75	%	38.193	%	4.854	%	5.663	%	6.472	%	7.281	%	8.090	%	8.899	%	9.708	%
	150,001  –  326,450		200,001  –  326,450	33	%	8.25	%	38.528	%	4.880	%	5.694	%	6.507	%	7.320	%	8.134	%	8.947	%	9.760	%
	Over 326,450		Over 326,450	35	%	8.25	%	40.363	%	5.030	%	5.869	%	6.707	%	7.546	%	8.384	%	9.222	%	10.061	%

* The taxable income brackets applicable to North Carolina do not correspond to the Federal taxable income brackets. The taxable income brackets presented in this table represent the breakpoints for both the Federal and North Carolina marginal tax rate changes. When applying these brackets, Federal taxable income may be different than North Carolina taxable income. No state tax credits, exemptions, or local taxes have been taken into account in arriving at the combined marginal tax rate. The income amount shown is income subject to Federal income tax reduced by adjustments to income, exemptions, and itemized deductions (including the deduction for state and local income taxes). If the standard deduction is taken for Federal income tax purposes, the taxable equivalent yield required to equal a specified tax-exempt yield is at least as great as that shown in the table. It is assumed that the investor is not subject to the alternative minimum tax. Where applicable, investors should consider that the benefit of certain itemized deductions and the benefit of personal exemptions are limited in the case of higher-income individuals. For 2005, taxpayers with adjusted gross income in excess of the projected threshold amount of $145,950 are subject to an overall limitation on certain itemized deductions, requiring a reduction in such deductions equal to the lesser of three percent (3%) of the taxpayer’s adjusted gross income over $145,950 or eighty percent (80%) of the amount of such itemized deductions otherwise allowable. The benefit of each personal exemption is phased out at the rate of two percent (2%) for each $2,500 (or fraction thereof) of adjusted gross income in the phase-out zone. For single taxpayers the range of adjusted gross income comprising the phase-out zone for 2005 is estimated to be from $145,950 to $268,450 and for married taxpayers filing a joint return from $218,950 to $341,450. The Federal tax brackets, the threshold amounts at which itemized deductions are subject to reduction, and the range over which personal exemptions are phased out will be further adjusted for inflation for each year after 2005. In tax years beginning after December 31, 2005, the limit on itemized deductions for high-income taxpayers will be phased out until it is fully repealed effective for tax years beginning after 2009.

187

TABLE 5 - Federal and Virginia

2005 Taxable Income Bracket				Federal Marginal Tax Rate		Virginia Maximum Marginal Tax Rate		Combined Federal and Virginia Marginal Tax Rate*		Tax-Exempt Yield
										3.0%		3.5%		4.0%		4.5%		5.0%		5.5%		6.0%
Single Return		Joint Return
$	0  –      7,300	$	0  –    14,600	10	%	5.00	%	14.50	%	3.51	%	4.09	%	4.68	%	5.26	%	5.85	%	6.43	%	7.02	%
	7,301  –    29,700		14,601  –    59,400	15	%	5.75	%	19.89	%	3.74	%	4.37	%	4.99	%	5.62	%	6.24	%	6.86	%	7.49	%
	29,701  –    71,950		59,401  –  119,950	25	%	5.75	%	29.31	%	4.24	%	4.95	%	5.66	%	6.37	%	7.07	%	7.78	%	8.49	%
	71,951  –  150,150		119,951  –  182,800	28	%	5.75	%	32.14	%	4.42	%	5.16	%	5.89	%	6.63	%	7.37	%	8.10	%	8.84	%
	150,151  –  326,450		182,801  –  326,450	33	%	5.75	%	36.85	%	4.75	%	5.54	%	6.33	%	7.13	%	7.92	%	8.71	%	9.50	%
	Over 326,450		Over 326,450	35	%	5.75	%	38.74	%	4.90	%	5.71	%	6.53	%	7.35	%	8.16	%	8.98	%	9.79	%

* The taxable income brackets applicable to Virginia do not correspond to the Federal taxable income brackets. Because Virginia imposes a maximum tax rate of 5.0% on taxable income up to $17,000 and a maximum tax rate of 5.75% on taxable income over $17,000, the taxable income brackets presented in this table represent the breakpoints only for the Federal marginal tax rate changes. When applying these brackets, Federal taxable income may be different than Virginia taxable income. No state tax credits, exemptions, or local taxes have been taken into account in arriving at the combined marginal tax rate. The income amount shown is income subject to Federal income tax reduced by adjustments to income, exemptions, and itemized deductions (including the deduction for state and local income taxes). If the standard deduction is taken for Federal income tax purposes, the taxable equivalent yield required to equal a specified tax-exempt yield is at least as great as that shown in the table. It is assumed that the investor is not subject to the alternative minimum tax. Where applicable, investors should consider that the benefit of certain itemized deductions and the benefit of personal exemptions are limited in the case of higher income individuals. For 2005, taxpayers with adjusted gross income in excess of a threshold amount of approximately $145,950 are subject to an overall limitation on certain itemized deductions, requiring a reduction in such deductions equal to the lesser of (i) 3% of adjusted gross income in excess of the threshold of approximately $145,950 or (ii) 80% of the amount of such itemized deductions otherwise allowable. The benefit of each personal exemption is phased out at the rate of two percentage points for each $2,500 (or fraction thereof) of adjusted gross income in the phase-out zone. For single taxpayers the range of adjusted gross income comprising the phase-out zone for 2005 is estimated to be from $145,950 to $268,450 and for married taxpayers filing a joint return from $218,950 to $341,450. The Federal tax brackets, the threshold amounts at which itemized deductions are subject to reduction, and the range over which personal exemptions are phased out will be further adjusted for inflation for each year after 2005. In tax years beginning after December 31, 2005, the limit on itemized deductions and personal exemptions for high-income taxpayers will be phased out until it is fully repealed effective for tax years beginning after 2009.

188

TABLE 6 - Federal and New Jersey

2005 Taxable Income Bracket*	Federal Marginal Tax Rate		New Jersey Marginal Tax Rate		Approximate Combined Federal and New Jersey Marginal Tax Rate		Tax-Exempt Yield of
							3.00%		3.50%		4.00%		4.50%		5.00%		5.50%		6.00%		6.50%		7.00%
Single Return							Taxable Yield – Single Return
$0  -  $7,300	10.0	%	1.400	%	11.260	%	3.38	%	3.94	%	4.51	%	5.07	%	5.63	%	6.20	%	6.76	%	7.32	%	7.89	%
$7,301  -  $20,000	15.0	%	1.400	%	16.190	%	3.58	%	4.18	%	4.77	%	5.37	%	5.97	%	6.56	%	7.16	%	7.76	%	8.35	%
$20,001  -  $29,700	15.0	%	1.750	%	16.488	%	3.59	%	4.19	%	4.79	%	5.39	%	5.99	%	6.59	%	7.18	%	7.78	%	8.38	%
$29,701  -  $35,000	25.0	%	1.750	%	26.313	%	4.07	%	4.75	%	5.43	%	6.11	%	6.79	%	7.46	%	8.14	%	8.82	%	9.50	%
$35,001  -  $40,000	25.0	%	3.500	%	27.625	%	4.15	%	4.84	%	5.53	%	6.22	%	6.91	%	7.60	%	8.29	%	8.98	%	9.67	%
$40,001  -  $71,950	25.0	%	5.525	%	29.144	%	4.23	%	4.94	%	5.65	%	6.35	%	7.06	%	7.76	%	8.47	%	9.17	%	9.88	%
$71,951  -  $75,000	28.0	%	5.525	%	31.978	%	4.41	%	5.15	%	5.88	%	6.62	%	7.35	%	8.09	%	8.82	%	9.56	%	10.29	%
$75,001  -  $150,150	28.0	%	6.370	%	32.586	%	4.45	%	5.19	%	5.93	%	6.68	%	7.42	%	8.16	%	8.90	%	9.64	%	10.38	%
$150,151  -  $326,450	33.0	%	6.370	%	37.268	%	4.78	%	5.58	%	6.38	%	7.17	%	7.97	%	8.77	%	9.56	%	10.36	%	11.16	%
$326,451  -  $500,000	35.0	%	6.370	%	39.141	%	4.93	%	5.75	%	6.57	%	7.39	%	8.22	%	9.04	%	9.86	%	10.68	%	11.50	%
Over $500,000	35.0	%	8.970	%	40.831	%	5.07	%	5.92	%	6.76	%	7.61	%	8.45	%	9.30	%	10.14	%	10.99	%	11.83	%
Joint Return							Taxable Yield – Joint Return
$0  -   $14,600	10.0	%	1.400	%	11.260	%	3.38	%	3.94	%	4.51	%	5.07	%	5.63	%	6.20	%	6.76	%	7.32	%	7.89	%
$14,601  -  $20,000	15.0	%	1.400	%	16.190	%	3.58	%	4.18	%	4.77	%	5.37	%	5.97	%	6.56	%	7.16	%	7.76	%	8.35	%
$20,001  -  $50,000	15.0	%	1.750	%	16.488	%	3.59	%	4.19	%	4.79	%	5.39	%	5.99	%	6.59	%	7.18	%	7.78	%	8.38	%
$50,001  -  $59,400	15.0	%	2.450	%	17.083	%	3.62	%	4.22	%	4.82	%	5.43	%	6.03	%	6.63	%	7.24	%	7.84	%	8.44	%
$59,401  -  $70,000	25.0	%	2.450	%	26.838	%	4.10	%	4.78	%	5.47	%	6.15	%	6.83	%	7.52	%	8.20	%	8.88	%	9.57	%
$70,001  -  $80,000	25.0	%	3.500	%	27.625	%	4.15	%	4.84	%	5.53	%	6.22	%	6.91	%	7.60	%	8.29	%	8.98	%	9.67	%
$80,001  -  $119,950	25.0	%	5.525	%	29.144	%	4.23	%	4.94	%	5.65	%	6.35	%	7.06	%	7.76	%	8.47	%	9.17	%	9.88	%
$119,951  -  $150,000	28.0	%	5.525	%	31.978	%	4.41	%	5.15	%	5.88	%	6.62	%	7.35	%	8.09	%	8.82	%	9.56	%	10.29	%
$150,001  -  $182,800	28.0	%	6.370	%	32.586	%	4.45	%	5.19	%	5.93	%	6.68	%	7.42	%	8.16	%	8.90	%	9.64	%	10.38	%
$182,801  -  $326,450	33.0	%	6.370	%	37.268	%	4.78	%	5.58	%	6.38	%	7.17	%	7.97	%	8.77	%	9.56	%	10.36	%	11.16	%
$326,451  -  $500,000	35.0	%	6.370	%	39.141	%	4.93	%	5.75	%	6.57	%	7.39	%	8.22	%	9.04	%	9.86	%	10.68	%	11.50	%
Over $500,000	35.0	%	8.97	%	40.831	%	5.07	%	5.92	%	6.76	%	7.61	%	8.45	%	9.30	%	10.14	%	10.99	%	11.83	%

189

^* The taxable income brackets applicable to New Jersey do not correspond to the Federal taxable income brackets. The taxable income brackets presented in this table represent the breakpoints for both the Federal and New Jersey marginal tax rate changes. When applying these brackets, Federal taxable income will be different than New Jersey taxable income because New Jersey does not start with Federal taxable income in computing its own state income tax base. No state tax credits, exemptions, or local taxes have been taken into account in arriving at the combined marginal tax rate. The income amount shown is income subject to Federal income tax reduced by adjustments to income, exemptions, and itemized deductions (including the deduction for state and local income taxes). If the standard deduction is taken for Federal income tax purposes, the taxable equivalent yield required to equal a specified tax-exempt yield is at least as great as that shown in the table. It is assumed that the investor is not subject to the alternative minimum tax. Where applicable, investors should consider that the benefit of certain itemized deductions and the benefit of personal exemptions are limited in the case of higher-income individuals. For 2005, taxpayers with adjusted gross income in excess of a threshold amount of approximately $145,950 are subject to an overall limitation on certain itemized deductions, requiring a reduction in such deductions equal to the lesser of (i) 3% of adjusted gross income in excess of the threshold of approximately $145,950 or (ii) 80% of the amount of such itemized deductions otherwise allowable. The benefit of each personal exemption is phased out at the rate of two percentage points for each $2,500 (or fraction thereof) of adjusted gross income in the phase-out zone. For single taxpayers the range of adjusted gross income comprising the phase-out zone for 2005 is estimated to be from $145,950 to $268,450, and for married taxpayers filing a joint return from $218,950 to $341,450. The Federal tax brackets, the threshold amounts at which itemized deductions are subject to reduction, and the range over which personal exemptions are phased out will be further adjusted for inflation for each year after 2005. In tax years beginning after December 31, 2005, the limit on itemized deductions for high-income taxpayers will be phased out until it is fully repealed effective for tax years beginning after 2009.

190

TABLE 7 - Federal and Delaware (Single Return)

2004 Taxable Income Brackets*		Federal Marginal Tax Rate		Delaware Marginal Tax Rate		Combined Rate*		Tax-Exempt Yield
								3.0%		3.5%		4.0%		4.5%		5.0%		5.5%		6.0%
$	0  -      2,000	10.00	%	0.00	%	10.00	%	3.33	%	3.89	%	4.44	%	5.00	%	5.56	%	6.11	%	6.67	%
	2,001  -      5,000	10.00	%	2.20	%	11.98	%	3.41	%	3.98	%	4.54	%	5.11	%	5.68	%	6.25	%	6.82	%
	5,001  -      7,300	10.00	%	3.90	%	13.51	%	3.47	%	4.05	%	4.62	%	5.20	%	5.78	%	6.36	%	6.94	%
	7,301  -    10,000	15.00	%	3.90	%	18.32	%	3.67	%	4.28	%	4.90	%	5.51	%	6.12	%	6.73	%	7.35	%
	10,001  -    20,000	15.00	%	4.80	%	19.08	%	3.71	%	4.33	%	4.94	%	5.56	%	6.18	%	6.80	%	7.41	%
	20,001  -    25,000	15.00	%	5.20	%	19.42	%	3.72	%	4.34	%	4.96	%	5.58	%	6.21	%	6.83	%	7.45	%
	25,001  -    29,700	15.00	%	5.55	%	19.72	%	3.74	%	4.36	%	4.98	%	5.61	%	6.23	%	6.85	%	7.47	%
	29,701  -    60,000	25.00	%	5.55	%	29.16	%	4.24	%	4.94	%	5.65	%	6.35	%	7.06	%	7.76	%	8.47	%
	60,001  -    71,950	25.00	%	5.95	%	29.46	%	4.25	%	4.96	%	5.67	%	6.38	%	7.09	%	7.80	%	8.51	%
	71,951  -  150,150	28.00	%	5.95	%	32.28	%	4.43	%	5.17	%	5.91	%	6.65	%	7.38	%	8.12	%	8.86	%
	150,151  -  326,450	33.00	%	5.95	%	36.99	%	4.76	%	5.55	%	6.35	%	7.14	%	7.93	%	8.73	%	9.52	%
	Over 326,450	35.00	%	5.95	%	38.87	%	4.91	%	5.73	%	6.54	%	7.36	%	8.18	%	9.00	%	9.81	%

191

TABLE 7 (cont.) - Federal and Delaware (Joint Return)

2004 Taxable Income Brackets*		Federal Marginal Tax Rate		Delaware Marginal Tax Rate		Combined Rate*		Tax-Exempt Yield
								3.0%		3.5%		4.0%		4.5%		5.0%		5.5%		6.0%
$	0  -      2,000	10.00	%	0.00	%	10.00	%	3.33	%	3.89	%	4.44	%	5.00	%	5.56	%	6.11	%	6.67	%
	2,001  -      5,000	10.00	%	2.20	%	11.98	%	3.41	%	3.98	%	4.54	%	5.11	%	5.68	%	6.25	%	6.82	%
	5,001  -    10,000	10.00	%	3.90	%	13.51	%	3.47	%	4.05	%	4.62	%	5.20	%	5.78	%	6.36	%	6.94	%
	10,001  -    14,600	10.00	%	4.80	%	14.32	%	3.50	%	4.08	%	4.67	%	5.25	%	5.84	%	6.42	%	7.00	%
	14,601  -    20,000	15.00	%	4.80	%	19.08	%	3.71	%	4.33	%	4.94	%	5.56	%	6.18	%	6.80	%	7.41	%
	20,001  -    25,000	15.00	%	5.20	%	19.42	%	3.72	%	4.34	%	4.96	%	5.58	%	6.21	%	6.83	%	7.45	%
	25,001  -    59,400	15.00	%	5.55	%	19.72	%	3.74	%	4.36	%	4.98	%	5.61	%	6.23	%	6.85	%	7.47	%
	59,401  -    60,000	25.00	%	5.55	%	29.16	%	4.24	%	4.94	%	5.65	%	6.35	%	7.06	%	7.76	%	8.47	%
	60,001  -  119,950	25.00	%	5.95	%	29.46	%	4.25	%	4.96	%	5.67	%	6.38	%	7.09	%	7.80	%	8.51	%
	119,951  -  182,800	28.00	%	5.95	%	32.28	%	4.43	%	5.17	%	5.91	%	6.65	%	7.38	%	8.12	%	8.86	%
	182,801  -  326,450	33.00	%	5.95	%	36.99	%	4.76	%	5.55	%	6.35	%	7.14	%	7.93	%	8.73	%	9.52	%
	Over 326,450	35.00	%	5.95	%	38.87	%	4.91	%	5.73	%	6.54	%	7.36	%	8.18	%	9.00	%	9.81	%

* The taxable income brackets applicable to Delaware do not correspond to the Federal taxable income brackets. The taxable income brackets presented in this table represent the breakpoints for both the Federal and Delaware marginal tax-rate changes. When applying these brackets, Federal taxable income may be different from Delaware taxable income. No state tax credits, exemptions or local taxes have been taken into account in arriving at the combined marginal tax rate. The income amount shown is income subject to Federal income tax reduced by adjustments to income, exemptions and itemized deductions (including the deduction for state income taxes). If the standard deduction is taken for Federal income tax purposes, the taxable-equivalent yield required to equal a specified tax-exempt yield is at least as great as that shown in the table. It is assumed that the investor is not subject to the alternative minimum tax. Where applicable, investors should consider that the benefit of certain itemized deductions and the benefit of personal exemptions are limited in the case of higher-income individuals. For 2004, taxpayers with adjusted gross income in excess of the threshold of $142,700 are subject to an overall limitation on certain itemized deductions, requiring a reduction in such deductions equal to the lesser of (i) 3% of adjusted gross income in excess of the threshold of $142,700, or (ii) 80% of the amount of such itemized deductions otherwise allowable. The benefit of each personal exemption is phased out at the rate of two percentage points for each $2,500 (or fraction thereof) of adjusted gross income in the phase-out zone. For single taxpayers, the range of adjusted gross income comprising the phase-out zone for 2004 is from $142,700 to $265,200, and for married taxpayers filing a joint return from $214,050 to $336,550. The Federal tax brackets, the threshold amounts at which itemized deductions are subject to reduction and the range over which personal exemptions are phased out will be further adjusted for inflation for each year after 2004. In tax years beginning after December 31, 2005, the limit on itemized deductions for high-income taxpayers will be phased out until it is fully repealed effective for tax years beginning after 2009.

