BLACKROCK FUNDS, 497, 1999-02-03

BLACKROCK FUNDS
497, 1999-02-03

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<PAGE>

497(C)
File No. 33-26305

Equity Portfolios
INVESTOR SHARES
=================================================
BlackRock Fundssm is a mutual fund family with 36
investment portfolios, 13 of which are described in
this prospectus. BlackRock Funds are sold
principally through licensed investment
professionals.

PROSPECTUS
January 28, 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 has
not determined the accuracy or adequacy of this
prospectus. Anyone who tells you otherwise is
committing a criminal offense.
<PAGE>
<TABLE>
<CAPTION>
Table of
Contents

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C>
How to find How to find the information you need........................................ 1
the information
you need THE BLACKROCK EQUITY FUNDS
Large Cap Value............................................................. 2
Large Cap Growth............................................................ 9
Mid-Cap Value............................................................... 16
Mid-Cap Growth.............................................................. 23
Small Cap Value............................................................. 29
Small Cap Growth............................................................ 36
International Equity........................................................ 43
International Emerging Markets.............................................. 51
International Small Cap .................................................... 59
Select Equity............................................................... 67
Index Equity................................................................ 74
Balanced.................................................................... 80
Micro-Cap................................................................... 87

About Your How to Buy/Sell Shares...................................................... 93
Investment Dividends/Distribution/Taxes................................................ 107
Services for Shareholders................................................... 110
</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).

This prospectus contains information on all 13 of the BlackRock Equity funds.
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: A
security, such as
stock, representing
ownership of a company.
Bonds, in comparison,
are referred to as
fixed income or debt
securities because they
represent indebtedness
to the bondholders, not
ownership.

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

Investment Style:
Refers to the guiding
principles of a mutual
fund's investment
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.

Large Capitalization
Companies: The fund
defines these companies
as those with capital-
ization of over $10
billion. Capitalization
refers to the market
value of the company
and is calculated by
multiplying the number
of shares outstanding
by the current price
per share. Larger com-
panies 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 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 and
whose growth in revenue
is expected to continue
for an extended period.

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 capi-
talization 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 initially
screens for "value" stocks from the universe of companies with market capital-
ization above $1 billion, emphasizing those companies with market capitaliza-
tion 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.

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

Key Risks

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

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 and of 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, 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, the
fund's investment adviser, is currently working to avoid such problems. Black-
Rock 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 issuers 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.
3
<PAGE>

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). The information shows you how the fund's performance has var-
ied 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.

The performance for the period before Investor Shares were launched is based
upon performance for older share classes of the Fund. Investor A Shares were
launched in May 1992, Investor B Shares were launched in January 1996 and
Investor C Shares were launched in August 1996. The actual return of Investor
Shares would have been lower than shown because Investor Shares have higher
expenses than these older classes. Also, the actual returns of Investor B and
C Shares would have been lower compared to Investor A Shares.

As of 12/31 Investor A Shares
- --------------------------------------------------------------------------------
A N N U A L T O T A L R E T U R N S
- --------------------------------------------------------------------------------

Best Quarter
Q4'98: 15.89%

Worst Quarter
Q3'98: -14.19%

[BAR CHART]

93 94 95 96 97 98
----- ----- ----- ----- ----- ----
17.84 0.73 34.31 23.81 28.02 9.97

As of 12/31/98
- --------------------------------------------------------------------------------
A V E R A G E A N N U A L T O T A L R E T U R N S
- --------------------------------------------------------------------------------
Since Inception
1 Year 3 Years 5 Years Inception Date
- --------------------------------------------------------------------------------
Large Cap Value Inv:A 5.05% 18.51% 17.63% 16.45% 04/20/92
Large Cap Value Inv:B 4.12% 18.03% 17.70% 16.86% 04/20/92
Large Cap Value Inv:C 7.94% 19.44% 18.18% 16.86% 04/20/92
Russell 1000 Value 15.63% 23.89% 20.85% 19.54% N/A*
- --------------------------------------------------------------------------------
These returns assume payment
of applicable sales charges.

*For comparative purposes, the value of the index on 05/01/92 is used as the
beginning value on 04/20/92.
4
<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.

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

The tables below explain your pricing options and describe the fees and
expenses that you may pay if you buy and hold Investor A, B and C Shares of the
fund. 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 CDSC is 4.5% if shares are redeemed in less than one year. The CDSC for
Investor B Shares decreases for redemptions made in subsequent years. After
six years there is no CDSC on B Shares. (See page 101 for complete schedule
of CDSCs.)
*** There is no CDSC on C Shares after one year.

5
<PAGE>

IMPORTANT DEFINITIONS

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

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

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

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

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

<TABLE>
<CAPTION>
A Shares B Shares C Shares

<S> <C> <C> <C>
Advisory Fees .53% .53% .53%
Distribution and service
(12b-1) fees .50% 1.15% 1.15%
Other expenses .38% .38% .38%
Total annual fund operating
expenses 1.41% 2.06% 2.06%
Fee waivers and expense
reimbursements* .10% - - - -
Net Expenses* 1.31% 2.06% 2.06%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits. In addition, BlackRock Distributors, Inc., the fund's distributor,
has contractually agreed to waive all 12b-1 distribution fees on Investor A
Shares (otherwise payable at the maximum annual rate of .10% of average
daily net assets) for the next year. "Net Expenses" in the table for
Investor A Shares have been restated to reflect this 12b-1 distribution fee
waiver.

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 (except for the waivers in the first year regarding Investor A Shares
discussed above), 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* $577 $867 $1,177 $2,057
B Shares**
Redemption $659 $996 $1,308 $2,223***
B Shares
No Redemption $209 $646 $1,108 $2,223***
C Shares**
Redemption $309 $646 $1,108 $2,390
C Shares
No Redemption $209 $646 $1,108 $2,390
</TABLE>
* Reflects imposition of sales charge.
** Reflects deduction of CDSC.
*** Based on the conversion of the Investor B Shares to Investor A Shares after
eight years.
6
<PAGE>

Fund Management
The manager of the fund is Daniel B. Eagan, Managing Director 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 manager for the fund since January 1997.

Financial Highlights
The financial information in the table on the next page shows the fund's
financial performance for the periods indicated. 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
and assumes that you have reinvested all dividends 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).
7
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Investor A, B or C Share Outstanding Throughout Each Period)

Large Cap Value Equuity Portfolio
(formerly the Value Equity Portfolio)
<TABLE>
<CAPTION>
INVESTOR A INVESTOR B
SHARES 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
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value
at
beginning
of period $ 17.52 $ 15.35 $ 13.92 $ 11.62 $ 11.69 $ 17.44 $ 15.32 $13.56
------- ------- ------- ------- ------- ------- ------- ------
Income from
investment
operations
Net investment
income 0.17 0.23 0.28 0.27 0.23 0.05 0.14 0.13
Net gain (loss)
on investments
(both realized
and unrealized) (0.60) 4.69 2.41 2.56 0.15 (0.61) 4.64 1.80
------- ------- ------- ------- ------- ------- ------- ------
Total from
investment
operations (0.43) 4.92 2.69 2.83 0.38 (0.56) 4.78 1.93
------- ------- ------- ------- ------- ------- ------- ------
Less
distributions
Distributions
from net
investment
income (0.16) (0.23) (0.29) (0.28) (0.23) (0.04) (0.14) (0.17)
Distributions
from net
realized
capital gains (2.25) (2.52) (0.97) (0.25) (0.22) (2.25) (2.52) - -
------- ------- ------- ------- ------- ------- ------- ------
Total
distributions (2.41) (2.75) (1.26) (0.53) (0.45) (2.29) (2.66) (0.17)
------- ------- ------- ------- ------- ------- ------- ------
Net asset value
at end of period $ 14.68 $ 17.52 $ 15.35 $ 13.92 $ 11.62 $ 14.59 $ 17.44 $15.32
======= ======= ======= ======= ======= ======= ======= ======
Total return (2.63)%/3/ 37.01%/3/ 20.52%/3/ 25.22%/3/ 3.32%/3/ (3.45)%/3/ 36.40%/3/ 14.26%/3/
Ratios/Supplemental
data
Net assets at
end of period
(in thousands) $51,151 $47,131 $26,190 $16,910 $10,412 $29,450 $19,773 $3,152
Ratios of
expenses to
average
net assets
After advisory/
administration
fee waivers 1.27% 1.26% 1.22% 1.11% 1.05% 2.06% 2.00% 1.92%/2/
Before
advisory/
administration
fee waivers 1.28% 1.33% 1.31% 1.25% 1.21% 2.07% 2.07% 2.00%/2/
Ratios of net
investment
income to
average net
assets
After advisory/
administration
fee waivers 0.99% 1.44% 1.93% 2.24% 2.08% 0.20% 0.64% 1.34%/2/
Before
advisory/
administration
fee waivers 0.98% 1.37% 1.84% 2.10% 1.92% 0.19% 0.57% 1.25%/2/
Portfolio
turnover rate 33% 37% 60% 12% 11% 33% 37% 60%

<CAPTION>
INVESTOR C
SHARES
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>
Net asset value
at
beginning
of period $17.44 $15.32 $14.91
------------ ----------- ------------
Income from
investment
operations
Net investment
income 0.06 0.15 0.02
Net gain (loss)
on investments
(both realized
and unrealized) (0.62) 4.63 0.45
------------ ----------- ------------
Total from
investment
operations (0.56) 4.78 0.47
------------ ----------- ------------
Less
distributions
Distributions
from net
investment
income (0.04) (0.14) (0.06)
Distributions
from net
realized
capital gains (2.25) (2.52) - -
------------ ----------- ------------
Total
distributions (2.29) (2.66) (0.06)
------------ ----------- ------------
Net asset value
at end of period $14.59 $17.44 $15.32
============ =========== ============
Total return (3.45)%/3/ 35.99%/3/ 3.16%/3/
Ratios/Supplemental
data
Net assets at
end of period
(in thousands) $3,146 $1,428 $ 205
Ratios of
expenses to
average
net assets
After advisory/
administration
fee waivers 2.04% 2.01% 1.80%/2/
Before
advisory/
administration
fee waivers 2.05% 2.08% 1.88%/2/
Ratios of net
investment
income to
average net
assets
After advisory/
administration
fee waivers 0.22% 0.61% 1.29%/2/
Before
advisory/
administration
fee waivers 0.21% 0.54% 1.20%/2/
Portfolio
turnover rate 33% 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.
8
\
<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.

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 investment
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.

Large Capitalization
Companies: The fund
defines these companies
as those with capital-
ization over $10 bil-
lion. Capitalization
refers to the market
value of the company
and is calculated by
multiplying the number
of shares outstanding
by the current price
per share. Larger com-
panies 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.

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 initially screens for "growth" stocks from the universe of compa-
nies with market capitalization above $1 billion, emphasizing those companies
with market capitalization over $10 billion. The manager uses fundamental anal-
ysis to examine each company for financial strength before deciding to purchase
the stock.

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

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.

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

Key Risks

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

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 and of losing
rights to the collateral if a borrower goes bankrupt.

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

10
<PAGE>

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

Risk/Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). 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.

The performance for the period before Investor Shares were launched is based
upon performance for older share classes of the fund. Investor A Shares were
launched in March 1992, Investor B Shares were launched in January 1996 and
Investor C Shares were launched in January 1997. The actual return of Investor
Shares would have been lower than shown because Investor Shares have higher
expenses than these older classes. Also, the actual returns of Investor B and C
Shares would have been lower compared to Investor A Shares.
11
<PAGE>

Best Quarter Q4 '98: 26.15%

Worst Quarter Q3 '98: -10.06%

The bars for 1990-1992 are based upon
performance for Institutional Shares
of the fund

[BAR CHART APPEARS HERE]

90 91 92 93 94 95 96 97 98
------ ------ ------ ------ ------- ------ ------ ------ ------
-2.05% 26.01% -1.01% 13.51% -10.44% 33.89% 19.77% 27.90% 40.65%

These returns assume payment of applicable sales charges.

As of 12/31/98
- --------------------------------------------------------------------------------
A V E R A G E A N N U A L T O T A L R E T U R N S
- --------------------------------------------------------------------------------
Since Inception
1 Year 3 Years 5 Years Inception Date
- --------------------------------------------------------------------------------
Large Cap Growth; Inv A 34.35% 27.20% 19.80% 15.34% 11/01/89
Large Cap Growth; Inv B 33.30% 26.66% 19.86% 15.63% 11/01/89
Large Cap Growth; Inv C 38.18% 28.17% 20.35% 15.63% 11/01/89
Russell 1000 Growth 38.69% 30.61% 25.70% 19.17% N/A
- --------------------------------------------------------------------------------

Expenses
and Fees

12
<PAGE>

IMPORTANT DEFINITIONS

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

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

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

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

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 CDSC is 4.5% if shares are redeemed in less than one year. The CDSC for
Investor B Shares decreases for redemptions made in subsequent years. After
six years there is no CDSC on B Shares. (See page 101 for complete schedule
of CDSCs.)
*** There is no CDSC on C Shares after one year.

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

<TABLE>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
Advisory Fees .55% .55% .55%
Distribution and service
(12b-1) fees .50% 1.15% 1.15%
Other expenses .39% .39% .39%
Total annual fund operating
expenses 1.44% 2.09% 2.09%
Fee Waivers and Expense
Reimbursements* .10% - - - -
Net Expenses* 1.34% 2.09% 2.09%
</TABLE>

* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits. In addition, BlackRock Distributors, Inc., the fund's distributor,
has contractually agreed to waive all 12b-1 distribution fees on Investor A
Shares (otherwise payable at the maximum annual rate of .10% of average
daily net assets) for the next year. "Net Expenses" in the table for
Investor A Shares have been restated to reflect this 12b-1 distribution fee
waiver.

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 (except for the waivers in the first year regarding Investor A Shares
discussed above), 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* $580 $ 876 $1,193 $2,089
B Shares**
Redemption $662 $1,005 $1,324 $2,255***
B Shares
No Redemption $212 $ 655 $1,124 $2,255***
C Shares**
Redemption $312 $ 655 $1,124 $2,421
C Shares
No Redemption $212 $ 655 $1,124 $2,421
</TABLE>

*Reflects imposition of sales charge.
**Reflects deduction of CDSC.
***Based on the conversion of Investor B Shares to Investor A Shares after
eight years.
13
<PAGE>

Fund Management
The manager of the fund is R. Andrew Damm, who has served as Managing Director
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 manager since September
1997.
14
<PAGE>

Financial Highlights
The financial information in the table below shows the fund's financial perfor-
mance for the periods indicated. 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 and assumes that
you have reinvested all dividends 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)

Large Cap Growth Equity Portfolio
<TABLE>
<CAPTION>
INVESTOR A INVESTOR B
SHARES SHARES
<CAPTION>
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
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $18.91 $ 14.94 $ 13.01 $ 10.16 $11.57 $18.69 $14.86 $13.08
------- ------- ------- ------- ------ ------- ------ ------
Income from
investment
operations
Net investment
income (0.05) 0.01 0.02 0.08 0.02 (0.15) (0.07) (0.02)
Net gain (loss) on
investments
(both realized
and unrealized) 1.84 4.72 2.29 2.87 (1.33) 1.78 4.64 1.80
------- ------- ------- ------- ------ ------- ------ ------
Total from
investment
operations 1.79 4.73 2.31 2.95 (1.31) 1.63 4.57 1.78
------- ------- ------- ------- ------ ------- ------ ------
Less distributions
Distributions from
net investment
income - - (0.02) - - (0.10) - - - - - - - -
Distributions from
net realized
capital gains (2.64) (0.74) 0.38 - - (0.10) (2.64) (0.74) - -
------- ------- ------- ------- ------ ------- ------ ------
Total
distributions (2.64) (0.76) 0.38 (0.10) (0.10) (2.64) (0.74) - -
------- ------- ------- ------- ------ ------- ------ ------
Net asset value at
end of period $18.06 $ 18.91 $ 14.94 $ 13.01 $10.16 $17.68 $18.69 $14.86
======= ======= ======= ======= ====== ======= ====== ======
Total return 11.16% 33.18%/3/ 18.18%/3/ 29.26%/3/ (11.38)%/3/ 10.33% 32.18%/3/ 13.61%/3/
Ratios/Supplemental
data
Net assets at end
of period (in
thousands) $33,340 $25,575 $16,579 $10,034 $5,049 $14,713 $7,919 $2,364
Ratios of expenses
to average net
assets
After
advisory/administration
fee waivers 1.33% 1.27% 1.22% 1.11% 1.05% 2.07% 2.01% 1.93%/2/
Before advisory/
administration fee
waivers 1.33% 1.34% 1.34% 1.29% 1.29% 2.07% 2.08% 2.05%/2/
Ratios of net
investment income
to average
net assets
After
advisory/administration
fee waivers (0.30)% 0.07% 0.15% 0.76% 0.29% (1.03)% (0.66)% (0.47)%/2/
Before advisory/
administration fee
waivers (0.30)% 0% 0.04% 0.58% 0.05% (1.03)% (0.73)% (0.58)%/2/
Portfolio turnover
rate 54% 81% 58% 55% 212% 54% 81% 58%

INVESTOR C
SHARES

For the
Period
Year 1/24/97/1
Ended / through
9/30/98 9/30/97
------- ---------
Net asset value at
beginning of period $18.69 $15.23
--------- -------------
Income from
investment
operations
Net investment
income (0.15) (0.03)
Net gain (loss) on
investments
(both realized
and unrealized) 1.78 3.49
--------- -------------
Total from
investment
operations 1.63 3.46
--------- -------------
Less distributions
Distributions from
net investment
income - - - -
Distributions from
net realized
capital gains (2.64) - -
--------- -------------
Total
distributions (2.64) - -
--------- -------------
Net asset value at
end of period $17.68 $18.69
========= =============
Total return 10.33% 22.78%/3/
Ratios/Supplemental
data
Net assets at end
of period (in
thousands) $1,037 $ 207
Ratios of expenses
to average net
assets
After
advisory/administration
fee waivers 2.06% 2.02%/2/
Before advisory/
administration fee
waivers 2.06% 2.09%/2/
Ratios of net
investment income
to average
net assets
After
advisory/administration
fee waivers (1.01)% (0.66)%/2/
Before advisory/
administration fee
waivers (1.01)% (0.73)%/2/
Portfolio turnover
rate 54% 81%
</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.
15
<PAGE>

BlackRock
(LOGO) Mid-Cap Value Equity 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 manager invests primarily in U.S. mid-capi-
talization value companies (market capitalization between $2 billion and $10
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 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 initially
screens for "value" stocks from the universe of companies with market capital-
ization above $2 billion, emphasizing those companies with market capitaliza-
tion between $2 billion and $10 billion. The manager uses fundamental analysis
to examine each company for financial strength before deciding to purchase the
stock.

IMPORTANT DEFINITIONS

Equity Security: A
security, such as
stock, representing
ownership of a company.
Bonds, in comparison,
are referred to as
fixed-income or debt
securities because they
represent indebtedness
to the bondholder, not
ownership.

Investment Style:
Refers to the guiding
principles of a mutual
fund's investment
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.

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.

16
<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 made.

Key Risks

There is more business risk in investing in mid-capitalization 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.

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 and of 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.

17
<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, the funds investment adviser, is currently working to avoid such prob-
lems. 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 issuers whose securities the fund holds or securi-
ties 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.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). The information shows you how the fund's performance has var-
ied 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.
18
<PAGE>

Best Quarter Q4 '98: 13.49%

Worst Quarter Q3 '98: -17.36%

[BAR CHART APPEARS HERE]

97 98
----- -----
27.94 -2.01

As of 12/31/98
- --------------------------------------------------------------------------------
A V E R A G E A N N U A L T O T A L R E T U R N S
- --------------------------------------------------------------------------------
Since Inception
1 Year Inception Date
- --------------------------------------------------------------------------------
Mid Cap Value; Inv A -6.43% 9.36% 12/27/96
- --------------------------------------------------------------------------------
Mid Cap Value; Inv B -7.06% 9.33% 12/27/96
- --------------------------------------------------------------------------------
Mid Cap Value; Inv C -3.65% 11.28% 12/27/96
- --------------------------------------------------------------------------------
Russell Mid Cap Value 5.08% 20.18% N/A*

These returns assume payment of
applicable sales charges.

* For comparative purposes, the value of the index on 01/01/97 is used as the
beginning value on 12/27/96.

Expenses
and Fees

This 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, and have a contingent deferred sales charge (CDSC) that you may pay
when you redeem your shares. Which option should you choose? It depends on your
individual circumstances. You should know that the lowest sales charge won't
necessarily be the least expensive option over time. For example, if you intend
to hold your shares long term it may cost less to buy A Shares than B or C
Shares.

19
<PAGE>

IMPORTANT DEFINITIONS

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

Disrtibution Fees: A
method of charging dis-
tribution-related
expenses against fund
assets.

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

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

The tables below explain your pricing options and describe the fees and
expenses that you may pay if you buy and hold Investor A, B and C Shares of
the fund. 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 CDSC is 4.5% if shares are redeemed in less than one year. The CDSC
for Investor B Shares decreases for redemptions made in subsequent years.
After six years there is no CDSC on B Shares. (See page 101 for complete
schedule of CDSCs.)
*** There is no CDSC on C Shares after one year.

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

<TABLE>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
Advisory Fees Service .80% .80% .80%
Distribution and service
(12b-1) fees .50% 1.15% 1.15%
Other expenses .47% .47% .47%
Total annual fund operating
expenses 1.77% 2.42% 2.42%
Fee waivers and expense
Reimbursements* .16% .06% .06%
Net Expenses* 1.61% 2.36% 2.36%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock
in the following two years if the repayment can be made within these
expense limits. In addition, BlackRock Distributors, Inc., the fund's
distributor, has contractually agreed to waive all 12b-1 distribution fees
on Investor A Shares (otherwise payable at the maximum annual rate of .10%
of average daily net assets) for the next year. "Net Expenses" in the
table have been restated to reflect these waivers and reimbursements.

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.
20
<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 (except for the waivers in the first year discussed above), 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* $606 $ 976 $1,352 $2,428
B Shares**
Redemption $689 $1,099 $1,485 $2,591***
B Shares
No Redemption $239 $ 749 $1,285 $2,591***
C Shares**
Redemption $339 $ 749 $1,285 $2,752
C Shares
No Redemption $239 $749 $1,285 $2,752
</TABLE>
*Reflects imposition of sales charge.
**Reflects deduction of CDSC.
***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 co-manager of the fund since inception. He has
been a Managing Director with BlackRock Financial Management, Inc. (BFM) since
July 1996. Prior to joining BFM he was Portfolio Manager and Research Analyst
with Morgan Stanley Asset Management.

Daniel B. Eagan, has been co-manager of the fund since inception. Mr. Eagan is
a Managing Director with Black Rock Financial Management, Inc. since 1995. He
was a director of investment strategy at BlackRock Advisors, Inc. during 1994-
1995. Previously, he served as senior research consultant for Mercer Investment
Consulting.
21
<PAGE>

Financial Highlights
The financial information in the table below shows
the fund's financial performance for the periods
indicated. 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
and assumes that you have reinvested all dividends
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 instruc-
tions).

FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
(For an Investor A, B or C Share Outstanding Throughout Each Period)

Mid-Cap Value Equity Portfolio

<TABLE>
<CAPTION>
INVESTOR A INVESTOR B INVESTOR C
SHARES SHARES 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 $12.77 $10.00 $12.78 $10.00 $12.78 $10.00
------ ------ ------ ------ ------ ------
Income from investment
operations
Net investment income 0.05 0.07 (0.03) 0.03 (0.02) 0.02
Net gain (loss) on
investments
(both realized
and unrealized) (1.81) 2.78 (1.81) 2.79 (1.82) 2.80
------ ------ ------ ------ ------ ------
Total from investment
operations (1.76) 2.85 (1.84) 2.82 (1.84) 2.82
------ ------ ------ ------ ------ ------
Less distributions
Distributions from net
investment income (0.04) (0.08) - - (0.04) - - (0.04)
Distributions from net
realized capital gains (0.36) - - (0.36) - - (0.36) - -
------ ------ ------ ------ ------ ------
Total distributions (0.40) (0.08) (0.36) (0.04) (0.36) (0.04)
------ ------ ------ ------ ------ ------
Net asset value at end of
period $10.61 $12.77 $10.58 $12.78 $10.58 $12.78
====== ====== ====== ====== ====== ======
Total return (14.06)%/3/ 28.51%/3/ (14.66)%/3/ 28.23%/3/ (14.66)%/3/ 28.23%/3/
Ratios/Supplemental data
Net assets at end of
period (in thousands) $3,983 $2,315 $6,375 $2,911 $ 259 $ 21
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.61% 1.61%/2/ 2.35% 2.32%/2/ 2.33% 2.33%/2/
Before
advisory/administration
fee waivers 1.67% 1.64%/2/ 2.41% 2.36%/2/ 2.39% 2.37%/2/
Ratios of net investment
income to average
net assets
After
advisory/administration
fee waivers 0.41% 0.77%/2/ (0.33)% 0.04%/2/ (0.28)% 0.13%/2/
Before
advisory/administration
fee waivers 0.35% 0.73%/2/ (0.39)% 0.00%/2/ (0.34)% 0.09%/2/
Portfolio turnover rate 71% 36% 71% 36% 71% 36%
</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.
22
<PAGE>

BlackRock
(LOGO) Mid-Cap Growth Equity
Portfolio

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

IMPORTANT DEFINITIONS

Earnings Growth: The
increased rate of
growth in a company's
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: A
security, such as
stock, representing
ownership of a company.
Bonds, in comparison,
are referred to as
fixed income or debt
securities because they
represent indebtedness
to the 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.
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 investment
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.
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 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 billion and $10
billion) which he believes have above-average 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 buys common stock but also can invest
in preferred stock and securities convertible into common and preferred stock.

The manager initially screens for "growth" stocks from the universe of compa-
nies with market capitalization above $2 billion, emphasizing those companies
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.

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

Key Risks

There is more business risk in investing in mid-capitalization 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.

24
<PAGE>

lems. There is no guarantee, however, that systems will work properly on Janu-
ary 1, 2000. Year 2000 problems may also hurt issuers 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.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). The information shows you how the fund's performance has var-
ied 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.

Best Quarter Q4 '98: 25.41%

Worst Quarter Q3 '98: -14.71%

[BAR CHART APPEARS HERE]

97 98
------ ------
14.15% 21.66%

These returns assume payment of applicable sales charges.

As of 12/31/98
- --------------------------------------------------------------------------------
A V E R A G E A N N U A L T O T A L R E T U R N S
- --------------------------------------------------------------------------------
Since Inception
1 Year Inception Date
- --------------------------------------------------------------------------------
Mid Cap Growth; Inv A 16.13% 15.29% 12/27/96
Mid Cap Growth; Inv B 15.40% 15.18% 12/17/96
Mid Cap Growth; Inv C 19.59% 17.23% 12/27/96
Russell Mid Cap Growth 17.87% 18.83% N/A*
- --------------------------------------------------------------------------------
*For comparative purposes, the value of the index on 01/01/97 is used as the
beginning value on 12/27/96.

<PAGE>

Expenses
and Fees

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

The tables below explain your pricing options and describe the fees and
expenses that you may pay if you buy and hold Investor A, B and C Shares of
the fund. 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 CDSC is 4.5% if shares are redeemed in less than one year. The CDSC
for Investor B Shares decreases for redemptions made in subsequent years.
After six years there is no CDSC on B Shares. (See page 101 for complete
schedule of CDSCs.)
*** There is no CDSC on C Shares after one year.
26
<PAGE>

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

<TABLE>
<CAPTION>
A Shares B Shares C Shares

<S> <C> <C> <C>
Service Fees .80% .80% .80%
Distribution and service (12b-
1) fees .50% 1.15% 1.15%
Other expenses .47% .47% .47%
Total annual fund operating
expenses 1.77% 2.42% 2.42%
Fee Waivers and Expense
Reimbursements* .16% .06% .06%
Net Expenses* 1.61% 2.36% 2.36%
* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits. In addition, BlackRock Distributors, Inc., the fund's distributor,
has contractually agreed to waive all 12b-1 distribution fees on Investor A
Shares (otherwise payable at the maximum annual rate of .10% of average
daily net assets) for the next year. "Net Expenses" in the table have been
restated to reflect these waivers and reimbursements.
</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 (except for the waivers in the first year discussed above), 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* $606 $ 967 $1,352 $2,428
B Shares**
Redemption $689 $1,099 $1,485 $2,591***
B Shares
No Redemption $239 $ 749 $1,285 $2,591***
C Shares**
Redemption $339 $ 749 $1,285 $2,752
C Shares
No Redemption $239 $ 749 $1,285 $2,752
</TABLE>
*Reflects imposition of sales charge.
**Reflects deduction of CDSC.
***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 a Managing Director with BlackRock Financial Manage-
ment, Inc. since 1995 and an investment man-
IMPORTANT DEFINITIONS

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

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

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

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

27
<PAGE>

ager for PNC Bank since 1986. He has co-managed the fund since its inception.

Thomas Callan has been a Managing Director 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.

Mid-Cap Growth Equity Portfolio

<TABLE>
<CAPTION>
INVESTOR A INVESTOR B INVESTOR C
SHARES SHARES 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 $12.14 $10.00 $12.11 $10.00 $12.11 $10.00
------ ------ ------ ------ ------ ------
Income from investment
operations
Net investment income (0.07) (0.03) (0.14) (0.05) (0.14) (0.07)
Net gain (loss) on
investments
(both realized
and unrealized) (0.95) 2.17 (0.97) 2.16 (0.97) 2.18
------ ------ ------ ------ ------ ------
Total from investment
operations (1.02) 2.14 (1.11) 2.11 (1.11) 2.11
------ ------ ------ ------ ------ ------
Less distributions
Distributions from net
investment income - - - - - - - - - - - -
Distributions from
capital (0.01) - - (0.01) - - (0.01) - -
Distributions from net
realized capital gains (0.09) - - (0.09) - - (0.09) - -
------ ------ ------ ------ ------ ------
Total distributions (0.10) - - (0.10) - - (0.10) - -
------ ------ ------ ------ ------ ------
Net asset value at end of
period $11.02 $12.14 $10.90 $12.11 $10.90 $12.11
====== ====== ====== ====== ====== ======
Total return (8.42)%/3/ 21.40%/3/ (9.19)%/3/ 21.10%/3/ (9.19)%/3/ 21.10%/3/
Ratios/Supplemental data
Net assets at end of
period (in thousands) $4,090 $2,650 $4,088 $2,691 $230 $ 85
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.61% 1.59%/2/ 2.35% 2.32%/2/ 2.34% 2.35%/2/
Before
advisory/administration
fee waivers 1.67% 1.63%/2/ 2.41% 2.36%/2/ 2.40% 2.39%/2/
Ratios of net investment
income to average
net assets
After
advisory/administration
fee waivers (0.85)% (0.73)%/2/ (1.60)% (1.50)%/2/ (1.56)% (1.49)%/2/
Before
advisory/administration
fee waivers (0.91)% (0.77)%/2/ (1.66)% (1.54)%/2/ (1.62)% (1.53)%/2/
Portfolio turnover rate 204% 64% 204% 64% 204% 64%
</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.

28
<PAGE>

BlackRock
[LOGO] Small Cap Value Equity
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 buys 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 initially
screens for "value" stocks from the universe of companies with market capital-
ization under $2 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.

IMPORTANT DEFINITIONS

Investment Style:
Refers to the guiding
principles of a mutual
fund's investment
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.

Small Capitalization
Companies: The fund
defines these companies
as those with capital-
ization of under $2
billion. Capitalization
refers to the market
value of the company
and is calculated by
multiplying the number
of shares outstanding
by the current price
per share.

29
<PAGE>

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 loan 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 made.

Key Risks

There is more business risk in investing in small capitalization companies
than in larger, better capitalized companies. These organizations will nor-
mally 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 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 and of
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.

lems. There is no guarantee, however, that systems will work properly on Janu-
ary 1, 2000. Year 2000 problems may also hurt issuers 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.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). 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.

The performance for the period before Investor Shares were launched is based
upon performance for older share classes of the fund. Investor A Shares were
launched in June 1992, Investor B Shares were launched in October 1994, and
Investor C Shares were launched in October 1996. The actual return of Investor
Shares would have been lower than shown because Investor Shares have higher
expenses than these older classes. Also, the actual returns of Investor B and C
Shares would have been lower compared to Investor A Shares.
31
<PAGE>

These returns assume payment of applicable sales charges.

Best Quarter Q2 '98: 18.48%

Worst Quarter Q3 '98: -19.59%

[BAR CHART APPEARS HERE]

93 94 95 96 97 98
------ ------ ------ ------ ------- ------
18.53% -0.78% 22.60% 19.34% 35.04% -6.62%

These returns assume payment of applicable sales charges.

As of 12/31/98
- --------------------------------------------------------------------------------
A V E R A G E A N N U A L T O T A L R E T U R N S
- --------------------------------------------------------------------------------
Since Inception
1 Year 3 Years 5 Years Inception Date
- --------------------------------------------------------------------------------
Small Cap Value; Inv A -10.83% 12.86% 11.82% 14.05% 04/13/92
Samll Cap Value; Inv B -11.58% 12.40% 11.74% 14.34% 04/13/92
Small Cap Value; Inv C -8.32% 13.74% 12.19% 14.34% 04/13/92
Russell 2000 Value -6.45% 14.38% 13.12% 15.46% N/A*
- --------------------------------------------------------------------------------
*For comparative purposes, the value of the index on 04/01/92 is used as the
beginning value on 04/13/92

Expenses
and Fees

32
<PAGE>

IMPORTANT DEFINITIONS

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

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

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

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

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 CDSC is 4.5% if shares are redeemed in less than one year. The CDSC for
Investor B Shares decreases for redemptions made in subsequent years. After
six years there is no CDSC on B Shares. (See page 101 for complete schedule
of CDSCs.)
*** There is no CDSC on C Shares after one year.

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

<TABLE>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
Advisory Fees .55% .55% .55%
Distribution and service
(12b-1) fees .50% 1.15% 1.15%
Other expenses .40% .40% .40%
Total annual fund operating
expenses 1.45% 2.10% 2.10%
Fee waivers and expense
reimbursements* .10% -- --
Net Expenses* 1.35% 2.10% 2.10%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits. In addition, BlackRock Distributors, Inc., the fund's distributor,
has contractually agreed to waive all 12b-1 distribution fees on Investor A
Shares (otherwise payable at the maximum annual rate of .10% of average
daily net assets) for the next year. "Net Expenses" in the table for
Investor A Shares have been restated to reflect this 12b-1 distribution fee
waiver.

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.
33
<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 (except for the waivers in the first year regarding Investor A Shares
discussed above), 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* $581 $ 879 $1,197 $2,099
B Shares**
Redemption $663 $1,008 $1,329 $2,265***
B Shares
No Redemption $213 $ 658 $1,129 $2,265***
C Shares**
Redemption $313 $ 658 $1,129 $2,431
C Shares
No Redemption $213 $ 658 $1,129 $2,431
</TABLE>
*Reflects imposition of sales charge.
**Reflects deduction of CDSC.
***Based on the conversion of Investor B Shares to Investor A Shares after
eight years.

Fund Management
The manager of the fund is Christian K. Stadlinger. He has been a Managing
Director with Financial Management, Inc. (BFM) since July 1996. Prior to join-
ing BFM he was Portfolio Manager and Research Analyst with Morgan Stanley
Asset Management. He has headed the fund's portfolio management team since
1996.

Financial Highlights
The financial information in the table on the opposite page shows the fund's
financial performance for the periods indicated. 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
and assumes that you have reinvested all dividends 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 state-
ments, are included in the Company's annual report, which is available upon
request (see back cover for ordering instructions).

34
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Investor A, B or C Share Outstanding Throughout Each Period)

Small Cap Value Equity Portfolio

<TABLE>
<CAPTION>
INVESTOR A
SHARES
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 $ 20.20 $ 15.97 $ 15.14 $ 13.58 $ 13.07
------- ------- ------- ------- -------
Income from
investment
operations
Net investment
income 0.06 0.10 0.03 - - (0.01)
Net gain (loss)
on investments
(both realized
and unrealized) (3.20) 6.40 1.69 2.17 0.77
------- ------- ------- ------- -------
Total from
investment
operations (3.14) 6.50 1.72 2.17 0.76
------- ------- ------- ------- -------
Less
distributions
Distributions
from net
investment
income (0.06) (0.10) (0.02) - - - -
Distributions
from net
realized
capital gains (2.12) (2.17) (0.87) (0.61) (0.25)
------- ------- ------- ------- -------
Total
distributions (2.18) (2.27) (0.89) (0.61) (0.25)
------- ------- ------- ------- -------
Net asset value
at end of period $14.88 $ 20.20 $ 15.97 15.14 13.58
======= ======= ======= ======= =======
Total return (17.43)%/3/ 46.85%/3/ 12.06%/3/ 16.96%/3/ 5.93%/3/
Ratios/Supplemental
data
Net assets at
end of period
(in thousands) $34,286 $34,031 $24,605 $21,563 $16,884
Ratios of
expenses to
average net
assets
After advisory/
administration
fee waivers 1.32% 1.34% 1.32% 1.18% 1.13%
Before advisory/
administration
fee waivers 1.33% 1.35% 1.33% 1.28% 1.25%
Ratios of net
investment
income to
average net
assets
After advisory/
administration
fee waivers 0.32% 0.63% 0.20% 0.00% (0.11)%
Before advisory/
administration
fee waivers 0.31% 0.62% 0.19% (0.09)% (0.23)%
Portfolio
turnover rate 45% 66% 50% 31% 18%
INVESTOR B INVESTOR C
SHARES SHARES
For the For the
Period Period
Year Year Year 10/03/94/1/ Year 10/01/96/1/
Ended Ended Ended through Ended through
9/30/98 9/30/97 9/30/96 9/30/95 9/30/98 9/30/97
<S> <C> <C> <C> <C> <C> <C>
Net asset value
at beginning of
period $ 19.86 $ 15.80 $15.06 $13.51 $19.86 $15.76
------------ ----------- ----------- -------------- ------------ --------------
Income from
investment
operations
Net investment
income (0.02) 0.08 (0.04) (0.05) (0.04) 0.02
Net gain (loss)
on investments
(both realized
and unrealized) (3.19) 6.19 1.65 2.21 (3.17) 6.29
------------ ----------- ----------- -------------- ------------ --------------
Total from
investment
operations (3.21) 6.27 1.61 2.16 (3.21) 6.31
------------ ----------- ----------- -------------- ------------ --------------
Less
distributions
Distributions
from net
investment
income - - (0.04) - - - - - - (0.04)
Distributions
from net
realized
capital gains (2.12) (2.17) (0.87) (0.61) (2.12) (2.17)
------------ ----------- ----------- -------------- ------------ --------------
Total
distributions (2.12) (2.21) (0.87) (0.61) (2.12) (2.21)
------------ ----------- ----------- -------------- ------------ --------------
Net asset value
at end of period $14.53 $ 19.86 $15.80 15.06 $14.53 $19.86
============ =========== =========== ============== ============ ==============
Total return (18.08)%/3/ 45.67%/3/ 11.34%/3/ 16.95%/3/ (18.08)%/3/ 46.04%/3/
Ratios/Supplemental
data
Net assets at
end of period
(in thousands) $20,717 $11,001 $2,357 $1,477 $5,491 $2,109
Ratios of
expenses to
average net
assets
After advisory/
administration
fee waivers 2.08% 2.07% 2.04% 1.80%/2/ 2.08% 2.04%/2/
Before advisory/
administration
fee waivers 2.09% 2.08% 2.05% 1.89%/2/ 2.09% 2.05%/2/
Ratios of net
investment
income to
average net
assets
After advisory/
administration
fee waivers (0.43)% (0.15)% (0.50)% (0.61)%/2/ (0.42)% (0.18)%/2/
Before advisory/
administration
fee waivers (0.44)% (0.16)% (0.51)% (0.70)%/2/ (0.43)% (0.19)%/2/
Portfolio
turnover rate 45% 66% 50% 31% 45% 66%
</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.
35
<PAGE>

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.

Equity Security: A
security such as stock,
representing ownership
in a company. Bonds, in
comparison, are
referred to as fixed-
income or debt securi-
ties because they rep-
resent indebtedness to
the bondholder, not
ownership.

Investment Style:
Refers to the guiding
principles of a mutual
fund's investment
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.

Small Capitalization
Companies: The fund
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 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 cap-
italization growth companies (market capitalization under $2 billion) which he
believes have above-average 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 buys common stock but also can invest in
preferred stock and securities convertible into common and preferred stock.

The manager initially screens for "growth" stocks from the universe of compa-
nies with market capitalization under $2 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, in the fund manager's opinion,
there is a deterioration in the company's fundamentals, the company fails to
meet performance expectations or the stock's relative price momentum declines
meaningfully.

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

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

Key Risks

There is more business risk in investing in small capitalization 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 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.

37
<PAGE>

guarantee, however, that systems will work properly on January 1, 2000. Year
2000 problems may also hurt issuers whose securities the fund holds or securi-
ties 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.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). The information shows you how the fund's performance has var-
ied 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.

The performance for the period before Investor B and C Shares were launched is
based upon performance for older share classes of the fund. Investor B Shares
were launched in January 1996 and Investor C Shares were launched in September
1996. The actual return of Investor B and C Shares would have been lower than
shown because Investor B and C Shares have higher expenses than these older
classes. Also, the actual returns of Investor B and C Shares would have been
lower compared to Investor A Shares.
38
<PAGE>

Best Quarter Q4 '98: 25.34%

Worst Quarter Q1 '98: -19.59%

The bars for 1990-1992 are based upon
performance for Institutional Shares
of the fund

[BAR CHART APPEARS HERE]

94 95 96 97 98
------ ------ ------ ------ -------
5.40% 46.39% 31.14% 8.65% 6.82%

These returns assume payment of applicable sales charges.

As of 12/31/98
- --------------------------------------------------------------------------------
A V E R A G E A N N U A L T O T A L R E T U R N S
- --------------------------------------------------------------------------------
Since Inception
1 Year 3 Years 5 Years Inception Date
- --------------------------------------------------------------------------------
Small Cap Growth; Inv A 2.00% 13.28% 17.53% 17.27% 09/15/93
Small Cap Growth; Inv B 1.20% 12.78% 17.58% 17.55% 09/15/93
Small Cap Growth; Inv C 4.91% 14.13% 18.06% 17.77% 09/15/93
Russell 2000 Growth 1.23% 8.35% 10.22% 10.76% N/A*
- --------------------------------------------------------------------------------
*For comparative purposes, the value of the index on 09/01/93 is used as the
beginning value on 09/15/93.

Expenses
and Fees

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 retirement programs that are already
invested in the fund and to certain payroll deduction programs. Shareholders as
of August 15, 1998 may make additional investments in current accounts. The
fund may re-open to new investors in the future.

39
<PAGE>

The tables below explain your pricing options and describe the fees and
expenses that you may pay if you buy and hold Investor A, B and C Shares of
the fund. 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 CDSC is 4.5% if shares are redeemed in less than one year. The CDSC
for Investor B Shares decreases for redemptions made in subsequent years.
After six years there is no CDSC on B Shares. (See page 101 for complete
schedule of CDSCs.)
*** There is no CDSC on C Shares after one year.

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

<TABLE>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
Advisory Fees .55% .55% .55%
Distribution and service (12b-
1) fees .50% 1.15% 1.15%
Other expenses .40% .40% .40%
Total annual fund operating
expenses 1.45% 2.10% 2.10%
Fee waivers and expense
reimbursements* .10% - - - -
Net Expenses* 1.35% 2.10% 2.10%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock
in the following two years if the repayment can be made within these
expense limits. In addition, BlackRock Distributors, Inc., the fund's
distributor, has contractually agreed to waive all 12b-1 distribution fees
on Investor A Shares (otherwise payable at the maximum annual rate of .10%
of average daily net assets) for the next year. "Net Expenses" in the
table for Investor A Shares have been restated to reflect this 12b-1
distribution fee waiver.

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

IMPORTANT DEFINITIONS

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

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

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

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

40
<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 (except for the waivers in the first year regarding Investor A Shares
discussed above), 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 co-managed by William J. Wykle and Thomas Callan.

William J. Wykle has been a Managing Director with BlackRock Financial Manage-
ment, Inc. since 1995 and an investment manager for PNC Bank from 1986 to 1995.
He has co-managed the fund since inception.

Small Cap Growth Equity Portfolio

<TABLE>
<CAPTION>
INVESTOR A INVESTOR B
SHARES 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
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value
at
beginning of
period $ 23.25 $ 21.69 $ 14.98 $10.12 $10.47 $ 22.89 $ 21.53 $14.87
------- ------- ------- ------ ------ ------- ------- ------
Income from
investment
operations
Net investment
income (0.11) (0.04) (0.06) (0.02) - - (0.22) (0.07) (0.07)
Net gain (loss)
on investments
(both realized
and unrealized) (4.88) 3.09 6.77 4.88 (0.35) (4.80) 2.92 6.73
------- ------- ------- ------ ------ ------- ------- ------
Total from
investment
operations (4.99) 3.05 6.71 4.86 (0.35) (5.02) 2.85 6.66
------- ------- ------- ------ ------ ------- ------- ------
Less
distributions
Distributions
from net
investment
income - - - - - - - - - - - - - - - -
Distributions
from capital (0.02) - - - - - - - - (0.02) - - - -
Distributions
from net
realized
capital gains (1.12) (1.49) - - - - - - (1.12) (1.49) - -
------- ------- ------- ------ ------ ------- ------- ------
Total
distributions (1.14) (1.49) - - - - - - (1.14) (1.49) - -
------- ------- ------- ------ ------ ------- ------- ------
Net asset value
at end of period $ 17.12 $ 23.25 $ 21.69 $14.98 $10.12 $ 16.73 $ 22.89 $21.53
======= ======= ======= ====== ====== ======= ======= ======
Total return (22.31)%/3/ 15.28%/3/ 44.79%/3/ 48.02%/3/ (3.33)%/3/ (22.89)%/3/ 14.47%/3/ 38.27%/3/
Ratios/Supplemental
data
Net assets at
end of period
(in thousands) $48,190 $57,323 $27,954 $7,348 $1,620 $38,485 $40,270 $6,520
Ratios of
expenses to
average net
assets
After advisory/
administration
fee waivers 1.32% 1.34% 1.33% 1.20% 0.86% 2.07% 2.07% 2.06%/2/
Before
advisory/
administration
fee waivers 1.32% 1.34% 1.35% 1.33% 1.42% 2.07% 2.07% 2.08%/2/
Ratios of net
investment
income to
average net
assets
After advisory/
administration
fee waivers (0.61)% (0.46)% (0.55)% (0.24)% 0.07% (1.36)% (1.23)% (1.34)%/2/
Before
advisory/
administration
fee waivers (0.61)% (0.46)% (0.57)% (0.36)% (0.49)% (1.36)% (1.23)% (1.36)%/2/
Portfolio
turnover rate 159% 82% 89% 74% 89% 159 % 82% 89%
<CAPTION>
INVESTOR C
SHARES
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>
Net asset value
at
beginning of
period $ 22.89 $ 21.53 $19.66
------------ ----------- ------------
Income from
investment
operations
Net investment
income (0.26) (0.11) (0.01)
Net gain (loss)
on investments
(both realized
and unrealized) (4.76) 2.96 1.88
------------ ----------- ------------
Total from
investment
operations (5.02) 2.85 1.87
------------ ----------- ------------
Less
distributions
Distributions
from net
investment
income - - - - - -
Distributions
from capital (0.02) - - - -
Distributions
from net
realized
capital gains (1.12) (1.49) - -
------------ ----------- ------------
Total
distributions (1.14) (1.49) - -
------------ ----------- ------------
Net asset value
at end of period $ 16.73 $ 22.89 $21.53
============ =========== ============
Total return (22.89)%/3/ 14.47%/3/ 9.51%/3/
Ratios/Supplemental
data
Net assets at
end of period
(in thousands) $11,931 $14,106 $ 329
Ratios of
expenses to
average net
assets
After advisory/
administration
fee waivers 2.09% 2.07% 1.74%/2/
Before
advisory/
administration
fee waivers 2.09% 2.07% 1.76%/2/
Ratios of net
investment
income to
average net
assets
After advisory/
administration
fee waivers (1.38)% (1.25)% (0.93)%/2/
Before
advisory/
administration
fee waivers (1.38)% (1.25)% (0.95)%/2/
Portfolio
turnover rate 159 % 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.
42
<PAGE>

BlackRock
logo International Equity
Portfolio

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

IMPORTANT DEFINITIONS

Investment Style:
Refers to the guiding
principles of a mutual
fund's investment
choices. The investment
style of this fund is
international value,
referring to the type
of securities the man-
agers will choose for
this fund.

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 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 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 manager and
his team examine each company for financial soundness before deciding to pur-
chase its stock.

The 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. From time to time the fund may invest in
the securities of issuers located in emerging market countries.

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

The fund's manager may, when consistent with the fund's investment objective,
use options or futures (commonly known as derivatives). The primary purpose of
using derivatives is to attempt to reduce risk to the fund as a whole (hedge)
but they may also be used to maintain liquidity, commit cash pending invest-
ment or to increase returns. The fund may also use forward foreign currency
exchange contracts (obligations to buy or sell a currency at a set rate in the
future) to hedge against movements in the value of foreign currencies.

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

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

Key Risks

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.

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

In addition, political and economic structures in emerging market countries
may be undergoing rapid change and these coun-

44
<PAGE>

tries 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.

On January 1, 1999, eleven European countries implemented a new currency unit
called the "Euro" which is expected to reshape financial markets, banking sys-
tems and monetary policies in Europe and other parts of the world. While it is
impossible to predict the impact of the "Euro," it is possible that it could
increase volatility in financial markets worldwide which could hurt the value
of shares of the fund.

The fund's use of derivatives may reduce returns and/or increase volatility.
Volatility is defined as the characteristic of a security or a market to fluc-
tuate significantly in price within a short time period. Forward foreign cur-
rency exchange contracts do not eliminate movements in the value of foreign
securities but rather allow the fund to establish a fixed rate of exchange for
a future point in time. This strategy can have the effect of reducing returns
and minimizing opportunities for gain.

The fund may, from time to time, invest more than 25% of its assets in securi-
ties whose issuers are located in 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 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 sometimes engage in short term trading which could produce greater
brokerage costs and taxable distributions to shareholders.
45
<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, the fund's investment adviser, is currently working to avoid such prob-
lems. 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 issuers whose securities the fund holds or securi-
ties 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.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). The information shows you how the fund's performance has var-
ied 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 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 performance for the period before Investor Shares were launched is based
upon performance for older share classes of the fund. Investor A Shares were
launched in June 1992, Investor B Shares were launched in October 1994, and
Investor C Shares were launched in December 1996. The actual return of
Investor Shares would have been lower than shown because Investor Shares have
higher expenses than these older classes. Also, the actual returns of Investor
B and C Shares would have been lower compared to Investor A Shares.
46
<PAGE>

Best Quarter Q4 '98: 17.55%

Worst Quarter Q3 '98: -14.77%

The bars for 1990-1992 are based upon
performance for Institutional Shares
of the fund

[BAR CHART APPEARS HERE]

93 94 95 96 97 98
------ ------- ------ ------ ------ ------
36.68% -0.12% 9.60% 7.98% 4.61% 15.01%

As of 12/31/98
- --------------------------------------------------------------------------------
A V E R A G E A N N U A L T O T A L R E T U R N S
- --------------------------------------------------------------------------------
Since Inception
1 Year 3 Years 5 Years Inception Date
- --------------------------------------------------------------------------------
International Equity; Inv A 9.24% 7.27% 6.20% 9.31% 04/27/92
International Equity; Inv B 8.84% 7.03% 6.24% 9.66% 04/27/92
International Equity; Inv C 12.87% 8.31% 6.67% 9.66% 04/27/92
MSCI EAFE 20.33% 9.31% 9.50% 11.63% N/A *
- --------------------------------------------------------------------------------
*For comparative purposes, the value of the index on 05/01/92 is used as the
beginning value on 04/27/92.

These returns assume payment of applicable sales charges.

Expenses
and Fees

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

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

47
<PAGE>

IMPORTANT DEFINITIONS

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

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

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

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

Shareholder Fees (Fees paid directly from your investment)

<TABLE>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
Maximum Front-End Sales
Charge* 5.0% 0.0% 0.0%
(as percentage of offering
price)
Maximum Deferred Sales Charge 0.0% 4.5%** 1.00%***
(as percentage of offering
price)
</TABLE>
* Reduced front-end sales charges may be available. A CDSC of up to 1.00% is
assessed on certain redemptions of Investor A Shares that are purchased
with no initial sales charge as part of an investment of $1,000,000 or
more.
** The CDSC is 4.5% if shares are redeemed in less than one year. The CDSC for
Investor B Shares decreases for redemptions made in subsequent years. After
six years there is no CDSC on B Shares. (See page 101 for complete schedule
of CDSCs.)
*** There is no CDSC on C Shares after one year.

Annual Fund Operating Expenses
(Expenses that are deducted from fund assets)
<TABLE>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
Advisory Fees .75% .75% .75%
Distribution and service (12b-
1) fees .50% 1.15% 1.15%
Other expenses .43% .43% .43%
Total annual fund operating
expenses 1.68% 2.33% 2.33%
Fee waivers and expense
reimbursements* .15% .05% .05%
Net Expenses* 1.53% 2.28% 2.28%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may have to repay these waivers and reimbursements to BlackRock in the
following two years if the repayment can be made within these expense lim-
its. In addition, BlackRock Distributors, Inc., the fund's distributor, has
contractually agreed to waive all 12b-1 distribution fees on Investor A
Shares (otherwise payable at the maximum annual rate of .10% of average
daily net assets) for the next year. "Net Expenses" in the table have been
restated to reflect these waivers and reimbursements.

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.
48
<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 (except for the waivers in the first year discussed above), 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* $648 $ 989 $1,354 $2,376
B Shares**
Redemption $681 $1,073 $1,441 $2,500***
B Shares
No Redemption $231 $ 723 $1,241 2,500***
C Shares**
Redemption $331 $ 723 $1,241 $2,662
C Shares
No Redemption $231 $ 723 $1,241 $2,662
</TABLE>
*Reflects imposition of sales charge.
**Reflects deduction of CDSC.
***Based on the conversion of Investor B Shares to Investor A Shares after
eight years.

Fund Management
The fund manager is Gordon Anderson, who has been Managing and Investment
Director of BlackRock International, Ltd. since 1996. His previous position was
Investment Director at Dunedin Fund Managers Ltd. He has been fund manager
since 1996.
49
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Investor A, B or C Share Outstanding Throughout Each Period)

International Equity Portfolio

<CAPTION>
INVESTOR B INVESTOR C
SHARES SHARES

For the For the
Period Period
Year Year Year 10/03/94/1 Year 12/05/96/1
Ended Ended Ended / through Ended / through
9/30/98 9/30/97 9/30/96 9/30/95 9/30/98 9/30/97

<S> <C> <C> <C> <C> <C> <C>
Net asset value
at
beginning of
period $14.38 $13.23 $13.20 $13.35 $14.38 $13.21
------------ ----------- ----------- ------------ ------------ -------------
Income from
investment
operations
Net investment
income (0.01) 0.07 0.08 0.05 0.00 0.15
Net gain (loss)
on investments
(both realized
and unrealized) (1.16) 1.66 0.77 0.16 (1.17) 1.19
------------ ----------- ----------- ------------ ------------ -------------
Total from
investment
operations (1.17) 1.73 0.85 0.21 (1.17) 1.34
------------ ----------- ----------- ------------ ------------ -------------
Less
distributions
Distributions
from net
investment
income (0.07) (0.17) (0.15) - - (0.07) (0.17)
Distributions
from net
realized
capital gains (0.20) (0.41) (0.67) (0.36) (0.20) - -
------------ ----------- ----------- ------------ ------------ -------------
Total
distributions (0.27) (0.58) (0.82) (0.36) (0.27) (0.17)
------------ ----------- ----------- ------------ ------------ -------------
Net asset value
at end of period $12.94 $14.38 $13.23 $13.20 $12.94 $14.38
============ =========== =========== ============ ============ =============
Total return (8.19)%/3/ 13.63%/3/ 6.81%/3/ 1.77%/3/ (8.19)%/3/ 10.33%/3/
Ratios/Supplemental
data
Net assets at
end of period
(in thousands) $6,509 $5,850 $2,692 $1,071 $ 294 $ 155
Ratios of
expenses to
average net
assets
After
advisory/administration
fee waivers 2.28% 2.27% 2.23% 2.06%/2/ 2.27% 2.28%/2/
Before
advisory/administration
fee waivers 2.33% 2.37% 2.34% 2.23%/2/ 2.32% 2.38%/2/
Ratios of net
investment
income to
average net
assets
After
advisory/administration
fee waivers (0.38)% (0.22)% (0.18)% 0.59%/2/ (0.31)% (0.48)%/2/
Before
advisory/administration
fee waivers (0.43)% (0.32)% (0.29)% 0.41%/2/ (0.36)% (0.58)%/2/
Portfolio
turnover rate 57% 62% 70% 105% 57% 62%
</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.
50
<PAGE>

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, among
others: Argentina, Bra-
zil, Bulgaria, among
others, China, Colom-
bia, The Czech Repub-
lic, Ecuador, Egypt,
Greece, Hungary, India,
Indonesia, Israel, Leb-
anon, 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 investment
choices. The investment
style of this fund is
emerging markets,
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 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
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 primar-
ily buys in 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 manager and
his team also examine each company for financial soundness before deciding to
purchase its stock.

The manager, in an attempt to reduce portfolio risks, will diversify invest-
ments across countries, industry groups and companies with investment ordinar-
ily in at least three emerging markets countries.

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 made.

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.

In addition, political and economic structures in emerging market countries
may be undergoing rapid change and these coun-tries may lack the social,
political and economic stability of more

52
<PAGE>

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 signifi-
cantly due to economic and political turmoil in many of these countries.

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

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 for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). 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 distribu-
tions. 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 performance for the period before Investor B and C Shares were launched is
based upon performance for older share classes of the fund. Investor B Shares
were launched in April 1996 and Investor C Shares were launched in March 1997.
The actual return of Investor B and C Shares would have been lower than shown
because Investor B and C Shares have higher expenses than these older classes.
Also, the actual returns of B and C Shares would have been lower compared to
Investor A Shares.

As Of 12/31 Investor A Shares
- --------------------------------------------------------------------------------
A N N U A L T O T A L R E T U R N S
- --------------------------------------------------------------------------------

Best Quarter Q1 '98: 13.47%

Worst Quarter Q3 '98: -25.60%

[BAR CHART APPEARS HERE]

95 96 97 98
------ ------ ------ ------
-13.11% 11.81% -9.59% -36.96%

These returns assume payment of applicable sales charges.

As of 12/31/98
- --------------------------------------------------------------------------------
A V E R A G E A N N U A L T O T A L R E T U R N S
- --------------------------------------------------------------------------------
Since Inception
1 Year 3 Years Inception Date
- --------------------------------------------------------------------------------
International Emerging; Inv A -40.10% -15.40% -14.93% 06/17/94
International Emerging; Inv B -40.20% -15.60% -14.66% 06/17/94
International Emerging; Inv C -38.01% -14.44% -14.28% 06/17/94
MSCI EMF -25.34% -11.12% -7.97% N/A*
- --------------------------------------------------------------------------------
*For comparative purposes, the value of the index on 07/01/94 is used as the
beginning value on 06/17/94.

54
<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.

This prospectus offers shareholders different ways to invest with three sepa-
rate pricing options. You need to understand your choices so that you can
choose the pricing option that is most suitable for you. With one option (In-
vestor A Shares) you pay a one-time front-end transaction fee each time you buy
shares. The other options (Investor B and Investor C Shares) have no front-end
charges but have higher on-going fees, which are paid over the life of the
investment, and have a contingent deferred sales charge (CDSC) that you may pay
when you redeem your shares. Which option 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 may cost less to buy A Shares
than B or C Shares.

Shareholder Fees (Fees paid directly from your investment)

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

<TABLE>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
Advisory Fees 1.25% 1.25% 1.25%
Distribution and service (12b-
1) fees .50% 1.15% 1.15%
Other expenses .68% .68% .68%
Total annual fund operating
expenses 2.43% 3.08% 3.08%
Fee waivers and expense
reimbursements* .18% .08% .08%
Net Expenses* 2.25% 3.00% 3.00%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may have to repay these waivers and reimbursements to BlackRock in the
following two years if the repayment can be made within these expense lim-
its. In addition, BlackRock Distributors, Inc., the fund's distributor, has
contractually agreed to waive all 12b-1 distribution fees on Investor A
Shares (otherwise payable at the maximum annual rate of .10% of average
daily net assets) for the next year. "Net Expenses" in the table have been
restated to reflect these waivers and reimbursements.

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 (except for the waivers in the first year discussed above), 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* $717 $1,203 $1,715 $3,115
B Shares**
Redemption $753 $1,293 $1,809 $3,236***
B Shares
No Redemption $303 $ 943 $1,609 $3,236***
C Shares**
Redemption $403 $ 943 $1,609 $3,387
C Shares
No Redemption $303 $ 943 $1,609 $3,387
</TABLE>
*Reflects imposition of sales charge.
**Reflects deduction of CDSC.
***Based on the conversion of Investor B Shares to Investor A Shares after
eight years.
IMPORTANT DEFINITIONS

Advisory Fees: Fees
paid to the invest-
ment adviser for
portfolio management
services.

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

Other Expenses:
Include administra-
tion, transfer agen-
cy, custody, profes-
sional fees and
registration fees.

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

56
<PAGE>

Fund Management
The fund is managed by Peter J. Tait, Managing Director and Global Strategist
of BlackRock International, Ltd. since 1996. His previous position was Director
and Head of the Continental European Desk at Dunedin Fund Managers Ltd from
1990-1996. He has been portfolio manager since the fund's inception.
57
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Investor A, B or C Share Outstanding Throughout Each Period)

International Emerging Markets Portfolio

<TABLE>
<CAPTION>
INVESTOR A INVESTOR B
SHARES SHARES
For the For the
Period Period
Year Year Year Year 6/17/94/1/ Year Year 4/25/96/1/
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
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value
at beginning of
period $ 9.60 $ 8.71 $ 8.18 $10.54 $10.00 $ 9.54 $ 8.69 $8.85
------ ------ ------ ------ ------ ------ ------ -----
Income from
investment
operations
Net investment
income 0.03 (0.06) 0.02 0.03 0.02 (0.03) (0.04) - -
Net gain (loss)
on investments
(both realized
and unrealized) (5.13) 0.98 0.52 (2.14) 0.52 (5.07) .89 (0.16)
------ ------ ------ ------ ------ ------ ------ -----
Total from
investment
operations (5.10) .92 0.54 (2.11) 0.54 (5.10) .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 (0.14) - - (0.01) (0.19) - - (0.14) - - - -
------ ------ ------ ------ ------ ------ ------ -----
Total
distributions (0.14) (0.03) (0.01) (0.25) - - (0.14) - - - -
------ ------ ------ ------ ------ ------ ------ -----
Net asset value
at end of period $ 4.36 $ 9.60 $ 8.71 $ 8.18 $10.54 $ 4.30 $ 9.54 $8.69
====== ====== ====== ====== ====== ====== ====== =====
Total return (53.79)%/3/ 10.51%/3/ 6.49%/3/ (20.12)%/3/ 5.40%/3/ (54.13)%/3/ 9.78%/3/ (1.81)%/3/
Ratios/Supplemental
data
Net assets at
end of period
(in thousands) $1,835 $4,454 $2,996 $2,563 $2,857 $ 733 $1,836 $ 216
Ratios of
expenses to
average net
assets
After
advisory/administration
fee waivers 2.24% 2.25% 2.26% 2.20% 2.15%/2/ 2.98% 2.98% 2.90%/2/
Before
advisory/administration
fee waivers 2.34% 2.34% 2.35% 2.44% 3.13%/2/ 3.08% 3.07% 3.00%/2/
Ratios of net
investment
income to
average net
assets
After
advisory/administration
fee waivers 0.46% (0.08)% 0.45% 1.54% 0.74%/2/ (0.30)% (0.80)% 0.17%/2/
Before
advisory/administration
fee waivers 0.36% (0.18)% 0.35% 1.30% (0.24)%/2/ (0.40)% (0.90)% 0.07%/2/
Portfolio
turnover rate 37% 33% 44% 75% 4% 37% 33% 44%

<CAPTION>
INVESTOR C
SHARES
For the
Period
Year 3/21/97/1/
Ended through
9/30/98 9/30/97
<S> <C> <C>
Net asset value
at beginning of
period $ 9.54 $9.70
------------ ------------
Income from
investment
operations
Net investment
income (0.02) (0.01)
Net gain (loss)
on investments
(both realized
and unrealized) (5.08) (0.15)
------------ ------------
Total from
investment
operations (5.10) (0.16)
------------ ------------
Less
distributions
Distributions
from net
investment
income - - - -
Distribution
from capital - - - -
Distributions
from net
realized
capital gains (0.14) - -
------------ ------------
Total
distributions (0.14) - -
------------ ------------
Net asset value
at end of period $ 4.30 $9.54
============ ============
Total return (54.13)%/3/ (3.08)%/3/
Ratios/Supplemental
data
Net assets at
end of period
(in thousands) $ 25 $ 88
Ratios of
expenses to
average net
assets
After
advisory/administration
fee waivers 2.98% 2.58%/2/
Before
advisory/administration
fee waivers 3.08% 2.67%/2/
Ratios of net
investment
income to
average net
assets
After
advisory/administration
fee waivers (0.29)% (0.27)%/2/
Before
advisory/administration
fee waivers (0.39)% (0.37)%/2/
Portfolio
turnover rate 37% 33%
</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.
58
<PAGE>

BlackRock
(LOGO) International Small Cap Equity
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, among
others: Argentina, Bra-
zil, Bulgaria, Chile,
China, Colombia, The
Czech Republic, Ecua-
dor, 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 investment
choices. The investment
style of this fund is
international small
cap, referring to the
type of securities the
managers will choose
for this fund.

Salomon Brothers
Extended Markets World
Ex-U.S. Index: An
unmanaged index com-
prised of equity secu-
rities whose issuers
are located in the fol-
lowing developed coun-
tries: Australia, Aus-
tria, Belgium, Canada,
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: The fund
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 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 issuers 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 these companies and nor-
mally invests at least 80% of its total assets in equity securities. The man-
ager may invest up to 20% of the portfolio in stocks of issuers in emerging
market countries. The fund primarily buys common stock but can also invest in
preferred stock and securities convertible into common and preferred securi-
ties.

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 manager and
his team also examine each company for financial soundness before deciding to
purchase its stock.

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

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

Key Risks

There is more business risk in investing in small capitalization companies
than in larger, better capitalized companies. These organizations will nor-
mally have more limited product lines, markets and financial resources and
will be more dependent upon a more limited management group than larger capi-
talized companies.

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.

IMPORTANT DEFINITIONS

60
<PAGE>

may be harder to sell and may be subject to wider price movements than compara-
ble investments in U.S. companies. There is less government regulation of for-
eign securities markets.

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

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, from time to time, invest more than 25% of its assets in 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 those countries 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
difficulty 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.

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.
61
<PAGE>

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

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 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, the fund's investment adviser, is currently working to avoid such prob-
lems. 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 issuers whose securities the fund holds or securi-
ties market 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.
62
<PAGE>

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). 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-U.S. Index, a recognized unmanaged index of stock mar-
ket 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 APPEARS HERE]

Best Quarter Q1 '98: 19.91%

Worst Quarter Q3 '98: -19.90%

[BAR CHART APPEARS HERE]

98
------
10.44%

These returns assume payment of applicable sales charges.

As of 12/31/98
- --------------------------------------------------------------------------------
A V E R A G E A N N U A L T O T A L R E T U R N S
- --------------------------------------------------------------------------------
Since Inception
1 Year Inception Date
- --------------------------------------------------------------------------------
International Small Cap; Inv A 4.88% 0.51% 09/26/97
International Small Cap; Inv B 4.66% -0.45% 09/26/97
International Small Cap; Inv C 8.51% 2.81% 09/26/97
Salomon EMI Ex-U.S. 12.15% 0.51% N/A*
- --------------------------------------------------------------------------------
*For comparative purposes, the value of the index on 10/01/97 is used as the
beginning value on 09/26/97.

<PAGE>

Expenses and Fees

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

The tables below explain your pricing options and describe the fees and
expenses that you may pay if you buy and hold Investor A, B and C Shares of
the fund. 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* 5.0% 0.0% 0.0%
(as percentage of offering
price)
Maximum Deferred Sales Charge 0.0% 4.5%** 1.00%***
(as percentage of offering
price)
</TABLE>
* Reduced front-end sales charges may be available. A CDSC of up to 1.00% is
assessed on certain redemptions of Investor A Shares that are purchased
with no initial sales charge as part of an investment of $1,000,000 or
more.
** The CDSC is 4.5% if shares are redeemed in less than one year. The CDSC
for Investor B Shares decreases for redemptions made in subsequent years.
After six years there is no CDSC on B Shares. (See page 101 for complete
schedule of CDSCs.)
*** There is no CDSC on C Shares after one year.
64
<PAGE>

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

<TABLE>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
Advisory Fees 1.00% 1.00% 1.00%
Distribution and service
(12b-1) fees .50% 1.15% 1.15%
Other expenses 1.24% 1.24% 1.24%
Total annual fund operating
expenses 2.74% 3.39% 3.39%
Fee waivers and expense
reimbursements* .94% .84% .84%
Net Expenses* 1.80% 2.55% 2.55%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees and expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may have to repay these waivers and reimbursements to BlackRock in the
following two years if the repayment can be made within these expense limits.
In addition, BlackRock Distributors, Inc., the fund's distributor, has
contractually agreed to waive all 12b-1 distribution fees on Investor A
Shares (otherwise payable at the maximum annual rate of .10% of average daily
net assets) for the next year. "Net Expenses" in the table have been restated
to reflect these waivers and reimbursements.

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 (except for the waivers in the first year discussed above), 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* $674 $1,223 $1,798 $3,352
B Shares**
Redemption $708 $1,314 $1,893 $3,473***
B Shares
No Redemption $258 $ 964 $1,693 $3,473***
C Shares**
Redemption $358 $ 964 $1,693 $3,620
C Shares
No Redemption $258 $ 964 $1,693 $3,620
</TABLE>
*Reflects imposition of sales charge.
**Reflects deduction of CDSC.
***Based on the conversion of Investor B Shares to Investor A Shares after
eight years.

IMPORTANT DEFINITIONS

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

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

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

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

65
<PAGE>

Financial Highlights
The financial information in the table below shows the fund's financial perfor-
mance for the period indicated. 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 and assumes that
you have reinvested all dividends 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)

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 Year 9/26/97/1 Year 9/26/97/1
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 $9.94 $10.00 $ 9.94 $10.00 $9.94 $10.00
----- ------ ------ ------ ----- ------
Income from investment
operations
Net investment income 0.02 - - (0.05) - - (0.04) - -
Net gain (loss) on
investments (both
realized and
unrealized) (0.39) (0.06) (0.39) (0.06) (0.40) (0.06)
----- ------ ------ ------ ----- ------
Total from investment
operations (0.37) (0.06) (0.44) (0.06) (0.44) (0.06)
----- ------ ------ ------ ----- ------
Less distributions
Distributions from net
investment income (0.03) - - (0.02) - - (0.02) - -
Distributions from net
realized capital gains - - - - - - - - - - - -
----- ------ ------ ------ ----- ------
Total distributions (0.03) - - (0.02) - - (0.02) - -
----- ------ ------ ------ ----- ------
Net asset value at end of
period $9.54 $ 9.94 $ 9.48 $ 9.94 $9.48 $ 9.94
===== ====== ====== ====== ===== ======
Total return (3.98)%/3/ (0.30)%/3/ (4.73)%/3/ (0.30)%/3/ (4.73)%/3/ (0.30)%/3/
Ratios/Supplemental data
Net assets at end of
period (in thousands) $ 849 $ 326 $1,725 $ 711 $ 423 $ 182
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.78% 1.30%/2/ 2.53% 1.30%/2/ 2.53% 1.30%/2/
Before
advisory/administration
fee waivers 2.63% 1.52%/2/ 3.38% 1.52%/2/ 3.38% 1.52%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 0.20% 1.44%/2/ (0.54)% 1.58%/2/ (0.54)% 1.44%/2/
Before
advisory/administration
fee waivers (0.65)% 1.22%/2/ (1.39)% 1.35%/2/ (1.39)% 1.22%/2/
Portfolio turnover rate 76% 0% 76% 0% 76% 0%
</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.
66
<PAGE>

BlackRock
(LOGO) Select Equity
Portfolio

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

IMPORTANT DEFINITIONS

Equity Security: A
security, such as
stock, representing
ownership of a Company.
Bonds, in comparison,
are referred to as
fixed income or debt
securities because they
represent indebtedness
to the bondholders, not
ownership.

Investment Style:
Refers to the guiding
principles of a mutual
fund's investment
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.

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

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.

S&P 500 Index: The
Standard & Poor's Com-
posite Stock Price
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.

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 to invest in stocks and 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.

used to maintain liquidity, commit cash pending investment or to increase
returns.

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

Key Risks

While the fund manager chooses 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.

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, the fund's investment adviser, is currently working to avoid such prob-
lems. 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 issuers whose securities the fund holds or securi-
ties markets generally.

IMPORTANT DEFINITIONS

Value and Growth Compa-
nies: 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 and
whose growth in revenue
is expected to continue
for an extended period.

68
<PAGE>

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

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). 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
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 performance for the period before Investor Shares were launched is based
upon performance for older share classes of the fund. Investor A Shares were
launched in October 1993, Investor B Shares were launched in March 1996 and
Investor C Shares were launched in September 1996. The actual return of
Investor Shares would have been lower than shown because Investor Shares have
higher expenses than these older classes. Also, the actual returns of Investor
B and C Shares would have been lower compared to Investor A Shares.
69
<PAGE>

Best Quarter Q4 '98: 20.68%

Worst Quarter Q3 '98: -11.45%

[BAR CHART APPEARS HERE]

94 95 96 97 98
------- ------ ------ ------ ------
- 1.61% 32.62% 23.29% 30.84% 24.05%

As of 12/31/98
- --------------------------------------------------------------------------------
A V E R A G E A N N U A L T O T A L R E T U R N S
- --------------------------------------------------------------------------------
Since Inception
1 Year 3 Years 5 Years Inception Date
- --------------------------------------------------------------------------------
Select; Inv A 18.47% 24.09% 20.42% 19.05% 09/15/93
Select; Inv B 17.64% 23.67% 20.17% 19.39% 09/15/93
Select; Inv C 21.95% 25.14% 20.66% 19.62% 09/15/93
S&P 500 28.76% 28.39% 24.15% 22.84% N/A*
- --------------------------------------------------------------------------------
These returns assume payment of applicable sales charges.

* For comparative purposes, the value of the index on 09/01/93 is used as the
beginning value on 09/15/93.

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.

70
<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 CDSC is 4.5% if shares are redeemed in less than one year. The CDSC for
Investor B Shares decreases for redemptions made in subsequent years. After
six years there is no CDSC on B Shares. (See page 101 for complete schedule
of CDSCs.)
***There is no CDSC on C Shares after one year.

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

<TABLE>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
Advisory Fees .54% .54% .54%
Distribution and
service (12b-1)
fees .50% 1.15% 1.15%
Other expenses .39% .39% .39%
Total annual
fund operating
expenses 1.43% 2.08% 2.08%
Fee waivers and
expense
reimbursements* .10% - - - -
Net expenses* 1.33% 2.08% 2.08%
</TABLE>
*BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The fund
may have to repay these waivers and reimbursements to Blackrock in the follow-
ing two years if the repayment can be made within these expense limits. In
addition, BlackRock Distributors, Inc., the fund's distributor, has contractu-
ally agreed to waive all 12b-1 distribution fees on Investor A Shares (other-
wise payable at the maximum annual rate of .10% of average daily net assets)
for the next year. "Net Expenses" in the table for Investor A Shares have been
restated to reflect this 12b-1 distribution fee waiver.

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

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

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

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

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

71
<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 (except for the waivers in the first year regarding Investor A Shares
discussed above), 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* $579 $ 873 $1,187 $2,078
B Shares**
Redemption $661 $1,002 $1,319 $2,244***
B Shares
No Redemption $211 $ 652 $1,119 $2,244***
C Shares**
Redemption $311 $ 652 $1,119 $2,410
C Shares
No Redemption $211 $ 652 $1,119 $2,410
</TABLE>
*Reflects imposition of sales charge.
**Reflects deduction of CDSC.
***Based on conversion of the Investor B Shares to Investor A Shares after
eight years.

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Investor A, B or C Share Outstanding Throughout Each Period)

Select Equity Portfolio

<TABLE>
<CAPTION>
INVESTOR A INVESTOR B
SHARES SHARES
For the For the
Period Period
Year Year Year Year 10/13/93/1/ Year Year 3/27/96/1/
Ended Ended Ended Ended through Ended Ended through
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94 9/30/98 9/30/97 9/30/96
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value
at beginning of
period $ 17.50 $ 13.56 $11.88 $ 9.92 $9.96 $ 17.40 $ 13.54 $12.83
------- ------- ------ ------ ----- ------- ------- ------
Income from
investment
operations
Net investment
income 0.08 0.11 0.15 0.20 0.18 (0.03) 0.05 0.04
Net gain (loss)
on investments
(both realized
and unrealized) 0.50 5.16 2.07 2.06 (0.03) 0.48 5.07 0.73
------- ------- ------ ------ ----- ------- ------- ------
Total from
investment
operations 0.58 5.27 2.22 2.26 0.15 0.45 5.12 0.77
------- ------- ------ ------ ----- ------- ------- ------
Less
distributions
Distributions
from net
investment
income (0.08) (0.12) (0.15) (0.18) (0.19) - - (0.05) (0.06)
Distributions
from net
realized
capital gains (1.00) (1.21) (0.39) (0.12) - - (1.00) (1.21) - -
------- ------- ------ ------ ----- ------- ------- ------
Total
distributions (1.08) (1.33) (0.54) (0.30) (0.19) (1.00) (1.26) (0.06)
------- ------- ------ ------ ----- ------- ------- ------
Net asset value
at end of period $ 17.00 $ 17.50 $13.56 $11.88 $9.92 $ 16.85 $ 17.40 $13.54
======= ======= ====== ====== ===== ======= ======= ======
Total return 3.62%/3/ 41.95%/3/ 19.23%/3/ 23.29%/3/ 1.54%/3/ 2.90%/3/ 40.70%/3/ 6.58%/3/
Ratios/Supplemental
data
Net assets at
end of period
(in thousands) $35,359 $18,949 $6,228 $3,808 $ 601 $39,971 $18,345 $1,196
Ratios of
expenses to
average net
assets
After advisory/
administration
fee waivers 1.32% 1.27% 1.21% 1.12% 1.05%/2/ 2.07% 2.01% 1.92%/2/
Before
advisory/
administration
fee waivers 1.32% 1.34% 1.34% 1.30% 1.34%/2/ 2.07% 2.08% 2.04%/2/
Ratios of net
investment
income to
average net
assets
After advisory/
administration
fee waivers 0.44% 0.75% 1.24% 1.91% 1.89%/2/ (0.29)% (0.02)% 0.59%/2/
Before
advisory/
administration
fee waivers 0.44% 0.68% 1.11% 1.73% 1.60%/2/ (0.29)% (0.09)% 0.46%/2/
Portfolio
turnover rate 27% 29% 55% 51% 88% 27% 29% 55%

<CAPTION>
INVESTOR C
SHARES
For the
Period
Year Year 9/27/96/1/
Ended Ended through
9/30/98 9/30/97 9/30/96
<S> <C> <C> <C>
Net asset value
at beginning of
period $17.40 $13.54 $13.52
----------- ----------- ------------
Income from
investment
operations
Net investment
income (0.02) 0.04 - -
Net gain (loss)
on investments
(both realized
and unrealized) 0.47 5.08 0.02
----------- ----------- ------------
Total from
investment
operations 0.45 5.12 0.02
----------- ----------- ------------
Less
distributions
Distributions
from net
investment
income - - (0.05) - -
Distributions
from net
realized
capital gains (1.00) (1.21) - -
----------- ----------- ------------
Total
distributions (1.00) (1.26) - -
----------- ----------- ------------
Net asset value
at end of period $16.85 $17.40 $13.54
=========== =========== ============
Total return 2.90%/3/ 40.70%/3/ 0.15%/3/
Ratios/Supplemental
data
Net assets at
end of period
(in thousands) $2,450 $ 377 $ 50
Ratios of
expenses to
average net
assets
After advisory/
administration
fee waivers 2.06% 2.01% 0.00%/2/
Before
advisory/
administration
fee waivers 2.06% 2.08% 0.00%/2/
Ratios of net
investment
income to
average net
assets
After advisory/
administration
fee waivers (0.30)% (0.12)% 0.00%/2/
Before
advisory/
administration
fee waivers (0.30)% (0.19)% 0.00%/2/
Portfolio
turnover rate 27% 29% 55%
</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.
73
<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.

The Index Master Portfolio may invest some of its assets (generally not more
than 5% of net assets) in certain short-term fixed income securities pending
investments or to pay redeeming shareholders.

Each of 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 and the Index Master Portfolio 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 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 made. The investment objective of the Index
Master Portfolio may not be changed without shareholder approval.

IMPORTANT DEFINITIONS

Index Investing: An
investment strategy
involving the creation
of a portfolio tailored
as closely as possible
to match the composi-
tion and 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.

Large Capitalization
Companies: Capitaliza-
tion refers to the mar-
ket value of the com-
pany and is calculated
by multiplying the num-
ber of shares outstand-
ing by the current
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.

74
<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 Index Master Portfolio is not actively
managed and poor performance of a stock will ordinarily not result in its elim-
ination from the Index Master Portfolio. The Index Master Portfolio will remain
fully invested in stocks even when stock prices are generally falling. Ordinar-
ily, portfolio securities will not be sold except to reflect additions or dele-
tions of the stocks that comprise the S&P 500 Index and, to the extent neces-
sary, to provide cash to pay redeeming shareholders. 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's use of derivatves 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.

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

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). 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
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 performance for the period before Investor Shares were launched is based
upon performance for older share classes of the fund. Investor A Shares were
launched in June 1992, Investor B Shares were launched in February 1996 and
Investor C Shares were launched in August 1996. The actual return of Investor
Shares would have been lower than shown because Investor Shares have higher
expenses than these older classes. Also, the actual returns of Investor B and C
Shares would have been lower compared to Investor A Shares.

Best Quarter Q4 '98: 21.18%

Worst Quarter Q3 '98: -10.02%

[BAR CHART APPEARS HERE]

93 94 95 96 97 98
- ------ ------- ------ ------ ------ ------
9.37% 0.44% 36.53% 21.84% 32.27% 28.02%

These returns assume payment of applicable sales charge.

As of 12/31/98
- --------------------------------------------------------------------------------
A V E R A G E A N N U A L T O T A L R E T U R N S
- --------------------------------------------------------------------------------
Since Inception
1 Year 3 Years 5 Years Inception Date
- --------------------------------------------------------------------------------
Index; Inv A 24.18% 26.02% 22.38% 18.94% 04/20/92
Index; Inv B 21.28% 24.94% 22.12% 19.11% 04/20/92
Index; Inv C 25.72% 26.43% 22.61% 19.11% 04/20/92
S & P 500 28.76% 28.39% 24.15% 20.58% N/A*
- --------------------------------------------------------------------------------
* For comparative purposes, the value of the index on 05/01/92 is used as the
beginning value on 04/20/92.

Expenses
and Fees

<PAGE>

IMPORTANT DEFINITIONS

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

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

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

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

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 CDSC is 4.5% if shares are redeemed in less than one year. The CDSC for
Investor B Shares decreases for redemptions made in subsequent years. After
six years there is no CDSC on B Shares. (See page 101 for complete schedule
of CDSCs.)
*** There is no CDSC on C Shares after one year.

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

<TABLE>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
Advisory Fees .025% .025% .025%
Distribution and service
(12b-1) fees .50% 1.15% 1.15%
Other expenses .385% .385% .385%
Total annual fund operating
expenses .91% 1.56% 1.56%
Fee waivers and expense
reimbursements** .26% .16% .16%
Net Expenses** .65% 1.40% 1.40%
</TABLE>
* The Annual Fund Operating Expenses table and the Example reflect the
expenses of both the Index Equity and Index Master Portfolios.
** BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits. In addition, BlackRock Distributors, Inc., the fund's distributor,
has contractually agreed to waive all 12b-1 distribution fees on Investor A
Shares (otherwise payable at the maximum annual rate of .10% of average
daily net assets) for the next year. "Net Expenses" in the table have been
restated to reflect these waivers and reimbursements.
77
<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 (except for the waivers in the first year discussed above), redemp-
tion 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* $364 $556 $ 764 $1,363
B Shares**
Redemption $593 $827 $1,035 $1,668***
B Shares
No Redemption $143 $477 $ 835 $1,668***
C Shares**
Redemption $243 $477 $ 835 $1,843
C Shares
No Redemption $143 $477 $ 835 $1,843
</TABLE>
*Reflects imposition of sales charge.
**Reflects deduction of CDSC.
***Based on the conversion of Investor B Shares to Investor A Shares after
eight years.

Index Master Portfolio 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.

78
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Investor A, B or C Share Outstanding Throughout Each Period)

Index Equity Portfolio

<TABLE>
<CAPTION>
INVESTOR A INVESTOR B
SHARES SHARES
For the
Period
2/7/96/1/
Year Year Year Year Year 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
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value
at beginning of
period $ 18.32 $ 13.96 $ 13.58 $10.93 $11.02 $ 18.22 $ 13.93 $13.20
------- ------- ------- ------ ------ -------- ------- ------
Income from
investment
operations
Net investment
income 0.18 0.21 0.27 0.34 0.25 0.05 0.13 0.08
Net gain (loss)
on investments
(both realized
and unrealized) 1.35 5.02 2.09 2.73 0.04 1.34 4.94 0.77
------- ------- ------- ------ ------ -------- ------- ------
Total from
investment
operations 1.53 5.23 2.36 3.07 0.29 1.39 5.07 0.85
------- ------- ------- ------ ------ -------- ------- ------
Less
distributions
Distributions
from net
investment
income (0.17) (0.19) (0.28) (0.30) (0.27) (0.05) (0.10) (0.12)
Distributions
from net
realized
capital gains (0.04) (0.68) (1.70) (0.12) (0.11) (0.04) (0.68) - -
------- ------- ------- ------ ------ -------- ------- ------
Total
distributions (0.21) (0.87) (1.98) (0.42) (0.38) (0.09) (0.78) (0.12)
------- ------- ------- ------ ------ -------- ------- ------
Net asset value
at end of period $19.64$ $ 18.32 $ 13.96 $13.58 $10.93 $ 19.52 $ 18.22 $13.93
======= ======= ======= ====== ====== ======== ======= ======
Total return 8.37%/3/ 39.49%/3/ 19.31%/3/ 28.77%/3/ 2.66%/3/ 7.63%/3/ 38.31%/3/ 6.50%/3/
Ratios/Supplemental
data
Net assets at
end of period
(in thousands) $42,891 $33,934 $12,752 $6,501 $2,632 $109,019 $38,271 $2,904
Ratios of
expenses to
average net
assets
After advisory/
administration
fee waivers 0.65% 0.65% 0.65% 0.61% 0.55% 1.38% 1.38% 1.38%/2/
Before
advisory/
administration
fee waivers 0.81%/4/ 0.85%/4/ 0.97%/4/ 0.95% 0.92% 1.54%/4/ 1.58%/4/ 1.60%/2/,/4/
Ratios of net
investment
income to
average net
assets
After advisory/
administration
fee waivers 0.92% 1.23% 1.81% 2.44% 2.35% 0.19% 0.45% 0.93%/2/
Before
advisory/
administration
fee waivers 0.76% 1.03% 1.49% 2.10% 1.98% 0.03% 0.25% 0.71%/2/
Portfolio
turnover rate - -/6/ - -/6/ 18%/5/,/6/ 18% 17% - -/6/ - -/6/ 18%/5/,/6/
<CAPTION>
INVESTOR C
SHARES
For the
Period
Year Year 8/14/96/1/
Ended Ended through
9/30/98 9/30/97 9/30/96
<S> <C> <C> <C>
Net asset value
at beginning of
period $ 18.22 $ 13.93 $13.47
----------- ----------- ----------------
Income from
investment
operations
Net investment
income 0.05 0.13 0.02
Net gain (loss)
on investments
(both realized
and unrealized) 1.34 4.94 0.50
----------- ----------- ----------------
Total from
investment
operations 1.39 5.07 0.52
----------- ----------- ----------------
Less
distributions
Distributions
from net
investment
income (0.05) (0.10) (0.06)
Distributions
from net
realized
capital gains (0.04) (0.68) - -
----------- ----------- ----------------
Total
distributions (0.09) (0.78) (0.06)
----------- ----------- ----------------
Net asset value
at end of period $ 19.52 $ 18.22 $13.93
=========== =========== ================
Total return 7.63%/3/ 38.31%/3/ 3.90%/3/
Ratios/Supplemental
data
Net assets at
end of period
(in thousands) $81,529 $19,668 $ 432
Ratios of
expenses to
average net
assets
After advisory/
administration
fee waivers 1.38% 1.38% 1.25%/2/
Before
advisory/
administration
fee waivers 1.54%/4/ 1.58%/4/ 1.43%/2/,/4/
Ratios of net
investment
income to
average net
assets
After advisory/
administration
fee waivers 0.19% 0.45% 0.71%/2/
Before
advisory/
administration
fee waivers 0.03% 0.25% 0.53%/2/
Portfolio
turnover rate - -/6/ - -/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 0.06%. For the year ended 9/30/98, 0.07% for the
year ended 9/30/97 and 0.07% for the year ended 9/30/96.
/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.
79
<PAGE>

BlackRock
(LOGO) Balanced
Portfolio

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

IMPORTANT DEFINITIONS

Asset-Backed Securi-
ties: Bonds that are
backed by a pool of
assets, usually loans
such as installment
sale contracts or
credit card receiv-
ables.

