BFM INSTITUTIONAL TRUST INC, N-1/A, 1995-10-31

BFM INSTITUTIONAL TRUST INC
N-1/A, 1995-10-31

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As filed with the Securities and Exchange Commission on October 31, 1995

REGISTRATION NO. 33-44796
REGISTRATION NO. 811-6513

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________
FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. 9 X

AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 X

AMENDMENT NO. 10 X
(CHECK APPROPRIATE BOX OR BOXES)

THE BFM INSTITUTIONAL TRUST INC.
(Exact name of registrant as specified in charter)

345 PARK AVENUE
NEW YORK, NEW YORK 10154
(Address of Principal Executive Offices) (Zip Code)

(212) 754-5560
(Registrant's Telephone Number, Including Area Code)

RALPH L. SCHLOSSTEIN
345 PARK AVENUE
NEW YORK, NEW YORK 10154
(Name and Address of Agent for Service)

COPY TO:
RICHARD T. PRINS
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
919 THIRD AVENUE
NEW YORK, NEW YORK 10022

Approximate date of proposed public offering:
It is proposed that this filing will become effective (check
appropriate box)

X immediately upon filing pursuant to paragraph (b), or
on (date) pursuant to paragraph (b), or
60 days after filing pursuant to paragraph (a), or
on (date) pursuant to paragraph (a) of Rule 485.

REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES
OF BENEFICIAL INTEREST PURSUANT TO RULE 24F-2 UNDER THE
INVESTMENT COMPANY ACT OF 1940, AS AMENDED, AND HAS FILED A RULE
24F-2 NOTICE WITH THE COMMISSION FOR ITS MOST RECENT FISCAL YEAR
ENDED JUNE 30, 1995.

CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)

ITEM NO. LOCATION

PART A*

Item 1. . . . . . . . . . . . . . Cover Page Cover Page

Item 2. . . . . . . . . . . . . . . Synopsis Trust Expenses

Item 3. . . Condensed Financial Information Selected Per
Share Data and
Ratios

Item 4. . General Description of Registrant Cover Page;
Description of
the Trust;
General
Information

Item 5. . . . . . . . Management of the Fund Management of
the Trust;
General
Information

Item 6. . Capital Stock and Other Securities Purchase and
Redemption of
Shares; Taxes,
Dividends and
Distributions;
General
Information

Item 7. Purchase of Securities Being Offered Management of
the Trust; Net
Asset Value;
Purchase and
Redemption of
Shares

Item 8. . . . . . . Redemption or Repurchase Purchase and
Redemption of
Shares

Item 9. . . . . . Pending Legal Proceedings Not Applicable

PART B*

Item 10. . . . . . . . . . . . . Cover Page Cover Page

Item 11. . . . . . . . . Table of Contents Table of
Contents

Item 12. . General Information and History Not Applicable

Item 13. Investment Objectives and Policies Investment
Objectives and
Policies;
Investment
Restrictions;
Portfolio
Transactions and
Brokerage

Item 14. . . . . . . Management of the Fund Directors and
Officers

Item 15. Control Persons and Principal Holders
of Securities Not Applicable

Item 16. Investment Advisory and Other Services Management of
the Trust;
Distribution
and Stockholder
Servicing Plan;
Custodian,
Transfer and
Dividend
Disbursing
Agents

Item 17. Brokerage Allocation and Other Portfolio
Practices Transactions and
Brokerage

Item 18. Capital Stock and Other Securities Not Applicable

Item 19. Purchase, Redemption and Pricing of
Securities Being Offered . . . . . Net Asset Value;
Purchase and
Redemption of
Shares

Item 20. Tax Status Taxes,
Dividends and
Distributions

Item 21. Underwriters Distribution
and Stockholder
Servicing Plan

Item 22. Calculation of Performance Data Performance
Information

Item 23. Financial Statements Financial Statements

PART C*

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

* All Items apply to all sixteen Portfolios.

____________________________________________________________________________

INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE

The following document filed by The PNC Fund
pursuant to the Securities Act of 1933, as amended and
the Investment Company Act of 1940, as amended, is
incorporated by reference herein and is made a part
hereof:

1. The PNC Fund's registration statement (33-
63329) on Form N-14 filed with the Securities and
Exchange Commission, dated October 11, 1995.

The BFM Institutional Trust Inc. has undertaken to
provide without charge to each person to whom a copy of
this Prospectus has been delivered, on the written or
oral request of any such person, a copy of any or all of
the foregoing documents incorporated herein by reference
(not including exhibits to such documents unless such
exhibits are specifically incorporated by reference into
such documents). Requests for such copies should be
directed to Charles Bentz, BlackRock Financial
Management, Inc., 345 Park Avenue, New York, New York
10154; telephone number 212-754-5560.

Prospectus dated October 31, 1995

THE BFM INSTITUTIONAL TRUST

The BFM Institutional Trust Inc. (the "Trust") is a no-load,
open-end management investment company currently consisting of
sixteen investment portfolios, each with its own investment
objective and policies. The eight diversified investment
portfolios ("Portfolios") described in this Prospectus are
separate series of the Trust. The Trust is primarily designed to
provide pension and profit sharing plans, employee benefit
trusts, financial institutions, corporations, and high net worth
individuals with access to the professional investment management
services offered by BlackRock Financial Management Inc.
(formerly, BlackRock Financial Management L.P.) which serves as
investment adviser (the "Adviser") to the Trust.

The following portfolios are described in this Prospectus:

The Short Duration Portfolio
The Intermediate Duration Portfolio
The Core Fixed Income Portfolio
The Mortgage Portfolio
The Government Portfolio
The Long Duration Portfolio
The Global Fixed Income Portfolio
The Money Market Portfolio

INVESTMENTS IN THE PORTFOLIOS ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY A BANK, AND THE
SHARES OF EACH PORTFOLIO ARE NEITHER INSURED NOR GUARANTEED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. THERE CAN BE NO
ASSURANCE THAT THE MONEY MARKET PORTFOLIO WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
______________________

This Prospectus sets forth concisely the information about
the Trust that a prospective investor should know before
investing. Additional information about the Trust has been filed
with the Securities and Exchange Commission in a Statement of
Additional Information, dated October 31, 1995, which information
is incorporated herein by reference and available without charge
upon request to the Trust, at the address or telephone number
above.
______________________
Investors are advised to read this Prospectus and retain it
for future reference.
______________________

No dealer, sales representative or any other person has been
authorized to give any information or to make any
representations, other than those contained in this Prospectus,
in connection with the offer contained herein, and, if given or
made, such other information or representations must not be
relied upon as having been authorized by the Trust or the
Distributor. This Prospectus does not constitute an offer by the
Trust or by the Distributor to sell or a solicitation of any
offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such
offer in such jurisdiction.
______________________

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
______________________

TABLE OF CONTENTS

Prospectus Summary . . . . . . . . . . . . . . . . . . . . . 3
Trust Expenses . . . . . . . . . . . . . . . . . . . . . . . 7
Financial Highlights . . . . . . . . . . . . . . . . . . . . 9
Description of the Trust . . . . . . . . . . . . . . . . . 11
Management of the Trust . . . . . . . . . . . . . . . 11
Investment Objectives and Policies . . . . . . . . . . 11
Description of Securities . . . . . . . . . . . . . . . 14
Other Investment Strategies . . . . . . . . . . . . . . 22
Management of the Trust . . . . . . . . . . . . . . . . . . . 27
Investment Adviser . . . . . . . . . . . . . . . . . . . 27
Distributor . . . . . . . . . . . . . . . . . . . . . . 29
Expenses . . . . . . . . . . . . . . . . . . . . . . . . 30
Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . 30
Purchase and Redemption of Shares . . . . . . . . . . . . . . 30
How to Purchase Shares . . . . . . . . . . . . . . . . . 30
How to Redeem Shares . . . . . . . . . . . . . . . . . . 31
Exchange Privilege . . . . . . . . . . . . . . . . . . . 32
Reports to Stockholders . . . . . . . . . . . . . . . . 32
Stockholder Inquiries . . . . . . . . . . . . . . . . . 32
Taxes, Dividends and Distributions . . . . . . . . . . . . . 32
General Information . . . . . . . . . . . . . . . . . . . . . 33
Performance Information . . . . . . . . . . . . . . . . 33
Description of Shares . . . . . . . . . . . . . . . . . 33
Administrator, Custodian and Transfer and Dividend
Disbursing Agent . . . . . . . . . . . . . . . . . . . . . . 34
Validity of the Shares . . . . . . . . . . . . . . . . . 34
Experts . . . . . . . . . . . . . . . . . . . . . . . . 34
Additional Information . . . . . . . . . . . . . . . . . 34
Portfolio Benchmarks . . . . . . . . . . . . . . . . Appendix A
Corporate Bond, Mortgage-Backed Security and Commercial
Paper Ratings . . . . . . . . . . . . . . . . . . . Appendix B
General Characteristics and Risks of Hedging
Transactions . . . . . . . . . . . . . . . . . . . Appendix C

PROSPECTUS SUMMARY

The BFM Institutional Trust Inc. (the "Trust") is a no-load,
open-end management investment company. The eight diversified
investment portfolios (the "Portfolios") described in this
Prospectus are designed primarily for institutional investors.
The Trust also has eight other portfolios whose investment
objective, policies and other characteristics are described in a
separate prospectus. BlackRock Financial Management Inc. is the
investment adviser (the "Adviser") to the Trust. Furthermore, on
September 28, 1995, the Board of Directors of the Trust adopted
resolutions to approve the sale of all the assets and the
assumption of all the liabilities of the Trust to The PNC Fund, a
Massachusetts business trust (the "Acquisition"). It is
anticipated that shareholders of the Trust will receive a proxy
and be entitled to vote on the Acquisition at a meeting of the
Trust's shareholders on or about December 20, 1995. For further
information on the proposed Acqusition, see "Incorporation of
Certain Documents by Reference".

INVESTMENT OBJECTIVES

Each of the following five Portfolios of the Trust seeks to
realize a total rate of return that exceeds the total return of a
specified benchmark as indicated in the table below.

MINIMUM CREDIT
QUALITY
PORTFOLIO BENCHMARK(1) (S&P/MOODY'S)

Short Duration Merrill Lynch 1-3 Year AAA/Aaa (2)
Treasury Index
Intermediate Duration Merrill Lynch 3-5 Year BBB-/Baa3 (2)
Treasury Index
Core Fixed Income Lehman Brothers BBB-/Baa3 (2)
Aggregate Index
Mortgage Salomon Brothers AA/Aa (2)
Mortgage Index
Government Lehman Brothers U.S. Government or
Government Bond Index its Agencies or
Instrumentalities
____________
(1) See "Portfolio Benchmarks" in Appendix A to this Prospectus.
(2) Or comparable quality as determined by the Adviser at the
time of investment. See "Corporate Bond, Mortgage-Backed
Security and Commercial Paper Ratings" in Appendix B to this
Prospectus.

THE LONG DURATION PORTFOLIO and THE GLOBAL FIXED INCOME
PORTFOLIO will each seek to realize maximum total rate of return
consistent with their respective investment policies and
strategies. The assets of these two Portfolios will be rated at
least BBB- by Standard & Poor's Corporation (S&P) or Baa3 by
Moody's Investors Service (Moody's) or will be determined by the
Adviser to be of comparable quality at the time of investment.
The five Portfolios named in the table above, together with The
Long Duration Portfolio and The Global Fixed Income Portfolio,
are referred to herein as the Fixed Income Portfolios.

THE MONEY MARKET PORTFOLIO seeks to realize maximum current
income, consistent with preservation of capital and liquidity.
The assets of this Portfolio will be rated at least A-1 or AAA by
S&P and Prime-1 or Aaa by Moody's or will be determined by the
Adviser to be of comparable quality at the time of investment.
The Money Market Portfolio seeks to maintain, but does not
guarantee, a constant net asset value of $1.00 per share. There
can be no assurance that the investment objective of any
Portfolio will be achieved.

INVESTMENT POLICIES AND STRATEGIES

The Adviser seeks to maximize the total return of the Fixed
Income Portfolios by basing its investment philosophy on four
principles. First, the Portfolios will invest only in investment
grade or better fixed income securities. Second, the Fixed Income
Portfolios are constructed to have a duration set within a
relatively narrow range. Third, the Adviser uses a relative value
approach to sector and security selection, by aggressively
underweighting or overweighting particular sectors or securities
versus the appropriate benchmark. Fourth, the Adviser applies a
rigorous quantitative approach to the valuation of individual
securities.

All the Fixed Income Portfolios (with the exception of The
Mortgage Portfolio and The Government Portfolio) may invest in
U.S. Government, Mortgage-Backed, Asset-Backed and Corporate Debt
securities.

The Global Fixed Income Portfolio may also invest in Foreign
securities. The Mortgage Portfolio may only invest in Mortgage-
Backed, Asset-Backed and U.S. Government securities. The
Government Portfolio may only invest in U.S. Government
securities. The Money Market Portfolio will invest in money
market instruments and other short-term securities having
maturities of one year or less.

The Adviser uses the concept of "duration" to manage the
Fixed Income Portfolios. Duration is a measure of the expected
life of a fixed income security and is indicative of a security's
price "volatility" or "risk" associated with changes in interest
rates. Whereas "term to maturity" measures only the time until a
debt security provides its final payment, duration also takes
into account all of the expected payments prior to maturity and
weights them by the present values of the cash to be received at
each future point in time. There is no assurance that a Fixed
Income Portfolio will achieve its targeted duration at all times.
See "Description of the Trust-Investment Objectives and Policies-
Duration". The Fixed Income Portfolios may enter into certain
interest rate, futures, options, currency and related
transactions for hedging and duration management purposes. See
"Description of the Trust-Investment Objectives and Policies-
Other Investment Strategies".

INVESTMENT SECURITIES

U.S. Government Securities. U.S. Government securities are
issued or guaranteed by the U.S. Government, its agencies and
instrumentalities. Such securities include U.S. Treasury, GNMA,
FNMA and FHLMC securities, including certain Mortgage-Backed
securities. See "Description of the Trust-Description of
Securities-U.S. Government Securities".

Mortgage-Backed Securities. Mortgage-Backed securities
directly or indirectly represent a participation in, or are
secured by and payable from, mortgage loans on real property,
including pass-through securities, adjustable rate mortgage
securities (ARMs), collateralized mortgage obligations (CMOs) and
stripped securities. The yield and credit characteristics of
Mortgage-Backed securities differ in a number of respects from
traditional debt securities. See "Description of the Trust-
Description of Securities-Mortgage-Backed Securities".

Commercial Mortgage-Backed Securities. Commercial Mortgage-
Backed Securities represent interests in or are secured by
mortgage loans on commercial real property, such as industrial
and warehouse properties, office buildings, retail space and
shopping malls, multifamily properties and cooperative
apartments, hotels and motels, nursing homes, hospitals, senior
living centers and agricultural properties. See "Description of
the Trust Description of Securities Commercial Mortgage-Backed
Securities".

Asset-Backed Securities. Asset-Backed securities have
similar structural characteristics to Mortgage-Backed securities.
However, the underlying assets are not mortgage loans or
interests in mortgage loans but include assets such as motor
vehicle installment sales or installment loan contracts, leases
of various types of real and personal property, and receivables
from revolving credit (credit card) agreements. See "Description
of the Trust-Description of Securities-Asset-Backed Securities".

Corporate Debt Securities. Other types of debt securities
include those issued by corporations and other entities,
including bonds, debentures, notes, certificates of deposit,
bankers' acceptances, commercial paper and other instruments. See
"Description of the Trust-Description of Securities-Corporate
Debt Securities".

Foreign Securities. The Global Fixed Income Portfolio will
invest up to 100% of its assets in foreign debt securities,
including Mortgage-Backed and Asset-Backed securities, issued or
guaranteed by foreign governments or supranational entities, or
any of their political subdivisions, agencies or
instrumentalities, and by foreign companies and financial
institutions. See "Description of the Trust-Description of
Securities-Foreign Securities".

INVESTMENT ADVISER

The Adviser is compensated monthly by the Portfolios for its
services in an amount equal to the following percentages of each
Portfolio's average daily net asset value on an annualized basis:
.25% for The Money Market Portfolio, .30% for The Short Duration
Portfolio, .30% for The Core Fixed Income Portfolio and .35% for
all other Portfolios. See "Management of the Trust-Investment
Adviser".

On February 28, 1995, the BlackRock Financial Management,
L.P. sold its business to PNC Bank N.A. ("PNC"), the twelfth
largest bank in the U.S. All members of the Adviser's senior
management team have signed long-term employment contracts with
PNC and will continue to be responsible for managing the day-to-
day affairs of the Adviser, including carrying out its
responsibilities with respect to the Trust and its various
portfolios.

PURCHASE AND REDEMPTION OF SHARES

Shares of each Portfolio are offered at the next determined
net asset value with no sales charge. The minimum initial
investment is $500,000, although the Fund may in its discretion
accept subscriptions for a lesser amount.

Shares of each Portfolio may be redeemed without cost at the
net asset value per share of the Portfolio next determined after
receipt of the redemption request. The redemption price may be
more or less than the purchase price.

Shares of any Portfolio may be exchanged for shares of any
other Portfolio on the basis of relative net asset values. See
"Purchase and Redemption of Shares".

DIVIDENDS AND DISTRIBUTIONS

Dividends will be declared daily on shares held of record at
5:00 p.m., New York time. Each Portfolio intends to distribute
all of its net investment income at least monthly, and any net
realized capital gains at least annually. All dividends and
distributions will be reinvested automatically at net asset value
in additional shares of the same Portfolio, unless cash payment
is requested. See "Taxes, Dividends and Distributions".

ADMINISTRATOR, CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING
AGENT

PNC Bank, N.A. and its affiliates provide the Trust with
administrative, accounting, custodial, transfer agency and
dividend disbursing services. See "General
Information Administrator, Custodian and Transfer and Dividend
Disbursing Agent".

INVESTMENT RISKS AND CONSIDERATIONS

Investment risks and considerations relevant to the
securities in which each Portfolio invests are described in the
Prospectus under "Description of the Trust-Investment Objectives
and Policies", "Description of Securities" and "Other Investment
Strategies". The following are some of these risks. As with all
fixed income securities, the market values of each Fixed Income
Portfolio's assets, and as such the net asset value of each Fixed
Income Portfolio's shares, will fluctuate with changes in
prevailing interest rates. While principal and interest payments
on some securities may be guaranteed by the U.S. Government,
government agencies or other guarantors, the market value of the
securities is not guaranteed. Events such as prepayments on
underlying mortgage loans may adversely affect the return from
Mortgage-Backed securities. All Portfolios may invest in
repurchase agreements, which entail a risk of loss should the
seller default on its obligation to repurchase the security which
is the subject of the transaction. The Fixed Income Portfolios
may use futures, options, and options on futures for hedging or
duration management purposes. Use of these instruments involves
certain costs and risks, including the risk that a Fixed Income
Portfolio could not close out an option or futures position when
it would be most advantageous to do so, and the risk of an
imperfect correlation between the value of the security being
hedged and the value of the particular derivative instrument. The
Global Fixed Income Portfolio may invest in securities of foreign
issuers, which are subject to additional risks, including foreign
currency risks, not applicable to securities of U.S. issuers. The
income from foreign securities may also be subject to foreign
taxes.

High portfolio turnover may involve correspondingly greater
brokerage commissions and other transaction costs which will be
borne directly by the Portfolios. While the Portfolios have no
fixed policy with respect to portfolio turnover, the Adviser
expects that, under normal circumstances, each Fixed Income
Portfolio's annual turnover rate will not exceed 150%.

The Fixed Income Portfolios may borrow from banks and enter
into reverse repurchase agreements or dollar rolls up to 33 1/3%
of the value of their respective total assets. Portfolios that
utilize this technique, called "leverage", may have a net asset
value that will rise faster or decrease faster than would
otherwise be the case.

TRUST EXPENSES

STOCKHOLDER TRANSACTION EXPENSES

Sales Load Imposed on Purchases . . . . . . . . . . None
Sales Load Imposed on Reinvested Dividends . . . . None
Deferred Sales Load . . . . . . . . . . . . . . . . None
Redemption Fee . . . . . . . . . . . . . . . . . . None
Exchange Fee . . . . . . . . . . . . . . . . . . . None

ANNUAL TRUST OPERATING EXPENSES
(as a percentage of average net assets)

Core
Money Short Fixed
Market Duration Income All Other
Portfolio Portfolio Portfolio Portfolios

Advisory Fees . . . 0.25% 0.30% 0.30% 0.35%
Other Expenses. . . 0.25 0.27 0.25 0.25
Total Expenses . . 0.50% 0.57% 0.55% 0.60%

The Adviser has voluntarily undertaken to waive a portion of
its advisory fee to the extent necessary so that the total
expenses of The Short Duration Portfolio and The Core Fixed
Income Portfolio will not exceed 0.57% and 0.55%, respectively,
of average net assets. This fee waiver may be terminated at any
time.

Example

A stockholder would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2) redemption at
the end of each time period:

1 Year 3 Years 5 Years 10 Years
The Money Market Portfolio . . $5 $16 $28 $63
The Short Duration Portfolio $6 $18 $32 $72
The Core Fixed Income Portfolio $6 $18 $31 $69
All Other Portfolios . . . . $6 $19 $34 $76

The above example is based on data for the Trust's fiscal
year ended June 30, 1995. THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN.

The purpose of this table is to assist investors in
understanding the various costs and expenses that an investor in
the Trust will bear, whether directly or indirectly. For a more
complete description of the various costs and expenses, see
"Management of the Trust." "Other Expenses" includes an estimate
of operating expenses of the Trust, such as Directors' and
professional fees, registration fees, reports to stockholders and
transfer agency and custodian fees. Investors who purchase or
redeem shares through broker-dealers or other financial
intermediaries may be subject to additional charges.

BFM INSTITUTIONAL TRUST INC.
THE SHORT DURATION PORTFOLIO

FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT
THE PERIOD

The table below provides operating performance for a share
of common stock outstanding, total investment return, ratios to
average net assets and other supplemental data for the periods
ended June 30, 1995, June 30, 1994 and June 30, 1993, which has
been audited by Deloitte & Touche LLP. This information has been
determined based upon financial information provided in the
financial statements which are included in the Statement of
Additional Information. The Statement of Additional Information
is available to shareholders on request.

YEAR YEAR JULY 17,
ENDED ENDED 1992(A) THROUGH
JUNE 30, JUNE 30, JUNE 30,
1995 1994 1993
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 9.71 $ 9.96 $ 10.00
Net investment income (net of $.014,
$.011 and $.005 respectively, of
interest expense) (d) 0.58 0.48 0.51
Net realized and unrealized loss
on investments 0.13 (0.25) (0.06)
Net increase from investment
operations 0.71 0.23 0.45
Dividends from net investment income (0.58) (0.48) (0.49)
Distributions from net realized
capital gains (0.01) -- --
Total dividends and distributions (0.59) (0.48) (0.49)
Net asset value, end of period $ 9.83 $ 9.71 $ 9.96

TOTAL INVESTMENT RETURN (b) . 6.99% 2.33% 4.63%

RATIOS TO AVERAGE NET ASSETS:
Operating expenses (d) . . . 0.57% 0.57% 0.56%(c)
Net investment income (d) . 6.08% 4.70% 5.32%(c)

SUPPLEMENTAL DATA:
Average net assets (000) . . $34,236 $36,686 $ 67,540
Portfolio turnover . . . . . 586% 455% 513%
Net assets, end of period (000) $44,486 $31,265 $ 51,611

(a) Commencement of investment operations.
(b) Total investment return is calculated assuming a purchase of
common stock at net asset value per share on the first day
and a sale at net asset value per share on the last day of
the period reported. Dividends are assumed, for purposes of
this calculation, to be reinvested at the net asset value per
share on the payment date.
(c) Annualized.
(d) The Adviser waived fees amounting to $102,707 and $110,232
and reimbursed expenses amounting to $61,195 and $55,582, for
the periods ended June 30, 1995 and June 30, 1994,
respectively. For the period July 17, 1992 through June 30,
1993, the Administrator waived fees amounting to $64,580. If
the Fund had borne all expenses, the expense ratios would
have been 1.05%, 1.02% and 0.66% for the periods ended June
30, 1995, June 30, 1994 and June 30, 1993, respectively. The
net investment income ratios would have been 5.60%, 4.25% and
5.22% for the periods ended June 30, 1995, June 30, 1994 and
June 30, 1993, respectively. The net investment income on a
per share basis would have been $0.53, $0.43 and $0.49 for
the periods ended June 30, 1995, June 30, 1994 and June 30,
1993, respectively.

BFM INSTITUTIONAL TRUST INC.
THE CORE FIXED INCOME PORTFOLIO

FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT
THE PERIOD

YEAR YEAR DECEMBER 9,
ENDED ENDED 1992(A)
JUNE 30, JUNE 30, THROUGH
1995 1994 JUNE 30, 1993

PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 9.36 $ 10.37 $ 10.00
Net investment income (net of $.004,
$.003 and $.001 respectively, of
interest expense) 0.62 0.55 0.32
Net realized and unrealized gains
(losses) on investments . . . . . 0.50 (0.60) 0.37
Net increase (decrease) from investment
operations 1.12 (0.05) 0.69
Dividends from net investment income (0.62) (0.55) (0.32)
Distributions from net realized capital
gains (0.01) (0.41) --
Total dividends and distributions (0.63) (0.96) (0.32)

Net asset value, end of period $ 9.85 $ 9.36 $ 10.37

TOTAL INVESTMENT RETURN (b) . 11.79% (0.69)% 6.88%

RATIOS TO AVERAGE NET ASSETS:
Operating expenses (d) . . . 0.55% (c) 0.55% 0.55% (c)
Net investment income (d) . . 6.62% (c) 5.61% 5.57% (c)

SUPPLEMENTAL DATA:
Average net assets (000) . . $16,247 $ 9,702 $ 6,622
Portfolio turnover . . . . . 435% 722% 354%
Net assets, end of period (000) $32,191 $ 12,507 $ 7,803

(a) Commencement of investment operations.
(b) Total investment return is calculated assuming a purchase of
common stock at net asset value per share on the first day
and a sale at net asset value per share on the last day of
the period reported. Dividends are assumed, for purposes of
this calculation, to be reinvested at the net asset value per
share on the payment date.
(c) Annualized.
(d) The Adviser waived fees amounting to $56,894, $34,010 and
$24,761 and reimbursed expenses amounting to $137,364,
$137,179 and $0 for the periods ended June 30, 1995, June 30,
1994 and June 30, 1993, respectively. The Administrator
waived fees amounting to $32,500 and $3,701 for the periods
ended June 30, 1994 and June 30, 1993, respectively. For the
period ended June 30, 1993, the Custodian and the Transfer
Agent waived fees amounting to $24,272 and $17,283,
respectively. If the Fund had borne all expenses, the
expense ratios would have been 1.75%, 2.65% and 2.44% for the
periods ended June 30, 1995, June 30, 1994 and June 30, 1993,
respectively. The net investment income ratios would have
been 5.43%, 3.51% and 3.68% for the periods ended June 30,
1995, June 30, 1994 and June 30, 1993, respectively. The net
investment income on a per share basis would have been $0.51,
$0.34 and $0.22 for the periods ended June 30, 1995, June 30,
1994 and June 30, 1993, respectively.

