BLACKROCK FUNDS, 485APOS, 1998-11-25

BLACKROCK FUNDS
485APOS, 1998-11-25

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<PAGE>

As filed with the Securities and Exchange Commission on November 25, 1998
Registration No. 33-26305
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]

PRE-EFFECTIVE AMENDMENT NO. ___ [_]

POST-EFFECTIVE AMENDMENT NO. 40 [x]

and

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

AMENDMENT NO. 42 [x]

_____________________________________________

BLACKROCK FUNDS(SM)

(Exact Name of Registrant as Specified in Charter)

<TABLE>
<S> <C> <C>
Bellevue Corporate Center Brian Kindelan, Esq. copy to:
400 Bellevue Parkway BlackRock Advisors, Inc Gary S. Schpero, Esq.
Suite 100 1600 Market Street, 28th Floor Simpson Thacher & Bartlett
Wilmington, Delaware 19809 Philadelphia, PA 19103 425 Lexington Avenue
(Address of Principal (Name and Address of New York, New York 10017
Executive Offices) Agent for Service)
Registrant's Telephone Number
(302) 792-2555
</TABLE>

_____________________________________________

It is proposed that this filing will become effective (check appropriate box)
[_] immediately upon filing pursuant to paragraph (b)
[_] on (date) pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(i)
[X] on January 28, 1999 pursuant to paragraph (a)(i)
[_] 75 days after filing pursuant to paragraph (a)(ii)
[_] on (date) pursuant to paragraph (a)(ii) of rule 485.

If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>

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

The prospectus for the shares of the BlackRock Strategic Portfolio I and the
BlackRock Strategic Portfolio II, dated November 25, 1998, is incorporated by
reference to the Registrant's filing of Post-Effective Amendment No. 39 to its
Registration Statement on Form N-1A on November 25, 1998.

The prospectus for the shares of the Multi-Sector Mortgage Securities Portfolio
III, dated November 25, 1998, is incorporated by reference to the Registrant's
filing of Post-Effective Amendment No. 39 to its Registration Statement on Form
N-1A on November 25, 1998.

The statement of additional information for the shares of the BlackRock
Strategic Portfolio I and the BlackRock Strategic Portfolio II, dated November
25, 1998, is incorporated by reference to the Registrant's filing of Post-
Effective Amendment No. 39 to its Registration Statement on Form N-1A on
November 25, 1998.

The statement of additional information for the shares of the Multi-Sector
Mortgage Securities Portfolio III, dated November 25, 1998, is incorporated by
reference to the Registrant's filing of Post-Effective Amendment No. 39 to its
Registration Statement on Form N-1A on November 25, 1998.
<PAGE>

BLACKROCK FUNDS(SM)
EQUITY BOND AND MONEY MARKET PORTFOLIOS
CROSS REFERENCE SHEET

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

1(a) Cover Page

1(b) Back Cover Page

2 The Portfolios - Investment Goal; - Primary
Investment Strategies; - Key Risks; - Risk Return
Information

3 The Portfolios - Expenses and Fees

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

5 Not Applicable

6 The Portfolios - Fund Management; - Management

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

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

9 The Portfolios - Financial Highlights
<PAGE>

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

10 Cover Page

11 Miscellaneous

12 Miscellaneous; Investment Policies; Additional
Investment Limitations

13 Trustees and Officers; Purchase and Redemption
Information

14 Trustees and Officers; Miscellaneous

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

16 Portfolio Transactions

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

18 Purchase and Redemption Information; Valuation
of Portfolio Securities

19 Taxes

20 Investment Advisory, Administration,
Distribution and Servicing Arrangements

21 Performance Information

22 Financial Statements

Part C
- ------

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

Equity Portfolios
================================================
INVESTOR SHARES

BlackRock Funds is a mutual fund complex with 40
investment portfolios, 13 of which are described
in this prospectus. BlackRock Funds are sold
principally through licensed investment
professionals.

PROSPECTUS

January __, 1999

[LOGO] BLACKROCK
FUNDS

NOT FDIC- May lose value The securities described in this prospectus have
INSURED No bank guarantee been registered with the Securities and Exchange
Commission (SEC). The SEC, however, has not
judged these securities for their investment
merit and does not guarantee the accuracy or
adequacy of this prospectus. Anyone who tells you
otherwise is committing a criminal offense.

<PAGE>

HOW TO FIND
THE INFORMATION
YOU NEED

ABOUT YOUR
INVESTMENT
TABLE OF
CONTENTS

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
HOW TO FIND THE INFORMATION YOU NEED........................................ 1
THE BLACKROCK EQUITY FUNDS (SECTION PAGE)................................... 1
LARGE CAP VALUE............................................................. 2
LARGE CAP GROWTH............................................................ 8
MID-CAP VALUE............................................................... 13
MID-CAP GROWTH.............................................................. 18
SMALL CAP VALUE............................................................. 26
SMALL CAP GROWTH............................................................ 28
INTERNATIONAL EQUITY........................................................ 34
INTERNATIONAL EMERGING MARKETS.............................................. 40
INTERNATIONAL SMALL CAP..................................................... 46
SELECT EQUITY............................................................... 52
INDEX EQUITY................................................................ 57
BALANCED.................................................................... 62
MICRO-CAP................................................................... 68
HOW TO BUY/SELL SHARES...................................................... 74
DIVIDENDS/DISTRIBUTION/TAXES................................................ 89
SERVICES FOR SHAREHOLDERS................................................... 91
FOR MORE INFORMATION........................................................ 91
</TABLE>
<PAGE>

HOW TO FIND THE
INFORMATION YOU NEED
ABOUT BLACKROCK FUNDS

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

Welcome to the new BlackRock Equity Portfolios Prospectus.

It's easy to use and we've tried to make it easy to understand.

The prospectus has been written to provide you with the information you need to
make an informed decision about whether to invest in BlackRock Funds (the Com-
pany).

Even though this prospectus contains information on all 13 of the BlackRock
Equity funds, you don't have to read it cover to cover.

To save you time, the prospectus has been organized so that each fund has its
own short section. All you have to do is turn to the section for any particular
fund. Once you read the important facts about the funds that interest you, read
the sections that tell you about buying and selling shares, certain fees and
expenses, shareholder features of the funds and your rights as a shareholder.
These sections apply to all the funds.

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

BLACKROCK
logo LARGE CAP VALUE EQUITY
PORTFOLIO

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

IMPORTANT DEFINITIONS

EQUITY SECURITY: Owner-
ship of a company held
by shareholders as rep-
resented by stocks.
Bonds, in comparison,
are referred to as
fixed income or debt
securities because they
represent indebtedness
to the bondholders, not
ownership.

FUNDAMENTAL ANALYSIS: A
method of stock market
analysis that concen-
trates on "fundamental"
information about the
company (such as its
income statement, bal-
ance sheet, earnings
and sales history,
products and manage-
ment) to attempt to
forecast future stock
value. The other major
school of stock market
analysis is called
technical analysis,
which deals with price
and volume patterns.

LARGE CAPITALIZATION
COMPANIES: These are
larger, usually better
known companies. Capi-
talization refers to
the market value of the
company and is calcu-
lated by multiplying
the number of shares
outstanding by the cur-
rent price per share.
The fund will invest
primarily (at least
65%) in companies with
market capitalization
in excess of $10 bil-
lion; however, some of
the fund's holdings can
include companies with
lesser capitalization.
Larger companies may be
more likely to have the
staying power to get
them through all eco-
nomic cycles; however,
their size may also
make them less flexible
and innovative than
smaller companies.

INVESTMENT STYLE:
Refers to the guiding
principles of a mutual
fund's portfolio
choices. The investment
style of this fund is
large cap value, refer-
ring to the type of
securities the manager
will choose for this
fund.

VALUE COMPANIES: All
stocks are generally
divided into the cate-
gories of "growth" or
"value"--although there
are times when a growth
fund and value fund may
own the same stock.
Value stocks are compa-
nies that appear to the
manager to be underval-
ued by the market as
measured by certain
financial formulas.
Growth stocks are com-
panies whose earnings
growth potential
appears to the manager
to be greater than the
market in general.

INVESTMENT GOAL
The fund seeks long-term capital appreciation--current income is the secondary
objective.

PRIMARY INVESTMENT STRATEGIES
In pursuit of this goal, the fund manager invests primarily in U.S. large cap-
italization value companies (market capitalization in excess of $10 billion).
The fund normally invests at least 65% of its total assets in the equity secu-
rities issued by these companies and normally invests at least 80% of its
total assets in equity securities. The fund primarily buys common stock but
also can invest in preferred stock and securities convertible into common and
preferred stock.

The fund manager is seeking large capitalization stocks which he believes are
worth more than is indicated by current market price. The manager (using
BlackRock's technology) initially screens for "value" stocks from the universe
of companies with market capitalization above $1 billion, emphasizing those
companies with market capitalization over $10 billion. The manager uses funda-
mental analysis to examine each company for financial strength before deciding
to purchase the stock.

The fund generally will sell a stock when it reaches a target price, which is
when the manager believes it is fully valued or when, in the manager's opin-
ion, conditions change such that the risk of continuing to hold the stock is
unacceptable when compared to its growth potential.

It is possible that in extreme market conditions the fund may invest some or
all of its assets in high quality money market securities. The reason for
acquiring money market securities would be to avoid market losses. However, if
market conditions improve, this strategy could result in reducing the poten-
tial gain from the market upswing, thus reducing the fund's opportunity to
achieve its investment objective. The fund may also hold these securities
pending investments or when it expects to need cash to pay redeeming share-
holders.

loaned securities. These loans will be limited to 33 1/3% of the value of the
fund's total assets.

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

KEY RISKS
The main risk of any investment in stocks is that values fluctuate in price.
The value of your investment can go up or down depending upon market condi-
tions, which means you could lose money.

While the fund manager chooses stocks he believes to be undervalued, there is
no guarantee that prices won't move even lower.

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

The fund may sometimes engage in short term trading which could produce greater
brokerage costs and taxable distributions to shareholders.

The fund can invest in instruments called depository receipts which are securi-
ties issued by financial institutions (like banks or trust companies) which
represent ownership in underlying securities issued by foreign companies. These
securities carry additional risks associated with investing in foreign securi-
ties, such as changes in currency exchange rates, lack of public information
about the foreign company and political instability in the company's country.
KEY RISKS
3
<PAGE>

The Fund, like any business, could be affected if the computer systems on which
it relies do not properly process information beginning on January 1, 2000.
While Year 2000 issues could have a negative effect on the Fund, BlackRock is
currently working to avoid such problems. BlackRock is also working with other
systems providers and vendors to determine their systems' ability to handle
Year 2000 problems. There is no guarantee, however, that systems will work
properly on January 1, 2000. Year 2000 problems may also hurt companies whose
securities the fund holds or securities markets generally.

WHEN YOU INVEST IN THIS FUND YOU ARE NOT MAKING A BANK DEPOSIT. YOUR INVESTMENT
IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR BY
ANY BANK OR GOVERNMENTAL AGENCY. INVESTING IN THE FUND INVOLVES INVESTMENT
RISKS INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

RISK / RETURN INFORMATION
The chart and table below give you a picture of the fund's long-term perfor-
mance. The information shows you how the fund's performance has varied year by
year and provides some indication of the risks of investing in the fund. The
table compares the fund's performance to that of the Russell 1000 Value Index,
a recognized unmanaged index of stock market performance. The chart and the
table both assume reinvestment of dividends and distributions. As with all such
investments, past performance is not an indication of future results. Sales
charges are not reflected in the bar chart. If they were, returns would be less
than those shown.

[BAR CHART]

As of 12/31 Investor A Shares
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------

Best Quarter
Q2 '97:66.16%

Worst Quarter
Q1 '94:14.62%

- --------------------------------------------------------------------------------
88 89 90 91 92 93 94 95 96 97
- --------------------------------------------------------------------------------
17.83% 17.84% 17.85% 17.86% 17.87%
- --------------------------------------------------------------------------------

As of 12/31/98
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
Since Inception
1 Year 5 Years Inception Date
- --------------------------------------------------------------------------------
Blkrck:Lg Cp Gr;Inv A 28.65 20.66 13.25 5/2/92
- --------------------------------------------------------------------------------
Blkrck:Lg Cp Gr;Inv B 28.02 20.36 23.52 1/18/96
- --------------------------------------------------------------------------------
Blkrck:Lg Cp Gr;Inv C 27.18 N/A 26.07 8/16/96
- --------------------------------------------------------------------------------
Russell 1000 Value 30.49 18.41 17.94 N/A
- --------------------------------------------------------------------------------

EXPENSES
AND FEES

EXPENSES AND FEES
As a shareholder you pay certain fees and expenses. Shareholder transaction
fees are paid out of your investment and annual fund
4
<PAGE>

operating expenses are paid out of fund assets and are reflected in the fund's
price.

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

The tables below explain your pricing options and describe the fees and
expenses that you may pay if you buy and hold shares of the fund. The "Annual
Fund Operating Expenses" table is based on expenses for the most recent fiscal
year.

SHAREHOLDER FEES
(Fees paid directly from your investment)

<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES

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

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

<TABLE>
<S> <C> <C> <C>
Advisory Fees .XX% .XX% .XX%
Distribution and shareholder
Servicing/processing (12b-1) fees* .XX% .XX% .XX%
Other expenses .XX% .XX% .XX%
Total annual fund operating expenses X.XX% X.XX% X.XX%
Fee Waivers and Expense
Reimbursements** .XX% .XX% .XX%
Net Expenses** .XX% .XX% .XX%
</TABLE>
* As a result of voluntary waivers by BlackRock Distributors, Inc., the
Fund's distributor, the fund does not expect to incur 12b-1 distribution
fees in excess of .005% with respect to Investor A Shares (otherwise pay-
able at the maximum rate of .10%) during the current fiscal year.
** BlackRock has agreed to waive or limit its advisory fee or reimburse "Other
expenses" in order to limit certain (but not all) fund expenses to no more
than .XX%, .XX% and .XX%, respectively, for Investor A, Investor B and
Investor C Shares. The expense information in the table has been restated
to reflect these waivers and reimbursements. The fund may have to repay
these waivers and reimbursements to BlackRock in the future if the repay-
ment can be made within the expense limit.
5
<PAGE>

IMPORTANT DEFINITIONS

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

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

12B-1 FEES: A method of
charging distribution-
related expenses
against fund assets.
"12b-1" refers to the
SEC rule that permits
the use of these fees.

OTHER EXPENSES: Include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS

<S> <C> <C> <C> <C>
A SHARES* $XXX $XXX $XXX $ XXX**
B SHARES** $XXX $XXX $XXX $XXX***
Redemption
B SHARES $XXX $XXX $XXX $XXX***
No Redemption
C SHARES** $XXX $XXX $XXX $XXX
Redemption
C SHARES $XXX $XXX $XXX $XXX
No Redemption
</TABLE>
*Reflects imposition of sales charge.
**Reflects deduction of contingent deferred sales charge.
*** Based on the conversion of the Investor B Shares to Investor A Shares
after eight years.

FUND MANAGEMENT
The portfolio manager of the fund is Daniel B. Eagan, portfolio manager with
BlackRock Financial Management, Inc. since 1995. Mr. Eagan was a director of
investment strategy at BlackRock Advisors, Inc. during 1994-1995. Prior to
1994 he served as senior research consultant for Mercer Investment Consulting.
He has served as portfolio manager for the fund since January 1997.

6
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A, B OR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

LARGE CAP VALUE EQUITY PORTFOLIO
(FORMERLY THE VALUE EQUITY PORTFOLIO)

<TABLE>
<CAPTION>
INVESTOR A SHARES INVESTOR B SHARES
<CAPTION>
INVESTOR C SHARES
FOR THE
PERIOD
YEAR YEAR YEAR YEAR YEAR YEAR YEAR 1/18/96/1
ENDED ENDED ENDED ENDED ENDED ENDED ENDED / THROUGH
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94 9/30/98 9/30/97 9/30/96
FOR THE
PERIOD
YEAR YEAR 8/16/96/1
ENDED ENDED / THROUGH
9/30/98 9/30/97 9/30/96
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
AT
BEGINNING
OF PERIOD $ $ 15.35 $ 13.92 $ 11.62 $ 11.69 $ 15.32 $13.56
----- ------- ------- ------- ------- --- ------- ------
Income from
investment
operations
Net investment
income 0.23 0.28 0.27 0.23 0.14 0.13
Net gain (loss)
on investments
(both realized
and unrealized) 4.69 2.41 2.56 0.15 4.64 1.80
----- ------- ------- ------- ------- --- ------- ------
Total from
investment
operations 4.92 2.69 2.83 0.38 4.78 1.93
----- ------- ------- ------- ------- --- ------- ------
LESS
DISTRIBUTIONS
Distributions
from net
investment
income (0.23) (0.29) (0.28) (0.23) (0.14) (0.17)
Distributions
from net
realized
capital gains (2.52) (0.97) (0.25) (0.22) (2.52) - -
----- ------- ------- ------- ------- --- ------- ------
Total
distributions (2.75) (1.26) (0.53) (0.45) (2.66) (0.17)
----- ------- ------- ------- ------- --- ------- ------
NET ASSET VALUE
AT END OF PERIOD $ $ 17.52 $ 15.35 $ 13.92 $ 11.62 $ 17.44 $15.32
===== ======= ======= ======= ======= === ======= ======
Total return 37.01%/3/ 20.52%/3/ 25.22%/3/ 3.32%/3/ 36.40%/3/ 14.26%/3/
RATIOS/SUPPLEMENTAL
DATA
Net assets at
end of period
(in thousands) $ $47,131 $26,190 $16,910 $10,412 $19,773 $3,152
Ratios of
expenses to
average
net assets
After advisory/
administration
fee waivers 1.26% 1.22% 1.11% 1.05% 2.00% 1.92%/2/
Before
advisory/
administration
fee waivers 1.33% 1.31% 1.25% 1.21% 2.07% 2.00%/2/
Ratios of net
investment
income to
average net
assets
After advisory/
administration
fee waivers 1.44% 1.93% 2.24% 2.08% 0.64% 1.34%/2/
Before
advisory/
administration
fee waivers 1.37% 1.84% 2.10% 1.92% 0.57% 1.25%/2/
PORTFOLIO
TURNOVER RATE 37% 60% 12% 11% 37% 60%
<S> <C> <C> <C>
NET ASSET VALUE
AT
BEGINNING
OF PERIOD $15.32 $14.91
------- ----------- ------------
Income from
investment
operations
Net investment
income 0.15 0.02
Net gain (loss)
on investments
(both realized
and unrealized) 4.63 0.45
------- ----------- ------------
Total from
investment
operations 4.78 0.47
------- ----------- ------------
LESS
DISTRIBUTIONS
Distributions
from net
investment
income (0.14) (0.06)
Distributions
from net
realized
capital gains (2.52) - -
------- ----------- ------------
Total
distributions (2.66) (0.06)
------- ----------- ------------
NET ASSET VALUE
AT END OF PERIOD $17.44 $15.32
======= =========== ============
Total return 35.99%/3/ 3.16%/3/
RATIOS/SUPPLEMENTAL
DATA
Net assets at
end of period
(in thousands) $1,428 $ 205
Ratios of
expenses to
average
net assets
After advisory/
administration
fee waivers 2.01% 1.80%/2/
Before
advisory/
administration
fee waivers 2.08% 1.88%/2/
Ratios of net
investment
income to
average net
assets
After advisory/
administration
fee waivers 0.61% 1.29%/2/
Before
advisory/
administration
fee waivers 0.54% 1.20%/2/
PORTFOLIO
TURNOVER RATE 37% 60%
</TABLE>

/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is reflected
in total return.
/4/Computed by dividing the total amount of commission paid by the total number
of shares purchased and sold during the period.

7
<PAGE>

BLACKROCK
logo LARGE CAP GROWTH EQUITY
PORTFOLIO

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

IMPORTANT DEFINITIONS

FUNDAMENTAL ANALYSIS: A
method of stock market
analysis that concen-
trates on "fundamental"
information about the
company such (as its
income statement, bal-
ance sheet, earnings
and sales history,
products and manage-
ment) to attempt to
forecast future stock
value. The other major
school of stock market
analysis is called
technical analysis,
which deals with price
and volume patterns.

LARGE CAPITALIZATION
COMPANIES: These are
larger, usually better
known companies. Capi-
talization refers to
the market value of the
company and is calcu-
lated by multiplying
the number of shares
outstanding by the cur-
rent price per share.
The fund will invest
primarily (at least
65%) in companies with
market capitalization
in excess of $10 bil-
lion; however, some of
the fund's holdings can
include companies with
lesser capitalizations.
Larger companies may be
more likely to have the
staying power to get
them through all eco-
nomic cycles; however
their size may also
make them less flexible
and innovative than
smaller companies.

GROWTH COMPANIES: All
stocks are generally
divided into the cate-
gories of "growth" or
"value"--although there
are times when a growth
fund and value fund may
own the same stock.
Growth stocks are com-
panies whose earnings
growth potential
appears to the manager
to be greater than the
market in general and
whose growth in revenue
is expected to continue
for an extended period.
These stocks typically
pay relatively low div-
idends and sell at rel-
atively high prices.
Value stocks are compa-
nies that appear to the
manager to be underval-
ued by the market as
measured by certain
financial formulas.

INVESTMENT STYLE:
Refers to the guiding
principles of a mutual
fund's portfolio
choices. The investment
style of this fund is
large cap growth,
referring to the type
of securities the man-
ager will choose for
this fund.

INVESTMENT GOAL
The fund seeks long-term capital appreciation.

PRIMARY INVESTMENT STRATEGIES
In pursuit of this goal, the fund manager invests primarily in U.S. large capi-
talization growth companies (market capitalization in excess of $10 billion)
which he believes have above-average earnings growth potential. The fund nor-
mally invests at least 65% of its total assets in the equity securities issued
by these companies and normally invests at least 80% of its total assets in
equity securities. The fund primarily buys common stock but also can invest in
preferred stock and securities convertible into common and preferred stock.

The manager (using BlackRock's technology) initially screens for "growth"
stocks from the universe of companies with market capitalization above $1 bil-
lion, emphasizing those companies with market capitalization over $10 billion.
The manager uses fundamental analysis to examine each company for financial
strength before deciding to purchase the stock.

The fund generally will sell a stock when it reaches a target price, which is
when the manager believes it is fully valued or when, in the manager's opinion,
conditions change such that the risk of continuing to hold the stock is unac-
ceptable when compared to its growth potential.

It is possible that in extreme market conditions the fund may invest some or
all of its assets in high quality money market securities. The reason for
acquiring money market securities would be to avoid market losses. However, if
market conditions improve, this strategy could result in reducing the potential
gain from the market upswing, thus reducing the fund's opportunity to achieve
its investment objective. The fund may also hold these securities pending
investments or when it expects to need cash to pay redeeming shareholders.

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

8
<PAGE>

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

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

The fund's portfolio is actively managed. The fund manager may, when consistent
with the fund's investment objective, use options or futures,(commonly known as
derivatives). The primary purpose of using derivatives is to attempt to reduce
risk to the fund as a whole (hedge) but they may also be used to maintain
liquidity, commit cash pending investment or to increase returns. These prac-
tices may reduce returns and/or increase volatility. Volatility is defined as
the characteristic of a security or a market to fluctuate significantly in
price within a short time period. The fund can borrow money to buy additional
securities. The fund may borrow from banks or other financial institutions or
through reverse repurchase agreements (under which the fund sells securities
and agrees to buy them back at a particular date and price). This practice can
increase the fund's possible losses or gains.

The fund sometimes may engage in short term trading which could produce greater
brokerage costs and taxable distributions to shareholders.

KEY RISKS
9
<PAGE>

about the foreign company and political instability in the company's country.

The Fund, like any business, could be affected if the computer systems on
which it relies do not properly process information beginning on January 1,
2000. While Year 2000 issues could have a negative effect on the Fund, Black-
Rock is currently working to avoid such problems. BlackRock is also working
with other systems providers and vendors to determine their systems' ability
to handle Year 2000 problems. There is no guarantee however that systems will
work properly on January 1, 2000. Year 2000 problems may also hurt companies
whose securities the fund holds or securities markets generally.

WHEN YOU INVEST IN THIS FUND YOU ARE NOT MAKING A BANK DEPOSIT. YOUR INVEST-
MENT IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR BY ANY BANK OR GOVERNMENTAL AGENCY. INVESTING IN THE FUND INVOLVES INVEST-
MENT RISKS INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

RISK/RETURN INFORMATION
The chart and table below give you a picture of the fund's long-term perfor-
mance. The information shows you how the fund's performance has varied year by
year and provides some indication of the risks of investing in the fund. The
table compares the fund's performance to that of the Russell 1000 Growth
Index, a recognized unmanaged index of stock market performance. The chart and
the table both assume reinvestment of dividends and distributions. As with all
such investments, past performance is not an indication of future results.
Sales charges are not reflected in the bar chart. If they were, returns would
be less than those shown.

NOTE: THIS SECTION WILL CONSIST OF A TEN-YEAR BAR CHART SHOWING YEAR BY YEAR
TOTAL RETURN, A STATEMENT OF THE BEST AND WORST QUARTERS (TOTAL RETURN) SINCE
INCEPTION AND A TABLE SHOWING AVERAGE ANNUAL TOTAL RETURNS FOR 1 YEAR, 5 YEARS
AND SINCE INCEPTION MEASURED AGAINST AN INDEX.

EXPENSES AND FEES
As a shareholder you pay certain fees and expenses. Shareholder transaction
fees are paid out of your investment and annual fund operating expenses are
paid out of fund assets and are reflected in the fund's price.
10
<PAGE>

SHAREHOLDER FEES
(Fees paid directly from your investment)

* Reduced front-end sales charges may be available. A CDSC of up to 1.00% is
assessed on certain redemptions of Investor A Shares that are purchased
with no initial sales charge as part of an investment of $1,000,000 or
more.
** The contingent deferred sales charge is 4.5% if shares are redeemed in less
than one year. The deferred sales charge for Investor B Shares decreases
for redemptions made in subsequent years. After six years there is no CDSC
on B Shares. (See page for complete schedule of CDSC's.)
*** There is no CDSC on C Shares after one year.

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

* As a result of voluntary waivers by BlackRock Distributors, Inc., the Fund's
distributor, the fund does not expect to incur 12b-1 distribution fees in
excess of .005% with respect to Investor A Shares (otherwise payable at the
maximum rate of .10%) during the current fiscal year.
** BlackRock has agreed to waive or limit its advisory fee or reimburse "Other
expenses" in order to limit certain (but not all) fund expenses to no more
than .XX%, .XX% and .XX%, respectively, for Investor A, Investor B and
Investor C Shares. The expense information in the table has been restated to
reflect these waivers and reimbursements. The fund may have to repay these
waivers and reimbursements to BlackRock in the future if the repayment can
be made within the expense limit.

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.
11
<PAGE>

IMPORTANT DEFINITIONS

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

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

12B-1 FEES: A method of
charging distribution-
related expenses
against fund assets.
"12b-1" refers to the
SEC rule that permits
the use of these fees.

OTHER EXPENSES: Include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

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

*Reflects imposition of sales charge.
**Reflects deduction of contingent deferred sales charge.
***Based on the conversion of Investor B Shares to Investor A Shares after
eight years.

FUND MANAGEMENT
The portfolio manager of the fund is R. Andrew Damm, who has served as invest-
ment manager with BlackRock Financial Management, Inc. since 1997 and senior
investment manager with BlackRock Advisors, Inc. since 1995. Mr. Damm was a
portfolio manager for PNC Bank from 1988 to 1995. He has participated in the
management of the portfolio since 1996 and has been designated as portfolio
manager since September 1997.

12
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A, B OR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

LARGE CAP GROWTH EQUITY PORTFOLIO
(FORMERLY THE GROWTH EQUITY PORTFOLIO)

<TABLE>
<CAPTION>
INVESTOR
INVESTOR A SHARES B SHARES
<CAPTION>
INVESTOR
C SHARES
FOR THE
PERIOD
YEAR YEAR YEAR YEAR YEAR YEAR YEAR 1/24/96/1/
ENDED ENDED ENDED ENDED ENDED ENDED ENDED THROUGH
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94 9/30/98 9/30/97 9/30/96
FOR THE
PERIOD
YEAR 1/24/97/1
ENDED / THROUGH
9/30/98 9/30/97
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 14.94 $ 13.01 $ 10.16 $11.57 $14.86 $13.08
------ ------- ------- ------- ------ ------ ------ ------
Income from
investment
operations
Net investment
income 0.01 0.02 0.08 0.02 (0.07) (0.02)
Net gain (loss) on
investments
(both realized
and unrealized) 4.72 2.29 2.87 (1.33) 4.64 1.80
------ ------- ------- ------- ------ ------ ------ ------
Total from
investment
operations 4.73 2.31 2.95 (1.31) 4.57 1.78
------ ------- ------- ------- ------ ------ ------ ------
LESS DISTRIBUTIONS
Distributions from
net investment
income (0.02) - - (0.10) - - - - - -
Distributions from
capital - - - - - - - - - -
Distributions from
net realized
capital gains (0.74) 0.38 - - (0.10) (0.74) - -
------ ------- ------- ------- ------ ------ ------ ------
Total
distributions (0.76) 0.38 (0.10) (0.10) (0.74) - -
------ ------- ------- ------- ------ ------ ------ ------
NET ASSET VALUE AT
END OF PERIOD $ 18.91 $ 14.94 $ 13.01 $10.16 $18.69 $14.86
====== ======= ======= ======= ====== ====== ====== ======
Total return 33.18%/3/ 18.18%/3/ 29.26%/3/ (11.38)%/3/ 32.18%/3/ 13.61%/3/
RATIOS/SUPPLEMENTAL
DATA
Net assets at end
of period (in
thousands) $25,575 $16,579 $10,034 $5,049 $7,919 $2,364
Ratios of expenses
to average net
assets
After advisory/
administration
fee waivers 1.27% 1.22% 1.11% 1.05% 2.01% 1.93%/2/
Before advisory/
administration
fee waivers 1.34% 1.34% 1.29% 1.29% 2.08% 2.05%/2/
Ratios of net
investment income
to average
net assets
After advisory/
administration
fee waivers 0.07% 0.15% 0.76% 0.29% (0.66)% (0.47)%/2/
Before advisory/
administration
fee waivers 0% 0.04% 0.58% 0.05% (0.73)% (0.58)%/2/
PORTFOLIO TURNOVER
RATE 81% 58% 55% 212% 81% 58%
<S> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $15.23
------- -------------
Income from
investment
operations
Net investment
income (0.03)
Net gain (loss) on
investments
(both realized
and unrealized) 3.49
------- -------------
Total from
investment
operations 3.46
------- -------------
LESS DISTRIBUTIONS
Distributions from
net investment
income - -
Distributions from
capital - -
Distributions from
net realized
capital gains - -
------- -------------
Total
distributions - -
------- -------------
NET ASSET VALUE AT
END OF PERIOD $18.69
======= =============
Total return 22.78%/3/
RATIOS/SUPPLEMENTAL
DATA
Net assets at end
of period (in
thousands) $ 207
Ratios of expenses
to average net
assets
After advisory/
administration
fee waivers 2.02%/2/
Before advisory/
administration
fee waivers 2.09%/2/
Ratios of net
investment income
to average
net assets
After advisory/
administration
fee waivers (0.66)%/2/
Before advisory/
administration
fee waivers (0.73)%/2/
PORTFOLIO TURNOVER
RATE 81%
</TABLE>

BLACKROCK
MID-CAP VALUE EQUITY PORTFOLIO logo

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

INVESTMENT GOAL
The fund seeks long-term capital appreciation--current income is the secondary
objective.

PRIMARY INVESTMENT STRATEGIES
In pursuit of this goal, the fund manager invests primarily in domestic mid-
capitalization value companies (market capitalization between $2 and $10 bil-
lion). The fund normally invests at least 65% of its total assets in the equity
securities issued by these companies and normally invests at least 80% of its
total assets in equity securities. The fund primarily buys common stock but
also can invest in preferred stock and securities convertible into common and
preferred stock.

The fund manager is seeking mid-capitalization stocks which he believes are
worth more than is indicated by current market price. The manager (using pro-
prietary technology) initially screens for "value" stocks from the universe of
companies with market capitalization above $2 billion, emphasizing those issues
with market capitalization between $2 billion and $10 billion. The manager uses
fundamental analysis to examine each company for financial strength before
deciding to purchase the stock.

It is possible that in extreme market conditions the fund may invest some or
all of its assets in high quality money market securities. However, if market
conditions improve, this strategy could result in reducing the potential gain
from the market upswing, thus reducing the fund's opportunity to achieve its
investment objective. The fund may also hold these securities pending invest-
ments or to meet anticipated redemption obligations. The intent of acquiring
money market securities would be to avoid market losses.

The fund may lend some of its securities on a short-term basis in order to earn
extra income. The fund will receive collateral in cash or high-quality securi-
ties equal to the current value of the

IMPORTANT DEFINITIONS

EQUITY SECURITY: Owner-
ship of a company held
by shareholders as rep-
resented by stocks.
Bonds, in comparison,
are referred to as
fixed-income or debt
securities because they
represent indebtedness
to the bondholder, not
ownership.

MID-CAPITALIZATION COM-
PANIES: The fund
defines these companies
as those with capital-
ization of from $2 bil-
lion to $10 billion,
which applies to about
25% of the public U.S.
equity market. Capital-
ization refers to the
market value of the
company and is calcu-
lated by multiplying
the number of shares
outstanding by the cur-
rent price per share.

INVESTMENT STYLE:
Refers to the guiding
principles of a mutual
fund's portfolio
choices. The investment
style of this fund is
mid-cap value, refer-
ring to the type of
securities the managers
will choose for this
fund.

14
<PAGE>

KEY RISKS

loaned securities. These loans will be limited to 33 1/3% of the value of the
fund's total assets.

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

There is more business risk in investing in mid-cap or medium capitalized com-
panies than in larger, better capitalized companies. 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.

While the fund manager chooses stocks he believes to be undervalued, there is
no guarantee that prices won't move even lower.

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

The fund may sometimes engage in short term trading which could produce greater
brokerage costs and taxable distributions to shareholders.

15
<PAGE>

The fund can invest in instruments called depository receipts which are secu-
rities issued by financial institutions (like banks or trust companies) which
represent ownership in underlying securities issued by foreign companies.
These securities carry additional risks associated with investing in foreign
securities, such as changes in currency exchange rates, lack of public infor-
mation about the foreign company and political instability in the company's
country.

The Fund, like any business, could be affected if the computer systems on
which it relies do not properly process information beginning on January 1,
2000. While Year 2000 issues could have a negative effect on the Fund, Black-
Rock is currently working to avoid such problems. BlackRock is also working
with other systems providers and vendors to determine their systems' ability
to handle Year 2000 problems. There is no guarantee however that systems will
work properly on January 1, 2000. Year 2000 problems may also hurt companies
whose securities the fund holds or securities markets generally.

RISK / RETURN INFORMATION
The chart and table below give you a picture of the fund's long-term perfor-
mance. The information shows you how the fund's performance has varied year by
year and provides some indication of the risks of investing in the fund. The
table compares the fund's performance to that of the Russell Mid-Cap Value
Index, a recognized unmanaged index of stock market performance. The chart and
the table both assume reinvestment of dividends and distributions. As with all
such investments, past performance is not an indication of future results.
Sales charges are not reflected in the bar chart. If they were, returns would
be less than those shown.

NOTE: THIS SECTION WILL CONSIST OF A TEN-YEAR BAR CHART SHOWING YEAR BY YEAR
TOTAL RETURN, A STATEMENT OF THE BEST AND WORST QUARTERS (TOTAL RETURN) SINCE
INCEPTION AND A BAR CHART SHOWING AVERAGE ANNUAL TOTAL RETURNS FOR 1 YEAR, 5
YEARS AND SINCE INCEPTION MEASURED AGAINST THE INDEX.

16
<PAGE>

EXPENSES
AND FEES

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

SHAREHOLDER FEES
(Fees paid directly from your investment)

<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES

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

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

<TABLE>
<S> <C> <C> <C>
Advisory Fees .XX% .XX% .XX%
Distribution and shareholder
Servicing/processing (12b-1) fees* .XX% .XX% .XX%
Other expenses .XX% .XX% .XX%
Total annual fund operating expenses X.XX% X.XX% X.XX%
Fee Waivers and Expense
Reimbursements** XXX XXX XXX
Net Expenses** XXX XXX XXX
</TABLE>
* As a result of voluntary waivers by BlackRock Distributors, Inc., the Fund's
distributor, the fund does not expect to incur 12b-1 distribution fees in
excess of .005% with respect to Investor A Shares (otherwise payable at the
maximum rate of .10%) during the current fiscal year.
** BlackRock has agreed to waive or limit its advisory fee or reimburse "Other
expenses" in order to limit certain (but not all) fund expenses to no more
than .XX%, .XX% and .XX%, respectively, for Investor A, Investor B and
Investor C Shares. The expense information in the table has been restated to
reflect these waivers and reimbursements. The fund may have to repay these
waivers and reimbursements to BlackRock in the future if the repayment can
be made within the expense limit.

