EXHIBIT 17(b)

NOT FDIC-
INSURED

May lose value
No bank guarantee

Bond Portfolios
================================================================================
INVESTOR SHARES

BlackRock Funds (SM) is a mutual fund family with 36 investment portfolios, 15
of which are described in this prospectus. BlackRock Funds are sold principally
through licensed investment professionals.

PROSPECTUS
January 28, 1999

[LOGO OF BLACKROCK FUNDS]

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

Table of
Contents

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How to find the information you need

How to find the information you need........................................ 1
THE BLACKROCK BOND FUNDS
Low Duration Bond........................................................... 2
Intermediate Government Bond................................................ 10
Intermediate Bond........................................................... 17
Core Bond................................................................... 24
Government Income........................................................... 31
GNMA Portfolio.............................................................. 38
Managed Income.............................................................. 45
International Bond.......................................................... 52
High Yield Bond............................................................. 60
Tax-Free Income............................................................. 67
Delaware Tax-Free Income.................................................... 75
Ohio Tax-Free Income........................................................ 83
Kentucky Tax-Free Income.................................................... 91
New Jersey Tax-Free Income.................................................. 99
Pennsylvania Tax-Free Income................................................ 107

About Your Investment

How to Sell Shares.......................................................... 115
Dividends/Distribution/Taxes................................................ 128
Services for Shareholders................................................... 130

How to Find the
Information You Need
About BlackRock Funds

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Welcome to the new BlackRock Bond Portfolios Prospectus.

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

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

This prospectus contains information on all 15 of the BlackRock Bond funds. To
save you time, the prospectus has been organized so that each fund has its own
short section. All you have to do is turn to the section for any particular
fund. Once you read the important facts about the funds that interest you, read
the sections that tell you about buying and selling shares, certain fees and
expenses, shareholder features of the funds and your rights as a shareholder.
These sections apply to all the funds.

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

[GRAPHIC BlackRock
APPEARS Low Duration Bond
HERE] Portfolio

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Investment Goal
The fund seeks to realize a rate of return that exceeds the total return of
the Merrill Lynch 1-3 Year Treasury Index (the benchmark).

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in investment
grade bonds in the three to five year maturity range. The fund normally
invests at least 80% of its total assets in bonds diversified among several
categories. The fund manager may also invest up to 20% of the fund's total
assets in non-investment grade bonds or convertible securities with a minimum
rating of "B" and up to 20% of its total assets in bonds of foreign issuers.
The fund manager selects securities from several categories including: U.S.
Treasuries and agency securities, asset-backed securities, CMOs, corporate
bonds and commercial mortgage-backed securities.

The management team evaluates categories of the bond market and individual
securities within these categories. Securities are purchased for the fund when
the manager determines that they have the potential for above-average total
return. The fund measures its performance against the benchmark.

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

The fund manager will normally attempt to structure the fund's portfolio to
have comparable duration to its benchmark. Duration, which measures price sen-
sitivity to interest rate changes, is not necessarily equal to average maturi-
ty.

The fund manager may, when consistent with the fund's investment objective,
use options or futures (commonly known as derivatives). The primary purpose of
using derivatives is to attempt to reduce risk to the fund as a whole (hedge)
but they may also be used to maintain liquidity, commit cash pending invest-
ment or to increase returns. The fund may also enter into interest rate or
foreign currency transactions as a hedging technique. In these transactions,
the fund exchanges its right to pay or receive interest or

IMPORTANT DEFINITIONS

Asset-Backed Securi-
ties: Bonds that are
backed by a pool of
assets, usually loans
such as installment
sale contracts or
credit card receiv-
ables.
Bonds: Debt obligations
such as bonds and
debentures, U.S. Gov-
ernment securities,
debt obligations of
domestic and foreign
corporations, debt
obligations of foreign
governments and their
political subdivisions,
asset-backed securi-
ties, various mortgage-
backed securities (both
residential and commer-
cial), other floating
or variable rate obli-
gations, municipal
obligations and zero
coupon debt securities.
Collateralized Mortgage
Obligations (CMO):
Bonds that are backed
by cash flows from
pools of mortgages.
CMOs may have multiple
classes with different
payment rights and
protections.
Commercial Mortgage-
Backed Securities
(CMBS): Bonds that are
backed by a mortgage
loan or pool of loans
secured by commercial
property, not residen-
tial mortgages.
Duration: A mathemati-
cal calculation of the
average life of a bond
(or bonds in a bond
fund) that serves as a
useful measure of its
price risk. Each year
of duration represents
an expected 1% change
in the price of a bond
for every 1% change in
interest rates. For
example, if a bond fund
has an average duration
of four years, its
price will fall about
4% when interest rates
rise by one percentage
point. Conversely, the
bond fund's price will
rise about 4% when
interest rates fall by
one percentage point.
Investment Grade: Secu-
rities which are rated
in the four highest
categories by at least
one of the major rating
agencies or determined
by the fund manager to
be of similar quality.
Generally, the higher
the rating of a bond,
the higher the likeli-
hood that interest and
principal payments will
be made on time. Secu-
rities rated in the
fourth highest category
by the rating agencies
are considered invest-
ment grade but they are
also considered specu-
lative, meaning that
they carry more risk
than higher rated secu-
rities and may have
problems making princi-
pal and interest pay-
ments in difficult eco-
nomic climates.
Investment grade rat-
ings do not guarantee
that bonds will not
lose value.