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TABLE 8 - Federal and Kentucky

2005 Taxable Income Bracket*				Federal Marginal Tax Rate		Kentucky Marginal Tax Rate		Combined Federal and Kentucky Marginal Tax Rate*		Tax Exempt Yield
Single Return		Joint Return								3.0%		3.5%		4.0%		4.5%		5.0%		5.5%		6.0%
$	0  -  3,000	$	0  -  3,000	10	%	2.00	%	11.80	%	3.401	%	3.968	%	4.535	%	5.102	%	5.669	%	6.236	%	6.803	%
	3,001  -  4,000		3,001  -  4,000	10	%	3.00	%	12.70	%	3.436	%	4.009	%	4.582	%	5.155	%	5.727	%	6.300	%	6.873	%
	4,001  -  5,000		4,001  -  5,000	10	%	4.00	%	13.60	%	3.472	%	4.050	%	4.630	%	5.208	%	5.787	%	6.366	%	6.944	%
	5,001  -  7,300		5,001  -  8,000	10	%	5.00	%	14.50	%	3.508	%	4.094	%	4.678	%	5.263	%	5.848	%	6.433	%	7.018	%
			8,001  -  14,600	10	%	6.00	%	15.40	%	3.546	%	4.137	%	4.728	%	5.319	%	5.910	%	6.501	%	7.092	%
	7,301  -  8,000			15	%	5.00	%	19.25	%	3.715	%	4.334	%	`4.954	%	5.573	%	6.192	%	6.811	%	7.430	%
	8,001  -  29,700		14,601  -  59,400	15	%	6.00	%	20.10	%	3.755	%	4.380	%	5.006	%	5.632	%	6.258	%	6.884	%	7.509	%
	29,701  -  71,950		59,401  -  119,950	25	%	6.00	%	29.50	%	4.255	%	4.965	%	5.674	%	6.383	%	7.092	%	7.801	%	8.511	%
	71,951  -  150,150		119,951  -  182,800	28	%	6.00	%	32.32	%	4.433	%	5.171	%	5.910	%	6.649	%	7.388	%	8.126	%	8.865	%
	150,151  -  326,450		182,801  -  326,450	33	%	6.00	%	37.02	%	4.7630	%	5.557	%	6.351	%	7.145	%	7.939	%	8.733	%	9.527	%
	Over 326,450		Over 326,450	35	%	6.00	%	38.90	%	4.910	%	5.728	%	6.547	%	7.365	%	8.183	%	9.002	%	9.820	%

* The taxable income brackets applicable to Kentucky do not correspond to the Federal taxable income brackets. The taxable income brackets presented in this table represent the breakpoints for both the Federal and Kentucky marginal tax rate changes. When applying these brackets, Federal taxable income may be different than Kentucky taxable income. No state tax credits, exemptions, or local taxes have been taken into account in arriving at the combined marginal tax rate. The income amount shown is income subject to Federal income tax reduced by adjustments to income, exemptions, and itemized deductions (including the deduction for state taxes). If the standard deduction is taken for Federal income tax purposes, the taxable equivalent yield required to equal a specified tax-exempt yield is at least as great as that shown in the table. It is assumed that the investor is not subject to the alternative minimum tax. Where applicable, investors should consider that the benefit of certain itemized deductions and the benefit of personal exemptions are limited in the case of higher-income individuals. For 2005, taxpayers with adjusted gross income in excess of the threshold of approximately $145,950 are subject to an overall limitation on certain itemized deductions, requiring a reduction in such deductions equal to the lesser of (i) 3% of adjusted gross income in excess of the threshold of approximately $145,950 or (ii) 80% of the amount of such itemized deductions otherwise allowable. The benefit of each personal exemption is phased out at the rate of two percentage points for each $2,500 (or fraction thereof) of adjusted gross income in the phase-out zone. For single taxpayers the range of adjusted gross income comprising the phase-out zone for 2005 is estimated to be from $145,950 to $268,450 and for married taxpayers filing a joint return from $218,950 to $341,450. The Federal tax brackets, the threshold amounts at which itemized deductions are subject to reduction, and the range over which personal exemptions are phased out will be further adjusted for inflation for each year after 2005. In tax years beginning after December 31, 2005, the limit on itemized deductions for high-income taxpayers will be phased out until it is fully repealed effective for tax years beginning after 2009.

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Miscellaneous. Yields on shares of a Portfolio may fluctuate daily and do not provide a basis for determining future yields. Because such yields will fluctuate, they cannot be compared with yields on savings account or other investment alternatives that provide an agreed to or guaranteed fixed yield for a stated period of time. In comparing the yield of one Portfolio to another, consideration should be given to each Portfolio’s investment policies, including the types of investments made, lengths of maturities of the portfolio securities, market conditions, operating expenses and whether there are any special account charges which may reduce the effective yield. The fees which may be imposed by Service Organizations and other institutions on their customers are not reflected in the calculations of total returns or yields for the Portfolios.

When comparing a Portfolio’s performance to stock, bond, and money market 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. Likewise, money market funds may offer greater stability of principal, but generally do not offer the higher potential returns from stock mutual funds.

From time to time, a Portfolio’s performance may also be compared to other mutual funds tracked by financial or business publications and periodicals. For example a 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 Portfolios 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. Portfolios 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 Portfolios. The Portfolios 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 a Portfolio investment are reinvested by being paid in additional Portfolio shares, any future income or capital appreciation of a Portfolio would increase the value, not only of the original investment in the Portfolio, but also of the additional Portfolio shares received through reinvestment. The Fund may also include discussions or illustrations of the potential investment goals of a prospective investor, (including materials that describe general principles of investing, such as asset allocation, diversification, risk tolerance, and goal setting, questionnaires designed to help create a personal financial profile, worksheets used to project savings needs based on assumed rates of inflation and hypothetical rates of return and action plans offering investment alternatives) investment management techniques, policies or investment suitability of a 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 a Portfolio), as well as the views of the Portfolios’ 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 a 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 a 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 a 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

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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 Portfolios’ investment adviser and sub-advisers. Materials may refer to the CUSIP numbers of the various classes of the Portfolios and may illustrate how to find the listings of the Portfolios in newspapers and periodicals. Materials may also include discussions of other Portfolios, 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.

A 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.

A Portfolio may quote various measures of volatility and benchmark correlation in advertising. In addition, a 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 a 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.

A 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. A 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.

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

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

TAXES

The following is only a summary of certain additional tax considerations generally affecting the Portfolios 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 Portfolios or their 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.

Please note that for purposes of satisfying certain of the requirements for taxation as a regulated investment company described below, the Index Equity Portfolio is deemed to own a proportionate share of the assets and gross income of the Index Master Portfolio in which the Index Equity Portfolio invests all of its assets. Also, with respect to the Index Equity Portfolio, the discussion below that relates to the taxation of futures contracts and other rules pertaining to the timing and character of income applies to the Index Master Portfolio.

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Each Portfolio of the Fund has elected and intends to qualify each year 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, each Portfolio generally is exempt from federal income tax on 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 investment company taxable 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 investment company taxable 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, each 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 non-U.S. currencies (including, but not limited to, gains from forward non-U.S. currency exchange contracts), or from other income (including but not limited to gains from options, futures or forward contracts) 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 each 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 a Portfolio generally has not invested more than 5% of the value of its total assets in securities of such issuer and as to which a Portfolio does not hold more than 10% of the outstanding voting securities of such issuer), and no more than 25% of the value of each 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 American Jobs Creation Act of 2004 (the “2004 Act”), which the President recently signed into law, provides that for taxable years of a regulated investment company beginning after October 22, 2004, net income derived from an interest in a “qualified publicly traded partnership,” as defined in the Code, will be treated as qualifying income for purposes of the Income Requirement described above. In addition, for the purposes of the diversification requirements described above, the outstanding voting securities of any issuer includes the equity securities of a qualified publicly traded partnership, and no more than 25% of the value of a regulated investment company’s total assets may be invested in the securities of one or more qualified publicly traded partnerships. The 2004 Act also provides that the separate treatment for publicly traded partnerships under the passive activity rules of the Code applies to a regulated investment company holding an interest in a qualified publicly traded partnership, with respect to items attributable to such interest.

Each of the Money and Non-Money Market Municipal Portfolios and the UltraShort Municipal Portfolio is designed to provide investors with tax-exempt interest income. Shares of the Money Market Municipal Portfolios would not be suitable for tax-exempt institutions and may not be suitable for retirement plans qualified under Section 401 of the Code, H.R. 10 plans and individual retirement accounts because such plans and accounts are generally tax-exempt and, therefore, not only would not gain any additional benefit from the Portfolio’s dividends being tax-exempt but also such dividends would be taxable when distributed to the beneficiary. In addition, the Money and Non-Money Market Municipal Portfolios and the UltraShort Municipal Portfolio may not be an appropriate investment for entities which are “substantial users” of facilities financed by private activity bonds or “related persons” thereof. “Substantial user” is defined under U.S. Treasury Regulations to include a non-exempt person who regularly uses a part of such facilities in his trade or business and (a) whose gross revenues derived with respect to the facilities financed by the issuance of bonds are more than 5% of the total revenues derived by all users of such facilities, (b) who occupies more than 5% of the entire usable area of such facilities, or (c) for whom such facilities or a part thereof were specifically constructed, reconstructed or acquired. “Related persons” include certain related natural persons, affiliated corporations, a partnership and its partners and an S corporation and its shareholders.

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In order for the Money and Non-Money Market Municipal Portfolios and the UltraShort Municipal Portfolio to pay exempt-interest dividends for any taxable year, at the close of each quarter of the taxable year at least 50% of the value of each such Portfolio must consist of exempt-interest obligations. Exempt-interest dividends distributed to shareholders are not included in the shareholder’s gross income for regular federal income tax purposes. However, gain realized by such Portfolios from the disposition of a tax-exempt bond that was acquired after April 30, 1993, for a price less than the principal amount of the bond is treated as ordinary income to the extent of accrued market discount. Also, all shareholders required to file a federal income tax return are required to report the receipt of exempt-interest dividends and other exempt interest on their returns. Partnerships, in which all or substantially all of the partnership’s income is derived from the holding or disposition of tax-exempt obligations or shares in a regulated investment company that pays exempt-interest dividends and where the partnership meets certain procedural requirements, do not have to file Form 1065 or issue Schedule K-1s for the taxable year. Moreover, while such dividends and interest are exempt from regular federal income tax, they may be subject to alternative minimum tax (currently imposed at the rate of 26% (28% on the taxable excess over $175,000) in the case of non-corporate taxpayers and at the rate of 20% in the case of corporate taxpayers) in two circumstances. First, exempt-interest dividends derived from certain private activity bonds issued after August 7, 1986, generally will constitute an item of tax preference for both corporate and non-corporate taxpayers. Second, exempt-interest dividends derived from all bonds, regardless of the date of issue, must be taken into account by corporate taxpayers in determining certain adjustments for alternative minimum tax purposes. Receipt of exempt-interest dividends may result in collateral federal income tax consequences to certain other taxpayers, including financial institutions, property and casualty insurance companies, individual recipients of Social Security or Railroad Retirement benefits, and non-U.S. corporations engaged in a trade or business in the United States. Prospective investors should consult their own tax advisors as to such consequences.

If a Money or Non-Money Market Municipal Portfolio distributes exempt-interest dividends during the shareholder’s taxable year, no deduction generally will be allowed for any interest expense on indebtedness incurred to purchase or carry shares of such Portfolio.

Distributions of investment company taxable income from a Portfolio will generally be taxable (other than qualified dividend income and the possible allowance of the dividends received deduction described below) to shareholders as ordinary income to the extent of that Portfolio’s earnings and profits, regardless of whether such distributions are paid in cash or are reinvested in shares. However, for taxable years beginning on or before December 31, 2008, distributions of investment company taxable income that are designated by a Portfolio as derived from qualified dividend income are taxed to individuals at the rates applicable to long-term capital gains. A Portfolio will notify shareholders of the amount of any distribution that may constitute qualified dividend income not later than 60 days after the close of its taxable year. If a Portfolio receives 95% or more of its gross income (as defined for that purpose) from qualified dividend income, all the Portfolio’s distributions may be classified as qualified dividend income, provided holding period and other requirements are met by both the shareholders and the Portfolio. Otherwise, only a portion of a Portfolio’s distributions may be eligible for classification as qualified dividend income. A Portfolio may designate such distributions as qualified dividend income only to the extent the Portfolio has qualified dividend income for the taxable year in which such distributions are made. Qualified dividend income is generally dividend income from taxable domestic corporations and certain non-U.S. corporations. Shareholders receiving any distribution from a Portfolio in the form of additional shares will be treated as receiving a taxable distribution in an amount equal to the fair market value of the shares received, determined as of the reinvestment date. The Money and Non-Money Market Municipal Portfolios and the UltraShort Municipal Portfolio may each purchase securities that do not bear tax-exempt interest. Any income on such securities recognized by the Portfolio will be distributed and will be taxable to its shareholders.

Except for the Exchange Portfolio, each 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. If a Portfolio retains any net capital gain, it may designate the retained amount as undistributed capital gain in a notice to its shareholders, and each shareholder will (i) be required to include in income for U.S. federal income tax purposes as long-term capital gain its share of such undistributed amounts, (ii) be entitled to credit its proportionate share of tax paid by the Portfolio against its U.S. federal income tax liability and to claim refunds to the extent that the credit exceeds such liability and (iii) increase its basis in its shares of the Portfolio by an amount equal to the difference between its proportionate share of such gains and the amount of tax paid on such shareholder’s behalf by the Portfolio.

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Distributions by a Portfolio that do not constitute ordinary income dividends, qualified dividend income, exempt-interest dividends, interest-related dividends, short-term capital gain dividends or capital gain dividends will be treated as a return of capital to the extent of (and in reduction of) a shareholder’s tax basis in his shares; any excess will be treated as gain from the sale of his shares, as discussed below.

Under current law, ordinary income of individuals will be taxable at a maximum marginal rate of 35%, 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. Long-term capital gains for individuals have been temporarily reduced to 15% (with lower rates for individuals in the 10% to 15% rate brackets) for taxable years beginning on or before December 31, 2008. Capital gains and ordinary income of corporate taxpayers are both taxed at a maximum marginal rate of 35%.

A shareholder will recognize gain or loss on the sale, exchange or redemption of a Portfolio’s shares in an amount equal to the difference between the proceeds of the sale, exchange or redemption and the shareholder’s adjusted tax basis in the shares. All or a portion of any loss so recognized may be disallowed if the shareholder purchases other shares of such Portfolio within 30 days before or after the sale, exchange or redemption. Any gain or loss arising from the sale, exchange or redemption of shares of a Portfolio held as a capital asset (generally, property held for investment) will be considered capital gain or loss and will be long-term capital gain or loss if the shares were held for longer than one year. Any loss incurred on the sale or exchange of a Portfolio’s shares, held six months or less, will be disallowed to the extent of exempt-interest dividends received 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.

Under recently promulgated Treasury regulations, if a shareholder recognizes a loss with respect to shares of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder must file with the Internal Revenue Service a disclosure statement on IRS Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a regulated investment company are not excepted. Future guidance may extend the current exception from this reporting requirement to shareholders of most or all regulated investment companies. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer’s treatment of the loss is proper. Shareholders should consult their tax advisors to determine the applicability of these regulations in light of their individual circumstances.

Each Non-Money Market Portfolio (other than the Index Master Portfolio) may engage in hedging or derivatives transactions involving non-U.S. currencies, forward contracts, options and futures contracts (including options, futures and forward contracts on non-U.S. 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 a 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 a 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). Each 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.

Each Bond Portfolio and the Asset Allocation Portfolio may make investments in zero coupon bonds having original issue discount (i.e., an amount equal to the excess of the stated redemption price of the bond at maturity over its issue price). Zero coupon bonds do not provide for periodic interest payments and therefore produce income that is not matched by a corresponding cash distribution. Any such income would be treated as income earned by a Portfolio and would be subject to the Distribution Requirement and taken into account for purposes of the 4% excise tax (discussed below). As a result, such Portfolio may be required to dispose of portfolio securities under disadvantageous circumstances in order to generate cash to be able to make distributions to its investors.

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Under Section 988 of the Code, gains or losses attributable to fluctuations in exchange rates between the time a Portfolio accrues income or receivables or expenses or other liabilities denominated in a foreign currency and the time a Portfolio actually collects such income or receivables or pays such liabilities are generally treated as ordinary income or loss. Similarly, gains or losses on foreign currency forward contracts and the disposition of debt securities denominated in a foreign currency, to the extent attributable to fluctuations in exchange rates between the acquisition and disposition dates, are also treated as ordinary income or loss.

If a 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 a Portfolio in respect of deferred taxes arising from such distributions or gains. If a 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, a 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, a 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 certain of the Portfolios 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 International Opportunities or International Bond Portfolios consists of stock or securities of non-U.S. corporations, such Portfolio may elect to “pass through” to the Portfolio’s shareholders the amount of foreign taxes paid by such Portfolio. If a 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 non-U.S. source income his pro rata share of such foreign taxes plus the portion of dividends received from the Portfolio representing income derived from non-U.S. 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 non-U.S. 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 a 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 a 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 91 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 181 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 a Portfolio.