Bonds: Debt obligations
such as bonds and
debentures, U.S. Gov-
ernment securities,
debt obligations of
domestic and foreign
corporations, debt
obligations of foreign
governments and their
political subdivisions,
asset-backed securi-
ties, various mortgage-
backed securities (both
residential and commer-
cial), other floating
or variable rate obli-
gations, municipal
obligations and zero
coupon debt securities.

Investment Grade: Secu-
rities which are rated
in the four highest
categories by at least
one of the major rating
agencies or determined
by the fund manager to
be of similar quality.
Generally, the higher
the rating of a bond,
the higher the likeli-
hood that interest and
principal payments will
be made on time. Secu-
rities rated in the
fourth highest category
by the rating agencies
are considered invest-
ment grade but they are
also considered specu-
lative, meaning that
they carry more risk
than higher rated secu-
rities and may have
problems making princi-
pal and interest pay-
ments in difficult eco-
nomic climates.
Investment grade rat-
ings do not guarantee
that bonds will not
lose value.

Investment Style:
Refers to the guiding
principle of a mutual
fund's investment
choices. The investment
style of this fund is
balanced, both equity
and fixed income secu-
rities meaning that the
managers will choose
both equity and fixed
income securities for
this fund.
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 fund 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 primarily in common
stock, but can also invest in preferred stock and securities convertible into
common and preferred stock.

Fixed Income Portion
The fixed income portion of the fund consists of a broad range of U.S. invest-
ment grade bonds 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 bonds. The fixed income team seeks bonds that will add
value while controlling risk.

If a security falls below investment grade, the manager will decide whether to
continue to hold the security. A security will be sold if, in the opinion of
the fund manager, the risk of continuing to hold the security is unacceptable
when compared to the total return potential.

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

Key Risks
The value of your investment can go up or down depending upon market condi-
tions, which means you could lose money.

The main risk of any investment in stocks is that values fluctuate in price.

Two of the main risks of investing in the fund are interest rate risk and
credit risk. Typically, when interest rates rise, there is a corresponding
decline in the market value of bonds such as those held by the fund. Credit
risk refers to the possibility that the issuer of the bond will not be able to
make principal and interest payments.

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.

IMPORTANT DEFINITIONS

Large Capitalization
Companies: Capitaliza-
tion refers to the mar-
ket value of the com-
pany and is calculated
by multiplying the num-
ber of shares outstand-
ing by the current
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.

Mortgage-Backed Securi-
ties: Asset-backed
securities based on a
particular type of
asset, a mortgage.
There is a wide variety
of mortgage backed
securities involving
commercial or residen-
tial, fixed rate or
adjustable rate mort-
gages and mortgages
issued by banks or gov-
ernment agencies.

S&P 500 Index: The
Standard & Poor's Com-
posite Stock Price
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 market capi-
talization and repre-
sents approximately
two-thirds of the total
market value of all
domestic common stocks.

Total Return: A way of
measuring fund perfor-
mance. Total return is
based on a calculation
that takes into account
income dividends, capi-
tal gain distributions
and the increase or
decrease in share
price.

Value and Growth Compa-
nies: All stocks are
generally divided into
the categories 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
undervalued by the mar-
ket as measured by cer-
tain financial formu-
las. Growth stocks are
companies whose earn-
ings 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.

81
<PAGE>

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, the fund's investment adviser, is currently working to avoid such prob-
lems. 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 issuers whose securities the fund holds or securi-
ties 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.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). 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 both the S&P 500 Index
and a customized weighted index comprised of the returns of the S&P 500 Index
(60%) and the Lehman Aggregate Index (40%), recognized unmanaged indices of
stock and bond market performance, respectively. 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.

actual return of Investor B and C Shares would have been lower compared to
Investor B and C Shares.

Best Quarter Q4 '98: 13.29%

Worst Quarter Q3 '98: -4.90%

[BAR CHART APPEARS HERE]

91 92 93 94 95 96 97 98
------ ------ ------ ------- ------ ------ ------ ------
22.45% 11.92% 11.67% -3.55% 27.22% 15.04% 23.34% 21.38%

As of 12/31/98
- --------------------------------------------------------------------------------
A V E R A G E A N N U A L T O T A L R E T U R N S
- --------------------------------------------------------------------------------
Since Inception
1 Year 3 Years 5 Years Inception Date
- --------------------------------------------------------------------------------
Balanced; Inv A 15.90% 18.05% 15.07% 13.93% 05/14/90
Balanced; Inv B 15.03% 17.54% 14.96% 14.12% 05/14/90
Balanced; Inv C 19.27% 18.94% 15.42% 14.12% 05/14/90
S&P 500 28.76% 28.39% 24.15% 19.46% N/A *
60% S&P 500/40% Leh.Ag. 20.73% 19.95% 17.40% 15.49% N/A *
- --------------------------------------------------------------------------------

*For comparative purposes, the values of the indexes on 05/01/90 are used as
the beginning values on 05/14/90.

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.

The tables below explain your pricing options and describe the fees and
expenses that you may pay if you buy and hold Investor A, B and C Shares of
the fund. 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 CDSC is 4.5% if shares are redeemed in less than one year. The CDSC
for Investor B Shares decreases for redemptions made in subsequent years.
After six years there is no CDSC on B Shares. (See page 101 for complete
schedule of CDSCs.)
*** There is no CDSC on C Shares after one year.

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

<TABLE>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
Advisory Fees .55% .55% .55%
Distribution and service
(12b-1) fees .50% 1.15% 1.15%
Other expenses .42% .42% .42%
Total annual fund operating
expenses 1.47% 2.12% 2.12%
Fee waivers and expense
reimbursements* .10% - - - -
Net Expenses* 1.37% 2.12% 2.12%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits. In addition, BlackRock Distributors, Inc., the fund's distributor,
has contractually agreed to waive all 12b-1 distribution fees on Investor A
Shares (otherwise payable at the maximum annual rate of .10% of average
daily net assets) for the next year. "Net Expenses" in the table for
Investor A Shares have been restated to reflect this 12b-1 distribution fee
waiver.

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

IMPORTANT DEFINITIONS

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

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

Other Expenses: Include
fees paid by the fund
for other expenses such
as administration,
transfer agency, custo-
dy, professional fees
and registration fees.

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

84
<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 (except for the waivers in the first year regarding Investor A Shares
discussed above), 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* $583 $ 885 $1,208 $2,120
B Shares**
Redemption $665 $1,014 $1,339 $2,286***
B Shares
No Redemption $215 $ 664 $1,139 $2,286***
C Shares**
Redemption $315 $ 664 $1,139 $2,452
C Shares
No Redemption $215 $ 664 $1,139 $2,452
</TABLE>
*Reflects imposition of sales charge.
**Reflects deduction of CDSC.
***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, who
has served as a Managing Director 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
been co-manager of the fund since 1996.

The co-managers for the fixed-income portion of the fund are Robert S. Kapito,
who has been Vice Chairman of BlackRock Financial Management, Inc. since 1988
and who has served as co-manager of the fund since 1995 and Keith T. Anderson,
who has been a Managing Director at BlackRock Financial Management, Inc. since
1988. He has served as co-manager of the fund since 1995.

Financial Highlights
The financial information in the table on the next page shows the fund's finan-
cial performance for the periods indicated. 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
and assumes that you have reinvested all dividends 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).
85
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Investor A, B or C Share Outstanding Throughout Each Period)

Balanced Portfolio

<TABLE>
<CAPTION>
INVESTOR A
SHARES
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 $ 18.22 $ 15.10 $ 13.73 $ 11.98 $ 12.42
------- ------- ------- ------- -------
Income from
investment
operations
Net investment
income 0.39 0.39 0.40 0.43 0.32
Net realized
gain (loss)
on investments 1.33 3.68 1.49 1.88 (0.38)
------- ------- ------- ------- -------
Total from
investment
operations 1.72 4.07 1.89 2.31 (0.06)
------- ------- ------- ------- -------
Less
distributions
Distributions
from net
investment
income (0.36) (0.43) (0.39) (0.42) (0.32)
Distributions
from net
realized
capital gains (1.25) (0.52) (0.13) (0.14) (0.06)
------- ------- ------- ------- -------
Total
distributions (1.61) (0.95) (0.52) (0.56) (0.38)
------- ------- ------- ------- -------
Net asset value
at end of
period $ 18.33 $ 18.22 $ 15.10 $ 13.73 $ 11.98
======= ======= ======= ======= =======
Total return 10.19%/3/ 27.93%/3/ 13.98%/3/ 19.86%/3/ (0.50)%/3/
Ratios/Supplemental
data
Net assets at
end of period
(in thousands) $96,795 $87,202 $71,899 $67,892 $62,307
Ratios of
expenses to
average
net assets
After advisory/
administration
fee waivers 1.30% 1.24% 1.19% 1.07% 1.05%
Before
advisory/
administration
fee waivers 1.30% 1.30% 1.30% 1.28% 1.31%
Ratios of net
investment
income
to average net
assets
After advisory/
administration
fee waivers 2.13% 2.58% 2.75% 3.38% 2.77%
Before
advisory/
administration
fee waivers 2.13% 2.52% 2.65% 3.16% 2.51%
Portfolio
turnover rate 134% 173% 275% 154% 54%
<CAPTION>
INVESTOR B INVESTOR C
SHARES SHARES
For the For the
Period Period
Year Year Year 10/03/94/1 Year 12/20/96/1/
Ended Ended Ended / through Ended through
9/30/98 9/30/97 9/30/96 9/30/95 9/30/98 9/30/97
<S> <C> <C> <C> <C> <C> <C>
Net asset value
at
beginning
of period $ 18.13 $ 15.04 $13.69 $11.95 $18.13 $15.62
----------- ----------- ----------- ------------ ----------- -------------
Income from
investment
operations
Net investment
income 0.25 0.31 0.31 0.33 0.24 0.28
Net realized
gain (loss)
on investments 1.31 3.61 1.47 1.93 1.32 2.54
----------- ----------- ----------- ------------ ----------- -------------
Total from
investment
operations 1.56 3.92 1.78 2.26 1.56 2.82
----------- ----------- ----------- ------------ ----------- -------------
Less
distributions
Distributions
from net
investment
income (0.22) (0.31) (0.30) (0.38) (0.22) (0.31)
Distributions
from net
realized
capital gains (1.25) (0.52) (0.13) (0.14) (1.25) - -
----------- ----------- ----------- ------------ ----------- -------------
Total
distributions (1.47) (0.83) (0.43) (0.52) (1.47) (0.31)
----------- ----------- ----------- ------------ ----------- -------------
Net asset value
at end of
period $ 18.22 $ 18.13 $15.04 $13.69 $18.22 $18.13
=========== =========== =========== ============ =========== =============
Total return 9.40%/3/ 26.95%/3/ 13.14%/3/ 19.38%/3/ 9.40%/3/ 23.95%/3/
Ratios/Supplemental
data
Net assets at
end of period
(in thousands) $46,303 $23,455 $7,333 $3,124 $ 699 $ 87
Ratios of
expenses to
average
net assets
After advisory/
administration
fee waivers 2.11% 2.05% 1.98% 1.72%/2/ 1.92% 2.03%/2/
Before
advisory/
administration
fee waivers 2.11% 2.11% 2.09% 1.94%/2/ 1.92% 2.09%/2/
Ratios of net
investment
income
to average net
assets
After advisory/
administration
fee waivers 1.30% 1.78% 1.99% 2.71%/2/ 1.46% 1.90%/2/
Before
advisory/
administration
fee waivers 1.30% 1.72% 1.88% 2.49%/2/ 1.46% 1.84%/2/
Portfolio
turnover rate 134% 173% 275% 154% 134% 173%
</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.
86
<PAGE>

BlackRock
(LOGO) Micro-Cap Equity
Portfolio

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

IMPORTANT DEFINITIONS

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.

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.

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 buys common stock but can also invest in pre-
ferred 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 screens for
"growth" stocks from the universe of companies with market capitalization
between $25 million and $300 million. Generally, 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.

used to maintain liquidity, commit cash pending investment or to increase
returns.

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

Key Risks

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 rela-
tively 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 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.

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.

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.

IMPORTANT DEFINITIONS

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

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.

88
<PAGE>

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, BlackRock, the
funds investment adviser, is currently working to avoid such problems. Black-
Rock 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 issuers 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.

Expenses and Fees

This prospectus offers shareholders different ways to invest with three sepa-
rate pricing options. You need to understand your choices so that you can
choose the pricing option that is most suitable for you. With one option (In-
vestor A Shares) you pay a one-time front-end transaction fee each time you buy
shares. The other options (Investor B and Investor C Shares) have no front- end
charges but have higher on-going fees, which are paid over the life of the
investment, and have a contingent deferred sales charge (CDSC) that you may pay
when you redeem your shares. Which option 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 may cost less to buy A Shares
than B or C Shares.
89
<PAGE>

The tables below explain your pricing options and describe the fees and
expenses that you may pay if you buy and hold Investor A, B and C Shares of
the fund. 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* 5.0% 0.0% 0.0%
(as percentage of offering
price)
Maximum Deferred Sales Charge 0.0% 4.5%** 1.00%***
(as percentage of offering
price)
</TABLE>
* Reduced front-end sales charges may be available. A CDSC of up to 1.00% is
assessed on certain redemptions of Investor A Shares that are purchased
with no initial sales charge as part of an investment of $1,000,000 or
more.
** The CDSC is 4.5% if shares are redeemed in less than one year. The CDSC
for Investor B Shares decreases for redemptions made in subsequent years.
After six years there is no CDSC on B Shares. (See page 101 for complete
schedule of CDSCs.)
*** There is no CDSC on C shares after one year.

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

<TABLE>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
Advisory Fees 1.10% 1.10% 1.10%
Distribution and service
(12b-1) fees .50% 1.15% 1.15%
Other expenses* 1.70% 1.70% 1.70%
Total annual fund operating
expenses 3.30% 3.95% 3.95%
Fee waivers and expense
reimbursements** 1.38% 1.28% 1.28%
Net expenses** 1.92% 2.67% 2.67%
</TABLE>
* "Other expenses" are based on estimated amounts for the current fiscal
year.
** BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits. In addition, BlackRock Distributors, Inc., the fund's distributor,
has contractually agreed to waive all 12b-1 distribution fees on Investor A
Shares (otherwise payable at the maximum annual rate of .10% of average
daily net assets) for the next year. "Net Expenses" in the table have been
restated to reflect these waivers and reimbursements.

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

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

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

Other Expenses: Include
fees paid by the fund
for other expenses such
as administration,
transfer agency, custo-
dy, professional fees
and registration fees.

Service Fees: Fees that
are paid to BlackRock
and/or its affiliates
for shareholder account
service and mainte-
nance.
90
<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 (except for the waivers in the first year discussed above), redemption
at the end of each time period and, with respect to B Shares and C Shares only,
no redemption at the end of each time period. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:

<TABLE>
<CAPTION>
1 Year 3 Years
<S> <C> <C>
A Shares* $685 $1,343
B Shares**
Redemption $720 $1,437
B Shares
No Redemption $270 $1,087
C Shares**
Redemption $370 $1,087
C Shares
No Redemption $270 $1,087
</TABLE>
*Reflects imposition of sales charge.
**Reflects deduction of contingent deferred sales charge.

Fund Management
The Micro-Cap management team is headed by William J. Wykle, Managing Director
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 a Managing Director
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.
91
<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
5/01/98/1 5/01/98/1 5/01/98/1
/ through / through / through
9/30/98 9/30/98 9/30/98
<S> <C> <C> <C>
Net asset value at beginning of
period $10.00 $10.00 $10.00
------ ------ ------
Income from investment operations
Net investment income (0.02) (0.04) (0.04)
Net gain (loss) on investments (both
realized and unrealized) (0.60) (0.60) (0.60)
------ ------ ------
Total from investment operations (0.62) (0.64) (0.64)
------ ------ ------
Less distributions
Distributions from net investment
income - - - - - -
Distributions from net realized
capital gains - - - - - -
------ ------ ------
Total distributions - - - - - -
------ ------ ------
Net asset value at end of period $ 9.38 $ 9.36 $ 9.36
====== ====== ======
Total return (6.20)%/3/ (6.30)%/3/ (6.30)%/3/
Ratios/Supplemental data
Net assets at end of period (in
thousands) $6,100 $8,560 $1,809
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 1.84%/2/ 2.55%/2/ 2.53%/2/
Before advisory/administration fee
waivers 3.17%/2/ 3.88%/2/ 3.86%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers (0.70)%/2/ (1.44)%/2/ (1.45)%/2/
Before advisory/administration fee
waivers (2.03)%/2/ (2.77)%/2/ (2.78)%/2/
Portfolio turnover rate 119% 119% 119%
</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.
92
<PAGE>

About Your Investment
(LOGO FOR BLACKROCK)

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

Buying Shares from a Registered Investment Professional

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

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

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

- --------------------------------------------------------------------------------
What Price Per Share Will You Pay?

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

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

PFPC, the Company's transfer agent, will probably receive your order from your
registered representative, who takes your order. However, you can also fill out
a purchase application and mail it
93
<PAGE>

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

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

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

- --------------------------------------------------------------------------------
When Must You Pay?

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

- --------------------------------------------------------------------------------
How Much is the Minimum Investment?

94
<PAGE>

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

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

- --------------------------------------------------------------------------------
Which Pricing Option Should You Choose?

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

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

95
<PAGE>

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

C Shares (Level Load)
. No front-end sales charge when you buy shares
. Contingent deferred sales charge (CDSC) of 1.00% if shares are redeemed within
12 months of purchase
. Higher ongoing fees than A Shares
. Free exchange with other C Shares in BlackRock Funds family
. Advantage: No up-front sales charge so you start off owning more shares. These
shares may make sense for investors who have a shorter investment horizon rel-
ative to A or B Shares.
. Disadvantage: You pay higher ongoing fees than on A shares each year you own
shares, which means that you can expect lower total performance per share.
Shares do not convert to A Shares.

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

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

- --------------------------------------------------------------------------------
How Much is the Sales Charge?

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

96
<PAGE>

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

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

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%
$1 million or more 0.00% 0.00%
</TABLE>

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

97
<PAGE>

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

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

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

Purchase of Investor B Shares

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

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

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

Purchase of Investor C Shares

Investor C Shares are subject to a CDSC of 1.00% if they are redeemed within 12
months after purchase. The 1.00% is based on the offering price or the net
asset value of the C Shares on the redemption date (whichever is less). There
is no CDSC on C Shares redeemed after 12 months.
98
<PAGE>

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

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

- --------------------------------------------------------------------------------
Can the Sales Charge be Reduced or Eliminated?

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

- --------------------------------------------------------------------------------
Right of Accumulation (Investor A Shares)

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

- --------------------------------------------------------------------------------
Letter of Intent (Investor A Shares)

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

99
<PAGE>

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

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

- --------------------------------------------------------------------------------
Reinvestment Privilege (Investor A Shares)

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

- --------------------------------------------------------------------------------
Quantity Discounts (Investor A Shares)

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

- --------------------------------------------------------------------------------
Waiving the Sales Charge (Investor A Shares)

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

100
<PAGE>

The CDSC on Investor B and Investor C Shares is not charged in certain circum-
stances, including share exchanges (see page 113) and redemptions made in con-
nection with certain retirement plans and in connection with certain share-
holder services offered by the Company. For more information on these waivers,
please contact PFPC at (800)-441-7762 or see the SAI.

- --------------------------------------------------------------------------------
Distribution and Service Plan

The Company has adopted a plan under Rule 12b-1 of the Investment Company Act of
1940 (the Plan) that allows the Company to pay distribution and other fees for
the sale of its shares and for certain services provided to its shareholders.
Under the Plan, Investor Shares pay a fee (distribution fees) to BlackRock Dis-
tributors, Inc. (the Distributor) or affiliates of PNC Bank for distribution
and sales support services. The distribution fees may be used to pay the Dis-
tributor for distribution services and to pay the Distributor and PNC Bank
affiliates for sales support services provided in connection with the sale of
Investor Shares. The distribution fees may also be used to pay brokers, deal-
ers, financial institutions and industry professionals (Service Organizations)
for sales support services and related expenses. Investor A Shares pay a maxi-
mum 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 Plan
also allows the Distributor, PNC Bank affiliates and other companies that
receive fees from the Company to make payments relating to distribution and
sales support activities out of their past profits or other sources.

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

101
<PAGE>

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

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

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.

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

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

- -------------------------------------------------------------------------------
Master-Feeder Structure

The Index Equity Portfolio, unlike many other investment companies which
directly acquire and manage their own

102
<PAGE>

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

portfolio of securities, invests all of its assets in the Index Master Portfo-
lio. The Index Equity Portfolio may withdraw its investment in the Index Master
Portfolio at any time on 30 days 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.

- --------------------------------------------------------------------------------
How to Sell Shares

You can redeem shares at any time (although certain verification may be required
for redemptions in excess of $25,000 or in certain other cases). The Company
will redeem your shares at the next net asset value (NAV) calculated after your
order is received by the fund's transfer agent minus any applicable CDSC.
Except when CDSCs are applied, BlackRock Funds will not charge for redemptions.
Shares may be redeemed by sending a written redemption request to BlackRock
Funds c/o PFPC, P.O. Box 8907, Wilmington, DE 19899-8907. You can also make
redemption requests through your registered investment professional, who may
charge for this service. Shareholders should indicate whether they are redeem-
ing Investor A, Investor B or Investor C Shares. If a shareholder owns more
than one class of a fund and does not indicate which class he or she is redeem-
ing, the fund will redeem shares so as to minimize the CDSC charged.

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

- -------------------------------------------------------------------------------
Expedited Redemptions

103
<PAGE>

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

for any charges imposed by your bank for this service. Once authorization is on
file, PFPC will honor requests by telephone at (800) 441-7762. The Company is
not responsible for the efficiency of the Federal wire system or the sharehold-
er'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's Rights

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.

- -------------------------------------------------------------------------------
Accounts with Low Balances

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.

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

104
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IMPORTANT DEFINITIONS

Adviser: The Adviser of a mutual fund is responsible for the overall investment
management of the Fund. The Adviser for BlackRock Funds is BlackRock Advisors,
Inc.

Sub-Adviser: The sub-adviser of a fund is responsible for its day-to-day
management and will generally make all buy and sell decisions. Sub-advisers
also provide research and credit analysis. The sub-adviser for all the funds
except the Index Equity, International Equity, International Emerging Markets
and International Small Cap Equity Portfolios is BlackRock Financial Management,
Inc. The sub-adviser for the International Equity, International Emerging
Markets and International Small Cap Equity Portfolios is BlackRock
International, Ltd.

Avenue, New York, New York 10154, acts as sub-adviser to the Company, as does
BlackRock International, Ltd. (BIL), an affiliate of BlackRock located at 7
Castle Street, Edinburgh, Scotland EH2 3AH. The only fund not managed by Black-
Rock 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 Moni-
ca, CA 90401. DFA was organized in May 1981 and provides investment management
services to institutional investors. As of November 30, 1998, DFA had over $26
billion in assets under management.

For their investment advisory and sub-advisory services, BlackRock, BFM, BIL
and DFA, as applicable, 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 aver-
age daily net assets were:

<TABLE>
<S> <C>
Large Cap Value Equity 0.52%
Large Cap Growth Equity 0.54%
Mid-Cap Value Equity 0.76%
Mid-Cap Growth Equity 0.76%
Small Cap Value Equity 0.55%
Small Cap Growth Equity 0.54%
International Equity 0.70%
International Small Cap Equity 0.28%
International Emerging Markets 1.16%
Select Equity 0.54%
Balanced 0.55%
</TABLE>

For the fiscal year ended November 30, 1998, the Index Master Portfolio paid
DFA an aggregate advisory fee of .025% of average daily net assets.

The maximum annual advisory fees that can be paid to BlackRock (as a percentage
of average daily net assets) are as follows:

<TABLE>
<CAPTION>
AVERAGE DAILY NET INVESTMENT
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>

105
<PAGE>

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

Maximum Annual Contractual Advisory Fee Rate for the Mid-Cap Value Equity and
Mid-Cap Growth Equity Portfolios (Before Waivers)

<TABLE>
<CAPTION>
AVERAGE DAILY NET INVESTMENT
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>

Maximum Annual Contractual Advisory Fee Rate for the International Equity
Portfolio (Before Waivers)

<TABLE>
<CAPTION>
AVERAGE DAILY NET INVESTMENT
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 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>

106
<PAGE>

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

The Index Master Portfolio pays DFA a maximum annual advisory fee of .025% of
its average daily net assets.

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 management and currently manages money for over half of
the Fortune 100, including seven out of ten of the largest Fortune 100 compa-
nies.

Information about the portfolio manager for each of the funds is presented in
the appropriate fund section.

BlackRock and the Company have entered into an expense limitation agreement.
The agreement sets a limit on certain of the operating expenses of each fund
for the next year and requires BlackRock to waive or reimburse fees or expenses
if these operating expenses exceed that limit. These expense limits (which
apply to expenses charged on fund assets as a whole, but not expenses sepa-
rately charged to the different share classes of a fund) as a percentage of
average daily net assets are:

<TABLE>
<S> <C>
Large Cap Value Equity .630%
Large Cap Growth Equity .650%
Mid-Cap Value Equity .995%
Mid-Cap Growth Equity .995%
Small Cap Value Equity .705%
Small Cap Growth Equity .690%
International Equity .900%
International Emerging Markets 1.565%
International Small Cap Equity 1.155%
Select Equity .645%
Index Equity .150%
Balanced .690%
Micro-Cap Equity 1.305%
</TABLE>

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

- --------------------------------------------------------------------------------
Dividends and Distributions

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

107
<PAGE>

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

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

The Index Equity Portfolio seeks its investment objective by investing all of
its assets in the Index Master Portfolio (which is taxable as a partnership for
federal income tax purposes). The Index Equity Portfolio is allocated its dis-
tributive share of the income, gains (including capital gains), losses, deduc-
tions and credits of the Index Master Portfolio. The Index Equity Portfolio's
distributive share of such items, plus gain, if any, on the redemption of
shares of the Index Master Portfolio, less the Index Equity Portfolio's
expenses incurred in operations, will constitute the Index Equity Portfolio's
net income from which dividends are distributed as described above.

- --------------------------------------------------------------------------------
Taxation of Distributions

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.

108
<PAGE>

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

each shareholder would be required to include his proportionate share of such
taxes in his income and may be entitled to deduct or credit such taxes in com-
puting his taxable income.

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

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

109
<PAGE>

[LOGO] Services for Shareholders

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

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

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

- --------------------------------------------------------------------------------
Exchange Privilege

BlackRock Funds offers 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.

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.

110
<PAGE>

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

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.

- --------------------------------------------------------------------------------
Automatic Investment
Plan (AIP)

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

- --------------------------------------------------------------------------------
Retirement Plans

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

- --------------------------------------------------------------------------------
111
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statements

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

- --------------------------------------------------------------------------------
Systematic Withdrawal Plan (SWP)

This feature can be used by investors who want to receive regular distributions
from their accounts. To start a SWP a shareholder must have a current invest-
ment of $10,000 or more in a fund. Shareholders can elect to receive cash pay-
ments of $50 or more monthly, every other month, quarterly, 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.

To participate in the SWP, shareholders must have their dividends automatically
reinvested and may not hold share certificates. Shareholders may change or can-
cel the SWP at any time, upon written notice to PFPC. If an investor purchases
additional Investor A Shares of a fund at the same time he or she redeems shares
through the SWP, that investor may lose money because of the sales charge
involved. No CDSC will be assessed on redemptions of Investor B or Investor C
Shares made through the SWP that do not exceed 12% of the account's net asset
value on an annualized basis. For example, monthly, quarterly and semi-annual
SWP 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.

112
<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 28, 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 a.m. to 6 p.m. (Eastern time), Monday-Friday. Call: (800) 441-7762

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

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

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

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

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

Securities and Exchange Commission (SEC)
You may also view 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]
<PAGE>

497(C)
File No. 33-26305
Equity Portfolios
==============================================================================
S E R V I C E S H A R E S

BlackRock Funds/SM/ is a mutual fund family with 36 investment portfolios, 13 of
which are described in this prospectus.

P R O S P E C T U S

January 28, 1999

[LOGO] BLACKROCK
FUNDS

The securities described in this prospectus have been registered with the
Securities and Exchange Commission (SEC). The SEC, however, has not judged these
securities for their investment merit and has not determined the accuracy or
adequacy of this prospectus. Anyone who tells you otherwise is committing a
criminal offense.

NOT FDIC-INSURED

May lose value
No bank guarantee

<PAGE>

Table of
Contents

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

How to find How to find the information you need..................... 1
the information THE BLACKROCK EQUITY FUNDS
you need Large Cap Value.......................................... 2
Large Cap Growth......................................... 7
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............................................ 51
Index Equity............................................. 56
Balanced................................................. 61
Micro-Cap................................................ 67

About Your How to Buy/Sell Shares................................... 72
Investment Dividends/Distribution/Taxes............................. 81

<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).

1
<PAGE>

BlackRock
logo Large Cap Value Equity
Portfolio

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

IMPORTANT DEFINITIONS

Large Capitalization
Companies: The fund
defines these companies
as these with capital-
ization of over $10
billion. Capitalization
refers to the market
value of the company
and is calculated by
multiplying the number
of shares outstanding
by the current price
per share. Larger com-
panies 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 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, and
whose growth in revenue
is expected to continue
for an extended period.

Investment Goal
The fund seeks long-term capital appreciation--current income is the secondary
objective.

used to maintain liquidity, commit cash pending investment or to increase
returns.

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

Key Risks

While the fund manager chooses 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>

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.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Service Shares. 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.

The performance for the period before Service Shares were launched in July 1993
is based upon performance for Institutional Shares of the fund. The actual
return of Service Shares would have been lower than shown because Service
Shares have higher expenses than Institutional Shares.

Best Quarter Q4 '98: 16.00%

Worst Quarter Q3 '98: -14.21%

The bar for 1993 is based upon performance for Institutional Shares of the
fund.

[BAR CHART APPEARS HERE]

93 94 95 96 97 98
------ ------ ------ ------ ------ ------
17.89% 0.85% 34.50% 23.77% 28.31% 10.23%

* For comparative purposes, the value of the index on 05/01/92 is used as the
beginning value on 04/20/92.

4
<PAGE>

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.

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

IMPORTANT DEFINITIONS

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

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

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

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

<TABLE>
<S> <C>
Advisory Fees .53%
Distribution and service (12b-1) fees .30%
Other expenses .31%
Total annual fund operating expenses 1.14%
Fee waivers and expense reimbursements --
Net Expenses* 1.14%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits.

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

<S> <C> <C> <C> <C>
Service Shares $116 $362 $628 $1,386
</TABLE>

5
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For a Service Share Outstanding Throughout Each Period)

Large Cap Value Equity Portfolio

<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 $ 17.52 $ 15.35 $ 13.92 $ 11.62 $ 11.68
-------- -------- -------- -------- --------
Income from investment
operations
Net investment income 0.21 0.24 0.32 0.30 0.25
Net gain (loss) on investments
(both realized and unrealized) (0.61) 4.70 2.40 2.55 0.16
-------- -------- -------- -------- --------
Total from investment
operations (0.40) 4.94 2.72 2.85 0.41
-------- -------- -------- -------- --------
Less distributions
Distributions from net
investment income (0.18) (0.25) (0.32) (0.30) (0.25)
Distributions from net
realized capital gains (2.25) (2.52) (0.97) (0.25) (0.22)
-------- -------- -------- -------- --------
Total distributions (2.43) (2.77) (1.29) (0.55) (0.47)
-------- -------- -------- -------- --------
Net asset value at end of
period $ 14.69 $ 17.52 $ 15.35 $ 13.92 $ 11.62
======== ======== ======== ======== ========
Total return (2.50)% 37.22% 20.68% 25.40% 3.51%
Ratios/Supplemental data
Net assets at end of period
(in thousands) $387,323 $595,189 $457,283 $170,832 $105,035
Ratios of expenses to average
net assets
After advisory/administration
fee waivers 1.13% 1.09% 1.05% 0.95% 0.90%
Before
advisory/administration fee
waivers 1.14% 1.16% 1.14% 1.09% 1.06%
Ratios of net investment
income to average net assets
After advisory/administration
fee waivers 1.14% 1.62% 2.13% 2.40% 2.24%
Before
advisory/administration fee
waivers 1.13% 1.55% 2.04% 2.26% 2.08%
Portfolio turnover rate 33% 37% 60% 12% 11%
</TABLE>
-----------------------------------------------

6
<PAGE>

BlackRock
[LOGO] Large Cap Growth Equity
Portfolio

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

IMPORTANT DEFINITIONS

Investment Goal
The fund seeks long-term capital appreciation.

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 made.

Key Risks

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

The fund sometimes may 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, the fund's investment adviser, is currently working to avoid such prob-
lems. 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 issuers whose securities the fund holds or securi-
ties markets generally.

8
<PAGE>

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

Risk/Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Service Shares. 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 distribu-
tions. As with all such investments, past performance is not an indication of
future results.

As of 12/31
- --------------------------------------------------------------------------------
A N N U A L T O T A L R E T U R N S
- --------------------------------------------------------------------------------

Best Quarter Q4 '98: 26.26%

Worst Quarter Q3 '98: -10.04%

The bars for 1990-1993 are based upon performance for Institutional Shares of
the fund.

[BAR CHART APPEARS HERE]

90 91 92 93 94 95 96 97 98
------ ------ ------ ------ ------ ------ ------ ------ ------
-2.05% 26.01% -1.00% 13.65% -10.33% 34.12% 20.03% 28.08% 40.90%

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.
9
<PAGE>

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

IMPORTANT DEFINITIONS

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

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

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

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

<TABLE>
<S> <C>
Advisory Fees .55%
Distribution and service (12b-1) fees .30%
Other expenses .32%
Total annual fund operating expenses 1.17%
Fee waivers and expense reimbursements --
Net Expenses* 1.17%
</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>
Service Shares $119 $372 $644 $1,420
</TABLE>

10
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For a Service Share Outstanding Throughout Each Period)

Large Cap Growth Equity Portfolio

<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 $ 18.93 $ 14.95 $ 13.02 $ 10.18 $ 11.57
-------- -------- -------- ------- -------
Income from investment
operations
Net investment income (0.03) 0.04 0.05 0.10 0.03
Net gain (loss) on
investments
(both realized and
unrealized) 1.85 4.72 2.28 2.87 (1.32)
-------- -------- -------- ------- -------
Total from investment
operations 1.82 4.76 2.33 2.97 (1.29)
-------- -------- -------- ------- -------
Less distributions
Distributions from net
investment income - - (0.04) (0.02) (0.13) - -
Distributions from net
realized capital gains (2.64) (0.74) (0.38) - - (0.10)
-------- -------- -------- ------- -------
Total distributions (2.64) (0.78) (0.40) (0.13) (0.10)
-------- -------- -------- ------- -------
Net asset value at end of
period $ 18.11 $ 18.93 $ 14.95 $ 13.02 $ 10.18
======== ======== ======== ======= =======
Total return 11.33% 33.38% 18.34% 29.43% (11.20)%
Ratios/Supplemental data
Net assets at end of period
(in thousands) $187,738 $262,409 $191,023 $76,769 $36,752
Ratios of expenses to
average net assets
After
advisory/administration fee
waivers 1.16% 1.10% 1.05% 0.95% 0.90%
Before
advisory/administration fee
waivers 1.16% 1.17% 1.17% 1.13% 1.14%
Ratios of net investment
income to average net
assets
After
advisory/administration fee
waivers (0.13)% 0.24% 0.31% 0.91% 0.51%
Before
advisory/administration fee
waivers (0.13)% 0.17% 0.20% 0.73% 0.26%
Portfolio turnover rate 54 % 81% 58% 55% 212%
</TABLE>
11
<PAGE>

BlackRock
[LOGO] Mid-Cap Value Equity Portfolio

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

IMPORTANT DEFINITIONS

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, and
whose growth in revenue
is expected to continue
for an extended period.

Investment Goal
The fund seeks long-term capital appreciation--current income is the secondary
objective.

12
<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 made.

Key Risks

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>

properly on January 1, 2000. Year 2000 problems may also hurt issuers 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.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Service Shares. 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 distribu-
tions. As with all such investments, past performance is not an indication of
future results.

Best Quarter Q4 '98: 13.55%

Worst Quarter Q3 '98: -17.38%

[BAR CHART APPEARS HERE]

97 98
------ ------
28.19% -1.81%

As of 12/31/98
- ------------------------------------------------------------
A V E R A G E A N N U A L T O T A L R E T U R N S
- ------------------------------------------------------------
Since Inception
1 Year Inception Date
- ------------------------------------------------------------
Mid Cap Value -1.81% 12.11% 12/27/96
Russell Mid Cap Value 5.08% 20.18% N/A*
- ------------------------------------------------------------

* For comparative purposes, the value of the index on 01/01/97 is used as the
beginning value on 12/27/96.

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.

14
<PAGE>

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

IMPORTANT DEFINITIONS

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

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

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

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

<TABLE>
<S> <C>
Advisory Fees .80%
Distribution and service (12b-1) fees .30%
Other expenses .40%
Total annual fund operating expenses 1.50%
Fee waivers and expense reimbursements* .06%
Net Expenses* 1.44%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may have to repay these waivers and reimbursements to BlackRock in the
following two years if the repayment can be made within these expense limits.
"Net expenses" in the table have been restated to reflect these waivers and
reimbursements.

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 (except for the waivers in the first year discussed above) and redemp-
tion 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>
Service Shares $147 $468 $813 $1,785
</TABLE>

Fund Management
The fund is co-managed by Christian K. Stadlinger and Daniel B. Eagan.

Daniel B. Eagan has been co-manager of the fund since inception. Mr. Eagan has
been a Managing Director with BFM since 1995. 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 periods indicated. 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 and assumes that
you have reinvested all dividends 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 a Service Share Outstanding Throughout Each Period)

Mid-Cap Value Equity Portfolio

<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 $ 12.79 $ 10.00
------- -------
Income from investment operations
Net investment income 0.08 0.07
Net gain (loss) on investments
(both realized and unrealized) (1.82) 2.80
------- -------
Total from investment operations (1.74) 2.87
------- -------
Less distributions
Distributions from net investment
income (0.07) (0.08)
Distributions from net realized
capital gains (0.36) - -
------- -------
Total distributions (0.43) (0.08)
------- -------
Net asset value at end of period $ 10.62 $ 12.79
======= =======
Total return (13.94)% 28.81%
Ratios/Supplemental data
Net assets at end of period (in
thousands) $28,879 $22,757
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 1.44% 1.44%/2/
Before advisory/administration fee
waivers 1.50% 1.48%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 0.60% 0.98%/2/
Before advisory/administration fee
waivers 0.54% 0.94%/2/
Portfolio turnover rate 71% 36%
</TABLE>
- ------------------------------------------------------
/1/Commencement of operations of share class.
/2/Annualized.

16
<PAGE>

BlackRock
[LOGO] Mid-Cap Growth Equity
Portfolio

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

IMPORTANT DEFINITIONS

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 investment
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.

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 made.

Key Risks

There is more business risk in investing in mid-capitalization 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, 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, the fund's investment adviser, is currently working to avoid such prob-
lems. 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,

18
<PAGE>

2000. Year 2000 problems may also hurt issuers 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.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Service Shares. 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 distribu-
tions. As with all such investments, past performance is not an indication of
future results.

Best Quarter Q4 '98: 25.49%

Worst Quarter Q3 '98: -14.66%

[BAR CHART APPEARS HERE]

97 98
------ ------
14.35% 21.97%

As of 12/31/98
- ------------------------------------------------------------
A V E R A G E A N N U A L T O T A L R E T U R N S
- ------------------------------------------------------------
Since Inception
1 Year Inception Date
- ------------------------------------------------------------
Mid Cap Value 21.97% 18.21% 12/27/96
Russell Mid Cap Growth 17.87% 18.83% N/A*
- ------------------------------------------------------------

* For comparative purposes, the value of the index on 01/01/97 is used as the
beginning value on 12/27/96.

19
<PAGE>

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.

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

IMPORTANT DEFINITIONS

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

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

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

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

<TABLE>
<S> <C>
Advisory Fees .80%
Distribution and service (12b-1) fees .30%
Other expenses .40%
Total annual fund operating expenses 1.50%
Fee waivers and expense reimbursements* .06%
Net Expenses* 1.44%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may have to repay these waivers and reimbursements to BlackRock in the
following two years if the repayment can be made within these expense
limits. "Net Expenses" in the table have been restated to reflect these
waivers and reimbursements.

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 (except for the waivers in the first year discussed above) and redemp-
tion 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>
Service Shares $147 $468 $813 $1,785
</TABLE>

Fund Management
The fund is co-managed by William J. Wykle and Thomas Callan.

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

20
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For a Service Share Outstanding Throughout Each Period)

Mid-Cap Growth Equity Portfolio

<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 $ 12.17 $ 10.00
------- -------
Income from investment operations
Net investment income (0.09) (0.03)
Net gain (loss) on investments
(both realized and unrealized) (0.92) 2.20
------- -------
Total from investment operations (1.01) 2.17
------- -------
Less distributions
Distributions from net investment
income - - - -
Distributions from capital (0.01) - -
Distributions from net realized
capital gains (0.09) - -
------- -------
Total distributions (0.10) - -
------- -------
Net asset value at end of period $ 11.06 $ 12.17
======= =======
Total return (8.32)% 21.70%
Ratios/Supplemental data
Net assets at end of period (in
thousands) $28,601 $22,984
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 1.44% 1.44%/2/
Before advisory/administration fee
waivers 1.50% 1.48%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers (0.68)% (0.54)%/2/
Before advisory/administration fee
waivers (0.74)% (0.58)%/2/
Portfolio turnover rate 204% 64%
</TABLE>
- ------------------------------------------------------
/1/Commencement of operations of share class.
/2/Annualized.
21
<PAGE>

BlackRock
[LOGO] Small Cap Value Equity
Portfolio

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

IMPORTANT DEFINITIONS

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, and
whose growth in revenue
is expected to continue
for an extended period.

Investment Goal
The fund seeks long-term capital appreciation.

22
<PAGE>

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.

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

Key Risks

While the fund manager chooses 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.

23
<PAGE>

properly on January 1, 2000. Year 2000 problems may also hurt issuers 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.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Service Shares. 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.

Best Quarter Q2 '97: 18.44%

Worst Quarter Q3 '98: -19.56%

The bar for 1993 is based upon performance for Institutional Shares of the Fund.

[BAR CHART APPEARS HERE]

93 94 95 96 97 98
------ ------ ------ ------ ------ ------
18.57% -0.64% 22.74% 19.56% 39.31% -6.50%

* For comparative purposes, the value of the index on 04/01/92 is used as the
beginning value on 04/13/92.

24
<PAGE>

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.

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

IMPORTANT DEFINITIONS

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

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

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

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

<TABLE>
<S> <C>
Advisory Fees .55%
Distribution and service (12b-1) fees .30%
Other expenses .33%
Total annual fund operating expenses 1.18%
Fee waivers and expense reimbursements --
Net Expenses* 1.18%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may have to repay theses waivers and reimbursements to BlackRock in the
following two years if the repayment can be made within theses expense lim-
its.

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>
Service Shares $120 $375 $649 $1,432
</TABLE>

Fund Management
The manager of the fund is Christian K. Stadlinger. He has been a Managing
Director with BlackRock Financial Management, Inc. (BFM) since July 1996. Prior
to joining BFM, he was portfolio manager and Research Analyst with Morgan Stan-
ley 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 periods
indicated. 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 and assumes
that you have reinvested all dividends and distri-
butions. 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 a Service Share Outstanding Throughout Each Period)

Small Cap Value Equity Portfolio

<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 $ 20.20 $ 15.98 $ 15.15 $ 13.59 $ 13.08
------- -------- ------- ------- -------
Income from investment
operations
Net investment income 0.09 0.13 0.06 0.02 - -
Net gain (loss) on investments
(both realized and unrealized) (3.21) 6.39 1.70 2.18 0.77
------- -------- ------- ------- -------
Total from investment
operations (3.12) 6.52 1.76 2.20 0.77
------- -------- ------- ------- -------
Less distributions
Distributions from net
investment income (0.08) (0.13) (0.06) (0.03) (0.01)
Distributions from net realized
capital gains (2.12) (2.17) (0.87) (0.61) (0.25)
------- -------- ------- ------- -------
Total distributions (2.20) (2.30) (0.93) (0.64) (0.26)
------- -------- ------- ------- -------
Net asset value at end of period $ 14.88 $ 20.20 $ 15.98 $ 15.15 $ 13.59
======= ======== ======= ======= =======
Total return (17.33)% 46.95% 12.30% 17.17% 5.96%
Ratios/Supplemental data
Net assets at end of period (in
thousands) $77,893 $122,431 $80,981 $61,313 $45,372
Ratios of expenses to average
net assets
After advisory/administration
fee waivers 1.17% 1.17% 1.15% 1.02% 0.98%
Before advisory/administration
fee waivers 1.18% 1.18% 1.16% 1.12% 1.10%
Ratios of net investment income
to average net assets
After advisory/administration
fee waivers 0.44% 0.79% 0.38% 0.16% 0.03%
Before advisory/administration
fee waivers 0.43% 0.78% 0.37% 0.07% (0.09)%
Portfolio turnover rate 45% 66% 50% 31% 18%
</TABLE>
26
<PAGE>

BlackRock
[LOGO] Small Cap Growth Equity
Portfolio

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

IMPORTANT DEFINITIONS

Investment Goal
The fund seeks long-term capital appreciation.

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

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

The fund 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

27
<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 made.

Key Risks

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.

28
<PAGE>

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

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Service Shares. 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 distribu-
tions. As with all such investments, past performance is not an indication of
future results.

Best Quarter Q4 '98: 25.39%

Worst Quarter Q3 '97: -19.52%

[BAR CHART APPEARS HERE]

94 95 96 97 98
------ ------ ------ ------ ------
5.61% 46.65% 31.40% 8.79% 6.76%

* For comparative purposes, the value of the index on 09/01/93 is used as the
beginning value on 09/15/95.

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.

29
<PAGE>

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

IMPORTANT DEFINITIONS

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

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

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

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

<TABLE>
<S> <C>
Advisory Fees .55%
Distribution and service (12b-1) fees .30%
Other expenses .33%
Total annual fund operating expenses 1.18%
Fee waivers and expense reimbursements --
Net Expenses* 1.18%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may have to repay these waivers and reimbursements to BlackRock in the
following two years if the repayment can be made within these expense
limits.

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>
Service Shares $120 $375 $649 $1,432
</TABLE>

Fund Management
The fund is co-managed by William J. Wykle and Thomas Callan.

William J. Wykle, has been a Managing Director with BlackRock Financial Manage-
ment, Inc. since 1995 and an investment manager for PNC Bank from 1986 to 1995.
He has co-managed the fund since inception.

Thomas Callan, has been a Managing Director 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.

30
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For a Service Share Outstanding Throughout Each Period)

Small Cap Growth Equity Portfolio

<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 $ 23.43 $ 21.80 $ 15.02 $ 10.14 $ 10.47
-------- -------- -------- ------- -------
Income from investment
operations
Net investment income (0.14) (0.03) (0.06) (0.01) 0.01
Net gain (loss) on
investments (both
realized and
unrealized) (4.91) 3.15 6.84 4.89 (0.34)
-------- -------- -------- ------- -------
Total from investment
operations (5.05) 3.12 6.78 4.88 (0.33)
-------- -------- -------- ------- -------
Less distributions
Distributions from net
investment income - - - - - - - - - -
Distributions from
capital (0.02)
Distributions from net
realized capital gains (1.12) (1.49) - - - - - -
-------- -------- -------- ------- -------
Total distributions (1.14) (1.49) - - - - - -
-------- -------- -------- ------- -------
Net asset value at end of
period $ 17.24 $ 23.43 $ 21.80 $ 15.02 $ 10.14
======== ======== ======== ======= =======
Total return (22.40)% 15.54% 45.14% 48.13% (3.12)%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $141,470 $225,089 $158,901 $62,604 $22,648
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.17% 1.17% 1.16% 1.03% 0.71%
Before
advisory/administration
fee waivers 1.17% 1.17% 1.18% 1.16% 1.27%
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers (0.46)% (0.29)% (0.38)% (0.07)% 0.21%
Before
advisory/administration
fee waivers (0.46)% (0.29)% (0.40)% (0.20)% (0.34)%
Portfolio turnover rate 159% 82% 89% 74% 89%
</TABLE>
-----------------------------------------------
31
<PAGE>

BlackRock
[LOGO] International Equity
Portfolio

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

IMPORTANT DEFINITIONS

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, and
whose growth in revenue
is expected to continue
for an extended period.

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 manager
and his team also examine each company for financial soundness before deciding
to purchase its stock.

The manager, in an attempt to reduce portfolio risk, will diversify invest-
ments 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. From time to time the fund may
invest in the securities of issuers located in emerging market countries.

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 the growth potential.

32
<PAGE>

The fund's manager may, when consistent with the fund's investment objective,
use options or futures (commonly known as derivatives). The primary purpose of
using derivatives is to attempt to reduce risk to the fund as a whole (hedge)
but they may also be used to maintain liquidity, commit cash pending investment
or to increase returns. The fund may also use forward foreign currency exchange
contracts (obligations to buy or sell a currency at a set rate in the future)
to hedge against movements in the value of foreign currencies.

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

Key Risks

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.

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.

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.

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.

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.

The fund, like any business, could be affected if the computer systems on
which it relies do not properly process information begin-
34
<PAGE>

ning on January 1, 2000. While Year 2000 issues could have a negative effect on
the fund, BlackRock, the fund's investment adviser, 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 issuers 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.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Service Shares. 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 investments, past performance is not an indication of future results.

Best Quarter Q4 '98: 17.46%

Worst Quarter Q3 '98: -14.77%

The bar for 1993 is based upon performance for Institutional Shares of the
fund.

[BAR CHART APPEARS HERE]

93 94 95 96 97 98
------ ------ ------ ------ ------ ------
36.75% 0.04% 9.7% 6.14% 4.85% 15.11%

* For comparative purposes, the value of the index on 05/01/92 is used as the
beginning value on 04/27/92.
35
<PAGE>

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.

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

IMPORTANT DEFINITIONS

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

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

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

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

<TABLE>
<S> <C>
Advisory Fees .75%
Distribution and service (12b-1) fees .30%
Other expenses .36%
Total annual fund operating expenses 1.41%
Fee waivers and expense reimbursements* .05%
Net Expenses* 1.36%
* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock
in the following two years if the repayment can be made within these
expense limits. "Net Expenses" in the table have been restated to reflect
these waivers and reimbursements.
</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 (except for the waivers in the first year discussed above) 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>
Service Shares $138 $441 $766 $1,687
</TABLE>

Fund Management
The fund manager is Gordon Anderson, who has been Managing and Investment
Director of BlackRock International, Ltd. since 1996. His previous position
was Investment Director at Dunedin Fund Managers Ltd. He has been the fund
manager since 1996.

36
<PAGE>

Financial Highlights
The financial information in the table below shows
the fund's financial performance for the periods
indicated. 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 and assumes
that you have reinvested all dividends and distri-
butions. 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 a Service Share Outstanding Throughout Each Period)

International Equity Portfolio

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 $ 14.58 $ 13.37 $ 13.24 $ 13.41 $ 12.47
-------- -------- -------- -------- -------
Income from investment
operations
Net investment income 0.02 0.10 0.19 0.11 0.14
Net realized gain (loss) on
investments (both realized
and unrealized) (1.09) 1.76 0.78 0.16 1.14
-------- -------- -------- -------- -------
Total from investment
operations (1.07) 1.86 0.97 0.27 1.28
-------- -------- -------- -------- -------
Less distributions
Distributions from net
investment income (0.16) (0.24) (0.17) (0.08) (0.09)
Distributions from net
realized capital gains (0.20) (0.41) (0.67) (0.36) (0.25)
-------- -------- -------- -------- -------
Total distributions (0.36) (0.65) (0.84) (0.44) (0.34)
-------- -------- -------- -------- -------
Net asset value at end of
period $ 13.15 $ 14.58 $ 13.37 $ 13.24 $ 13.41
======== ======== ======== ======== =======
Total return (7.34)% 14.52% 7.71% 2.19% 10.36%
Ratios/Supplemental data
Net assets at end of period
(in thousands) $143,526 $199,939 $161,321 $106,045 $75,174
Ratios of expenses to
average net assets
After
advisory/administration fee
waivers 1.36% 1.36% 1.36% 1.25% 1.20%
Before
advisory/administration fee
waivers 1.41% 1.46% 1.47% 1.42% 1.39%
Ratios of net investment
income to average net
assets
After
advisory/administration fee
waivers 0.49% 0.42% 0.71% 1.16% 1.09%
Before
advisory/administration fee
waivers 0.44% 0.32% 0.60% 0.98% 0.90%
Portfolio turnover rate 57% 62% 70% 105% 37%
</TABLE>
-----------------------------------------------
37
<PAGE>

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, among
others: Argentina, Bra-
zil, Bulgaria, Chile,
China, Colombia, The
Czech Republic, Ecua-
dor, 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.

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, and
whose growth in revenue
is expected to continue
for an extended period.

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 total assets in the equity securities issued by these companies and nor-
mally invests at least 80% of its total assets in equity securities. The fund
primarily buys in 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 manager
and his team also examine each company for financial soundness before deciding
to purchase its stock.

The 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.

38
<PAGE>

The funds 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. 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.

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

Key Risks

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.

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.

39
<PAGE>

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

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.

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, the fund's investment adviser, is currently working to avoid such prob-
lems. 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 issuers whose securities the fund holds or securi-
ties markets generally.

40
<PAGE>

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

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Service Shares. 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 per-
formance. The chart and the table both assume reinvestment of dividends and
distributions. As with all such investments, past performance is not an indica-
tion of future results.

Best Quarter Q1 '97: 13.57%

Worst Quarter Q3 '98: -25.59%

The bar for 1993 is based upon performance for Institutional Shares of the
fund.

[BAR CHART APPEARS HERE]

95 96 97 98
------ ------ ------ ------
-12.88% 11.94% -9.33% -36.81%

* For comparative purposes, the value of the index on 07/01/94 is used as the
beginning value on 06/17/94.

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.

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

41
<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.

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

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

<TABLE>
<S> <C>
Advisory Fees 1.25%
Distribution and service (12b-1) fees .30%
Other expenses .61%
Total annual fund operating expenses 2.16%
Fee waivers and expense reimbursements* .08%
Net Expenses* 2.08%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits. "Net Expenses" in the table have been restated to reflect these
waivers and reimbursements.

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 (except for the waivers in the first year discussed above) 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>
Service Shares $211 $668 $1,152 .$2,487
</TABLE>

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

42
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For a Service Share Outstanding Throughout Each Period)

International Emerging Markets Portfolio

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 $ 9.63 $ 8.72 $ 8.18 $ 10.55 $10.00
------- ------- ------- ------- ------
Income from investment
operations
Net investment income 0.06 0.01 0.04 0.06 0.02
Net gain (loss) on
investments
(both realized and
unrealized) (5.16) 0.93 0.51 (2.15) 0.53
------- ------- ------- ------- ------
Total from investment
operations (5.10) 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 (0.14) - - (0.01) (0.19) - -
------- ------- ------- ------- ------
Total distributions (0.14) (.03) (0.01) (0.28) - -
------- ------- ------- ------- ------
Net asset value at end of
period $ 4.39 $ 9.63 $ 8.72 $ 8.18 $10.55
======= ======= ======= ======= ======
Total return (53.62)% 10.74% 6.61% (19.91)% 5.50%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $26,566 $66,064 $37,987 $15,020 $3,505
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 2.06% 2.08% 2.08% 2.06% 2.00%/2/
Before
advisory/administration
fee waivers 2.16% 2.17% 2.18% 2.30% 2.98%/2/
Ratios of net investment
income
to average net assets
After
advisory/administration
fee waivers 0.71% 0.09% 0.70% 1.72% 1.10%/2/
Before
advisory/administration
fee waivers 0.61% (0.01)% 0.60% 1.48% 0.12%/2/
Portfolio turnover rate 37% 33% 44% 75% 4%
</TABLE>
/1/Commencement of operations of share class.
-----------------------------------------------
/2/Annualized.
43
<PAGE>

BlackRock
[LOGO] International Small Cap Equity
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, amoung
others: Argentina, Bra-
zil, Bulgaria, Chile,
China, Colombia, The
Czech Republic, Ecua-
dor, 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 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 issuers 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 these compa-
nies and normally invests at least 80% of its total assets in equity securi-
ties. The manager may invest up to 20% of the portfolio in stocks of issuers
in emerging market countries. The fund primarily buys common stock but can
also invest in preferred stock and securities convertible into common and pre-
ferred securities.

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 manager
and his team also examine each company for financial soundness before deciding
to purchase its 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

44
<PAGE>

IMPORTANT DEFINITIONS

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, and
whose growth in revenue
is expected to continue
for an extended period.

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

The fund's manager may, when consistent with the fund's investment objective,
use options or futures (commonly known as derivatives). The primary purpose of
using derivatives is to attempt to reduce risk to the fund as a whole (hedge)
but they may also be used to maintain liquidity, commit cash pending investment
or to increase returns. The fund may also use forward foreign currency exchange
contracts (obligations to buy or sell a currency at a set rate in the future)
to hedge against movements in the value of foreign currencies.

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

Key Risks

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.

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 move-

45
<PAGE>

ments than comparable investments in U.S. companies. There is less government
regulation of foreign securities markets.

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

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, from time to time, invest more than 25% of its assets in 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 these countries 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
difficulty 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.

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

46
<PAGE>

loan. There is also the risk of delay in recovering the loaned securities and
of losing rights to the collateral if a borrower goes bankrupt.

The fund may, from time to time, engage in short term trading which could pro-
duce greater brokerage costs and taxable distributions to shareholders.

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.

47
<PAGE>

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Service Shares. 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-U.S. 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.

Best Quarter Q1 '98: 20.07%

Worst Quarter Q3 '98: -19.80%

[BAR CHART APPEARS HERE]

98
------
11.23%

As of 12/31/98
- ------------------------------------------------------------
A V E R A G E A N N U A L T O T A L R E T U R N S
- ------------------------------------------------------------
Since Inception
1 Year Inception Date
- ------------------------------------------------------------
International Small Cap 11.23% 4.18% 09/26/97
Salomon EMI Ex-U.S. 12.15% 0.51% N/A*
- ------------------------------------------------------------

* For comparative purposes, the value of the index on 10/01/97 is used as the
beginning value on 09/26/97.

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.

48
<PAGE>

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

IMPORTANT DEFINITIONS

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

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

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

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

<TABLE>
<S> <C>
Advisory Fees 1.00%
Distribution and service (12b-1) fees .30%
Other expenses 1.17%
Total annual fund operating expenses 2.47%
Fee waivers and expense reimbursements* .84%
Net Expenses* 1.63%
</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 (except for the waivers in the first year discussed above) and redemp-
tion 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>
Service Shares $166 $689 $1,240 $2,743
</TABLE>

49
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For a Service Share Outstanding Throughout Each Period)

International Small Cap Equity Portfolio

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 $9.94 $10.00
----- ------
Income from investment operations
Net investment income 0.02 - -
Net gain (loss) on investments (both
realized and unrealized) (0.35) (0.06)
----- ------
Total from investment operations (0.33) (0.06)
Less distributions
Distributions from net investment
income (0.05) - -
Distributions from net realized
capital gains - - - -
----- ------
Total distributions (0.05) - -
Net asset value at end of period $9.56 $ 9.94
===== ======
Total return (3.62)% (0.30)%
Ratios/Supplemental data
Net assets at end of period (in
thousands) $ 5 $ 10
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 1.62% 1.63%/2/
Before advisory/administration fee
waivers 2.47% 1.86%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 0.28% 1.42%/2/
Before advisory/administration fee
waivers (0.57)% 1.19%/2/
Portfolio turnover rate 76% 0%
- ------------------------------------------------------------------------
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized.

50
<PAGE>

BlackRock
[LOGO] Select Equity
Portfolio

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

IMPORTANT DEFINITIONS

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

Value and Growth Compa-
nies: 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, and
whose growth in revenue
is expected to continue
for an extended period.

Investment Goal
The fund seeks long-term capital appreciation--current income is the secondary
objective.

51
<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 made.

Key Risks

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.

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, the fund's investment adviser, is currently working to avoid such prob-
lems. 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 issuers whose securities the fund holds or securi-
ties markets generally.

52
<PAGE>

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

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Service Shares. 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 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.

Best Quarter Q4 '98: 20.78%

Worst Quarter Q3 '98: -11.42%

[BAR CHART APPEARS HERE]

94 95 96 97 98
------ ------ ------ ------ ------
-1.49% 32.79% 23.4% 31.11% 24.27%

* For comparative purposes, the value of the index on 09/01/93 is used as the
beginning value on 09/15/93.
53
<PAGE>

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.

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

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.

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

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

<TABLE>
<S> <C>
Advisory Fees .54%
Distribution and service (12b-1) fees .30%
Other expenses .32%
Total annual fund operating expenses 1.16%
Fee waivers and expense reimbursements --
Net expenses* 1.16%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits.

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>
Service Shares $118 $368 $638 $1,409
</TABLE>

54
<PAGE>

Financial Highlights
The financial information in the table below shows
the fund's financial performance for the periods
indicated. 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 and assumes
that you have reinvested all dividends and distri-
butions. 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 a Service Share Outstanding Throughout Each Period)

Select Equity Portfolio

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 $ 17.50 $ 13.56 $ 11.88 $ 9.92 $ 9.97
-------- -------- -------- ------- -------
Income from investment
operations
Net investment income 0.12 0.11 0.17 0.22 0.19
Net gain (loss) on investments
(both realized and
unrealized) 0.48 5.18 2.07 2.05 (0.04)
-------- -------- -------- ------- -------
Total from investment
operations 0.60 5.29 2.24 2.27 0.15
-------- -------- -------- ------- -------
Less distributions
Distributions from net
investment income (0.10) (0.14) (0.17) (0.19) (0.20)
Distributions from net
realized capital gains (1.00) (1.21) (0.39) (0.12) - -
-------- -------- -------- ------- -------
Total distributions (1.10) (1.35) (0.56) (0.31) (0.20)
-------- -------- -------- ------- -------
Net asset value at end of
period $ 17.00 $ 17.50 $ 13.56 $ 11.88 $ 9.92
======== ======== ======== ======= =======
Total return 3.77% 42.12% 19.43% 23.43% 1.55%
Ratios/Supplemental data
Net assets at end of period
(in thousands) $203,754 $174,418 $113,777 $83,705 $49,293
Ratios of expenses to average
net assets
After advisory/administration
fee waivers 1.16% 1.09% 1.04% 0.95% 0.90%
Before advisory/administration
fee waivers 1.16% 1.16% 1.17% 1.13% 1.18%
Ratios of net investment
income to average net assets
After advisory/administration
fee waivers 0.63% 0.93% 1.41% 2.10% 1.96%
Before advisory/administration
fee waivers 0.63% 0.86% 1.28% 1.91% 1.68%
Portfolio turnover rate 27% 29% 55% 51% 88%
</TABLE>

55
<PAGE>

BlackRock
[LOGO] Index Equity
Portfolio

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

IMPORTANT DEFINITIONS

Investment Goal
The fund seeks long-term capital appreciation.

The Index Master Portfolio may invest some of its assets (generally not more
than 5% of net assets) in certain short-term fixed income securities pending
investments or to pay redeeming shareholders.

56
<PAGE>

Key Risks

The Index Master Portfolio's use of derivatives 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, 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, the
funds investment adviser, is currently working to avoid such problems. Black-
Rock 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 issuers whose securities the fund and the Index Master Portfolio
hold 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.

57
<PAGE>

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Services Shares. 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 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.

[BAR CHART APPEARS HERE]

Best Quarter Q4 '98: 21.22%

Worst Quarter Q3 '98: -9.94%

The bar for 1993 is based upon performance for Institutional Shares of the fund.

[BAR CHART APPEARS HERE]

93 94 95 96 97 98
------ ------ ------ ------ ------ ------
9.44% 0.57% 36.70% 21.99% 32.53% 28.15%

* For comparative purposes, the value of the index on 05/01/92 is used as the
beginning value on 04/20/92.

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.

58
<PAGE>

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

IMPORTANT DEFINITIONS

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

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

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

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

<TABLE>
<S> <C>
Advisory Fees .025%
Distribution and service (12b-1) fees .30%
Other expenses .315%
Total annual fund operating expenses .64%
Fee waivers and expense reimbursements** .16%
Net Expenses** .48%
</TABLE>
* The Annual Fund Operating Expenses table and the Example reflect the
expenses of both the Index Equity and Index Master Portfolios.
** BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may have to repay these waivers and reimbursements to BlackRock in the
following two years if the repayment can be made within these expense lim-
its. "Net Expenses" in the table have been restated to reflect these waivers
and reimbursements.

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 (except for the waivers in the first year discussed above) and redemp-
tion 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>
Service Shares $49 $189 $341 $783
</TABLE>

59
<PAGE>

Financial Highlights
The financial information in the table below shows
the fund's financial performance for the periods
indicated. 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 and assumes
that you have reinvested all dividends and distri-
butions. 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 a Service Share Outstanding Throughout Each Period)

Index Equity Portfolio

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 $ 18.32 $ 13.97 $ 13.58 $ 10.93 $ 11.02
-------- -------- -------- ------- -------
Income from investment
operations
Net investment income 0.22 0.23 0.29 0.35 0.29
Net gain (loss) on
investments (both
realized and
unrealized) 1.34 5.01 2.10 2.73 0.02
-------- -------- -------- ------- -------
Total from investment
operations 1.56 5.24 2.39 3.08 0.31
-------- -------- -------- ------- -------
Less distributions
Distributions from net
investment income (0.20) (0.21) (0.30) (0.31) (0.29)
Distributions from net
realized capital gains (0.04) (0.68) (1.70) (0.12) (0.11)
-------- -------- -------- ------- -------
Total distributions (0.24) (0.89) (2.00) (0.43) (0.40)
-------- -------- -------- ------- -------
Net asset value at end of
period $ 19.64 $ 18.32 $ 13.97 $ 13.58 $ 10.93
======== ======== ======== ======= =======
Total return 8.54% 39.58% 19.45% 28.99% 2.78%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $233,696 $193,319 $103,080 $61,536 $27,376
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.48% 0.48% 0.48% 0.45% 0.40%
Before
advisory/administration
fee waivers 0.64%/1/ 0.68%/1/ 0.80%/1/ 0.79% 0.77%
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 1.09% 1.41% 1.98% 2.62% 2.49%
Before
advisory/administration
fee waivers 0.93% 1.21% 1.67% 2.28% 2.12%
Portfolio turnover rate __ /3/ -- /3/ 18%/2/,/3/ 18% 17%
- ---------------------------------------------------------------------------------------
</TABLE>
/1/Including expenses allocated from The U.S. Large Company Series of The DFA
Investment Trust Company of 0.06% for the year ended 9/30/98, 0.07% for the
year ended 9/30/97 and 0.12% for the year ended 9/30/96.
/2/For the period from October 1, 1995 through May 31, 1996.
/3/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 and
September 30, 1998.

60
<PAGE>

BlackRock
[LOGO] Balanced
Portfolio

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

IMPORTANT DEFINITIONS

Asset-Backed Securi-
ties: Bonds that are
backed by a pool of
assets, usually loans
such as installment
sale contracts or
credit card receiv-
ables.

Investment Style:
Refers to the guiding
principle of a mutual
fund's investment
choices. The investment
style of this fund is
balanced, meaning that
the managers will
choose both equity and
fixed income securities
for this fund.

Large Capitalization
Companies: Capitaliza-
tion refers to the mar-
ket value of the com-
pany and is calculated
by multiplying the num-
ber of shares outstand-
ing by the current
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.

Equity Portion
The equity portion of the fund 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 primarily in common
stock but can also invest in preferred stock and securities convertible into
common stock.

61
<PAGE>

IMPORTANT DEFINITIONS

Value and Growth Compa-
nies: All stocks are
generally divided into
the categories 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
undervalued by the mar-
ket as measured by cer-
tain financial formu-
las. Growth stocks are
companies whose earn-
ings 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.

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

Key Risks
The value of your investment can go up or down depending upon market condi-
tions, which means you could lose money.

The main risk of any investment in stocks is that values fluctuate in price.

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.

62
<PAGE>

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

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.

63
<PAGE>

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Service Shares. 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 both the S&P 500
Index and a customized weighted index comprised of the returns of the S&P 500
Index (60%) and the Lehman Aggregate Index (40%), recognized unmanaged indices
of stock and bond market performance, respectively. 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.

The performance for the period before Service Shares were launched in July 1993
is based upon performance for Investor A Shares of the fund.

[BAR CHART APPEARS HERE]

Best Quarter Q4 '98: 13.25%

Worst Quarter Q3 '98: -4.83%

The bars for 1991-1993 are based upon performance for Investor A Shares of the
Fund.

[BAR CHART APPEARS HERE]

91 92 93 94 95 96 97 98
------ ------ ------ ------ ------ ------ ------ ------
22.45% 11.82% 11.72% -3.39% 27.27% 15.19% 23.47% 21.58%

* For comparative purposes, the value of the indexes on 05/01/90 are used as
the beginning values on 05/14/90.

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.

64
<PAGE>

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

IMPORTANT DEFINITIONS

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

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

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

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

<TABLE>
<S> <C>
Advisory Fees .55%
Distribution and service (12b-1) fees .30%
Other expenses .35%
Total annual fund operating expenses 1.20%
Fee waivers and expense reimbursements --
Net Expenses* 1.20%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may have to repay these waivers and reimbursements to BlackRock in the
following two years if the repayment can be made within these expense lim-
its.

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>
Service Shares $122 $381 $660 $1,455
</TABLE>

Fund Management
The portfolio manager for the equity portion of the fund is R. Andrew Damm who
has served as a Managing Director 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
been co-manager of the fund since 1996.

65
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For a Service Share Outstanding Throughout Each Period)

Balanced Portfolio

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 $ 18.21 $ 15.09 $ 13.72 $ 11.98 $ 12.42
-------- -------- -------- ------- -------
Income from investment
operations
Net investment income 0.42 0.45 0.42 0.44 0.34
Net realized gain (loss) on
investments (both realized
and unrealized) 1.34 3.64 1.49 1.88 (0.38)
-------- -------- -------- ------- -------
Total from investment
operations 1.76 4.09 1.91 2.32 (0.04)
-------- -------- -------- ------- -------
Less distributions
Distributions from net
investment income (0.38) (0.45) (0.41) (0.44) (0.34)
Distributions from net
realized capital gains (1.25) (0.52) (0.13) (0.14) (0.06)
-------- -------- -------- ------- -------
Total distributions (1.63) (0.97) (0.54) (0.58) (0.40)
-------- -------- -------- ------- -------
Net asset value at end of
period $ 18.34 $ 18.21 $ 15.09 $ 13.72 $ 11.98
======== ======== ======== ======= =======
Total return 10.43% 28.07% 14.11% 19.94% (0.36)%
Ratios/Supplemental data
Net assets at end of period
(in thousands) $176,557 $176,232 $134,121 $85,668 $66,024
Ratios of expenses to average
net assets
After advisory/administration
fee waivers 1.20% 1.14% 1.09% 0.94% 0.90%
Before
advisory/administration fee
waivers 1.20% 1.20% 1.20% 1.16% 1.16%
Ratios of net investment
income to average net assets
After advisory/administration
fee waivers 2.22% 2.68% 2.87% 3.49% 2.96%
Before
advisory/administration fee
waivers 2.22% 2.62% 2.76% 3.28% 2.70%
Portfolio turnover rate 134% 173% 275% 154% 54%
</TABLE>

66
<PAGE>

BlackRock
[LOGO] Micro-Cap Equity
Portfolio

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

IMPORTANT DEFINITIONS

Earnings Growth: The
increased rate of
growth in a companies
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.

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.

67
<PAGE>

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.

used to maintain liquidity, commit cash pending investment or to increase
returns.

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

Key Risks

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.

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 use of derivatives may reduce returns and/or increase volatility.
Volatility is defined as the characteristic of a security

68
<PAGE>

or a market to fluctuate significantly in price within a short time period.

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

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

Expenses and Fees

Expenses and Fees
As a shareholder you pay certain fees and expenses. Annual fund operating
expenses are paid out of fund assets 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 Service Shares of the fund. The table is based on expenses for the most
recent fiscal year.

IMPORTANT DEFINITIONS

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

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

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

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

<TABLE>
<S> <C>
Advisory Fees 1.10%
Distribution and service (12b-1) fees .30%
Other expenses* 1.63%
Total annual fund operating expenses 3.03%
Fee waivers and expense reimbursements** 1.28%
Net expenses** 1.75%
</TABLE>

* "Other Expenses" are based on estimated amounts for the current fiscal year.
** BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may have to repay these waivers and reimbursements to BlackRock in the
following two years if the repayment can be made within these expense
limits. "Net Expenses" in the table have been restated to reflect these
waivers and reimbursements.

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

69
<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 (except for the waivers in the first year discussed above) and
redemption at the end of each time period. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:

<TABLE>
<CAPTION>
1 Year 3 Years
<S> <C> <C>
Service Shares $178 $816
</TABLE>

Fund Management
The Micro-Cap management team is headed by William J. Wykle, Managing Director
at BlackRock Financial Management, Inc. since 1995. Mr. Wykle was an invest-
ment 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 a Managing
Director 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.

70
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For a Service Share Outstanding Throughout Each Period)

Micro-Cap Equity Portfolio

For the
Period
5/01/98/1/
through
9/30/98
<S> <C>
Net asset value at beginning of period $10.00
------
Income from investment operations
Net investment income (0.02)
Net gain (loss) on investments (both
realized and unrealized) (0.60)
------
Total from investment operations (0.62)
------
Less distributions
Distributions from net investment income - -
Distributions from net realized capital
gains - -
------
Total distributions - -
------
Net asset value at end of period $ 9.38
======
Total return (6.10)%
Ratios/Supplemental data
Net assets at end of period (in
thousands) $ 69
Ratios of expenses to average net assets
After advisory/administration fee
waivers 1.68%/2/
Before advisory/administration fee
waivers 3.01%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers (0.61)%/2/
Before advisory/administration fee
waivers (1.94)%/2/
Portfolio turnover rate 119%
</TABLE>
- --------------------------------------
/1/Commencement of operations of share class.
/2/Annualized.
71
<PAGE>

About Your Investment
[LOGO]

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Buying Shares

Service Shares are offered without a sales charge to financial institutions
(such as banks and brokerage firms) acting on behalf of their customers, cer-
tain persons who were shareholders of the Compass Capital Group of Funds at
the time of its combination with The PNC(R) Fund in 1996 and investors that
participate in the Capital Directions SM asset allocation program. Service
Shares will normally be held by institutions or in the name of nominees of
institutions on behalf of their customers. Service Shares are normally pur-
chased through a customer's account at an institution through procedures
established by the institution. In these cases, confirmation of share pur-
chases 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, by
calling (800) 441-7450.

- -------------------------------------------------------------------------------
What Price Per Share Will You Pay?

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.

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

72
<PAGE>

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

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

- -------------------------------------------------------------------------------
Paying for Shares

Payment for Service Shares must normally be made in Federal funds or other
funds immediately available 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.

- -------------------------------------------------------------------------------
How Much is the Minimum Investment?

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

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

- -------------------------------------------------------------------------------
Distribution and Service Plan

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

73
<PAGE>

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

tain 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 aver-
age daily net asset value of Service 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 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.

Because the fees paid by the Company under the Plan are paid out of Company
assets on an on-going basis, over time these fees

74
<PAGE>

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

will increase the cost of your investment and may cost you more than paying
other types of sales charges.

- --------------------------------------------------------------------------------
Master-Feeder
Structure

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 notice
to the Index Master Portfolio if the Board of Trustees of the Company deter-
mines 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.

- --------------------------------------------------------------------------------
Selling Shares

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

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

Payment for redeemed shares for which a redemption order is received by PFPC
before 4 p.m. (Eastern time) on a business day is normally made in Federal
funds wired to the redeeming institution

75
<PAGE>

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

on the next business day, provided that the funds' custodian is also open for
business. Payment for redemption orders received after 4 p.m. (Eastern time)
or on a day when the funds' custodian is closed is normally wired in Federal
funds on the next business day following redemption on which the funds' custo-
dian is open for business. The funds reserve the right to wire redemption pro-
ceeds within seven days after receiving a redemption order if, in the judge-
ment 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 serv-
ices. Information relating to such redemption services and charges, if any,
should be obtained by customers from their institutions.

Persons who were shareholders of the Compass Capital Group of Funds at the
time of its combination with the PNC(R) Fund may redeem for cash some or all
of their shares of a fund at any time by sending a written redemption request
in proper form to BlackRock Funds, c/o PFPC Inc., P.O. Box 8950, Wilmington,
DE 19899-8950. They may also redeem shares by telephone if they have signed up
for the expedited redemption privilege.

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

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

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

Persons who were shareholders of an investment portfolio of the Compass Capi-
tal 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

76
<PAGE>

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

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.

- --------------------------------------------------------------------------------
The Company's Rights

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.

- --------------------------------------------------------------------------------
Accounts with Low Balances

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.

77
<PAGE>

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

BlackRock Funds' Adviser is BlackRock Advisors, Inc. (BlackRock). BlackRock was
organized in 1994 to perform advisory services for investment companies and is
located at 345 Park Avenue, New York, NY 10154. BlackRock is a 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 affil-
iate 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.
As of November 30, 1998, DFA had over $26 billion in assets under management.

For the fiscal year ended November 30, 1998, the Index Master Portfolio paid
DFA an aggregate advisory fee of .025% of average daily net assets.

The maximum annual advisory fees that can be paid to BlackRock (as a percent-
age of average daily net assets) are as follows:

78
<PAGE>

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

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.

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>
AVERAGE DAILY NET INVESTMENT
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>
AVERAGE DAILY NET INVESTMENT
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>

Maximum Annual Contractual Advisory Fee Rate for the International Equity
Portfolio (Before Waivers)

<TABLE>
<CAPTION>
AVERAGE DAILY NET INVESTMENT
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 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>

79
<PAGE>

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

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 Index Master Portfolio pays DFA a maximum annual advisory fee of .025% of
its average daily net assets.

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
management and currently manages money for over half of the Fortune 100,
including seven out of ten of the largest Fortune 100 companies.

Information about the portfolio manager for each of the funds is presented in
the appropriate fund section.

BlackRock and the Company have entered into an expense limitation agreement.
The agreement sets a limit on certain of the operating expenses of each fund
for the next year and requires BlackRock to waive or reimburse fees or
expenses if these operating expenses exceed that limit. These expense limits
(which apply to expenses charged on fund assets as a whole, but not expenses
separately charged to the different share classes of a fund) as a percentage
of average daily net assets are:

80
<PAGE>

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

If in the following two years the operating expenses of a fund that previously
receive a waiver or reimbursement from BlackRock are less than the expense
limit for that fund, the fund is required to repay BlackRock up to the amount
of fees waived or expenses reimbursed under the agreement if: (1) the fund has
more than $50 million in assets, (2) BlackRock continues to be the fund's
investment adviser and (3) the Board of Trustees of the Company has approved
the payments to BlackRock on a quarterly basis.

- --------------------------------------------------------------------------------
Dividends and Distributions

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

Dividends are the net investment income derived by 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.

The Index Equity Portfolio seeks its investment objective by investing all of
its assets in the Index Master Portfolio (which is taxable as a partnership for
federal income tax purposes). The Index Equity Portfolio is allocated its dis-
tributive share of the income, gains (including capital gains), losses, deduc-
tions and credits of the Index Master Portfolio. The Index Equity Portfolio's
distributive share of such items, plus gain, if any, on the redemption of
shares of the Index Master Portfolio, less the Index Equity Portfolio's
expenses incurred in operations will constitute the Index Equity Portfolio's
net income from which dividends are distributed as described above.

81
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Taxation of Distributions

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

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

82
<PAGE>

[This page intentionally left blank]

<PAGE>

[This page intentionally left blank]

<PAGE>

Annual/Semi-Annual Report
These reports contain additional information about each of the funds'
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 28, 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) 441-7450. The SAI, as supplemented from time to time, is incorporated by
reference into this Prospectus.

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

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]

Written Correspondence
Post Office Address: BlackRock Funds c/o PFPC Inc., P.O. Box 8907, Wilmington,
DE 19899-8950
Street Address: BlackRock Funds, c/o PFPC Inc., 400 Bellevue Parkway, Wilmington
DE 19809

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

INVESTMENT COMPANY ACT FILE NO. 811-05742

[LOGO] BLACKROCK
FUNDS

<PAGE>

497(C)
File No. 33-26305

[GRAPHIC APPEARS HERE]

NOT FDIC-INSURED

- ------------------
May lose value
No bank guarantee
- ------------------

Equity Portfolios
================================================================================
INSTITUTIONAL SHARES

BlackRock Funds/sm/ is a mutual fund family with 36 investment portfolios, 13 of
which are described in this prospectus.

PROSPECTUS

January 28, 1999

[LOGO OF BLACKROCK FUNDS APPEARS HERE]

<PAGE>

Table of
Contents

<TABLE>
<S> <C>
How to find the information you need........................................ 1
THE BLACKROCK EQUITY FUNDS
Large Cap Value............................................................. 2
Large Cap Growth............................................................ 7
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............................................................... 51
Index Equity................................................................ 56
Balanced.................................................................... 61
Micro-Cap................................................................... 67
About Your
Investment
How to Buy/Sell Shares...................................................... 72
Dividends/Distribution/Taxes................................................ 79
</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).

BlackRock
[LOGO] Large Cap Value Equity
Portfolio

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

IMPORTANT DEFINITIONS

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, and
whose growth in revenue
is expected to continue
for an extended period.

Investment Goal
The fund seeks long-term capital appreciation--current income is the secondary
objective.

used to maintain liquidity, commit cash pending investment or to increase
returns.

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

Key Risks

While the fund manager chooses 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>

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.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Institutional Shares. 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 per-
formance. The chart and the table both assume reinvestment of dividends and
distributions. As with all such investments, past performance is not an indica-
tion of future results.

[BAR CHART APPEARS HERE]

As of 12/31
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------

Best Quarter 1993 18.00%
Q4 '98: 16.07% 1994 1.10%
1995 34.86%
Worst Quarter 1996 24.20%
Q3 '98: -14.15% 1997 28.65%
1998 10.48%

* For comparative purposes, the value of the index on 05/01/92 is used as the
beginning value on 04/20/92.

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 Institutional 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 .53%
Other expenses .31%
Total annual fund operating expenses .84%
Fee waivers and expense reimbursements --
Net Expenses* .84%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may have to repay these waivers and reimbursements to BlackRock in the
following two years if the repayment can be made within these expense lim-
its.

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

<S> <C> <C> <C> <C>
Institutional Shares $86 $268 $466 $1,037
</TABLE>

IMPORTANT DEFINITIONS

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

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

5
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Institutional Share Outstanding Throughout Each Period)

Large Cap Value Equity Portfolio

<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
Net asset value at begin-
ning of period $ 17.53 $ 15.35 $ 13.92 $ 11.62 $ 11.68
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income from investment
operations
Net investment income 0.22 0.31 0.35 0.34 0.27
Net gain (loss) on
investments (both
realized and
unrealized) (0.58) 4.69 2.41 2.54 0.16
---------- -------- -------- -------- --------
Total from investment
operations (0.36) 5.00 2.76 2.88 0.43
---------- -------- -------- -------- --------
Less distributions
Distributions from net
investment income (0.23) (0.30) (0.36) (0.33) (0.27)
Distributions from net
realized capital gains (2.25) (2.52) (0.97) (0.25) (0.22)
---------- -------- -------- -------- --------
Total distributions (2.48) (2.82) (1.33) (0.58) (0.49)
---------- -------- -------- -------- --------
Net asset value at end of
period $ 14.69 $ 17.53 $ 15.35 $ 13.92 $ 11.62
========== ======== ======== ======== ========
Total return (2.27)% 37.66% 21.01% 25.73% 3.76%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $1,841,171 $743,405 $731,024 $508,273 $577,996
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.83% 0.78% 0.75% 0.67% 0.65%
Before
advisory/administration
fee waivers 0.84% 0.85% 0.84% 0.81% 0.81%
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 1.45% 1.94% 2.40% 2.68% 2.44%
Before
advisory/administration
fee waivers 1.44% 1.87% 2.32% 2.53% 2.28%
Portfolio turnover rate 33% 37% 60% 12% 11%
</TABLE>
-----------------------------------------------
6
<PAGE>

BlackRock
[LOGO] Large Cap Growth Equity
Portfolio

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

Investment Goal
The fund seeks long-term capital appreciation.

IMPORTANT DEFINITIONS

Earnings Growth: The
increased rate of
growth in a company's
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: A
security, such as
stock, representing
ownership of a company.
Bonds, in comparison,
are referred to as
fixed income or debt
securities because they
represent indebtedness
to the bondholders, not
ownership.
Fundamental Analysis: A
method of stock market
analysis that concen-
trates on "fundamental"
information about the
company such (as its
income statement, bal-
ance sheet, earnings
and sales history,
products and manage-
ment) to attempt to
forecast future stock
value.
Growth Companies: All
stocks are generally
divided into the cate-
gories of "growth" or
"value," although there
are times when a growth
fund and value fund may
own the same stock.
Growth stocks are com-
panies whose earnings
growth potential
appears to the manager
to be greater than the
market in general and
whose 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 investment
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.
Large Capitalization
Companies: The fund
defines these companies
as those with capital-
ization over $10 bil-
lion. Capitalization
refers to the market
value of the company
and is calculated by
multiplying the number
of shares outstanding
by the current price
per share. Larger com-
panies 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 made.

Key Risks

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

The fund sometimes may 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, the fund's investment advisor, is currently working to avoid such prob-
lems. 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 issuers whose securities the fund holds or securi-
ties markets generally.

8
<PAGE>

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

Risk/Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Insititutional Shares. The information shows you how the fund's per-
formance 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 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.

As of 12/31
- ------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- ------------------------------------------------------------------------------
Best Quarter
Q4 '98: 26.28%

Worst Quarter
Q3 '98: -9.93%

90 91 92 93 94 95 96 97 98
------ ------ ------ ------ ------- ------ ------ ------ -----
-2.05% 26.01% -1.00% 13.69% -10.07% 34.44% 20.35% 28.42% 41.31%

<PAGE>
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.

The table below describes the fees and expenses that you may pay if you buy
and hold Institutional 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 .55%
Other Expenses .32%
Total annual fund operating expenses .87%
Fee waivers and expense reimbursements --
Net Expenses* .87%
</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>
Institutional Shares $89 $278 $482 $1,073
</TABLE>

IMPORTANT DEFINITIONS

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

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

10
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Institutional Share Outstanding Throughout Each Period)

Large Cap Growth Equity Portfolio

<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 $ 18.92 $ 14.96 $ 13.03 $ 10.19 $ 11.58
-------- -------- -------- -------- -------
Income from investment opera-
tions
Net investment income 0.03 0.09 0.08 0.13 0.06
Net gain (loss) on
investments
(both realized and
unrealized) 1.85 4.72 2.29 2.88 (1.34)
-------- -------- -------- -------- -------
Total from investment opera-
tions 1.88 4.81 2.37 3.01 (1.28)
-------- -------- -------- -------- -------
Less distributions
Distributions from net
investment income (0.02) (0.11) (0.06) (0.17) (0.01)
Distributions from net real-
ized capital gains (2.64) (0.74) (0.38) - - (0.10)
-------- -------- -------- -------- -------
Total distributions (2.66) (0.85) (0.44) (0.17) (0.11)
-------- -------- -------- -------- -------
Net asset value at end of
period $ 18.14 $ 18.92 $ 14.96 $ 13.03 $ 10.19
======== ======== ======== ======== =======
Total return 11.76% 33.69% 18.67% 29.88% (11.14)%
Ratios/Supplemental data
Net assets at end of period
(in thousands) $922,896 $482,851 $481,171 $211,543 $97,834
Ratios of expenses to average
net assets
After advisory/administration
fee waivers 0.86% 0.79% 0.75% 0.67% 0.65%
Before
advisory/administration fee
waivers 0.86% 0.86% 0.86% 0.85% 0.89%
Ratios of net investment
income to average net assets
After advisory/administration
fee waivers 0.18% 0.54% 0.63% 1.20% 0.62%
Before
advisory/administration fee
waivers 0.18% 0.47% 0.51% 1.01% 0.38%
Portfolio turnover rate 54% 81% 58% 55% 212%
-------------------------------------------------
</TABLE>
11
<PAGE>

[LOGO] BlackRock
Mid-Cap Value Equity
Portfolio

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

Investment Goal
The fund seeks long-term capital appreciation--current income is the secondary
objective.