17
<PAGE>

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS

<S> <C> <C> <C> <C>
A SHARES* $XXX $XXX $XXX $ XXX
B SHARES** $XXX $XXX $XXX $XXX***
Redemption
B SHARES $XXX $XXX $XXX $XXX***
No Redemption
C SHARES** $XXX $XXX $XXX $XXX
Redemption
C SHARES $XXX $XXX $XXX $XXX
No Redemption
</TABLE>
*Reflects imposition of sales charge.
**Reflects deduction of contingent deferred sales charge.
***Based on the conversion of Investor B Shares to Investor A Shares after
eight years.

FUND MANAGEMENT
The fund is co-managed by Christian K. Stadlinger and Daniel B. Eagan.

Christian K. Stadlinger has been portfolio co-manager of the fund since incep-
tion. Previously he was Portfolio Manager and Research Analyst with Morgan
Stanley Asset Management.

Daniel B. Eagan, has been portfolio co-manager of the fund since inception.
Mr. Eagan was a director of investment strategy at BlackRock Advisors, Inc.
during 1994-1995. Previously, he served as senior research consultant for Mer-
cer Investment Consulting.

IMPORTANT DEFINITIONS

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

SHAREHOLDER
SERVICING/PROCESSING
FEES: Fees that are
paid to BlackRock and
/or its affiliates for
shareholder account
service and
maintenance.

12B-1 FEES: A method of
charging distribution-
related expenses
against fund assets.
"12b-1" refers to the
SEC rule that permits
the use of these fees.

OTHER EXPENSES: Include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

18
<PAGE>

have reinvested all dividend and distributions. These
figures have been audited by PricewaterhouseCoopers
LLP, the fund's independent accountants. The audi-
tor's report, along with the fund's financial state-
ments are included in the Company's annual report
which is available upon request (See back cover for
ordering instructions).

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A, B OR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

MID-CAP VALUE EQUITY PORTFOLIO

<TABLE>
<CAPTION>
INVESTOR INVESTOR INVESTOR
A SHARES B SHARES C SHARES
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
YEAR 12/27/96/1 YEAR 12/27/96/1/ YEAR 12/27/96/1/
ENDED / THROUGH ENDED THROUGH ENDED THROUGH
9/30/98 9/30/97 9/30/98 9/30/97 9/30/98 9/30/97
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $10.00 $10.00 $10.00
----- ------ ---- ------ ---- ------
Income from investment
operations
Net investment income 0.07 0.03 0.02
Net gain (loss) on
investments
(both realized
and unrealized) 2.78 2.79 2.80
----- ------ ---- ------ ---- ------
Total from investment
operations 2.85 2.82 2.82
----- ------ ---- ------ ---- ------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.08) (0.04) (0.04)
Distributions from
capital - - - - - -
Distributions from net
realized capital gains - - - - - -
----- ------ ---- ------ ---- ------
Total distributions (0.08) (0.04) (0.04)
----- ------ ---- ------ ---- ------
NET ASSET VALUE AT END OF
PERIOD $12.77 $12.78 $12.78
===== ====== ==== ====== ==== ======
Total return 28.51%/3/ 28.23%/3/ 28.23%/3/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $2,315 $2,911 $ 21
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.61%/2/ 2.32%/2/ 2.33%/2/
Before
advisory/administration
fee waivers 1.64%/2/ 2.36%/2/ 2.37%/2/
Ratios of net investment
income to average
net assets
After
advisory/administration
fee waivers 0.77%/2/ 0.04%/2/ 0.13%/2/
Before
advisory/administration
fee waivers 0.73%/2/ 0.00%/2/ 0.09%/2/
PORTFOLIO TURNOVER RATE 36% 36% 36%
</TABLE>

BLACKROCK
logo MID-CAP GROWTH EQUITY
PORTFOLIO

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

IMPORTANT DEFINITIONS

EARNINGS GROWTH: The
pattern of a company
having an increased
rate of growth in its
earnings per share from
period to period. Secu-
rity analysts attempt
to identify companies
with earnings growth
potential because a
pattern of earnings
growth generally causes
share prices to
increase.
EQUITY SECURITY: Owner-
ship of a company held
by shareholders as rep-
resented by stocks.
Bonds, in comparison,
are referred to as
fixed income or debt
securities because they
represent indebtedness
to the bondholder, not
ownership.
FUNDAMENTAL ANALYSIS: A
method of stock market
analysis that concen-
trates on "fundamental"
information about the
company (such as its
income statement, bal-
ance sheet, earnings
and sales history,
products and manage-
ment) to attempt to
forecast future stock
value. The other major
school of stock market
analysis is called
technical analysis,
which deals with price
and volume patterns.
MID-CAPITALIZATION COM-
PANIES: The fund
defines these companies
as those with capital-
ization of from $2 bil-
lion to $10 billion,
which applies to about
25% of the public U.S.
equity market. Capital-
ization refers to the
market value of the
company and is calcu-
lated by multiplying
the number of shares
outstanding by the cur-
rent price per share.
GROWTH COMPANIES: All
stocks are generally
divided into the cate-
gories of "growth" or
"value"--although there
are times when a growth
fund and value fund may
own the same stock.
Growth stocks are com-
panies whose earnings
growth potential
appears to the manager
to be greater than the
market in general and
whose growth revenue is
expected to continue
for an extended period.
These stocks typically
pay relatively low div-
idends and sell at rel-
atively high
prices.Value stocks are
companies that appear
to the manager to be
undervalued by the mar-
ket as measured by cer-
tain financial
formulas.
INVESTMENT STYLE:
Refers to the guiding
principles of a mutual
fund's portfolio
choices. The investment
style of this fund is
mid-cap growth, refer-
ring to the type of
securities the managers
will choose for this
fund.

INVESTMENT GOAL
The fund seeks long-term capital appreciation.

PRIMARY INVESTMENT STRATEGIES
In pursuit of this goal, the fund manager invests primarily in U.S. mid-capi-
talization growth companies (market capitalization between $2 and $10 billion)
which he believes has above-average earnings growth potential. The fund nor-
mally invests at least 65% of its total assets in the equity securities issued
by these companies and normally invests at least 80% of its total assets in
equity securities. The fund primarily buys common stock but also can invest in
preferred stock and securities convertible into common and preferred stock.

The manager (using BlackRock's technology) initially screens for "growth"
stocks from the universe of companies with market capitalization above $2 bil-
lion, emphasizing those issues with market capitalization between $2 billion
and $10 billion. The manager uses fundamental analysis to examine each company
for financial strength before deciding to purchase the stock.

It is possible that in extreme market conditions the fund may invest some or
all of its assets in high quality money market securities. The reason for
acquiring money market securities would be to avoid market losses. However, if
market conditions improve, this strategy could result in reducing the potential
gain from the market upswing, thus reducing the fund's opportunity to achieve
its investment objective. The fund may also hold these securities pending
investments or when it expects to need cash to pay redeeming shareholders.

20
<PAGE>

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

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

The fund may sometimes engage in short term trading which could produce greater
brokerage costs and taxable distributions to shareholders.

KEY RISKS
21
<PAGE>

The Fund, like any business, could be affected if the computer systems on
which it relies do not properly process information beginning on January 1,
2000. While Year 2000 issues could have a negative effect on the Fund, Black-
Rock is currently working to avoid such problems. BlackRock is also working
with other systems providers and vendors to determine their systems' ability
to handle Year 2000 problems. There is no guarantee however that systems will
work properly on January 1, 2000. Year 2000 problems may also hurt companies
whose securities the fund holds or securities markets generally.

RISK / RETURN INFORMATION
The chart and table below give you a picture of the fund's long-term perfor-
mance. The information shows you how the fund's performance has varied year by
year and provides some indication of the risks of investing in the fund. The
table compares the fund's performance to that of the Russell Mid-Cap Growth
Index, a recognized unmanaged index of stock market performance. The chart and
the table both assume reinvestment of dividends and distributions. As with all
such investments, past performance is not an indication of future results.
Sales charges are not reflected in the bar chart. If they were, returns would
be less than those shown.

NOTE: THIS SECTION WILL CONSIST OF A TEN-YEAR BAR CHART SHOWING YEAR BY YEAR
TOTAL RETURN A STATEMENT OF THE BEST AND WORST QUARTERS (TOTAL RETURN) SINCE
INCEPTION AND A BAR CHART SHOWING AVERAGE ANNUAL TOTAL RETURNS FOR 1 YEAR, 5
YEARS AND SINCE INCEPTION MEASURED AGAINST AN INDEX.

22
<PAGE>

SHAREHOLDER FEES
(Fees paid directly from your investment)

<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES

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

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

<TABLE>
<S> <C> <C> <C>
Advisory Fees .XX% .XX% .XX%
Distribution and shareholder
Servicing/processing (12b-1) fees* .XX% .XX% .XX%
Other expenses .XX% .XX% .XX%
Total annual fund operating expenses X.XX% X.XX% X.XX%
Fee Waivers and Expense
Reimbursements** .XX% .XX% .XX%
Net Expenses** .XX% .XX% .XX%
</TABLE>
* As a result of voluntary waivers by BlackRock Distributors, Inc., the Fund's
distributor, the fund does not expect to incur 12b-1 distribution fees in
excess of .005% with respect to Investor A Shares (otherwise payable at the
maximum rate of .10%) during the current fiscal year.
** BlackRock has agreed to waive or limit its advisory fee or reimburse "Other
expenses" in order to limit certain (but not all) fund expenses to no more
than .XX%, .XX% and .XX%, respectively, for Investor A, Investor B and
Investor C Shares. The expense information in the table has been restated to
reflect these waivers and reimbursements. The fund may have to repay these
waivers and reimbursements to BlackRock in the future if the repayment can
be made within the expense limit.

EXPENSES
AND FEES
23
<PAGE>

IMPORTANT DEFINITIONS

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

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

12B-1 FEES: A method of
charging distribution-
related expenses
against fund assets.
"12b-1" refers to the
SEC rule that permits
the use of these fees.

OTHER EXPENSES: Include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS

<S> <C> <C> <C> <C>
A SHARES* $XXX $XXX $XXX $XXX
B SHARES** $XXX $XXX $XXX $XXX***
Redemption
B SHARES $XXX $XXX $XXX $XXX***
No Redemption
C SHARES** $XXX $XXX $XXX $XXX
Redemption
C SHARES $XXX $XXX $XXX $XXX
No Redemption
</TABLE>
*Reflects imposition of sales charge.
**Reflects deduction of contingent deferred sales charge.
***Based on the conversion of Investor B Shares to Investor A Shares after
eight years.

FUND MANAGEMENT
The fund is co-managed by William J. Wykle and Thomas Callan.

William J. Wykle has been Portfolio Manager with BlackRock Financial Manage-
ment, Inc. since 1995 and an investment manager for PNC Bank since 1986. He
has co-managed this fund since its inception.

Thomas Callan has been Portfolio Manager with BlackRock Financial Management,
Inc. since 1996 and has served as an equity analyst for PNC Bank from 1993-
1996. He has been co-manager of the fund since May 1998.

decreased during this period of time. All figures
assume that you have reinvested all dividend and dis-
tributions. These figures have been audited by
PricewaterhouseCoopers LLP, the fund's independent
accountants. The auditor's report, along with the
fund's financial statements are included in the
Company's annual report which is available upon
request (See back cover for ordering instructions).

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A, B OR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

MID-CAP GROWTH EQUITY PORTFOLIO

<TABLE>
<CAPTION>
INVESTOR INVESTOR
INVESTOR A SHARES B SHARES C SHARES
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
YEAR 12/27/96/1 YEAR 12/27/96/1/ YEAR 12/27/96/1/
ENDED / THROUGH ENDED THROUGH ENDED THROUGH
9/30/98 9/30/97 9/30/98 9/30/97 9/30/98 9/30/97
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $10.00 $10.00 $10.00
--- ------ --- ------ --- ------
Income from investment
operations
Net investment income (0.03) (0.05) (0.07)
Net gain (loss) on
investments
(both realized
and unrealized) 2.17 2.16 2.18
--- ------ --- ------ --- ------
Total from investment
operations 2.14 2.11 2.11
--- ------ --- ------ --- ------
LESS DISTRIBUTIONS
Distributions from net
investment income - - - - - -
Distributions from
capital - - - - - -
Distributions from net
realized capital gains - - - - - -
--- ------ --- ------ --- ------
Total distributions - - - - - -
--- ------ --- ------ --- ------
NET ASSET VALUE AT END OF
PERIOD $12.14 $12.11 $12.11
=== ====== === ====== === ======
Total return 21.40%/3/ 21.10%/3/ 21.10%/3/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $2,650 $2,691 $ 85
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.59%/2/ 2.32%/2/ 2.35%/2/
Before
advisory/administration
fee waivers 1.63%/2/ 2.36%/2/ 2.39%/2/
Ratios of net investment
income to average
net assets
After
advisory/administration
fee waivers (0.73)%/2/ (1.50)%/2/ (1.49)%/2/
Before
advisory/administration
fee waivers (0.77)%/2/ (1.54)%/2/ (1.53)%/2/
PORTFOLIO TURNOVER RATE 64% 64% 64%
</TABLE>

BLACKROCK
SMALL CAP VALUE EQUITY logo
PORTFOLIO

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

INVESTMENT GOAL
The fund seeks long-term capital appreciation.

PRIMARY INVESTMENT STRATEGIES
In pursuit of this goal, the fund manager invests primarily in U.S. small capi-
talization value companies (market capitalization under $2 billion). The fund
normally invests at least 65% of its total assets in the equity securities
issued by these companies and normally invests at least 80% of its total assets
in equity securities. The fund primarily invests in common stock but also can
invest in preferred stock and securities convertible into common and preferred
stock.

The fund manager is seeking small capitalization stocks which he believes are
worth more than is indicated by current market price. The manager (using
BlackRock's technology) initially screens for "value" stocks from the universe
of companies with market capitalization under $2 billion. The manager uses fun-
damental analysis to examine each company for financial strength before decid-
ing to purchase the stock.

The fund generally will sell a stock when it reaches a target price which is
when the manager believes it is fully valued or when, in the manager's opinion,
conditions change such that the risk of continuing to hold the stock is unac-
ceptable when compared to its growth potential.

It is possible that in extreme market conditions the fund may invest some or
all of its assets in high quality money market securities. The reason for
acquiring money market securities would be to avoid market losses. However, if
market conditions improve, this strategy could result in reducing the potential
gain from the market upswing, thus reducing the fund's opportunity to achieve
its investment objective. The fund may also hold these securities pending
investments or when it expects to need cash to pay redeeming shareholders.

The fund may lend some of its securities on a short-term basis in order to earn
extra income. The fund will receive collateral in cash or high-quality securi-
ties equal to the current value of the loan securities. These loans will be
limited to 33 1/3% of the value of the fund's total assets.

IMPORTANT DEFINITIONS

EQUITY SECURITY: owner-
ship of a company held
by shareholders as rep-
resented by stocks.
Bonds, in comparison,
are referred to as
fixed-income or debt
securities because they
represent indebtedness
to the bondholder, not
ownership.

FUNDAMENTAL ANALYSIS: a
method of stock market
analysis that concen-
trates on "fundamental"
information about the
company (such as its
income statement, bal-
ance sheet, earnings
and sales history,
products and manage-
ment) to attempt to
forecast future stock
value. The other major
school of stock market
analysis is called
technical analysis,
which deals with price
and volume activity.

SMALL CAPITALIZATION
COMPANIES: For this
fund, the manager
defines these companies
as those with a total
market capitalization
of under $2 billion.
Capitalization refers
to the market value of
the company and is cal-
culated by multiplying
the number of shares
outstanding by the cur-
rent price per share.

INVESTMENT STYLE:
Refers to the guiding
principles of a mutual
fund's portfolio
choices. The investment
style of this fund is
small cap value, refer-
ring to the type of
securities the managers
will choose for this
fund.

26
<PAGE>

KEY RISKS

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

There is more business risk in investing in small capitalized companies than in
larger, better capitalized companies. These organizations will normally have
more limited product lines, markets and financial resources and will be depen-
dent upon a more limited management group than larger capitalized companies.

While the fund manager chooses stocks he believes to be undervalued, there is
no guarantee that prices won't move even lower.

The fund may sometimes engage in short term trading which could produce greater
brokerage costs and taxable distributions to shareholders.

ties issued by foreign companies. These securities carry additional risks
associated with investing in foreign securities, such as changes in currency
exchange rates, lack of public information about the foreign country and
political instability in the company's country.

The Fund, like any business, could be affected if the computer systems on
which it relies do not properly process information beginning on January 1,
2000. While Year 2000 issues could have a negative effect on the Fund, Black-
Rock is currently working to avoid such problems. BlackRock is also working
with other systems providers and vendors to determine their systems' ability
to handle Year 2000 problems. There is no guarantee however that systems will
work properly on January 1, 2000. Year 2000 problems may also hurt companies
whose securities the Fund holds or securities markets generally.

RISK / RETURN INFORMATION
The chart and table below give you a picture of the fund's long-term perfor-
mance. The information shows you how the fund's performance has varied year by
year and provides some indication of the risks of investing in the fund. The
table compares the fund's performance to that of the Russell 2000 Value Index,
a recognized unmanaged index of stock market performance. The chart and the
table both assume reinvestment of dividends and distributions. As with all
such investments, past performance is not an indication of future results.
Sales charges are not reflected in the bar chart. If they were, returns would
be less than those shown.

28
<PAGE>

SHAREHOLDER FEES
(Fees paid directly from your investment)

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

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

<TABLE>
<S> <C> <C> <C>
Advisory Fees .XX% .XX% .XX%
Distribution and shareholder
Servicing/processing (12b-1) fees* .XX% .XX% .XX%
Other expenses .XX% .XX% .XX%
Total annual fund operating expenses X.XX% X.XX% X.XX%
Fee Waivers and Expense
Reimbursements** .XX% .XX% .XX%
Net Expenses** X.XX% X.XX% X.XX%
</TABLE>
* As a result of voluntary waivers by BlackRock Distributors, Inc., the Fund's
distributor, the portfolio does not expect to incur 12b-1 distribution fees
in excess of .005% with respect to Investor A Shares (otherwise payable at
the maximum rate of .10%) during the current fiscal year.
** BlackRock has agreed to waive or limit its advisory fee or reimburse "Other
expenses" in order to limit certain (but not all) fund expenses to no more
than .XX%, .XX% and .XX%, respectively, for Investor A, Investor B and
Investor C Shares. The expense information in the table has been restated to
reflect these waivers and reimbursements. The fund may have to repay these
waivers and reimbursements to BlackRock in the future if the repayment can
be made within the expense limit.

29
<PAGE>

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
A SHARES* $XXX $XXX $XXX $ XXX
B SHARES** $XXX $XXX $XXX $XXX***
Redemption
B SHARES $XXX $XXX $XXX $XXX***
No Redemption
C SHARES** $XXX $XXX $XXX $XXX
Redemption
C SHARES $XXX $XXX $XXX $XXX
No Redemption
</TABLE>
*Reflects imposition of sales charge.
**Reflects deduction of contingent deferred sales charge.
***Based on the conversion of Investor B Shares to Investor A Shares after
eight years.

FUND MANAGEMENT
The portfolio manager of the fund is Christian K. Stadlinger. He has been
Portfolio Manager with BlackRock since July 1996. Prior to joining BlackRock
Advisors Inc., he was Portfolio Manager and Research Analyst with Morgan Stan-
ley Asset Management. He has headed the fund's portfolio management team since
1996.

IMPORTANT DEFINITIONS

ADVISORY FEES: fees
paid to the investment
adviser for portfolio
management services.

SHAREHOLDER
SERVICING/PROCESSING
FEES: fees that are
paid to BlackRock
and/or its affiliates
for shareholder account
service and mainte-
nance.

12B-1 FEES: A method of
charging distribution-
related expenses
against fund assets.
"12b-1" refers to the
SEC rule that permits
the use of these fees.

OTHER EXPENSES: include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

30
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A, B OR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

SMALL CAP VALUE EQUITY PORTFOLIO

<TABLE>
<CAPTION>
INVESTOR B
INVESTOR A SHARES SHARES
<CAPTION>
INVESTOR C
SHARES
FOR THE
PERIOD
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR 10/03/94/1/
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED THROUGH
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94 9/30/98 9/30/97 9/30/96 9/30/95
FOR THE
PERIOD
YEAR 10/01/96/1/
ENDED THROUGH
9/30/98 9/30/97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
AT BEGINNING OF
PERIOD $ 15.97 $ 15.14 $ 13.58 $ 13.07 $ 15.80 $15.06 $13.51
--- ------- ------- ------- ------- --- ------- ------ ------
Income from
investment
operations
Net investment
income 0.10 0.03 - - (0.01) 0.08 (0.04) (0.05)
Net gain (loss)
on investments
(both realized
and unrealized) 6.40 1.69 2.17 0.77 6.19 1.65 2.21
--- ------- ------- ------- ------- --- ------- ------ ------
Total from
investment
operations 6.50 1.72 2.17 0.76 6.27 1.61 2.16
--- ------- ------- ------- ------- --- ------- ------ ------
LESS
DISTRIBUTIONS
Distributions
from net
investment
income (0.10) (0.02) - - - - (0.04) - - - -
Distributions
from net
realized
capital gains (2.17) (0.87) (0.61) (0.25) (2.17) (0.87) (0.61)
--- ------- ------- ------- ------- --- ------- ------ ------
Total
distributions (2.27) (0.89) (0.61) (0.25) (2.21) (0.87) (0.61)
--- ------- ------- ------- ------- --- ------- ------ ------
NET ASSET VALUE
AT END OF PERIOD $ 20.20 $ 15.97 15.14 13.58 $ 19.86 $15.80 15.06
=== ======= ======= ======= ======= === ======= ====== ======
Total return 46.85%/3/ 12.06%/3/ 16.96%/3/ 5.93%/3/ 45.67%/3/ 11.34%/3/ 16.95%/3/
RATIOS/SUPPLEMENTAL
DATA
Net assets at
end of period
(in thousands) $34,031 $24,605 $21,563 $16,884 $11,001 $2,357 $1,477
Ratios of
expenses to
average net
assets
After
advisory/administration
fee waivers 1.34% 1.32% 1.18% 1.13% 2.07% 2.04% 1.80%/2/
Before
advisory/administration
fee waivers 1.35% 1.33% 1.28% 1.25% 2.08% 2.05% 1.89%/2/
Ratios of net
investment
income to
average net
assets
After
advisory/administration
fee waivers 0.63% 0.20% 0.00% (0.11)% (0.15)% (0.50)% (0.61)%/2/
Before
advisory/administration
fee waivers 0.62% 0.19% (0.09)% (0.23)% (0.16)% (0.51)% (0.70)%/2/
PORTFOLIO
TURNOVER RATE 66% 50% 31% 18% 66% 50% 31%
<S> <C> <C>
NET ASSET VALUE
AT BEGINNING OF
PERIOD $15.76
------- --------------
Income from
investment
operations
Net investment
income 0.02
Net gain (loss)
on investments
(both realized
and unrealized) 6.29
------- --------------
Total from
investment
operations 6.31
------- --------------
LESS
DISTRIBUTIONS
Distributions
from net
investment
income (0.04)
Distributions
from net
realized
capital gains (2.17)
------- --------------
Total
distributions (2.21)
------- --------------
NET ASSET VALUE
AT END OF PERIOD $19.86
======= ==============
Total return 46.04%/3/
RATIOS/SUPPLEMENTAL
DATA
Net assets at
end of period
(in thousands) $2,109
Ratios of
expenses to
average net
assets
After
advisory/administration
fee waivers 2.04%/2/
Before
advisory/administration
fee waivers 2.05%/2/
Ratios of net
investment
income to
average net
assets
After
advisory/administration
fee waivers (0.18)%/2/
Before
advisory/administration
fee waivers (0.19)%/2/
PORTFOLIO
TURNOVER RATE 66%
</TABLE>

BLACKROCK
logo SMALL CAP GROWTH EQUITY
PORTFOLIO

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

IMPORTANT DEFINITIONS

EARNINGS GROWTH: the
pattern of a company
having an increased
rate of growth in its
earnings per share from
period to period. Secu-
rity analysts attempt
to identify companies
with earnings growth
potential because a
pattern of earnings
growth generally causes
share prices to
increase.

INVESTMENT STYLE:
Refers to the guiding
principles of a mutual
fund's portfolio
choices. The investment
style of this fund is
small cap growth,
referring to the type
of securities the man-
agers will choose for
this fund.

INVESTMENT GOAL
The fund seeks long-term capital appreciation.

PRIMARY INVESTMENT STRATEGIES
In pursuit of this goal, the fund manager invests primarily in domestic small
capitalization growth companies (market capitalization under $2 billion) which
he and the management team believes has above-average earnings growth poten-
tial. The fund normally invests at least 65% of its total assets in the equity
securities issued by these companies and normally invests at least 80% of its
total assets in equity securities. The fund primarily invests in common stock
but also can invest in preferred stock and securities convertible into common
and preferred stock.

The manager initially (using BlackRock's technology) screens for "growth"
stocks from the universe of companies with market capitalization under $2 bil-
lion. The manager uses fundamental analysis to examine each company for finan-
cial strength before deciding to purchase the stock.

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

32
<PAGE>

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

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

The fund may sometimes engage in short term trading which could produce greater
brokerage costs and taxable distributions to shareholders.

The fund can invest in instruments called depository receipts which are securi-
ties issued by financial institutions (like banks or

KEY RISKS
33
<PAGE>

trust companies) which represent ownership in underlying securities issued by
foreign companies. These securities carry additional risks associated with
investing in foreign securities, such as changes in currency exchange rates,
lack of public information about the foreign company and political instability
in the company's country.

The Fund, like any business, could be affected if the computer systems on
which it relies do not properly process information beginning on January 1,
2000. While Year 2000 issues could have a negative effect on the Fund, Black-
Rock is currently working to avoid such problems. BlackRock is also working
with other systems providers and vendors to determine their systems' ability
to handle Year 2000 problems. There is no guarantee however that systems will
work properly on January 1, 2000. Year 2000 problems may also hurt companies
whose securities the fund holds or securities markets generally.

RISK / RETURN INFORMATION
The chart and table below give you a picture of the fund's long-term perfor-
mance. The information shows you how the fund's performance has varied year by
year and provides some indication of the risks of investing in the fund. The
table compares the fund's performance to that of the Russell 2000 Growth
Index, a recognized unmanaged index of stock market performance. The chart and
the table both assume reinvestment of dividends and distributions. As with all
such investments, past performance is not an indication of future results.
Sales charges are not reflected in the bar chart. If they were, returns would
be less than those shown.

34
<PAGE>

SHAREHOLDER FEES
(Fees paid directly from your investment)

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

<TABLE>
<S> <C> <C> <C>
Advisory Fees .XX% .XX% .XX%
Distribution and shareholder
Servicing/processing (12b-1) fees* .XX% .XX% .XX%
Other expenses .XX% .XX% .XX%
Total annual fund operating expenses X.XX% X.XX% X.XX%
Fee Waivers and Expense
Reimbursements** .XX% .XX% .XX%
Net Expenses** X.XX% X.XX% X.XX%
</TABLE>
* As a result of voluntary waivers by BlackRock Distributors, Inc., the Fund's
distributor, the fund does not expect to incur 12b-1 distribution fees in
excess of .005% with respect to Investor A Shares (otherwise payable at the
maximum rate of .10%) during the current fiscal year.
** BlackRock has agreed to waive or limit its advisory fee or reimburse "Other
expenses" in order to limit certain (but not all) fund expenses to no more
than .XX%, .XX% and .XX%, respectively, for Investor A, Investor B and
Investor C Shares. The expense information in the table has been restated to
reflect these waivers and reimbursements. The fund may have to repay these
waivers and reimbursements to BlackRock in the future if the repayment can
be made within the expense limit.

EXPENSES AND FEES
35
<PAGE>

IMPORTANT DEFINITIONS

ADVISORY FEES: fees
paid to the investment
adviser for portfolio
management services.

SHAREHOLDER
SERVICING/PROCESSING
FEES: fees that are
paid to BlackRock and
/or its affiliates for
shareholder account
service and mainte-
nance.

12B-1 FEES: A method of
charging distribution-
related expenses
against fund assets.
"12b-1" refers to the
SEC rule that permits
the use of these fees.

OTHER EXPENSES: include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.

EXAMPLE:

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
A SHARES* $XXX $XXX $XXX $XXX***
B SHARES** $XXX $XXX $XXX $XXX***
Redemption
B SHARES $XXX $XXX $XXX $XXX***
No Redemption
C SHARES** $XXX $XXX $XXX $XXX
Redemption
C SHARES $XXX $XXX $XXX $XXX
No Redemption
</TABLE>
*Reflects imposition of sales charge.
**Reflects deduction of contingent deferred sales charge.
***Based on the conversion of Investor B Shares to Investor A Shares after
eight years.

FUND MANAGEMENT
The fund is co-managed by William J. Wykle and Thomas Callan.

William J. Wykle, has been Portfolio Manager with BlackRock Financial Manage-
ment, Inc. since 1995 and an investment manager for PNC Bank since 1986. He
has co-managed this fund since inception.

Thomas Callan, has been Portfolio Manager with BlackRock Financial Management,
Inc. since 1996 and has served as an equity analyst for PNC Bank from 1993-
1996. He has been co-manager of the fund since May 1998.

of August 15, 1998 may make additional investments in current accounts. The
fund may re-open to new investors in the future.

FINANCIAL HIGHLIGHTS
The financial information in the table below shows the fund's financial perfor-
mance for the past 5 years. Certain information reflects results for a single
fund share. The term "Total Return" indicates how much your investment would
have increased or decreased during this period of time. All figures assume that
you have reinvested all dividend and distributions. These figures have been
audited by PricewaterhouseCoopers LLP, the fund's independent accountants. The
auditor's report, along with the fund's financial statements are included in
the Company's annual report which is available upon request (See back cover for
ordering instructions).

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A, B OR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

SMALL CAP GROWTH EQUITY PORTFOLIO

<TABLE>
<CAPTION>
INVESTOR B
INVESTOR A SHARES SHARES
<CAPTION>
INVESTOR C
SHARES
FOR THE
PERIOD
YEAR YEAR YEAR YEAR YEAR YEAR YEAR 1/18/96/1
ENDED ENDED ENDED ENDED ENDED ENDED ENDED / THROUGH
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94 9/30/98 9/30/97 9/30/96
FOR THE
PERIOD
9/6/96/1
YEAR YEAR /
ENDED ENDED THROUGH
9/30/98 9/30/97 9/30/96
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
AT
BEGINNING OF
PERIOD $ $ 21.69 $ 14.98 $10.12 $10.47 $ 21.53 $14.87
------- ------- ------- ------ ------ --- ------- ------
Income from
investment
operations
Net investment
income (0.04) (0.06) (0.02) - - (0.07) (0.07)
Net gain (loss)
on investments
(both realized
and unrealized) 3.09 6.77 4.88 (0.35) 2.92 6.73
------- ------- ------- ------ ------ --- ------- ------
Total from
investment
operations 3.05 6.71 4.86 (0.35) 2.85 6.66
------- ------- ------- ------ ------ --- ------- ------
LESS
DISTRIBUTIONS
Distributions
from net
investment
income - - - - - - - - - - - -
Distributions
from net
realized
capital gains (1.49) - - - - - - (1.49) - -
------- ------- ------- ------ ------ --- ------- ------
Total
distributions (1.49) - - - - - - (1.49) - -
------- ------- ------- ------ ------ --- ------- ------
NET ASSET VALUE
AT END OF PERIOD $ $ 23.25 $ 21.69 $14.98 $10.12 $ 22.89 $21.53
======= ======= ======= ====== ====== === ======= ======
Total return 15.28%/3/ 44.79%/3/ 48.02%/3/ (3.33)%/3/ 14.47%/3/ 38.27%/3/
RATIOS/SUPPLEMENTAL
DATA
Net assets at
end of period
(in thousands) $ $57,323 $27,954 $7,348 $1,620 $40,270 $6,520
Ratios of
expenses to
average net
assets
After advisory/
administration
fee waivers 1.34% 1.33% 1.20% 0.86% 2.07% 2.06%/2/
Before
advisory/
administration
fee waivers 1.34% 1.35% 1.33% 1.42% 2.07% 2.08%/2/
Ratios of net
investment
income to
average net
assets
After advisory/
administration
fee waivers (0.46)% (0.55)% (0.24)% 0.07% (1.23)% (1.34)%/2/
Before
advisory/
administration
fee waivers (0.46)% (0.57)% (0.36)% (0.49)% (1.23)% (1.36)%/2/
PORTFOLIO
TURNOVER RATE 82% 89% 74% 89% 82% 89%
<S> <C> <C> <C>
NET ASSET VALUE
AT
BEGINNING OF
PERIOD $ 21.53 $19.66
------- ----------- ------------
Income from
investment
operations
Net investment
income (0.11) (0.01)
Net gain (loss)
on investments
(both realized
and unrealized) 2.96 1.88
------- ----------- ------------
Total from
investment
operations 2.85 1.87
------- ----------- ------------
LESS
DISTRIBUTIONS
Distributions
from net
investment
income - - - -
Distributions
from net
realized
capital gains (1.49) - -
------- ----------- ------------
Total
distributions (1.49) - -
------- ----------- ------------
NET ASSET VALUE
AT END OF PERIOD $ 22.89 $21.53
======= =========== ============
Total return 14.47%/3/ 9.51%/3/
RATIOS/SUPPLEMENTAL
DATA
Net assets at
end of period
(in thousands) $14,106 $ 329
Ratios of
expenses to
average net
assets
After advisory/
administration
fee waivers 2.07% 1.74%/2/
Before
advisory/
administration
fee waivers 2.07% 1.76%/2/
Ratios of net
investment
income to
average net
assets
After advisory/
administration
fee waivers (1.25)% (0.93)%/2/
Before
advisory/
administration
fee waivers (1.25)% (0.95)%/2/
PORTFOLIO
TURNOVER RATE 82% 89%
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is reflected
in total return.
/4/Computed by dividing the total amount of commission paid by the total number
of shares purchased and sold during the period.
37
<PAGE>

BLACKROCK
logo INTERNATIONAL EQUITY
PORTFOLIO

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

IMPORTANT DEFINITIONS

MORGAN STANLEY CAPITAL
INTERNATIONAL EUROPE,
AUSTRALIA AND FAR EAST
INDEX (EAFE): An unman-
aged index comprised of
a sample of companies
representative of the
market structure of the
following European and
Pacific Basin coun-
tries: Australia, Aus-
tria, Belgium, Denmark,
Finland, France, Germa-
ny, Hong Kong, Italy,
Japan, Netherlands, New
Zealand, Norway, Singa-
pore, Malaysia, Spain,
Sweden, Switzerland and
the U.K.

INVESTMENT STYLE:
Refers to the guiding
principles of a mutual
fund's portfolio
choices. The investment
style of this fund is
international value
equities, referring to
the type of securities
the managers will
choose for this fund.

INVESTMENT GOAL
The fund seeks long-term capital appreciation.

PRIMARY INVESTMENT STRATEGIES
In pursuit of this goal, the fund manager invests primarily in stocks of for-
eign issuers located in countries included in the Morgan Stanley Capital
International Europe, Australia and Far East Index (EAFE). The fund normally
invests at least 65% of its total assets in the equity securities issued by
these companies and normally invests at least 80% of its total assets in
equity securities. The fund primarily buys common stock but also can invest in
preferred stock and securities convertible into common and preferred stock.

The fund manager uses a "value style" to select stocks which he believes are
worth more than is indicated by current market price. The manager screens for
"value stocks" by using proprietary computer models to find stocks that meet
the value stock criteria. A security's earnings trend and its price momentum
will also be factors considered in security selection. The manager will also
consider factors such as prospects for relative economic growth among certain
foreign countries, expected levels of inflation, government policies influenc-
ing business conditions and outlook for currency relationships. The portfolio
manager and his team also examine each company to make sure it is financially
sound before deciding to purchase its stock.

The fund manager, in an attempt to reduce portfolio risk, will diversify
investments across countries, industry groups and companies with investment at
all times in at least three foreign countries. In addition, the fund can
invest more than 25% of its assets in Japanese stocks.

improve, this strategy could result in reducing the potential gain from the
market upswing, thus reducing the fund's opportunity to achieve its investment
objective. The fund may also hold these securities pending investments or when
it expects to need cash to pay redeeming shareholders.

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

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

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

While the fund manager chooses stocks he believes to be undervalued, there is
no guarantee that prices won't move even lower.