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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 generally be eligible (i) for treatment as qualified dividend income in the case of individual shareholders and (ii) 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). Each 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.

Ordinarily, shareholders are required to take distributions by a Portfolio into account in the year in which the distributions are made. However, dividends declared in October, November or December of any year and payable to shareholders of record on a specified date in such a month will be deemed to have been received by the shareholders (and made by the Portfolio) on December 31 of such calendar year if such dividends are actually paid in January of the following year.

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

Taxation of a shareholder who, as to the United States, is a nonresident alien individual, non-U.S. trust or estate, non-U.S. corporation, or non-U.S. partnership (“non-U.S. shareholder”), depends on whether the income from a Portfolio is “effectively connected” with a U.S. trade or business carried on by such shareholder. If the income from a Portfolio is not effectively connected with a U.S. trade or business carried on by a non-U.S. shareholder, dividends paid to such non-U.S. shareholder from investment company taxable income will be subject to a U.S. withholding tax at the rate of 30% (or lower treaty rate) upon the gross amount of the dividend. Such a non-U.S. shareholder would generally be exempt from U.S. federal income tax on gains realized on the sale of shares of a Portfolio, exempt-interest dividends and capital gain dividends. In addition, under the 2004 Act, a new exemption is created under which U.S. source withholding taxes are no longer imposed on dividends paid by regulated investment companies to the extent the dividends are designated as “interest-related dividends” or “short-term capital gain dividends.” Under this exemption, interest-related dividends and short-term capital gain dividends generally represent distributions of interest or short-term capital gains that would not have been subject to U.S. withholding tax at the source if they had been received directly by a foreign person, and that satisfy certain other requirements. The exemption applies to dividends with respect to taxable years of regulated investment companies beginning after December 31, 2004, and before January 1, 2008. If the income from a Portfolio is effectively connected with a U.S. trade or business carried on by a non-U.S. shareholder, then ordinary income dividends, qualified dividend income, interest-related dividends, short-term capital gain dividends, capital gain dividends, and any gains realized upon the sale of shares of a Portfolio will be subject to U.S. federal income tax at the rates applicable to U.S. citizens or domestic corporations. In the case of non-U.S. non-corporate shareholders, the Fund may be required to withhold U.S. federal income tax on distributions that are otherwise exempt from withholding tax (or taxable at a reduced treaty rate) unless such shareholders furnish the Fund with proper notification of their non-U.S. status. Non-U.S. shareholders are urged to consult their own tax advisers with respect to the particular tax consequences to them of an investment in a Portfolio, including the applicability of foreign taxes.

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

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Although each 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, each 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.

Ohio Tax Considerations. Under current Ohio law, individuals and estates that are subject to Ohio personal income tax or municipal or school district income taxes in Ohio will not be subject to such taxes on distributions with respect to shares of the Ohio Tax-Free Income Portfolio or the Ohio Municipal Money Market Portfolio (“Distributions”) to the extent that such Distributions are properly attributable to interest on obligations of the State of Ohio, political subdivisions thereof or agencies or instrumentalities of Ohio or its political subdivisions (“Ohio State-Specific Obligations”), Corporations that are subject to the Ohio corporation franchise tax will not have to include Distributions in their tax base for purposes of calculating the Ohio corporation franchise on the net income basis to the extent that such Distributions either constitute exempt-interest dividends for federal income tax purposes or are properly attributable to interest on Ohio State-Specific Obligations. However, Shares of the Ohio Tax Free Income Portfolio and the Ohio Municipal Money Market Portfolio will be included in a corporation’s tax base for purposes of calculating the Ohio corporation franchise tax on the net worth basis.

Distributions that consist of interest on obligations of the United States or its territories or possessions or of any authority, commission, or instrumentality of the United States (“Territorial Obligations”) the interest on which is exempt from state income taxes under the laws of the United States are exempt from the Ohio personal income tax, and municipal and school district income taxes in Ohio, and, provided, in the case of Territorial Obligations, such interest is excluded from gross income for federal income tax purposes, are excluded from the net income base of the Ohio corporation franchise tax.

Distributions properly attributable to profit on the sale, exchange or other disposition of Ohio State-Specific Obligations will not be subject to the Ohio personal income tax, or municipal or school district income taxes in Ohio and will not be included in the net income base of the Ohio corporation franchise tax. Distributions attributable to other sources generally will not be exempt from the Ohio personal income tax, municipal or school district income taxes in Ohio or the net income base of the Ohio corporation franchise tax.

The Ohio Municipal Money Market and Ohio Tax-Free Income Portfolios are not subject to the Ohio personal income tax or school district or municipal income taxes in Ohio. The Ohio Municipal Money Market and Ohio Tax-Free Income Portfolios are not subject to the Ohio corporation franchise tax or the Ohio dealers in intangibles tax, provided that, if there is a sufficient nexus between the State of Ohio and such entity that would enable the State to tax such entity, the Fund timely files the annual report required by Section 5733.09 of the Ohio Revised Code. The Ohio Tax Commissioner has waived this annual filing requirement for each tax year since 1990, the first tax year to which such requirement applied. Distributions with respect to shares of the Ohio Municipal Money Market and Ohio Tax-Free Income Portfolios properly attributable to proceeds of insurance paid to those Portfolios that represent maturing or matured interest on defaulted Obligations held by those Portfolios and that are excluded from gross income for Federal income tax purposes will not be subject to Ohio personal income tax or municipal or school district income taxes in Ohio, nor included in the net income base of the Ohio corporation franchise tax.

This discussion of Ohio taxes assumes that the Ohio Tax-Free Income Portfolio and the Ohio Municipal Money Market Portfolio will each continue to qualify as a regulated investment company under the Internal Revenue Code and that at all times at least 50% of the value of the total assets of each of the Portfolios consists of Ohio State-Specific Obligations or similar obligations of other states or their subdivisions.

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North Carolina Tax Considerations. Interest received in the form of dividends from the North Carolina Municipal Money Market Portfolio is exempt from North Carolina state income tax to the extent the distributions represent interest on direct obligations of the U.S. Government or North Carolina State-Specific Obligations. Distributions derived from interest earned on obligations of political subdivisions of Puerto Rico, Guam and the U.S. Virgin Islands, including the governments thereof and their agencies, instrumentalities and authorities, are also exempt from North Carolina state income tax. Distributions paid out of interest earned on obligations that are merely backed or guaranteed by the U.S. Government (e.g., GNMAs, FNMAs), on repurchase agreements collateralized by U.S. Government securities or on obligations of other states (which the Portfolio may acquire and hold for temporary or defensive purposes) are not exempt from North Carolina state income tax.

Any distributions of net realized gain earned by the North Carolina Municipal Money Market Portfolio on the sale or exchange of certain obligations of the State of North Carolina or its subdivisions that were issued before July 1, 1995, will also be exempt from North Carolina income tax to the Portfolio’s shareholders. Distributions of gains earned by the North Carolina Municipal Money Market Portfolio on the sale or exchange of all other obligations will be subject to North Carolina income tax.

Distributions of exempt-interest dividends, to the extent attributable to interest on North Carolina State-Specific Obligations and to interest on direct obligations of the United States (including territories thereof), are not subject to North Carolina individual or corporate income tax. Distributions of gains attributable to certain obligations of the State of North Carolina and its political subdivisions issued prior to July 1, 1995, are not subject to North Carolina individual or corporate income tax; however, distributions of gains attributable to such types of obligations that were issued after June 30, 1995, will be subject to North Carolina individual or corporate income tax. An investment in a Portfolio (including the North Carolina Municipal Money Market Portfolio) by a corporation subject to the North Carolina franchise tax will be included in the capital stock, surplus and undivided profits base in computing the North Carolina franchise tax. Investors in a Portfolio including, in particular, corporate investors which may be subject to the North Carolina franchise tax, should consult their tax advisors with respect to the effects on such tax of an investment in a Portfolio and with respect to their tax situation in general.

Virginia Tax Considerations. Dividends paid by the Virginia Municipal Money Market Portfolio and derived from interest on obligations of the Commonwealth of Virginia or of any political subdivision or instrumentality of the Commonwealth or derived from interest or dividends on obligations of the United States excludable from Virginia taxable income under the laws of the United States, which obligations are issued in the exercise of the borrowing power of the Commonwealth or the United States and are backed by the full faith and credit of the Commonwealth or the United States, will generally be exempt from the Virginia income tax. Dividends derived from interest on debt obligations of certain territories and possessions of the United States backed by the full faith and credit of the borrowing government (those issued by Puerto Rico, the Virgin Islands and Guam) will also be exempt from the Virginia income tax. Dividends derived from interest on debt obligations other than those described above will be subject to the Virginia income tax even though it may be excludable from gross income for Federal income tax purposes.

Generally, dividends distributed to shareholders by the Portfolio and derived from capital gains will be taxable to the shareholders. Capital gains distributed to shareholders derived from Virginia obligations issued pursuant to special Virginia enabling legislation which provides a specific exemption for such gains will be exempt from Virginia income tax.

When taxable income of a regulated investment company is commingled with exempt income, all distributions of the income are presumed taxable to the shareholders unless the portion of income that is exempt from Virginia income tax can be determined with reasonable certainty and substantiated. Generally, this determination must be made for each distribution to each

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shareholder. The Virginia Department of Taxation has adopted a policy of allowing shareholders to exclude from their Virginia taxable income the exempt portion of distributions from a regulated investment company even though the shareholders receive distributions monthly but receive reports substantiating the exempt portion of such distributions at less frequent intervals. Accordingly, if the Portfolio receives taxable income, the Portfolio must determine the portion of income that is exempt from Virginia income tax and provide such information to the shareholders in accordance with the foregoing so that the shareholders may exclude from Virginia taxable income the exempt portion of the distribution from the Portfolio.

As a regulated investment company, the Virginia Municipal Money Market Portfolio may distribute dividends that are exempt from the Virginia income tax to its shareholders if the Portfolio satisfies all requirements for conduit treatment under Federal law and, at the close of each quarter of its taxable year, at least 50% of the value of its total assets consists of obligations the interest on which is exempt from taxation under Federal law. If the Portfolio fails to qualify, no part of its dividends will be exempt from the Virginia income tax. To the extent any portion of the dividends are derived from taxable interest for Virginia purposes or from net short-term capital gains, such portion will be taxable to the shareholders as ordinary income. The character of long-term capital gains realized and distributed by the Portfolio will follow through to its shareholders regardless of how long the shareholders have held their shares. Generally, interest on indebtedness incurred by shareholders to purchase or carry shares of the Portfolio will not be deductible for Virginia income tax purposes.

New Jersey Tax Considerations. It is anticipated that the New Jersey Tax-Free Income Portfolio and the New Jersey Municipal Money Market Portfolio will qualify as a “Qualified Investment Fund” and as a result, the main portion of each distribution paid by the New Jersey Tax-Free Income Portfolio and the New Jersey Municipal Money Market Portfolio will not be subject to the New Jersey gross income tax. Only that portion of each distribution will be subject to New Jersey taxation that represents income or gains attributable to obligations that are not exempt from State or local tax under New Jersey or federal law. Net gains from the redemption of shares of the New Jersey Tax-Free Income Portfolio and the New Jersey Municipal Money Market Portfolio will also be exempt from the New Jersey gross income tax as long as they continue to qualify as Qualified Investment Funds.

As defined in N.J.S.A. 54A:6-14.1, a “Qualified Investment Fund” is an investment company or trust registered with the Securities and Exchange Commission, or any series of such investment company or trust, which for the calendar year in which the distribution is paid: (a) has no investments other than interest-bearing obligations, obligations issued at a discount, and cash and cash items, including receivables and Qualified Financial Instruments; and (b) has at the close of each quarter of the taxable year at least 80% of the aggregate principal amount of all of its investments, excluding Qualified Financial Instruments and cash and cash items (including receivables), in New Jersey State-Specific Obligations, U.S. Government Obligations, and other obligations that are exempt from State or local taxation under New Jersey or federal law. “New Jersey State-Specific Obligations” are obligations issued by or on behalf of New Jersey or any county, municipality, school or other district, agency, authority, commission, instrumentality, public corporation (including one created or existing pursuant to agreement or compact between New Jersey and another state), body corporate and politic or political subdivision of New Jersey. “U.S. Government Obligations” are obligations issued by the U.S. Government, its agencies and instrumentalities, which are statutorily free from New Jersey or local taxation under the laws of the United States. “Qualified Financial Instruments” are financial options, futures, forward contracts, or other similar financial instruments related to interest-bearing obligations, obligations issued at a discount or bond indexes related thereto, to the extent such instruments are authorized by the regulated investment company rules of the Internal Revenue Code.

In accordance with New Jersey law as currently in effect, distributions paid by a qualified investment fund are excluded from New Jersey gross income tax to the extent that the distributions are attributable to interest or gains from New Jersey State-Specific Obligations, U.S. Government

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Obligations, and other obligations that are exempt from State or local taxation under New Jersey or federal law. To the extent attributable to other sources, distributions will be subject to the New Jersey gross income tax. The New Jersey Tax-Free Income Portfolio and the New Jersey Municipal Money Market Portfolio will notify shareholders by February 15 of each calendar year as to the amounts of all distributions for the prior year which are exempt from New Jersey gross income tax and the amounts, if any, which are subject to New Jersey gross income tax. It is intended that the New Jersey Tax-Free Income Portfolio and the New Jersey Municipal Money Market Portfolio will qualify as a Qualified Investment Fund each year; however, in extreme or unusual market circumstances the Fund might not seek, or might not be able, to qualify as a Qualified Investment Fund by holding 80% of the aggregate principal of its investments at the end of each quarter of the taxable year in obligations that are exempt from State or local taxation under New Jersey or federal law.

The New Jersey gross income tax is not applicable to corporations. For all corporations subject to the New Jersey Corporation Business Tax, dividends and distributions from a qualified investment fund are included in the tax base for purposes of computing the net income tax portion of the Corporation Business Tax and may be included in the gross receipts base for purposes of computing alternative minimum assessment portion of the Corporation Business Tax. Furthermore, any gain upon the redemption or sale of shares by a corporate shareholder is also included in the net income tax base and may be added to the gross receipts base for purposes of computing the Corporation Business Tax. Shares of the New Jersey Tax-Free Income Portfolio and the New Jersey Municipal Money Market Portfolio are not subject to property taxation by New Jersey.

Prospective Investors should be aware that investments in the New Jersey Money Market Portfolio and the New Jersey Tax-Free Income Portfolio may not be suitable for persons who do not receive income subject to the New Jersey gross income tax.

Delaware Tax Considerations. So long as the Delaware Tax-Free Income Portfolio qualifies as a regulated investment company under the Code, individuals, estates or trusts that are subject to Delaware personal income tax will not be subject to such tax with respect to (i) “exempt interest dividends” (as defined in the Code) attributable to interest on Delaware State-Specific Obligations and (ii) dividends attributable to interest paid on certain U.S. government obligations, provided that the Delaware Tax-Free Income Portfolio sends shareholders a written statement of the dollar amount or percentage of total distributions by the Delaware Tax-Free Income Portfolio that are described in (i) and (ii). Other distributions made by the Portfolio to its shareholders who are individuals, estates or trusts subject to Delaware personal income tax will be includible in the gross income of such shareholders for Delaware personal income tax purposes to the same extent as such distributions are includible in the gross income of such shareholders for Federal income tax purposes. Distributions made by the Delaware Tax-Free Income Portfolio to its shareholders who are corporations or other entities subject to Delaware corporate income tax will be excluded from the Delaware taxable income of such shareholders to the same extent as such distributions are excluded from the Federal taxable income of such shareholders.

Kentucky Tax Considerations. Exempt interest dividends paid by the Kentucky Tax-Free Income Portfolio that are attributable to Kentucky State-Specific Obligations will be excludable from a shareholder’s gross income for Kentucky income tax purposes. Further, distributions attributable to interest on certain U.S. government obligations will similarly be excluded from gross income for Kentucky income tax purposes. All other distributions by the Kentucky Tax-Free Income Portfolio will be included in a shareholder’s gross income for Kentucky income tax purposes. Kentucky taxes distributions of net capital gain at the same rates as ordinary income. According to the Kentucky Revenue Cabinet, shares in mutual funds and money market funds are exempt from Kentucky intangible taxes.

Pennsylvania Tax Considerations. Income received by a shareholder attributable to interest realized by the Pennsylvania Tax-Free Income Portfolio or the Pennsylvania Municipal

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Money Market Portfolio from Pennsylvania State-Specific Obligations is not taxable to individuals, estates or trusts under the Personal Income Tax; to corporations under the Corporate Net Income Tax; nor to individuals under the Philadelphia School District Net Investment Income Tax (“School District Tax”).

Income received by a shareholder attributable to gain on the sale or other disposition by the Pennsylvania Tax-Free Income Portfolio or the Pennsylvania Municipal Money Market Portfolio of Pennsylvania State-Specific Obligations is generally taxable under the Personal Income Tax and the Corporate Net Income Tax, but such income is not taxable under the School District Tax.

To the extent that gain on the disposition of a share represents gain realized on Pennsylvania State-Specific Obligations held by the Pennsylvania Tax-Free Income Portfolio, such gain may be subject to the Personal Income Tax and Corporate Net Income Tax. Such gain may also be subject to the School District Tax, except that gain realized with respect to a share held for more than six months is not subject to the School District Tax.

This discussion does not address the extent, if any, to which shares of the Pennsylvania Tax-Free Income Portfolio or the Pennsylvania Municipal Money Market Portfolio, or interest and gain thereon, is subject to, or included in the measure of, the special taxes imposed by the Commonwealth of Pennsylvania on banks and other financial institutions or with respect to any privilege, excise, franchise or other tax imposed on business entities not discussed above (including the Corporate Capital Stock/Franchise Tax).

ADDITIONAL INFORMATION CONCERNING SHARES

Shares of each class of each Portfolio of the Fund bear their pro rata portion of all operating expenses paid by a 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 a 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.

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The proceeds received by each 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 each 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 a Portfolio may be charged to a specific class of shares representing interests in that Portfolio.