currencies with another party for their right to pay or receive interest or
another currency in the future.

The fund can borrow money to buy additional securities. This practice is known
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securities
and agrees to buy them back at a particular date and price). The fund normally
may borrow up to 33 1/3% of the value of its total assets.

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

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

Key Risks

Key Risks
While the fund manager chooses bonds he believes can provide above average
total returns, there is no guarantee that shares of the fund will not lose val-
ue. This means you could lose money.

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

The fund may make investments in residential and commercial mortgage-backed
securities and other asset-backed securities. The characteristics of these
mortgage-backed and asset-backed securities differ from traditional fixed
income securities.

A main difference is that the principal on mortgage- or asset-backed securities
may normally be prepaid at any time, which will reduce the yield and market
value of these securities. Asset-backed securities and CMBS generally experi-
ence less prepayment than residential mortgage-backed securities. In periods of
falling interest rates, the rate of prepayments tends to increase (as does
price fluctuation) as borrowers are motivated to pay off debt and refinance at
new lower rates. During such periods, reinvestment of the prepayment proceeds
by the manager will generally be at lower rates of return than the return on
the assets which were prepaid.

Certain asset-backed securities are based on loans that are unsecured, which
means that there is no collateral to seize if the

IMPORTANT DEFINITIONS

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer must pay
back the face amount of
the security.

Merrill Lynch 1-3 Year
Treasury Index: An
unmanaged index com-
prised of Treasury
securities with maturi-
ties of from 1 to 2.99
years.

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

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

underlying borrower defaults. Other asset-based securities may not have the
benefit of as much collateral as mortgage-backed securities.

Treasury obligations differ only in their interest rates, maturities and times
of issuance. Obligations of U.S. Government agencies and authorities are sup-
ported by varying degrees of credit. No assurance can be given that the U.S.
Government will provide financial support to its agencies and authorities if
it is not obligated by law to do so.

The fund's use of derivatives, interest rate and foreign currency transactions
may reduce the fund's returns and/or increase volatility, which is defined as
the characteristic of a security or a market to fluctuate significantly in
price within a short period of time. Leverage is a speculative technique which
may expose the fund to greater risk and increase its costs. Increases and
decreases in the value of the fund's portfolio will be magnified when the fund
uses leverage. The fund will also have to pay interest on its borrowings,
reducing the fund's return.

The fund may invest up to 20% of its total assets in bonds of foreign issuers.
Foreign securities involve risks not typically associated with investing in
U.S. securities. These risks include but are not limited to: currency risks
(the risk that the value of interest paid on foreign securities, or the value
of the securities themselves, may fall if currency exchange rates change), the
risk that a security's value will be hurt by changes in foreign political or
social conditions, the possibility of heavy taxation or expropriation and more
difficulty obtaining information on foreign securities or companies. In addi-
tion, a portfolio of foreign securities may be harder to sell and may be sub-
ject to wider price movements than comparable investments in U.S. companies.
There is also less government regulation of foreign securities markets.

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

The fund may invest in non-investment grade or "high yield" fixed income or
convertible securities commonly known to investors as "junk bonds." The fund
may not invest more than 20% of its total assets in high yield securities and
all such securities must be rated "B" or higher at the time of purchase by at
least one major rating agency. A "B" rating generally indicates that while the
issuer can currently make its interest and principal payments, it probably
will not be able to do so in times of financial difficulty. Non-investment
grade debt securities may carry greater

risks than securities which have higher credit ratings, including a high risk
of default. The yields of non-investment grade securities will move up and down
over time.