DESCRIPTION OF THE TRUST

MANAGEMENT OF THE TRUST

BlackRock Financial Management Inc. (formerly, BlackRock
Financial Management L.P.), a registered investment adviser, will
act as the Trust's investment adviser (the "Adviser"). On
February 28, 1995, BlackRock Financial Management L.P. sold its
business to PNC Bank, N.A., the twelfth largest bank in the U.S.
At the time of the sale, the Adviser changed from a limited
partnership to a corporation and accordingly, changed the name
from BlackRock Financial Management L.P. to BlackRock Financial
Management Inc. All members of the Adviser's senior management
team have signed long-term employment contracts with PNC and will
continue to be responsible for managing the day-to-day affairs of
the Adviser, including carrying out its responsibilities with
respect to the Trust and its various portfolios. The Adviser
currently serves as the investment adviser to institutional and
fixed income investors in the United States and overseas through
a number of funds and separately managed accounts with combined
total assets in excess of $33 billion. See "Management of the
Trust" below.

INVESTMENT OBJECTIVES AND POLICIES

The following describes briefly the investment objective and
policies of each Portfolio. Certain instruments and techniques
discussed in this section are described in greater detail later
in this Prospectus and in the Statement of Additional
Information.

THE FIXED INCOME PORTFOLIOS

The Portfolios other than The Money Market Portfolio (Fixed
Income Portfolios) seek to maximize total return, consistent with
preservation of capital and prudent investment management. Each
Portfolio differs from the others primarily in the length of the
Portfolio's duration or the proportion of its investments in
certain types of fixed income securities. Duration is one of the
fundamental tools used by the Adviser in the selection of
securities for the Fixed Income Portfolios. Duration is a measure
of the expected life of a fixed income security on a present
value basis and is indicative of a security's price "volatility"
or "risk" associated with changes in interest rates. The concept
of duration was developed to incorporate a bond's yield, coupons,
final maturity and call features into one measure. There is no
assurance that a Fixed Income Portfolio will achieve its targeted
duration at all times. A more detailed discussion of duration is
provided under "Duration" below.

The total return which each Fixed Income Portfolio seeks to
maximize will consist of interest from underlying securities and
capital appreciation from the purchase and sale of securities,
from use of futures and options and, in the case of The Global
Fixed Income Portfolio, from changes in foreign currency exchange
rates. The change in market value of fixed income securities (and
therefore their capital appreciation) is largely a function of
changes in the current level of interest rates. When interest
rates are falling, a Portfolio with a shorter duration generally
will not generate as high a level of total return as a Portfolio
with a longer duration. Conversely, when interest rates are
rising, a Portfolio with a shorter duration will generally
outperform longer duration portfolios. When interest rates are
stable, shorter duration portfolios generally will not generate
as high a level of total return as longer duration portfolios
(assuming that long-term interest rates are higher than short-
term rates, which is commonly the case). The market value of
securities denominated in currencies other than the U.S. dollar
also may be affected by movements in foreign currency exchange
rates.

The individual Fixed Income Portfolios are structured as
follows:

THE SHORT DURATION PORTFOLIO seeks to realize a total
rate of return that exceeds the total return of the Merrill
Lynch 1-3 Year Treasury Index. The duration of the Merrill
Lynch 1-3 Year Treasury Index as of June 30, 1995 was 1.69
years. The Portfolio will invest all of its assets in a
broad range of fixed income securities, including U.S.
Government, Mortgage-Backed, Asset-Backed and, to a lesser
extent, Corporate Debt securities. The duration of the
Portfolio will be targeted to be in the range of plus or
minus 20% around the current duration of the Merrill Lynch
1-3 Year Treasury Index. Under normal circumstances, the
dollar-weighted average maturity of the Portfolio's
securities will be longer than 3 years, sometimes
significantly. The Portfolio's assets (i) will be issued or
guaranteed by the U.S. Government or its agencies or
instrumentalities, (ii) will be rated at least AAA by S&P or
Aaa by Moody's or (iii) will have been determined by the
Adviser to be of comparable quality at the time of
investment.

THE INTERMEDIATE DURATION PORTFOLIO seeks to realize a
total rate of return that exceeds the total return of the
Merrill Lynch 3-5 Year Treasury Index. The duration of the
Merrill Lynch 3-5 Year Treasury Index as of June 30, 1995
was 3.39 years. The Portfolio will invest all of its assets
in a broad range of investment grade fixed income
securities, including U.S. Government, Mortgage-Backed,
Asset-Backed and, to a lesser extent, Corporate Debt
securities. The duration of the Portfolio will be targeted
to be in the range of 2.5 to 5.0 years. Under normal
circumstances, the dollar-weighted average maturity of the
Portfolio's securities will be longer than 5 years,
sometimes significantly. The Portfolio's assets (i) will be
issued or guaranteed by the U.S. Government or its agencies
or instrumentalities, (ii) will be rated BBB- or better by
S&P or Baa3 or better by Moody's or (iii) will have been
determined by the Adviser to be of comparable quality at the
time of investment.

THE CORE FIXED INCOME PORTFOLIO seeks to realize a
total rate of return that exceeds the total return of the
Lehman Brothers Aggregate Index. The duration of the Lehman
Brothers Aggregate Index as of June 30, 1995 was 4.58 years.
The Portfolio will invest all of its assets in a broad range
of investment grade fixed income securities, including U.S.
Government, Mortgage-Backed, Asset-Backed and Corporate Debt
securities. The duration of the Portfolio will be targeted
to be in the range of plus or minus 20% around the current
duration of the Lehman Brothers Aggregate Index. The
Portfolio's assets (i) will be issued or guaranteed by the
U.S. Government or its agencies or instrumentalities, (ii)
will be rated BBB- or better by S&P or Baa3 or better by
Moody's or (iii) will have been determined by the Adviser to
be of comparable quality at the time of investment.

THE MORTGAGE PORTFOLIO seeks to realize a total rate of
return that exceeds the total return of the Salomon Brothers
Mortgage Index. The duration of the Salomon Brothers
Mortgage Index as of June 30, 1995 was 4.05 years. Under
normal market conditions, the Portfolio will invest at least
65% of its assets in a broad range of Mortgage-Backed
securities, with the remainder of its assets in Asset-Backed
and U.S. Government securities. The duration of the
Portfolio will be targeted to be in the range of plus or
minus 20% around the current duration of the Salomon
Brothers Mortgage Index. The Portfolio's assets (i) will be
issued or guaranteed by the U.S. Government or its agencies
or instrumentalities, (ii) will be rated AA or better by S&P
or Aa or better by Moody's or (iii) will have been
determined by the Adviser to be of comparable quality at the
time of investment.

THE GOVERNMENT PORTFOLIO seeks to realize a total rate
of return that exceeds the total return of the Lehman
Brothers Government Bond Index. The duration of the Lehman
Brothers Government Bond Index as of June 30, 1995 was 4.84
years. Under normal market conditions, the Portfolio will
invest all of its assets in securities issued or guaranteed
by the U.S. Government or its agencies and
instrumentalities. The duration of the Portfolio will be
targeted to be in the range of plus or minus 20% around the
current duration of the Lehman Brothers Government Bond
Index.

THE LONG DURATION PORTFOLIO seeks to realize a maximum
total rate of return consistent with investing all of its
assets in a broad range of investment grade fixed income
securities, including U.S. Government, Mortgage-Backed,
Asset-Backed and Corporate Debt securities. The duration of
the Portfolio will be targeted to be in the range of 8 to 12
years. Under normal circumstances, the dollar-weighted
average maturity of the Portfolio's securities will be
longer than 10 years. The Portfolio's assets (i) will be
issued or guaranteed by the U.S. Government or its agencies
or instrumentalities, (ii) will be rated BBB- or better by
S&P or Baa3 or better by Moody's or (iii) will have been
determined by the Adviser to be of comparable quality at the
time of investment.

THE GLOBAL FIXED INCOME PORTFOLIO seeks to realize a
maximum total rate of return consistent with investing all
of its assets in a broad range of both U.S. and non-U.S.
investment grade fixed income securities (both dollar and
non-dollar denominated), including U.S. Government,
Mortgage-Backed, Asset-Backed, Corporate Debt and Foreign
securities. The duration of the Portfolio will be targeted
to be in the range of 3 to 7 years. The Portfolio's assets
(i) will be issued or guaranteed by the U.S. Government or
its agencies or instrumentalities, (ii) will be rated BBB-
or better by S&P or Baa3 or better by Moody's or (iii) will
have been determined by the Adviser to be of comparable
quality at the time of investment. Under normal market
conditions, the Portfolio will be invested in at least three
different countries.

For a description of the indices mentioned above, see
"Portfolio Benchmarks" in Appendix A to this Prospectus. For
purposes of enhancing liquidity and/or preserving capital, on a
temporary basis, each Fixed Income Portfolio may invest without
limit in money market instruments, including instruments
described under "The Money Market Portfolio" below.

THE MONEY MARKET PORTFOLIO

The Money Market Portfolio seeks to realize maximum current
income, consistent with preservation of capital and liquidity, by
investing in money market instruments and other short-term
securities having maturities of one year or less. The Portfolio
will also maintain a dollar-weighted average portfolio of 90 days
or less. The Money Market Portfolio seeks to maintain, but does
not guarantee, a constant net asset value of $1.00 per share.

The Money Market Portfolio will invest in obligations issued
by the U.S. Government, its agencies or instrumentalities; high
quality commercial paper and corporate obligations; certificates
of deposit, fixed time deposits and bankers' acceptances of banks
that are members of the Federal Deposit Insurance Corporation and
have assets greater than $1 billion; variable and floating rate
debt securities; and repurchase agreements. The investments of
The Money Market Portfolio will be limited to U.S. dollar
denominated instruments that are (i) issued or guaranteed by the
U.S. Government or its agencies or instrumentalities, (ii) rated
at least A-1 or AAA by S&P and Prime-1 or Aaa by Moody's or (iii)
determined by the Adviser to be of comparable quality at the time
of investment. See "Corporate Bond and Commercial Paper Ratings"
in Appendix B to this Prospectus.

DURATION

Duration is a measure of the expected life of a fixed income
security that was developed as a more precise alternative to the
concept of "term to maturity". Duration incorporates a bond's
yield, coupon interest payments, final maturity and call or
prepayment features into one measure. Duration is one of the
fundamental tools used by the Adviser in security selection for
the Fixed Income Portfolios.

Most debt obligations provide interest ("coupon") payments
in addition to a final ("par") payment at maturity. Some
obligations also have call or prepayment provisions. Depending on
the relative magnitude of these payments, the market values of
debt obligations may respond differently to changes in the level
and structure of interest rates.

Traditionally, a debt security's "term to maturity" has been
used as a proxy for the sensitivity of the security's price to
changes in interest rates (which is the "interest rate risk" or
"volatility" of the security). However, "term to maturity"
measures only the time until a debt security provides its final
payment, taking no account of the pattern of the security's
payments prior to maturity. Duration is a measure of the expected
life of a fixed income security on a present value basis.
Duration takes the length of the time intervals between the
present time and the time that the interest and principal
payments are scheduled or, in the case of a bond subject to call
or prepayment, expected to be received, and weights them by the
present values of the cash to be received at each future point in
time. For any fixed income security with interest payments
occurring prior to the payment of principal, duration is always
less than maturity. In general, all other things being the same,
the lower the stated or coupon rate of interest of a fixed income
security, the longer the duration of the security; conversely,
the higher the stated or coupon rate of interest of a fixed
income security, the shorter the duration of the security.

Futures, options and options on futures have durations
which, in general, are closely related to the duration of the
securities which underlie them. Holding long futures or call
option positions (backed by a segregated account of cash and cash
equivalents) will lengthen the portfolio duration by
approximately the same amount that holding an equivalent amount
of the underlying securities would. Short futures or put option
positions have durations roughly equal to the negative duration
of the securities that underlie those positions, and have the
effect of reducing portfolio duration by approximately the same
amount that selling an equivalent amount of the underlying
securities would.

There are some situations where even the standard duration
calculation does not properly reflect the interest rate exposure
of a security. For example, floating and variable rate securities
often have final maturities of ten or more years; however, their
interest rate exposure corresponds to the frequency of the coupon
reset. Another example where the interest rate exposure is not
properly captured by duration is the case of mortgage pass-
through securities. The stated final maturity of such securities
is generally 30 years, but current prepayment rates are more
critical in determining the securities' interest rate exposure.
In these and other similar situations, the Adviser will use more
sophisticated analytical techniques that incorporate the economic
life of a security into the determination of its interest rate
exposure.

There is no assurance that a Fixed Income Portfolio will
achieve its targeted duration at all times. This is because the
computation of duration is based on a number of estimated rather
than known factors, including expected prepayment rates.

DESCRIPTION OF SECURITIES

The following describes certain types of securities in which
the Portfolios may invest.

U.S. Government Securities

U.S. Treasury Securities. The Portfolios will invest in U.S.
Treasury securities, including bills, notes, bonds and other debt
securities issued by the U.S. Treasury. These instruments are
direct obligations of the U.S. Government and, as such, are
backed by the "full faith and credit" of the United States. They
differ primarily in their interest rates, the lengths of their
maturities and the dates of their issuances.

Each Fixed Income Portfolio may also invest in "zero coupon"
securities, including U.S. Treasury bills, notes and bonds which
have been stripped of their unmatured interest coupons or which
are certificates representing interests in such stripped debt
obligations. Such securities are purchased at a discount from
their face amount, giving the purchaser the right to receive
their full value at maturity. A zero coupon security pays no
interest to its holder during its life. In addition to those
issued by the U.S. Government, such zero coupon securities may be
issued by private issuers representing an interest in securities
issued by the U.S. Government. Such privately issued zero coupon
securities are not considered U.S. Government securities and will
be deemed illiquid for purposes of the 15% limitation on illiquid
securities. See "Investment Objectives and Policies-U.S.
Government Securities" in the Statement of Additional Information
and "Illiquid Securities" below.

Securities Issued or Guaranteed by U.S. Government Agencies
and Instrumentalities. The Portfolios will invest in securities
issued by agencies of the U.S. Government or instrumentalities of
the U.S. Government, including, but not limited to, GNMA, FNMA
and FHLMC securities. Obligations of GNMA, the Farmers Home
Administration and the Export-Import Bank are backed by the "full
faith and credit" of the United States. In the case of securities
not backed by the "full faith and credit" of the United States,
the Portfolios must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment. Such
securities include obligations issued by FNMA and FHLMC, each of
which may borrow from the U.S. Treasury to meet its obligations,
although the U.S. Treasury is under no obligation to lend to FNMA
or FHLMC. GNMA, FNMA and FHLMC investments by the Fixed Income
Portfolios may also include pass-through securities, CMOs and
certain other Mortgage-Backed securities. See "Mortgage-Backed
Securities" below.

Mortgage-Backed Securities

Mortgage-Backed securities directly or indirectly represent
a participation in, or are secured by and payable from, mortgage
loans secured by real property. The term Mortgage-Backed
securities, as used herein, includes adjustable rate mortgage
securities and derivative mortgage products such as
collateralized mortgage obligations, stripped Mortgage-Backed
securities and other products described below.

There are currently three basic types of Mortgage-Backed
securities: (i) those issued or guaranteed by the U.S. Government
or one of its agencies or instrumentalities, such as GNMA, FNMA
and FHLMC; (ii) those issued by private issuers that represent an
interest in or are collateralized by Mortgage-Backed securities
issued or guaranteed by the U.S. Government or one of its
agencies or instrumentalities; and (iii) those issued by private
issuers that represent an interest in or are collateralized by
whole mortgage loans or Mortgage-Backed securities without a
government guarantee but usually having some form of private
credit enhancement.

Mortgage-Related Securities Issued by U.S. Government
Agencies and Instrumentalities. The Fixed Income Portfolios will
invest in Mortgage-Backed securities, including those
representing an undivided ownership interest in a pool of
mortgages, e.g., GNMA, FNMA and FHLMC certificates. The U.S.
Government or the issuing agency guarantees the payment of
interest and principal on these securities. However, the
guarantees do not extend to the securities' yield or value, nor
do the guarantees extend to the yield or value of the Portfolios'
shares. These certificates are in most cases "pass-through"
instruments, through which the holder receives a share of all
interest and principal payments from the mortgages underlying the
certificate, net of certain fees. See "Investment Objectives and
Policies -- Mortgage-Backed Securities" in the Statement of
Additional Information.

Private Mortgage Pass-Through Securities. Private mortgage
pass-through securities are structured similarly to GNMA, FNMA
and FHLMC mortgage pass-through securities and are issued by
originators of and investors in mortgage loans, including
depository institutions, mortgage banks, investment banks and
special purpose subsidiaries of the foregoing. These securities
usually are backed either by GNMA, FNMA or FHLMC certificates or
by a pool of fixed rate or adjustable rate mortgage loans.
Securities which are backed by a pool of fixed rate or adjustable
rate mortgage loans generally are structured with one or more
types of credit enhancement. See "Types of Credit Enhancement"
below.

Adjustable Rate Mortgage Securities. Adjustable rate
mortgage securities are pass-through mortgage securities
collateralized by mortgages with adjustable rather than fixed
rates (ARMs). ARMs eligible for inclusion in a mortgage pool
generally provide for a fixed initial mortgage interest rate for
either the first three, six, twelve, thirteen, thirty-six or
sixty scheduled monthly payments. Thereafter, the interest rates
are subject to periodic adjustment based on changes to a
designated benchmark index.

ARMs contain maximum and minimum rates beyond which the
mortgage interest rate may not vary over the lifetime of the
mortgage. In addition, certain ARMs provide for additional
limitations on the maximum amount by which the mortgage interest
rate may adjust for any single adjustment period. Alternatively,
certain ARMs contain limitations on changes in the required
monthly payment. In the event that a monthly payment is not
sufficient to pay the interest accruing on an ARM, any such
excess interest is added to the principal balance of the mortgage
loan, which is repaid through future monthly payments. If the
monthly payment for such an instrument exceeds the sum of the
interest accrued at the applicable mortgage interest rate and the
principal payment required at such point to amortize the
outstanding principal balance over the remaining term of the
loan, the excess is utilized to reduce the then outstanding
principal balance of the ARM.

Collateralized Mortgage Obligations and Multi-class Pass-
Through Securities. Collateralized mortgage obligations or
"CMOs" are debt obligations collateralized by mortgage loans or
mortgage pass-through securities. Typically, CMOs are
collateralized by GNMA, FNMA or FHLMC certificates, but also may
be collateralized by whole loans or private mortgage pass-through
securities (collectively, Mortgage Assets). Multi-class pass-
through securities are equity interests in a trust composed of
Mortgage Assets. Unless the context indicates otherwise, all
references herein to CMOs include multi-class pass-through
certificates. Payments of principal of and interest on the
Mortgage Assets, and any reinvestment income thereon, provide the
funds to pay debt service on the CMOs or make scheduled
distributions on the multi-class pass-through securities. CMOs
may be issued by agencies or instrumentalities of the U.S.
Government, or by private originators of, or investors in,
mortgage loans, including depository institutions, mortgage
banks, investment banks and special purpose subsidiaries of the
foregoing. The issuer of CMOs or multi-class pass-through
securities may elect to be treated as a Real Estate Mortgage
Investment Conduit (REMIC).

In a CMO, a series of bonds or certificates is issued in
multiple classes. Each class of CMOs, often referred to as a
"tranche," is issued at a specific fixed or floating coupon rate
and has a stated maturity or final distribution date. Principal
prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or
final distribution dates. Interest is paid or accrues on all
classes of the CMOs on a monthly, quarterly or semi-annual basis.
The principal of and interest on the Mortgage Assets may be
allocated among the several classes of a CMO series in a number
of different ways. Generally, the purpose of the allocation of
the cash flow of a CMO to the various classes is to obtain a more
predictable cash flow to the individual tranches than exists with
the underlying collateral of the CMO. As a general rule, the more
predictable the cash flow is on a CMO tranche, the lower the
anticipated yield will be on that tranche at the time of issuance
relative to prevailing market yields on Mortgage-Backed
securities.

The Portfolios also may invest in, among other things,
parallel-pay CMOs and Planned Amortization Class CMOs (PAC
Bonds). Parallel-pay CMOs are structured to provide payments of
principal on each payment date to more than one class. These
simultaneous payments are taken into account in calculating the
stated maturity date or final distribution date of each class,
which, as with other CMO structures, must be retired by its
stated maturity date or final distribution date but may be
retired earlier. PAC Bonds generally require payments of a
specified amount of principal on each payment date. PAC Bonds are
parallel-pay CMOs with the required principal payment on such
securities having the highest priority after interest has been
paid to all classes.

The Portfolios do not intend to invest in CMO residuals. The
residual in a CMO structure generally represents the interest in
any excess cash flow remaining after making required payments of
principal of and interest on the CMOs and related administrative
expenses of the issuer.

Stripped Mortgage-Backed Securities. The Fixed Income
Portfolios may also invest in mortgage pass-through securities
where all or a substantial portion of the interest payments go to
one class of holders (Interest Only Securities or IOs) and all or
a substantial portion of the principal payments go to a second
class of holders (Principal Only Securities or POs). These
securities are commonly referred to as Stripped Mortgage-Backed
securities or SMBS. The yields to maturity on IOs and POs are
very sensitive to the rate of principal payments (including
prepayments) on the related underlying Mortgage Assets, and such
rate may have a material effect on yield to maturity. If the
underlying Mortgage Assets experience greater than anticipated
prepayments of principal, a Portfolio may not fully recoup its
initial investment in IOs. Conversely, if the underlying Mortgage
Assets experience less than anticipated prepayments of principal,
the yield on POs could be materially adversely affected.

In addition to SMBS issued by agencies or instrumentalities
of the U.S. Government, the Fixed Income Portfolios may purchase
SMBS issued by private originators of, or investors in, mortgage
loans, including depository institutions, mortgage banks,
investment banks and special purpose subsidiaries of the
foregoing. Privately issued SMBS will be deemed illiquid for
purposes of the 15% limitation on illiquid securities. See
"Illiquid Securities" below. The determination whether a
particular U.S. Government issued SMBS is liquid will be made by
the Adviser under guidelines established by the Board of
Directors.

Commercial Mortgage-Backed Securities

Commercial Mortgage-Backed Securities are generally multi-
class debt or pass-through securities backed by a mortgage loan
or pool of mortgage loans secured by commercial property, such as
industrial and warehouse properties, office buildings, retail
space and shopping malls, multifamily properties and cooperative
apartments, hotels and motels, nursing homes, hospitals, senior
living centers and agricultural property. The commercial
mortgage loans that underlie Commercial Mortgage-Backed
Securities have certain distinct characteristics. Commercial
mortgage loans are generally not amortizing or not fully
amortizing. At their maturity date, repayment of the remaining
principal balance or "balloon" is due and is repaid through the
attainment of an additional loan or sale of the property. Unlike
most single family residential mortgages, commercial real
property loans often contain provisions which substantially
reduce the likelihood that such securities will be prepaid. The
provisions generally impose significant prepayment penalties on
loans and, in some cases there may be prohibitions on principal
prepayments for several years following origination. This
difference in prepayment exposure is significant due to
extraordinarily high levels of refinancing of traditional
residential mortgages experienced over the past year as mortgage
rates have reached a 25 year low. Assets underlying Commercial
Mortgage-Backed Securities may relate to only a few properties or
to a single property. See "Prospectus Summary Investment Risks
and Special Considerations".

Commercial Mortgage-Backed Securities have been issued in
public and private transactions by a variety of public and
private issuers. Non-governmental entities that have issued or
sponsored Commercial Mortgage-Backed Securities offerings include
owners of commercial properties, originators of and investors in
mortgage loans, savings and loan associations, mortgage banks,
commercial banks, insurance companies, investment banks and
special purpose subsidiaries of the foregoing. Each Portfolio
may from time to time purchase Commercial Mortgage-Backed
Securities directly from issuers in negotiated transactions or
from a holder of such Commercial Mortgage-Backed Securities in
the secondary market.

Commercial Mortgage-Backed Securities generally are
structured to protect the senior class investors against
potential losses on the underlying mortgage loans. This is
generally provided by the subordinated class investors, which may
be included in each Portfolio, by taking the first loss if there
are defaults on the underlying commercial mortgage loans. Other
protection, which may benefit all of the classes, including the
subordinated classes in which the Portfolios intend to invest,
may include issuer guarantees, reserve funds, additional
subordinated securities, cross-collateralization, over-
collateralization and the equity investors in the underlying
properties.

By adjusting the priority of interest and principal payments
on each class of a given Commercial Mortgage-Backed Security,
issuers are able to issue senior investment grade securities and
lower rated or non-rated subordinated securities tailored to meet
the needs of sophisticated institutional investors. In general,
subordinated classes of Commercial Mortgage-Backed Securities are
entitled to receive repayment of principal only after all
required principal payments have been made to more senior classes
and have subordinate rights as to receipt of interest
distributions. Such subordinated classes are subject to a
substantially greater risk of nonpayment than are senior classes
of Commercial Mortgage-Backed Securities. Even within a class of
subordinate securities, most Commercial Mortgage-Backed
Securities are structured with a hierarchy of levels (or "loss
positions"). Loss positions are the order in which
nonrecoverable losses of principal are applied to the securities
within a given structure. For instance, a first loss subordinate
security will absorb any principal losses before any higher loss
position subordinate security. This type of structure allows a
number of classes of securities to be created with varying
degrees of credit exposure, prepayment exposure and potential
total return.

Subordinated classes of Commercial Mortgage-Backed
Securities have more recently been structured to meet specific
investor preferences and issuer constraints and have different
priorities for cash flow and loss absorption. As previously
discussed, from a credit perspective, they are structured to
absorb any credit-related losses prior to the senior class. The
principal cash flow characteristics of subordinated classes are
designed to be among the most stable in the Mortgage-Backed
Securities market, the probability of prepayment being much lower
than with traditional Residential Mortgage-Backed Securities.
This characteristic is primarily due to the structural feature
that directs the application of principal payments first to the
senior classes until they are retired before the subordinated
classes receive any prepayments. While this serves to enhance
the credit protection of the senior classes, it produces
subordinated classes with more stable average lives. Subject to
the applicable provisions of the 1940 Act, there are no
limitations on the classes of Commercial Mortgage-Backed
Securities in which each of the Portfolios may invest.
Accordingly, in certain circumstances, one of the Portfolios may
recover proportionally less of its investment in a Commercial
Mortgage-Backed Security than the holders of more senior classes
of the same Commercial Mortgage-Backed Security.