IMPORTANT DEFINITIONS

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, and
whose growth in revenue
is expected to continue
for an extended period.

12
<PAGE>
may also be used to maintain liquidity, commit cash pending investment or to
increase returns.

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

Key Risks

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

The fund's uses of derivatives may reduce returns and/or increase volatility.
Volatility is defined as the characteristic of a security or a market to fluc-
tuate significantly in price within a short time period.

The fund may sometimes engage in short term trading which could produce greater
brokerage costs and taxable distributions to shareholders.
13
<PAGE>

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

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Institutional Shares. The information shows you how the fund's per-
formance 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 per-
formance. The chart and the table both assume reinvestment of dividends and
distributions. As with all such investments, past performance is not an indica-
tion of future results.

[BAR CHART APPEARS HERE]

As of 12/31
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------

Best Quarter 1997 28.57%
Q4 '98: 13.69% 1998 -1.46%

Worst Quarter
Q3 '98: -17.30%

As or 12/31/98
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
Since Inception
1 Years Inception Date
- --------------------------------------------------------------------------------
Mid Cap Value -1.46% 12.48% 12/27/96
Russell Mid Cap Value 5.08% 20.18% N/A*

* For comparative purposes, the value of the index on 01/01/97 is used as the
beginning value on 12/27/96.

14
<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.

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.

The table below describes the fees and expenses that you may pay if you buy and
hold Institutional 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 .80%
Other expenses .40%
Total annual fund operating expenses 1.20%
Fee waivers and expense reimbursements* .06%
Net Expenses* 1.14%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits. "Net Expenses" in the table have been restated to reflect these
waivers and reimbursements.

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 (except for the waivers in the first year discussed above) and redemp-
tion 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>
Institutional Shares $116 $375 $654 $1,449
</TABLE>

Fund Management
The fund is co-managed by Christian K. Stadlinger and Daniel B. Eagan.

Daniel B. Eagan, has been co-manager of the fund since inception. Mr. Eagan is
a Managing Director with BlackRock Financial Management, Inc. since 1995. He
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
- --------------------------------------------------------------------------------
(For an Institutional Share Outstanding Throughout Each Period)

Mid-Cap Value
<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 $ 12.80 $ 10.00
-------- --------
Income from investment operations
Net investment income 0.10 0.10
Net gain (loss) on investments
(both realized and unrealized) (1.81) 2.80
-------- --------
Total from investment operations (1.71) 2.90
-------- --------
Less distributions
Distributions from net investment
income (0.10) (0.10)
Distributions from net realized cap-
ital gains (0.36) - -
-------- --------
Total distributions (0.46) (0.10)
-------- --------
Net asset value at end of period $ 10.63 $ 12.80
======== ========
Total return (13.68)% 29.11%
Ratios/Supplemental data
Net assets at end of period (in
thousands) $205,634 $106,886
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 1.14% 1.15%/2/
Before advisory/administration fee
waivers 1.20% 1.19%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 0.89% 1.33%/2/
Before advisory/administration fee
waivers 0.83% 1.29%/2/
Portfolio turnover rate 71% 36%

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

BlackRock
[LOGO] Mid-Cap Growth Equity
Portfolio

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

IMPORTANT DEFINITIONS
Earnings Growth: The
increased rate of
growth in a company's
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: A
security, such as
stock, representing
ownership of a company.
Bonds, in comparison,
are referred to as
fixed income or debt
securities because they
represent indebtedness
to the 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.
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 investment
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.
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 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 made.

Key Risks

There is more business risk in investing in mid-capitalization 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's use of derivatives 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 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, the fund's investment adviser, is currently working to avoid such prob-
lems. 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

18
<PAGE>

properly on January 1, 2000. Year 2000 problems may also hurt issuers 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.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Institutional Shares. The information shows you how the fund's per-
formance 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 per-
formance. The chart and the table both assume reinvestment of dividends and
distributions. As with all such investments, past performance is not an indica-
tion of future results.

[BAR CHART APPEARS HERE]

As of 12/31
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------

Best Quarter 1997 14.75%
Q4 '98: 25.63% 1998 22.33%

Worst Quarter
Q3 '98: -14.59%

* For comparative purposes, the value of the index on 01/01/97 is used as the
beginning value on 12/27/96.
19
<PAGE>
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.

The table describes the fees and expenses that you may pay if you buy and hold
Institutional 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 .80%
Other expenses .40%
Total annual fund operating expenses 1.20%
Fee waivers and expense reimbursements* .06%
Net Expenses* 1.14%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may have to repay these waivers and reimbursements to BlackRock in the
following two years if the repayment can be made within these expense lim-
its. "Net expenses" in the table have been restated to reflect these waivers
and reimbursements.

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 (except for the waivers in the first year discussed above) and redemp-
tion 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>
Institutional Shares $116 $375 $654 $1,449
</TABLE>

Fund Management
The fund is co-managed by William J. Wykle and Thomas Callan.

William J. Wykle has been a Managing Director 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.

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

20
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Institutional Share Outstanding Throughout Each Period)

Mid-Cap Growth Equity Portfolio

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 $ 12.20 $ 10.00
-------- --------
Income from investment operations
Net investment income (0.02) (0.01)
Net gain (loss) on investments
(both realized and unrealized) (0.96) 2.21
-------- --------
Total from investment operations (0.98) 2.20
-------- --------
Less distributions
Distributions from net investment
income - - - -
Distributions from capital (0.01) - -
Distributions from net realized cap-
ital gains (0.09) - -
-------- --------
Total distributions (.10) - -
-------- --------
Net asset value at end of period $ 11.12 $ 12.20
======== ========
Total return (8.05)% 22.00%
Ratios/Supplemental data
Net assets at end of period (in
thousands) $220,903 $107,709
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 1.14% 1.13%/2/
Before advisory/administration fee
waivers 1.20% 1.17%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers (0.37)% (0.16)%/2/
Before advisory/administration fee
waivers (0.43)% (0.20)%/2/
Portfolio turnover rate 204% 64%
</TABLE>

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

[LOGO] BlackRock
Small Cap Value Equity
Portfolio

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

Investment Goal
The fund seeks long-term capital appreciation.

IMPORTANT DEFINITIONS

22
<PAGE>

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.

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

Key Risks

The 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.

issuers 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.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Institutional Shares. The information shows you how the fund's per-
formance 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 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.

[BAR CHART APPEARS HERE]

As of 12/31
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------

Best Quarter 1993 18.66%
Q2 '97: 18.59% 1994 -0.48%
1995 23.15%
Worst Quarter 1996 19.86%
Q3 '98: -19.53% 1997 35.74%
1998 -6.22%

*For comparative purposes, the value of the index on 04/01/92 is used as the
beginning value on 04/13/92.

24
<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.

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.

The table describes the fees and expenses that you may pay if you buy and hold
Institutional 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 .55%
Other expenses .33%
Total annual fund operating expenses .88%
Fee waivers and expense reimbursements --
Net Expenses* .88%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may have to repay theses waivers and reimbursements to BlackRock in the
following two years if the repayment can be made within theses expenses lim-
its.

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>
Institutional Shares $90 $281 $488 $1,084
</TABLE>

Fund Management
The manager of the fund is Christian K. Stadlinger. He has been a Managing
Director with BlackRock Financial Management, Inc. (BFM) since July 1996. Prior
to joining BFM he was Portfolio Manager and Research Analyst with Morgan Stan-
ley Asset Management. He has headed the fund's portfolio management team since
1996.
25
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Institutional Share Outstanding Throughout Each Period)

Small Cap Value Equity Portfolio

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 $ 20.20 $ 15.98 $ 15.16 $ 13.62 $ 13.08
-------- -------- -------- -------- --------
Income from investment
operations
Net investment income 0.13 0.17 0.10 0.06 0.04
Net gain (loss) on
investments
(both realized and
unrealized) (3.19) 6.39 1.70 2.17 0.77
-------- -------- -------- -------- --------
Total from investment
operations (3.06) 6.56 1.80 2.23 0.81
-------- -------- -------- -------- --------
Less distributions
Distributions from net
investment income (0.13) (0.17) (0.11) (0.08) (0.02)
Distributions from net
realized capital gains (2.12) (2.17) (0.87) (0.61) (0.25)
-------- -------- -------- -------- --------
Total distributions (2.25) (2.34) (0.98) (0.69) (0.27)
-------- -------- -------- -------- --------
Net asset value at end of
period $ 14.89 $ 20.20 $ 15.98 $ 15.16 $ 13.62
======== ======== ======== ======== ========
Total return (17.03)% 47.36% 12.64% 17.43% 6.28%
Ratios/Supplemental data
Net assets at end of period
(in thousands) $527,374 $309,899 $214,828 $168,334 $168,360
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.87% 0.87% 0.85% 0.75% 0.73%
Before
advisory/administration
fee
waivers 0.88% 0.88% 0.86% 0.84% 0.85%
Ratios of net investment
income to average
net assets
After
advisory/administration
fee waivers 0.79% 1.09% 0.68% 0.44% 0.28%
Before
advisory/administration
fee
waivers 0.78% 1.08% 0.67% 0.35% 0.16%
Portfolio turnover rate 45% 66% 50% 31% 18%
</TABLE>

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

26
<PAGE>

BlackRock
[LOGO] Small Cap Growth 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 U.S. small capi-
talization growth companies (market capitalization under $2 billion) which he
believes have above-average 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 buys common stock but also can invest in pre-
ferred stock and securities convertible into common and preferred 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
27
<PAGE>

cash or high quality securities equal to the current value of the loaned secu-
rities. 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 made.

Key Risks

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, 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, the fund's investment adviser, is currently working to avoid such prob-
lems. 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

28
<PAGE>

issuers 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.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Institutional Shares. The information shows you how the fund's per-
formance 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 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.

[BAR CHART APPEARS HERE]

As of 12/31
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------

Best Quarter 1994 5.89%
Q4 '98: 25.52% 1995 47.52%
1996 31.57%
Worst Quarter 1997 9.20%
Q1 '97: -19.45% 1998 7.38%

* For comparative purposes, the value of the index on 09/01/93 is used as the
beginning value on 09/15/93.
29
<PAGE>
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.

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 retirement programs that are already
invested in the fund and to certain payroll deduction programs. Shareholders
as of August 15, 1998 may make additional investments in current accounts. The
fund may re-open to new investors in the future.

The table below describes the fees and expenses that you may pay if you buy
and hold Institutional 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 .55%
Other expenses .33%
Total annual fund operating expenses .88%
Fee waivers and expense reimbursements --
Net Expenses* .88%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock
in the following two years if the repayment can be made within these
expense limits.

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>
Institutional Shares $90 $281 $488 $1,084
</TABLE>

Fund Management
The fund is co-managed by William J. Wykle and Thomas Callan.

William J. Wykle has been a Managing Director 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 a Managing Director with BlackRock Financial Manage-
ment, 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.

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.

30
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Institutional Share Outstanding Throughout Each Period)

Small Cap Growth Equity Portfolio

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 $ 23.62 $ 21.94 $ 15.06 $ 10.16 $ 10.47
---------- -------- -------- -------- -------
Income from investment
operations
Net investment income - - 0.02 (0.01) 0.02 0.03
Net gain (loss) on
investments (both
realized and
unrealized) (4.98) 3.18 6.91 4.90 (0.33)
---------- -------- -------- -------- -------
Total from investment
operations (4.98) 3.20 6.90 4.92 (0.30)
---------- -------- -------- -------- -------
Less distributions
Distributions from net
investment income - - (0.03) (0.02) (0.02) (0.01)
Distributions from
capital (0.02) - - - - - - - -
Distributions from net
realized capital gains (1.12) (1.49) - - - - - -
---------- -------- -------- -------- -------
Total distributions (1.14) (1.52) (0.02) (0.02) (0.01)
---------- -------- -------- -------- -------
Net asset value at end of
period $ 17.50 $ 23.62 $ 21.94 $ 15.06 $ 10.16
========== ======== ======== ======== =======
Total return (21.93)% 15.89% 45.87% 48.50% (2.89)%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $1,022,404 $495,904 $299,563 $145,915 $65,612
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.87% 0.87% 0.86% 0.75% 0.48%
Before
advisory/administration
fee waivers 0.87% 0.87% 0.88% 0.88% 1.04%
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers (0.13)% 0.01% (0.07)% 0.22% 0.45%
Before
advisory/administration
fee waivers (0.13)% 0.01% (0.09)% 0.09% (0.10)%
Portfolio turnover rate 159% 82% 89% 74% 89%
</TABLE>

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

31
<PAGE>

BlackRock
[LOGO] International Equity
Portfolio

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

IMPORTANT DEFINITIONS

Equity Security: A
security, such as
stock, representing
ownership of a compa-
ny. Bonds, in compari-
son, are referred to
as fixed income or
debt securities
because they represent
indebtedness to the
bondholders, not own-
ership.

Investment Style:
Refers to the guiding
principles of a mutual
fund's investment
choices. The invest-
ment style of this
fund is international
value, referring to
the type of securities
the managers will
choose for this fund.

Morgan Stanley Capital
International Europe,
Australia and Far East
Index (EAFE): An
unmanaged index com-
prised of a sample of
companies representa-
tive of the market
structure of the fol-
lowing European and
Pacific Basin coun-
tries: Australia, Aus-
tria, Belgium, Den-
mark, Finland, France,
Germany, Hong Kong,
Italy, Japan, Nether-
lands, New Zealand,
Norway, Singapore,
Malaysia, Spain, Swe-
den, Switzerland and
the U.K.

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 companies that
appear to the manager
to be undervalued by
the market as measured
by certain financial
formulas. Growth
stocks are companies
whose earnings growth
potential appears to
the manager to be
greater than the mar-
ket in general, and
whose growth in reve-
nue is expected to
continue for an
extended period.

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 manager
and his team also examine each company for financial soundness before deciding
to purchase its stock.

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

The fund's manager may, when consistent with the fund's investment objective,
use options or futures (commonly known as derivatives). The primary purpose of
using derivatives is to attempt to reduce risk to the fund as a whole (hedge)
but they may also be used to maintain liquidity, commit cash pending investment
or to increase returns. The fund may also use forward currency exchange con-
tracts (obligations to buy or sell a currency at a set rate in the future) to
hedge against movements in the value of foreign currencys.

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

Key Risks

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.

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.

33
<PAGE>

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.

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.

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.
34
<PAGE>

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

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Institutional Shares. The information shows you how the fund's per-
formance 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 investments, past performance is not an indication of future results.

[BAR CHART APPEARS HERE]

As of 12/31
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------

Best Quarter 1993 36.87%
Q4 '98: 17.55% 1994 0.25%
1995 9.94%
Worst Quarter 1996 8.53%
Q3 '98: -14.76% 1997 5.22%
1998 15.45%

* For comparative purposes, the value of the index on 05/01/92 is used as the
beginning value on 04/27/92.
35
<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.

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.

The table describes the fees and expenses that you may pay if you buy and hold
Institutional 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 .75%
Other expenses .36%
Total annual fund operating expenses 1.11%
Fee waivers and expense reimbursements* .05%
Net Expenses* 1.06%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The Fund may have to repay these waivers and reimbursements to BlackRock in
the following two years. If the repayment can be made within these expense
limits. "Net Expenses" in the table have been restated to reflect these
waivers and reimbursements.

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 (except for the waivers in the first year discussed above) 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>
Institutional Shares $108 $348 $607 $1,347
</TABLE>

Fund Management
The fund manager is Gordon Anderson, who has been Managing and Investment
Director of BlackRock International, Ltd. His previous position was Investment
Director at Dunedin Fund Managers Ltd. He has been the fund manager since
1996.
36
<PAGE>

Financial Highlights
The financial information in the table below shows
the fund's financial performance for the periods
indicated. 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 and assumes
that you have reinvested all dividends and distri-
butions. 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 Institutional Share Outstanding Throughout Each Period)

International Equity Portfolio

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 $ 14.65 $ 13.43 $ 13.27 $ 13.44 $ 12.48
---------- -------- -------- -------- --------
Income from investment
operations
Net investment income 0.27 0.14 0.17 0.17 0.15
Net realized gain (loss)
on investments (both
realized and
unrealized) (1.29) 1.77 0.84 0.13 1.17
---------- -------- -------- -------- --------
Total from investment
operations (1.02) 1.91 1.01 0.30 1.32
---------- -------- -------- -------- --------
Less distributions
Distributions from net
investment income (.20) (0.28) (0.18) (0.11) (0.11)
Distributions from net
realized capital gains (.20) (0.41) (0.67) (0.36) (0.25)
---------- -------- -------- -------- --------
Total distributions (.40) (0.69) (0.85) (0.47) (0.36)
---------- -------- -------- -------- --------
Net asset value at end of
period $ 13.23 $ 14.65 $ 13.43 $ 13.27 $ 13.44
========== ======== ======== ======== ========
Total return (7.03)% 14.88% 8.01% 2.46% 10.71%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $1,012,132 $433,135 $388,588 $312,588 $284,905
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.06% 1.06% 1.36% 1.53% 0.95%
Before
advisory/administration
fee waivers 1.11% 1.16% 1.46% 1.63% 1.14%
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 1.00% 0.94% 0.65% 0.50% 1.27%
Before
advisory/administration
fee waivers 0.95% 0.84% 0.54% 0.40% 1.08%
Portfolio turnover rate 57% 62% 70% 105% 37%
</TABLE>

- -----------------------------------------------
37
<PAGE>

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, among
others: Argentina, Bra-
zil, Bulgaria, Chile,
China, Colombia, The
Czech Republic, Ecua-
dor, 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.

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, and
whose growth in revenue
is expected to continue
for an extended period.

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 total assets in the equity securities issued by these companies and nor-
mally 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 securi-
ties 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 manager
and his team also examine each company for financial soundness before deciding
to purchase its 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.

38
<PAGE>

The fund's manager may, when consistent with the fund's investment objective,
use options or futures (commonly known as derivatives). The primary purpose of
using derivatives is to attempt to reduce risk to the fund as whole (hedge) but
they may also be used to maintain liquidity, commit cash pending investment or
to increase returns. The fund may also use forward foreign currency exchange
contracts (obligations to buy or sell a currency at a set rate in the future)
to hedge against movements in the value of foreign currencies.

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

Key Risks

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.

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.

39
<PAGE>

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

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.

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, the fund's investment adviser, is currently working to avoid such prob-
lems. 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 issuers whose securities the fund holds or securi-
ties markets generally.
40
<PAGE>

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

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Institutional Shares. The information shows you how the fund's per-
formance 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 indica-
tion of future results.

[BAR CHART APPEARS HERE]

As of 12/31
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------

Best Quarter 1995 -12.58%
Q1 '97: 13.64% 1996 12.27%
1997 -9.06%
Worst Quarter 1998 -36.63%
Q3 '98: -25.59%

* For comparative purposes, the value of the index on 07/01/94 is used as the
beginning value on 06/17/94.

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.

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

41
<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.

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

<TABLE>
<S> <C>
Advisory Fees 1.25%
Other expenses .61%
Total annual fund operating expenses 1.86%
Fee waivers and expense reimbursements* .08%
Net Expenses* 1.78%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may only have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits. "Net Expenses" in the table have been restated to reflect these
waivers and reimbursements.

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 (except for the waivers in the first year discussed above) and redemp-
tion 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>
Institutional Shares $181 $577 $998 $2,173
</TABLE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Institutional Share Outstanding Throughout Each Period)

International Emerging Markets Portfolio

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 $ 9.69 $ 8.76 $ 8.19 $ 10.56 $10.00
------- -------- ------- ------- ------
Income from investment
operations
Net investment income 0.06 0.03 0.08 0.08 0.03
Net gain (loss) on
investments (both
realized and unrealized) (5.19) 0.95 0.50 (2.15) 0.53
------- -------- ------- ------- ------
Total from investment
operations (5.13) 0.98 0.58 2.07 0.56
------- -------- ------- ------- ------
Less distributions
Distributions from net
investment income - - (0.05) - - (0.10) - -
Distributions from capital - - - - - - (0.01) - -
Distributions from net
realized capital gains (0.14) - - (0.01) (0.19) - -
------- -------- ------- ------- ------
Total distributions (0.14) (0.05) (0.01) (0.30) - -
------- -------- ------- ------- ------
Net asset value at end of
period $ 4.42 $ 9.69 $ 8.76 $ 8.19 $10.56
======= ======== ======= ======= ======
Total return (53.59)% 11.16% 6.97% (19.72)% 5.60%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $63,649 $116,107 $68,664 $29,319 $2,511
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.76% 1.78% 1.78% 1.78% 1.75%/2/
Before
advisory/administration
fee waivers 1.86% 1.87% 1.88% 2.02% 2.73%/2/
Ratios of net investment
income to average
net assets
After
advisory/administration
fee waivers 0.95% 0.37% 0.96% 1.90% 1.19%/2/
Before
advisory/administration
fee waivers 0.85% 0.27% 0.87% 1.66% 0.21%/2/
Portfolio turnover rate 37% 33% 44% 75% 4%
</TABLE>

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

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

BlackRock
(LOGO) International Small Cap Equity
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, among
others: Argentina, Bra-
zil, Bulgaria, Chile,
China, Colombia, The
Czech Republic, Ecua-
dor, 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 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 issuers 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 these compa-
nies and normally invests at least 80% of its total assets in equity securi-
ties. The manager may invest up to 20% of the portfolio in stocks of issuers
in emerging market countries. The fund primarily buys common stock but can
also invest in preferred stock and securities convertible into common and pre-
ferred securities.

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 manager
and his team also examine each company for financial soundness before deciding
to purchase its stock.

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

44
<PAGE>

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

The fund's manager may, when consistent with the fund's investment objective,
use options or futures (commonly known as derivatives). The primary purpose of
using derivatives is to attempt to reduce risk to the fund as a whole (hedge)
but they may also be used to maintain liquidity, commit cash pending investment
or to increase returns. The fund may also use forward foreign currency exchange
contracts (obligations to buy or sell a currency at a set rate in the future)
to hedge against movements in the value of foreign currencies.

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

Key Risks

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.

IMPORTANT DEFINITIONS

45
<PAGE>

ties or companies. In addition, a portfolio of foreign securities may be
harder to sell and may be subject to wider price movements than comparable
investments in U.S. companies. There is less government regulation of foreign
securities markets.

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

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

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.

46
<PAGE>

Securities loans involve the risk of a delay in receiving additional collateral
if the value of the securities go up while they are on loan. There is also the
risk of delay in recovering the loaned securities and of losing rights to the
collateral if a borrower goes bankrupt.
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 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, the
fund's investment adviser, 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 issuers whose securities the fund holds or securities market gen-
erally.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Institutional Shares. The information shows you how the fund's per-
formance 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-U.S. Index, a recognized unmanaged
index of stock market performance. The chart and the table both assume rein-
vestment of dividends and distributions. As with all such investments, past
performance is not an indication of future results.

[BAR CHART APPEARS HERE]

As of 12/31
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------

Best Quarter 1998 11.13%
Q1 '98: 20.04%

Worst Quarter
Q3 '98: -19.87%

* For comparative purposes, the value of the index on 10/01/97 is used as the
beginning value on 09/26/97.

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.

The table below describes the fees and expenses that you may pay if you buy and
hold Institutional 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 1.00%
Other expenses 1.17%
Total annual fund operating expenses 2.17%
Fee waivers and expense reimbursements* .84%
Net Expenses* 1.33%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may have to repay these waivers and reimbursements to BlackRock in the
following two years if the repayment can be made within these expense lim-
its. "Net Expenses" in the table have been restated to reflect these waivers
and reimbursements.

Expenses and Fees

IMPORTANT DEFINITIONS

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

Other Expenses:
Include administra-
tion, transfer agency,
custody, professional
fees and registration
fees.
48
<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 (except for the waivers in the first year discussed above) and redemp-
tion 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>
Institutional Shares $135 $598 $1,088 $2,437
</TABLE>

Financial Highlights
The financial information in the table below shows the fund's financial perfor-
mance for the period indicated. 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 and assumes that
you have reinvested all dividends 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 Fund's annual report, which is available upon request (see back
cover for ordering instructions).

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Institutional Share Outstanding Throughout Each Period)

International Small Cap Equity Portfolio

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 $ 9.94 $ 10.00
------- -------
Income from investment operations
Net investment income 0.07 - -
Net gain (loss) on investments (both realized and
unrealized) (0.40) (0.06)
------- -------
Total from investment operations (0.33) (0.06)
------- -------
Less distributions
Distributions from net investment income (0.05) - -
Distributions from net realized capital gains - - - -
------- -------
Total distributions (0.05) - -
------- -------
Net asset value at end of period $ 9.56 $ 9.94
======= =======
Total return (3.57)% (0.30)%
Ratios/Supplemental data
Net assets at end of period (in thousands) $16,233 $15,415
Ratios of expenses to average net assets
After advisory/administration fee waivers 1.32% 1.33%/2/
Before advisory/administration fee waivers 2.17% 1.55%/2/
Ratios of net investment income to average net assets
After advisory/administration fee waivers 0.65% 1.42%/2/
Before advisory/administration fee waivers (0.20)% 1.19%/2/
Portfolio turnover rate 76% 0%
</TABLE>

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

/1/Commencement of operations of share class.
/2/Annualized.
50
<PAGE>

BlackRock
(LOGO) Select Equity
Portfolio

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

IMPORTANT DEFINITIONS

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

Value and Growth Compa-
nies: 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, and
whose growth in revenue
is expected to continue
for an extended period.

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 made.

Key Risks

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.

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, the fund's investment adviser, is currently working to avoid such prob-
lems. 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 issuers whose securities the fund holds or securi-
ties markets generally.

52
<PAGE>

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

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Institutional Shares. The information shows you how the fund's per-
formance 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 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.

[BAR CHART APPEARS HERE]

As of 12/31
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------

Best Quarter 1994 -1.26%
Q4 '98: 20.85%
1995 33.3%
Worst Quarter
Q3 '98: -11.35% 1996 23.72%

1997 31.46%

1998 24.61%

* For comparative purposes, the value of the index on 09/01/93 is used as the
beginning value on 09/15/93.
53
<PAGE>
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.

The table below describes the fees and expenses that you may pay if you buy
and hold Institutional 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 .54%
Other expenses .32%
Total annual fund operating expenses .86%
Fee waivers and expense reimbursements --
Net expenses* .86%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years, if the repayment can be made within these expense
limits.

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>
Institutional Shares $ 88 $ 274 $ 477 $ 1,061
</TABLE>

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.

54
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Institutional Share Outstanding Throughout Each Period)

Select Equity Portfolio

<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 $ 17.51 $ 13.57 $ 11.88 $ 9.92 $ 9.97
---------- -------- -------- -------- -------
Income from investment
operations
Net investment income 0.16 0.19 0.21 0.22 0.22
Net gain (loss) on
investments (both realized
and unrealized) 0.49 5.15 2.08 2.08 (0.04)
---------- -------- -------- -------- -------
Total from investment
operations 0.65 5.34 2.29 2.30 0.18
---------- -------- -------- -------- -------
Less distributions
Distributions from net
investment income (0.15) (0.19) (0.21) (0.22) (0.23)
Distributions from net
realized capital gains (1.00) (1.21) (0.39) (0.12) - -
---------- -------- -------- -------- -------
Total distributions (1.15) (1.40) (0.60) (0.34) (0.23)
---------- -------- -------- -------- -------
Net asset value at end of
period $ 17.01 $ 17.51 $ 13.57 $ 11.88 $ 9.92
========== ======== ======== ======== =======
Total return 4.07% 42.50% 19.84% 23.76% 1.79%
Ratios/Supplemental data
Net assets at end of period
(in thousands) $1,286,032 $379,687 $274,434 $238,813 $48,123
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.86% 0.79% 0.74% 0.67% 0.65%
Before
advisory/administration
fee waivers 0.86% 0.86% 0.87% 0.85% 0.93%
Ratios of net investment
income to average
net assets
After
advisory/administration
fee waivers 0.93% 1.24% 1.70% 2.35% 2.11%
Before
advisory/administration
fee waivers 0.93% 1.17% 1.58% 2.17% 1.82%
Portfolio turnover rate 27% 29% 55% 51% 88%
</TABLE>
-----------------------------------------------
55
<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 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 (not more than 5% of
net assets) in certain short-term fixed income securities pending investments
or to pay redeeming shareholders.

Each of 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

56
<PAGE>

Key Risks

The Index Master Portfolio may, to the extent consistent with its investment
objective, invest in index futures contracts and options on index futures con-
tracts, commonly known as derivatives, to commit funds pending investment or to
maintain liquidity. Such practices may reduce returns and/or increase volatili-
ty. 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.

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.

57
<PAGE>

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Institutional Shares. The information shows you how the fund's per-
formance 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 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.

As of 12/31
- -------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- -------------------------------------------------------------------------------
Best Quarter
Q4 '98: 21.29 93 9.55%
94 0.80%
95 37.04%
Worst Quarter 96 22.36%
Q3 '98: -9.86 97 32.91%
98 28.56%

58
<PAGE>
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.

The table below describes the fees and expenses that you may pay if you buy and
hold Institutional 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 .025%
Other expenses .315%
Total annual fund operating expenses .34%
Fee waivers and expense reimbursements** .16%
Net Expenses** .18%
</TABLE>
* The Annual Fund Operating Expenses table and the Example reflect the
expenses of both the Index Equity and Index Master Portfolios.
** BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits. "Net Expenses" in the table have been restated to reflect these
waivers and reimbursements.

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 (except for the waivers in the first year discussed above) and redemp-
tion 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>
Institutional Shares $ 18 $ 93 $ 175 $415
</TABLE>

Index Master Portfolio
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.

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

59
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Institutional Share Outstanding Throughout Each Period)

Index Equity Portfolio

<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 $ 18.32 $ 13.97 $ 13.58 $ 10.93 $ 11.02
-------- -------- -------- -------- --------
Income from investment
operations
Net investment income 0.24 0.04 0.30 0.38 0.31
Net realized gain (loss)
on investments
(both realized and
unrealized) 1.39 5.02 2.13 2.73 0.03
-------- -------- -------- -------- --------
Total from investment
operations 1.63 5.06 2.43 3.11 0.34
-------- -------- -------- -------- --------
Less distributions
Distributions from net
investment income (0.26) (0.03) (0.34) (0.34) (0.32)
Distributions from net
realized capital gains (0.04) (0.68) (1.70) (0.12) (0.11)
-------- -------- -------- -------- --------
Total distributions (0.30) (0.71) (2.04) (0.46) (0.43)
-------- -------- -------- -------- --------
Net asset value at end of
period $ 19.65 $ 18.32 $ 13.97 $ 13.58 $ 10.93
======== ======== ======== ======== ========
Total return 8.91% 39.78% 19.82% 29.30% 3.07%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $354,215 $166,786 $127,076 $109,433 $147,746
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.18% 0.18% 0.18% 0.17% 0.15%
Before
advisory/administration
fee waivers 0.34%/1/ 0.38%/1/ 0.50%/1/ 0.50% 0.52%
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 1.40% 1.71% 2.29% 2.92% 2.72%
Before
advisory/administration
fee waivers 1.24% 1.51% 1.98% 2.59% 2.35%
Portfolio turnover rate - -/3/ - -/3/ 18%/2/,/3/ 18% 17%
</TABLE>
-----------------------------------------------

/1/Including expenses allocated from the U.S. Large Company Series of The DFA
Investment Trust Company of 0.06% for the year ended 9/30/98, 0.07% for the
year ended 9/30/97, and 0.12% for the year ended 9/30/96.
/2/For the period from October 1, 1995 through May 31, 1996.
/3/See footnotes to the financial statements of The DFA Investment Trust
Company for the year ended November 30, 1996, the period ended September 30,
1997, and the period ended September 30, 1998.
60
<PAGE>

BlackRock
(LOGO) Balanced
Portfolio

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

IMPORTANT DEFINITIONS

Asset-Backed Securi-
ties: Bonds that are
backed by a pool of
assets, usually loans
such as installment
sale contracts or
credit card receiv-
ables.

Large Capitalization
Companies: Capitaliza-
tion refers to the mar-
ket value of the com-
pany and is calculated
by multiplying the num-
ber of shares outstand-
ing by the current
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.

Equity Portion
The equity portion of the fund 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 primarily in common
stock but can also invest in preferred stock and securities convertible into
common and preferred stock.

It is possible that in extreme market conditions the fund may invest some or
all of its assets in high quality money market secu-
61
<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 hold
these securities pending investments 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 Company's Board of Trustees determine that the investment objective
of the fund should be changed, shareholders will be given at least 30 days
notice before any such change is made.

Key Risks
The value of your investment can go up or down depending upon market condi-
tions, which means you could lose money.

The main risk of any investment in stocks is that values fluctuate in price.

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.

IMPORTANT DEFINITIONS

Value and Growth Compa-
nies: All stocks are
generally divided into
the categories 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
undervalued by the mar-
ket as measured by cer-
tain financial formu-
las. Growth stocks are
companies whose earn-
ings 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.

62
<PAGE>

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

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.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Institutional Shares. 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 both the S&P
500 Index and a customized weighted index comprised of the returns of the S&P
500 Index (60%) and the Lehman Aggregate Index (40%), recognized unmanaged
indices of stock and bond market performance, respectively. 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.

63
<PAGE>

The performance for the period before Institutional Shares were launched in May
1992 is based upon performance for Investor A Shares of the fund.

[BAR CHART APPEARS HERE]

As of 12/31
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------

Best Quarter 91 22.45%
Q4 '98: 13.31% 92 11.82%
93 11.83%
Worst Quarter 94 -3.15%
Q3 '98: -4.71% 95 27.72%
96 15.50%
The bars for 1991 97 23.82%
and 1992 are based 98 21.98%
upon performance
for Investor A
Shares of the Fund.

As of 12/31/98
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
Since Inception
1 Year 3 Years 5 Years Inception Date
- --------------------------------------------------------------------------------
Balanced 21.98% 20.38% 16.63% 14.83% 05/14/90
S&P 500 28.76% 28.39% 24.15% 19.16% N/A*
60% S&P 500/40% Leh. Ag. 20.73% 19.95% 17.40% 15.49% N/A*
- --------------------------------------------------------------------------------
* For comparative purposes, the values of the indexes on 05/01/90 are used as
the beginning values on 05/14/90.

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.

The table below describes the fees and expenses that you may pay if you buy and
hold Institutional 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 .55%
Other expenses .35%
Total annual fund operating expenses .90%
Fee waivers and expense reimbursements --
Net Expenses* .90%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may have to repay these waivers and reimbursements to BlackRock in the
following two years if the repayment can be made within these expense lim-
its.

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

64
<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 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>
Institutional Shares $92 $287 $498 $1,108
</TABLE>

Fund Management
The portfolio manager for the equity portion of the fund is R. Andrew Damm, who
has served as Managing Director 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 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 Financial Management, Inc. since 1988 and who
has served as co-manager of the fund since 1995 and Keith T. Anderson, who has
been a Managing Director at BlackRock Financial Management, Inc. since 1988. He
has served as co-manager of the fund since 1995.
65
<PAGE>

Balanced Portfolio

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 $ 18.22 $ 15.10 $ 13.73 $ 11.98 $ 12.42
-------- ------- ------- ------- -------
Income from investment
operations
Net investment income 0.38 0.52 0.46 0.46 0.38
Net realized gain (loss) on
investments
(both realized and unrealized) 1.43 3.62 1.49 1.90 (0.39)
-------- ------- ------- ------- -------
Total from investment
operations 1.81 4.14 1.95 2.36 (0.01)
-------- ------- ------- ------- -------
Less distributions
Distributions from net
investment income (0.43) (0.50) (0.45) (0.47) (0.37)
Distributions from net realized
capital gains (1.25) (0.52) (0.13) (0.14) (0.06)
-------- ------- ------- ------- -------
Total distributions (1.68) (1.02) (0.58) (0.61) (0.43)
-------- ------- ------- ------- -------
Net asset value at end of period $ 18.35 $ 18.22 $ 15.10 $ 13.73 $ 11.98
======== ======= ======= ======= =======
Total return 10.82% 28.43% 14.43% 20.32% (0.11)%
Ratios/Supplemental data
Net assets at end of period (in
thousands) $374,899 $31,674 $37,567 $24,525 $17,610
Ratios of expenses to average
net assets
After advisory/administration
fee waivers 0.90% 0.84% 0.79% 0.67% 0.65%
Before advisory/administration
fee waivers 0.90% 0.89% 0.90% 0.88% 0.91%
Ratios of net investment income
to average
net assets
After advisory/administration
fee waivers 2.48% 2.98% 3.16% 3.78% 3.16%
Before advisory/administration
fee waivers 2.48% 2.92% 3.06% 3.56% 2.89%
Portfolio turnover rate 134% 173% 275% 154% 54%
</TABLE>

-----------------------------------------------
66
<PAGE>

BlackRock
(LOGO) Micro-Cap Equity
Portfolio

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

Investment Goal
The fund seeks long-term capital appreciation.

IMPORTANT DEFINITIONS

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.

67
<PAGE>

used to maintain liquidity, commit cash pending investment or to increase
returns.

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

Key Risks

The 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.

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.

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.

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.

68
<PAGE>

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

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

Expenses
and Fees

Expenses and Fees
As a shareholder you pay certain fees and expenses. Annual fund operating
expenses are paid out of fund assets 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 Institutional 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 1.10%
Other expenses* 1.63%
Total annual fund operating expenses 2.73%
Fee waivers and expense reimbursements** 1.28%
Net expenses** 1.45%
</TABLE>
* "Other expenses" are based on estimated amounts for the current fiscal year.
** BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may have to repay these waivers and reimbursements to BlackRock in the
following two years if the repayment can be made within these expense lim-
its. "Net Expenses" in the table have been restated to reflect these waivers
and reimbursements.

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

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.

69
<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 (except for the waivers in the first year discussed above) and
redemption at the end of each time period. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:

<TABLE>
<CAPTION>
1 Year 3 Years
<S> <C> <C>
Institutional Shares $148 $726
</TABLE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Institutional Share Outstanding Throughout Each Period)

Micro-Cap Equity Portfolio

For the
Period
5/1/98/1
/
through
9/30/98
<S> <C>
Net asset value at beginning of period $10.00
------
Income from investment operations
Net investment income (0.01)
Net gain (loss) on investments (both realized
and unrealized) (0.61)
------
Total from investment operations (0.62)
------
Less distributions
Distributions from net investment income - -
Distributions from net realized capital gains - -
------
Total distributions - -
------
Net asset value at end of period $ 9.38
======
Total return (6.10)%
Ratios/Supplemental data
Net assets at end of period (in thousands) $1,302
Ratios of expenses to average net assets
After advisory/administration fee waivers 1.40%/2/
Before advisory/administration fee waivers 2.73%/2/
Ratios of net investment income to average net
assets
After advisory/administration fee waivers (0.33)%/2/
Before advisory/administration fee waivers (1.66)%/2/
Portfolio turnover rate 119%
</TABLE>

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

/1/Commencement of operations of share class.
/2/Annualized.
71
<PAGE>

[LOGO] About Your Investment

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Buying Shares

Institutional Shares are offered to:

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

Purchase orders may be placed through PFPC, the Company's transfer agent by
telephoning (800) 441-7450.
- ------------------------------------------------------------------------------
What Price Per Share
Will You Pay?
The price of mutual fund shares generally changes every business day. A mutual
fund is a pool of investors' money that is used to purchase a portfolio of
securities, which in turn is owned in common by the investors. Investors put
money into a mutual fund by buying shares. If a mutual fund has a portfolio
worth $50 million and has 5 million shares outstanding, the net asset value
(NAV) per share is $10.

72
<PAGE>

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

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

- -------------------------------------------------------------------------------
Paying for Shares

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.

- -------------------------------------------------------------------------------
How Much is the
Minimum Investment?

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

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

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

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

- -------------------------------------------------------------------------------
Master-Feeder Structure

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
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 exam-

73
<PAGE>

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

ple, 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.
- --------------------------------------------------------------------------------

Selling Shares

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

Payment for redeemed shares for which a redemption order is received by PFPC
before 4 p.m. (Eastern time) on a business day is normally made in Federal
funds wired to the redeeming shareholder on the next business day, provided
that the funds' custodian is also open for business. Payment for redemption
orders received after 4 p.m. (Eastern time) or on a day when the funds' custo-
dian is closed is normally wired in Federal funds on the next business day fol-
lowing 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.

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

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

74
<PAGE>

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

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 Serv-
ice Shares. If not, then the shareholder's Institutional Shares will be con-
verted 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.

- --------------------------------------------------------------------------------
The Company's Rights

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.

- --------------------------------------------------------------------------------
Accounts with Low
Balances

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.

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

75
<PAGE>

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

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 Mas-
ter 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 invest-
ors. As of November 30, 1998, DFA had over $26 billion in assets under manage-
ment.

For the fiscal year ended November 30, 1998, the Index Master Portfolio paid
DFA an aggregate advisory fee of .025% of average daily net assets.

The maximum annual advisory fees that can be paid to BlackRock (as a percent-
age of average daily net assets) are as follows:

<TABLE>
<CAPTION>
AVERAGE DAILY NET INVESTMENT
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>

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.

<PAGE>

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

Maximum Annual Contractual Advisory Fee Rate for the International Equity
Portfolio (Before Waivers)

<TABLE>
<CAPTION>
AVERAGE DAILY NET INVESTMENT
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 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>
77
<PAGE>

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

The Index Master Portfolio pays DFA a maximum annual advisory fee of .025% of
its average daily net assets.

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, includ-
ing seven out of ten of the largest Fortune 100 companies.

Information about the portfolio manager for each of the funds is presented in
the appropriate fund section.

BlackRock and the Company have entered into an expense limitation agreement.
The agreement sets a limit on certain of the
operating expenses of each fund for the next year and requires BlackRock to
waive or reimburse fees or expenses if these operating expenses exceed that
limit. These expense limits (which apply to expenses charged on fund assets as
a whole, but not expenses separately charged to the different share classes of
a fund) as a percentage of average daily net assets are:

78
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dividends and
Distributions

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

Dividends are the net investment income derived by 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.

- --------------------------------------------------------------------------------
Taxation of
Distributions

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

79
<PAGE>

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

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

80
<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 28, 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) 441-7450.
The SAI, as supplemented from time to time, is incorporated by reference into
this Prospectus.

Shareholder Account Service Representatives

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

Purchases and Redemptions

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

World Wide Web

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

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

Written Correspondence

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

Internal Wholesalers/Broker Dealer Support

Available to support investment professionals 9 a.m. to 6 p.m. (Eastern time),
Monday-Friday. Call (888) 8BLACKROCK

Securities and Exchange Commission (SEC)

You may also view 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

[GRAPHIC APPEARS HERE]

[LOGO OF BLACKROCK FUNDS APPEARS HERE]
<PAGE>

497(C)
File No. 33-26305

NOT FDIC-
INSURED

May lose value
No bank guarantee

Bond Portfolios
================================================================================
INVESTOR SHARES

BlackRock Funds (SM) is a mutual fund family with 36 investment portfolios, 15
of which are described in this prospectus. BlackRock Funds are sold principally
through licensed investment professionals.

PROSPECTUS
January 28, 1999

[LOGO OF BLACKROCK FUNDS]

Table of
Contents

How to find the information you need........................................ 1
THE BLACKROCK BOND FUNDS
Low Duration Bond........................................................... 2
Intermediate Government Bond................................................ 10
Intermediate Bond........................................................... 17
Core Bond................................................................... 24
Government Income........................................................... 31
GNMA Portfolio.............................................................. 38
Managed Income.............................................................. 45
International Bond.......................................................... 52
High Yield Bond............................................................. 60
Tax-Free Income............................................................. 67
Delaware Tax-Free Income.................................................... 75
Ohio Tax-Free Income........................................................ 83
Kentucky Tax-Free Income.................................................... 91
New Jersey Tax-Free Income.................................................. 99
Pennsylvania Tax-Free Income................................................ 107

About Your Investment

How to Sell Shares.......................................................... 115
Dividends/Distribution/Taxes................................................ 128
Services for Shareholders................................................... 130
</TABLE>
<PAGE>

How to Find the
Information You Need
About BlackRock Funds

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

Welcome to the new BlackRock Bond 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).

This prospectus contains information on all 15 of the BlackRock Bond funds. 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.

[GRAPHIC BlackRock
APPEARS Low Duration Bond
HERE] Portfolio

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

Investment Goal
The fund seeks to realize a rate of return that exceeds the total return of
the Merrill Lynch 1-3 Year Treasury Index (the benchmark).

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in investment
grade bonds in the three to five year maturity range. The fund normally
invests at least 80% of its total assets in bonds diversified among several
categories. The fund manager may also invest up to 20% of the fund's total
assets in non-investment grade bonds or convertible securities with a minimum
rating of "B" and up to 20% of its total assets in bonds of foreign issuers.
The fund manager selects securities from several categories including: U.S.
Treasuries and agency securities, asset-backed securities, CMOs, corporate
bonds and commercial mortgage-backed securities.

The management team evaluates categories of the bond market and individual
securities within these categories. Securities are purchased for the fund when
the manager determines that they have the potential for above-average total
return. The fund measures its performance against the benchmark.

If a security's rating falls below "B," the manager will decide whether to
continue to hold the security. A security will be sold if, in the opinion of
the fund manager, the risk of continuing to hold the security is unacceptable
when compared to the total return potential.

The fund manager will normally attempt to structure the fund's portfolio to
have comparable duration to its benchmark. Duration, which measures price sen-
sitivity to interest rate changes, is not necessarily equal to average maturi-
ty.

IMPORTANT DEFINITIONS

Asset-Backed Securi-
ties: Bonds that are
backed by a pool of
assets, usually loans
such as installment
sale contracts or
credit card receiv-
ables.
Bonds: Debt obligations
such as bonds and
debentures, U.S. Gov-
ernment securities,
debt obligations of
domestic and foreign
corporations, debt
obligations of foreign
governments and their
political subdivisions,
asset-backed securi-
ties, various mortgage-
backed securities (both
residential and commer-
cial), other floating
or variable rate obli-
gations, municipal
obligations and zero
coupon debt securities.
Collateralized Mortgage
Obligations (CMO):
Bonds that are backed
by cash flows from
pools of mortgages.
CMOs may have multiple
classes with different
payment rights and
protections.
Commercial Mortgage-
Backed Securities
(CMBS): Bonds that are
backed by a mortgage
loan or pool of loans
secured by commercial
property, not residen-
tial mortgages.
Duration: A mathemati-
cal calculation of the
average life of a bond
(or bonds in a bond
fund) that serves as a
useful measure of its
price risk. Each year
of duration represents
an expected 1% change
in the price of a bond
for every 1% change in
interest rates. For
example, if a bond fund
has an average duration
of four years, its
price will fall about
4% when interest rates
rise by one percentage
point. Conversely, the
bond fund's price will
rise about 4% when
interest rates fall by
one percentage point.
Investment Grade: Secu-
rities which are rated
in the four highest
categories by at least
one of the major rating
agencies or determined
by the fund manager to
be of similar quality.
Generally, the higher
the rating of a bond,
the higher the likeli-
hood that interest and
principal payments will
be made on time. Secu-
rities rated in the
fourth highest category
by the rating agencies
are considered invest-
ment grade but they are
also considered specu-
lative, meaning that
they carry more risk
than higher rated secu-
rities and may have
problems making princi-
pal and interest pay-
ments in difficult eco-
nomic climates.
Investment grade rat-
ings do not guarantee
that bonds will not
lose value.

2
<PAGE>

currencies with another party for their right to pay or receive interest or
another currency in the future.

The fund can borrow money to buy additional securities. This practice is known
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securities
and agrees to buy them back at a particular date and price). The fund normally
may borrow up to 33 1/3% of the value of its total assets.

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

Key Risks

Key Risks
While the fund manager chooses bonds he believes can provide above average
total returns, there is no guarantee that shares of the fund will not lose val-
ue. This means you could lose money.

The fund may make investments in residential and commercial mortgage-backed
securities and other asset-backed securities. The characteristics of these
mortgage-backed and asset-backed securities differ from traditional fixed
income securities.

A main difference is that the principal on mortgage- or asset-backed securities
may normally be prepaid at any time, which will reduce the yield and market
value of these securities. Asset-backed securities and CMBS generally experi-
ence less prepayment than residential mortgage-backed securities. In periods of
falling interest rates, the rate of prepayments tends to increase (as does
price fluctuation) as borrowers are motivated to pay off debt and refinance at
new lower rates. During such periods, reinvestment of the prepayment proceeds
by the manager will generally be at lower rates of return than the return on
the assets which were prepaid.

Certain asset-backed securities are based on loans that are unsecured, which
means that there is no collateral to seize if the

IMPORTANT DEFINITIONS

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer must pay
back the face amount of
the security.

Merrill Lynch 1-3 Year
Treasury Index: An
unmanaged index com-
prised of Treasury
securities with maturi-
ties of from 1 to 2.99
years.

3
<PAGE>

underlying borrower defaults. Other asset-based securities may not have the
benefit of as much collateral as mortgage-backed securities.

Treasury obligations differ only in their interest rates, maturities and times
of issuance. Obligations of U.S. Government agencies and authorities are sup-
ported by varying degrees of credit. No assurance can be given that the U.S.
Government will provide financial support to its agencies and authorities if
it is not obligated by law to do so.

The fund's use of derivatives, interest rate and foreign currency transactions
may reduce the fund's returns and/or increase volatility, which is defined as
the characteristic of a security or a market to fluctuate significantly in
price within a short period of time. Leverage is a speculative technique which
may expose the fund to greater risk and increase its costs. Increases and
decreases in the value of the fund's portfolio will be magnified when the fund
uses leverage. The fund will also have to pay interest on its borrowings,
reducing the fund's return.

The fund may invest up to 20% of its total assets in bonds of foreign issuers.
Foreign securities involve risks not typically associated with investing in
U.S. securities. These risks include but are not limited to: currency risks
(the risk that the value of interest paid on foreign securities, or the value
of the securities themselves, may fall if currency exchange rates change), the
risk that a security's value will be hurt by changes in foreign political or
social conditions, the possibility of heavy taxation or expropriation and more
difficulty obtaining information on foreign securities or companies. In addi-
tion, a portfolio of foreign securities may be harder to sell and may be sub-
ject to wider price movements than comparable investments in U.S. companies.
There is also less government regulation of foreign securities markets.

The fund may invest in non-investment grade or "high yield" fixed income or
convertible securities commonly known to investors as "junk bonds." The fund
may not invest more than 20% of its total assets in high yield securities and
all such securities must be rated "B" or higher at the time of purchase by at
least one major rating agency. A "B" rating generally indicates that while the
issuer can currently make its interest and principal payments, it probably
will not be able to do so in times of financial difficulty. Non-investment
grade debt securities may carry greater

4
<PAGE>

risks than securities which have higher credit ratings, including a high risk
of default. The yields of non-investment grade securities will move up and down
over time.

The credit rating of a high yield security does not necessarily address its
market value risk. Ratings and market values may change from time to time, pos-
itively or negatively, to reflect new developments regarding the issuer. High
yield securities are considered speculative, meaning there is a significant
risk that companies issuing these securities may not be able to repay principal
and pay interest or dividends on time. Also, the market for high yield securi-
ties is not as liquid as the market for higher rated securities. This means
that it may be harder to buy and sell high yield securities, especially on
short notice.

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

5
<PAGE>

Risk / Return Information

The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). 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 Merrill Lynch 1-
3 Year Treasury Index, a recognized unmanaged index of bond market performance.
The chart and the table both assume reinvestment of dividends and distribu-
tions. 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 performance for the period before Investor Shares were launched is based
upon performance for older share classes of the fund. Investor A Shares were
launched in January 1996, Investor B Shares were launched in November 1996 and
Investor C Shares were launched in February 1997. The actual return of Investor
Shares would have been lower than shown because Investor Shares have higher
expenses than these older classes. Also, the actual returns of Investor B and C
Shares would have been lower compared to Investor A Shares.

[BAR CHART APPEARS HERE]

Best Quarter 93 5.66
Q1 '95: 3.26% 94 1.39
95 10.51
96 4.53
Worst Quarter 97 5.56
Q1 '94: -0.18% 98 6.14

Since Inception
1 Year 3 Years 5 Years Inception Date
- --------------------------------------------------------------------------------
Low Duration Bond; Inv A 2.96% 4.34% 4.94% 4.91% 07/01/92
- --------------------------------------------------------------------------------
Low Duration Bond; Inv B 0.61% 3.63% 4.83% 5.16% 07/01/92
- --------------------------------------------------------------------------------
Low Duration Bond; Inv C 4.30% 4.86% 5.26% 5.16% 07/01/92
- --------------------------------------------------------------------------------
ML 1-3 Yr. Treasury 7.00% 6.21% 5.99% 5.93% N/A
- --------------------------------------------------------------------------------

These returns assume payment of applicable sales charges.

6
<PAGE>

Expenses and Fees

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

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 CDSC is 4.5% if shares are redeemed in less than one year. The CDSC for
Investor B Shares decreases for redemptions made in subsequent years. After
six years there is no CDSC on B Shares. (See page 120 for complete schedule
of CDSCs.)
*** There is no CDSC on C Shares after one year.
7
<PAGE>

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

<TABLE>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
Advisory Fees .50% .50% .50%
Distribution and service
(12b-1) fees .50% 1.15% 1.15%
Other expenses .52% .52% .52%
Total annual fund operating expenses 1.52% 2.17% 2.17%
Fee waivers and expense reimbursements* .50% .40% .40%
Net Expenses* 1.02% 1.77% 1.77%
</TABLE>

* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits. In addition, BlackRock Distributors, Inc., the fund's distributor,
has contractually agreed to waive all 12b-1 distribution fees on Investor A
Shares (otherwise payable at the maximum annual rate of .10% of average
daily net assets) for the next year. "Net Expenses" in the table have been
restated to reflect these waivers and reimbursements.

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 (except for the waivers in the first year discussed above), 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* $401 $718 $1,058 $2,017
B Shares**
Redemption $630 $991 $1,328 $2,229***
B Shares
No Redemption $180 $641 $1,128 $2,229***
C Shares**
Redemption $280 $641 $1,128 $2,472
C Shares
No Redemption $180 $641 $1,128 $2,472
</TABLE>
* Reflects imposition of sales charge.
** Reflects deduction of CDSC.
*** Based on the conversion of the Investor B Shares to Investor A Shares after
seven years.

Fund Management
Robert Kapito and Scott Amero co-manage the fund at BlackRock Financial Manage-
ment, Inc. (BFM). Robert Kapito has been Vice Chairman of BFM since 1988 and
portfolio co-manager since inception. Scott Amero has been a Managing Director
of BFM since 1990 and portfolio co-manager since inception.

IMPORTANT DEFINITIONS

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

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

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

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

8
<PAGE>

Low Duration Bond Portfolio

<TABLE>
<CAPTION>
INVESTOR A INVESTOR B
SHARES SHARES
-------------------------------------------------- ---------------------------
For the
period
Year Year 4/1/96 1/12/96/1/ Year 11/18/96/1/
Ended Ended through through Ended through
9/30/98 9/30/97 9/30/96 3/31/96 9/30/98 9/30/97
-------------------------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 9.89 $ 9.79 $ 9.79 $ 9.91 $ 9.89 $ 9.86
------ ------ ------ ------ ------ ------
Income from investment
operations
Net investment income 0.51 0.52 0.25 0.10 0.41 0.41
Net gain (loss) on
investments (both
realized and
unrealized) 0.14 0.09 (0.01) (0.12) 0.17 - -
------ ------ ------ ------ ------ ------
Total from investment
operations 0.65 0.61 0.24 (0.02) 0.58 0.41
------ ------ ------ ------ ------ ------
Less distributions
Distributions from net
investment income (0.51) (0.51) (0.24) (0.10) (0.44) (0.38)
Distributions from net
realized capital gains - - - - - - - - - - - -
------ ------ ------ ------ ------ ------
Total distributions (0.51) (0.51) (0.24) (0.10) (0.44) (0.38)
------ ------ ------ ------ ------ ------
Net asset value at end of
period $10.03 $ 9.89 $ 9.79 $ 9.79 $10.03 $ 9.89
====== ====== ====== ====== ====== ======
Total return/3/ 6.78% 6.39% 2.46% (0.15)% 5.99% 4.31%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $2,850 $1,079 $ 938 $ 719 $ 398 $ 13
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.02%/4/ 1.02%/4/ 1.02%/2/,/4/ 1.01%/2/,/4/ 1.76%/4/ 1.73%/2/,/4/
Before
advisory/administration
fee waivers 1.42% 1.35% 1.30%/2/ 1.21%/2/ 2.16% 2.06%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 6.59% 5.72% 5.20%/2/ 4.94%/2/ 5.82% 4.96%/2/
Before
advisory/administration
fee waivers 6.19% 5.39% 4.92%/2/ 4.74%/2/ 5.42% 4.63%/2/
Portfolio turnover rate 227% 371% 228% 185% 227% 371%

<CAPTION>
INVESTOR C
SHARES
------------------------
Year Year
Ended Ended
9/30/98 9/30/97
------------------------
<S> <C> <C>
Net asset value at
beginning of period $ 9.89 $ 9.87
----------- ----------------
Income from investment
operations
Net investment income 0.44 0.26
Net gain (loss) on
investments (both
realized and
unrealized) 0.14 0.02
----------- ----------------
Total from investment
operations 0.58 0.28
----------- ----------------
Less distributions
Distributions from net
investment income (0.44) (0.26)
Distributions from net
realized capital gains - - - -
----------- ----------------
Total distributions (0.44) (0.26)
----------- ----------------
Net asset value at end of
period $10.03 $ 9.89
=========== ================
Total return/3/ 5.99% 2.91%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $ 342 $ 72
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.75%/4/ 1.72%/2/,/4/
Before
advisory/administration
fee waivers 2.15% 2.05%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 5.70% 5.00%/2/
Before
advisory/administration
fee waivers 5.30% 4.67%/2/
Portfolio turnover rate 227% 371%
</TABLE>

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

/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is
reflected.
/4/Including interest expense, ratios for the Investor A, Investor B and
Investor C Shares would have been 2.32%, 3.08% and 2.98%, respectively, for
the year ended September 30, 1998, 2.02%, 2.19% and 2.23%, respectively, for
the year ended September 30, 1997, 1.12% for the year ended September 30,
1996 and 1.34% for the year ended March 31, 1996.
9
<PAGE>

[GRAPHIC BlackRock
APPEARS Intermediate Government
HERE] Bond Portfolio

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

Investment Goal
The fund seeks current income consistent with the preservation of capital.

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in the highest
rated intermediate government and agency bonds. The fund normally invests at
least 80% of its total assets in bonds and at least 65% of its total assets in
intermediate bonds issued or guaranteed by the U.S. Government and its agen-
cies. The fund defines intermediate bonds as those with maturities of between
five and ten years.

Securities purchased by the fund are rated in the highest rating category (AAA
or Aaa) at the time of purchase by at least one major rating agency or are
determined by the fund manager to be of similar quality.

The management team evaluates categories of the government/agency market and
individual bonds within these categories. The manager selects bonds from sev-
eral categories including: U.S. Treasuries and agency securities, commercial
and residential mortgage-backed securities, asset-backed securities and corpo-
rate bonds. Securities are purchased for the fund when the manager determines
that they have the potential for above-average current income. The fund mea-
sures its performance against the Lehman Brothers Intermediate Government
Index (the benchmark).

If a security falls below the highest rating, the manager will decide whether
to continue to hold the security. A security will be sold if, in the opinion
of the fund manager, the risk of continuing to hold the security is unaccept-
able when compared to the total return potential.

IMPORTANT DEFINITIONS

Asset-Backed Securi-
ties: Bonds that are
backed by a pool of
assets, usually loans
such as installment
sale contracts or
credit card receiv-
ables.

Commercial Mortgage-
Backed Securities
(CMBS): Bonds that are
backed by a mortgage
loan or pools of loans
secured by commercial
property, not residen-
tial mortgages.

Lehman Brothers Inter-
mediate Government
Index: An unmanaged
index comprised of
Treasury and Agency
issues from the more
comprehensive Lehman
Aggregate Index. This
index concentrates on
intermediate maturity
bonds and thus excludes
all maturities from the
broader index below one
year and above 9.9
years.

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer generally
must pay back the face
amount of the security.

10
<PAGE>

used to maintain liquidity, commit cash pending investment or to increase
returns. The fund may also enter into interest rate transactions as a hedging
technique. In these transactions, the fund exchanges its right to pay or
receive interest with another party for their right to pay or receive interest.

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

Key Risks

Key Risks
While the fund manager chooses bonds he believes can provide above average cur-
rent income, there is no guarantee that shares of the Fund will not lose value.
This means you could lose money.

A main risk of investing in the fund is interest rate risk. Typically, when
interest rates rise, there is a corresponding decline in the market value of
bonds such as those held by the fund.

A main difference is that the principal on mortgage-or asset-backed securities
may normally be prepaid at any time, which will reduce the yield and market
value of these securities. Asset-backed securities and CMBS generally experi-
ence less prepayment than residential mortgage-backed securities. In periods of
falling interest rates, the rate of prepayments tends to increase (as does
price fluctuations) as borrowers are motivated to pay off debt and refinance at
new lower rates. During such periods, reinvestment of the prepayment proceeds
by the manager will generally be at lower rates of return than the return on
the assets which were prepaid.

IMPORTANT DEFINITIONS

11
<PAGE>

Certain asset-backed securities are based on loans that are unsecured, which
means that there is no collateral to seize if the underlying borrower
defaults. Other asset-based securities may not have the benefit of as much
collateral as mortgage-backed securities.

Treasury obligations differ only in their interest rates, maturities and times
of issuance. Obligations of U.S. Government agencies and authorities are sup-
ported by the full faith and credit of the United States. Others are supported
by the right of the issuer to borrow from the Treasury, and others are sup-
ported only by the credit of the entity. No assurance can be given that the
U.S. Government will provide financial support to its agencies and authorities
if it is not obligated by law to do so.

The fund's use of derivatives and interest rate transactions may reduce the
fund's returns and/or increase volatility, which is defined as the character-
istic of a security or a market to fluctuate significantly in price within a
short period of time. Leverage is a speculative technique which may expose the
fund to greater risk and increase its costs. Increases and decreases in the
value of the fund's portfolio will be magnified when the fund uses leverage.
The fund will also have to pay interest on its borrowings, reducing the fund's
return.

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, the fund's investment adviser, is currently working to avoid such prob-
lems. 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 issuers whose securities the fund holds or securi-
ties 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.

12
<PAGE>

These returns assume payment of applicable sales charges.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). 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 Lehman Brothers
Intermediate Government Index, a recognized unmanaged index of bond market per-
formance. The chart and the table both assume reinvestment of dividends and
distributions. As with all such investments, past performance is not an indica-
tion of future results. Sales charges are not reflected in the bar chart. If
they were, returns would be less than those shown.

The performance for the period before Investor Shares were launched is based
upon performance for older share classes of the fund. Investor A Shares were
launched in May 1992 and Investor B and C Shares were launched in October 1996.
The actual return of Investor Shares would have been lower than shown because
Investor Shares have higher expenses than these older classes. Also, the actual
returns of Investor B and C Shares would have been lower compared to Investor A
Shares.

[BAR CHART APPEARS HERE]

Best Quarter 93 7.68
Q1 '95: 4.42% 94 -3.60
95 13.53
96 3.83
Worst Quarter 97 7.23
Q1 '94: -2.45% 98 7.13

As of 12/31/98
- -------------------------------------------------------------------------------
A V E R A G E A N N U A L T O T A L R E T U R N S
- -------------------------------------------------------------------------------
Since Inception
1 Year 3 Years 5 Years Inception Date
- -------------------------------------------------------------------------------
Intermediate Govt. Bond; Inv A 2.87% 4.62% 4.61% 5.52% 04/20/92
- -------------------------------------------------------------------------------
Intermediate Govt. Bond; Inv B 1.54% 4.22% 4.70% 5.91% 04/20/92
- -------------------------------------------------------------------------------
Intermediate Govt. Bond; Inv C 5.26% 5.46% 5.12% 5.91% 04/20/92
- -------------------------------------------------------------------------------
LB Intermediate Govt. 8.48% 6.74% 6.45% 7.14% N/A*
- -------------------------------------------------------------------------------

These returns assume payment of applicable sales charges.

* For comparative purposes, the value of the index on 05/01/92 is used as the
beginning value on 04/20/92.

13
<PAGE>

Expenses and Fees

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

The tables below explain your pricing options and describe the fees and
expenses that you may pay if you buy and hold Investor A, B and C Shares of
the fund. 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* 4.0% 0.0% 0.0%
(as percentage of offering
price)
Maximum Deferred Sales Charge 0.0% 4.5%** 1.00%***
(as percentage of offering
price)
</TABLE>
* Reduced front-end sales charges may be available. A CDSC of up to 1.00% is
assessed on certain redemptions of Investor A Shares that are purchased
with no initial sales charge as part of an investment of $1,000,000 or
more.
** The CDSC is 4.5% if shares are redeemed in less than one year. The CDSC
for Investor B Shares decreases for redemptions made in subsequent years.
After six years there is no CDSC on B Shares. (See page 120 for complete
schedule of CDSCs.)
*** There is no CDSC on C Shares after one year.

14
<PAGE>

IMPORTANT DEFINITIONS

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

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

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

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

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

<TABLE>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
Advisory Fees .50% .50% .50%
Distribution and service (12b-
1) fees .50% 1.15% 1.15%
Other expenses .42% .42% .42%
Total annual fund operating
expenses 1.42% 2.07% 2.07%
Fee waivers and expense reimbursements* .35% .25% .25%
Net Expenses* 1.07% 1.82% 1.82%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits. In addition, BlackRock Distributors, Inc., the fund's distributor,
has contractually agreed to waive all 12b-1 distribution fees on Investor A
Shares (otherwise payable at the maximum annual rate of .10% of average
daily net assets) for the next year. "Net Expenses" in the table have been
restated to reflect these waivers and reimbursements.

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 (except for the waivers in the first year discussed above), 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* $505 $798 $1,113 $2,005
B Shares**
Redemption $635 $975 $1,291 $2,136***
B Shares
No Redemption $185 $625 $1,091 $2,136***
C Shares**
Redemption $285 $625 $1,091 $2,380
C Shares
No Redemption $185 $625 $1,091 $2,380
</TABLE>
*Reflects imposition of sales charge.
**Reflects deduction of CDSC.
*** Based on the conversion of the Investor B Shares to Investor A Shares after
seven years.

Fund Management
The co-managers of the fund are Robert Kapito, Vice Chairman of BlackRock
Financial Management, Inc (BFM) since 1988, Scott Amero, Managing Director of
BFM since 1990 and Michael Lustig, Director of BFM since 1989. They have all
co-managed the fund since 1995.
15
<PAGE>

Financial Highlights
The financial information in the table below shows the fund's financial perfor-
mance for the periods indicated. 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 and assumes that
you have reinvested all dividends 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)

Intermediate Government Bond Portfolio

<TABLE>
<CAPTION>
INVESTOR
INVESTOR A SHARES B SHARES
------------------------------------------------------- ------------------------
For the
Period
Year Year Year Year Year Year 10/11/96/1/
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
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of
period $10.11 $ 9.92 $10.03 $ 9.64 $10.60 $10.11 $ 9.98
------ ------ ------ ------ ------ ------ ------
Income from investment
operations
Net investment income 0.53 0.54 0.55 0.55 0.53 0.47 0.45
Net gain (loss) on
investments
(both realized and
unrealized) 0.38 0.19 (0.13) 0.39 (0.87) 0.37 0.13
------ ------ ------ ------ ------ ------ ------
Total from investment
operations 0.91 0.73 0.42 0.94 (0.34) 0.84 0.58
------ ------ ------ ------ ------ ------ ------
Less distributions
Distributions from net
investment income (0.54) (0.54) (0.53) (0.55) (0.52) (0.47) (0.45)
Distributions from net
realized capital gains - - - - - - - - (0.10) - - - -
------ ------ ------ ------ ------ ------ ------
Total distributions (0.54) (0.54) (0.53) (0.55) (0.62) (0.47) (0.45)
------ ------ ------ ------ ------ ------ ------
Net asset value at end of
period $10.48 $10.11 $ 9.92 $10.03 $ 9.64 $10.48 $10.11
====== ====== ====== ====== ====== ====== ======
Total return/3/ 9.32% 7.57% 4.36% 9.98% (3.36)% 8.51% 5.94%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $7,972 $5,374 $5,903 $9,802 $8,508 $ 361 $ 28
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.05%/4/ 1.02%/4/ 0.95%/4/ 0.70%/4/ 0.65% 1.79%/4/ 1.77%/2/,/4/
Before
advisory/administration
fee waivers 1.31% 1.33% 1.25% 1.07% 1.05% 2.05% 2.08%/2/
Ratios of net investment
income
to average net assets
After
advisory/administration
fee waivers 5.37% 5.54% 5.64% 5.67% 5.24% 4.66% 4.75%/2/
Before
advisory/administration
fee waivers 5.11% 5.23% 5.35% 5.30% 4.84% 4.40% 4.44%/2/
Portfolio turnover rate 272% 291% 580% 247% 9% 272% 291%

<CAPTION>
INVESTOR C SHARES
----------------------------
Year Ended Year Ended
9/30/98 9/30/97
<S> <C> <C>
Net asset value at
beginning of
period $10.11 $ 9.98
----------- ----------------
Income from investment
operations
Net investment income 0.47 0.45
Net gain (loss) on
investments
(both realized and
unrealized) 0.37 0.13
----------- ----------------
Total from investment
operations 0.84 0.58
----------- ----------------
Less distributions
Distributions from net
investment income (0.47) (0.45)
Distributions from net
realized capital gains - - - -
----------- ----------------
Total distributions (0.47) (0.45)
----------- ----------------
Net asset value at end of
period $10.48 $10.11
=========== ================
Total return/3/ 8.51% 5.94%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $ 299 $ 51
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.78%/4/ 1.71%/2/,/4/
Before
advisory/administration
fee waivers 2.04% 2.02%/2/
Ratios of net investment
income
to average net assets
After
advisory/administration
fee waivers 4.51% 4.57%/2/
Before
advisory/administration
fee waivers 4.25% 4.26%/2/
Portfolio turnover rate 272% 291%
</TABLE>
---------------------------------------------------------

/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is
reflected.
/4/Including interest expense, ratios for the Investor A, Investor B and
Investor C Shares would have been 1.09%, 1.84% and 1.81%, respectively, for
the year ended September 30, 1998, 1.14%, 1.90% and 1.78%, respectively, for
the year ended September 30, 1997, 1.14% for the year ended September 30,
1996 and 0.70% for the year ended September 30, 1995.
16
<PAGE>

[GRAPHIC BlackRock
APPEARS Intermediate Bond
HERE] Portfolio

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

Investment Goal
The fund seeks current income consistent with the preservation of capital.

The fund only buys securities that are rated investment grade at the time of
purchase by at least one major rating agency or determined by the manager to be
of similar quality.

The management team evaluates categories of the bond market and individual
securities within those categories. The manager selects bonds from several cat-
egories including: U.S. Treasuries and agency securities, commercial and resi-
dential mortgage-backed securities, asset-backed securities and corporate
bonds. Securities are purchased for the fund when the manager determines that
they have the potential for above-average current income. The fund measures its
performance against the Lehman Brothers Intermediate Government/Corporate Index
(the benchmark).

IMPORTANT DEFINITIONS

Asset-Backed Securi-
ties: Bonds that are
backed by a pool of
assets, usually loans
such as installment
sale contracts or
credit card receiv-
ables.

Commercial Mortgage-
Backed Securities
(CMBS): Bonds that are
backed by a mortgage
loan or pools of loans
secured by commercial
property, not residen-
tial mortgages.

17
<PAGE>

increase returns. The fund may also enter into interest rate transactions as a
hedging technique. In these transactions, the fund exchanges its right to pay
or receive interest with another party for their right to pay or receive
interest.

The fund can borrow money to buy additional securities. This practice is know
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securi-
ties and agrees to buy them back at a particular date and price). The fund
normally may borrow up to 33 1/3% of the value of its total assets.

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

Key Risks

Key Risks
While the fund manager chooses bonds he believes can provide above average
current income, there is no guarantee that shares of the fund will not lose
value. This means you could lose money.

A main difference is that the principal on mortgage- or asset-backed securi-
ties may normally be prepaid at any time, which will reduce the yield and mar-
ket value of these securities. Asset-backed securities and CMBS generally
experience less prepayment than residential mortgage-backed securities. In
periods of falling interest rates, the rate of prepayments tends to increase
(as does price fluctuation) as borrowers are motivated to pay off debt and
refinance at new lower rates. During such periods, reinvestment of the prepay-
ment proceeds by the manager will generally be at lower rates of return than
the return on the assets which were prepaid.

IMPORTANT DEFINITIONS

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer generally
must pay back the face
amount of the security.

18
<PAGE>

Certain asset-backed securities are based on loans that are unsecured, which
means that there is no collateral to seize if the underlying borrower defaults.
Other asset-based securities may not have the benefit of as much collateral as
mortgage-backed securities.

The fund's use of derivatives and interest rate transactions may reduce the
fund's returns and/or increase volatility, which is defined as the characteris-
tic of a security or a market to fluctuate significantly in price within a
short period of time. Leverage is a speculative technique which may expose the
fund to greater risk and increase its costs. Increases and decreases in the
value of the fund's portfolio will be magnified when the fund uses leverage.
The fund will also have to pay interest on its borrowings, reducing the fund's
return.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). 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 Lehman Brothers
Intermediate Government/Corporate Index, a recognized unmanaged index of bond
market performance. The chart and the table both assume reinvestment of divi-
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.

The performance for the period before Investor Shares were launched is based
upon performance for older share classes of the fund. Investor A Shares were
launched in May 1994, Investor B Shares were launched in February 1998 and
Investor C Shares were launched in October 1998. The actual return of Investor
Shares would have been lower than shown because Investor Shares have higher
expenses than these older classes. Also, the actual returns of Investor B and C
Shares would have been lower compared to Investor A Shares.

[BAR CHART APPEARS HERE]

Best Quarter
Q2 '95: 4.40% 94 14.10
95 3.92
96 7.11
Worst Quarter 97 6.59
Q1 '94: -2.86%

The bar of 1994 is
based upon performance
for Institutional Shares
of the fund.

Since Inception
1 Year 3 Years 5 Years Inception Date
- ---------------------------------------------------------------------------
Intermediate Bond; Inv A 5.42% 8.45% 8.07% 9.02% 09/15/93
- ---------------------------------------------------------------------------
Intermediate Bond; Inv B 5.19% 8.28% 8.30% 9.47% 09/15/93
- ---------------------------------------------------------------------------
Intermediate Bond; Inv C 9.05% 9.57% 8.74% 9.47% 09/15/93
- ---------------------------------------------------------------------------
LB Intermediate Govt./Corp. 8.43% 6.76% 6.60% 6.29% N/A*
- ---------------------------------------------------------------------------

These returns assume payment of applicable sales charges.

* For comparative purposes, the value of the index on 09/01/93 is used as the
beginning value on 09/15/93.

Expenses and Fees

20
<PAGE>

<TABLE>
<CAPTION>
A Shares B Shares C Shares

<S> <C> <C> <C>
Maximum Front-End Sales Charge* 4.0% 0.0% 0.0%
(as percentage of offering price)

Maximum Deferred Sales Charge 0.0% 4.5%** 1.00%***
(as percentage of offering price)
</TABLE>
* Reduced front-end sales charges may be available. A CDSC of up to 1.00% is
assessed on certain redemptions of Investor A Shares that are purchased
with no initial sales charge as part of an investment of $1,000,000 or
more.
** The CDSC is 4.5% if shares are redeemed in less than one year. The CDSC for
Investor B Shares decreases for redemptions made in subsequent years. After
six years there is no CDSC on B Shares. (See page 120 for complete schedule
of CDSCs.)
*** There is no CDSC on C Shares after one year.

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

<TABLE>
<CAPTION>
A Shares B Shares C Shares

<S> <C> <C> <C>
Advisory Fees .50% .50% .50%
Distribution and service (12b-
1) fees .50% 1.15% 1.15%
Other expenses .43% .43% .43%
Total annual fund operating
expenses 1.43% 2.08% 2.08%
Fee waivers and expense
reimbursements* .36% .26% .26%
Net Expenses* 1.07% 1.82% 1.82%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits. In addition, BlackRock Distributors Inc., the fund's distributor,
has contractually agreed to waive all 12b-1 distribution fees on Investor A
Shares (otherwise payable at the maximum annual rate of .10% of average
daily net assets) for the next year. "Net Expenses" in the table have been
restated to reflect these waivers and reimbursements.

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

IMPORTANT DEFINITIONS

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

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

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

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

21
<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 (except for the waivers in the first year discussed above), 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* $505 $800 $1,117 $2,015
B Shares**
Redemption $635 $977 $1,295 $2,145***
B Shares
No Redemption $185 $627 $1,095 $2,145***
C Shares**
Redemption $285 $627 $1,095 $2,390
C Shares
No Redemption $185 $627 $1,095 $2,390
</TABLE>
* Reflects imposition of sales charge.
** Reflects deduction of CDSC.
*** Based on the conversion of the Investor B Shares to Investor A Shares after
seven years.

Fund Management

The co-managers of the fund are Robert Kapito, Vice Chairman of BlackRock
Financial Management, Inc. (BFM) since 1988, Scott Amero, Managing Director of
BFM since 1990, and Michael Lustig, Director of BFM since 1989. They have all
co-managed the fund since 1995.

22
<PAGE>

Financial Highlights
The financial information in the table below shows the fund's financial per-
formance for the periods indicated. 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 and assumes that
you have reinvested all dividends 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 or B Share Outstanding Throughout Each Period)

Intermediate Bond Portfolio

<TABLE>
<CAPTION>
INVESTOR A INVESTOR B
SHARES SHARES
For the For the
Period Period
Year Year Year Year 5/20/94/1 9/5/98/1
Ended Ended Ended Ended / through / through
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94 9/30/98
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 9.49 $ 9.32 $9.43 $9.05 $9.23 $9.51
------ ------ ----- ----- ----- -----
Income from investment
operations
Net investment income 0.53 0.53 0.52 0.54 0.20 0.29
Net gain (loss) on
investments (both
realized and
unrealized) 0.23 0.17 (0.09) 0.38 (0.17) 0.21
------ ------ ----- ----- ----- -----
Total from investment
operations 0.76 0.70 0.43 0.92 0.03 0.50
------ ------ ----- ----- ----- -----
Less distributions
Distributions from net
investment income (0.53) (0.53) (0.51) (0.54) (0.21) (0.29)
Distributions from net
realized capital gains (0.05) - - (0.03) - - - - (0.05)
------ ------ ----- ----- ----- -----
Total distributions (0.58) (0.53) (0.54) (0.54) (0.21) (0.34)
------ ------ ----- ----- ----- -----
Net asset value at end of
period $ 9.67 $ 9.49 $9.32 $9.43 $9.05 $9.67
====== ====== ===== ===== ===== =====
Total return/3/ 8.30% 7.89% 4.74% 10.35% 0.31% 7.83%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $1,648 $1,116 $ 935 $ 647 $ 87 $ 111
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.06%/4/ 1.00%/4/ 0.97%/4/ 0.76%/4/ 0.85%/2/ 1.75%/2/, /4/
Before
advisory/administration
fee waivers 1.33% 1.29% 1.27% 1.11% 1.28%/2/ 2.02%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 6.80% 6.14% 5.83% 5.89% 5.35%/2/ 5.59%/2/
Before
advisory/administration
fee waivers 6.53% 5.85% 5.53% 5.55% 4.92%/2/ 5.07%/2/
Portfolio turnover rate 221% 321% 670% 262% 92% 221%
</TABLE>
-------------------------------------------------------

/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is
reflected.
/4/Including interest expense, ratios for the Investor A and Investor B would
have been 2.22% and 2.79%, respectively, for the year ended September 30,
1998, 1.44% for the year ended September 30, 1997, 1.27% for the year ended
September 30, 1996 and 0.84% for the year ended September 30, 1995.
23
<PAGE>

[GRAPHIC BlackRock
APPEARS Core Bond
HERE] Portfolio

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

Investment Goal
The fund seeks to realize a total return that exceeds that of the Lehman
Brothers Aggregate Index (the benchmark).

Primary Investment Strategies
In pursuit of this goal, the fund normally invests at least 80% of its total
assets in bonds and at least 65% of its total assets in bonds with maturities
of between five and fifteen years. The fund may invest up to 10% of its total
assets in bonds of foreign issuers.

The fund only buys securities that are rated investment grade at the time of
purchase by at least one major rating agency or determined by the manager to
be of similar quality.

The management team evaluates several categories of the bond market and indi-
vidual securities within these categories. The fund manager selects bonds from
several categories including: U.S. Treasuries and agency securities, commer-
cial and residential mortgage-backed securities, asset-backed securities and
corporate bonds. Securities are purchased for the fund when the manager deter-
mines that they have the potential for above-average total return. The Fund
measures its performance against the benchmark.

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 invest-
ment or to increase returns. The fund may also enter into interest rate or
foreign currency transactions as a hedging technique. In these transactions,
the fund exchanges its right to pay or receive interest or currencies with
another party for their right to pay or receive interest or another currency
in the future.

IMPORTANT DEFINITIONS

Asset-Backed Securi-
ties: Bonds that are
backed by a pool of
assets, usually loans
such as installment
sale contracts or
credit card
receivables.

Commercial Mortgage-
Backed Securities
(CMBS): Bonds that are
backed by a mortgage
loan or pools of loans
secured by commercial
property, not residen-
tial mortgages.

24
<PAGE>

The fund can borrow money to buy additional securities. This practice is known
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securities
and agrees to buy them back at a particular date and price).The fund (normally)
may borrow up to 33 1/3% of the value of its 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 made.

Key Risks

Certain asset-backed securities are based on loans that are unsecured, which
means that there is no collateral to seize if the underlying borrower defaults.
Other asset-based securities may not have the benefit of as much collateral as
mortgage-backed securities.

Treasury obligations differ only in their interest rates, maturities and times
of issuance. Obligations of U.S. Government agencies

IMPORTANT DEFINITIONS

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer generally
must pay back the face
amount of the security.

25
<PAGE>

and authorities are supported by varying degrees of credit. No assurance can
be given that the U.S. Government will provide financial support to its agen-
cies and authorities if it is not obligated by law to do so.

The fund may invest up to 10% of its total assets in bonds of foreign issuers.
Foreign securities involve risks not typically associated with investing in
U.S. securities. These risks include but are not limited to: currency risks
(the risk that the value of interest paid on foreign securities, or the value
of the securities themselves, may fall if currency exchange rates change), the
risk that a security's value will be hurt by changes in foreign political or
social conditions, the possibility of heavy taxation or expropriation and more
difficulty obtaining information on foreign securities or companies. In addi-
tion, a portfolio of foreign securities may be harder to sell and may be sub-
ject to wider price movements than comparable investments in U.S. companies.
There is also less government regulation of foreign securities markets.

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, the fund's investment adviser, is currently working to avoid such prob-
lems. 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 issuers whose securities the fund holds or securi-
ties markets generally.

26
<PAGE>

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

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). 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 Lehman Brothers
Aggregate Index, a recognized unmanaged index of bond 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 performance for the period before Investor Shares were launched is based
upon performance for older share classes of the fund. Investor A Shares were
launched in January 1996, Investor B Shares were launched in March 1996 and
Investor C Shares were launched in February 1997. The actual return of Investor
Shares would have been lower than shown because Investor Shares have higher
expenses than these older classes. Also, the actual returns of Investor B and C
Shares would have been lower compared to Investor A Shares.

As of 12/31 Investor A Shares
- -------------------------------------------------------------------------------
A N N U A L T O T A L R E T U R N S
- -------------------------------------------------------------------------------

[BAR CHART APPEARS HERE]

Best Quarter Q2 '95: 5.87%

Worst Quarter Q1 '94: -2.63%

The bars for 1993-1996
are based upon performance
for Institutional Shares of
the Fund

93 94 95 96 97 98
----- ------ ------ ------ ------ -----
9.69% -2.33% 18.18% 3.19% 8.51% 7.66%

These returns assume payment of applicable sales charges.

27
<PAGE>

Expenses and fees

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

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

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

<TABLE>
<CAPTION>
A Shares B Shares C Shares

<S> <C> <C> <C>
Advisory Fees .50% .50% .50%
Distribution and service (12b-
1) fees .50% 1.15% 1.15%
Other expenses .46% .46% .46%
Total annual fund operating
expenses 1.46% 2.11% 2.11%
Fee waivers and expense
reimbursements* .44% .34% .34%
Net Expenses* 1.02% 1.77% 1.77%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock
in the following two years if the repayment can be made within these
expense limits. In addition, BlackRock Distributors, Inc., the fund's
distributor, has contractually agreed to waive all 12b-1 distribution fees
on Investor A Shares (otherwise payable at the maximum annual rate of .10%
of average daily net assets) for the next year. "Net Expenses" in the
table have been restated to reflect these waivers and reimbursements.

IMPORTANT DEFINITIONS

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

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

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

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

28
<PAGE>

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution. Long-term shareholders in mutual
funds with 12b-1 fees may pay more than the economic equivalent of the maximum
front-end sales charge permitted by the rules of the National Association of
Securities Dealers, Inc.

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 (except for the waivers in the first year discussed above), 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* $500 $802 $1,125 $2,040
B Shares**
Redemption $630 $978 $1,303 $2,171***
B Shares
No Redemption $180 $628 $1,103 $2,171***
C Shares**
Redemption $280 $628 $1,103 $2,415
C Shares
No Redemption $180 $628 $1,103 $2,415
</TABLE>
*Reflects imposition of sales charge.
**Reflects deduction of CDSC.
*** Based on the conversion of the Investor B Shares to Investor A Shares after
seven years.