The Funds’ Declaration of Trust authorizes the Board of Trustees, without shareholder approval (unless otherwise required by applicable law), to: (i) sell and convey the assets belonging to a class of shares to another management investment company for consideration which may include securities issued by the purchaser and, in connection therewith, to cause all outstanding shares of such class to be redeemed at a price which is equal to their net asset value and which may be paid in cash or by distribution of the securities or other consideration received from the sale and conveyance; (ii) sell and convert the assets belonging to one or more classes of shares into money and, in connection therewith, to cause all outstanding shares of such class to be redeemed at their net asset value; or (iii) combine the assets belonging to a class of shares with the assets belonging to one or more other classes of shares if the Board of Trustees reasonably determines that such combination will not have a material adverse effect on the shareholders of any class participating in such combination and, in connection therewith, to cause all outstanding shares of any such class to be redeemed or converted into shares of another class of shares at their net asset value. The Board of Trustees may authorize the liquidation and termination of any Portfolio or class of shares. Upon any liquidation of a 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, management investment company. Each of the Portfolios except the Health Sciences, Global Resources, All-Cap Global Resources, Inflation Protected Bond, New Jersey Municipal Money Market, North Carolina Municipal Money Market, Ohio Municipal Money Market, Pennsylvania Municipal Money Market, Virginia Municipal Money Market, Pennsylvania Tax-Free Income, New Jersey Tax-Free Income, Ohio Tax-Free Income, Delaware Tax-Free Income and Kentucky Tax-Free Income Portfolios is diversified. Effective January 31, 1998, the Fund changed its name from Compass Capital Funds^SM to BlackRock Funds^SM.

Master-Feeder Structure. The Index Equity Portfolio, unlike many other investment companies which directly acquire and manage their own portfolio of securities, seeks to achieve its investment objective by investing all of its investable assets in the Index Master Portfolio. The Index Equity Portfolio purchases shares of the Index Master Portfolio at net asset value. The net asset value of the Index Equity Portfolio shares responds to increases and decreases in the value of the Index Master Portfolio’s securities and to the expenses of the Index Master Portfolio allocable to the Index Equity Portfolio (as well as its own expenses). The Index Equity Portfolio may withdraw its investment in the Index Master Portfolio at any time upon 30 days notice to the Index Master Portfolio if the Board of Trustees of the Fund determines that it is in the best interests of the Index Equity Portfolio to do so. Upon withdrawal, the Board of Trustees would consider what action might be taken, including the investment of all of the assets of the Index Equity Portfolio in another pooled investment entity having the same investment objective as the Index Equity Portfolio or the hiring of an investment adviser to manage the Index Equity Portfolio’s assets in accordance with the investment policies described above with respect to the Index Equity Portfolio.

The Index Master Portfolio is a separate series of the Trust, which is a statutory trust created under the laws of the State of Delaware. The Index Equity Portfolio and other institutional investors that may invest in the Index Master Portfolio from time to time (e.g., other investment companies) will each bear a share of all liabilities of the Index Master Portfolio. Under the Delaware Statutory Trust Act, shareholders of the Index Master Portfolio have the same limitation of personal liability as shareholders of a Delaware corporation. Accordingly, Fund management believes that neither the Index Equity Portfolio nor its shareholders will be adversely affected by reason of the Index Equity Portfolio’s investing in the Index Master Portfolio.

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The shares of the Index Master Portfolio are offered to institutional investors in private placements for the purpose of increasing the funds available for investment and achieving economies of scale that might be available at higher asset levels. The expenses of such other institutional investors and their returns may differ from those of the Index Equity Portfolio. While investment in the Index Master Portfolio by other institutional investors offers potential benefits to the Index Master Portfolio (and, indirectly, to the Index Equity Portfolio), economies of scale and related expense reductions might not be achieved. Also, if an institutional investor were to redeem its interest in the Index Master Portfolio, the remaining investors in the Index Master Portfolio could experience higher pro rata operating expenses and correspondingly lower returns. In addition, institutional investors that have a greater pro rata ownership interest in the Index Master Portfolio than the Index Equity Portfolio could have effective voting control over the operation of the Index Master Portfolio.

Shares in the Index Master Portfolio have equal, non-cumulative voting rights, except as set forth below, with no preferences as to conversion, exchange, dividends, redemption or any other feature. Shareholders of the Trust have the right to vote only (i) for removal of the Trust’s trustees, (ii) with respect to such additional matters relating to the Trust as may be required by the applicable provisions of the 1940 Act, and (iii) on such other matters as the trustees of the Trust may consider necessary or desirable. In addition, approval of the shareholders of the Trust is required to adopt any amendments to the Agreement and Declaration of Trust of the Trust which would adversely affect to a material degree the rights and preferences of the shares of the Index Master Portfolio or to increase or decrease their par value. The Index Master Portfolio’s shareholders will also be asked to vote on any proposal to change a fundamental investment policy (i.e., a policy that may be changed only with the approval of shareholders) of the Index Master Portfolio. If a shareholder of the Index Master Portfolio becomes bankrupt, a majority in interest of the remaining shareholders in the Portfolio must vote within 120 days to approve the continuing existence of the Index Master Portfolio or the Portfolio will be liquidated.

When the Index Equity Portfolio, as a shareholder of the Index Master Portfolio, votes on matters pertaining to the Index Master Portfolio, the Index Equity Portfolio would hold a meeting of its shareholders and would cast its votes proportionately as instructed by Index Equity Portfolio shareholders.

The investment objective of the Index Master Portfolio may not be changed without approval of its shareholders. Shareholders of the Index Equity Portfolio will receive written notice thirty days prior to the effective date of any change in the investment objective of the Index Master Portfolio. If the Index Master Portfolio changes its investment objective in a manner that is inconsistent with the investment objective of the Index Equity Portfolio and the Fund’s Board of Trustees fails to approve a similar change in the investment objective of the Index Equity Portfolio, the Index Equity Portfolio would be forced to withdraw its investment in the Index Master Portfolio and either seek to invest its assets in another registered investment company with the same investment objective as the Index Equity Portfolio, which might not be possible, or retain an investment adviser to manage the Index Equity Portfolio’s assets in accordance with its own investment objective, possibly at increased cost. A withdrawal by the Index Equity Portfolio of its investment in the Index Master Portfolio could result in a distribution in kind of portfolio securities (as opposed to a cash distribution) to the Index Equity Portfolio. Should such a distribution occur, the Index Equity Portfolio could incur brokerage fees or other transaction costs in converting such securities to cash in order to pay redemptions. In addition, a distribution in kind to the Index Equity Portfolio could result in a less diversified portfolio of investments and could adversely affect the liquidity of the Portfolio. A distribution to the Index Equity Portfolio will generally only result in a taxable gain for federal income tax purposes to the extent that any cash distributed exceeds the Index Equity Portfolio’s tax basis in its shares of the Index Master Portfolio.

The conversion of the Index Equity Portfolio into a feeder fund of the Index Master Portfolio was approved by shareholders of the Index Equity Portfolio at a meeting held on November 30, 1995. The policy of the Index Equity Portfolio, and other similar investment companies, to invest their investable assets in funds such as the Index Master Portfolio is a relatively recent development in the mutual fund industry and, consequently, there is a lack of substantial experience with the operation of this policy. There may also be other investment companies or entities through which you can invest in the Index Master Portfolio which may have different sales charges, fees and other expenses which may affect performance. As of the date of this Statement of Additional Information, two other feeder funds invest all of their investable assets in the Index Master Portfolio. For information about other funds that may invest in the Index Master Portfolio, please contact DFA at (310) 395-8005.

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Counsel. The law firm of Simpson Thacher & Bartlett LLP, 425 Lexington Avenue, New York, New York 10017, serves as the Fund’s counsel. The law firm of Stradley, Ronon, Stevens & Young, LLP, 2600 One Commerce Square, Philadelphia, Pennsylvania 19103, serves as the Trust’s counsel.

Independent Registered Public Accountant. PricewaterhouseCoopers LLP, with offices located at Two Commerce Square, Suite 1700, 2001 Market Street, Philadelphia, Pennsylvania, served as the Fund’s independent registered public accountant for the periods prior to and including September 30, 2003. Deloitte & Touche LLP, with offices at 1700 Market Street, Philadelphia, Pennsylvania, served as the Funds’ independent registered public accountant for the periods after September 30, 2003. PricewaterhouseCoopers LLP, with offices located at Suite 1700, 200 East Las Olas Boulevard, Fort Lauderdale, Florida, serves at the Trust’s independent registered public accountant.

Shareholder Ownership. The name, address and percentage ownership of each person that on December 31, 2004, owned of record or beneficially 5% or more of the outstanding shares of a Portfolio which had commenced operations as of that date was as follows:

Investment Trust: Investor A Shares – Saxon & Co., FBO 20-01-302-9912426, PO Box 7780-1888, Philadelphia, PA 19182, 10.857%; Investor B Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 7.326%; Investor C Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 51.033%; J.J.B. Hilliard, W.L. Lyons, Inc., Latin American Studies Assoc., A C 5619-3936, 501 S. 4^th St., Louisville, KY 40202-2520, 7.644%; UBS Financial Services Inc. FBO, UBS- F INSVC CDN FBO, James R. Yust, PO Box 3321, 1000 Harbor Blvd., Weehawken, NJ 07086-8154, 5.785%; Institutional Shares - PNC Bank, Saxon & Co. (PNC Inst.), Attn: Lawrence Lockwood, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 77.294%; Hertrus & Company, FBO PNC Bank Corp Benefit, Funding Trust #6534, C/O Hershey Trust Company, PO Box 445, Hershey, PA 17033-0000, 15.715%; Service Shares - PNC Bank, Saxon & Co. (PNC Service), ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 90.127%.

Large Cap Value Equity Portfolio: Investor A Shares - Saxon & Co., FBO 20-01-302-9912426, PO Box 7780-1888, Philadelphia, PA 19182, 37.697%; Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 14.669%; Investor B Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 21.704%; Investor C Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 47.318%; Institutional Shares – PNC Bank, Saxon & Co. (PNC Inst.), Attn: Lawrence Lockwood, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 79.524%; Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 7.123%; Service Shares – PFPC, FBO Hilliard Lyons/Capital Directions, 760 Moore Rd., King of Prussia, PA 19406, 26.081%; Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 5.776%; PNC Bank, Saxon & Co. (PNC Service), ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 5.591%.

Large Cap Growth Equity Portfolio: Investor A Shares – Saxon & Co., FBO 20-01-302-9912426, PO Box 7780-1888, Philadelphia, PA 19182, 20.690%; Investor B Shares – Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 10.818%; Investor C Shares – Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 49.677%; Institutional Shares - PNC Bank, Saxon & Co. (PNC Inst.), Attn: Lawrence Lockwood, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 84.696%; Service Shares – PFPC, FBO Hilliard Lyons/Capital Directions, 760 Moore Rd., King of Prussia, PA 19406, 77.735%; PNC Bank, Saxon & Co. (PNC Service), ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 6.603%.

Dividend Achievers Portfolio: Investor A Shares – First Clearing, LLC, A/C 4227-1114, Bonnie Cone, James H. Cone TTEE, James H. Cone Share 1 TR, 36 Gloucester Dr., 8.134%; UBS Financial Services Inc. FBO, Shirley Rendek TTEE, Shirley Rendek Trust, DTD 6/19/00, 13921 Granada, Leawood, KS 66224-1107, 5.870%; Investor B Shares – NFSC FEBO #K25-0029025, NFS/FMTC IRA, FBO Douglas John Shackles, 12 Yellowstone Court, Coram, NY 11727, 11.973%; UBS Financial Services Inc. FBO, UBS-FINSVC CDN FBO, Anthony Rodono, PO Box 3321, 1000 Harbor Blvd., Weekawken, NJ 07086-8154, 10.167%; J.J.B. Hilliard, W.L. Lyons, Inc., Cyril V. Staehle, A/C 8020-7207, 501 S. 4^th St., Louisville, KY 40202, 7.063%; Janney Montgomery Scott LLC, A/C 8828-5375, James J. Woods Jr., 1801 Market St., Philadelphia, PA 19103-1675, 5.587%; J.J.B. Hilliard, W.L. Lyons, Inc.,

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George C. Dalson, A/C 2177-6409, 501 S. 4^th St., Louisville, KY 40202-2520, 5.131%; Investor C Shares – J.J.B. Hilliard, W.L. Lyons, Inc., John R. Denham, A/C 2459-8083, 501 S. 4^th St., Louisville, KY 40202, 8.608%; J.J.B. Hilliard, W.L. Lyons, Inc., Cynthia Denham Gardner, A/C 3579-6206, 501 S. 4^th St., Louisville, KY 40202, 8.608%; Institutional Shares– BlackRock Funding Inc., Attn: Joseph Feliciani, 40 E. 52^nd St. 4^th Floor, New York, NY 10022-0000, 36.317%; Service Shares – J.J.B. Hilliard, W.L. Lyons, Inc., John Cuppoletti, A/C 2046-5136, 501 S. 4^th St., Louisville, KY 40202, 99.896%.

Mid Cap Value Equity Portfolio: Investor A Shares – Saxon & Co., FBO 20-01-302-9912426, PO Box 7780-1888, Philadelphia, PA 19182, 6.779%; Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 5.237%; Investor B Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 23.331%; Investor C Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 46.316%; Janney Montgomery Scott LLC, A/C 7647-4461, Harry Silver, 1801 Market St., Philadelphia, PA 19103-1675, 9.967%; Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 6.096%; Institutional Shares - PNC Bank, Saxon & Co. (PNC Inst.), Attn: Lawrence Lockwood, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 94.144%; Service Shares – PFPC, FBO Hilliard Lyons/Capital Directions, 760 Moore Rd., King of Prussia, PA 19406, 82.374%; PNC Bank, Saxon & Co. (PNC Service), ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 11.872%.

Mid Cap Growth Equity Portfolio: Investor A Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 14.445%; Saxon & Co., FBO 20-01-302-9912426, PO Box 7780-1888, Philadelphia, PA 19182, 13.991%; Investor B Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 23.297%; Investor C Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 40.904%; Institutional Shares - PNC Bank, Saxon & Co. (PNC Inst.), Attn: Lawrence Lockwood, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 83.443%; Service Shares - Fidelity Investments, INSTL OP CO INC (FI IOC. as Agt. for Certain Employee Ben. Plan), 100 Magellan Way (KW1C), Covington, KY 41015-0000, 79.250%; PFPC, FBO Hilliard Lyons/Capital Directions, 760 Moore Rd., King of Prussia, PA 19406, 16.727%.

Small Cap Value Equity Portfolio: Investor A Shares – Saxon & Co., FBO 20-01-302-9912426, PO Box 7780-1888, Philadelphia, PA 19182, 35.004%; Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 7.862%; Investor B Shares – Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 31.834%; Investor C Shares – Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 47.220%; Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 9.215%; Institutional Shares – PNC Bank, Saxon & Co. (PNC Inst.), Attn: Lawrence Lockwood, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 80.873%; Enterprise Trust & Investment Company, 15425 Los Gatos Blvd. Ste. 150, Los Gatos, CA 95032-0000, 5.969%; BlackRock Shares – Northern Trust Co. Custodian FBO, Joyce Article 9 Trust- Harold T. Martin A/C 26-48795, PO Box 92956, Chicago, IL 60675, 27.278%; Northern Trust Co. Custodian FBO, JMH Limited Partnership, A/C 26-04867, PO Box 92956, Chicago, IL 60675, 26.991%; HSBC Bank USA TTEE FBO, HSBC Bank USA Retirement Plan, PO Box 1329, Buffalo, NY 14240-1329, 26.247%; Northern Trust Co. Custodian FBO, Article 9 Trust A/C 26-33383, PO Box 92956, Chicago, IL 60675, 17.602%; Service Shares – PNC Bank, Saxon & Co. (PNC Service), ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 51.155%; PFPC, FBO Hilliard Lyons/Capital Directions, 760 Moore Rd., King of Prussia, PA 19406, 20.149%; Prudential Investment Mgts. Service, FBO Mutual Fund Clients, Attn: Pruchoice Unit, Mail Stop 194-201, 194 Wood Avenue S., Iselin, NJ 08830-2710, 11.237%.

Small Cap Core Equity Portfolio: Investor A Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 5.786%; Investor B Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 12.700%; Investor C Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 62.635%; Institutional Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 52.145%; Raymond James & Assoc. Inc., FBO Wiethoff IRA, BIN # 73717637, 880 Carillon Pkwy., St. Petersburg, FL 33716, 5.266%; Service Shares - PFPC Distributors, c/o PFPC Finance, 301 Bellevue Parkway, Mailstop W5 F301-036, Wilmington, DE 19809-3705, 100%.

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Small Cap Growth Equity: Investor A Shares - Saxon & Co., FBO 20-01-302-9912426, PO Box 7780-1888, Philadelphia, PA 19182, 22.110%; Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 21.965%; RBC Dain Rauscher, Fairview Hospital and Healthcare Services, Attn: Corp. Acct. Dept., 400 Stinson Blvd., Minneapolis, MN 55413, 13.410%; Investor B Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 28.415%; Investor C Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 40.275%; Institutional Shares - PNC Bank, Saxon & Co. (PNC Inst.), ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 31.666%; Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 26.027%; KPMG Peat Marwick, Retirement Plans Master Trust, c/o Bank of New York TTEE, Attn: Shabat Zaidi, One Wall St., New York, NY 10286-0000, 11.076%; Service Shares – The Vanguard Group, Attn: Outside Funds K 14, 100 Vanguard Blvd., Malvern, PA 19355, 60.736%; PNC Bank, Saxon & Co. (PNC Service), ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 32.730%.