The rating assigned to a given issue and class of Commercial
Mortgage-Backed Securities is a product of many factors,
including, the structure of the security, the level of
subordination, the quality and adequacy of the collateral, and
the past performance of the originators and servicing companies.
The rating of any Commercial Mortgage-Backed Security is
determined to a substantial degree by the debt service coverage
ratio (i.e., the ratio of current net operating income from the
commercial properties, in the aggregate, to the current debt
service obligations on the properties) and the LTV ratio of the
pooled properties. The amount of the securities issued in any
one rating category is determined by the rating agencies after a
rigorous credit rating process which includes analysis of the
issuer, servicer and property manager, as well as verification of
the LTV and debt service coverage ratios. LTV ratios may be
particularly important in the case of commercial mortgages
because most commercial mortgage loans provide that the lender's
sole remedy in the event of a default is against the mortgaged
property, and the lender is not permitted to pursue remedies with
respect to other assets of the borrower. Accordingly, loan-to-
value ratios may, in certain circumstances, determine the amount
realized by the holder of the Commercial Mortgaged-Backed
Security.

Asset-Backed Securities

The securitization techniques used to develop Mortgage-
Backed securities are also applied to a broad range of other
assets. Through the use of trusts and special purpose
corporations, various types of assets, primarily automobile and
credit card receivables and home equity loans, are being
securitized in pass-through structures similar to the mortgage
pass-through structures described above or in a pay-through
structure similar to the CMO structure. Other types of assets
being securitized include loans to finance boats, recreational
vehicles, mobile homes and manufactured housing; computer,
copier, railcar and medical equipment leases; student and
commercial loans; and trade, health care and franchise
receivables. In general, the collateral supporting Asset-Backed
securities is of shorter maturity than mortgage loans and is less
likely to experience substantial prepayments. As with Mortgage-
Backed securities, Asset-Backed securities are often backed by a
pool of assets representing the obligations of a number of
different parties and use similar credit enhancement techniques.
See "Types of Credit Enhancement" below.

The market for certain types of Asset-Backed securities is
relatively new and untested. Certain Asset-Backed securities may
have a limited secondary market and may be subject to
restrictions on transferability. Any Asset-Backed security that
cannot be disposed of within seven days and in the usual course
of business without taking a reduced price will be deemed
illiquid for purposes of the 15% limitation on illiquid
securities. See "Illiquid Securities" below. The determination
whether a particular Asset-Backed security is liquid will be made
by the Adviser under guidelines established by the Board of
Directors.

New instruments and variations of existing Mortgage-Backed
securities and Asset-Backed securities continue to be developed.
The Portfolios may invest in any such instruments or variations
as may be developed to the extent consistent with their
investment objectives and policies and applicable regulatory
requirements.

Different types of Asset-Backed Securities and the assets
supporting such securities may be subject to additional
restrictions, and may be affected be economic, legal and other
changes, unique to such securities and assets. For example, a
recent legislative proposal to limit credit card interest rates
had a significant adverse effect on the market for credit card
receivables.

Types of Credit Enhancement

Mortgage-Backed securities and Asset-Backed securities are
often backed by a pool of assets representing the obligations of
a number of different parties. To lessen the effect of failures
by obligors on underlying assets to make payments, those
securities may contain elements of credit support, which fall
into two categories: (i) liquidity protection and (ii) protection
against losses resulting from ultimate default by an obligor on
the underlying assets. Liquidity protection refers to the
provision of advances, generally by the entity administering the
pool of assets, to ensure that the receipt of payments on the
underlying pool occurs in a timely fashion. Protection against
losses resulting from default ensures ultimate payment of the
obligations on at least a portion of the assets in the pool. This
protection may be provided through guarantees, insurance policies
or letters of credit obtained by the issuer or sponsor from third
parties, through various means of structuring the transaction or
through a combination of such approaches. The Portfolios will not
pay any additional fees for credit support, although the
existence of credit support may increase the price of a security.

Examples of credit support arising out of the structure of
the transaction include "senior-subordinated securities"
(multiple class securities with one or more classes subordinate
to other classes as to the payment of principal thereof and
interest thereon, with the result that defaults on the underlying
assets are borne first by the holders of the subordinated class),
creation of "reserve funds" (where cash or investments, sometimes
funded from a portion of the payments on the underlying assets,
are held in reserve against future losses) and
"overcollateralization" (where the scheduled payments on, or the
principal amount of, the underlying assets exceeds that required
to make payment of the securities and pay any servicing or other
fees). The degree of credit support provided for each issue is
generally based on historical information respecting the level of
credit risk associated with the underlying assets. Delinquencies
or losses in excess of those anticipated could adversely affect
the return on an investment in such issue.

Risk Factors Relating to Mortgage-Backed and Asset-Backed
Securities

The yield characteristics of Mortgage-Backed and Asset-
Backed securities differ from traditional debt securities. Among
the major differences are that interest and principal payments
are made more frequently, usually monthly, and that principal may
be prepaid at any time because the underlying mortgage loans or
other assets generally may be prepaid at any time. As a result,
if a Portfolio purchases such a security at a premium, a
prepayment rate that is faster than expected will reduce yield to
maturity, while a prepayment rate that is slower than expected
will have the opposite effect of increasing yield to maturity.
Alternatively, if the Portfolio purchases these securities at a
discount, faster than expected prepayments will increase, while
slower than expected prepayments will reduce, yield to maturity.
The Fixed Income Portfolios may invest a portion of their assets
in derivative Mortgage-Backed securities such as Stripped
Mortgage-Backed securities, which are highly sensitive to changes
in prepayment and interest rates. The Adviser will seek to manage
these risks (and potential benefits) by diversifying its
investments in such securities and through hedging techniques.

Although the extent of prepayments on a pool of mortgage
loans depends on various economic and other factors, as a general
rule prepayments on fixed rate mortgage loans will increase
during a period of falling interest rates and decrease during a
period of rising interest rates. Accordingly, amounts available
for reinvestment by the Portfolios are likely to be greater
during a period of declining interest rates and, as a result,
likely to be reinvested at lower interest rates than during a
period of rising interest rates. Asset-Backed securities,
although less likely to experience the same prepayment rates as
Mortgage-Backed securities, may respond to certain of the same
factors influencing prepayments, while at other times different
factors will predominate. Mortgage-Backed securities and Asset-
Backed securities may decrease in value as a result of increases
in interest rates and may benefit less than other fixed income
securities from declining interest rates because of the risk of
prepayment.

Asset-Backed securities present certain risks that are not
presented by Mortgage-Backed securities. Primarily, Asset-Backed
securities do not have the benefit of the same security interest
in the related collateral. Credit card receivables are generally
unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which
give such debtors the right to set off certain amounts owed on
the credit cards, thereby reducing the balance due. Most issuers
of Asset-Backed securities backed by automobile receivables
permit the servicers of such receivables to retain possession of
the underlying obligations. If the servicer were to sell these
obligations to another party, there is a risk that the purchaser
would acquire an interest superior to that of the holders of the
related Asset-Backed securities. In addition, because of the
large number of vehicles involved in a typical issuance and
technical requirements under state laws, the trustee for the
holders of Asset-Backed securities backed by automobile
receivables may not have a proper security interest in all of the
obligations backing such receivables. Therefore, there is the
possibility that recoveries on repossessed collateral may not, in
some cases, be available to support payments on these securities.

Different types of Asset-Backed securities and the assets
supporting such securities may be subject to additional
restrictions, and may be affected by economic, legal and other
changes, unique to such securities and assets. For example, a
recent legislative proposal to limit credit card interest rates
had a significant adverse effect on the market for credit card
receivables.

Corporate Debt Securities

Corporate Debt securities include securities issued by
corporations and other entities, including bonds and debentures
(which are long-term), notes (which may be short- or long-term),
certificates of deposit (unsecured borrowings by banks), bankers'
acceptances (indirectly secured borrowings to facilitate
commercial transactions) and commercial paper (short-term
unsecured notes). These securities may have adjustable or fixed
rates of interest and may be secured or unsecured by assets of
the issuer or another party. Adjustable rate corporate debt
securities may have interest rate caps and floors but such
corporate debt securities are not subject to prepayment risk
other than through contractual call provisions, which generally
impose a penalty for prepayment during all or a portion of the
period such securities are outstanding. Fixed rate debt
securities may also be subject to call provisions. Corporate Debt
securities are subject to the bankruptcy risk of the issuer. The
Trust believes that the high quality securities it purchases will
tend to reduce such risks. Several of the Portfolios may purchase
corporate debt securities rated at the time of investment no
lower than BBB- by S&P or Baa3 by Moody's. The rating of a
corporate debt security may change over time, as S&P and Moody's
monitor and evaluate the ratings assigned to corporate debt
securities on an ongoing basis. As a result, corporate debt
securities held by a Portfolio could receive a higher rating
(which would tend to increase their value) or a lower rating
(which would tend to decrease their value) during the time that
they are owned by the Portfolio. If a security owned by a
Portfolio is downgraded below either BBB- by S&P or Baa3 by
Moody's, the Adviser will monitor such security and determine
whether to sell it based on the factors it considers relevant
such as size of the investment, whether a loss or gain will
result, relative risk to the Portfolio, depth of the trading
market or any other relevant factors. The Portfolio expects that
under normal market conditions no more than 5%, if any, of a
Portfolio's assets will consist of securities whose ratings have
been downgraded below BBB- by S&P or Baa3 by Moody's. The Fixed
Income Portfolios will consider whether to retain or dispose of a
bond whose rating drops below the minimum ratings applicable to
such Portfolios. The Fixed Income Portfolios are not restricted
in the amount they may invest in any of the securities described
in this section.

Foreign Securities

The Global Fixed Income Portfolio will invest up to 100% of
its total assets in foreign securities, including Mortgage-Backed
securities and Asset-Backed securities issued by foreign
entities. The Portfolio may invest in obligations issued or
guaranteed by one or more foreign governments or any of their
political subdivisions, agencies or instrumentalities that are
determined by the Adviser to be of comparable quality to the
other obligations in which the Portfolio may invest. Such
securities also include debt obligations of supranational
entities. Supranational entities include international
organizations designated or supported by governmental entities to
promote economic reconstruction or development and international
banking institutions and related government agencies. Examples
are the International Bank for Reconstruction and Development
(the World Bank), the European Coal and Steel Community, the
Asian Development Bank and the InterAmerican Development Bank.
Supranational entities do not have taxing authority and,
therefore, in order to meet interest and principal payments, are
dependent upon their members' continued support. The percentage
of The Global Fixed Income Portfolio's assets invested in
securities issued by foreign governments will vary depending on
the relative yields of such securities, the economic and
financial markets of the countries in which the investments are
made and the interest rate climate of such countries.

The Global Fixed Income Portfolio may also invest in
Corporate Debt securities of foreign companies and in obligations
of foreign banks, bank holding companies and other financial
institutions that, at the date of investment, have assets in
excess of $1 billion. Under normal market conditions, The Global
Fixed Income Portfolio's assets will include securities of
issuers in at least three countries, one of which countries may
be the United States. For defensive purposes the Portfolio may
invest from time to time in only U.S. securities. The Adviser has
limited experience in investing in foreign securities.

Investments in foreign securities involve certain risks not
ordinarily associated with investments in securities of domestic
issuers. Such risks include fluctuations in foreign exchange
rates, future political and economic developments, and the
possible imposition of exchange controls or other foreign
governmental laws or restrictions. With respect to certain
countries, there is the possibility of expropriation of assets,
confiscatory taxation, political or social instability or
diplomatic developments which could adversely affect investments
in those countries.

There may be less publicly available information about a
foreign company than about a U.S. company, and foreign companies
may not be subject to accounting, auditing and financial
reporting standards and requirements comparable to or as uniform
as those of U.S. companies. Foreign securities markets (other
than Japan), while growing in volume, have, for the most part,
substantially less volume than U.S. markets, and securities of
many foreign companies are less liquid and their prices more
volatile than securities of comparable U.S. companies.
Transaction costs on foreign securities markets are generally
higher than in the United States and settlement procedures are
often not as regularized as in the United States. There is
generally less government supervision and regulation of
exchanges, brokers and issuers than there is in the United
States. The Global Fixed Income Portfolio may have greater
difficulty taking appropriate legal action with respect to
foreign investments in foreign courts than with respect to
domestic issuers in U.S. courts.

Dividend and interest income from foreign securities will
generally be subject to withholding taxes by the country in which
the issuer is located, and The Global Fixed Income Portfolio will
not be able to pass through to its stockholders foreign tax
credits or deductions with respect to these taxes.

Floating Rate, Inverse Floating Rate and Index Obligations

The Fixed Income Portfolios may invest in debt securities
with interest payments or maturity values that are not fixed, but
float in conjunction with (or inversely to) an underlying index
or price. These securities may be backed by U.S. Government or
corporate issuers, or by collateral such as mortgages. In certain
cases, a change in the underlying index or price may have a
leveraging effect on the periodic coupon payments, creating
larger possible swings in the prices of such securities than
would be expected when taking into account their maturities
alone. The indices and prices upon which such securities can be
based include interest rates, currency rates and commodities
prices.

Floating rate securities pay interest according to a coupon
which is reset periodically. This reset mechanism may be formula
based, or reflect the passing through of floating interest
payments on an underlying collateral pool. The coupon is usually
reset daily, weekly, monthly, quarterly or semi-annually, but
other schedules are possible. Floating rate obligations generally
exhibit a low price volatility for a given stated maturity or
average life because their coupons adjust with changes in
interest rates. If their underlying index is not an interest
rate, or the reset mechanism lags the movement of rates in the
current market, greater price volatility may be experienced.

Inverse floating rate securities are similar to floating
rate securities except that their coupon payments vary inversely
with an underlying index by use of a formula. Inverse floating
rate securities tend to exhibit greater price volatility then
other floating rate securities. Because the changes in the coupon
are usually negatively correlated with changes in overall
interest rates, interest rate risk and price volatility on
inverse floating rate obligations can be high, especially if
leverage is used in the formula. Each Fixed Income Portfolio does
not intend to invest more than 10% of its total assets in inverse
floating rate securities.

Index securities pay a fixed rate of interest, but have a
maturity value that varies by formula, so that when the
obligation matures a gain or loss is realized. The risk of index
obligations depends on the volatility of the underlying index,
the coupon payment and the maturity of the obligation.

Illiquid Securities

The Fixed Income Portfolios may invest up to 15% of their
net assets in securities for which there are legal or contractual
restrictions on resale or for which there is no readily available
market or other illiquid securities. Illiquid securities include
restricted securities of corporate and other issuers, privately
stripped securities, repurchase agreements having maturities of
more than seven days, and certain hedging instruments. Such
securities may experience limitations on resale that may have an
adverse effect on the marketability of portfolio securities. A
mutual fund may not be able to dispose of illiquid securities
promptly or at reasonable prices. The board of directors has
adopted procedures pursuant to the guidelines of the SEC that
permits the Adviser to determine whether restricted securities
issued pursuant to Rule 144A under the Securities Act of 1933 are
liquid for purposes of this limitation. Nevertheless, Rule 144A
securities may be subject to a greater possibility of becoming
illiquid than registered securities due to changing market or
other factors. Trust purchases may increase the level of
illiquidity and institutional buyers may become disinterested in
purchasing such securities. See "Investment Objectives and
Policies-Illiquid Securities" in the Statement of Additional
Information.

OTHER INVESTMENT STRATEGIES

Hedging

The Fixed Income Portfolios may enter into various interest
rate transactions, purchase and sell futures contracts and
purchase and sell (or write) exchange-listed and over-the-counter
put and call options on securities and futures contracts, and The
Global Fixed Income Portfolio may enter into foreign exchange
transactions (collectively, Hedging Transactions). Hedging
Transactions may be used to attempt to protect against possible
changes in the market value of a Portfolio's securities resulting
from trends in the debt securities markets, to protect a
Portfolio's unrealized gains on its securities, to facilitate the
sale of such securities, to manage the duration of the
Portfolios, to establish a position in the securities markets as
a temporary substitute for purchasing particular securities or,
in the case of The Global Fixed Income Portfolio, to protect
against changes in the relative values of foreign currencies and
the U.S. dollar. Any or all of these techniques may be used at
any time, and there is no particular strategy that requires use
of one technique rather than another. Use of any Hedging
Transaction is a function of market conditions. The ability of
the Portfolios to hedge successfully will depend on the Adviser's
ability to predict pertinent market movements, which cannot be
assured. The Hedging Transactions that the Portfolios may use are
described below.

Interest Rate Transactions. Among the Hedging Transactions
into which the Fixed Income Portfolios may enter are interest
rate swaps and the purchase or sale of interest rate caps and
floors. The Portfolios expect to enter into these transactions
primarily to preserve a return or spread on a particular
investment or portion of their respective portfolios, as a
duration management technique or to protect against an increase
in the price of securities a Portfolio anticipates purchasing at
a later date. The Portfolios intend to use these transactions as
a hedge and not as a speculative investment.

Interest rate swaps involve the exchange by a Portfolio with
another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed
rate payments. The purchase of an interest rate cap entitles the
purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payments of interest on a
notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the
purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on a
notional principal amount from the party selling such interest
rate floor. See "Investment Objectives and Policies-Other
Investment Strategies-Interest Rate Transactions" in the
Statement of Additional Information.

Futures Contracts. In connection with their hedging and
other risk management strategies, the Fixed Income Portfolios may
enter into contracts for the purchase or sale for future delivery
(futures contracts) of debt securities, aggregates of debt
securities or indices or prices thereof, and other financial
indices, to hedge the value of their portfolio securities that
might result from a change in interest rates. The Portfolios will
engage in such transactions only for bona fide hedging, risk
management, duration management and other portfolio management
purposes, in each case, in accordance with the rules and
regulations of the Commodity Futures Trading Commission.

Calls on Securities and Futures Contracts. In order to
reduce fluctuations in net asset value, the Fixed Income
Portfolios may sell or purchase call options (calls) on U.S.
Government securities, Mortgage-Backed securities, Corporate Debt
securities and Eurodollar instruments and related futures on such
securities. A call option gives the purchaser of the option the
right to buy, and obligates the seller to sell, the underlying
security or futures contract at the exercise price at any time or
at a specified time during the option period. The purchase of a
call gives a Portfolio the right to buy a security at a fixed
price. A call sold by a Portfolio exposes the Portfolio during
the term of the option to possible loss of opportunity to realize
appreciation in the market price of the underlying security and
may require the Portfolio to hold a security which it might
otherwise have sold. All such calls sold by a Portfolio must be
"covered" as long as the call is outstanding (i.e., a Portfolio
must segregate the securities or futures contract subject to the
call or other liquid assets).

Puts on Securities and Futures Contracts. Each Fixed Income
Portfolio may purchase put options (puts) that relate to U.S.
Government securities, Mortgage-Backed securities, Corporate Debt
securities and Eurodollar instruments (whether or not it holds
such securities in its portfolio) or futures on such securities.
The Portfolios may also sell puts on U.S. Government securities,
Mortgage-Backed securities, Corporate Debt securities and
Eurodollar instruments and related futures on such securities if
a Portfolio's contingent obligations on such puts are covered by
segregated assets consisting of cash or liquid debt securities
having a value not less than the exercise price. A Portfolio will
not sell puts if, as a result, more than 50% of the Portfolio's
assets would be required to be segregated to cover its potential
obligations under its hedging and other investment transactions.
In selling puts, there is a risk that a Portfolio may be required
to buy the underlying security at a disadvantageous price.

Eurodollar Instruments. The Fixed Income Portfolios may make
investments in Eurodollar instruments. Eurodollar instruments are
U.S. dollar-denominated futures contracts or options thereon
which are linked to the London Interbank Offered Rate (LIBOR),
although foreign currency denominated instruments are available
from time to time. Eurodollar futures contracts enable purchasers
to obtain a fixed rate for the lending of funds and sellers to
obtain a fixed rate for borrowings. The Portfolios intend to use
Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps are linked.
The use of these instruments is subject to the same limitations
and risks as those applicable to the use of the interest rate
futures contacts and options thereon described under "Futures
Contracts", "Calls on Securities and Futures Contracts" and "Puts
on Securities and Futures Contracts" above.

Currency Transactions. The Global Fixed Income Portfolio
may, although it does not expect to do so to any significant
degree, engage in currency transactions in order to hedge the
value of foreign currencies against the U.S. dollar, including
forward currency contracts, exchange traded currency futures and
options and currency swaps. A forward currency contract involves
an obligation to purchase or sell a specific currency at a future
date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time
of the contract.

The Global Fixed Income Portfolio's dealings in foreign
exchange transactions will be limited to hedging involving either
specific transactions or portfolio positions. Transaction hedging
is the purchase or sale of foreign currency with respect to
specific receivables or payables of the Portfolio, which will
generally arise in connection with the purchase or sale of its
portfolio securities. Position hedging is the sale of foreign
currency with respect to portfolio security positions denominated
or generally quoted in that currency.

The Global Fixed Income Portfolio may not position a hedge
with respect to a particular foreign currency to an extent
greater than the aggregate market value (at the time of making
such sale) of the securities held in its portfolio denominated or
generally quoted in or currently convertible into that currency.
If the Portfolio enters into a position hedging currency
transaction, the Portfolio's custodian or subcustodian will
segregate cash or U.S. Government or other liquid high-grade debt
securities having a value that is not less than the value of the
Portfolio's total assets committed to the consummation of the
transaction.

Foreign currency hedge transactions may limit potential gain
from a positive change in the relationship between currencies.
Unanticipated changes in currency prices may result in poorer
overall performance for the Portfolio than if it had not engaged
in such transactions.

The Global Fixed Income Portfolio also engages in foreign
currency transactions on a spot basis in connection with the
investment of cash balances held by the Portfolio outside the
United States. The purpose of these cash balances is to provide
liquidity for operations. The Portfolio normally expects to
invest its cash balances primarily in bank accounts or similar
investments denominated in foreign currencies in lieu of dollar-
denominated bank accounts or investments. This should permit the
Portfolio to profit from declines in the value of the dollar
during periods when the dollar is declining relative to the
foreign currencies in which its cash balances are invested. There
is, however, no guarantee that the Adviser will correctly
anticipate currency fluctuations. Accordingly, if the Portfolio's
cash balances are maintained in investments denominated in
foreign currencies during periods when the value of the dollar is
appreciating relative to those foreign currencies, the Portfolio
will experience losses. The Portfolio will also incur service
charges in connection with each currency conversion.

Further Information on Hedging Transactions. Appendix C and
the Statement of Additional Information under "Investment
Objectives and Policies-Other Investment Strategies-Options and
Futures Transactions" contains further information about the
characteristics, risks and possible benefits of Hedging
Transactions and the Fixed Income Portfolios' other policies and
limitations relating to investments in futures and options. The
principal risks relating to the use of futures, options and other
Hedging Transactions are: (a) less than perfect correlation
between the prices of the instrument and the market value of the
securities in a Portfolio; (b) possible lack of a liquid
secondary market for closing out a position; (c) losses resulting
from interest rate or currency exchange movements not anticipated
by the Adviser; and (d) the obligation to meet additional
variation margin or other payment requirements.

Borrowing

The Fixed Income Portfolios may borrow from banks and enter
into reverse repurchase agreements or dollar rolls up to 33 1/3%
of the value of their respective total assets (computed at the
time the loan is made) to take advantage of investment
opportunities. See "Reverse Repurchase Agreements and Dollar
Rolls" below. The Portfolios may pledge up to 33 1/3% of their
respective total assets to secure these borrowings. If a
Portfolio's asset coverage for borrowings falls below 300%, the
Portfolio will take prompt action to reduce its borrowings. If a
Portfolio borrows to invest in securities, any investment gains
made on the securities in excess of interest paid on the
borrowing will cause the net asset value of the shares to rise
faster than would otherwise be the case. On the other hand, if
the investment performance of the additional securities purchased
fails to cover their cost (including any interest paid on the
money borrowed) to the Portfolio, the net asset value of the
Portfolio's shares will decrease faster than would otherwise be
the case. This is a speculative characteristic known as
"leverage". The Portfolios are also authorized to borrow an
additional 5% of their respective total assets without regard to
the foregoing limitations for temporary purposes such as
clearance of portfolio transactions and share redemptions.

Reverse Repurchase Agreements and Dollar Rolls

The Fixed Income Portfolios may use reverse repurchase
agreements and dollar rolls as part of their investment strategy.
Reverse repurchase agreements involve sales by a Portfolio of
assets concurrently with an agreement by the Portfolio to
repurchase the same assets at a later date at a fixed price.
During the reverse repurchase agreement period, the Portfolio
continues to receive principal and interest payments on these
assets.

The Fixed Income Portfolios may also enter into dollar rolls
in which the Portfolio sells securities for delivery in the
current month and simultaneously contracts to repurchase
substantially similar (same type and coupon) securities on a
specified future date from the same party. During the roll
period, the Portfolio forgoes principal and interest paid on the
securities. The Portfolio is compensated by the difference
between the current sales price and the forward price for the
future purchase (often referred to as the "drop") as well as by
the interest earned on the cash proceeds of the initial sale.

Each Portfolio will establish a segregated account with the
Custodian in which it will maintain cash, U.S. Government
securities or other liquid high-grade debt obligations at least
equal in value to its obligations in respect to reverse
repurchase agreements and dollar rolls. Reverse repurchase
agreements and dollar rolls involve the risk that the market
value of the securities retained by a Portfolio may decline below
the price of the securities the Portfolio has sold but is
obligated to repurchase under the agreement. In addition, in the
event the buyer of securities under a reverse repurchase
agreement files for bankruptcy or becomes insolvent, a
Portfolio's use of the proceeds of the agreement may be
restricted pending a determination by the other party, or its
trustee or receiver, whether to enforce the Portfolio's
obligation to repurchase the securities.

Reverse repurchase agreements and dollar rolls are
speculative techniques involving leverage and are considered
borrowings by the Portfolios for purposes of the percentage
limitations applicable to borrowings. See "Borrowing" above.