KEY RISKS
39
<PAGE>

On January 1, 1999, eleven countries in the European Monetary Union (EMU) plan
to implement a new currency unit called "the Euro" which is expected to
reshape financial markets, banking systems and monetary policies in Europe and
other parts of the world. While it is impossible to predict the impact of the
"Euro", it is possible that it could increase volatility in financial markets
world wide which could hurt the value of shares of the fund.

The fund's portfolio is actively managed. The portfolio manager may, when con-
sistent with the fund's investment objective, use options or futures (commonly
known as derivatives). The primary purpose is to attempt to reduce risk to the
fund as a whole (hedge) but they may also be used to maintain liquidity, com-
mit cash pending investment or to increase returns. These practices may reduce
returns and/or increase volatility. Volatility is defined as the characteris-
tic of a security or a market to fluctuate significantly in price within a
short time period. The fund can borrow money to buy additional securities. The
fund may borrow from banks or other financial institutions or through reverse
repurchase agreements (under which the fund sells securities and agrees to buy
them back at a particular date and price). This practice can increase the
fund's possible losses or gains. The fund may also use forward foreign cur-
rency exchange contracts (obligations to buy or sell a currency at a set rate
in the future) to hedge against movements in the value of foreign currencies.
These contracts do not eliminate movements in the value of foreign securities
but rather allow the fund to establish a fixed rate of exchange for a future
point in time. This strategy can have the effect of reducing returns and mini-
mizing opportunities for gain.

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

The fund may, from time to time, invest more than 25% of its assets in securi-
ties whose issuers are located in Japan. These investments would make the fund
more dependent upon the political and economic circumstances of that country
than a mutual fund that owns stocks of companies in many countries. The Japa-
nese economy (especially Japanese banks, securities firms and insurance compa-
nies) have experienced considerable difficulty recently. In addition, the Jap-
anese Yen has gone up and down in value versus the U.S. dollar. Japan may also
be affected by recent turmoil in other Asian countries.

Securities loans involve the risk of a delay in receiving additional collat-
eral if the value of the securities goes up while they are on loan. There is
also the risk of delay in recovering the loaned securities or in losing rights
to the collateral if a borrower goes bankrupt.
40
<PAGE>

The fund may sometimes engage in short term trading which could produce greater
brokerage costs and taxable distributions to shareholders.

The Company, like any business, could be affected if the computer systems on
which it relies do not properly process information beginning on January 1,
2000. While Year 2000 issues could have a negative effect on the Fund, Black-
Rock is currently working to avoid such problems. BlackRock is also working
with other systems providers and vendors to determine their systems' ability to
handle Year 2000 problems. There is no guarantee however that systems will work
properly on January 1, 2000. Year 2000 problems may also hurt companies whose
securities the fund holds or securities markets generally.

RISK / RETURN INFORMATION
The chart and table below give you a picture of the fund's long-term perfor-
mance. The information shows you how the fund's performance has varied year by
year and provides some indication of the risks of investing in the fund. The
table compares the fund's performance to that of the EAFE Index, a recognized
unmanaged index of stock market performance. The chart and the table both
assume reinvestment of dividends and distributions. As with all such invest-
ments, past performance is not an indication of future results. Sales charges
are not reflected in the bar chart. If they were, returns would be less than
those shown.

the life of the investment. Which pricing schedule should you choose? It
depends on your individual circumstances. You should know that the lowest
sales charge won't necessarily be the least expensive option over time. For
example, if you intend to hold your shares long term it will cost less to buy
A Shares than B or C Shares.

SHAREHOLDER FEES
(Fees paid directly from your investment)

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

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

<TABLE>
<S> <C> <C> <C>
Advisory Fees .XX% .XX% .XX%
Distribution and shareholder
Servicing/processing (12b-1) fees* .XX% .XX% .XX%
Other expenses .XX% .XX% .XX%
Total annual fund operating expenses X.XX% X.XX% X.XX%
Fee Waivers and Expense
Reimbursements** .XX% .XX% .XX%
Net Expenses** X.XX% X.XX% X.XX%
</TABLE>
* As a result of voluntary waivers by BlackRock Distributors, Inc., the
Fund's distributor, the fund does not expect to incur 12b-1 distribution
fees in excess of .005% with respect to Investor A Shares (otherwise pay-
able at the maximum rate of .10%) during the current fiscal year.
** BlackRock has agreed to waive or limit its advisory fee or reimburse "Other
expenses" in order to limit certain (but not all) fund expenses to no more
than .XX%, .XX% and .XX%, respectively, for Investor A, Investor B and
Investor C Shares. The expense information in the table has been restated
to reflect these waivers and reimbursements. The fund may have to repay
these waivers and reimbursements to BlackRock in the future if the repay-
ment can be made within the expense limit.

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.
42
<PAGE>

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

FUND MANAGEMENT
The portfolio manager is Gordon Anderson, who is Managing and Investment Direc-
tor of BlackRock International, Ltd. (BIL) from 1990-1996. His previous posi-
tion was Investment Director at Dunedin Fund Managers Ltd. He has been portfo-
lio manager since 1996.

IMPORTANT DEFINITIONS

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

SHAREHOLDER
SERVICING/PROCESSING
FEES: fees that are
paid to BlackRock and
/or its affiliates for
shareholder account
service and mainte-
nance.

12B-1 FEES: A method of
charging distribution-
related expenses
against fund assets.
"12b-1" refers to the
SEC rule that permits
the use of these fees.

OTHER EXPENSES: Include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

43
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A, B OR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

INTERNATIONAL EQUITY PORTFOLIO

<TABLE>
<CAPTION>
INVESTOR B
INVESTOR A SHARES SHARES
<CAPTION>
INVESTOR C
SHARES
FOR THE
PERIOD
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR 10/03/94/1
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED / THROUGH
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94 9/30/98 9/30/97 9/30/96 9/30/95
FOR THE
PERIOD
YEAR 12/05/96/1
ENDED / THROUGH
9/30/98 9/30/97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
AT
BEGINNING OF
PERIOD $ $ 13.36 $ 13.24 $ 13.40 $ 12.47 $ $13.23 $13.20 $13.35
---- ------- ------- ------- ------- --- ------ ------ ------
Income from
investment
operations
Net investment
income 0.07 0.14 0.11 0.12 0.07 0.08 0.05
Net gain (loss)
on investments
(both realized
and unrealized) 1.77 0.81 0.13 1.15 1.66 0.77 0.16
---- ------- ------- ------- ------- --- ------ ------ ------
Total from
investment
operations 1.84 0.95 0.24 1.27 1.73 0.85 0.21
---- ------- ------- ------- ------- --- ------ ------ ------
LESS
DISTRIBUTIONS
Distributions
from net
investment
income (0.22) (0.16) (0.04) (0.09) (0.17) (0.15) - -
Distributions
from net
realized
capital gains - - (0.41) (0.67) (0.36) (0.25) (0.41) (0.67) (0.36)
---- ------- ------- ------- ------- --- ------ ------ ------
Total
distributions (0.63) (0.83) (0.40) (0.34) (0.58) (0.82) (0.36)
---- ------- ------- ------- ------- --- ------ ------ ------
NET ASSET VALUE
AT END OF PERIOD $ $ 14.57 $ 13.36 $ 13.24 $ 13.40 $ $14.38 $13.23 $13.20
==== ======= ======= ======= ======= === ====== ====== ======
Total return 14.36%/3/ 7.58%/3/ 2.00%/3/ 10.24%/3/ 13.63%/3/ 6.81%/3/ 1.77%/3/
RATIOS/SUPPLEMENTAL
DATA
Net assets at
end of period
(in thousands) $ $22,335 $19,842 $17,721 $14,433 $ $5,850 $2,692 $1,071
Ratios of
expenses to
average net
assets
After
advisory/administration
fee waivers 1.53% 1.53% 1.40% 1.35% 2.27% 2.23% 2.06%/2/
Before
advisory/administration
fee waivers 1.63% 1.64% 1.58% 1.54% 2.37% 2.34% 2.23%/2/
Ratios of net
investment
income to
average net
assets
After
advisory/administration
fee waivers 0.50% 0.45% 0.97% 0.96% (0.22)% (0.18)% 0.59%/2/
Before
advisory/administration
fee waivers 0.40% 0.34% 0.80% 0.77% (0.32)% (0.29)% 0.41%/2/
PORTFOLIO 70
TURNOVER RATE 62% % 105% 37% 62% 70% 105%
<S> <C> <C>
NET ASSET VALUE
AT
BEGINNING OF
PERIOD $ $13.21
------- -------------
Income from
investment
operations
Net investment
income 0.15
Net gain (loss)
on investments
(both realized
and unrealized) 1.19
------- -------------
Total from
investment
operations 1.34
------- -------------
LESS
DISTRIBUTIONS
Distributions
from net
investment
income (0.17)
Distributions
from net
realized
capital gains - -
------- -------------
Total
distributions (0.17)
------- -------------
NET ASSET VALUE
AT END OF PERIOD $ $14.38
======= =============
Total return 10.33%/3/
RATIOS/SUPPLEMENTAL
DATA
Net assets at
end of period
(in thousands) $ $ 155
Ratios of
expenses to
average net
assets
After
advisory/administration
fee waivers 2.28%/2/
Before
advisory/administration
fee waivers 2.38%/2/
Ratios of net
investment
income to
average net
assets
After
advisory/administration
fee waivers (0.48)%/2/
Before
advisory/administration
fee waivers (0.58)%/2/
PORTFOLIO
TURNOVER RATE 62%
</TABLE>

BLACKROCK
(LOGO) INTERNATIONAL EMERGING MARKETS
PORTFOLIO

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

IMPORTANT DEFINITIONS

EMERGING MARKET STOCKS:
Stocks issued by compa-
nies located in coun-
tries with emerging
economies or securities
markets. The list of
emerging market coun-
tries includes: Argen-
tina, Brazil, Bulgaria,
Chile, China, Colombia,
The Czech Republic,
Ecuador, Egypt, Greece,
Hungary, India, Indone-
sia, Israel, Lebanon,
Malaysia, Mexico,
Morocco, Peru, The
Philippines, Poland,
Romania, Russia, South
Africa, South Korea,
Taiwan, Thailand, Tuni-
sia, Turkey, Venezuela,
Vietnam and Zimbabwe.

INVESTMENT STYLE:
Refers to the guiding
principles of a mutual
fund's portfolio
choices. The investment
style of this fund is
emerging market equi-
ties, referring to the
type of securities the
managers will choose
for this fund.

INVESTMENT GOAL
The fund seeks long-term capital appreciation.

PRIMARY INVESTMENT STRATEGIES
In pursuit of this goal, the fund manager invests primarily in stocks of
issuers located in emerging market countries. These are countries considered to
be "emerging" or "developing" by the World Bank, the International Finance Cor-
poration or the United Nations. The fund normally invests at least 65% of its
assets in the equity securities issued by these companies and normally invests
at least 80% of its total assets in equity securities. The fund primarily
invests in common stock but also can invest in preferred stock and securities
convertible into common and preferred stock.

The fund manager, in an attempt to reduce portfolio risks, will diversify
investments across countries, industry groups and companies with investment
ordinarily in at least three emerging markets countries.

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

Because different kinds of stocks go in and out of favor depending on market
conditions, this fund's performance may be better or worse than other funds
with different investment styles. For example, in some markets a fund holding
stocks of companies in developed foreign countries or domestic stocks may
outperform this fund.

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

While the portfolio manager chooses stocks he believes to be undervalued there
is no guarantee that prices won't move even lower.

KEY RISKS
46
<PAGE>

On January 1, 1999, eleven countries in the European Monetary Union (EMU) plan
to implement a new currency unit called "the Euro" which is expected to reshape
financial markets, banking systems and monetary policies in Europe and other
parts of the world. While it is impossible to predict the impact of the "Euro",
it is possible that it could increase volatility in financial markets world
wide which could hurt the value of shares of the fund.

The fund's portfolio is actively managed. The fund manager may, when consistent
with the fund's investment objective, use options or futures (commonly known as
derivatives). The primary purpose of using derivatives is to attempt to reduce
risk to the fund as a whole (hedge) but they may also be used to maintain
liquidity, commit cash pending investment or to increase returns. These prac-
tices may reduce returns and/or increase volatility. Volatility is defined as
the characteristic of a security or a market to fluctuate significantly in
price within a short time period. The fund can borrow money to buy additional
securities. The fund may borrow from banks or other financial institutions or
through reverse repurchase agreements (under which the fund sells securities
and agrees to buy them back at a particular date and price). This practice can
increase the fund's possible losses or gains. The fund may also use forward
foreign currency exchange contracts (obligations to buy or sell a currency at a
set rate in the future) to hedge against movements in the value of foreign cur-
rencies. These contracts do not eliminate movements in the value of foreign
securities but rather allow the fund to establish a fixed rate of exchange for
a future point in time. This strategy can have the effect of reducing returns
and minimizing opportunities for gain.

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

The fund may engage in short term trading which could produce greater brokerage
costs and taxable distributions to shareholders.

tems' ability to handle Year 2000 problems. There is no guarantee however that
systems will work properly on January 1, 2000. Year 2000 problems may also
hurt companies whose securities the fund holds or securities markets general-
ly.

RISK / RETURN INFORMATION
The chart and table below give you a picture of the fund's long-term perfor-
mance. The information shows you how the fund's performance has varied year by
year and provides some indication of the risks of investing in the fund. The
table compares the fund's performance to that of the MSCI Emerging Market Free
Index, a recognized unmanaged index of stock market performance. The chart and
the table both assume reinvestment of dividends and distributions. As with all
such investments, past performance is not an indication of future results.
Sales charges are not reflected in the bar chart. If they were, returns would
be less than those shown.

The prospectus offers shareholders different ways to invest with three sepa-
rate pricing options. You need to understand your choices so that you can
choose the pricing option that is most suitable for you. With one option (In-
vestor A Shares) you pay a one-time front-end transaction fee each time you
buy shares. The other options (Investor B and Investor C Shares) have no
front-end charges but have higher on-going fees, which are paid over the life
of the investment. Which pricing schedule should you choose? It depends on
your individual circumstances. You should know that the lowest sales charge
won't necessarily be the least expensive option over time. For example, if you
intend to hold your shares long term it will cost less to buy A Shares than B
or C Shares.
EXPENSES AND FEES
48
<PAGE>

SHAREHOLDER FEES
(Fees paid directly from your investment)

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

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

<TABLE>
<S> <C> <C> <C>
Advisory Fees .XX% .XX% .XX%
Distribution and shareholder
Servicing/processing (12b-1) fees* .XX% .XX% .XX%
Other expenses .XX% .XX% .XX%
Total annual fund operating expenses X.XX% X.XX% X.XX%
Fee Waivers and Expense
Reimbursements** .XX% .XX% .XX%
Net Expenses** X.XX% X.XX% X.XX%
</TABLE>
* As a result of voluntary waivers by BlackRock Distributors, Inc., the Fund's
distributor, the fund does not expect to incur 12b-1 distribution fees in
excess of .005% with respect to Investor A Shares (otherwise payable at the
maximum rate of .10%) during the current fiscal year.
** BlackRock has agreed to waive or limit its advisory fee or reimburse "Other
expenses" in order to limit certain (but not all) fund expenses to no more
than .XX%, .XX% and .XX%, respectively, for Investor A, Investor B and
Investor C Shares. The expense information in the table has been restated to
reflect these waivers and reimbursements. The fund may have to repay these
waivers and reimbursements to BlackRock in the future if the repayment can
be made within the expense limit.

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.

return each year with no changes in operating expenses, redemption at the end
of each time period and, with respect to B Shares and C Shares only, no
redemption at the end of each time period. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:

FUND MANAGEMENT
The fund is managed by Euan Rae; Senior Investment Manager with BlackRock
International Ltd. (BIL) since 1996; his previous position was as Head of
Emerging Markets at Dunedin Fund Managers, Ltd, and Investment Manager with
Edinburgh Fund Managers from 1989 to 1994. He has been the portfolio manager
since 1996.

IMPORTANT DEFINITIONS

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

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

12B-1 FEES: A method of
charging distribution-
related expenses
against fund assets.
"12b-1" refers to the
SEC rule that permits
the use of these fees.

OTHER EXPENSES: Include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

50
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A, B OR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

INTERNATIONAL EMERGING MARKETS PORTFOLIO

<TABLE>
<CAPTION>
INVESTOR A SHARES INVESTOR B SHARES
<CAPTION>
INVESTOR
C SHARES
FOR THE
FOR THE PERIOD
PERIOD 7/2/96/1
YEAR YEAR YEAR YEAR 6/17/94/1 YEAR YEAR /
ENDED ENDED ENDED ENDED / ENDED ENDED ENDED THROUGH
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94 9/30/98 9/30/97 9/30/96
FOR THE
PERIOD
YEAR 3/21/97/1
ENDED / THROUGH
9/30/98 9/30/97
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 8.71 $ 8.18 $10.54 $10.00 $ 8.69 $8.85
--- ------ ------ ------ ------ --- ------ -----
Income from
investment
operations
Net investment
income (0.06) 0.02 0.03 0.02 (0.04) - -
Net gain (loss) on
investments (both
realized and
unrealized) .98 0.52 (2.14) 0.52 .89 (0.16)
--- ------ ------ ------ ------ --- ------ -----
Total from
investment
operations .92 0.54 (2.11) 0.54 .85 (0.16)
--- ------ ------ ------ ------ --- ------ -----
LESS DISTRIBUTIONS
Distributions from
net investment
income (0.03) - - (0.05) - - - - - -
Distribution from
capital - - - - (0.01) - - - - - -
Distributions from
net realized
capital gains - - (0.01) (0.19) - - - - - -
Total distributions (0.03) (0.01) (0.25) - - - - - -
--- ------ ------ ------ ------ --- ------ -----
NET ASSET VALUE AT
END OF PERIOD $ 9.60 $ 8.71 $ 8.18 $10.54 $ 9.54 $8.69
=== ====== ====== ====== ====== === ====== =====
Total return 10.51%/3/ 6.49%/3/ (20.12)%/3/ 5.40%/3/ 9.78%/3/ (1.81)%/3/
RATIOS/SUPPLEMENTAL
DATA
Net assets at end of
period (in
thousands) $4,454 $2,996 $2,563 $2,857 $1,836 $ 216
Ratios of expenses
to average net
assets
After
advisory/administration
fee waivers 2.25% 2.26% 2.20% 2.15%/2/ 2.98% 2.90%/2/
Before
advisory/administration
fee waivers 2.34% 2.35% 2.44% 3.13%/2/ 3.07% 3.00%/2/
Ratios of net
investment income
to average net
assets
After
advisory/administration
fee waivers (0.08)% 0.45% 1.54% 0.74%/2/ (0.80)% 0.17%/2/
Before
advisory/administration
fee waivers (0.18)% 0.35% 1.30% (0.24)%/2/ (0.90)% 0.07%/2/
PORTFOLIO TURNOVER
RATE 33% 44% 75% 4% 33% 44%
<S> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $9.70
------- ------------
Income from
investment
operations
Net investment
income (0.01)
Net gain (loss) on
investments (both
realized and
unrealized) (0.15)
------- ------------
Total from
investment
operations (0.16)
------- ------------
LESS DISTRIBUTIONS
Distributions from
net investment
income - -
Distribution from
capital - -
Distributions from
net realized
capital gains - -
Total distributions - -
------- ------------
NET ASSET VALUE AT
END OF PERIOD $9.54
======= ============
Total return (3.08)%/3/
RATIOS/SUPPLEMENTAL
DATA
Net assets at end of
period (in
thousands) $ 88
Ratios of expenses
to average net
assets
After
advisory/administration
fee waivers 2.58%/2/
Before
advisory/administration
fee waivers 2.67%/2/
Ratios of net
investment income
to average net
assets
After
advisory/administration
fee waivers (0.27)%/2/
Before
advisory/administration
fee waivers (0.37)%/2/
PORTFOLIO TURNOVER
RATE 33%
</TABLE>

BLACKROCK
(LOGO) INTERNATIONAL SMALL CAP EQUITY
PORTFOLIO

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

IMPORTANT DEFINITIONS

EQUITY SECURITY: owner-
ship of a company held
by shareholders as rep-
resented by stocks.
Bonds, in comparison,
are referred to as
fixed income or debt
securities because they
represent indebtedness
to the bondholders, not
ownership.

SALOMON BROTHERS
EXTENDED MARKETS WORLD
EX-US INDEX: an unman-
aged index comprised of
equity securities whose
issuers are located in
the following developed
countries: Australia,
Austria, Belgium, Cana-
da, Denmark, Finland,
France, Germany, Hong
Kong, Ireland, Italy,
Japan, Netherlands, New
Zealand, Norway, Singa-
pore, Malaysia, Spain,
Sweden, Switzerland and
the U.K.

SMALL CAPITALIZATION
COMPANIES: For this
fund, the manager
defines these companies
as those with total
market capitalization
under $1 billion ($1.5
billion for Japanese
issuers). Capitaliza-
tion refers to the mar-
ket value of the Com-
pany and is calculated
by multiplying by the
number of shares out-
standing by the current
price per share.

INVESTMENT STYLE:
Refers to the guiding
principles of a mutual
fund's portfolio
choices. The investment
style of this fund is
international small
cap, referring to the
type of securities the
managers will choose
for this fund.

INVESTMENT GOAL
The fund seeks long-term capital appreciation.

PRIMARY INVESTMENT STRATEGIES
In pursuit of this goal, the fund manager invests primarily in small cap
stocks (capitalization of less than $1 billion, $1.5 billion for Japanese
issuers) of foreign companies in developed countries included in the Salomon
Brothers Extended Markets World Ex-U.S. Index. The fund normally invests at
least 65% of its total assets in the equity securities issued by the companies
described above and normally invests at least 80% of its total assets in
equity securities. In addition, the manager may invest up to 20% of the port-
folio in stocks of issuers in emerging market countries. The fund primarily
invests in common stock but can also invest in preferred stock and convertible
into common and preferred securities.

The fund seeks diversification and at all times must be invested in at least
three developed foreign countries. In addition the fund may invest more than
25% of its assets in securities whose issuers are located in Japan or the
United Kingdom.

It is possible that in extreme market conditions the fund may invest some or
all of its assets in high quality money market secu-
52
<PAGE>

rities. The reason for acquiring money market securities would be to avoid mar-
ket losses. However, if market conditions improve, this strategy could result
in reducing the potential gain from the market upswing, thus reducing the
fund's opportunity to achieve its investment objective. The fund may also hold
these securities pending investments or to meet anticipated redemption obliga-
tions.

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

There may be more risk in investing in smaller capitalized companies. These
organizations will normally have more limited product lines, markets and finan-
cial resources and will be more dependent upon a more limited management group
than larger capitalized companies.

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

and the existence of smaller, more volatile and less regulated markets, may be
increased. The value of many investments in emerging market countries recently
has dropped significantly due to economic and political turmoil in many of
these countries.

While the manager chooses stocks he believes to be undervalued there is no
guarantee that prices won't move even lower.

The fund's portfolio is actively managed. The fund's manager may, when consis-
tent with the fund's investment objective, use options or futures (commonly
known as derivatives). The primary purpose of using derivatives is to attempt
to reduce risk to the fund as a whole (hedge) but they may also be used to
maintain liquidity, commit cash pending investment or to increase returns.
These practices may reduce returns and/or increase volatility. Volatility is
defined as the characteristic of a security or a market to fluctuate signifi-
cantly in price within a short time period. The fund can borrow money to buy
additional securities. The fund may borrow from banks or other financial
institutions or through reverse repurchase agreements (under which the fund
sells securities and agrees to buy them back at a particular date and price).
This practice can increase the fund's possible losses or gains. The fund may
also use forward foreign currency exchange contracts (obligations to buy or
sell a currency at a set rate in the future) to hedge against movements in the
value of foreign currencies. These contracts do not eliminate movements in the
value of foreign securities but rather allow the fund to establish a fixed
rate of exchange for a future point in time. This strategy can have the effect
of reducing returns and minimizing opportunities for gain.

The fund may, from time to time, invest more than 25% of its assets of securi-
ties whose issuers are located in Japan or the United Kingdom. These invest-
ments would make the fund more dependent upon the political and economic cir-
cumstances of that country than a mutual fund that owns stocks of companies in
many countries. For example, the Japanese economy (especially Japanese banks,
securities firms and insurance companies) have experienced considerable diffi-
culty recently. In addition, the Japanese Yen has gone up and down in value
versus the U.S. dollar. Japan may also be affected by recent turmoil in other
Asian countries. The ability to concentrate in the U.K. may make the
fund's performance more dependent on developments in that country.

54
<PAGE>

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

Securities loans involve the risk of a delay in receiving additional collateral
if the value of the securities go up while they are on loan. There is also the
risk of delay in recovering the loaned securities or in losing rights to the
collateral if a borrower goes bankrupt.
The fund may, from time to time, engage in short term trading which could pro-
duce greater brokerage costs and taxable distributions to shareholders.

RISK / RETURN INFORMATION
The chart and table below give you a picture of the fund's long-term perfor-
mance. The information shows you how the fund's performance has varied year by
year and provides some indication of the risks of investing in the fund. The
table compares the fund's performance to that of the Salomon Brothers Extended
Market World Ex US Index, a recognized unmanaged index of stock market perfor-
mance. The chart and the table both assume reinvestment of dividends and dis-
tributions. As with all such investments, past performance is not an indication
of future results. Sales charges are not reflected in the bar chart. If they
were, returns would be less than those shown.

55
<PAGE>

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

SHAREHOLDER FEES
(Fees paid directly from your investment)

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

<TABLE>
<S> <C> <C> <C>
Advisory Fees .XX% .XX% .XX%
Distribution and shareholder
Servicing/processing (12b-1) fees* .XX% .XX% .XX%
Other expenses .XX% .XX% .XX%
Total annual fund operating expenses X.XX% X.XX% X.XX%
Fee Waivers and Expense
Reimbursements** .XX% .XX% .XX%
Net Expenses** X.XX% X.XX% X.XX%
</TABLE>
* As a result of voluntary waivers by BlackRock Distributors, Inc., the
Fund's distributor, the fund does not expect to incur 12b-1 distribution
fees in excess of .005% with respect to Investor A Shares (otherwise pay-
able at the maximum rate of .10%) during the current fiscal year.
** BlackRock has agreed to waive or limit its advisory fee or reimburse "Other
expenses" in order to limit certain (but not all) fund expenses to no more
than .XX%, .XX% and .XX%, respectively, for Investor A, Investor B and
Investor C Shares. The expense information in the table has been restated
to reflect these waivers and reimbursements. The fund may have to repay
these waivers and reimbursements to BlackRock in the future if the repay-
ment can be made within the expense limit.
56
<PAGE>

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
A SHARES* $XXX $XXX $XXX $XXX
B SHARES** $XXX $XXX $XXX $XXX
Redemption
B SHARES $XXX $XXX $XXX $XXX
No Redemption
C SHARES** $XXX $XXX $XXX $XXX
Redemption
C SHARES $XXX $XXX $XXX $XXX
No Redemption
</TABLE>
*Reflects imposition of sales charge.
**Reflects deduction of contingent deferred sales charge.
***Based on the conversion of Investor B Shares to Investor A Shares after
eight years.

FUND MANAGEMENT
The fund is managed by Peter J. Tait, Managing Director and Global Strategist
of BlackRock since 1996. His previous position was Director and Head of Conti-
nental European Desk at Dunedin Fund Managers Ltd from 1990-1996. He has been
portfolio manager since the fund's inception.

FINANCIAL HIGHLIGHTS
The financial information in the table below shows the fund's financial perfor-
mance for the past year. Certain information reflects results for a single fund
share. The term "Total Return" indicates how much your investment would have
increased or decreased during this period of time. All figures assume that you
have reinvested all dividend and distributions. These figures have been audited
by PricewaterhouseCoopers LLP, the fund's independent accountants. The audi-
tor's report, along with the fund's financial statements are included in the
Company's Fund's annual report which is available upon request (See back cover
for ordering instructions).

IMPORTANT DEFINITIONS

ADVISORY FEES: fees
paid to the investment
adviser for portfolio
management services.

SHAREHOLDER
SERVICING/PROCESSING
FEES: fees that are
paid to BlackRock and
/or its affiliates for
shareholder account
service and mainte-
nance.

12B-1 FEES: A method of
charging distribution-
related expenses
against fund assets.
"12b-1" refers to the
SEC rule that permits
the use of these fees.

OTHER EXPENSES: include
administration, trans-
fer agency, custody,
professional fees and
registration fees.
57
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A, B OR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

INTERNATIONAL SMALL CAP EQUITY PORTFOLIO

<TABLE>
<CAPTION>
INVESTOR A INVESTOR B INVESTOR C
SHARES SHARES SHARES
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
YEAR 9/26/97/1 9/26/97/1 9/26/97/1
ENDED / THROUGH / THROUGH / THROUGH
9/30/98 9/30/97 9/30/97 9/30/97
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING
OF PERIOD $10.00 $10.00 $10.00
--- ------ ------ ------
Income from investment
operations
Net investment income - - - - - -
Net gain (loss) on
investments (both realized
and unrealized) (0.06) (0.06) (0.06)
--- ------ ------ ------
Total from investment
operations (0.06) (0.06) (0.06)
--- ------ ------ ------
LESS DISTRIBUTIONS
Distributions from net
investment income - - - - - -
Distributions from net
realized capital gains - - - - - -
--- ------ ------ ------
Total distributions - - - - - -
--- ------ ------ ------
NET ASSET VALUE AT END OF
PERIOD $ 9.94 $ 9.94 $ 9.94
=== ====== ====== ======
Total return (0.30)%/3/ (0.30)%/3/ (0.30)%/3/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period
(in thousands) $ 326 $ 711 $ 182
Ratios of expenses to
average net assets
After
advisory/administration fee
waivers 1.30%/2/ 1.30%/2/ 1.30%/2/
Before
advisory/administration fee
waivers 1.52%/2/ 1.52%/2/ 1.52%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration fee
waivers 1.44%/2/ 1.58%/2/ 1.44%/2/
Before
advisory/administration fee
waivers 1.22%/2/ 1.35%/2/ 1.22%/2/
PORTFOLIO TURNOVER RATE 0% 0% 0%
</TABLE>

BLACKROCK
SELECT EQUITY (LOGO)
PORTFOLIO

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

IMPORTANT DEFINITIONS

S&P 500 INDEX: An
unmanaged index of 500
stocks, most of which
are listed on the New
York Stock Exchange.
The index is heavily
weighted toward stocks
with large market capi-
talization and repre-
sents approximately
two-thirds of the total
market value of all
domestic common stocks.

FUNDAMENTAL ANALYSIS:
[TO COME]

VALUE: All stocks are
generally divided into
the categories of
"growth" or "value"--
although there are
times when a growth
fund and value fund may
own the same stock.
Value stocks are compa-
nies that appear to the
manager to be underval-
ued by the market as
measured by certain
financial formulas.
Growth stocks are com-
panies whose earnings
growth potential
appears to the manager
to be greater than the
market in general.

SECTOR: All stocks are
classified into a cate-
gory or sector such as
utilities, consumer
services, basic materi-
als, capital equipment,
consumer cyclicals,
energy, consumer non-
cyclicals, healthcare,
technology, transporta-
tion, finance and cash.

INVESTMENT STYLE:
Refers to the guiding
principles of a mutual
fund's portfolio
choices. The investment
style of this fund is a
blend of growth stocks
and value stocks,
referring to the type
of securities the man-
agers will choose for
this fund.

INVESTMENT GOAL
The fund seeks long-term capital appreciation--current income is the secondary
objective.

PRIMARY INVESTMENT STRATEGIES
In pursuit of this goal, the fund manger uses the S&P 500 Index as a benchmark
and seeks invest in stocks in market sectors in similar proportion to that
index. The manager seeks to own securities in all sectors, but can overweight
or underweight securities within sectors as he identifies market opportunities.
The fund normally invests at least 80% of its total assets in equity securi-
ties. The fund primarily buys common stock but can also invest in preferred
stock and securities convertible into common and preferred stock.

The manager initially screens for "value" and "growth" stocks from the universe
of companies with market capitalization above $1 billion. Whether screening
growth or value stocks, the manager is seeking companies that are currently
undervalued. The manager uses fundamental analysis to examine each company for
financial strength before deciding to purchase the stock

It is possible that in extreme market conditions the fund may invest some or
all of its assets in high quality money market securities. The fund may also
hold these securities pending investments or when it expects to need cash to
pay redeeming shareholders. The reason for acquiring money market securities
would be to avoid market losses. However, if market conditions improve, this
strategy could result in reducing the potential gain from the market upswing,
thus reducing the fund's opportunity to achieve its investment objective.

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

While the fund manager chooses stocks he believes to be undervalued, or which
have above average growth potential, there is no guarantee that prices will
increase in value.

The fund may sometimes engage in short term trading which could produce
greater brokerage costs and taxable distributions to shareholders.

KEY RISKS
60
<PAGE>

RISK / RETURN INFORMATION
The chart and table below give you a picture of the fund's long-term perfor-
mance. The information shows you how the fund's performance has varied year by
year and provides some indication of the risks of investing in the fund. The
table compares the fund's performance to that of the S&P 500 Index, a recog-
nized unmanaged index of stock market performance. The chart and the table both
assume reinvestment of dividends and distributions. As with all such invest-
ments, past performance is not an indication of future results. Sales charges
are not reflected in the bar chart. If they were, returns would be less than
those shown.

your shares long term it will cost less to buy A Shares than B or C Shares.

SHAREHOLDER FEES
(Fees paid directly from your investment)

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

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

<TABLE>
<S> <C> <C> <C>
Advisory Fees .XX% .XX% .XX%
Distribution and shareholder
Servicing/processing (12b-1) fees* .XX% .XX% .XX%
Other expenses .XX% .XX% .XX%
Total annual fund operating expenses X.XX% X.XX% X.XX%
Fee waivers and expense
reimbursements** .XX% .XX% .XX%
Net expenses** .XX% .XX% .XX%
</TABLE>
*As a result of voluntary waivers by BlackRock Distributors, Inc., the Fund's
distributor, the fund does not expect to incur 12b-1 distribution fees in
excess of .005% with respect to Investor A Shares (otherwise payable at the
maximum rate of .10%) during the current fiscal year.
**BlackRock has agreed to waive or limit its advisory fee or reimburse "Other
expenses" in order to limit certain (but not all) fund expenses to no more
than .XX%, .XX% and .XX%, respectively, for Investor A, Investor B and
Investor C Shares. The expense information in the table has been restated to
reflect these waivers and reimbursements. The fund may have to repay these
waivers and reimbursements to BlackRock in the future if the repayment can be
made within the expense limit.

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.
62
<PAGE>

IMPORTANT DEFINITIONS

ADVISORY FEES: fees
paid to the investment
adviser for portfolio
management services.

SHAREHOLDER
SERVICING/PROCESSING
FEES: fees that are
paid to BlackRock
and/or its affiliates
for shareholder account
service and mainte-
nance.

12B-1 FEES: A method of
charging distribution-
related expenses
against fund assets.
"12b-1" refers to the
SEC rule that permits
the use of these fees.

OTHER EXPENSES: fees
paid by the fund for
other expenses such as
administration, trans-
fer agency, custody,
professional fees and
registration fees.

LOAD: another term for
sales charge. Example:
a front-end load is a
sales charge paid upon
purchase of shares.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
A SHARES* $XXX $XXX $XXX $XXX
B SHARES** $XXX $XXX $XXX $XXX
Redemption
B SHARES $XXX $XXX $XXX $XXX
No Redemption
C SHARES** $XXX $XXX $XXX $XXX
Redemption
C SHARES $XXX $XXX $XXX $XXX
No Redemption
</TABLE>
*Reflects imposition of sales charge.
**Reflects deduction of contingent deferred sales charge.
***Based on conversion of the Investor B Shares to Investor A Shares after
eight years.

FUND MANAGEMENT
The portfolio manager of the fund is Daniel B. Eagan, portfolio manager with
BlackRock Financial Management, Inc. since 1995. Mr. Eagan was a director of
investment strategy at BlackRock during 1994-1995. Prior to 1994 he served as
senior research consultant for Mercer Investment Consulting. He has served as
portfolio manager for the fund since January 1995.