Global Science & Technology Opportunities Portfolio: Investor B Shares – Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 17.636%; Investor C Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 34.088%; PFPC Trust Company Cust. FBO, Alan Joseph Bendarz IRA, 729 Woodridge Ln., Glencoe, IL 60022-1040, 5.111%; Institutional Shares – PNC Bank, Saxon & Co. (PNC Inst.), Attn: Lawrence Lockwood, ACI Dept/Reorg F-F266-022-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 47.296%; Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 21.122%; Service Shares – J.J.B. Hilliard, W.L. Lyons, Inc., Danny Poore, A/C 6768-6379, 501 S. 4^th St., Louisville, KY 40202, 30.045%; NFSC FEBO #B36-021300, Pual E. & Marian E. Rohrbaugh Char., Pual E. & Marian E. Rohrbaugh TTEE, 28635 Westlake Village Dr., Cottage #11, Westlake, OH 44145, 18.075%; LPL Financial Services, A/C 5669-3211, 9785 Towne Centre Dr., San Diego, CA 92121-1968, 11.408%; E Trade Clearing LLC, 665-38406-18, PO Box 989030, West Sacramento, CA 95798-9030, 6.810%; Wells Fargo Investments LLC, A/C 2972-8386, 608 2^nd Ave. S. 8^th Floor, Minneapolis, MN 55402, 6.193%; NFSC FEBO #HDS-163520, David J. Belanger TTEE, David J. Belanger Trust, U/A 10/28/00, 32800 Kimberly Court, Eastlake, OH 44095, 6.034%; J. R. Douglas & Brenda D. Crocker & Gloria D. Blackwell, JT TEN, 144 S. Congress St., Winnsboro, SC 29180-1104, 5.714%; E Trade Clearing LLC, 682-99698-12, IRA Custodian, PO Box 989030, West Sacramento, CA 95798-9030, 5.610%.

U.S. Opportunities Portfolio: Investor A Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 12.434%; Investor B Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 20.307%; Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 9.001%; Investor C Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 32.638%; Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 7.048%; Institutional Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 46.421%; PNC Bank, Saxon & Co. (PNC Inst.), Attn: Lawrence Lockwood, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 41.816%; Service Shares - PNC Bank, Saxon & Co. (PNC Service), ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 16.489%; LPL Financial Services, A/C 1517-9550, 9785 Towne Centre Drive, San Diego, CA 92121-1968, 10.734%; LPL Financial Services, A/C 1940-4597, 9785 Towne Centre Drive, San Diego, CA 92121-1968, 8.124%; Wells Fargo Investments LLC, A/C 3785-5490, 608 Second Ave. South 8^th Floor, Minneapolis, MN 55402, 6.866%; Pershing LLC, PO Box 2052, Jersey City, NJ 07303-9998, 6.053%; LPL Financial Services, A/C 2855-8620, 9785 Towne Centre Drive, San Diego, CA 92121-1968, 5.337%.

International Opportunities Portfolio: Investor A Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 18.028%; Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 5.894%; Investor B Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 23.263%; Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 7.855%; Investor C Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 40.127%; Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 5.200%; Institutional Shares - PNC Bank, Saxon & Co. (PNC Inst.), Attn: Lawrence Lockwood, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 30.434%; KPMG Peat Marwick,

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Retirement Plans Master Trust, c/o Bank of New York TTEE, Attn: Shabat Zaidi, One Wall St., New York, NY 10286-0000, 18.083%; Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 10.257%; Marshall & Ilsley Trust Company, FBO Medical College of Wisconsin, c/o Marshall & Ilsley Trust Company, 1000 N. Water St., Milwaukee, WI 53202, 8.468%; Service Shares - Prudential Investment Mgts. Service, FBO Mutual Fund Clients, Attn: Pruchoice Unit, Mail Stop 194-201, 194 Wood Avenue S., Iselin, NJ 08830-2710, 42.622%; Charles Schwab & Co. Inc., For Exclusive Benefit of Customers, Special Custody Account, Attn: Mutual Funds, 101 Montgomery St., San Francisco, CA 94104-4122, 25.691%.

Asset Allocation Portfolio: Investor A Shares – Saxon & Co., FBO 20-01-302-9912426, PO Box 7780-1888, Philadelphia, PA 19182, 24.716%; Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 7.259%; Investor B Shares – Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 15.138%; Investor C Shares – Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 53.671%; Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 8.752%; Institutional Shares – PNC Bank, Saxon & Co. (PNC Inst.), Attn: Lawrence Lockwood, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 76.037%; Fifth Third Bank, FBO TR U/A Fred M., A/C #70700007700388, 38 Fountain Square Plaza, Cincinnati, OH 45263, 6.691%; Service Shares – PNC Bank, Saxon & Co. (PNC Service), ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 75.557%; Post & Co. 015946, c/o The Bank of New York, Mutual Fund Reorg Dept., PO Box 1066, Wall Street Station, New York, NY 10286, 5.192%.

Index Equity Portfolio: Investor A Shares - Saxon & Co., FBO 20-01-302-9912426, PO Box 7780-1888, Philadelphia, PA, 19182, 45.317%; Reliance Trust Company Directed Trst. Metlife Retirement & Savings, 3384 Peachtree Rd. NE, 9^th Floor Suite 900, Atlanta, GA 30326, 24.325%; Investor B Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 34.300%; Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 6.888%; Investor C Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 57.982%; Institutional Shares - PNC Bank, Saxon & Co. (PNC Inst.), Attn: Lawrence Lockwood, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 85.568%; Pershing LLC, PO Box 2052, Jersey City, NJ 07303-9998, 7.355%; Service Shares - Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 78.666%; PNC Bank, Saxon & Co. (PNC Service), ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 12.139%.

Enhanced Income Portfolio: Investor A Shares - PFPC Distributors, c/o PFPC Finance, 301 Bellevue Parkway, Mailstop W5 F301-036, Wilmington, DE 19809-3705, 100%; Institutional Shares - PNC Bank, Saxon & Co. (PNC Service), ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 99.999%; BlackRock Shares - Saxon & Co., FBO 21-35-001-3408083, PO Box 7780-1888, Philadelphia, PA, 19182, 49.909%; Bank of New York, Wendel & Co. A/C 767565, Mutual Fund/Reorg Dept., Atlantic Terminal, 2 Hanson Place 6^th Floor, Brooklyn, NY 11217-0000, 24.232%; Bear Stearns Securities Corp., FBO 794-00278-11, 1 Metrotech Center North, Brooklyn, NY 11201-3859, 12.181%; Bear Stearns Securities Corp., FBO 794-00519-10, 1 Metrotech Center North, Brooklyn, NY 11201-3859, 8.790%; Service Shares - PFPC Distributors, c/o PFPC Finance, 301 Bellevue Parkway, Mailstop W5 F301-036, Wilmington, DE 19809-3705, 100%.

Low Duration Bond Portfolio: Investor A Shares – Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 11.052%; Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 9.813%; Saxon & Co., FBO 20-01-302-9912426, PO Box 7780-1888, Philadelphia, PA, 19182, 5.050%; Investor B Shares – Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 35.522%; Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 15.781%; Investor C Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 56.644%; Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 9.608%; Institutional Shares – PNC Bank, Saxon & Co. (PNC Inst.), Attn: Lawrence Lockwood, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 76.424%; Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 8.205%; BlackRock Shares - PNC Bank, Saxon & Co. (PNC Inst.), Attn: Lawrence Lockwood, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 10.575%; The Metropolitan Museum of Art, Account #1, 1000 5^th Avenue, New York, NY 10028-0000,

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7.720%; Northern Trust Company Cust., FBO 501 C3, Ltd Duration #26-22525, PO Box 92956, Chicago, IL 60675, 7.545%; The Research Foundation of State University of New York, Attn: Jim Keegan, 35 State St., Albany, NY 12207-2826, 5.506%; Service Shares - Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 91.122%.

Intermediate Government Bond Portfolio: Investor A Shares – Saxon & Co., FBO 20-01-302-9912426, PO Box 7780-1888, Philadelphia, PA 19182, 59.057%; Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 6.964%; Investor B Shares – Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 25.730%; Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 8.255%; Investor C Shares – Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 46.279%; Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 7.619%; Institutional Shares – PNC Bank, Saxon & Co. (PNC Inst.), ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 81.777%; NFSC FEBO #279-111759, Premier Trust FMT/BlackRock Group Go, First Mercantile Trust Co. TTEE, U/A 12/23/1997, 57 Germantown Ct. 4^th Floor, Cordova, TN 38018, 5.739%; Charles Schwab & Co. Inc., For Exclusive Benefit of Customers, Special Custody Account, Attn: Mutual Funds, 101 Montgomery St., San Francisco, CA 94104-4122, 5.597%; Service Shares – PNC Bank, Saxon & Co. (PNC Inst.), ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 43.716%; Charles Schwab & Co. Inc., For Exclusive Benefit of Customers, Special Custody Account, Attn: Mutual Funds, 101 Montgomery St., San Francisco, CA 94104-4122, 22.880%; Fifth Third Bank, FBO Fine Arts Fund, A/C #01010000891630, c/o Mutual Fund Trading, 38 Fountain Square Plaza, Cincinnati, OH 45263, 19.335%; J.J.B. Hilliard, W.L. Lyons, Inc., Junior League of the Oranges, A/C 4589-2160, 501 S. 4^th St., Louisville, KY 40202, 6.367%.

Intermediate Bond Portfolio: Investor A Shares – Saxon & Co., FBO 20-01-302-9912426, PO Box 7780-1888, Philadelphia, PA 19182, 42.122%; Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 7.029%; State Street Bank & Trust Co., FBO ADP/MSDW Alliance, 105 Rosemont Ave., Westwood, MA 02090, 6.949%; Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 5.580%; Investor B Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 41.292%; Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 8.482%; Investor C Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 47.926%; Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 7.709%; Institutional Shares - PNC Bank, Saxon & Co. (PNC Inst.), Attn: Lawrence Lockwood, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 89.454%; BlackRock Shares – KPMG Retirement Plan, Master Trust, c/o Bank of New York Trustee, One Wall St., New York, NY 10086-0000, 21.598%; PNC Bank, Saxon & Co. (PNC Inst.), Attn: Lawrence Lockwood, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 18.353%; The Bank of New York, FBO University of Arkansas Foundation, Attn: Mr. Warren Suco, One Wall St., New York, NY 10286-0000, 10.111%; Citibank NA TTEE, NYU Hospital Center Retirement Plan, Attn: Mario Morin, 111 Wall St. 14^th Floor, New York, NY 10005-0000, 7.277%; Service Shares - Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 96.198%.

Intermediate PLUS Bond Portfolio: Investor A Shares - PFPC Distributors, c/o PFPC Finance, 301 Bellevue Parkway, Mailstop W5 F301-036, Wilmington, DE 19809-3705, 100%; Investor B Shares - PFPC Distributors, c/o PFPC Finance, 301 Bellevue Parkway, Mailstop W5 F301-036, Wilmington, DE 19809-3705, 100%; Investor C Shares - PFPC Distributors, c/o PFPC Finance, 301 Bellevue Parkway, Mailstop W5 F301-036, Wilmington, DE 19809-3705, 100%; Institutional Shares- PFPC Distributors, c/o PFPC Finance, 301 Bellevue Parkway, Mailstop W5 F301-036, Wilmington, DE 19809-3705, 100%; BlackRock Shares – Marshall L. & Perrine D. McCune Charitable Foundation, 345 E. Alameda St., Santa Fe, NM 87501-0000, 88.521%; BlackRock Funding Inc., Attn: Natasha Lora, 40 E. 52^nd St. 4^th Floor, New York, NY 10154-0000, 11.478%; Service Shares - PFPC Distributors, c/o PFPC Finance, 301 Bellevue Parkway, Mailstop W5 F301-036, Wilmington, DE 19809-3705, 100%.

Core Bond Total Return Portfolio: Investor A Shares – Saxon & Co., FBO 20-01-302-9912426, PO Box 7780-1888, Philadelphia, PA 19182, 32.479%; Reliance Trust Company Directed Trst. Metlife Retirement & Savings, 3384 Peachtree Rd. NE, 9^th Floor Suite 900, Atlanta, GA 30326, 20.846%; Merrill Lynch Pierce Fenner, Attn: Stock

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Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 7.028%; Investor B Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 46.977%; Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 5.395%; Investor C Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 81.675%; Institutional Shares - PNC Bank, Saxon & Co. (PNC Inst.), Attn: Lawrence Lockwood, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 76.584%; Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 11.182%; BlackRock Shares - PNC Bank, Saxon & Co. (PNC Inst.), Attn: Lawrence Lockwood, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 15.757%; Northern Trust Company as TTEE FBO, USAA Savings & Investment Plan- DV, PO Box 92994, Chicago, IL 60675, 5.368%; Genuine Parts PEN/Safekeeping, PO Box 105870, Mail code 3144, Atlanta, GA 30348, 5.253%; Service Shares – Fidelity Investments, INSTL OP CO INC (FI IOC. as Agt. for Certain Employee Ben. Plan), 100 Magellan Way (KW1C), Covington, KY 41015-0000, 26.607%; Massachusetts Mutual Life Insurance Company, 1295 State St. N255, Springfield, MA 01111-0000, 25.818%; First Charter National Bank, Attn: Trust Operations, PO Box 37949, Charlotte, NC 28237-7949, 16.913%; PNC Bank, Saxon & Co. (PNC Service), ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 14.152%; Charles Schwab & Co. Inc., For Exclusive Benefit of Customers, Special Custody Account, Attn: Mutual Funds, 101 Montgomery St., San Francisco, CA 94104-4122, 5.431%.

Core PLUS Total Return Portfolio: Investor A Shares – J.J.B. Hilliard, W.L. Lyons, Inc., Althea K. Yenchak, A/C 8844-4675, 501 S. 4^th St., Louisville, KY 40202-2520, 37.677%; J.J.B. Hilliard, W.L. Lyons, Inc., William F. Laughery, Tran Q Laughery JTWROS, A/C 5513-0348, 501 S. 4^th St., Louisville, KY 40202-2520, 28.993%; J.J.B. Hilliard, W.L. Lyons, Inc., Mary L. Johnson IRA, A/C 5025-9226, 501 S. 4^th St., Louisville, KY 40202, 23.224%; Michael Bulboff, 5127 Charles St., Philadelphia, PA 19124-1425, 7.202%; Investor B Shares - J.J.B. Hilliard, W.L. Lyons, Inc., Harvey E. Garrecht, A/C 3761-0721, 501 S. 4^th St., Louisville, KY 40202, 37.199%; J.J.B. Hilliard, W.L. Lyons, Inc., Jacob Brombrach IRA, A/C 1765-1944, 501 S. 4^th St., Louisville, KY 40202, 19.660%; J.J.B. Hilliard, W.L. Lyons, Inc., Joseph F. Cavalieri IRA, A/C 2076-0164, 501 S. 4^th St., Louisville, KY 40202, 11.162%; NFSC FEBO #EBP-068233, NFS/FMTC Rollover IRA, FBO David M. Johnson, 21 Lexington Blvd., Carmel, IN 46032, 11.028%; J.J.B. Hilliard, W.L. Lyons, Inc., Carolyn B. Myatt IRA, A/C 6138-0608, 501 S. 4^th St., Louisville, KY 40202-2520, 8.307%; J.J.B. Hilliard, W.L. Lyons, Inc., Anna T. Organisciak IRA, A/C 6468-1343, 501 S. 4^th St., Louisville, KY 40202, 5.992%; Investor C Shares - PFPC Distributors, c/o PFPC Finance, 301 Bellevue Parkway, Mailstop W5 F301-036, Wilmington, DE 19809-3705, 100%; Institutional Shares - PFPC Distributors, c/o PFPC Finance, 301 Bellevue Parkway, Mailstop W5 F301-036, Wilmington, DE 19809-3705, 100%; BlackRock Shares – PNC Bank, Saxon & Co. (PNC Inst.), Attn: Lawrence Lockwood, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 14.374%; Northern Trust Company TTEE, FBO Arch Chemical #22-08599, PO Box 92956, Chicago, IL 60675, 11.857%; AAUW ED FN Fellowships Fund, 1111 16^th St. NW, Washington, DC 20036-0000, 9.538%; Mac & Co., A/C SQCF4000002, Mutual Fund Operations, PO Box 3198, 525 William Penn Place, Pittsburg, PA 15230-3198, 9.322%; Mac & Co., A/C AUHF8769392, Mutual Fund Operations, PO Box 3198, 525 William Penn Place, Pittsburg, PA 15230-3198, 7.991%; Westfield Contributory, PO Box 106, 59 Court St., Westfield, MA 01086-0000, 6.358%; Service Shares – Bear Stearns Securities Corp., FBO 879-70140-19, 1 Metrotech Center North, Brooklyn, NY 11201-3859, 99.601%.

Government Income Portfolio: Investor A Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 25.606%; Reliance Trust Company Directed Trst. Metlife Retirement & Savings, 3384 Peachtree Rd. NE, 9^th Floor Suite 900, Atlanta, GA 30326, 21.295%; Nationwide Trust Company FSB, c/o LPO Portfolio Accounting, PO Box 182029, Columbus, OH 43218-2029, 6.715%; Charles Schwab & Co. Inc., For Exclusive Benefit of Customers, Special Custody Account, Attn: Mutual Funds, 101 Montgomery St., San Francisco, CA 94104-4122, 6.186%; Investor B Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 27.853%; Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 5.985%; Investor C Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 32.641%; Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 6.161%; BlackRock Shares – Louis V. Gerstner Jr. Foundation Inc., IBM Corporation, Louis V. Gerstner Jr., Chairman, New Orchard Rd., Armonk, NY 10504-0000, 99.983%; Service Shares – Citigroup Global Markets Inc., 00116820771, 333 West 34^th St. 3^rd Floor, New York, NY 10001, 27.031%; Citigroup Global Markets Inc., 00116820773, 333 West 34^th St. 3^rd Floor, New York, NY 10001, 18.946%; Citigroup Global Markets Inc., 00116820770, 333 West 34^th St. 3^rd Floor, New York, NY 10001, 12.292%; Citigroup Global Markets Inc., 00116820772, 333 West 34^th St.

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3^rd Floor, New York, NY 10001, 12.061%; Citigroup Global Markets Inc., 00116820769, 333 West 34^th St. 3^rd Floor, New York, NY 10001, 11.737%; Citigroup Global Markets Inc., 00116823388, 333 West 34^th St. 3^rd Floor, New York, NY 10001, 8.966%; Citigroup Global Markets Inc., 00116820768, 333 West 34^th St. 3^rd Floor, New York, NY 10001, 8.963%.