When-issued and Delayed Delivery Securities and Forward
Commitments

From time to time, the Fixed Income Portfolios may purchase
securities on a when-issued or delayed delivery basis or may
purchase or sell securities on a forward commitment basis. When
such transactions are negotiated, the price is fixed at the time
of the commitment, but delivery and payment can take place a
month or more after the date of the commitment. The securities
purchased are subject to market fluctuation and no interest
accrues to the Portfolio during this period. While the Portfolios
will only purchase securities on a when-issued, delayed delivery
or forward commitment basis with the intention of acquiring the
securities, the Portfolios may sell the securities before the
settlement date, if it is deemed advisable. At the time a
Portfolio makes the commitment to purchase securities on a when-
issued or delayed delivery basis, the Portfolio will record the
transaction and thereafter reflect the value, each day, of such
security in determining the net asset value of the Portfolio. At
the time of delivery, the value of the securities may be more or
less than the purchase price. An increase in the percentage of a
Portfolio's assets committed to the purchase of securities on a
when-issued, delayed delivery or forward commitment basis may
increase the volatility of a Portfolio's net asset value. At the
time a Portfolio enters into a transaction on a when-issued or
forward commitment basis, a segregated account consisting of
cash, U.S. Government securities or other liquid high-grade debt
securities equal to at least 102% of the value of the when-issued
or forward commitment securities will be established and
maintained with the Custodian. Subject to this requirement, a
Portfolio may purchase securities on such basis without limit.

Short Sales

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

Repurchase Agreements

The Portfolios may enter into repurchase agreements, which
may be viewed as a type of secured lending, and which typically
involve the acquisition of debt securities from a selling
financial institution such as a bank, savings and loan
association or broker-dealer. The repurchase agreement provides
that the Portfolio will sell back to the institution, and that
the institution will repurchase, the underlying security at a
specified price and at a fixed time in the future, usually not
more than seven days from the date of purchase. The repurchase
agreement will at all times be fully collateralized by the
institution in an amount at least equal to the repurchase price,
including accrued interest earned on the underlying securities.
The collateral will be maintained in a segregated account and
will be valued daily. As the value of the collateral declines,
the seller will deposit additional collateral. If the seller
defaults and the value of the collateral securing the repurchase
agreement declines or, in some cases, if the seller fails
financially, the Portfolio may incur a loss. See "Investment
Objectives and Policies-Other Investment Strategies-Repurchase
Agreements" in the Statement of Additional Information.

Lending of Portfolio Securities

Consistent with applicable regulatory requirements, a
Portfolio may lend up to 33 1/3% of its portfolio securities to
brokers, dealers and other financial institutions, provided that
such loans are callable at any time by the Portfolio (subject to
certain notice provisions), and are at all times secured by cash
or U.S. Government securities which are at least equal to the
market value, determined daily, of the loaned securities. The
Portfolio continues to receive the income on the loaned
securities while at the same time earning interest on the loan or
on the cash amounts deposited as collateral, which will be
invested in short-term obligations. The Portfolio may incur a
loss, however, if the seller defaults and the value of the loaned
securities exceeds the value of the collateral or, in some cases,
if the borrower fails financially. See "Investment Objectives and
Policies-Other Investment Strategies-Securities Lending" in the
Statement of Additional Information.

Investment Restrictions

The Statement of Additional Information contains, under the
heading "Investment Restrictions", specific enumerated investment
restrictions which govern the investments of each Portfolio.
Those investment restrictions so designated and the investment
objectives of each Portfolio are "fundamental policies" of the
Trust, which means that they may not be changed without a
majority vote of stockholders of the affected Portfolio. Except
for the investment objectives and those restrictions specifically
identified as fundamental, all investment policies and practices
described in this Prospectus and in the Statement of Additional
Information are not fundamental, meaning that the Board of
Directors may change them without stockholder approval.

The fundamental restrictions applicable to all Portfolios
include (i) a prohibition on purchasing any security (other than
a U.S. Government security) if as a result (a) with respect to
75% of its total assets, more than 5% of the Portfolio's total
assets would be invested in the securities of a single issuer or
(b) 25% or more of a Portfolio's total assets would be invested
in the securities of issuers in a particular industry, and (ii) a
prohibition on purchasing more than 10% of all outstanding voting
securities of any one issuer.

Portfolio Turnover

The Portfolios have no fixed policy with respect to
portfolio turnover. The Portfolios do not expect to trade in
securities for short-term gain. The Adviser expects that, under
normal circumstances, each Fixed Income Portfolio's annual
turnover rate will not exceed 150%. The portfolio turnover rate
is calculated by dividing the lesser of sales or purchases of
portfolio securities by the average monthly value of the
Portfolio's securities, excluding securities having a maturity at
the date of purchase of one year or less. While a Portfolio will
pay commissions in connection with its options and futures
transactions, the other securities in which the Portfolios invest
are generally traded on a "net" basis with dealers acting as
principals for their own account without a stated commission.
Nevertheless, high portfolio turnover may involve correspondingly
greater brokerage commissions and other transaction costs which
will be borne directly by the Portfolios. The Adviser will
monitor the tax status of the Portfolios under the Internal
Revenue Code during period in which the annual turnover rate of
the Portfolios exceeds 100%. To the extent that increased
portfolio turnover results in sales at a profit of securities
held less than three months, a Portfolio's ability to qualify as
a "regulated investment company" under the Internal Revenue Code
may be affected. See "Portfolio Transactions and Brokerage" in
the Statement of Additional Information.

MANAGEMENT OF THE TRUST

The Board of Directors, in addition to reviewing the actions
of the Adviser and the Distributor, as set forth below, decides
upon matters of general policy. Additional information about the
Directors and officers of the Trust may be found in the Statement
of Additional Information under the heading "Directors and
Officers".

INVESTMENT ADVISER

BlackRock Financial Management Inc. (formerly, BlackRock
Financial Management L.P.) is the Trust's investment adviser (the
"Adviser") and is compensated monthly by the Portfolios for its
services in an amount equal to the following percentages of each
Portfolio's average daily net asset value on an annualized basis:
.25% for The Money Market Portfolio, .30% for The Short Duration
Portfolio and .35% for all other Portfolios. Pursuant to the
Investment Advisory Agreement with the Trust, the Adviser manages
the investment operations of the Trust. See "Management of the
Trust-The Investment Advisory Agreement" in the Statement of
Additional Information.

The Adviser is a Delaware limited corporation with offices
at 345 Park Avenue, New York, New York 10154. On February 28,
1995, BlackRock Financial Management L.P. sold its business to
PNC Bank N.A., the twelfth largest bank in the U.S. At the time
of the sale, the Adviser changed from a limited partnership to a
corporation and accordingly, changed the name from BlackRock
Financial Management L.P. to BlackRock Financial Management Inc.
All members of the Adviser's senior management team have signed
long-term employment contracts with PNC and will continue to be
responsible for managing the day-to-day affairs of the Adviser,
including carrying out its responsibilities with respect to the
Trust and its various portfolios. The Adviser is registered as
an investment adviser under the Investment Advisers Act of 1940.

The Adviser's employees include several individuals with
extensive experience in creating, evaluating and investing in a
broad range of U.S. fixed-income securities. Prior to co-founding
BlackRock Financial Management L.P., from July 1976 to March
1988, Mr. Laurence Fink, the Chairman and Chief Executive Officer
of the Adviser, was employed by The First Boston Corporation
where he had been a Managing Director since January 1979. At
First Boston, he was a member of the Management Committee and co-
head of its Taxable Fixed Income Division. He also managed the
Financial Futures and Fixed Income Options Department and the
Mortgage and Real Estate Products Group. Mr. Ralph Schlosstein,
co-founder of BlackRock Financial Management L.P., was employed
by Shearson Lehman Brothers Inc. from February 1981 to March 1988
and became a Managing Director in August 1984. At Shearson
Lehman, he was co-head of the Mortgage and Savings Institutions
Group. Messrs. Fink and Schlosstein, along with other members of
the Adviser, were instrumental in many of the major innovations
in these securities markets, including the creation of the fixed
and floating rate CMOs, Asset-Backed securities and the senior-
subordinated mortgage pass-through.

The Adviser provides asset management services with respect
to high quality fixed income instruments, including U.S. Treasury
securities, Mortgage-Backed securities, municipal obligations,
corporate bonds and hedging products. Scott Amero, a managing
director of BlackRock Financial Management Inc., is responsible
for the day-to-day management of the Portfolios. Mr. Amero has
managed the Portfolios since their inception and has been
employed by BFM as a portfolio manager since 1990. Prior to
joining BlackRock in 1990, Mr. Amero was a vice president in
Fixed Income Research at The First Boston Corporation. BFM,
however, applies a team approach to portfolio management and
several BlackRock professionals, including Robert Kapito and
Keith Anderson, managing directors of BFM, are responsible for
the longer-term strategies and major transactions for the
Portfolios. The Adviser currently serves as the investment
adviser to individual and institutional fixed income investors in
the United States and overseas through several funds and
separately managed accounts with combined total assets in excess
of $33 billion.

In addition to the Trust, the Adviser serves as adviser to
25 closed-end funds. Certain features of these closed-end funds
are provided in the following table:

TERM: PRIMARY NET ASSETS
STOCK EXCHANGE YEAR OF PORTFOLIO (DECEMBER 31, 1995)
TICKER SYMBOL MATURITY COMPOSITION (IN MILLIONS)
<S> <C> <C> <C> <C>
Taxable BlackRock Trusts:*
The BlackRock Income None- Mortgage-
Trust Inc. . . BKT Perpetual Backed Securities $478

The BlackRock North American None- Canadian
Government Income Trust Inc. BNA Perpetual Securities and
Mortgage-Backed
Securities $389

The BlackRock 1998 Term Mortgage-Backed
Trust Inc. . . BBT 1998 Securities $560

The BlackRock 1999 Term Mortgage-Backed
Trust Inc. . . . BNN 1999 Securities $194

The BlackRock Target Term Mortgage-Backed
Trust Inc. . . BTT 2000 Securities and $935
Zero Coupon
Securities

The BlackRock 2001 Term Mortgage-Backed
Trust Inc. . . BLK 2001 Securities $1,238

The BlackRock Strategic Term Mortgage-Backed
Trust Inc. . . BGT 2002 Securities $512

The BlackRock Investment Quality Mortgage-Backed
Term Trust Inc. BQT 2004 Securities and $337
Corporate Debt
Securities

The BlackRock Advantage Term Mortgage-Backed
Trust Inc. . . BAT 2005 Securities and $95
Zero Coupon
Securities

The BlackRock Broad Investment Corporate Debt
Grade 2009 Term Trust Inc. BCT 2009 Securities, $39
Mortgage-Backed
Securities and
Asset-Backed
Securities

BlackRock Asset Investors ("BAI") BAI* 2001** Commerical and
Residential Mortgage-
Backed Securities $28
BlackRock Fund Investors I * 2001** Shares of BAI $8
BlackRock Fund Investors II * 2001** Shares of BAI $6
BlackRock Fund Investors III * 2001** Shares of BAI $13

Tax-Exempt BlackRock Trusts:
The BlackRock California California
Investment Quality None- Municipal
Municipal Trust Inc. RAA Perpetual Obligations $13
The BlackRock Florida Investment None- Florida Municipal
Quality Municipal Trust RFA Perpetual Obligations $15
The BlackRock New Jersey Investment None- New Jersey Municipal
Quality Municipal Trust Inc. RNJ Perpetual Obligations $13
The BlackRock New York Investment None- New York Municipal
Quality Municipal Trust Inc. RNY Perpetual Obligations $17
The BlackRock Investment Quality None- Municipal
Municipal Trust Inc. BKN Perpetual Obligations $226
The BlackRock Municipal Target Municipal
Term Trust Inc. BMN 2006 Obligations $490
The BlackRock California Insured California
Municipal 2008 Term Trust Inc. BFC 2008 Municipal Obligations$155
The BlackRock Florida Insured Florida Municipal
Municipal 2008 Term Trust BRF 2008 Obligations $132
The BlackRock Insured Municipal Municipal
2008 Term Trust Inc. BRM 2008 Obligations $413
The BlackRock New York Insured New York Municipal
Municipal 2008 Term Trust Inc. BLN 2008 Obligations $171
The BlackRock Insured Municipal Municipal
Target Term Trust Inc. BMT 2010 Obligations $273
______________________________

* Funds not traded on exchange.
** Term is seven years, subject to two one-year extensions
pursuant to contain terms and conditions.
</TABLE>

The Adviser also serves as adviser to eight open-end
portfolios which are also series of the Trust. These portfolios
include The Investment Grade Multi-Sector Mortgage Securities
Portfolio, and the Multi-Sector Mortgage Securities Portfolios
II-VIII. The Adviser serves as investment sub-adviser to 21
open-end funds, The BlackRock Government Income Trust, Dean
Witter Premier Income Trust, Accessor Funds, Inc. Mortgage
Securities Portfolio, The Frank Russell Trust Volatility
Constrained Bond Fund and Fixed Income II Fund, The Smith Barney
Adjustable Rate Government Income Fund, The Sierra Trust Fund
U.S. Government Portfolio and Target Maturity 2008 Portfolio,
The Sierra Variable Trust U.S. Government Fund, The PNC Fund
which includes the following portfolios: Managed Income, Tax-Free
Income, Intermediate Government, Ohio TaxFree Income,
Pennsylvania Tax-Free Income, Short-Term Bond, Intermediate-Term
Bond, Government Income and Balanced Portfolios, The Investors
Trust U.S. Government fund and Provident Institutional Funds,
Inc., Intermediate Duration Fund and Short Duration Fund. The
Adviser serves as the investment adviser to four offshore funds:
BFM fund for Fannie Mae Mortgage Securities; BFM Freddie Mac
Mortgage Securities Fund; BFM LIBOR Mortgage Fund; Gemini I; and
BSY Financial Corporation. Each of these offshore funds invests
primarily in U.S. Mortgage-Backed Securities.

DISTRIBUTOR

Provident Distributors, Inc., an affiliate of PNC, acts as
the Trust's distributor (the "Distributor"). The Trust has
adopted a Distribution and Stockholder Servicing Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act.
The Plan permits the Adviser to pay a fee to the Distributor,
which in turn is authorized to make payments to securities
dealers with which the Distributor may enter into solicitation
fee agreements. The Distributor may also use a portion of the fee
it receives under the Plan to compensate institutions who perform
support services that would otherwise be performed by the
Administrator or its agents. The purpose of the Plan is to
promote distribution of the Trust's shares and to enhance the
provision of stockholder services. The Trust is not required or
permitted under the Plan to make payments over and above its
investment advisory fee; the Plan merely permits the reallocation
of a portion of the advisory fee the Adviser receives to pay for
distribution related and stockholder servicing activities. See
"Distribution and Stockholder Servicing Plan" in the Statement of
Additional Information.

EXPENSES

The Portfolios are responsible for the payment of certain fees
and expenses including, among others, the following: (i) advisory
fees; (ii) the fees of unaffiliated Directors; (iii) the fees of
the Trust's Administrator, Custodian and Transfer and Dividend
Disbursing Agent; (iv) the fees of the Trust's legal counsel and
independent accountants; (v) brokerage commissions incurred in
connection with portfolio transactions; (vi) all taxes and
charges of governmental agencies; (vii) the reimbursement of
organizational expenses; and (viii) expenses related to
stockholder communications, including all expenses of
stockholders' and Board of Directors' meetings and of preparing,
printing and mailing reports, proxy statements and prospectuses
to stockholders. The expenses were .57% and .55% of net assets
for The Short Duration Portfolio and The Core Fixed Income
Portfolio, respectively, for the period ended June 30, 1995.

NET ASSET VALUE

The net asset value per share of each Fixed Income Portfolio
is determined by subtracting from the value of the assets of a
Portfolio the amount of its liabilities, and dividing the
remainder by the number of outstanding shares of the Portfolio.
The Board of Directors has fixed the specific time of day for the
computation of the Portfolios' net asset value to be as of 4:00
p.m., New York time. Portfolio securities are valued based on
market quotations or, if not readily available, at fair value as
determined in good faith under procedures established by the
Trust's Board of Directors.

The Money Market Portfolio seeks to maintain a net asset value
of $1.00 per share for purchases and redemptions. To do so, The
Money Market Portfolio uses the amortized cost method of valuing
its securities pursuant to Rule 2a-7 under the Investment Company
Act. There can be no assurance that The Money Market Portfolio
will be able to maintain a stable net asset value of $1.00 per
share. For further information regarding the amortized cost
method, see "Net Asset Value" in the Statement of Additional
Information.

Each Portfolio will compute its net asset value once daily on
days that the New York Stock Exchange is open for trading, except
on days on which no orders to purchase, sell or redeem shares
have been received. The New York Stock Exchange is closed on the
following holidays: New Year's Day, Washington's Birthday, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day.

PURCHASE AND REDEMPTION OF SHARES

HOW TO PURCHASE SHARES

An account may be opened by completing and signing a Client
Registration Form and mailing it to The BFM Institutional Trust
Inc. at the following address: P.O. Box 8961, Wilmington,
Delaware 19899-8961.

Purchases of shares may be made by wiring Federal funds to the
Trust's Transfer Agent on any day on which the Portfolio computes
its net asset value. Normally, payments for such shares should
be received by the Transfer Agent no later than 12:00 noon, New
York time. Before wiring Federal funds, the investor must first
telephone the Transfer Agent at 1-800-555-3890. On the telephone
the following information will be requested: name of authorized
person; stockholder name; stockholder account number; name of
Portfolio; amount being wired; and wiring bank name. Purchase
orders will be effected at the net asset value next determined
after receipt of a proper order and payment of Federal funds, and
dividends will commence accruing on that day.

Other Purchase Information

Purchases of a Portfolio's shares will be made in full and
fractional shares. In the interest of economy and convenience,
certificates for shares will generally not be issued.

The Trust reserves the right, in its sole discretion, to
suspend the offering of shares of the Portfolios or to reject
purchase orders when, in the judgment of management, such
suspension or rejection is in the best interests of the Trust; to
waive the minimum initial investment of certain investors; and to
redeem shares if information provided in the Client Registration
Form should prove to be incorrect in any material manner (e.g.,
in a manner such as to render the stockholder ineligible to
purchase shares of the Trust). Shares will not be offered or
sold in any jurisdiction to any person to whom it would be
unlawful to make such offer or sale in such jurisdiction.

Shares of a Portfolio may be purchased by customers of broker-
dealers or other financial intermediaries (service agents) which
have established a stockholder servicing relationship with the
Trust on behalf of their customers. Service agents may impose
additional or different conditions on the purchase or redemption
of Portfolio shares by their customers and may charge their
customers transaction, account or other fees on the purchase and
redemption of Portfolio shares. Each service agent is responsible
for transmitting to its customers a schedule of any such fees and
information regarding any additional or different conditions
regarding purchases and redemptions. Stockholders who are
customers of service agents should consult their service agent
for information regarding these fees and conditions.

HOW TO REDEEM SHARES

Each Portfolio will redeem its shares at the net asset value
next determined following receipt of a proper request, and
dividends will not accrue after that day. Each Portfolio accepts
telephone requests from any investor for wire redemption. The
Portfolios and the Transfer Agent will not be liable for
following telephone instructions reasonably believed to be
genuine. In this regard, the Portfolios and the Transfer Agent
require personal identification information before accepting a
telephone redemption. If the Portfolios or their Transfer Agent
fail to use reasonable procedures, the Portfolios might be liable
for losses due to fraudulent instructions. Redemptions may be
made by calling the Trust's Transfer Agent at 1-800-555-3890, by
facsimile, or by other wire communication. No charge is made for
redemptions. Shares redeemed may be worth more or less than the
purchase price of the shares, depending on the market value of
the investment securities held by the particular Portfolio at the
time of redemption.

If a proper redemption request is received prior to 12:00
noon, New York time, on any day on which the Portfolio computes
its net asset value, payment of the redemption price will
ordinarily be wired to the stockholder's bank on the next
business day. If the request is received after 12:00 noon, New
York time, payment will ordinarily be wired to the stockholder's
bank within two business days. Redemption proceeds will be sent
by wire only to the bank named on the stockholder's application
form. A stockholder may change the wire instructions on the
application form by writing to the Transfer Agent with an
appropriate signature guarantee. The Trust may suspend the right
of redemption or postpone the payment date at times when the New
York Stock Exchange is closed, or during certain other periods as
permitted under the federal securities laws.

Subject to applicable regulatory requirements, the Trust
reserves the right to pay any redemption price by a distribution
in kind of securities held by a Portfolio in lieu of cash. It is
highly unlikely that shares would ever be redeemed in kind. If
shares are redeemed in kind, however, the redeeming stockholder
should expect to incur transaction costs upon the disposition of
the securities received in the distribution.

EXCHANGE PRIVILEGE

Shares of a Portfolio may be exchanged for shares of any other
Portfolio based on the respective net asset values of the shares
involved. An exchange order is treated the same as a redemption
followed by a purchase. Investors who wish to make exchange
requests should telephone the Trust's Transfer Agent at 1-800-
555-3890.

The Client Registration Form provides that neither the Trust
nor the Transfer Agent will be liable for any loss for following
instructions, including telephone exchange or redemption
instructions, believed to be genuine and in accordance with the
procedures in this Prospectus. As a result, stockholders will
bear the risk of any loss associated with such instructions,
including any fraudulent instructions. The staff of the
Securities and Exchange Commission is currently considering the
propriety of such a provision.

REPORTS TO STOCKHOLDERS

The Trust will send to its stockholders semi-annual and annual
reports and may send periodic reports more frequently. The
reports include a discussion of the performance of the Portfolios
and a comparison of the performance of the Portfolios to their
respective benchmarks. The financial statements appearing in
annual reports are audited by independent accountants.

In order to avoid duplicate mailing and printing expenses, the
Trust will provide one semi-annual and annual stockholder report
and one annual prospectus per investor. Stockholders may request
additional copies of such reports or prospectuses without charge
by calling 1-800-555-3890 or by writing to the Trust at P.O. Box
8961, Wilmington, Delaware 19899-8961.

STOCKHOLDER INQUIRIES

Stockholder inquiries should be addressed to the Trust at P.O.
Box 8961, Wilmington, Delaware 19899-8961, or by telephone, at
1-800-555-3890.

TAXES, DIVIDENDS AND DISTRIBUTIONS

Each Portfolio will be treated as a separate taxable entity
for federal income tax purposes. Each Portfolio intends to elect
to qualify and to remain qualified as a regulated investment
company under Subchapter M of the Internal Revenue Code. So long
as the Portfolios continue to so qualify, they will not be
subject to federal income taxes on their net investment income
and capital gains, if any, that they distribute to stockholders.
Any undistributed income may be subject to tax, including a 4%
excise tax on certain undistributed income of a regulated
investment company that does not distribute to stockholders in a
timely manner at least 98% of its income. All dividends out of
net investment income, together with distributions of net short-
term capital gains, will be taxable as ordinary income to
stockholders whether or not reinvested. Any net long-term capital
gains distributed to stockholders will be taxable as such to
stockholders, whether or not reinvested and regardless of the
length of time shares have been held. The Portfolios expect to
declare dividends daily of their net investment income payable
monthly and make distributions at least annually of any net
capital gains.

The Global Fixed Income Portfolio may incur foreign income
taxes to the extent that it invests in foreign securities.
Certain of these taxes may be credited to stockholders.

Under U.S. Treasury Regulations, each Portfolio is required to
withhold and remit to the U.S. Treasury 31% of dividend and
capital gain income and redemption proceeds on the accounts of
those stockholders who fail to furnish their tax identification
numbers on IRS Form W-9 (or IRS Form W-8 in the case of certain
foreign stockholders) with the required certifications regarding
the stockholder's status under the federal income tax laws.

Dividends and distributions will be paid in additional
Portfolio shares, based on the net asset value on the payment
date or such other date as the Directors may determine, unless
the stockholder elects in writing not less than five business
days prior to the payment date to receive such dividends and
distributions in cash. Such election should be submitted to the
Transfer Agent. However, if it is determined that the U.S.
Postal Service cannot properly deliver Trust mailings to the
stockholder, the Trust will terminate the stockholder's election
to receive dividends and other distributions in cash.
Thereafter, the stockholder's subsequent dividends and other
distributions will be automatically reinvested in additional
shares of the Portfolio until the stockholder notifies the Trust
in writing of his or her correct address and requests in writing
that the election to receive dividends and other distributions in
cash be reinstated. The Trust will notify each stockholder after
the close of the Trust's taxable year both of the dollar amount
and the taxable status of that year's dividends and
distributions. Stockholders are urged to consult their own tax
advisers regarding specific questions as to federal, state or
local taxes.

The tax discussion set forth above is included for general
information only. For additional information, see "Taxes,
Dividends and Distributions" in the Statement of Additional
Information. Prospective investors should consult their own tax
advisers concerning the federal, state, local and foreign tax
consequences to them of an investment in the Portfolios.

GENERAL INFORMATION

PERFORMANCE INFORMATION

From time to time the Portfolios may advertise their "yield",
"effective yield" and "total return". These figures will be based
on historical earnings, may fluctuate substantially and are not
intended to indicate future performance.

The "yield" of the Fixed Income Portfolios refers to the
income generated by an investment in a Portfolio over a one-month
or 30-day period. This income is then "annualized"; that is, the
amount of income generated by the investment during that 30-day
period is assumed to be generated each 30-day period for 12
periods and is shown as a percentage of the investment. The
income earned on the investment is also assumed to be reinvested
at the end of the sixth 30-day period. The "total return" of the
Fixed Income Portfolios shows how much an investment in a
Portfolio would have increased (decreased) over a specified
period of time (i.e., one, five or ten years or since inception
of the Portfolio) assuming that all distributions and dividends
by the Portfolio were reinvested on the reinvestment dates during
the period and less all recurring fees. Total return does not
take into account any federal, state or local income taxes that
may be payable upon redemption.

The "yield" of The Money Market Portfolio refers to the income
generated by an investment in The Money Market Portfolio over a
seven-day period (which period will be stated in the
advertisement). This income is then annualized. That is, the
amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is
calculated similarly, but, when annualized, the income earned by
an investment in The Money Market Portfolio is assumed to be
reinvested. The effective yield will be slightly higher than the
yield because of the compounding effect of this assumed
reinvestment.

The Trust may include comparative performance information in
advertising or marketing the Portfolios' shares. Such performance
information may include data from Lipper Analytical Services,
Inc., other industry publications, business periodicals, rating
services and market indices. See "Performance Information" in the
Statement of Additional Information.

DESCRIPTION OF SHARES

The Trust was organized as a Maryland corporation on November
27, 1991, and currently consists of sixteen separately managed
portfolios. The Trust is authorized to issue 2 billion shares of
capital stock, $.0001 par value, in one or more classes or
series. The Fixed Income Portfolios are each authorized to issue
100 million shares of capital stock, and The Money Market
Portfolio is authorized to issue 1 billion shares of capital
stock. In addition to the Portfolios, the Trust consists of the
following series: the Investment Grade Multi-Sector Mortgage
Securities Portfolio and the Multi-Sector Mortgage Securities
Portfolios II-VIII. The Board of Directors is empowered by the
Articles of Incorporation to issue additional classes or series
of shares and to increase or decrease the number of authorized
shares of the Trust or any class or series thereof.