Fund Management
The manager of the fund is Keith Anderson, Managing Director at BlackRock
Financial Management, Inc. since 1988. He has served as fund manager since June
1997.
29
<PAGE>

Financial Highlights
The financial information in the table below shows the fund's financial per-
formance for the periods indicated. 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 and assumes that
you have reinvested all dividends 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)

Core Bond Portfolio

<TABLE>
<CAPTION>
INVESTOR A
SHARES
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
For the For the
Period Period
Year Year 4/1/96 1/31/96/1
Ended Ended through / through
9/30/98 9/30/97 9/30/96 3/31/96
<S> <C> <C> <C> <C>
Net asset value
at beginning of
period $ 9.82 $ 9.55 $ 9.61 $ 9.99
------ ------ ------ ------
Income from
investment
operations
Net investment
income 0.55 0.58 0.28 0.08
Net gain (loss)
on investments
(both realized
and unrealized) 0.40 0.26 (0.06) (0.38)
------ ------ ------ ------
Total from
investment
operations 0.95 0.84 0.22 (0.30)
------ ------ ------ ------
Less
distributions
Distributions
from net
investment
income (0.56) (0.57) (0.28) (0.08)
Distributions
from net
realized
capital gains (0.09) - - - - - -
------ ------ ------ ------
Total
distributions (0.65) (0.57) (0.28) (0.08)
------ ------ ------ ------
Net asset value
at end of period $10.12 $ 9.82 $ 9.55 $ 9.61
====== ====== ====== ======
Total returns/3/ 10.04% 9.52% 2.36% (2.96)%
Ratios/Supplemental
data
Net assets at
end of period
(in thousands) $5,108 $2,441 $ 320 $ 80
Ratios of
expenses to
average net
assets
After
advisory/administration
fee waivers 0.98%/4/ 1.01%/4/ 1.02%/2/,/4/ 1.02%/2/,/4/
Before
advisory/administration
fee waivers 1.32% 1.30% 1.31%/2/ 1.27%/2/
Ratios of net
investment
income
to average net
assets
After
advisory/administration
fee waivers 5.78% 6.31% 6.29%/2/ 5.43%/2/
Before
advisory/administration
fee waivers 5.44% 6.02% 6.00%/2/ 5.19%/2/
Portfolio
turnover rate 405% 441% 308% 723%
<S> <C> <C> <C> <C> <C> <C>
Net asset value
at beginning of
period $ 9.82 $ 9.55 $ 9.61 $ 9.58 $ 9.82 $ 9.64
----------- ----------- --------------- ---------------- ----------- ----------------
Income from
investment
operations
Net investment
income 0.47 0.51 0.26 0.01 0.47 0.29
Net gain (loss)
on investments
(both realized
and unrealized) 0.40 0.26 (0.07) 0.03 0.40 0.17
----------- ----------- --------------- ---------------- ----------- ----------------
Total from
investment
operations 0.87 0.77 0.19 0.04 0.87 0.46
----------- ----------- --------------- ---------------- ----------- ----------------
Less
distributions
Distributions
from net
investment
income (0.48) (0.50) (0.25) (0.01) (0.48) (0.28)
Distributions
from net
realized
capital gains (0.09) - - - - - - (0.09) - -
----------- ----------- --------------- ---------------- ----------- ----------------
Total
distributions (0.57) (0.50) (0.25) (0.01) (0.57) (0.28)
----------- ----------- --------------- ---------------- ----------- ----------------
Net asset value
at end of period $ 10.12 $ 9.82 $ 9.55 $ 9.61 $10.12 $ 9.82
=========== =========== =============== ================ =========== ================
Total returns/3/ 9.20% 8.71% 1.98% (0.33)% 9.20% 4.82%
Ratios/Supplemental
data
Net assets at
end of period
(in thousands) $11,734 $5,295 $1,497 $ 77 $2,035 $ 128
Ratios of
expenses to
average net
assets
After
advisory/administration
fee waivers 1.76%/4/ 1.75%/4/ 1.72%/2/,/4/ 1.77%/2/,/4/ 1.73%/4/ 1.74%/2/,/4/
Before
advisory/administration
fee waivers 2.10% 2.04% 2.01%/2/ 2.02%/2/ 2.07% 2.03%/2/
Ratios of net
investment
income
to average net
assets
After
advisory/administration
fee waivers 5.03% 5.61% 5.68%/2/ 4.71%/2/ 4.92% 5.41%/2/
Before
advisory/administration
fee waivers 4.69% 5.32% 5.39%/2/ 4.46%/2/ 4.58% 5.12%/2/
Portfolio
turnover rate 405% 441% 308% 723% 405% 441%
</TABLE>
------------------------------------------------------------

/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is
reflected.
/4/Including interest expense, ratios for the Investor A, Investor B and
Investor C Shares would have been 1.27%, 2.01% and 1.90%, respectively, for
the year ended September 30, 1998, 1.36%, 2.17% and 1.93%, respectively, for
the year ended September 30, 1997, 1.27% and 2.00%, respectively, for the
period ended September 30, 1996, and 1.11% and 1.86% for the period ended
March 31, 1996.
30
<PAGE>

[GRAPHIC BlackRock
APPEARS Government Income
HERE] Portfolio

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

Investment Goal
The fund seeks current income consistent with the preservation of capital.

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in the highest
rated government and agency bonds in the ten to fifteen year maturity range.
The fund normally invests at least 80% of its total assets in bonds and at
least 65% of its total assets in obligations issued or guaranteed by the U.S.
Government and its agencies. Securities purchased by the fund are rated in the
highest rating category (AAA or Aaa) at the time of purchase by at least one
major rating agency or are determined by the fund manager to be of similar
quality.

The management team evaluates categories of the government/agency market and
individual bonds within these categories. The manager selects bonds from sev-
eral categories including: U.S. Treasuries and agency securities, commercial
and residential mortgage-backed securities (including CMOs), asset-backed secu-
rities and corporate bonds. Securities are purchased for the fund when the man-
ager determines that they have the potential for above-average current income.
The fund measures its performance against the Lehman Mortgage/10 Year Treasury
Index (the benchmark).

If a security falls below the highest rating, the manager will decide whether
to continue to hold the security. A security will be sold if, in the opinion of
the fund manager, the risk of continuing to hold the security is unacceptable
when compared to the total return potential.

IMPORTANT DEFINITIONS

Asset-Backed Securi-
ties: Bonds that are
backed by a pool of
assets, usually loans
such as installment
sale contracts or
credit card receiv-
ables.

Collateralized Mortgage
Obligations (CMO): Are
Bonds that are backed
by cash flows from
pools of mortgages.
CMOs may have multiple
classes with different
payment rights and
protections.

Commercial Mortgage-
Backed Securities
(CMBS): A fixed-income
security that is backed
by a mortgage loan or
pools of loans secured
by commercial property,
not residential mort-
gages.

Lehman Mortgage/10 Year
Treasury Index: An
unmanaged index com-
prised of 50% alloca-
tion to the mortgage
component of the Lehman
Brothers Aggregate
Index and a 50% alloca-
tion of the Merrill
Lynch 10 year Treasury
Index.

31
<PAGE>

actions as a hedging technique. In these transactions, the fund exchanges its
right to pay or receive interest with another party for their right to pay or
receive interest.

The fund can borrow money to buy additional securities. This practice is known
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securi-
ties and agrees to buy them back at a particular date and price). The fund
normally may borrow up to 33 1/3% of the value of its total assets.

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

Key Risks
Key Risks
While the fund manager chooses bonds he believes can provide above average
current income, there is no guarantee that shares of the fund will not lose
value. This means you could lose money.

A main risk of investing in the fund is interest rate risk. Typically, when
interest rates rise, there is a corresponding decline in the market value of
bonds such as those held by the fund.

A main difference is that the principal on mortgage-or asset-backed securities
may normally be prepaid at any time, which will reduce the yield and market
value of these securities. Asset-backed securities and CMBS generally experi-
ence less prepayment than residential mortgage-backed securities. In periods
of falling interest rates, the rate of prepayments tends to increase (as does
price fluctuation) as borrowers are motivated to pay off debt and refinance at
new lower rates. During such periods, reinvestment of the prepayment proceeds
by the manager will generally be at lower rates of return than the return on
the assets which were prepaid.

IMPORTANT DEFINITIONS

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer generally
must pay back the face
amount of the security.

32
<PAGE>

Certain asset-backed securities are based on loans that are unsecured, which
means that there is no collateral to seize if the underlying borrower defaults.
Other asset-based securities may not have the benefit of as much collateral as
mortgage-backed securities.

The fund's use of derivative and interest rate transactions may reduce the
fund's returns and/or increase volatility, which is defined as the characteris-
tic of a security or a market to fluctuate significantly in price within a
short period of time. Leverage is a speculative technique which may expose the
fund to greater risk and increase its cost. Increases and decreases in the
value of the fund's portfolio will be magnified when the fund uses leverage.
The fund will also have to pay interest on its borrowings, reducing the fund's
return.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). 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 Lehman Mort-
gage/10 Year Treasury Index, a recognized unmanaged index of bond market per-
formance. The chart and the table both assume reinvestment of dividends and
distributions. As with all such investments, past performance is not an indica-
tion of future results. Sales charges are not reflected in the bar chart. If
they were, returns would be less than those shown.

The performance for the period before Investor C Shares were launched is based
upon performance for Investor B Shares of the fund. Investor C Shares were
launched in February 1997.

[BAR CHART APPEARS HERE]

Best Quarter Q2 '95: 6.92%

Worst Quarter Q1 '96: -1.94%

95 96 97 98
------ ------ ------ ------
18.99% 3.41% 10.52% 8.00%

As of 12/31/98
- -------------------------------------------------------------------------------
A V E R A G E A N N U A L T O T A L R E T U R N S
- -------------------------------------------------------------------------------
Since Inception
1 Year 3 Years Inception Date
- -------------------------------------------------------------------------------
Government Income; Inv A 3.10% 5.63% 8.27% 10/03/94
- -------------------------------------------------------------------------------
Government Income; Inv B 2.38% 5.21% 7.50% 10/03/94
- -------------------------------------------------------------------------------
Government Income; Inv C 6.13% 6.46% 8.68% 10/03/94
- -------------------------------------------------------------------------------
Leh. Mtg./10 Yr. Tsy. 9.86% 7.57% 10.03% N/A*
- ---------------------------------------------------------------------

* For comparative purposes, the value of the index on 10/01/94 is used as the
beginning value on 10/03/94.

EXPENSES AND FEES

These returns assume payment of applicable sales charges.

34
<PAGE>

time front-end transaction fee each time you buy shares. The other options (In-
vestor B and Investor C Shares) have no front-end charges but have higher on-
going fees, which are paid over the life of the investment, and have a contin-
gent deferred sales charge (CDSC) that you may pay when you redeem your shares.
Which option should you choose? It depends on your individual circumstances.
You should know that the lowest sales charge won't necessarily be the least
expensive option over time. For example, if you intend to hold your shares long
term it may cost less to buy A Shares than B or C Shares.

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 CDSC is 4.5% if shares are redeemed in less than one year. The CDSC for
Investor B Shares decreases for redemptions made in subsequent years. After
six years there is no CDSC on B Shares. (See page 120 for complete schedule
of CDSCs.)
*** There is no CDSC on C Shares after one year.

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

<TABLE>
<CAPTION>
A Shares B Shares C Shares

<S> <C> <C> <C>
Advisory Fees .50% .50% .50%
Distribution and service (12b-1) fees .50% 1.15% 1.15%
Other expenses .73% .73% .73%
Total annual fund operating expenses 1.73% 2.38% 2.38%
Fee waivers and expense reimbursements* .66% .56% .56%
Net Expenses* 1.07% 1.82% 1.82%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits. In addition, BlackRock Distributors, Inc., the fund's distributor,
has contractually agreed to waive all 12b-1 distribution fees on Investor A
Shares (otherwise payable at the maximum annual rate of .10% of average
daily net assets) for the next year. "Net Expenses" in the table have been
restated to reflect these waivers and reimbursements.

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

IMPORTANT DEFINITIONS

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

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

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

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

35
<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 (except for the waivers in the first year discussed above), 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* $554 $ 910 $1,287 $2,347
B Shares**
Redemption $635 $1,039 $1,420 $2,435***
B Shares
No Redemption $185 $ 689 $1,220 $2,435***
C Shares**
Redemption $285 $ 689 $1,220 $2,674
C Shares
No Redemption $185 $ 689 $1,220 $2,674
</TABLE>
*Reflects imposition of sales charge.
**Reflects deduction of CDSC.
*** Based on the conversion of the Investor B Shares to Investor A Shares after
seven years.

Fund Management
The co-managers of the fund are Robert Kapito, Vice Chairman of BlackRock
Financial Management, Inc. (BFM) since 1988, Scott Amero, Managing Director of
BFM since 1990 and Michael Lustig, Director of BFM since 1989. They have all
co-managed the fund since 1995.
36
<PAGE>

Financial Highlights
The financial information in the table below shows the fund's financial perfor-
mance for the periods indicated. 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 and assumes that
you have reinvested all dividends 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)

Government Income Portfolio

<TABLE>
<CAPTION>
INVESTOR A
SHARES
- --------------------------------------------------------------------------------
For the
Period
Year Year Year 10/03/94/1
Ended Ended Ended / through
9/30/98 9/30/97 9/30/96 9/30/95
<S> <C> <C> <C> <C>
Net asset value
at beginning of
period $10.49 $10.20 $10.68 $10.00
------ ------ ------ ------
Income from
investment
operations
Net investment
income 0.53 0.73 0.68 0.55
Net gain (loss)
on investments
(both realized
and unrealized) 0.54 0.30 (0.22) 0.68
------ ------ ------ ------
Total from
investment
operations 1.07 1.03 0.46 1.23
------ ------ ------ ------
Less
distributions
Distributions
from net
investment
income (0.61) (0.74) (0.66) (0.55)
Distributions
from net
realized
capital gains (0.11) - - (0.28) - -
------ ------ ------ ------
Total
distributions (0.72) (0.74) (0.94) (0.55)
------ ------ ------ ------
Net asset value
at end of period $10.84 $10.49 $10.20 $10.68
====== ====== ====== ======
Total return/3/ 11.13% 10.48% 4.43% 14.27%
Ratios/Supplemental
data
Net assets at
end of period
(in thousands) $6,045 $4,876 $3,651 $2,990
Ratios of
expenses to
average net
assets
After
advisory/administration
fee waivers 1.05%/4/ 1.02%/4/ 0.91%/4/ 0.37%/2/, /4/
Before
advisory/administration
fee waivers 1.63% 1.74% 1.67% 1.81%/2/
Ratios of net
investment
income to
average net
assets
After
advisory/administration
fee waivers 5.86% 8.02% 8.59% 6.89%/2/
Before
advisory/administration
fee waivers 5.28% 7.30% 7.83% 5.44%/2/
Portfolio
turnover rate 477% 393% 434% 258%

<CAPTION>
INVESTOR B INVESTOR
SHARES C SHARES
------------------------------------------------------ -----------------------------
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
9/30/98 9/30/97 9/30/96 9/30/95 9/30/98 9/30/97
<S> <C> <C> <C> <C> <C> <C>
Net asset value
at beginning of
period $ 10.49 $ 10.20 $10.68 $ 10.00 $10.49 $10.30
----------- ----------- ----------- ------------------ ----------- -----------------
Income from
investment
operations
Net investment
income 0.54 0.66 0.60 0.50 0.51 0.37
Net gain (loss)
on investments
(both realized
and unrealized) 0.50 0.30 (0.21) 0.68 0.53 0.20
----------- ----------- ----------- ------------------ ----------- -----------------
Total from
investment
operations 1.04 0.96 0.39 1.18 1.04 0.57
----------- ----------- ----------- ------------------ ----------- -----------------
Less
distributions
Distributions
from net
investment
income (0.58) (0.67) (0.59) (0.50) (0.58) (0.38)
Distributions
from net
realized
capital gains (0.11) - - (0.28) - - (0.11) - -
----------- ----------- ----------- ------------------ ----------- -----------------
Total
distributions (0.69) (0.67) (0.87) (0.50) (0.69) (0.38)
----------- ----------- ----------- ------------------ ----------- -----------------
Net asset value
at end of period $ 10.84 $ 10.49 $10.20 $ 10.68 $10.84 $10.49
=========== =========== =========== ================== =========== =================
Total return/3/ 10.31% 9.66% 3.68% 13.52% 10.31% 5.64%
Ratios/Supplemental
data
Net assets at
end of period
(in thousands) $25,165 $14,796 $11,119 $10,188 $1,551 $ 849
Ratios of
expenses to
average net
assets
After
advisory/administration
fee waivers 1.80%/4/ 1.77%/4/ 1.64%/4/ 1.05%/2/, /4/ 1.80%/4/ 1.70%/2/, /4/
Before
advisory/administration
fee waivers 2.38% 2.49% 2.40% 2.50%/2/ 2.38% 2.42%/2/
Ratios of net
investment
income to
average net
assets
After
advisory/administration
fee waivers 5.03% 7.26% 7.81% 6.17%/2/ 4.98% 7.11%/2/
Before
advisory/administration
fee waivers 4.45% 6.54% 7.05% 4.72%/2/ 4.40% 6.39%/2/
Portfolio
turnover rate 477% 393% 434% 258% 477% 393%
</TABLE>
/1/Commencement of operations of share class.
/2/Annualized. -------------------------------------------------------------

/3/Neither front-end sales load nor contingent deferred sales load is
reflected.
/4/Including interest expense, ratios for the Investor A, Investor B and
Investor C Shares would have been 1.46%, 2.01% and 2.14%, respectively, for
the year ended September 30, 1998, 1.41%, 2.14% and 3.24%, respectively, for
the year ended September 30, 1997, 2.96% and 3.69%, respectively, for the
year ended September 30, 1996, and 0.92% and 1.60%, respectively, for the
period ended September 30, 1995.
37
<PAGE>

[GRAPHIC BlackRock
APPEARS GNMA
HERE] Portfolio

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

Investment Goal
The fund seeks current income consistent with the preservation of capital.

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in securities
issued by the Government National Mortgage Association (GNMA) as well as other
U.S. Government securities in the five to ten year maturity range. The fund
normally invests at least 80% of its total assets in bonds (including U.S.
Treasuries and agency securities and mortgage-backed and asset-backed securi-
ties) and at least 65% of its total assets in GNMA securities.

Securities are purchased for the fund when the manager determines that they
have the potential for above-average current income. The fund measures its per-
formance against the Lehman GNMA Index (the benchmark).

If a security falls below the highest rating, the manager will decide whether
to continue to hold the security. A security will be sold if, in the opinion of
the fund manager, the risk of continuing to hold the security is unacceptable
when compared to the total return potential.

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. The fund may also enter into interest rate transactions
as a hedging technique. In these transactions, the fund exchanges its right to
pay or receive interest with another party for their right to pay or receive
interest.

IMPORTANT DEFINITIONS

Asset-Backed Securi-
ties: Bonds that are
backed by a pool of
assets, usually loans
such as installment
sale contracts or
credit card
receivables.

Commercial Mortgage-
Backed Securities
(CMBS): Bonds that are
backed by a mortgage
loan or pool of loans
secured by commercial
property, not residen-
tial mortgages.

GNMA Securities: Secu-
rities issued by the
Government National
Mortgage Association
(GNMA). These securi-
ties represent inter-
ests in pools of resi-
dential mortgage loans
originated by private
lenders and pass income
from the initial debt-
ors (homeowners)
through intermediaries
to investors. GNMA
securities are backed
by the full faith and
credit of the U.S. Gov-
ernment.

Lehman GNMA Index: An
unmanaged index com-
prised of mortgage-
backed pass through
securities of the Gov-
ernment National Mort-
gage Association
(GNMA).

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer generally
must pay back the face
amount of the security.

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 made.

KEY RISKS

Key Risks
While the fund manager chooses bonds he believes can provide above average cur-
rent income, there is no guarantee that shares of the fund will not lose value.
This means you could lose money.

A main risk of investing in the fund is interest rate risk. Typically, when
interest rates rise, there is a corresponding decline in the market value of
bonds such as those held by the fund.

In addition to GNMA securities, the fund may make investments in other residen-
tial and commercial mortgage-backed securities and other asset-backed securi-
ties. The characteristics of mortgage-backed and asset-backed securities differ
from traditional fixed income securities.

A main difference is that the principal on mortgage-or asset-backed securities
may normally be prepaid at any time, which will reduce the yield and market
value of these securities. Asset-backed securities and CMBS generally experi-
ence less prepayment than residential mortgage-backed securities. In periods of
falling interest rates, the rate of prepayments tends to increase (as does
price fluctuation) as borrowers are motivated to pay off debt and refinance at
new lower rates. During such periods, reinvestment of the prepayment proceeds
by the manager will generally be at lower rates of return than the return on
the assets which were prepaid.

Certain asset-backed securities are based on loans that are unsecured, which
means that there is no collateral to seize if the underlying borrower defaults.
Other asset-based securities may not have the benefit of as much collateral as
mortgage-backed securities.

IMPORTANT DEFINITIONS

39
<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, the fund's investment adviser, is currently working to avoid such prob-
lems. 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 issuers whose securities the fund holds or securi-
ties markets generally.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). 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 Lehman GNMA
Index, a recognized unmanaged index of bond 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 performance for the period before the fund was launched is based upon per-
formance for a predecessor common trust fund which transferred its assets and
liabilities to the fund. The fund was launched in May 1998.

[BAR CHART APPEARS HERE]

Best Quarter Q2 '95: 5.71%

Worst Quarter Q1 '94: -3.77%

91 92 93 94 95 96 97 98
------ ------ ------ ------ ------ ----- ----- ------
15.49% 6.22% 7.36% -3.99% 17.18% 4.23% 9.19% 7.05%

As of 12/31/98
- -------------------------------------------------------------------------------
A V E R A G E A N N U A L T O T A L R E T U R N S
- -------------------------------------------------------------------------------
Since Inception
1 Year 3 Years 5 Years Inception Date
- -------------------------------------------------------------------------------
GNMA; Inv A 2.81% 5.35% 5.65% 7.39% 05/31/90
- -------------------------------------------------------------------------------
GNMA; Inv B 1.49% 4.75% 5.29% 7.11% 05/31/90
- -------------------------------------------------------------------------------
GNMA; Inv C 5.21% 6.00% 5.72% 7.11% 05/31/90
- -------------------------------------------------------------------------------
Lehman GNMA Index 6.92% 7.31% 7.33% 8.09% N/A*
- -------------------------------------------------------------------------------

* For comparative purposes, the value of the index on 06/01/90 is used as the
beginning value on 05/31/90.

These returns assume payment of applicable sales charge.

41
<PAGE>

EXPENSES
AND FEES

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

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

42
<PAGE>

IMPORTANT DEFINITIONS

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

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

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

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

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

<TABLE>
<CAPTION>
A Shares B Shares C Shares

<S> <C> <C> <C>
Advisory Fees .55% .55% .55%
Distribution and service (12b-
1) fees .50% 1.15% 1.15%
Other expenses* .49% .49% .49%
Total annual fund operating
expenses 1.54% 2.19% 2.19%
Fee waivers and expense
reimbursements** .47% .37% .37%
Net Expenses** 1.07% 1.82% 1.82%
</TABLE>
* "Other expenses" are based on estimated amounts for the current fiscal
year.
** BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits. In addition, BlackRock Distributors, Inc., the fund's distributor,
has contractually agreed to waive all 12b-1 distribution fees on Investor A
Shares (otherwise payable at the maximum annual rate of .10% of average
daily net assets) for the next year. "Net Expenses" in the table have been
restated to reflect these waivers and reimbursements.

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 (except for the waivers in the first year discussed above), redemption
at the end of each time period and, with respect to B Shares and C Shares only,
no redemption at the end of each time period. Although your actual cost may be
higher or lower, based on these assumptions your costs would be:

<TABLE>
<CAPTION>
1 Year 3 Years

<S> <C> <C>
A Shares* $505 $ 823
B Shares**
Redemption $635 $1,000
B Shares
No Redemption $185 $ 650
C Shares**
Redemption $285 $ 650
C Shares
No Redemption $185 $ 650
</TABLE>
*Reflects imposition of sales charge.
**Reflects deduction of CDSC.
43
<PAGE>

Fund Management
The co-managers of the fund are Robert Kapito, Vice Chairman of BlackRock
Financial Management, Inc. (BFM) since 1988, Scott Amero, Managing Director of
BFM since 1990, and Michael Lustig, Director of BFM since 1989. They have all
co-managed the fund since inception.

GNMA Portfolio

<TABLE>
<CAPTION>
INVESTOR INVESTOR INVESTOR
A SHARES B SHARES C SHARES
For the For the For the
Period Period Period
5/18/98/1 5/18/98/1 5/18/98/1
/ through / through / through
9/30/98 9/30/98 9/30/98
<S> <C> <C> <C>
Net asset value at beginning
of period $10.00 $10.00 $10.00
------ ------ ------
Income from investment
operations
Net investment income 0.20 0.17 0.23
Net gain (loss) on
investments (both realized
and unrealized) 0.11 0.11 0.05
------ ------ ------
Total from investment
operations 0.31 0.28 0.28
------ ------ ------
Less distributions
Distributions from net
investment income (0.20) (0.17) (0.17)
Distributions from net
realized capital gains - - - - - -
------ ------ ------
Total distributions (0.20) (0.17) (0.17)
------ ------ ------
Net asset value at end of
period $10.11 $10.11 $10.11
====== ====== ======
Total return/3/ 3.12% 2.85% 2.85%
Ratios/Supplemental data
Net assets at end of period
(in thousands) $ 535 $ 166 $ - -
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.06%/2/,/4/ 1.70%/2/,/4/ 0.57%/2/,/4/
Before
advisory/administration
fee waivers 1.43%/2/ 2.07%/2/ 0.94%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 5.69%/2/ 4.53%/2/ 5.26%/2/
Before
advisory/administration
fee waivers 5.32%/2/ 4.16%/2/ 4.90%/2/
Portfolio turnover rate 56% 56% 56%
</TABLE>

[GRAPHIC BlackRock
APPEARS Managed Income
HERE] Portfolio

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

Investment Goal
The fund seeks current income consistent with the preservation of capital.

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in investment grade
bonds in the five to ten year maturity range. The fund normally invests at
least 80% of its total assets in bonds and only buys securities rated invest-
ment grade at the time of purchase by at least one major rating agency or
determined by the manager to be of similar quality. The fund may invest up to
10% of its total assets in bonds of foreign issuers.

The management team evaluates categories of the bond market and individual
bonds within those categories. The manager selects bonds from several catego-
ries including: U.S. Treasuries and agency securities, commercial and residen-
tial mortgage-backed securities, asset-backed securities and corporate bonds.
Securities are purchased for the fund when the manager determines that they
have the potential for above-average current income. The fund measures its per-
formance against the Lehman Brothers Aggregate Index (the benchmark).

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. The fund may also enter into interest rate or foreign
currency transactions as a hedging technique. In these transactions, the fund
exchanges its right to pay or receive interest or currencies with another party
for their right to pay or receive interest or another currency in the future.

IMPORTANT DEFINITIONS

Asset-Backed Securi-
ties: Bonds that are
backed by a pool of
assets, usually loans
such as installment
sale contracts or
credit card receiv-
ables.

Commercial Mortgage-
Backed Securities
(CMBS): Bonds that are
backed by a mortgage
loan or pools of loans
secured by commercial
property, not residen-
tial mortgages.

45
<PAGE>

The fund can borrow money to buy additional securities. This practice is known
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securi-
ties and agrees to buy them back at a particular date and price). The Fund
normally may borrow up to 33 1/3% of the value of its total assets.

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

KEY RISKS

Treasury obligations differ only in their interest rates, maturities and times
of issuance. Obligations of U.S. Government agencies

IMPORTANT DEFINITIONS

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer generally
must pay back the face
amount of the security.

46
<PAGE>

and authorities are supported by varying degrees of credit. No assurance can be
given that the U.S. Government will provide financial support to its agencies
and authorities if it is not obligated by law to do so.

January 1, 2000. Year 2000 problems may also hurt issuers 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.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A and B Shares (in
the table). 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 Lehman Brothers
Aggregate Index, a recognized unmanaged index of bond 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 performance for the period before Investor Shares were launched is based
upon performance for older share classes of the fund. Investor A Shares were
launched in February 1992 and Investor B Shares were launched in July 1997. The
actual return of Investor Shares would have been lower than shown because
Investor Shares have higher expenses than these older classes. Also, the actual
return of Investor B Shares would have been lower compared to Investor A
Shares.

[BAR CHART APPEARS HERE]

Best Quarter Q3 '91: 5.78%

Worst Quarter Q1 '94: -3.50%

90 91 92 93 94 95 96 97 98
------ ------ ------ ------ ------ ------ ----- ----- ------
8.30% 14.96% 5.91% 11.50% -4.90% 16.94% 2.95% 8.95% 6.79%

As of 12/31/98
- -------------------------------------------------------------------------------
A V E R A G E A N N U A L T O T A L R E T U R N S
- -------------------------------------------------------------------------------
Since Inception
1 Year 3 Years 5 Years Inception Date
- -------------------------------------------------------------------------------
Managed Income; Inv A 2.01% 4.57% 4.93% 7.19% 11/01/89
- -------------------------------------------------------------------------------
Managed Income; Inv B 1.23% 4.60% 5.27% 7.61% 11/01/89
- -------------------------------------------------------------------------------
Lehman Aggregate 8.69% 7.29% 7.27% 8.66% N/A
- -------------------------------------------------------------------------------

These returns assume payment of applicable sales charges.

48
<PAGE>

EXPENSES AND FEES

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 CDSC is 4.5% if shares are redeemed in less than one year. The CDSC for
Investor B Shares decreases for redemptions made in subsequent years. After
six years there is no CDSC on B Shares. (See page 120 for complete schedule
of CDSCs.)
*** There is no CDSC on C Shares after one year.
49
<PAGE>

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

<TABLE>
<CAPTION>
A Shares B Shares C Shares

<S> <C> <C> <C>
Advisory Fees .49% .49% .49%
Distribution and service (12b-1) fees .50% 1.15% 1.15%
Other expenses .39% .39% .39%
Total annual fund operating expenses 1.38% 2.03% 2.03%
Fee waivers and expense reimbursements* .26% .16% .16%
Net Expenses* 1.12% 1.87% 1.87%
</TABLE>

* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits. In addition, BlackRock Distributors, Inc., the fund's distributor,
has contractually agreed to waive all 12b-1 distribution fees on Investor A
Shares (otherwise payable at the maximum annual rate of .10% of average
daily net assets) for the next year. "Net Expenses" in the table have been
restated to reflect these waivers and reimbursements.

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 (except for the waivers in the first year discussed above), 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* $559 $842 $1,146 $2,008
B Shares**
Redemption $640 $971 $1,278 $2,100***
B Shares
No Redemption $190 $621 $1,078 $2,100***
C Shares**
Redemption $290 $621 $1,078 $2,346
C Shares
No Redemption $190 $621 $1,078 $2,346
</TABLE>
*Reflects imposition of sales charge.
**Reflects deduction of CDSC.
*** Based on the conversion of the Investor B Shares to Investor A Shares after
seven years.

Fund Management
The manager of the fund is Keith Anderson. He has been a Managing Director at
BlackRock Financial Management, Inc. since 1988 and manager of the fund since
June 1997.

IMPORTANT DEFINITIONS

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

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

Distribution Fees: A
method of charging dis-
tribution-related
expenses against fund
assets. "

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

50
<PAGE>

Financial Highlights
The financial information in the table below shows the fund's financial perfor-
mance for the periods indicated. 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 and assumes that
you have reinvested all dividends 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 or B Share Outstanding Throughout Each Period)

Managed Income Portfolio

<TABLE>
<CAPTION>
INVESTOR
INVESTOR A SHARES B SHARES
For the
Period
Year Year Year Year Year Year 7/15/97/1/
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
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 10.41 $ 10.09 $10.38 $ 9.79 $ 11.18 $10.41 $10.39
------- ------- ------- ------- ------- ------ ------
Income from investment
operations
Net investment income 0.59 0.65 0.59 0.60 0.57 0.52 0.09
Net gain (loss) on
investments (both
realized and
unrealized) 0.29 0.31 (0.20) 0.60 (1.19) 0.29 0.02
------- ------- ------- ------- ------- ------ ------
Total from investment
operations 0.88 0.96 0.39 1.20 (0.62) 0.81 0.11
------- ------- ------- ------- ------- ------ ------
Less distributions
Distributions from net
investment income (0.60) (0.64) (0.58) (0.60) (0.60) (0.53) (0.09)
Distribution in excess
of net investment
income - - - - - - (0.01) (0.02) - - - -
Distributions from net
realized capital gains (0.05) - - (0.10) - - (0.14) (0.05) - -
Distributions in excess
of net realized gains - - - - - - - - (0.01) - - - -
------- ------- ------- ------- ------- ------ ------
Total distributions (0.65) (0.64) (0.68) (0.61) (0.77) (0.58) (0.09)
------- ------- ------- ------- ------- ------ ------
Net asset value at end of
period $10.64 $ 10.41 $ 10.09 $ 10.38 $ 9.79 $10.64 $10.41
======= ======= ======= ======= ======= ====== ======
Total return/3/ 8.74% 9.74% 3.83% 12.74% (5.76)% 7.94% 1.35%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $14,897 $15,230 $11,193 $11,977 $10,921 $4,639 $ 468
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.10%/4/ 1.05%/4/ 1.05% 1.05% 1.00% 1.82%/4/ 1.31%/2/,/4/
Before
advisory/administration
fee waivers 1.28% 1.30% 1.29% 1.25% 1.22% 2.00% 1.56%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 6.44% 6.54% 5.67% 5.96% 5.66% 5.32% 4.68%/2/
Before
advisory/administration
fee waivers 6.26% 6.29% 5.44% 5.76% 5.44% 5.14% 4.43%/2/
Portfolio turnover rate 376% 428% 638% 203% 61% 376% 428%
</TABLE>
------------------------------------------------

/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is
reflected.
/4/Including interest expense, ratios for Investor A and Investor B Shares
would have been 1.90% and 2.43%, respectively, for the year ended September
30, 1998, 1.41% and 2.14% respectively, for the year ended September 30,
1997. For the periods prior to September 30, 1997, interest income was pre-
sented net of interest expense.
51
<PAGE>

[GRAPHIC BlackRock
APPEARS International Bond
HERE] Portfolio

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

Investment Goal
The fund seeks current income consistent with the preservation of capital.

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in bonds of foreign
issuers in the five to fifteen year maturity range. The fund normally invests
at least 80% of its total assets in bonds and at least 65% of its total assets
in bonds of a diversified group of foreign issuers from at least three devel-
oped countries. The fund may invest more than 25% of its total assets in the
securities of issuers located in Canada, France, Germany, Japan and the United
Kingdom. The Fund may from time to time invest in bonds of issuers in emerging
market countries. The fund may also invest in foreign currencies. The fund may
only buy securities rated investment grade at the time of purchase by at least
one major rating agency or determined by the manager to be of similar quality.

The management team evaluates categories of the bond markets of various world
economies and seeks individual securities within those categories. Securities
are purchased for the fund when the manager determines that they have the
potential for above-average current income. The fund measures its performance
against the Salomon Non-U.S. Hedged World Government Bond Index (the bench-
mark).

IMPORTANT DEFINITIONS

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer generally
must pay back the face
amount of the security.

52
<PAGE>

increase returns. The fund may also enter into interest rate or foreign cur-
rency transactions as a hedging technique. In these transactions, the fund
exchanges its right to pay or receive interest or currencies with another party
for their right to pay or receive interest or another currency in the future.

The fund can borrow money to buy additional securities. This practice is known
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securities
and agrees to buy them back at a particular date and price). The Fund normally
may borrow up to 33 1/3% of the value of its total assets.

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

KEY RISKS

Three of the main risks of investing in the fund are interest rate risk, credit
risk and the risks associated with investing in bonds of foreign issuers. Typi-
cally, when interest rates rise, there is a corresponding decline in the market
value of bonds such as those held by the fund. Credit risk refers to the possi-
bility that the issuer of the bond will not be able to make principal and
interest payments.

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

IMPORTANT DEFINITIONS

Salomon Non-U.S. Hedged
World Government Bond
Index: An unmanaged
index that tracks the
performance of 13 gov-
ernment bond markets:
Australia, Austria,
Belgium, Canada, Den-
mark, France, Germany,
Italy, Japan, the Neth-
erlands, Spain, Sweden
and the United Kingdom.

53
<PAGE>

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

Investing a significant portion of assets in one country makes the fund more
dependent upon the political and economic circumstances of a particular coun-
try than a mutual fund that is more widely diversified. For example, the Japa-
nese economy (especially Japanese banks, securities firms and insurance compa-
nies) has experienced considerable difficulty 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 Canada, France, Germany and the United Kingdom may make the
fund's performance more dependent on developments in those countries.

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

Forward foreign currency exchange do not eliminate fluctuations in the value
of foreign securities but rather allow the fund to establish a fixed rate of
exchange for a future point in time. These strategies can have the effect of
reducing returns and minimizing opportunities for gain.
54
<PAGE>

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). 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 Non-U.S.
Hedged World Government Bond Index, a recognized unmanaged index of bond market
performance. The chart and the table both assume reinvestment of dividends and
distributions. As with all such investments, past performance is not an indica-
tion of future results. Sales charges are not reflected in the bar chart. If
they were, returns would be less than those shown.

The performance for the period before Investor Shares were launched is based
upon performance for older share classes of the fund. Investor A and B Shares
were launched in April 1996 and Investor C Shares were launched in September
1996. The actual return of Investor Shares would have been lower than shown
because Investor Shares have higher expenses than these older classes. Also,
the actual returns of Investor B and C Shares would have been lower compared to
Investor A Shares.

[BAR CHART APPEARS HERE]

Best Quarter Q1 '95: 8.40%

Worst Quarter Q2 '94: -2.06%

The bars for 1992-1996
are based upon performance
for Service Shares of the fund.

92 93 94 95 96 97 98
------ ------ ------ ------ ----- ----- ------
6.17% 15.31% -3.71% 20.02% 10.26% 9.75% 10.97%

As of 12/31/98
- -------------------------------------------------------------------------------
A V E R A G E A N N U A L T O T A L R E T U R N S
- -------------------------------------------------------------------------------
Since Inception
1 Year 3 Years 5 Years Inception Date
- -------------------------------------------------------------------------------
International Bond; Inv A 2.37% 4.43% 4.66% 4.29% 07/01/91
- -------------------------------------------------------------------------------
International Bond; Inv B 1.16% 4.40% 4.96% 4.77% 07/01/91
- -------------------------------------------------------------------------------
International Bond; Inv C 4.87% 5.64% 5.39% 4.97% 07/01/91
- -------------------------------------------------------------------------------
Salomon Non-U.S. Hedged Govt. 11.54% 11.48% 9.41% 10.06% N/A
- -------------------------------------------------------------------------------

These returns assume payment of applicable sales charges.

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.

56
<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 CDSC is 4.5% if shares are redeemed in less than one year. The CDSC for
Investor B Shares decreases for redemptions made in subsequent years. After
six years there is no CDSC on B Shares. (See page 120 for complete schedule
of CDSCs.)
*** There is no CDSC on C Shares after one year.

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

<TABLE>
<CAPTION>
A Shares B Shares C Shares

<S> <C> <C> <C>
Advisory Fees .55% .55% .55%
Distribution and service (12b-1) fees .50% 1.15% 1.15%
Other expenses .68% .68% .68%
Total annual fund operating expenses 1.73% 2.38% 2.38%
Fee waivers and expense reimbursements* .23% .13% .13%
Net Expenses* 1.50% 2.25% 2.25%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may have to repay these waivers and reimbursements to BlackRock in the
following two years if the repayment can be made within these expense lim-
its. In addition, BlackRock Distributors, Inc., the fund's distributor, has
contractually agreed to waive all 12b-1 distribution fees on Investor A
Shares (otherwise payable at the maximum annual rate of .10% of average
daily net assets) for the next year. "Net Expenses" in the table have been
restated to reflect these waivers and reimbursements.

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

IMPORTANT DEFINITIONS

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

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

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

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

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 (except for the waivers in the first year discussed above), 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* $645 $ 996 $1,371 $2,421
B Shares**
Redemption $678 $1,080 $1,459 $2,469***
B Shares
No Redemption $228 $ 730 $1,259 $2,469***
C Shares**
Redemption $328 $ 730 $1,259 $2,706
C Shares
No Redemption $228 $ 730 $1,259 $2,706
</TABLE>
*Reflects imposition of sales charge.
**Reflects deduction of CDSC.
*** Based on the conversion of the Investor B Shares to Investor A Shares after
seven years.

Fund Management
The fund's manager is Andrew Gordon, a Managing Director at BlackRock Financial
Management, Inc. (BFM) since 1996. Prior to joining BFM he was responsible for
non-dollar (international) research at Barclay Investments from 1994 to 1996
and at CS First Boston from 1986 to 1994. He has served as fund manager since
1997.
58
<PAGE>

Financial Highlights
The financial information in the table below shows the fund's financial perfor-
mance for the periods indicated. 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 and assumes that
you have reinvested all dividends 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)

International Bond Portfolio

<TABLE>
<CAPTION>
INVESTOR A SHARES INVESTOR B SHARES
------------------------------------------------------------------------------
For the For the
Period Period
Year Year 4/22/96/1/ Year Year 4/19/96/1/
Ended Ended through Ended Ended through
9/30/98 9/30/97 9/30/96 9/30/98 9/30/97 9/30/96
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $10.95 $11.71 $11.37 $10.95 $11.71 $11.36
------ ------ ------ ------ ------ ------
Income from investment
operations
Net investment income 0.47 1.10 0.26 0.40 1.06 0.22
Net gain (loss) on
investments (both
realized and
unrealized) 0.76 0.05 0.32 0.75 - - 0.33
------ ------ ------ ------ ------ ------
Total from investment
operations 1.23 1.15 0.58 1.15 1.06 0.55
------ ------ ------ ------ ------ ------
Less distributions
Distributions from net
investment income (0.52) (1.42) (0.24) (0.43) (1.33) (0.20)
Distributions from net
realized capital
gains (0.42) (0.49) - - (0.42) (0.49) - -
------ ------ ------ ------ ------ ------
Total distributions (0.94) (1.91) (0.24) (0.85) (1.82) (0.20)
------ ------ ------ ------ ------ ------
Net asset value at end
of period $11.24 $10.95 $11.71 $11.24 $10.95 $11.71
====== ====== ====== ====== ====== ======
Total return/3/ 11.98% 11.02% 5.13% 11.15% 10.11% 4.90%
Ratios/Supplemental
data
Net assets at end of
period
(in thousands) $1,705 $1,015 $ 176 $1,512 $ 979 $ 136
Ratios of expenses to
average
net assets
After
advisory/administration
fee waivers 1.48%/4/ 1.42%/3/,/4/ 1.45%/2/ 2.22%/4/ 2.12%/3/,/4/ 2.09%/2/
Before
advisory/administration
fee waivers 1.63% 1.52% 1.86%/2/ 2.37% 2.22% 2.49%/2/
Ratios of net
investment income to
average net assets
After
advisory/administration
fee waivers 3.59% 4.49% 5.29%/2/ 2.83% 3.65% 4.61%/2/
Before
advisory/administration
fee waivers 3.44% 4.39% 4.88%/2/ 2.68% 3.55% 4.21%/2/
Portfolio turnover rate 225% 272% 108% 225% 272% 108%

<CAPTION>
INVESTOR C SHARES
---------------------------------------
For the
Period
Year Year 4/19/96/1/
Ended Ended through
9/30/98 9/30/97 9/30/96
<S> <C> <C> <C>
Net asset value at
beginning of period $10.95 $11.71 $11.58
----------- --------------- ------------
Income from investment
operations
Net investment income 0.54 1.15 0.02
Net gain (loss) on
investments (both
realized and
unrealized) 0.61 (0.09) 0.12
----------- --------------- ------------
Total from investment
operations 1.15 1.06 0.14
----------- --------------- ------------
Less distributions
Distributions from net
investment income (0.43) (1.33) (0.01)
Distributions from net
realized capital
gains (0.42) (0.49) - -
----------- --------------- ------------
Total distributions (0.85) (1.82) (0.01)
----------- --------------- ------------
Net asset value at end
of period $11.24 $10.95 $11.71
=========== =============== ============
Total return/3/ 11.15% 10.13% 1.24%
Ratios/Supplemental
data
Net assets at end of
period
(in thousands) $1,249 $ 474 $ 19
Ratios of expenses to
average
net assets
After
advisory/administration
fee waivers 2.22%/4/ 2.11%/2/,/4/ 1.53%/2/
Before
advisory/administration
fee waivers 2.37% 2.21% 1.93%/2/
Ratios of net
investment income to
average net assets
After
advisory/administration
fee waivers 2.83% 3.57% 2.79%/2/
Before
advisory/administration
fee waivers 2.68% 3.47% 2.38%/2/
Portfolio turnover rate 225% 272% 108%
</TABLE>

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

/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is
reflected.
/4/Including interest expense, ratios for the Investor A, Investor B and
Investor C Shares would have been 1.48%, 2.22% and 2.22%, respectively, for the
year ended September 30, 1998, 1.42%, 2.12% and 2.11%, respectively, for the
year ended September 30, 1997.
59

<PAGE>

[GRAPHIC BlackRock
APPEARS High Yield Bond
HERE] Portfolio

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

Investment Goal
The fund seeks to provide current income by investing primarily in non-invest-
ment grade bonds.

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in non-investment
grade bonds in the ten to fifteen year maturity range. The fund normally
invests at least 80% of its total assets in bonds or convertible securities
and at least 65% of its total assets in high yield bonds. The high yield secu-
rities (commonly called "junk bonds") acquired by the fund will generally be
in the lower rating categories of the major rating agencies (BB or lower by
Standard & Poor's or Ba or lower by Moody's) or will be determined by the fund
manager to be of similar quality. The fund may invest up to 10% of its total
assets in bonds of foreign issuers.

The management team evaluates categories of the high yield market and individ-
ual bonds within these categories. Securities are purchased for the fund when
the manager determines that they have the potential for above-average current
income. The fund measures its performance against the Lehman High Yield Index
(the benchmark).

To add additional diversification, the portfolio manager can invest in a wide
range of securities including mezzanine investments, collateralized bond obli-
gations, bank loans and mortgage-backed and asset-backed securities. The fund
can also invest, to the extent consistent with its investment objective, in
foreign and emerging market securities and currencies. The fund may invest in
securities rated as low as "C." These securities are very risky and have
uncertainties regarding the issuer's ability to make interest and principal
payments.

If a security falls below the fund's minimum rating, the manager will decide
whether to continue to hold the security. A security will be sold if, in the
opinion of the fund manager, the risk of continuing to hold the security is
unacceptable when compared to the total return potential.

IMPORTANT DEFINITIONS

Asset-Backed Securi-
ties: Bonds that are
backed by a pool of
assets, usually loans
such as installment
sale contracts or
credit card receiv-
ables.
Bank Loans: The fund
may invest in fixed and
floating rate loans
arranged through pri-
vate negotiations
between a company or a
foreign government and
one or more financial
institutions. The fund
considers such invest-
ments to be debt secu-
rities.
Bonds: Debt obligations
such as bonds and
debentures, U.S. Gov-
ernment securities,
debt obligations of
domestic and foreign
corporations, debt
obligations of foreign
governments and their
political subdivisions,
asset-backed securi-
ties, various mortgage-
backed securities (both
residential and commer-
cial), other floating
or variable rate obli-
gations, municipal
obligations and zero
coupon debt securities.
Collateralized Bond
Obligations (CBO): The
fund many invest in
collateralized bond
obligations which are
securities backed by a
diversified pool of
high yield securities.
Commercial Mortgage-
Backed Securities
(CMBS): Bonds that are
backed by a mortgage
loan or pool of loans
secured by commercial
property, not residen-
tial mortgages.
Duration: A mathemati-
cal calculation of the
average life of a bond
(or bonds in a bond
fund) that serves as a
useful measure of its
price risk. Each year
of duration represents
an expected 1% change
in the price of a bond
for every 1% change in
interest rates. For
example, if a bond fund
has an average duration
of four years, its
price will fall about
4% when interest rates
rise by one percentage
point. Conversely, the
bond fund's price will
rise about 4% when
interest rates fall by
one percentage point.

High Yield Bonds: Some-
times referred to as
"junk bonds" these are
debt securities, which
are, rated less than
investment grade (below
the fourth highest rat-
ing of the major rating
agencies). These secu-
rities generally pay
more interest than
higher rated securi-
ties. The higher yield
is an incentive to
investors who otherwise
may be hesitant to pur-
chase the debt of such
a low-rated issuer.

60
<PAGE>

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 also may be used to maintain liquidity, commit cash pending investment
or to increase returns. The fund may also enter into interest rate or foreign
currency transactions as a hedging technique. In these transactions, the fund
exchanges its right to pay or receive interest or currencies with another party
for their right to pay or receive interest or another currency in the future.

The fund can borrow money to buy additional securities. This practice is known
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securities
and agrees to buy them back at a particular date and price). The fund currently
may borrow up to 33 1/3% of the value of its 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 made.

KEY RISKS

Non-investment grade bonds carry greater risks than securities which have
higher credit ratings, including a high risk of default. The yields of non-
investment grade securities will move up and down over time. The credit rating
of a high yield security does not necessarily address its market value risk.
Ratings and market value may change from time to time, positively or negative-
ly, to reflect new developments regarding the issuer. These companies are often
young and growing and have a lot of debt. High yield bonds are considered spec-
ulative, meaning there is a significant risk that companies issuing these secu-
rities may not be able to

IMPORTANT DEFINITIONS

Lehman High Yield
Index: An unmanaged
index that is comprised
of issues that meet the
following criteria: at
least $100 million par
value outstanding, max-
imum credit rating of
B1 (including defaulted
issues) and at least
one year to maturity.

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer generally
must pay back the face
amount of the security.

Mezzanine Investments:
These are subordinated
debt securities which
receive payments of
interest and principal
after other more senior
security holders are
paid. They are gener-
ally issued in private
placements in connec-
tion with an equity
security.

61
<PAGE>

repay principal and pay interest or dividends on time. In addition, other cred-
itors of a high yield issuer may have the right to be paid before the high
yield bond holder.

During an economic downturn, a period of rising interest rates or a recession,
issuers of high yield securities who have a lot of debt may experience finan-
cial problems. They may not have enough cash to make their principal and inter-
est payments. An economic downturn could also hurt the market for lower-rated
securities and the fund.

The market for high yield bonds is not as liquid as the markets for higher
rated securities. This means that it may be harder to buy and sell high yield
bonds, especially on short notice. The market could also be hurt by legal or
tax changes.

Mezzanine securities carry the risk that the issuer will not be able to meet
its obligations and that the equity securities purchased with the mezzanine
investments may lose value.

The market for bank loans may not be highly liquid and the fund may have diffi-
culty selling them. These investments expose the fund to the risk of investing
in both the financial institution and the underlying borrower.

The pool of high yield securities underlying CBOs is typically separated into
groupings called tranches representing different degrees of credit quality. The
higher quality tranches have greater degrees of protection and pay lower inter-
est rates. The lower tranches, with greater risk, pay higher interest rates.

The expenses of the fund will be higher than those of mutual funds investing
primarily in investment grade securities. The costs of investing in the high
yield market are usually higher for several reasons, such as the higher costs
for investment research and higher commission costs.

A main difference is that the principal on mortgage-or asset-backed securities
may normally be prepaid at any time, which will reduce the yield and market
value of these securities. Asset-backed securities and CMBS generally experi-
ence less prepayment than residential mortgage-backed securities. In periods of
falling interest rates, the rate of prepayments tends to increase (as does
price fluctuation) as borrowers are motivated to pay off debt and refinance at
new lower rates. During such periods, reinvestment of the prepayment proceeds
by the manager will generally be at lower rates of return than the return on
the assets which were prepaid. Certain commercial mortgage-backed securi-
62
<PAGE>

ties are issued in several classes with different levels of yield and credit
protection. The fund's investments in commercial mortgage-backed securities
with several classes will normally be in the lower classes that have less
credit protection.

Certain asset-backed securities are based on loans that are unsecured, which
means that there is no collateral to seize if the underlying borrower defaults.
Other asset-based securities may not have the benefit of as much collateral as
mortgage-backed securities.

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.

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, the fund's investment adviser, is currently working to avoid such prob-
lems. 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 issuers whose securities the fund holds or securi-
ties 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.

EXPENSES AND FEES

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

64
<PAGE>

The tables below explain your pricing options and describe the fees and
expenses that you may pay if you buy and hold Investor A, B or C 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* 5.0% 0.0% 0.0%
(as percentage of offeringn price)
Maximum Deferred Sales Charge 0.0% 4.5%** 1.00%***
(as percentage of offering price)
</TABLE>
* Reduced front-end sales charges may be available. A CDSC of up to 1.00% is
assessed on certain redemptions of Investor A Shares that are purchased
with no initial sales charge as part of an investment of $1,000,000 or
more.
** The CDSC is 4.5% if shares are redeemed in less than one year. The CDSC for
Investor B Shares decreases for redemptions made in subsequent years. After
six years there is no CDSC on B Shares. (See page 120 for complete schedule
of CDSCs.)
*** There is no CDSC on C Shares after one year.

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

<TABLE>
<CAPTION>
A Shares B Shares C Shares

<S> <C> <C> <C>
Advisory Fees .50% .50% .50%
Distribution and service (12b-1) fees .50% 1.15% 1.15%
Other expenses* .40% .40% .40%
Total annual fund operating expenses 1.40% 2.05% 2.05%
Fee waivers and expense reimbursements** .23% .13% .13%
Net Expenses** 1.17% 1.92% 1.92%
</TABLE>
* "Other expenses" are based on estimated amounts for the current fiscal
year.
** BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits. In addition, BlackRock Distributors, Inc., the fund's distributor,
has contractually agreed to waive all 12b-1 distribution fees on Investor A
Shares (otherwise payable at the maximum annual rate of .10% of average
daily net assets) for the next year. "Net Expenses" in the table have been
restated to reflect these waivers and reimbursements.

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

IMPORTANT DEFINITIONS

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

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

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

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

65
<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 (except for the waivers in the first year discussed above), redemp-
tion at the end of each time period and, with respect to B Shares and C Shares
only, no redemption at the end of each time period. Although your actual cost
may be higher or lower, based on these assumptions your costs would be:

<TABLE>
<CAPTION>
1 Year 3 Years

<S> <C> <C>
A Shares* $613 $900
B Shares**
Redemption $645 $980
B Shares
No Redemption $195 $630
C Shares**
Redemption $295 $630
C Shares
No Redemption $195 $630
</TABLE>
*Reflects imposition of sales charge.
**Reflects deduction of CDSC.

Fund Management
The fund is co-managed by Dennis Schaney and Keith Anderson. Dennis Schaney is
co-leader of the High Yield Team and a Managing Director of BlackRock Finan-
cial Management, Inc. (BFM) since February 1998. Prior to joining BFM he was a
Managing Director in the Global Fixed Income Research and Economics Department
of Merrill Lynch for nine years. Keith Anderson, co-leader of the High Yield
Team, has served as Managing Director of BFM since 1988. Both have co-managed
the fund since its inception.
66
<PAGE>

[GRAPHIC BlackRock
APPEARS Tax-Free Income
HERE] Portfolio

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

IMPORTANT DEFINITIONS

General Obligation
Bonds: Bonds which are
secured by the issuer's
pledge of its full
faith, credit and tax-
ing power for the pay-
ment of principal and
interest.

Lehman Municipal Bond
Index: An unmanaged
index of municipal
bonds with the follow-
ing characteristics:
minimum credit rating
of Baa-3, outstanding
par value of at least
$3 million, issued as
part of a deal of at
least $50 million, and
issued within the last
5 years remaining matu-
rities of not less than
one year.

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer must pay
back the face amount of
the security.

Investment Goal:
The fund seeks as high a level of current income exempt from Federal income tax
as is consistent with preservation of capital.

Primary Investment Strategies:
In pursuit of this goal, the fund manager invests primarily in bonds issued by
or on behalf of states and possessions of the United States, their political
subdivisions and their agencies and authorities (and related tax-exempt deriva-
tive securities) the interest on which the manager believes is exempt from Fed-
eral income tax (municipal securities). The fund normally invests at least 80%
of its net assets in municipal securities, including both general obligation
and revenue bonds, from a diverse range of issuers. The other 20% of net assets
can be invested in securities which are subject to regular Federal income tax
or the Federal Alternative Minimum Tax. The fund emphasizes municipal securi-
ties in the ten to twenty year maturity range. The fund may only buy securities
rated investment grade at the time of purchase by at least one major rating
agency or determined by the manager to be of similar quality. The fund intends
to invest so that no more than 25% of its net assets are represented by the
municipal securities of issuers located in the same state.

The management team evaluates sectors of the municipal market and individual
bonds within those categories. The fund measures its performance against the
Lehman Municipal Bond Index (the benchmark).

It is possible that in extreme market conditions the fund may invest more than
20% of its assets in securities that are not municipal securities (and there-
fore are subject to federal income tax) and may hold an unlimited amount of
uninvested cash reserves. If market conditions improve, these strategies could
result in reducing the potential gain from the market upswing, thus reducing
the fund's opportunity to achieve its investment objective.

67
<PAGE>

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 invest-
ment or to increase returns. The fund may also enter into interest rate trans-
actions as a hedging technique. In these transactions, the fund exchanges its
right to pay or receive interest with another party for their right to pay or
receive interest.

The fund can borrow money to buy additional securities. This practice is known
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securi-
ties and agrees to buy them back at a particular date and price). The fund
normally may borrow up to 33 1/3% of the value of its total assets.

Should the Company's Board of Trustees determine that the investment objective
of the fund should be changed, shareholders will be given at least 30 days
notice before any such change is made. The fund may not change the requirement
that it normally invest at least 80% of its net assets in municipal securities
without shareholder approval.

KEY RISKS

Key Risks
There is no guarantee that shares of the fund will not lose value. This means
you could lose money.

Revenue bonds include private activity bonds, which are not payable from the
general revenues of the issuer. Consequently, the

IMPORTANT DEFINITIONS

Revenue Bonds: Bonds
which are secured only
by the revenues from a
particular facility or
class of facilities,
such as a water or
sewer system, or from
the proceeds of a spe-
cial excise tax or
other revenue source.

68
<PAGE>

credit quality of private activity bonds is usually directly related to the
credit standing of the corporate user of the facility involved. To the extent
that the fund's assets are invested in private activity bonds, the fund will be
subject to the particular risks presented by the laws and economic conditions
relating to such projects and bonds to a greater extent than if its assets were
not so invested. Municipal securities also include "moral obligation" bonds,
which are normally issued by special purpose public authorities. If the issuer
of moral obligation bonds is unable to pay its debts from current revenues, it
may draw on a reserve fund the restoration of which is a moral but not a legal
obligation of the state or municipality which created the issuer.

The fund may invest in bonds the interest on which may be subject to the Fed-
eral Alternative Minimum Tax. The fund may invest up to 20% of its total assets
in these bonds when added together with any of the fund's other taxable invest-
ments. Interest on these bonds that is received by taxpayers subject to the
Federal Alternative Minimum Tax is taxable.

The fund may invest 25% or more of its assets in municipal securities whose
interest is paid solely from revenues of similar projects. For example, the
fund may invest more than 25% of its assets in municipal securities related to
water or sewer systems. This type of concentration exposes the fund to the
legal and economic risks relating to those projects.

There may be less information available on the financial condition of issuers
of municipal securities than for public corporations. The market for municipal
bonds may be less liquid than for taxable bonds. This means that it may be
harder to buy and sell municipal securities, especially on short notice.

The fund will rely on legal opinions of counsel to issuers of municipal securi-
ties as to the tax-free status of investments and will not do its own analysis.

The fund's use of derivatives and interest rate transactions may reduce the
fund's returns and/or increase volatility, which is defined as the characteris-
tic of a security or a market to fluctuate significantly in price within a
short period of time. The income from certain derivatives may be subject to
Federal income tax. Leverage is a speculative technique which may expose the
fund to greater risk and increase its costs. Increases and decreases in the
value of the fund's portfolio will be magnified when the fund uses leverage.
The fund will also have to pay interest on its borrowings, reducing the fund's
return.

69
<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, the fund's investment adviser, is currently working to avoid such prob-
lems. 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 issuers whose securities the fund holds or securi-
ties 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.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). The information shows you how the fund's performance has var-
ied 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 Lehman Munici-
pal Bond Index, a recognized unmanaged index of bond 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.
70
<PAGE>

The performance for the period before Investor B and C Shares were launched is
based upon performance for older share classes of the fund. Investor B Shares
were launched in July 1996 and Investor C Shares were launched in February
1997. The actual returns of Investor B and C Shares would have been lower than
shown because Investor B and C Shares have higher expenses than these other
Classes. Also, the actual returns of Investor B and C Shares would have been
lower compared to Investor A Shares.

[BAR CHART APPEARS HERE]

Best Quarter Q1 '95: 8.06%

Worst Quarter Q1 '94: -6.93%

91 92 93 94 95 96 97 98
------ ------ ------ ------ ------ ----- ----- ------
11.36% 8.85% 12.88% -7.09% 17.76% 5.36% 9.61% 5.92%

As of 12/31/98
- -------------------------------------------------------------------------------
A V E R A G E A N N U A L T O T A L R E T U R N S
- -------------------------------------------------------------------------------
Since Inception
1 Year 3 Years 5 Years Inception Date
- -------------------------------------------------------------------------------
Tax-Free Income; Inv A 1.67% 5.47% 5.13% 7.37% 05/14/90
- -------------------------------------------------------------------------------
Tax-Free Income; Inv B 0.40% 5.03% 5.18% 7.64% 05/14/90
- -------------------------------------------------------------------------------
Tax-Free Income; Inv C 4.08% 6.28% 5.61% 7.64% 05/14/90
- -------------------------------------------------------------------------------
Lehman Municipal 6.48% 6.69% 6.23% 8.29% N/A*
- -------------------------------------------------------------------------------

* For comparative purposes, the value of the index on 05/01/90 is used as the
beginning value on 05/14/90.

Expenses and Fees

These returns assume payment of applicable sales charge.

71
<PAGE>

The tables below explain your pricing options and describe the fees and
expenses that you may pay if you buy and hold Investor A, B and C shares of
the fund. 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* 4.0% 0.0% 0.0%
(as percentage of offering price)
Maximum Deferred Sales Charge 0.0% 4.5%** 1.00%***
(as percentage of offering price)
</TABLE>
* Reduced front-end sales charges may be available. A CDSC of up to 1.00% is
assessed on certain redemptions of Investor A Shares that are purchased
with no initial sales charge as part of an investment of $1,000,000 or
more.
** The CDSC is 4.5% if shares are redeemed in less than one year. The CDSC
for Investor B Shares decreases for redemptions made in subsequent years.
After six years there is no CDSC on B Shares. (See page 120 for complete
schedule of CDSCs.)
*** There is no CDSC on C Shares after one year.

Annual Fund Operating Expenses
(Expenses that are deducted from fund assets)
<TABLE>
<CAPTION>
A Shares B Shares C Shares

<S> <C> <C> <C>
Advisory Fees .50% .50% .50%
Distribution and service (12b-
1) fees .50% 1.15% 1.15%
Other expenses .45% .45% .45%
Total annual fund operating
expenses 1.45% 2.10% 2.10%
Fee waivers and expense
reimbursements* .38% .28% .28%
Net Expenses* 1.07% 1.82% 1.82%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock
in the following two years if the repayment can be made within these
expense limits. In addition, BlackRock Distributors, Inc., the fund's
distributor, has contractually agreed to waive all 12b-1 distribution fees
on Investor A Shares (otherwise payable at the maximum annual rate of .10%
of average daily net assets) for the next year. "Net Expenses" in the
table have been restated to reflect these waivers and reimbursements.

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

IMPORTANT DEFINITIONS

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

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

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

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

72
<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 (except for the waivers in the first year discussed above), 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* $505 $804 $1,126 $2,035
B Shares**
Redemption $635 $981 $1,303 $2,165***
B Shares
No Redemption $185 $631 $1,103 $2,165***
C Shares**
Redemption $285 $631 $1,103 $2,409
C Shares
No Redemption $185 $631 $1,103 $2,409
</TABLE>
*Reflects imposition of sales charge.
**Reflects deduction of CDSC.
*** Based on the conversion of the Investor B Shares to Investor A Shares after
seven years.

Fund Management
The manager for the fund is Kevin Klingert, Managing Director at BlackRock
Financial Management, Inc. (BFM) since 1991. Before joining BFM he was Assis-
tant Vice President at Merrill Lynch, Pierce, Fenner & Smith. He has been fund
manager since 1995.

73
<PAGE>

Financial Highlights
The financial information in the table below shows the fund's financial perfor-
mance for the periods indicated. 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 and assumes that
you have reinvested all dividends 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)

Tax-Free Income Portfolio

<TABLE>
<CAPTION>
INVESTOR A SHARES INVESTOR B SHARES INVESTOR C SHARES
For the For the
Period Period
Year Year Year Year Year Year Year 7/18/96/1 Year 2/28/97/1
Ended Ended Ended Ended Ended Ended Ended / through Ended / through
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94 9/30/98 9/30/97 9/30/96 9/30/98 9/30/97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $11.34 $10.84 $10.61 $10.04 $11.31 $11.34 $10.84 $10.74 $11.34 $11.04
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations
Net investment income 0.47 0.50 0.45 0.48 0.48 0.40 0.44 0.08 0.36 0.28
Net gain (loss) on
investments (both
realized and
unrealized) 0.45 0.51 0.21 0.59 (0.93) 0.44 0.49 0.10 0.48 0.27
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 0.92 1.01 0.66 1.07 (0.45) 0.84 0.93 0.18 0.84 0.55
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions
Distributions from net
investment income (0.48) (0.51) (0.43) (0.48) (0.48) (0.40) (0.43) (0.08) (0.40) (0.25)
Distributions from net
realized capital gains (0.05) - - - - (0.02) (0.34) (0.05) - - - - (0.05) - -
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.53) (0.51) (0.43) (0.50) (0.82) (0.45) (0.43) (0.08) (0.45) (0.25)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value at end of
period $11.73 $11.34 $10.84 $10.61 $10.04 $11.73 $11.34 $10.84 $11.73 $11.34
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total return3 8.34% 9.58% 6.94% 10.99% (4.19)% 7.53% 8.77% 1.72% 7.53% 5.02%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $6,440 $5,530 $4,873 $6,591 $6,972 $2,034 $ 926 $ 10 $1,024 - -
Ratios of expenses to
average
net assets
After
advisory/administration
fee waivers 1.05% 1.02% 1.04% 1.00% 0.95 % 1.79% 1.75% 1.65%/2/ 1.70% 1.70%2
Before
advisory/administration
fee waivers 1.33% 1.37% 1.37% 1.78% 2.18 % 2.07% 2.10% 1.98%/2/ 1.98% 2.05%2
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 4.17% 4.60% 4.67% 4.74% 4.53 % 3.39% 3.65% 3.84%/2/ 3.19% 3.95%2
Before
advisory/administration
fee waivers 3.89% 4.25% 4.35% 3.96% 3.30 % 3.11% 3.30% 3.51%/2/ 2.91% 3.60%2
Portfolio turnover rate 100% 262% 268% 92% 40 % 100% 262% 268% 100% 262%
</TABLE>
-----------------------------------------------------------

/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is
reflected.

74
<PAGE>

[GRAPHIC BlackRock
APPEARS Delaware Tax-Free Income
HERE] Portfolio

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

Investment Goal
The fund seeks as high a level of current income exempt from Federal income tax
and, to the extent possible, Delaware state income tax, as is consistent with
preservation of capital.

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in bonds issued by
or on behalf of states and possessions of the United States, their political
subdivisions and their agencies and authorities (and related tax-exempt deriva-
tive securities) the interest on which the manager believes is exempt from Fed-
eral income tax (municipal securities). The fund normally invests at least 65%
of its total assets in municipal securities of issuers located in the state of
Delaware. The fund normally invests at least 80% of its net assets in municipal
securities, including both general obligation and revenue bonds, from a diverse
range of issuers. The other 20% of net assets can be invested in securities
which are subject to regular Federal income tax or the Federal Alternative Min-
imum Tax. The fund emphasizes municipal securities in the ten to twenty year
maturity range. The fund may only buy securities rated investment grade at the
time of purchase by at least one major rating agency or determined by the man-
ager to be of similar quality.

The management team evaluates sectors of the municipal market and individual
bonds within those categories. The fund measures it performance against the
Lehman Municipal Bond Index (the benchmark).

IMPORTANT DEFINITIONS

General Obligation
Bonds: Bonds which are
secured by the issuer's
pledge of its full
faith, credit and tax-
ing power for the pay-
ment of principal and
interest.

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer must pay
back the face amount of
the security.

75
<PAGE>

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 invest-
ment or to increase returns. The fund may also enter into interest rate trans-
actions as a hedging technique. In these transactions, the fund exchanges its
right to pay or receive interest with another party for their right to pay or
receive interest.

Should the Company's Board of Trustees determine that the investment objective
of the fund should be changed, shareholders will be given at least 30 days
notice before any such change is made. The fund may not change the requirement
that it normally invest at least 80% of its net assets in municipal securities
without shareholder approval.

Key Risks

Key Risks
There is no guarantee that shares of the fund will not lose value. This means
you could lose money.

The fact that the fund concentrates its investments in securities of issuers
located in Delaware raises special concerns. In particular, changes in the
economic conditions and governmental policies of Delaware and its political
subdivisions could hurt the value of the fund's shares.

IMPORTANT DEFINITIONS

76
<PAGE>

Revenue bonds include private activity bonds, which are not payable from the
general revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the corpo-
rate user of the facility involved. To the extent that the fund's assets are
invested in private activity bonds, the fund will be subject to the particular
risks presented by the laws and economic conditions relating to such projects
and bonds to a greater extent than if its assets were not so invested. Munici-
pal securities also include "moral obligation" bonds, which are normally issued
by special purpose public authorities. If the issuer of moral obligation bonds
is unable to pay its debts from current revenues, it may draw on a reserve fund
the restoration of which is a moral but not a legal obligation of the state or
municipality which created the issuer.

The fund will rely on legal opinions of counsel to issuers of municipal securi-
ties as to the tax-free status of investments and will not do its own analysis.

The fund's use of derivatives and interest rate transactions may reduce the
fund's returns and/or increase volatility, which is defined as the characteris-
tic of a security or a market to fluctuate significantly in price within a
short period of time. The income from certain derivatives may be subject to
Federal income tax. Leverage is a speculative technique which may expose the
fund to greater risk and increase its costs. Increases and decreases in the
value of the fund's portfolio will be magnified when the fund uses leverage.
The fund will also have to pay interest on its borrowings, reducing the fund's
return.

Securities loans involve the risk of a delay in receiving additional collateral
if the value of the securities goes up while they are on
77
<PAGE>

loan. There is also the risk of delay in recovering the loaned securities and
of losing rights to the collateral if a borrower goes bankrupt.

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, the fund's investment adviser, is currently working to avoid such prob-
lems. 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 issuers whose securities the fund holds or securi-
ties 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.

The fund is a non-diversified portfolio under the Investment Company Act,
which means that fund performance is more dependent on the performance of a
smaller number of securities and issuers than in a diversified portfolio. The
change in value of any one security may affect the overall value of the fund
more than it would a diversified fund's.
78
<PAGE>

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). The information shows you how the fund's performance has var-
ied 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 Lehman Munici-
pal Bond Index, a recognized unmanaged index of bond 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 APPEARS HERE]

Best Quarter Q1 '95: 4.66%

Worst Quarter Q1 '94: -4.71%

As of 12/31/98
- --------------------------------------------------------------------------------
A V E R A G E A N N U A L T O T A L R E T U R N S
- --------------------------------------------------------------------------------
Since Inception
1 Year 3 Years 5 Years 10 Years Inception Date
- --------------------------------------------------------------------------------
DE Tax-Free; Inv A 1.95% 3.66% 3.83% 5.40% 5.23% 09/30/86
- --------------------------------------------------------------------------------
DE Tax-Free; Inv B 0.68% 3.07% 3.48% 5.05% 4.79% 09/30/86
- --------------------------------------------------------------------------------
DE Tax-Free; Inv C 4.37% 4.31% 3.90% 5.05% 4.79% 09/30/86
- --------------------------------------------------------------------------------
Lehman Municipal 6.48% 6.69% 6.23% 8.22% 7.94% N/A*
- --------------------------------------------------------------------------------

* For comparative purposes, the value of the index on 10/01/86 is used as the
beginning value on 09/30/86.

These returns assume payment of applicable sales charges.

79
<PAGE>

EXPENSES
AND FEES

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

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

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

<TABLE>
<CAPTION>
A Shares B Shares C Shares

<S> <C> <C> <C>
Advisory Fees .55% .55% .55%
Distribution and service (12b-
1) fees .50% 1.15% 1.15%
Other expenses* .40% .40% .40%
Total annual fund operating
expenses 1.45% 2.10% 2.10%
Fee waivers and expense
reimbursements** .28% .18% .18%
Net Expenses** 1.17% 1.92% 1.92%
</TABLE>
* "Other expenses" are based on estimated amounts for the current fiscal
year.
** BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits. In addition, BlackRock Distributors, Inc., the fund's distributor,
has contractually agreed to waive all 12b-1 distribution fees on Investor A
Shares (otherwise payable at the maximum annual rate of .10% of average
daily net assets) for the next year. "Net Expenses" in the table have been
restated to reflect these waivers and reimbursements.

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 (except for the waivers in the first year discussed above), redemption
at the end of each time period and, with respect to B Shares and C Shares only,
no redemption at the end of each time period. Although your actual cost may be
higher or lower, based on these assumptions your costs would be:

<TABLE>
<CAPTION>
1 Year 3 Years

<S> <C> <C>
A Shares* $514 $814
B Shares**
Redemption $645 $991
B Shares
No Redemption $195 $641
C Shares**
Redemption $295 $641
C Shares
No Redemption $195 $641
</TABLE>
*Reflects imposition of sales charge.
**Reflects deduction of CDSC.

IMPORTANT DEFINITIONS

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

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

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

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

81
<PAGE>

Financial Highlights
The financial information in the table below shows the fund's financial perfor-
mance for the periods indicated. 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 and assumes that
you have reinvested all dividends 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)

Delaware Tax-Free Income Portfolio

<TABLE>
<CAPTION>
INVESTOR INVESTOR INVESTOR
A SHARES B SHARES C SHARES
For the For the For the
Period Period Period
5/11/98/1 5/11/98/1 5/11/98/1
/ through / through / through
9/30/98 9/30/98 9/30/98
<S> <C> <C> <C>
Net asset value at beginning of period $10.00 $10.00 $10.00
------ ------ ------
Income from investment operations
Net investment income 0.15 0.12 0.12
Net gain (loss) on investments (both
realized and unrealized) 0.34 0.34 0.34
------ ------ ------
Total from investment operations 0.49 0.46 0.46
------ ------ ------
Less distributions
Distributions from net investment
income (0.16) (0.13) (0.13)
Distributions from net realized capital
gains - - - - - -
------ ------ ------
Total distributions (0.16) (0.13) (0.13)
------ ------ ------
Net asset value at end of period $10.33 $10.33 $10.33
====== ====== ======
Total return/3/ 4.97% 4.67% 4.67%
Ratios/Supplemental data
Net assets at end of period (in
thousands) $2,546 $1,740 $ 716
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 1.15%/2/ 1.83%/2/ 1.89%/2/
Before advisory/administration fee
waivers 1.33%/2/ 2.01%/2/ 2.07%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 3.68%/2/ 2.89%/2/ 2.81%/2/
Before advisory/administration fee
waivers 3.50%/2/ 2.71%/2/ 2.63%/2/
Portfolio turnover rate 54% 54% 54%
</TABLE>
--------------------------------------

/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is
reflected.
82
<PAGE>

[GRAPHIC BlackRock
APPEARS Ohio Tax-Free Income
HERE] Portfolio

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

Investment Goal
The fund seeks as high a level of current income exempt from Federal income tax
and, to the extent possible, Ohio state income tax, as is consistent with pres-
ervation of capital.

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in bonds issued by
or on behalf of states and possessions of the United States, their political
subdivisions and their agencies and authorities (and related tax-exempt deriva-
tive securities) the interest on which the manager believes is exempt from Fed-
eral income tax (municipal securities). The fund normally invests at least 65%
of its net assets in municipal securities of issuers located in the state of
Ohio. The fund normally invests at least 80% of its net assets in municipal
securities, including both general obligation and revenue bonds, from a diverse
range of issuers. The other 20% of net assets can be invested in securities
which are subject to regular Federal income tax or the Federal Alternative Min-
imum Tax. The fund emphasizes municipal securities in the ten to twenty year
maturity range. The fund may only buy securities rated investment grade at the
time of purchase by at least one major rating agency or determined by the man-
ager to be of similar quality.

The management team evaluates categories of the municipal market and individual
bonds within those categories. The fund measures it performance against the
Lehman Municipal Bond Index (the benchmark).

It is possible that in extreme market conditions the fund may invest more than
20% of its assets in securities that are not municipal securities (and there-
fore are subject to regular federal income tax) and may hold an unlimited
amount of uninvested cash reserves. If market conditions improve, these strate-
gies could result in reducing the potential gain from the market upswing, thus
reducing the fund's opportunity to achieve its investment objective.

IMPORTANT DEFINITIONS

General Obligation
Bonds: Bonds which are
secured by the issuer's
pledge of its full
faith, credit and tax-
ing power for the pay-
ment of principal and
interest.

Lehman Municipal Bond
Index: An unmanaged
index of municipal
bonds with the follow-
ing characteristics;
minimum credit rating
of Baa-3, outstanding
par value of at least
$3 million, issued as
part of a deal of at
least $50 million, and
issued within the last
5 years remaining matu-
rities of not less than
one year.

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer must pay
back the face amount of
the security.

83
<PAGE>

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 invest-
ment or to increase returns. The fund may also enter into interest rate trans-
actions as a hedging technique. In these transactions, the fund exchanges its
right to pay or receive interest with another party for their right to pay or
receive interest.

The fund can borrow money to buy additional securities. This practice is known
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securi-
ties and agrees to buy them back at a particular date and price). The fund
normally may borrow up to 33 1/3% of the value of its total assets.

Should the Company's Board of Trustees determine that the investment objective
of the fund should be changed, shareholders will be given at least 30 days
notice before any such change is made. The fund may not change the requirement
that it normally invest at least 80% of its net assets in municipal securities
without shareholder approval.

KEY RISKS

Key Risks
There is no guarantee that shares of the fund will not lose value. This means
you could lose money.

The fact that the fund concentrates its investments in securities of issuers
located in Ohio raises special concerns. In particular, changes in the eco-
nomic conditions and governmental policies of Ohio and its political subdivi-
sions could hurt the value of the fund's shares.

IMPORTANT DEFINITIONS

Revenue Bonds: Bonds
which are secured only
by the revenues from a
particular facility or
class of
facilities, such as a
water or sewer system,
or from the proceeds of
a special excise tax or
other revenue source.

84
<PAGE>

The fund will rely on legal opinions of counsel to issuers of municipal securi-
ties as to the tax-free status of investments and will not do its own analysis.

The fund's use of derivatives and interest rate transactions may reduce the
fund's returns and/or increase volatility, which is defined as the characteris-
tic of a security or a market to fluctuate significantly in price within a
short period of time. The income from certain derivatives may be subject to
Federal income tax. Leverage is a speculative technique which may expose the
fund to greater risk and increase its costs. Increases and decreases in the
value of the fund's portfolio will be magnified when the fund uses leverage.
The fund will also have to pay interest on its borrowings, reducing the fund's
return.

Securities loans involve the risk of a delay in receiving additional collateral
if the value of the securities goes up while they are on
85
<PAGE>

loan. There is also the risk of delay in recovering the loaned securities and
of losing rights to the collateral if a borrower goes bankrupt.

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, the fund's investment adviser, is currently working to avoid such prob-
lems. 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 issuers whose securities the fund holds or securi-
ties 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.

86
<PAGE>

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). 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 Lehman Municipal
Bond Index, a recognized unmanaged index of bond 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 performance for the period before Investor B and C Shares were launched is
based upon performance for older share classes of the fund. Investor B Shares
were launched in October 1994 and Investor C Shares were launched in August
1998. The actual returns of Investor B and C Shares would have been lower than
shown because Investor B and C Shares have higher expenses than these other
classes. Also, the actual returns of Investor B and C Shares would have been
lower compared to Investor A Shares.

[BAR CHART APPEARS HERE]

Best Quarter Q1 '95: 7.36%

Worst Quarter Q1 '94: -6.15%

93 94 95 96 97 98
----- ------ ------ ------ ------ -----
10.14% -6.51% 17.45% 3.64% 8.15% 5.86%

These returns assume payment of applicable sales charges.
87
<PAGE>

EXPENSES
AND FEES

This prospectus offers shareholders different ways to invest with three sepa-
rate pricing options. You need to understand your choices so that you can
choose the pricing option that is most suitable for you. With one option (In-
vestor A Shares) you pay a one-
time front-end transaction fee each time you buy shares. The other options
(Investor B and Investor C Shares) have no front-end charges but have higher
on-going fees, which are paid over the life of the investment, and have a con-
tingent deferred sales charge (CDSC) that you may pay when you redeem your
shares. Which option 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 may cost less to buy A Shares than B or C Shares.

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

IMPORTANT DEFINITIONS

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

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

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

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

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

<TABLE>
<CAPTION>
A Shares B Shares C Shares

<S> <C> <C> <C>
Advisory Fees .50% .50% .50%
Distribution and service (12b-
1) fees .50% 1.15% 1.15%
Other expenses .50% .50% .50%
Total annual fund operating
expenses 1.50% 2.15% 2.15%
Fee waivers and expense
reimbursements* .43% .33% .33%
Net Expenses* 1.07% 1.82% 1.82%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may have to repay these waivers and reimbursements to BlackRock in the
following two years if the repayment can be made within these expense lim-
its. In addition, BlackRock Distributors, Inc., the fund's distributor, has
contractually agreed to waive all 12b-1 distribution fees on Investor A
Shares (otherwise payable at the maximum annual rate of .10% of average
daily net assets) for the next year. Net Expenses in the table have been
restated to reflect these waivers and reimbursements.

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 (except for the waivers in the first year discussed above), 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* $505 $815 $1,147 $2,084
B Shares**
Redemption $635 $991 $1,324 $2,214***
B Shares
No Redemption $185 $641 $1,124 $2,214***
C Shares**
Redemption $285 $641 $1,124 $2,457
C Shares
No Redemption $185 $641 $1,124 $2,457
</TABLE>
*Reflects imposition of sales charge.
**Reflects deduction of CDSC.
*** Based on the conversion of the Investor B Shares to Investor A Shares after
seven years.

Financial Highlights
The financial information in the table below shows the fund's financial perfor-
mance for the periods indicated. 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 and assumes that
you have reinvested all dividends 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)

Ohio Tax-Free Income Portfolio

<TABLE>
<CAPTION>
INVESTOR A INVESTOR B INVESTOR C
SHARES SHARES SHARES
For the For the
Period Period
Year Year Year Year Year Year Year Year 10/13/94/1/ 8/26/98/1
Ended Ended Ended Ended Ended Ended Ended Ended through / 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 9/30/98
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $10.50 $10.15 $10.05 $ 9.60 $10.53 $10.50 $10.15 $10.05 $ 9.58 $10.74
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations
Net investment income 0.45 0.45 0.46 0.52 0.53 0.37 0.37 0.38 0.42 0.03
Net gain (loss) on
investments (both
realized and
unrealized) 0.38 0.35 0.10 0.45 (0.91) 0.38 0.35 0.10 0.47 0.14
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 0.83 0.80 0.56 0.97 (0.38) 0.75 0.72 0.48 0.89 0.17
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions
Distributions from net
investment income (0.45) (0.45) (0.46) (0.52) (0.53) (0.37) (0.37) (0.38) (0.42) (0.03)
Distributions from net
realized capital gains - - - - - - - - (0.02) - - - - - - - - - -
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.45) (0.45) (0.46) (0.52) (0.55) (0.37) (0.37) (0.38) (0.42) (0.03)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value at end of
period $10.88 $10.50 $10.15 $10.05 $ 9.60 $10.88 $10.50 $10.15 $10.05 $10.88
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total return/3/ 8.05% 8.03% 5.66% 10.46% (3.75)% 7.25% 7.23% 4.87% 9.33% 1.60%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $2,774 $2,614 $2,833 $3,303 $3,825 $1,116 $ 622 $ 161 $ 106 $ 527
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.06% 1.02% 0.91% 0.38% 0.10% 1.79% 1.75% 1.66% 1.17%/2/ 1.71%/2/
Before
advisory/administration
fee waivers 1.39% 1.53% 1.50% 1.45% 1.49% 2.12% 2.26% 2.26% 2.25%/2/ 2.04%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 4.22% 4.35% 4.57% 5.42% 5.18% 3.41% 3.52% 3.80% 4.48%/2/ 2.82%/2/
Before
advisory/administration
fee waivers 3.89% 3.84% 3.98% 4.35% 3.79% 3.08% 3.01% 3.21% 3.41%/2/ 2.49%/2/
Portfolio turnover rate 77% 87% 136% 63% 61% 77% 87% 136% 63% 77%
</TABLE>
------------------------------------------------------------

/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is
reflected.
90
<PAGE>

[GRAPHIC BlackRock
APPEARS Kentucky Tax-Free Income
HERE] Portfolio

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

Investment Goal
The fund seeks as high a level of current income exempt from Federal income tax
and, to the extent possible, Kentucky state income tax, as is consistent with
preservation of capital.

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in bonds issued by
or on behalf of states and possessions of the United States, their political
subdivisions and their agencies and authorities (and related tax-exempt deriva-
tive securities) the interest on which the manager believes is exempt from Fed-
eral income tax (municipal securities). The fund normally invests at least 65%
of its total assets in municipal securities of issuers located in the state of
Kentucky. The fund normally invests at least 80% of its net assets in municipal
securities, including both general obligation and revenue bonds, from a diverse
range of issuers. The other 20% of net assets can be invested in securities
which are subject to regular Federal income tax or the Federal Alternative Min-
imum Tax. The fund emphasizes municipal securities in the ten to twenty year
maturity range. The fund may only buy securities rated investment grade at the
time of purchase by at least one major rating agency or determined by the man-
ager to be of similar quality.

IMPORTANT DEFINITIONS

General Obligation
Bonds: Bonds which are
secured by the issuer's
pledge of its full
faith, credit and tax-
ing power for the pay-
ment of principal and
interest.

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer must pay
back the face amount of
the security.
91
<PAGE>

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 invest-
ment or to increase returns. The fund may also enter into interest rate trans-
actions as a hedging technique. In these transactions, the fund exchanges its
right to pay or receive interest with another party for their right to pay or
receive interest.

The fund can borrow money to buy additional securities. This practice is known
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securi-
ties and agrees to buy them back at a particular date and price). The Fund
normally may borrow up to 33 1/3% of the value of its total assets.

Should the Company's Board of Trustees determine that the investment objective
of the fund should be changed, shareholders will be given at least 30 days
notice before any such change is made. The fund may not change the requirement
that it normally invest at least 80% of its net assets in municipal securities
without shareholder approval.

Key Risks

Key Risks
There is no guarantee that shares of the fund will not lose value. This means
you could lose money.

The fact that the fund concentrates its investments in securities of issuers
located in Kentucky raises special concerns. In particular, changes in the
economic conditions and governmental policies of Kentucky and its political
subdivisions could hurt the value of the fund's shares.

IMPORTANT DEFINITIONS

92
<PAGE>

The fund will rely on legal opinions of counsel to issuers of municipal securi-
ties as to the tax-free status of investments and will not do its own analysis.

The fund's use of derivatives and interest rate transactions may reduce the
fund's returns and/or increase volatility, which is defined as the characteris-
tic of a security or a market to fluctuate significantly in price within a
short period of time. The income from certain derivatives may be subject to
Federal income tax. Leverage is a speculative technique which may expose the
fund to greater risk and increase its costs. Increases and decreases in the
value of the fund's portfolio will be magnified when the fund uses leverage.
The fund will also have to pay interest on its borrowings, reducing the fund's
return.
93
<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, the fund's investment adviser, is currently working to avoid such prob-
lems. 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 issuers whose securities the fund holds or securi-
ties 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.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). 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 Lehman Municipal
Bond Index, a recognized unmanaged index of bond 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 APPEARS HERE]

Best Quarter Q1 '95: 5.25%

Worst Quarter Q1 '94: -4.49%

As of 12/31/98
- --------------------------------------------------------------------------------
A V E R A G E A N N U A L T O T A L R E T U R N S
- --------------------------------------------------------------------------------
Since Inception
1 Year 3 Years 5 Years 10 Years Inception Date
- --------------------------------------------------------------------------------
KY Tax-Free; Inv A 1.62% 3.83% 4.01% 5.91% 6.00% 11/30/87
- --------------------------------------------------------------------------------
KY Tax-Free; Inv B 0.34% 3.25% 3.67% 5.55% 5.60% 11/30/87
- --------------------------------------------------------------------------------
KY Tax-Free; Inv C 4.02% 4.48% 4.09% 5.55% 5.60% 11/30/87
- --------------------------------------------------------------------------------
Lehman Municipal 6.48% 6.69% 6.23% 8.22% 8.47% N/A
- --------------------------------------------------------------------------------

These returns assume payment of applicable sales charges.

95
<PAGE>

Expenses and Fees

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

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

96
<PAGE>

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

<TABLE>
<CAPTION>
A Shares B Shares C Shares

<S> <C> <C> <C>
Advisory Fees .55% .55% .55%
Distribution and service (12b-
1) fees .50% 1.15% 1.15%
Other expenses* .47% .47% .47%
Total annual fund operating
expenses 1.52% 2.17% 2.17%
Fee waivers and expense
reimbursements** .35% .25% .25%
Net Expenses** 1.17% 1.92% 1.92%
</TABLE>
* "Other expenses" are based on estimated amounts for the current fiscal
year.
** BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits. In addition, BlackRock Distributors, Inc., the fund's distributor,
has contractually agreed to waive all 12b-1 distribution fees on Investor A
Shares (otherwise payable at the maximum annual rate of .10% of average
daily net assets) for the next year. "Net Expenses" in the table have been
restated to reflect these waivers and reimbursements.

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 (except for the waivers in the first year discussed above), redemption
at the end of each time period and, with respect to B Shares and C Shares only,
no redemption at the end of each time period. Although your actual cost may be
higher or lower, based on these assumptions your costs would be:

<TABLE>
<CAPTION>
1 Year 3 Years

<S> <C> <C>
A Shares* $514 $ 828
B Shares**
Redemption $645 $1,005
B Shares
No Redemption $195 $ 655
C Shares**
Redemption $295 $ 655
C Shares
No Redemption $195 $ 655
</TABLE>
*Reflects imposition of sales charge.
**Reflects deduction of CDSC.