The credit rating of a high yield security does not necessarily address its
market value risk. Ratings and market values may change from time to time, pos-
itively or negatively, to reflect new developments regarding the issuer. High
yield securities are considered speculative, meaning there is a significant
risk that companies issuing these securities may not be able to repay principal
and pay interest or dividends on time. Also, the market for high yield securi-
ties is not as liquid as the market for higher rated securities. This means
that it may be harder to buy and sell high yield securities, especially on
short notice.

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

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

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

Risk / Return Information

The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). The information shows you how the fund's performance has varied
year by year and provides some indication of the risks of investing in the
fund. The table compares the fund's performance to that of the Merrill Lynch 1-
3 Year Treasury Index, a recognized unmanaged index of bond market performance.
The chart and the table both assume reinvestment of dividends and distribu-
tions. As with all such investments, past performance is not an indication of
future results. Sales charges are not reflected in the bar chart. If they were,
returns would be less than those shown.

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

As of 12/31 Investor A Shares
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A N N U A L T O T A L R E T U R N S
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[BAR CHART APPEARS HERE]

Best Quarter 93 5.66
Q1 '95: 3.26% 94 1.39
95 10.51
96 4.53
Worst Quarter 97 5.56
Q1 '94: -0.18% 98 6.14

Since Inception
1 Year 3 Years 5 Years Inception Date
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Low Duration Bond; Inv A 2.96% 4.34% 4.94% 4.91% 07/01/92
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Low Duration Bond; Inv B 0.61% 3.63% 4.83% 5.16% 07/01/92
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Low Duration Bond; Inv C 4.30% 4.86% 5.26% 5.16% 07/01/92
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ML 1-3 Yr. Treasury 7.00% 6.21% 5.99% 5.93% N/A
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These returns assume payment of applicable sales charges.

Expenses and Fees

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

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

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

Shareholder Fees (Fees paid directly from your investment)

A Shares B Shares C Shares

Maximum Front-End Sales
Charge* 3.0% 0.0% 0.0%
(as percentage of offering
price)
Maximum Deferred Sales Charge 0.0% 4.5%** 1.00%***
(as percentage of offering
price)

* Reduced front-end sales charges may be available. A CDSC of up to 1.00% is
assessed on certain redemptions of Investor A Shares that are purchased
with no initial sales charge as part of an investment of $1,000,000 or
more.
** The CDSC is 4.5% if shares are redeemed in less than one year. The CDSC for
Investor B Shares decreases for redemptions made in subsequent years. After
six years there is no CDSC on B Shares. (See page 120 for complete schedule
of CDSCs.)
*** There is no CDSC on C Shares after one year.
7

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

A Shares B Shares C Shares

Advisory Fees .50% .50% .50%
Distribution and service
(12b-1) fees .50% 1.15% 1.15%
Other expenses .52% .52% .52%
Total annual fund operating expenses 1.52% 2.17% 2.17%
Fee waivers and expense reimbursements* .50% .40% .40%
Net Expenses* 1.02% 1.77% 1.77%

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

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

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

1 Year 3 Years 5 Years 10 Years

A Shares* $401 $718 $1,058 $2,017
B Shares**
Redemption $630 $991 $1,328 $2,229***
B Shares
No Redemption $180 $641 $1,128 $2,229***
C Shares**
Redemption $280 $641 $1,128 $2,472
C Shares
No Redemption $180 $641 $1,128 $2,472

* Reflects imposition of sales charge.
** Reflects deduction of CDSC.
*** Based on the conversion of the Investor B Shares to Investor A Shares after
seven years.

Fund Management
Robert Kapito and Scott Amero co-manage the fund at BlackRock Financial Manage-
ment, Inc. (BFM). Robert Kapito has been Vice Chairman of BFM since 1988 and
portfolio co-manager since inception. Scott Amero has been a Managing Director
of BFM since 1990 and portfolio co-manager since inception.