Each share of a Portfolio represents an equal proportionate
interest in the Portfolio with each other share of that
Portfolio. Shares entitle their holders to one vote per share.
Shares have non-cumulative voting rights, do not have preemptive
or subscription rights and are transferable. Pursuant to the
Investment Company Act, stockholders are required to approve the
adoption of any investment advisory agreement, any plan of
distribution under Rule 12b-1 and any changes in fundamental
investment policies.

If the Trust does not hold annual meetings of stockholders, it
will abide by Section 16(c) of the Investment Company Act which
provides that the Directors will call a meeting of stockholders
for the purpose of voting on the question of the removal of a
Director if so requested in writing by the holders of 10% or more
of a Portfolio's outstanding shares and will assist such
stockholders in communicating with the other stockholders.
Directors may be removed by vote of a majority of the outstanding
shares of a Portfolio.

To provide the initial capital of the Trust, the Adviser has
purchased 10,000 shares of The Short Duration Portfolio for an
aggregate purchase price of $100,000. These shares were acquired
for investment purposes and the Adviser has no present intention
of selling such shares.

ADMINISTRATOR, CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING
AGENT

PFPC, Inc. (PFPC),an affiliate of PNC, 400 Bellevue Parkway,
Wilmington, Delaware 19809, serves as Administrator to the Trust
pursuant to an administration agreement, Custodian for the
Trust's portfolio securities and cash and as Transfer Agent for
the Trust's shares and, in those capacities, maintains certain
books and records for the Trust. PFPC receives an annual fee
equal to .14% of each Portfolio's net asset value. PFPC also
acts as dividend disbursing agent for the Trust. PFPC's mailing
address is P.O. Box 8961, Wilmington, Delaware 19899-8961.

VALIDITY OF THE SHARES

The validity of the shares offered hereby will be passed on
for the Trust by Miles & Stockbridge, Baltimore, Maryland.
Certain other matters have been passed on for the Trust by
Skadden, Arps, Slate, Meagher & Flom, New York, New York. Such
counsel have relied, as to matters of Maryland law, on the
opinion of Miles & Stockbridge.

EXPERTS

The financial statements included in the Statement of Additional
Information and the related financial statement schedules included
elsewhere in the registration statement have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their
reports appearing herein and elsewhere in the registration
statement, and are included in reliance upon the reports of such
firm given upon their authority as experts in accounting and
auditing.

ADDITIONAL INFORMATION

This Prospectus, including the Statement of Additional
Information which has been incorporated by reference herein, does
not contain all the information set forth in the Registration
Statement filed by the Trust with the SEC under the Securities
Act of 1933. Copies of the Registration Statement may be obtained
at a reasonable charge from the SEC or may be examined, without
charge, at the office of the SEC in Washington, D.C.

APPENDIX A

PORTFOLIO BENCHMARKS

Merrill Lynch 1-3 Year Treasury Index. The Merrill Lynch 1-3
Year Treasury Index is comprised of all U.S. Treasury notes and
bonds having a remaining maturity of between 1.0 and 2.99 years
and bearing a coupon equal to or greater than 4.25%. As of June
30, 1995, the index contained 57 distinct issues with a combined
market value of $80.7 billion. It had a duration of 1.69 years as
of that date.

Merrill Lynch 3-5 Year Treasury Index. The Merrill Lynch 3-5
Year Treasury Index is comprised of all U.S. Treasury notes and
bonds having a remaining maturity of between 3.0 and 4.99 years
and bearing a coupon equal to or greater than 4.25%. As of June
30, 1995, the index contained 40 distinct issues with a combined
market value of $476 billion. It had a duration of 3.39 years as
of that date.

Lehman Brothers Aggregate Index. The Lehman Brothers Aggregate
Index is made up of the Lehman Brothers Government/Corporate Bond
Index, the Lehman Brothers Mortgage-Backed Securities Index and
the Lehman Brothers Asset-Backed Securities Index and is intended
to be representative of the investment grade, publicly issued,
fixed-rate, U.S. fixed income market. These indices include
Fixed-rate debt issues rated investment grade or higher by
Moody's Investors Service, Inc. (Moody's), Standard & Poor's
Corporation (S&P) or Fitch Investor's Service. All issues have at
least one year to maturity and an outstanding par value of $100
million for U.S. Government issues and $50 million for all
others. The Lehman Brothers Government/Corporate Bond Index
includes the Lehman Brothers Government Bond Index and the Lehman
Brothers Corporate Bond Index. The Government Bond Index is
described below. The Corporate Bond Index includes all publicly
issued, fixed-rate, non-convertible investment grade domestic
corporate debt, as well as Yankee bonds, which are dollar
denominated, Securities and Exchange Commission registered,
public, non-convertible debt obligations issued or guaranteed by
foreign sovereign governments, municipalities or governmental or
international agencies. The Mortgage-Backed Securities Index is
comprised of all fixed-rate securities backed by mortgage pools
of the GNMA, FNMA and FHLMC. Graduated Payment Mortgages (GPMs)
are included, but Graduated Equity Mortgages (GEMs) are not. The
Asset-Backed Securities Index includes all publicly issued, non-
callable fixed-rate asset-backed securities (excluding
subordinated tranches) backed by automobile, credit card and
fixed-rate home equity loans. As of June 30, 1995, the Aggregate
Index was comprised of 5,167 issues with a market value of $4.3
trillion. It had a duration of 4.58 years as of that date. On a
market value basis, the Government, Corporate, Mortgage-Backed
and Asset-Backed Indices accounted for 54.15%, 16.73%, 28.00% and
1.13% of the Aggregate Index, respectively.

Salomon Brothers Mortgage Index. The Salomon Brothers Mortgage
Index is composed of all agency pass-throughs and with a final
maturity of at least one year and a minimum amount outstanding of
$200 million per coupon. As of June 30, 1995, the Salomon
Brothers Mortgage Index had a market value of $1.2 trillion in
142 different issues. It had a duration of 4.05 years as of that
date.

Lehman Brothers Government Bond Index. The Lehman Brothers
Government Bond Index is made up of all public obligations of the
U.S. Treasury, U.S. Government agencies and quasi-governmental
corporations, and corporate debt guaranteed by the U.S.
Government. As of June 30, 1995, the Lehman Brothers Government
Bond Index contained 1,208 issues with a market value of $2.3
trillion. It had a duration of 4.84 years as of that date.

APPENDIX B

CORPORATE BOND, MORTGAGE-BACKED SECURITY
AND COMMERCIAL PAPER RATINGS

CORPORATE BONDS AND MORTGAGE-BACKED SECURITIES

Moody's. Bonds rated Aa by Moody's are judged by Moody's to be
of high quality by all standards. Together with bonds rated Aaa
(Moody's highest rating), they comprise what are generally known
as high-grade bonds. Aa bonds are rated lower than Aaa bonds
because margins of protection may not be as large as those of Aaa
bonds, or fluctuations of protective elements may be of greater
amplitude, or there may be other elements present which make the
long-term risks appear somewhat larger than those applicable to
Aaa securities. Bonds that are rated A by Moody's possess many
favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal
and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the
future. Bonds rated Baa by Moody's are considered by Moody's to
be medium-grade obligations (i.e., they are neither highly
protected nor poorly secured). Interest payments and principal
security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable
over any great length of time. Baa bonds lack outstanding
investment characteristics and in fact have speculative
characteristics as well.

S&P. Bonds rated AA by S&P are judged by S&P to have a very
strong capacity to pay interest and repay principal and differ
only in a small degree from issues rated AAA. Bonds rated AAA
have the highest rating assigned by S&P, and the capacity to pay
interest and repay principal is extremely strong. Bonds rated A
by S&P have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions. Bonds rated BBB by S&P are regarded by S&P as having
an adequate capacity to pay interest and repay principal. Whereas
BBB bonds normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher rated
categories.

The process of determining ratings for Mortgage-Backed
securities by Moody's and S&P includes consideration of the
credit quality of the underlying collateral, including any credit
support providers, structural and legal aspects associated with
the securities, and the likelihood that the payment stream on the
mortgage pool is adequate to make payments that investors are
entitled to under the securities. Neither of such ratings
represents an assessment of the likelihood that principal
prepayments will be made by mortgagors or the degree to which
such prepayments may differ from that originally anticipated, nor
does it address the possibility that investors may suffer a lower
than anticipated yield or that investors in such securities may
fail to recoup fully their initial investment due to prepayments.

COMMERCIAL PAPER

Moody's. Moody's employs the Prime rating for investment grade
senior short-term debt obligations. Issuers within the Prime
category are given ratings 1, 2 or 3, depending on the relative
strengths of certain factors. Issuers rated Prime-1, the highest
category, have a superior ability for repayment which will often
be evidenced by many of the following characteristics: (1)
leading market positions in well established industries; (2) high
rates of return on funds employed; (3) conservative
capitalization structure with moderate reliance on debt and ample
asset protection; (4) broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and (5) well
established access to a range of financial markets and assured
sources of alternative liquidity.

S&P. Ratings are graded into four categories, ranging from A
for the highest quality obligations to D for the lowest. Issues
rated A are regarded as having the greatest capacity for timely
payment. Issues in this category are further refined with the
designations 1, 2 and 3 to indicate the relative degree of
safety. Issues rated A-1, the highest category, have a strong
degree of safety regarding timely payment.

APPENDIX C

GENERAL CHARACTERISTICS AND RISKS OF HEDGING TRANSACTIONS

PUT AND CALL OPTIONS

A put option gives the purchaser of the option the right to
sell and the writer the obligation to buy the underlying security
at the exercise price during the option period. The purchase of a
put option on a debt security would generally be designed to
protect a Portfolio's holdings in a security against a
substantial decline in market value. A call option gives the
purchaser of the option the right to buy and the writer the
obligation to sell the underlying security at the exercise price
during the option period. The purchase of a call option on a
security would generally be intended to protect the Portfolio
against an increase in the price of a security that it intended
to purchase in the future. The Portfolio may also write put and
call options. The premium that a Portfolio receives for writing
the option will serve as a partial hedge, in the amount of the
option premium, against changes in the value of the securities in
its portfolio. The Portfolios are authorized to purchase exchange
listed options and over-the-counter options (OTC Options). Listed
options are issued by the Options Clearing Corporation (OCC),
which guarantees the performance of the obligations of the
parties to such options.

Each Portfolio's ability to close out its position as a
purchaser or seller of an exchange-listed put or call option is
dependent upon the existence of a liquid secondary market on
option exchanges. Among the possible reasons for the absence of a
liquid secondary market on an exchange are: (i) insufficient
trading interest in certain options; (ii) restrictions on
transactions imposed by an exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities;
(iv) interruption of the normal operations on an exchange; (v)
inadequacy of the facilities of an exchange or OCC to handle
current trading volume; or (vi) a decision by one or more
exchanges to discontinue the trading of options (or a particular
class or series of options), in which event the secondary market
on that exchange (or in that class or series of options) would
cease to exist, although outstanding options on that exchange
that had been listed by the OCC as a result of trades on that
exchange would generally continue to be exercisable in accordance
with their terms.

OTC Options are purchased from or sold to dealers or financial
institutions which have entered into direct agreements with the
Portfolios. With OTC Options, such variables as expiration date,
exercise price and premium will be agreed upon between a
Portfolio and the transacting dealer, without the intermediation
of a third party such as the OCC. If the transacting dealer fails
to make or take delivery of the securities underlying an option
it has written, in accordance with the terms of that option, the
Portfolio would lose the premium paid for the option as well as
any anticipated benefit of the transaction. The Portfolios will
engage in OTC Option transactions only with primary United States
government securities dealers recognized by the Federal Reserve
Bank in New York.

The hours of trading for options on debt securities may not
conform to the hours during which the underlying securities are
traded. To the extent that the option markets close before the
markets for the underlying securities, significant price and rate
movements can take place in the underlying markets that will not
be reflected in the option markets.

FUTURES CONTRACTS AND RELATED OPTIONS

The Portfolios may purchase and sell exchange-traded financial
futures contracts or purchase and sell put and call options on
such futures as a hedge against anticipated interest rate or
currency changes. The sale of a futures contract creates an
obligation by the Portfolio, as seller, to deliver the specific
type of financial instrument called for in the contract at a
specified future time for a specified price. Options on futures
contracts are similar to options on securities except that an
option on a futures contract gives the purchaser the right in
return for the premium paid to assume a position in a futures
contract (a long position if the option is a call and a short
position if the option is a put).

Typically, investment in futures contracts requires a
Portfolio to deposit with a financial intermediary as security
for its obligations an amount of cash or other specified debt
securities which initially is 1% to 5% of the face amount of the
contract (but may be higher in some circumstances) and which
thereafter fluctuates on a periodic basis as the value of the
contract fluctuates. Investment in options involves payment of a
premium for the option without any further obligation on the part
of the Portfolio. Accordingly, the daily deposit requirements in
futures contracts create an ongoing greater potential financial
risk than do options transactions, where the exposure is limited
to the cost of the initial premium. Transactions may be settled
by entering into an offsetting transaction, and are subject to
the risk that the position may not be able to be closed if no
offsetting transaction can be arranged.

A Portfolio will not engage in transactions in futures
contracts or related options for speculative purposes but only as
a hedge against changes resulting from market conditions in the
values of securities in its portfolio. In addition, the Portfolio
will not enter into a futures contract or related option (except
for closing transactions) if, immediately thereafter, the sum of
its initial deposits and premiums on open contracts and options
would exceed 5% of the Portfolio's total assets (taken at current
value); provided, however, that in the case of an option that is
in-the-money at the time of the purchase, the in-the-money amount
may be excluded in calculating the 5% limitation. Also, assets
consisting of cash, U.S. Government securities or other liquid
high-grade debt obligations will be segregated with the Custodian
and marked to market in an amount equal to the market value of
the contract.

Buyers and sellers of currency futures are subject to the same
risks that apply to the use of futures generally. Further,
settlement of a currency futures contract for the purchase of
foreign currencies must occur within that foreign country.
Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is
subject to the maintenance of a liquid secondary market which may
not occur. Currency exchange rates may fluctuate based on factors
extrinsic to the domestic economy.

GENERAL RISKS OF HEDGING TRANSACTIONS

Hedging Transactions present certain additional risks. In
particular, the variable degree of correlation between price
movements of hedging instruments and price movements in the
position being hedged creates the possibility that losses on the
hedge may be greater than gains in the value of a Portfolio's
position. In addition, certain hedging instruments and markets
may not be liquid in all circumstances. As a result, in volatile
markets, a Portfolio may not be able to close out a transaction
without incurring losses substantially greater than the initial
deposit. Although the contemplated use of these instruments
should tend to minimize the risk of loss due to a decline in the
value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in the
value of such position. Losses due to Hedging Transactions will
reduce net asset value. The ability of a Portfolio to hedge
successfully will depend on the Adviser's ability to predict
pertinent market movements, which cannot be assured. A
Portfolio's ability to enter into Hedging Transactions may be
limited by the Internal Revenue Code's requirements for
qualification as a regulated investment company. See "Taxes,
Dividends and Distributions" in the Statement of Additional
Information.

INSTITUTIONAL CLIENT REGISTRATION FORM

The undersigned acknowledges receipt of a copy of the current
prospectus of The BFM Institutional Trust Inc. (Trust), and
subscribes for shares of the Trust as specified below and in
accordance with the prospectus and terms and instructions
contained therein:
DOLLAR AMOUNT OF
SUBSCRIPTION
The Short Duration Portfolio . . . . . $
The Intermediate Duration Portfolio. . $
The Core Fixed Income Portfolio . . . $
The Mortgage Portfolio. . . . . . . . . $
The Government Portfolio. . . . . . . . $
The Long Duration Portfolio. . . . . . $
The Global Fixed Income Portfolio. . . $
The Money Market Portfolio. . . . . . . $
TOTAL. . . . . . . . . . . . . . $

The Trust reserves the right, in its sole discretion, to
suspend the offering of shares of the Portfolios or to reject
purchase orders when, in the judgment of management, such
suspension or rejection is in the best interests of the Trust; to
waive the minimum initial investment of certain investors; and to
redeem shares if information provided in this Client Registration
Form should prove to be incorrect in any material manner (e.g.,
in a manner such as to render the stockholder ineligible to
purchase shares of the Trust). Shares will not be offered or sold
in any jurisdiction to any person to whom it would be unlawful to
make such offer or sale in such jurisdiction.

REGISTRATION OF SHARES
Shares are to be registered in the name(s) and address
indicated below (please type or print).
_________________________________________________________________
Name of Account

_________________________________________________________________
Street or P.O. Box
_________________________________________________________________
City State Zip Code

Telephone Number (______)__________________

INSTITUTIONAL ACCOUNT INFORMATION
Check type of Institution:
__ pension or profit-sharing ___ investment company
plan or trust
__ bank ___ entity qualified under
__ savings institution ___ Section 501(c)(3) of the
Internal Revenue Code
__ credit union ___ corporation
__ trust company ___ other (please specify:
__ insurance company ___ _____________________)

As of its most recent fiscal year end, the investor had total
assets of approximately $ ____________ and net assets of
approximately $ ____________.
If the account is a Trust, include above the Trustee name,
beneficiary or maker and date of the Trust.

TAX WITHHOLDING
Under Federal income tax law, stockholders are subject to
certain penalties as well as withholding of tax at a rate of 31
percent if they do not complete this section.

Taxpayer Identification or Social Security Number: ____- ____-_____

Please check one of the following:
A. ___ The investor has ( the investor has not) been
notified by the IRS that it is subject to backup withholding
as a result of failure to report dividend or interest
income.
B. ___ The IRS has notified the investor that it is no longer
subject to backup withholding.
C. ___ The investor is exempt from backup withholding. (All
corporations and organizations, among others falling within
section 501(a) of the Internal Revenue Code, are exempt.)

DIVIDEND REINVESTMENT
Dividend and capital gain distributions will be reinvested in
additional shares of the Trust unless a separate election form is
executed by the stockholder to receive distributions in cash. To
be effective, the election form must be received not less than
five business days prior to the payment date for the dividend or
distribution. Contact the Trust to obtain the election form.

WIRE TRANSFER INFORMATION
All cash transfers, including subscriptions and redemptions of
Trust shares, will only be effected by wire transfer through the
bank listed below (call 1-800-555-3890 to obtain the Trust's wire
transfer instructions). This registration form must be accepted
by the Trust before redemption of Trust shares will be effected
in accordance with the prospectus.

_____________________________ ______________________________
Bank Name Street

______________________________ _______________________________
City State Zip Code

______________________________ ________________________________
Bank Account Number ABA Number

_______________________________ ________________________________
Bank Phone Number Account Title

SIGNATURES
The investor understands and agrees that the Trust and its
Transfer Agent will not be liable for any loss, cost or expense
for acting on instructions (whether in writing or by telephone)
believed by the party receiving such instructions to be genuine
and in accordance with the procedures in the prospectus. The
investor understands the investment objectives and policies
stated in the prospectus and represents that such objectives and
policies are consistent with the investment objectives,
investment experience and financial condition of investor. The
investor also represents that the shares subscribed for hereby,
and any shares of the Trust purchased by such investor in the
future, will be acquired for the investor's own account and not
with a view to, or for resale in connection with, any
distribution thereof.

INSTITUTIONAL ACCOUNTS:
Please type or print names and titles of authorized signers.
Persons signing as representatives for an institutional account
warrant as individuals that each person signing is an authorized
representative, that each person is empowered to effect
securities transactions for the investor on the terms described
in the prospectus, that the account and privileges selected have
been duly authorized, that all signatures hereon are genuine and
that the persons indicated hereon are authorized to sign.

_______________________________ ____________________________________
Signature Signature of Date

_______________________________ ____________________________________

Signature Signature of Date
_______________________________ ____________________________________
Signature Signature of Date

SIGNATURE GUARANTEE
A signature guarantee must be provided by an "eligible
guarantor institution," which includes a bank, broker, dealer,
credit union, national securities exchange, registered securities
association, clearing agency or savings association. You should
verify with the institution that it is an "eligible guarantor
institution" prior to signing. A guarantee from a notary is not
acceptable.

Affix Signature Guarantee Stamp
_____________________________
Signature Guaranteed By
_____________________________
Authorized Signature

_____________________________
Date Mail Registration Form To:
The BFM Institutional Trust Inc.
P.O. Box 8961,
Wilmington, Delaware
19899-8961

INDIVIDUAL CLIENT REGISTRATION FORM

DOLLAR AMOUNT OF
SUBSCRIPTION
The Short Duration Portfolio . . . . . $
The Intermediate Duration Portfolio. . $
The Core Fixed Income Portfolio . . . $
The Mortgage Portfolio. . . . . . . . . $
The Government Portfolio. . . . . . . . $
The Long Duration Portfolio. . . . . . $
The Global Fixed Income Portfolio. . . $
The Money Market Portfolio. . . . . . . $
TOTAL. . . . . . . . . . . . . . $

The Trust reserves the right, in its sole discretion, to
suspend the offering of shares of the Portfolios or to reject
purchase orders when, in the judgment of management, such
suspension or rejection is in the best interests of the Trust; to
waive the minimum initial investment of certain investors; and to
redeem shares if information provided in this Client Registration
Form should prove to be incorrect in any material manner (e.g.,
in a manner such as to render the stockholder ineligible to
purchase shares of the Trust). Shares will not be offered or sold
in any jurisdiction to any person to whom it would be unlawful to
make such offer or sale in such jurisdiction.

REGISTRATION OF SHARES
Shares are to be registered in the name(s) and address
indicated below (please type or print).
_________________________________________________________________
Name of Account
_________________________________________________________________
Street or P.O. Box
_________________________________________________________________
City State Zip Code

Telephone Number (______)__________________

Type of Account: _______________ Individual

INVESTMENT OBJECTIVES
Check:
___ growth ___ investment company
___ income ___ capital preservation
___ growth & income ___ aggressive growth
___ speculation

As of the most recent fiscal year end, the investor had
total assets of approximately $ ____________ and net assets of
approximately $ ____________.

INDIVIDUAL ACCOUNT INFORMATION
Check type of account:
Individual Joint Tenant
Custodial Trust

If the account is a Trust, include above the Trustee name,
beneficiary or maker and date of the Trust.

TAX WITHHOLDING
Under Federal income tax law, stockholders are subject to
certain penalties as well as withholding of tax at a rate of 31
percent if they do not complete this section.

Taxpayer Identification or Social Security Number: ___-___-___

Please check one of the following:
A. The investor has (______ the investor has not) been
notified by the IRS that it is subject to backup withholding
as a result of failure to report dividend or interest
income.
B. The IRS has notified the investor that it is no longer
subject to backup withholding.
C. The investor is exempt from backup withholding. (All
corporations and organizations, among others falling within
section 501(a) of the Internal Revenue Code, are exempt.)

DIVIDEND REINVESTMENT
Dividend and capital gain distributions will be reinvested
in additional shares of the Trust unless a separate election form
is executed by the stockholder to receive distributions in cash.
To be effective, the election form must be received not less than
five business days prior to the payment date for the dividend or
distribution. Contact the Trust to obtain the election form.

WIRE TRANSFER INFORMATION
All cash transfers, including subscriptions and redemptions
of Trust shares, will only be effected by wire transfer through
the bank listed below (call 1-800-336-6986 to obtain the Trust's
wire transfer instructions). This registration form must be
accepted by the Trust before redemption of Trust shares will be
effected in accordance with the prospectus.

Bank Name Street

City State Zip Code

Bank Account Number ABA Number

Bank Phone Number Account Title

INDIVIDUAL ACCOUNTS:

______________________________ __________________________________
Signature Signature of Date
______________________________ __________________________________
Signature Signature of Date

Affix Signature Guarantee Stamp
________________________________
Signature Guaranteed By
________________________________

Authorized Signature
________________________________
Date Mail Registration Form To:
The BFM Institutional Trust Inc.
P.O. Box 8961,
Wilmington, Delaware 19899-8961

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

Prospectus dated October 31, 1995

THE BFM INSTITUTIONAL TRUST INC.

The BFM Institutional Trust Inc. (the "Trust") is a no-load,
open-end management investment company currently consisting of
sixteen investment portfolios. The eight non-diversified
investment portfolios (the "Portfolios") described in this
Prospectus are separate series of the Trust. The Trust is
primarily designed to provide pension and profit sharing plans,
employee benefit trusts, financial institutions, corporations,
and high net worth individuals with access to the professional
investment management services offered by BlackRock Financial
Management Inc. (formerly, BlackRock Financial Management L.P.)
which serves as investment adviser (the "Adviser") to the Trust.

The following portfolios are described in this Prospectus:

The Investment Grade Multi-Sector Mortgage Securities
Portfolio The Multi-Sector Mortgage Securities Portfolio II
The Multi-Sector Mortgage Securities Portfolios III-VIII

Information about the investment objective of each Portfolio,
along with a detailed description of the types of securities in
which each Portfolio may invest, and of investment policies and
restrictions applicable to each Portfolio, are set forth in this
Prospectus. There can be no assurance that the investment
objective of any Portfolio will be achieved. INVESTMENTS IN THE
MULTI-SECTOR MORTGAGE SECURITIES PORTFOLIOS II-VIII MAY INCLUDE
SECURITIES HAVING A CREDIT QUALITY BELOW INVESTMENT GRADE. SUCH
SECURITIES, ALSO CALLED "JUNK BONDS", ARE CONSIDERED TO BE
SPECULATIVE AND MAY BE SUBJECT TO SPECIAL RISKS, INCLUDING A
GREATER RISK OF LOSS OF PRINCIPAL AND NON-PAYMENT OF INTEREST.
SEE "INVESTMENT RISKS AND SPECIAL CONSIDERATIONS" AND
"DESCRIPTION OF SECURITIES LOWER RATED AND NON-RATED SECURITIES".
Because the market value of the Portfolios' investments will
change, the net asset value per share of each Portfolio also will
vary. The Trust's address is 345 Park Avenue, New York, New York
10154, and its telephone number is (212) 754-5560.