IMPORTANT DEFINITIONS

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

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

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

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

97
<PAGE>

Financial Highlights
The financial information in the table below shows the fund's financial perfor-
mance for the periods indicated. 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 and assumes that
you have reinvested all dividends 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)

Kentucky Tax-Free Income Portfolio

<TABLE>
<CAPTION>
INVESTOR INVESTOR INVESTOR
A SHARES B SHARES C SHARES
For the For the For the
Period Period Period
5/11/98/1/ 5/11/98/1/ 5/11/98/1/
through through through
9/30/98 9/30/98 9/30/98
<S> <C> <C> <C>
Net asset value at beginning of period $10.00 $10.00 $10.00
------ ------ ------
Income from investment operations
Net investment income 0.16 0.15 0.15
Net gain (loss) on investments (both
realized and unrealized) 0.31 0.29 0.29
------ ------ ------
Total from investment operations 0.47 0.44 0.44
------ ------ ------
Less distributions
Distributions from net investment
income (0.16) (0.13) (0.13)
Distributions from net realized capital
gains - - - - - -
------ ------ ------
Total distributions (0.16) (0.13) (0.13)
------ ------ ------
Net asset value at end of period $10.31 $10.31 $10.31
====== ====== ======
Total return/3/ 4.76% 4.45% 4.45%
Ratios/Supplemental data
Net assets at end of period (in
thousands) $ 975 $ - - $ - -
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 1.17%/2/ 0.67%/2/ 0.67%/2/
Before advisory/administration fee
waivers 1.42%/2/ 0.92%/2/ 0.92%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 4.07%/2/ 0.64%/2/ 5.00%/2/
Before advisory/administration fee
waivers 3.82%/2/ 0.39%/2/ 4.75%/2/
Portfolio turnover rate 7% 7% 7%
</TABLE>
--------------------------------------

/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is
reflected.

98
<PAGE>

[GRAPHIC BlackRock
APPEARS New Jersey Tax-Free Income
HERE] Portfolio

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

Investment Goal
The fund seeks as high a level of current income exempt from Federal income tax
and, to the extent possible, New Jersey state income tax, as is consistent with
preservation of capital.

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in bonds issued by
or on behalf of states and possessions of the United States, their political
subdivisions and their agencies and authorities (and related tax-exempt deriva-
tive securities) the interest on which the manager believes is exempt from Fed-
eral income tax (municipal securities). The fund normally invests at least 65%
of its net assets in municipal securities of issuers located in the state of
New Jersey. The fund normally invests at least 80% of its net assets in munici-
pal securities, including both general obligation and revenue bonds, from a
diverse range of issuers. The other 20% of net assets can be invested in secu-
rities which are subject to regular Federal income tax or the Federal Alterna-
tive Minimum Tax. In addition, for New Jersey tax purposes, the fund intends to
invest at least 80% of its total assets in municipal securities of issuers
located in the state of New Jersey and in securities issued by the U.S. Govern-
ment, its agencies and authorities. The fund emphasizes municipal securities in
the ten to twenty year maturity range. The fund may only buy securities rated
investment grade at the time of purchase by at least one major rating agency or
determined by the manager to be of similar quality.

IMPORTANT DEFINITIONS

General Obligation
Bonds: Bonds which are
secured by the issuer's
pledge of its full
faith, credit and tax-
ing power for the pay-
ment of principal and
interest.

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer must pay
back the face amount of
the security.
99
<PAGE>

cash reserves. If market conditions improve, these strategies could result in
reducing the potential gain from the market upswing, thus reducing the fund's
opportunity to achieve its investment objective.

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 invest-
ment or to increase returns. The fund may also enter into interest rate trans-
actions as a hedging technique. In these transactions, the fund exchanges its
right to pay or receive interest with another party for their right to pay or
receive interest.

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). The fund normally may borrow up to 33 1/3% of
the value of its 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 made. The fund may not change the requirement
that it normally invest at least 80% of its net assets in municipal securities
without shareholder approval.

Key Risks

Key Risks
There is no guarantee that shares of the fund will not lose value. This means
you could lose money.

IMPORTANT DEFINITIONS

100
<PAGE>

The fact that the fund concentrates its investments in securities of issuers
located in New Jersey raises special concerns. In particular, changes in the
economic conditions and governmental policies of New Jersey and its political
subdivisions could hurt the value of the fund's shares.

Revenue bonds include private activity bonds, which are not payable from the
general revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the cor-
porate user of the facility involved. To the extent that the fund's assets are
invested in private activity bonds, the fund will be subject to the particular
risks presented by the laws and economic conditions relating to such projects
and bonds to a greater extent than if its assets were not so invested. Munici-
pal securities also include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obliga-
tion bonds is unable to pay its debts from current revenues, it may draw on a
reserve fund the restoration of which is a moral but not a legal obligation of
the state or municipality which created the issuer.

The fund may invest in bonds the interest on which may be subject to the Fed-
eral Alternative Minimum Tax. The fund may invest up to 20% of its total
assets in these bonds when added together with any of the fund's other taxable
investments. Interest on these bonds that is received by taxpayers subject to
the Federal Alternative Minimum Tax is taxable.

The fund will rely on legal opinions of counsel to issuers of municipal secu-
rities as to the tax-free status of investments and will not do its own analy-
sis.

The fund's use of derivatives and interest rate transactions may reduce the
fund's returns and/or increase volatility, which is defined as the character-
istic of a security or a market to fluctuate significantly in price within a
short period of time. The income from certain derivatives may be subject to
Federal income tax. Leverage is a speculative technique which may expose the
fund to greater risk and increase its costs. Increases and decreases in
101
<PAGE>

the value of the fund's portfolio will be magnified when the fund uses lever-
age. The fund will also have to pay interest on its borrowings, reducing the
fund's return.

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, the fund's investment adviser, is currently working to avoid such prob-
lems. 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 issuers whose securities the fund holds or securi-
ties 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.

102
<PAGE>

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). The information shows you how the fund's performance has var-
ied 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 Lehman Munici-
pal Bond Index, a recognized unmanaged index of bond 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 performance for the period before Investor Shares were launched is based
upon performance for older share classes of the fund. Investor A Shares were
launched in January 1996, Investor B Shares were launched in July 1996 and
Investor C Shares were launched in December 1998. The actual return of
Investor Shares would have been lower than shown because Investor Shares have
higher expenses than these older classes. Also, the actual returns of Investor
B and C Shares would have been lower compared to Investor A Shares.

[BAR CHART APPEARS HERE]

92 8.90%
Best Quarter 93 11.58%
Q1 '95: 6.13% 94 -4.70%
95 14.94%
96 3.44%
Worst Quarter 97 8.08%
Q1 '94: -5.17% 98 5.80%

The bars for 1992-1996 are
based upon performance
for Service Shares
of the fund

As of 12/31/98
- ---------------------------------------------------------------------------
A V E R A G E A N N U A L T O T A L R E T U R N S
- ---------------------------------------------------------------------------
Since Inception
1 Year 3 Years 5 Years Inception Date
- ---------------------------------------------------------------------------
NJ Tax-Free; Inv A 1.56% 4.33% 4.46% 6.66% 07/01/91
- ---------------------------------------------------------------------------
NJ Tax-Free; Inv B 0.28% 3.86% 4.50% 6.98% 07/01/91
- ---------------------------------------------------------------------------
NJ Tax-Free; Inv C 3.96% 5.10% 4.92% 6.98% 07/01/91
- ---------------------------------------------------------------------------
Lehman Municipal 6.48% 6.69% 6.23% 7.95% N/A
- ---------------------------------------------------------------------------

These returns assume payment of applicable sales charges.

103
<PAGE>

Expenses and Fees

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

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

104
<PAGE>

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

<TABLE>
<CAPTION>
A Shares B Shares C Shares

<S> <C> <C> <C>
Advisory Fees .50% .50% .50%
Distribution and service (12b-
1) fees .50% 1.15% 1.15%
Other expenses 47% .47% .47%
Total annual fund operating
expenses 1.47% 2.12% 2.12%
Fee waivers and expense
reimbursements* .40% .30% .30%
Net Expenses* 1.07% 1.82% 1.82%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock
in the following two years if the repayment can be made within these
expense limits. In addition, BlackRock Distributors, Inc., the fund's dis-
tributor, has contractually agreed to waive all 12b-1 distribution fees on
Investor A Shares (otherwise payable at the maximum annual rate of .10% of
average daily net assets) for the next year. "Net Expenses" in the table
have been restated to reflect these waivers and reimbursements.

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 (except for the waivers in the first year discussed above), redemp-
tion 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* $505 $812 $1,141 $2,071
B Shares**
Redemption $635 $985 $1,312 $2,185***
B Shares
No Redemption $185 $635 $1,112 $2,185***
C Shares**
Redemption $285 $635 $1,112 $2,428
C Shares
No Redemption $185 $635 $1,112 $2,428
</TABLE>
*Reflects imposition of sales charge.
**Reflects deduction of CDSC.
*** Based on the conversion of the Investor B Shares to Investor A Shares
after seven years.

IMPORTANT DEFINITIONS

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

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

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

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

105
<PAGE>

Financial Highlights
The financial information in the table below shows the fund's financial perfor-
mance for the periods indicated. 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 and assumes that
you have reinvested all dividends 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 or B Share Outstanding Throughout Each Period)

New Jersey Tax-Free Income Portfolio

<TABLE>
<CAPTION>
INVESTOR A SHARES INVESTOR B SHARES
For the For the For the
Period Period Period
Year Year 2/1/96 1/26/96/1/ Year Year 7/2/96/1/
Ended Ended through through Ended Ended through
9/30/98 9/30/97 9/30/96 1/31/96 9/30/98 9/30/97 9/30/96
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $11.65 $11.27 $11.61 $11.54 $11.65 $11.27 $11.15
------ ------ ------ ------ ------ ------ ------
Income from investment
operations
Net investment income 0.50 0.51 0.34 - - 0.41 0.41 0.09
Net gain (loss) on
investments (both
realized and
unrealized) 0.42 0.37 (0.34) 0.07 0.42 0.38 0.12
------ ------ ------ ------ ------ ------ ------
Total from investment
operations 0.92 0.88 0.00 0.07 0.83 0.79 0.21
------ ------ ------ ------ ------ ------ ------
Less distributions
Distributions from net
investment income (0.50) (0.50) (0.34) - - (0.41) (0.41) (0.09)
------ ------ ------ ------ ------ ------ ------
Total distributions (0.50) (0.50) (0.34) - - (0.41) (0.41) (0.09)
------ ------ ------ ------ ------ ------ ------
Net asset value at end of
period $12.07 $11.65 $11.27 $11.61 $12.07 $11.65 $11.27
====== ====== ====== ====== ====== ====== ======
Total return/3/ 8.10% 7.94% (0.01)% 0.63% 7.30% 7.14% 2.04%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $1,432 $1,548 $ 894 $ 14 $1,051 $ 767 $ 30
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.06% 1.02% 1.01%/2/ 1.02%/2/ 1.80% 1.74% 1.74%/2/
Before
advisory/administration
fee waivers 1.36% 1.34% 1.33%/2/ 1.36%/2/ 2.10% 2.06% 2.06%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 4.26% 4.41% 4.29%/2/ 2.79%/2/ 3.43% 3.60% 3.48%/2/
Before
advisory/administration
fee waivers 3.96% 4.09% 3.98%/2/ 2.45%/2/ 3.13% 3.28% 3.16%/2/
Portfolio turnover rate 24% 77% 109% 26% 24% 77% 109%
</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.
106
<PAGE>

[GRAPHIC BlackRock
APPEARS Pennsylvania Tax-Free Income
HERE] Portfolio

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

Investment Goal
The fund seeks as high a level of current income exempt from Federal income tax
and, to the extent possible, Pennsylvania state income tax, as is consistent
with preservation of capital.

Primary Investment Strategies:
In pursuit of this goal, the fund manager invests primarily in bonds issued by
or on behalf of states and possessions of the United States, their political
subdivisions and their agencies and authorities (and related tax-exempt deriva-
tive securities) the interest on which the manager believes is exempt from Fed-
eral income tax (municipal securities). The fund normally invests at least 65%
of its net assets in municipal securities of issuers located in the state of
Pennsylvania. The fund normally invests at least 80% of its net assets in
municipal securities including both general obligation and revenue bonds from a
diverse range of issuers. The other 20% of net assets can be invested in secu-
rities which are subject to regular Federal income tax or the Federal Alterna-
tive Minimum Tax. The fund emphasizes municipal securities in the ten to twenty
year maturity range. The fund may only buy securities rated investment grade at
the time of purchase by at least one major rating agency or determined by the
manager to be of similar quality.

IMPORTANT DEFINITIONS

General Obligation
Bonds: Bonds which are
secured by the issuer's
pledge of its full
faith, credit and
taxing power for the
payment of principal
and interest.

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer must pay
back the face amount of
the security.
107
<PAGE>

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 invest-
ment or to increase returns. The fund may also enter into interest rate trans-
actions as a hedging technique. In these transactions, the fund exchanges its
right to pay or receive interest with another party for their right to pay or
receive interest.

The fund can borrow money to buy additional securities. This practice is known
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securi-
ties and agrees to buy them back at a particular date and price). The fund
normally may borrow up to 33 1/3% of the value of its total assets.

Should the Company's Board of Trustees determine that the investment objective
of the fund should be changed, shareholders will be given at least 30 days
notice before any such change is made. The fund may not change the requirement
that it normally invest at least 80% of its net assets in municipal securities
without shareholder approval.

Key Risks

There is no guarantee that shares of the fund will not lose value. This means
you could lose money.

The fact that the fund concentrates its investments in securities of issuers
located in Pennsylvania raises special concerns. In particular, changes in the
economic conditions and governmental policies of Pennsylvania and its politi-
cal subdivisions could hurt the value of the fund's shares.

IMPORTANT DEFINITIONS

108
<PAGE>

The fund will rely on legal opinions of counsel to issuers of municipal securi-
ties as to the tax-free status of investments and will not do its own analysis.

The fund's use of derivatives and interest rate transactions may reduce the
fund's returns and/or increase volatility, which is defined as the characteris-
tic of a security or a market to fluctuate significantly in price within a
short period of time. The income from certain derivatives may be subject to
Federal income tax. Leverage is a speculative technique which may expose the
fund to greater risk and increase its costs. Increases and decreases in the
value of the fund's portfolio will be magnified when the fund uses leverage.
The fund will also have to pay interest on its borrowings, reducing the fund's
return.

Securities loans involve the risk of a delay in receiving additional collateral
if the value of the securities goes up while they are on
109
<PAGE>

loan. There is also the risk of delay in recovering the loaned securities and
of losing rights to the collateral if a borrower goes bankrupt.

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, the fund's investment adviser, is currently working to avoid such prob-
lems. 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 issuers whose securities the fund holds or securi-
ties 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.

110
<PAGE>

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). 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 Lehman Municipal
Bond Index, a recognized unmanaged index of bond 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 performance for the period before Investor B and C Shares were launched is
based upon performance for other share classes of the fund. Investor B Shares
were launched in October 1994 and Investor C Shares were launched in August
1998. The actual returns of Investors B and C Shares would have been lower than
shown because Investor B and C Shares have higher expenses than those older
Classes. Also, the actual returns of Investor B and C Shares would have been
lower compared to Investor A Shares.

[BAR CHART APPEARS HERE]

Best Quarter 93 12.62
Q1 '95: 7.54% 94 -7.12
95 17.86
96 4.10
Worst Quarter 97 8.23
Q1 '94: -6.29% 98 5.65

As of 12/31/98
- ---------------------------------------------------------------------------
A V E R A G E A N N U A L T O T A L R E T U R N S
- ---------------------------------------------------------------------------
Since Inception
1 Year 3 Years 5 Years Inception Date
- ---------------------------------------------------------------------------
PA Tax-Free; Inv A 1.39% 4.56% 4.59% 5.91% 12/01/92
- ---------------------------------------------------------------------------
PA Tax-Free; Inv B 0.59% 4.08% 4.45% 6.18% 12/01/92
- ---------------------------------------------------------------------------
PA Tax-Free; Inv C 4.28% 5.33% 4.87% 6.18% 12/01/92
- ---------------------------------------------------------------------------
Lehman Municipal 6.48% 6.69% 6.23% 7.92% N/A
- ---------------------------------------------------------------------------

These returns assume payment of applicable sales charges.
111
<PAGE>

Expenses and Fees

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

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

112
<PAGE>

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

<TABLE>
<CAPTION>
A Shares B Shares C Shares

<S> <C> <C> <C>
Advisory Fees .50% .50% .50%
Distribution and service (12b-
1) fees .50% 1.15% 1.15%
Other expenses .39% .39% .39%
Total annual fund operating
expenses 1.39% 2.04% 2.04%
Fee waivers and expense
reimbursements* .32% .22% .22%
Net Expenses* 1.07% 1.82% 1.82%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits. In addition, BlackRock Distributors, Inc., the fund's distributor,
has contractually agreed to waive all 12b-1 distribution fees on Investor A
Shares (otherwise payable at the maximum annual rate of .10% of average
daily net assets) for the next year. "Net Expenses" in the table have been
restated to reflect these waivers and reimbursements.

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 (except for the waivers in the first year discussed above), 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* $505 $792 $1,101 $1,975
B Shares**
Redemption $635 $968 $1,278 $2,106***
B Shares
No Redemption $185 $618 $1,078 $2,106***
C Shares**
Redemption $285 $618 $1,078 $2,351
C Shares
No Redemption $185 $618 $1,078 $2,351
</TABLE>
*Reflects imposition of sales charge.
**Reflects deduction of CDSC.
*** Based on the conversion of the Investor B Shares to Investor A Shares after
seven years.

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

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

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

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

113
<PAGE>

Financial Highlights
The financial information in the table below shows the fund's financial perfor-
mance for the periods indicated. 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 and assumes that
you have reinvested all dividends 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)

Pennsylvania Tax-Free Income Portfolio

<TABLE>
<CAPTION>
INVESTOR A INVESTOR B INVESTOR C
SHARES SHARES SHARES
For the For the
Period Period
Year Year Year Year Year Year Year Year 10/03/94/1/ 8/14/98
Ended Ended Ended Ended Ended Ended Ended Ended through 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 9/30/98
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 10.77 $ 10.44 $ 10.33 $ 9.82 $ 10.70 $ 10.77 $ 10.44 $10.33 $ 9.82 $11.00
------- ------- ------- ------- ------- ------- ------- ------ ------ ------
Income from investment
operations
Net investment income 0.45 0.48 0.48 0.48 0.52 0.39 0.40 0.40 0.42 0.42
Net gain (loss) on
investments (both
realized and
unrealized) 0.40 0.33 0.11 0.51 (0.85) 0.41 0.33 0.11 0.51 0.15
------- ------- ------- ------- ------- ------- ------- ------ ------ ------
Total from investment
operations 0.85 0.81 0.59 0.99 (0.33) 0.80 0.73 0.51 0.93 0.57
------- ------- ------- ------- ------- ------- ------- ------ ------ ------
Less distributions
Distributions from net
investment income (0.47) (0.48) (0.48) (0.48) (0.52) (0.42) (0.40) (0.40) (0.42) (0.42)
Distributions from net
realized capital gains - - - - - - - - (0.03) - - - - - - - - - -
------- ------- ------- ------- ------- ------- ------- ------ ------ ------
Total distributions (0.47) (0.48) (0.48) (0.48) (0.55) (0.42) (0.40) (0.40) (0.42) (0.42)
------- ------- ------- ------- ------- ------- ------- ------ ------ ------
Net asset value at end of
period $ 11.15 $ 10.77 $ 10.44 $ 10.33 $ 9.82 $ 11.15 $ 10.77 $10.44 $10.33 $11.15
======= ======= ======= ======= ======= ======= ======= ====== ====== ======
Total return/3/ 8.04% 7.95% 5.81% 10.30% (3.06)% 7.56% 7.12% 5.04% 9.69% 7.56%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $34,712 $32,900 $38,031 $42,775 $46,563 $17,601 $12,388 $7,974 $4,008 $ 184
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.01% 0.97% 1.00% 0.98% 0.41% 1.78% 1.76% 1.74% 1.57%/2/ 1.58%/2/
Before
advisory/administration
fee waivers 1.25% 1.30% 1.30% 1.30% 1.01% 2.02% 2.07% 2.03% 1.89%/2/ 1.82%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 4.25% 4.54% 4.58% 4.88% 5.06% 3.46% 3.73% 3.81% 4.07%/2/ 2.98%/2/
Before
advisory/administration
fee waivers 4.01% 4.23% 4.29% 4.56% 4.46% 3.22% 3.42% 3.51% 3.75%/2/ 2.74%/2/
Portfolio turnover rate 43% 97% 119% 66% 30% 43% 97% 119% 66% 43%
</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.
114
<PAGE>

[GRAPHIC
APPEARS
HERE] About Your Investment

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

Buying Shares from a Registered Investment Professional

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

What Price Per Share Will You Pay?

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.

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

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

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

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

When Must You Pay?

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

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

How Much is the Minimum Investment?

The minimum investment for the initial purchase of Investor Shares is $500.
There is a $50 minimum for all later investments. The Company permits a lower
initial investment if you are an employee of the Company or one of its service
providers or you participate in the Automatic Investment Plan in which you
make regular, periodic investments through a savings or checking account. Your
investment professional can advise you on how to begin an Automatic Investment
Plan. The Company won't accept a purchase order of $1 million or more for
Investor

116
<PAGE>

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

B or Investor C Shares. The fund may reject any purchase order, modify or waive
the minimum investment requirements and suspend and resume the sale of any
share class of the Company at any time.

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

Which Pricing Option Should You Choose?

BlackRock Funds offers different pricing options to investors in the form of
different share classes. Your registered representative can help you decide
which option works best for you. Through
this prospectus, you can choose from Investor A, B, or C Shares.
A Shares (Front-End Load)
. One time sales charge paid at time of purchase
. Never a charge for redeeming shares
. Lower ongoing fees
. Free exchange with other A Shares in BlackRock Funds family
. Advantage: Makes sense for investors who have long-term investment horizon
because ongoing fees are less than for other Investor Share classes.
. Disadvantage: You pay sales charge up-front, and therefore you start off
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 convert to A Shares seven years from purchase
. Advantage: No up-front sales charge so you start off owning more shares.
. Disadvantage: You pay higher ongoing fees than on A Shares each year you own
shares, which means that you can expect lower total performance per share.

117
<PAGE>

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

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

Investor B Shares received through the reinvestment of dividends and distribu-
tions convert to A Shares 7 years after the reinvestment or at the same time as
the conversion of the investor's most recently purchased B Shares that were not
received through reinvestment (whichever is earlier).

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

How Much is the Sales Charge?

The tables below show the schedule of sales charges that you may pay if you buy
and sell Investor A, B and C Shares of a fund.

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

Purchase of Investor A Shares

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

The following schedule of front-end sales charges and quantity discounts
applies to the Low Duration Bond 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 0.0% 0.0%
</TABLE>
* There is no initial sales charge on purchases of $1,000,000 or more of
Investor A shares; however you will pay a contingent deferred sales charge of
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.

118
<PAGE>

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

The following schedule of front-end sales charges and quantity discounts
applies to the Intermediate Government Bond, Intermediate Bond, Core Bond, Tax-
Free Income, Pennsylvania Tax-Free Income, New Jersey Tax-Free Income, Ohio
Tax-Free Income, Kentucky Tax-Free Income, Delaware Tax-Free Income and GNMA
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 4.00% 4.17%
$25,000 but less than
$50,000 3.75% 3.90%
$50,000 but less than
$100,000 3.50% 3.63%
$100,000 but less than
$250,000 3.00% 3.09%
$250,000 but less than
$500,000 2.00% 2.04%
$500,000 but less than
$1,000,000 1.00% 1.01%
$1 million or more 0.0% 0.0%
</TABLE>

* There is no initial sales charge on purchases of $1,000,000 or more of
Investor A shares; however you will pay a contingent deferred sales charge of
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.

The following schedule of front-end sales charges and quantity discounts
applies to the Government Income and Managed Income 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% 4.70%
$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 0.0% 0.0%
</TABLE>

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

The following schedule of front-end sales charges and quantity discounts
applies to the International Bond Portfolio and the High Yield Bond Portfolio.

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

Purchase of Investor B Shares

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

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

Purchase of Investor C Shares

120
<PAGE>

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

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

Can the Sales Charge be Reduced or Eliminated?

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

Right of Accumulation (Investor A Shares)

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

Letter of Intent (Investor A Shares)

121
<PAGE>

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

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

Reinvestment Privilege (Investor A Shares)

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

Quantity Discounts (Investor A Shares)

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

Waiving the Sales Charge (Investor A Shares)

122
<PAGE>

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

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

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

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

Distribution and Service Plan

(1) Responding to customer questions on the services performed by the
Service Organization and investments in Investor Shares;

123
<PAGE>

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

(2) Assisting customers in choosing and changing dividend options,
account designations and addresses; and
(3) Providing other similar shareholder liaison services.

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

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

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

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

How to Sell Shares

124
<PAGE>

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

not charge for redemptions. Shares may be redeemed by sending a written redemp-
tion request to BlackRock Funds c/o PFPC, P.O. Box 8907, Wilmington, DE 19899-
8907.

You can also make redemption requests through your registered investment pro-
fessional, 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 indicate which
class he or she is redeeming, the fund will redeem shares so as to minimize the
CDSC charged.

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

Expedited Redemptions

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

125
<PAGE>

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

The Company's Rights

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.

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

Accounts with Low Balances

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

Management

126
<PAGE>

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

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.

For their investment advisory and sub-advisory services, BlackRock and BFM, as
applicable, 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 daily
net assets were:

<TABLE>
<S> <C>
Low Duration Bond 0.16%
Intermediate Government Bond 0.30%
Intermediate Bond 0.26%
Core Bond 0.18%
Government Income 0.07%
Managed Income 0.34%
International Bond 0.23%
GNMA 0.17%
Tax-Free Income 0.28%
Pennsylvania Tax-Free Income 0.29%
New Jersey Tax-Free Income 0.26%
Ohio Tax-Free Income 0.22%
Delaware Tax-Free Income 0.17%
Kentucky Tax-Free Income 0.15%
</TABLE>

The maximum annual advisory fees that can be paid to BlackRock (as a percentage
of average daily net assets) are as follows:

Maximum Annual Contractual Fee Rate (Before Waivers)

<TABLE>
<CAPTION>
Each Fund Except
Int'l Bond, GNMA, Int'l Bond, GNMA,
KY Tax-Free, KY Tax-Free,
DE Tax Free DE Tax-Free
INVESTMENT INVESTMENT
AVG DAILY NET ASSETS ADVISORY FEE ADVISORY FEE
<S> <C> <C>
first $1 billion .500% .550%
$1 billion--$2
billion .450% .500%
$2 billion--$3
billion .425% .475%
greater than $3
billion .400% .450%
</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.

Information about the portfolio manager for each of the funds is presented in
the appropriate fund section.

BlackRock and the Company have entered into an expense limitation agreement.
The agreement sets a limit on certain of the

127
<PAGE>

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

operating expenses of each fund for the next year and requires BlackRock to
waive or reimburse fees or expenses if these operating expenses exceed that
limit. These expense limits (which apply to expenses charged on fund assets as
a whole, but not expenses separately charged to the different share classes of
a fund) as a percentage of average daily net assets are:

<TABLE>
<S> <C>
Low Duration Bond .385%
Intermediate Government Bond .475%
Intermediate Bond .435%
Core Bond .380%
Government Income .550%
GNMA .485%
Managed Income .485%
International Bond .865%
High Yield Bond .525%
Tax-Free Income .485%
Delaware Tax-Free Income .585%
Ohio Tax-Free Income .515%
Kentucky Tax-Free Income .585%
New Jersey Tax-Free Income .475%
Pennsylvania Tax-Free Income .470%
</TABLE>

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

Dividends and Distributions

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

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

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

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

128
<PAGE>

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

Taxation of Distributions

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, state and local income tax.

Each of the Tax-Free Income, Pennsylvania Tax-Free Income, New Jersey Tax-Free
Income, Ohio Tax-Free Income, Delaware Tax-Free Income and Kentucky Tax-Free
Income Portfolios intends to pay most of its dividends as exempt interest divi-
dends, which means such dividends are exempt from regular federal income tax
(but not necessarily other federal taxes). These dividends will generally be
subject to state and local taxes. The state or municipality where you live may
not charge you state and local taxes on dividends earned on certain securities.
The funds will have to meet certain requirements in order for their dividends
to be exempt from these federal, state and local taxes. Dividends earned on
securities issued by the U.S. government and its agencies may also be exempt
from some types of state and local taxes.

These tax-free income funds may invest a portion of their assets in securities
that generate income that is not exempt from federal, state or local income
tax. Any capital gains distributed by the funds may be taxable as well.

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

129
<PAGE>

[GRAPHIC
APPEARS
HERE] Services for Shareholders

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

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

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

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

Exchange Privilege

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.

130
<PAGE>

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

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.

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

Automatic Investment Plan (AIP)

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

Retirement Plans

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

Statements

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

Systematic Withdrawal Plan (SWP)

131
<PAGE>

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

exceed income the invested principal in their account will be depleted.

To participate in the SWP, shareholders must have their dividends automatically
reinvested and may not hold share certificates. Shareholders may change or can-
cel the SWP at any time, upon written notice to PFPC. If an investor purchases
additional Investor A Shares of a fund at the same time he or she redeems
shares through the SWP, that investor may lose money because of the sales
charge involved. No CDSC will be assessed on redemptions of Investor B or
Investor C Shares made through the SWP that do not exceed 12% of the account's
net asset value on an annualized basis. For example, monthly, quarterly and
semi-annual SWP 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.

132
<PAGE>

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

Annual/Semi-Annual Report
These reports contain additional information about each of the Funds'
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, 28, 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 and to discuss programs and services available.
Hours: 8 a.m. to 6 p.m. (Eastern time), Monday-Friday. Call: (800) 441-7762

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

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. PO Box 8907, Wilmington, DE
19899-8907
Street Address: BlackRock Funds, c/o PFPC, Inc. 400 Bellevue Parkway,
Wilmington, DE 19809

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

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

497(C)
File No. 33-26305

NOT FDIC-INSURED

May lose value
No bank guarantee

Bond Portfolios
================================================================================
SERVICE SHARES

BlackRock Funds (SM) is a mutual fund family with 36 investment portfolios, 14
of which are described in this prospectus.

PROSPECTUS
January 28, 1999

[LOGO BLACKROCK FUNDS]

Table of
Contents

How to find the information you need........................................ 1
THE BLACKROCK BOND FUNDS
Low Duration Bond........................................................... 2
Intermediate Government Bond................................................ 9
Intermediate Bond........................................................... 15
Core Bond................................................................... 21
GNMA Portfolio.............................................................. 28
Managed Income.............................................................. 34
International Bond.......................................................... 40
High Yield Bond............................................................. 47
Tax-Free Income............................................................. 54
Delaware Tax-Free Income.................................................... 61
Ohio Tax-Free Income........................................................ 68
Kentucky Tax-Free Income.................................................... 75
New Jersey Tax-Free Income.................................................. 82
Pennsylvania Tax-Free Income................................................ 89

About Your Investment

How to Buy/Sell Shares...................................................... 96
Dividends/Distribution/Taxes................................................ 104
</TABLE>
<PAGE>

How to Find the
Information You Need
About BlackRock Funds

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

Welcome to the new BlackRock Bond 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).

This prospectus contains information on 14 of the BlackRock Bond funds. 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.

1
<PAGE>

[GRAPHIC BlackRock
APPEARS Low Duration Bond
HERE] Portfolio

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

Investment Goal
The fund seeks to realize a rate of return that exceeds the total return of
the Merrill Lynch 1-3 Year Treasury Index (the benchmark).

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in investment
grade bonds in the three to five year maturity range. The fund normally
invests at least 80% of its assets in bonds diversified among several catego-
ries. The fund manager may also invest up to 20% of the fund's total assets in
non-investment grade bonds or convertible securities with a minimum rating of
"B" and up to 20% of its total assets in bonds of foreign issuers. The fund
manager selects securities from several categories including: U.S. Treasuries
and agency securities, asset backed securities, CMOs, corporate bonds and com-
mercial and residential mortgage-backed securities.

IMPORTANT DEFINITIONS

Asset-Backed Securi-
ties: Bonds that are
backed by a pool of
assets, usually loans
such as installment
sale contracts or
credit card receiv-
ables.

Collateralized Mortgage
Obligations (CMO):
Bonds that are backed
by cash flows from
pools of mortgages.
CMOs may have multiple
classes with different
payment rights and
protections.

Commercial Mortgage-
Backed Securities
(CMBS): Bonds that are
backed by a mortgage
loan or pool of loans
secured by commercial
property, not residen-
tial mortgages.

Duration: A mathemati-
cal calculation of the
average life of a bond
(or bonds in a bond
fund) that serves as a
useful measure of its
price risk. Each year
of duration represents
an expected 1% change
in the price of a bond
for every 1% change in
interest rates. For
example, if a bond fund
has an average duration
of four years, its
price will fall about
4% when interest rates
rise by one percentage
point. Conversely, the
bond fund's price will
rise about 4% when
interest rates fall by
one percentage point.
Investment Grade: Secu-
rities which are rated
in the four highest
categories by at least
one of the major rating
agencies or determined
by the fund manager to
be of similar quality.
Generally, the higher
the rating of a bond,
the higher the likeli-
hood that interest and
principal payments will
be made on time. Secu-
rities rated in the
fourth highest category
by the rating agencies
are considered invest-
ment grade but they are
also considered specu-
lative, meaning that
they carry more risk
than higher rated secu-
rities and may have
problems making princi-
pal and interest pay-
ments in difficult eco-
nomic climates.
Investment grade rat-
ings do not guarantee
that bonds will not
lose value.

2
<PAGE>

interest or currencies with another party for their right to pay or receive
interest or another currency in the future.

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

Key Risks

Certain asset-backed securities are based on loans that are unsecured, which
means that there is no collateral to seize if the

IMPORTANT DEFINITIONS

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer must pay
back the face amount of
the security.

Merrill Lynch 1-3 Year
Treasury Index: An
unmanaged index com-
prised of Treasury
securities with maturi-
ties of from 1 to 2.99
years.

3
<PAGE>

underlying borrower defaults. Other asset-based securities may not have the
benefit of as much collateral as mortgage-backed securities.

4
<PAGE>

risks than securities which have higher credit ratings, including a high risk
of default. The yields of non-investment grade securities will move up and down
over time.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Service Shares. 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 Merrill
Lynch 1-3 Year Treasury Index, a recognized unmanaged index of bond market per-
formance. The chart and the table both assume reinvestment of dividends and
distributions. As with all such investments, past performance is not an indica-
tion of future results.

The performance for the period before Service Shares were launched in January
1996 is based upon performance for Institutional Shares of the fund. The actual
return of Service Shares would have been lower than shown because Service
Shares have higher expenses than Institutional Shares.

- -------------------------------------------------------------------------------
A N N U A L T O T A L R E T U R N S
- -------------------------------------------------------------------------------

[BAR CHART APPEARS HERE]

Best Quarter Q1 '95: 3.26%

Worst Quarter Q1 '94: -0.18%

The bars for 1993-1996 are based
upon performance for Institutional
Shares of the fund.

93 94 95 96 97 98
----- ----- ------ ----- ----- -----
5.66% 1.39% 10.51% 4.71% 5.74% 6.32%

6
<PAGE>

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.

The table below describes the fees and expenses that you may pay if you buy and
hold Service 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 .50%
Distribution and service (12b-1) fees .30%
Other expenses .45%
Total annual fund operating expenses 1.25%
Fee Waivers and Expense Reimbursements* .40%
Net Expenses* .85%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may have to repay these waivers and reimbursements to BlackRock in the
following two years if the repayment can be made within these expense limits.
"Net Expenses" in the table have been restated to reflect these waivers and
reimbursements.

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 (except for the waivers in the first year discussed above) and redemp-
tion 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>
Service Shares $87 $357 $648 $1,476
</TABLE>

IMPORTANT DEFINITIONS

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

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

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

7
<PAGE>

Low Duration Bond Portfolio

<TABLE>
<CAPTION>
For the For the
Period Period
Year Year 4/1/96 1/12/96/1/
Ended Ended through through
9/30/98 9/30/97 9/30/96 3/31/96
<S> <C> <C> <C> <C>
Net asset value at
beginning of period $ 9.89 $ 9.79 $ 9.79 $ 9.91
------- ------- ------- --------
Income from investment
operations
Net investment income 0.66 0.54 0.26 0.11
Net gain (loss) on
investments (both
realized and
unrealized) 0.01 0.09 (0.01) (0.12)
------- ------- ------- --------
Total from investment
operations 0.67 0.63 0.25 (0.01)
------- ------- ------- --------
Less distributions
Distributions from net
investment income (0.53) (0.53) (0.25) (0.11)
Distributions from net
realized capital gains - - - - - - - -
------- ------- ------- --------
Total distributions (0.53) (0.53) (0.25) (0.11)
------- ------- ------- --------
Net asset value at end of
period $ 10.03 $ 9.89 $ 9.79 $ 9.79
======= ======= ======= ========
Total return 6.96% 6.57% 2.54% (0.11)%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $18,393 $82,873 $91,870 $181,670
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.85%/3/ 0.85%/3/ 0.85%/2/,/3/ 0.85%/2/,/3/
Before
advisory/administration
fee waivers 1.25% 1.18% 1.13%/2/ 1.05%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 6.62% 5.86% 5.40%/2/ 5.25%/2/
Before
advisory/administration
fee waivers 6.22% 5.53% 5.13%/2/ 5.05%/2/
Portfolio turnover rate 227% 371% 228% 185%
</TABLE>
------------------------------------------

/1/Commencement of operations of share class.
/2/Annualized.
/3/Including interest expense, ratios would have been 1.98% for the year ended
September 30, 1998, 1.85% for the year ended September 30, 1997, 0.97% for
the period ended September 30, 1996 and 1.18% for the period ended March 31,
1996.
8
<PAGE>

[GRAPHIC BlackRock
APPEARS Intermediate Government
HERE] Bond Portfolio

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

Investment Goal
The fund seeks current income consistent with the preservation of capital.

If a security falls below the highest rating, the manager will decide whether
to continue to hold the security. A security will be sold if, in the opinion of
the fund manager, the risk of continuing to hold the security is unacceptable
when compared to the total return potential.

IMPORTANT DEFINITIONS

Asset-Backed Securi-
ties: Bonds that are
backed by a pool of
assets, usually loans
such as installment
sale contracts or
credit card
receivables.

Commercial Mortgage-
Backed Securities
(CMBS): Bonds that are
backed by a mortgage
loan or pools of loans
secured by commercial
property, not residen-
tial mortgages.

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer generally
must pay back the face
amount of the security.

9
<PAGE>

The fund can borrow money to buy additional securities. This practice is known
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securi-
ties and agrees to buy them back at a particular date and price). The fund
normally may borrow up to 33 1/3% of the value of its total assets.

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

Key Risks

A main risk of investing in the fund is interest rate risk. Typically, when
interest rates rise, there is a corresponding decline in the market value of
bonds such as those held by the fund.

A main difference is that the principal on mortgage-or asset-backed securities
may normally be prepaid at any time, which will reduce the yield and market
value of these securities. Asset-backed securities and CMBS generally experi-
ence less prepayment than residential mortgage-backed securities. In periods
of falling interest rates, the rate of prepayments tends to increase (as does
price fluctuations) as borrowers are motivated to pay off debt and refinance
at new lower rates. During such periods, reinvestment of the prepayment pro-
ceeds by the manager will generally be at lower rates of return than the
return on the assets which were prepaid.

IMPORTANT DEFINITIONS

10
<PAGE>

Certain asset-backed securities are based on loans that are unsecured, which
means that there is no collateral to seize if the underlying borrower defaults.
Other asset-based securities may not have the benefit of as much collateral as
mortgage-backed securities.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Service Shares. 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 Lehman
Brothers Intermediate Government Index, a recognized unmanaged index of bond
market performance. The chart and the table both assume reinvestment of divi-
dends and distributions. As with all such investments, past performance is not
an indication of future results.

[BAR CHART APPEARS HERE]

Best Quarter Q1 '95: 4.42%

Worst Quarter Q1 '94: -2.45%

The bar for 1993 is based upon
performance for Institutional
Shares of the fund

93 94 95 96 97 98
----- ----- ------ ----- ----- -----
7.72% -3.59% 13.44% 4.10% 7.41% 7.30%

* For comparative purposes, the value of the index on 05/01/92 is used as the
beginning value on 04/20/92.

12
<PAGE>

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.

The table below describes the fees and expenses that you may pay if you buy and
hold Service 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 .50%
Distribution and service (12b-1) fees .30%
Other expenses .35%
Total annual fund operating expenses 1.15%
Fee Waivers and Expense Reimbursements* .25%
Net Expenses* .90%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may have to repay these waivers and reimbursements to BlackRock in the
following two years if the repayment can be made within these expense limits.
"Net Expenses" in the table have been restated to reflect these waivers and
reimbursements.

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 (except for the waivers in the first year discussed above) and redemp-
tion 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>
Service Shares $92 $341 $609 $1,375
</TABLE>

IMPORTANT DEFINITIONS

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

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

Other Expenses: Include
administration, trans-
fer agency, custody,
professional fees and
registration fees.
13
<PAGE>

Financial Highlights
The financial information in the table below shows the fund's financial perfor-
mance for the periods indicated. 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 and assumes that
you have reinvested all dividends 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 a Service Share Outstanding Throughout Each Period)

Intermediate Government Bond Portfolio

<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 $ 10.11 $ 9.92 $ 10.02 $ 9.64 $ 10.60
------- ------- ------- ------- -------
Income from investment
operations
Net investment income 0.58 0.56 0.56 0.56 0.53
Net gain (loss) on
investments
(both realized and
unrealized) 0.35 0.19 (0.12) 0.37 (0.86)
------- ------- ------- ------- -------
Total from investment
operations 0.93 0.75 0.44 0.93 (0.33)
------- ------- ------- ------- -------
Less distributions
Distributions from net
investment income (0.56) (0.56) (0.54) (0.55) (0.53)
Distributions from net
realized capital gains - - - - - - - - (0.10)
------- ------- ------- ------- -------
Total distributions (0.56) (0.56) (0.54) (0.55) (0.63)
------- ------- ------- ------- -------
Net asset value at end of
period $ 10.48 $ 10.11 $ 9.92 $ 10.02 $ 9.64
======= ======= ======= ======= =======
Total return 9.50% 7.75% 4.51% 9.99% (3.31)%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $29,697 $50,535 $47,494 $49,762 $60,812
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.88%/1/ 0.85%/1/ 0.83%/1/ 0.69%/1/ 0.65%
Before
advisory/administration
fee waivers 1.14% 1.16% 1.13% 1.06% 1.05%
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 5.54% 5.70% 5.73% 5.67% 5.30%
Before
advisory/administration
fee waivers 5.28% 5.39% 5.43% 5.30% 4.90%
Portfolio turnover rate 272% 291% 580% 247% 9%
</TABLE>
-----------------------------------------

/1/Including interest expense, ratios would have been 0.91% for the year ended
September 30, 1998, 0.97% for the year ended September 30, 1997, 1.00% for
the year ended September 30, 1996, and 0.69% for the year ended September 30,
1995.
14
<PAGE>

[GRAPHIC BlackRock
APPEARS Intermediate Bond
HERE] Portfolio

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

Investment Goal
The fund seeks current income consistent with the preservation of capital.

The fund only buys securities that are rated investment grade at the time of
purchase by at least one major rating agency or determined by the manager to be
of similar quality.

IMPORTANT DEFINITIONS

Asset-Backed Securi-
ties: Bonds that are
backed by a pool of
assets, usually loans
such as installment
sale contracts or
credit card
receivables.

Commercial Mortgage-
Backed Securities
(CMBS): Bonds that are
backed by a mortgage
loan or pools of loans
secured by commercial
property, not residen-
tial mortgages.

15
<PAGE>

exchanges its right to pay or receive interest with another party for their
right to pay or receive interest.

The fund can borrow money to buy additional securities. This practice is known
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securi-
ties and agrees to buy them back at a particular date and price). The fund
normally may borrow up to 33 1/3% of the value of its total assets.

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

Key Risks

While the fund manager chooses bonds he believes can provide above average
current income, there is no guarantee that shares of the fund will not lose
value. This means you could lose money.

Certain asset-backed securities are based on loans that are unsecured, which
means that there is no collateral to seize if the underlying borrower
defaults. Other asset-based securities may

IMPORTANT DEFINITIONS

Lehman Brothers Inter-
mediate
Government/Corporate
Index: An unmanaged
index comprised of
Treasury, agency and
corporate issues from
the more comprehensive
Lehman Aggegrate Index.
This index concentrates
on intermediate matu-
rity bonds and thus
excludes all maturities
from the broader index
below one year and
above 9.9 years.

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer generally
must pay back the face
amount of the security.

16
<PAGE>

not have the benefit of as much collateral as mortgage-backed securities.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Service Shares. 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 Lehman
Brothers Intermediate Government/Corporate Index, a recognized unmanaged index
of bond 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.

The performance for the period before Service Shares were launched in September
1993 is based upon performance for Institutional Shares of the fund. The actual
return of Service Shares would have been lower than shown because Service
Shares have higher expenses than Institutional Shares.

[BAR CHART APPEARS HERE]

Best Quarter Q2 '95: 4.44%

Worst Quarter Q1 '94: -2.86%

94 95 96 97 98
----- ------ ----- ----- -----
-3.36% 14.28% 3.99% 7.29% 6.77%

* For comparative purposes, the value of the index on 09/01/93 is used as
the beginning value on 09/15/93.

18
<PAGE>

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.

The table below describes the fees and expenses that you may pay if you buy and
hold Service 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 .50%
Distribution and service (12b-1) fees .30%
Other expenses .36%
Total annual fund operating expenses 1.16%
Fee Waivers and Expense Reimbursements* .26%
Net Expenses* .90%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may have to repay these waivers and reimbursements to BlackRock in the
following two years if the repayment can be made within these expense limits.
"Net Expenses" in the table have been restated to reflect these waivers and
reimbursements.

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 (except for the waivers in the first year discussed above) and redemp-
tion 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>
Service Shares $92 $343 $613 $1,386
</TABLE>

Fund Management

IMPORTANT DEFINITIONS

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

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

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

19
<PAGE>

Financial Highlights

The financial information in the table below shows the fund's financial perfor-
mance for the periods indicated. 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 and assumes that
you have reinvested all dividends 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 a Service Share Outstanding Throughout Each Period)

Intermediate Bond Portfolio

<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 $ 9.49 $ 9.32 $ 9.43 $ 9.05 $ 10.01
------- ------- ------- ------- -------
Income from investment
operations
Net investment income 0.58 0.55 0.53 0.54 0.54
Net gain (loss) on
investments (both
realized and
unrealized) 0.20 0.17 (0.09) 0.38 (0.91)
------- ------- ------- ------- -------
Total from investment
operations 0.78 0.72 0.44 0.92 (0.37)
------- ------- ------- ------- -------
Less distributions
Distributions from net
investment income (0.55) (0.55) (0.52) (0.54) (0.53)
Distributions from net
realized capital gains (0.05) - - (0.03) - - (0.06)
------- ------- ------- ------- -------
Total distributions (0.60) (0.55) (0.55) (0.54) (0.59)
------- ------- ------- ------- -------
Net asset value at end of
period $ 9.67 $ 9.49 $ 9.32 $ 9.43 $ 9.05
======= ======= ======= ======= =======
Total return 8.48% 8.07% 4.79% 10.46% (3.80)%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $25,946 $52,316 $45,362 $36,718 $35,764
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.89%/1/ 0.83%/1/ 0.83%/1/ 0.74%/1/ 0.70%
Before
advisory/administration
fee waivers 1.16% 1.12% 1.13% 1.09% 1.13%
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 6.95% 6.32% 5.98% 5.90% 5.33%
Before
advisory/administration
fee waivers 6.68% 6.03% 5.67% 5.55% 4.90%
Portfolio turnover rate 221% 321% 670% 262% 92%
</TABLE>
--------------------------------------------

/1/Including interest expense, ratios would have been 2.06% for the year ended
September 30, 1998, 1.27% for the year ended September 30, 1997, 1.14% for
the year ended September 30, 1996, and 0.82% for the year ended September 30,
1995.
20
<PAGE>

[GRAPHIC BlackRock
APPEARS Core Bond
HERE] Portfolio

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

Investment Goal
The fund seeks to realize a total return that exceeds that of the Lehman Broth-
ers Aggregate Index (the benchmark).

The fund only buys securities that are rated investment grade at the time of
purchase by at least one major rating agency or determined by the manager to be
of similar quality.

The management team evaluates several categories of the bond market and indi-
vidual securities within these categories. The fund manager selects bonds from
several categories including: U.S. Treasuries and agency securities, commercial
and residential mortgage-backed securities, asset-backed securities and corpo-
rate bonds. Securities are purchased for the fund when the manager determines
that they have the potential for above-average total return. The fund measures
its performance against the benchmark.

IMPORTANT DEFINITIONS

Asset-Backed Securi-
ties: Bonds that are
backed by a pool of
assets, usually loans
such as installment
sale contracts or
credit card receiv-
ables.

Commercial Mortgage-
Backed Securities
(CMBS): Bonds that are
backed by a mortgage
loan or pools of loans
secured by commercial
property, not residen-
tial mortgages.

21
<PAGE>

actions, the fund exchanges its right to pay or receive interest or currencies
with another party for their right to pay or receive interest or another cur-
rency in the future.

The fund can borrow money to buy additional securities. This practice is known
as "leverage". The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securities
and agrees to buy them back at a particular date and price). The fund (normal-
ly) may borrow up to 33 1/3% of the value of its 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 made.

Key Risks

Certain asset-backed securities are based on loans that are unsecured, which
means that there is no collateral to seize if the

IMPORTANT DEFINITIONS

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer generally
must pay back the face
amount of the security.

22
<PAGE>

underlying borrower defaults. Other asset-based securities may not have the
benefit of as much collateral as mortgage-backed securities.

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
23
<PAGE>

have a negative effect on the fund, BlackRock, the fund's investment adviser
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 issuers
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.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Service Shares. 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 Lehman
Brothers Aggregate Index, a recognized unmanaged index of bond 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.

24
<PAGE>

[BAR CHART APPEARS HERE]

Best Quarter Q2 '95: 5.87%

Worst Quarter Q1 '94: -2.63%

The bars for 1993-1996 are based
upon performance for Institutional
Shares of the fund.

93 94 95 96 97 98
----- ----- ------ ----- ----- -----
9.69% -2.33% 18.18% 3.40% 8.70% 7.84%

Expenses and Fees

The table below describes the fees and expenses that you may pay if you buy and
hold Service Shares of the fund. 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 .50%
Distribution and service (12b-1) fees .30%
Other expenses .39%
Total annual fund operating expenses 1.19%
Fee Waivers and Expense Reimbursements* .34%
Net Expenses* .85%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may have to repay these waivers and reimbursements to BlackRock in the
following two years if the repayment can be made within these expense limits.
"Net Expenses" in the table have been restated to reflect these waivers and
reimbursements.

IMPORTANT DEFINITIONS

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

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

Other Expenses: Include
administration, trans-
fer agency, custody,
professional fees and
registration fees.
25
<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 (except for the waivers in the first year discussed above) and redemp-
tion 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>
Service Shares $87 $344 $622 $1,413
</TABLE>

Fund Management
The manager of the fund is Keith Anderson, Managing Director at BlackRock
Financial Management, Inc. since 1988. He has served as fund manager since June
1997.

26
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For a Service Share Outstanding Throughout Each Period)

Core Bond Portfolio

<TABLE>
<CAPTION>
For the For the
Period Period
Year Year 4/1/96 1/12/96/1
Ended Ended through / through
9/30/98 9/30/97 9/30/96 3/31/96
<S> <C> <C> <C> <C>
Net asset value at
beginning of period $ 9.82 $ 9.55 $ 9.61 $ 9.91
------- -------- -------- --------
Income from investment
operations
Net investment income 0.56 0.59 0.30 0.11
Net gain (loss) on
investments (both
realized and
unrealized) 0.40 0.26 (0.07) (0.30)
------- -------- -------- --------
Total from investment
operations 0.96 0.85 0.23 (0.19)
------- -------- -------- --------
Less distributions
Distributions from net
investment income (0.57) (0.58) (0.29) (0.11)
Distributions from net
realized capital gains (0.09) - - - - - -
------- -------- -------- --------
Total distributions (0.66) (0.58) (0.29) (0.11)
------- -------- -------- --------
Net asset value at end of
period $ 10.12 $ 9.82 $ 9.55 $ 9.61
======= ======== ======== ========
Total return 10.24% 9.71% 2.40% (1.90)%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $70,111 $122,308 $117,207 $232,040
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.85%/3/ 0.85%/3/ 0.85%/2/,/3/ 0.85%/2/,/3/
Before
advisory/administration
fee waivers 1.19% 1.14% 1.14%/2/ 1.10%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 6.05% 6.59% 6.33%/2/ 5.46%/2/
Before
advisory/administration
fee waivers 5.71% 6.31% 6.04%/2/ 5.21%/2/
Portfolio turnover rate 405% 441% 308% 723%
</TABLE>
-----------------------------------------

/1/Commencement of operations of share class.
/2/Annualized.
/3/Including interest expense, ratios would have been 1.18% for the year ended
September 30, 1998, 1.35% for the year ended September 30, 1997, 1.08% for
the period ended September 30, 1996 and 0.94% for the period ended March 31,
1996. For the periods prior to 3/31/96, interest income was presented net of
interest expense.
27
<PAGE>

[GRAPHIC BlackRock
APPEARS GNMA
HERE] Portfolio

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

Investment Goal
The fund seeks current income consistent with the preservation of capital.

Securities purchased by the fund are rated in the highest rating category (AAA
or Aaa) at the time of purchase by at least one major ratings agency or are
determined by the fund manager to be of similar quality.

If a security falls below the highest rating, the manager will decide whether
to continue to hold the security. A security will be sold if, in the opinion of
the fund manager, the risk of continuing to hold the security is unacceptable
when compared to the total return potential.

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. The fund may also enter into interest rate transactions
as a hedging technique. In these transactions, the fund exchanges its right to
pay or receive interest with another party for their right to pay or receive
interest.

IMPORTANT DEFINITIONS

Asset-Backed Securi-
ties: Bonds that are
backed by a pool of
assets, usually loans
such as installment
sale contracts or
credit card receiv-
ables.

Commercial Mortgage-
Backed Securities
(CMBS): Bonds that are
backed by a mortgage
loan or pool of loans
secured by commercial
property, not residen-
tial mortgages.

Lehman GNMA Index: An
unmanaged index com-
prised of mortgage-
backed pass through
securities of the Gov-
ernment National Mort-
gage Association
(GNMA).

28
<PAGE>

The fund can borrow money to buy additional securities. This practice is known
as "leverage". The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securities
and agrees to buy them back at a particular date and price). The fund normally
may borrow up to 33 1/3% of the value of its total assets.

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

Key Risks

A main risk of investing in the fund is interest rate risk. Typically, when
interest rates rise, there is a corresponding decline in the market value of
bonds such as those held by the fund.

A main difference is that the principal on mortgage-or asset-backed securities
may normally be prepaid at any time, which will reduce the yield and market
value of these securities. Asset-backed securities and CMBS generally experi-
ence less prepayment than residential mortgage-backed securities. In periods of
falling interest rates, the rate of prepayments tends to increase (as does
price fluctuation) as borrowers are motivated to pay off debt and refinance at
new lower rates. During such periods, reinvestment of the prepayment proceeds
by the manager will generally be at lower rates of return than the return on
the assets which were prepaid.

Certain asset-backed securities are based on loans that are unsecured, which
means that there is no collateral to seize if the underlying borrower defaults.
Other asset-based securities may not have the benefit of as much collateral as
mortgage-backed securities.

Treasury obligations differ only in their interest rates, maturities and times
of issuance. Obligations of U.S. Government agencies

IMPORTANT DEFINITIONS

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer generally
must pay back the face
amount of the security.

29
<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, the fund's investment adviser, is currently working to avoid such prob-
lems. 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 issuers whose securities the fund holds or securi-
ties 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.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Service Shares. 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 Lehman
GNMA Index, a recognized unmanaged index of bond 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.

30
<PAGE>

[BAR CHART APPEARS HERE]

Best Quarter Q2 '95: 5.75%

Worst Quarter Q1 '94: -3.73%

91 92 93 94 95 96 97 98
------ ----- ----- ----- ----- ----- ----- -----
15.68% 6.40% 7.54% -3.83% 17.38 4.41% 9.37% 7.22%

* For comparative purposes, the value of the index on 06/01/90 is used as the
beginning value on 05/31/90.
31
<PAGE>

IMPORTANT DEFINITIONS

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

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

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

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.

The table below describes the fees and expenses that you may pay if you buy and
hold Service 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 .55%
Distribution and service (12b-1) fees .30%
Other expenses* .42%
Total annual fund operating expenses 1.27%
Fee Waivers and Expense Reimbursements** .37%
Net Expenses** .90%
</TABLE>
* "Other expenses" are based on estimated amounts for the current fiscal year.
** BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may have to repay these waivers and reimbursements to BlackRock in the
following two years if the repayment can be made within these expense lim-
its. "Net expenses" in the table have been restated to reflect these waivers
and reimbursements.

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 (except for the waivers in the first year discussed above) and redemp-
tion at the end of each time period. Although your actual cost may be higher or
lower, based on these assumptions your costs would be:

<TABLE>
<CAPTION>
1 Year 3 Years

<S> <C> <C>
Service Shares $92 $366
</TABLE>

Fund Management
The co-managers of the fund are Robert Kapito, Vice Chairman of BlackRock
Financial Management, Inc. (BFM) since 1988, Scott Amero, Managing Director of
BFM since 1990, and Michael Lustig, Director of BFM since 1989. They have all
co-managed the fund since inception.

32
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For a Service Share Outstanding Throughout Each Period)

GNMA Portfolio

<TABLE>
<CAPTION>
For the
Period
5/18/98/1/
through
9/30/98
<S> <C>
Net asset value at beginning of period $10.00
------
Income from investment operations
Net investment income 0.27
Net gain (loss) on investments (both
realized and unrealized) 0.04
------
Total from investment operations 0.31
------
Less distributions
Distributions from net investment income (0.20)
Distributions from net realized capital
gains - -
------
Total distributions (0.20)
------
Net asset value at end of period $10.11
======
Total return 3.18%
Ratios/Supplemental data
Net assets at end of period (in thousands) $ - -
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.57%/2/, /3/
Before advisory/administration fee waivers 0.94%/2/
Ratios of net investment income to average
net assets
After advisory/administration fee waivers 8.95%/2/
Before advisory/administration fee waivers 8.58%/2/
Portfolio turnover rate 56%
</TABLE>
---------------------------------------

/1/Commencement of operations of share class.
/2/Annualized.
/3/Including interest expense, ratio would have been 0.74% for the period ended
September 30, 1998.
33
<PAGE>

[GRAPHIC BlackRock
APPEARS Managed Income
HERE] Portfolio

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

Investment Goal
The fund seeks current income consistent with the preservation of capital.

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in investment
grade bonds in the five to ten year maturity range. The fund normally invests
at least 80% of its total assets in bonds and only buys securities rated
investment grade at the time of purchase by at least one major rating agency
or determined by the manager to be of similar quality. The fund may invest up
to 10% of its total assets in bonds of foreign issuers.

The management team evaluates categories of the bond market and individual
bonds within those categories. The manager selects bonds from several catego-
ries including: U.S. Treasuries and agency securities, commercial and residen-
tial mortgage-backed securities, asset-backed securities and corporate bonds.
Securities are purchased for the fund when the manager determines that they
have the potential for above-average current income. The fund measures its
performance against the Lehman Brothers Aggregate Index (the benchmark).

IMPORTANT DEFINITIONS

Asset-Backed Securi-
ties: Bonds that are
backed by a pool of
assets, usually loans
such as installment
sale contracts or
credit card receiv-
ables.

Commercial Mortgage-
Backed Securities
(CMBS): Bonds that are
backed by a mortgage
loan or pools of loans
secured by commercial
property, not residen-
tial mortgages.

34
<PAGE>

currencies with another party for their right to pay or receive interest or
another currency in the future.

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

Key Risks

Certain asset-backed securities are based on loans that are unsecured, which
means that there is no collateral to seize if the

IMPORTANT DEFINITIONS

Lehman Brothers Aggre-
gate Index: An unman-
aged index comprised of
more than 5,000 taxable
bonds. This is an index
of investment grade
bonds; all securities
included must be rated
investment grade by
Moody's or Standard &
Poor's.
Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer generally
must pay back the face
amount of the security.
Mortgage-Backed Securi-
ties: Asset-backed
securities based on a
particular type of
asset, a mortgage.
There is a wide variety
of mortgage backed
securities involving
commercial or residen-
tial, fixed rate or
adjustable rate mort-
gages and mortgages
issued by banks or gov-
ernment agencies.
Total Return: A way of
measuring fund perfor-
mance. Total return is
based on a calculation
that takes into account
income dividends, capi-
tal gain distributions
and the increase or
decrease in share
price.

35
<PAGE>

underlying borrower defaults. Other asset-based securities may not have the
benefit of as much collateral as mortgage-backed securities.

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

36
<PAGE>

have a negative effect on the fund, BlackRock, the fund's investment adviser,
is currently working to avoid such problems. BlackRock is also working with
other systems providers and vendors to determine their systems' ability to han-
dle Year 2000 problems. There is no guarantee, however, that systems will work
properly on January 1, 2000. Year 2000 problems may also hurt issuers 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.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Service Shares. 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 Lehman
Brothers Aggregate Index, a recognized unmanaged index of bond 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.

[BAR CHART APPEARS HERE]

Best Quarter Q3 '91: 5.78%

Worst Quarter Q1 '94: -3.49%

The bars for 1993-1996 are based
upon performance for Institutional
Shares of the fund.

90 91 92 93 94 95 96 97 98
----- ------ ----- ------ ------ ------ ----- ----- -----
8.30% 14.96% 5.91% 11.55% -4.69% 17.20% 3.14% 9.14% 6.97%

37
<PAGE>

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.

The table below describes the fees and expenses that you may pay if you buy and
hold Service 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>
Advisory Fees .49%
Distribution and service (12b-1) fees .30%
Other expenses .32%
Total annual fund operating expenses 1.11%
Fee Waivers and Expense Reimbursements* .16%
Net Expenses* .95%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may have to repay these waivers and reimbursements to BlackRock in the
following two years if the repayment can be made within these expense limits.
"Net Expenses" in the table have been restated to reflect these waivers and
reimbursements.

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 (except for the waivers in the first year discussed above) and redemp-
tion 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>
Service Shares $97 $337 $596 $1,337
</TABLE>

Fund Management
The manager of the fund is Keith Anderson. He has been a Managing Director at
BlackRock Financial Management, Inc. since 1988 and manager of the fund since
June 1997.

IMPORTANT DEFINITIONS

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

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

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

38
<PAGE>

Managed Income Portfolio

<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 $ 10.41 $ 10.09 $ 10.38 $ 9.79 $ 11.17
-------- -------- -------- -------- -------
Income from investment
operations
Net investment income 0.60 0.66 0.61 0.63 0.59
Net gain (loss) on
investments
(both realized and
unrealized) 0.30 0.31 (0.20) 0.60 (1.18)
-------- -------- -------- -------- -------
Total from investment
operations 0.90 0.97 0.41 1.23 (0.59)
-------- -------- -------- -------- -------
Less distributions
Distributions from net
investment income (0.62) (0.65) (0.60) (0.63) (0.62)
Distribution in excess
of net investment
income - - - - - - (0.01) (0.02)
Distributions from net
realized capital gains (0.05) - - (0.10) - - (0.14)
Distributions in excess
of net realized gains - - - - - - - - (0.01)
-------- -------- -------- -------- -------
Total distributions (0.67) (0.65) (0.70) (0.64) (0.79)
-------- -------- -------- -------- -------
Net asset value at end of
period $ 10.64 $ 10.41 $ 10.09 $ 10.38 $ 9.79
======== ======== ======== ======== =======
Total return 8.93% 9.93% 4.05% 12.97% (5.49)%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $257,641 $266,750 $165,073 $116,846 $67,655
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.93%/1/ 0.88%/1/ 0.88% 0.85% 0.80%
Before
advisory/administration
fee waivers 1.11% 1.13% 1.11% 1.05% 1.02%
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 6.52% 6.76% 5.87% 6.14% 5.95%
Before
advisory/administration
fee waivers 6.34% 6.51% 5.65% 5.94% 5.73%
Portfolio turnover rate 376% 428% 638% 203% 61%
</TABLE>
---------------------------------------------

/1/Including interest expense, ratio would have been 1.69% for the year ended
September 30, 1998 and 1.27% for the year ended September 30, 1997. For the
periods prior to October 1, 1996, interest income was presented net of
interest expense.
39
<PAGE>

[GRAPHIC BlackRock
APPEARS International Bond
HERE] Portfolio

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

Investment Goal
The fund seeks current income consistent with the preservation of capital.

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in bonds of for-
eign issuers in the five to fifteen year maturity range. The fund normally
invests at least 80% of its total assets in bonds and at least 65% of its
total assets in bonds of a diversified group of foreign issuers from at least
three developed countries. The fund may invest more than 25% of its total
assets in the securities of issuers located in Canada, France, Germany, Japan
and the United Kingdom. The fund may from time to time invest in bonds of
issuers in emerging market countries. The fund may also invest in foreign cur-
rencies. The fund may only buy securities rated investment grade at the time
of purchase by at least one major rating agency or determined by the manager
to be of similar quality.

IMPORTANT DEFINITIONS

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer generally
must pay back the face
amount of the security.

40
<PAGE>

actions, the fund exchanges its right to pay or receive interest or currencies
with another party for their right to pay or receive interest or another cur-
rency in the future.

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

Key Risks

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

In addition, political and economic structures in emerging market countries may
be undergoing rapid change and these countries may lack the social, political
and economic stability of more

IMPORTANT DEFINITIONS

41
<PAGE>

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

42
<PAGE>

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Service Shares. 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
Non-U.S. Hedged World Government Bond Index, a recognized unmanaged index of
bond 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.

[BAR CHART APPEARS HERE]

Best Quarter Q1 '95: 8.40%

Worst Quarter Q2 '94: -2.06%

92 93 94 95 96 97 98
----- ------ ------ ------ ------ ----- ------
6.17% 15.31% -3.71% 20.02% 10.41% 9.94% 11.16%

44
<PAGE>

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.

The table below describes the fees and expenses that you may pay if you buy and
hold Service 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 .55%
Distribution and service (12b-1) fees .30%
Other expenses .61%
Total annual fund operating expenses 1.46%
Fee Waivers and Expense Reimbursements* .13%
Net Expenses* 1.33%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may have to repay these waivers and reimbursements to BlackRock in the
following two years if the repayment can be made within these expense limits.
"Net Expenses" in the table have been restated to reflect these waivers and
reimbursements.

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 (except for the waivers in the first year discussed above) and redemp-
tion 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>
Service Shares $135 $449 $785 $1,735
</TABLE>

IMPORTANT DEFINITIONS

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

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

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

45
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For a Service Share Outstanding Throughout Each Period)

International Bond Portfolio

<TABLE>
<CAPTION>
For the For the
Period Period
Year Year 2/1/96 3/1/95 Year Year
Ended Ended through through Ended Ended
9/30/98 9/30/97 9/30/96 1/31/96 2/28/95 2/28/94
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $10.95 $ 11.71 $11.39 $ 10.52 $ 10.75 $ 10.76
------ ------- ------ ------- ------- -------
Income from investment
operations
Net investment income 0.18 1.36 0.89 0.62 0.62 0.65
Net gain (loss) on
investments (both
realized and
unrealized) 1.06 (0.19) (0.29) 1.13 (0.48) 0.46
------ ------- ------ ------- ------- -------
Total from investment
operations 1.24 1.17 0.60 1.75 0.14 1.11
------ ------- ------ ------- ------- -------
Less distributions
Distributions from net
investment income (0.53) (1.44) (0.28) (0.88) (0.13) (0.90)
Distributions from net
realized capital gains (0.42) (0.49) - - - - (0.24) (0.22)
------ ------- ------ ------- ------- -------
Total distributions (0.95) (1.93) (0.28) (0.88) (0.37) (1.12)
------ ------- ------ ------- ------- -------
Net asset value at end of
period $11.24 $10.95 $11.71 $ 11.39 $ 10.52 $ 10.75
====== ======= ====== ======= ======= =======
Total return 12.17% 11.23% 5.39% 16.79% 1.50% 10.24%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $2,359 $ 6,708 $7,836 $37,627 $45,657 $46,888
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.31%/1/ 1.29%/1/ 1.09%/2/ 1.23%/2/ 1.24% 1.38%
Before
advisory/administration
fee waivers 1.46% 1.39% 1.20%/2/ 1.23%/2/ 1.24% 1.38%
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 3.79% 5.02% 3.82%/2/ 5.62%/2/ 5.96% 6.00%
Before
advisory/administration
fee waivers 3.64% 4.92% 3.72%/2/ 5.62%/2/ 5.96% 6.00%
Portfolio turnover rate 225% 272% 108% 159% 131% 128%
</TABLE>
------------------------------------------

/1/Including interest expense, ratios would have been 1.31% for the period
ended September 30, 1998 and 1.30% for the period ended September 30, 1997.
/2/Annualized.
46
<PAGE>

[GRAPHIC BlackRock
APPEARS High Yield Bond
HERE] Portfolio

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

Investment Goal
The fund seeks to provide current income by investing primarily in non-invest-
ment grade bonds.

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in non-investment
grade bonds in the ten to fifteen year maturity range. The fund normally
invests at least 80% of its total assets in bonds or convertible securities and
at least 65% of its total assets in high yield bonds. The high yield securities
(commonly called "junk bonds") acquired by the fund will generally be in the
lower rating categories of the major rating agencies (BB or lower by Standard &
Poor's or Ba or lower by Moody's) or will be determined by the fund manager to
be of similar quality. The fund may invest up to 10% of its total assets in
bonds of foreign issuers.

To add additional diversification, the portfolio manager can invest in a wide
range of securities including corporate bonds, mezzanine investments, collater-
alized bond obligations, bank loans and mortgage-backed and asset-backed secu-
rities. The fund can also invest, to the extent consistent with its investment
objective, in foreign and emerging market securities and currencies. The fund
may invest in securities rated as low as "C." These securities are very risky
and have major uncertainties regarding the issuer's ability to make interest
and principal payments.

The fund manager will normally attempt to structure the fund's portfolio to
have comparable duration to its benchmark. Dura-

IMPORTANT DEFINITIONS

Asset-Backed Securi-
ties: Bonds that are
backed by a pool of
assets, usually loans
such as installment
sale contracts or
credit card
receivables.

Bank Loans: The fund
may invest in fixed and
floating rate loans
arranged through pri-
vate negotiations
between a company or a
foreign government and
one or more financial
institutions. The fund
considers such invest-
ments to be debt secu-
rities.

Collateralized Bond
Obligations (CBO): The
fund many invest in
collateralized bond
obligations, which are
securities backed by a
diversified pool of
high yield securities.

Commercial Mortgage-
Backed Securities
(CMBS): Bonds that are
backed by a mortgage
loan or pool of loans
secured by commercial
property, not residen-
tial mortgages.

47
<PAGE>

tion, which measures price sensitivity to interest rate changes, is not neces-
sarily equal to average maturity.

The fund can borrow money to buy additional securities. This practice is known
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securi-
ties and agrees to buy them back at a particular date and price). The fund
normally may borrow up to 33 1/3% of the value of its total assets.

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

Key Risks

IMPORTANT DEFINITIONS

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer generally
must pay back the face
amount of the security.

48
<PAGE>

High yield bonds are considered speculative, meaning there is a significant
risk that companies issuing these securities may not be able to repay principal
and pay interest or dividends on time. In addition, other creditors of a high
yield issuer may have the right to be paid before the high yield bond holder.

Mezzanine securities carry the risk that the issuer will not be able to meet
its obligations and that the equity securities purchased with the mezzanine
investments may lose value.

A main difference is that the principal on mortgage-or asset-backed securities
may normally be prepaid at any time, which will reduce the yield and market
value of these securities. Asset-backed securities and CMBS generally experi-
ence less prepayment than residential mortgage-backed securities. In periods of
falling interest rates, the rate of prepayments tends to increase (as does
price fluctuation) as borrowers are motivated to pay off debt and refinance at
new lower rates. During such periods, reinvestment of the prepayment proceeds
by the manager will gener-
49
<PAGE>

ally be at lower rates of return than the return on the assets which were pre-
paid. Certain commercial mortgage-backed securities are issued in several
classes with different levels of yield and credit protection. The fund's
investments in commercial mortgage-backed securities with several classes will
normally be in the lower classes that have less credit protection.

50
<PAGE>

increase volatility in financial markets worldwide which could hurt the value
of shares of the fund.

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.

The table below describes the fees and expenses that you may pay if you buy and
hold Service 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 .50%
Distribution and service (12b-1) fees .30%
Other expenses* .33%
Total annual fund operating expenses 1.13%
Fee Waivers and Expense Reimbursements** .13%
Net Expenses** 1.00%
</TABLE>
* "Other expenses" are based on estimated amounts for the current fiscal year.
** BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may have to repay these waivers and reimbursements to BlackRock in the
following two years if the repayment can be made within these expense lim-
its. "Net Expenses" in the table have been restated to reflect these waivers
and reimbursements.

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 (except for the waivers in the first year discussed above) and redemp-
tion at the end of each time period. Although your actual cost may be higher or
lower, based on these assumptions your costs would be:

<TABLE>
<CAPTION>
1 Year 3 Years

<S> <C> <C>
Service Shares $102 $346
</TABLE>

IMPORTANT DEFINITIONS

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

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

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

52
<PAGE>

Fund Management
The fund is co-managed by Dennis Schaney and Keith Anderson. Dennis Schaney is
co-leader of the High Yield Team and a Managing Director of BlackRock Financial
Management, Inc. (BFM) since February 1998. Prior to joining BFM he was a Man-
aging Director in the Global Fixed Income Research and Economics Department of
Merrill Lynch for nine years. Keith Anderson, co-leader of the High Yield Team,
has served as Managing Director of BFM since 1988. Both have co-managed the
fund since its inception.

53
<PAGE>

[GRAPHIC BlackRock
APPEARS Tax-Free Income
HERE] Portfolio

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

Investment Goal:
The fund seeks as high a level of current income exempt from Federal income
tax as is consistent with preservation of capital.

Primary Investment Strategies:
In pursuit of this goal, the fund manager invests primarily in bonds issued by
or on behalf of states and possessions of the United States, their political
subdivisions and their agencies and authorities (and related tax-exempt deriv-
ative securities) the interest on which the manager believes is exempt from
Federal income tax (municipal securities). The fund normally invests at least
80% of its net assets in municipal securities, including both general obliga-
tion and revenue bonds from a diverse range of issuers. The other 20% of net
assets can be invested in securities which are subject to regular Federal
income tax or the Federal Alternative Minimum Tax. The fund emphasizes munici-
pal securities in the ten to twenty year maturity range. The fund may only buy
securities rated investment grade at the time of purchase by at least one
major rating agency or determined by the manager to be of similar quality. The
fund intends to invest so that no more than 25% of its net assets are repre-
sented by the municipal securities of issuers located in the same state.

The management team evaluates sectors of the municipal market and individual
bonds within those categories. The fund measures its performance against the
Lehman Municipal Bond Index (the benchmark).

IMPORTANT DEFINITIONS

General Obligation
Bonds: Bonds which are
secured by the issuer's
pledge of its full
faith, credit and tax-
ing power for the pay-
ment of principal and
interest.

Lehman Municipal Bond
Index: An unmanaged
index of municipal
bonds with the follow-
ing characteristics:
minimum credit rating
of Baa-3, outstanding
par value of at least
$3 million, issued as
part of a deal of at
least $50 million,
issued within the last
5 years and remaining
maturities of not less
than one year.

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer must pay
back the face amount of
the security.

54
<PAGE>

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. The fund may also enter into interest rate transactions
as a hedging technique. In these transactions, the fund exchanges its right to
pay or receive interest with another party for their right to pay or receive
interest.

Should the Company's Board of Trustees determine that the investment objective
of the fund should be changed, shareholders will be given at least 30 days
notice before any such change is made. The fund may not change the requirement
that it normally invest at least 80% of its net assets in municipal securities
without shareholder approval.

Key Risks

Key Risks
There is no guarantee that shares of the fund will not lose value. This means
you could lose money.

IMPORTANT DEFINITIONS

55
<PAGE>

private activity bonds, the fund will be subject to the particular risks pre-
sented by the laws and economic conditions relating to such projects and bonds
to a greater extent than if its assets were not so invested. Municipal securi-
ties also include "moral obligation" bonds, which are normally issued by spe-
cial purpose public authorities. If the issuer of moral obligation bonds is
unable to pay its debts from current revenues, it may draw on a reserve fund
the restoration of which is a moral but not a legal obligation of the state or
municipality which created the issuer.

The fund may invest in bonds the interest on which may be subject to the Fed-
eral Alternative Minimum Tax. The fund may invest up to 20% of its total
assets in these bonds when added together with any of the fund's other taxable
investments. Interest on these bonds that is received by taxpayers subject to
the Federal Alternative Minimum Tax is taxable.

The fund will rely on legal opinions of counsel to issuers of municipal secu-
rities as to the tax-free status of investments and will not do its own analy-
sis.

The fund's use of derivatives and interest rate transactions may reduce the
fund's returns and/or increase volatility, which is defined as the character-
istic of a security or a market to fluctuate significantly in price within a
short period of time. The income from certain derivatives may be subject to
Federal income tax. Leverage is a speculative technique which may expose the
fund to greater risk and increase its costs. Increase and decreases in the
value of the fund's portfolio will be magnified when the fund uses leverage.
The fund will also have to pay interest on its borrowings, reducing the fund's
return.

The fund, like any business, could be affected if the computer systems on
which it relies do not properly process information

56
<PAGE>

beginning on January 1, 2000. While Year 2000 issues could have a negative
effect on the fund, BlackRock, the fund's investment adviser, 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 issuers 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.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Service Shares. 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 Lehman
Municipal Bond Index, a recognized unmanaged index of bond market performance.
The chart and the table both assume reinvestment of dividends and distribu-
tions. As with all such investments, past performance is not an indication of
future results.

The performance for the period before Service Shares were launched in July 1993
is based upon performance of older share classes of the fund. The actual return
of Service Shares would have been lower compared to one of these classes,
Institutional Shares.

[BAR CHART APPEARS HERE]

Best Quarter Q1 '95: 8.22%

Worst Quarter Q1 '94: -6.87%

The bars for 1991-1993 are based
upon performance for Investor
A Shares of the fund.

91 92 93 94 95 96 97 98
----- ----- ------ ------ ------ ----- ----- -----
11.36% 8.85% 12.99% -6.98% 18.14% 5.51% 9.80% 6.11%

* For comparative purposes, the value of the index on 05/10/90 is used as the
beginning value on 05/14/90.
57
<PAGE>

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.

The table below describes the fees and expenses that you may pay if you buy
and hold Service 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 .50%
Distribution and service (12b-1) fees .30%
Other expenses .38%
Total annual fund operating expenses 1.18%
Fee Waivers and Expense Reimbursements* .28%
Net Expenses* .90%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may have to repay these waivers and reimbursements to BlackRock in the
following two years if the repayment can be made within these expense lim-
its. "Net Expenses" in the table have been restated to reflect these waivers
and reimbursements.

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

IMPORTANT DEFINITIONS

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

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

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

58
<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 (except for the waivers in the first year discussed above), 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

<S> <C> <C> <C> <C>
Service Shares $92 $347 $622 $1,407
</TABLE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For a Service Share Outstanding Throughout Each Period)

Tax-Free Income Portfolio

<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 $11.34 $ 10.84 $ 10.61 $10.04 $11.31
------ ------- ------- ------ ------
Income from investment operations
Net investment income 0.38 0.53 0.51 0.50 0.51
Net gain (loss) on investments
(both realized and unrealized) 0.56 0.50 0.23 0.59 (0.93)
------ ------- ------- ------ ------
Total from investment operations 0.94 1.03 0.74 1.09 (0.42)
------ ------- ------- ------ ------
Less distributions
Distributions from net investment
income (0.50) (0.53) (0.51) (0.50) (0.51)
Distributions from net realized
capital gains (0.05) - - - - (0.02) (0.34)
------ ------- ------- ------ ------
Total distributions (0.55) (0.53) (0.51) (0.52) (0.85)
------ ------- ------- ------ ------
Net asset value at end of period $11.73 $ 11.34 $ 10.84 $10.61 $10.04
====== ======= ======= ====== ======
Total return 8.52% 9.77% 7.14% 11.24% (4.02)%
Ratios/Supplemental data
Net assets at end of period (in
thousands) $5,430 $58,779 $36,161 $4,713 $2,109
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 0.88% 0.85% 0.85% 0.80% 0.75%
Before advisory/administration
fee waivers 1.16% 1.20% 1.18% 1.57% 1.98%
Ratios of net investment income
to average net assets
After advisory/administration fee
waivers 4.34% 4.76% 4.88% 4.92% 4.75%
Before advisory/administration
fee waivers 4.06% 4.41% 4.56% 4.15% 3.52%
Portfolio turnover rate 100% 262% 268% 92% 40%
</TABLE>
------------------------------------------

60
<PAGE>

[GRAPHIC BlackRock
APPEARS Delaware Tax-Free Income
HERE] Portfolio

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

Investment Goal
The fund seeks as high a level of current income exempt from Federal income tax
and, to the extent possible, Delaware state income tax, as is consistent with
preservation of capital.

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in bonds issued by
or on behalf of states and possessions of the United States, their political
subdivisions and their agencies and authorities (and related tax-exempt deriva-
tive securities) the interest on which the manager believes is exempt from Fed-
eral income tax (municipal securities). The fund normally invests at least 65%
of its total assets in municipal securities of issuers located in the state of
Delaware. The fund normally invests at least 80% of its total assets in munici-
pal securities, including both general obligation and revenue bonds, from a
diverse range of issuers. The other 20% of net assets can be invested in secu-
rities which are subject to regular Federal income tax or the Federal Alterna-
tive Minimum Tax. The fund emphasizes municipal securities in the ten to twenty
year maturity range. The fund may only buy securities rated investment grade at
the time of purchase by at least one major rating agency or determined by the
manager to be of similar quality.

The management team evaluates sectors of the municipal market and individual
bonds within those categories. The fund measures its performance against the
Lehman Municipal Bond Index (the benchmark).

.It is possible that in extreme market conditions the fund may invest more than
20% of its assets in securities that are not municipal securities (and there-
fore are subject to federal income tax) and may hold an unlimited amount of
uninvested cash reserves. If market conditions improve, these strategies could
result in reducing the potential gain from the market upswing, thus reducing
the fund's opportunity to achieve its investment objective.

IMPORTANT DEFINITIONS

General Obligation
Bonds: Bonds which are
secured by the issuer's
pledge of its full
faith, credit and tax-
ing power for the pay-
ment of principal and
interest.

Lehman Municipal Bond
Index: An unmanaged
index of municipal
bonds with the follow-
ing characteristics:
minimum credit rating
of Baa-3, outstanding
par value of at least
$3 million, issued as
part of a deal of at
least $50 million,
issued within the last
5 years and remaining
maturities of not less
than one year.

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer must pay
back the face amount of
the security.
61
<PAGE>

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 invest-
ment or to increase returns. The fund may also enter into interest rate trans-
actions as a hedging technique. In these transactions, the fund exchanges its
right to pay or receive interest with another party for their right to pay or
receive interest. These practices may reduce returns and/or increase volatili-
ty. 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. This practice is known
as "leverage". The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securi-
ties and agrees to buy them back at a particular date and price). The fund
normally may borrow up to 33 1/3% of the value of its total assets.

Should the Company's Board of Trustees determine that the investment objective
of the fund should be changed, shareholders will be given at least 30 days
notice before any such change is made. The fund may not change the requirement
that it normally invest at least 80% of its net assets in municipal securities
without shareholder approval.

Key Risks

There is no guarantee that shares of the fund will not lose value. This means
you could lose money.

The fact that the fund concentrates its investments in securities of issuers
located in Delaware raises special concerns. In particu-

IMPORTANT DEFINITIONS

62
<PAGE>

lar, changes in the economic conditions and governmental policies of Delaware
and its political subdivisions could hurt the value of the fund's shares.

The fund will rely on legal opinions of counsel to issuers of municipal securi-
ties as to the tax-free status of investments and will not do its own analysis.

The fund's use of derivatives and interest rate transactions may reduce the
fund's returns and/or increase volatility, which is defined as the characteris-
tic of a security or a market to fluctuate significantly in price within a
short period of time. The income from certain derivatives may be subject to
Federal income tax. Leverage is a speculative technique which may expose the
fund to greater risk and increase its costs. Increases and decreases in the
value of the fund's portfolio will be magnified when the fund
63
<PAGE>

uses leverage. The fund will also have to pay interest on its borrowings,
reducing the fund's return.

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, the fund's investment adviser, is currently working to avoid such prob-
lems. 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 issuers whose securities the fund holds or securi-
ties 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.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Service Shares. 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 Lehman
Municipal Bond Index, a recognized unmanaged index of bond market performance.
The chart and the table both assume reinvestment of dividends and distribu-
tions. As with all such investments, past performance is not an indication of
future results.

64
<PAGE>

[BAR CHART APPEARS HERE]

Best Quarter Q1 '95: 4.70%

Worst Quarter Q1 '94: -4.67%

89 90 91 92 93 94 95 96 97 98
----- ----- ----- ----- ----- ------ ------ ----- ----- -----
7.04% 6.28% 8.80% 5.42% 7.96% -3.60% 12.74% 3.27% 6.16% 6.37%

* For comparative purposes, the value of the index on 10/01/86 is used as the
beginning value on 09/30/86.

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.

The table below describes the fees and expenses that you may pay if you buy and
hold Service 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 .55%
Distribution and services (12b-1) fees .30%
Other expenses* .33%
Total annual fund operating expenses 1.18%
Fee Waivers and Expense Reimbursements** .18%
Net Expenses** 1.00%
</TABLE>
* "Other expenses" are based on estimated amounts for the current fiscal year.
** BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may have to repay these waivers and reimbursements to BlackRock in the
following two years if the repayment can be made within these expense
limits. "Net Expenses" in the table have been restated to reflect these
waivers and reimbursements.

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

IMPORTANT DEFINITIONS

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

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

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

65
<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 (except for the waivers in the first year discussed above) and redemp-
tion at the end of each time period. Although your actual cost may be higher or
lower, based on these assumptions your costs would be:

<TABLE>
<CAPTION>
1 Year 3 Years

<S> <C> <C>
Service Shares $102 $357
</TABLE>

66
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For a Service Share Outstanding Throughout Each Period)

Delaware Tax-Free Income Portfolio

<TABLE>
<CAPTION>
For the
Period
5/11/98/1/
through
9/30/98
<S> <C>
Net asset value at beginning of period $10.00
------
Income from investment operations
Net investment income 0.16
Net gain (loss) on investments (both realized
and unrealized) 0.34
------
Total from investment operations 0.50
------
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 $10.33
======
Total return 5.04%
Ratios/Supplemental data
Net assets at end of period (in thousands) $ - -
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.67%/2/
Before advisory/administration fee waivers 0.85%/2/
Ratios of net investment income to average net
assets
After advisory/administration fee waivers 5.00%/2/
Before advisory/administration fee waivers 4.82%/2/
Portfolio turnover rate 54%
</TABLE>
---------

/1/Commencement of operations of share class.
/2/Annualized.
67
<PAGE>

[GRAPHIC BlackRock
APPEARS Ohio Tax-Free Income
HERE] Portfolio

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

Investment Goal
The fund seeks as high a level of current income exempt from Federal income
tax and, to the extent possible, Ohio state income tax, as is consistent with
preservation of capital.

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in bonds issued by
or on behalf of states and possessions of the United States, their political
subdivisions and their agencies and authorities (and related tax-exempt deriv-
ative securities) the interest on which the manager believes is exempt from
Federal income tax (municipal securities). The fund normally invests at least
65% of its net assets in municipal securities of issuers located in the state
of Ohio. The fund normally invests at least 80% of its net assets in municipal
securities, including both general obligation and revenue bonds, from a
diverse range of issuers. The other 20% of net assets can be invested in secu-
rities which are subject to regular Federal income tax or the Federal Alterna-
tive Minimum Tax. The fund emphasizes municipal securities in the ten to
twenty year maturity range. The fund may only buy securities rated investment
grade at the time of purchase by at least one major rating agency or deter-
mined by the manager to be of similar quality.

The management team evaluates sectors of the municipal market and individual
bonds within those categories. The fund measures its performance against the
Lehman Municipal Bond Index (the benchmark).

IMPORTANT DEFINITIONS

General Obligation
Bonds: Bonds which are
secured by the issuer's
pledge of its full
faith, credit and tax-
ing power for the pay-
ment of principal and
interest.

Lehman Municipal Bond
Index: An unmanaged
index of municipal
bonds with the follow-
ing characteristics:
minimum credit rating
of Baa-3, outstanding
par value of at least
$3 million, issued as
part of a deal of at
least $50 million,
issued within the last
5 years and remaining
maturities of not less
than one year.

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer must pay
back the face amount of
the security.

68
<PAGE>

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. The fund may also enter into interest rate transactions
as a hedging technique. In these transactions, the fund exchanges its right to
pay or receive interest with another party for their right to pay or receive
interest.