63
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A, B OR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

SELECT EQUITY PORTFOLIO

<TABLE>
<CAPTION>
INVESTOR B
INVESTOR A SHARES SHARES
<CAPTION>
INVESTOR C
SHARES
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR YEAR YEAR 10/13/93/1 YEAR 3/27/96/1
ENDED ENDED ENDED ENDED / THROUGH ENDED / THROUGH
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94 9/30/97 9/30/96
FOR THE
PERIOD
YEAR 9/27/96/1
ENDED / THROUGH
9/30/97 9/30/96
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 13.56 $11.88 $ 9.92 $9.96 $ 13.54 $12.83
--- ------- ------ ------ ----- ------- ------
Income from investment
operations
Net investment income 0.11 0.15 0.20 0.18 0.05 0.04
Net gain (loss) on
investments (both
realized and
unrealized) 5.16 2.07 2.06 (0.03) 5.07 0.73
--- ------- ------ ------ ----- ------- ------
Total from investment
operations 5.27 2.22 2.26 0.15 5.12 0.77
--- ------- ------ ------ ----- ------- ------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.12) (0.15) (0.18) (0.19) (0.05) (0.06)
Distributions from net
realized capital gains (1.21) (0.39) (0.12) - - (1.21) - -
--- ------- ------ ------ ----- ------- ------
Total distributions (1.33) (0.54) (0.30) (0.19) (1.26) (0.06)
--- ------- ------ ------ ----- ------- ------
NET ASSET VALUE AT END OF
PERIOD $ 17.50 $13.56 $11.88 $9.92 $ 17.40 $13.54
=== ======= ====== ====== ===== ======= ======
Total return 41.95%/3/ 19.23%/3/ 23.29%/3/ 1.54%/3/ 40.70%/3/ 6.58%/3/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $18,949 $6,228 $3,808 $ 601 $18,345 $1,196
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.27% 1.21% 1.12% 1.05%/2/ 2.01% 1.92%/2/
Before
advisory/administration
fee waivers 1.34% 1.34% 1.30% 1.34%/2/ 2.08% 2.04%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 0.75% 1.24% 1.91% 1.89%/2/ (0.02)% 0.59%/2/
Before
advisory/administration
fee waivers 0.68% 1.11% 1.73% 1.60%/2/ (0.09)% 0.46%/2/
PORTFOLIO TURNOVER RATE 29% 55% 51% 88% 29% 55%
<S> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $13.54 $13.52
----------- ------------
Income from investment
operations
Net investment income 0.04 - -
Net gain (loss) on
investments (both
realized and
unrealized) 5.08 0.02
----------- ------------
Total from investment
operations 5.12 0.02
----------- ------------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.05) - -
Distributions from net
realized capital gains (1.21) - -
----------- ------------
Total distributions (1.26) - -
----------- ------------
NET ASSET VALUE AT END OF
PERIOD $17.40 $13.54
=========== ============
Total return 40.70%/3/ 0.15%/3/
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $ 377 $ 50
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 2.01% 0.00%/2/
Before
advisory/administration
fee waivers 2.08% 0.00%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers (0.12)% 0.00%/2/
Before
advisory/administration
fee waivers (0.19)% 0.00%/2/
PORTFOLIO TURNOVER RATE 29% 55%
</TABLE>

BLACKROCK
(LOGO) INDEX EQUITY
PORTFOLIO

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

INVESTMENT GOAL
The fund seeks long-term capital appreciation.

PRIMARY INVESTMENT STRATEGIES
In pursuit of this goal, the fund invests all of its assets indirectly, through
the U.S. Large Company Series (the Index Master Portfolio) of the DFA Invest-
ment Trust Company, in the stocks of the S&P 500 Index using a passive invest-
ment style that seeks to replicate the returns of the S&P 500 Index. The Index
Master Portfolio normally invests at least 95% of its total assets in substan-
tially all the stocks of the S&P 500 Index in approximately the same proportion
as they are represented in the Index.

The Index Master Portfolio may invest some of its assets (normally not more
than 5% of net assets) in certain short-term fixed income securities pending
investments or to meet anticipated redemption obligations.

Both the Index Equity Portfolio and the Index Master Portfolio may lend some of
its securities on a short-term basis in order to earn extra income. The fund
will receive collateral in cash or high-quality securities equal to the current
value of the loaned securities. these loans will be limited to 33 1/3% of the
value of the fund's total assets.

Should the Company's Board of Trustees determine that the investment objective
of the fund should be changed, shareholders will be given at least 30 days
notice before any such change is effected. The investment objective of the
Index Master Portfolio may not be changed without shareholder approval.

IMPORTANT DEFINITIONS

LARGE CAPITALIZATION
COMPANIES: These are
larger, usually better
known companies. Capi-
talization refers to
the market value of the
company and is calcu-
lated by multiplying
the number of shares
outstanding by the cur-
rent price per share.
Larger companies may be
more likely to have the
staying power to get
them through all eco-
nomic cycles; however
their size may also
make them less flexible
and innovative than
smaller companies.

INDEX INVESTING: An
investment strategy
involving the creation
of a portfolio tailored
as closely as possible
to match the investment
performance of a spe-
cific stock or bond
market index. Index
funds offer investors
diversification among
securities, low portfo-
lio turnover and rela-
tive predictability of
portfolio composition.
The Index Master Port-
folio engages in index
investing.

65
<PAGE>

KEY RISKS

Because different kinds of stocks go in and out of favor depending on market
conditions, this fund's performance may be better or worse than other funds
with different investment styles. The fund is not actively managed and adverse
performance of a stock will ordinarily not result in its elimination from the
Index Master Portfolio. The Index Master Portfolio will remain fully invested
in 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. The investment performance of the
Index Master Portfolio and the fund is 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.

The Index Master Portfolio may, to the extent consistent with its investment
objective, invest in futures, commonly known as derivatives, to commit funds
pending investment or to maintain liquidity. Such practices may reduce returns
and/or increase volatility. The Index Master Portfolio can borrow money to buy
additional securities. This practice can have the effect of increasing the
fund's losses or gains.

The Company, like any business, could be affected if the computer systems on
which it relies do not properly process information beginning on January 1,
2000. While Year 2000 issues could have a negative effect on the Fund, Black-
Rock is currently working to avoid such problems. BlackRock is also working
with other systems providers and vendors to determine their systems' ability
to handle Year 2000 problems. There is no guarantee however that systems will
work properly on January 1, 2000. Year 2000 problems may also hurt companies
whose securities the fund holds or securities markets generally.

RISK / RETURN INFORMATION
The chart and table below give you a picture of the fund's long-term perfor-
mance. The information shows you how the fund's performance has varied year by
year and provides some indication of the risks of investing in the fund. The
table compares the fund's performance to that of the S&P 500 Index, a recog-
nized unmanaged index of stock market performance. The chart and the table both
assume reinvestment of dividends and distributions. As with all such invest-
ments, past performance is not an indication of future results. Sales charges
are not reflected in the bar chart. If they were, returns would be less than
those shown.

SHAREHOLDER FEES
(Fees paid directly from your investment)

<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
Maximum Front-End Sales
Charge* 3.0% 0.0% 0.0%
(as percentage of offering
price)
Maximum Deferred Sales Charge 0.0% 4.5%** 1.00%***
(as percentage of offering
price)
</TABLE>
* Reduced front-end sales charges may be available. A CDSC of up to 1.00% is
assessed on certain redemptions of Investor A Shares that are purchased
with no initial sales charge as part of an investment of $1,000,000 or
more.
** The contingent deferred sales charge is 4.5% if shares are redeemed in
less than one year. The deferred sales charge for Investor B Shares
decreases for redemptions made in subsequent years. After six years there
is no CDSC on B Shares. (See page for complete schedule of CDSC's.)
*** There is no CDSC on C Shares after one year.

ANNUAL FUND OPERATING EXPENSES*
(Expenses that are deducted from fund assets)

<TABLE>
<S> <C> <C> <C>
Advisory Fees .XX% .XX% .XX%
Distribution and shareholder
Servicing/processing (12b-1) fees** .XX% .XX% .XX%
Other expenses .XX% .XX% .XX%
Total annual fund operating expenses X.XX% X.XX% X.XX%
Fee Waivers and Expense
Reimbursements** .XX% .XX% .XX%
Net Expenses** X.XX% X.XX% X.XX%
</TABLE>
* The Annual Fund Operating Expenses table and the Example reflect the
expenses of both the Index Equity and Index Master Portfolios.
** As a result of voluntary waivers by BlackRock Distributors, Inc., the
Fund's distributor, the fund does not expect to incur 12b-1 distribution
fees in excess of .005% with respect to Investor A Shares (otherwise pay-
able at the maximum rate of .10%) during the current fiscal year.
*** BlackRock has agreed to waive or limit its advisory fee or reimburse
"Other expenses" in order to limit certain (but not all) fund expenses to
no more than .XX%, .XX% and .XX%, respectively, for Investor A, Investor B
and Investor C Shares. The expense information in the table has been
restated to reflect these waivers and reimbursements. The fund may have to
repay these waivers and reimbursements to BlackRock in the future if the
repayment can be made within the expense limit.

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.

EXAMPLE:
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. We are assuming an initial
investment of $10,000, 5% total return each year with no changes in operating
expenses, redemption at the end of each time period and, with respect to B
Shares and C Shares only, no redemption at the end of each time period.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
68
<PAGE>

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
A SHARES* $XXX $XXX $XXX $XXX
B SHARES** $XXX $XXX $XXX $XXX***
Redemption
B SHARES $XXX $XXX $XXX $XXX***
No Redemption
C SHARES** $XXX $XXX $XXX $XXX
Redemption
C SHARES $XXX $XXX $XXX $XXX
No Redemption
</TABLE>
*Reflects imposition of sales charge.
**Reflects deduction of contingent deferred sales charge.
***Priced on the Conversion of Investor B Shares to Investor A Shares after
eight years.

FUND MANAGEMENT
Dimensional Fund Advisors Inc. (DFA) serves as investment adviser to the Index
Master Portfolio. Investment decisions for the Index Master Portfolio are made
by the Investment Committee of DFA, which meets on a regular basis and also as
needed to consider investment issues. The Investment Committee is composed of
certain officers and directors of DFA who are elected annually. DFA provides
the Index Master Portfolio with a trading department and selects brokers and
dealers to effect securities transactions.

IMPORTANT DEFINITIONS

ADVISORY FEES: fees
paid to the investment
adviser for portfolio
management services.

SHAREHOLDER
SERVICING/PROCESSING
FEES: fees that are
paid to BlackRock and
/or its affiliates for
shareholder account
service and mainte-
nance.

12B-1 FEES: A method of
charging distribution-
related expenses
against fund assets.
"12b-1" refers to the
SEC rule that permits
the use of these fees.

OTHER EXPENSES: include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

69
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A, B OR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

INDEX EQUITY PORTFOLIO

<TABLE>
<CAPTION>
INVESTOR B
INVESTOR A SHARES SHARES
<CAPTION>
INVESTOR C SHARES
FOR THE
FOR THE PERIOD
PERIOD 2/7/96/1
YEAR YEAR YEAR YEAR YEAR 7/29/92/1 YEAR /
ENDED ENDED ENDED ENDED ENDED / THROUGH ENDED THROUGH
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94 9/30/92 9/30/97 9/30/96
FOR THE
PERIOD
YEAR 8/14/96/1
ENDED / THROUGH
9/30/97 9/30/96
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
AT BEGINNING OF
PERIOD $ $ 13.96 $ 13.58 $10.93 $11.02 $10.07 $ 13.93 $13.20
---- ------- ------- ------ ------ ------ ------- ------
Income from
investment
operations
Net investment
income 0.21 0.27 0.34 0.25 0.10 0.13 0.08
Net gain (loss)
on investments
(both realized
and unrealized) 5.02 2.09 2.73 0.04 (0.01) 4.94 0.77
---- ------- ------- ------ ------ ------ ------- ------
Total from
investment
operations 5.23 2.36 3.07 0.29 0.09 5.07 0.85
---- ------- ------- ------ ------ ------ ------- ------
LESS
DISTRIBUTIONS
Distributions
from net
investment
income (0.19) (0.28) (0.30) (0.27) (0.10) (0.10) (0.12)
Distributions
from net
realized
capital gains (0.68) (1.70) (0.12) (0.11) - - (0.68) - -
---- ------- ------- ------ ------ ------ ------- ------
Total
distributions (0.87) (1.98) (0.42) (0.38) (0.10) (0.78) (0.12)
---- ------- ------- ------ ------ ------ ------- ------
NET ASSET VALUE
AT END OF PERIOD $ $ 18.32 $ 13.96 $13.58 $10.93 $10.06 $ 18.22 $13.93
==== ======= ======= ====== ====== ====== ======= ======
Total return 39.49%/3/ 19.31%/3/ 28.77%/3/ 2.66%/3/ 0.91%/3/ 38.31%/3/ 6.50%/3/
RATIOS/SUPPLEMENTAL
DATA
Net assets at
end of period
(in thousands) $ $33,934 $12,752 $6,501 $2,632 $ 56 $38,271 $2,904
Ratios of
expenses to
average net
assets
After
advisory/administration
fee waivers 0.65% 0.65%/4/ 0.61% 0.55% 0.45%/2/ 1.38% 1.38%/2/
Before
advisory/administration
fee waivers 0.85%/4/ 0.97% 0.95% 0.92% 0.64%/2/ 1.58%/4/ 1.60%/2/,/4/
Ratios of net
investment
income to
average net
assets
After
advisory/administration
fee waivers 1.23% 1.81% 2.44% 2.35% 2.85%/2/ 0.45% 0.93%/2/
Before
advisory/administration
fee waivers 1.03% 1.49% 2.10% 1.98% 2.66%/2/ 0.25% 0.71%/2/
PORTFOLIO
TURNOVER RATE - -/6/ 18%/5/,/6/ 18% 17% 23% - -/6/ 18%/5/,/6/
<S> <C> <C>
NET ASSET VALUE
AT BEGINNING OF
PERIOD $ 13.93 $13.47
----------- ----------------
Income from
investment
operations
Net investment
income 0.13 0.02
Net gain (loss)
on investments
(both realized
and unrealized) 4.94 0.50
----------- ----------------
Total from
investment
operations 5.07 0.52
----------- ----------------
LESS
DISTRIBUTIONS
Distributions
from net
investment
income (0.10) (0.06)
Distributions
from net
realized
capital gains (0.68) - -
----------- ----------------
Total
distributions (0.78) (0.06)
----------- ----------------
NET ASSET VALUE
AT END OF PERIOD $ 18.22 $13.93
=========== ================
Total return 38.31%/3/ 3.90%/3/
RATIOS/SUPPLEMENTAL
DATA
Net assets at
end of period
(in thousands) $19,668 $ 432
Ratios of
expenses to
average net
assets
After
advisory/administration
fee waivers 1.38% 1.25%/2/
Before
advisory/administration
fee waivers 1.58%/4/ 1.43%/2/,/4/
Ratios of net
investment
income to
average net
assets
After
advisory/administration
fee waivers 0.45% 0.71%/2/
Before
advisory/administration
fee waivers 0.25% 0.53%/2/
PORTFOLIO
TURNOVER RATE - -/6/ 18%/5/,/6/
</TABLE>

/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is reflected
in total return.
/4/Including expenses allocated from The U.S. Large Company Series of The DFA
Investment Trust Company of 0.13%.
/5/For the period from October 1, 1995 through May 31, 1996.
/6/See footnotes to the financial statements of The DFA Investment Trust
Company for the year ended November 30, 1996 and the period ended September
30, 1997.
70
<PAGE>

BLACKROCK
BALANCED (LOGO)
PORTFOLIO

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

IMPORTANT DEFINITIONS

TOTAL RETURN: a mea-
surement of a Fund's
performance that takes
into account not only
changes in the price
per share but also div-
idends and capital gain
distribution.

S&P 500 INDEX: An
unmanaged index of 500
common stocks, most of
which are listed on the
New York Stock
Exchange. The Index is
heavily weighted toward
stocks with large mar-
ket capitalization and
represents approxi-
mately two-thirds of
the total market value
of all domestic common
stocks.

LARGE CAPITALIZATION
COMPANIES: These are
larger, usually better
known companies. Capi-
talization refers to
the market value of the
company and is calcu-
lated by multiplying
the number of shares
outstanding by the cur-
rent price per share.
Larger companies may be
more likely to have the
staying power to get
them through all eco-
nomic cycles; however,
their size may also
make them less flexible
and innovative than
smaller companies.

VALUE COMPANY: All
stocks are generally
divided into the cate-
gories of "growth" or
"value"--although there
are times when a
"growth fund" and a
"value fund" may own
the same stock. Value
stocks are companies
which appear to the
manager to be underval-
ued by the market as
measured by certain
financial formulas.
Growth stocks are com-
panies whose earnings
growth potential
appears to the manager
to be greater than the
market in general.

INVESTMENT STYLE:
Refers to the guiding
principle of a mutual
fund's portfolio
choices. The investment
style of this fund is
balanced, referring to
the type of securities
the managers will
choose for this fund,
both equity and fixed
income securities.

INVESTMENT GRADE BONDS:
Bonds are debt securi-
ties and are rated on
their ability to pay
principal and interest.
The higher rated bonds
(BBB or higher by S&P
or Baa or higher by
Moody's) are called
investment grade.

INVESTMENT GOAL
The fund seeks long-term capital appreciation--current income from fixed income
securities is the secondary objective.

PRIMARY INVESTMENT STRATEGIES
In pursuit of this goal, the fund managers invest primarily in a blend of
equity and fixed income securities selected to deliver returns through the com-
bination of capital appreciation and current income. The equity and fixed
income managers work together to determine an appropriate asset allocation
strategy.

EQUITY PORTION
The equity portion of the portfolio combines growth and value styles as the
manager identifies market opportunities. The strategy of the equity team is to
build a core portfolio of strong large cap stocks with sector weights similar
to the S&P 500 Index. The portfolio manager will adjust the blend of
value/growth stocks based on economic conditions. The fund will invest primar-
ily in common stocks.

FIXED INCOME PORTION
The fixed income portion of the portfolio consists of a broad range of U.S.
investment grade, debt securities including U.S. Government bonds, mortgage-
backed, asset-backed and corporate debt securities. The fund normally will
invest at least 25% of its total assets in fixed income securities. The fixed
income team uses a range of techniques to seek to locate debt securities that
will add value while controlling risk. The team uses a disciplined process to
sell securities when their rating falls below investment grade (BBB by S&P or
Baa by Moody's).

It is possible that in extreme market conditions the fund may invest some or
all of its assets in high quality money market securities. The reason for
acquiring money market securities would be to avoid market losses. However, if
market conditions improve, this strategy could result in reducing the potential
gain from the market upswing, thus reducing the fund's opportunity to achieve
71
<PAGE>

its investment objective. The fund may hold these securities pending invest-
ments or when it expects to need cash to pay redeeming shareholders. The fund
also may invest in money market securities in order to achieve its investment
objective.

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

The main risk of an investment in bonds is that the value is subject to credit
risk and interest rate risk. Credit risk involves the possibility that a bor-
rower cannot make timely interest or principal payments on its bonds. The fund
will invest in investment grade bonds. Securities rated BBB or Baa are gener-
ally considered to be investment grade although they do carry some credit
risk. Changes in the fundamental strength of these securities could lower
their rating and value. This could occur, for example, if the security's
issuer experiences economic problems. Interest rate risk involves the possi-
bility that the value of a fixed-income investment will decline if interest
rates increase. Generally, long-term fixed income securities are more sensi-
tive to changes in interest rates than short term securities.

Because market conditions can vary, this fund's performance may be better or
worse than other funds with different investment styles. For example, in some
markets a fund holding exclusively equity or fixed income securities may
outperform this fund.

While the fund manager chooses stocks with a focus on attempting to minimize
risk and chooses bonds of investment grade quality, there is no guarantee that
prices won't move lower.

is defined as the characteristic of a security or a market to fluctuate signif-
icantly in price within a short time period. The fund can borrow money to buy
additional securities. The fund may borrow from banks or other financial insti-
tutions or through reverse repurchase agreements (under which the fund sells
securities and agrees to buy them back at a particular date and price). This
practice can increase the fund's possible losses or gains.

The fund may sometimes engage in short term trading which could produce greater
brokerage costs and taxable distributions to shareholders.

The fund can invest instruments called depository receipts which are securities
issued by financial institutions (like banks or trust companies) which repre-
sent ownership in underlying securities issued by foreign companies. These
securities carry additional risks associated with investing in foreign securi-
ties, such as changes in currency exchange rates, lack of public information
about the foreign company and political instability in the company's country.

RISK / RETURN INFORMATION
The chart and table below give you a picture of the fund's long-term perfor-
mance. The chart shows you how the fund's performance has varied year by year
and provides some indication of the risks of investing in the fund. The table
compares the fund's performance to that of the S&P 500 Index and the Salomon
Broad Investment Grade Index, recognized unmanaged indices of stock and bond
market performance, respectively. The chart and
73
<PAGE>

EXPENSES AND FEES
the table both assume reinvestment of dividends and distributions. As with all
such investments, past performance is not an indication of future results.
Sales charges are not reflected in the bar chart. If they were, returns would
be less than those shown.

SHAREHOLDER FEES
(Fees paid directly from your investment)

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

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

<TABLE>
<S> <C> <C> <C>
Advisory Fees .XX% .XX% .XX%
Distribution and shareholder
Servicing/processing (12b-1) fees* .XX% .XX% .XX%
Other expenses .XX% .XX% .XX%
Total annual fund operating expenses X.XX% X.XX% X.XX%
Fee Waivers and Expense
Reimbursements** .XX% .XX% .XX%
Net Expenses** X.XX% X.XX% X.XX%
</TABLE>
* As a result of voluntary waivers by BlackRock Distributors, Inc., the Fund's
distributor, the fund does not expect to incur 12b-1 distribution fees in
excess of .005% with respect to Investor A Shares (otherwise payable at the
maximum rate of .10%) during the current fiscal year.
** BlackRock has agreed to waive or limit its advisory fee or reimburse "Other
expenses" in order to limit certain (but not all) fund expenses to no more
than .XX%, .XX% and .XX%, respectively, for Investor A, Investor B and
Investor C Shares. The expense information in the table has been restated to
reflect these waivers and reimbursements. The fund may have to repay these
waivers and reimbursements to BlackRock in the future if the repayment can
be made within the expense limit.

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.

EXAMPLE:
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. We are assuming an initial
investment of $10,000, 5% total return each year with no changes in operating
expenses, redemption at the end of each time period and, with respect to B
Shares and C Shares only, no redemption at the end of each time period.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
75
<PAGE>

IMPORTANT DEFINITIONS

ADVISORY FEES: fees
paid to the investment
adviser for portfolio
management services.

SHAREHOLDER
SERVICING/PROCESSING
FEES: fees that are
paid to BlackRock
and/or its affiliates
for shareholder account
service and mainte-
nance.

12B-1 FEES: A method of
charging distribution-
related expenses
against fund assets.
"12b-1" refers to the
SEC rule that permits
the use of these fees.

OTHER EXPENSES: include
fees paid by the fund
for other expenses such
as administration,
transfer agency, custo-
dy, professional fees
and registration fees.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
A SHARES* $XXX $XXX $XXX $XXX
B SHARES** $XXX $XXX $XXX $XXX***
Redemption
B SHARES $XXX $XXX $XXX $XXX***
No Redemption
C SHARES** $XXX $XXX $XXX $XXX
Redemption
C SHARES $XXX $XXX $XXX $XXX
No Redemption
</TABLE>
*Reflects imposition of sales charge.
**Reflects deduction of contingent deferred sales charge.
***Based on the conversion of Investor B Shares to Investor A shares after
eight years.

FUND MANAGEMENT
The portfolio manager for the equity portion of the fund is R. Andrew Damm. He
is Senior Investment Strategist with BlackRock Financial Management, Inc.
since 1995 and served as Portfolio Manager for PNC Bank from 1988-1995. He has
been co-manager of the fund since 1996.

The co-managers for the fixed-income portion of the fund are Robert S. Kapito,
who is Vice Chairman of BlackRock since 1988 and who has served as co-manager
of the fund since 1995 and Keith T. Anderson, who is co-chair of the Portfolio
Management Group and Investment Strategy Committee at BlackRock Financial Man-
agement, Inc. since 1988. He has served as co-manager of the fund since 1995.

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A, B OR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

BALANCED PORTFOLIO

<TABLE>
<CAPTION>
INVESTOR B
INVESTOR A SHARES SHARES
<CAPTION>
INVESTOR C
SHARES
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR YEAR YEAR YEAR 5/14/90/1 YEAR YEAR 10/03/94/1
ENDED ENDED ENDED ENDED ENDED / THROUGH ENDED ENDED / THROUGH
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94 9/30/90 9/30/97 9/30/96 9/30/95
FOR THE
PERIOD
12/20/96/1/
THROUGH
9/30/97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
AT
BEGINNING
OF PERIOD $ 15.10 $ 13.73 $ 11.98 $ 12.42 $10.00 $ 15.04 $13.69 $11.95
--- ------- ------- ------- ------- ------ ------- ------ ------
Income from
investment
operations
Net investment
income 0.39 0.40 0.43 0.32 0.12 0.31 0.31 0.33
Net realized
gain (loss)
on investments 3.68 1.49 1.88 (0.38) (0.88) 3.61 1.47 1.93
--- ------- ------- ------- ------- ------ ------- ------ ------
Total from
investment
operations 4.07 1.89 2.31 (0.06) (0.76) 3.92 1.78 2.26
--- ------- ------- ------- ------- ------ ------- ------ ------
LESS
DISTRIBUTIONS
Distributions
from net
investment
income (0.43) (0.39) (0.42) (0.32) (0.11) (0.31) (0.30) (0.38)
Distributions
from net
realized
capital gains (0.52) (0.13) (0.14) (0.06) - - (0.52) (0.13) (0.14)
--- ------- ------- ------- ------- ------ ------- ------ ------
Total
distributions (0.95) (0.52) (0.56) (0.38) (0.11) (0.83) (0.43) (0.52)
--- ------- ------- ------- ------- ------ ------- ------ ------
NET ASSET VALUE
AT END OF
PERIOD $ 18.22 $ 15.10 $ 13.73 $ 11.98 $ 9.13 $ 18.13 $15.04 $13.69
=== ======= ======= ======= ======= ====== ======= ====== ======
Total return 27.93%/3/ 13.98%/3/ 19.86%/3/ (0.50)%/3/ (7.64)%/3/ 26.95%/3/ 13.14%/3/ 19.38%/3/
RATIOS/SUPPLEMENTAL
DATA
Net assets at
end of period
(in thousands) $87,202 $71,899 $67,892 $62,307 $3,960 $23,455 $7,333 $3,124
Ratios of
expenses to
average
net assets
After advisory/
administration
fee waivers 1.24% 1.19% 1.07% 1.05% 1.15%/2/ 2.05% 1.98% 1.72%/2/
Before
advisory/
administration
fee waivers 1.30% 1.30% 1.28% 1.31% 1.90%/2/ 2.11% 2.09% 1.94%/2/
Ratios of net
investment
income
to average net
assets
After advisory
/administration
fee waivers 2.58% 2.75% 3.38% 2.77% 3.07%/2/ 1.78% 1.99% 2.71%/2/
Before
advisory/
administration
fee waivers 2.52% 2.65% 3.16% 2.51% 2.32%/2/ 1.72% 1.88% 2.49%/2/
PORTFOLIO
TURNOVER RATE 173% 275% 154% 54% 37% 173% 275% 154%
<S> <C>
NET ASSET VALUE
AT
BEGINNING
OF PERIOD $15.62
-------------
Income from
investment
operations
Net investment
income 0.28
Net realized
gain (loss)
on investments 2.54
-------------
Total from
investment
operations 2.82
-------------
LESS
DISTRIBUTIONS
Distributions
from net
investment
income (0.31)
Distributions
from net
realized
capital gains - -
-------------
Total
distributions (0.31)
-------------
NET ASSET VALUE
AT END OF
PERIOD $18.13
=============
Total return 23.95%/3/
RATIOS/SUPPLEMENTAL
DATA
Net assets at
end of period
(in thousands) $ 87
Ratios of
expenses to
average
net assets
After advisory/
administration
fee waivers 2.03%/2/
Before
advisory/
administration
fee waivers 2.09%/2/
Ratios of net
investment
income
to average net
assets
After advisory
/administration
fee waivers 1.90%/2/
Before
advisory/
administration
fee waivers 1.84%/2/
PORTFOLIO
TURNOVER RATE 173%
</TABLE>

BLACKROCK
MICRO-CAP EQUITY (LOGO)
PORTFOLIO

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

IMPORTANT DEFINITIONS

EARNINGS GROWTH: owner-
ship of a company held
by shareholders as rep-
resented by stocks.
Bonds, in comparison,
are referred to as
fixed income or debt
securities because they
represent indebtedness
to the bondholders, not
ownership.

MICRO-CAP COMPANIES:
This asset class con-
tains the smallest cap-
italized companies. The
fund defines a "micro-
cap" company as one
with total capitaliza-
tion of $25 million to
$300 million.

GROWTH COMPANIES: All
stocks are generally
divided into the cate-
gories of "growth" or
"value"--although there
are times when a growth
fund and value fund may
own the same stock.
Growth stocks are com-
panies whose earnings
growth potential
appears to the manager
to be greater than the
market in general and
whose growth in revenue
is expected to continue
for an extended period.
These stocks typically
pay relatively low div-
idend yields and sell
at relatively high
prices in relation to
their earnings and book
value. Value stocks are
companies that appear
to the manager to be
undervalued by the mar-
ket as measured by cer-
tain financial formu-
las.

EARNINGS VISIBILITY:
earnings visibility
means positive earnings
in the foreseeable
future (generally
defined as 2-3 years).
Earnings growth poten-
tial means the rate of
earnings growth of
which a company is
capable. Earnings
growth visibility of
20% or more means earn-
ings are forecasted to
grow at a rate of 20%
or higher in the fore-
seeable future.

INVESTMENT STYLE:
Refers to the guiding
principles of a mutual
fund's portfolio
choices. The investment
style of this fund is
micro-cap, referring to
the type of securities
the manager will choose
for this fund.

INVESTMENT GOAL
The fund seeks long-term capital appreciation.

PRIMARY INVESTMENT STRATEGIES
In pursuit of this goal, the fund manager invests primarily in micro-capital-
ization companies (market capitalization between $25 million to $300 million)
with earnings visibility and earnings growth potential. The fund normally
invests at least 65% of its total assets in the equity securities issued by
these companies and normally invests at least 80% of its total assets in equity
securities. The fund primarily invests in common stock but can also invest in
preferred stock and securities convertible into common and preferred stock.

The fund manager is seeking micro-capitalization stocks which he believes have
favorable and above-average earnings growth prospects. The manager (using
BlackRock's technology) to screen for "growth" stocks from the universe of com-
panies with market capitalization between $25 million and $300 million. Gener-
ally, only companies in the top 40% of the micro cap sector with earnings
growth visibility of 20% or higher will be considered appropriate investments.
The manager uses fundamental analysis to examine each company for financial
strength before deciding to purchase the stock.

loaned securities. These loans will be limited to 33 1/3% of the value of the
fund's total assets.

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

There are certain risks with investing in micro-cap securities. Micro-cap com-
panies will normally have more limited product lines, markets and financial
resources and will be more dependent on a more limited management group than
companies with larger capitalizations. In addition it is more difficult to get
information on micro-cap companies, which tend to be less well known, do not
have significant ownership by large investors and are followed by relatively
few securities analysts. The securities of micro-cap companies are often traded
in the over-the-counter markets and may have fewer market makers and wider
price spreads. This may result in greater price movements and less ability to
sell the fund's investment than if the fund held the securities of larger, more
established companies. There have been instances of fraud in the micro-cap mar-
ket. The fund may suffer losses due to fraudulent activity in the market in
which it invests.

An important consideration: In certain investment cycles and over certain hold-
ing periods, an equity fund that invests in micro-cap stocks may perform above
or below the market. The fund should be considered an aggressive allocation
within an overall investment strategy; it is not intended to be used as a com-
plete investment program.

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

KEY RISKS
79
<PAGE>

market to fluctuate significantly in price within a short time period. The
fund can borrow money to buy additional securities. The fund may borrow from
banks or other financial institutions or through reverse repurchase agreements
(under which the fund sells securities and agrees to buy them back at a par-
ticular date and price). This practice can increase the fund's possible losses
or gains.

The fund may sometimes engage in short term trading which could produce
greater brokerage costs and taxable distributions to shareholders.

The Company, like any business, could be affected if the computer systems on
which it relies do not properly process information beginning on January 1,
2000. While Year 2000 issues could have a negative effect on the Fund, Black-
Rock is currently working to avoid such problems. BlackRock is also working
with other systems providers and vendors to determine their systems' ability
to handle Year 2000 problems. There is no guarantee however that systems will
work properly on January 1, 2000. Year 2000 problems may also hurt companies
whose securities the fund holds or securities markets generally.

dends and distributions. As with all such investments, past performance is not
an indication of future results. Sales charges are not reflected in the bar
chart. If they were, returns would be less than those shown.

EXPENSES AND FEES
81
<PAGE>

SHAREHOLDER FEES
(Fees paid directly from your investment)

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

<TABLE>
<S> <C> <C> <C>
Advisory Fees .XX% .XX% .XX%
Distribution and shareholder
Servicing/processing (12b-1) fees* .XX% .XX% .XX%
Other expenses .XX% .XX% .XX%
Total annual fund operating expenses X.XX% X.XX% X.XX%
Fee waivers and expense
reimbursements** .XX% .XX% .XX%
Net expenses** .XX% .XX% .XX%
</TABLE>
* As a result of voluntary waivers by BlackRock Distributors, Inc., the Fund's
distributor, the fund does not expect to incur 12b-1 distribution fees in
excess of .005% with respect to Investor A Shares (otherwise payable at the
maximum rate of .10%) during the current fiscal year.
** BlackRock has agreed to waive or limit its advisory fee or reimburse "Other
expenses" in order to limit certain (but not all) fund expenses to no more
than .XX%, .XX% and .XX%, respectively, for Investor A, Investor B and
Investor C Shares. The expense information in the table has been restated
to reflect these waivers and reimbursements. The fund may have to repay
these waivers and reimbursements to BlackRock in the future if the repay-
ment can be made within the expense limit.

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.

EXAMPLE:
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. We are assuming an initial
investment of $10,000, 5% total return each year with no changes in operating
expenses, redemption at the end of each time period and, with respect to B
Shares and C Shares only, no redemption at the end of each time period.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
82
<PAGE>

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
A SHARES* $XXX $XXX $XXX $XXX
B SHARES** $XXX $XXX $XXX $XXX***
Redemption
B SHARES $XXX $XXX $XXX $XXX***
No Redemption
C SHARES** $XXX $XXX $XXX $XXX
Redemption
C SHARES $XXX $XXX $XXX $XXX
No Redemption
</TABLE>
*Reflects imposition of sales charge.
**Reflects deduction of contingent deferred sales charge.
***Based on the conversion of Investor B Shares to Investor A Shares after
eight years.

FUND MANAGEMENT
The Micro-Cap management team is headed by William J. Wykle, investment manager
at BlackRock Financial Management, Inc. since 1995. Mr. Wykle was an investment
manager for PNC Bank from 1986 to 1995. He has co-managed this portfolio since
inception. Thomas Callan serves as co-manager. He has been an investment man-
ager with BlackRock Financial Management, Inc. since 1996, prior to which he
was an equity analyst for PNC Bank since 1993. He has co-managed this fund
since inception.

IMPORTANT DEFINITIONS

ADVISORY FEES: fees
paid to the investment
adviser for portfolio
management services.

SHAREHOLDER
SERVICING/PROCESSING
FEES: fees that are
paid to BlackRock and
/or its affiliates for
shareholder account
service and mainte-
nance.

12B-1 FEES: A method of
charging distribution-
related expenses
against fund assets.
"12b-1" refers to the
SEC rule that permits
the use of these fees.

OTHER EXPENSES: include
fees paid by the fund
for other expenses such
as administration,
transfer agency, custo-
dy, professional fees
and registration fees.

83
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR AN INVESTOR A, B OR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

MICRO-CAP EQUITY PORTFOLIO

<TABLE>
<CAPTION>
INVESTOR A INVESTOR B INVESTOR C
SHARES SHARES SHARES
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
4/15/98 4/15/98 4/15/98
THROUGH THROUGH THROUGH
9/30/98 9/30/98 9/30/98
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ $ $
------ ------ ------
Income from investment operations
Net investment income - - - - - -
Net gain (loss) on investments (both realized
and unrealized)
------ ------ ------
Total from investment operations
------ ------ ------
LESS DISTRIBUTIONS
Distributions from net investment income - - - - - -
Distributions from net realized capital gains - - - - - -
------ ------ ------
Total distributions - - - - - -
------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ $ $
====== ====== ======
Total return
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $ $ $
Ratios of expenses to average net assets
After advisory/administration fee waivers
Before advisory/administration fee waivers
Ratios of net investment income to average
net assets
After advisory/administration fee waivers
Before advisory/administration fee waivers
PORTFOLIO TURNOVER RATE
</TABLE>

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

BUYING SHARES FROM A REGISTERED INVESTMENT PROFESSIONAL

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

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

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

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

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

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

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

The transfer agent will probably receive your order from your registered repre-
sentative, who takes your order. However, you can also fill out a purchase
application and mail it to the transfer
85
<PAGE>

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

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

WHEN MUST YOU PAY?