Inflation Protected Bond Portfolio: Investor A Shares – First Clearing, LLC, A/C 4276-8586, James W. McCall, Pilot Plus Acct, 1151 Overbrook Dr., Orlando, FL 32804-6727, 18.415%; LPL Financial Services, A/C 1574-3831, 9785 Towne Centre Dr., San Diego, CA 92121-1968, 10.972%; NFSC FEBO #K3A-107794, Russell Perry, Evelyn H. Perry, Ten IN Comm, 177 N. Highland Apt. 1005, Memphis, TN 38111, 10.400%; LPL Financial Services, A/C 5088-8359, 9785 Towne Centre Dr., San Diego, CA 92121-1968, 9.424%; First Clearing, LLC, A/C 8155-6900, Lawrence B. Katz IRA, 1265 Via Lugano, Winter Park, FL 32789, 6.557%; LPL Financial Services, A/C 7000-9460, 9785 Towne Centre Dr., San Diego, CA 92121-1968, 5.435%; J.J.B. Hilliard, W.L. Lyons, Inc., Bertha McMichael Trust, A/C 1321-7148, 501 S. 4^th St., Louisville, KY 40202, 5.263%; Investor B Shares – UBS Financial Services Inc. FBO, UBS-FINSVC CDN FBO, Menahem Less, PO Box 3321, 1000 Harbor Blvd., Weekawken, NJ 07086-6761, 21.866%; J.J.B. Hilliard, W.L. Lyons, Inc., George T. Goodman, A/C 3763-3522, 501 S. 4^th St., Louisville, KY 40202, 14.356%; UBS Financial Services Inc. FBO, UBS-FINSVC CDN FBO, Harold W. O’Connell, PO Box 3321, 1000 Harbor Blvd., Weekawken, NJ 07086-8154, 10.390%; First Clearing, LLC, A/C 7792-6896, Gerald R. Skurky R/O IRA, FCC as Custodian, 10700 Wheat First Dr., Glen Allen, VA 23060, 7.912%; UBS Financial Services Inc. FBO, UBS-FINSVC CDN FBO, Gail Less, PO Box 3321, 1000 Harbor Blvd., Weehawken, NJ 07086-8154, 5.272%; Pershing LLC, PO Box 2052, Jersey City, NJ 07030-9998, 5.225%; Pershing LLC, PO Box 2052, Jersey City, NJ 07030-9998, 5.197%; J.J.B. Hilliard, W.L. Lyons, Inc., Sarah Y. Schott, A/C 8170-4041, 501 S. 4^th St., Louisville, KY 40202, 5.065%; Investor C Shares – First Clearing, LLC, A/C 4520-2006, Irvine Public Schools Found., 18552 MacArthur Blvd. Ste. 200, Irvine, CA 92612-1210, 37.133%; J.J.B. Hilliard, W.L. Lyons, Inc., Gilbert M. Horwitz, A/C 3340-7492, 501 S. 4^th St., Louisville, KY 40202, 30.002%; Wells Fargo Investments LLC, A/C 7847-7642, 608 2^nd Ave. S. 8^th Floor, Minneapolis, MN 55402, 9.386%; LPL Financial Services, A/C 4805-8359, 9785 Towne Centre Dr., San Diego, CA 92121-1968, 6.012%; Institutional Shares – PNC Bank, Saxon & Co. (PNC Inst.), Attn: Lawrence Lockwood, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 63.588%; J.J.B. Hilliard, W.L. Lyons, Inc., City of Ft. Mitchell, A/C 2030-1022, 501 S. 4^th St., Louisville, KY 40202, 13.231%; BlackRock Shares – BlackRock Funding Inc., Attn: Natasha Lora, 40 E. 52^nd St. 4^th Floor, New York, NY 10154-0000, 83.121%; Saxon & Co., FBO 21-42-001-1102330, PO Box 7780-1888, Philadelphia, PA 19182, 16.874%; Service Shares - PFPC Distributors, c/o PFPC Finance, 301 Bellevue Parkway, Mailstop W5 F301-036, Wilmington, DE 19809-3705, 100%.

GNMA Portfolio: Investor A Shares - Saxon & Co., FBO 20-01-302-9912426, PO Box 7780-1888, Philadelphia, PA, 19182, 15.417%; Nationwide Trust Company FSB, c/o LPO Portfolio Accounting, PO Box 182029, Columbus, OH 43218-2029, 8.794%; Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 7.666%; Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 6.947%; Investor B Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 24.993%; Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 5.096%; Investor C Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 62.016%; Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 6.000%; Institutional Shares - PNC Bank, Saxon & Co. (PNC Inst.), Attn: Lawrence Lockwood, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 95.434%; BlackRock Shares – Northern Trust Company Cust., FBO WMATA Local 922 #26-15849, PO Box 92956, Chicago, IL 60675, 99.832%; Service Shares - Charles Schwab & Co. Inc., For Exclusive Benefit of Customers, Special Custody Account, Attn: Mutual Funds, 101 Montgomery St., San Francisco, CA 94104-4122, 65.160%, JPMorgan Securities, Inc., FBO 280177051, 500 Stanton Christiana Rd., Newark, DE 19713, 10.632%.

Managed Income Portfolio: Investor A Shares – Saxon & Co., FBO 20-01-302-9912426, PO Box 7780-1888, Philadelphia, PA 19182, 57.380%; Investor B Shares – Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 42.758%; Investor C Shares – Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 72.886%; Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 13.819%; Citigroup Global Markets Inc., 00150A02711, 333 W. 34^th St. 3^rd Floor, New York, NY 10001, 9.437%; Institutional Shares - PNC Bank, Saxon & Co. (PNC Inst.), Attn: Lawrence Lockwood, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd.,

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Philadelphia, PA 19153-0000, 97.552%; Service Shares – PFPC, FBO Hilliard Lyons/Capital Directions, 760 Moore Rd., King of Prussia, PA 19406, 49.941%; Maril & Co. FBO 6K, c/o Mashall & Ilsley Trust Co., 1000 N. Water St., Milwaukee, WI 53202, 27.445%; PNC Bank, Saxon & Co. (PNC Service), ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 21.194%.

International Bond Portfolio: Investor A Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 5.874%; Investor B Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 12.032%; Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 11.062%; Investor C Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 21.627%; Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 7.932%; Institutional Shares - PNC Bank, Saxon & Co. (PNC Inst.), Attn: Lawrence Lockwood, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 54.257%; Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 6.267%; Charles Schwab & Co. Inc., For Exclusive Benefit of Customers, Special Custody Account, Attn: Mutual Funds, 101 Montgomery St., San Francisco, CA 94104-4122, 6.188%; BlackRock Shares – State Street Bank & Trust Co., TTEE for Northrop Grumman, DC Plans Master Trust, 105 Rosemont Rd., Westwood, MA 02090-0000, 54.502%; Service Shares - Charles Schwab & Co. Inc., For Exclusive Benefit of Customers, Special Custody Account, Attn: Mutual Funds, 101 Montgomery St., San Francisco, CA 94104-4122, 42.893%; Prudential Investment Mgts. Service, FBO Mutual Fund Clients, Attn: Pruchoice Unit, Mail Stop 194-201, 194 Wood Avenue S., Iselin, NJ 08830-2710, 37.485%.

High Yield Bond Portfolio: Investor A Shares – Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 8.796%; Lyons Township School, Treasurer’s Office, Robert A. Healy, Treasurer, 930 Barnside, LaGrange, IL 60526, 6.964%; Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 5.548%; Investor B Shares – Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 18.970%, Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 18.892%; Investor C Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 35.181%; Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 12.079%; Institutional Shares – PNC Bank, Saxon & Co. (PNC Inst.), Attn: Lawrence Lockwood, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 73.750%; Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 6.024%; BlackRock Shares – Bank of New York, Wendel & Co. A/C 603888, Mutual Fund/Reorg Dept., Atlantic Terminal, 2 Hanson Place 6^th Floor, Brooklyn, NY 11217-0000, 22.290%; UNUM Provident Corporation, Pension Equity Plan, Attn: Julie Johnson, 1 Fountain Square 6N, Chattanooga, TN 37402-0000, 20.090%; KPMG Retirement Plan Master Trust, c/o Bank of New York Trustee, One Wall St., New York, NY 10086-0000, 12.692%; William T. Grant Foundation, 570 Lexington Ave. 18^th Floor, New York, NY 10022-6837, 12.272%; Mac & Co., #VERF0695702, Mutual Funds OPS, PO Box 3198, Pittsburgh, PA 15230-3198, 9.006%; State Street Bank and Trust Company, Trustee Towers Perrin DEF CON, Plan Trust, Attn: Gabrielle Reynolds, 105 Rosemont Ave., Westwood, MA 02090, 5.912%; PNC Bank, Saxon & Co. (PNC Service), ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 5.857%; Service Shares – Mercantile Deposit & Trust Co., Attn: Mutual Fds. Administration, 2 Hopkins Plaza, Baltimore, MD 21201-0000, 78.692%; Charles Schwab & Co. Inc., For Exclusive Benefit of Customers, Special Custody Account, Attn: Mutual Funds, 101 Montgomery St., San Francisco, CA 94104-4122, 10.663%.

UltraShort Municipal Portfolio: Investor A Shares - PFPC Distributors, c/o PFPC Finance, 301 Bellevue Parkway, Mailstop W5 F301-036, Wilmington, DE 19809-3705, 100%; Institutional Shares - PNC Bank, Saxon & Co. (PNC Service), ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 93.285%; Donald G. Drapkin, MacAndrew & Forbes Holdings, 35 E. 62^nd St., New York, NY 10021-0000, 6.714%; BlackRock Shares – Bear Stearns Securities Corp., FBO 794-00056-19, 1 Metrotech Center North, Brooklyn, NY 11201-3859, 29.042%; Saxon & Co., FBO 21-80-001-3410208, PO Box 7780-1888, Philadelphia, PA, 19182, 27.580%; Bear Stearns Securities Corp., FBO 794-00116-17, 1 Metrotech Center North, Brooklyn, NY 11201-3859, 13.586%; Bear Stearns Securities Corp., FBO 794-00682-11, 1 Metrotech Center North, Brooklyn, NY 11201-3859, 9.590%; Bear Stearns Securities Corp., FBO 794-00035-15, 1 Metrotech Center North, Brooklyn, NY 11201-3859, 7.827%; Service Shares - PFPC Distributors, c/o PFPC Finance, 301 Bellevue Parkway, Mailstop W5 F301-036, Wilmington, DE 19809-3705, 100%.

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Tax-Free Income Portfolio: Investor A Shares – Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 5.138%; First Clearing, LLC, A/C 4227-1114, Bonnie Cone, James H. Cone TTEE, James H. Cone Share 1 TR, 36 Gloucester Dr., 5.034%; Investor B Shares – Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 30.536%; Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 6.503%; Investor C Shares – Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 30.079%; Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 14.428%; Raymond James & Assoc. Inc., FBO Keliinoi Family, BIN# 46436701, 880 Carillon Pkwy., St. Petersburg, FL 33716, 8.383%; J.J.B. Hilliard, W.L. Lyons, Inc., Gian Paolo Caccini, A/C 1844-4229, 501 S. 4^th St., Louisville, KY 40202-2520, 7.340%; Institutional Shares – PNC Bank, Saxon & Co. (PNC Inst.), Attn: Lawrence Lockwood, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 97.393%; BlackRock Shares – Bear Stearns Securities Corp., FBO 794-00060-13, 1 Metrotech Center North, Brooklyn, NY 11201-3859, 21.867%; Bear Stearns Securities Corp., FBO 794-00183-15, 1 Metrotech Center North, Brooklyn, NY 11201-3859, 12.837%; Bear Stearns Securities Corp., FBO 794-00019-15, 1 Metrotech Center North, Brooklyn, NY 11201-3859, 11.438%; Bear Stearns Securities Corp., FBO 794-00474-13, 1 Metrotech Center North, Brooklyn, NY 11201-3859, 6.812%; Bear Stearns Securities Corp., FBO 794-00116-17, 1 Metrotech Center North, Brooklyn, NY 11201-3859, 5.257%; Service Shares – PNC Bank, Saxon & Co. (PNC Service), ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 22.816%; PFPC, FBO Hilliard Lyons/Capital Directions, 760 Moore Rd., King of Prussia, PA 19406, 21.815%; The Capital Trust Company of Delaware, Attn: Deborah Harris, 2711 Centerville Rd. Ste. 210, Wilmington, DE 19808-0000, 13.092%; William N. Barlow and Dixie A. Barlow, JT TEN, 396 Anderson Ave., Phoenixville, PA 19460-4439, 5.638%.

Delaware Tax-Free Income Portfolio: Investor A Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 13.397%; First Clearing, LLC, A/C 4578-0333, WBNA Collateral Acct., FBO Cynthia Y. Jones, 20448 Cedar Beach Rd., Milford, DE 19963-4260, 6.301%; Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 5.540%; Investor B Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 60.445%; Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 12.198%; Investor C Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 67.836%; Institutional Shares - PNC Bank, Saxon & Co. (PNC Inst.), Attn: Lawrence Lockwood, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 89.691%.

Ohio Tax-Free Income Portfolio: Investor A Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 10.236%; Pershing LLC, PO Box 2052, Jersey City, NJ 07303-2052, 8.359%; UBS Financial Services Inc. FBO, Catherine Bitsoff, Trustee, Catherine Bitsoff Trust, DTD 8/30/94, 7211 Pickway, Cincinnati, OH 45233-4246, 5.827%; Dean Witter Reynolds, Attn: Mutual Fund Operations, 3 Harborside Plaza 6^th Floor, Jersey City, NJ 07311, 5.412%; Investor B Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 57.639%; Investor C Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 82.503%; Institutional Shares - PNC Bank, Saxon & Co. (PNC Inst.), Attn: Lawrence Lockwood, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 93.292%; Service Shares - PFPC, FBO Hilliard Lyons/Capital Directions, 760 Moore Rd., King of Prussia, PA 19406, 81.869%; PNC Bank, Saxon & Co. (PNC Service), ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 18.130%.

Kentucky Tax-Free Income Portfolio: Investor A Shares – Lewis, Ruth B. RVOC TR UA, National City Bank TTEE, Trust Mutual Funds, PO Box 94984, Cleveland, OH 44101-4984, 16.516%; Robert W. Baird & Co. Inc., A/C 2012-9145, 777 E. Wisconsin Ave., Milwaukee, WI 53202-5391, 9.949%; UBS Financial Services Inc. FBO, Frances R. Beck Trust, Frances R. Beck Trustee, 5312 Heppstead Dr., Louisville, KY 40207-1247, 7.072%; J.J.B. Hilliard W.L. Lyons Inc., Anne L. Walsh, A/C 8996-8767, 501 S. 4^th St., Louisville, KY 40202-2520, 6.550%; Ameritrade Inc. FBO 7718274111, PO Box 2226, Omaha, NE 68103-2226, 6.160%; Investor C Shares – A.G. Edwards & Sons, Inc. FBO, Richard C. Miller, Jr., A/C 163-216434, One North Jefferson, St. Louis, MO 63103-2287, 22.409%; Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 20.964%; LPL Financial Services, A/C 2565-6751, 9785 Towne Centre Drive, San Diego, CA 92121-1968,

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11.780%; LPL Financial Services, A/C 1181-5691, 9785 Towne Centre Drive, San Diego, CA 92121-1968, 11.676%; J.J.B. Hilliard, W.L. Lyons Inc., Donald E. Ernst, A/C 3024-2265, 501 S. 4^th St., Louisville, KY 40202, 6.493%; J.J.B. Hilliard, W.L. Lyons Inc., Susan L. Draper, A/C 2055-5811, 501 S. 4^th St., Louisville, KY 40202, 5.170%; A.G. Edwards & Sons, Inc. FBO, Linda D. Miller, A/C 163-216515, One North Jefferson, St. Louis, MO 63103-2287, 5.123%; Institutional Shares - PNC Bank, Saxon & Co. (PNC Inst.), Attn: Lawrence Lockwood, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 94.437%; Service Shares - PFPC, FBO Hilliard Lyons/Capital Directions, 760 Moore Rd., King of Prussia, PA 19406, 62.420%; PNC Bank, Saxon & Co. (PNC Service), ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 37.573%.

New Jersey Tax-Free Income Portfolio: Investor A Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 6.945%; Investor B Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 12.391%; Investor C Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 25.693%; Citigroup Global Markets, Inc., 00112836498, 333 West 34^th St. 3^rd Floor, New York, NY 10001, 9.217%; Institutional Shares - PNC Bank, Saxon & Co. (PNC Inst.), Attn: Lawrence Lockwood, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 98.418%; Service Shares - PNC Bank, Saxon & Co. (PNC Service), ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 21.350%.

Pennsylvania Tax-Free Income Portfolio: Investor A Shares - J.J.B. Hilliard, W.L. Lyons, Inc., Charles T. Vogelsong, A/C 8591-9780, 501 S. 4^th St., Louisville, KY 40202, 7.619%; Investor C Shares - Merrill Lynch Pierce Fenner, Attn: Stock Powers, 4800 E. Deerlake Dr. 3^rd Floor, Jacksonville, FL 32246-6484, 25.890%; A.G. Edwards & Sons, Inc. FBO, Diane S. Kedash, A/C 0819-032181, One North Jefferson, St. Louis, MO 63103-2287, 13.061%; J.J.B. Hilliard, W.L. Lyons, Inc., Jeffrey McCarron & Kathryn G. McCarron JTWROS, A/C 6098-8313, 501 S. 4^th St., Louisville, KY 40202, 9.445%; J.J.B. Hilliard, W.L. Lyons, Inc., Don Rose Jr. Rev. Trust, A/C 7182-4645, 501 S. 4^th St., Louisville, KY 40202, 7.663%; J.J.B. Hilliard, W.L. Lyons, Inc., Joseph V. Spinelli, A/C 7934-3243, 501 S. 4^th St., Louisville, KY 40202, 5.856%; J.J.B. Hilliard, W.L. Lyons, Inc., Lee E. Belfer, A/C 1298-6686, 501 S. 4^th St., Louisville, KY 40202, 5.207%; Institutional Shares - PNC Bank, Saxon & Co. (PNC Inst.), Attn: Lawrence Lockwood, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 94.844%; Service Shares - PNC Bank, Saxon & Co. (PNC Service), ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 40.880%; PFPC, FBO Hilliard Lyons/Capital Directions, 760 Moore Rd., King of Prussia, PA 19406, 40.179%.