IMPORTANT DEFINITIONS

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

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

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

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

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

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

Low Duration Bond Portfolio

INVESTOR A INVESTOR B
SHARES SHARES
-------------------------------------------------- ---------------------------
For the
period
Year Year 4/1/96 1/12/96/1/ Year 11/18/96/1/
Ended Ended through through Ended through
9/30/98 9/30/97 9/30/96 3/31/96 9/30/98 9/30/97
-------------------------------------------------- ---------------------------

Net asset value at
beginning of period $ 9.89 $ 9.79 $ 9.79 $ 9.91 $ 9.89 $ 9.86
------ ------ ------ ------ ------ ------
Income from investment
operations
Net investment income 0.51 0.52 0.25 0.10 0.41 0.41
Net gain (loss) on
investments (both
realized and
unrealized) 0.14 0.09 (0.01) (0.12) 0.17 - -
------ ------ ------ ------ ------ ------
Total from investment
operations 0.65 0.61 0.24 (0.02) 0.58 0.41
------ ------ ------ ------ ------ ------
Less distributions
Distributions from net
investment income (0.51) (0.51) (0.24) (0.10) (0.44) (0.38)
Distributions from net
realized capital gains - - - - - - - - - - - -
------ ------ ------ ------ ------ ------
Total distributions (0.51) (0.51) (0.24) (0.10) (0.44) (0.38)
------ ------ ------ ------ ------ ------
Net asset value at end of
period $10.03 $ 9.89 $ 9.79 $ 9.79 $10.03 $ 9.89
====== ====== ====== ====== ====== ======
Total return/3/ 6.78% 6.39% 2.46% (0.15)% 5.99% 4.31%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $2,850 $1,079 $ 938 $ 719 $ 398 $ 13
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.02%/4/ 1.02%/4/ 1.02%/2/,/4/ 1.01%/2/,/4/ 1.76%/4/ 1.73%/2/,/4/
Before
advisory/administration
fee waivers 1.42% 1.35% 1.30%/2/ 1.21%/2/ 2.16% 2.06%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 6.59% 5.72% 5.20%/2/ 4.94%/2/ 5.82% 4.96%/2/
Before
advisory/administration
fee waivers 6.19% 5.39% 4.92%/2/ 4.74%/2/ 5.42% 4.63%/2/
Portfolio turnover rate 227% 371% 228% 185% 227% 371%

INVESTOR C
SHARES
------------------------
Year Year
Ended Ended
9/30/98 9/30/97
------------------------

Net asset value at
beginning of period $ 9.89 $ 9.87
----------- ----------------
Income from investment
operations
Net investment income 0.44 0.26
Net gain (loss) on
investments (both
realized and
unrealized) 0.14 0.02
----------- ----------------
Total from investment
operations 0.58 0.28
----------- ----------------
Less distributions
Distributions from net
investment income (0.44) (0.26)
Distributions from net
realized capital gains - - - -
----------- ----------------
Total distributions (0.44) (0.26)
----------- ----------------
Net asset value at end of
period $10.03 $ 9.89
=========== ================
Total return/3/ 5.99% 2.91%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $ 342 $ 72
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.75%/4/ 1.72%/2/,/4/
Before
advisory/administration
fee waivers 2.15% 2.05%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 5.70% 5.00%/2/
Before
advisory/administration
fee waivers 5.30% 4.67%/2/
Portfolio turnover rate 227% 371%

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

/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is
reflected.
/4/Including interest expense, ratios for the Investor A, Investor B and
Investor C Shares would have been 2.32%, 3.08% and 2.98%, respectively, for
the year ended September 30, 1998, 2.02%, 2.19% and 2.23%, respectively, for
the year ended September 30, 1997, 1.12% for the year ended September 30,
1996 and 1.34% for the year ended March 31, 1996.
9

[GRAPHIC BlackRock
APPEARS Intermediate Government
HERE] Bond Portfolio

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Investment Goal
The fund seeks current income consistent with the preservation of capital.

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in the highest
rated intermediate government and agency bonds. The fund normally invests at
least 80% of its total assets in bonds and at least 65% of its total assets in
intermediate bonds issued or guaranteed by the U.S. Government and its agen-
cies. The fund defines intermediate bonds as those with maturities of between
five and ten years.

Securities purchased by the fund are rated in the highest rating category (AAA
or Aaa) at the time of purchase by at least one major rating agency or are
determined by the fund manager to be of similar quality.

The management team evaluates categories of the government/agency market and
individual bonds within these categories. The manager selects bonds from sev-
eral categories including: U.S. Treasuries and agency securities, commercial
and residential mortgage-backed securities, asset-backed securities and corpo-
rate bonds. Securities are purchased for the fund when the manager determines
that they have the potential for above-average current income. The fund mea-
sures its performance against the Lehman Brothers Intermediate Government
Index (the benchmark).

If a security falls below the highest rating, the manager will decide whether
to continue to hold the security. A security will be sold if, in the opinion
of the fund manager, the risk of continuing to hold the security is unaccept-
able when compared to the total return potential.