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

HOW MUCH IS THE MINIMUM INVESTMENT?
agent with your check. Purchase orders received by the transfer agent before
the close of regular trading on the New York Stock Exchange (NYSE) (currently
4:00 PM EST) on each day the exchange is open will be priced based on the NAV
calculated at the close of trading on that day plus any applicable sales
charge. NAV is calculated separately for each class of shares of each fund at
4 PM EST each day the NYSE is open. Shares will not be priced on days the NYSE
is closed. Purchase orders received after the close of trading will be priced
based on the next calculation of NAV. The International Equity, International
Emerging Markets and International Small Cap Equity Portfolios may hold secu-
rities that trade on days when the NYSE is closed. In these cases, net asset
value of shares may change when fund shares cannot be bought or sold.

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

You must pay for your shares no later than the third business day after receipt
of your order. For shares purchased directly from the transfer agent, a check
must accompany a completed purchase application.

The minimum investment for the initial purchase of Investor Shares is $500.
There is a $50 minimum for all later investments. The Company permits a lower
initial investment if you are an employee of the Company or one its service
providers or you participate in the Automatic Investment Plan in which you
make regular, periodic investments through a savings or checking account. Your
investment professional can advise you on how to begin an Automatic Investment
Plan. The Company won't accept a purchase order of more than $1 million for
Investor B or Investor C Shares. The fund may reject any purchase order, mod-
ify or waive the minimum investment requirements and suspend and resume the
sale of any share class of the Company at any time.
86
<PAGE>

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

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

A Shares (Front-End Load)
. One time sales charge paid at time of purchase
. Never a charge for redeeming shares
. Lower ongoing expenses
. Free exchange with other A Shares in BlackRock Funds family
. Advantage: Makes sense for investors who have long-term investment hori-
zon because ongoing fees are less than for other Investor Share classes.
. Disadvantage: You pay sales charge up-front, and therefore you start off
owning fewer shares.

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

C Shares (Level Load)
. No front-end sales charge when you buy shares
. Contingent deferred sales charge (CDSC) of 1.0% if shares are redeemed
within 12 months of purchase
. Higher ongoing fees than A Shares
. Free exchange with other C Shares in BlackRock Funds family
WHICH PRICING OPTION SHOULD YOU CHOOSE?
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HOW MUCH IS THE SALES CHARGE?
. Advantage: No up-front sales charge so you start off owning more shares.
These shares may make sense for investors who have a shorter investment
horizon relative to A or B Shares.
. Disadvantage: You pay higher ongoing fees than on A shares each year you
own shares, which means that you can expect lower total performance per
share. Shares do not convert to A Shares.

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

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

The tables below describe the schedule of front-end sales charges that you may
pay if you buy Investor A Shares of a fund. With Investor A Shares the offer-
ing price includes any front-end sales charge.
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The following schedule of front-end sales charges and quantity discounts applies
to the: Large Cap Value Equity, Large Cap Growth Equity, Mid-Cap Value Equity,
Mid-Cap Growth Equity, Small Cap Value Equity, Small Cap Growth Equity, Select
Equity and Balanced Portfolios.

<TABLE>
<CAPTION>
AMOUNT OF SALES CHARGE AS SALES CHARGE AS
TRANSACTION AT % OF OFFERING % OF NET ASSET
OFFERING PRICE PRICE* VALUE*
<S> <C> <C>
Less than $25,000 4.50% 4.71%
$25,000 but less than
$50,000 4.25% 4.44%
$50,000 but less than
$100,000 4.00% 4.17%
$100,000 but less than
$250,000 3.50% 3.63%
$250,000 but less than
$500,000 2.50% 2.56%
$500,000 but less than
$1,000,000 1.50% 1.52%
$1 million or more 0.00% 0.00%
</TABLE>

The following schedule of front-end sales charges and quantity discounts
applies to the: Micro-Cap Equity, International Equity, International Emerging
Markets and International Small Cap Equity Portfolios.

<TABLE>
<CAPTION>
AMOUNT OF SALES CHARGE AS SALES CHARGE AS
TRANSACTION AT % OF OFFERING % OF NET ASSET
OFFERING PRICE PRICE* VALUE*
<S> <C> <C>
Less than $25,000 5.00% 5.26%
$25,000 but less than
$50,000 4.75% 4.99%
$50,000 but less than
$100,000 4.50% 4.71%
$100,000 but less than
$250,000 4.00% 4.17%
$250,000 but less than
$500,000 3.00% 3.09%
$500,000 but less than
$1,000,000 2.00% 2.04%
$1million or more 0.00% 0.00%
</TABLE>

* There is no initial sales charge on purchases of $1,000,000 or more of
Investor A Shares; however, you will pay a CDSC of 1.00% of the offering
price or the net asset value of the shares on the redemption date (whichever
is less) for shares redeemed within 18 months after purchase.
PURCHASE OF INVESTOR A SHARES

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PURCHASE OF INVESTOR B SHARES

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PURCHASE OF INVESTOR C SHARES

The following schedule of front-end sales charges and quantity discounts
applies to the Index Equity Portfolio:

<TABLE>
<CAPTION>
AMOUNT OF SALES CHARGE AS SALES CHARGE AS
TRANSACTION AT % OF OFFERING % OF NET ASSET
OFFERING PRICE PRICE* VALUE*
<S> <C> <C>
Less than $25,000 3.00% 3.09%
$25,000 but less than
$50,000 2.75% 2.83%
$50,000 but less than
$100,000 2.50% 2.56%
$100,000 but less than
$250,000 2.00% 2.04%
$250,000 but less than
$500,000 1.50% 1.52%
$500,000 but less than
$1,000,000 1.00% 1.01%
$1million or more 0.00% 0.00%
</TABLE>

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

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

Investor C Shares are subject to a CDSC of 1.00% if they are redeemed within one
year after purchase. The 1.00% is based on the offering price or the net asset
value of the C Shares on the redemption date (whichever is less). There is no
CDSC on C Shares redeemed after one year.
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When an investor redeems Investor B Shares or Investor C Shares, the redemption
order is processed so that the lowest CDSC is charged. Investor B Shares and
Investor C Shares that are not subject to the CDSC are redeemed first. After
that, the Company redeems the Shares that have been held the longest.

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

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

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

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

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

CAN THE SALES CHARGE BE REDUCED OR ELIMINATED?

RIGHT OF ACCUMULATION

LETTER OF INTENT
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REINVESTMENT PRIVILEGE

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QUANTITY DISCOUNTS

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

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

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

Certain investors, including some people associated with the Company and its
service providers, may buy Investor A Shares without paying a sales charge. For
more information on the waivers, please contact PFPC at 800-441-7762 or see the
SAI.
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The CDSC on Investor B and Investor C Shares is not charged in certain circum-
stances, including share exchanges (see page ) and redemptions made in connec-
tion with certain retirement plans and in connection with certain shareholder
services offered by the Company. For more information on these waivers, please
contact PFPC at 800-441-7762 or see the SAI.

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

The Company has adopted a plan under Rule 12b-1 of the Investment Company Act of
1940 (the 12b-1 Plan) that allows the Company to pay distribution and other
fees for the sale of its shares and for certain services provided to its share-
holders. Under the 12b-1 Plan, Investor Shares pay a fee (distribution fees) to
BlackRock Distributors, Inc. (the Distributor) or affiliates of PNC Bank for
distribution and sales support services. The distribution fees may be used to
pay the Distributor for distribution services and to pay the Distributor and
PNC Bank affiliates for sales support services provided in connection with the
sale of Investor Shares. The distribution fees may also be used to pay brokers,
dealers, financial institutions and industry professionals (Service Organiza-
tions) for sales support services and related expenses. Investor A Shares pay a
maximum distribution fee of .10% per year of the average daily net asset value
of each fund. Investor B and C Shares pay a maximum of .75% per year. The 12b-1
Plan also allows the Distributor, PNC Bank affiliates and other companies that
receive fees from the Company to make payments relating to distribution and
sales support activities out of their past profits or other sources.

Under the 12b-1 Plan, the Company intends to enter into arrangements with Serv-
ice Organizations (including PNC Bank and its affiliates). Under these arrange-
ments, Service Organizations will provide certain support services to their
customers who own Investor Shares. The Company may pay a shareholder servicing
fee of up to .25% per year of the average daily net asset value of Investor
Shares owned by each Service Organization's customers.

WAIVING THE CONTINGENT DEFERRED SALES CHARGE (INVESTOR B AND INVESTOR C SHARES)

DISTRIBUTION AND SERVICE PLAN
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MASTER-FEEDER STRUCTURE
In return for that fee, Service Organizations may provide one or more of the
following services:

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

For a separate shareholder processing fee of up to .15% per year of the aver-
age daily net asset value of Investor Shares owned by each Service Organiza-
tion's customers, Service Organizations may provide one or more of these addi-
tional services:

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

Service Organizations may charge their clients additional fees for account
services. Customers of Service Organizations who own Investor Shares should
keep the terms and fees governing their accounts with Service Organizations in
mind as they read this prospectus.

Because the fees paid by the Company under the 12b-1 Plan are paid out of Com-
pany assets on an on-going basis, over time these fees will increase the cost
of your investment and may cost you more than paying other types of sales
charges.

The Index Equity Portfolio, unlike many other investment companies which
directly acquire and manage their own portfolio of securities, invests all of
its assets in the Index Master Portfolio. The Index Equity Portfolio may with-
draw its investment in the Index Master Portfolio at any time on 30 days
94
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notice to the Index Master Portfolio if the Board of Trustees of the Company
determines that it is in the best interest of the Index Equity Portfolio to do
so. Upon withdrawal, the Board of Trustees would consider what action to take.
It might, for example, invest all the assets of the Index Equity Portfolio in
another mutual fund having the same investment objective as the Index Equity
Portfolio or hire an investment adviser to manage the Index Equity Portfolio's
assets.

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

You can redeem shares at any time (although certain verification may be required
for large redemptions). The Company will redeem your shares at the next net
asset value (NAV) calculated after your order is received by the fund's trans-
fer agent minus any applicable CDSC. Except when CDSCs are applied, BlackRock
Funds will not charge for redemptions. Shares may be redeemed by sending a
written redemption request to BlackRock Funds c/o PFPC, P.O. Box 8907, Wilming-
ton, DE 19899-8907. You can also make redemption requests through your regis-
tered investment professional, who may charge for this service. Shareholders
should indicate whether they are redeeming Investor A, Investor B or Investor C
Shares. If a shareholder owns more than one class of a fund and does not indi-
cate which class he or she is redeeming, the fund will redeem shares so as to
minimize the CDSC charged.

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

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

HOW TO SELL SHARES

EXPEDITED REDEMPTIONS
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THE COMPANY'S RIGHTS

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

ACCOUNTS WITH LOW BALANCES

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

MANAGEMENT
responsible for the efficiency of the Federal wire system or the shareholder's
firm or bank. The Company may refuse a telephone redemption request if it
believes it is advisable to do so and may use reasonable procedures to make
sure telephone instructions are genuine. The Company and its service providers
will not be liable for any loss that results from acting upon telephone
instructions that they reasonably believed to be genuine in accordance with
those procedures. The Company may alter the terms of or terminate this expe-
dited redemption privilege at any time. Any redemption request of $25,000 or
more must be in writing.

The Company may:
.Suspend the right of redemption
.Postpone date of payment upon redemption
.Redeem shares involuntarily
.Redeem shares for property other than cash

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

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

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Company, as does BlackRock International, Ltd. (BIL), an affiliate of BlackRock
located at 7 Castle Street, Edinburgh, Scotland EH2 3AH. The only fund not man-
aged by BlackRock is the Index Equity Portfolio, which invests all of its
assets in the Index Master Portfolio. The Index Master Portfolio is advised by
Dimensional Fund Advisors Inc. (DFA), located at 1299 Ocean Avenue, 11th Floor,
Santa Monica, CA 90401. DFA was organized in May 1981 and provides investment
management services to institutional investors.

For their investment advisory and sub-advisory services, BlackRock, BFM, BIL
and DFA are entitled to fees computed daily on a fund-by-fund basis and payable
monthly. For the fiscal year ended September 30, 1998, the aggregate advisory
fees paid by the funds to BlackRock as a percentage of average net assets were
(fill in amounts fund by fund.

BlackRock may waive part of its advisory fee. The maximum annual advisory fees
that can be paid to BlackRock (as a percentage of average net assets) are as
follows:

MAXIMUM ANNUAL CONTRACTUAL ADVISORY FEE RATE FOR THE LARGE CAP VALUE EQUITY,
LARGE CAP GROWTH EQUITY, SMALL CAP VALUE EQUITY, SMALL CAP GROWTH EQUITY,
SELECT EQUITY AND BALANCED PORTFOLIOS (BEFORE WAIVERS)

<TABLE>
<CAPTION>
INVESTMENT
AVERAGE DAILY NET ASSETS ADVISORY FEE
<S> <C>
First $1 billion............................. .550%
$1 billion--$2 billion....................... .500%
$2 billion-$3 billion........................ .475%
more than $3 billion......................... .450%
</TABLE>

MAXIMUM ANNUAL CONTRACTUAL ADVISORY FEE RATE FOR THE MID-CAP VALUE EQUITY AND
MID-CAP GROWTH EQUITY PORTFOLIOS (BEFORE WAIVERS)

<TABLE>
<CAPTION>
INVESTMENT
AVERAGE DAILY NET ASSETS ADVISORY FEE
<S> <C>
First $1 billion............................. .800%
$1 billion--$2 billion....................... .700%
$2 billion-$3 billion........................ .675%
more than $ 3 billion........................ .625%
</TABLE>

IMPORTANT DEFINITIONS

ADVISER: The Adviser of
a mutual fund is
responsible for the
overall investment man-
agement of the Fund.
The Adviser for Black-
Rock Funds is BlackRock
Advisors, Inc.

SUB-ADVISER: The sub-
adviser of a fund is
responsible for its
day-to-day management
and will generally make
all buy and sell deci-
sions. Sub-advisers
also provide research
and credit analysis.
The sub-adviser for all
the funds except the
Index Equity, Interna-
tional Equity, Interna-
tional Emerging Markets
and International Small
Cap Equity Portfolios
is BlackRock Financial
Management, Inc. The
sub-adviser for the
International Equity,
International Emerging
Markets and Interna-
tional Small Cap Equity
Portfolios is BlackRock
International, Ltd.
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MAXIMUM ANNUAL CONTRACTUAL ADVISORY FEE RATE FOR THE INTERNATIONAL EQUITY
PORTFOLIO (BEFORE WAIVERS)

<TABLE>
<CAPTION>
INVESTMENT
AVERAGE DAILY NET ASSETS ADVISORY FEE
<S> <C>
First $1 billion............................. .750%
$1 billion--$2 billion....................... .700%
$2 billion-$3 billion........................ .675%
more than $ 3 billion........................ .650%
</TABLE>

MAXIMUM ANNUAL CONTRACTUAL ADVISORY FEE RATE FOR THE INTERNATIONAL EMERGING
MARKETS PORTFOLIO (BEFORE WAIVERS)

<TABLE>
<CAPTION>
AVERAGE DAILY NET
ASSETS INVESTMENT ADVISORY FEE
<S> <C>
First $1 billion 1.250%
$1 billion--$2 billion 1.200%
$2 billion-$3 billion 1.155%
more than $3 billion 1.100%
</TABLE>

MAXIMUM ANNUAL CONTRACTUAL ADVISORY FEE RATE FOR THE INTERNATIONAL SMALL CAP
EQUITY PORTFOLIO (BEFORE WAIVERS)

<TABLE>
<CAPTION>
AVERAGE DAILY NET INVESTMENT
ASSETS ADVISORY FEE
<S> <C>
First $1 billion 1.00%
$1 billion-$2 billion .950%
$2 billion-$3 billion .900%
more than $3 billion .850%
</TABLE>

MAXIMUM ANNUAL CONTRACTUAL ADVISORY FEE RATE FOR THE MICRO-CAP EQUITY PORTFOLIO
(BEFORE WAIVERS)

<TABLE>
<CAPTION>
AVERAGE DAILY NET INVESTMENT
ASSETS ADVISORY FEE
<S> <C>
First $1 billion 1.10%
$1 billion-$2 billion 1.05%
$2 billion-$3 billion 1.025%
more than $3 billion 1.00%
</TABLE>

BlackRock is a global money management firm with expertise in domestic and
international equities, domestic and global fixed income, cash management and
risk management services. BlackRock has over $120 billion in assets under man-
agement and currently manages money for over half of the Fortune 100, including
seven out of ten of the largest Fortune 100 companies.

The BlackRock asset management philosophy emphasizes a disciplined style of
investment that depends more on analysis, risk
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management and advanced technology than on attempting to forecast the future.
The BlackRock Funds are each managed with an emphasis on Pure Investment Sty-
le(R), a disciplined approach designed to provide each fund with its own dis-
tinctive identity and which offers investors the potential for measuring per-
formance and volatility consistently.

Information about the portfolio manager for each of the funds is presented in
the appropriate fund section starting on page of this prospectus.

BlackRock and the Company have entered into an expense limitation agreement.
The agreement sets a limit on the annual operating expenses of each fund and
requires BlackRock to waive part of its advisory fee or reimburse a fund if
expenses exceed that limit. The expense limits for the funds are [ ].

If at a later time the annual operating expenses of a fund that previously
received a waiver or reimbursement from BlackRock are less than the expense
limit for that fund, the fund is required to repay BlackRock the amount of fees
waived or expenses reimbursed during any of the previous two fiscal years if:
(1) the fund has more than $[75] million in assets, (2) BlackRock continues to
be the fund's investment adviser and (3) the Board of Trustees of the Company
has approved the payments to BlackRock on a quarterly basis.

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

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

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

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

Your distributions will be reinvested at net asset value in new shares of the
same class of the fund unless you instruct PFPC in

DIVIDENDS AND DISTRIBUTIONS
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TAXATION OF DISTRIBUTIONS

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

SERVICES FOR SHAREHOLDERS
writing to pay them in cash. There are no sales charges on these reinvestments.

The Index Equity Portfolio invests all of its assets in the Index Master Port-
folio, and the Index Equity Portfolio is allocated its pro rata share of the
ordinary income and expenses of the Index Master Portfolio. This net income,
minus the Index Equity Portfolio's expenses, is the Index Equity Portfolio's
net investment income from which dividends are paid to shareholders. The Index
Master Portfolio also allocates to the Index Equity Portfolio its pro rata
share of capital gains (if any).

Fund dividends and distributions are taxable to investors as ordinary income or
capital gains. Unless your fund shares are in an IRA or other tax-advantaged
account, you are required to pay taxes on distributions whether you receive
them in cash or in the form of additional shares.

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

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

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

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

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

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

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BlackRock Funds offers 36 different funds, enough to meet virtually any invest-
ment need. Once you are a shareholder, you have the right to exchange Investor
A, B, or C Shares from one fund to another to meet your changing financial
needs. For example, if you are in a fund that has an investment objective of
long term capital growth and you are nearing retirement, you may want to switch
into another fund that has current income as an investment objective.

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

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

To make an exchange, you must send a written request to PFPC at P.O. Box 8907,
Wilmington, DE 19899-8907. You can also make exchanges via telephone automati-
cally, unless you previously indicated that you did not want this option. If
so, you may not use telephone exchange privileges until completing a Telephone
Exchange Authorization Form. To receive a copy of the form contact PFPC. The
Company has the right to reject any telephone request.

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

EXCHANGE PRIVILEGE
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AUTOMATIC INVESTMENT PLAN (AIP)

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

RETIREMENT PLANS

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

STATEMENTS

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

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

Shares may be purchased in conjunction with individual retirement accounts
(IRAs) and rollover IRAs where PNC Bank or any of its affiliates acts as custo-
dian. For more information about applications or annual fees, please contact
the Distributor at Four Falls Corporate Center, 6th floor, West Conshohocken,
PA 19428-2961. To determine if you are eligible for an IRA and whether an IRA
will benefit you, you should consult with a tax adviser.

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

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

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

Investor A Shares of a fund at the same time he or she redeems shares through
the SWP, that investor may lose money because of the sales charge involved. No
CDSC will be assessed on redemptions of Investor B or Investor C Shares made
through the SWP that do not exceed 12% of the account's net asset value on an
annualized basis. For example, monthly, quarterly and semi-annual SWP redemp-
tions of Investor B or Investor C Shares will not be subject to the CDSC if
they do not exceed 1%, 3% and 6%, respectively, of an account's net asset value
on the redemption date. SWP redemptions of Investor B or Investor C Shares in
excess of this limit will still pay the applicable CDSC.
103
<PAGE>

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

Annual/Semi-Annual Reports
These reports contain additional information about each of the fund's
investments, describe the funds' performance, list portfolio holdings and
discuss recent market conditions, economic trends and fund strategies for the
last fiscal year.

Statement of Additional Information (SAI)
A Statement of Additional Information dated January __, 1999 has been filed with
the Securities and Exchange Commission (SEC). The SAI, which includes additional
information about the BlackRock Funds, may be obtained free of charge, along
with the Company's annual and semi-annual reports, by calling (800) 441-7762.
The SAI, as supplemented from time to time, is incorporated by reference into
this Prospectus.

Shareholder Account Service Representatives
Representatives are available to discuss account balance information, mutual
fund prospectuses, literature, programs and services available. Hours: 8:30 AM
to 5 PM EST, Monday-Friday. Call: 800-441-7762

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

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

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

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

Internal Wholesalers/Broker Dealer Support
Available to support investment professionals 9 AM to 6PM EST,
Monday-Friday. Call 888-8BLACKROCK

Securities and Exchange Commission (SEC)
You may also view information about the BlackRock Funds, including the SAI, by
visiting the SEC Web site (http://www.sec.gov) or the SEC's Public Reference
Room in Washington, D.C. Information about the operation of the public reference
room can be obtained by calling the SEC directly at 1-800-SEC-0330. Copies of
this information can be obtained, for a duplicating fee, by writing to the
Public Reference Section of the SEC, Washington, D.C. 20549-6009.

INVESTMENT COMPANY ACT FILE NO. 811-05742 [LOGO] BLACKROCK
FUNDS
<PAGE>

EQUITY PORTFOLIOS
===============================================
SERVICE SHARES

BlackRock Funds is a mutual fund complex with 40
investment portfolios, 13 of which are described
in this prospectus.

PROSPECTUS

January __, 1999

[LOGO] BLACKROCK
FUNDS

HOW TO FIND
THE INFORMATION
YOU NEED

ABOUT YOUR
INVESTMENT
TABLE OF
CONTENTS

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
THE BLACKROCK EQUITY FUNDS (SECTION PAGE)................................... 1
LARGE CAP VALUE............................................................. 2
LARGE CAP GROWTH............................................................ 8
MID-CAP VALUE............................................................... 12
MID-CAP GROWTH.............................................................. 17
SMALL CAP VALUE............................................................. 22
SMALL CAP GROWTH............................................................ 27
INTERNATIONAL EQUITY........................................................ 32
INTERNATIONAL EMERGING MARKETS.............................................. 38
INTERNATIONAL SMALL CAP..................................................... 44
SELECT EQUITY............................................................... 50
INDEX EQUITY................................................................ 55
BALANCED.................................................................... 60
MICRO-CAP................................................................... 66
HOW TO BUY/SELL SHARES...................................................... 71
DIVIDENDS/DISTRIBUTION/TAXES................................................ 79
SERVICES FOR SHAREHOLDERS................................................... 80
FOR MORE INFORMATION........................................................ 81
</TABLE>
<PAGE>

BLACKROCK
logo LARGE CAP VALUE EQUITY
PORTFOLIO

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

IMPORTANT DEFINITIONS

INVESTMENT GOAL
The fund seeks long-term capital appreciation--current income is the secondary
objective.

loaned securities. These loans will be limited to 33 1/3% of the value of the
fund's total assets.

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

While the fund manager chooses stocks he believes to be undervalued, there is
no guarantee that prices won't move even lower.

The fund may sometimes engage in short term trading which could produce greater
brokerage costs and taxable distributions to shareholders.

EXPENSES
AND FEES

[BAR CHART]

As of 12/31 Service A Shares
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------

Best Quarter
Q2 '97:66.16%

Worst Quarter
Q1 '94:14.62%

EXPENSES
AND FEES

EXPENSES AND FEES
As a shareholder you pay certain fees and expenses. Annual fund operating
expenses are paid out of fund assets and are reflected in the fund's price.
4
<PAGE>

The table below describes the fees and expenses that you may pay if you buy and
hold shares of the fund. The table is based on expenses for the most recent
fiscal year.

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

<TABLE>
<S> <C>
Advisory Fees .XX%
Distribution and shareholder
Servicing/processing (12b-1) fees .XX%
Other expenses .XX%
Total annual fund operating expenses X.XX%
Fee Waivers and Expense Reimbursements** .XX%
Net Expenses** .XX%
</TABLE>
** BlackRock has agreed to waive or limit its advisory fee or reimburse "Other
expenses" in order to limit certain (but not all) fund expenses to no more
than .XX%. The expense information in the table has been restated to
reflect these waivers and reimbursements. The fund may have to repay these
waivers and reimbursements to BlackRock in the future if the repayment can
be made within the expense limit.

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS

FUND MANAGEMENT
The portfolio manager of the fund is Daniel B. Eagan, portfolio manager with
BlackRock Financial Management, Inc. since 1995. Mr. Eagan was a director of
investment strategy at BlackRock Advisors, Inc. during 1994-1995. Prior to 1994
he served as senior research consultant for Mercer Investment Consulting. He
has served as portfolio manager for the fund since January 1997.
IMPORTANT DEFINITIONS

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

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

12B-1 FEES: A method of
charging distribution-
related expenses
against fund assets.
"12b-1" refers to the
SEC rule that permits
the use of these fees.

OTHER EXPENSES: Include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

5
<PAGE>

<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 15.35 $ 13.92 $ 11.62 $ 11.68
--- -------- -------- -------- --------
Income from investment
operations
Net investment income 0.24 0.32 0.30 0.25
Net gain (loss) on investments
(both realized and unrealized) 4.70 2.40 2.55 0.16
--- -------- -------- -------- --------
Total from investment
operations 4.94 2.72 2.85 0.41
--- -------- -------- -------- --------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.25) (0.32) (0.30) (0.25)
Distributions from net realized
capital gains (2.52) (0.97) (0.25) (0.22)
--- -------- -------- -------- --------
Total distributions (2.77) (1.29) (0.55) (0.47)
--- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 17.52 $ 15.35 $ 13.92 $ 11.62
=== ======== ======== ======== ========
Total return 37.22% 20.68% 25.40% 3.51%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $595,189 $457,283 $170,832 $105,035
Ratios of expenses to average
net assets
After advisory/administration
fee waivers 1.09% 1.05% 0.95% 0.90%
Before advisory/administration
fee waivers 1.16% 1.14% 1.09% 1.06%
Ratios of net investment income
to average net assets
After advisory/administration
fee waivers 1.62% 2.13% 2.40% 2.24%
Before advisory/administration
fee waivers 1.55% 2.04% 2.26% 2.08%
PORTFOLIO TURNOVER RATE 37% 60% 12% 11%
</TABLE>

/1/Commencement of operations of share class.
/2/Annualized.
6
<PAGE>

BLACKROCK
logo LARGE CAP GROWTH EQUITY
PORTFOLIO

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

INVESTMENT GOAL
The fund seeks long-term capital appreciation.

It is possible that in extreme market conditions the fund may invest some or
all of its assets in high quality money market securities. The reason for
acquiring money market securities would be to avoid market losses. However, if
market conditions improve, this strategy could result in reducing the potential
gain from the market upswing, thus reducing the fund's opportunity to achieve
its investment objective. The fund may also hold these securities pending
investments or when it expects to need cash to pay redeeming shareholders.

IMPORTANT DEFINITIONS

LARGE CAPITALIZATION
COMPANIES: These are
larger, usually better
known companies. Capi-
talization refers to
the market value of the
company and is calcu-
lated by multiplying
the number of shares
outstanding by the cur-
rent price per share.
The fund will invest
primarily (at least
65%) in companies with
market capitalization
in excess of $10 bil-
lion; however, some of
the fund's holdings can
include companies with
lesser capitalizations.
Larger companies may be
more likely to have the
staying power to get
them through all eco-
nomic cycles; however
their size may also
make them less flexible
and innovative than
smaller companies.

7
<PAGE>

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

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

The fund's portfolio is actively managed. The fund manager may, when consis-
tent with the fund's investment objective, use options or futures,(commonly
known as derivatives). The primary purpose of using derivatives is to attempt
to reduce risk to the fund as a whole (hedge) but they may also be used to
maintain liquidity, commit cash pending investment or to increase returns.
These practices may reduce returns and/or increase volatility. Volatility is
defined as the characteristic of a security or a market to fluctuate signifi-
cantly in price within a short time period. The fund can borrow money to buy
additional securities. The fund may borrow from banks or other financial
institutions or through reverse repurchase agreements (under which the fund
sells securities and agrees to buy them back at a particular date and price).
This practice can increase the fund's possible losses or gains.

The fund sometimes may engage in short term trading which could produce
greater brokerage costs and taxable distributions to shareholders.

KEY RISKS
8
<PAGE>

about the foreign company and political instability in the company's country.

The Fund, like any business, could be affected if the computer systems on which
it relies do not properly process information beginning on January 1, 2000.
While Year 2000 issues could have a negative effect on the Fund, BlackRock is
currently working to avoid such problems. BlackRock is also working with other
systems providers and vendors to determine their systems' ability to handle
Year 2000 problems. There is no guarantee however that systems will work prop-
erly on January 1, 2000. Year 2000 problems may also hurt companies whose secu-
rities the fund holds or securities markets generally.

RISK/RETURN INFORMATION
The chart and table below give you a picture of the fund's long-term perfor-
mance. The information shows you how the fund's performance has varied year by
year and provides some indication of the risks of investing in the fund. The
table compares the fund's performance to that of the Russell 1000 Growth Index,
a recognized unmanaged index of stock market performance. The chart and the
table both assume reinvestment of dividends and distributions. As with all such
investments, past performance is not an indication of future results.

EXPENSES AND FEES
As a shareholder you pay certain fees and expenses. Annual fund operating
expenses are paid out of fund assets and are reflected in the fund's price.
EXPENSES
AND FEES
9
<PAGE>

The table below describes the fees and expenses that you may pay if you buy
and hold shares of the fund. The table is based on expenses for the most
recent fiscal year.

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

** BlackRock has agreed to waive or limit its advisory fee or reimburse "Other
expenses" in order to limit certain (but not all) fund expenses to no more
than .XX%. The expense information in the table has been restated to
reflect these waivers and reimbursements. The fund may have to repay these
waivers and reimbursements to BlackRock in the future if the repayment can
be made within the expense limit.

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
</TABLE>

IMPORTANT DEFINITIONS

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

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

12B-1 FEES: A method of
charging distribution-
related expenses
against fund assets.
"12b-1" refers to the
SEC rule that permits
the use of these fees.

OTHER EXPENSES: Include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

10
<PAGE>

<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 14.95 $ 13.02 $ 10.18 $ 11.57
--- -------- -------- ------- -------
Income from investment
operations
Net investment income 0.04 0.05 0.10 0.03
Net gain (loss) on investments
(both realized and unrealized) 4.72 2.28 2.87 (1.32)
--- -------- -------- ------- -------
Total from investment
operations 4.76 2.33 2.97 (1.29)
--- -------- -------- ------- -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.04) (0.02) (0.13) - -
Distributions from capital - - - - - - - -
Distributions from net realized
capital gains (0.74) (0.38) - - (0.10)
--- -------- -------- ------- -------
Total distributions (0.78) (0.40) (0.13) (0.10)
--- -------- -------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 18.93 $ 14.95 $ 13.02 $ 10.18
=== ======== ======== ======= =======
Total return 33.38% 18.34% 29.43% (11.20)%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $262,409 $191,023 $76,769 $36,752
Ratios of expenses to average
net assets
After advisory/administration
fee waivers 1.10% 1.05% 0.95% 0.90%
Before advisory/administration
fee waivers 1.17% 1.17% 1.13% 1.14%
Ratios of net investment income
to average net assets
After advisory/administration
fee waivers 0.24% 0.31% 0.91% 0.51%
Before advisory/administration
fee waivers 0.17% 0.20% 0.73% 0.26%
PORTFOLIO TURNOVER RATE 81% 58% 55% 212%
</TABLE>

/1/Commencement of operations of share class.
/2/Annualized.
11
<PAGE>

BLACKROCK
MID-CAP VALUE EQUITY PORTFOLIO logo

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

INVESTMENT GOAL
The fund seeks long-term capital appreciation--current income is the secondary
objective.

The fund may lend some of its securities on a short-term basis in order to earn
extra income. The fund will receive collateral in cash or high-quality securi-
ties equal to the current value of the

IMPORTANT DEFINITIONS

12
<PAGE>

KEY RISKS

loaned securities. These loans will be limited to 33 1/3% of the value of the
fund's total assets.

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

While the fund manager chooses stocks he believes to be undervalued, there is
no guarantee that prices won't move even lower.

The fund may sometimes engage in short term trading which could produce greater
brokerage costs and taxable distributions to shareholders.

13
<PAGE>

The Fund, like any business, could be affected if the computer systems on
which it relies do not properly process information beginning on January 1,
2000. While Year 2000 issues could have a negative effect on the Fund, Black-
Rock is currently working to avoid such problems. BlackRock is also working
with other systems providers and vendors to determine their systems' ability
to handle Year 2000 problems. There is no guarantee however that systems will
work properly on January 1, 2000. Year 2000 problems may also hurt companies
whose securities the fund holds or securities markets generally.

RISK / RETURN INFORMATION
The chart and table below give you a picture of the fund's long-term perfor-
mance. The information shows you how the fund's performance has varied year by
year and provides some indication of the risks of investing in the fund. The
table compares the fund's performance to that of the Russell Mid-Cap Value
Index, a recognized unmanaged index of stock market performance. The chart and
the table both assume reinvestment of dividends and distributions. As with all
such investments, past performance is not an indication of future results.

14
<PAGE>

EXPENSES
AND FEES

IMPORTANT DEFINITIONS

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

SHAREHOLDER
SERVICING/PROCESSING
FEES: Fees that are
paid to BlackRock and
/or its affiliates for
shareholder account
service and
maintenance.

12B-1 FEES: A method of
charging distribution-
related expenses
against fund assets.
"12b-1" refers to the
SEC rule that permits
the use of these fees.

OTHER EXPENSES: Include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

EXPENSES AND FEES
As a shareholder you pay certain fees and expenses. Annual fund operating
expenses are paid out of fund assets and are reflected in the fund's price.

The table below describes the fees and expenses that you may pay if you buy and
hold shares of the fund. The table is based on expenses for the most recent
fiscal year.

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

<TABLE>
<S> <C> <C> <C>
Advisory Fees .XX%
Distribution and shareholder
Servicing/processing (12b-1) fees .XX%
Other expenses .XX%
Total annual fund operating expenses X.XX%
Fee Waivers and Expense Reimbursements** XXX
Net Expenses** XXX
</TABLE>
** BlackRock has agreed to waive or limit its advisory fee or reimburse "Other
expenses" in order to limit certain (but not all) fund expenses to no more
than .XX%. The expense information in the table has been restated to reflect
these waivers and reimbursements. The fund may have to repay these waivers
and reimbursements to BlackRock in the future if the repayment can be made
within the expense limit.

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS

FUND MANAGEMENT
The fund is co-managed by Christian K. Stadlinger and Daniel B. Eagan.

Christian K. Stadlinger has been portfolio co-manager of the fund since incep-
tion. Previously he was Portfolio Manager and Research Analyst with Morgan
Stanley Asset Management.

Daniel B. Eagan, has been portfolio co-manager of the fund since inception. Mr.
Eagan was a director of investment strategy at BlackRock Advisors, Inc. during
1994-1995. Previously, he served as senior research consultant for Mercer
Investment Consulting.
15
<PAGE>

FINANCIAL HIGHLIGHTS
The financial information in the table below shows the fund's financial per-
formance for the past 2 years. Certain information reflects results for a sin-
gle fund share. The term "Total Return" indicates how much your investment
would have increased or decreased during this period of time. All figures
assume that you have reinvested all dividend and distributions. These figures
have been audited by PricewaterhouseCoopers LLP, the fund's independent
accountants. The auditor's report, along with the fund's financial statements
are included in the Company's annual report which is available upon request
(See back cover for ordering instructions).
<TABLE>

<CAPTION>
FOR THE
PERIOD
YEAR 12/27/96/1
ENDED / THROUGH
9/30/98 9/30/97
<S> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 10.00
--- -------
Income from investment operations
Net investment income 0.07
--- -------
Net gain (loss) on investments
(both realized and unrealized) 2.80
--- -------
Total from investment operations 2.87
--- -------
LESS DISTRIBUTIONS
Distributions from net investment
income (0.08)
Distributions from capital - -
Distributions from net realized
capital gains - -
--- -------
Total distributions (0.08)
--- -------
NET ASSET VALUE AT END OF PERIOD $ 12.79
=== =======
Total return 28.81%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $22,757
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 1.44%/2/
Before advisory/administration fee
waivers 1.48%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 0.98%/2/
Before advisory/administration fee
waivers 0.94%/2/
PORTFOLIO TURNOVER RATE 36%
</TABLE>

/1/Commencement of operations of share class.
/2/Annualized.
16
<PAGE>

BLACKROCK
logo MID-CAP GROWTH EQUITY
PORTFOLIO

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

IMPORTANT DEFINITIONS

INVESTMENT GOAL
The fund seeks long-term capital appreciation.