INVESTMENTS IN THE PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS
OF, OR GUARANTEED OR ENDORSED BY A BANK, AND THE SHARES OF EACH
PORTFOLIO ARE NEITHER INSURED NOR GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER AGENCY.
______________________

This Prospectus sets forth concisely the information about the
Trust that a prospective investor should know before investing.
Additional information about the Trust has been filed with the
Securities and Exchange Commission in a Statement of Additional
Information, dated October 31, 1995, which information is
incorporated herein by reference and available without charge
upon request to the Trust, at the address or telephone number
above.
______________________
Investors are advised to read this Prospectus and retain it
for future reference.
______________________

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
______________________

TABLE OF CONTENTS

Prospectus Summary . . . . . . . . . . . . . . . . . . 1
Trust Expenses . . . . . . . . . . . . . . . . . . . . 7
Financial Highlights . . . . . . . . . . . . . . . . . 8
Opportunities in the Commercial and Residential
Mortgage-Backed Securities Markets . . . . . . . . . 9
Description of the Trust . . . . . . . . . . . . . . . 10
Management of the Trust . . . . . . . . . . . . . . 10
Investment Objectives and Policies . . . . . . . . 11
Description of Securities . . . . . . . . . . . . . 13
Other Investment Practices . . . . . . . . . . . . . . 20
Duration Management and Other Management Techniques 20
Leverage and Borrowing . . . . . . . . . . . . . . . 21
Repurchase Agreements and Lending of Securities . . 22
Management of the Trust . . . . . . . . . . . . . . . 23
Investment Adviser . . . . . . . . . . . . . . . . 24
Distributor . . . . . . . . . . . . . . . . . . . . 26
Expenses . . . . . . . . . . . . . . . . . . . . . 26
Net Asset Value . . . . . . . . . . . . . . . . . . . 26
Purchase and Redemption of Shares . . . . . . . . . . 27
How to Purchase Shares . . . . . . . . . . . . . . 27
How to Redeem Shares . . . . . . . . . . . . . . . 27
Reports to Stockholders . . . . . . . . . . . . . . 28
Stockholder Inquiries . . . . . . . . . . . . . . . 28
Taxes, Dividends and Distributions . . . . . . . . . . 28
General Information . . . . . . . . . . . . . . . . . 29
Performance Information . . . . . . . . . . . . . . 29
Description of Shares . . . . . . . . . . . . . . . 29
Administrator, Custodian and Transfer and
Dividend Disbursing Agent . . . . . . . . . . . . 30
Validity of the Shares . . . . . . . . . . . . . . 30
Experts . . . . . . . . . . . . . . . . . . . . . . 30
Additional Information . . . . . . . . . . . . . . 30
Description of Ratings . . . . . . . . . . . Appendix A
General Characteristics and Risks of Additional Investment
Management Techniques . . . . . . . . . . . . Appendix B

INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE

1. The PNC Fund's registration statement (33-
63329) on Form N-14 filed with the Securities and
Exchange Commission, dated October 11, 1995.

PROSPECTUS SUMMARY

The BFM Institutional Trust Inc. (the "Trust") is a no-load,
open-end management investment company. The eight non-
diversified investment portfolios (each a "Portfolio" and
collectively, the "Portfolios") described in this Prospectus are
designed primarily for institutional investors. The Trust also
has other portfolios whose investment objective, policies and
strategies and other characteristics are described in a separate
prospectus. BlackRock Financial Management Inc. (formerly,
BlackRock Financial Management L.P.) is the investment adviser
(the "Adviser") to the Portfolios. Furthermore, on September 28,
1995, the Board of Directors of the Trust adopted resolutions to
approve the sale of all the assets and the assumption of all the
liabilities of the Trust to The PNC Fund, a Massachusetts
business trust (the "Acquisition"). It is anticipated that
shareholders of the Trust will receive a proxy and be entitled to
vote on the Acquisition at a meeting of the Trust's shareholders
on or about December 20, 1995. For further information on the
proposed Acqusition, see "Incorporation of Certain Documents by
Reference".

INVESTMENT OBJECTIVES

THE INVESTMENT GRADE MULTI-SECTOR MORTGAGE SECURITIES
PORTFOLIO (the "Investment Grade Multi-Sector Portfolio") will
seek to provide maximum total rate of return consistent with
investing in a range of investment grade agency and non-agency
Mortgage-Backed Securities, including primarily senior and
subordinated tranches of residential, commercial, multifamily and
agricultural mortgage securities. The securities in which the
Portfolio may invest include, but are not limited to,
collateralized mortgage obligations, real estate mortgage
investment conduits, adjustable rate mortgages, Asset-Backed
Securities, bank debt, corporate debt securities and U.S.
Treasury and agency securities. The assets of this Portfolio
will be rated at least BBB- by Standard & Poor's Corporation
("S&P"), Duff & Phelps Inc. ("D&P") or Fitch Investors Service
("Fitch") or Baa3 by Moody's Investors Service, Inc. ("Moody's")
or will be determined by the Adviser to be of comparable quality
at the time of investment or will be issued or guaranteed by the
U.S. Government or its agencies or instrumentalities.

THE MULTI-SECTOR MORTGAGE SECURITIES PORTFOLIO II AND THE
MULTI-SECTOR MORTGAGE SECURITIES PORTFOLIOS III-VIII (the "Multi-
Sector Portfolios II-VIII") will seek to provide maximum total
rate of return consistent with investing in a range of agency and
non-agency Mortgage-Backed Securities, including primarily senior
and subordinated tranches of residential, commercial, multifamily
and agricultural mortgage securities. The securities in which
the Portfolios may invest include, but are not limited to,
collateralized mortgage obligations, real estate mortgage
investment conduits, adjustable rate mortgages, Asset-Backed
Securities, bank debt, corporate debt securities and U.S.
Treasury and agency securities. Except as otherwise set forth in
this Prospectus, the assets of these seven Portfolios may be
invested without limitation as to amount or credit rating in
securities rated below investment grade or, if non-rated,
securities determined by the Adviser to be of comparable quality
at the time of investment. Such securities are commonly referred
to as "junk bonds" and have a higher risk of default of principal
and interest. See "Investment Risks and Special Considerations"
and "Description of Securities - Lower Rated and Non-Rated
Securities". Notwithstanding the foregoing, Multi-Sector
Portfolio III (i) will seek to provide a total rate of return
before fees and expenses over rolling twelve-month periods that
exceeds the total return of the Salomon Broad Investment Grade
Index over the same period by at least 1.60% on an annualized
basis, (ii) will not invest in Asset-Backed Securities, bank or
corporate debt securities other than money market instruments, or
non-rated securities (other than for U.S. Government securities)
and (iii) will maintain a dollar-weighted average credit quality
of at least A-/A3, with U.S. Government securities being assigned
a AAA rating.

There can be no assurance that the investment objectives of
any Portfolio will be achieved.

INVESTMENT POLICIES AND STRATEGIES

The Investment Grade Multi-Sector Portfolio will seek to
achieve its objectives by investing in a portfolio of fixed
income securities consisting primarily of investment grade
"Mortgage-Backed Securities" (both fixed and adjustable rate)
which (i) represent interests in or are secured by mortgage loans
on commercial real property, such as industrial and warehouse
properties, office buildings, retail space and shopping malls,
multifamily properties and cooperative apartments, hotels and
motels, nursing homes, hospitals, senior living centers and
agricultural properties ("Commercial Mortgage-Backed
Securities"), or (ii) have been issued by private mortgage
originators and represent interests in or are secured by mortgage
loans on single family residential properties ("Residential
Mortgage-Backed Securities"). See "Description of the
Trust Description of Securities Commercial Mortgage-Backed
Securities" and " Residential Mortgage-Backed Securities".

Each Multi-Sector Portfolio II-VIII will seek to achieve its
investment objectives by investing in a portfolio of fixed income
securities consisting primarily of Commercial and Residential
Mortgage-Backed Securities. Each Multi-Sector Portfolio II and
IV-VIII may invest without limitation in Commercial and
Residential Mortgage-Backed Securities rated below investment
grade or, if non-rated, determined by the Adviser to be of
comparable quality at the time of investment. Notwithstanding the
foregoing, Multi-Sector Portfolio III (i) will not invest in
securities (other than U.S. Government securities) that are not
rated at least B by Standard & Poor's Corporation ("S&P"), Duff &
Phelps Inc. ("D&P") or Fitch Investors Service ("Fitch") or B2 by
Moody's Investors Service, Inc. ("Moody's") at the time of
investment; (ii) will not invest in securities (other than U.S.
Government securities) not rated by at least one of the foregoing
organizations at the time of investment; (iii) will not invest
more than 12.5% of its assets in securities that are rated below
BB-/Ba3 by any of the foregoing organizations; and (iv) will not
invest more than 25% of its assets in securities that are rated
below BBB-/Baa3 by any of the foregoing organizations. In the
case of short-term money market instruments and short-term
commingled funds the applicable rating requirement will be A2/P2.
For the purposes of Multi-Sector Portfolio III, split rated
securities will be accounted for at the lower rating. In
addition, Multi-Sector Portfolio III will maintain a targeted
duration within 20% shorter or longer than the then current
duration of the Salomon Broad Investment Grade Index.

Each Portfolio may also invest in securities issued by the
U.S. Government or its agencies and instrumentalities, Asset-
Backed Securities, corporate debt securities, bank debt and,
although it does not currently intend to do so, during temporary
defensive periods and in order to keep cash on hand fully
invested, money market instruments. Each Portfolio is authorized
to borrow funds from commercial banks and enter into reverse
repurchase agreements or dollar rolls in an amount not exceeding
33 % of its total assets (including the amount borrowed). A
Portfolio is also authorized to borrow an additional 5% of its
total assets without regard to the foregoing percentage
limitations for temporary purposes. See "Other Investment
Practices Leverage and Borrowing". However, Multi-Sector
Portfolio III will limit to 20% of net assets its investments in
U.S. Government securities that are not also Mortgage-Backed
Securities, will not invest in Asset-Backed Securities, bank debt
or corporate debt securities other than money market securities
and will not borrow money or enter into reverse repurchase
agreements or dollar rolls.

Each Portfolio expects to invest from time to time in various
instruments designed to reduce interest rate risks and their
effects on the market value of a Portfolio's securities. A
Portfolio may purchase or sell futures and listed and over-the-
counter options contracts on securities, indices and futures
contracts, make short sales, purchase Eurodollar instruments,
enter into interest rate swaps and purchase or sell interest rate
caps and floors, lend securities and invest in restricted or
illiquid securities to a limited extent. In addition, a
Portfolio may invest in repurchase agreements and make forward
commitments. For further discussion of these practices and the
associated special considerations, see "Other Investment
Practices". However, Multi-Sector Portfolio III will not engage
in short sales or the lending of portfolio securities and will
invest in futures, options, swaps, caps and floors solely for
bona fide hedging and duration management purposes.

INVESTMENT SECURITIES

Residential Mortgage-Backed Securities. Residential Mortgage-
Backed Securities are fixed income securities which have been
issued by private mortgage originators and which represent
interests in or are secured by mortgage loans on single family
residential properties. Mortgage-Backed Securities, both
commercial and residential, include pass-through securities,
adjustable rate mortgage securities ("ARMS"), collateralized
mortgage obligations ("CMOs") and stripped securities. See
"Description of the Trust Description of Securities Residential
Mortgage-Backed Securities".

U.S. Government Securities. U.S. Government securities are
issued or guaranteed by the U.S. Government, its agencies and
instrumentalities. Such securities include U.S. Treasury, GNMA,
FNMA and FHLMC securities, including certain Mortgage-Backed
Securities. See "Description of the Trust Description of
Securities U.S. Government Securities".

Asset-Backed Securities. Asset-Backed Securities have similar
structural characteristics to Mortgage-Backed Securities.
However, the underlying assets are not mortgage loans or
interests in mortgage loans but include assets such as motor
vehicle installment sales or installment loan contracts, leases
of various types of real and personal property, and receivables
from revolving credit (credit card) agreements. See "Description
of the Trust Description of Securities Asset-Backed Securities".

Corporate Debt Securities. Other types of debt securities
include those issued by corporations and other entities,
including bonds, debentures, notes, certificates of deposit,
bankers' acceptances, commercial paper and other instruments. See
"Description of the Trust Description of Securities Corporate
Debt Securities".

Bank Debt. Each Portfolio may also purchase bank indebtedness
and participations therein, both secured and unsecured, of debtor
companies. See "Description of the Trust Description of
Securities Bank Debt".

INVESTMENT ADVISER

The Adviser is compensated monthly by each Portfolio for its
services in an amount equal to the following percentages of each
Portfolio's average daily net asset value on an annualized basis:
.40% for the Investment Grade Multi-Sector Portfolio and .50% for
the Multi-Sector Portfolios II and IV-VIII. The Investment
Advisory Agreement for the Multi-Sector Portfolio III provides
that the Adviser will be compensated at the end of each calendar
quarter at an annualized rate of .25% of the Portfolio's average
month end net assets. See "Management of the Trust Investment
Adviser".

On February 28, 1995, BlackRock Financial Management L.P. sold
its business to PNC Bank N.A. ("PNC"), the twelfth largest bank
in the U.S. All members of the Adviser's senior management team
have signed long-term employment contracts with PNC and will
continue to be responsible for managing the day-to-day affairs of
the Adviser, including carrying out its responsibilities with
respect to the Trust and its various portfolios.

PURCHASE AND REDEMPTION OF SHARES

Shares of each Portfolio are offered at the next determined
net asset value with no sales charge. The minimum initial
investments for the Investment Grade Multi-Sector Portfolio and
the Multi-Sector Portfolio II is $5 million. The minimum initial
investment for each Multi-Sector Portfolio III-VIII is $50
million. Each Multi-Sector Portfolio III-VIII will be offered
separately to appropriate institutional investors. The Adviser
reserves the right to waive the minimum initial investment for
any Multi-Sector Portfolio.

Shares of each Portfolio may be redeemed without cost at the
net asset value per share of the Portfolio next determined after
receipt of the redemption request (which will be the date
specified if the redemption request specifies a particular date
in the future for its effectiveness). The Trust expects to pay
all redemption requests made with at least thirty (30) days'
advance notice in cash. Redemption requests in excess of
$250,000 by any single shareholder from a particular Portfolio
within any three-month period may be paid in kind unless the
Trust has received at least thirty (30) days' advance notice and
will be paid in kind if the redeeming shareholder so requests and
such payment will not adversely affect other shareholders. Each
Portfolio's net asset value will fluctuate and accordingly the
redemption price may be more or less than the purchase price.
Shareholders who receive redemptions in kind will incur
additional expense and delay in disposing of such securities and
the value of such securities may decline during the disposition
period.

DIVIDENDS AND DISTRIBUTIONS

Dividends for each Portfolio will be declared daily on shares
held of record at 5:00 p.m., New York City time. Each Portfolio
intends to distribute all of its net investment income at least
monthly, and any net realized capital gains at least annually.
All dividends and distributions will be reinvested automatically
at net asset value in additional shares of the same Portfolio,
unless cash payment is requested. See "Taxes, Dividends and
Distributions".

ADMINISTRATOR, CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING
AGENT

PNC Bank N.A. and its affiliates will provide each Portfolio
with administrative accounting, custodial, and dividend
disbursing services and transfer agency services. See "General
Information Administrator, Custodian and Transfer and Dividend
Disbursing Agent".

INVESTMENT RISKS AND SPECIAL CONSIDERATIONS

Investment risks and considerations relevant to the securities
in which each Portfolio invests are described in the Prospectus
under "Description of the Trust Investment Objectives and
Policies", " Description of Securities" and "Other Investment
Practices". The following summarizes some of these risks:

Each Portfolio (other than Multi-Sector Portfolio III) may
invest without limit in both Commercial Mortgage-Backed
Securities and Residential Mortgage-Backed Securities.
Investments in Commercial Mortgage-Backed Securities involve the
credit risks of delinquency and default. Delinquency refers to
interruptions in the payment of interest and principal. Default
refers to the potential for unrecoverable principal loss from the
sale of foreclosed property. These risks include the risks
inherent in the commercial mortgage loans which support such
Commercial Mortgage-Backed Securities and the risks associated
with direct ownership of real estate. This may be especially
true in the case of Commercial Mortgage-Backed Securities secured
by, or evidencing an interest in, a relatively small or less
diverse pool of commercial mortgage loans. The factors
contributing to these risks include the effects of general and
local economic conditions on real estate values, the conditions
of specific industry segments, the ability of tenants to make
lease payments and the ability of a property to attract and
retain tenants, which in turn may be affected by local conditions
such as oversupply of space or a reduction of available space,
the ability of the owner to provide adequate maintenance and
insurance, energy costs, government regulations with respect to
environmental, zoning, rent control and other matters, and real
estate and other taxes.

While the credit quality of the Commercial Mortgage-Backed
Securities in which each Portfolio may invest will reflect the
perceived likelihood of future cash flows to meet operating
expenses and cash flow requirements, the underlying commercial
properties may not be able to continue to generate income to meet
their operating expenses and cash flow requirements (mainly debt
service, lease payments, capital expenditures, taxes,
maintenance, insurance and tenant improvements) as a result of
any of the factors mentioned above. Consequently, the obligors
under commercial mortgages may be unable to make payments of
interest in a timely fashion, increasing the risk of default on a
related Commercial Mortgage-Backed Security. In addition, the
repayment of the commercial mortgage loans underlying Commercial
Mortgage-Backed Securities will typically depend upon the future
availability of financing and the stability of real estate
property values.

The commercial mortgage loans that underlie Commercial
Mortgage-Backed Securities have certain distinct characteristics.
Commercial mortgage loans are generally not amortizing or not
fully amortizing. At their maturity date, repayment of the
remaining principal balance or "balloon" is due and is repaid
through the attainment of an additional loan or sale of the
property. Most commercial mortgage loans are nonrecourse
obligations of the borrower, meaning that the sole remedy of the
lender in the event of a default is to foreclose upon the
collateral. As a result, in the event of default by a borrower,
recourse may be had only against the specified property pledged
to secure the loan and not against the borrower's other assets.
If borrowers are not able or willing to refinance or dispose of
the property to pay the principal balance due at maturity,
payments on the subordinated classes of the related Commercial
Mortgage-Backed Security are likely to be adversely affected.
The ultimate extent of the loss, if any, to the subordinated
classes may only be determined after the foreclosure of the
mortgage encumbering the property and, if the mortgagee takes
title to the property, upon liquidation of the property. Factors
such as the title of the property, its physical condition and
financial performance, as well as governmental disclosure
requirements with respect to the condition of the property, may
make a third party unwilling to purchase the property at a
foreclosure sale or for a price sufficient to satisfy the
obligations with respect to the related Commercial Mortgage-
Backed Securities. The condition of a property may deteriorate
during foreclosure proceedings. Certain obligors on underlying
mortgages may become subject to bankruptcy proceedings, in which
case the amount and timing of amounts due under the related
Commercial Mortgage-Backed Securities may be materially adversely
affected.

In general, any losses on a given Commercial Mortgage-Backed
Security will be absorbed first by the equity holder, then by a
cash reserve fund or letter of credit, if any, and then by the
"first loss" subordinated security to the extent of its principal
balance. Because each Portfolio intends to invest in
subordinated classes of Commercial Mortgage-Backed Securities,
there can be no assurances that in the event of default and the
exhaustion of equity support, the reserve fund and any debt
classes junior to those in which each Portfolio invests, any
Portfolio will be able to recover all of its investment in the
securities it purchases. In addition, if the underlying mortgage
portfolio has been overvalued by the originator, or if mortgage
values subsequently decline, the affected Portfolio holds the
"first loss" position in certain Commercial Mortgage-Backed
Securities ahead of the more senior debt holders, which may
result in significant losses. Many of the lower-rated and non-
rated Commercial Mortgage-Backed Securities are subject to less
prepayment risk than in the case with Residential Mortgage-Backed
Securities because of structural features of the underlying
mortgage loans and the fact that they are entitled to repayment
only after more senior classes are paid.

Investments in Residential Mortgage-Backed Securities involve
the credit risks that affect interest and principal cash flows
similar to the credit risks of Commercial Mortgage-Backed
Securities discussed above, as well as the prepayment risks
associated with the possibility that prepayments of principal
generally may be made at any time without penalty. Prepayment
rates are influenced by changes in current interest rates and a
variety of economic, geographic, social and other factors.
Changes in the rate of prepayments on a Residential Mortgage-
Backed Security may change the yield to maturity of the security
and amounts available for reinvestment from such securities by
the Portfolios are likely to be greater during periods of
relatively low or declining interest rates and therefore are
likely to be reinvested at lower interest rates than during a
period of relatively high interest rates. This prepayment effect
has been particularly pronounced during the past three years as
borrowers have refinanced higher interest rate mortgages into
lower interest rate mortgages available in the marketplace.
Because the Portfolios expect to invest in subordinated
Residential Mortgage-Backed Securities, the prioritization of
cash flows from mortgages under the Residential Mortgage-Backed
Securities in favor of the senior classes generally reduces this
prepayment risk.

Investing in Lower Credit Quality Securities. An investor
should recognize that the lower-rated or non-rated Commercial and
Residential Mortgage-Backed Securities in which each Multi-Sector
Portfolio II-VIII may invest have speculative characteristics.
The Multi-Sector Portfolio III will not purchase non-rated
securities (other than U.S. Government securities). The prices
of lower credit quality securities, which are commonly referred
to as "junk bonds", have been found to be less sensitive to
interest rate changes than more highly rated investments, but
more sensitive to adverse economic downturns or individual issuer
developments. Securities rated lower than B by S&P and Moody's,
including bonds rated as low as D by S&P or C by Moody's, can be
regarded as having extremely poor prospects of ever attaining any
real investment standing and may be in default with payment of
interest and/or repayment of principal in arrears. A projection
of an economic downturn or the advent of a recession, for
example, could cause a decline in the price of lower credit
quality securities because the advent of a recession could lessen
the ability of obligors of mortgages underlying Commercial
Mortgage-Backed Securities and Residential Mortgage-Backed
Securities to make principal and interest payments. In such
event, existing credit supports and any first loss positions may
be insufficient to protect against loss of principal.

Non-diversified Status. Each Portfolio has registered as a
"non-diversified" investment company which enables it to invest
more than 5% of its assets in the obligations of any single
issuer, subject only to the diversification requirements of
Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). As a result of its ability to concentrate its
investments in the obligations of a smaller number of issuers,
each Portfolio may be more susceptible than a more widely
diversified fund to any single economic, political or regulatory
occurrence.

Leverage. Each Portfolio is authorized to borrow funds and
utilize leverage (including through reverse repurchase agreements
and dollar rolls) in amounts not exceeding 33 % of its total
assets (including the amount borrowed). The use of leverage by a
Portfolio creates an opportunity for increased net income, but,
at the same time, creates special risks. In particular, if any
Portfolio borrows on a short-term basis and invests the proceeds
in longer-term securities, an increase in interest rates may (i)
reduce or eliminate the interest rate differential usually
available between short-term and long-term rates and (ii) reduce
the value of a Portfolio's longer-term securities, thereby
exposing the Portfolio to lower yields and risk of loss on
disposition of its longer-term securities. Each Portfolio will
only borrow or use leverage when the Adviser believes that such
activities will benefit the portfolio utilizing leverage. Each
Portfolio may also borrow up to an additional 5% of its total
assets for temporary purposes without regard to the foregoing
limitation. Notwithstanding the foregoing, Multi-Sector
Portfolio III will not borrow money or enter into reverse
repurchase agreements or dollar rolls.

Illiquid Securities. Each Portfolio may invest up to 15% of
its net assets in securities that lack an established secondary
trading market or are otherwise considered illiquid. Liquidity
of a security relates to the ability to easily dispose of
securities and the price to be obtained, and does not necessarily
relate to the credit risk or likelihood of receipt of cash at
maturity. Illiquid securities may trade at a discount from
comparable, more liquid investments. The Commercial Mortgage-
Backed Securities which each Portfolio intends to acquire may be
less marketable and in some instances will be considered illiquid
by the Trust under applicable standards because of the absence of
registration under the federal securities laws, contractual
restrictions on transfer or the small size of the issue (relative
to the issues of comparable interests). See "Investment
Objectives and Policies Description of Shares Illiquid
Securities".

Other Investment Management Techniques. Each Portfolio
(subject in the case of Multi-Sector Portfolio III to limitations
described herein) may use various other investment management
techniques that also involve special considerations including
engaging in hedging transactions and short sales, selling listed
and over-the-counter covered call options, making forward
commitments, entering into repurchase agreements, purchasing
securities on a when-issued basis, entering into interest rate
swaps and purchasing or selling interest rate caps and floors and
lending its portfolio securities. For further discussion of
these practices and the associated risks and special
considerations, see "Other Investment Practices".

TRUST EXPENSES

STOCKHOLDER TRANSACTION EXPENSES

Sales Load Imposed on Purchases . . . . . . . . None
Sales Load Imposed on Reinvested Dividends . . None
Deferred Sales Load . . . . . . . . . . . . . . None
Redemption Fee . . . . . . . . . . . . . . . . None

ANNUAL TRUST OPERATING EXPENSES
(as a percentage of average net assets)

Investment
Grade Multi- Multi- Multi-
Multi-Sector Sector Sector Sector
Portfolio Port- Port- Port-
folio II folio III folios IV-VIII

Advisory Fees 0.40%(a) 0.50%(a) 0.25%(a) 0.50%(a)
Other Expenses. 0.15 0.15 0.12(b) 0.15
Total Expenses 0.55% 0.65% 0.37% 0.65%

___________________________
(a) The Adviser reserves the right in its sole discretion to
reduce the advisory fee charged to each Portfolio.

(b) The Adviser has agreed to cap the Other Expenses for this
Portfolio at the level indicated.

Example

A stockholder would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2) redemption at
the end of each time period:

1 Year 3 Years 5 Years 10 Years
The Investment Grade Multi-Sector
Portfolio $6 $18 $31 $71
The Multi-Sector Portfolio II $7 $21 $37 $84
The Multi-Sector Portfolio III $4 $12 $21 $47
The Multi-Sector Portfolios IV-VIII $7 $21 $37 $84

THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.

The purpose of this table is to assist investors in
understanding the various costs and expenses that an investor in
the Trust will bear, whether directly or indirectly. For a more
complete description of the various costs and expenses, see
"Description of the Trust Management of the Trust". "Other
Expenses" includes an estimate of operating expenses of the Trust,
such as Directors' and professional fees, registration fees,
reports to stockholders and transfer agency and custodian fees.
Investors who purchase or redeem shares through broker-dealers or
other financial intermediaries may be subject to additional
charges.