Should the Company's Board of Trustees determine that the investment objective
of the fund should be changed, shareholders will be given at least 30 days
notice before any such change is made. The fund may not change the requirement
that it normally invest at least 80% of its net assets in municipal securities
without shareholder approval.

Key Risks

Key Risks
There is no guarantee that shares of the fund will not lose value. This means
you could lose money.

The fact that the fund concentrates its investments in securities of issuers
located in Ohio raises special concerns. In particular, changes in the economic
conditions and governmental policies of Ohio and its political subdivisions
could hurt the value of the fund's shares.

IMPORTANT DEFINITIONS

69
<PAGE>

Revenue bonds include private activity bonds, which are not payable from the
general revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the cor-
porate user of the facility involved. To the extent that the fund's assets are
invested in private activity bonds, the fund will be subject to the particular
risks presented by the laws and economic conditions relating to such projects
and bonds to a greater extent than if its assets were not so invested. Munici-
pal securities also include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obliga-
tion bonds is unable to pay its debts from current revenues, it may draw on a
reserve fund the restoration of which is a moral but not a legal obligation of
the state or municipality which created the issuer.

The fund may invest in bonds the interest on which may be subject to the Fed-
eral Alternative Minimum Tax. The fund may invest up to 20% of its total
assets in these bonds when added together with any of the fund's other taxable
investments. Interest on these bonds that is received by taxpayers subject to
the Federal Alternative Minimum Tax is taxable.

The fund will rely on legal opinions of counsel to issuers of municipal secu-
rities as to the tax-free status of investments and will not do its own analy-
sis.

The fund's use of derivatives and interest rate transactions may reduce the
fund's returns and/or increase volatility, which is defined as the character-
istic of a security or a market to fluctuate significantly in price within a
short period of time. The income from certain derivatives may be subject to
Federal income tax. Leverage is a speculative technique which may expose the
fund to greater risk and increase its costs. Increases and decreases in the
value of the fund's portfolio will be magnified when the fund uses leverage.
The fund will also have to pay interest on its borrowings, reducing the fund's
return.

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

70
<PAGE>

loan. There is also the risk of delay in recovering the loaned securities and
of losing rights to the collateral if a borrower goes bankrupt.

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.

The fund is a non-diversified portfolio under the Investment Company Act, which
means that fund performance is more dependent on the performance of a smaller
number of securities and issuers than in a diversified portfolio. The change in
value of any one security may affect the overall value of the fund more than it
would a diversified fund's.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Service Shares. 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 Lehman
Municipal Bond Index, a recognized unmanaged index of bond market performance.
The chart and the table both assume reinvestment of dividends and distribu-
tions. As with all such investments, past performance is not an indication of
future results.
71
<PAGE>

[BAR CHART APPEARS HERE]

Best Quarter Q1 '95: 7.36%

Worst Quarter Q1 '94: -6.21%

The bars for 1993 are based
upon performance for Institutional
Shares of the fund.

93 94 95 96 97 98
----- ----- ------ ----- ----- -----
10.03% -6.70% 17.48% 3.81% 8.34% 6.04%

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.

The table below describes the fees and expenses that you may pay if you buy and
hold Service 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 .50%
Distribution and service (12b-1) fees .30%
Other expenses .43%
Total annual fund operating expenses 1.23%
Fee Waivers and Expense Reimbursements* .33%
Net Expenses* .90%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may have to repay these waivers and reimbursements to BlackRock in the
following two years if the repayment can be made within these expense limits.
"Net Expenses" in the table have been restated to reflect these waivers and
reimbursements.

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

IMPORTANT DEFINITIONS

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

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

Other Expenses:
Include administra-
tion, transfer agency,
custody, professional
fees and registration
fees.

72
<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 (except for the waivers in the first year discussed above), 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

<S> <C> <C> <C> <C>
Service Shares $92 $358 $644 $1,460
</TABLE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For a Service Share Outstanding Throughout Each Period)

Ohio Tax-Free Income Portfolio

<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 $10.50 $10.15 $10.05 $ 9.60 $10.53
------ ------ ------ ------ ------
Income from investment operations
Net investment income 0.48 0.47 0.48 0.52 0.49
Net gain (loss) on investments
(both realized and unrealized) 0.37 0.35 0.10 0.45 (0.91)
------ ------ ------ ------ ------
Total from investment operations 0.85 0.82 0.58 0.97 (0.42)
------ ------ ------ ------ ------
Less distributions
Distributions from net investment
income (0.47) (0.47) (0.48) (0.52) (0.49)
Distributions from net realized
capital gains - - - - - - - - (0.02)
------ ------ ------ ------ ------
Total distributions (0.47) (0.47) (0.48) (0.52) (0.51)
------ ------ ------ ------ ------
Net asset value at end of period $10.88 $10.50 $10.15 $10.05 $ 9.60
====== ====== ====== ====== ======
Total return 8.23% 8.21% 5.80% 10.45% (4.00)%
Ratios/Supplemental data
Net assets at end of period (in
thousands) $ 712 $7,421 $6,377 $5,150 $4,428
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 0.88% 0.85% 0.79% 0.39% 0.35%
Before advisory/administration
fee waivers 1.21% 1.36% 1.38% 1.46% 1.74%
Ratios of net investment income
to average net assets
After advisory/administration fee
waivers 4.37% 4.51% 4.69% 5.39% 5.06%
Before advisory/administration
fee waivers 4.04% 4.00% 4.10% 4.31% 3.67%
Portfolio turnover rate 77% 87% 136% 63% 61%
</TABLE>
-----------------------------------------

74
<PAGE>

[GRAPHIC BlackRock
APPEARS Kentucky Tax-Free Income
HERE] Portfolio

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

Investment Goal
The fund seeks as high a level of current income exempt from Federal income tax
and, to the extent possible, Kentucky state income tax, as is consistent with
preservation of capital.

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in bonds issued by
or on behalf of states and possessions of the United States, their political
subdivisions and their agencies and authorities (and related tax-exempt deriva-
tive securities) the interest on which the manager believes is exempt from Fed-
eral income tax (municipal securities). The fund normally invests at least 65%
of its total assets in municipal securities of issuers located in the state of
Kentucky. The fund normally invests at least 80% of its net assets in municipal
securities, including both general obligation and revenue bonds, from a diverse
range of issuers. The other 20% of net assets can be invested in securities
which are subject to regular Federal income tax or the Federal Alternative Min-
imum Tax. The fund emphasizes municipal securities in the ten to twenty year
maturity range. The fund may only buy securities rated investment grade at the
time of purchase by at least one major rating agency or determined by the man-
ager to be of similar quality.

The management team evaluates categories of the municipal market and individual
bonds within those categories. The fund measures its performance against the
Lehman Municipal Bond Index (the benchmark).

IMPORTANT DEFINITIONS

General Obligation
Bonds: Bonds which are
secured by the issuer's
pledge of its full
faith, credit and tax-
ing power for the pay-
ment of principal and
interest.

Lehman Municipal Bond
Index: An unmanaged
index of municipal
bonds with the follow-
ing characteristics:
minimum credit rating
of Baa-3, outstanding
par value of at least
$3 million, issued as
part of a deal of at
least $50 million,
issued within the last
5 years and remaining
maturities of not less
than one year.

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer must pay
back the face amount of
the security.

75
<PAGE>

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 invest-
ment or to increase returns. The fund may also enter into interest rate trans-
actions as a hedging technique. In these transactions, the fund exchanges its
right to pay or receive interest with another party for their right to pay or
receive interest.

The fund can borrow money to buy additional securities. This practice is known
as "leverage". The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securi-
ties and agrees to buy them back at a particular date and price). The fund
normally may borrow up to 33 1/3% of the value of its total assets.

Should the Company's Board of Trustees determine that the investment objective
of the fund should be changed, shareholders will be given at least 30 days
notice before any such change is made. The fund may not change the requirement
that it normally invest at least 80% of its net assets in municipal securities
without shareholder approval.

Key Risks

Key Risks
There is no guarantee that shares of the fund will not lose value. This means
you could lose money.

The fact that the fund concentrates its investments in securities of issuers
located in Kentucky raises special concerns. In particular, changes in the
economic conditions and governmental poli cies of Kentucky and its political
subdivisions could hurt the value of the fund's shares.

IMPORTANT DEFINITIONS

76
<PAGE>

The fund may invest in bonds the interest on which may be subject to the Fed-
eral Alternative Minimum Tax. The fund may invest up to 20% of its total assets
in these bonds when added together with ;any of the fund's other taxable
investments. Interest on these bonds that is received by taxpayers subject to
the Federal Alternative Minimum Tax is taxable.

The fund will rely on legal opinions of counsel to issuers of municipal securi-
ties as to the tax-free status of investments and will not do its own analysis.

The fund's use of derivatives and interest rate transactions may reduce the
fund's returns and/or increase volatility, which is defined as the characteris-
tic of a security or a market to fluctuate significantly in price within a
short period of time. The income from certain derivatives may be subject to
Federal income tax. Leverage is a speculative technique which may expose the
fund to greater risk and increase its costs. Increases and decreases in the
value of the fund's portfolio will be magnified when the fund uses leverage.
The fund will also have to pay interest on its borrowings, reducing the fund's
return.

Securities loans involve the risk of a delay in receiving additional collateral
if the value of the securities goes up while they are
77
<PAGE>

on loan. There is also the risk of delay in recovering the loaned securities
and of losing rights to the collateral if a borrower goes bankrupt.

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, the fund's investment adviser, is currently working to avoid such prob-
lems. 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 issuers whose securities the fund holds or securi-
ties 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.

78
<PAGE>

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Service Shares. 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 Lehman
Municipal Bond Index, a recognized unmanaged index of bond market performance.
The chart and the table both assume reinvestment of dividends and distribu-
tions. As with all such investments, past performance is not an indication of
future results.

[BAR CHART APPEARS HERE]

Best Quarter Q1 '95: 5.29%

Worst Quarter Q1 '94: -4.45%

89 90 91 92 93 94 95 96 97 98
----- ----- ----- ----- ----- ------ ------ ----- ----- -----
7.77% 7.20% 8.84% 7.15% 9.22% -3.53% 13.09% 3.35% 6.60% 6.03%

* For comparative purposes, the value of the index on 12/01/87 is used as the
beginning value on 11/30/87.
79
<PAGE>

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.

The table below describes the fees and expenses that you may pay if you buy and
hold Service 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 .55%
Distribution and service (12b-1) fees .30%
Other expenses* .40%
Total annual fund operating expenses 1.25%
Fee Waivers and Expense Reimbursements** .25%
Net Expenses** 1.00%
</TABLE>
* "Other expenses" are based on estimated amounts for the current fiscal year.
** BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
Fund may have to repay these waivers and reimbursements to BlackRock in the
following two years, if the repayment can be made within these expense lim-
its. "Net Expenses" in the table have been restated to reflect these waivers
and reimbursements.

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 (except for the waivers in the first year discussed above) and redemp-
tion at the end of each time period. Although your actual cost may be higher or
lower, based on these assumptions your costs would be:

<TABLE>
<CAPTION>
1 Year 3 Years

<S> <C> <C>
Service Shares $102 $372
</TABLE>

IMPORTANT DEFINITIONS

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

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

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

80
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For a Service Share Outstanding Throughout Each Period)

Kentucky Tax-Free Income Portfolio

<TABLE>
<CAPTION>
For the
Period
5/11/98/1/
through
9/30/98
<S> <C>
Net asset value at beginning of period $10.00
------
Income from investment operations
Net investment income 0.19
Net gain (loss) on investments (both realized
and unrealized) 0.29
------
Total from investment operations 0.48
------
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 $10.31
======
Total return 4.82%
Ratios/Supplemental data
Net assets at end of period (in thousands) $ - -
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.67%/2/
Before advisory/administration fee waivers 0.92%/2/
Ratios of net investment income to average net
assets
After advisory/administration fee waivers 5.00%/2/
Before advisory/administration fee waivers 4.75%/2/
Portfolio turnover rate 7%
</TABLE>
----------

/1/Commencement of operations of share class.
/2/Annualized.
81
<PAGE>

[GRAPHIC BlackRock
APPEARS New Jersey Tax-Free Income
HERE] Portfolio

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

Investment Goal
The fund seeks as high a level of current income exempt from Federal income
tax and, to the extent possible, New Jersey state income tax, as is consistent
with preservation of capital.

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in bonds issued by
or on behalf of states and possessions of the United States, their political
subdivisions and their agencies and authorities (and related tax-exempt deriv-
ative securities) the interest on which the manager believes is exempt from
Federal income tax (municipal securities). The fund normally invests at least
65% of its net assets in municipal securities of issuers located in the state
of New Jersey. The fund normally invests at least 80% of its net assets in
municipal securities, including both general obligation and revenue bonds,
from a diverse range of issuers. The other 20% of net assets can be invested
in securities which are subject to regular Federal income tax or the Federal
Alternative Minimum Tax. In addition, for New Jersey tax purposes, the fund
intends to invest at least 80% of its total assets in municipal securities of
issuers located in the state of New Jersey and in securities issued by the
U.S. Government, its agencies and authorities. The fund emphasizes municipal
securities in the ten to twenty year maturity range. The fund may only buy
securities rated investment grade at the time of purchase by at least one
major rating agency or determined by the manager to be of similar quality.

The management team evaluates categories of the municipal market and individ-
ual bonds within those categories. The fund measures it performance against
the Lehman Municipal Bond Index (the benchmark).

IMPORTANT DEFINITIONS

General Obligation
Bonds: Bonds which are
secured by the issuer's
pledge of its full
faith, credit and tax-
ing power for the pay-
ment of principal and
interest.

Investment Grade: Secu-
rities which are rated
in the four highest
categories by at least
one of the major rating
agencies or determined
by the fund manager to
be of similar quality.
Generally, the higher
the rating of a bond,
the higher the likeli-
hood that interest and
principal payments will
be made on time. Secu-
rities rated in the
fourth highest category
by the rating agencies
are considered invest-
ment grade but they are
also considered specu-
lative, meaning that
they do carry more risk
than higher rated secu-
rities and may have
problems making princi-
pal and interest pay-
ments in difficult eco-
nomic climates.
Investment grade rat-
ings do not guarantee
that bonds will not
lose value.

Lehman Municipal Bond
Index: An unmanaged
index of municipal
bonds with the follow-
ing characteristics:
minimum credit rating
of Baa-3, outstanding
par value of at least
$3 million, issued as
part of a deal of at
least $50 million,
issued within the last
5 years and remaining
maturities of not less
than one year.

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer must pay
back the face amount of
the security.

82
<PAGE>

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. The fund may also enter into interest rate transactions
as a hedging technique. In these transactions, the fund exchanges its right to
pay or receive interest with another party for their right to pay or receive
interest.

Should the Company's Board of Trustees determine that the investment objective
of the fund should be changed, shareholders will be given at least 30 days
notice before any such change is made. The fund may not change the requirement
that it normally invest at least 80% of its net assets in municipal securities
without shareholder approval.

Key Risks

Key Risks
There is no guarantee that shares of the fund will not lose value. This means
you could lose money.

IMPORTANT DEFINITIONS

83
<PAGE>

The fact that the fund concentrates its investments in securities of issuers
located in New Jersey raises special concerns. In particular, change in the
economic conditions and governmental policies of New Jersey and its political
subdivisions could hurt the value of the fund's shares.

Revenue bonds include private activity bonds, which are not payable from the
general revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the cor-
porate user of the facility involved. To the extent that the fund's assets are
invested in private activity bonds, the fund will be subject to the particular
risks presented by the laws and economic conditions relating to such projects
and bonds to a greater extent than if its assets were not so invested. Munici-
pal securities also include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obliga-
tion bonds is unable to pay its debts from current revenues, it may draw on a
reserve fund the restoration of which is a moral but not a legal obligation of
the state or municipality which created the issuer.

The fund may invest in bonds the interest on which may be subject to the Fed-
eral Alternative Minimum Tax. The fund may invest up to 20% of its total
assets in these bonds when added together with any of the fund's other taxable
investments. Interest on these bonds that is received by taxpayers subject to
the Federal Alternative Minimum Tax is taxable.

The fund will rely on legal opinions of counsel to issuers of municipal secu-
rities as to the tax-free status of investments and will not do its own analy-
sis.

The fund's use of derivatives and interest rate transactions may reduce the
fund's returns and/or increase volatility, which is defined as the character-
istic of a security or a market to fluctuate significantly in price within a
short period of time. The income from certain derivatives may be subject to
Federal income tax. Leverage is a speculative technique which may expose the
fund to greater risk and increase its costs. Increases and decreases in

84
<PAGE>

the value of the fund's portfolio will be magnified when the fund uses lever-
age. The fund will also have to pay interest on its borrowings, reducing the
fund's return.

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.

The fund is a non-diversified portfolio under the Investment Company Act, which
means that fund performance is more dependent on the performance of a smaller
number of securities and issuers than in a diversified portfolio. The change in
value of any one security may affect the overall value of the fund more than it
would a diversified fund's.
85
<PAGE>

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Service Shares. 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 Lehman
Municipal Bond Index, a recognized unmanaged index of bond market performance.
The chart and the table both assume reinvestment of dividends and distribu-
tions. As with all such investments, past performance is not an indication of
future results.

[BAR CHART APPEARS HERE]

Best Quarter Q1 '95: 6.13%

Worst Quarter Q1 '94: -5.17%

92 93 94 95 96 97 98
----- ------ ------ ------ ----- ----- -----
8.90% 11.58% -4.70% 14.94% 3.63% 8.26% 5.97%

86
<PAGE>

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.

The table below describes the fees and expenses that you may pay if you buy and
hold Service 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 .50%
Distribution and service (12b-1) fees .30%
Other expenses .40%
Total annual fund operating expenses 1.20%
Fee Waivers and Expense Reimbursements* .30%
Net Expenses* .90%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may have to repay these waivers and reimbursements to BlackRock in the
following two years if the repayment can be made within these expense limits.
"Net Expenses" in the table have been restated to reflect these waivers and
reimbursements.

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 (except for the waivers in the first year discussed above) and redemp-
tion 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>
Service Shares $92 $351 $631 $1,428
</TABLE>

IMPORTANT DEFINITIONS

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

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

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

87
<PAGE>

New Jersey Tax-Free Income Portfolio

<TABLE>
<CAPTION>
For the For the
Period Period
Year Year 2/1/96 3/1/95 Year Year
Ended Ended through through Ended Ended
9/30/98 9/30/97 9/30/96 1/31/96 2/28/95 2/28/94
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 11.65 $ 11.27 $ 11.61 $ 10.94 $ 11.31 $ 11.30
------- ------- ------- ------- ------- --------
Income from investment
operations
Net investment income 0.52 0.52 0.73 0.46 0.51 0.54
Net gain (loss) on
investments (both
realized and
unrealized) 0.42 0.37 (0.32) 0.65 (0.36) 0.04
------- ------- ------- ------- ------- --------
Total from investment
operations 0.94 0.89 0.41 1.11 0.15 0.58
------- ------- ------- ------- ------- --------
Less distributions
Distributions from net
investment income (0.52) (0.51) (0.75) (0.44) (0.51) (0.54)
Distributions from net
realized capital gains - - - - - - - - (0.01) (0.03)
------- ------- ------- ------- ------- --------
Total distributions (0.52) (0.51) (0.75) (0.44) (0.52) (0.57)
------- ------- ------- ------- ------- --------
Net asset value at end of
period $ 12.07 $ 11.65 $ 11.27 $ 11.61 $ 10.94 $ 11.31
======= ======= ======= ======= ======= ========
Total return 8.28% 8.11% 0.15% 10.35% 1.49% 5.18%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $34,803 $84,596 $88,077 $97,976 $96,857 $111,354
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.88% 0.85% 0.85%/2/ 0.88%/2/ 0.79% 0.38%
Before
advisory/administration
fee waivers 1.18% 1.17% 1.17%/2/ 0.90%/2/ 0.87% 0.86%
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 4.37% 4.59% 4.44%/2/ 4.43%/2/ 4.71% 4.75%
Before
advisory/administration
fee waivers 4.07% 4.27% 4.13%/2/ 4.41%/2/ 4.63% 4.27%
Portfolio turnover rate 24% 77% 109% 26% 28% 12%
</TABLE>
----------------------------------------------

/2/Annualized.

88
<PAGE>

[GRAPHIC BlackRock
APPEARS Pennsylvania Tax-Free Income
HERE] Portfolio

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

Primary Investment Strategies:
In pursuit of this goal, the fund manager invests primarily in bonds issued by
or on behalf of states and possessions of the United States, their political
subdivisions and their agencies and authorities (and related tax-exempt deriva-
tive securities) the interest on which the manager believes is exempt from Fed-
eral income tax (municipal securities). The fund normally invests at least 65%
of its net assets in municipal securities of issuers located in the state of
Pennsylvania. The fund normally invests at least 80% of its net assets in
municipal securities, including both general obligation and revenue bonds, from
a diverse range of issuers. The other 20% of net assets can be invested in
securities which are subject to regular Federal income tax or the Federal
Alternative Minimum Tax. The fund emphasizes municipal securities in the ten to
twenty year maturity range. The fund may only buy securities rated investment
grade at the time of purchase by at least one major rating agency or determined
by the manager to be of similar quality.

IMPORTANT DEFINITIONS

General Obligation
Bonds: Bonds which are
secured by the issuer's
pledge of its full
faith, credit and
taxing power for the
payment of principal
and interest.

Lehman Municipal Bond
Index: An unmanaged
index of municipal
bonds with the follow-
ing characteristics:
minimum credit rating
of Baa-3, outstanding
par value of at least
$3 million, issued as
part of a deal of at
least $50 million,
issued within the last
5 years and remaining
maturities of not less
than one year.

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer must pay
back the face amount of
the security.
89
<PAGE>

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 invest-
ment or to increase returns. The fund may also enter into interest rate trans-
actions as a hedging technique. In these transactions, the fund exchanges its
right to pay or receive interest with another party for their right to pay or
receive interest.

The fund can borrow money to buy additional securities. This practice is known
as "leverage". The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securi-
ties and agrees to buy them back at a particular date and price). The fund
normally may borrow up to 33 1/3% of the value of its total assets.

Should the Company's Board of Trustees determine that the investment objective
of the fund should be changed, shareholders will be given at least 30 days
notice before any such change is made. The fund may not change the requirement
that it normally invest at least 80% of its net assets in municipal securities
without shareholder approval.

Key Risks

Key Risks
There is no guarantee that shares of the fund will not lose value. This means
you could lose money.

IMPORTANT DEFINITIONS

90
<PAGE>

The fund will rely on legal opinions of counsel to issuers of municipal securi-
ties as to the tax-free status of investments and will not do its own analysis.

The fund's use of derivatives and interest rate transactions may reduce the
fund's returns and/or increase volatility, which is defined as the characteris-
tic of a security or a market to fluctuate significantly in price within a
short period of time. The income from certain derivatives may be subject to
Federal income tax. Leverage is a speculative technique which may expose the
fund to greater risk and increase its costs. Increases and decreases in the
value of the fund's portfolio will be magnified when the fund uses leverage.
The fund will also have to pay interest on its borrowings, reducing the fund's
return.

securities and of losing rights to the collateral if a borrower goes bankrupt.

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, the fund's investment adviser, is currently working to avoid such prob-
lems. 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 issuers whose securities the fund holds or securi-
ties 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.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Service Shares. 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 Lehman
Municipal Bond Index, a recognized unmanaged index of bond market performance.
The chart and the table both assume reinvestment of dividends and distribu-
tions. As with all such investments, past performance is not an indication of
future results.

The performance for the period before Service Shares were launched in July
1993 is based upon performance for Institutional Shares of the fund. The
actual return of Service Shares would have been lower than shown because Serv-
ice Shares have higher expenses than Institutional Shares.

92
<PAGE>

[BAR CHART APPEARS HERE]

Best Quarter Q1 '95: 7.59%

Worst Quarter Q1 '94: -6.35%

The bars for 1993 are based
upon performance for Institutional
Shares of the fund.

93 94 95 96 97 98
------ ------ ------ ----- ----- -----
12.51% -7.13% 18.10% 4.24% 8.38% 5.80%

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.

The table below describes the fees and expenses that you may pay if you buy and
hold Service 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 .50%
Distribution and service (12b-1) fees .30%
Other expenses .32%
Total annual fund operating expenses 1.12%
Fee Waivers and Expense Reimbursements* .22%
Net Expenses* .90%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may have to repay these waivers and reimbursements to BlackRock in the
following two years if the repayment can be made within these expense limits.
"Net Expenses" in the table have been restated to reflect these waivers and
reimbursements.

IMPORTANT DEFINITIONS

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

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

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

93
<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 (except for the waivers in the first year discussed above), 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

<S> <C> <C> <C> <C>
Service Shares $92 $334 $596 $1,344
</TABLE>

Pennsylvania Tax-Free Income Portfolio

<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 $ 10.77 $ 10.44 $ 10.33 $ 9.82 $ 10.70
------- ------- ------- ------- -------
Income from investment operations
Net investment income 0.47 0.50 0.50 0.50 0.51
Net gain (loss) on investments
(both realized and unrealized) 0.39 0.33 0.11 0.51 (0.85)
------- ------- ------- ------- -------
Total from investment operations 0.86 0.83 0.61 1.01 (0.34)
------- ------- ------- ------- -------
Less distributions
Distributions from net investment
income (0.48) (0.50) (0.50) (0.50) (0.51)
Distributions from net realized
capital gains - - - - - - - - (0.03)
------- ------- ------- ------- -------
Total distributions (0.48) (0.50) (0.50) (0.50) (0.54)
------- ------- ------- ------- -------
Net asset value at end of period $ 11.15 $ 10.77 $ 10.44 $ 10.33 $ 9.82
======= ======= ======= ======= =======
Total return 8.19% 8.10% 5.97% 10.51% (3.20)%
Ratios/Supplemental data
Net assets at end of period (in
thousands) $20,669 $50,395 $34,297 $13,815 $11,518
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 0.86% 0.85% 0.85% 0.79% 0.55%
Before advisory/administration
fee waivers 1.10% 1.16% 1.15% 1.11% 1.15%
Ratios of net investment income
to average net assets
After advisory/administration fee
waivers 4.39% 4.67% 4.74% 5.04% 4.97%
Before advisory/administration
fee waivers 4.15% 4.36% 4.44% 4.72% 4.37%
Portfolio turnover rate 43% 97% 119% 66% 30%
</TABLE>
-----------------------------------------
95
<PAGE>

[GRAPHIC
APPEARS About Your Investment
HERE]

Buying Shares

Service Shares are offered without a sales charge to financial institutions
(such as banks and brokerage firms) acting on behalf of their customers, cer-
tain persons who were shareholders of the Compass Capital Group of Funds at
the time of its combination with The PNC(R) Fund in 1996 and investors that
participate in the Capital DirectionsSM asset allocation program. Service
Shares will normally be held by institutions or in the name of nominees of
institutions on behalf of their customers. Service Shares are normally pur-
chased through a customer's account at an institution through procedures
established by the institution. In these cases, confirmation of share pur-
chases 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, by
calling (800) 441-7450. The name of the fund being purchased must appear on
the check or Federal Reserve draft.

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

What Price Per Share Will You Pay?

96
<PAGE>

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

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

Purchase orders received by the transfer agent before the close of regular
trading on the New York Stock Exchange (NYSE) (currently 4 p.m. (Eastern
time)) on each day the NYSE is open will be priced based on the NAV calculated
at the close of trading on that day. NAV is calculated separately for each
class of shares of each fund at 4 p.m. (Eastern time) each day the NYSE is
open. Shares will not be priced on days the NYSE is closed. Purchase orders
received after the close of trading will be priced based on the next calcula-
tion of NAV. Foreign securities and certain other securities held by a fund
may trade on days when the NYSE is closed. In these cases, net asset value of
shares may change when fund shares cannot be bought or sold.

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

Paying for Shares

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

How Much is the Minimum Investment?

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.

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

97
<PAGE>

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

Distribution and Service Plan

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

Under the Plan, the Company may enter into arrangements with brokers, dealers,
financial institutions and industry professionals (Service Organizations) (in-
cluding PNC Bank and its affiliates). Under these arrangements, Service Organi-
zations will provide certain support services to their customers who own Serv-
ice Shares. The Company may pay a shareholder servicing fee of up to .15% per
year of the average daily net asset value of Service Shares owned by each Serv-
ice Organization's customers.

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

98
<PAGE>

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

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.

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

Selling Shares

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

Payment for redeemed shares for which a redemption order is received by PFPC
before 4 p.m. (Eastern time) on a business day is normally made in Federal
funds wired to the redeeming institution on the next business day, provided
that the funds' custodian is also open for business. Payment for redemption
orders received after 4 p.m. (Eastern time) or on a day when the funds'
99
<PAGE>

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

custodian is closed is normally 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 custom-
ers from their institutions.

Persons who were shareholders of the Compass Capital Group of Funds at the
time of its combination with The PNC(R) Fund may redeem for cash some or all
of their shares of a fund at any time by sending a written redemption request
in proper form to BlackRock Funds, c/o PFPC Inc., P.O. Box 8950, Wilmington,
DE 19899-8950. They may also redeem shares by telephone if they have signed up
for the expedited redemption privilege.

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

The Company may refuse a telephone redemption request if it believes it is
advisable to do so and may use reasonable procedures to make sure telephone
instructions are genuine. The Company may alter the terms of or terminate this
expedited redemption privilege at any time.

100
<PAGE>

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

account in which they held shares on that date through the procedures described
in this section.

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

The Company's Rights

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.

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

Accounts with Low Balances

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

101
<PAGE>

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

Management

<TABLE>
<S> <C>
Low Duration Bond 0.16%
Intermediate Government Bond 0.30%
Intermediate Bond 0.26%
Core Bond 0.18%
Managed Income 0.34%
International Bond 0.23%
GNMA 0.17%
Tax-Free Income 0.28%
Pennsylvania Tax-Free Income 0.29%
New Jersey Tax-Free Income 0.26%
Ohio Tax-Free Income 0.22%
Delaware Tax-Free Income 0.17%
Kentucky Tax-Free Income 0.15%
</TABLE>

The maximum annual advisory fees that can be paid to BlackRock (as a percentage
of average daily net assets) are as follows:

Maximum Annual Contractual Fee Rate (Before Waivers)

<TABLE>
<CAPTION>
Each Fund Except
Int'l Bond, GNMA, Int'l Bond, GNMA,
KY Tax-Free, KY Tax-Free,
DE Tax-Free DE Tax-Free
INVESTMENT INVESTMENT
AVG DAILY NET ASSETS ADVISORY FEE ADVISORY FEE
<S> <C> <C>
First $1 billion .500% .550%
$1 billion--$2
billion .450% .500%
$2-billion--$3
billion .425% .475%
greater than $3
billion .400% .450%
</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.

102
<PAGE>

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

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.

Information about the portfolio manager for each of the funds is presented in
the appropriate fund section.

<TABLE>
<S> <C>
Low Duration Bond .385%
Intermediate Government Bond .475%
Intermediate Bond .435%
Core Bond .380%
GNMA .485%
Managed Income .485%
International Bond .865%
High Yield Bond .525%
Tax-Free Income .485%
Delaware Tax-Free Income .585%
Ohio Tax-Free Income .515%
Kentucky Tax-Free Income .585%
New Jersey Tax-Free Income .475%
Pennsylvania Tax-Free Income .470%
</TABLE>

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

103
<PAGE>

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

Dividends and Distributions

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

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

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

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

Taxation of Distributions

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

104
<PAGE>

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

dends to be exempt from these federal, state and local taxes. Dividends earned
on securities issued by the U.S. government and its agencies may also be exempt
from some types of state and local taxes.

These Tax-free Income funds may invest a portion of their assets in securities
that generate income that is not exempt from federal, state or local income
tax. Any capital gains distributed by the funds may be taxable as well.

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

105
<PAGE>

Statement of Additional Information (SAI)
A Statement of Additional Information, dated January 28, 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 and to discuss programs and services available.
Hours: 8:30 a.m. to 5 p.m. (Eastern time), Monday-Friday, Call: 800-441-7762

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]

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

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

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

497(C)
File No. 33-26305

[GRAPHIC APPEARS HERE]

NOT FDIC-INSURED

May lose value
No bank guarantee

Bond Portfolios
================================================================================
INSTITUTIONAL SHARES

BlackRock Funds(SM) is a mutual fund family with 36 investment portfolios, 14 of
which are described in this prospectus.

PROSPECTUS

January 28, 1999

[LOGO OF BLACKROCK FUNDS APPEARS HERE]

Table of
Contents

How to find the information you need........................................ 1
THE BLACKROCK BOND FUNDS
Low Duration Bond........................................................... 2
Intermediate Government Bond................................................ 9
Intermediate Bond........................................................... 15
Core Bond................................................................... 21
GNMA........................................................................ 27
Managed Income.............................................................. 33
International Bond.......................................................... 39
High Yield Bond............................................................. 45
Tax-Free Income............................................................. 51
Delaware Tax-Free Income.................................................... 59
Ohio Tax-Free Income........................................................ 66
Kentucky Tax-Free Income.................................................... 73
New Jersey Tax-Free Income.................................................. 80
Pennsylvania Tax-Free Income................................................ 87

About Your Investment

How to Buy/Sell Shares...................................................... 94
Dividends/Distribution/Taxes................................................ 99
</TABLE>
<PAGE>

How to Find the
Information You Need
About BlackRock Funds

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

Welcome to the new BlackRock Bond 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).

1
<PAGE>

[GRAPHIC BlackRock
APPEARS Low Duration Bond
HERE] Portfolio

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

Investment Goal
The fund seeks to realize a rate of return that exceeds the total return of
the Merrill Lynch 1-3 Year Treasury Index (the benchmark).

IMPORTANT DEFINITIONS

2
<PAGE>

currencies with another party for their right to pay or receive interest or
another currency in the future.

The fund can borrow money to buy additional securities. The practice is know as
"leverage." The fund may borrow from banks or other financial institutions or
through reverse repurchase agreements (under which the fund sells securities
and agrees to buy them back at a particular date and price). The fund normally
may borrow up to 33 1/3% of the value of its total assets.

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

Key Risks

Certain asset-backed securities are based on loans that are unsecured, which
means that there is no collateral to seize if the underlying borrower defaults.
Other asset-based securities may

IMPORTANT DEFINITIONS

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer must pay
back the face amount of
the security.
Merrill Lynch 1-3 Year
Treasury Index: An
unmanaged index com-
prised of Treasury
securities with maturi-
ties of from 1 to 2.99
years.
Mortgage-Backed Securi-
ties: Asset-backed
securities based on a
particular type of
asset, a mortgage.
There is a wide variety
of mortgage backed
securities involving
commercial or residen-
tial, fixed rate or
adjustable rate mort-
gages and mortgages
issued by banks or gov-
ernment agencies.
Total Return: A way of
measuring fund perfor-
mance. Total return is
based on a calculation
that takes into account
income dividends, capi-
tal gain distributions
and the increase or
decrease in share
price.

3
<PAGE>

not have the benefit of as much collateral as mortgage-backed securities.

4
<PAGE>

high risk of default. The yields of non-investment grade securities will move
up and down over time.

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

5
<PAGE>

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Institutional Shares. 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 Merrill Lynch 1-3 Year Treasury Index, a recognized unmanaged index of bond
market performance. The chart and the table both assume reinvestment of divi-
dends and distributions. As with all such investments, past performance is not
an indication of future results.

[BAR CHART APPEARS HERE]

Best Quarter 93 5.66%
Q1 '95: 3.26% 94 1.39%
95 10.51%
Worst Quarter 96 5.07%
Q1 '94: -0.18% 97 6.05%
98 6.63%

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.

6
<PAGE>

The table below describes the fees and expenses that you may pay if you buy and
hold Institutional 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 .50%
Other expenses .45%
Total annual fund operating expenses .95%
Fee waivers and expense reimbursements* .40%
Net Expenses* .55%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expense in
order to limit certain (but not all) fund expenses for the next year. The
Fund may have to repay these waivers and reimbursements to BlackRock in the
following two years, if the repayment can be made within these expenses
limits. "Net Expenses" in the table have been restated to reflect these
waivers and reimbursements.

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 (except for the waivers in the first year discussed above) and redemp-
tion 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>
Institutional Shares $56 $263 $486 $1,130
</TABLE>

IMPORTANT DEFINITIONS

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

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

7
<PAGE>

Fund Management
Robert Kapito and Scott Amero co-manage the fund at BlackRock Financial Manage-
ment, Inc. (BFM). Robert Kapito has been Vice Chairman of BFM since 1988 and a
portfolio co-manager since inception. Scott Amero has been a Managing Director
of BFM since 1990 and portfolio co-manager since inception.

Low Duration Bond Portfolio

For the For the
Period Period
Year Year 4/1/96 7/1/95 Year Year
Ended Ended through through Ended Ended
9/30/98 9/30/97 9/30/96 3/31/96 6/30/95 6/30/94
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 9.89 $ 9.79 $ 9.79 $ 9.83 $ 9.71 $ 9.96
-------- -------- -------- ------- ------- -------
Income from investment
operations
Net investment income 0.56 0.58 0.28 0.42 0.58 0.48
Net gain (loss) on
investments (both
realized and
unrealized) 0.14 0.08 (0.01) - - 0.13 (0.25)
-------- -------- -------- ------- ------- -------
Total from investment
operations 0.70 0.66 0.27 0.42 0.71 0.23
-------- -------- -------- ------- ------- -------
Less distributions
Distributions from net
investment income (0.56) (0.56) (0.27) (0.41) (0.58) (0.48)
Distribution in excess
of net investment
income - - - - - - (0.04) - - - -
Distributions from net
realized capital gains - - - - - - (0.01) (0.01) - -
-------- -------- -------- ------- ------- -------
Total distributions (0.56) (0.56) (0.27) (0.46) (0.59) (0.48)
-------- -------- -------- ------- ------- -------
Net asset value at end of
period $ 10.03 $ 9.89 $ 9.79 $ 9.79 $ 9.83 $ 9.71
======== ======== ======== ======= ======= =======
Total return 7.28% 6.89% 2.70% 4.25% 6.99% 2.33%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $166,887 $102,490 $135,686 $52,843 $44,486 $31,265
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.55%/2/ 0.55%/2/ 0.55%/1/,/2/ 0.63%/1/,/2/ 0.57% 0.57%
Before
advisory/administration
fee waivers 0.95% 0.88% 0.83%/1/ 0.83%/1/ 1.05% 1.02%
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 7.02% 6.14% 5.72%/1/ 5.25%/1/ 6.08% 4.70%
Before
advisory/administration
fee waivers 6.62% 5.81% 5.45%/1/ 5.05%/1/ 5.60% 4.25%
Portfolio turnover rate 227% 371% 228% 185% 586% 455%
</TABLE>
/1/Annualized.
/2/Including interest expense, ratios would have been 1.80% for the year ended
September 30, 1998, 0.92% for the year ended September 30, 1997, 0.64% for
the period ended September 30, 1996 and 0.96% for the period ended March 31,
1996. For the periods prior to March 31, 1996, interest income was presented
net of interest expense.
8
<PAGE>

[GRAPHIC BlackRock
APPEARS Intermediate Government
HERE] Bond Portfolio

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

Investment Goal
The fund seeks current income consistent with the preservation of capital.

If a security falls below the highest rating, the manager will decide whether
to continue to hold the security. A security will be sold if, in the opinion of
the fund manager, the risk of continuing to hold the security is unacceptable
when compared to the total return potential.

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. The fund may also enter into interest rate transactions
as a hedging technique. In these transactions, the fund exchanges its right to
pay or receive interest with another party for their right to pay or receive
interest.

IMPORTANT DEFINITIONS

Asset-Backed Securi-
ties: Bonds that are
backed by a pool of
assets, usually loans
such as installment
sale contracts or
credit card receiv-
ables.

Commercial Mortgage-
Backed Securities
(CMBS): Bonds that are
backed by a mortgage
loan or pools of loans
secured by commercial
property, not residen-
tial mortgages.

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer generally
must pay back the face
amount of the security.

9
<PAGE>

The fund can borrow money to buy additional securities. This practice is known
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securi-
ties and agrees to buy them back at a particular date and price). The fund
normally may borrow up to 33 1/3% of the value of its total assets.

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

Key Risks

A main risk of investing in the fund is interest rate risk. Typically, when
interest rates rise, there is a corresponding decline in the market value of
bonds such as those held by the fund.

A main difference is that the principal on mortgage-or asset-backed securities
may normally be prepaid at any time, which will reduce the yield and market
value of these securities. Asset-backed securities and CMBS generally experi-
ence less prepayment than residential mortgage-backed securities. In periods
of falling interest rates, the rate of prepayments tends to increase (as does
price fluctuations) as borrowers are motivated to pay off debt and refinance
at new lower rates. During such periods, reinvestment of the prepayment pro-
ceeds by the manager will generally be at lower rates of return than the
return on the assets which were prepaid.

Certain asset-backed securities are based on loans that are unsecured, which
means that there is no collateral to seize if the underlying borrower
defaults. Other asset-based securities may

IMPORTANT DEFINITIONS

10
<PAGE>

not have the benefit of as much collateral as mortgage-backed securities.

IMPORTANT DEFINITIONS

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

Other Expenses:
Include administra-
tion, transfer agency,
custody, professional
fees and registration
fees.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Institutional Shares. 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 Lehman Brothers Intermediate Government Index, a recognized unmanaged index
of bond 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.

[BAR CHART APPEARS HERE]

Best Quarter 93 7.8%
Q1 '95: 4.48% 94 -3.35%
95 13.79%
Worst Quarter 96 4.41%
Q1 '94: -2.39% 97 7.73%
98 7.64%

* For comparative purposes, the value of the index on 05/01/92 is used as the
beginning value on 04/20/92.

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.

The table below describes the fees and expenses that you may pay if you buy and
hold Institutional 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 .50%
Other expenses .35%
Total annual fund operating expenses .85%
Fee waivers and expense reimbursements* .25%
Net Expenses* .60%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits. "Net Expenses" in the table have been restated to reflect these
waivers and reimbursements.
12
<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 (except for the waivers in the first year discussed above) and redemp-
tion 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>
Institutional Shares $61 $246 $447 $1,026
</TABLE>

Financial Highlights
The financial information in the table below shows the fund's financial perfor-
mance for the periods indicated. 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 and assumes that
you have reinvested all dividends 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 statement, are included in
the Company's annual report, which is available upon request (see back cover
for ordering instructions).

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Institutional Share Outstanding Throughout Each Period)

Intermediate Government Bond Portfolio

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 $ 10.11 $ 9.92 $ 10.02 $ 9.64 $ 10.60
-------- ------- -------- -------- --------
Income from investment
operations
Net investment income 0.57 0.59 0.58 0.58 0.55
Net gain (loss) on
investments
(both realized and
unrealized) 0.39 0.19 (0.11) 0.38 (0.86)
-------- ------- -------- -------- --------
Total from investment
operations 0.96 0.78 0.47 0.96 (0.31)
-------- ------- -------- -------- --------
Less distributions
Distributions from net
investment income (0.59) (0.59) (0.57) (0.58) (0.55)
Distributions from net
realized capital gains - - - - - - - - (0.10)
-------- ------- -------- -------- --------
Total distributions (0.59) (0.59) (0.57) (0.58) (0.65)
-------- ------- -------- -------- --------
Net asset value at end of
period $ 10.48 $ 10.11 $ 9.92 $ 10.02 $ 9.64
======== ======= ======== ======== ========
Total return 9.83% 8.08% 4.82% 10.28% (3.08)%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $441,691 $96,605 $126,312 $134,835 $128,974
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.59%/1/ 0.55%/1/ 0.53%/1/ 0.42%/1/ 0.40%
Before
advisory/administration
fee waivers 0.85% 0.86% 0.83% 0.79% 0.80%
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 5.76% 6.00% 6.03% 5.94% 5.48%
Before
advisory/administration
fee waivers 5.50% 5.69% 5.73% 5.57% 5.08%
Portfolio turnover rate 272% 291% 580% 247% 9%
</TABLE>
-----------------------------------------------

/1/Including interest expense, ratios would have been 0.63% for the year ended
September 30, 1998, 0.67% for the year ended September 30, 1997, 0.70% for
the year ended September 30, 1996, and 0.42% for the year ended September 30,
1995.
14
<PAGE>

[GRAPHIC BlackRock
APPEARS Intermediate Bond
HERE] Portfolio

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

Investment Goal
The fund seeks current income consistent with the preservation of capital.

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in intermediate
bonds. The fund normally invests at least 80% of its total assets in bonds and
at least 65% of its total assets in intermediate bonds. The fund defines inter-
mediate bonds as those with maturities of between five and ten years. The fund
only buys securities that are rated investment grade at the time of purchase by
at least one major rating agency or determined by the manager to be of similar
quality.

The management team evaluates categories of the bonds market and individual
securities within those categories. The manager selects bonds from several cat-
egories including: U.S. Treasuries and agency securities, commercial and resi-
dential mortgage-backed securities, asset-backed securities and corporate
bonds. Securities are purchased when the manager determines that they have the
potential for above-average current income. The fund measures its performance
against the Lehman Brothers Intermediate Government/Corporate Index (the bench-
mark).

If a security falls below investment grade, the manager will decide whether to
continue to hold the security. A security will be sold from the portfolio if,
in the opinion of the fund manager, the risk of continuing to hold the security
is unacceptable when compared to the total return potential.

IMPORTANT DEFINITIONS

Asset-Backed Securi-
ties: Bonds that are
backed by a pool of
assets, usually loans
such as installment
sale contracts or
credit card receiv-
ables.

Commercial Mortgage-
Backed Securities
(CMBS): Bonds that are
backed by a mortgage
loan or pools of loans
secured by commercial
property, not residen-
tial mortgages.

Investment Grade: Secu-
rities which are rated
in the four highest
categories by at least
one of the major rating
agencies or determined
by the fund manager to
be of similar quality.
Generally, the higher
the rating of a bond,
the higher the likeli-
hood that interest and
principal payments will
be made on time. Secu-
rities rated in the
fourth highest category
by the rating agencies
are considered invest-
ment grade but they are
also considered specu-
lative, meaning that
they do carry more risk
than higher rated secu-
rities and may have
problems making princi-
pal and interest pay-
ments in difficult eco-
nomic climates.
Investment grade rat-
ings do not guarantee
that bonds will not
lose value.

15
<PAGE>

exchanges its right to pay or receive interest with another party for their
right to pay or receive interest.

The fund can borrow money to buy additional securities. This practice is known
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securi-
ties and agrees to buy them back at a particular date and price). The fund
normally may borrow up to 33 1/3% of the value of its total assets.

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

Key Risks

While the fund manager chooses bonds he believes can provide above average
current income, there is no guarantee that shares of the fund will not lose
value. This means you could lose money.

IMPORTANT DEFINITIONS

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer generally
must pay back the face
amount of the security.

16
<PAGE>

Certain asset-backed securities are based on loans that are unsecured, which
means that there is no collateral to seize if the underlying borrower defaults.
Other asset-based securities may not have the benefit of as much collateral as
mortgage-backed securities.

The fund, 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, the
fund's investment adviser, 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 issuers 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 for Institutional Shares. 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 Lehman Brothers Intermediate Government/Corporate Index, a recognized
unmanaged index of bond 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.

[BAR CHART APPEARS HERE]

Best Quarter 94 -3.11%
Q2 '95: 4.52% 95 14.59%
96 4.31%
Worst Quarter 97 7.61%
Q1 '94: -2.80% 98 7.09%

* For comparative purposes, the value of the index on 09/01/93 is used as the
beginning value on 09/15/93.

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.

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

18
<PAGE>

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

<S> <C> <C> <C>
Advisory Fees .50%
Other expenses .36%
Total annual fund operating expenses .86%
Fee waivers and expense reimbursements* .26%
Net Expenses* .60%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may have to repay these waivers and reimbursements to BlackRock in the
following two years if the repayment can be made within these expense
limits. "Net Expenses" in the table have been restated to reflect these
waivers and reimbursements.

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 (except for the waivers in the first year discussed above) and redemp-
tion 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>
Institutional Shares $61 $248 $451 $1,037
</TABLE>

Fund Management

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.

19
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Institutional Share Outstanding Throughout Each Period)

Intermediate Bond Portfolio

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 $ 9.49 $ 9.32 $ 9.43 $ 9.05 $ 10.01
-------- -------- -------- -------- -------
Income from investment
operations
Net investment income 0.57 0.58 0.56 0.56 0.54
Net gain (loss) on
investments
(both realized and
unrealized) 0.23 0.17 (0.09) 0.38 (0.88)
-------- -------- -------- -------- -------
Total from investment
operations 0.80 0.75 0.47 0.94 (0.34)
-------- -------- -------- -------- -------
Less distributions
Distributions from net
investment income (0.57) (0.58) (0.55) (0.56) (0.56)
Distributions from net
realized capital gains (0.05) - - (0.03) - - (0.06)
-------- -------- -------- -------- -------
Total distributions (0.62) (0.58) (0.58) (0.56) (0.62)
-------- -------- -------- -------- -------
Net asset value at end of
period $ 9.67 $ 9.49 $ 9.32 $ 9.43 $ 9.05
======== ======== ======== ======== =======
Total return 8.81% 8.40% 5.10% 10.76% (3.52)%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $490,674 $295,709 $207,909 $124,979 $71,896
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.59%/1/ 0.53%/1/ 0.53%/1/ 0.47%/1/ 0.45%
Before
advisory/administration
fee waivers 0.86% 0.82% 0.83% 0.81% 0.88%
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 7.18% 6.63% 6.27% 6.18% 5.54%
Before
advisory/administration
fee waivers 6.91% 6.34% 5.97% 5.84% 5.11%
Portfolio turnover rate 221% 321% 670% 262% 92%
</TABLE>
-----------------------------------------------

/1/Including interest expense, ratios would have been 1.72% for the year ended
September 30, 1998, 0.98% for the year ended September 30, 1997, 0.83% for
the year ended September 30, 1996, and 0.55% for the year ended September 30,
1995.
20
<PAGE>

[GRAPHIC BlackRock
APPEARS Core Bond
HERE] Portfolio

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

Investment Goal
The fund seeks to realize a total return that exceeds that of the Lehman Broth-
ers Aggregate Index (the benchmark).

The fund only buys securities that are rated investment grade at the time of
purchase by at least one major rating agency or determined by the manager to be
of similar quality.

The portfolio management team evaluates several categories of the bond market
and individual securities within these categories. The fund manager selects
bonds from several categories including: U.S. Treasuries and agency securities,
commercial and residential mortgage-backed securities, asset-backed securities
and corporate bonds. Securities are purchased for the fund when the manager
determines that they have the potential for above-average total return. The
fund measures its performance against the benchmark.

IMPORTANT DEFINITIONS

Asset-Backed Securi-
ties: Bonds that are
backed by a pool of
assets, usually loans
such as installment
sale contracts or
credit card receiv-
ables.

Bonds: Debt obligations
such as bonds and
debentures, U.S. Gov-
ernment securities,
debt obligations of
domestic and foreign
corporations, debt
obligations of foreign
governments and their
political subdivisions,
asset-backed securi-
ties, various mort-
gaged-backed securities
(both residential and
commercial), other
floating or variable
rate obligations,
municipal obligations
and zero coupon debt
securities.

Commercial Mortgage-
Backed Securities
(CMBS): Bonds that are
backed by a mortgage
loan or pools of loans
secured by commercial
property, not residen-
tial mortgages.

currencies with another party for their right to pay or receive interest or
another currency in the future.

The fund can borrow money to buy additional securities. The practice is known
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securi-
ties and agrees to buy them back at a particular date and price). The fund
normally may borrow up to 33 1/3% of the value of its total assets.

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

Key Risks

Key Risks
While the fund manager chooses bonds he believes can provide above average
total returns, there is no guarantee that shares of the fund will not lose
value. This means you could lose money.

IMPORTANT DEFINITIONS

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer generally
must pay back the face
amount of the security.

22
<PAGE>

Certain asset-backed securities are based on loans that are unsecured, which
means that there is no collateral to seize if the underlying borrower defaults.
Other asset-based securities may not have the benefit of as much collateral as
mortgage-backed securities.

The fund, 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, the
funds investment adviser, is currently working to avoid such problems. Black-
Rock 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 issuers 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.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Institutional Shares. 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 Lehman Brothers Aggregate Index, a recognized unmanaged index of bond mar-
ket 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.

[BAR GRAPH APPEARS HERE]

Best Quarter 93 9.69%
Q2 '95: 5.87% 94 -2.33%
95 18.18%
Worst Quarter 96 3.58%
Q1 '94: -2.63% 97 9.02%
98 8.19%

As of 12/31
- --------------------------------------------------------------------------------
A V E R A G E A N N U A L T O T A L R E T U R N S
- --------------------------------------------------------------------------------
Since Inception
1 Year 3 Years 5 Years Inception Date
- --------------------------------------------------------------------------------
Core Bond 8.19% 6.91% 7.12% 7.52% 12/01/92
- --------------------------------------------------------------------------------
Lehman Aggregate 8.69% 7.29% 7.27% 7.85% N/A
- --------------------------------------------------------------------------------

24
<PAGE>

Expenses and Fees

The table below describes the fees and expenses that you may pay if you buy and
hold Institutional Shares of the fund. 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 .50%
Other expenses .39%
Total annual fund operating expenses .89%
Fee waivers and expense reimbursements* .34%
Net Expenses* .55%
* BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may have to repay these waivers and reimbursements to BlackRock in the
following two years if the repayment can be made within these expense lim-
its. "Net Expenses" in the table have been restated to reflect these waivers
and reimbursements.
</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 (except for the waivers in the first year discussed above) and redemp-
tion 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>
Institutional Shares $56 $250 $460 $1,065
</TABLE>

Fund Management
The manager of the fund is Keith Anderson, Managing Director at BlackRock
Financial Management, Inc. since 1988. He has served as fund manager since June
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.

25
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Institutional Share Outstanding Throughout Each Period)

Core Bond Portfolio

For the For the
Period Period
Year Year 4/1/96 7/1/95 Year Year
Ended Ended through through Ended Ended
9/30/98 9/30/97 9/30/96 3/31/96 6/30/95 6/30/94
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 9.82 $ 9.55 $ 9.61 $ 9.85 $ 9.36 $ 10.37
-------- -------- -------- ------- ------- -------
Income from investment
operations
Net investment income 0.59 0.62 0.30 0.47 0.62 0.55
Net gain (loss) on
investments (both
realized
and unrealized 0.40 0.26 (0.06) (0.07) 0.50 (0.60)
-------- -------- -------- ------- ------- -------
Total from investment
operations 0.99 0.88 0.24 0.40 1.12 (0.05)
-------- -------- -------- ------- ------- -------
Less distributions
Distributions from net
investment income (0.60) (0.61) (0.30) (0.47) (0.62) (0.55)
Distributions from net
realized capital gains (0.09) - - - - (0.17) (0.01) (0.41)
-------- -------- -------- ------- ------- -------
Total distributions (0.69) (0.61) (0.30) (0.64) (0.63) (0.96)
-------- -------- -------- ------- ------- -------
Net asset value at end of
period $ 10.12 $ 9.82 $ 9.55 $ 9.61 $ 9.85 $ 9.36
======== ======== ======== ======= ======= =======
Total return 10.57% 10.03% 2.55% 3.93% 11.79% (0.69)%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $673,823 $393,657 $162,626 $64,707 $32,191 $12,507
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.55%/2/ 0.55%/2/ 0.55%/1/,/2/ 0.66%/1/,/2/ 0.55% 0.55%
Before
advisory/administration
fee waivers 0.89% 0.85% 0.84%/1/ 0.91%/1/ 1.75% 2.65%
Ratios of net investment
income to average
net assets
After
advisory/administration
fee waivers 6.28% 6.81% 6.75%/1/ 5.89%/1/ 6.62% 5.61%
Before
advisory/administration
fee waivers 5.94% 6.52% 6.45%/1/ 5.64%/1/ 5.43% 3.51%
Portfolio turnover rate 405% 441% 308% 723% 435% 722%
</TABLE>
------------------------------------------------

/1/Annualized.
/2/Including interest expense, ratios would have been 0.83% for the year ended
September 30, 1998, 0.84% for the year ended September 30, 1997, 0.80% for
the period ended September 30, 1996, and 0.75% for the period ended March 31,
1996. For the periods prior to March 31, 1996 interest income was presented
net of interest expense.
26
<PAGE>

[GRAPHIC BlackRock
APPEARS GNMA
HERE] Portfolio

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

Investment Goal
The fund seeks current income consistent with the preservation of capital.

Securities are purchased for the fund when the manager determines that they
have the potential for above average current income. The fund measures its per-
formance against the Lehman GNMA Index (the benchmark).

If a security falls below the highest rating, the manager will decide whether
to continue to hold the security. A security will be sold if, in the opinion of
the fund manager, the risk of continuing to hold the security is unacceptable
when compared to the total return potential.

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. The fund may also enter into interest rate transactions
as a hedging technique. In these transactions, the fund exchanges its right to
pay or receive interest with another party for their right to pay or receive
interest.

IMPORTANT DEFINITIONS

Asset-Backed Securi-
ties: Bonds that are
backed by a pool of
assets, usually loans
such as installment
sale contracts or
credit card
receivables.

Commercial Mortgage-
Backed Securities
(CMBS): Bonds that are
backed by a mortgage
loan or pool of loans
secured by commercial
property, not residen-
tial mortgages.

Lehman GNMA Index: An
unmanaged index com-
prised of mortgage-
backed pass through
securities of the Gov-
ernment National Mort-
gage Association
(GNMA).

27
<PAGE>

The fund can borrow money to buy additional securities. This practice is known
as "leverage". The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securi-
ties and agrees to buy them back at a particular date and price). The fund
normally may borrow up to 33 1/3% of the value of its total assets.

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

Key Risks

A main risk of investing in the fund is interest rate risk. Typically, when
interest rates rise, there is a corresponding decline in the market value of
bonds such as those held by the fund.

In addition to GNMA securities, the fund may make investments in other resi-
dential and commercial mortgage-backed securities and other asset-backed secu-
rities. The characteristics of mortgage-backed and asset-backed securities
differ from traditional fixed income securities.

IMPORTANT DEFINITIONS

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer generally
must pay back the face
amount of the security.

28
<PAGE>

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance Institutional Shares. 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 Lehman GNMA Index, a recognized unmanaged index of bond market performance.
The chart and the table both assume reinvestment of dividends and distribu-
tions. As with all such investments, past performance is not an indication of
future results.

[BAR CHART APPEARS HERE]

Best Quarter 91 16.03%
Q2 '95: 5.83% 92 6.71%
93 7.86%
Worst Quarter 94 -3.54%
Q1 '94: -3.65% 95 17.73%
96 4.72%
97 9.70%
98 7.57%

* For comparative purposes, the value of the index on 06/01/90 is used as the
beginning value on 05/31/90.

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.

30
<PAGE>

The table below describes the fees and expenses that you may pay if you buy and
hold Institutional 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 .55%
Other expenses* .42%
Total annual fund operating
expenses .97%
Fee waivers and expense
reimbursements** .37%
Net Expenses** .60%
</TABLE>
* "Other expenses" are based on estimated amounts for the current fiscal
year.
** BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits. "Net Expenses" in the table have been restated to reflect these
waivers and reimbursements.

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 (except for the waivers in the first year discussed above) and redemp-
tion at the end of each time period. Although your actual cost may be higher or
lower, based on these assumptions your costs would be:

<TABLE>
<CAPTION>
1 Year 3 Years

<S> <C> <C>
Institutional Shares $61 $272
</TABLE>

Fund Management
The co-managers of the fund are Robert Kapito, Vice Chairman of BlackRock
Financial Management, Inc. (BFM) since 1988, Scott Amero, Managing Director of
BFM since 1990, and Michael Lustig, Director of BFM since 1989. They have all
co-managed the fund since inception.

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.

31
<PAGE>

Financial Highlights
The financial information in the table below shows the fund's financial perfor-
mance for the period indicated. 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 and assumes that
you have reinvested all dividends 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 statement, are included in
the Company's annual report, which is available upon request (see back cover
for ordering instructions).

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Institutional Share Outstanding Throughout Each Period)

GNMA Portfolio

For the
Period
5/18/98/1/
through
9/30/98
<S> <C> <C>
Net asset value at beginning of period $ 10.00
--------
Income from investment operations
Net investment income 0.23
Net gain (loss) on investments (both
realized and unrealized) 0.10
--------
Total from investment operations 0.33
--------
Less distributions
Distributions from net investment
income (0.22)
Distributions from net realized capital
gains - -
--------
Total distributions (0.22)
--------
Net asset value at end of period $ 10.11
========
Total return 3.31%
Ratios/Supplemental data
Net assets at end of period (in
thousands) $118,039
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 0.60%/3/
Before advisory/administration fee
waivers 0.97%
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 6.12%
Before advisory/administration fee
waivers 5.75%
Portfolio turnover rate 56%
</TABLE>

/1/Commencement of operations of share class.
/2/Annualized.
/3/Including interest expense ratio would have been 0.63% for the period ended
September 30, 1998.
32
<PAGE>

[GRAPHIC BlackRock
APPEARS Managed Income
HERE] Portfolio

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

Investment Goal
The fund seeks current income consistent with the preservation of capital.

IMPORTANT DEFINITIONS

Asset-Backed Securi-
ties: Bonds that are
backed by a pool of
assets, usually loans
such as installment
sale contracts or
credit card
receivables.

Commercial Mortgage-
Backed Securities
(CMBS): Bonds that are
backed by a mortgage
loan or pools of loans
secured by commercial
property, not residen-
tial mortgages.

33
<PAGE>

currencies with another party for their right to pay or receive interest or
another currency in the future.

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

Key Risks

IMPORTANT DEFINITIONS

34
<PAGE>

Certain asset-backed securities are based on loans that are unsecured, which
means that there is no collateral to seize if the underlying borrower defaults.
Other asset-based securities may not have the benefit of as much collateral as
mortgage-backed securities.

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

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.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Institutional Shares. 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 Lehman Brothers Aggregate Index, a recognized unmanaged index of bond mar-
ket 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.

[BAR CHART APPEARS HERE]

Best Quarter 90 8.30%
Q3 '91: 5.78% 91 14.96%
92 5.91%
Worst Quarter 93 11.69%
Q1 '94: -3.43% 94 -4.47%
95 17.49%
96 3.45%
97 9.46%
98 7.29%

36
<PAGE>

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.

The table below describes the fees and expenses that you may pay if you buy and
hold Institutional 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 .49%
Other expenses .32%
Total annual fund operating expenses .81%
Fee waivers and expense reimbursements* .16%
Net Expenses* .65%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits. "Net Expenses" in the table have been restated to reflect these
waivers and reimbursements.

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 (except for the waivers in the first year discussed above) and redemp-
tion 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>
Institutional Shares $66 $243 $434 $987
</TABLE>

Fund Management
The manager of the fund is Keith Anderson. He has been a Managing Director at
BlackRock Financial Management, Inc. since 1988 and manager of the fund since
June 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.

37
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Institutional Share Outstanding Throughout Each Period)

Managed Income Portfolio

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 $ 10.41 $ 10.09 $ 10.38 $ 9.79 $ 11.17
---------- -------- -------- -------- --------
Income from investment
operations
Net investment income 0.67 0.68 0.64 0.65 0.64
Net gain (loss) on
investments (both
realized and
unrealized) 0.26 0.32 (0.21) 0.60 (1.21)
---------- -------- -------- -------- --------
Total from investment
operations 0.93 1.00 0.43 1.25 (0.57)
---------- -------- -------- -------- --------
Less distributions
Distributions from net
investment income (0.65) (0.68) (0.62) (0.65) (0.64)
Distribution in excess
of net investment
income - - - - - - (0.01) (0.02)
Distributions from net
realized capital gains (0.05) - - (0.10) - - (0.14)
Distributions in excess
of net realized gains - - - - - - - - (0.01)
---------- -------- -------- -------- --------
Total distributions (0.70) (0.68) (0.72) (0.66) (0.81)
---------- -------- -------- -------- --------
Net asset value at end of
period $ 10.64 $ 10.41 $ 10.09 $ 10.38 $ 9.79
========== ======== ======== ======== ========
Total return 9.25% 10.25% 4.33% 13.27% (5.27)%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $1,335,054 $537,260 $564,744 $443,148 $395,060
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.63%/1/ 0.58%/1/ 0.58% 0.57% 0.55 %
Before
advisory/administration
fee waivers 0.81% 0.83% 0.81% 0.77% 0.77 %
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 6.71% 6.99% 6.17% 6.44% 6.11 %
Before
advisory/administration
fee waivers 6.53% 6.74% 5.95% 6.24% 5.89 %
Portfolio turnover rate 376% 428% 638% 203% 61 %
</TABLE>
-----------------------------------------------

/1/Including interest expense, ratio would have been 1.30% for the period ended
September 30, 1998, 0.92% for the period ended September 30, 1997. For the
periods prior to September 30, 1997, interest income was presented net of
interest expense.
38
<PAGE>

[GRAPHIC BlackRock
APPEARS International Bond
HERE] Portfolio

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

Investment Goal
The fund seeks current income consistent with the preservation of capital.

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in bonds of foreign
issuers in the five to fifteen year maturity range. The fund normally invests
at least 80% of its total assets in bonds and at least 65% of its total assets
in bonds of a diversified group of foreign issuers from at least three devel-
oped countries. The fund may invest more than 25% of its total assets in the
securities of issuers located in Canada, France, Germany, Japan and the United
Kingdom. The fund may from time to time invest in bonds of issuers in emerging
market countries. The fund may also invest in foreign currencies. The fund may
only buy securities rated investment grade at the time of purchase by at least
one major rating agency or determined by the manager to be of similar quality.

IMPORTANT DEFINITIONS

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer generally
must pay back the face
amount of the security.

39
<PAGE>

currencies with another party for their right to pay or receive interest or
another currency in the future.

The fund can borrow money to buy additional securities. This practice is known
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securi-
ties and agrees to buy them back at a particular date and price). The fund
normally may borrow up to 33 1/3% of the value of its total assets.

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

Key Risks

Three of the main risks of investing in the fund are interest rate risk,
credit risk and the risks associated with investing in bonds of foreign
issuers.

Typically, when interest rates rise, there is a corresponding decline in the
market value of bonds such as those held by the fund. Credit risk refers to
the possibility that the issuer of the bond will not be able to make principal
and interest payments.

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

IMPORTANT DEFINITIONS

40
<PAGE>

Investing a significant portion of assets in one country makes the fund more
dependent upon the political and economic circumstances of a particular country
than a mutual fund that is more widely diversified. For example, the Japanese
economy (especially Japanese banks, securities firms and insurance companies)
has experienced considerable difficulty 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 Canada, France, Germany and the United Kingdom may make the fund's perfor-
mance more dependent on developments in those countries.

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.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Institutional Shares. 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 Non-U.S. Hedged World Government Bond Index, a recognized unmanaged
index of bond market performance. The chart and the table both assume reinvest-
ment of dividends and distributions. As with all such investments, past perfor-
mance is not an indication of future results.

The performance for the period before Institutional Shares were launched in
June 1996 is based upon performance for Service Shares of the fund.

[BAR CHART APPEARS HERE]

Best Quarter 92 6.17%
Q1 '95: 8.40% 93 15.31%
94 -3.71%
Worst Quarter 95 20.02%
Q2 '94: -2.06% 96 10.62%
97 10.26%
The bars for 1992-1996 are 98 11.49%
based upon performance for
Service Shares of the fund.

42
<PAGE>

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.

The table below describes the fees and expenses that you may pay if you buy and
hold Institutional 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 .55%
Other expenses .61%
Total annual fund operating expenses 1.16%
Fee waivers and expense reimbursements* .13%
Net Expenses* 1.03%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits. "Net Expenses" in the table have been restated to reflect these
waivers and reimbursements.

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 (except for the waivers in the first year discussed above) and redemp-
tion 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>
Institutional Shares $105 $356 $626 $1,397
</TABLE>

IMPORTANT DEFINITIONS

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

Other expenses: Include
administration, trans-
fer agency, custody,
professional fees and
registration fees.
43
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Institutional Share Outstanding Throughout Each Period)

International Bond Portfolio

For the
Period
Year Year 6/10/96/1/
Ended Ended through
9/30/98 9/30/97 9/30/96
<S> <C> <C> <C>
Net asset value at beginning
of period $ 10.95 $ 11.71 $ 11.37
------- ------- -------
Income from investment
operations
Net investment income 0.45 0.78 0.21
Net gain (loss) on
investments (both realized
and unrealized) 0.83 0.42 0.30
------- ------- -------
Total from investment
operations 1.28 1.20 0.51
------- ------- -------
Less distributions
Distributions from net
investment income (0.57) (1.47) (0.17)
Distributions from net
realized capital gains (0.42) (0.49) - -
------- ------- -------
Total distributions (0.99) (1.96) (0.17)
------- ------- -------
Net asset value at end of
period $ 11.24 $ 10.95 $ 11.71
======= ======= =======
Total return 12.51% 11.59% 4.48%
Ratios/Supplemental data
Net assets at end of period
(in thousands) $43,672 $43,310 $30,882
Ratios of expenses to
average net assets
After
advisory/administration fee
waivers 1.01%/3/ 0.98% 0.92%/2/
Before
advisory/administration fee
waivers 1.16% 1.08% 1.32%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration fee
waivers 4.08% 5.28% 6.28%/2/
Before
advisory/administration fee
waivers 3.93% 5.18% 5.88%/2/
Portfolio turnover rate 225% 272% 108%
</TABLE>
------------------------------------------------------

/1/Commencement of operations of share class.
/2/Annualized.
/3/Including interest expense, ratios would have been 1.01% for the year ended
September 30, 1998.
44
<PAGE>

[GRAPHIC BlackRock
APPEARS High Yield Bond
HERE] Portfolio

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

Investment Goal
The fund seeks to provide current income by investing primarily in non-invest-
ment grade bonds.

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in non-investment
grade bonds in the ten to fifteen year maturity range. The fund normally
invests at least 80% of its total assets in bonds or convertible securities and
at least 65% of its total assets in high yield bonds. The high yield securities
(commonly called "junk bonds") acquired by the fund will generally be in the
lower rating categories of the major rating agencies (BB or lower by Standard &
Poor's or Ba or lower by Moody's) or will be determined by the fund manager to
be of similar quality. The fund may invest up to 10% of its total assets in
bonds of foreign issuers.

IMPORTANT DEFINITIONS

Asset-Backed Securi-
ties: Bonds that are
backed by a pool of
assets, usually loans
such as installment
sale contracts or
credit card
receivables.
Bank Loans: The fund
may invest in fixed and
floating rate loans
arranged through pri-
vate negotiations
between a company or a
foreign government and
one or more financial
institutions. The fund
considers such invest-
ments to be debt secu-
rities.
Bonds: Debt obligations
such as bonds and
debentures, U.S. Gov-
ernment securities,
debt obligations of
domestic and foreign
corporations, debt
obligations of foreign
governments and their
political subdivisions,
asset-backed securi-
ties, various mortgage-
backed securities (both
residential and commer-
cial), other floating
or variable rate obli-
gations, municipal
obligations and zero
coupon debt securities.
Collateralized Bond
Obligations (CBO): The
fund many invest in
collateralized bond
obligations (CBOs),
which are securities
backed by a diversified
pool of high yield
securities.
Commercial Mortgage-
Backed Securities
(CMBS): Bonds that are
backed by a mortgage
loan or pool of loans
secured by commercial
property, not residen-
tial mortgages.
Duration: A mathemati-
cal calculation of the
average life of a bond
(or bonds in a bond
fund) that serves as a
useful measure of its
price risk. Each year
of duration represents
an expected 1% change
in the price of a bond
for every 1% change in
interest rates. For
example, if a bond fund
has an average duration
of four years, its
price will fall about
4% when interest rates
rise by one percentage
point. Conversely, the
bond fund's price will
rise about 4% when
interest rates fall by
one percentage point.
High Yield Bonds: Some-
times referred to as
"junk bonds" these are
debt securities, which
are, rated less than
investment grade (below
the fourth highest rat-
ing of the major rating
agencies). These secu-
rities generally pay
more interest than
higher rated securi-
ties. The higher yield
is an incentive to
investors who otherwise
may be hesitant to pur-
chase the debt of such
a low-rated issuer.

45
<PAGE>

The fund can borrow money to buy additional securities. This practice is known
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securi-
ties and agrees to buy them back at a particular date and price). The fund
normally may borrow up to 33 1/3% of the value of its total assets.

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

Key Risks

Non-investment grade bonds carry greater risks than securities which have
higher credit ratings, including a high risk of default. The yields of non-
investment grade securities will move up and down over time. The credit rating
of a high yield security does not necessarily address its market value risk.
Ratings and market value may change from time to time, positively or negative-
ly, to reflect new developments regarding the issuer. These companies are
often young and growing and have a lot of debt. High yield

IMPORTANT DEFINITIONS

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer generally
must pay back the face
amount of the security.

46
<PAGE>

bonds are considered speculative, meaning there is a significant risk that com-
panies issuing these securities may not be able to repay principal and pay
interest or dividends on time. In addition, other creditors of a high yield
issuer may have the right to be paid before the high yield bond holder.

Mezzanine securities carry the risk that the issuer will not be able to meet
its obligations and that the equity securities purchased with the mezzanine
investments may lose value.

The pool of high yield securities underlying CBOs is typically separated into
groupings called tranches representing different degrees of credit quality. The
higher quality tranches have greater degree of protection and pay lower inter-
est rates. The lower tranches, with greater risk, pay higher interest rates.

A main difference is that the principal on mortgage-or asset-backed securities
may normally be prepaid at any time, which will reduce the yield and market
value of these securities. Asset-backed securities and CMBS generally experi-
ence less prepayment than residential mortgage-backed securities. In periods of
falling interest rates, the rate of prepayments tends to increase (as does
price fluctuation) as borrowers are motivated to pay off debt and refinance at
new lower rates. During such periods, reinvestment of the prepayment proceeds
by the manager will gener-
47
<PAGE>

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

ble to predict the impact of the "Euro," it is possible that it could increase
volatility in financial markets worldwide which could hurt the value of shares
of the fund.

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.

The table below describes the fees and expenses that you may pay if you buy
and hold Institutional 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 .50%
Other expenses* .33%
Total annual fund operating expenses .83%
Fee waivers and expense reimbursements** .13%
Net Expenses** .70%
</TABLE>
* "Other expenses" are based on estimated amounts for the current fiscal
year.
** BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock
in the following two years if the repayment can be made within these
expense limits. "Net Expenses" in the table have been restated to reflect
these waivers and reimbursements.

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 (except for the waivers in the first year discussed above) and
redemption at the end of each time period. Although your actual cost may be
higher or lower, based on these assumptions your costs would be:

<TABLE>
<CAPTION>
1 Year 3 Years

<S> <C> <C>
Institutional Shares $72 $252
</TABLE>

IMPORTANT DEFINITIONS

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

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

50
<PAGE>

[GRAPHIC BlackRock
APPEARS Tax-Free Income
HERE] Portfolio

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

IMPORTANT DEFINITIONS

General Obligation
Bonds: Bonds which are
secured by the issuer's
pledge of its full
faith, credit and tax-
ing power for the pay-
ment of principal and
interest.

Lehman Municipal Bond
Index: An unmanaged
index of municipal
bonds with the follow-
ing characteristics:
minimum credit rating
of Baa-3, outstanding
par value of at least
$3 million, issued as
part of a deal of at
least $50 million,
issued within the last
5 years and remaining
maturities of not less
than one year.

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer must pay
back the face amount of
the security.

Investment Goal:
The fund seeks as high a level of current income exempt from Federal income tax
as is consistent with preservation of capital.

Primary Investment Strategies:
In pursuit of this goal, the fund manager invests primarily in bonds issued by
or on behalf of states and possessions of the United States, their political
subdivisions and their agencies and authorities (and related tax-exempt deriva-
tive securities) the interest on which the manager believes is exempt from Fed-
eral income tax (municipal securities). The fund normally invests at least 80%
of its net assets in municipal securities, including both general obligation
and revenue bonds from a diverse range of issuers. The other 20% of net assets
can be invested in securities which are subject to regular Federal income tax
or the Federal Alternative Minimum Tax. The fund emphasizes municipal securi-
ties in the ten to twenty year maturity range. The fund may only buy securities
rated investment grade at the time of purchase by at least one major rating
agency or determined by the manager to be of similar quality. The fund intends
to invest so that no more than 25% of its net assets are represented by the
municipal securities of issuers located in the same state.

The management team evaluates sectors of the municipal market and individual
bonds within those categories. The fund measures its performance against the
Lehman Municipal Bond Index (the benchmark).

If a security falls below investment grade, the portfolio manager will decide
whether to continue to hold the security. A security will be sold if, in the
opinion of the fund manager, the risk of continuing to hold the security is
unacceptable when compared to the total return potential.

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 invest-
ment or to increase returns. The fund may also enter into interest rate trans-
actions as a hedging technique. In these transactions, the fund exchanges its
right to pay or receive interest with another party for their right to pay or
receive interest.

The fund can borrow money to buy additional securities. This practice is known
as "leverage". The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securi-
ties and agrees to buy them back at a particular date and price). The fund
normally may borrow up to 33 1/3% of the value of its total assets.

Should the Company's Board of Trustees determine that the investment objective
of the fund should be changed, shareholders will be given at least 30 days
notice before any such change is made. The fund may not change the requirement
that it normally invest at least 80% of its net assets in municipal securities
without shareholder approval.

Key Risks

Key Risks
There is no guarantee that shares will not lose value. This means you could
lose money.

IMPORTANT DEFINITIONS

52
<PAGE>

bonds, the fund will be subject to the particular risks presented by the laws
and economic conditions relating to such projects and bonds to a greater extent
than if its assets were not so invested. Municipal securities also include
"moral obligation" bonds, which are normally issued by special purpose public
authorities. If the issuer of moral obligation bonds is unable to pay its debts
from current revenues, it may draw on a reserve fund the restoration of which
is a moral but not a legal obligation of the state or municipality which cre-
ated the issuer.

The fund will rely on legal opinions of counsel to issuers of municipal securi-
ties as to the tax-free status of investments and will not do its own analysis.

The fund's use of derivatives and interest rate transactions may reduce the
fund's returns and/or increase volatility, which is defined as the characteris-
tic of a security or a market to fluctuate significantly in price within a
short period of time. The income from certain derivatives may be subject to
Federal income tax. Leverage is a speculative technique which may expose the
fund to greater risk and increase its costs. Increases and decreases in the
value of the fund's portfolio will be magnified when the fund uses leverage.
The fund will also have to pay interest on its borrowings, reducing the fund's
return.

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, the fund's investment adviser, is currently working to avoid such prob-
lems. 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 issuers whose securities the fund holds or securi-
ties markets generally.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Institutional Shares. 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 Lehman Municipal Bond Index, a recognized unmanaged index of bond market
performance. The chart and the table both assume reinvestment of dividends and
distributions. As with all such investments, past performance is not an indica-
tion of future results.

The performance for the period before Institutional Shares were launched in
January 1993 is based upon performance for Investor A Shares of the fund.

[BAR CHART APPEARS HERE]

Best Quarter 91 11.36%
Q1 '95: 8:18% 92 8.85%
93 13.09%
Worst Quarter 94 -6.64%
Q1 '94: -6.81% 95 18.48%
96 5.72%
97 10.12%
The bars for 1991-1993 98 6.42%
are based upon
performance for
Investor A Shares
of the fund.

* For comparative purposes, the value of the index on 05/01/90 is used as the
beginning value on 05/14/90.
55
<PAGE>

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.

The table below describes the fees and expenses that you may pay if you buy
and hold Institutional 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 .50%
Other expenses .38%
Total annual fund operating expenses .88%
Fee waivers and expense reimbursements* .28%
Net Expenses* .60%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock
in the following two years if the repayment can be made within these
expense limits. "Net Expenses" in the table have been restated to reflect
these waivers and reimbursements.

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

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.

56
<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 (except for the waivers in the first year discussed above) and redemp-
tion 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>
Institutional Shares $61 $253 $460 $1,059
</TABLE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Institutional Share Outstanding Throughout Each Period)

Tax-Free Income Portfolio

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 $ 11.34 $10.84 $10.61 $10.04 $11.31
-------- ------ ------ ------ ------
Income from investment
operations
Net investment income 0.54 0.56 0.49 0.53 0.53
Net gain (loss) on investments
(both realized and unrealized) 0.44 0.51 0.28 0.59 (0.93)
-------- ------ ------ ------ ------
Total from investment
operations 0.98 1.07 0.77 1.12 (0.40)
-------- ------ ------ ------ ------
Less distributions
Distributions from net
investment income (0.54) (0.57) (0.54) (0.53) (0.53)
Distributions from net realized
capital gains (0.05) - - - - (0.02) (0.34)
-------- ------ ------ ------ ------
Total distributions (0.59) (0.57) (0.54) (0.55) (0.87)
-------- ------ ------ ------ ------
Net asset value at end of period $ 11.73 $11.34 $10.84 $10.61 $10.04
======== ====== ====== ====== ======
Total return 8.85% 10.09% 7.45% 11.54% (3.77)%
Ratios/Supplemental data
Net assets at end of period (in
thousands) $285,921 $9,419 $8,350 $ 271 $ 132
Ratios of expenses to average
net assets
After advisory/administration
fee waivers 0.60% 0.55% 0.55% 0.52% 0.50%
Before advisory/administration
fee waivers 0.88% 0.90% 0.89% 1.30% 1.73%
Ratios of net investment income
to average net assets
After advisory/administration
fee waivers 4.61% 5.07% 5.10% 5.19% 4.97%
Before advisory/administration
fee waivers 4.33% 4.72% 4.78% 4.41% 3.74%
Portfolio turnover rate 100% 262% 268% 92% 40%
</TABLE>
----------------------------------------------
58
<PAGE>

[GRAPHIC BlackRock
APPEARS Delaware Tax-Free Income
HERE] Portfolio

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

Investment Goal
The fund seeks as high a level of current income exempt from Federal income tax
and, to the extent possible, Delaware state income tax, as is consistent with
preservation of capital.

The management team evaluates sectors of the municipal market and individual
bonds within those categories. The fund measures it performance against the
Lehman Municipal Bond Index (the benchmark).

IMPORTANT DEFINITIONS

General Obligation
Bonds: Bonds which are
secured by the issuer's
pledge of its full
faith, credit and tax-
ing power for the pay-
ment of principal and
interest.

Lehman Municipal Bond
Index: An unmanaged
index of municipal
bonds with the follow-
ing characteristics:
minimum credit rating
of Baa-3, outstanding
par value of at least
$3 million, issued as
part of a deal of at
least $50 million,
issued within the last
5 years and remaining
maturities of not less
than one year.

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer must pay
back the face amount of
the security.
59
<PAGE>

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 invest-
ment or to increase returns. The fund may also enter into interest rate trans-
actions as a hedging technique. In these transactions, the fund exchanges its
right to pay or receive interest with another party for their right to pay or
receive interest.

The fund can borrow money to buy additional securities. This practice is known
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securi-
ties and agrees to buy them back at a particular date and price). The fund
normally may borrow up to 33 1/3% of the value of its total assets.

Should the Company's Board of Trustees determine that the investment objective
of the fund should be changed, shareholders will be given at least 30 days
notice before any such change is made. The fund may not change the requirement
that it normally invest at least 80% of its net assets in municipal securities
without shareholder approval.

Key Risks

Key Risks
There is no guarantee that shares of the fund will not lose value. This means
you could lose money.

IMPORTANT DEFINITIONS

60
<PAGE>

The fund will rely on legal opinions of counsel to issuers of municipal securi-
ties as to the tax-free status of investments and will not do its own analysis.

The fund's use of derivatives and interest rate transactions may reduce the
fund's returns and/or increase volatility, which is defined as the characteris-
tic of a security or a market to fluctuate significantly in price within a
short period of time. The income from certain derivatives may be subject to
Federal income tax. Leverage is a speculative technique which may expose the
fund to greater risk and increase its costs. Increases and decreases in the
value of the fund's portfolio will be magnified when the fund uses leverage.
The fund will also have to pay interest on its borrowings, reducing the fund's
return.
61
<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, the fund's investment adviser, is currently working to avoid such prob-
lems. 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 issuers whose securities the fund holds or securi-
ties 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.

62
<PAGE>

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Institutional Shares. 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 Lehman Municipal Bond Index, a recognized unmanaged index of bond market
performance. The chart and the table both assume reinvestment of dividends and
distributions. As with all such investments, past performance is not an indica-
tion of future results.

[BAR CHART APPEARS HERE]

Best Quarter 89 7.36%
Q1 '95: 4.78% 90 6.60%
91 9.12%
Worst Quarter 92 5.74%
Q1 '94: -4.60% 93 8.28%
94 -3.31%
95 13.07%
96 3.58%
97 6.47%
98 6.69%

* For comparative purposes, the value of the index on 10/01/86 is used as the
beginning value on 09/30/86.

63
<PAGE>

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.

The table below describes the fees and expenses that you may pay if you buy
and hold Institutional 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 .55%
Other expenses* .33%
Total annual fund operating expenses .88%
Fee waivers and expense reimbursements** .18%
Net Expenses** .70%
</TABLE>
* "Other expenses" are based on estimated amounts for the current fiscal
year.
** BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock
in the following two years if the repayment can be made within these
expense limits. "Net Expenses" in the table have been restated to reflect
these waivers and reimbursements.

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 (except for the waivers in the first year discussed above) and
redemption at the end of each time period. Although your actual cost may be
higher or lower, based on these assumptions your costs would be:

<TABLE>
<CAPTION>
1 Year 3 Years

<S> <C> <C>
Institutional Shares $72 $263
</TABLE>

IMPORTANT DEFINITIONS

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

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

64
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Institutional Share Outstanding Throughout Each Period)

Delaware Tax-Free Income Portfolio

For the
Period
5/11/98/1/
through
9/30/98
<S> <C> <C>
Net asset value at beginning of period $ 10.00
--------
Income from investment operations
Net investment income 0.17
Net gain (loss) on investments (both
realized and unrealized) 0.34
--------
Total from investment operations 0.51
--------
Less distributions
Distributions from net investment
income (0.18)
Distributions from net realized
capital gains - -
--------
Total distributions - -
--------
Net asset value at end of period $ 10.33
========
Total return 5.16%
Ratios/Supplemental data
Net assets at end of period (in
thousands) $114,525
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 0.70%
Before advisory/administration fee
waivers 0.88%
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 4.18%
Before advisory/administration fee
waivers 4.00%
Portfolio turnover rate 54%
</TABLE>

/1/Commencement of operations of share class.
/2/Annualized.
65
<PAGE>

[GRAPHIC BlackRock
APPEARS Ohio Tax-Free Income
HERE] Portfolio

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

Investment Goal
The fund seeks as high a level of current income exempt from Federal income
tax and, to the extent possible, Ohio state income tax, as is consistent with
preservation of capital.

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in bonds issued by
or on behalf of states and possessions of the United States, their political
subdivisions and their agencies and authorities (and related tax-exempt deriv-
ative securities) the interest on which the manager believes is exempt from
Federal income tax (municipal securities). The fund normally invests at least
65% of its total assets in municipal securities of issuers located in the
state of Ohio. The fund normally invests at least 80% of its net assets in
municipal securities, including both general obligation and revenue bonds,
from a diverse range of issuers. The other 20% of net assets can be invested
in securities which are subject to regular Federal income tax or the Federal
Alternative Minimum Tax. The fund emphasizes municipal securities in the ten
to twenty year maturity range. The fund may only buy securities rated invest-
ment grade at the time of purchase by at least one major rating agency or
determined by the manager to be of similar quality.

The management team evaluates sectors of the municipal market and individual
bonds within those categories. The fund measures it performance against the
Lehman Municipal Bond Index (the benchmark).

IMPORTANT DEFINITIONS

Bonds: Debt obligations
such as bonds and
debentures, U.S. Gov-
ernment securities,
debt obligations of
domestic and foreign
corporations, debt
obligations of domestic
and foreign corpora-
tions, debt obligations
of foreign governments
and their political
subdivisions, asset-
backed securities, var-
ious mortgage-backed
securities (both resi-
dential and commer-
cial), other floating
or variable rate obli-
gations, municipal
obligations and zero
coupon debt securities.

General Obligation
Bonds: Bonds which are
secured by the issuer's
pledge of its full
faith, credit and tax-
ing power for the pay-
ment of principal and
interest.

Lehman Municipal Bond
Index: An unmanaged
index of municipal
bonds with the follow-
ing characteristics:
minimum credit rating
of Baa-3, outstanding
par value of at least
$3 million, issued as
part of a deal of at
least $50 million,
issued within the last
5 years and remaining
maturities of not less
than one year.

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer must pay
back the face amount of
the security.
66
<PAGE>

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. The fund may also enter into interest rate transactions
as a hedging technique. In these transactions, the fund exchanges its right to
pay or receive interest with another party for their right to pay or receive
interests.

Should the Company's Board of Trustees determine that the investment objective
of the fund should be changed, shareholders will be given at least 30 days
notice before any such change is made. The fund may not change the requirement
that it normally invest at least 80% of its net assets in municipal securities
without shareholder approval.