It is possible that in extreme market conditions the fund may invest some or
all of its assets in high quality money market securities. The reason for
acquiring money market securities would be to avoid market losses. However, if
market conditions improve, this strategy could result in reducing the potential
gain from the market upswing, thus reducing the fund's opportunity to achieve
its investment objective. The fund may also hold these securities pending
investments or when it expects to need cash to pay redeeming shareholders.

17
<PAGE>

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

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

The fund may sometimes engage in short term trading which could produce
greater brokerage costs and taxable distributions to shareholders.

KEY RISKS
18
<PAGE>

The Fund, like any business, could be affected if the computer systems on which
it relies do not properly process information beginning on January 1, 2000.
While Year 2000 issues could have a negative effect on the Fund, BlackRock is
currently working to avoid such problems. BlackRock is also working with other
systems providers and vendors to determine their systems' ability to handle
Year 2000 problems. There is no guarantee however that systems will work prop-
erly on January 1, 2000. Year 2000 problems may also hurt companies whose secu-
rities the fund holds or securities markets generally.

RISK / RETURN INFORMATION
The chart and table below give you a picture of the fund's long-term perfor-
mance. The information shows you how the fund's performance has varied year by
year and provides some indication of the risks of investing in the fund. The
table compares the fund's performance to that of the Russell Mid-Cap Growth
Index, a recognized unmanaged index of stock market performance. The chart and
the table both assume reinvestment of dividends and distributions. As with all
such investments, past performance is not an indication of future results.

19
<PAGE>

EXPENSES AND FEES
As a shareholder you pay certain fees and expenses. Annual fund operating
expenses are paid out of fund assets and are reflected in the fund's price.

The table describes the fees and expenses that you may pay if you buy and hold
shares of the fund. The table is based on expenses for the most recent fiscal
year.

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS

FUND MANAGEMENT
The fund is co-managed by William J. Wykle and Thomas Callan.

William J. Wykle has been Portfolio Manager with BlackRock Financial Manage-
ment, Inc. since 1995 and an investment manager for PNC Bank since 1986. He
has co-managed this fund since its inception.

IMPORTANT DEFINITIONS

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

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

12B-1 FEES: A method of
charging distribution-
related expenses
against fund assets.
"12b-1" refers to the
SEC rule that permits
the use of these fees.

OTHER EXPENSES: Include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

20
<PAGE>

FINANCIAL HIGHLIGHTS
The financial information in the table below shows the fund's financial perfor-
mance for the past 2 years. Certain information reflects results for a single
fund share. The term "Total Return" indicates how much your investment would
have increased or decreased during this period of time. All figures assume that
you have reinvested all dividend and distributions. These figures have been
audited by PricewaterhouseCoopers LLP, the fund's independent accountants. The
auditor's report, along with the fund's financial statements are included in
the Company's annual report which is available upon request (See back cover for
ordering instructions).
<TABLE>

<CAPTION>
FOR THE
PERIOD
YEAR 12/27/96/1
ENDED / THROUGH
9/30/98 9/30/97
<S> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 10.00
--- -------
Income from investment operations
Net investment income (0.03)
Net gain (loss) on investments
(both realized and unrealized) 2.20
--- -------
Total from investment operations 2.17
--- -------
LESS DISTRIBUTIONS
Distributions from net investment
income - -
Distributions from capital - -
Distributions from net realized
capital gains - -
--- -------
Total distributions - -
--- -------
NET ASSET VALUE AT END OF PERIOD $ 12.17
=== =======
Total return 21.70%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $22,984
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 1.44%/2/
Before advisory/administration fee
waivers 1.48%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers (0.54)%/2/
Before advisory/administration fee
waivers (0.58)%/2/
PORTFOLIO TURNOVER RATE 64%
</TABLE>

/1/Commencement of operations of share class.
/2/Annualized.
21
<PAGE>

BLACKROCK
SMALL CAP VALUE EQUITY logo
PORTFOLIO

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

INVESTMENT GOAL
The fund seeks long-term capital appreciation.

It is possible that in extreme market conditions the fund may invest some or
all of its assets in high quality money market securities. The reason for
acquiring money market securities would be to avoid market losses. However, if
market conditions improve, this strategy could result in reducing the potential
gain from the market upswing, thus reducing the fund's opportunity to achieve
its investment objective. The fund may also hold these securities pending
investments or when it expects to need cash to pay redeeming shareholders.

The fund may lend some of its securities on a short-term basis in order to earn
extra income. The fund will receive collateral in cash or high-quality securi-
ties equal to the current value of the loan securities. These loans will be
limited to 33 1/3% of the value of the fund's total assets.

IMPORTANT DEFINITIONS

22
<PAGE>

KEY RISKS

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

While the fund manager chooses stocks he believes to be undervalued, there is
no guarantee that prices won't move even lower.

The fund may sometimes engage in short term trading which could produce greater
brokerage costs and taxable distributions to shareholders.

The Fund, like any business, could be affected if the computer systems on
which it relies do not properly process information beginning on January 1,
2000. While Year 2000 issues could have a negative effect on the Fund, Black-
Rock is currently working to avoid such problems. BlackRock is also working
with other systems providers and vendors to determine their systems' ability
to handle Year 2000 problems. There is no guarantee however that systems will
work properly on January 1, 2000. Year 2000 problems may also hurt companies
whose securities the Fund holds or securities markets generally.

RISK / RETURN INFORMATION
The chart and table below give you a picture of the fund's long-term perfor-
mance. The information shows you how the fund's performance has varied year by
year and provides some indication of the risks of investing in the fund. The
table compares the fund's performance to that of the Russell 2000 Value Index,
a recognized unmanaged index of stock market performance. The chart and the
table both assume reinvestment of dividends and distributions. As with all
such investments, past performance is not an indication of future results.

EXPENSES AND FEES
As a shareholder you pay certain fees and expenses. Annual fund operating
expenses are paid out of fund assets and are reflected in the fund's price.

EXPENSES AND FEES
24
<PAGE>

IMPORTANT DEFINITIONS

ADVISORY FEES: fees
paid to the investment
adviser for portfolio
management services.

SHAREHOLDER
SERVICING/PROCESSING
FEES: fees that are
paid to BlackRock
and/or its affiliates
for shareholder account
service and mainte-
nance.

12B-1 FEES: A method of
charging distribution-
related expenses
against fund assets.
"12b-1" refers to the
SEC rule that permits
the use of these fees.

OTHER EXPENSES: include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

The table describes the fees and expenses that you may pay if you buy and hold
shares of the fund. The table is based on expenses for the most recent fiscal
year.

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

<TABLE>
<S> <C>
Advisory Fees .XX%
Distribution and shareholder
Servicing/processing (12b-1) fees .XX%
Other expenses .XX%
Total annual fund operating expenses X.XX%
Fee Waivers and Expense Reimbursements** .XX%
Net Expenses** X.XX%
</TABLE>
** BlackRock has agreed to waive or limit its advisory fee or reimburse "Other
expenses" in order to limit certain (but not all) fund expenses to no more
than .XX%. The expense information in the table has been restated to reflect
these waivers and reimbursements. The fund may have to repay these waivers
and reimbursements to BlackRock in the future if the repayment can be made
within the expense limit.

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>

</TABLE>

FUND MANAGEMENT
The portfolio manager of the fund is Christian K. Stadlinger. He has been Port-
folio Manager with BlackRock since July 1996. Prior to joining BlackRock Advi-
sors Inc., he was Portfolio Manager and Research Analyst with Morgan Stanley
Asset Management. He has headed the fund's portfolio management team since
1996.
25
<PAGE>

FINANCIAL HIGHLIGHTS
The financial information in the table below shows
the fund's financial performance for the past 5
years. Certain information reflects results for a
single fund share. The term "Total Return" indi-
cates how much your investment would have increased
or decreased during this period of time. All fig-
ures assume that you have reinvested all dividend
and distributions. These figures have been audited
by PricewaterhouseCoopers LLP, the fund's indepen-
dent accountants. The auditor's report, along with
the fund's financial statements are included in the
Company's annual report which is available upon
request (See back cover for ordering instructions).

<TABLE>

<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 15.98 $ 15.15 $ 13.59 $ 13.08
-------- ------- ------- -------
Income from investment operations
Net investment income 0.13 0.06 0.02 - -
Net gain (loss) on investments
(both realized and unrealized) 6.39 1.70 2.18 0.77
-------- ------- ------- -------
Total from investment operations 6.52 1.76 2.20 0.77
-------- ------- ------- -------
LESS DISTRIBUTIONS
Distributions from net investment
income (0.13) (0.06) (0.03) (0.01)
Distributions from net realized
capital gains (2.17) (0.87) (0.61) (0.25)
-------- ------- ------- -------
Total distributions (2.30) (0.93) (0.64) (0.26)
-------- ------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 20.20 $ 15.98 $ 15.15 $ 13.59
======== ======= ======= =======
Total return 46.95% 12.30% 17.17% 5.96%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $122,431 $80,981 $61,313 $45,372
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 1.17% 1.15% 1.02% 0.98%
Before advisory/administration
fee waivers 1.18% 1.16% 1.12% 1.10%
Ratios of net investment income
to average net assets
After advisory/administration fee
waivers 0.79% 0.38% 0.16% 0.03%
Before advisory/administration
fee waivers 0.78% 0.37% 0.07% (0.09)%
PORTFOLIO TURNOVER RATE 66% 50% 31% 18%
</TABLE>

/1/Commencement of operations of share class.
/2/Annualized.
26
<PAGE>

BLACKROCK
logo SMALL CAP GROWTH EQUITY
PORTFOLIO

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

IMPORTANT DEFINITIONS

INVESTMENT GOAL
The fund seeks long-term capital appreciation.

It is possible that in extreme market conditions the fund may invest some or
all of its assets in high quality money market securities. The reason for
acquiring money market securities would be to avoid market losses. However, if
market conditions improve, this strategy could result in reducing the potential
gain from the market upswing, thus reducing the fund's opportunity to achieve
its investment objective. The fund may also hold these securities pending
investments or when it expects to need cash to pay redeeming shareholders.

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

There is more business risk in investing in small capitalized companies than
in larger, better capitalized companies. 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 compa-
nies.

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

The fund may sometimes engage in short term trading which could produce
greater brokerage costs and taxable distributions to shareholders.

The fund can invest in instruments called depository receipts which are secu-
rities issued by financial institutions (like banks or

KEY RISKS
28
<PAGE>

EXPENSES
AND FEES
trust companies) which represent ownership in underlying securities issued by
foreign companies. These securities carry additional risks associated with
investing in foreign securities, such as changes in currency exchange rates,
lack of public information about the foreign company and political instability
in the company's country.

The Fund, like any business, could be affected if the computer systems on which
it relies do not properly process information beginning on January 1, 2000.
While Year 2000 issues could have a negative effect on the Fund, BlackRock is
currently working to avoid such problems. BlackRock is also working with other
systems providers and vendors to determine their systems' ability to handle
Year 2000 problems. There is no guarantee however that systems will work prop-
erly on January 1, 2000. Year 2000 problems may also hurt companies whose secu-
rities the fund holds or securities markets generally.

RISK / RETURN INFORMATION
The chart and table below give you a picture of the fund's long-term perfor-
mance. The information shows you how the fund's performance has varied year by
year and provides some indication of the risks of investing in the fund. The
table compares the fund's performance to that of the Russell 2000 Growth Index,
a recognized unmanaged index of stock market performance. The chart and the
table both assume reinvestment of dividends and distributions. As with all such
investments, past performance is not an indication of future results.

EXPENSES AND FEES
As a shareholder you pay certain fees and expenses. Annual fund operating
expenses are paid out of fund assets and are reflected in the fund's price.

29
<PAGE>

The table below describes the fees and expenses that you may pay if you buy
and hold shares of the fund. The table is based on expenses for the most
recent fiscal year.

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

<TABLE>
<S> <C>
Advisory Fees .XX%
Distribution and shareholder
Servicing/processing (12b-1) fees .XX%
Other expenses .XX%
Total annual fund operating expenses X.XX%
Fee Waivers and Expense Reimbursements** .XX%
Net Expenses** X.XX%
</TABLE>
** BlackRock has agreed to waive or limit its advisory fee or reimburse "Other
expenses" in order to limit certain (but not all) fund expenses to no more
than .XX%.The expense information in the table has been restated to reflect
these waivers and reimbursements. The fund may have to repay these waivers
and reimbursements to BlackRock in the future if the repayment can be made
within the expense limit.

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.

EXAMPLE:

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
</TABLE>

FUND MANAGEMENT
The fund is co-managed by William J. Wykle and Thomas Callan.

William J. Wykle, has been Portfolio Manager with BlackRock Financial Manage-
ment, Inc. since 1995 and an investment manager for PNC Bank since 1986. He
has co-managed this fund since inception.

Thomas Callan, has been Portfolio Manager with
BlackRock Financial Management, Inc. since 1996 and
has served as an equity analyst for PNC Bank from
1993-1996. He has been co-manager of the fund since
May 1998.

The Small Cap Growth Equity Portfolio is closed to
new investors, with the exception of investors who
purchase through certain PNC Bank departments. The
fund will continue to be open to wrap and retire-
ment programs that are already invested in the fund
and to certain payroll deduction programs. Share-
holders as of August 15, 1998 may make additional
investments in current accounts. The fund may re-
open to new investors in the future.
IMPORTANT DEFINITIONS

ADVISORY FEES: fees
paid to the investment
adviser for portfolio
management services.

SHAREHOLDER
SERVICING/PROCESSING
FEES: fees that are
paid to BlackRock and
/or its affiliates for
shareholder account
service and mainte-
nance.

12B-1 FEES: A method of
charging distribution-
related expenses
against fund assets.
"12b-1" refers to the
SEC rule that permits
the use of these fees.

OTHER EXPENSES: include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

30
<PAGE>

<TABLE>

<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING
OF PERIOD $ 21.80 $ 15.02 $ 10.14 $ 10.47
-------- -------- ------- -------
Income from investment
operations
Net investment income (0.03) (0.06) (0.01) 0.01
Net gain (loss) on
investments (both realized
and unrealized) 3.15 6.84 4.89 (0.34)
-------- -------- ------- -------
Total from investment
operations 3.12 6.78 4.88 (0.33)
-------- -------- ------- -------
LESS DISTRIBUTIONS
Distributions from net
investment income - - - - - - - -
Distributions from net
realized capital gains (1.49) - - - - - -
-------- -------- ------- -------
Total distributions (1.49) - - - - - -
-------- -------- ------- -------
NET ASSET VALUE AT END OF
PERIOD $ 23.43 $ 21.80 $ 15.02 $ 10.14
======== ======== ======= =======
Total return 15.54% 45.14% 48.13% (3.12)%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period
(in thousands) $225,089 $158,901 $62,604 $22,648
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.17% 1.16% 1.03% 0.71%
Before
advisory/administration
fee waivers 1.17% 1.18% 1.16% 1.27%
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers (0.29)% (0.38)% (0.07)% 0.21%
Before
advisory/administration
fee waivers (0.29)% (0.40)% (0.20)% (0.34)%
PORTFOLIO TURNOVER RATE 82% 89% 74% 89%
</TABLE>

/1/Commencement of operations of share class.
/2/Annualized.
31
<PAGE>

BLACKROCK
logo INTERNATIONAL EQUITY
PORTFOLIO

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

INVESTMENT GOAL
The fund seeks long-term capital appreciation.

IMPORTANT DEFINITIONS

32
<PAGE>

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

While the fund manager chooses stocks he believes to be undervalued, there is
no guarantee that prices won't move even lower.

KEY RISKS
33
<PAGE>

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

The fund may sometimes engage in short term trading which could produce greater
brokerage costs and taxable distributions to shareholders.

RISK / RETURN INFORMATION
The chart and table below give you a picture of the fund's long-term perfor-
mance. The information shows you how the fund's performance has varied year by
year and provides some indication of the risks of investing in the fund. The
table compares the fund's performance to that of the EAFE Index, a recognized
unmanaged index of stock market performance. The chart and the table both
assume reinvestment of dividends and distributions. As with all such invest-
ments, past performance is not an indication of future results.

EXPENSES AND FEES
As a shareholder you pay certain fees and expenses. Annual fund operating
expenses are paid out of fund assets and are reflected in the fund's price.

EXPENSES AND FEES
35
<PAGE>

The table describes the fees and expenses that you may pay if you buy and hold
shares of the fund. The table is based on expenses for the most recent fiscal
year.

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

<TABLE>
<S> <C>
Advisory Fees .XX%
Distribution and shareholder
Servicing/processing (12b-1) fees .XX%
Other expenses .XX%
Total annual fund operating expenses X.XX%
Fee Waivers and Expense Reimbursements** .XX%
Net Expenses** X.XX%
</TABLE>
** BlackRock has agreed to waive or limit its advisory fee or reimburse "Other
expenses" in order to limit certain (but not all) fund expenses to no more
than .XX%. The expense information in the table has been restated to reflect
these waivers and reimbursements. The fund may have to repay these waivers
and reimbursements to BlackRock in the future if the repayment can be made
within the expense limit.

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
</TABLE>

IMPORTANT DEFINITIONS

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

SHAREHOLDER
SERVICING/PROCESSING
FEES: fees that are
paid to BlackRock and
/or its affiliates for
shareholder account
service and mainte-
nance.

12B-1 FEES: A method of
charging distribution-
related expenses
against fund assets.
"12b-1" refers to the
SEC rule that permits
the use of these fees.

OTHER EXPENSES: Include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

36
<PAGE>

<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 13.37 $ 13.24 $ 13.41 $ 12.47
--- -------- -------- -------- -------
Income from investment
operations
Net investment income 0.10 0.19 0.11 0.14
Net realized gain (loss) on
investments (both realized and
unrealized) 1.76 0.78 0.16 1.14
--- -------- -------- -------- -------
Total from investment
operations 1.86 0.97 0.27 1.28
--- -------- -------- -------- -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.24) (0.17) (0.08) (0.09)
Distributions from net realized
capital gains (0.41) (0.67) (0.36) (0.25)
--- -------- -------- -------- -------
Total distributions (0.65) (0.84) (0.44) (0.34)
--- -------- -------- -------- -------
NET ASSET VALUE AT END OF PERIOD $ 14.58 $ 13.37 $ 13.24 $ 13.41
=== ======== ======== ======== =======
Total return 14.52% 7.71% 2.19% 10.36%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period
(in thousands) $199,939 $161,321 $106,045 $75,174
Ratios of expenses to average
net assets
After advisory/administration
fee waivers 1.36% 1.36% 1.25% 1.20%
Before advisory/administration
fee waivers 1.46% 1.47% 1.42% 1.39%
Ratios of net investment income
to average net assets
After advisory/administration
fee waivers 0.42% 0.71% 1.16% 1.09%
Before advisory/administration
fee waivers 0.32% 0.60% 0.98% 0.90%
PORTFOLIO TURNOVER RATE 62% 70% 105% 37%
</TABLE>

/1/Commencement of operations of share class.
/2/Annualized.
37
<PAGE>

BLACKROCK
(LOGO) INTERNATIONAL EMERGING MARKETS
PORTFOLIO

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

INVESTMENT GOAL
The fund seeks long-term capital appreciation.

PRIMARY INVESTMENT STRATEGIES
In pursuit of this goal, the fund manager invests primarily in stocks of
issuers located in emerging market countries. These are countries considered
to be "emerging" or "developing" by the World Bank, the International Finance
Corporation or the United Nations. The fund normally invests at least 65% of
its assets in the equity securities issued by these companies and normally
invests at least 80% of its total assets in equity securities. The fund pri-
marily invests in common stock but also can invest in preferred stock and
securities convertible into common and preferred stock.

The fund generally will sell a stock when it reaches a target price which is
when the manager believes it is fully valued or when, in the manager's opin-
ion, conditions change such that the risk of continuing to hold the stock is
unacceptable when compared to its growth potential.

IMPORTANT DEFINITIONS

38
<PAGE>

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

Because different kinds of stocks go in and out of favor depending on market
conditions, this fund's performance may be better or worse than other funds
with different investment styles. For example, in some markets a fund holding
stocks of companies in developed foreign countries or domestic stocks may
outperform this fund.

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

While the portfolio manager chooses stocks he believes to be undervalued there
is no guarantee that prices won't move even lower.

KEY RISKS
39
<PAGE>

The fund's portfolio is actively managed. The fund manager may, when consis-
tent with the fund's investment objective, use options or futures (commonly
known as derivatives). The primary purpose of using derivatives is to attempt
to reduce risk to the fund as a whole (hedge) but they may also be used to
maintain liquidity, commit cash pending investment or to increase returns.
These practices may reduce returns and/or increase volatility. Volatility is
defined as the characteristic of a security or a market to fluctuate signifi-
cantly in price within a short time period. The fund can borrow money to buy
additional securities. The fund may borrow from banks or other financial
institutions or through reverse repurchase agreements (under which the fund
sells securities and agrees to buy them back at a particular date and price).
This practice can increase the fund's possible losses or gains. The fund may
also use forward foreign currency exchange contracts (obligations to buy or
sell a currency at a set rate in the future) to hedge against movements in the
value of foreign currencies. These contracts do not eliminate movements in the
value of foreign securities but rather allow the fund to establish a fixed
rate of exchange for a future point in time. This strategy can have the effect
of reducing returns and minimizing opportunities for gain.

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

The fund may engage in short term trading which could produce greater broker-
age costs and taxable distributions to shareholders.

tems' ability to handle Year 2000 problems. There is no guarantee however that
systems will work properly on January 1, 2000. Year 2000 problems may also hurt
companies whose securities the fund holds or securities markets generally.

RISK / RETURN INFORMATION
The chart and table below give you a picture of the fund's long-term perfor-
mance. The information shows you how the fund's performance has varied year by
year and provides some indication of the risks of investing in the fund. The
table compares the fund's performance to that of the MSCI Emerging Market Free
Index, a recognized unmanaged index of stock market performance. The chart and
the table both assume reinvestment of dividends and distributions. As with all
such investments, past performance is not an indication of future results.

EXPENSES AND FEES
As a shareholder you pay certain fees and expenses. Annual fund operating
expenses are paid out of fund assets and are reflected in the fund's price.

The table describes the fees and expenses that you may pay if you buy and hold
shares of the fund. The table is based on expenses for the most recent fiscal
year.

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

<TABLE>
<S> <C>
Advisory Fees .XX%
Distribution and shareholder
Servicing/processing (12b-1) fees .XX%
Other expenses .XX%
Total annual fund operating expenses X.XX%
Fee Waivers and Expense Reimbursements** .XX%
Net Expenses** X.XX%
</TABLE>
** BlackRock has agreed to waive or limit its advisory fee or reimburse "Other
expenses" in order to limit certain (but not all) fund expenses to no more
than .XX%. The expense information in the table has been restated to reflect
these waivers and reimbursements. The fund may have to repay these waivers
and reimbursements to BlackRock in the future if the repayment can be made
within the expense limit.
EXPENSES AND FEES
41
<PAGE>

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
</TABLE>

IMPORTANT DEFINITIONS

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

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

12B-1 FEES: A method of
charging distribution-
related expenses
against fund assets.
"12b-1" refers to the
SEC rule that permits
the use of these fees.

OTHER EXPENSES: Include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

42
<PAGE>

<TABLE>
<CAPTION>
FOR
THE PERIOD
YEAR YEAR YEAR YEAR 6/17/94/1
ENDED ENDED ENDED ENDED / THROUGH
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING
OF PERIOD $ 8.72 $ 8.18 $ 10.55 $10.00
--- ------- ------- ------- ------
Income from investment
operations
Net investment income 0.01 0.04 0.06 0.02
Net gain (loss) on
investments
(both realized and
unrealized) 0.93 0.51 (2.15) 0.53
--- ------- ------- ------- ------
Total from investment
operations 0.94 0.55 (2.09) 0.55
--- ------- ------- ------- ------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.03) - - (0.08) - -
Distributions from capital - - - - (0.01) - -
Distributions from net
realized capital gains - - (0.01) (0.19) - -
--- ------- ------- ------- ------
Total distributions (.03) (0.01) (0.28) - -
--- ------- ------- ------- ------
NET ASSET VALUE AT END OF
PERIOD $ 9.63 $ 8.72 $ 8.18 $10.55
=== ======= ======= ======= ======
Total return 10.74% 6.61% (19.91)% 5.50%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period
(in thousands) $66,064 $37,987 $15,020 $3,505
Ratios of expenses to
average net assets
After
advisory/administration fee
waivers 2.08% 2.08% 2.06% 2.00%/2/
Before
advisory/administration fee
waivers 2.17% 2.18% 2.30% 2.98%/2/
Ratios of net investment
income
to average net assets
After
advisory/administration fee
waivers 0.09% 0.70% 1.72% 1.10%/2/
Before
advisory/administration fee
waivers (0.01)% 0.60% 1.48% 0.12%/2/
PORTFOLIO TURNOVER RATE 33% 44% 75% 4%
</TABLE>

/1/Commencement of operations of share class.
/2/Annualized.
43
<PAGE>

BLACKROCK
(LOGO) INTERNATIONAL SMALL CAP EQUITY
PORTFOLIO

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

INVESTMENT GOAL
The fund seeks long-term capital appreciation.

It is possible that in extreme market conditions the fund may invest some or
all of its assets in high quality money market secu-

IMPORTANT DEFINITIONS

44
<PAGE>

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

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

While the manager chooses stocks he believes to be undervalued there is no
guarantee that prices won't move even lower.

46
<PAGE>

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

RISK / RETURN INFORMATION
The chart and table below give you a picture of the fund's long-term perfor-
mance. The information shows you how the fund's performance has varied year by
year and provides some indication of the risks of investing in the fund. The
table compares the fund's performance to that of the Salomon Brothers Extended
Market World Ex US Index, a recognized unmanaged index of stock market perfor-
mance. The chart and the table both assume reinvestment of dividends and dis-
tributions. As with all such investments, past performance is not an indication
of future results.

47
<PAGE>

EXPENSES AND FEES
As a shareholder you pay certain fees and expenses. Annual fund operating
expenses are paid out of fund assets and are reflected in the fund's price.

The table below describes the fees and expenses that you may pay if you buy
and hold shares of the fund. The table is based on expenses for the most
recent fiscal year.

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

<TABLE>
<S> <C>
Advisory Fees .XX%
Distribution and shareholder
Servicing/processing (12b-1) fees .XX%
Other expenses .XX%
Total annual fund operating expenses X.XX%
Fee Waivers and Expense Reimbursements** .XX%
Net Expenses** X.XX%
</TABLE>
** BlackRock has agreed to waive or limit its advisory fee or reimburse "Other
expenses" in order to limit certain (but not all) fund expenses to no more
than .XX%. The expense information in the table has been restated to
reflect these waivers and reimbursements. The fund may have to repay these
waivers and reimbursements to BlackRock in the future if the repayment can
be made within the expense limit.

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
$XXX $XXX $XXX $XXX
</TABLE>

IMPORTANT DEFINITIONS

ADVISORY FEES: fees
paid to the investment
adviser for portfolio
management services.

SHAREHOLDER
SERVICING/PROCESSING
FEES: fees that are
paid to BlackRock and
/or its affiliates for
shareholder account
service and mainte-
nance.

12B-1 FEES: A method of
charging distribution-
related expenses
against fund assets.
"12b-1" refers to the
SEC rule that permits
the use of these fees.

OTHER EXPENSES: include
administration, trans-
fer agency, custody,
professional fees and
registration fees.
48
<PAGE>

<TABLE>
<CAPTION>
FOR
THE PERIOD
YEAR 9/26/97/1
ENDED / THROUGH
9/30/98 9/30/97
<S> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $10.00
--- ------
Income from investment operations
Net investment income - -
Net gain (loss) on investments (both
realized and unrealized) (0.06)
--- ------
Total from investment operations (0.06)
LESS DISTRIBUTIONS
Distributions from net investment
income - -
Distributions from net realized capital
gains - -
--- ------
Total distributions - -
NET ASSET VALUE AT END OF PERIOD $ 9.94
=== ======
Total return (0.30)%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $ 10
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 1.63%/2/
Before advisory/administration fee
waivers 1.86%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 1.42%/2/
Before advisory/administration fee
waivers 1.19%/2/
PORTFOLIO TURNOVER RATE 0%
</TABLE>

/1/Commencement of operations of share class.
/2/Annualized.
49
<PAGE>

BLACKROCK
SELECT EQUITY (LOGO)
PORTFOLIO

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

INVESTMENT GOAL
The fund seeks long-term capital appreciation--current income is the secondary
objective.

PRIMARY INVESTMENT STRATEGIES
In pursuit of this goal, the fund manger uses the S&P 500 Index as a benchmark
and seeks invest in stocks in market sectors in similar proportion to that
index. The manager seeks to own securities in all sectors, but can overweight
or underweight securities within sectors as he identifies market opportuni-
ties. The fund normally invests at least 80% of its total assets in equity
securities. The fund primarily buys common stock but can also invest in pre-
ferred stock and securities convertible into common and preferred stock.

The manager initially screens for "value" and "growth" stocks from the uni-
verse of companies with market capitalization above $1 billion. Whether
screening growth or value stocks, the manager is seeking companies that are
currently undervalued. The manager uses fundamental analysis to examine each
company for financial strength before deciding to purchase the stock

IMPORTANT DEFINITIONS

FUNDAMENTAL ANALYSIS:
[TO COME]

50
<PAGE>

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

While the fund manager chooses stocks he believes to be undervalued, or which
have above average growth potential, there is no guarantee that prices will
increase in value.

The fund may sometimes engage in short term trading which could produce greater
brokerage costs and taxable distributions to shareholders.

KEY RISKS
51
<PAGE>

The Company, like any business, could be affected if the computer systems on
which it relies do not properly process information beginning on January 1,
2000. While Year 2000 issues could have a negative effect on the Fund, Black-
Rock is currently working to avoid such problems. BlackRock is also working
with other systems providers and vendors to determine their systems' ability
to handle Year 2000 problems. There is no guarantee however that systems will
work properly on January 1, 2000. Year 2000 problems may also hurt companies
whose securities the fund holds or securities markets generally.

RISK / RETURN INFORMATION
The chart and table below give you a picture of the fund's long-term perfor-
mance. The information shows you how the fund's performance has varied year by
year and provides some indication of the risks of investing in the fund. The
table compares the fund's performance to that of the S&P 500 Index, a recog-
nized unmanaged index of stock market performance. The chart and the table
both assume reinvestment of dividends and distributions. As with all such
investments, past performance is not an indication of future results.

EXPENSES AND FEES
As a shareholder you pay certain fees and expenses. Annual fund operating
expenses are paid out of fund assets and are reflected in the fund's price.
EXPENSES AND FEES
52
<PAGE>

The table below describes the fees and expenses that you may pay if you buy and
hold shares of the fund. The table is based on expenses for the most recent
fiscal year.

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

<TABLE>
<S> <C>
Advisory Fees .XX%
Distribution and shareholder
Servicing/processing (12b-1) fees .XX%
Other expenses .XX%
Total annual fund operating expenses X.XX%
Fee waivers and expense reimbursements** .XX%
Net expenses** .XX%
</TABLE>
**BlackRock has agreed to waive or limit its advisory fee or reimburse "Other
expenses" in order to limit certain (but not all) fund expenses to no more
than .XX%. The expense information in the table has been restated to reflect
these waivers and reimbursements. The fund may have to repay these waivers and
reimbursements to BlackRock in the future if the repayment can be made within
the expense limit.

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
</TABLE>

FUND MANAGEMENT
The portfolio manager of the fund is Daniel B. Eagan, portfolio manager with
BlackRock Financial Management, Inc. since 1995. Mr. Eagan was a director of
investment strategy at BlackRock during 1994-1995. Prior to 1994 he served as
senior research consultant for Mercer Investment Consulting. He has served as
portfolio manager for the fund since January 1995.

IMPORTANT DEFINITIONS

ADVISORY FEES: fees
paid to the investment
adviser for portfolio
management services.

SHAREHOLDER
SERVICING/PROCESSING
FEES: fees that are
paid to BlackRock
and/or its affiliates
for shareholder account
service and mainte-
nance.

12B-1 FEES: A method of
charging distribution-
related expenses
against fund assets.
"12b-1" refers to the
SEC rule that permits
the use of these fees.

OTHER EXPENSES: fees
paid by the fund for
other expenses such as
administration, trans-
fer agency, custody,
professional fees and
registration fees.

53
<PAGE>

<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 13.56 $ 11.88 $ 9.92 $ 9.97
-------- -------- ------- -------
Income from investment
operations
Net investment income 0.11 0.17 0.22 0.19
Net gain (loss) on investments
(both realized and unrealized) 5.18 2.07 2.05 (0.04)
-------- -------- ------- -------
Total from investment
operations 5.29 2.24 2.27 0.15
-------- -------- ------- -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.14) (0.17) (0.19) (0.20)
Distributions from net realized
capital gains (1.21) (0.39) (0.12) - -
-------- -------- ------- -------
Total distributions (1.35) (0.56) (0.31) (0.20)
-------- -------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 17.50 $ 13.56 $ 11.88 $ 9.92
======== ======== ======= =======
Total return 42.12% 19.43% 23.43% 1.55%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $174,418 $113,777 $83,705 $49,293
Ratios of expenses to average
net assets
After advisory/administration
fee waivers 1.09% 1.04% 0.95% 0.90%
Before advisory/administration
fee waivers 1.16% 1.17% 1.13% 1.18%
Ratios of net investment income
to average net assets
After advisory/administration
fee waivers 0.93% 1.41% 2.10% 1.96%
Before advisory/administration
fee waivers 0.86% 1.28% 1.91% 1.68%
PORTFOLIO TURNOVER RATE 29% 55% 51% 88%
</TABLE>

/1/Commencement of operations of share class.
/2/Annualized.
54
<PAGE>

BLACKROCK
(LOGO) INDEX EQUITY
PORTFOLIO

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

INVESTMENT GOAL
The fund seeks long-term capital appreciation.

IMPORTANT DEFINITIONS

LARGE CAPITALIZATION
COMPANIES: These are
larger, usually better
known companies. Capi-
talization refers to
the market value of the
company and is calcu-
lated by multiplying
the number of shares
outstanding by the cur-
rent price per share.
Larger companies may be
more likely to have the
staying power to get
them through all eco-
nomic cycles; however
their size may also
make them less flexible
and innovative than
smaller companies.

55
<PAGE>

Because different kinds of stocks go in and out of favor depending on market
conditions, this fund's performance may be better or worse than other funds
with different investment styles. The fund is not actively managed and adverse
performance of a stock will ordinarily not result in its elimination from the
Index Master Portfolio. The Index Master Portfolio will remain fully invested
in 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. The investment performance of the
Index Master Portfolio and the fund is 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.

The Company, like any business, could be affected if the computer systems on
which it relies do not properly process information beginning on January 1,
2000. While Year 2000 issues could have a negative effect on the Fund, Black-
Rock is currently working to avoid such problems. BlackRock is also working
with other systems providers and vendors to determine their systems' ability
to handle Year 2000 problems. There is no guarantee however that systems will
work properly on January 1, 2000. Year 2000 problems may also hurt companies
whose securities the fund holds or securities markets generally.

RISK / RETURN INFORMATION
The chart and table below give you a picture of the fund's long-term perfor-
mance. The information shows you how the fund's performance has varied year by
year and provides some indication of the risks of investing in the fund. The
table compares the fund's performance to that of the S&P 500 Index, a recog-
nized unmanaged index of stock market performance. The chart and the table both
assume reinvestment of dividends and distributions. As with all such invest-
ments, past performance is not an indication of future results.

EXPENSES AND FEES
As a shareholder you pay certain fees and expenses. Annual fund operating
expenses are paid out of fund assets and are reflected in the fund's price.

The table below describes the fees and expenses that you may pay if you buy and
hold shares of the fund. The table is based on expenses for the most recent
fiscal year.

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

<TABLE>
<S> <C>
Advisory Fees .XX%
Distribution and shareholder
Servicing/processing (12b-1) fees .XX%
Other expenses .XX%
Total annual fund operating expenses X.XX%
Fee Waivers and Expense Reimbursements** .XX%
Net Expenses** X.XX%
</TABLE>
* The Annual Fund Operating Expenses table and the Example reflect the
expenses of both the Index Equity and Index Master Portfolios.
*** BlackRock has agreed to waive or limit its advisory fee or reimburse "Other
expenses" in order to limit certain (but not all) fund expenses to no more
than .XX%.The expense information in the table has been restated to reflect
these waivers and reimbursements. The fund may have to repay these waivers
and reimbursements to BlackRock in the future if the repayment can be made
within the expense limit.