BFM INSTITUTIONAL TRUST INC.
THE MULTI-SECTOR MORTGAGE SECURITIES PORTFOLIO III

FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT
THE PERIOD

The table below provides operating performance for a share of
common stock outstanding, total investment return, ratios to
average net assets and other supplemental data for the periods
ended June 30, 1995, which has been audited by Deloitte & Touche
LLP. This information has been determined based upon financial
information provided in the financial statements which are
included in the Statement of Additional Information. The
Statement of Additional Information is available to shareholders
on request.
October 6,
1994(a) Through
PER SHARE OPERATING PERFORMANCE: June 30, 1995

Net asset value, beginning of period . . . $ 1,000.00

Net investment income (d) . . . . . . . 55.81
Net realized and unrealized gain on
investments . . . . . . . . . . . . . . . . 68.11

Net increase from investment operations . . 123.92

Dividends from net investment income . . . (55.81)
Net asset value, end of period . . . . . . $ 1,068.11

TOTAL INVESTMENT RETURN (b) . . . . . . . . 12.78%
RATIOS TO AVERAGE NET ASSETS:

Expenses (d) . . . . . . . . . . . . . . . 0.37% (c)

Net investment income (d) . . . . . . . . . 7.54% (c)
SUPPLEMENTAL DATA:

Average net assets (in thousands) . . . . . $103,332
Portfolio turnover . . . . . . . . . . . . 215%

Net Assets, end of period (in thousands) . $112,810

OPPORTUNITIES IN THE COMMERCIAL AND
RESIDENTIAL MORTGAGE-BACKED SECURITIES MARKETS

Commercial and non-agency Residential Mortgage-Backed
Securities are among the highest yielding, call protected,
domestic, fixed-income securities across all rating categories.
Under current market conditions, the Adviser believes that
investments in non-agency mortgage securities (which include
Commercial and non-agency Residential Mortgage-Backed
Securities) provide attractive investment opportunities. This
is due to several factors, including the developing nature of
the Commercial and non-agency Residential Mortgage-Backed
Securities markets, the restructuring of the real estate loans
underlying non-agency mortgage securities, the infusion of
capital to the real estate market and the Adviser's expectation
of no further significant deterioration of real estate property
values.

The construction boom of the early 1980s resulted in the
oversupply of developed commercial and residential real estate.
This oversupply led to high vacancy rates and, coupled with
declining rental rates, led to a decline in real estate values
in the late 1980s and early 1990s. Real estate loans
originated in the early and mid-1980s were issued during a
period of higher real estate values. The subsequent rise in
delinquencies and losses for lenders has led to new mortgage
origination standards which incorporate less optimistic
assumptions concerning rent growth and occupancy. Mortgages
originated during this period of higher values may be
restructured or renegotiated to reflect current market
conditions. The resulting non-agency mortgage securities have
underlying loans with LTV ratios that more accurately reflect
current market values and allow the Adviser to better assess
credit exposure.

Many sophisticated investors have recently become active
participants in the commercial real estate market, which has
brought new equity into these types of investments. The
increased issuance of real estate investment trusts ("REITs")
has been another source of new equity. The Adviser believes
that this infusion of equity, combined with more conservative
real estate valuations, as well as the dislocation of
traditional lenders provides a strong foundation for the
continued issuance of Commercial and non-agency Residential
Mortgage-Backed Securities.

A recovery of the real estate market in general would have a
positive effect on investments in non-agency Mortgage-Backed
Securities. Market indicators are beginning to show positive
trends, with declines in commercial mortgage delinquencies and
defaults. Additionally, the second quarter of 1993 brought the
first positive quarterly total return on real estate
investments in two years, as measured by the Russel-NCREIF
Index, which tracks the performance of U.S. commercial real
estate.

The Resolution Trust Corporation ("RTC") entered the non-
agency Mortgage-Backed Securities market as a significant
participant by securitizing non-agency mortgage loans in June
of 1991, packaging certain mortgages it acquired as receiver of
failed savings and loans. The RTC, in addition to other
entities, has securitized commercial and non-agency residential
mortgages, aggregating in excess of $22 billion of Commercial
Mortgage-Backed Securities and $200 billion of Residential
Mortgage-Backed Securities created from January, 1987 to
December, 1992. As a result of the significant decline in real
estate values in the U.S. in the late 1980s and early 1990s and
in conjunction with their efforts to improve the
creditworthiness of financial institutions, regulators such as
the National Association of Insurance Commissioners ("NAIC")
and the Bank for International Settlements ("BIS") set more
stringent capital requirements for assets including real estate
holdings. These requirements have led traditional real estate
lenders largely to withdraw from lending to real estate
borrowers and to seek a secondary market outlet for these
mortgage loans and for real estate borrowers to seek financing
from non-traditional lenders. The Adviser believes that, as a
result, banks and insurance companies will increasingly take
advantage of the secondary market to dispose of real estate
holdings and borrowers will utilize the capital markets as a
major source of financing.

The establishment by rating agencies of standardized rating
criteria has helped further the development of the secondary
market for commercial and non-agency residential Mortgage-
Backed Securities. Unlike the securitization of traditional
residential mortgages, which are eligible for principal and
interest guarantees from government agencies such as the
Government National Mortgage Association ("GNMA"), the Federal
National Mortgage Association ("FNMA") and the Federal Home
Loan Mortgage Corporation ("FHLMC"), the securitization of
commercial and non-agency residential mortgages may require
other forms of credit enhancement, including the
senior/subordinated security structure, reserve funds and
third-party letters of credit. The senior/subordinated
structure was developed in the 1980s to create a senior
security which would be highly rated and attractive to a wide
range of investors. The subordinated security, which was
designed to absorb credit losses on the underlying mortgages
and therefore insulate the senior securities from such losses,
was generally either retained by the issuer or sold to a
sophisticated investor in a negotiated transaction. In the
current environment, the subordinated securities are further
segmented into a hierarchy of loss positions. This allows many
different classes of securities to be created, with varying
degrees of credit exposure, prepayment exposure and potential
total return.

Based on investor demand for certain securities (which
depends in part on a combination of rating, yield spread and
maturity) the issuer of a senior/subordinated structure works
closely with the rating agencies to determine the credit
support levels required to achieve the desired rating for each
security class. The specific structure created dictates the
priority for the allocation of available cash flows on the
underlying mortgages. The senior classes receive the first
available cash flows of both interest and principal, while the
subordinated classes typically receive only interest until the
senior and higher ranked subordinated classes are paid down.
Any principal losses experienced on the underlying properties
are absorbed first by the equity holder and then by the cash
reserve fund and letters of credit, if any are present in the
structure, and then by the "first loss" subordinated security
holder to the extent of its principal balance and then by the
next subordinated classes, in order of their respective
position in the structure.

The Adviser believes that the development of the secondary
market for Commercial and non-agency Residential Mortgage-
Backed Securities has created significant opportunities for
investing in the lower-rated and non-rated classes of these
securities. Furthermore, the Adviser believes that there is
sufficient liquidity in this secondary market for the Trust to
accomplish its investment objectives. Many of the lower-rated
and non-rated Commercial Mortgage-Backed Securities are subject
to less prepayment risk than is the case with Residential
Mortgage-Backed Securities because of structural features of
the underlying mortgage loans and the fact that they are
entitled to repayment only after more senior classes are paid.
Such securities therefore offer an opportunity for attractive
yields, which the Adviser believes more than compensates
investors for assuming the credit risk associated with such
securities. In addition, the Adviser believes that the
Commercial and non-agency Residential Mortgage-Backed
Securities market will expand and yield spreads to Treasuries
will decline, leading to an opportunity for price appreciation.
The Adviser believes this sector of the Mortgage-Backed
Securities market is likely to realize expansion similar to
that which the agency residential Mortgage-Backed Securities
market experienced in the late 1980s, where the earlier
investors benefitted greatly as the market improved and
expanded.

DESCRIPTION OF THE TRUST

MANAGEMENT OF THE TRUST

BlackRock Financial Management Inc. (formerly, BlackRock
Financial Management L.P.), a registered investment adviser,
will act as each Portfolio's investment adviser (the
"Adviser"). On February 28, 1995, BlackRock Financial
Management L.P. sold its business to PNC Bank N.A., the twelfth
largest bank in the U.S. At the time of the sale, the Adviser
changed from a limited partnership to a corporation and
accordingly, changed the name from BlackRock Financial
Management L.P. to BlackRock Financial Management Inc. All
members of the Adviser's senior management team have signed
long-term employment contracts with PNC and will continue to be
responsible for managing the day-to-day affairs of the Adviser,
including carrying out its responsibilities with respect to the
Trust and its various portfolios. The Adviser currently serves
as the investment adviser to institutional and fixed income
investors in the United States and overseas through a number of
funds and separately managed accounts with combined total
assets in excess of $33 billion. See "Management of the Trust"
below.

INVESTMENT OBJECTIVES AND POLICIES

THE INVESTMENT GRADE MULTI-SECTOR PORTFOLIO will seek to
provide maximum total rate of return consistent with investing
in a range of investment grade agency and non-agency Mortgage-
Backed Securities, including primarily senior and subordinated
tranches of residential, commercial, multifamily and
agricultural mortgage securities. The securities in which the
Portfolio may invest include, but are not limited to,
collateralized mortgage obligations, real estate mortgage
investment conduits, adjustable rate mortgages, asset-backed
securities, bank debt, corporate debt securities and U.S.
Treasury and agency securities. The assets of this Portfolio
will be rated at least BBB- by S&P, D&P or Fitch or Baa3 by
Moody's or will be determined by the Adviser to be of
comparable quality at the time of investment or will be issued
or guaranteed by the U.S. Government or its agencies or
instrumentalities.

THE MULTI-SECTOR PORTFOLIO II AND THE MULTI-SECTOR
PORTFOLIOS III-VIII will seek to provide maximum total rate of
return consistent with investing in a range of agency and non-
agency Mortgage-Backed Securities, including primarily senior
and subordinated tranches of residential, commercial,
multifamily and agricultural mortgage securities. The
securities in which each Portfolio may invest include, but are
not limited to, collateralized mortgage obligations, real
estate mortgage investment conduits, adjustable rate mortgages,
Asset-Backed Securities, bank debt, corporate debt securities
and U.S. Treasury and agency securities. The assets of these
seven Portfolios may be invested without limitation in lower
rated securities or, if non-rated, securities determined by the
Adviser to be of comparable quality at the time of investment.
Such securities are commonly referred to as "junk bonds" and
have a higher risk of default of principal and interest.
Notwithstanding the foregoing, Multi-Sector Portfolio III (i)
will seek to provide a total rate of return before fees and
expenses over rolling twelve-month periods that exceeds the
total return of the Salomon Broad Investment Grade Index over
the same period by at least 1.60% an annualized basis, (ii)
will not invest in Asset-Backed Securities, bank or corporate
debt securities other than money market instruments, or non-
rated securities (other than for U.S Government securities) and
(iii) will maintain a dollar-weighted average credit quality of
at least A-/A3, with U.S. Government securities being assigned
a AAA rating. Multi-Sector Portfolio III will maintain a
targeted duration within 20% shorter or longer than the then
current duration of the Salomon Broad Investment Grade Index.
Duration is a measure of the expected life of a fixed income
security on a present value basis and is indicative of a
security's price "volatility" or "risk" associated with changes
in interest rates.

In determining which Mortgage-Backed Securities each
Portfolio will purchase, the Adviser will consider, among other
factors, the following: characteristics of the underlying
mortgage loan, including LTV and debt service coverage ratio,
loan seasoning, and refinancing risk; characteristics of the
underlying property, including diversity of the loan pool,
occupancy and leasing, and competitiveness in the pertinent
market; economic, environmental and local considerations; deal
structure, including historical performance of the originator,
subordination percentages and reserve fund balances; and
structural participants such as administrators and servicers.

In addition to examining the relative value of the
investments as indicated above, the Adviser's disciplined
approach to investments for each Portfolio will include
considerable interaction with rating agencies, extensive review
of due diligence by underwriters and rating agencies,
confirmation of debt service coverage ratios and stress testing
of security cash flows. The Adviser also will select
investments which will vary the portfolio by underlying
property types, geographic regions and industry exposure. In
this regard, Multi-Sector Portfolio III will not purchase any
commercial Mortgage-Backed Security ("CMBS") if, giving effect
thereto, (i) the net assets of the Portfolio constituting CMBS
that are directly or indirectly secured by or payable out of
cash flow from the same pool of collateral would increase and
would account for more than 10% of the Portfolio's net assets,
or (ii) the net assets of the Portfolio attributable to CMBS
backed by the same pool of collateral would increase and the
Portfolio would own more than 25% of the currently outstanding
principal amount of CMBS that are directly or indirectly
secured by or payable out of cash flow from the same pool of
collateral. In addition, Multi-Sector Portfolio III will not,
except during any three-month period after any month in which
its net assets have increased by more than 30%, purchase any
CMBS if, giving effect thereto, (i) the net assets of the
Portfolio constituting CMBS that are directly or indirectly
secured by or payable out of cash flow from properties located
within a single state of the U.S. would increase and would
account for more than 25% of the Portfolio's net assets or (ii)
the net assets of the Portfolio constituting CMBS that are
directly or indirectly secured by or payable out of cash flow
from office properties would increase and would account for
more than 33%, or from hotel and motel properties would
increase and would account for more than 20%, or from any one
of multi-family, cooperative, industrial and warehouse, retail
and shopping mall, mobile home park, nursing home and senior
living center or hospital properties would increase and would
account for more than 75% of the Portfolio's net assets, or
(iii) the net assets of the Portfolio constituting particular
issuances of CMBS that are directly or indirectly secured by or
payable out of cash flow from single properties would increase
and would account for more than 50% of the Portfolio's net
assets. For the foregoing purpose, a CMBS will be considered
to be secured by or payable out of the cash flow from a
property only in the proportion that the outstanding principal
amount of the mortgage loan relating to such property and
backing such security bears to the sum of the outstanding
principal amount of all mortgage loans backing such security.
If the Multi-Sector Portfolio III's asset composition in any of
the foregoing categories subsequently exceeds 110% of the
related percentage limitation for any reason, the Portfolio
will take such action as may be necessary so that within 60
days after the occurrence of such excess the relevant
percentage limitation is again satisfied. Multi-Sector
Portfolio III will not invest in any issuance of Mortgage-
Backed Securities more than 5% of the principal amount of the
collateral of which at the time of issuance is single-family
residential and agricultural properties in the aggregate.

Each Portfolio has adopted a number of fundamental
investment restrictions which may not be changed without the
approval of each Portfolio's outstanding voting securities.
The SAI sets forth these restrictions in full.

Multi-Sector Portfolio III has adopted several non-
fundamental portfolio investment limitations that differ from
those of Multi-Sector Portfolio II and IV- VIII. In addition,
Multi-Sector Portfolio III will not modify any of its
portfolio investment limitations without providing at least 60
days prior written notice of such modification to its
shareholders.

DESCRIPTION OF SECURITIES

The following describes certain types of securities in which
each Portfolio may invest:

Commercial Mortgage-Backed Securities

Commercial Mortgage-Backed Securities are generally multi-
class debt or pass-through securities backed by a mortgage loan
or pool of mortgage loans secured by commercial property, such
as industrial and warehouse properties, office buildings,
retail space and shopping malls, multifamily properties and
cooperative apartments, hotels and motels, nursing homes,
hospitals, senior living centers and agricultural property.
The commercial mortgage loans that underlie Commercial
Mortgage-Backed Securities have certain distinct
characteristics. Commercial mortgage loans are generally not
amortizing or not fully amortizing. At their maturity date,
repayment of the remaining principal balance or "balloon" is
due and is repaid through the attainment of an additional loan
or sale of the property. Unlike most single family residential
mortgages, commercial real property loans often contain
provisions which substantially reduce the likelihood that such
securities will be prepaid. The provisions generally impose
significant prepayment penalties on loans and, in some cases
there may be prohibitions on principal prepayments for several
years following origination. This difference in prepayment
exposure is significant due to extraordinarily high levels of
refinancing of traditional residential mortgages experienced
over the past year as mortgage rates have reached a 25 year
low. Assets underlying Commercial Mortgage-Backed Securities
may relate to only a few properties or to a single property.
See "Prospectus Summary Investment Risks and Special
Considerations".

Commercial Mortgage-Backed Securities have been issued in
public and private transactions by a variety of public and
private issuers. Non-governmental entities that have issued or
sponsored Commercial Mortgage-Backed Securities offerings
include owners of commercial properties, originators of and
investors in mortgage loans, savings and loan associations,
mortgage banks, commercial banks, insurance companies,
investment banks and special purpose subsidiaries of the
foregoing. Each Portfolio may from time to time purchase
Commercial Mortgage-Backed Securities directly from issuers in
negotiated transactions or from a holder of such Commercial
Mortgage-Backed Securities in the secondary market.

Commercial Mortgage-Backed Securities generally are
structured to protect the senior class investors against
potential losses on the underlying mortgage loans. This is
generally provided by the subordinated class investors, which
may be included in each Portfolio, by taking the first loss if
there are defaults on the underlying commercial mortgage loans.
Other protection, which may benefit all of the classes,
including the subordinated classes in which the Portfolios
intend to invest, may include issuer guarantees, reserve funds,
additional subordinated securities, cross-collateralization,
over-collateralization and the equity investors in the
underlying properties.

By adjusting the priority of interest and principal payments
on each class of a given Commercial Mortgage-Backed Security,
issuers are able to issue senior investment grade securities
and lower rated or non-rated subordinated securities tailored
to meet the needs of sophisticated institutional investors. In
general, subordinated classes of Commercial Mortgage-Backed
Securities are entitled to receive repayment of principal only
after all required principal payments have been made to more
senior classes and have subordinate rights as to receipt of
interest distributions. Such subordinated classes are subject
to a substantially greater risk of nonpayment than are senior
classes of Commercial Mortgage-Backed Securities. Even within
a class of subordinate securities, most Commercial Mortgage-
Backed Securities are structured with a hierarchy of levels (or
"loss positions"). Loss positions are the order in which
nonrecoverable losses of principal are applied to the
securities within a given structure. For instance, a first
loss subordinate security will absorb any principal losses
before any higher loss position subordinate security. This
type of structure allows a number of classes of securities to
be created with varying degrees of credit exposure, prepayment
exposure and potential total return.

Subordinated classes of Commercial Mortgage-Backed
Securities have more recently been structured to meet specific
investor preferences and issuer constraints and have different
priorities for cash flow and loss absorption. As previously
discussed, from a credit perspective, they are structured to
absorb any credit-related losses prior to the senior class.
The principal cash flow characteristics of subordinated classes
are designed to be among the most stable in the Mortgage-Backed
Securities market, the probability of prepayment being much
lower than with traditional Residential Mortgage-Backed
Securities. This characteristic is primarily due to the
structural feature that directs the application of principal
payments first to the senior classes until they are retired
before the subordinated classes receive any prepayments. While
this serves to enhance the credit protection of the senior
classes, it produces subordinated classes with more stable
average lives. Subject to the applicable provisions of the
1940 Act, there are no limitations on the classes of Commercial
Mortgage-Backed Securities in which each of the Portfolios may
invest. Accordingly, in certain circumstances, one of the
Portfolios may recover proportionally less of its investment in
a Commercial Mortgage-Backed Security than the holders of more
senior classes of the same Commercial Mortgage-Backed Security.

The rating assigned to a given issue and class of Commercial
Mortgage-Backed Securities is a product of many factors,
including, the structure of the security, the level of
subordination, the quality and adequacy of the collateral, and
the past performance of the originators and servicing
companies. The rating of any Commercial Mortgage-Backed
Security is determined to a substantial degree by the debt
service coverage ratio (i.e., the ratio of current net
operating income from the commercial properties, in the
aggregate, to the current debt service obligations on the
properties) and the LTV ratio of the pooled properties. The
amount of the securities issued in any one rating category is
determined by the rating agencies after a rigorous credit
rating process which includes analysis of the issuer, servicer
and property manager, as well as verification of the LTV and
debt service coverage ratios. LTV ratios may be particularly
important in the case of commercial mortgages because most
commercial mortgage loans provide that the lender's sole remedy
in the event of a default is against the mortgaged property,
and the lender is not permitted to pursue remedies with respect
to other assets of the borrower. Accordingly, loan-to-value
ratios may, in certain circumstances, determine the amount
realized by the holder of the Commercial Mortgaged-Backed
Security.

Residential Mortgage-Backed Securities

Each Portfolio also expects to invest in Residential
Mortgage-Backed Securities that are Mortgage-Backed Securities
representing participation interests in pools of single-family
residential mortgage loans originated by private mortgage
originators. Traditionally, Residential Mortgage-Backed
Securities were issued by governmental agencies such as Fannie
Mae, Freddie Mac and Ginnie Mae. Each Portfolio intends to
invest in those securities issued by non-governmental agencies
as well as governmental agencies. Non-governmental entities
that have issued or sponsored Residential Mortgage-Backed
Securities offerings include savings and loan associations,
mortgage banks, insurance companies, investment banks and
special purpose subsidiaries of the foregoing. Residential
Mortgage-Backed Securities, similar to Commercial Mortgage-
Backed Securities, have been issued using a variety of
structures, including multi-class structures featuring senior
and subordinated classes. The Multi-Sector Portfolios II and
IV-VIII intend to invest in the lower rated or non-rated
classes of Residential Mortgage-Backed Securities, with credit
qualities at the time of investment rated or deemed by the
Adviser to have similar credit and cash flow characteristics as
those discussed previously in relation to subordinated classes
of Commercial Mortgage-Backed Securities.

While single-family residential loans do not typically have
prepayment penalties or restrictions, as commercial mortgage
loans often do, Residential Mortgage-Backed Securities are
often structured so that subordinated classes may be locked out
of prepayments for a period of time. However, in a period of
extremely rapid prepayments, during which senior classes may be
retired faster than expected, the subordinated classes may
receive unscheduled payments of principal and would have
average lives that, while longer than the average lives of the
senior classes, would be shorter than originally expected.

The types of agency and non-agency Commercial and
Residential Mortgage-Backed Securities which each Portfolio may
invest shall include, but not be limited to, the following
securities:

Mortgage-Related Securities Issued by U.S. Government
Agencies and Instrumentalities. Each Portfolio may invest in
Mortgage-Backed Securities issued by agencies or
instrumentalities of the U.S. Government including GNMA, FNMA
and FHLMC. The U.S. Government or the issuing agency
guarantees the payment of interest and principal on these
securities. However, the guarantees do not extend to the
securities' yield or value, nor do the guarantees extend to the
yield or value of a Portfolio's shares. These securities are in
most cases "pass-through" instruments, through which the holder
receives a share of all interest and principal payments from
the mortgages underlying the security, net of certain fees. See
"Mortgage-Backed Securities" in the SAI.

Private Mortgage Pass-Through Securities. Private mortgage
pass-through securities are structured similarly to GNMA, FNMA
and FHLMC mortgage pass-through securities and are issued by
originators of and investors in mortgage loans, including
depository institutions, mortgage banks, investment banks and
special purpose subsidiaries of the foregoing. These securities
usually are backed either by GNMA, FNMA or FHLMC certificates
or by a pool of fixed rate or adjustable rate mortgage loans.
Securities which are backed by a pool of fixed rate or
adjustable rate mortgage loans generally are structured with
one or more types of credit enhancement. See "Types of Credit
Enhancement" in the SAI.

Adjustable Rate Mortgage Securities. Adjustable rate
mortgage securities are pass-through mortgage securities
collateralized by mortgages with adjustable rather than fixed
rates ("ARMs"). ARMs eligible for inclusion in a mortgage pool
generally provide for a fixed initial mortgage interest rate
for either the first three, six, twelve, thirteen, thirty-six
or sixty scheduled monthly payments. Thereafter, the interest
rates are subject to periodic adjustment based on changes to a
designated benchmark index. See "Adjustable Rate Mortgage
Securities" in the SAI.

Collateralized Mortgage Obligations and Multi-Class Pass-
Through Securities. Collateralized mortgage obligations or
"CMOs" are debt obligations collateralized by mortgage loans or
mortgage pass-through securities. Typically, CMOs are
collateralized by GNMA, FNMA or FHLMC certificates, but also
may be collateralized by whole loans or private mortgage pass-
through securities (collectively, "Mortgage Assets"). Multi-
class pass-through securities are equity interests in a trust
composed of Mortgage Assets. Unless the context indicates
otherwise, all references herein to CMOs include multi-class
pass-through certificates. Payments of principal of and
interest on the Mortgage Assets, and any reinvestment income
thereon, provide the funds to pay debt service on the CMOs or
make scheduled distributions on the multi-class pass-through
securities. CMOs may be issued by agencies or instrumentalities
of the U.S. Government, or by private originators of, or
investors in, mortgage loans, including depository
institutions, mortgage banks, investment banks and special
purpose subsidiaries of the foregoing. The issuer of CMOs or
multi-class pass-through securities may elect to be treated as
a Real Estate Mortgage Investment Conduit ("REMIC"). See
"Collateralized Mortgage Obligations and Multi-Class Pass-
Through Securities" in the SAI.

Stripped Mortgage-Backed Securities. Each Portfolio (other
than Multi-Sector Portfolio III) may also invest in mortgage
pass-through securities where all or a substantial portion of
the interest payments go to one class of holders ("Interest
Only Securities" or "IOs") and all or a substantial portion of
the principal payments go to a second class of holders
("Principal Only Securities" or "POs"). These securities are
commonly referred to as Stripped Mortgage-Backed Securities or
SMBS. The yields to maturity on IOs and POs are very sensitive
to the rate of principal payments (including prepayments) on
the related underlying Mortgage Assets, and such rate may have
a material effect on yield to maturity. If the underlying
Mortgage Assets experience greater than anticipated prepayments
of principal, a Portfolio may not fully recoup its initial
investment in IOs. Conversely, if the underlying Mortgage
Assets experience less than anticipated prepayments of
principal, the yield on POs could be materially adversely
affected.

In addition to SMBS issued by agencies or instrumentalities
of the U.S. Government, each Portfolio may purchase SMBS issued
by private originators of, or investors in, mortgage loans,
including depository institutions, mortgage banks, investment
banks and special purpose subsidiaries of the foregoing.
Privately issued SMBS will be deemed illiquid for purposes of
the 15% limitation on illiquid securities. See "Illiquid
Securities" below. The determination whether a particular U.S.
Government issued SMBS is liquid will be made by the Adviser
under guidelines established by the Board of Directors.