IMPORTANT DEFINITIONS

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

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

Commercial Mortgage-
Backed Securities
(CMBS): Bonds that are
backed by a mortgage
loan or pools of loans
secured by commercial
property, not residen-
tial mortgages.

Duration: A mathemati-
cal calculation of the
average life of a bond
(or bonds in a bond
fund) that serves as a
useful measure of its
price risk. Each year
of duration represents
an expected 1% change
in the price of a bond
for every 1% change in
interest rates. For
example, if a bond fund
has an average duration
of four years, its
price will fall about
4% when interest rates
rise by one percentage
point. Conversely, the
bond fund's price will
rise about 4% when
interest rates fall by
one percentage point.

Lehman Brothers Inter-
mediate Government
Index: An unmanaged
index comprised of
Treasury and Agency
issues from the more
comprehensive Lehman
Aggregate Index. This
index concentrates on
intermediate maturity
bonds and thus excludes
all maturities from the
broader index below one
year and above 9.9
years.

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer generally
must pay back the face
amount of the security.

used to maintain liquidity, commit cash pending investment or to increase
returns. The fund may also enter into interest rate transactions as a hedging
technique. In these transactions, the fund exchanges its right to pay or
receive interest with another party for their right to pay or receive interest.

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

Key Risks

Key Risks
While the fund manager chooses bonds he believes can provide above average cur-
rent income, there is no guarantee that shares of the Fund will not lose value.
This means you could lose money.

A main risk of investing in the fund is interest rate risk. Typically, when
interest rates rise, there is a corresponding decline in the market value of
bonds such as those held by the fund.

A main difference is that the principal on mortgage-or asset-backed securities
may normally be prepaid at any time, which will reduce the yield and market
value of these securities. Asset-backed securities and CMBS generally experi-
ence less prepayment than residential mortgage-backed securities. In periods of
falling interest rates, the rate of prepayments tends to increase (as does
price fluctuations) as borrowers are motivated to pay off debt and refinance at
new lower rates. During such periods, reinvestment of the prepayment proceeds
by the manager will generally be at lower rates of return than the return on
the assets which were prepaid.

IMPORTANT DEFINITIONS

Certain asset-backed securities are based on loans that are unsecured, which
means that there is no collateral to seize if the underlying borrower
defaults. Other asset-based securities may not have the benefit of as much
collateral as mortgage-backed securities.

Treasury obligations differ only in their interest rates, maturities and times
of issuance. Obligations of U.S. Government agencies and authorities are sup-
ported by the full faith and credit of the United States. Others are supported
by the right of the issuer to borrow from the Treasury, and others are sup-
ported only by the credit of the entity. No assurance can be given that the
U.S. Government will provide financial support to its agencies and authorities
if it is not obligated by law to do so.

The fund's use of derivatives and interest rate transactions may reduce the
fund's returns and/or increase volatility, which is defined as the character-
istic of a security or a market to fluctuate significantly in price within a
short period of time. Leverage is a speculative technique which may expose the
fund to greater risk and increase its costs. Increases and decreases in the
value of the fund's portfolio will be magnified when the fund uses leverage.
The fund will also have to pay interest on its borrowings, reducing the fund's
return.

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

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

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

These returns assume payment of applicable sales charges.

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). The information shows you how the fund's performance has varied
year by year and provides some indication of the risks of investing in the
fund. The table compares the fund's performance to that of the Lehman Brothers
Intermediate Government Index, a recognized unmanaged index of bond market per-
formance. The chart and the table both assume reinvestment of dividends and
distributions. As with all such investments, past performance is not an indica-
tion of future results. Sales charges are not reflected in the bar chart. If
they were, returns would be less than those shown.

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

[BAR CHART APPEARS HERE]

Best Quarter 93 7.68
Q1 '95: 4.42% 94 -3.60
95 13.53
96 3.83
Worst Quarter 97 7.23
Q1 '94: -2.45% 98 7.13

As of 12/31/98
- --------------------------------------------------------------------------------
A V E R A G E A N N U A L T O T A L R E T U R N S
- --------------------------------------------------------------------------------
Since Inception
1 Year 3 Years 5 Years Inception Date
- --------------------------------------------------------------------------------
Intermediate Govt. Bond; Inv A 2.87% 4.62% 4.61% 5.52% 04/20/92
- --------------------------------------------------------------------------------
Intermediate Govt. Bond; Inv B 1.54% 4.22% 4.70% 5.91% 04/20/92
- --------------------------------------------------------------------------------
Intermediate Govt. Bond; Inv C 5.26% 5.46% 5.12% 5.91% 04/20/92
- --------------------------------------------------------------------------------
LB Intermediate Govt. 8.48% 6.74% 6.45% 7.14% N/A*
- --------------------------------------------------------------------------------

These returns assume payment of applicable sales charges.