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.
EXPENSES AND FEES
57
<PAGE>

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
</TABLE>

IMPORTANT DEFINITIONS

ADVISORY FEES: fees
paid to the investment
adviser for portfolio
management services.

SHAREHOLDER
SERVICING/PROCESSING
FEES: fees that are
paid to BlackRock and
/or its affiliates for
shareholder account
service and mainte-
nance.

12B-1 FEES: A method of
charging distribution-
related expenses
against fund assets.
"12b-1" refers to the
SEC rule that permits
the use of these fees.

OTHER EXPENSES: include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

58
<PAGE>

<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 13.97 $ 13.58 $ 10.93 $ 11.02
--- -------- -------- ------- -------
Income from investment
operations
Net investment income 0.23 0.29 0.35 0.29
Net gain (loss) on
investments (both
realized and
unrealized) 5.01 2.10 2.73 0.02
--- -------- -------- ------- -------
Total from investment
operations 5.24 2.39 3.08 0.31
--- -------- -------- ------- -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.21) (0.30) (0.31) (0.29)
Distributions from net
realized capital gains (0.68) (1.70) (0.12) (0.11)
--- -------- -------- ------- -------
Total distributions (0.89) (2.00) (0.43) (0.40)
--- -------- -------- ------- -------
NET ASSET VALUE AT END OF
PERIOD $ 18.32 $ 13.97 $ 13.58 $ 10.93
=== ======== ======== ======= =======
Total return 39.58% 19.45% 28.99% 2.78%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $193,319 $103,080 $61,536 $27,376
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.48% 0.48% 0.45% 0.40%
Before
advisory/administration
fee waivers 0.68%/3/ 0.80%/3/ 0.79% 0.77%
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 1.41% 1.98% 2.62% 2.49%
Before
advisory/administration
fee waivers 1.21% 1.67% 2.28% 2.12%
PORTFOLIO TURNOVER RATE -- /5/ 18%/4/,/5/ 18% 17%
</TABLE>

/1/Commencement of operations of share class.
/2/Annualized.
/3/Including expenses allocated from The U.S. Large Company Series of The DFA
Investment Trust Company of 0.13%.
/4/For the period from October 1, 1995 through May 31, 1996.
/5/See footnotes to the financial statements of The DFA Investment Trust for
the year ended November 30, 1996 and the period ended September 30, 1997.
59
<PAGE>

BLACKROCK
BALANCED (LOGO)
PORTFOLIO

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INVESTMENT GOAL
The fund seeks long-term capital appreciation--current income from fixed
income securities is the secondary objective.

PRIMARY INVESTMENT STRATEGIES
In pursuit of this goal, the fund managers invest primarily in a blend of
equity and fixed income securities selected to deliver returns through the
combination of capital appreciation and current income. The equity and fixed
income managers work together to determine an appropriate asset allocation
strategy.

IMPORTANT DEFINITIONS

TOTAL RETURN: a mea-
surement of a Fund's
performance that takes
into account not only
changes in the price
per share but also div-
idends and capital gain
distribution.

LARGE CAPITALIZATION
COMPANIES: These are
larger, usually better
known companies. Capi-
talization refers to
the market value of the
company and is calcu-
lated by multiplying
the number of shares
outstanding by the cur-
rent price per share.
Larger companies may be
more likely to have the
staying power to get
them through all eco-
nomic cycles; however,
their size may also
make them less flexible
and innovative than
smaller companies.

60
<PAGE>

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

The main risk of an investment in bonds is that the value is subject to credit
risk and interest rate risk. Credit risk involves the possibility that a bor-
rower cannot make timely interest or principal payments on its bonds. The fund
will invest in investment grade bonds. Securities rated BBB or Baa are gener-
ally considered to be investment grade although they do carry some credit risk.
Changes in the fundamental strength of these securities could lower their rat-
ing and value. This could occur, for example, if the security's issuer experi-
ences economic problems. Interest rate risk involves the possibility that the
value of a fixed-income investment will decline if interest rates increase.
Generally, long-term fixed income securities are more sensitive to changes in
interest rates than short term securities.

While the fund manager chooses stocks with a focus on attempting to minimize
risk and chooses bonds of investment grade quality, there is no guarantee that
prices won't move lower.

is defined as the characteristic of a security or a market to fluctuate sig-
nificantly in price within a short time period. The fund can borrow money to
buy additional securities. The fund may borrow from banks or other financial
institutions or through reverse repurchase agreements (under which the fund
sells securities and agrees to buy them back at a particular date and price).
This practice can increase the fund's possible losses or gains.

The fund may sometimes engage in short term trading which could produce
greater brokerage costs and taxable distributions to shareholders.

The fund can invest instruments called depository receipts which are securi-
ties issued by financial institutions (like banks or trust companies) which
represent ownership in underlying securities issued by foreign companies.
These securities carry additional risks associated with investing in foreign
securities, such as changes in currency exchange rates, lack of public infor-
mation about the foreign company and political instability in the company's
country.

The Company, like any business, could be affected if the computer systems on
which it relies do not properly process information beginning on January 1,
2000. While Year 2000 issues could have a negative effect on the Fund, Black-
Rock is currently working to avoid such problems. BlackRock is also working
with other systems providers and vendors to determine their systems' ability
to handle Year 2000 problems. There is no guarantee however that systems will
work properly on January 1, 2000. Year 2000 problems may also hurt companies
whose securities the fund holds or securities markets generally.

the table both assume reinvestment of dividends and distributions. As with all
such investments, past performance is not an indication of future results.

EXPENSES AND FEES
As a shareholder you pay certain fees and expenses. Annual fund operating
expenses are paid out of fund assets and are reflected in the fund's price.

The table below describes the fees and expenses that you may pay if you buy and
hold shares of the fund. The table is based on expenses for the most recent
fiscal year.

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

<TABLE>
<S> <C>
Advisory Fees .XX%
Distribution and shareholder
Servicing/processing (12b-1) fees .XX%
Other expenses .XX%
Total annual fund operating expenses X.XX%
Fee Waivers and Expense Reimbursements** .XX%
Net Expenses** X.XX%
</TABLE>
** BlackRock has agreed to waive or limit its advisory fee or reimburse "Other
expenses" in order to limit certain (but not all) fund expenses to no more
than .XX%. The expense information in the table has been restated to reflect
these waivers and reimbursements. The fund may have to repay these waivers
and reimbursements to BlackRock in the future if the repayment can be made
within the expense limit.

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.

EXAMPLE:
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. We are assuming an initial
investment of $10,000, 5% total return each year with no changes in operating
expenses and redemption at the end of each time period. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
EXPENSES AND FEES
63
<PAGE>

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
</TABLE>

IMPORTANT DEFINITIONS

ADVISORY FEES: fees
paid to the investment
adviser for portfolio
management services.

SHAREHOLDER
SERVICING/PROCESSING
FEES: fees that are
paid to BlackRock
and/or its affiliates
for shareholder account
service and mainte-
nance.

12B-1 FEES: A method of
charging distribution-
related expenses
against fund assets.
"12b-1" refers to the
SEC rule that permits
the use of these fees.

OTHER EXPENSES: include
fees paid by the fund
for other expenses such
as administration,
transfer agency, custo-
dy, professional fees
and registration fees.

64
<PAGE>

<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 15.09 $ 13.72 $ 11.98 $ 12.42
--- -------- -------- ------- -------
Income from investment
operations
Net investment income 0.45 0.42 0.44 0.34
Net realized gain (loss) on
investments (both realized and
unrealized) 3.64 1.49 1.88 (0.38)
--- -------- -------- ------- -------
Total from investment
operations 4.09 1.91 2.32 (0.04)
--- -------- -------- ------- -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.45) (0.41) (0.44) (0.34)
Distributions from net realized
capital gains (0.52) (0.13) (0.14) (0.06)
--- -------- -------- ------- -------
Total distributions (0.97) (0.54) (0.58) (0.40)
--- -------- -------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 18.21 $ 15.09 $ 13.72 $ 11.98
=== ======== ======== ======= =======
Total return 28.07% 14.11% 19.94% (0.36)%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $176,232 $134,121 $85,668 $66,024
Ratios of expenses to average
net assets
After advisory/administration
fee waivers 1.14% 1.09% 0.94% 0.90%
Before advisory/administration
fee waivers 1.20% 1.20% 1.16% 1.16%
Ratios of net investment income
to average net assets
After advisory/administration
fee waivers 2.68% 2.87% 3.49% 2.96%
Before advisory/administration
fee waivers 2.62% 2.76% 3.28% 2.70%
PORTFOLIO TURNOVER RATE 173% 275% 154% 54%
</TABLE>

/1/Commencement of operations of share class.
/2/Annualized.
65
<PAGE>

BLACKROCK
MICRO-CAP EQUITY (LOGO)
PORTFOLIO

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

INVESTMENT GOAL
The fund seeks long-term capital appreciation.

The fund may lend some of its securities on a short-term basis in order to earn
extra income. The fund will receive collateral in cash or high-quality securi-
ties equal to the current value of the

IMPORTANT DEFINITIONS

MICRO-CAP COMPANIES:
This asset class con-
tains the smallest cap-
italized companies. The
fund defines a "micro-
cap" company as one
with total capitaliza-
tion of $25 million to
$300 million.

GROWTH COMPANIES: All
stocks are generally
divided into the cate-
gories of "growth" or
"value"--although there
are times when a growth
fund and value fund may
own the same stock.
Growth stocks are com-
panies whose earnings
growth potential
appears to the manager
to be greater than the
market in general and
whose growth in revenue
is expected to continue
for an extended period.
These stocks typically
pay relatively low div-
idend yields and sell
at relatively high
prices in relation to
their earnings and book
value. Value stocks are
companies that appear
to the manager to be
undervalued by the mar-
ket as measured by cer-
tain financial formu-
las.

66
<PAGE>

loaned securities. These loans will be limited to 33 1/3% of the value of the
fund's total assets.

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

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

KEY RISKS
67
<PAGE>

The fund may sometimes engage in short term trading which could produce
greater brokerage costs and taxable distributions to shareholders.

The Company, like any business, could be affected if the computer systems on
which it relies do not properly process information beginning on January 1,
2000. While Year 2000 issues could have a negative effect on the Fund, Black-
Rock is currently working to avoid such problems. BlackRock is also working
with other systems providers and vendors to determine their systems' ability
to handle Year 2000 problems. There is no guarantee however that systems will
work properly on January 1, 2000. Year 2000 problems may also hurt companies
whose securities the fund holds or securities markets generally.

dends and distributions. As with all such investments, past performance is not
an indication of future results.

EXPENSES AND FEES
As a shareholder you pay certain fees and expenses. Annual fund operating
expenses are paid out of fund assets and are reflected in the fund's price.

The table below describes the fees and expenses that you may pay if you buy and
hold shares of the fund. The table is based on expenses for the most recent
fiscal year.

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

<TABLE>
<S> <C> <C> <C>
Advisory Fees .XX%
Distribution and shareholder
Servicing/processing (12b-1) fees .XX%
Other expenses .XX%
Total annual fund operating expenses X.XX%
Fee waivers and expense reimbursements** .XX%
Net expenses** .XX%
** BlackRock has agreed to waive or limit its advisory fee or reimburse "Other
expenses" in order to limit certain (but not all) fund expenses to no more
than .XX%. The expense information in the table has been restated to reflect
these waivers and reimbursements. The fund may have to repay these waivers
and reimbursements to BlackRock in the future if the repayment can be made
within the expense limit.
</TABLE>

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
</TABLE>

EXPENSES AND FEES
69
<PAGE>

FUND MANAGEMENT
The Micro-Cap management team is headed by William J. Wykle, investment man-
ager at BlackRock Financial Management, Inc. since 1995. Mr. Wykle was an
investment manager for PNC Bank from 1986 to 1995. He has co-managed this
portfolio since inception. Thomas Callan serves as co-manager. He has been an
investment manager with BlackRock Financial Management, Inc. since 1996, prior
to which he was an equity analyst for PNC Bank since 1993. He has co-managed
this fund since inception.

<TABLE>
<CAPTION>
FOR THE
PERIOD
4/15/98
THROUGH
9/30/98
<S> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $
------
Income from investment operations
Net investment income - -
Net gain (loss) on investments (both realized and
unrealized)
------
Total from investment operations
------
LESS DISTRIBUTIONS
Distributions from net investment income - -
Distributions from net realized capital gains - -
------
Total distributions - -
------
NET ASSET VALUE AT END OF PERIOD $
======
Total return
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $
Ratios of expenses to average net assets
After advisory/administration fee waivers
Before advisory/administration fee waivers
Ratios of net investment income to average net
assets
After advisory/administration fee waivers
Before advisory/administration fee waivers
PORTFOLIO TURNOVER RATE
</TABLE>

/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is
reflected in total return.
/4/Computed by dividing the total amount of commission paid by the total
number of shares purchased and sold during the period.

IMPORTANT DEFINITIONS

ADVISORY FEES: fees
paid to the investment
adviser for portfolio
management services.

SHAREHOLDER
SERVICING/PROCESSING
FEES: fees that are
paid to BlackRock and
/or its affiliates for
shareholder account
service and mainte-
nance.

12B-1 FEES: A method of
charging distribution-
related expenses
against fund assets.
"12b-1" refers to the
SEC rule that permits
the use of these fees.

OTHER EXPENSES: include
fees paid by the fund
for other expenses such
as administration,
transfer agency, custo-
dy, professional fees
and registration fees.

70
<PAGE>

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

Service Shares are offered without a sales charge to financial institutions
(such as banks and brokerage firms) acting on behalf of their customers and to
certain persons who were shareholders of the Compass Capital Group of Funds at
the time of its combination with The PNC(R) Fund during the first quarter of
1996. Service Shares will normally be held by institutions or in the name of
nominees of institutions on behalf of their customers. Service Shares are nor-
mally purchased through a customer's account at an institution through proce-
dures established by the institution. In these cases, confirmation of share
purchases and redemptions will be sent to the institutions. A customer's owner-
ship of shares will be recorded by the institution and reflected in the account
statements provided by the institutions to their customers. Investors wishing
to purchase Service Shares should contract their institutions.

Purchase orders may be placed through PFPC, the Company's transfer agent. The
name of the fund being purchased must appear on the check or Federal Reserve
draft.

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

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

Purchase orders received by the transfer agent before the close of regular
trading on the New York Stock Exchange (NYSE) (cur-
BUYING SHARES

WHAT PRICE PER SHARE WILL YOU PAY?
71
<PAGE>

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

rently 4:00 PM EST) on each day the exchange is open will be priced based on
the NAV calculated at the close of trading on that day plus any applicable
sales charge. NAV is calculated separately for each class of shares of each
fund at 4 PM EST each day the NYSE is open. Shares will not be priced on days
the NYSE is closed. Purchase orders received after the close of trading will
be priced based on the next calculation of NAV. The International Equity,
International Emerging Markets and International Small Cap Equity Portfolios
may hold securities that trade on days when the NYSE is closed. In these
cases, net asset value of shares may change when fund shares cannot be bought
or sold.

Payment for Service Shares must normally be made in Federal funds or other
funds immediately available to the Company's custodian. Payment may also, at
the discretion of the Company, be made in the form of securities that are per-
missible investments for the respective fund.

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

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

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

Under the 12b-1 Plan, the Company intends to enter into arrangements with bro-
kers, dealers, financial institutions and industry

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

PAYING FOR SHARES

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

HOW MUCH IS THE MINIMUM INVESTMENT?

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

DISTRIBUTION AND SERVICE PLAN
72
<PAGE>

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

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

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

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

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

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

Service Organizations may charge their clients additional fees for account
services. Customers of Service Organizations who own Service Shares should keep
the terms and fees governing their accounts with Service Organizations in mind
as they read this prospectus.

- --------------------------------------------------------------------------------
73
<PAGE>

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

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

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

Payment for redeemed shares for which a redemption order is received by PFPC
before 4:00 p.m. EST on a business day is normally made in Federal funds wired
to the redeeming institution on the next business day, provided that the funds'
custodian is also open for business. Payment for redemption orders received
after 4:00 p.m. (EST) or on a day when the funds' custodian is closed is nor-
mally wired in Federal funds on the next business day following redemption on
which the funds' custodian is open for business. The funds reserve the right to
wire redemption proceeds within seven days after receiving a redemption order
if, in the judgement of BlackRock Advisors, Inc., an earlier payment could
adversely affect a fund. No charge for wiring redemption payments is imposed by
the Company, although institutions may charge their customer accounts for
redemption services. Information relating to such redemption services and
charges, if any, should be obtained by customers from their institutions.

Shareholders may redeem for cash some or all of their shares of a fund at any
time by sending a written redemption request in proper form to BlackRock Funds,
c/o PFPC Inc., P.O. Box 8907, Wilmington, DE 19899-8907.

SELLING SHARES
74
<PAGE>

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

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

The fund is not responsible for the efficiency of the Federal wire system or
the shareholder's firm or bank. The fund does not currently charge for wire
transfers. The shareholder is responsible for any charges imposed by the share-
holder's bank. To change the name of the single, designated bank account to
receive wire redemption proceeds, it is necessary to send a written request to
BlackRock Funds c/o PFPC Box 8907, Wilmington, DE 19899-8907.

The Company may refuse a telephone redemption request if it believes it is
advisable to do so and may use reasonable procedures to make sure telephone
instructions are genuine. Any redemption request of $25,000 or more must be in
writing.

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

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

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

75
<PAGE>

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

The Company may:
.Suspend the right of redemption
.Postpone date of payment upon redemption
.Redeem shares involuntarily
.Redeem shares for property other than cash

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

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

BlackRock Funds' Adviser is BlackRock Advisors, Inc. (BlackRock). BlackRock was
organized in 1994 to perform advisory services for investment companies and is
located at 345 Park Avenue, New York, NY 10154. BlackRock is a subsidiary of
PNC Bank Corp., one of the largest diversified financial services companies in
the United States. BlackRock Financial Management, Inc. (BFM), an affiliate of
BlackRock located at 345 Park Avenue, New York, New York 10154, acts as sub-
adviser to the Company, as does BlackRock International, Ltd. (BIL), an affili-
ate of BlackRock located at 7 Castle Street, Edinburgh, Scotland EH2 3AH. The
only fund not managed by BlackRock is the Index Equity Portfolio, which invests
all of its assets in the Index Master Portfolio. The Index Master Portfolio is
advised by Dimensional Fund Advisors Inc. (DFA), located at 1299 Ocean Avenue,
11th Floor, Santa Monica, CA 90401. DFA was organized in May 1981 and provides
investment management services to institutional investors.

THE COMPANY'S RIGHTS

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

ACCOUNTS WITH LOW BALANCES

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

MANAGEMENT
76
<PAGE>

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

BlackRock may waive part of its advisory fee. The maximum annual advisory fees
that can be paid to BlackRock (as a percentage of average net assets) are as
follows:

MAXIMUM ANNUAL CONTRACTUAL ADVISORY FEE RATE FOR THE MID-CAP VALUE EQUITY AND
MID-CAP GROWTH EQUITY PORTFOLIOS (BEFORE WAIVERS)

MAXIMUM ANNUAL CONTRACTUAL ADVISORY FEE RATE FOR THE INTERNATIONAL EQUITY
PORTFOLIO (BEFORE WAIVERS)

IMPORTANT DEFINITIONS

ADVISER: The Adviser of
a mutual fund is
responsible for the
overall investment man-
agement of the Fund.
The Adviser for Black-
Rock Funds is BlackRock
Advisors, Inc.

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

MAXIMUM ANNUAL CONTRACTUAL ADVISORY FEE RATE FOR THE INTERNATIONAL EMERGING
MARKETS PORTFOLIO (BEFORE WAIVERS)

<TABLE>
<CAPTION>
AVERAGE DAILY NET INVESTMENT
ASSETS ADVISORY FEE
<S> <C>
First $1 billion 1.250%
$1 billion--$2 billion 1.200%
$2 billion-$3 billion 1.155%
more than $3 billion 1.100%
</TABLE>

MAXIMUM ANNUAL CONTRACTUAL ADVISORY FEE RATE FOR THE INTERNATIONAL SMALL CAP
EQUITY PORTFOLIO (BEFORE WAIVERS)

<TABLE>
<CAPTION>
AVERAGE DAILY NET INVESTMENT
ASSETS ADVISORY FEE
<S> <C>
First $1 billion 1.00%
$1 billion-$2 billion .950%
$2 billion-$3 billion .900%
more than $3 billion .850%
</TABLE>

MAXIMUM ANNUAL CONTRACTUAL ADVISORY FEE RATE FOR THE MICRO-CAP EQUITY PORTFOLIO
(BEFORE WAIVERS)

<TABLE>
<CAPTION>
AVERAGE DAILY NET INVESTMENT
ASSETS ADVISORY FEE
<S> <C>
First $1 billion 1.10%
$1 billion-$2 billion 1.05%
$2 billion-$3 billion 1.025%
more than $3 billion 1.00%
</TABLE>

The BlackRock asset management philosophy emphasizes a disciplined style of
investment that depends more on analysis, risk management and advanced technol-
ogy than on attempting to forecast the future. The BlackRock Funds are each
managed with an emphasis on Pure Investment Style(R), a disciplined approach
designed to provide each fund with its own distinctive identity and which
offers investors the potential for measuring performance and volatility con-
sistently.
78
<PAGE>

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

Information about the portfolio manager for each of the funds is presented in
the appropriate fund section starting on page of this prospectus.

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

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

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

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

DIVIDENDS AND DISTRIBUTIONS
79
<PAGE>

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

folio's expenses, is the Index Equity Portfolio's net investment income from
which dividends are paid to shareholders. The Index Master Portfolio also allo-
cates to the Index Equity Portfolio its pro rata share of capital gains (if
any).

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

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

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

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

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

TAXATION OF DISTRIBUTIONS

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

SERVICES FOR SHAREHOLDERS

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

80
<PAGE>

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

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

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

AUTOMATIC INVESTMENT PLAN (AIP)

STATEMENTS

SYSTEMATIC WITHDRAWAL PLAN (SWP)
81
<PAGE>

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

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

Internal Wholesalers/Broker Dealer Support
Available to support investment professionals 9 AM to 6PM EST,
Monday-Friday. Call 888-8BLACKROCK

INVESTMENT COMPANY ACT FILE NO. 811-05742 [LOGO] BLACKROCK
FUNDS
<PAGE>

Equity Portfolios
================================================
INSTITUTIONAL SHARES

BlackRock Funds is a mutual fund complex with 40
investment portfolios, 13 of which are described
in this prospectus.

PROSPECTUS
January __, 1999

[LOGO] BLACKROCK
FUNDS

HOW TO FIND
THE INFORMATION
YOU NEED

ABOUT YOUR
INVESTMENT
TABLE OF
CONTENTS

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
THE BLACKROCK EQUITY FUNDS (SECTION PAGE)................................... 1
LARGE CAP VALUE............................................................. 2
LARGE CAP GROWTH............................................................ 8
MID-CAP VALUE............................................................... 14
MID-CAP GROWTH.............................................................. 19
SMALL CAP VALUE............................................................. 24
SMALL CAP GROWTH............................................................ 29
INTERNATIONAL EQUITY........................................................ 35
INTERNATIONAL EMERGING MARKETS.............................................. 41
INTERNATIONAL SMALL CAP..................................................... 47
SELECT EQUITY............................................................... 53
INDEX EQUITY................................................................ 58
BALANCED.................................................................... 63
MICRO-CAP................................................................... 69
HOW TO BUY/SELL SHARES......................................................
DIVIDENDS/DISTRIBUTION/TAXES................................................
FOR MORE INFORMATION........................................................
</TABLE>
<PAGE>

BLACKROCK
[LOGO] LARGE CAP VALUE EQUITY
PORTFOLIO

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

IMPORTANT DEFINITIONS

INVESTMENT GOAL
The fund seeks long-term capital appreciation--current income is the secondary
objective.

loaned securities. These loans will be limited to 33 1/3% of the value of the
fund's total assets.

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

KEY RISKS KEY RISKS
The main risk of any investment in stocks is that values fluctuate in price.
The value of your investment can go up or down depending upon market condi-
tions, which means you could lose money.

While the fund manager chooses stocks he believes to be undervalued, there is
no guarantee that prices won't move even lower.

The fund may sometimes engage in short term trading which could produce greater
brokerage costs and taxable distributions to shareholders.

3
<PAGE>

[BAR CHART]

As of 12/31 Institutional Shares
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------

Best Quarter
Q2 '97:66.16%

Worst Quarter
Q1 '94:14.62%

EXPENSES
AND FEES

EXPENSES AND FEES
As a shareholder you pay certain fees and expenses. Annual fund operating
expenses are paid out of fund assets and are reflected in the fund's price.
4
<PAGE>

The table below describes the fees and expenses that you may pay if you buy and
hold shares of the fund. The table is based on expenses for the most recent
fiscal year.

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

<TABLE>
<S> <C>
Advisory Fees .XX%
Other expenses .XX%
Total annual fund operating expenses X.XX%
Fee Waivers and Expense Reimbursements** .XX%
Net Expenses** .XX%
</TABLE>
** BlackRock has agreed to waive or limit its advisory fee or reimburse "Other
expenses" in order to limit certain (but not all) fund expenses to no more
than .XX%. The expense information in the table has been restated to
reflect these waivers and reimbursements. The fund may have to repay these
waivers and reimbursements to BlackRock in the future if the repayment can
be made within the expense limit.

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS

FUND MANAGEMENT
The portfolio manager of the fund is Daniel B. Eagan, portfolio manager with
BlackRock Financial Management, Inc. since 1995. Mr. Eagan was a director of
investment strategy at BlackRock Advisors, Inc. during 1994-1995. Prior to 1994
he served as senior research consultant for Mercer Investment Consulting. He
has served as portfolio manager for the fund since January 1997.
IMPORTANT DEFINITIONS

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

OTHER EXPENSES: Include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

5
<PAGE>

6
<PAGE>

/1/Commencement of operations of share class.
/2/Annualized.
7
<PAGE>

BLACKROCK
logo LARGE CAP GROWTH EQUITY
PORTFOLIO

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

IMPORTANT DEFINITIONS

LARGE CAPITALIZATION
COMPANIES: These are
larger, usually better
known companies. Capi-
talization refers to
the market value of the
company and is calcu-
lated by multiplying
the number of shares
outstanding by the cur-
rent price per share.
The fund will invest
primarily (at least
65%) in companies with
market capitalization
in excess of $10 bil-
lion; however, some of
the fund's holdings can
include companies with
lesser capitalizations.
Larger companies may be
more likely to have the
staying power to get
them through all eco-
nomic cycles; however
their size may also
make them less flexible
and innovative than
smaller companies.

INVESTMENT GOAL
The fund seeks long-term capital appreciation.

It is possible that in extreme market conditions the fund may invest some or
all of its assets in high quality money market securities. The reason for
acquiring money market securities would be to avoid market losses. However, if
market conditions improve, this strategy could result in reducing the potential
gain from the market upswing, thus reducing the fund's opportunity to achieve
its investment objective. The fund may also hold these securities pending
investments or when it expects to need cash to pay redeeming shareholders.

8
<PAGE>

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

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

The fund sometimes may engage in short term trading which could produce greater
brokerage costs and taxable distributions to shareholders.

KEY RISKS
9
<PAGE>

about the foreign company and political instability in the company's country.

The Fund, like any business, could be affected if the computer systems on
which it relies do not properly process information beginning on January 1,
2000. While Year 2000 issues could have a negative effect on the Fund, Black-
Rock is currently working to avoid such problems. BlackRock is also working
with other systems providers and vendors to determine their systems' ability
to handle Year 2000 problems. There is no guarantee however that systems will
work properly on January 1, 2000. Year 2000 problems may also hurt companies
whose securities the fund holds or securities markets generally.

RISK/RETURN INFORMATION
The chart and table below give you a picture of the fund's long-term perfor-
mance. The information shows you how the fund's performance has varied year by
year and provides some indication of the risks of investing in the fund. The
table compares the fund's performance to that of the Russell 1000 Growth
Index, a recognized unmanaged index of stock market performance. The chart and
the table both assume reinvestment of dividends and distributions. As with all
such investments, past performance is not an indication of future results.

EXPENSES AND FEES
As a shareholder you pay certain fees and expenses. Annual fund operating
expenses are paid out of fund assets and are reflected in the fund's price.
10
<PAGE>

The table below describes the fees and expenses that you may pay if you buy and
hold shares of the fund. The table is based on expenses for the most recent
fiscal year.

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

<TABLE>
<S> <C>
Advisory Fees .XX%
Other expenses .XX%
Total annual fund operating expenses X.XX%
Fee Waivers and Expense Reimbursements** .XX%
Net Expenses** X.XX%
</TABLE>

** BlackRock has agreed to waive or limit its advisory fee or reimburse "Other
expenses" in order to limit certain (but not all) fund expenses to no more
than .XX%. The expense information in the table has been restated to reflect
these waivers and reimbursements. The fund may have to repay these waivers
and reimbursements to BlackRock in the future if the repayment can be made
within the expense limit.

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
</TABLE>

11
<PAGE>

IMPORTANT DEFINITIONS

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

OTHER EXPENSES: Include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

12
<PAGE>

/1/Commencement of operations of share class.
/2/Annualized.
13
<PAGE>

BLACKROCK
MID-CAP VALUE EQUITY PORTFOLIO logo

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

INVESTMENT GOAL
The fund seeks long-term capital appreciation--current income is the secondary
objective.

The fund may lend some of its securities on a short-term basis in order to earn
extra income. The fund will receive collateral in cash or high-quality securi-
ties equal to the current value of the

IMPORTANT DEFINITIONS

14
<PAGE>

KEY RISKS

loaned securities. These loans will be limited to 33 1/3% of the value of the
fund's total assets.

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

While the fund manager chooses stocks he believes to be undervalued, there is
no guarantee that prices won't move even lower.

The fund may sometimes engage in short term trading which could produce greater
brokerage costs and taxable distributions to shareholders.

15
<PAGE>

The Fund, like any business, could be affected if the computer systems on
which it relies do not properly process information beginning on January 1,
2000. While Year 2000 issues could have a negative effect on the Fund, Black-
Rock is currently working to avoid such problems. BlackRock is also working
with other systems providers and vendors to determine their systems' ability
to handle Year 2000 problems. There is no guarantee however that systems will
work properly on January 1, 2000. Year 2000 problems may also hurt companies
whose securities the fund holds or securities markets generally.

RISK / RETURN INFORMATION
The chart and table below give you a picture of the fund's long-term perfor-
mance. The information shows you how the fund's performance has varied year by
year and provides some indication of the risks of investing in the fund. The
table compares the fund's performance to that of the Russell Mid-Cap Value
Index, a recognized unmanaged index of stock market performance. The chart and
the table both assume reinvestment of dividends and distributions. As with all
such investments, past performance is not an indication of future results.

16
<PAGE>

EXPENSES
AND FEES

IMPORTANT DEFINITIONS

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

OTHER EXPENSES: Include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

EXPENSES AND FEES
As a shareholder you pay certain fees and expenses. Annual fund operating
expenses are paid out of fund assets and are reflected in the fund's price.

The table below describes the fees and expenses that you may pay if you buy and
hold shares of the fund. The table is based on expenses for the most recent
fiscal year.

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

<TABLE>
<S> <C> <C> <C>
Advisory Fees .XX%
Other expenses .XX%
Total annual fund operating expenses X.XX%
Fee Waivers and Expense Reimbursements** XXX
Net Expenses** XXX
</TABLE>
** BlackRock has agreed to waive or limit its advisory fee or reimburse "Other
expenses" in order to limit certain (but not all) fund expenses to no more
than .XX%. The expense information in the table has been restated to reflect
these waivers and reimbursements. The fund may have to repay these waivers
and reimbursements to BlackRock in the future if the repayment can be made
within the expense limit.

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS

FUND MANAGEMENT
The fund is co-managed by Christian K. Stadlinger and Daniel B. Eagan.

Christian K. Stadlinger has been portfolio co-manager of the fund since incep-
tion. Previously he was Portfolio Manager and Research Analyst with Morgan
Stanley Asset Management.

Daniel B. Eagan, has been portfolio co-manager of the fund since inception. Mr.
Eagan was a director of investment strategy at BlackRock Advisors, Inc. during
1994-1995. Previously, he served as senior research consultant for Mercer
Investment Consulting.

indicates how much your investment would have increased or decreased during
this period of time. All figures assume that you have reinvested all dividend
and distributions. These figures have been audited by PricewaterhouseCoopers
LLP, the fund's independent accountants. The auditor's report, along with the
fund's financial statements are included in the Company's annual report which
is available upon request (See back cover for ordering instructions).
<TABLE>

/1/Commencement of operations of share class.
/2/Annualized.
18
<PAGE>

BLACKROCK
logo MID-CAP GROWTH EQUITY
PORTFOLIO

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

IMPORTANT DEFINITIONS

INVESTMENT GOAL
The fund seeks long-term capital appreciation.

It is possible that in extreme market conditions the fund may invest some or
all of its assets in high quality money market securities. The reason for
acquiring money market securities would be to avoid market losses. However, if
market conditions improve, this strategy could result in reducing the potential
gain from the market upswing, thus reducing the fund's opportunity to achieve
its investment objective. The fund may also hold these securities pending
investments or when it expects to need cash to pay redeeming shareholders.

19
<PAGE>

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

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

The fund may sometimes engage in short term trading which could produce
greater brokerage costs and taxable distributions to shareholders.

KEY RISKS
20
<PAGE>

The Fund, like any business, could be affected if the computer systems on which
it relies do not properly process information beginning on January 1, 2000.
While Year 2000 issues could have a negative effect on the Fund, BlackRock is
currently working to avoid such problems. BlackRock is also working with other
systems providers and vendors to determine their systems' ability to handle
Year 2000 problems. There is no guarantee however that systems will work prop-
erly on January 1, 2000. Year 2000 problems may also hurt companies whose secu-
rities the fund holds or securities markets generally.

RISK / RETURN INFORMATION
The chart and table below give you a picture of the fund's long-term perfor-
mance. The information shows you how the fund's performance has varied year by
year and provides some indication of the risks of investing in the fund. The
table compares the fund's performance to that of the Russell Mid-Cap Growth
Index, a recognized unmanaged index of stock market performance. The chart and
the table both assume reinvestment of dividends and distributions. As with all
such investments, past performance is not an indication of future results.

21
<PAGE>

EXPENSES AND FEES
As a shareholder you pay certain fees and expenses. Annual fund operating
expenses are paid out of fund assets and are reflected in the fund's price.

The table describes the fees and expenses that you may pay if you buy and hold
shares of the fund. The table is based on expenses for the most recent fiscal
year.

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS

FUND MANAGEMENT
The fund is co-managed by William J. Wykle and Thomas Callan.

William J. Wykle has been Portfolio Manager with BlackRock Financial Manage-
ment, Inc. since 1995 and an investment manager for PNC Bank since 1986. He
has co-managed this fund since its inception.
EXPENSES
AND FEES

IMPORTANT DEFINITIONS

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

OTHER EXPENSES: Include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

22
<PAGE>

<CAPTION>
FOR THE
PERIOD
YEAR 12/27/96/1
ENDED / THROUGH
9/30/98 9/30/97
<S> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 10.00
--- -------
Income from investment operations
Net investment income (0.03)
Net gain (loss) on investments
(both realized and unrealized) 2.20
--- -------
Total from investment operations 2.17
--- -------
LESS DISTRIBUTIONS
Distributions from net investment
income - -
Distributions from capital - -
Distributions from net realized
capital gains - -
--- -------
Total distributions - -
--- -------
NET ASSET VALUE AT END OF PERIOD $ 12.17
=== =======
Total return 21.70%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $22,984
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 1.44%/2/
Before advisory/administration fee
waivers 1.48%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers (0.54)%/2/
Before advisory/administration fee
waivers (0.58)%/2/
PORTFOLIO TURNOVER RATE 64%
</TABLE>

/1/Commencement of operations of share class.
/2/Annualized.
23
<PAGE>

BLACKROCK
SMALL CAP VALUE EQUITY logo
PORTFOLIO

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

INVESTMENT GOAL
The fund seeks long-term capital appreciation.

It is possible that in extreme market conditions the fund may invest some or
all of its assets in high quality money market securities. The reason for
acquiring money market securities would be to avoid market losses. However, if
market conditions improve, this strategy could result in reducing the potential
gain from the market upswing, thus reducing the fund's opportunity to achieve
its investment objective. The fund may also hold these securities pending
investments or when it expects to need cash to pay redeeming shareholders.

The fund may lend some of its securities on a short-term basis in order to earn
extra income. The fund will receive collateral in cash or high-quality securi-
ties equal to the current value of the loan securities. These loans will be
limited to 33 1/3% of the value of the fund's total assets.