Money Market Portfolio: Investor A Shares – Hilliard Lyons, Cash Balance Sweeps, Attn; Barbara O’Neal, 501 Hilliard Lyons Ctr., Louisville, KY 40202, 66.623%; Saxon & Co., FBO A/C 20-01-202-9914591, PO Box 7780-1888, Philadelphia, PA 19182, 26.735%; Investor C Shares – UBS Financial Services Inc. FBO, UBS-FINSVC CDN FBO, Mark Froman, PO Box 3321, 1000 Harbor Blvd., Weekawken, NJ 07086-8154, 11.880%; J.J.B. Hilliard, W.L. Lyons, Inc., William A. Driver, A/C 2801-7091, 501 S. 4^th St., Louisville, KY 40202, 9.558%; First Clearing, LLC, A/C 2957-6039, Georgia L. Ebeling, 26001 S. Sherbrook Dr., Sun Lakes, AZ 85248-6827, 9.148%; Citigroup Global Markets Inc., 00162462243, 333 W. 34^th St. 3^rd Floor, New York, NY 10001, 8.0365%; Raymond James & Assoc. Inc., FBO Evans/Knigh*Eli, BIN# 89930612, 880 Carillon Pkwy., St. Petersburg, FL 33716, 7.574%; J.J.B. Hilliard, W.L. Lyons, Inc., Hilliard Lyons Cust. For Jeffry J. Chlon IRA, A/C 2020-0000, 501 S. 4^th St., Louisville, KY 40202, 5.750%; Institutional Shares – PNC Bank, 35 Institutional, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 99.636%; Service Shares - PNC Bank, 35 Service, ACI Dept/Reorg F6-F266-02Y-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 74.153%; Hilliard Lyons, Cash Balance Sweeps, Attn; Barbara O’Neal, 501 Hilliard Lyons Ctr., Louisville, KY 40202-0000, 11.165%; PFPC, FBO Hilliard Lyons/Capital Directions, 760 Moore Rd., King of Prussia, PA 19406, 6.029%.

U.S. Treasury Money Market Portfolio: Investor A Shares – Hilliard Lyons, Cash Balance Sweeps, Attn; Barbara O’Neal, 501 Hilliard Lyons Ctr., Louisville, KY 40202, 65.811%; Saxon & Co., FBO 20-01-202-9914606, 091927376, PO Box 7780-1888, Philadelphia, PA 19182, 28.611%; Institutional Shares – PNC Bank, 35 Institutional, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 99.075%; Service Shares – Chase Manhattan Bank, FBO Various Trust Capital Markets FID SVCS, Lilly Nickerson/MC 11BRYTW, 2001 Bran Tower 11^th Floor, Dallas, TX 75201-0000, 45.313%; PNC Bank, 35 Institutional, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 34.142%; PNC Bank, Sweep, Treasury Mgmt/Inv Services, PNC Firstside Ctr. P7-PFSC-03-D, 500 First Avenue, Pittsburgh, PA 15265-0000, 15.243%.

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Municipal Money Market Portfolio: Investor A Shares – Hilliard Lyons, Cash Balance Sweeps, Attn; Barbara O’Neal, 501 Hilliard Lyons Ctr., Louisville, KY 40202, 97.990%; Institutional Shares – PNC Bank, 35 Institutional, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 96.584%; Service Shares – PNC Bank, 35 Service, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 52.802%; PNC Bank, Sweep, Treasury Mgmt/Inv Services, PNC Firstside Ctr. P7-PFSC-03-D, 500 First Avenue, Pittsburgh, PA, 15265-0000, 26.946%; Hilliard Lyons, Cash Balance Sweeps, Attn; Barbara O’Neal, 501 Hilliard Lyons Ctr., Louisville, KY 40202, 14.909%; PFPC, FBO Hilliard Lyons/Capital Directions, 760 Moore Rd., King of Prussia, PA 19406, 5.228%.

New Jersey Municipal Money Market Portfolio: Investor A Shares - Hilliard Lyons, Cash Balance Sweeps, Attn: Barbara O’Neal, 501 Hilliard Lyons Ctr., Louisville, KY 40202, 99.049%; Institutional Shares - PNC Bank, 35 Institutional, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 71.910%; Boh & Co., Beacon Trust Company, Attn: Beth Patino, 333 Main St., Madison, NJ 07940-0000, 11.299%; PNC Bank, Sweep, Treasury Mgmt/Inv Services, PNC Firstside Ctr. P7-PFSC-03-D, 500 First Ave., Pittsburgh, PA 15265-0000, 5.980%; Service Shares - PNC Bank, 35 Service, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 94.021%.

North Carolina Municipal Money Market Portfolio: Investor A Shares – Joanne Floch, 4478 Moratock Ln., Clemmons, NC 27012-7712, 63.696%; Henry L. Fisher Jr., PO Box 36, Mount Pleasant, NC 28124-0036, 22.948%; Joanne Floch, 4478 Moratock Ln., Clemmons, NC 27012-7712, 12.767%; Institutional Shares - Goldman Sachs Global Cash Services Omnibus Account FBO, Goldman Sachs & Co. Customers, Account #2, 4900 Sears Tower, Chicago, IL 60606-0000, 48.703%; US Trust Company of New York, Technology and Support Svcs. Inc., Attn: Trading Operations 7^th Floor, 499 Washington Blvd., Jersey City, NJ 07310-1997, 23.364%; PNC Bank, 35 Institutional, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 14.189%; High Point Bank & Trust, Mutual Partners Program, Pratt & Co. (Cash), 300 N. Main St., High Point, NC 27261-0000, 7.532%; Service Shares - PNC Bank, 35 Service, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 74.104%; Trust Company of the South, PO Box 1898, Burlington, NC 27216-1898, 25.895%.

Ohio Municipal Money Market Portfolio: Investor A Shares - Hilliard Lyons, Cash Balance Sweeps, Attn: Barbara O’Neal, 501 Hilliard Lyons Ctr., Louisville, KY 40202, 99.996%; Institutional Shares - PNC Bank, 35 Institutional, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 72.600%; National City Bank, Money Market/5312, 4100 W. 150^th St., Cleveland, OH 44135-0000, 9.751%; American Greetings Corp., One American Rd., Cleveland, OH 44144-0000, 5.741%; Service Shares - PNC Bank, Sweep, Treasury Mgmt/Inv Services, PNC Firstside Ctr. P7-PFSC-03-D, 500 First Avenue, Pittsburgh, PA 15265-0000, 48.756%; PNC Bank, 35 Service, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 38.929%; Hilliard Lyons, Cash Balance Sweeps, Attn: Barbara O’Neal, 501 Hilliard Lyons Ctr., Louisville, KY 40202, 12.313%.

Pennsylvania Municipal Money Market Portfolio: Investor A Shares – Hilliard Lyons, Cash Balance Sweeps, Attn: Barbara O’Neal, 501 Hilliard Lyons Ctr., Louisville, KY 40202, 99.234%; Institutional Shares - PNC Bank, 35 Institutional, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 90.593%; Service Shares - PNC Bank, 35 Service, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 69.233%; Hilliard Lyons, Cash Balance Sweeps, Attn: Barbara O’Neal, 501 Hilliard Lyons Ctr., Louisville, KY 40202-0000, 29.213%.

Virginia Municipal Money Market Portfolio: Institutional Shares – Virginia Commonwealth Trust Co., Tunat & Co., PO Box 1717, Culpepper, VA 22701-1717, 26.995%; Planters Bank & Trust Co., Planta & Co., PO Box 1268, Staunton, VA 24402-1268, 23.658%; Goldman Sachs Global Cash Services Omnibus Account FBO, Goldman Sachs & Co. Customers, Account #2, 4900 Sears Tower, Chicago, IL 60606-0000, 20.763%; PNC Bank, Saxon & Company, ACI Dept/Reorg F6-F266-02-2, 8800 Tinicum Blvd., Philadelphia, PA 19153-0000, 17.953%; Band & Co., c/o US Bank, PO Box 1787, Milwaukee, WI 53201-0000, 5.871%.

On December 31, 2004, PNC Bank, which has its principal offices at 1600 Market Street, Philadelphia, Pennsylvania 19103, held of record approximately 53.810% of the Fund’s outstanding shares, and may be deemed a controlling person of the Fund under the 1940 Act. PNC Bank is a national bank organized under the laws of the United States. All of the capital stock of PNC Bank is owned by PNC Bancorp, Inc. All of the capital stock of PNC Bancorp, Inc. is owned by The PNC Financial Services Group, Inc., a publicly-held bank holding company.

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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.

FINANCIAL STATEMENTS

BlackRock Funds. The audited financial statements and notes thereto in the Fund’s Annual Reports to Shareholders for the fiscal year ended September 30, 2004 (the “2004 Annual Report”), as filed on the Fund’s most recent Form N-CSR, are incorporated in this Statement of Additional Information by reference. No other parts of the 2004 Annual Report are incorporated by reference herein. The financial statements included in the 2004 Annual Report, as filed on the Fund’s most recent Form N-CSR, have been audited by Deloitte & Touche LLP. The reports of Deloitte & Touche LLP, as filed on the Fund’s most recent Form N-CSR, are incorporated herein by reference. Such financial statements have been incorporated herein in reliance upon such reports given upon their authority as experts in accounting and auditing. Additional copies of the 2004 Annual Report may be obtained at no charge by telephoning the Distributor at the telephone number appearing on the front page of this Statement of Additional Information.

The audited financial statements and notes thereto in the Fund’s Annual Reports to Shareholders for the fiscal year ended September 30, 2003 (the “2003 Annual Report”) are incorporated in this Statement of Additional Information by reference. No other parts of the 2003 Annual Report are incorporated by reference herein. The financial statements included in the 2003 Annual Report have been audited by PricewaterhouseCoopers LLP. The reports of PricewaterhouseCoopers LLP are incorporated herein by reference. Such financial statements have been incorporated herein in reliance upon such reports given upon their authority as experts in accounting and auditing.

SSR Funds. With respect to the SSR Funds, the following items (collectively, the “SSR Fund Reports”) are incorporated in this Statement of Additional Information by reference:

(i) the audited financial statements and notes thereto for the State Street Research Aurora Fund and the State Street Research Emerging Growth Fund for the fiscal year ended September 30, 2004, contained in the State Street Research Capital Trust’s Annual Report to Shareholders;

(ii) the audited financial statements and notes thereto for the State Street Research Global Resources Fund and the State Street Research Mid-Cap Value Fund for the fiscal year ended June 30, 2004, contained in the State Street Research Equity Trust’s Annual Report to Shareholders;

(iii) the audited financial statements and notes thereto for the State Street Research Exchange Fund for the fiscal year ended December 31, 2003, contained in the State Street Research Exchange Trust’s Annual Report to Shareholders and the unaudited financial statements and notes thereto for the State Street Research Exchange Fund for the period ended June 30, 2004, contained in the State Street Research Exchange Trust’s Semi-Annual Report to Shareholders;

(iv) the audited financial statements and notes thereto for the State Street Research Health Sciences Fund for the fiscal year ended February 29, 2004, contained in the State Street Research Financial Trust’s Annual Report to Shareholders and the unaudited financial statements and notes thereto for the State Street Research Health Sciences Fund for the period ended August 31, 2004, contained in the State Street Research Financial Trust’s Semi-Annual Report to Shareholders;

(v) the audited financial statements and notes thereto for the State Street Research Asset Allocation Fund for the fiscal year ended March 31, 2004, contained in the State Street Research Income Trust’s Annual Report to Shareholders and the unaudited financial statements and notes thereto for the State Street Research Asset Allocation Fund for the period ended September 30, 2004, contained in the State Street Research Income Trust’s Semi-Annual Report to Shareholders; and

(vi) the audited financial statements and notes thereto for the State Street Research Legacy Fund for the fiscal year ended October 31, 2004, contained in the State Street Research Securities Trust’s Annual Report to Shareholders.

No other parts of any of the SSR Fund Reports are incorporated by reference herein. The audited financial statements included in the SSR Fund Reports have been audited by Deloitte & Touche LLP, the independent

219

registered public accountant for the State Street Research Capital Trust, State Street Research Equity Trust, State Street Research Exchange Trust, State Street Research Financial Trust, and State Street Research Securities Trust., whose reports thereon are incorporated herein by reference. Such financial statements have been incorporated herein by reference in reliance upon such reports given upon their authority as experts in accounting and auditing. Additional copies of the SSR Fund Reports may be obtained at no charge by telephoning the Distributor at the telephone number appearing on the front page of this Statement of Additional Information.

Index Master Portfolio. The audited financial statements and notes thereto for The U.S. Large Company Series of the Trust contained in the Trust’s Annual Report to Shareholders for the fiscal year ended November 30, 2003 (the “2003 Index Master Report”) and the unaudited financial statements and notes thereto for the Trust’s U.S. Large Company Series for the period ended May 31, 2004 (the “2004 Unaudited Index Master Report”), contained in the Trust’s Semi-Annual Report to Shareholders are incorporated by reference into this Statement of Additional Information. No other parts of the 2003 Index Master Report or 2004 Unaudited Index Master Report are incorporated by reference herein. The financial statements included in the 2003 Index Master Report have been audited by the Trust’s independent registered public accountant, PricewaterhouseCoopers LLP, whose reports thereon are incorporated herein by reference. Such financial statements have been incorporated herein by reference in reliance upon such reports given upon their authority as experts in accounting and auditing. Additional copies of the 2003 Index Master Report and the 2004 Unaudited Index Master Report may be obtained at no charge by telephoning the Trust at (310) 395-8005.

220

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.

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+.”

A-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.

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.

A-2

“CC” - This rating is typically applied to debt subordinated to senior debt that is assigned an actual or implied “CCC” rating.

“C” - This rating is typically applied to debt subordinated to senior debt which is assigned an actual or implied “CCC-” debt rating. The “C” rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued.

“CI” - This rating is reserved for income bonds on which no interest is being paid.

“D” - Debt is in payment default. This rating is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S & P believes that such payments will be made during such grace period. “D” rating is also used upon the filing of a bankruptcy petition if debt service payments are jeopardized.

PLUS (+) OR MINUS (-) - The ratings from “AA” through “CCC” may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.

“r” - This rating is attached to highlight derivative, hybrid, and certain other obligations that S & P believes may experience high volatility or high variability in expected returns due to non-credit risks. Examples of such obligations are: securities whose principal or interest return is indexed to equities, commodities, or currencies; certain swaps and options; and interest only and principal only mortgage securities. The absence of an “r” symbol should not be taken as an indication that an obligation will exhibit no volatility or variability in total return.

The following summarizes the ratings used by Moody’s for corporate and municipal long-term debt:

“Aaa” - Bonds are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as “gilt edged.” Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.

“Aa” - Bonds are judged to be of high quality by all standards. Together with the “Aaa” group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in “Aaa” securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in “Aaa” securities.

“A” - Bonds possess many favorable investment attributes and are to be considered as upper medium-grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future.

“Baa” - Bonds considered medium-grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.

“Ba,” “B,” “Caa,” “Ca,” and “C” - Bonds that possess one of these ratings provide questionable protection of interest and principal (“Ba” indicates some speculative elements; “B” indicates a general lack of characteristics of 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.

A-3

(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 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.

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.

A-4

“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 uses the short-term ratings described under Commercial Paper Ratings for municipal notes.

A-5

APPENDIX B

Certain Portfolios of the Fund may enter into futures transactions. These transactions are described in this Appendix.

Futures Contracts

If so provided in the Prospectus relating to a particular Portfolio, the Portfolio may purchase and sell interest rate, currency and index futures contracts that are traded on U.S. and non-U.S. commodity exchanges on such underlying securities as U.S. Treasury bonds, notes, bills, GNMA Certificates and/or on any non-U.S. government fixed-income security, on various currencies and on such indices of U.S. and non-U.S. securities as may exist or come into existence.

A futures contract purchaser generally incurs an obligation to take delivery of a specified amount of the instrument (that is, the security or securities or the non-U.S. currency) underlying the contract at a specified time in the future for a specified price. A seller of a futures contract incurs an obligation to deliver the specified amount of the underlying instrument at a specified time in return for an agreed upon price. The purchase of a futures contract enables a Portfolio, during the term of the contract, to lock in a price at which it may purchase a security or currency and protect against a rise in prices pending purchase of portfolio securities. The sale of a future contract enables a Portfolio to lock in a price at which it may sell a security or currency and protect against declines in the value of portfolio securities.

Although most futures contracts call for actual delivery or acceptance of the underlying instrument, the contracts usually are closed out before the settlement date without the making or taking of delivery. Index futures contracts provide for the delivery of an amount of cash equal to a specified dollar amount times the difference between the index value at the open or close of the last trading day of the contract and the futures contract price. A futures contract sale is closed out by effecting a futures contract purchase for the same aggregate amount of the specific type of the underlying instrument and the same delivery date. If the sale price exceeds the offsetting purchase price, the seller would be paid the difference and would realize a gain. If the offsetting purchase price exceeds the sale price, the seller would pay the difference and would realize a loss. Similarly, a futures contract purchase is closed out by effecting a future contract sale for the same aggregate amount of the specific type of the underlying instrument and the same delivery date. If the offsetting sale price exceeds the purchase price, the purchaser would realize a gain, whereas if the purchase price exceeds the offsetting sale price, the purchaser would realize a loss. There is no assurance that a Portfolio will be able to enter into a closing transaction.

Margin

If a Portfolio enters into a futures contract, it is initially required to deposit an “initial margin” of cash, U.S. government securities or other liquid portfolio securities ranging from approximately 2% to 5% of the contract amount. Initial margin requirements are established by the exchanges on which futures contracts trade and may, from time to time, change. In addition, brokers may establish margin deposit requirements in excess of those required by the exchanges.

Initial margin in futures transactions is different from margin in securities transactions in that initial margin does not involve the borrowing of funds by a broker’s client but is, rather, a good faith deposit on the futures contract which will be returned to a Portfolio upon the proper termination of the futures contract.

The margin deposits made are marked to market daily and a Portfolio may be required to make subsequent deposits of cash, U.S. government securities or other liquid portfolio securities, called “variation margin,” which are reflective of price fluctuations in the futures contract. For example, when a Portfolio has purchased a futures contract and the price of the contract has risen in response to a rise in the underlying instrument, 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 a Portfolio has purchased a futures contract and the price of the future contract has declined in response to a decrease in the underlying instrument, 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 to a Portfolio 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 a gain.