Lower Rated and Non-Rated Securities. The Mortgage-Backed
Securities in which each Multi-Sector Portfolio II and IV-VIII
may invest are expected to be lower rated (i.e., have a credit
quality below investment grade) or non-rated subordinated
classes. Investments in such lower rated securities or non-
rated securities of equivalent credit quality are subject to
special risks, including a greater risk of loss of principal
and non-payment of interest. An investor should carefully
consider the following factors before purchasing shares of each
of the Multi-Sector Portfolios II and IV-VIII. Multi-Sector
Portfolio III (i) will not invest in securities (other than
U.S. Government securities) that are not rated at least B by
S&P, D&P or Fitch or B2 by Moody's at the time of investment;
(ii) will not invest in securities (other than U.S. Government
securities) not rated by at least one of the foregoing
organizations at the time of investment; (iii) will not invest
more than 12.5% of its assets in securities that are rated
below BB-/Ba3 by any of the foregoing organizations; and (iv)
will not invest more than 25% of its assets in securities that
are rated below BBB-/Baa3 by any of the foregoing
organizations. In the case of short-term money market
instruments and short-term commingled funds the applicable
rating requirement will be A2/P2. For the purpose of Multi-
Sector Portfolio III, split rated securities will be accounted
for at the lower rating. If any security held in its portfolio
is downgraded such that the Portfolio would not be able at that
time to make an investment in such security, the Portfolio will
sell such security within 30 days after such downgrade. Multi-
Sector Portfolio III will maintain a dollar-weighted average
credit quality of at least A-/A3, with U.S. Government
securities assigned a AAA rating. In order to calculate the
average credit quality of the Portfolio, the Portfolio will
assign sequential numbers to each of the 20 rating categories
from AAA to D, multiply the value of each instrument by the
rating equivalent number assigned to its lowest rating, sum all
of such products, divide the aggregate by the net asset value
of the Portfolio and convert the number back to its equivalent
rating symbol.

Generally, lower rated or non-rated securities of equivalent
credit quality offer a higher return potential than higher
rated securities but involve greater volatility of price and
greater risk of loss of income and principal, including the
possibility of default or bankruptcy of the issuers of such
securities. Lower rated securities and comparable non-rated
securities will likely have large uncertainties or major risk
exposure to adverse conditions and are predominately
speculative. The occurrence of adverse conditions and
uncertainties would likely reduce the value of securities held
by each Multi-Sector Portfolio II-VIII, with a commensurate
effect on the value of a given portfolio's shares. While the
market values of lower rated securities and non-rated
securities of equivalent credit quality tend to react less to
fluctuations in interest rate levels than do those of higher
rated securities, the market values of certain of these
securities also tend to be more sensitive to changes in
economic conditions than higher rated securities. In addition,
lower rated securities and non-rated securities of equivalent
credit quality generally present a higher degree of credit
risk. Each Multi-Sector Portfolio II-VIII may incur additional
expenses to the extent that it is required to seek recovery
upon a default in the payment of principal or interest on its
portfolio holdings.

Securities which are rated BB by S&P, D&P and Fitch and Ba
by Moody's have speculative characteristics with respect to
capacity to pay interest and repay principal. Securities which
are rated B generally lack characteristics of a desirable
investment and assurance of interest and principal payments
over any long period of time may be small. Securities which
are rated Caa or CCC or below are poor standing. Those issues
may be in default or present elements of danger with respect to
principal or interest. Securities rated C by Moody's, D by
S&P, or the equivalent by D&P or Fitch are the lowest rating
class. Such ratings indicate that payments are in default, or
that a bankruptcy petition has been filed with respect to the
issuer or that the issuer is regarded as having extremely poor
prospects. A general description of the bond ratings of
Moody's, S&P, D&P and Fitch is set forth in Appendix A to the
Prospectus.

In general, the ratings of nationally recognized statistical
rating organizations represent the opinions of these agencies
as to the quality of securities that they rate. Such ratings,
however, are relative and subjective, and are not absolute
standards of quality and do not evaluate the market value risk
of the securities. It is possible that an agency might not
change its rating of a particular issue to reflect subsequent
events. These ratings will be used by the Portfolios as
initial criteria for the selection of portfolio securities, but
each Portfolio also will rely upon the independent advice of
the Adviser to evaluate potential investments.

Asset-Backed Securities

The securitization techniques used to develop Mortgage-
Backed Securities are also applied to a broad range of other
assets. Through the use of trusts and special purpose
corporations, various types of assets, primarily automobile and
credit card receivables and home equity loans, are being
securitized in pass-through structures similar to the mortgage
pass-through structures described above or in a pay-through
structure similar to the CMO structure. Other types of assets
being securitized include loans to finance boats, recreational
vehicles, mobile homes and manufactured housing; computer,
copier, railcar and medical equipment leases; student and
commercial loans; and trade, health care and franchise
receivables. In general, the collateral supporting Asset-Backed
Securities is of shorter maturity than mortgage loans and is
less likely to experience substantial prepayments. As with
Mortgage-Backed Securities, Asset-Backed Securities are often
backed by a pool of assets representing the obligations of a
number of different parties and use similar credit enhancement
techniques. See "Types of Credit Enhancement" in the SAI.

The market for certain types of Asset-Backed Securities is
relatively new and untested. Certain Asset-Backed Securities
may have a limited secondary market and may be subject to
restrictions on transferability. Any Asset-Backed security that
cannot be disposed of within seven days and in the usual course
of business without taking a reduced price will be deemed
illiquid for purposes of the 15% limitation on illiquid
securities. See "Illiquid Securities" below. The determination
whether a particular Asset-Backed security is liquid will be
made by the Adviser under guidelines established by the Board
of Directors of the Trust.

New instruments and variations of existing Mortgage-Backed
Securities and Asset-Backed Securities continue to be
developed. The Portfolios may invest in any such instruments or
variations as may be developed to the extent consistent with
their investment objectives and policies and applicable
regulatory requirements.

U.S. Government Securities

U.S. Treasury Securities. The Portfolios will invest in U.S.
Treasury securities, including bills, notes, bonds and other
debt securities issued by the U.S. Treasury. These instruments
are direct obligations of the U.S. Government and, as such, are
backed by the "full faith and credit" of the United States.
They differ primarily in their interest rates, the lengths of
their maturities and the dates of their issuances.

Each Portfolio (other than Multi-Sector Portfolio III) may
also invest in "zero coupon" securities, including U.S.
Treasury bills, notes and bonds which have been stripped of
their unmatured interest coupons or which are certificates
representing interests in such stripped debt obligations. Such
securities are purchased at a discount from their face amount,
giving the purchaser the right to receive their full value at
maturity. A zero coupon security pays no interest to its holder
during its life. In addition to those issued by the U.S.
Government, such zero coupon securities may be issued by
private issuers representing an interest in securities issued
by the U.S. Government. Such privately issued zero coupon
securities are not considered U.S. Government securities and
will be deemed illiquid for purposes of the 15% limitation on
illiquid securities. See "Investment Objectives and
Policies U.S. Government Securities" in the SAI and "Illiquid
Securities" below.

Securities Issued or Guaranteed by U.S. Government Agencies
and Instrumentalities. Each Portfolio may invest in securities
issued by agencies of the U.S. Government or instrumentalities
of the U.S. Government, including, but not limited to, GNMA,
FNMA and FHLMC securities. Obligations of GNMA, the Farmers
Home Administration and the Export-Import Bank are backed by
the "full faith and credit" of the United States. In the case
of securities not backed by the "full faith and credit" of the
United States, the Portfolios must look principally to the
agency issuing or guaranteeing the obligation for ultimate
repayment. Such securities include obligations issued by FNMA
and FHLMC, each of which may borrow from the U.S. Treasury to
meet its obligations, although the U.S. Treasury is under no
obligation to lend to FNMA or FHLMC. GNMA, FNMA and FHLMC
investments by the Portfolios may also include pass-through
securities, CMOs and certain other Mortgage-Backed Securities.

Corporate Debt Securities

Corporate Debt securities include securities issued by
corporations and other entities, including bonds and debentures
(which are long-term), notes (which may be short- or long-
term), certificates of deposit (unsecured borrowings by banks),
bankers' acceptances (indirectly secured borrowings to
facilitate commercial transactions) and commercial paper
(short-term unsecured notes). These securities may have
adjustable or fixed rates of interest and may be secured or
unsecured by assets of the issuer or another party. Adjustable
rate corporate debt securities may have interest rate caps and
floors but such corporate debt securities are not subject to
prepayment risk other than through contractual call provisions,
which generally impose a penalty for prepayment during all or a
portion of the period such securities are outstanding. Fixed
rate debt securities may also be subject to call provisions.
Corporate Debt securities are subject to the bankruptcy risk of
the issuer. The Trust believes that the high quality securities
it purchases will tend to reduce such risks. Several of the
Portfolios may purchase corporate debt securities rated at the
time of investment no lower than BBB- by S&P or Baa3 by
Moody's. The rating of a corporate debt security may change
over time, as S&P and Moody's monitor and evaluate the ratings
assigned to corporate debt securities on an ongoing basis. As a
result, corporate debt securities held by a Portfolio could
receive a higher rating (which would tend to increase their
value) or a lower rating (which would tend to decrease their
value) during the time that they are owned by the Portfolio. If
a security owned by a Portfolio is downgraded below either BBB-
by S&P or Baa3 by Moody's, the Adviser will monitor such
security and determine whether to sell it based on the factors
it considers relevant such as size of the investment, whether a
loss or gain will result, relative risk to the Portfolio, depth
of the trading market or any other relevant factors. The Trust
expects that under normal market conditions no more than 5%, if
any, of a Portfolio's assets will consist of securities whose
ratings have been downgraded below BBB- by S&P or Baa3 by
Moody's. The Portfolios will consider whether to retain or
dispose of a bond whose rating drops below the minimum ratings
applicable to a Portfolio. Except for Multi-Sector Portfolio
III, the Portfolios are not restricted in the amount they may
invest in any of the securities described in this section.

Bank Debt

Except for Multi-Sector Portfolio III, each Portfolio from
time to time may also purchase indebtedness and participation
therein, both secured and unsecured, of debtor companies in the
form of loans made by commercial banks to debtor companies.
When a Portfolio purchases a participation interest in bank
debt it assumes the credit risk associated with the bank as
well as the credit risk associated with the issuer of any
underlying debt instrument. Bank debt which represents
indebtedness of a debtor company to a bank is not a security of
the banks issuing or selling it. The Portfolio may purchase
bank debt from national and state chartered banks. Each
Portfolio is restricted from investing more than 15% of its
assets in bank debt which is not readily marketable and
illiquid.

Floating Rate, Inverse Floating Rate and Index Obligations

The Portfolios may invest in debt securities with interest
payments or maturity values that are not fixed, but float in
conjunction with (or inversely to) an underlying index or
price. These securities may be backed by U.S. Government or
corporate issuers, or by collateral such as mortgages. In
certain cases, a change in the underlying index or price may
have a leveraging effect on the periodic coupon payments,
creating larger possible swings in the prices of such
securities than would be expected when taking into account
their maturities alone. The indices and prices upon which such
securities can be based include interest rates, currency rates
and commodities prices. However, Multi-Sector Portfolio III
will not invest in any instrument whose value is computed based
on a multiple of the change in price or value of an asset or an
index of or relating to assets in which the Portfolio could not
invest.

Floating rate securities pay interest according to a coupon
which is reset periodically. This reset mechanism may be
formula based, or reflect the passing through of floating
interest payments on an underlying collateral pool. The coupon
is usually reset daily, weekly, monthly, quarterly or semi-
annually, but other schedules are possible. Floating rate
obligations generally exhibit a low price volatility for a
given stated maturity or average life because their coupons
adjust with changes in interest rates. If their underlying
index is not an interest rate, or the reset mechanism lags the
movement of rates in the current market, greater price
volatility may be experienced.

Inverse floating rate securities are similar to floating
rate securities except that their coupon payments vary
inversely with an underlying index by use of a formula. Inverse
floating rate securities tend to exhibit greater price
volatility then other floating rate securities. Because the
changes in the coupon are usually negatively correlated with
changes in overall interest rates, interest rate risk and price
volatility on inverse floating rate obligations can be high,
especially if leverage is used in the formula. Multi-Sector
Portfolio III will not invest, and the other Portfolios do not
intend to invest more than 10% of its total assets in inverse
floating rate securities.

Index securities pay a fixed rate of interest, but have a
maturity value that varies by formula, so that when the
obligation matures a gain or loss is realized. The risk of
index obligations depends on the volatility of the underlying
index, the coupon payment and the maturity of the obligation.

Illiquid Securities

Illiquid securities are subject to legal or contractual
restrictions on disposition or lack an established secondary
trading market. The sale of restricted and illiquid securities
often requires more time and results in higher brokerage
charges or dealer discounts and other selling expenses than
does the sale of securities eligible for trading on national
securities exchanges or in the over-the-counter markets.
Restricted securities may sell at a price lower than similar
securities that are not subject to restrictions on resale.
Each Portfolio may purchase certain restricted securities up to
15% of its net assets eligible for sale to qualified
institutional buyers as contemplated by Rule 144A under the
Securities Act of 1933 and may treat such securities as being
liquid if the Adviser determines, pursuant to procedures
adopted by the Trust's Board of Directors, that a sufficient
secondary market does exist for such securities. See the SAI
for a further discussion of illiquid securities.

OTHER INVESTMENT PRACTICES

DURATION MANAGEMENT AND OTHER MANAGEMENT TECHNIQUES

As a basic element of its overall investment strategy each
Portfolio intends to use a variety of other investment
management techniques and instruments. A more complete
description of such techniques is contained in the SAI. Each
Portfolio may purchase and sell futures contracts, enter into
various interest rate transactions such as swaps, caps and
floors and may purchase and sell exchange-listed and over-the-
counter put and call options on securities, financial indices
and futures contracts (collectively, "Additional Investment
Management Techniques"). These Additional Investment
Management Techniques may be used for duration management and
other risk management to attempt to protect against possible
changes in the market value of a Portfolio resulting from
trends in the debt securities markets and changes in interest
rates, to protect a Portfolio's unrealized gains in the value
of its securities holdings, to facilitate the sale of such
securities for investment purposes, to establish a position in
the securities markets as a temporary substitute for purchasing
particular securities and (except for Multi-Sector Portfolio
III) to enhance income or gain. There is no particular
strategy that requires use of one technique rather than another
as the decision to use any particular strategy or instrument is
a function of market conditions and the composition of the
portfolio. See Appendix B "General Characteristics and Risks
of Additional Investment Management Techniques".

Additional Investment Management Techniques present certain
risks. With respect to hedging and risk management, the
variable degree of correlation between price movements of
hedging instruments and price movements in the position being
hedged creates the possibility that losses on the hedge may be
greater than gains in the value of a Portfolio's position. The
same is true for such instruments entered into for income or
gain. In addition, certain instruments and markets may not be
liquid in all circumstances. As a result, in volatile markets,
a Portfolio may not be able to close out a transaction without
incurring losses substantially greater than the initial
deposit. Although the contemplated use of these instruments
predominantly for hedging should tend to minimize the risk of
loss due to a decline in the value of the position, at the same
time they tend to limit any potential gain which might result
from an increase in the value of such position. The ability of
a Portfolio to successfully utilize Additional Investment
Management Techniques will depend on the Adviser's ability to
predict pertinent market movements and sufficient correlations,
which cannot be assured. Finally, the daily deposit
requirements in futures contracts that a Portfolio has sold
create an ongoing greater potential financial risk than do
options transactions, where the exposure is limited to the cost
of the initial premium. Losses due to the use of Additional
Investment Management Techniques will reduce net asset value.

In selecting counterparties for OTC hedging and risk
management transactions, Multi-Sector Portfolio III will adhere
to the following minimum ratings: (i) with respect to an OTC
derivative instrument with a remaining nominal maturity of six
months or less, a Moody's Derivative Counterparty Rating of A3;
(ii) with respect to an OTC derivative instrument with a
remaining maturity of more than six months, a Moody's
Derivative Counterparty Rating of AA3. If the counterparty
does not have a Moody's counterparty rating, then either the
Moody's or S&P longterm securities rating of A3/A- (with
respect to category (i) above) or Aa3/AA- (with respect to
category (ii) above) may be used as a substitute. In addition,
all such counterparties must have a minimum short-term rating
of A-1 by Moody's and P-1 by S&P. If a counter-party drops
below the minimum ratings, then Multi-Sector Portfolio III will
seek to unwind existing agreements with such counterparty in a
cost effective manner and will be prohibited from entering into
new agreements with the counterparty so long as the
counterparty's rating is below the relevant minimum.

The principal risks relating to the use of futures contracts
and other Additional Investment Management Techniques are: (a)
less than perfect correlation between the prices of the
instrument and the market value of the securities in the
portfolio's holdings; (b) possible lack of a liquid secondary
market for closing out a position in such instruments; (c)
losses resulting from interest rate or other market movements
not anticipated by the Adviser; and (d) the obligation to meet
additional variation margin or other payment requirements, all
of which could result in a Portfolio being in a worse position
than if such techniques had not been used. See Appendix B
"General Characteristics and Risks of Additional Investment
Management Techniques" and the Statement of Additional
Information for further information.

The Portfolios (except for Multi-Sector Portfolio III) may
make short sales of securities. A short sale is a transaction
in which a Portfolio sells a security it does not own in
anticipation that the market price of that security will
decline. A Portfolio may make short sales to hedge positioning
for duration and risk management in order to maintain portfolio
flexibility or to enhance income or gain. Short sales will be
made in compliance with applicable regulatory requirements and
will be fully collateralized at all times.

Each Portfolio may also purchase securities on a "when-
issued" basis and may purchase or sell securities on a "forward
commitment" basis. When such transactions are negotiated, the
price, which is generally expressed in yield terms, is fixed at
the time the commitment is made, but delivery and payment for
the securities take place at a later date outside the normal
course of settlement for securities of that type. When-issued
securities and forward commitments may be sold prior to the
settlement date, but a Portfolio will enter into when-issued
and forward commitments only with the intention of actually
receiving or delivering the securities, as the case may be. If
a Portfolio disposes of the right to acquire a when-issued
security prior to its acquisition or disposes of its right to
deliver or receive against a forward commitment, it can incur a
gain or loss. At the time a Portfolio enters into a
transaction on a when-issued or forward commitment basis, it
will segregate with its custodian cash or other liquid high
grade debt securities with a value not less than the value of
the when-issued or forward commitment securities. The value of
these assets will be monitored daily to ensure that their
marked to market value will at all times equal or exceed the
corresponding obligations of the Portfolio. There is always a
risk that the securities may not be delivered and that a
Portfolio may incur a loss. Settlements in the ordinary
course, which typically occur monthly for mortgage-related
securities, are not treated by the Portfolios as when-issued or
forward commitment transactions and accordingly are not subject
to the foregoing restrictions.

LEVERAGE AND BORROWING

Each Portfolio is authorized to borrow money or otherwise
use leverage in an amount up to 33 % of the Trust's total
assets (including the amount borrowed), less all liabilities
and indebtedness other than the bank or other borrowing. Each
Portfolio is also authorized to borrow an additional 5% of its
total assets without regard to the foregoing limitation for
temporary purposes such as clearance of portfolio transactions
and share repurchases. A Portfolio may only borrow from a
commercial bank or trust company and will only borrow when the
Adviser believes that such borrowings will benefit the
Portfolio after taking into account considerations such as
interest income and possible gains or losses upon liquidation.
Notwithstanding the foregoing, Multi-Sector Portfolio III will
not borrow money or enter into reverse repurchase agreements or
dollar rolls.

Borrowing by a Portfolio creates an opportunity for
increased net income but, at the same time, creates special
risk considerations. For example, leverage may exaggerate
changes in the net asset value of the Shares and in the yield
on the Portfolio's portfolio. Although the principal of such
borrowings will be fixed, the Trust's assets may change in
value during the time the borrowing is outstanding. Borrowing
will create interest expenses for a Portfolio which can exceed
the income from the assets retained. Furthermore, if a
Portfolio borrows on a short-term basis and invests the
proceeds in long-term securities, an increase in interest rates
could reduce or eliminate the interest rate differential
usually available between short-term and long-term rates and
could reduce the value of the Trust's securities, thereby
exposing the Portfolio to adverse yields and risk of loss on
disposition of its securities. The Trust may also borrow for
emergency purposes, for the payment of dividends, for share
repurchases or for the clearance of transactions.

Each Portfolio (except for Multi-Sector Portfolio III)
expects to leverage by entering into reverse repurchase
agreements with the same parties with whom it may enter into
repurchase agreements (as discussed below). Under a reverse
repurchase agreement, a Portfolio sells securities and agrees
to repurchase them at a mutually agreed upon date and price.
At the time the Portfolio enters into a reverse repurchase
agreement, an approved custodian may segregate liquid, high
grade debt securities having a value not less than the
repurchase price (including accrued interest). Reverse
repurchase agreements involve the risk that the market value of
the securities retained in lieu of sale by a Portfolio may
decline below the price of the securities the Portfolio has
sold but is obligated to repurchase. In the event the buyer of
securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or
receiver may receive an extension of time to determine whether
to enforce a Portfolio's obligation to repurchase the
securities and the Portfolio's use of the proceeds of the
reverse repurchase agreement may effectively be restricted
pending such decision. Reverse repurchase agreements create
leverage, a speculative factor, and will be considered as
borrowings for purposes of a Portfolio's limitation on
borrowing.

A Portfolio (except for Multi-Sector Portfolio III) may also
leverage by entering into dollar rolls in which the Portfolio
sells fixed income securities for delivery in the current month
and simultaneously contracts to repurchase substantially
similar (same type, coupon and maturity) securities on a
specified future date. During the role period, the Portfolio
forgoes principal and interest paid on such securities. The
Portfolio is compensated by the difference between the current
sales price and the forward price for the future purchase
(often referred to as the "drop") as well as by the interest
earned on the cash proceeds of the initial sale. Dollar rolls
are treated by a Portfolio in the same manner as reverse
repurchase agreements for leverage purposes.

Each Portfolio (except for Multi-Sector Portfolio III)
expects that any borrowings will be made on a secured basis.
In such situation, either the custodian will segregate the
pledged assets for the benefit of the lender or arrangements
will be made with (i) the lender to act as a subcustodian if
the lender is a bank or otherwise qualifies as a custodian of
investment company assets or (ii) a suitable subcustodian.

REPURCHASE AGREEMENTS AND LENDING OF SECURITIES

Each Portfolio may invest temporarily, without limitation,
in repurchase agreements, which are agreements pursuant to
which securities are acquired by a Portfolio from a third party
with the understanding that they will be repurchased by the
seller at a fixed price on an agreed upon date. These
agreements may be made with respect to any of the securities in
which a Portfolio is authorized to invest. Repurchase
agreements may be characterized as loans secured by the
underlying securities and will be entered into in accordance
with the requirements of the SEC. Multi-Sector Portfolio III
will not enter into any repurchase agreement with respect to
securities other than U.S. Government securities and mortgage-
backed securities. The value of the collateral for such
repurchase agreement marked-to-market at the end of each
business day will be at least 102% of the amount of the
repurchase agreement. The Multi-Sector Portfolio III will not
enter into any repurchase agreement the term of which exceeds
90 days.

Each Portfolio (other than Multi-Sector Portfolio III) may
lend its portfolio securities to qualified institutions as
determined by the Board of Directors. By lending its portfolio
securities, a Portfolio attempts to increase its income through
the receipt of interest on the loan. Any gain or loss in the
market price of the securities loans that may occur during the
term of the loan will be for the account of a Portfolio. A
Portfolio may lend its portfolio securities so long as the
terms and the structure of such loans are not inconsistent with
the requirements of the 1940 Act.

MANAGEMENT OF THE TRUST

The Board of Directors, in addition to reviewing the actions
of the Adviser and the Distributor, as set forth below, decides
upon matters of general policy. Additional information about
the Directors and officers of the Trust may be found in the
Statement of Additional Information under the heading
"Directors and Officers".

INVESTMENT ADVISER

BlackRock Financial Management Inc. (formerly, BlackRock
Financial Management L.P) is the Trust's investment adviser
(the "Adviser") and is compensated monthly by each Portfolio
for its services in an amount equal to the following
percentages of each Portfolio's average daily net asset value
on an annualized basis: .40% for the Investment Grade Multi-
Sector Portfolio and .50% for the Multi-Sector Portfolios II
and IV-VIII. The Investment Advisory Agreement for the Multi-
Sector Portfolio III which provides that the Adviser will be
compensated at the end of each calendar quarter at an
annualized rate of .25% of the Portfolio's average month end
net assets. Pursuant to an Investment Advisory Agreement with
the Trust, the Adviser manages the investment operations of
each Portfolio. See "Management of the Trust The Investment
Advisory Agreement" in the SAI.

The Adviser is a Delaware corporation with offices at 345
Park Avenue, New York, New York 10154. On February 28, 1995,
BlackRock Financial Management L.P. sold its business to PNC
Bank N.A., the twelfth largest bank in the U.S. At the time of
the sale, the Adviser changed from a limited partnership to a
corporation and accordingly, changed the name from BlackRock
Financial Management L.P. to BlackRock Financial Management
Inc. All members of the Adviser's senior management team have
signed long-term employment contracts with PNC and will
continue to be responsible for managing the day-to-day affairs
of the Adviser, including carrying out its responsibilities
with respect to the Trust and its various portfolios. The
Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940.

The Adviser's employees include several individuals with
extensive experience in creating, evaluating and investing in a
broad range of U.S. fixed-income securities. Prior to co-
founding BlackRock Financial Management L.P., from July 1976 to
March 1988, Mr. Laurence Fink was employed by The First Boston
Corporation where he had been a Managing Director since January
1979. At First Boston, he was a member of the Management
Committee and co-head of its Taxable Fixed Income Division. He
also managed the Financial Futures and Fixed Income Options
Department and the Mortgage and Real Estate Products Group. Mr.
Ralph Schlosstein, co-founder of BlackRock Financial Management
L.P., was employed by Shearson Lehman Brothers Inc. from
February 1981 to March 1988 and became a Managing Director in
August 1984. At Shearson Lehman, he was co-head of the Mortgage
and Savings Institutions Group. Messrs. Fink and Schlosstein,
along with other members of the Adviser, were instrumental in
many of the major innovations in these securities markets,
including the creation of the fixed and floating rate CMOs,
Asset-Backed Securities and the senior-subordinated mortgage
pass-through.

The Adviser provides asset management services with respect
to high quality fixed income instruments, including U.S.
Treasury securities, Mortgage-Backed Securities, municipal
obligations, corporate bonds and hedging products. Investment
decisions for the Trust are made by a committee and no
person(s) is primarily responsible for making recommendations
to that committee. The Adviser currently serves as the
investment adviser to individual and institutional fixed income
investors in the United States and overseas through several
funds and separately managed accounts with combined total
assets in excess of $33 billion.

In addition to the Trust, the Adviser serves as adviser to
25 closed-end funds. Certain features of these closed-end
funds are provided in the following table:

Stock Term: Primary Net Assets
Exchange Year of Portfolio (June 30, 1995)
Ticker Symbol Maturity Composition (in millions)

<S> <C> <C> <C> <C>
Taxable BlackRock Trusts:*
The BlackRock Income None- Mortgage-
Trust Inc. . . BKT Perpetual Backed Securities $478