Key Risks

Key Risks
There is no guarantee that shares of the fund will not lose value. This means
you could lose money.

IMPORTANT DEFINITIONS

67
<PAGE>

Revenue bonds include private activity bonds, which are not payable from the
general revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the cor-
porate user of the facility involved. To the extent that the fund's assets are
invested in private activity bonds, the fund will be subject to the particular
risks presented by the laws and economic conditions relating to such projects
and bonds to a greater extent than if its assets were not so invested. Munici-
pal securities also include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obliga-
tion bonds is unable to pay its debts from current revenues, it may draw on a
reserve fund the restoration of which is a moral but not a legal obligation of
the state or municipality which created the issuer.

The fund may invest in bonds the interest on which may be subject to the Fed-
eral Alternative Minimum Tax. The fund may invest up to 20% of its total
assets in these bonds when added together with any of the fund's other taxable
investments. Interest on these bonds that is received by taxpayers subject to
the Federal Alternative Minimum Tax is taxable.

The fund will rely on legal opinions of counsel to issuers of municipal secu-
rities as to the tax-free status of investments and will not do its own analy-
sis.

The fund's use of derivatives and interest rate transactions may reduce the
fund's returns and/or increase volatility, which is defined as the character-
istic of a security or a market to fluctuate significantly in price within a
short period of time. The income from certain derivatives may be subject to
Federal income tax. Leverage is a speculative technique which may expose the
fund to greater risk and increase its costs. Increases and decreases in the
value of the fund's portfolio will be magnified when the fund uses leverage.
The fund will also have to pay interest on its borrowings, reducing the fund's
return.

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

68
<PAGE>

loan. There is also the risk of delay in recovering the loaned securities and
of losing rights to the collateral if a borrower goes bankrupt.

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.

The fund is a non-diversified portfolio under the Investment Company Act, which
means that fund performance is more dependent on the performance of a smaller
number of securities and issuers than in a diversified portfolio. The change in
value of any one security may affect the overall value of the fund more than it
would a diversified fund's.

69
<PAGE>

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Institutional Shares.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 Lehman Municipal Bond Index, a recognized unmanaged index of bond market
performance. The chart and the table both assume reinvestment of dividends and
distributions. As with all such investments, past performance is not an indica-
tion of future results.

[BAR CHART APPEARS HERE]

Best Quarter 93 10.13%
Q1 '95: 7.42% 94 -6.48%
95 17.79%
Worst Quarter 96 4.12%
Q1 '94: -6.15% 97 8.66%
98 6.37%

70
<PAGE>

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.

The table below describes the fees and expenses that you may pay if you buy and
hold Institutional 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 .50%
Other expenses .43%
Total annual fund operating expenses .93%
Fee waivers and expense reimbursements* .33%
Net Expenses* .60%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
Fund may have to repay these waivers and reimbursements to BlackRock in the
following two years, if the repayment can be made within these expense lim-
its. "Net Expenses" in the table have been restated to reflect these waivers
and reimbursements.

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 (except for the waivers in the first year discussed above) and redemp-
tion 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>
Institutional Shares $61 $263 $482 $1,113
</TABLE>

IMPORTANT DEFINITIONS

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

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

71
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Institutional Share Outstanding Throughout Each Period)

Ohio Tax-Free Income Portfolio

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 $ 10.50 $10.15 $10.05 $ 9.60 $10.53
-------- ------ ------ ------ ------
Income from investment
operations
Net investment income 0.48 0.51 0.50 0.55 0.53
Net gain (loss) on investments
(both realized and unrealized) 0.37 0.34 0.10 0.45 (0.91)
-------- ------ ------ ------ ------
Total from investment
operations 0.85 0.85 0.60 1.00 (0.38)
-------- ------ ------ ------ ------
Less distributions
Distributions from net
investment income (0.47) (0.50) (0.50) (0.55) (0.53)
Distributions from net realized
capital gains - - - - - - - - (0.02)
-------- ------ ------ ------ ------
Total distributions (0.47) (0.50) (0.50) (0.55) (0.55)
-------- ------ ------ ------ ------
Net asset value at end of period $ 10.88 $10.50 $10.15 $10.05 $ 9.60
======== ====== ====== ====== ======
Total return 8.56% 8.53% 6.12% 10.75% (3.75)%
Ratios/Supplemental data
Net assets at end of period (in
thousands) $101,066 $ 928 $ 409 $ 200 $ 127
Ratios of expenses to average
net assets
After advisory/administration
fee waivers 0.60% 0.55% 0.51% 0.12% 0.10 %
Before advisory/administration
fee waivers 0.93% 1.06% 1.10% 1.19% 1.49 %
Ratios of net investment income
to average net assets
After advisory/administration
fee waivers 4.64% 4.80% 4.96% 5.61% 5.16 %
Before advisory/administration
fee waivers 4.31% 4.29% 4.37% 4.54% 3.77 %
Portfolio turnover rate 77% 87% 136% 63% 61 %
</TABLE>
--------------------------------------------
72
<PAGE>

[GRAPHIC BlackRock
APPEARS Kentucky Tax-Free Income
HERE] Portfolio

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

Investment Goal
The fund seeks as high a level of current income exempt from Federal income tax
and, to the extent possible, Kentucky state income tax, as is consistent with
preservation of capital.

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in bonds issued by
or on behalf of states and possessions of the United States, their political
subdivisions and their agencies and authorities (and related tax-exempt deriva-
tive securities) the interest on which the manager believes is exempt from Fed-
eral income tax (municipal securities). The fund normally invests at least 65%
of its total assets in municipal securities of issuers located in the state of
Kentucky. The fund normally invests at least 80% of its net assets in municipal
securities, including both general obligation and revenue bonds, from a diverse
range of issuers. The other 20% of net assets can be invested in securities
which are subject to regular Federal income tax or the Federal Alternative Min-
imum Tax. The fund emphasizes municipal securities in the ten to twenty year
maturity range. The fund may only buy securities rated investment grade at the
time of purchase by at least one major rating agency or determined by the man-
ager of the fund to be of similar quality.

The portfolio management team evaluates sectors of the municipal market and
individual bonds within those categories. The fund measures its performance
against the Lehman Municipal Bond Index (the benchmark).

IMPORTANT DEFINITIONS

General Obligation
Bonds: Bonds which are
secured by the issuer's
pledge of its full
faith, credit and tax-
ing power for the pay-
ment of principal and
interest.

Lehman Municipal Bond
Index: An unmanaged
index of municipal
bonds with the follow-
ing characteristics:
minimum credit rating
of Baa-3, outstanding
par value of at least
$3 million, issued as
part of a deal of at
least $50 million,
issued within the last
5 years and remaining
maturities of not less
than one year.

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer must pay
back the face amount of
the security.

73
<PAGE>

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 invest-
ment or to increase returns. The fund may also enter into interest rate trans-
actions as a hedging technique. In these transactions, the fund exchanges its
right to pay or receive interest with another party for their right to pay or
receive interest.

The fund can borrow money to buy additional securities. This practice is known
as "leverage" The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securi-
ties and agrees to buy them back at a particular date and price). The fund
normally may borrow up to 33 1/3 of the Value of its total assets.

Should the Company's Board of Trustees determine that the investment objective
of the fund should be changed, shareholders will be given at least 30 days
notice before any such change is made. The fund may not change the requirement
that it normally invest at least 80% of its net assets in municipal securities
without shareholder approval.

Key Risks

Key Risks
There is no guarantee that shares of the fund will not lose value. This means
you could lose money.

IMPORTANT DEFINITIONS

74
<PAGE>

The fund may invest in bonds the interest on which may be subject to the Fed-
eral Alternative Minimuim Tax. The fund may invest up to 20% of its total
assets in these bonds when added together with any of the fund's other taxable
investments. Interest on these bonds that is received by taxpayers subject to
the Federal Alternative Minimum Tax is taxable.

The fund will rely on legal opinions of counsel to issuers of municipal securi-
ties as to the tax-free status of investments and will not do its own analysis.

The fund's use of derivatives and interest rate transactions may reduce the
fund's returns and/or increase volatility, which is defined as the characteris-
tic of a security or a market to fluctuate significantly in price within a
short period of time. The income from certain derivatives may be subject to
Federal income tax. Leverage is a speculative technique which may expose the
fund to greater risk and increase its costs. Increases and decreases in the
value of the fund's portfolio will be magnified when the fund uses leverage.
The fund will also have to pay interest on its borrowings, reducing the fund's
return.

75
<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, the fund's investment adviser, is currently working to avoid such prob-
lems. 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 issuers whose securities the fund holds or securi-
ties 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.

76
<PAGE>

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Institutional Shares. 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 Lehman Municipal Bond Index, a recognized unmanaged index of bond market
performance. The chart and the table both assume reinvestment of dividends and
distributions. As with all such investments, past performance is not an indica-
tion of future results.

[BAR CHART APPEARS HERE]

Best Quarter 89 8.09%
Q1 '95: 5.36% 90 7.52%
91 9.16%
Worst Quarter 92 7.47%
Q1 '94: -4.37% 93 9.54%
94 -3.24%
95 13.42%
96 3.66%
97 6.92%
98 6.35%

* For comparative purposes the value of the index on 12/01/87 is used as the
beginning value on 11/30/87.
77
<PAGE>

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.

The table below describes the fees and expenses that you may pay if you buy
and hold Institutional 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 .55%
Other expenses* .40%
Total annual fund operating expenses .95%
Fee waivers and expense reimbursements** .25%
Net Expenses** .70%
</TABLE>
* "Other expenses" are based on estimated amounts for the current fiscal
year.
** BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits. "Net Expenses" in the table have been restated to reflect these
waivers and reimbursements.

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 (except for the waivers in the first year discussed above) and
redemption at the end of each time period. Although your actual cost may be
higher or lower, based on these assumptions your costs would be:

<TABLE>
<CAPTION>
1 Year 3 Years

<S> <C> <C>
Institutional Shares $72 $278
</TABLE>

IMPORTANT DEFINITIONS

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

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

78
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Institutional Share Outstanding Throughout Each Period)

Kentucky Tax-Free Income Portfolio

For the
Period
5/11/98/1/
through
9/30/98
<S> <C> <C>
Net asset value at beginning of period $ 10.00
--------
Income from investment operations
Net investment income 0.18
Net gain (loss) on investments (both
realized and unrealized) 0.31
--------
Total from investment operations 0.49
--------
Less distributions
Distributions from net investment
income (0.18)
Distributions from net realized capital
gains - -
--------
Total distributions (0.18)
--------
Net asset value at end of period $ 10.31
========
Total return 4.95%
Ratios/Supplemental data
Net assets at end of period (in
thousands) $196,493
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 0.70%/2/
Before advisory/administration fee
waivers 0.95%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 4.54%/2/
Before advisory/administration fee
waivers 4.29%/2/
Portfolio turnover rate 7%
</TABLE>

/1/Commencement of operations of share class.
/2/Annualized.
79
<PAGE>

[GRAPHIC BlackRock
APPEARS New Jersey Tax-Free Income
HERE] Portfolio

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

Investment Goal
The fund seeks as high a level of current income exempt from Federal income
tax and, to the extent possible, New Jersey state income tax, as is consistent
with preservation of capital.

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in bonds issued by
or on behalf of states and possessions of the United States, their political
subdivisions and their agencies and authorities (and related tax-exempt deriv-
ative securities) the interest on which the manager believes is exempt from
Federal income tax (municipal securities). The fund normally invests at least
65% of its total assets in municipal securities of issuers located in the
state of New Jersey. The fund normally invests at least 80% of its net assets
in municipal securities, including both general obligation and revenue bonds,
from a diverse range of issuers. The other 20% of net assets can be invested
in securities which are subject to regular Federal income tax or the Federal
Alternative Minimum Tax. In addition, for New Jersey tax purposes, the fund
intends to invest at least 80% of its total assets in municipal securities of
issuers located in the state of New Jersey and in securities issued by the
U.S. Government, its agencies and authorities. The fund emphasizes municipal
securities in the ten to twenty year maturity range. The fund may only buy
securities rated investment grade at the time of purchase by at least one
major rating agency or determined by the manager to be of similar quality.

The management team evaluates sectors of the municipal market and individual
bonds within those categories. The fund measures it performance against the
Lehman Municipal Bond Index (the benchmark).

It is possible that in extreme market conditions the fund may invest more than
20% of its assets in securities that are not municipal securities (and there-
fore are subject to federal

IMPORTANT DEFINITIONS

General Obligation
Bonds: Bonds which are
secured by the issuer's
pledge of its full
faith, credit and tax-
ing power for the pay-
ment of principal and
interest.

Lehman Municipal Bond
Index: An unmanaged
index of municipal
bonds with the follow-
ing characteristics:
minimum credit rating
of Baa-3, outstanding
par value of at least
$3 million, issued as
part of a deal of at
least $50 million,
issued within the last
5 years and remaining
maturities of not less
than one year.

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer must pay
back the face amount of
the security.

80
<PAGE>

income tax) and may hold an unlimited amount of uninvested cash reserves. If
market conditions improve, these strategies 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 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. The fund may also enter into interest rate transactions
as a hedging technique. In these transactions, the fund exchanges its right to
pay or receive interest with another party for their right to pay or receive
interest.

The fund can borrow money to buy additional securities. This practice is known
as "leverage". The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securities
and agrees to buy them back at a particular date and price). The fund normally
may borrow up to 33 1/3% of the value of its total assets.

Should the Company's Board of Trustees determine that the investment objective
of the fund should be changed, shareholders will be given at least 30 days
notice before any such change is made. The fund may not change the requirement
that it normally invest at least 80% of its net assets in municipal securities
without shareholder approval.

Key Risks

Key Risks
There is no guarantee that shares of the fund will not lose value. This means
you could lose money.

IMPORTANT DEFINITIONS

81
<PAGE>

Revenue bonds include private activity bonds, which are not payable from the
general revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the cor-
porate user of the facility involved. To the extent that the fund's assets are
invested in private activity bonds, the fund will be subject to the particular
risks presented by the laws and economic conditions relating to such projects
and bonds to a greater extent than if its assets were not so invested. Munici-
pal securities also include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obliga-
tion bonds is unable to pay its debts from current revenues, it may draw on a
reserve fund the restoration of which is a moral but not a legal obligation of
the state or municipality which created the issuer.

The fund may invest in bonds the interest on which may be subject to the Fed-
eral Alternative Minimum Tax. The fund may invest up to 20% of its total
assets in these bonds when added together with any of the fund's other taxable
investments. Interest on these bonds that is received by taxpayers subject to
the Federal Alternative Minimum Tax is taxable.

The fund will rely on legal opinions of counsel to issuers of municipal secu-
rities as to the tax-free status of investments and will not do its own analy-
sis.

82
<PAGE>

to greater risk and increase its costs. Increases and decreases in the value of
the fund's portfolio will be magnified when the fund uses leverage. The fund
will also have to pay interest on its borrowings, reducing the fund's return.

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.

The fund is a non-diversified portfolio under the Investment Company Act, which
means that fund performance is more dependent on the performance of a smaller
number of securities and issuers than in a diversified portfolio. The change in
value of any one security may affect the overall value of the fund more than it
would a diversified fund's.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Institutional Shares. 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 Lehman Municipal Bond Index, a recognized unmanaged index of bond market
performance. The chart and the table both assume reinvestment of dividends and
distributions. As with all such investments, past performance is not an indica-
tion of future results.

83
<PAGE>

The performance for the period before Institutional Shares were launched in May
1998 is based upon performance for Service Shares of the fund.

[BAR CHART APPEARS HERE]

Best Quarter 92 8.90%
Q1 '95: 6.13% 93 11.58%
94 -4.70%
Worst Quarter 95 14.94%
Q1 '94: -5.17% 96 3.63%
97 8.26%
The bars for 1992-1998 98 6.15%
are based upon
performance for
Service Shares
of the fund.

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.

The table below describes the fees and expenses that you may pay if you buy and
hold Institutional 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 .50%
Other expenses .40%
Total annual fund operating expenses .90%
Fee waivers and expense reimbursements* .30%
Net Expenses* .60%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits. "Net Expenses" in the table have been restated to reflect these
waivers and reimbursements.

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

IMPORTANT DEFINITIONS

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

Other Expenses:
Include administra-
tion, transfer agency,
custody, professional
fees and registration
fees.

84
<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 (except for the waivers in the first year discussed above) and redemp-
tion 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>
Institutional Shares $61 $257 $469 $1,080
</TABLE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Institutional Share Outstanding Throughout Each Period)

New Jersey Tax-Free Income Portfolio

For the
Period
5/4/98/1/
through
9/30/98
<S> <C> <C>
Net asset value at beginning of period $11.00
------
Income from investment operations
Net investment income 0.42
Net gain (loss) on investments (both
realized and unrealized) 0.15
------
Total from investment operations 0.57
------
Less distributions
Distributions from net investment income (0.42)
Distributions from net realized capital
gains - -
------
Total distributions (0.42)
------
Net asset value at end of period $11.15
======
Total return 7.56%
Ratios/Supplemental data
Net assets at end of period (in
thousands) $ 184
Ratios of expenses to average net assets
After advisory/administration fee
waivers 1.58%/2/
Before advisory/administration fee
waivers 1.82%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 2.98%/2/
Before advisory/administration fee
waivers 2.74%/2/
Portfolio turnover rate 43%
</TABLE>

/1/Commencement of operations of share class.
/2/Annualized.

86
<PAGE>

[GRAPHIC BlackRock
APPEARS Pennsylvania Tax-Free Income
HERE] Portfolio

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

Primary Investment Strategies:
In pursuit of this goal, the fund manager invests primarily in bonds issued by
or on behalf of states and possessions of the United States, their political
subdivisions and their agencies and authorities (and related tax-exempt deriva-
tive securities) the interest on which the manager believes is exempt from Fed-
eral income tax (municipal securities). The fund normally invests at least 65%
of its total assets in municipal securities of issuers located in the state of
Pennsylvania. The fund normally invests at least 80% of its net assets in
municipal securities, including both general obligation and revenue bonds, from
a diverse range of issuers. The other 20% of net assets can be invested in
securities which are subject to regular Federal income tax or the Federal
Alternative Minimum Tax. The fund emphasizes municipal securities in the ten to
twenty year maturity range. The fund may only buy securities rated investment
grade at the time of purchase by at least one major rating agency or determined
by the manager to be of similar quality.

IMPORTANT DEFINITIONS

General Obligation
Bonds: Bonds which are
secured by the issuer's
pledge of its full
faith, credit and
taxing power for the
payment of principal
and interest.

Lehman Municipal Bond
Index: An unmanaged
index of municipal
bonds with the follow-
ing characteristics:
minimum credit rating
of Baa-3, outstanding
par value of at least
$3 million, issued as
part of a deal of at
least $50 million,
issued within the last
5 years and remaining
maturities of not less
than one year.

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer must pay
back the face amount of
the security.

87
<PAGE>

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 invest-
ment or to increase returns. The fund may also enter into interest rate trans-
actions as a hedging technique. In these transactions, the fund exchanges its
right to pay or receive interest with another party for their right to pay or
receive interest.

The fund can borrow money to buy additional securities. This practice is known
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securi-
ties and agrees to buy them back at a particular date and price). The fund
normally may borrow up to 33 1/3% of the value of its total assets.

Should the Company's Board of Trustees determine that the investment objective
of the fund should be changed, shareholders will be given at least 30 days
notice before any such change is made. The fund may not change the requirement
that it normally invest at least 80% of its net assets in municipal securities
without shareholder approval.

Key Risks

Key Risks
There is no guarantee that shares of the fund will not lose value. This means
you could lose money.

IMPORTANT DEFINITIONS

88
<PAGE>

The fund may invest in bonds the interest on which may be subject to the Fed-
eral Alternative Minimum Tax. The fund may invest up to 20% of its total assets
in these bonds when added together with any of the fund's other taxable invest-
ment. Interest on these bonds that is received by taxpayers subject to the Fed-
eral Alternative Minimum Tax is taxable.

The fund will rely on legal opinions of counsel to issuers of municipal securi-
ties as to the tax-free status of investments and will not do its own analysis.

The fund's use of derivatives and interest rate transactions may reduce the
fund's returns and/or increase volatility, which is defined as the characteris-
tic of a security or a market to fluctuate significantly in price within a
short period of time. The income from certain derivatives may be subject to
Federal income tax. Leverage is a speculative technique which may expose the
fund to greater risk and increase its costs. Increases and decreases in the
value of the fund's portfolio will be magnified when the fund uses leverage.
The fund will also have to pay interest on its borrowings, reducing the fund's
return.

89
<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, the fund's investment adviser, is currently working to avoid such prob-
lems. 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 issuers whose securities the fund holds or securi-
ties 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.

90
<PAGE>

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Institutional Shares. 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 Lehman Municipal Bond Index, a recognized unmanaged index of bond market
performance. The chart and the table both assume reinvestment of dividends and
distributions. As with all such investments, past performance is not an indica-
tion of future results.

[BAR CHART APPEARS HERE]

Best Quarter 93 12.34%
Q1 '95: 7.66% 94 -6.88%
95 18.39%
Worst Quarter 96 4.61%
Q1 '94: -6.27% 97 8.70%
98 6.13%

91
<PAGE>

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.

The table below describes the fees and expenses that you may pay if you buy
and hold Institutional 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 .50%
Other expenses .32%
Total annual fund
operating expenses .82%
Fee waivers and expense
reimbursements* .22%
Net Expenses* .60%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits. "Net Expenses" in the table have been restated to reflect these
waivers and reimbursements.

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 (except for the waivers in the first year discussed above) 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

<S> <C> <C> <C> <C>
Institutional Shares $61 $240 $433 $993
</TABLE>

IMPORTANT DEFINITIONS

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

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

92
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Institutional Share Outstanding Throughout Each Period)

Pennsylvania Tax-Free Income Portfolio

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 $ 10.77 $10.44 $10.33 $ 9.82 $10.70
---------- ------ ------ ------ ------
Income from investment
operations
Net investment income 0.52 0.53 0.52 0.52 0.53
Net gain (loss) on
investments (both realized
and unrealized) 0.38 0.33 0.12 0.51 (0.85)
---------- ------ ------ ------ ------
Total from investment
operations 0.90 0.86 0.64 1.03 (0.32)
---------- ------ ------ ------ ------
Less distributions
Distributions from net
investment income (0.52) (0.53) (0.53) (0.52) (0.53)
Distributions from net
realized capital gains - - - - - - - - (0.03)
---------- ------ ------ ------ ------
Total distributions (0.52) (0.53) (0.53) (0.52) (0.56)
---------- ------ ------ ------ ------
Net asset value at end of
period $ 11.15 $10.77 $10.44 $10.33 $ 9.82
========== ====== ====== ====== ======
Total return 8.51% 8.43% 6.29% 10.81% (2.96)%
Ratios/Supplemental data
Net assets at end of period
(in thousands) $1,054,070 $5,108 $3,609 $2,092 $ 639
Ratios of expenses to average
net assets
After advisory/administration
fee waivers 0.58% 0.55% 0.55% 0.52% 0.39%
Before
advisory/administration fee
waivers 0.82% 0.86% 0.85% 0.84% 0.99%
Ratios of net investment
income to average net assets
After advisory/administration
fee waivers 4.66% 4.97% 5.01% 5.23% 5.27%
Before
advisory/administration fee
waivers 4.42% 4.66% 4.72% 4.91% 4.67%
Portfolio turnover rate 43% 97% 119% 66% 30%
</TABLE>
--------------------------------------------

93
<PAGE>

[GRAPHIC
APPEARS
HERE] About Your Investment

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

Buying Shares

Institutional Shares are offered to:

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

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

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

What Price Per Share Will You Pay?

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.

94
<PAGE>

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

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

Certain financial institutions may buy and sell Institutional Shares on behalf
of their customers. The institutions may charge a fee for this service and may
impose additional conditions on owning fund shares. Shareholders should con-
tact their institutions for more information.

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

Paying for Shares

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

How Much is the Minimum Investment?

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

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

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

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

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

Selling Shares

95
<PAGE>

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

tions communicated by telephone are genuine. The fund and its service providers
will not be liable for any loss, liability, cost or expense for acting upon
telephone instructions that are reasonably believed to be genuine in accordance
with such procedures.

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.

- --------------------------------------------------------------------------------
96
<PAGE>

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

The Company's Rights

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.

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

Accounts with Low Balances

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

Management

97
<PAGE>

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

<TABLE>
<S> <C>
Pennsylvania Tax-Free Income 0.29%
New Jersey Tax-Free Income 0.26%
Ohio Tax-Free Income 0.22%
Delaware Tax-Free Income 0.17%
Kentucky Tax-Free Income 0.15%
</TABLE>

The maximum annual advisory fees that can be paid to BlackRock (as a percent-
age of average daily net assets) are as follows:

Maximum Annual Contractual Fee Rate (Before Waivers)

<TABLE>
<CAPTION>
Each Fund Except
Int'l Bond, GNMA, Int'l Bond, GNMA,
KY Tax-Free, KY Tax-Free,
DE Tax-Free DE Tax-Free
INVESTMENT INVESTMENT
AVG DAILY NET ASSETS ADVISORY FEE ADVISORY FEE
<S> <C> <C>
First $1 billion .500% .500%
$1 billion-$2
billion .450% .500%
$2-billion-$3
billion .425% .475%
greater than $3
billion .400% .450%
</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, includ-
ing seven out of ten of the largest Fortune 100 companies.

Information about the portfolio manager for each of the funds is presented in
the appropriate fund section.

BlackRock and the Company have entered into an expense limitation agreement.
The agreement sets a limit on certain of the operating expenses of each fund
for the next year and requires BlackRock to waive or reimburse fees or
expenses if these operating expenses exceed that limit. These expense limits
(which apply to expenses charged on fund assets as a whole, but not expenses
separately charged to the different share classes of a fund) are:

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.

98
<PAGE>

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

<TABLE>
<S> <C>
Tax-Free Income .485%
Delaware Tax-Free Income .585%
Ohio Tax-Free Income .515%
Kentucky Tax-Free Income .585%
New Jersey Tax-Free Income .475%
Pennsylvania Tax-Free Income .470%
</TABLE>

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

Dividends and Distributions

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

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

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

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

Taxation of Distributions

99
<PAGE>

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

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

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

100
<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:

Statement of Additional Information (SAI)
A Statement of Additional Information, dated January 28, 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) 441-7450. The SAI, as supplemented from time to time, is incorporated by
reference into this Prospectus.

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

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

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

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

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

INVESTMENT COMPANY ACT FILE NO. 811-05742

[GRAPHIC APPEARS HERE]

[LOGO OF BLACKROCK FUNDS APPEARS HERE]
<PAGE>

497(C)
File No. 33-26305

[GRAPHIC APPEARS HERE]

NOT FDIC-INSURED
May lose value
No bank guarantee

Bond Portfolios
================================================================================
BLACKROCK SHARES

BlackRock Funds/SM/ is a mutual fund family with 36 investment portfolios, 4 of
which are described in this prospectus.

PROSPECTUS
January 28, 1999

[LOGO OF BLACKROCK FUNDS APPEARS HERE]

Table of
Contents

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

How to find How to find the information you need...................... 1
the information THE BLACKROCK BOND FUNDS
you need Low Duration Bond......................................... 2
Intermediate Bond......................................... 9
Core Bond................................................. 15
High Yield Bond........................................... 21

About Your How to Buy/Sell Shares.................................... 28
Investment Dividends/Distribution/Taxes.............................. 33

<PAGE>

How to Find the
Information You Need
About BlackRock Funds

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

Welcome to the new BlackRock Bond 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).

This prospectus contains information on 4 of the BlackRock Bond funds. 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.

1
<PAGE>

[GRAPHIC BlackRock
APPEARS Low Duration Bond
HERE] Portfolio

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

Investment Goal
The fund seeks to realize a rate of return that exceeds the total return of
the Merrill Lynch 1-3 Year Treasury Index (the benchmark).

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in investment
grade bonds in the three to five year maturity range. The fund normally
invests at least 80% of its total assets in bonds diversified among several
categories. The fund manager may also invest up to 20% of the fund's total
assets in non-investment grade bonds or convertible securities with a minimum
rating of "B" and up to 20% of its total assets in bonds of foreign issuers.
The fund manager selects securities from several categories including: U.S.
Treasuries and agency securities, asset backed securities, CMOs, corporate
bonds and commercial and residential mortgage-backed securities.

- -----------------------
IMPORTANT DEFINITIONS
- -----------------------
Asset-Backed Securi-
ties: Bonds that are
backed by a pool of
assets, usually loans
such as installment
sale contracts or
credit card
receivables.

Collateralized Mortgage
Obligations (CMO):
Bonds that are backed
by cash flows from
pools of mortgages.
CMOs may have multiple
classes with different
payment rights and
protections.

Commercial Mortgage-
Backed Securities
(CMBS): Bonds that are
backed by a mortgage
loan or pool of loans
secured by commercial
property, not residen-
tial mortgages.

2
<PAGE>

currencies with another party for their right to pay or receive interest or
another currency in the future.

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

Key Risks

In periods of falling interest rates, the rate of prepayments tends to increase
(as does price fluctuation) as borrowers are motivated to pay off debt and
refinance at new lower rates. During such periods, reinvestment of the prepay-
ment proceeds by the manager will generally be at lower rates of return than
the return on the assets which were prepaid.

- --------------------------
IMPORTANT DEFINITIONS
- --------------------------

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer must pay
back the face amount of
the security.

Merrill Lynch 1-3 Year
Treasury Index: An
unmanaged index com-
prised of Treasury
securities with maturi-
ties of from 1 to 2.99
years.

ments, it probably will not be able to do so in times of financial difficulty.
Non-investment grade debt securities may carry greater risks than securities
which have higher credit ratings, including a high risk of default. The yields
of non-investment grade securities will move up and down over time.

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

5
<PAGE>

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for BlackRock Shares. 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 Merrill Lynch 1-3 Year Treasury Index, a recognized unmanaged index of bond
market performance. The chart and the table both assume reinvestment of divi-
dends and distributions. As with all such investments, past performance is not
an indication of future results.

The performance for the period before BlackRock Shares were launched in June
1997 is based upon performance for Institutional Shares of the fund.

As of 12/31
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------

[BAR CHART APPEARS HERE]

Best Quarter 93 5.66
Q1 '95: 3.26% 94 1.39
95 10.51
Worst Quarter 96 5.07
Q1 '94: -0.18% 97 6.13
98 6.80
The bars for 1993-1997
are based upon
performance for
Institutional Shares
of the fund.

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.

6
<PAGE>

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

<TABLE>
<CAPTION>
Annual Fund Operating Expenses
(Expenses that are deducted from fund assets)
<S> <C>
Advisory Fees .50%
Other expenses .30%
Total annual fund operating expenses .80%
Fee waivers and expense reimbursements* .40%
Net Expenses* .40%
</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 (except for the waivers in the first year discussed above) and redemp-
tion 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>
BlackRock Shares $41 $215 $405 $953
</TABLE>

- --------------------------
IMPORTANT DEFINITIONS
- --------------------------

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

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

7
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For a BlackRock Share Outstanding Throughout Each Period)

Low Duration
Bond Portfolio
<TABLE>
<CAPTION>
Year 6/3/97/1/
ended through
9/30/98 9/30/97
<S> <C> <C>
Per Share operating performance:
Net asset value, beginning of
period $ 9.89 $ 9.82
-------- -------
Net investment income 0.59 0.19
Net realized and unrealized gain
or loss on investments 0.12 0.07
-------- -------
Total from investment operations 0.71 0.26
-------- -------
Less Distributions
Distributions from net investment
income (0.57) (0.19)
Distributions from net realized
capital gains -- --
-------- -------
Total dividends and distributions (0.57) (0.19)
-------- -------
Net asset value, end of period $ 10.03 $ 9.89
======== =======
Total return 7.44% 2.68%
Ratios to average net assets:
Expenses 0.40%/3/ 0.40/2/,/3/
Excluding waivers 0.80% 0.73/2/
Net investment income 7.12% 6.58/2/
Excluding waivers 6.72% 6.25/2/
Supplemental data:
Portfolio turnover 227% 371%
Net assets, end of period (in
thousands) $140,493 $68,300
</TABLE>

/1/Commencement of investment operations of share class.
/2/Annualized.
/3/Including interest expense, the ratio would have been 1.59% and 1.01% for
the fiscal period ended September 30, 1998 and September 30, 1997,
respectively.

8
<PAGE>

[GRAPHIC BlackRock
APPEARS Intermediate Bond
HERE] Portfolio

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

Investment Goal
The fund seeks current income consistent with the preservation of capital.

- --------------------------
IMPORTANT DEFINITIONS
- --------------------------

Asset-Backed Securi-
ties: Bonds that are
backed by a pool of
assets, usually loans
such as installment
sale contracts or
credit card receiv-
ables.

Commercial Mortgage-
Backed Securities
(CMBS): Bonds that are
backed by a mortgage
loan or pools of loans
secured by commercial
property, not residen-
tial mortgages.

9
<PAGE>

actions as a hedging technique. In these transactions, the fund exchanges its
right to pay or receive interest with another party for their right to pay or
receive interest.

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

Key Risks

- ---------------------------
IMPORTANT DEFINITIONS
- ---------------------------

Lehman Brothers Inter-
mediate
Government/Corporate
Index: An unmanaged
index comprised of
Treasury, agency and
corporate issues from
the more comprehensive
Lehman Aggregate Index.
This index concentrates
on intermediate matu-
rity bonds and thus
excludes all maturities
from the broader index
below one year and
above 9.9 years.
Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer generally
must pay back the face
amount of the security.
Mortgage-Backed Securi-
ties: Asset-backed
securities based on a
particular type of
asset, a mortgage.
There is a wide variety
of mortgage backed
securities involving
commercial or residen-
tial, fixed rate or
adjustable rate mort-
gages and mortgages
issued by banks or gov-
ernment agencies.
Total Return: A way of
measuring fund perfor-
mance. Total return is
based on a calculation
that takes into account
income dividends, capi-
tal gain distributions
and the increase or
decrease in share
price.
- ---------------------------

10
<PAGE>

ally be at lower rates of return than the return on the assets which were pre-
paid.

Certain asset-backed securities are based on loans that are unsecured, which
means that there is no collateral to seize if the underlying borrower defaults.
Other asset-based securities may not have the benefit of as much collateral as
mortgage-backed securities.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for BlackRock Shares. 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 Lehman Brothers Intermediate Government/Corporate Index, a recognized
unmanaged index of bond 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.

The performance for the period before BlackRock Shares were launched in May
1998 is based upon performance for Institutional Shares of the fund.

As of 12/31
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------

[BAR CHART APPEARS HERE]

Best Quarter 1994 -3.11
Q2 '95: 4.52% 1995 14.59
1996 4.31
Worst Quarter 1997 7.61
Q1 '94: -2.80% 1998 7.18

- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
Since Inception
1 Year 3 Years 5 Years Inception Date

Intermediate Bond 7.18% 6.35% 5.96% 5.53% 09/15/93
LB Intermediate Govt./Corp. 8.43% 6.76% 6.60% 6.29% N/A*

* For comparative purposes, the value of the index on 09/01/93 is used as the
beginning value on 09/15/93.

12
<PAGE>

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.

The table below describes the fees and expenses that you may pay if you buy and
hold BlackRock 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 .50%
Other expenses .21%
Total annual fund operating expenses .71%
Fee waivers and expense reimbursements* .26%
Net Expenses* .45%
</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 (except for the waivers in the first year discussed above) and redemp-
tion 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>
BlackRock Shares $46 $201 $369 $858
</TABLE>

Fund Management

- -----------------------------
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.
- -----------------------------

13
<PAGE>

Financial Highlights

The financial information in the table below shows the fund's financial perfor-
mance for the period indicated. 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 and assumes that
you have reinvested all dividends 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 a BlackRock Share Outstanding Throughout Each Period)

Intermediate
Bond Portfolio
<TABLE>
<CAPTION>

5/1/98/1/
through
9/30/98
<S> <C>
Per Share operating performance:
Net asset value, beginning of period $ 9.46
-------
Net investment income 0.24
Net realized and unrealized gain or
loss on investments 0.26
-------
Total from investment operations 0.50
-------
Less Distributions
Distributions from net investment
income (0.24)
Distributions from net realized
capital gains (0.05)
-------
Total dividends and distributions (0.29)
-------
Net asset value, end of period $ 9.67
=======
Total return 8.86%
Ratios to average net assets:
Expenses 0.45%/2/,/3/
Excluding waivers 0.72%/2/
Net investment income 6.96%/2/
Excluding waivers 6.69%/2/
Supplemental data:
Portfolio turnover 221%
Net assets, end of period (in
thousands) $48,365
</TABLE>

/1/Commencement of investment operations of share class.
/2/Annualized.
/3/Including interest expense, ratios would have been 1.43% for the fiscal
period ended September 30, 1998.

14
<PAGE>

[GRAPHIC BlackRock
APPEARS Core Bond
HERE] Portfolio

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

Investment Goal
The fund seeks to realize a total return that exceeds that of the Lehman Broth-
ers Aggregate Index (the benchmark).

The fund only buys securities that are rated investment grade at the time of
purchase by at least one major rating agency or determined by the manager to be
of similar quality.

The management team evaluates several categories of the bond market and indi-
vidual securities within these categories. The fund manager selects bonds from
several categories including: U.S. Treasuries and agency securities, commercial
and residential mortgage-backed securities, asset-backed securities and corpo-
rate bonds. Securities are purchased for the fund when the manager determines
that they have the potential for above-average total return. The fund measures
its performance against the benchmark.

- -----------------------------
IMPORTANT DEFINITIONS
- -----------------------------

Asset-Backed Securi-
ties: Bonds that are
backed by a pool of
assets, usually loans
such as installment
sale contracts or
credit card receiv-
ables.

Commercial Mortgage-
Backed Securities
(CMBS): Bonds that are
backed by a mortgage
loan or pools of loans
secured by commercial
property, not residen-
tial mortgages.

15
<PAGE>

exchanges its right to pay or receive interest with another party for their
right to pay or receive interest.

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

Key Risks

- ----------------------------
IMPORTANT DEFINITIONS
- ----------------------------

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer generally
must pay back the face
amount of the security.

16
<PAGE>

Certain asset-backed securities are based on loans that are unsecured, which
means that there is no collateral to seize if the underlying borrower defaults.
Other asset-based securities may not have the benefit of as much collateral as
mortgage-backed securities.

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.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for BlackRock Shares. 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 Lehman Brothers Aggregate Index, a recognized unmanaged index of bond mar-
ket 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.

The performance for the period before BlackRock Shares were launched in May
1997 is based upon the performance for Institutional Shares of the fund.

As of 12/31
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------

[BAR CHART APPEARS HERE]

Best Quarter 1993 9.69
Q2 '95: 5.87% 1994 -2.33
1995 18.18
Worst Quarter 1996 3.58
Q1 '94: -2.63% 1997 9.11
1998 8.34

The bars for 1993-1997 are based upon performance for Institutional Shares of
the funds.

Core Bond 8.34% 6.98% 7.16% 7.56% 12/01/92
Lehman Aggregate 8.69% 7.29% 7.27% 7.87% N/A

18
<PAGE>

Expenses
and Fees

The table below describes the fees and expenses that you may pay if you buy and
hold BlackRock 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 .50%
Other expenses .24%
Total annual fund operating expenses .74%
Fee waivers and expense reimbursements* .34%
Net Expenses* .40%
</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 (except for the waivers in the first year discussed above) and redemp-
tion 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>
BlackRock Shares $41 $202 $378 $886
</TABLE>

Fund Management
The manager of the fund is Keith Anderson, Managing Director at BlackRock
Financial Management, Inc. since 1988. He has served as fund manager since June
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.
- ---------------------------

19
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For a BlackRock Share Outstanding Throughout Each Period)

Core Bond
Portfolio
<TABLE>
<CAPTION>

Year 5/1/97/1/
Ended through
9/30/98 9/30/97
<S> <C> <C>
Per Share operating performance:
Net asset value, beginning of period $ 9.82 $ 9.57
------- -------
Net investment income 0.61 0.26
Net realized and unrealized gain or
loss on investments 0.40 0.24
------- -------
Total from investment operations 1.01 0.50
------- -------
Less Distributions
Distributions from net investment
income (0.62) (0.25)
Distributions from net realized
capital gains -- --
------- -------
Total dividends and distributions (0.62) (0.25)
------- -------
Net asset value, end of period $ 10.12 $ 9.82
======= =======
Total return 10.74% 5.30%
Ratios to average net assets:
Expenses 0.40% 0.40/2/,/3/
Excluding waivers 0.74% 0.69/2/
Net investment income 6.42% 6.70/2/
Excluding waivers 6.08% 6.41/2/
Supplemental data:
Portfolio turnover 405% 441%
Net assets, end of period (in
thousands) $92,723 $48,139
</TABLE>

/1/Commencement of investment operations of share class.
/2/Annualized.
/3/Including interest expense, the ratio would have been 0.68% and 0.56% for
the fiscal period ended September 30, 1998 and September 30, 1997, respec-
tively.

20
<PAGE>

[GRAPHIC BlackRock
APPEARS High Yield Bond
HERE] Portfolio

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

Investment Goal
The fund seeks to provide current income by investing primarily in non-invest-
ment grade bonds.

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in non-investment
grade bonds in the ten to fifteen year maturity range. The fund normally
invests at least 80% of its total assets in bonds or convertible securities and
at least 65% of its total assets in high yield bonds. The high yield securities
(commonly called "junk bonds") acquired by the fund will generally be in the
lower rating categories of the major rating agencies (BB or lower by Standard &
Poor's or Ba or lower by Moody's) or will be determined by the fund manager to
be of similar quality. The fund may invest up to 10% of its total assets in
bonds of foreign issuers.

The management team evaluates categories of the high yield market and individ-
ual bonds within these categories. Securities are purchased for the fund when
the portfolio manager determines that they have the potential for above-average
current income. The fund measures its performance against the Lehman High Yield
Index (the benchmark).

- --------------------------
IMPORTANT DEFINITIONS
- --------------------------

Asset-Backed Securi-
ties: Bonds that are
backed by a pool of
assets, usually loans
such as installment
sale contracts or
credit card receiv-
ables.

Collateralized Bond
Obligations (CBO): The
fund many invest in
collateralized bond
obligations, which are
securities backed by a
diversified pool of
high yield securities.

21
<PAGE>

The fund can borrow money to buy additional securities. This practice is known
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securi-
ties and agrees to buy them back at a particular date and price). The fund
normally may borrow up to 33 1/3% of the value of its total assets.

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

Key Risks

Non-investment grade bonds carry greater risks than securities which have
higher credit ratings, including a high risk of default. The yields of non-
investment grade securities will move up and down over time. The credit rating
of a high yield security does not necessarily address its market value risk.
Ratings and market value may change from time to time, positively or negative-
ly, to reflect new developments regarding the issuer. These companies are
often young and growing and have a lot of debt. High yield bonds are consid-
ered speculative, meaning there is a significant

- ---------------------------
IMPORTANT DEFINITIONS
- ---------------------------

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer generally
must pay back the face
amount of the security.

22
<PAGE>

risk that companies issuing these securities may not be able to repay principal
and pay interest or dividends on time. In addition, other creditors of a high
yield issuer may have the right to be paid before the high yield bond holder.

Mezzanine securities carry the risk that the issuer will not be able to meet
its obligations and that the equity securities purchased with the mezzanine
investments may lose value.

A main difference is that the principal on mortgage-or asset-backed securities
may normally be prepaid at any time, which will reduce the yield and market
value of these securities. Asset-backed securities and CMBS generally experi-
ence less prepayment than residential mortgage-backed securities. In periods of
falling interest rates, the rate of prepayments tends to increase (as does
price fluctuation) as borrowers are motivated to pay off debt and refinance at
new lower rates. During such periods, reinvestment of the prepayment proceeds
by the manager will generally be at lower rates of return than the return on
the assets
23
<PAGE>

which were prepaid. Certain commercial mortgage-backed securities are issued
in several classes with different levels of yield and credit protection. The
fund's investments in commercial mortgage-backed securities with several clas-
ses will normally be in the lower classes that have less credit protection.

could increase volatility in financial markets worldwide which could hurt the
value of shares of the fund.

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.

The table below describes the fees and expenses that you may pay if you buy and
hold BlackRock 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 .50%
Other expenses* .18%
Total annual fund operating expenses .68%
Fee waivers and expense reimbursements** .13%
Net Expenses** .55%
</TABLE>

* "Other expenses" are based on estimated amounts for the current fiscal year.
** BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may have to repay these waivers and reimbursements to BlackRock in the
following two years if the repayment can be made within these expense lim-
its. "Net Expenses" in the table have been restated to reflect these waivers
and reimbursements.

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 (except for the waivers in the first year discussed above) and redemp-
tion at the end of each time period. Although your actual cost may be higher or
lower, based on these assumptions your costs would be:

<TABLE>
<CAPTION>
1 Year 3 Years
<S> <C> <C>
BlackRock Shares $56 $204
</TABLE>

- ---------------------------
IMPORTANT DEFINITIONS
- ---------------------------

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

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

26
<PAGE>

[GRAPHIC
APPEARS
HERE] About Your Investment

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

Buying Shares

BlackRock Shares are offered without a sales charge to institutional investors
with a minimum investment of $5,000,000.

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

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

What Price Per Share Will You Pay?

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

Purchase orders received by the transfer agent before the close of regular
trading on the New York Stock Exchange (NYSE) (currently 4 p.m. (Eastern time))
on each day the NYSE is open will be priced based on the NAV calculated at the
close of trading on that day. NAV is calculated separately for each class of
shares of each fund at 4 p.m. (Eastern time) each day the NYSE is open. Shares
will not be priced on days the NYSE is closed. Purchase orders received after
the close of trading will be priced based on the next calculation of NAV. For-
eign securities and certain other securities held by a fund may trade on days
when the NYSE is closed. In these cases, net asset value of shares may change
when fund shares cannot be bought or sold.

28
<PAGE>

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

Paying for Shares

Payment for BlackRock 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.

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

How Much is the Minimum Investment?

The minimum investment for the initial purchase of BlackRock Shares is
$5,000,000. There is no minimum requirement for later investments. The fund
does not accept third party checks as payment for shares.

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

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

Selling Shares

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

Payment for redeemed shares for which a redemption order is received by PFPC
before 4 p.m. (Eastern time) on a business day 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 p.m. (Eastern time) or on a day when the funds' custo-
dian is closed is normally 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 redemp-
tion payments is imposed by the Company.

29
<PAGE>

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

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

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

The Company's Rights

The Company may:

.Suspend the right of redemption
.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.

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

Accounts with Low Balances

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 $5,000,000 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 proc-
essed.

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

30
<PAGE>

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

Management

<TABLE>
<S> <C>
Low Duration Bond 0.16%
Intermediate Bond 0.26%
Core Bond 0.18%
</TABLE>

The maximum annual advisory fees that can be paid to BlackRock (as a percentage
of average daily net assets of each fund) are as follows:

Maximum Annual Contractual Fee Rate (Before Waivers)

<TABLE>
<CAPTION>
INVESTMENT
ADVISORY
AVG DAILY NET ASSETS FEE
<S> <C>
First $1 billion .500%
$1 billion-$2 billion .450%
$2 billion-$3 billion .425%
greater than $3 billion .400%
</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.

Information about the portfolio manager for each of the funds is presented in
the appropriate fund section.

- ----------------------------
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.

31
<PAGE>

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

BlackRock and the Company have entered into an expense limitation agreement.
The agreement sets a limit on certain of the operating expenses of each fund
for the next year and requires BlackRock to waive or reimburse fees or
expenses if these operating expenses exceed that limit. These expense limits
(which apply to expenses charged on fund assets as a whole, but not expenses
separately charged to the different share classes of a fund) as a percentage
of average daily net assets are:

<TABLE>
<S> <C>
Low Duration Bond .385%
Intermediate Bond .435%
Core Bond .380%
High Yield Bond .525%
</TABLE>

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

Dividends and
Distributions

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

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

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

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

Taxation of
Distributions

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

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

33
<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:

Statement of Additional Information (SAI)
A Statement of Additional Information, dated January 28, 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) 441-7450. The SAI, as supplemented from time to time, is incorporated by
reference into this Prospectus.

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

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

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

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

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

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

INVESTMENT COMPANY ACT FILE NO. 811-05742

[GRAPHIC APPEARS HERE]

[LOGO OF BLACKROCK FUNDS APPEARS HERE]
<PAGE>

497(C)
File No. 33-26305

NOT FDIC-INSURED

May lose value
No bank guarantee

Money Market
Portfolios
================================================================================
INVESTOR SHARES

BlackRock Funds(sm) is a mutual fund family with 36 investment portfolios, 8 of
which are described in this prospectus. BlackRock Funds are sold principally
through licensed investment professionals.

PROSPECTUS
January 28, 1999

[LOGO OF BLACKROCK FUNDS]

Table of
Contents

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

How to find the information you need

How to find the information you need.......................... 1

THE BLACKROCK MONEY MARKET FUNDS
Money Market.................................................. 2
U.S. Treasury Money Market.................................... 8
Municipal Money Market........................................ 13
New Jersey Municipal Money Market............................. 19
North Carolina Municipal Money Market......................... 25
Ohio Municipal Money Market................................... 31
Pennsylvania Municipal Money Market........................... 37
Virginia Municipal Money Market............................... 43

About Your Investment

How to Buy/Sell Shares........................................ 49
Dividends/Distribution/Taxes.................................. 55
Services for Shareholders..................................... 58
<PAGE>

How to Find the
Information You Need
About BlackRock Funds

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

Welcome to the new BlackRock Money Market 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).

This prospectus contains information on all 8 of the BlackRock Money Market
funds. 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 inter-
est you, read the sections that tell you about buying and selling shares, cer-
tain fees and expenses, shareholder features of the funds and your rights as a
shareholder. These sections apply to all the funds.

BlackRock
[LOGO] Money Market
Portfolio

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

IMPORTANT DEFINITIONS

Asset-Backed Securi-
ties: Debt securities
that are backed by a
pool of assets, usually
loans such as install-
ment sale contracts or
credit card receiv-
ables.

Commercial Paper:
Short-term securities
with maturities of 1 to
270 days which are
issued by banks, corpo-
rations and others.

Liquidity: Liquidity is
the ability to easily
convert investments
into cash without los-
ing a significant
amount of money in the
process.

Net Asset Value (NAV):
The value of everything
the fund owns, minus
everything it owes,
divided by the number
of shares held by
investors.

Repurchase Agreement: A
special type of a
short-term investment.
A dealer sells securi-
ties to a fund and
agrees to buy them back
later at a set price.
In effect, the dealer
is borrowing the fund's
money for a short time,
using the securities as
collateral.

Variable or Floating
Rate Securities: Secu-
rities whose interest
rates adjust automati-
cally after a certain
period of time and/or
whenever a predeter-
mined standard interest
rate changes.

Investment Goal
The fund seeks as high a level of current income as is consistent with main-
taining liquidity and stability of principal.

Primary Investment Strategies
In pursuit of this goal, the fund invests in a broad range of short term, high
quality, U.S. dollar-denominated instruments, including government, bank, com-
mercial and other obligations.

Specifically, the fund may invest in:

1) U.S. dollar-denominated obligations issued or supported by the credit of
U.S. or foreign banks or savings institutions with total assets of more than
$1 billion (including obligations of foreign branches of such banks).

2) High quality commercial paper and other obligations issued or guaranteed by
U.S. and foreign corporations and other issuers rated (at the time of
purchase) A-2 or higher by Standard and Poor's, Prime-2 or higher by
Moody's, D-2 or higher by Duff & Phelps, F-2 or higher by Fitch or TBW-2 or
higher by Thomson BankWatch, as well as high quality corporate bonds rated
AA (or Aa) or higher at the time of purchase by those rating agencies.

3) Unrated notes, paper and other instruments that are determined by the fund
manager to be of comparable quality to the instruments described above.

4) Asset-backed securities (including interests in pools of assets such as
mortgages, installment purchase obligations and credit card receivables).

5) Securities issued or guaranteed by the U.S. Government or by its agencies or
authorities.

6) Dollar-denominated securities issued or guaranteed by foreign governments or
their political subdivisions, agencies or authorities.

7) Securities issued or guaranteed by state or local governmental bodies.

8) Repurchase agreements relating to the above instruments.

The fund seeks to maintain a net asset value of $1.00 per share.
2
<PAGE>

Quality
The fund manager, under guidelines established by the Company's Board of Trust-
ees, will only purchase securities that have short-term debt ratings at the
time of purchase in the two highest rating categories from at least two
national rating agencies, or one such rating if the security is rated by only
one agency. Securities that are unrated must be determined by the fund manager
to be of comparable quality.

Maturity
The fund is managed so that the dollar-weighted average maturity of all its
investments will be 90 days or less. The fund will buy only those securities
which have remaining maturities of 397 days or less (except for certain vari-
able and floating rate instruments and securities collateralizing repurchase
agreements). The fund's securities may not earn as high a level of income as
longer term or lower quality securities, which generally have greater risk and
more fluctuation in value.

Normally, the fund may hold up to 20% of its assets in uninvested cash
reserves. Uninvested cash will not earn income.

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

Key Risks
The value of money market investments tends to fall when prevailing interest
rates rise, although they're generally less sensitive to interest rate changes
than longer-term securities.

The fund's ability to concentrate its investments in the banking industry could
increase risks. The profitability of banks depends largely on the availability
and cost of funds, which can change depending upon economic conditions. Banks
are also exposed to losses if borrowers get into financial trouble and can't
repay their loans.

The obligations of foreign banks and other foreign issuers may involve certain
risks in addition to those of domestic issuers, including higher transaction
costs, less complete financial information, political and economic instability,
less stringent regulatory requirements and less market liquidity.

Treasury obligations differ only in their interest rates, maturities and time
of issuance. Obligations of U.S. Government agencies
Key Risks
3
<PAGE>

The fund could lose money if a seller under a repurchase agreement defaults or
declares bankruptcy.

The fund may purchase variable and floating rate instruments. The absence of
an active market for these securities could make it difficult for the fund to
dispose of them if the issuer defaults.

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, the fund's investment adviser, is currently working to avoid such prob-
lems. 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 issuers whose securities the fund holds or securi-
ties markets generally.

Although the fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the fund. 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.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and Investor A, B and C Shares (in
the table). 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 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.

The performance for the period before Investor Shares were launched is based
upon performance for older share classes of the fund. Investor A Shares were
launched in January 1993, Investor B Shares were launched in September 1995
and Investor C Shares were launched in October 1996. The actual return of
Investor Shares would have been lower than shown because Investor Shares have
higher expenses than these older classes. Also, the actual returns of Investor
B and C Shares would have been lower compared to Investor A Shares.
4
<PAGE>

[BAR GRAPH APPEARS HERE]

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

Best Quarter
Q2 '90: 1.96%

Worst Quarter
Q4 '93: 0.64%

The bars for 1990-1993 are based
upon performance for Service Shares
of the fund.

- --------------------------------------------------------------------------------
90 91 92 93 94 95 96 97 98
- --------------------------------------------------------------------------------
7.97% 5.93% 3.51% 2.64% 3.68% 5.32% 4.91% 5.07% 4.96%
- --------------------------------------------------------------------------------

As of 12/31/98
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
Since Inception
1 Year 3 Years 5 Years Inception Date
- --------------------------------------------------------------------------------
Money Market; Inv A 4.96% 4.98% 4.79% 4.97% 10/04/89
- --------------------------------------------------------------------------------
Money Market; Inv B 4.23% 4.28% 4.34% 4.73% 10/04/89
- --------------------------------------------------------------------------------
Money Market; Inv C 4.23% 4.28% 4.34% 4.73% 10/04/89
- --------------------------------------------------------------------------------

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.

The table below describes the fees and expenses that you may pay if you buy and
hold Investor A, B and C 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>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
Advisory Fees .41% .41% .41%
Distribution and Service (12b-1) fees .50% 1.15% 1.15%
Other expenses .30% .30% .30%
Total annual fund operating expenses 1.21% 1.86% 1.86%
Fee Waivers and Expense
Reimbursements* .32% .37% .37%
Net Expenses* .89% 1.49% 1.49%
</TABLE>

* BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may have to repay these waivers and reimbursements to BlackRock in the
following two years if the repayment can be made within these expense lim-
its. In addition, BlackRock Distributors, Inc., the fund's distributor, and
BlackRock have contractually agreed to the following waivers on distribution
and service fees for the next year: .10% of average daily net assets with
respect to Investor A Shares and .15% of average daily net assets with
respect to Investor B and C Shares. "Net Expenses" in the table have been
restated to reflect these waivers and reimbursements.

IMPORTANT DEFINITIONS

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

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

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

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

5
<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 (except for the waivers in the first year discussed above) and redemp-
tion 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 $ 91 $352 $634 $1,438
B Shares* $152 $549 $971 $1,979**/$1,900***
C Shares* $152 $549 $971 $2,150
</TABLE>
* These expense figures do not reflect the imposition of the deferred sales
charge which may be deducted upon the redemption of Investor B or Investor C
Shares of a fund received in an exchange transaction for Investor B or
Investor C Shares of a non-money market investment portfolio of the Company
as described in the applicable prospectuses. No deferred sales charge is
deducted upon the redemption of Investor B or Investor C Shares of a fund
that are purchased from the Company and not acquired by exchange.
** Based on the conversion of Investor B Shares to Investor A Shares after
eight years (applies to shares received in an exchange transaction for
Investor B Shares of an equity portfolio of the Company).
*** Based on the conversion of Investor B Shares to Investor A Shares after
seven years (applies to shares received in an exchange transaction for
Investor B Shares of a bond portfolio of the Company).

6
<PAGE>

Financial Highlights

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Investor A, B or C Share Outstanding Throughout Each Period)

Money Market Portfolio

<TABLE>
<CAPTION>
INVESTOR A
SHARES INVESTOR B SHARES
<CAPTION>
INVESTOR C
SHARES
For the
Period
Year For theYear Year Year Year Year Year Year 9/15/95/1
Ended PeriodEnded Ended Ended Ended Ended Ended Ended / through
9Year/30/10/17/96/198 9/30/97 9/30/96 9/30/95 9/30/94 9/30/98 9/30/97 9/30/96 9/30/95
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 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- ------- ------- ------- --------
Income from
investment
operations
Net investment
income 0.0495 0.0491 0.0485 0.0511 0.0308 0.0426 0.0424 0.0426 0.0020
-------- -------- -------- -------- -------- ------- ------- ------- --------
Total from
investment
operations 0.0495 0.0491 0.0485 0.0511 0.0308 0.0426 0.0424 0.0426 0.0020
-------- -------- -------- -------- -------- ------- ------- ------- --------
Less
distributions
Distributions
from
net investment
income (0.0495) (0.0491) (0.0485) (0.0511) (0.0308) (0.0426) (0.0424) (0.0426) (0.0020)
Distributions
from
net realized
capital gains - - - - - - - - - - - - - - - - - -
-------- -------- -------- -------- -------- ------- ------- ------- --------
Total
distributions (0.0495) (0.0491) (0.0485) (0.0511) (0.0308) (0.0426) (0.0424) (0.0426) (0.0020)
-------- -------- -------- -------- -------- ------- ------- ------- --------
Net asset value
at end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======= ======= ======= ========
Total return 5.06% 5.02% 4.96% 5.23% 3.12% 4.34% 4.32% 4.34% 0.20%
Ratios/Supplemental
data
Net assets at
end of period
(in thousands) $365,458 $256,039 $162,099 $ 10,185 $ 4,342 $ 1,805 $ 238 $ 138 $ 27
Ratios of
expenses to
average net
assets
After advisory/
administration
fee waivers 0.77% 0.70% 0.74% 0.81% 0.75% 1.48% 1.39% 1.36% 1.34%/2/
Before
advisory/
administration
fee waivers 1.01% 1.03% 1.10% 1.19% 1.16% 1.72% 1.72% 1.73% 1.72%/2/
Ratios of net
investment
income to
average net
assets
After advisory/
administration
fee waivers 4.94% 4.92% 4.81% 5.15% 3.39% 4.22% 4.26% 4.18% 4.58%/2/
Before
advisory/
administration
fee waivers 4.70% 4.59% 4.45% 4.78% 2.98% 3.98% 3.93% 3.82% 4.20%/2/
<S> <C> <C>
Net asset value
at beginning of
period $ 1.00 $ 1.00
-------- -------------
Income from
investment
operations
Net investment
income 0.0426 0.0390
-------- -------------
Total from
investment
operations 0.0426 0.0390
-------- -------------
Less
distributions
Distributions
from
net investment
income (0.0426) (0.0390)
Distributions
from
net realized
capital gains - - - -
-------- -------------
Total
distributions (0.0426) (0.0390)
-------- -------------
Net asset value
at end of
period $ 1.00 $ 1.00
======== =============
Total return 4.34% 3.97%
Ratios/Supplemental
data
Net assets at
end of period
(in thousands) $ 337 $ 2
Ratios of
expenses to
average net
assets
After advisory/
administration
fee waivers 1.49% 1.50%/2/
Before
advisory/
administration
fee waivers 1.73% 1.83%/2/
Ratios of net
investment
income to
average net
assets
After advisory/
administration
fee waivers 4.22% 4.01%/2/
Before
advisory/
administration
fee waivers 3.98% 3.68%/2/
</TABLE>
----------------------------------------------------------------
/1/Commencement of operations of share class.
/2/Annualized.
7
<PAGE>

BlackRock
[LOGO] U.S. Treasury Money Market
Portfolio

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

IMPORTANT DEFINITIONS

Asset-Backed Securi-
ties: Debt securities
that are backed by a
pool of assets, usually
loans such as install-
ment sale contracts or
credit card receiv-
ables.

Liquidity: Liquidity is
the ability to easily
convert investments
into cash without los-
ing a significant
amount of money in the
process.

Net Asset Value (NAV):
The value of everything
the fund owns, minus
everything it owes,
divided by the number
of shares held by
investors.

Variable or Floating
Rate Securities: Secu-
rities whose interest
rates adjust automati-
cally after a certain
period of time and/or
whenever a predeter-
mined standard interest
rate changes.

Investment Goal
The fund seeks as high a level of current income as is consistent with main-
taining liquidity and stability of principal.

Primary Investment Strategies
In pursuit of this goal, the fund invests exclusively in short-term bills,
notes and other obligations issued or guaranteed by the U.S. Treasury and
related repurchase agreements.

The fund seeks to maintain a net asset value of $1.00 per share.

Quality
The fund manager, under guidelines established by the Company's Board of
Trustees, will purchase securities that have short-term debt ratings at the
time of purchase in the two highest rating categories from at least two
national rating agencies, or one such rating if the security is rated by only
one agency. The fund may also purchase unrated securities determined by the
fund manager to be of comparable quality.

Normally, the fund may hold up to 20% of its assets in uninvested cash
reserves. Uninvested cash will not earn income.

Key Risks
Key Risks
The value of money market investments tends to fall when prevailing interest
rates rise, although they're generally less sensitive to interest rate changes
than longer-term securities.

Treasury obligations differ only in their interest rates, maturities and time
of issuance.

The fund could lose money if a seller under a repurchase agreement defaults or
declares bankruptcy.

The fund may purchase variable and floating rate instruments. The absence of an
active market for these securities could make it difficult for the fund to dis-
pose of them if the issuer defaults.

9
<PAGE>

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and Investor A and C Shares (in the
table). 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
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.

The performance for the period before Investor Shares were launched is based
upon performance for older share classes of the fund. Investor A Shares were
launched in January 1993 and Investor C Shares were launched in December 1998.
The actual return of Investor Shares would have been lower than shown because
Investor Shares have higher expenses than these older classes. Also, the actual
return of Investor C Shares would have been lower compared to Investor A
Shares.

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

Best Quarter
Q2 '90: 1.98%

Worst Quarter
Q4 '93: 0.63%

The bars for 1990-1993 are based
upon performance for Service Shares
of the fund.

[BAR GRAPH APPEARS HERE]

- --------------------------------------------------------------------------------
90 91 92 93 94 95 96 97 98
- --------------------------------------------------------------------------------
7.83% 5.86% 3.46% 2.59% 3.67% 5.22% 4.65% 4.80% 4.73%
- --------------------------------------------------------------------------------

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.

10
<PAGE>

The table below describes the fees and expenses that you may pay if you buy and
hold Investor A, B and C 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>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
Advisory Fees .45% .45% .45%
Distribution and service (12b-1) fees .50% 1.15% 1.15%
Other expenses .27% .27% .27%
Total annual fund operating expenses 1.22% 1.87% 1.87%
Fee Waivers and Expense Reimbursements* .34% .39% .39%
Net Expenses* .88% 1.48% 1.48%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits. In addition, BlackRock Distributors, Inc., the fund's distributor,
and BlackRock have contractually agreed to the following waivers on
distribution and service fees for the next year: .10% of average daily net
assets with respect to Investor A Shares and .15% of average daily net
assets with respect to Investor B and C Shares. "Net Expenses" in the table
have been restated to reflect these waivers and reimbursements.

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 (except for the waivers in the first year discussed above) and redemp-
tion 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 $90 $354 $638 $1,447
B Shares* $151 $550 $975 $1,988**/$1,909***
C Shares* $151 $550 $975 $2,159
</TABLE>

* These expense figures do not reflect the imposition of the deferred sales
charge which may be deducted upon the redemption of Investor B or Investor C
Shares of a fund received in an exchange transaction for Investor B or
Investor C Shares of a non-money market investment portfolio of the Company
as described in the applicable prospectuses. No deferred sales charge is
deducted upon the redemption of Investor B or Investor C Shares of a fund
that are purchased from the Company and not acquired by exchange.
** Based on the conversion of Investor B Shares to Investor A Shares after
eight years (applies to shares received in an exchange transaction for
Investor B Shares of an equity portfolio of the Company).
*** Based on the conversion of Investor B Shares to Investor A Shares after
seven years (applies to shares received in an exchange transaction for
Investor B Shares of a bond portfolio of the Company).

IMPORTANT DEFINITIONS

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

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

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

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

11
<PAGE>

Financial Highlights

The financial information in the table below shows
the fund's financial performance for the periods
indicated. 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 and assumes
that you have reinvested all dividends and distri-
butions. 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 instruc-
tions.)

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Investor A Share Outstanding Throughout Each Period)

U.S. Treasury Money Market Portfolio

12
<PAGE>

BlackRock
[LOGO] Municipal Money
Market Portfolio

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Investment Goal
The fund seeks as high a level of current income exempt from Federal income tax
as is consistent with maintaining liquidity and stability of principal.

Primary Investment Strategies
In pursuit of this goal, the fund invests primarily in Municipal Securities.

Specifically, the fund may invest in:

1) Fixed and variable rate notes and similar debt instruments rated MIG-2,
VMIG-2 or Prime-2 or higher by Moody's, SP-2 or A-2 or higher by Standard &
Poor's, D-2 or higher by Duff & Phelps, or F-2 or higher by Fitch.

2) Tax-exempt commercial paper and similar debt instruments rated Prime-2 or
higher by Moody's, A-2 or higher by Standard & Poor's, D-2 or higher by Duff
& Phelps, or F-2 or higher by Fitch.

3) Municipal bonds rated Aa or higher by Moody's or AA or higher by Standard &
Poor's, Duff & Phelps or Fitch.

4) Unrated notes, paper and other instruments that are determined by the fund
manager to be of comparable quality to the instruments described above.

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

The fund seeks to maintain a net asset value of $1.00 per share.

The fund normally invests at least 80% of its net assets in Municipal Securi-
ties and other instruments whose interest is exempt from federal income tax.
The other 20% can be invested in securities which are subject to regular fed-
eral income tax or the Federal Alternative Minimum Tax.

The fund intends to invest so that less than 25% of its total assets are Munic-
ipal Securities of issuers located in the same state.

IMPORTANT DEFINITIONS

General Obligation
Bonds: Bonds which are
secured by the issuer's
pledge of its full
faith, credit and tax-
ing power for the pay-
ment of principal and
interest.

Liquidity: Liquidity is
the ability to easily
convert investments
into cash without los-
ing a significant
amount of money in the
process.

Municipal Lease Obliga-
tions: These provide
participation in munic-
ipal lease agreements
and installment pur-
chase contracts, but
are not part of the
general obligations of
the municipality.

Municipal Security: A
short-term obligation
issued by or on behalf
of states and posses-
sions of the United
States, their political
subdivisions and their
agencies and authori-
ties.

Net Asset Value (NAV):
The value of everything
the fund owns, minus
everything it owes,
divided by the number
of shares held by
investors.

13
<PAGE>

IMPORTANT DEFINITIONS

Tax-Exempt Commercial
Paper: Short-term
Municipal Securities
with maturities of 1 to
270 days.

Variable or Floating
Rate Securities: Secu-
rities whose interest
rates adjust automati-
cally after a certain
period of time and/or
whenever a predeter-
mined standard interest
rate changes.

Quality
The fund manager, under guidelines established by the Company's Board of
Trustees, will only purchase securities that have short-term debt ratings at
the time of purchase in the two highest rating categories from at least two
national rating agencies, or one such rating if the security is rated by only
one agency. Securities that are unrated must be determined by the fund manager
to be of comparable quality.

Normally, the fund may hold up to 20% of its assets in uninvested cash
reserves. Uninvested cash will not earn income. It is possible that in extreme
market conditions the fund may invest more than 20% of its assets in securi-
ties that are not Municipal Securities (and therefore are subject to regular
federal income tax) and may hold an unlimited amount of uninvested cash
reserves. If market conditions improve, these strategies 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 made. The fund may not change the requirement
that it normally invest at least 80% of its net assets in Municipal Securities
and other instruments whose interest is exempt from federal income tax without
shareholder approval.

Key Risks

Key Risks
The value of money market investments tends to fall when prevailing interest
rates rise, although they're generally less sensitive to interest rate changes
than longer-term securities.

Municipal Securities include revenue bonds, general obligation bonds and
municipal lease obligations. Revenue bonds include private activity bonds,
which are not payable from the general

14
<PAGE>

revenues of the issuer. Consequently, the credit quality of private activity
bonds is usually directly related to the credit standing of the corporate user
of the facility involved. To the extent that the fund's assets are invested in
private activity bonds, the fund will be subject to the particular risks pre-
sented by the laws and economic conditions relating to such projects and bonds
to a greater extent than if its assets were not so invested. Moral obligation
bonds are normally issued by special purpose public authorities. If the issuer
of moral obligation bonds is unable to pay its debts from current revenues, it
may draw on a reserve fund the restoration of which is a moral but not a legal
obligation of the state or municipality which created the issuer. Municipal
lease obligations are not guaranteed by the issuer and are generally less liq-
uid than other securities.

There may be less information available on the financial condition of issuers
of Municipal Securities than for public corporations. The market for municipal
bonds may be less liquid than for taxable bonds. This means that it may be
harder to buy and sell Municipal Securities, especially on short notice.

The fund may invest 25% or more of its assets in Municipal Securities whose
interest is paid solely from revenues of similar projects. For example, the
fund may invest more than 25% of its assets in Municipal Securities related to
water or sewer systems. This type of concentration exposes the fund to the
legal and economic risks relating to those projects.

The fund will rely on legal opinions of counsel to issuers of Municipal Securi-
ties as to the tax-free status of investments and will not do its own analysis.

The fund may purchase variable and floating rate instruments. The absence of an
active market for these securities could make it difficult for the fund to dis-
pose of them if the issuer defaults.

er, is currently working to avoid such problems. BlackRock is also working with
other systems providers and vendors to determine their systems' ability to han-
dle Year 2000 problems. There is no guarantee, however, that systems will work
properly on January 1, 2000. Year 2000 problems may also hurt issuers whose
securities the fund holds or securities markets generally.

The performance for the period before Investor Shares were launched is based
upon performance for older share classes of the fund. Investor A Shares were
launched in November 1992 and Investor C Shares were launched in September
1997. The actual return of Investor Shares would have been lower than shown
because Investor Shares have higher expenses than these older classes. Also,
the actual return of Investor C Shares would have been lower compared to
Investor A Shares.

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

Best Quarter
Q4 '90: 1.36%

Worst Quarter
Q1 '94: 0.41%

The bars for 1990-1992 are based
upon performance for Service Shares
of the fund.

[BAR GRAPH APPEARS HERE]

- --------------------------------------------------------------------------------
90 91 92 93 94 95 96 97 98
- --------------------------------------------------------------------------------
5.42% 4.02% 2.49% 1.89% 2.25% 3.22% 2.80% 2.98% 2.70%
- --------------------------------------------------------------------------------

<PAGE>

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.

The table below describes the fees and expenses that you may pay if you buy and
hold Investor A, B and C 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>
<CAPTION>
A Shares B Shares C Shares

<S> <C> <C> <C>
Advisory Fees .45% .45% .45%
Distribution and service
(12b-1) fees .50% 1.15% 1.15%
Other expenses .33% .33% .33%
Total annual fund operating
expenses 1.28% 1.93% 1.93%
Fee waivers and expense
reimbursements* .39% .44% .44%
Net Expenses* .89% 1.49% 1.49%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits. In addition, BlackRock Distributors, Inc., the fund's distributor,
and BlackRock have contractually agreed to the following waivers on
distribution and service fees for the next year: 10% of average daily net
assets with respect to Investor A Shares and .15% of average daily net
assets with respect to Investor B and C Shares. "Net Expenses" in the table
have been restated to reflect these waivers and reimbursements.

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 (except for the waivers in the first year discussed above) and redemp-
tion 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 $ 91 $368 $ 665 $1,511
B Shares* $152 $564 $1,001 $2,049**/$1,979***
C Shares* $152 $564 $1,001 $2,218
</TABLE>
* These expense figures do not reflect the imposition of the deferred sales
charge which may be deducted upon the redemption of Investor B or Investor
C Shares of a fund received in an exchange transaction for Investor B or
Investor C Shares of a non-money market investment portfolio of the Company
as described in the applicable prospectuses. No deferred sales charge is
deducted upon the redemption of Investor B or Investor C Shares of a fund
that is purchased from the Company and not acquired by exchange.
** Based on the conversion of Investor B Shares to Investor A Shares after
eight years (applies to shares received in an exchange transaction for
Investor B Shares of an equity portfolio of the Company).
*** Based on the conversion of Investor B Shares to Investor A Shares after
seven years (applies to shares received in an exchange transaction for
Investor B Shares of a bond portfolio of the Company).

IMPORTANT DEFINITIONS

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

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

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

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

17
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Investor A or C Share Outstanding Throughout Each Period)

Municipal Money Market Portfolio

<TABLE>
<CAPTION>
INVESTOR A
SHARES INVESTOR C SHARES
For the
Period
Year Year Year Year Year Year 9/12/97/1
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
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- -------- -------- -------- ------- -------
Income from investment
operations
Net investment income 0.0280 0.0290 0.0288 0.0311 0.0193 0.0133 0.0013
------- ------- -------- -------- -------- ------- -------
Total from investment
operations 0.0280 0.0290 0.0288 0.0311 0.0193 0.0133 0.0013
------- ------- -------- -------- -------- ------- -------
Less distributions
Distributions from net
investment income (0.0280) (0.0290) (0.0288) (0.0311) (0.0193) (0.0133) (0.0013)
Distributions from net
realized capital gains - - - - - - - - - - - - - -
------- ------- -------- -------- -------- ------- -------
Total distributions (0.0280) (0.0290) (0.0288) (0.0311) (0.0193) (0.0133) (0.0013)
------- ------- -------- -------- -------- ------- -------
Net asset value at end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======== ======== ======== ======= =======
Total return 2.83% 2.93% 2.88% 3.15% 1.95% 1.34% 0.13%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $ 9,227 $ 8,468 $ 1,851 $ 20 $ 41 $ 306 $ 12
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.86% 0.79% 0.77% 0.79% 0.75% 1.47% 1.32%/2/
Before
advisory/administration
fee waivers 1.18% 1.20% 1.21% 1.23% 1.23% 1.79% 1.73%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 2.80% 2.92% 2.80% 3.08% 2.05% 2.08% 2.63%/2/
Before
advisory/administration
fee waivers 2.48% 2.51% 2.36% 2.64% 1.58% 1.76% 2.22%/2/
</TABLE>
--------------------------------------------------
/1/Commencement of operations of share class.
/2/Annualized.
18
<PAGE>

BlackRock
[LOGO] New Jersey Municipal
Money Market Portfolio

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

Investment Goal
The fund seeks as high a level of current income exempt from Federal income tax
and, to the extent possible, New Jersey state income tax, as is consistent with
maintaining liquidity and stability of principal.

Primary Investment Strategies
In pursuit of this goal, the fund invests primarily in Municipal Securities of
issuers located in New Jersey.

Specifically, the fund may invest in:

2) Tax-exempt commercial paper and similar debt instruments rated Prime-2 or
higher by Moody's, A-2 or higher by Standard & Poor's, D-2 or higher by Duff
& Phelps, or F-2 or higher by Fitch.

3) Municipal bonds rated Aa or higher by Moody's or AA or higher by Standard &
Poor's, Duff & Phelps, or Fitch.

4) Unrated notes, paper and other instruments that are determined by the fund
manager to be of comparable quality to the instruments described above.

The fund seeks to maintain a net asset value of $1.00 per share.

The fund normally invests at least 80% of its net assets in Municipal Securi-
ties and other instruments whose interest is exempt from regular federal income
tax. The other 20% can be invested in securities which are subject to regular
federal income tax. Interest income from the fund's investments may be subject
to the Federal Alternative Minimum Tax.

The fund normally invests at least 65% of its net assets in Municipal Securi-
ties of issuers located in New Jersey. In addition, for New Jersey tax purpos-
es, the fund intends to invest at least 80% of its total assets in Municipal
Securities of issuers located in the state of New Jersey and in securities
issued by the U.S. Government, its agencies and authorities.

IMPORTANT DEFINITIONS

General Obligation
Bonds: Bonds which are
secured by the issuer's
pledge of its full
faith, credit and tax-
ing power for the pay-
ment of principal and
interest.

Liquidity: Liquidity is
the ability to easily
convert investments
into cash without los-
ing a significant
amount of money in the
process.

Municipal Lease Obliga-
tions: These provide
participation in munic-
ipal lease agreements
and installment pur-
chase contracts, but
are not part of the
general obligations of
the municipality.

Municipal Security: A
short-term obligation
issued by or on behalf
of states and posses-
sions of the United
States, their political
subdivisions and their
agencies and authori-
ties.

Net Asset Value (NAV):
The value of everything
the fund owns, minus
everything it owes,
divided by the number
of shares held by
investors.

Tax-Exempt Commercial
Paper: Short-term
Municipal Securities
with maturities of 1 to
270 days.

Variable or Floating
Rate Securities: Secu-
rities whose interest
rates adjust automati-
cally after a certain
period of time and/or
whenever a predeter-
mined standard interest
rate changes.
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 made. The fund may not change the requirement
that it normally invest at least 80% of its net assets in Municipal Securities
and other instruments whose interest is exempt from regular federal income tax
without shareholder approval.

Key Risks

Key Risks
The value of money market investments tends to fall when prevailing interest
rates rise, although they're generally less sensitive to interest rate changes
than longer-term securities.

The fund concentrates its investments in securities of issuers located in New
Jersey and is non-diversified under the Investment Company Act. This raises
special concerns because performance is more dependent upon the performance of
a smaller

20
<PAGE>

number of securities and issuers than in a diversified portfolio. The change in
value of any one security may affect the overall value of the fund more than it
would in a diversified portfolio. In particular, changes in the economic condi-
tions and governmental policies of New Jersey and its political subdivisions
could hurt the value of the fund's shares.

Municipal Securities include revenue bonds, general obligation bonds and munic-
ipal lease obligations. Revenue bonds include private activity bonds, which are
not payable from the general revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved. To the extent that the
fund's assets are invested in private activity bonds, the fund will be subject
to the particular risks presented by the laws and economic conditions relating
to such projects and bonds to a greater extent than if its assets were not so
invested. Moral obligation bonds are normally issued by special purpose public
authorities. If the issuer of moral obligation bonds is unable to pay its debts
from current revenues, it may draw on a reserve fund the restoration of which
is a moral but not a legal obligation of the state or municipality which cre-
ated the issuer. Municipal lease obligations are not guaranteed by the issuer
and are generally less liquid than other securities.

The fund may invest without limit in bonds the interest on which may be subject
to the Federal Alternative Minimum Tax. Interest on these bonds that is
received by taxpayers subject to the Federal Alternative Minimum Tax is tax-
able.

The fund will rely on legal opinions of counsel to issuers of Municipal Securi-
ties as to the tax-free status of investments and will not do its own analysis.

The fund may purchase variable and floating rate instruments. The absence of an
active market for these securities could make it difficult for the fund to dis-
pose of them if the issuer defaults.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and Investor A and B Shares (in the
table). 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
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.

The performance for the period before Investor Shares were launched is based
upon performance for older share classes of the fund. Investor A Shares were
launched in January 1996 and Investor B Shares were launched in May 1998. The
actual return of Investor Shares would have been lower than shown because
Investor Shares have higher expenses than these older classes. Also, the actual
return of Investor B Shares would have been lower compared to Investor A
Shares.

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

Best Quarter
Q2 '95: 0.87%

Worst Quarter
Q4 '94: 0.43%

The bars for 1992-1996 are based
upon performance for Service Shares
of the fund.

[BAR GRAPH APPEARS HERE]

- --------------------------------------------------------------
92 93 94 95 96 97 98
- --------------------------------------------------------------
2.29% 1.80% 2.25% 3.25% 2.67% 2.75% 2.60%
- --------------------------------------------------------------

22
<PAGE>

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.

The table below describes the fees and expenses that you may pay if you buy and
hold Investor A, B and C 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)

A Shares B Shares C Shares
Advisory Fees .45% .45% .45%
Distribution and service (12b-1) fees .50% 1.15% 1.15%
Other expenses .37% .37% .37%
Total annual fund operating expenses 1.32% 1.97% 1.97%
Fee Waivers and Expense
Reimbursements* .36% .51% .51%
Net Expenses* .96% 1.46% 1.46%

* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits. In addition, BlackRock has contractually agreed to waive service
fees in the amount of .15% of average daily net assets on Investor B and C
Shares for the next year. "Net Expenses" in the table have been restated to
reflect these waivers and reimbursements.

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 (except for the waivers in the first year discussed above) and redemp-
tion 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 $ 98 $383 $ 689 $1,559
B Shares* $149 $569 $1,015 $2,086**/$2,007***
C Shares* $149 $569 $1,015 $2,255
</TABLE>
* These expense figures do not reflect the imposition of the deferred sales
charge which may be deducted upon the redemption of Investor B or Investor C
Shares of a fund received in an exchange transaction for Investor B or
Investor C Shares of a non-money market investment portfolio of the Company
as described in the applicable prospectuses. No deferred sales charge is
deducted upon the redemption of Investor B or Investor C Shares of a fund
that are purchased from the Company and not acquired by exchange.
** Based on the conversion of Investor B Shares to Investor A Shares after
eight years (applies to shares received in an exchange transaction for
Investor B Shares of an equity portfolio of the Company).
*** Based on the conversion of Investor B Shares to Investor A Shares after
seven years (applies to shares received in an exchange transaction for
Investor B Shares of a bond portfolio of the Company).

IMPORTANT DEFINITIONS

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

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

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

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

23
<PAGE>

FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
(For an Investor A or B Share Outstanding Throughout Each Period)

New Jersey Municipal Money Market Portfolio+

<TABLE>
<CAPTION>
INVESTOR A INVESTOR B
SHARES SHARES
For the For the For the For the
Period Period period Period
Year Year 2/1/96 1/16/96/1 5/13/98/4 3/20/97/1
Ended Ended through / through / through / through
9/30/98 9/30/97 9/30/96 1/31/96 9/30/98 9/30/97
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ------- -------- --------
Income from investment
operations
Net investment income 0.0265 0.0268 0.0175 0.00 0.0079 0.0077
-------- -------- -------- ------- -------- --------
Total from investment
operations 0.0265 0.0268 0.0175 0.00 0.0079 0.0077
-------- -------- -------- ------- -------- --------
Less distributions
Distributions from net
investment income (0.0265) (0.0268) (0.0175) 0.00 (0.0079) (0.0077)
Distributions from net
realized capital gains - - - - - - - - - - - -
-------- -------- -------- ------- -------- --------
Total distributions (0.0265) (0.0268) (0.0175) 0.00 (0.0079) (0.0077)
-------- -------- -------- ------- -------- --------
Net asset value at end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======= ======== ========
Total return 2.68% 2.71% 1.76% 2.66% 0.79% 0.77%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $ 43,995 $ 21,691 $ 17,314 $21,662 - - - - /3/
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.91% 0.86% 0.78%/2/ 0.71%/2/ 1.44%/2/ 1.37%/2/
Before
advisory/administration
fee waivers 1.28% 1.30% 1.27%/2/ 1.20%/2/ 1.81%/2/ 1.81%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 2.64% 2.68% 2.63%/2/ 2.66%/2/ 2.12%/2/ 2.35%/2/
Before
advisory/administration
fee waivers 2.27% 2.24% 2.15%/2/ 2.17%/2/ 1.75%/2/ 1.91%/2/
</TABLE>
--------------------------------------------------

+ The Portfolio commenced operations on July 1, 1991 as the New Jersey
Municipal Money Market Fund, a separate investment portfolio (the
"Predecessor New Jersey Municipal Money Market Portfolio") of Compass
Capital Group, which was organized as a Massachusetts business trust. On
January 13, 1996, the assets and liabilities of the Predecessor New Jersey
Municipal Money Market Portfolio were transferred to this Portfolio, and
were combined with the assets of a pre-existing portfolio of investments
maintained by the Fund.
/1/Commencement of operations of share class.
/2/Annualized.
/3/There were no Investor B Shares outstanding as of September 30, 1997.
/4/Reissuance of shares.
24
<PAGE>

BlackRock
[LOGO] North Carolina Municipal
Money Market Portfolio

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Investment Goal
The fund seeks as high a level of current income exempt from Federal income tax
and, to the extent possible, North Carolina state income tax, as is consistent
with maintaining liquidity and stability of principal.

Primary Investment Strategies
In pursuit of this goal, the fund invests primarily in Municipal Securities of
issuers located in North Carolina.

Specifically, the fund may invest in:

2) Tax-exempt commercial paper and similar debt instruments rated Prime-2 or
higher by Moody's, A-2 or higher by Standard & Poor's, D-2 or higher by Duff
& Phelps, or F-2 or higher by Fitch.

3) Municipal bonds rated Aa or higher by Moody's or AA or higher by Standard &
Poor's, Duff & Phelps, or Fitch.

4) Unrated notes, paper and other instruments that are determined by the fund
manager to be of comparable quality to the instruments described above.

The fund seeks to maintain a net asset value of $1.00 per share.

In addition, the fund normally invests at least 65% of its net assets in
Municipal Securities of issuers located in North Carolina.

Quality
The fund manager, under guidelines established by the Company's Board of Trust-
ees, will only purchase securities that

IMPORTANT DEFINITIONS

General Obligation
Bonds: Bonds which are
secured by the issuer's
pledge of its full
faith, credit and tax-
ing power for the pay-
ment of principal and
interest.

Liquidity: Liquidity is
the ability to easily
convert investments
into cash without los-
ing a significant
amount of money in the
process.

Municipal Lease Obliga-
tions: These provide
participation in munic-
ipal lease agreements
and installment pur-
chase contracts, but
are not part of the
general obligations of
the municipality.

Municipal Security: A
short-term obligation
issued by or on behalf
of states and posses-
sions of the United
States, their political
subdivisions and their
agencies and authori-
ties.

Net Asset Value (NAV):
The value of everything
the fund owns, minus
everything it owes,
divided by the number
of shares held by
investors.

25
<PAGE>

IMPORTANT DEFINITIONS

Tax-Exempt Commercial
Paper: Short-term
Municipal Securities
with maturities of 1 to
270 days.

Variable or Floating
Rate Securities: Secu-
rities whose interest
rates adjust automati-
cally after a certain
period of time and/or
whenever a predeter-
mined standard interest
rate changes.

have short-term debt ratings at the time of purchase in the two highest rating
categories from at least two national rating agencies, or one such rating if
the security is rated by only one agency. Securities that are unrated must be
determined by the fund manager to be of comparable quality.

Should the Company's Board of Trustees determine that the investment objective
of the fund should be changed, shareholders will be given at least 30 days
notice before any such change is made. The fund may not change the requirement
that it normally invest at least 80% of its net assets in Municipal Securities
and other instruments whose interest is exempt from regular federal income tax
without shareholder approval.

Key Risks

Key Risks
The value of money market investments tends to fall when prevailing interest
rates rise, although they're generally less sensitive to interest rate changes
than longer-term securities.

The fund concentrates its investments in securities of issuers located in
North Carolina and is non-diversified under the Investment Company Act. This
raises special concerns because performance is more dependent upon the perfor-
mance of a smaller number of securities and issuers than in a diversified
portfolio. The change in value of any one security may affect the overall
value

26
<PAGE>

of the fund more than it would in a diversified portfolio. In particular,
changes in the economic conditions and governmental policies of North Carolina
and its political subdivisions could hurt the value of the fund's shares.