Options on Futures Contracts

A Portfolio may purchase and write call and put options on futures contracts and enter into closing transactions with respect to such options to terminate an existing position. An option on the futures contract gives the purchaser the right (in return for the premium paid), and the writer the obligation, to assume a position in a futures contract (a long position if the option is a call and a short position if the option is a call and a short position if the option is a put) at a specified exercise price at any time during the term of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option is accompanied by delivery of the accumulated balance in the writer’s futures margin account, which represents the amount by which the market price of the futures contract at the time of exercise exceeds, in the case of a call, or is less than, in the case of a put, the exercise price of the option on the futures contract.

The writer of an option on a futures contract is required to deposit initial and variation margin pursuant to requirements similar to those applicable to futures contracts. Premiums received from the writing of an option on a futures contract are included in initial margin deposits.

Risks of Transactions in Futures Contracts and Options on Futures Contracts

The prices of securities, currencies and indices subject to futures contracts (and thereby the futures contract prices) may correlate imperfectly with the behavior of the cash price of a Portfolio’s securities (and the currencies in which they are denominated). Also, prices of futures contracts may not move in tandem with the changes in prevailing interest rates, market movements and/or currency exchange rates against which a Portfolio seeks a hedge. A correlation may also be distorted (a) temporarily, by short-term traders seeking to profit from the difference between a contract or security price objective and their cost of borrowed funds; (b) by investors in futures contracts electing to close out their contracts through offsetting transactions rather than meet margin deposit requirements; (c) by investors in futures contracts opting to make or take delivery of underlying securities rather than engage in closing transactions, thereby reducing liquidity of the futures market; and (d) temporarily, by speculators who view the deposit requirements in the futures markets as less onerous than margin requirements in the cash market. Due to the possibility of price distortion in the futures market and because of the possible imperfect correlation between movements in the prices of securities, currencies and indices and movements in the price of futures contracts, a correct forecast of interest rate, currency exchange rate and/or market movement trends by a Portfolio’s adviser may still not result in a successful hedging transaction.

There is no assurance that a liquid secondary market will exist for futures contracts and related options in which a Portfolio may invest. In the event a liquid market does not exist, it may not be possible to close out a future position and, in the event of adverse price movements, the Portfolio would continue to be required to make daily case payments of variation margin. The absence of a liquid market in futures contracts might cause a Portfolio to make or take delivery of the instruments underlying futures contracts at a time when it may be disadvantageous to do so.

Exchanges also limit the amount by which the price of a futures contract may move on any day. If the price moves equal the daily limit on successive days, then it may prove impossible to liquidate a futures position until the daily limit moves have ceased. In the event of adverse price movements, a Portfolio would continue to be required to make daily cash payments of variation margin on open futures positions. In these situations, if a Portfolio has insufficient cash, it may have to sell portfolio securities to meet daily variation margin requirements at a time when it may be disadvantageous to do so. In addition, a Portfolio may be required to take or make delivery of the instruments underlying futures contracts it holds at a time when it is disadvantageous to do so. The inability to close out options and futures positions could also have an adverse impact on a Portfolio’s ability to effectively hedge its portfolio.

The risk of loss in trading futures contracts in some strategies can be substantial, due both to the relatively low margin deposits required, and the extremely high degree of leverage involved in futures pricing. As a result, a relatively small price movement in a futures contract may result in immediate and substantial loss (as well as gain) to the investor. For example, if at the time of purchase, 10% of the value of the futures contract is deposited as

margin, a subsequent 10% decrease in the value of the futures contract would result in a total loss of the margin deposit, before any deduction for the transaction costs, if the account were then closed out. A 15% decrease would result in a loss equal to 150% of the original margin deposit, before any deduction for the transaction costs, if the contract were closed out. Thus, a purchase or sale of a futures contract may result in losses in excess of the amount invested in the contract.

Futures contracts and options thereon which are purchased or sold on non-U.S. commodities exchanges may have greater price volatility than their U.S. counterparts. Furthermore, non-U.S. commodities exchanges may be less regulated and under less governmental scrutiny than U.S. exchanges. Brokerage commissions, clearing costs and other transaction costs may be higher on non-U.S. exchanges. Greater margin requirements may limit a Portfolio’s ability to enter into certain commodity transactions on non-U.S. exchanges. Moreover, differences in clearance and delivery requirements on non-U.S. exchanges may occasion delays in the settlement of a Portfolio’s transactions effected on non-U.S. exchanges.

In the event of the bankruptcy of a broker through which a Portfolio engages in transactions in futures or options thereon, the Portfolio could experience delays and/or losses in liquidating open positions purchased or sold through the broker and/or incur a loss on all or part of its margin deposits with the broker.

If a Portfolio maintains a short position in a futures contract or has sold a call option on a futures contract, the adviser or sub-adviser will designate liquid assets on its books and records in an amount equal (when added to any initial or variation margin on deposit) to the market value of the instrument underlying the futures contract or the exercise price of the option. Such a position may also be covered by owning the instrument underlying the futures contract (in the case of a stock index futures contract a portfolio of securities substantially replicating the relevant index), or by holding a call option permitting the Portfolio to purchase the same contract at a price no higher than the price at which the short position was established.

In addition, if a Portfolio holds a long position in a futures contract or has sold a put option on a futures contract, it will hold cash, U.S. government securities or other liquid portfolio securities equal to the purchase price of the contract or the exercise price of the put option (less the amount of initial or variation margin on deposit) in a segregated account maintained on the books of the Portfolio. Alternatively, a Portfolio could cover its long position by purchasing a put option on the same futures contract with an exercise price as high or higher than the price of the contract held by a Portfolio.

Accounting Treatment

Any Portfolio trading in futures contracts and options thereon will account for such instruments in accordance with generally accepted accounting principles.

APPENDIX C

Information Regarding the Mergent^® License Agreement—General Disclaimers and the 2004 Mergent^® Dividend Achievers^™

“Mergent^®” and “Dividend Achievers^™” are trademarks of Mergent^® and have been licensed for use by the Portfolio. The Portfolio is not sponsored, endorsed, sold or promoted by Mergent^® and Mergent^® makes no representation regarding the advisability of investing in the Portfolio.

This Portfolio and its shares are not sponsored, endorsed, sold or promoted by Mergent^®. Mergent^® makes no representation or warranty, express or implied, to the shareholders of this Portfolio or any member of the public regarding the advisability of investing in securities generally or in this Portfolio particularly or the ability of any data supplied by Mergent^® to track general stock market performance. Mergent’s^® only relationship to this Portfolio is the licensing of certain trademarks and trade names of Mergent^® and of the data supplied by Mergent^® which is determined, composed and calculated by Mergent^® without regard to this Portfolio or its shares. Mergent^® has no obligation to take the needs of this Portfolio or the shareholders of the Portfolio into consideration in determining, composing or calculating the data supplied by Mergent^®. Mergent^® is not responsible for and has not participated in the determination of the prices of the shares of the Portfolio or the timing of the issuance or sale of such shares. Mergent^® has no obligation or liability in connection with the administration, marketing or trading of this Portfolio or its shares.

Mergent^® does not guarantee the accuracy and/or the completeness of any data supplied by it or any data included therein. Mergent^® makes no warranty, express or implied, as to results to be obtained by the Portfolio, its shareholders or affiliates, or any other person or entity from the use of the data supplied by Mergent^® or any data included therein. Mergent^® makes no express or implied warranties, and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the data supplied by Mergent^® or any data included therein. Without limiting any of the foregoing, in no event shall Mergent^® have any liability for any special, punitive, indirect, or consequential damages (including lost profits), even if notified of the possibility of such damages.

The 2004 Mergent^® Dividend Achievers^™

The securities comprising the 2004 Mergent^® Dividend Achievers^™ universe are:

1ST SOURCE

3M CO. (MINNESOTA MINING & MFG.)

ABBOTT LABORATORIES

ABM INDUSTRIES

AFLAC, INC.

AIR PRODUCTS AND CHEMICALS

ALBERTO-CULVER CO.

ALFA CORP.

ALLTEL CORP.

AMBAC

AMERICAN INTERNATIONAL GROUP

AMERICAN NATIONAL INSURANCE

AMERICAN STATES WATER CO.

AMSOUTH BANCORPORATION

ANHEUSER-BUSCH CO., INC.

APPLEBEE’S INTERNATIONAL

ARCHER DANIELS MIDLAND CO.

ARROW INTERNATIONAL

ASSOCIATED BANC-CORP

ATMOS ENERGY CORP.

AUTOMATIC DATA PROCESSING

AVERY DENNISON CORP.

AVON PRODUCTS

BADGER METER, INC.

BANCORP SOUTH INC.

BANDAG INC.

BANK OF AMERICA CORP.

BANK OF HAWAII

BANK OF NEW YORK

BANTA CORP.

BARD (C.R.) INC.

BB&T CORP.

BECKMAN COULTER

BECTON, DICKINSON & CO.

BEMIS CO., INC.

BLACK HILLS CORP.

BOWL AMERICA INC.

BRADY CORP.

BRIGGS & STRATTON

BRISTOL MEYERS SQUIBB CO.

BROWN FORMAN CORP.

CALIFORNIA WATER SERVICE CO.

CARLISLE COMPANIES, INC

CEDAR FAIR, L.P.

CENTURYTEL, INC.

CHARTER ONE FINANCIAL, INC.

CHEMICAL FINANCIAL

CHEVRONTEXACO

CHITTENDEN CORP.

CHUBB CORP.

CINCINNATI FINANCIAL CORP.

CINTAS CORP.

CITIGROUP INC

CITIZENS BANKING CORP

CLARCOR INC

CLECO CORP

CLOROX CORP.

COCA-COLA CO. (THE)

COLGATE-PALMOLIVE CO.

COMERICA INC

COMMERCE BANCORP, INC.

COMMERCE BANCSHARES, INC

COMMERCIAL NET LEASE REALTY

COMMUNITY BANK SYSTEMS, INC.

COMMUNITY FIRST BANKSHARES, INC.

COMMUNITY TRUST BANCORP, INC.

COMPASS BANCSHARES INC.

CONAGRA FOODS, INC.

CONNECTICUT WATER SERVICE

CONSOLIDATED EDISON, INC

CORUS BANCSHARES, INC.

COUSINS PROPERTIES INC.

CVB FINANCIAL CORP.

DIEBOLD, INC.

DONEGAL GROUP INC

DONNELLEY (R.R) & SONS CO.

DORAL FINANCIAL CORP.

DOVER CORP.

EASTGROUP PROPERTIES, INC.

EATON VANCE CORP.

ECOLAB

EL PASO CORP.

EMERSON ELECTRIC CO.

ENERGEN CORP.

ENERGY WEST INC.

ENERGYSOUTH, INC.

EXXON MOBILE CORP

F.N.B. CORP.

FAMILY DOLLAR STORES INC.

FANNIE MAE

FEDERAL REALTY INVEST. TRUST

FEDERAL SIGNAL CORP.

FIDELITY NATIONAL FINANCIAL INC.

FIFTH THIRD BANCORP

FIRST CHARTER CORP.

FIRST COMMONWEALTH FINANCIAL CORP.

FIRST FEDERAL CAPITAL CORP.

FIRST FINANCIAL BANCORP

FIRST FINANCIAL CORP.

FIRST FINANCIAL HOLDINGS

FIRST INDIANA CORP.

FIRST MIDWEST CORP.

FIRST VIRGINIA BANKS INC.

FIRSTMERIT CORP

FLEETBOSTON FINANCIAL

FLORIDA PUBLIC UTILITIES CORP.

FRANKLIN RESOURCES, INC.

FREDDIE MAC

FRISCH’S RESTAURANTS, INC.

FULLER (H.B.) CO.

FULTON FINANCIAL CORP

GALLAGHER (ARTHUR J) & CO.

GANNETT CO., INC.

GATX CORP.

GENERAL DYNAMICS CORP.

GENERAL ELECTRIC CO.

GENUINE PARTS CORP.

GLACIER BANCORP, INC.

GOLDEN WEST FINANCIAL CORP.

GORMAN-RUPP CO.

GRAINGER (W.W.) INC.

HARLEYSVILLE GROUP, INC.

HARLEYSVILLE NATIONAL CORP.

HAVERTY FURNITURE COS., INC.

HEALTH CARE PROPERTY INVESTORS

HEINZ (H.J.) CO.

HERSHEY FOODS CORP.

HILB, ROGAL & HAMILTON CO.

HILLENBRAND INDUSTRIES, INC.

HOME DEPOT, INC.

HON INDUSTRIES, INC.

HORMEL FOODS CORP.

HOUSEHOLD INTERNATIONAL, INC.

HUDSON UNITED BANCORP

ILLINOIS TOOL WORKS, INC.

IRWIN FINANCIAL CORP.

J.P. MORGAN CHASE & CO.

JACK HENRY & ASSOCIATES, INC.

JEFFERSON PILOT CORP.

JOHNSON & JOHNSON

JOHNSON CONTROLS, INC.

KEYCORP

KIMBERLY-CLARK CORP.

KIMCO REALTY

LANCASTER COLONY CORP

LA-Z-BOY INC.

LEGG MASON, INC.

LEGGETT & PLATT, INC.

LILLY (ELI) & CO.

LINCOLN NATIONAL CORP.

LINEAR TECHNOLOGY

LOWE’S COMPANIES, INC.

M & T BANK CORP.

MARSH & MCLENNAN COMPANIES, INC.

MARSHALL & ILSLEY CORP.

MASCO CORP.

MAY DEPARTMENT STORES, CO.

MBIA, INC.

MBNA CORP.

MCCORMICK & CO., INC.

MCDONALD’S CORP.

MCGRATH RENT

MCGRAW-HILL COS, INC.

MDU RESOURCES GROUP, INC.

MEDTRONIC INC.

MERCANTILE BANKSHARES CORP.

MERCK & CO., INC.

MERCURY GENERAL CORP.

MGE ENERGY INC.

MIDDLESEX WATER CO.

MIDLAND CO. (THE)

MINE SAFETY APPLIANCES CO.

MYERS INDUSTRIES, INC.

NACCO INDUSTRIES, INC.

NATIONAL CITY CORP

NATIONAL COMMERCE FINANCIAL CORP.

NATIONAL FUEL GAS CO.

NATIONAL PENN BANCSHARES, INC.

NATIONAL SECURITY GROUP, INC.

NICOR INC.

NORDSON CORP.

NORTHERN TRUST CORP.

NORTHWESTERN CORP.

NUCOR CORP.

NUVEEN INVESTMENTS INC

OLD NATIONAL BANCORP

OLD REPUBLIC INTERNATIONAL

OTTER TAIL POWER CO.

PACIFIC CAPITAL BANCORP.

PARK NATIONAL CORP.

PAYCHEX INC.

PENTAIR INC.

PEOPLES ENERGY CORP.

PEPSICO, INC.

PFIZER INC.

PHILADELPHIA SUBURBAN CORP.

ALTRIA

PIEDMONT NATURAL GAS CO., INC.

PIER 1 IMPORTS, INC.

PITNEY BOWES INC.

POPULAR, INC.

PPG INDUSTRIES, INC.

PRAXAIR

PROCTOR AND GAMBLE CO.

PROGRESS ENERGY

PROGRESSIVE CORP.

PROTECTIVE LIFE CORP.

QUAKER CHEMICAL CORP.

QUESTAR CORP.

RAVEN INDUSTRIES, INC.

REGIONS FINANCIAL CORP.

REPUBLIC BANCORP, INC.

RLI CORP.

ROHM & HASS CO.

ROPER INDUSTRIES, INC.

ROUSE CO.

RPM INC

S & T BANCORP, INC.

SARA LEE CORP.

SBC COMMUNICATIONS, INC.

SCHERING-PLOUGH CORP.

SEI INVESTMENTS CO.

SERVICE MASTER CO.

SHERWIN-WILLAIMS CO.

SIGMA-ALDRICH CORP.

SJW CORP.

SLM CORPORATION

SMITH (A.O.) CORPORATION

SONOCO PRODUCTS CO.

SOUTHTRUST CORP

ST. PAUL COS., INC.

STANLEY WORKS

STATE AUTO FINANCIAL CORP.

STATE STREET CORP.

STEPAN CO.

STERLING FINANCIAL CORP.

STRYKER CORP.

SUNTRUST BANKS, INC.

SUPERIOR INDUSTRIES INTL. INC.

SUPERVALU INC.

SUSQUEHANNA BANCSHARES INC.

SYNOVUS FINANCIAL CORP

SYSCO CORP.

T. ROWE PRICE GROUP, INC.

TARGET CORP.

TCF FINANCIAL

TECO ENERGY INC.

TELEFLEX INC.

TELEPHONE & DATA SYSTEMS

TENNANT CO.

TEPPCO PARTNERS L.P.

TOOTSIE ROLL INDUSTRIES INC.

TRANSATLANTIC HOLDINGS INC.

TRUSTCO BANK

TRUSTMARK CO.

UGI CORP.

UNITED BANKSHARES, INC. (W.V.)

UNITED DOMINION REALTY TRUST

UNITED MOBILE HOMES, INC.

UNITRIN, INC.

UNIVERSAL CORP.

UNIVERSAL HEALTH REALTY INC. TRUST

UNIZAN FINANCIAL CORP.

VALLEY NATIONAL BANCORP

VALSPAR CORP.

VECTREN CORP.

VF CORP.

VIRCO MANUFACTURING CORP.

VULCAN MATERIALS CO.

WALGREEN CO.

WAL-MART STORES

WASHINGTON FEDERAL INC.

WASHINGTON MUTUAL INC.

WASHINGTON R.E.I.T.

WEBSTER FINANCIAL CORP.

WEINGARTEN REALTY INVESTORS

WELLS FARGO CORP.

WESBANCO INC.

WESCO FINANCIAL CORP.

WEST PHARMACEUTICAL SERVICES, INC.

WESTAMERICA BANCORPORATION

WEYCO GROUP INC.

WGL HOLDINGS

WILMINGTON TRUST CORP.

WPS RESOURCES CORP.

WRIGLEY (W.M.) JR. CO