IMPORTANT DEFINITIONS

24
<PAGE>

KEY RISKS

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

While the fund manager chooses stocks he believes to be undervalued, there is
no guarantee that prices won't move even lower.

The fund may sometimes engage in short term trading which could produce greater
brokerage costs and taxable distributions to shareholders.

The Fund, like any business, could be affected if the computer systems on
which it relies do not properly process information beginning on January 1,
2000. While Year 2000 issues could have a negative effect on the Fund, Black-
Rock is currently working to avoid such problems. BlackRock is also working
with other systems providers and vendors to determine their systems' ability
to handle Year 2000 problems. There is no guarantee however that systems will
work properly on January 1, 2000. Year 2000 problems may also hurt companies
whose securities the Fund holds or securities markets generally.

RISK / RETURN INFORMATION
The chart and table below give you a picture of the fund's long-term perfor-
mance. The information shows you how the fund's performance has varied year by
year and provides some indication of the risks of investing in the fund. The
table compares the fund's performance to that of the Russell 2000 Value Index,
a recognized unmanaged index of stock market performance. The chart and the
table both assume reinvestment of dividends and distributions. As with all
such investments, past performance is not an indication of future results.

EXPENSES AND FEES
As a shareholder you pay certain fees and expenses. Annual fund operating
expenses are paid out of fund assets and are reflected in the fund's price.

EXPENSES AND FEES
26
<PAGE>

IMPORTANT DEFINITIONS

ADVISORY FEES: fees
paid to the investment
adviser for portfolio
management services.

OTHER EXPENSES: include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

The table describes the fees and expenses that you may pay if you buy and hold
shares of the fund. The table is based on expenses for the most recent fiscal
year.

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

<TABLE>
<S> <C>
Advisory Fees .XX%
Other expenses .XX%
Total annual fund operating expenses X.XX%
Fee Waivers and Expense Reimbursements** .XX%
Net Expenses** X.XX%
</TABLE>
** BlackRock has agreed to waive or limit its advisory fee or reimburse "Other
expenses" in order to limit certain (but not all) fund expenses to no more
than .XX%. The expense information in the table has been restated to reflect
these waivers and reimbursements. The fund may have to repay these waivers
and reimbursements to BlackRock in the future if the repayment can be made
within the expense limit.

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>

</TABLE>

<TABLE>

/1/Commencement of operations of share class.
/2/Annualized.
28
<PAGE>

BLACKROCK
logo SMALL CAP GROWTH EQUITY
PORTFOLIO

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

IMPORTANT DEFINITIONS

INVESTMENT GOAL
The fund seeks long-term capital appreciation.

It is possible that in extreme market conditions the fund may invest some or
all of its assets in high quality money market securities. The reason for
acquiring money market securities would be to avoid market losses. However, if
market conditions improve, this strategy could result in reducing the potential
gain from the market upswing, thus reducing the fund's opportunity to achieve
its investment objective. The fund may also hold these securities pending
investments or when it expects to need cash to pay redeeming shareholders.

29
<PAGE>

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

There is more business risk in investing in small capitalized companies than
in larger, better capitalized companies. 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 compa-
nies.

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

The fund may sometimes engage in short term trading which could produce
greater brokerage costs and taxable distributions to shareholders.

The fund can invest in instruments called depository receipts which are secu-
rities issued by financial institutions (like banks or

KEY RISKS
30
<PAGE>

The Fund, like any business, could be affected if the computer systems on which
it relies do not properly process information beginning on January 1, 2000.
While Year 2000 issues could have a negative effect on the Fund, BlackRock is
currently working to avoid such problems. BlackRock is also working with other
systems providers and vendors to determine their systems' ability to handle
Year 2000 problems. There is no guarantee however that systems will work prop-
erly on January 1, 2000. Year 2000 problems may also hurt companies whose secu-
rities the fund holds or securities markets generally.

RISK / RETURN INFORMATION
The chart and table below give you a picture of the fund's long-term perfor-
mance. The information shows you how the fund's performance has varied year by
year and provides some indication of the risks of investing in the fund. The
table compares the fund's performance to that of the Russell 2000 Growth Index,
a recognized unmanaged index of stock market performance. The chart and the
table both assume reinvestment of dividends and distributions. As with all such
investments, past performance is not an indication of future results.

31
<PAGE>

EXPENSES AND FEES
As a shareholder you pay certain fees and expenses. Annual fund operating
expenses are paid out of fund assets and are reflected in the fund's price.

The table below describes the fees and expenses that you may pay if you buy
and hold shares of the fund. The table is based on expenses for the most
recent fiscal year.

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

<TABLE>
<S> <C>
Advisory Fees .XX%
Other expenses .XX%
Total annual fund operating expenses X.XX%
Fee Waivers and Expense Reimbursements** .XX%
Net Expenses** X.XX%
</TABLE>
** BlackRock has agreed to waive or limit its advisory fee or reimburse "Other
expenses" in order to limit certain (but not all) fund expenses to no more
than .XX%.The expense information in the table has been restated to reflect
these waivers and reimbursements. The fund may have to repay these waivers
and reimbursements to BlackRock in the future if the repayment can be made
within the expense limit.

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.

EXAMPLE:

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
</TABLE>

FUND MANAGEMENT
The fund is co-managed by William J. Wykle and Thomas Callan.

William J. Wykle, has been Portfolio Manager with BlackRock Financial Manage-
ment, Inc. since 1995 and an investment manager for PNC Bank since 1986. He
has co-managed this fund since inception.
EXPENSES AND FEES
IMPORTANT DEFINITIONS

ADVISORY FEES: fees
paid to the investment
adviser for portfolio
management services.

OTHER EXPENSES: include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

32
<PAGE>

Thomas Callan, has been Portfolio Manager with
BlackRock Financial Management, Inc. since 1996 and
has served as an equity analyst for PNC Bank from
1993-1996. He has been co-manager of the fund since
May 1998.

<TABLE>

/1/Commencement of operations of share class.
/2/Annualized.
34
<PAGE>

BLACKROCK
logo INTERNATIONAL EQUITY
PORTFOLIO

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

IMPORTANT DEFINITIONS

INVESTMENT GOAL
The fund seeks long-term capital appreciation.

PRIMARY INVESTMENT STRATEGIES
In pursuit of this goal, the fund manager invests primarily in stocks of for-
eign issuers located in countries included in the Morgan Stanley Capital Inter-
national Europe, Australia and Far East Index (EAFE). The fund normally invests
at least 65% of its total assets in the equity securities issued by these com-
panies and normally invests at least 80% of its total assets in equity securi-
ties. The fund primarily buys common stock but also can invest in preferred
stock and securities convertible into common and preferred stock.

The fund manager, in an attempt to reduce portfolio risk, will diversify
investments across countries, industry groups and companies with investment at
all times in at least three foreign countries. In addition, the fund can invest
more than 25% of its assets in Japanese stocks.

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

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

While the fund manager chooses stocks he believes to be undervalued, there is
no guarantee that prices won't move even lower.

KEY RISKS
36
<PAGE>

On January 1, 1999, eleven countries in the European Monetary Union (EMU) plan
to implement a new currency unit called "the Euro" which is expected to reshape
financial markets, banking systems and monetary policies in Europe and other
parts of the world. While it is impossible to predict the impact of the "Euro",
it is possible that it could increase volatility in financial markets world
wide which could hurt the value of shares of the fund.

The fund's portfolio is actively managed. The portfolio manager may, when con-
sistent with the fund's investment objective, use options or futures (commonly
known as derivatives). The primary purpose is to attempt to reduce risk to the
fund as a whole (hedge) but they may also be used to maintain liquidity, commit
cash pending investment or to increase returns. These practices may reduce
returns and/or increase volatility. Volatility is defined as the characteristic
of a security or a market to fluctuate significantly in price within a short
time period. The fund can borrow money to buy additional securities. The fund
may borrow from banks or other financial institutions or through reverse repur-
chase agreements (under which the fund sells securities and agrees to buy them
back at a particular date and price). This practice can increase the fund's
possible losses or gains. The fund may also use forward foreign currency
exchange contracts (obligations to buy or sell a currency at a set rate in the
future) to hedge against movements in the value of foreign currencies. These
contracts do not eliminate movements in the value of foreign securities but
rather allow the fund to establish a fixed rate of exchange for a future point
in time. This strategy can have the effect of reducing returns and minimizing
opportunities for gain.

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

The fund may, from time to time, invest more than 25% of its assets in securi-
ties whose issuers are located in Japan. These investments would make the fund
more dependent upon the political and economic circumstances of that country
than a mutual fund that owns stocks of companies in many countries. The Japa-
nese economy (especially Japanese banks, securities firms and insurance compa-
nies) have experienced considerable difficulty recently. In addition, the Japa-
nese Yen has gone up and down in value versus the U.S. dollar. Japan may also
be affected by recent turmoil in other Asian countries.

The fund may sometimes engage in short term trading which could produce
greater brokerage costs and taxable distributions to shareholders.

The Company, like any business, could be affected if the computer systems on
which it relies do not properly process information beginning on January 1,
2000. While Year 2000 issues could have a negative effect on the Fund, Black-
Rock is currently working to avoid such problems. BlackRock is also working
with other systems providers and vendors to determine their systems' ability
to handle Year 2000 problems. There is no guarantee however that systems will
work properly on January 1, 2000. Year 2000 problems may also hurt companies
whose securities the fund holds or securities markets generally.

RISK / RETURN INFORMATION
The chart and table below give you a picture of the fund's long-term perfor-
mance. The information shows you how the fund's performance has varied year by
year and provides some indication of the risks of investing in the fund. The
table compares the fund's performance to that of the EAFE Index, a recognized
unmanaged index of stock market performance. The chart and the table both
assume reinvestment of dividends and distributions. As with all such invest-
ments, past performance is not an indication of future results.

EXPENSES AND FEES
As a shareholder you pay certain fees and expenses. Annual fund operating
expenses are paid out of fund assets and are reflected in the fund's price.

EXPENSES AND FEES
38
<PAGE>

IMPORTANT DEFINITIONS

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

OTHER EXPENSES: Include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

The table describes the fees and expenses that you may pay if you buy and hold
shares of the fund. The table is based on expenses for the most recent fiscal
year.

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
</TABLE>

/1/Commencement of operations of share class.
/2/Annualized.
40
<PAGE>

BLACKROCK
(LOGO) INTERNATIONAL EMERGING MARKETS
PORTFOLIO

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

IMPORTANT DEFINITIONS

INVESTMENT GOAL
The fund seeks long-term capital appreciation.

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

Because different kinds of stocks go in and out of favor depending on market
conditions, this fund's performance may be better or worse than other funds
with different investment styles. For example, in some markets a fund holding
stocks of companies in developed foreign countries or domestic stocks may
outperform this fund.

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

While the portfolio manager chooses stocks he believes to be undervalued there
is no guarantee that prices won't move even lower.

KEY RISKS
42
<PAGE>

On January 1, 1999, eleven countries in the European Monetary Union (EMU) plan
to implement a new currency unit called "the Euro" which is expected to reshape
financial markets, banking systems and monetary policies in Europe and other
parts of the world. While it is impossible to predict the impact of the "Euro",
it is possible that it could increase volatility in financial markets world
wide which could hurt the value of shares of the fund.

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

The fund may engage in short term trading which could produce greater brokerage
costs and taxable distributions to shareholders.

RISK / RETURN INFORMATION
The chart and table below give you a picture of the fund's long-term perfor-
mance. The information shows you how the fund's performance has varied year by
year and provides some indication of the risks of investing in the fund. The
table compares the fund's performance to that of the MSCI Emerging Market Free
Index, a recognized unmanaged index of stock market performance. The chart and
the table both assume reinvestment of dividends and distributions. As with all
such investments, past performance is not an indication of future results.

EXPENSES AND FEES
As a shareholder you pay certain fees and expenses. Annual fund operating
expenses are paid out of fund assets and are reflected in the fund's price.

The table describes the fees and expenses that you may pay if you buy and hold
shares of the fund. The table is based on expenses for the most recent fiscal
year.

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

<TABLE>
<S> <C>
Advisory Fees .XX%
Other expenses .XX%
Total annual fund operating expenses X.XX%
Fee Waivers and Expense Reimbursements** .XX%
Net Expenses** X.XX%
</TABLE>
** BlackRock has agreed to waive or limit its advisory fee or reimburse "Other
expenses" in order to limit certain (but not all) fund expenses to no more
than .XX%. The expense information in the table has been restated to
reflect these waivers and reimbursements. The fund may have to repay these
waivers and reimbursements to BlackRock in the future if the repayment can
be made within the expense limit.
EXPENSES AND FEES
44
<PAGE>

IMPORTANT DEFINITIONS

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

OTHER EXPENSES: Include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
</TABLE>

45
<PAGE>

/1/Commencement of operations of share class.
/2/Annualized.
46
<PAGE>

BLACKROCK
(LOGO) INTERNATIONAL SMALL CAP EQUITY
PORTFOLIO

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

IMPORTANT DEFINITIONS

INVESTMENT GOAL
The fund seeks long-term capital appreciation.

PRIMARY INVESTMENT STRATEGIES
In pursuit of this goal, the fund manager invests primarily in small cap stocks
(capitalization of less than $1 billion, $1.5 billion for Japanese issuers) of
foreign companies in developed countries included in the Salomon Brothers
Extended Markets World Ex-U.S. Index. The fund normally invests at least 65% of
its total assets in the equity securities issued by the companies described
above and normally invests at least 80% of its total assets in equity securi-
ties. In addition, the manager may invest up to 20% of the portfolio in stocks
of issuers in emerging market countries. The fund primarily invests in common
stock but can also invest in preferred stock and convertible into common and
preferred securities.

It is possible that in extreme market conditions the fund may invest some or
all of its assets in high quality money market secu-
47
<PAGE>

rities. The reason for acquiring money market securities would be to avoid
market losses. However, if market conditions improve, this strategy could
result in reducing the potential gain from the market upswing, thus reducing
the fund's opportunity to achieve its investment objective. The fund may also
hold these securities pending investments or to meet anticipated redemption
obligations.

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

There may be more risk in investing in smaller capitalized companies. These
organizations will normally have more limited product lines, markets and
financial resources and will be more dependent upon a more limited management
group than larger capitalized companies.

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

While the manager chooses stocks he believes to be undervalued there is no
guarantee that prices won't move even lower.

On January 1, 1999, eleven countries in the European Monetary Union (EMU) plan
to implement a new currency unit called "the Euro" which is expected to reshape
financial markets, banking systems and monetary policies in Europe and other
parts of the world. While it is impossible to predict the impact of the "Euro",
it is possible that it could increase volatility in financial markets world
wide which could hurt the value of shares of the fund.

The fund's portfolio is actively managed. The fund's manager may, when consis-
tent with the fund's investment objective, use options or futures (commonly
known as derivatives). The primary purpose of using derivatives is to attempt
to reduce risk to the fund as a whole (hedge) but they may also be used to
maintain liquidity, commit cash pending investment or to increase returns.
These practices may reduce returns and/or increase volatility. Volatility is
defined as the characteristic of a security or a market to fluctuate signifi-
cantly in price within a short time period. The fund can borrow money to buy
additional securities. The fund may borrow from banks or other financial insti-
tutions or through reverse repurchase agreements (under which the fund sells
securities and agrees to buy them back at a particular date and price). This
practice can increase the fund's possible losses or gains. The fund may also
use forward foreign currency exchange contracts (obligations to buy or sell a
currency at a set rate in the future) to hedge against movements in the value
of foreign currencies. These contracts do not eliminate movements in the value
of foreign securities but rather allow the fund to establish a fixed rate of
exchange for a future point in time. This strategy can have the effect of
reducing returns and minimizing opportunities for gain.

49
<PAGE>

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

Securities loans involve the risk of a delay in receiving additional collat-
eral if the value of the securities go up while they are on loan. There is
also the risk of delay in recovering the loaned securities or in losing rights
to the collateral if a borrower goes bankrupt.
The fund may, from time to time, engage in short term trading which could pro-
duce greater brokerage costs and taxable distributions to shareholders.

The Company, like any business, could be affected if the computer systems on
which it relies do not properly process information beginning on January 1,
2000. While Year 2000 issues could have a negative effect on the Fund, Black-
Rock is currently working to avoid such problems. BlackRock is also working
with other systems providers and vendors to determine their systems' ability
to handle Year 2000 problems. There is no guarantee however that systems will
work properly on January 1, 2000. Year 2000 problems may also hurt companies
whose securities the funds holds or securities market generally.

RISK / RETURN INFORMATION
The chart and table below give you a picture of the fund's long-term perfor-
mance. The information shows you how the fund's performance has varied year by
year and provides some indication of the risks of investing in the fund. The
table compares the fund's performance to that of the Salomon Brothers Extended
Market World Ex US Index, a recognized unmanaged index of stock market perfor-
mance. The chart and the table both assume reinvestment of dividends and dis-
tributions. As with all such investments, past performance is not an indica-
tion of future results.

50
<PAGE>

EXPENSES AND FEES

IMPORTANT DEFINITIONS

ADVISORY FEES: fees
paid to the investment
adviser for portfolio
management services.

OTHER EXPENSES: include
administration, trans-
fer agency, custody,
professional fees and
registration fees.
EXPENSES AND FEES
As a shareholder you pay certain fees and expenses. Annual fund operating
expenses are paid out of fund assets and are reflected in the fund's price.

The table below describes the fees and expenses that you may pay if you buy and
hold shares of the fund. The table is based on expenses for the most recent
fiscal year.

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
$XXX $XXX $XXX $XXX
</TABLE>

/1/Commencement of operations of share class.
/2/Annualized.
52
<PAGE>

BLACKROCK
SELECT EQUITY (LOGO)
PORTFOLIO

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

IMPORTANT DEFINITIONS

FUNDAMENTAL ANALYSIS:
[TO COME]

INVESTMENT GOAL
The fund seeks long-term capital appreciation--current income is the secondary
objective.

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

While the fund manager chooses stocks he believes to be undervalued, or which
have above average growth potential, there is no guarantee that prices will
increase in value.

The fund may sometimes engage in short term trading which could produce
greater brokerage costs and taxable distributions to shareholders.

KEY RISKS
54
<PAGE>

EXPENSES AND FEES

RISK / RETURN INFORMATION
The chart and table below give you a picture of the fund's long-term perfor-
mance. The information shows you how the fund's performance has varied year by
year and provides some indication of the risks of investing in the fund. The
table compares the fund's performance to that of the S&P 500 Index, a recog-
nized unmanaged index of stock market performance. The chart and the table both
assume reinvestment of dividends and distributions. As with all such invest-
ments, past performance is not an indication of future results.

EXPENSES AND FEES
As a shareholder you pay certain fees and expenses. Annual fund operating
expenses are paid out of fund assets and are reflected in the fund's price.
55
<PAGE>

The table below describes the fees and expenses that you may pay if you buy
and hold shares of the fund. The table is based on expenses for the most
recent fiscal year.

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

<TABLE>
<S> <C>
Advisory Fees .XX%
Other expenses .XX%
Total annual fund operating expenses X.XX%
Fee waivers and expense reimbursements** .XX%
Net expenses** .XX%
</TABLE>
**BlackRock has agreed to waive or limit its advisory fee or reimburse "Other
expenses" in order to limit certain (but not all) fund expenses to no more
than .XX%. The expense information in the table has been restated to reflect
these waivers and reimbursements. The fund may have to repay these waivers
and reimbursements to BlackRock in the future if the repayment can be made
within the expense limit.

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
</TABLE>

FUND MANAGEMENT
The portfolio manager of the fund is Daniel B. Eagan, portfolio manager with
BlackRock Financial Management, Inc. since 1995. Mr. Eagan was a director of
investment strategy at BlackRock during 1994-1995. Prior to 1994 he served as
senior research consultant for Mercer Investment Consulting. He has served as
portfolio manager for the fund since January 1995.

IMPORTANT DEFINITIONS

ADVISORY FEES: fees
paid to the investment
adviser for portfolio
management services.

OTHER EXPENSES: fees
paid by the fund for
other expenses such as
administration, trans-
fer agency, custody,
professional fees and
registration fees.

56
<PAGE>

<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 13.56 $ 11.88 $ 9.92 $ 9.97
-------- -------- ------- -------
Income from investment
operations
Net investment income 0.11 0.17 0.22 0.19
Net gain (loss) on investments
(both realized and unrealized) 5.18 2.07 2.05 (0.04)
-------- -------- ------- -------
Total from investment
operations 5.29 2.24 2.27 0.15
-------- -------- ------- -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.14) (0.17) (0.19) (0.20)
Distributions from net realized
capital gains (1.21) (0.39) (0.12) - -
-------- -------- ------- -------
Total distributions (1.35) (0.56) (0.31) (0.20)
-------- -------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 17.50 $ 13.56 $ 11.88 $ 9.92
======== ======== ======= =======
Total return 42.12% 19.43% 23.43% 1.55%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $174,418 $113,777 $83,705 $49,293
Ratios of expenses to average
net assets
After advisory/administration
fee waivers 1.09% 1.04% 0.95% 0.90%
Before advisory/administration
fee waivers 1.16% 1.17% 1.13% 1.18%
Ratios of net investment income
to average net assets
After advisory/administration
fee waivers 0.93% 1.41% 2.10% 1.96%
Before advisory/administration
fee waivers 0.86% 1.28% 1.91% 1.68%
PORTFOLIO TURNOVER RATE 29% 55% 51% 88%
</TABLE>

/1/Commencement of operations of share class.
/2/Annualized.
57
<PAGE>

BLACKROCK
(LOGO) INDEX EQUITY
PORTFOLIO

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

INVESTMENT GOAL
The fund seeks long-term capital appreciation.

PRIMARY INVESTMENT STRATEGIES
In pursuit of this goal, the fund invests all of its assets indirectly,
through the U.S. Large Company Series (the Index Master Portfolio) of the DFA
Investment Trust Company, in the stocks of the S&P 500 Index using a passive
investment style that seeks to replicate the returns of the S&P 500 Index. The
Index Master Portfolio normally invests at least 95% of its total assets in
substantially all the stocks of the S&P 500 Index in approximately the same
proportion as they are represented in the Index.

Both the Index Equity Portfolio and the Index Master Portfolio may lend some
of its securities on a short-term basis in order to earn extra income. The
fund will receive collateral in cash or high-quality securities equal to the
current value of the loaned securities. these loans will be limited to 33 1/3%
of the value of the fund's total assets.

IMPORTANT DEFINITIONS

LARGE CAPITALIZATION
COMPANIES: These are
larger, usually better
known companies. Capi-
talization refers to
the market value of the
company and is calcu-
lated by multiplying
the number of shares
outstanding by the cur-
rent price per share.
Larger companies may be
more likely to have the
staying power to get
them through all eco-
nomic cycles; however
their size may also
make them less flexible
and innovative than
smaller companies.

58
<PAGE>

KEY RISKS

Because different kinds of stocks go in and out of favor depending on market
conditions, this fund's performance may be better or worse than other funds
with different investment styles. The fund is not actively managed and adverse
performance of a stock will ordinarily not result in its elimination from the
Index Master Portfolio. The Index Master Portfolio will remain fully invested
in 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. The investment performance of the Index
Master Portfolio and the fund is expected to approximate the investment perfor-
mance of the S&P 500 Index, which tends to be cyclical in nature, reflecting
periods when stock prices generally rise or fall.

RISK / RETURN INFORMATION
The chart and table below give you a picture of the fund's long-term perfor-
mance. The information shows you how the fund's performance has varied year by
year and provides some indication of the risks of investing in the fund. The
table compares the fund's performance to that of the S&P 500 Index, a recog-
nized unmanaged index of stock market performance. The chart and the table
both assume reinvestment of dividends and distributions. As with all such
investments, past performance is not an indication of future results.

EXPENSES AND FEES
As a shareholder you pay certain fees and expenses. Annual fund operating
expenses are paid out of fund assets and are reflected in the fund's price.

The table below describes the fees and expenses that you may pay if you buy
and hold shares of the fund. The table is based on expenses for the most
recent fiscal year.

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

<TABLE>
<S> <C>
Advisory Fees .XX%
Other expenses .XX%
Total annual fund operating expenses X.XX%
Fee Waivers and Expense Reimbursements** .XX%
Net Expenses** X.XX%
</TABLE>
* The Annual Fund Operating Expenses table and the Example reflect the
expenses of both the Index Equity and Index Master Portfolios.
*** BlackRock has agreed to waive or limit its advisory fee or reimburse
"Other expenses" in order to limit certain (but not all) fund expenses to
no more than .XX%.The expense information in the table has been restated
to reflect these waivers and reimbursements. The fund may have to repay
these waivers and reimbursements to BlackRock in the future if the repay-
ment can be made within the expense limit.

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.
EXPENSES AND FEES
60
<PAGE>

IMPORTANT DEFINITIONS

ADVISORY FEES: fees
paid to the investment
adviser for portfolio
management services.

OTHER EXPENSES: include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
</TABLE>

61
<PAGE>

<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 13.97 $ 13.58 $ 10.93 $ 11.02
--- -------- -------- ------- -------
Income from investment
operations
Net investment income 0.23 0.29 0.35 0.29
Net gain (loss) on
investments (both
realized and
unrealized) 5.01 2.10 2.73 0.02
--- -------- -------- ------- -------
Total from investment
operations 5.24 2.39 3.08 0.31
--- -------- -------- ------- -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.21) (0.30) (0.31) (0.29)
Distributions from net
realized capital gains (0.68) (1.70) (0.12) (0.11)
--- -------- -------- ------- -------
Total distributions (0.89) (2.00) (0.43) (0.40)
--- -------- -------- ------- -------
NET ASSET VALUE AT END OF
PERIOD $ 18.32 $ 13.97 $ 13.58 $ 10.93
=== ======== ======== ======= =======
Total return 39.58% 19.45% 28.99% 2.78%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in thousands) $193,319 $103,080 $61,536 $27,376
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.48% 0.48% 0.45% 0.40%
Before
advisory/administration
fee waivers 0.68%/3/ 0.80%/3/ 0.79% 0.77%
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 1.41% 1.98% 2.62% 2.49%
Before
advisory/administration
fee waivers 1.21% 1.67% 2.28% 2.12%
PORTFOLIO TURNOVER RATE -- /5/ 18%/4/,/5/ 18% 17%
</TABLE>

BLACKROCK
BALANCED (LOGO)
PORTFOLIO

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

IMPORTANT DEFINITIONS

TOTAL RETURN: a mea-
surement of a Fund's
performance that takes
into account not only
changes in the price
per share but also div-
idends and capital gain
distribution.

LARGE CAPITALIZATION
COMPANIES: These are
larger, usually better
known companies. Capi-
talization refers to
the market value of the
company and is calcu-
lated by multiplying
the number of shares
outstanding by the cur-
rent price per share.
Larger companies may be
more likely to have the
staying power to get
them through all eco-
nomic cycles; however,
their size may also
make them less flexible
and innovative than
smaller companies.

INVESTMENT GOAL
The fund seeks long-term capital appreciation--current income from fixed income
securities is the secondary objective.

It is possible that in extreme market conditions the fund may invest some or
all of its assets in high quality money market securities. The reason for
acquiring money market securities would be to avoid market losses. However, if
market conditions improve, this strategy could result in reducing the potential
gain from the market upswing, thus reducing the fund's opportunity to achieve
63
<PAGE>

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

While the fund manager chooses stocks with a focus on attempting to minimize
risk and chooses bonds of investment grade quality, there is no guarantee that
prices won't move lower.

The fund may sometimes engage in short term trading which could produce greater
brokerage costs and taxable distributions to shareholders.

EXPENSES AND FEES
the table both assume reinvestment of dividends and distributions. As with all
such investments, past performance is not an indication of future results.

EXPENSES AND FEES
As a shareholder you pay certain fees and expenses. Annual fund operating
expenses are paid out of fund assets and are reflected in the fund's price.

The table below describes the fees and expenses that you may pay if you buy
and hold shares of the fund. The table is based on expenses for the most
recent fiscal year.

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

<TABLE>
<S> <C>
Advisory Fees .XX%
Other expenses .XX%
Total annual fund operating expenses X.XX%
Fee Waivers and Expense Reimbursements** .XX%
Net Expenses** X.XX%
</TABLE>
** BlackRock has agreed to waive or limit its advisory fee or reimburse "Other
expenses" in order to limit certain (but not all) fund expenses to no more
than .XX%. The expense information in the table has been restated to
reflect these waivers and reimbursements. The fund may have to repay these
waivers and reimbursements to BlackRock in the future if the repayment can
be made within the expense limit.

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
</TABLE>
66
<PAGE>

FUND MANAGEMENT
The portfolio manager for the equity portion of the fund is R. Andrew Damm. He
is Senior Investment Strategist with BlackRock Financial Management, Inc. since
1995 and served as Portfolio Manager for PNC Bank from 1988-1995. He has been
co-manager of the fund since 1996.

IMPORTANT DEFINITIONS

ADVISORY FEES: fees
paid to the investment
adviser for portfolio
management services.

OTHER EXPENSES: include
fees paid by the fund
for other expenses such
as administration,
transfer agency, custo-
dy, professional fees
and registration fees.

67
<PAGE>

<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 15.09 $ 13.72 $ 11.98 $ 12.42
--- -------- -------- ------- -------
Income from investment
operations
Net investment income 0.45 0.42 0.44 0.34
Net realized gain (loss) on
investments (both realized and
unrealized) 3.64 1.49 1.88 (0.38)
--- -------- -------- ------- -------
Total from investment
operations 4.09 1.91 2.32 (0.04)
--- -------- -------- ------- -------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.45) (0.41) (0.44) (0.34)
Distributions from net realized
capital gains (0.52) (0.13) (0.14) (0.06)
--- -------- -------- ------- -------
Total distributions (0.97) (0.54) (0.58) (0.40)
--- -------- -------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 18.21 $ 15.09 $ 13.72 $ 11.98
=== ======== ======== ======= =======
Total return 28.07% 14.11% 19.94% (0.36)%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in
thousands) $176,232 $134,121 $85,668 $66,024
Ratios of expenses to average
net assets
After advisory/administration
fee waivers 1.14% 1.09% 0.94% 0.90%
Before advisory/administration
fee waivers 1.20% 1.20% 1.16% 1.16%
Ratios of net investment income
to average net assets
After advisory/administration
fee waivers 2.68% 2.87% 3.49% 2.96%
Before advisory/administration
fee waivers 2.62% 2.76% 3.28% 2.70%
PORTFOLIO TURNOVER RATE 173% 275% 154% 54%
</TABLE>

/1/Commencement of operations of share class.
/2/Annualized.
68
<PAGE>

BLACKROCK
MICRO-CAP EQUITY (LOGO)
PORTFOLIO

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IMPORTANT DEFINITIONS

MICRO-CAP COMPANIES:
This asset class con-
tains the smallest cap-
italized companies. The
fund defines a "micro-
cap" company as one
with total capitaliza-
tion of $25 million to
$300 million.

GROWTH COMPANIES: All
stocks are generally
divided into the cate-
gories of "growth" or
"value"--although there
are times when a growth
fund and value fund may
own the same stock.
Growth stocks are com-
panies whose earnings
growth potential
appears to the manager
to be greater than the
market in general and
whose growth in revenue
is expected to continue
for an extended period.
These stocks typically
pay relatively low div-
idend yields and sell
at relatively high
prices in relation to
their earnings and book
value. Value stocks are
companies that appear
to the manager to be
undervalued by the mar-
ket as measured by cer-
tain financial formu-
las.

INVESTMENT GOAL
The fund seeks long-term capital appreciation.

loaned securities. These loans will be limited to 33 1/3% of the value of the
fund's total assets.

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

There are certain risks with investing in micro-cap securities. Micro-cap com-
panies will normally have more limited product lines, markets and financial
resources and will be more dependent on a more limited management group than
companies with larger capitalizations. In addition it is more difficult to get
information on micro-cap companies, which tend to be less well known, do not
have significant ownership by large investors and are followed by relatively
few securities analysts. The securities of micro-cap 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 abil-
ity to sell the fund's investment than if the fund held the securities of
larger, more established companies. There have been instances of fraud in the
micro-cap market. The fund may suffer losses due to fraudulent activity in the
market in which it invests.

An important consideration: In certain investment cycles and over certain
holding periods, an equity fund that invests in micro-cap stocks may perform
above or below the market. The fund should be considered an aggressive alloca-
tion within an overall investment strategy; it is not intended to be used as a
complete investment program.

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

KEY RISKS
70
<PAGE>

market to fluctuate significantly in price within a short time period. The fund
can borrow money to buy additional securities. The fund may borrow from banks
or other financial institutions or through reverse repurchase agreements (under
which the fund sells securities and agrees to buy them back at a particular
date and price). This practice can increase the fund's possible losses or
gains.

The fund may sometimes engage in short term trading which could produce greater
brokerage costs and taxable distributions to shareholders.

dends and distributions. As with all such investments, past performance is not
an indication of future results.

EXPENSES AND FEES
As a shareholder you pay certain fees and expenses. Annual fund operating
expenses are paid out of fund assets and are reflected in the fund's price.

The table below describes the fees and expenses that you may pay if you buy
and hold shares of the fund. The table is based on expenses for the most
recent fiscal year.

ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from fund assets)

<TABLE>
<S> <C> <C> <C>
Advisory Fees .XX%
Other expenses .XX%
Total annual fund operating expenses X.XX%
Fee waivers and expense reimbursements** .XX%
Net expenses** .XX%
** BlackRock has agreed to waive or limit its advisory fee or reimburse "Other
expenses" in order to limit certain (but not all) fund expenses to no more
than .XX%. The expense information in the table has been restated to
reflect these waivers and reimbursements. The fund may have to repay these
waivers and reimbursements to BlackRock in the future if the repayment can
be made within the expense limit.
</TABLE>

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
</TABLE>

EXPENSES AND FEES
72
<PAGE>

IMPORTANT DEFINITIONS

ADVISORY FEES: fees
paid to the investment
adviser for portfolio
management services.

OTHER EXPENSES: include
fees paid by the fund
for other expenses such
as administration,
transfer agency, custo-
dy, professional fees
and registration fees.

73
<PAGE>

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BUYING SHARES

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WHAT PRICE PER SHARE WILL YOU PAY?
Institutional Shares are offered without a sales charge to institutional
investors, including registered investment advisers with a minimum investment
of $500,000 and individuals with a minimum investment of $2,000,000.

Purchase orders may be placed through PFPC, the Company's transfer agent. The
name of the fund being purchased must appear on the check or Federal Reserve
draft.

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

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

Purchase orders received by the transfer agent before the close of regular
trading on the New York Stock Exchange (NYSE) (currently 4:00 PM EST) on each
day the exchange is open will be priced based on the NAV calculated at the
close of trading on that day plus any applicable sales charge. NAV is calcu-
lated separately for each class of shares of each fund at 4 PM EST each day
the NYSE is open. Shares will not be priced on days the NYSE is closed. Pur-
chase orders received after the close of trading will be priced based on the
next calculation of NAV. The International Equity, International Emerging Mar-
kets and Inter-
74
<PAGE>

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

national Small Cap Equity Portfolios may hold securities that trade on days
when the NYSE is closed. In these cases, net asset value of shares may change
when fund shares cannot be bought or sold.

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

Payment for Institutional Shares must normally be made in Federal funds or
other funds immediately available to the Company's custodian. Payment may
also, at the discretion of the Company, be made in the form of securities that
are permissible investments for the respective fund.

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

The minimum investment for the initial purchase of Institutional Shares is
$5,000. There is no minimum requirement for later investments. The fund does
not accept third party checks as payment for shares.

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

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

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

Payment for redeemed shares for which a redemption order is received by PFPC
before 4:00 p.m. EST on a business day is normally made in Federal funds wired
to the redeeming shareholder on the next business day, provided that the
funds' custodian is also open for business. Payment for redemption orders
received after 4:00 p.m. (EST) or on a day when the funds' custodian is closed
is normally wired in Federal funds on the next business day following redemp-
tion on which the funds' custodian is open

PAYING FOR SHARES

HOW MUCH IS THE MINIMUM INVESTMENT?

SELLING SHARES
75
<PAGE>

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

for business. The funds reserve the right to wire redemption proceeds within
seven days after receiving a redemption order if, in the judgement of BlackRock
Advisors, Inc., an earlier payment could adversely affect a fund. No charge for
wiring redemption payments is imposed by the Company.

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

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

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

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76
<PAGE>

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THE COMPANY'S RIGHTS

ACCOUNTS WITH LOW BALANCES

MANAGEMENT
- -------------------------------------------------------------------------------

The Company may:
.Suspend the right of redemption
.Postpone date of payment upon redemption
.Redeem shares involuntarily
.Redeem shares for property other than cash

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

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

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

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

Master Portfolio. The Index Master Portfolio is advised by Dimensional Fund
Advisors Inc. (DFA), located at 1299 Ocean Avenue, 11th Floor, Santa Monica, CA
90401. DFA was organized in May 1981 and provides investment management serv-
ices to institutional investors.