The fund will rely on legal opinions of counsel to issuers of Municipal Securi-
ties as to the tax-free status of investments and will not do its own analysis.

The fund may purchase variable and floating rate instruments. The absence of an
active market for these securities could make it difficult for the fund to dis-
pose of them if the issuer defaults.

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, the
fund's investment adviser, is currently working to avoid such problems. Black
Rock 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 issuers 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 for Investor A Shares. 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 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.

The performance for the period before Investor A Shares were launched is based
upon performance for older share classes of the fund. Investor A Shares were
launched in February 1995.The actual return of Investor A Shares would have
been lower than shown because Investor A Shares have higher expenses than these
older classes.

As of 12/31 Investor A Shares
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------

Best Quarter
Q4 '95: 0.80%

Worst Quarter
Q4 '94: 0.54%

The bars for 1994-1995 are based
upon performance for Institutional Shares
of the fund.

[BAR GRAPH APPEARS HERE]

- ------------------------------------------
94 95 96 97 98
- ------------------------------------------
2.28% 3.14% 2.81% 2.95% 2.80%
- ------------------------------------------

28
<PAGE>

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.

The table below describes the fees and expenses that you may pay if you buy and
hold Investor A, B and C 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>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
Advisory Fees .45% .45% .45%
Distribution and service (12b-1) fees 50% 1.15% 1.15%
Other expenses .36% .36% .36%
Total annual fund operating expenses 1.31% 1.96% 1.96%
Fee Waivers and Expense Reimbursements* .39% .54% .54%
Net Expenses* .92% 1.42% 1.42%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits. In addition, BlackRock has contractually agreed to waive service
fees in the amount of .15% of average daily net assets on Investor B and C
Shares for the next year. "Net Expenses" in the table have been restated to
reflect these waivers and reimbursements.

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 (except for the waivers in the first year discussed above) and redemp-
tion 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 $ 94 $377 $ 681 $1,545
B Shares* $145 $563 $1,007 $2,073**/$1,994***
C Shares* $145 $563 $1,007 $2,242
</TABLE>
* These expense figures do not reflect the imposition of the deferred sales
charge which may be deducted upon the redemption of Investor B or Investor C
Shares of a fund received in an exchange transaction for Investor B or
Investor C Shares of a non-money market investment portfolio of the Company
as described in the applicable prospectuses. No deferred sales charge is
deducted upon the redemption of Investor B or Investor C Shares of a fund
that are purchased from the Company and not acquired by exchange.
** Based on the conversion of Investor B Shares to Investor A Shares after
eight years (applies to shares received in an exchange transaction for
Investor B Shares of an equity portfolio of the Company.
*** Based on the conversion of Investor B Shares to Investor A Shares after
seven years (applies to shares received in an exchange transaction for
Investor B Shares of a bond portfolio of the Company).

IMPORTANT DEFINITIONS

Advisory Fees: Fees
paid to the investment
adviser for portfolio
management services.

Distribution Fees: A
method of charging dis-
tribution-related
expenses against fund
assets.

Other Expenses: Include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

Service Fees: Fees that
are paid to BlackRock
and /or its affiliates
for shareholder account
service and
maintenance.

29
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Investor A Share Outstanding Throughout Each Period)

North Carolina Municipal Money Market Portfolio

<TABLE>
<CAPTION>
INVESTOR A SHARES
For the
Period
Year Year Year 2/14/95/1
Ended Ended Ended / through
9/30/98 9/30/97 9/30/96 9/30/95
<S> <C> <C> <C> <C>
Net asset value at beginning of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Income from investment operations
Net investment income 0.0288 0.0287 0.0286 0.0194
-------- -------- -------- --------
Total from investment operations 0.0288 0.0287 0.0286 0.0194
-------- -------- -------- --------
Less distributions
Distributions from net investment
income (0.0288) (0.0287) (0.0286) (0.0194)
Distributions from net realized
capital gains - - - - - - - -
-------- -------- -------- --------
Total distributions (0.0288) (0.0287) (0.0286) (0.0194)
-------- -------- -------- --------
Net asset value at end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total return 2.92% 2.91% 2.90% 1.95%
Ratios/Supplemental data
Net assets at end of period (in
thousands) $ 245 $ 304 $ 111 $ 53
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 0.76% 0.76% 0.76% 0.83%/2/
Before advisory/administration fee
waivers 1.21% 1.21% 1.25% 1.36%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 2.88% 2.88% 2.83% 3.05%/2/
Before advisory/administration fee
waivers 2.43% 2.43% 2.34% 2.52%/2/
</TABLE>
----------------------------------------------------

/1/Commencement of operations of share class.
/2/Annualized.
30
<PAGE>

BlackRock
[LOGO] Ohio Municipal Money
Market Portfolio

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Investment Goal
The fund seeks as high a level of current income exempt from Federal income tax
and, to the extent possible, Ohio state income tax, as is consistent with main-
taining liquidity and stability of principal.

Primary Investment Strategies
In pursuit of this goal, the fund invests primarily in Municipal Securities of
issuers located in Ohio.

Specifically, the fund may invest in:
1) Fixed and variable rate notes and similar debt instruments rated MIG-2,
VMIG-2 or Prime-2 or higher by Moody's, SP-2 or A-2 or higher by Standard &
Poor's, D-2 or higher by Duff & Phelps, or F-2 or higher by Fitch.
2) Tax-exempt commercial paper and similar debt instruments rated Prime-2 or
higher by Moody's, A-2 or higher by Standard & Poor's, D-2 or higher by Duff
& Phelps, or F-2 or higher by Fitch.
3) Municipal bonds rated Aa or higher by Moody's or AA or higher by Standard &
Poor's, Duff & Phelps, or Fitch.
4) Unrated notes, paper and other instruments that are determined by the fund
manager to be of comparable quality to the instruments described above.
5) Municipal bonds and notes whose principal and interest payments are
guaranteed by the U.S. Government or one of its agencies or authorities or
which otherwise depend on the credit of the United States.

The fund seeks to maintain a net asset value of $1.00 per share.

In addition, the fund normally invests at least 65% of its net assets in Munic-
ipal Securities of issuers located in Ohio.

Quality
The fund manager, under guidelines established by the Company's Board of Trust-
ees, will only purchase securities that

IMPORTANT DEFINITIONS

General Obligation
Bonds: Bonds which are
secured by the issuer's
pledge of its full
faith, credit and tax-
ing power for the pay-
ment of principal and
interest.

Liquidity: Liquidity is
the ability to easily
convert investments
into cash without los-
ing a significant
amount of money in the
process.

Municipal Lease Obliga-
tions: These provide
participation in munic-
ipal lease agreements
and installment pur-
chase contracts, but
are not part of the
general obligations of
the municipality.

Municipal Security: A
short-term obligation
issued by or on behalf
of states and posses-
sions of the United
States, their political
subdivisions and their
agencies and authori-
ties.

Net Asset Value (NAV):
The value of everything
the fund owns, minus
everything it owes,
divided by the number
of shares held by
investors.

Tax-Exempt Commercial
Paper: Short-term
Municipal Securities
with maturities of 1 to
270 days.

31
<PAGE>

IMPORTANT DEFINITIONS

Variable or Floating
Rate Securities: Secu-
rities whose interest
rates adjust automati-
cally after a certain
period of time and/or
whenever a predeter-
mined standard interest
rate changes.

Maturity
The fund is managed so that the dollar weighted average maturity of all its
investments will be 90 days or less. The fund will buy only those securities
which have remaining maturities of 397 days or less (except for certain vari-
able and floating rate instruments and securities collateralizing repurchase
agreements). The fund's securities may not earn as high a level of income as
longer term or lower quality securities, which generally have greater risk and
more fluctuation in value.

Should the Company's Board of Trustees determine that the investment objective
of the fund should be changed, shareholders will be given at least 30 days
notice before any such change is made. The fund may not change the requirement
that it normally invest at least 80% of its net assets in Municipal Securities
and other instruments whose interest is exempt from regular federal income tax
without shareholder approval.

Key Risks

Key Risks
The value of money market investments tends to fall when prevailing interest
rates rise, although they're generally less sensitive to interest rate changes
than longer-term securities.

The fund concentrates its investments in securities of issuers located in Ohio
and is non-diversified under the Investment Company Act. This raises special
concerns because performance is more dependent upon the performance of a
smaller number of securities and issuers than in a diversified portfolio. The
change in value of any one security may affect the overall value of the

32
<PAGE>

fund more than it would in a diversified portfolio. In particular,
changes in the economic conditions and governmental policies of Ohio and its
political subdivisions could hurt the value of the fund's shares.

The fund will rely on legal opinions of counsel to issuers of Municipal Securi-
ties as to the tax-free status of investments and will not do its own analysis.

The fund may purchase variable and floating rate instruments. The absence of an
active market for these securities could make it difficult for the fund to dis-
pose of them if the issuer defaults.

33
<PAGE>

The performance for the period before Investor A Shares were launched is based
upon performance for Service Shares of the fund. Investor A Shares were
launched in October 1993. The actual return of Investor A Shares would have
been lower than shown because Investor A Shares have higher expenses than Serv-
ice Shares.

As of 12/31 Investor A Shares
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------

Best Quarter
Q2 '95: 0.84%

Worst Quarter
Q1 '94: 0.44%

[BAR GRAPH APPEARS HERE]

- -----------------------------------------
94 95 96 97 98
- -----------------------------------------
2.29% 3.23% 2.90% 2.99% 2.79%
- -----------------------------------------

34
<PAGE>

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.

The table below describes the fees and expenses that you may pay if you buy and
hold Investor A, B and C 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>
<CAPTION>
A Shares B Shares C Shares

<S> <C> <C> <C>
Advisory Fees .45% .45% .45%
Distribution and service (12b-1) fees* .50% 1.15% 1.15%
Other expenses .35% .35% .35%
Total annual fund operating expenses 1.30% 1.95% 1.95%
Fee waivers and expense reimbursements* .34% .49% .49%
Net Expenses* .96% 1.46% 1.46%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits. In addition, BlackRock has contractually agreed to waive service
fees in the amount of .15% of average daily net assets on Investor B and C
Shares for the next year. "Net expenses" in the table have been restated to
reflect these waivers and reimbursements.

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 (except for the waivers in the first year discussed above) and redemp-
tion 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 $ 98 $379 $ 680 $1,538
B Shares* $149 $565 $1,007 $2,066**/$1,987***
C Shares* $149 $565 $1,007 $2,235
</TABLE>
* These expense figures do not reflect the imposition of the deferred sales
charge which may be deducted upon the redemption of Investor B or Investor
C Shares of a fund received in an exchange transaction for Investor B or
Investor C Shares of a non-money market investment portfolio of the Company
as described in the applicable prospectuses. No deferred sales charge is
deducted upon the redemption of Investor B or Investor C Shares of a fund
that are purchased from the Company and not acquired by exchange.
** Based on the conversion of Investor B Shares to Investor A Shares after
eight years (applies to shares received in an exchange transaction for
Investor B Shares of an equity portfolio of the Company).
*** Based on the conversion of Investor B Shares to Investor A Shares after
seven years (applies to shares received in an exchange transaction for
Investor B Shares of a bond portfolio of the Company).

IMPORTANT DEFINITIONS

Advisory Fees: Fees
paid to the investment
adviser for portfolio
management services.

Distribution Fees: A
method of charging dis-
tribution-related
expenses against fund
assets.

Other Expenses: Include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

Service Fees: Fees that
are paid to BlackRock
and /or its affiliates
for shareholder account
service and mainte-
nance.

35
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Investor A Share Outstanding Throughout Each Period)

Ohio Municipal Money Market Portfolio

<TABLE>
<CAPTION>
INVESTOR A SHARES
For the
Period
Year Year Year Year 10/5/93/1
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 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations
Net investment income 0.0286 0.0292 0.0293 0.0310 0.0199
-------- -------- -------- -------- --------
Total from investment operations 0.0286 0.0292 0.0293 0.0310 0.0199
-------- -------- -------- -------- --------
Less distributions
Distributions from net investment
income (0.0286) (0.0292) (0.0293) (0.0310) (0.0199)
Distributions from net realized
capital gains - - - - - - - - - -
-------- -------- -------- -------- --------
Total distributions (0.0286) (0.0292) (0.0293) (0.0310) (0.0199)
-------- -------- -------- -------- --------
Net asset value at end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return 2.90% 2.96% 2.98% 3.15% 2.01%
Ratios/Supplemental data
Net assets at end of period (in
thousands) $ 15,904 $ 15,876 $ 5,672 $ 75 $ 28
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 0.85% 0.79% 0.79% 0.80% 0.62%/2/
Before advisory/administration fee
waivers 1.21% 1.21% 1.25% 1.26% 1.26%/2/
Ratios of net investment income
to average net assets
After advisory/administration fee
waivers 2.86% 2.92% 2.88% 3.02% 1.94%/2/
Before advisory/administration fee
waivers 2.50% 2.50% 2.42% 2.56% 1.30%/2/
</TABLE>
------------------------------------------------

/1/Commencement of operations of share class.
/2/Annualized.
36
<PAGE>

BlackRock
[LOGO] Pennsylvania Municipal
Money Market Portfolio

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Investment Goal
The fund seeks as high a level of current income exempt from Federal income tax
and, to the extent possible, Pennsylvania state income tax, as is consistent
with maintaining liquidity and stability of principal.

Primary Investment Strategies
In pursuit of this goal, the fund invests primarily in Municipal Securities of
issuers located in Pennsylvania.

The fund seeks to maintain a net asset value of $1.00 per share.

In addition, the fund normally invests at least 65% of its net assets in
Municipal Securities of issuers located in Pennsylvania.

Quality
The fund manager, under guidelines established by the Company's Board of Trust-
ees, will only purchase securities that have short-term debt ratings at the
time of purchase in the two

IMPORTANT DEFINITIONS

General Obligation
Bonds: Bonds which are
secured by the issuer's
pledge of its full
faith, credit and tax-
ing power for the pay-
ment of principal and
interest.

Liquidity: Liquidity is
the ability to easily
convert investments
into cash without los-
ing a significant
amount of money in the
process.

Municipal Lease Obliga-
tions: These provide
participation in munic-
ipal lease agreements
and installment pur-
chase contracts, but
are not part of the
general obligations of
the municipality.

Municipal Security: A
short term obligation
issued by or on behalf
of states and posses-
sions of the United
States, their political
subdivisions and their
agencies and authori-
ties.

Net Asset Value (NAV):
The value of everything
the fund owns, minus
everything it owes,
divided by the number
of shares held by
investors.

IMPORTANT DEFINITIONS

Tax-Exempt Commercial
Paper: Short-term
Municipal Securities
with maturities of 1 to
270 days.

Variable or Floating
Rate Securities: Secu-
rities whose interest
rates adjust automati-
cally after a certain
period of time and/or
whenever a predeter-
mined standard interest
rate changes.

highest rating categories from at least two national rating agencies, or one
such rating if the security is rated by only one agency. Securities that are
unrated must be determined by the fund manager to be of comparable quality.

Should the Company's Board of Trustees determine that the investment objective
of the fund should be changed, shareholders will be given at least 30 days
notice before any such change is made. The fund may not change the requirement
that it normally invest at least 80% of its net assets in Municipal Securities
and other instruments whose interest is exempt from regular federal income tax
without shareholder approval.

Key Risks
The value of money market investments tends to fall when prevailing interest
rates rise, although they're generally less sensitive to interest rate changes
than longer-term securities.

The fund concentrates its investments in securities of issuers located in
Pennsylvania and is non-diversified under the Investment Company Act. This
raises special concerns because performance is more dependent upon the perfor-
mance of a smaller number of securities and issuers than in a diversified
portfolio. The change in value of any one security may affect the overall
value of the fund more than it would in a diversified portfolio. In par-

38
<PAGE>

ticular, changes in the economic conditions and governmental policies of Penn-
sylvania and its political subdivisions could hurt the value of the fund's
shares.

The fund may invest without limit in bonds the interest on which may be subject
to the Federal Alternative Minimum Tax Interest on these bonds that is received
by taxpayers subject to the Federal Alternative Minimum Tax is taxable.

The fund will rely on legal opinions of counsel to issuers of Municipal Securi-
ties as to the tax-free status of investments and will not do its own analysis.

The fund may purchase variable and floating rate instruments. The absence of an
active market for these securities could make it difficult for the fund to dis-
pose of them if the issuer defaults.

39
<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, the fund's investment adviser, is currently working to avoid such prob-
lems. 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 issuers whose securities the fund holds or securi-
ties markets generally.

The performance for the period before Investor A Shares were launched is based
upon performance for older share classes of the fund. Investor A Shares were
launched in December 1993. The actual return of Investor A Shares would have
been lower than shown because Investor A Shares have higher expenses than
these older classes.

As of 12/31 Investor A Shares
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------

Best Quarter
Q4 '95: 0.84%

Worst Quarter
Q1 '94: 0.43%

[BAR GRAPH APPEARS HERE]

- -----------------------------------------
94 95 96 97 98
- -----------------------------------------
2.23% 3.19% 2.77% 2.94% 2.66%
- -----------------------------------------

40
<PAGE>

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.

The table below describes the fees and expenses that you may pay if you buy and
hold Investor A, B and C 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>
<CAPTION>
A Shares B Shares C Shares

<S> <C> <C> <C>
Advisory Fees .45% .45% .45%
Distribution and service
(12b-1) fees* .50% 1.15% 1.15%
Other expenses .33% .33% .33%
Total annual fund operating
expenses 1.28% 1.93% 1.93%
Fee Waivers and Expense Reimbursements* .29% .44% .44%
Net Expenses* .99% 1.49% 1.49%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits. In addition, BlackRock has contractually agreed to waive service
fees in the amount of .15% of average daily net assets on Investor B and C
Shares for the next year. "Net expenses" in the table have been restated to
reflect these waivers and reimbursements.

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 (except for the waivers in the first year discussed above) and redemp-
tion 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 $101 $377 $ 674 $1,520
B Shares* $152 $564 $1,001 $2,049**/$1,970***
C Shares* $152 $564 $1,001 $2,218
</TABLE>
* These expense figures do not reflect the imposition of the deferred sales
charge which may be deducted upon the redemption of Investor B or Investor C
Shares of a fund received in an exchange transaction for Investor B or
Investor C Shares of a non-money market investment portfolio of the Company
as described in the applicable prospectuses. No deferred sales charge is
deducted upon the redemption of Investor B or Investor C Shares of a fund
that are purchased from the Company and not acquired by exchange.
** Based on the conversion of Investor B Shares to Investor A Shares after
eight years (applies to shares received in an exchange transaction for
Investor B Shares of an equity portfolio of the Company.
*** Based on the conversion of Investor B Shares to Investor A Shares after
seven years (applies to shares received in an exchange transaction for
Investor B Shares of a fixed income portfolio of the Company).

IMPORTANT DEFINITIONS

Advisory Fees: Fees
paid to the investment
adviser for portfolio
management services.

Distribution Fees: A
method of charging dis-
tribution-related
expenses against fund
assets.

Other Expenses: Include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

Service Fees: Fees that
are paid to BlackRock
and /or its affiliates
for shareholder account
service and mainte-
nance.

41
<PAGE>

Financial Highlights
The financial information in the table below shows the fund's financial per-
formance for the past 5 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 and assumes that
you have reinvested all dividends 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 Share Outstanding Throughout Each Period)

Pennsylvania Municipal Money Market Portfolio

<TABLE>
<CAPTION>
INVESTOR A SHARES
For the
Period
Year Year Year Year 12/28/93/1
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 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment
operations
Net investment income 0.0276 0.0285 0.0281 0.0302 0.0153
Net realized gain (loss)
on investments - - - - - - - - - -
-------- -------- -------- -------- --------
Total from investment
operations 0.0276 0.0285 0.0281 0.0302 0.0153
-------- -------- -------- -------- --------
Less distributions
Distributions from net
investment income (0.0276) (0.0285) (0.0281) (0.0302) (0.0153)
Distributions from net
realized capital gains - - - - - - - - - -
-------- -------- -------- -------- --------
Total distributions (0.0276) (0.0285) (0.0281) (0.0302) (0.0153)
-------- -------- -------- -------- --------
Net asset value at end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return 2.80% 2.89% 2.90% 3.06% 1.58%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $110,860 $ 98,218 $ 63,424 $ 750 $ 139
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.85% 0.77% 0.81% .82% 0.65%/2/
Before
advisory/administration
fee waivers 1.17% 1.17% 1.23% 1.24% 1.22%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 2.75% 2.85% 2.81% 3.03% 2.11%/2/
Before
advisory/administration
fee waivers 2.43% 2.45% 2.39% 2.61% 1.54%/2/
</TABLE>
--------------------------------------------------

/1/Commencement of operations of share class.
/2/Annualized.
42
<PAGE>

BlackRock
[LOGO] Virginia Municipal Money
Market Portfolio

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Investment Goal
The fund seeks as high a level of current income exempt from Federal income tax
and, to the extent possible, Virginia state income tax, as is consistent with
maintaining liquidity and stability of principal.

Primary Investment Strategies
In pursuit of this goal, the fund invests primarily in Municipal Securities of
issuers located in Virginia.

The fund seeks to maintain a net asset value of $1.00 per share.

In addition, the fund normally invests at least 65% of its net assets in
Municipal Securities of issuers located in Virginia.

Quality
The fund manager, under guidelines established by the Company's Board of Trust-
ees, will only purchase securities that

IMPORTANT DEFINITIONS

General Obligation
Bonds: Bonds which are
secured by the issuer's
pledge of its full
faith, credit and tax-
ing power for the pay-
ment of principal and
interest.

Liquidity: Liquidity is
the ability to easily
convert investments
into cash without los-
ing a significant
amount of money in the
process.

Municipal Lease Obliga-
tions: These provide
participation in munic-
ipal lease agreements
and installment pur-
chase contracts, but
are not part of the
general obligations of
the municipality.

Municipal Security: A
short-term obligation
issued by or on behalf
of states and posses-
sions of the United
States, their political
subdivisions and their
agencies and authori-
ties.

Net Asset Value (NAV):
The value of everything
the fund owns, minus
every thing it owes,
divided by the number
of shares held by
investors.

IMPORTANT DEFINITIONS

Tax-Exempt Commercial
Paper: Short-term
Municipal Securities
with maturities of 1 to
270 days.

Variable or Floating
Rate Securities: Secu-
rities whose interest
rates adjust automati-
cally after a certain
period of time and/or
whenever a predeter-
mined standard interest
rate changes.

Should the Company's Board of Trustees determine that the investment objective
of the fund should be changed, shareholders will be given at least 30 days
notice before any such change is made.The fund may not change the requirement
that it normally invest at least 80% of its net assets in Municipal Securities
and other instruments whose interest is exempt from regular federal income tax
without shareholder approval.

Key Risks

Key Risks
The value of money market instruments tends to fall when prevailing interest
rates rise, although they're generally less sensitive to interest rate changes
than longer-term securities.

The fund concentrates its investments in securities of issuers located in Vir-
ginia and is non-diversified under the Investment Company Act. This raises
special concerns because performance is more dependent upon the performance of
a smaller number of securities and issuers than in a diversified portfolio.
The change in value of any one security may affect the overall value of the

44
<PAGE>

fund more than it would in a diversified portfolio. In particular, changes in
the economic conditions and governmental policies of Virginia and its political
subdivisions could hurt the value of the fund's shares.

Municipal Securities include revenue bonds, general obligation bonds and munic-
ipal lease obligations. Revenue bonds include private activity bonds, which are
not payable from the general revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved. To the extent that the
fund's assets is invested in private activity bonds, the fund will be subject
to the particular risks presented by the laws and economic conditions relating
to such projects and bonds to a greater extent than if its assets were not so
invested. Moral obligation bonds are normally issued by special purpose public
authorities. If the issuer of moral obligation bonds is unable to pay its debts
from current revenues, it may draw on a reserve fund the restoration of which
is a moral but not a legal obligation of the state or municipality which cre-
ated the issuer. Municipal lease obligations are not guaranteed by the issuer
and are generally less liquid than other securities.

The fund will rely on legal opinions of counsel to issuers of Municipal Securi-
ties as to the tax-free status of investments and will not do its own analysis.

The fund may purchase variable and floating rate instruments. The absence of an
active market for these securities could make it difficult for the fund to dis-
pose of them if the issuer defaults.

45
<PAGE>

The performance for the period before Investor A Shares were launched is based
upon performance for older share classes of the fund. Investor A Shares were
launched in May 1997. The actual return of Investor A Shares would have been
lower than shown because Investor A Shares have higher expenses than these
older classes.

As of 12/31 Investor A Shares
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------

Best Quarter
Q2 '95: 0.94%

Worst Quarter
Q4 '98: 0.63%

The bars for 1995-1997 are based upon
performance for Institutional Shares
of the fund.

[BAR GRAPH APPEARS HERE]

- ----------------------------------------
95 96 97 98
- ----------------------------------------
3.53% 3.15% 3.09% 2.72%
- ----------------------------------------

As of 12/31/98
- ---------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- ---------------------------------------------------------------------
Since Inception
1 Year 3 Years Inception Date
- ---------------------------------------------------------------------
VA Municipal MM; Inv A 2.72% 2.99% 3.12% 07/25/94
- ---------------------------------------------------------------------

46
<PAGE>

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.

The table below describes the fees and expenses that you may pay if you buy and
hold Investor A, B and C 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>
<CAPTION>
A Shares B Shares C Shares

<S> <C> <C> <C>
Advisory Fees .45% .45% .45%
Distribution and service (12b-
1) fees .50% 1.15% 1.15%
Other expenses .39% .39% .39%
Total annual fund operating
expenses 1.34% 1.99% 1.99%
Fee Waivers and Expense
Reimbursements* .42% .57% .57%
Net Expenses* .92% 1.42% 1.42%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits. In addition, BlackRock has contractually agreed to waive service
fees in the amount of .15% of average daily net assets on Investor B and C
Shares for the next year. "Net Expenses" in the table have been restated to
reflect these waivers and reimbursements.

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 (except for the waivers in the first year discussed above) and redemp-
tion 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 $94 $383 $694 $1,576
B Shares* $145 $569 $1,020 $2,102**/$2,024***
C Shares* $145 $569 $1,020 $2,271
</TABLE>
* These expense figures do not reflect the imposition of the deferred sales
charge which may be deducted upon the redemption of Investor B or Investor
C Shares of a fund received in an exchange transaction for Investor B or
Investor C Shares of a non-money market investment portfolio of the Company
as described in the applicable prospectuses. No deferred sales charge is
deducted upon the redemption of Investor B or Investor C Shares of a fund
that are purchased from the Company and not acquired by exchange.
** Based on the conversion of Investor B Shares to Investor A Shares after
eight years (applies to shares received in an exchange transaction for
Investor B Shares of an equity portfolio of the Company).
*** Based on the conversion of Investor B Shares to Investor A Shares after
seven years (applies to shares received in an exchange transaction for
Investor B Shares of a bond portfolio of the Company).

IMPORTANT DEFINITIONS

Advisory Fees: Fees
paid to the investment
adviser for portfolio
management services.

Distribution Fees: A
method of charging dis-
tribution-related
expenses against fund
assets.

Other Expenses: Include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

Service Fees: Fees that
are paid to BlackRock
and /or its affiliates
for shareholder account
service and
maintenance.

47
<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 and assumes that
you have reinvested all dividends 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 Share Outstanding Throughout Each Period)

Virginia Municipal Money Market Portfolio

<TABLE>
<CAPTION>
INVESTOR A SHARES
For the
Period
Year 5/27/97/1
Ended / through
9/30/98 9/30/97
<S> <C> <C>
Net asset value at beginning of period $ 1.00 $ 1.00
-------- --------
Income from investment operations
Net investment income 0.0280 0.0102
-------- --------
Total from investment operations 0.0280 0.0102
-------- --------
Less distributions
Distributions from net investment income (0.0280) (0.0102)
Distributions from net realized capital gains - - - -
-------- --------
Total distributions (0.0280) (0.0102)
-------- --------
Net asset value at end of period $ 1.00 $ 1.00
======== ========
Total return 2.84% 1.03%
Ratios/Supplemental data
Net assets at end of period (in thousands) $ 643 $ 1,096
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.87% 0.86%/2/
Before advisory/administration fee waivers 1.34% 1.45%/2/
Ratios of net investment income to average net assets
After advisory/administration fee waivers 2.85% 2.95%/2/
Before advisory/administration fee waivers 2.38% 2.36%/2/
</TABLE>
----------------------------------------------

/1/Commencement of operations of share class.
/2/Annualized.

48
<PAGE>

[GRAPHIC
APPEARS About Your Investment
HERE]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Buying Shares from a Registered Investment Professional

BlackRock Funds believes that investors can benefit from the advice and ongoing
assistance of a registered investment professional. Your registered representa-
tive 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 regis-
tered representative about the details of your investment.

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.

- --------------------------------------------------------------------------------

What Price Per Share Will You Pay?

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 $5 million dollars and has 5 million shares outstanding, the net asset
value (NAV) per share is $1.00. When you buy Investor Shares you pay the
NAV/share. Although each fund described in this prospectus seeks to maintain an
NAV of $1.00 per share, there is no guarantee it will be able to do so.

The funds' investments are valued based on the amortized cost method described
in the SAI.

The Company's transfer agent, PFPC, will probably receive your order from your
registered representative. However, you can also fill out a purchase applica-
tion and mail it to the transfer agent with your check. Please call (800) 441-
7762 for a purchase application. Purchase orders received by the transfer agent
before the close of regular trading on the New York Stock Exchange (NYSE) (cur-
rently 4 p.m. (Eastern time)) on each day the NYSE and the Federal Reserve Bank
of Philadelphia are open will be priced based on the next NAV calculated on
that day.

NAV is calculated separately for each class of shares of each fund at 12 noon
and 4 p.m. (Eastern time) each day the NYSE and the Federal Reserve Bank of
Philadelphia are open. Shares will not be priced on days the NYSE or the Fed-
eral Reserve Bank of Philadelphia are closed.

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.

49
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

If a shareholder acquiring Investor A shares on or after May 1, 1998 later
meets the requirements for purchasing Institutional Shares of a fund (other
than due to changes in market value), then the shareholder's Investor A Shares
will automatically be converted to Institutional Shares of the same fund having
the same total net asset value as the shares converted.

- --------------------------------------------------------------------------------

When Must You Pay?

Payment for an order must be made by your registered representative in immedi-
ately available funds by 4 p.m. (Eastern time) on the business day following
PFPC's receipt of the order. If payment is not received by this time, the order
will be canceled and you and your registered representative will be responsible
for any loss to a fund. For shares purchased directly from the transfer agent,
a check payable to BlackRock Funds and bearing the name of the fund you are
buying must accompany a completed purchase application. The Company does not
accept third party checks. You may also wire Federal funds to the transfer
agent to purchase shares, but you must call PFPC at (800) 441-7762 before doing
so to confirm the wiring instructions.

- --------------------------------------------------------------------------------

How Much is the Minimum Investment?

The minimum investment for the initial purchase of Investor Shares is $500.
There is a $50 minimum for all later investments. The Company permits a lower
initial investment if you are an employee of the Company or one of its service
providers or if you participate in the Automatic Investment Plan in which you
make regular, periodic investments through a savings or checking account. Your
investment professional can advise you on how to begin an Automatic Investment
Plan. The fund may reject any purchase order, modify or waive the minimum
investment requirements and suspend and resume the sale of any share class of
the Company at any time.

- --------------------------------------------------------------------------------

Distribution and Service Plan

50
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

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 Dis-
tributor and PNC Bank affiliates for sales support services provided in connec-
tion with the sale of Investor Shares. The distribution fees may also be used
to pay brokers, dealers, financial institutions and industry professionals
(Service Organizations) for sales support services and related expenses.
Investor A Shares pay a maximum distribution fee of .10% per year of the aver-
age daily net asset value of each fund. Investor B and C Shares pay a maximum
of .75% per year. The Plan also allows the Distributor, PNC Bank affiliates and
other companies that receive fees from the Company to make payments relating to
distribution and sales support activities out of their past profits or other
sources available to them.

(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.

<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

(3) Providing sub-accounting for Investor Shares beneficially owned by
customers or the information necessary for sub-accounting; and
(4) Providing other similar services.

- --------------------------------------------------------------------------------

How to Sell Shares

You can redeem shares at any time (although certain verification may be required
for redemptions in excess of $25,000 or in certain other cases). The Company
will redeem your shares at the next net asset value (NAV) calculated after your
order is received by the fund's transfer agent minus any applicable CDSC.
Except when CDSCs are applied, BlackRock Funds will not charge for redemptions.
Shares may be redeemed by sending a properly signed written redemption request
to BlackRock Funds c/o PFPC, P.O. Box 8907, Wilmington, DE 19899-8907. You can
also make redemption requests through your registered investment professional,
who may charge for this service. Shareholders should indicate whether they are
redeeming Investor A, Investor B or Investor C Shares. If a shareholder owns
more than one class of a fund and does not indicate which class he or she is
redeeming, the fund will redeem shares so as to minimize the CDSC charged.

52
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

ment of redemption proceeds for up to 15 days after the purchase date to make
sure that the check has cleared.

Upon request, the Company will provide the holders of Investor A Shares with
checkwriting privileges. An investor who wants to use this checkwriting redemp-
tion procedure must complete the checkwriting application and signature card
when completing the account application. Investors interested in obtaining the
checkwriting option on existing accounts may contact PFPC at (800) 441-7762.
The checkwriting option is not available in connection with the redemption of
Investor B or Investor C Shares.

- --------------------------------------------------------------------------------

Expedited Redemptions

- --------------------------------------------------------------------------------

The Company's Rights

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.

53
<PAGE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

Accounts with Low Balances

- -------------------------------------------------------------------------------

Management

For their investment advisory and sub-advisory services, BlackRock and BIMC
are entitled to fees computed daily on a fund-by-fund basis and payable month-
ly. For the fiscal year ended September 30, 1998, the aggregate advisory fees
paid by the funds to BlackRock as a percentage of average daily net assets
were:

Money Market 0.17%
U.S. Treasury Money Market 0.15%
Municipal Money Market 0.12%
New Jersey Municipal Money Market 0.08%
North Carolina Municipal Money Market 0.04%
Ohio Municipal Money Market 0.09%
Pennsylvania Municipal Money Market 0.13%
Virginia Municipal Money Market 0.02%

The maximum annual advisory fees that can be paid to BlackRock on behalf of
each fund (as a percentage of average daily net assets) are as follows:

AVERAGE DAILY NET ASSETS INVESTMENT ADVISORY FEE

First $1 billion .450%
$1 billion-$2 billion .400%
$2 billion-$3 billion .375%
more than $3 billion .350%

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.

54
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

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.

Money Market .310%
U.S. Treasury Money Market .295%
Municipal Money Market .295%
New Jersey Municipal Money Market .265%
North Carolina Municipal Money Market .195%
Ohio Municipal Money Market .265%
Pennsylvania Municipal Money Market .295%
Virginia Municipal Money Market .205%

- --------------------------------------------------------------------------------

Dividends and Distributions

BlackRock Funds makes two kinds of distributions to shareholders: dividends and
net capital gain.

Dividends are the net investment income derived by a fund and are declared
daily and paid monthly within five business days after the end of the month.
The Company's Board of Trustees may change the timing of dividend payments.
Shareholders whose purchase orders are executed at 12 noon (Eastern time) (4
p.m. (Eastern time) for the U.S. Treasury Money Market Portfolio) receive divi-
dends for that day. Shareholders whose redemption orders have

55
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

been received by 12 noon (Eastern time) do not receive dividends for that day.

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.

- --------------------------------------------------------------------------------

Taxation of Distributions

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.

Each of the Municipal Money Market, Pennsylvania Municipal Money Market, New
Jersey Municipal Money Market, Ohio Municipal Money Market, North Carolina
Municipal Money Market and Virginia Municipal Money Market Portfolios intends
to pay most of its dividends as exempt interest dividends, which means such
dividends are exempt from regular federal income tax (but not necessarily other
federal taxes). These dividends will generally be subject to state and local
taxes. The state or municipality where you live may not charge you state and
local taxes on dividends earned on certain securities. The funds will have to
meet certain requirements in order for their dividends to be exempt from these
federal, state and local taxes. Dividends

56
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

earned on securities issued by the U.S. government and its agencies may also be
exempt from some types of state and local taxes.

These municipal money market funds may invest a portion of their assets in
securities that generate income that is not exempt from federal, state or local
income tax. Any capital gains distributed by the funds may be taxable as well.

[GRAPHIC
APPEARS Services for Shareholders
HERE]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

BlackRock Funds offers shareholders many special features which can enable
investors to have greater investment flexibility as well as more access to
information about the Company.

Additional information about these features is available by calling PFPC at
(800) 441-7762.

- --------------------------------------------------------------------------------

Exchange Privilege

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.) The Company's equity and bond funds
have sales charges. Therefore the exchange of Investor A Shares may be subject
to that sales charge. Investor A Shares of a money market fund that were
obtained with the exchange privilege and that originally were shares of an
equity or bond fund (and therefore subject to a sales charge) can be exchanged
for Investor A Shares of an equity or bond fund based on their respective net
asset values. Such exchanges may be subject to the difference between the sales
charge originally paid and the sales charge (if any) payable on the newly
acquired shares. Exchanges of shares of a money market fund for Investor B or C
Shares of an equity or bond fund will be subject to a contingent deferred sales
charge upon the sale of these B or C Shares. 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.

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 previ-

58
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

ously indicated that you did not want this option. If so, you may not use tele-
phone 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.

- --------------------------------------------------------------------------------

Automatic Investment Plan (AIP)

- --------------------------------------------------------------------------------

Retirement Plans

- --------------------------------------------------------------------------------

Statements

- --------------------------------------------------------------------------------

Systematic Withdrawal Plan (SWP)

59
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

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.

To participate in the SWP, shareholders must have their dividends automatically
reinvested and may not hold share certificates. Shareholders may change or can-
cel the SWP at any time, upon written notice to PFPC. If an investor purchases
additional Investor A Shares of a fund at the same time he or she redeems
shares through the SWP, that investor may lose money because of the sales
charge involved. No CDSC will be assessed on redemptions of Investor B or
Investor C Shares made through the SWP that do not exceed 12% of the account's
net asset value on an annualized basis. For example, monthly, quarterly and
semi-annual SWP redemptions of Investor B or Investor C Shares will not be sub-
ject to the CDSC if they do not exceed 1%, 3% and 6%, respectively, of an
account's net asset value on the redemption date. SWP redemptions of Investor B
or Investor C Shares in excess of this limit will still pay the applicable
CDSC.

<PAGE>

For More Information:
This prospectus contains important information you should know before you
invest. Read it carefully and keep it for future reference
More information about the BlackRock Funds is available free, upon request,
including:

Annual/Semi-Annual Report

These reports contain additional information about each of the Funds'
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 28, 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
a.m. to 6 p.m. (Eastern time), Monday-Friday. Call: (800) 441-7762

Purchases and Redemptions
Call your registered representative or (800) 441-7762.

World Wide Web

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., PO Box 8907, Wilmington, DE
19899-8907
Street Address: BlackRock Funds, c/o PFPC Inc., 400 Bellevue Parkway,
Wilmington, DE 19809

Internal Wholesalers/Broker Dealer Support
Available to support investment professionals 9 a.m. to 6 p.m. (Eastern time),
Monday-Friday. Call: (888) 8BLACKROCK

Securities and Exchange Commission (SEC)

INVESTMENT COMPANY ACT FILE NO. 811-05742

[LOGO BLACKROCK FUNDS]
<PAGE>

497(C)
File No. 33-26305

[ARTWORK APPEARS HERE]

NOT FDIC-INSURED

May lose value
No bank guarantee

Money Market
Portfolios
================================================================================
INVESTOR A SHARES

BlackRock Funds/sm/ is a mutual fund family with 36 investment portfolios, 5 of
which are described in this prospectus.

PROSPECTUS
January 28, 1999

[LOGO OF BLACKROCK FUNDS APPEARS HERE]

How to find
the information
you need

About Your
Investment
Table of
Contents

How to Find the
Information You Need
About BlackRock Funds

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Welcome to the new BlackRock Money Market 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).

The Money Market Portfolios of BlackRock Funds consist of 8 short-term invest-
ment alternatives. This prospectus contains information on 5 of these funds. 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.

BlackRock
[LOGO] New Jersey Municipal
Money Market Portfolio

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

Investment Goal
The fund seeks as high a level of current income exempt from Federal income
tax and, to the extent possible, New Jersey state income tax, as is consistent
with maintaining liquidity and stability of principal.

Primary Investment Strategies
In pursuit of this goal, the fund invests primarily in Municipal Securities of
issuers located in New Jersey.

Specifically, the fund may invest in:

2) Tax-exempt commercial paper and similar debt instruments rated Prime-2 or
higher by Moody's, A-2 or higher by Standard & Poor's, D-2 or higher by
Duff & Phelps, or F-2 or higher by Fitch.

3) Municipal bonds rated Aa or higher by Moody's or AA or higher by Standard &
Poor's, Duff & Phelps, or Fitch.

4) Unrated notes, paper and other instruments that are determined by the fund
manager to be of comparable quality to the instruments described above.

The fund seeks to maintain a net asset value of $1.00 per share.

The fund normally invests at least 80% of its net assets in Municipal Securi-
ties and other instruments whose interest is exempt from regular federal
income tax. The other 20% can be invested in securities which are subject to
regular federal income tax. Interest income from the fund's investments may be
subject to the Federal Alternative Minimum Tax.

The fund normally invests at least 65% of its net assets in Municipal Securi-
ties of issuers located in New Jersey. In addition, for New Jersey tax pur-
poses the fund intends to invest at least 80% of its total assets in Municipal
Securities of issuers located in the state of New Jersey and in securities
issued by the U.S. Government, its agencies and authorities.

IMPORTANT DEFINITIONS

General Obligation
Bonds: Bonds which are
secured by the issuer's
pledge of its full
faith, credit and tax-
ing power for the pay-
ment of principal and
interest.

Liquidity: Liquidity is
the ability to easily
convert investments
into cash without los-
ing a significant
amount of money in the
process.

Municipal Lease Obliga-
tions: These provide
participation in munic-
ipal lease agreements
and installment pur-
chase contracts, but
are not part of the
general obligations of
the municipality.

Municipal Security: A
short-term obligation
issued by or on behalf
of states and posses-
sions of the United
States, their political
subdivisions and their
agencies and authori-
ties.

Net Asset Value (NAV):
The value of everything
the fund owns, minus
everything it owes,
divided by the number
of shares held by
investors.

2
<PAGE>

Normally, the fund may hold up to 20% of its assets in uninvested cash
reserves. Uninvested cash will not earn income. It is possible that in extreme
market conditions the fund may invest more than 20% of its assets in securities
that are not Municipal Securities (and therefore are subject to regular federal
income tax) and may hold an unlimited amount of uninvested cash reserves. If
market conditions improve, these strategies could result in reducing the poten-
tial 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 made. The fund may not change the requirement
that it normally invest at least 80% of its net assets in Municipal Securities
and other instruments whose interest is exempt from regular federal income tax
without shareholder approval.

Key Risks Key Risks
The value of money market investments tends to fall when prevailing interest
rates rise, although they're generally less sensitive to interest rate changes
than longer-term securities.

Tax-Exempt Commercial
Paper: Short-term
Municipal Securities
with maturities of 1 to
270 days.

Variable or Floating
Rate Securities: Secu-
rities whose interest
rates adjust automati-
cally after a certain
period of time and/or
whenever a predeter-
mined standard interest
rate changes.

<PAGE>

issuers than in a diversified portfolio. The change in value of any one secu-
rity may affect the overall value of the fund more than it would in a diversi-
fied portfolio. In particular, changes in the economic conditions and govern-
mental policies of New Jersey and its political subdivisions could hurt the
value of the fund's shares.

Municipal Securities include revenue bonds, general obligation bonds and
municipal lease obligations. Revenue bonds include private activity bonds,
which are not payable from the general revenues of the issuer. Consequently,
the credit quality of private activity bonds is usually directly related to
the credit standing of the corporate user of the facility involved. To the
extent that the fund's assets are invested in private activity bonds, the fund
will be subject to the particular risks presented by the laws and economic
conditions relating to such projects and bonds to a greater extent than if its
assets were not so invested. Moral obligation bonds are normally issued by
special purpose public authorities. If the issuer of moral obligation bonds is
unable to pay its debts from current revenues, it may draw on a reserve fund
the restoration of which is a moral but not a legal obligation of the state or
municipality which created the issuer. Municipal lease obligations are not
guaranteed by the issuer and are generally less liquid than other securities.

The fund may invest without limit in bonds the interest on which may be sub-
ject to the Federal Alternative Minimum Tax. Interest on these bonds that is
received by taxpayers subject to the Federal Alternative Minimum Tax is tax-
able.

The fund will rely on legal opinions of counsel to issuers of Municipal Secu-
rities as to the tax-free status of investments and will not do its own analy-
sis.

The fund may purchase variable and floating rate instruments. The absence of
an active market for these securities could make it difficult for the fund to
dispose of them if the issuer defaults.

The performance for the period before Investor A Shares were launched is based
upon performance for Service Shares of the fund. Investor A Shares were launched
in January 1996. The actual return of Investor A Shares would have been lower
than shown because Investor A Shares have higher expenses than Service Shares.

As of 12/31 Investor A Shares
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------

Best Quarter
Q2 '95: 0.87%

Worst Quarter
Q1 '94: 0.43%

The bars for 1992-1996 are based upon performance for Service Shares of the
fund.

[BAR CHART APPEARS HERE]

92 2.29%
93 1.80%
94 2.25%
95 3.25%
96 2.67%
97 2.75%
98 2.60%

As of 12/31/98 Investor A Shares
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
Since Inception
1 Year 3 Years 5 Years Inception Date
NJ Municipal MM; Inv A 2.60% 2.67% 2.70% 2.61% 07/01/91

5
<PAGE>

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.

The table below describes the fees and expenses that you may pay if you buy and
hold Investor A 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)

A Shares

Advisory Fees .45%
Distribution and service (12b-1) fees .50%
Other expenses .37%
Total annual fund operating expenses 1.32%
Fee Waivers and Expense Reimbursements* .36%
Net Expenses* .96%

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 (except for the waivers in the first year discussed above) and redemp-
tion at the end of each time period. Although your actual cost may be higher or
lower, based on these assumptions your costs would be:

1 Year 3 Years 5 Years 10 Years

A Shares $98 $383 $689 $1,559

IMPORTANT DEFINITIONS

Advisory Fees: Fees
paid to the investment
adviser for portfolio
management services.

Distribution Fees: A
method of charging dis-
tribution-related
expenses against fund
assets.

Other Expenses: Include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

Service Fees: Fees that
are paid to BlackRock
and /or its affiliates
for shareholder account
service and mainte-
nance.

6
<PAGE>

FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
(For an Investor A Share Outstanding Throughout Each Period)

New Jersey Municipal Money Market Portfolio+

<TABLE>
<CAPTION>
INVESTOR A SHARES
For the For the
Period Period
Year Year 2/1/96 1/16/96/1/
Ended Ended through through
9/30/98 9/30/97 9/30/96 1/31/96
<S> <C> <C> <C> <C>
Net asset value at beginning
of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- -------- -------
Income from investment operations
Net investment income 0.0265 0.0268 0.0175 0.00
Net realized gain (loss) on
investments - - - - - - - -
------- ------- -------- -------
Total from investment operations 0.0265 0.0268 0.0175 0.00
------- ------- -------- -------
Less distributions
Distributions from net investment
income (0.0265) (0.0268) (0.0175) 0.00
Distributions from net realized
capital gains - - - - - - - -
------- ------- -------- -------
Total distributions (0.0265) (0.0268) (0.0175) 0.00
------- ------- -------- -------
Net asset value at end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======== =======
Total return 2.68% 2.71% 1.76% 2.66%
Ratios/Supplemental data
Net assets at end of period (in
thousands) $43,995 $21,691 $ 17,314 $21,662
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 0.91% 0.86% 0.78%/2/ 0.71%/2/
Before advisory/administration fee
waivers 1.28% 1.30% 1.27%/2/ 1.20%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 2.64% 2.68% 2.63%/2/ 2.66%/2/
Before advisory/administration fee
waivers 2.27% 2.24% 2.15%/2/ 2.17%/2/
</TABLE>

7
<PAGE>

BlackRock
[LOGO] North Carolina Municipal
Money Market Portfolio

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Primary Investment Strategies
In pursuit of this goal, the fund invests primarily in Municipal Securities of
issuers located in North Carolina.

Specifically, the fund may invest in:

2) Tax-exempt commercial paper and similar debt instruments rated Prime-2 or
higher by Moody's, A-2 or higher by Standard & Poor's, D-2 or higher by Duff
& Phelps, or F-2 or higher by Fitch.

3) Municipal bonds rated Aa or higher by Moody's or AA or higher by Standard &
Poor's, Duff & Phelps, or Fitch.

4) Unrated notes, paper and other instruments that are determined by the fund
manager to be of comparable quality to the instruments described above.

The fund seeks to maintain a net asset value of $1.00 per share.

In addition, the fund normally invests at least 65% of its net assets in Munic-
ipal Securities of issuers located in North Carolina.

Quality
The fund manager, under guidelines established by the Company's Board of Trust-
ees, will only purchase securities that

IMPORTANT DEFINITIONS

General Obligation
Bonds: Bonds which are
secured by the issuer's
pledge of its full
faith, credit and tax-
ing power for the pay-
ment of principal and
interest.

Liquidity: Liquidity is
the ability to easily
convert investments
into cash without los-
ing a significant
amount of money in the
process.

Municipal Lease Obliga-
tions: These provide
participation in munic-
ipal lease agreements
and installment pur-
chase contracts, but
are not part of the
general obligations of
the municipality.

Municipal Security: A
short-term obligation
issued by or on behalf
of states and posses-
sions of the United
States, their political
subdivisions and their
agencies and authori-
ties.

Net Asset Value (NAV):
The value of everything
the fund owns, minus
everything it owes,
divided by the number
of shares held by
investors.

8
<PAGE>

Normally, the fund may hold up to 20% of its assets in uninvested cash
reserves. Uninvested cash will not earn income. It is possible that in extreme
market conditions the fund may invest more than 20% of its assets in securities
that are not Municipal Securities (and therefore are subject to regular federal
income tax) and may hold an unlimited amount of uninvested cash reserves. If
market conditions improve, these strategies could result in reducing the poten-
tial 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 made. The fund may not change the requirement
that it normally invest at least 80% of its net assets in Municipal Securities
and other instruments whose interest is exempt from regular federal income tax
without shareholder approval.

Key Risks Key Risks
The value of money market investments tends to fall when prevailing interest
rates rise, although they're generally less sensitive to interest rate changes
than longer-term securities.

The fund concentrates its investments in securities of issuers located in North
Carolina and is non-diversified under the Investment Company Act. This raises
special concerns because performance is more dependent upon the performance of
a smaller number of securities and issuers than in a diversified portfolio. The
change in value of any one security may affect the overall value of the fund
more than it would in a diversified portfolio. In
IMPORTANT DEFINITIONS

Tax-Exempt Commercial
Paper: Short-term
Municipal Securities
with maturities of 1 to
270.

Variable or Floating
Rate Securities: Secu-
rities whose interest
rates adjust automati-
cally after a certain
period of time and/or
whenever a predeter-
mined standard interest
rate changes.

9
<PAGE>

particular, changes in the economic conditions and governmental policies of
North Carolina and its political subdivisions could hurt the value of the
fund's shares.

The fund will rely on legal opinions of counsel to issuers of Municipal Secu-
rities as to the tax-free status of investments and will not do its own analy-
sis.

The fund may purchase variable and floating rate instruments. The absence of
an active market for these securities could make it difficult for the fund to
dispose of them if the issuer defaults.

The fund, like any business, could be affected if the computer systems on
which it relies do not properly process information
10
<PAGE>

The performance for the period before Investor A Shares were launched is based
upon performance for older share classes of the fund. Investor A Shares were
launched in February 1995. The actual return of Investor A Shares would have
been lower than shown because Investor A Shares have higher expenses than these
older classes.

As of 12/31 Investor A Shares
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------

Best Quarter
Q4 '95 0.80%

Worst Quarter
Q4 '94 0.54%

The bars for 1994-1995 are based upon performance for Institutional Shares of
the fund.

[BAR CHART APPEARS HERE]

94 2.28%
95 3.14%
96 2.81%
97 2.95%
98 2.80%

11
<PAGE>

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.

The table below describes the fees and expenses that you may pay if you buy and
hold Investor A 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)

A Shares

Advisory Fees .45%
Distribution and service (12b-1) fees .50%
Other expenses .36%
Total annual fund operating expenses 1.31%
Fee Waivers and Expense Reimbursements* .39%
Net Expenses* .92%

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 (except for the waivers in the first year discussed above) and redemp-
tion at the end of each time period. Although your actual cost may be higher or
lower, based on these assumptions your costs would be:

1 Year 3 Years 5 Years 10 Years

A Shares $94 $377 $681 $1,545

IMPORTANT DEFINITIONS

Advisory Fees: Fees
paid to the investment
adviser for portfolio
management services.

Distribution Fees: A
method of charging dis-
tribution-related
expenses against fund
assets.

Other Expenses: Include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

Service Fees: Fees that
are paid to BlackRock
and /or its affiliates
for shareholder account
service and mainte-
nance.

12
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Investor A Share Outstanding Throughout Each Period)

North Carolina Municipal Money Market Portfolio

<TABLE>
<CAPTION>
INVESTOR A SHARES
For the
Period
Year Year Year 2/14/95/1/
Ended Ended Ended through
9/30/98 9/30/97 9/30/96 9/30/95
<S> <C> <C> <C> <C>
Net asset value at beginning
of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Income from investment operations
Net investment income 0.0288 0.0287 0.0286 0.0194
Net realized gain (loss) on
investments - - - - - - - -
-------- -------- -------- --------
Total from investment operations 0.0288 0.0287 0.0286 0.0194
-------- -------- -------- --------
Less distributions
Distributions from net investment
income (0.0288) (0.0287) (0.0286) (0.0194)
Distributions from net realized
capital gains - - - - - - - -
-------- -------- -------- --------
Total distributions (0.0288) (0.0287) (0.0286) (0.0194)
-------- -------- -------- --------
Net asset value at end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total return 2.92% 2.91% 2.90% 1.95%
Ratios/Supplemental data
Net assets at end of period
(in thousands) $ 245 $ 304 $ 111 $ 53
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 0.76% 0.76% 0.76% 0.83%/2/
Before advisory/administration fee
waivers 1.21% 1.21% 1.25% 1.36%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 2.88% 2.88% 2.83% 3.05%/2/
Before advisory/administration fee
waivers 2.43% 2.43% 2.34% 2.52%/2/
</TABLE>

/1/Commencement of operations of share class.
/2/Annualized.
13
<PAGE>

BlackRock
[LOGO] Ohio Municipal Money
Market Portfolio

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

Investment Goal
The fund seeks as high a level of current income exempt from Federal income
tax and, to the extent possible, Ohio state income tax, as is consistent with
maintaining liquidity and stability of principal.

Primary Investment Strategies
In pursuit of this goal, the fund invests primarily in Municipal Securities of
issuers located in Ohio.

Specifically, the fund may invest in:

2) Tax-exempt commercial paper and similar debt instruments rated Prime-2 or
higher by Moody's, A-2 or higher by Standard & Poor's, D-2 or higher by
Duff & Phelps, or F-2 or higher by Fitch.

3) Municipal bonds rated Aa or higher by Moody's or AA or higher by Standard &
Poor's, Duff & Phelps, or Fitch.

4) Unrated notes, paper and other instruments that are determined by the fund
manager to be of comparable quality to the instruments described above.

The fund seeks to maintain a net asset value of $1.00 per share.

The fund normally invests at least 80% of its net assets in Municipal Securi-
ties and other instruments whose interest is exempt from regular federal
income tax. The other 20% can be invested in securities which are subject to
regular federal income tax. Interest income from the fund's investments may be
subject to the Federal Alternative Minimum Tax.

In addition, the fund normally invests at least 65% of its net assets in
Municipal Securities of issuers located in Ohio.

Quality
The fund manager, under guidelines established by the Company's Board of
Trustees, will only purchase securities that

IMPORTANT DEFINITIONS

General Obligation
Bonds: Bonds which are
secured by the issuer's
pledge of its full
faith, credit and tax-
ing power for the pay-
ment of principal and
interest.

Liquidity: Liquidity is
the ability to easily
convert investments
into cash without los-
ing a significant
amount of money in the
process.

Municipal Lease Obliga-
tions: These provide
participation in munic-
ipal lease agreements
and installment pur-
chase contracts, but
are not part of the
general obligations of
the municipality.

Municipal Security: A
short-term obligation
issued by or on behalf
of states and posses-
sions of the United
States, their political
subdivisions and their
agencies and authori-
ties.

Net Asset Value (NAV):
The value of everything
the fund owns, minus
everything it owes,
divided by the number
of shares held by
investors.

14
<PAGE>

Normally, the fund may hold up to 20% of its assets in uninvested cash
reserves. Uninvested cash will not earn income. It is possible that in extreme
market conditions the fund may invest more than 20% of its assets in securities
that are not Municipal Securities (and therefore are subject to regular federal
income tax) and may hold an unlimited amount of uninvested cash reserves. If
market conditions improve, these strategies could result in reducing the poten-
tial 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 made. The fund may not change the requirement
that it normally invest at least 80% of its net assets in Municipal Securities
and other instruments whose interest is exempt from regular federal income tax
without shareholder approval.

Key Risks Key Risks
The value of money market investments tends to fall when prevailing interest
rates rise, although they're generally less sensitive to interest rate changes
than longer-term securities.

IMPORTANT DEFINITIONS

Tax-Exempt Commercial
Paper: Short-term
Municipal Securities
with maturities of 1 to
270 days.

Variable or Floating
Rate Securities: Secu-
rities whose interest
rates adjust automati-
cally after a certain
period of time and/or
whenever a predeter-
mined standard interest
rate changes.

15
<PAGE>

fund more than it would in a diversified portfolio. In particular, changes in
the economic conditions and governmental policies of Ohio and its political
subdivisions could hurt the value of the fund's shares.

The fund will rely on legal opinions of counsel to issuers of Municipal Secu-
rities as to the tax-free status of investments and will not do its own analy-
sis.

The fund may purchase variable and floating rate instruments. The absence of
an active market for these securities could make it difficult for the fund to
dispose of them if the issuer defaults.

The performance for the period before Investor A Shares were launched is based
upon performance for Service Shares of the fund. Investor A Shares were
launched in October,1993. The actual return of Investor A Shares would have
been lower than shown because Investor A Shares have higher expenses than
Service Shares.

As of 12/31 Investor A Shares
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------

[BAR CHART APPEARS HERE]

Best Quarter 94 2.29%
Q2 '95 0.84% 95 3.23%
96 2.90%
Worst Quarter 97 2.99%
Q1 '94 0.44% 98 2.79%

17
<PAGE>

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.

The table below describes the fees and expenses that you may pay if you buy and
hold Investor A 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)

A Shares

Advisory Fees .45%
Distribution and service (12b-1) fees .50%
Other expenses .35%
Total annual fund operating expenses 1.30%
Fee Waivers and Expense Reimbursements* .34%
Net Expenses* .96%

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 (except for the waivers in the first year discussed above) and redemp-
tion at the end of each time period. Although your actual cost may be higher or
lower, based on these assumptions your costs would be:

1 Year 3 Years 5 Years 10 Years

A Shares $98 $379 $680 $1,538

IMPORTANT DEFINITIONS

Advisory Fees: Fees
paid to the investment
adviser for portfolio
management services.

Distribution Fees: A
method of charging dis-
tribution-related
expenses against fund
assets.

Other Expenses: Include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

Service Fees: Fees that
are paid to BlackRock
and /or its affiliates
for shareholder account
service and
maintenance.

18
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Investor A Share Outstanding Throughout Each Period)

Ohio Municipal Money Market Portfolio

<TABLE>
<CAPTION>
INVESTOR A SHARES
For the
Period
1Year Year Year Year 10/5/93/1/
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 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations
Net investment income 0.0286 0.0292 0.0293 0.0310 0.0199
Net realized gain (loss) on
investments - - - - - - - - - -
-------- -------- -------- -------- --------
Total from investment operations 0.0286 0.0292 0.0293 0.0310 0.0199
-------- -------- -------- -------- --------
Less distributions
Distributions from net investment
income (0.0286) (0.0292) (0.0293) (0.0310) (0.0199)
Distributions from net realized
capital gains - - - - - - - - - -
-------- -------- -------- -------- --------
Total distributions (0.0286) (0.0292) (0.0293) (0.0310) (0.0199)
-------- -------- -------- -------- --------
Net asset value at end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return 2.90% 2.96% 2.98% 3.15% 2.01%
Ratios/Supplemental data
Net assets at end of period (in
thousands) $ 15,904 $ 15,876 $ 5,672 $ 75 $ 28
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 0.85% 0.79% 0.79% 0.80% 0.62%/2/
Before advisory/administration fee
waivers 1.21% 1.21% 1.25% 1.26% 1.26%/2/
Ratios of net investment income
to average net assets
After advisory/administration fee
waivers 2.86% 2.92% 2.88% 3.02% 1.94%/2/
Before advisory/administration fee
waivers 2.50% 2.50% 2.42% 2.56% 1.30%/2/
</TABLE>

-------------------------------------
/1/Commencement of operations of share class.
/2/Annualized.

19
<PAGE>

BlackRock
[LOGO] Pennsylvania Municipal
Money Market Portfolio

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Primary Investment Strategies
In pursuit of this goal, the fund invests primarily in Municipal Securities of
issuers located in Pennsylvania.

Specifically, the fund may invest in:

2) Tax-exempt commercial paper and similar debt instruments rated Prime-2 or
higher by Moody's, A-2 or higher by Standard & Poor's, D-2 or higher by Duff
& Phelps, or F-2 or higher by Fitch.

3) Municipal bonds rated Aa or higher by Moody's or AA or higher by Standard &
Poor's, Duff & Phelps, or Fitch.

4) Unrated notes, paper and other instruments that are determined by the fund
manager to be of comparable quality to the instruments described above.

The fund seeks to maintain a net asset value of $1.00 per share.

In addition, the fund normally invests at least 65% of its net assets in
Municipal Securities of issuers located in Pennsylvania.

Quality
The fund manager, under guidelines established by the Company's Board of Trust-
ees, will only purchase securities that

IMPORTANT DEFINITIONS

General Obligation
Bonds: Bonds which are
secured by the issuer's
pledge of its full
faith, credit and tax-
ing power for the pay-
ment of principal and
interest.

Liquidity: Liquidity is
the ability to easily
convert investments
into cash without los-
ing a significant
amount of money in the
process.

Municipal Lease Obliga-
tions: These provide
participation in munic-
ipal lease agreements
and installment pur-
chase contracts, but
are not part of the
general obligations of
the municipality.

Municipal Security: A
short term obligation
issued by or on behalf
of states and posses-
sions of the United
States, their political
subdivisions and their
agencies or authori-
ties.

Net Asset Value (NAV):
The value of everything
the fund owns, minus
everything it owes,
divided by the number
of shares held by
investors.

20
<PAGE>

Normally, the fund may hold up to 20% of its assets in uninvested cash
reserves. Uninvested cash will not earn income. It is possible that in extreme
market conditions the fund may invest more than 20% of its assets in securities
that are not Municipal Securities (and therefore are subject to regular federal
income tax) and may hold an unlimited amount of uninvested cash reserves. If
market conditions improve, these strategies could result in reducing the poten-
tial 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 made. The fund may not change the requirement
that it normally invest at least 80% of its net assets in Municipal Securities
and other instruments whose interest is exempt from regular federal income tax
without shareholder approval.

Key Risks Key Risks
The value of money market investments tends to fall when prevailing interest
rates rise, although they're generally less sensitive to interest rate changes
than longer-term securities.

The fund concentrates its investments in securities of issuers located in Penn-
sylvania and is non-diversified under the Investment Company Act. This raises
special concerns because performance is more dependent upon the performance of
a smaller number of securities and issuers than in a diversified portfolio. The
change in value of any one security may affect the overall value of the fund
more than it would in a diversified portfolio. In

IMPORTANT DEFINITIONS

Tax-Exempt Commercial
Paper: Short-term
Municipal Securities
with maturities of 1 to
270 days.

Variable or Floating
Rate Securities: Secu-
rities whose interest
rates adjust automati-
cally after a certain
period of time and/or
whenever a predeter-
mined standard interest
rate changes.

21
<PAGE>

particular, changes in the economic conditions and governmental policies of
Pennsylvania and its political subdivisions could hurt the value of the fund's
shares.

The fund may invest without limit in bonds the interest on which may be sub-
ject to the Federal Alternative Minimum Tax Interest on these bonds that is
received by taxpayers subject to the Federal Alternative Minimum Tax is tax-
able.

The fund will rely on legal opinions of counsel to issuers of Municipal Secu-
rities as to the tax-free status of investments and will not do its own analy-
sis.

The fund may purchase variable and floating rate instruments. The absence of
an active market for these securities could make it difficult for the fund to
dispose of them if the issuer defaults.

22
<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, the
fund's investment advisor, is currently working to avoid such problems. Black-
Rock 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 issuers 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 for Investor A shares. 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 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.

As of 12/31 Investor A Shares
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------

[BAR CHART APPEARS HERE]

Best Quarter 94 2.23%
Q4 '95: 0.84% 95 3.19%
96 2.77%
Worst Quarter 97 2.94%
Q1 '94: 0.43% 98 2.66%

23
<PAGE>

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.

The table below describes the fees and expenses that you may pay if you buy and
hold Investor A 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)

A Shares

Advisory Fees .45%
Distribution and service (12b-1) fees .50%
Other expenses .33%
Total annual fund operating expenses 1.28%
Fee Waivers and Expense Reimbursements* .29%
Net Expenses* .99%

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 (except for the waivers in the first year discussed above) and redemp-
tion at the end of each time period. Although your actual cost may be higher or
lower, based on these assumptions your costs would be:

1 Year 3 Years 5 Years 10 Years

A Shares $101 $377 $674 $1,520

IMPORTANT DEFINITIONS

Advisory Fees: Fees
paid to the investment
adviser for portfolio
management services.

Distribution Fees: A
method of charging dis-
tribution-related
expenses against fund
assets.

Other Expenses: Include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

Service Fees: Fees that
are paid to BlackRock
and /or its affiliates
for shareholder account
service and mainte-
nance.

24
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Investor A Share Outstanding Throughout Each Period)

Pennsylvania Municipal Money Market Portfolio

<TABLE>
<CAPTION>
INVESTOR A SHARES
For the
Period
Year Year Year Year 12/28/93/1/
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 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment
operations
Net investment income 0.0276 0.0285 0.0281 0.0302 0.0153
Net realized gain (loss)
on investments - - - - - - - - - -
-------- -------- -------- -------- --------
Total from investment
operations 0.0276 0.0285 0.0281 0.0302 0.0153
-------- -------- -------- -------- --------
Less distributions
Distributions from net
investment income (0.0276) (0.0285) (0.0281) (0.0302) (0.0153)
Distributions from net
realized capital gains - - - - - - - - - -
-------- -------- -------- -------- --------
Total distributions (0.0276) (0.0285) (0.0281) (0.0302) (0.0153)
-------- -------- -------- -------- --------
Net asset value at end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return 2.80% 2.89% 2.90% 3.06% 1.58%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $110,860 $ 98,218 $ 63,424 $ 750 $ 139
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.85% 0.77% 0.81% .82% 0.65%/2/
Before
advisory/administration
fee waivers 1.17% 1.17% 1.23% 1.24% 1.22%/2/
Ratios of net investment
income to average
net assets
After
advisory/administration
fee waivers 2.75% 2.85% 2.81% 3.03% 2.11%/2/
Before
advisory/administration
fee waivers 2.43% 2.45% 2.39% 2.61% 1.54%/2/
</TABLE>

/1/Commencement of operations of share class.
/2/Annualized.
25
<PAGE>

BlackRock
[LOGO] Virginia Municipal Money
Market Portfolio

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Primary Investment Strategies
In pursuit of this goal, the fund invests primarily in Municipal Securities of
issuers located in Virginia.

Specifically, the fund may invest in:

2) Tax-exempt commercial paper and similar debt instruments rated Prime-2 or
higher by Moody's, A-2 or higher by Standard & Poor's, D-2 or higher by Duff
& Phelps, or F-2 or higher by Fitch.

3) Municipal bonds rated Aa or higher by Moody's or AA or higher by Standard &
Poor's, Duff & Phelps, or Fitch.

4) Unrated notes, paper and other instruments that are determined by the fund
manager to be of comparable quality to the instruments described above.

The fund seeks to maintain a net asset value of $1.00 per Share.

In addition, the fund normally invests at least 65% of its net assets in Munic-
ipal Securities of issuers located in Virginia.

Quality
The fund manager, under guidelines established by the Company's Board of Trust-
ees, will only purchase securities that

IMPORTANT DEFINITIONS

General Obligation
Bonds: Bonds which are
secured by the issuer's
pledge of its full
faith, credit and tax-
ing power for the pay-
ment of principal and
interest.

Liquidity: Liquidity is
the ability to easily
convert investments
into cash without los-
ing a significant
amount of money in the
process.

Municipal Lease Obliga-
tions: These provide
participation in munic-
ipal lease agreements
and installment pur-
chase contracts, but
are not part of the
general obligations of
the municipality.

Municipal Security: A
short-term obligation
issued by or on behalf
of states and posses-
sions of the United
States, their political
subdivisions and their
agencies and authori-
ties.

Net Asset Value (NAV):
The value of everything
the fund owns, minus
everything it owes,
divided by the number
of shares held by
investors.

26
<PAGE>

Normally, the fund may hold up to 20% of its assets in uninvested cash
reserves. Uninvested cash will not earn income. It is possible that in extreme
market conditions the fund may invest more than 20% of its assets in securities
that are not Municipal Securities (and therefore are subject to regular federal
income tax) and may hold an unlimited amount of uninvested cash reserves. If
market conditions improve, these strategies could result in reducing the poten-
tial 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 made. The fund may not change the requirement
that it normally invest at least 80% of its net assets in Municipal Securities
and other instruments whose interest is exempt from regular federal income tax
without shareholder approval.

Key Risks Key Risks

The value of money market instruments tends to fall when prevailing interest
rates rise, although they're generally less sensitive to interest rate changes
than longer-term securities.

The fund concentrates its investments in securities of issuers located in Vir-
ginia and is non-diversified under the Investment Company Act. This raises spe-
cial concerns because performance is more dependent upon the performance of a
smaller number of securities and issuers than in a diversified portfolio. The
change in value of any one security may affect the overall value of the fund
more than it would in a diversified portfolio. In particular,

IMPORTANT DEFINITIONS

Tax-Exempt Commercial
Paper: Short-term
Municipal Securities
with maturities of 1 to
270 days.

Variable or Floating
Rate Securities: Secu-
rities whose interest
rates adjust automati-
cally after a certain
period of time and/or
whenever a predeter-
mined standard interest
rate changes.

27
<PAGE>

changes in the economic conditions and governmental policies of Virginia and
its political subdivisions could hurt the value of the fund's shares.

Municipal Securities include revenue bonds, general obligation bonds and
municipal lease obligations. Revenue bonds include private activity bonds,
which are not payable from the general revenues of the issuer. Consequently,
the credit quality of private activity bonds is usually directly related to
the credit standing of the corporate user of the facility involved. To the
extent that the fund's assets is invested in private activity bonds, the fund
will be subject to the particular risks presented by the laws and economic
conditions relating to such projects and bonds to a greater extent than if its
assets were not so invested. Moral obligation bonds are normally issued by
special purpose public authorities. If the issuer of moral obligation bonds is
unable to pay its debts from current revenues, it may draw on a reserve fund
the restoration of which is a moral but not a legal obligation of the state or
municipality which created the issuer. Municipal lease obligations are not
guaranteed by the issuer and are generally less liquid than other securities.

The fund will rely on legal opinions of counsel to issuers of Municipal Secu-
rities as to the tax-free status of investments and will not do its own analy-
sis.

The fund may purchase variable and floating rate instruments. The absence of
an active market for these securities could make it difficult for the fund to
dispose of them if the issuer defaults.

28
<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, the fund's investment
adviser, 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 issuers whose securities the fund holds or securities markets
generally.

As of 12/31 Investor A Shares
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------

Best Quarter
Q2 '95: 0.94%

Worst Quarter
Q4 '98: 0.63%

The bars for 1995-1997
are based upon performance
for Service Shares
of the fund.

[BAR CHART APPEARS HERE]

95 3.53%
96 3.15%
97 3.09%
98 2.72%

29
<PAGE>

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.

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)

Advisory Fees .45%
Distribution and service A Shares (12b-1) fees .50%
Other expenses .39%
Total annual fund operating expenses 1.34%
Fee Waivers and Expense Reimbursements* .42%
Net Expenses* .92%

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution.

IMPORTANT DEFINITIONS

Advisory Fees: Fees
paid to the investment
adviser for portfolio
management services.

Distribution Fees: A
method of charging dis-
tribution-related
expenses against fund
assets.

Other Expenses: Include
administration, trans-
fer agency, custody,
professional fees and
registration fees.

Service Fees: Fees that
are paid to BlackRock
and /or its affiliates
for shareholder account
service and
maintenance.

30
<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 (except for the waivers in the first year discussed above) and redemp-
tion 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 $94 $383 $694 $1,576
</TABLE>
31
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Investor A Share Outstanding Throughout Each Period)

Virginia Municipal Money Market Portfolio

<TABLE>
<CAPTION>
INVESTOR A SHARES
For the
Period
Year 5/27/97/1/
Ended through
9/30/98 9/30/97
<S> <C> <C>
Net asset value at beginning of period $ 1.00 $ 1.00
-------- --------
Income from investment operations
Net investment income 0.0280 0.0102
Net realized gain (loss) on investments - - - -
-------- --------
Total from investment operations 0.0280 0.0102
-------- --------
Less distributions
Distributions from net investment income (0.0280) (0.0102)
Distributions from net realized capital gains - - - -
-------- --------
Total distributions (0.0280) (0.0102)
-------- --------
Net asset value at end of period $ 1.00 $ 1.00
======== ========
Total return 2.84% 1.03%
Ratios/Supplemental data
Net assets at end of period (in thousands) $ 643 $ 1,096
Ratios of expenses to average net assets
After advisory/administration fee waivers 0.87% 0.86%/2/
Before advisory/administration fee waivers 1.34% 1.45%/2/
Ratios of net investment income to average net assets
After advisory/administration fee waivers 2.85% 2.95%/2/
Before advisory/administration fee waivers 2.38% 2.36%/2/
</TABLE>

/1/Commencement of operations of share class.
/2/Annualized.

32
<PAGE>

About your Investment
logo

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Buying Shares from a Registered Investment Professional

The following procedures are only applicable to purchases of shares by investors
establishing accounts through Janney Montgomery Scott (JMS) and its affiliates.
Other investors should refer to the Company's regular Prospectus for informa-
tion on purchasing shares.

JMS will record ownership of the shares and will reflect share ownership in the
account statements provided to investors. Although JMS does not charge for pur-
chases of shares, depending on the terms of an investor's account, JMS may
charge fees for automatic investment and other services. Information concerning
account requirements, services and charges should be obtained from JMS. This
Prospectus should be read in conjunction with any information received from
JMS.

- --------------------------------------------------------------------------------
What Price Per Share Will You Pay?

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 $5 million dollars and has 5 million shares outstanding, the net asset
value (NAV) per share is $1.00. When you buy Investor Shares you pay the
NAV/share. Although each fund described in this prospectus seeks to maintain a
NAV of $1.00 per share, there is no guarantee it will be able to do so.

The funds' investments are valued based on the amortized cost method described
in the SAI.

Investor A Shares in the funds can be purchased without a sales charge through
an account with JMS or its affiliates. All purchase orders are sent by JMS
directly to PFPC, the Company's transfer agent. Purchase orders received by the
transfer agent before the close of regular trading on the New York Stock
Exchange (NYSE) (currently 4 p.m. (Eastern time)) on each day the NYSE and the
Federal Reserve Bank of Philadelphia are open will be priced based on the NAV
calculated at the close of trading on that day.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

If a shareholder acquiring Investor A shares on or after May 1, 1998 later
meets the requirements for purchasing Institutional Shares of a fund (other
than due to changes in market value), then the shareholder's Investor A Shares
will automatically be converted to Institutional Shares of the same fund hav-
ing the same total net asset value as the shares converted.

- -------------------------------------------------------------------------------

Distribution and Service Plan

The Company has adopted a plan under Rule 12b-1 of the Investment Company Act
of 1940 (the Plan) that allows the Company to pay distribution and other fees
for the sale of its shares and for certain services provided to its sharehold-
ers. Under the Plan, Investor Shares pay a fee (distribution fees) to Black-
Rock Distributors, Inc. (the Distributor) or affiliates of PNC Bank for dis-
tribution and sales support services. The distribution fees may be used to pay
the Distributor for distribution services and to pay the Distributor and PNC
Bank affiliates for sales support services provided in connection with the
sale of Investor Shares. The distribution fees may also be used to pay bro-
kers, dealers, financial institutions and industry professionals (Service
Organizations) for sales support services and related expenses. JMS will act
as the Service Organization for all Investor A Shares offered by this prospec-
tus. Investor A Shares pay a maximum distribution fee of .10% per year of the
average daily net asset value of each fund. The Plan also allows the Distribu-
tor, PNC Bank affiliates and other companies that receive fees from the Com-
pany to make payments relating to distribution and sales support activities
out of their past profits or other sources available to them.

(1) Responding to customer questions on the services performed by the Service
Organization and investments in Investor Shares;

34
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

(2) Assisting customers in choosing and changing dividend options, account
designations and addresses; and
(3) Providing other similar shareholder liaison services.

- --------------------------------------------------------------------------------

How to Sell Shares

Investors may redeem their shares in accordance with the rules of their accounts
with JMS at any time. An investor should send a written request to JMS by mail
at Janney Montgomery Scott, 1801 Market Street, Philadelphia, PA 19103-1675 in
order to redeem shares. JMS is responsible for sending redemption orders to
PFPC and crediting its customers' accounts with the redemption proceeds on a
timely basis. There is no charge for a redemption.
35
<PAGE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

JMS will also redeem each day a sufficient number of shares to cover balances
created by transactions in a shareholder's account or instructions for cash
disbursements. Shares will be redeemed on the same day that a transaction
occurs.

The Company will redeem shares at the next net asset value (NAV) calculated
after your order is received by the fund's transfer agent.

Unless another option is requested, the Company generally pays JMS for
redeemed shares by wire transfer or check mailed within seven days after PFPC
receives the redemption request. JMS is responsible for crediting its custom-
ers' accounts with redemption proceeds in a timely manner.

- -------------------------------------------------------------------------------

The Company's Rights

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.

- -------------------------------------------------------------------------------

Management

36
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
New Jersey Municipal Money Market .08%
North Carolina Municipal Money Market .04%
Ohio Municipal Money Market .09%
Pennsylvania Municipal Money Market .13%
Virginia Municipal Money Market .02%
</TABLE>

The maximum annual advisory fees that can be paid to BlackRock on behalf of
each fund (as a percentage of average daily net assets) are as follows:

<TABLE>
<CAPTION>
AVERAGE DAILY NET INVESTMENT
ASSETS ADVISORY FEE
<S> <C>
First $1 billion .450%
$1 billion-$2 billion .400%
$2 billion-$3 billion .375%
more than $3 billion .350%
</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.

<TABLE>
<S> <C>
New Jersey Municipal Money Market .265%
North Carolina Municipal Money Market .195%
Ohio Municipal Money Market .265%
Pennsylvania Municipal Money Market .295%
Virginia Municipal Money Market .205%
</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.

37
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Dividends and Distributions

BlackRock Funds makes two kinds of distributions to shareholders: dividends and
net capital gain.

Dividends are the net investment income derived by a fund and are declared
daily and paid monthly within five business days after the end of the month.
The Company's Board of Trustees may change the timing of dividend payments.
Shareholders whose purchase orders are executed at 12 noon (Eastern time)
receive dividends for that day. Shareholders whose redemption orders have been
received by 12 noon (Eastern time) do not receive dividends for that day.

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.

- --------------------------------------------------------------------------------

Taxation of Distributions

Your annual tax statement from the Company will present in detail the tax sta-
tus of your distributions for each year.

Each of the Pennsylvania Municipal Money Market, New Jersey Municipal Money
Market, Ohio Municipal Money Market, North Carolina Municipal Money Market and
Virginia Municipal Money Market Portfolios intends to pay most of its dividends
as exempt interest dividends, which means such dividends are exempt from regu-
lar federal income tax (but not necessarily other

38
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

federal taxes). These dividends will generally be subject to state and local
taxes. The state or municipality where you live may not charge you state and
local taxes on dividends earned on certain securities. The funds will have to
meet certain requirements in order for their dividends to be exempt from these
federal, state and local taxes. Dividends earned on securities issued by the
U.S. government and its agencies may also be exempt from some types of state
and local taxes.

39
<PAGE>

[LOGO] Services for Shareholders

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

JMS may offer investors the ability to buy shares under an automatic purchase
program (a Purchase Program). An investor who participates in a Purchase Pro-
gram will have his "free-credit" cash balances in his JMS account automatically
invested in shares designated by the investor as the Primary Janney Class for
his Purchase Program. The frequency of investments and the minimum investment
requirement may be established by JMS and the Company. In addition, JMS may
require a minimum amount of cash and/or securities to be deposited in a JMS
account for participants in its Purchase Program. The description of the par-
ticular JMS Purchase Program should be read for details, and any inquiries con-
cerning a JMS Account under a Purchase Program should be made to JMS. A partic-
ipant in a Purchase Program may change the designation of the Primary Janney
Class at any time.

40
<PAGE>

For More Information:
This prospectus contains important information you should know before you
invest. Read it carefully and keep it for future reference More information
about the BlackRock Funds is available free, upon request, including:

Annual/Semi-Annual Report
These reports contain additional information about each of the Funds'
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 28, 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 a.m. to 6 p.m. Monday-Friday. Call: (800) 441-7762

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 a.m. to 6 p.m. (Eastern time),
Monday-Friday. Call: (888) 8BLACKROCK

INVESTMENT COMPANY ACT FILE NO. 811-05742

[LOGO OF BLACKROCK FUNDS APPEARS HERE]
<PAGE>

497(C)
File No. 33-26305

[GRAPHIC APPEARS HERE]

NOT FDIC-
INSURED

May lose value
No bank guarantee

Money Market
Portfolios
==============
SERVICE SHARES

BlackRock Funds(SM) is a mutual fund family with 36 investment portfolios, 8 of
which are described in this prospectus.

PROSPECTUS

January 28, 1999

[LOGO OF BLACKROCK FUNDS]

<PAGE>

Table of
Contents

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>

How to find the information you need

How to find the information you need........................................ 1
THE BLACKROCK MONEY MARKET FUNDS
Money Market................................................................ 2
U.S. Treasury Money Market.................................................. 8
Municipal Money Market...................................................... 13
New Jersey Municipal Money Market........................................... 19
North Carolina Municipal Money Market....................................... 25
Ohio Municipal Money Market................................................. 31
Pennsylvania Municipal Money Market......................................... 37
Virginia Municipal Money Market............................................. 43

About Your Investment

How to Buy/Sell Shares...................................................... 49
Dividends/Distribution/Taxes................................................ 56
</TABLE>
<PAGE>

How to Find the
Information You Need
About BlackRock Funds

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Welcome to the new BlackRock Money Market 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).

This prospectus contains information on all 8 of the BlackRock Money Market
funds. 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 inter-
est you, read the sections that tell you about buying and selling shares, cer-
tain fees and expenses and your rights as a shareholder. These sections apply
to all the funds.

1
<PAGE>

[GRAPHIC BlackRock
APPEARS Money Market
HERE] Portfolio

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

IMPORTANT DEFINITIONS

Asset-Backed Securi-
ties: Debt securities
that are backed by a
pool of assets, usually
loans such as install-
ment sale contracts or
credit card receiv-
ables.

Commercial Paper:
Short-term securities
with maturities of 1 to
270 days which are
issued by banks, corpo-
rations and others.

Liquidity: Liquidity is
the ability to easily
convert investments
into cash without los-
ing a significant
amount of money in the
process.

Net Asset Value (NAV):
The value of everything
the fund owns, minus
everything it owes,
divided by the number
of shares held by
investors.

Variable or Floating
Rate Securities: Secu-
rities whose interest
rates adjust automati-
cally after a certain
period of time and/or
whenever a predeter-
mined standard interest
rate changes.

Investment Goal
The fund seeks as high a level of current income as is consistent with main-
taining liquidity and stability of principal.

Specifically, the fund may invest in:

3) Unrated notes, paper and other instruments that are determined by the fund
manager to be of comparable quality to the instruments described above.

4) Asset-backed securities (including interests in pools of assets such as
mortgages, installment purchase obligations and credit card receivables).

5) Securities issued or guaranteed by the U.S. Government or by its agencies or
authorities.

6) Dollar-denominated securities issued or guaranteed by foreign governments or
their political subdivisions, agencies or authorities.

7) Securities issued or guaranteed by state or local governmental bodies.

8) Repurchase agreements relating to the above instruments.

The fund seeks to maintain a net asset value of $1.00 per share.

2
<PAGE>

Normally, the fund may hold up to 20% of its assets in uninvested cash
reserves. Uninvested cash will not earn income.

Should the Company's Board of Trustees determine that the investment objective
of the fund should be changed, shareholders will be given at least 30 days
notice before any such change is made.

Key Risks

Key Risks
The value of money market investments tends to fall when prevailing interest
rates rise, although they're generally less sensitive to interest rate changes
than longer-term securities.

Treasury obligations differ only in their interest rates, maturities and time
of issuance. Obligations of U.S. Government agencies

3
<PAGE>

The fund could lose money if a seller under a repurchase agreement defaults or
declares bankruptcy.

The fund may purchase variable and floating rate instruments. The absence of
an active market for these securities could make it difficult for the fund to
dispose of them if the issuer defaults.

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, the fund's investment adviser, is currently working to avoid such prob-
lems. 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 issuers whose securities the fund holds or securi-
ties markets generally.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Service Shares. 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 chart and the table both assume reinvestment of dividends and
distributions. As with all such investments, past performance is not an indi-
cation of future results.
4
<PAGE>

[BAR CHART APPEARS HERE]

90 7.97
91 5.93
92 3.51 Best Quarter
93 2.76 Q2 '90: 1.96%
94 3.91
95 5.59 Worst Quarter
96 5.05 Q1 '93: 0.66%
97 5.16
98 5.04

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.

The table below describes the fees and expenses that you may pay if you buy and
hold Service 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 .41%
Distribution and service (12b-1) fees .30%
Other expenses .22%
Total annual fund operating expenses .93%
Fee Waivers and Expense Reimbursements* .21%
Net Expenses* .72%
</TABLE>
* BlackRock has contractually agreed to waive or reimburse fees or expenses in
order to limit certain (but not all) fund expenses for the next year. The
fund may have to repay these waivers and reimbursements to BlackRock in the
following two years if the repayment can be made within these expense lim-
its. "Net Expenses" in the table have been restated to reflect these waivers
and reimbursements.
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.

Service Fees: Fees that
are paid to BlackRock
and /or its affiliates
for shareholder account
service and mainte-
nance.

5
<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 (except for the waivers in the first year discussed above) and redemp-
tion 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>
Service Shares $74 $275 $494 $1,124
</TABLE>
6
<PAGE>

Financial Highlights
The financial information in the table below shows
the fund's financial performance for the periods
indicated. 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 and assumes
that you have reinvested all dividends and distri-
butions. 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 a Service Share Outstanding Throughout Each Period)

Money Market Portfolio

<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 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ---------- ---------- ---------- --------
Income from investment
operations
Net investment income 0.0502 0.0499 0.0503 0.0534 0.0333
-------- ---------- ---------- ---------- --------
Total from investment
operations 0.0502 0.0499 0.0503 0.0534 0.0333
-------- ---------- ---------- ---------- --------
Less distributions
Distributions from net
investment income (0.0502) (0.0499) (0.0503) (0.0534) (0.0333)
Distributions from net
realized capital gains - - - - - - - - - -
-------- ---------- ---------- ---------- --------
Total distributions (0.0502) (0.0499) (0.0503) (0.0534) (0.0333)
-------- ---------- ---------- ---------- --------
Net asset value at end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ========== ========== ========== ========
Total return 5.14% 5.11% 5.15% 5.48% 3.37%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $808,962 $1,610,315 $1,575,064 $1,194,017 $575,948
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 0.69% 0.61% 0.59% 0.57% 0.51%
Before
advisory/administration
fee waivers 0.93% 0.94% 0.95% 0.94% 0.92%
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 5.03% 4.99% 5.00% 5.35% 3.35%
Before
advisory/administration
fee waivers 4.79% 4.66% 4.64% 4.98% 2.95%
</TABLE>
-----------------------------------------------

7
<PAGE>

[GRAPHIC BlackRock
APPEARS U.S. Treasury Money Market
HERE] Portfolio