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

Expenses and Fees

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

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

Shareholder Fees (Fees paid directly from your investment)

A Shares B Shares C Shares

Maximum Front-End Sales
Charge* 4.0% 0.0% 0.0%
(as percentage of offering
price)
Maximum Deferred Sales Charge 0.0% 4.5%** 1.00%***
(as percentage of offering
price)

* Reduced front-end sales charges may be available. A CDSC of up to 1.00% is
assessed on certain redemptions of Investor A Shares that are purchased
with no initial sales charge as part of an investment of $1,000,000 or
more.
** The CDSC is 4.5% if shares are redeemed in less than one year. The CDSC
for Investor B Shares decreases for redemptions made in subsequent years.
After six years there is no CDSC on B Shares. (See page 120 for complete
schedule of CDSCs.)
*** There is no CDSC on C Shares after one year.

IMPORTANT DEFINITIONS

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

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

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

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

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

A Shares B Shares C Shares

Advisory Fees .50% .50% .50%
Distribution and service (12b-
1) fees .50% 1.15% 1.15%
Other expenses .42% .42% .42%
Total annual fund operating
expenses 1.42% 2.07% 2.07%
Fee waivers and expense reimbursements* .35% .25% .25%
Net Expenses* 1.07% 1.82% 1.82%

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

1 Year 3 Years 5 Years 10 Years

A Shares* $505 $798 $1,113 $2,005
B Shares**
Redemption $635 $975 $1,291 $2,136***
B Shares
No Redemption $185 $625 $1,091 $2,136***
C Shares**
Redemption $285 $625 $1,091 $2,380
C Shares
No Redemption $185 $625 $1,091 $2,380

*Reflects imposition of sales charge.
**Reflects deduction of CDSC.
*** Based on the conversion of the Investor B Shares to Investor A Shares after
seven years.

Fund Management
The co-managers of the fund are Robert Kapito, Vice Chairman of BlackRock
Financial Management, Inc (BFM) since 1988, Scott Amero, Managing Director of
BFM since 1990 and Michael Lustig, Director of BFM since 1989. They have all
co-managed the fund since 1995.
15

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

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

Intermediate Government Bond Portfolio

INVESTOR
INVESTOR A SHARES B SHARES
------------------------------------------------------- ------------------------
For the
Period
Year Year Year Year Year Year 10/11/96/1/
Ended Ended Ended Ended Ended Ended through
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94 9/30/98 9/30/97

Net asset value at
beginning of
period $10.11 $ 9.92 $10.03 $ 9.64 $10.60 $10.11 $ 9.98
------ ------ ------ ------ ------ ------ ------
Income from investment
operations
Net investment income 0.53 0.54 0.55 0.55 0.53 0.47 0.45
Net gain (loss) on
investments
(both realized and
unrealized) 0.38 0.19 (0.13) 0.39 (0.87) 0.37 0.13
------ ------ ------ ------ ------ ------ ------
Total from investment
operations 0.91 0.73 0.42 0.94 (0.34) 0.84 0.58
------ ------ ------ ------ ------ ------ ------
Less distributions
Distributions from net
investment income (0.54) (0.54) (0.53) (0.55) (0.52) (0.47) (0.45)
Distributions from net
realized capital gains - - - - - - - - (0.10) - - - -
------ ------ ------ ------ ------ ------ ------
Total distributions (0.54) (0.54) (0.53) (0.55) (0.62) (0.47) (0.45)
------ ------ ------ ------ ------ ------ ------
Net asset value at end of
period $10.48 $10.11 $ 9.92 $10.03 $ 9.64 $10.48 $10.11
====== ====== ====== ====== ====== ====== ======
Total return/3/ 9.32% 7.57% 4.36% 9.98% (3.36)% 8.51% 5.94%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $7,972 $5,374 $5,903 $9,802 $8,508 $ 361 $ 28
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.05%/4/ 1.02%/4/ 0.95%/4/ 0.70%/4/ 0.65% 1.79%/4/ 1.77%/2/,/4/
Before
advisory/administration
fee waivers 1.31% 1.33% 1.25% 1.07% 1.05% 2.05% 2.08%/2/
Ratios of net investment
income
to average net assets
After
advisory/administration
fee waivers 5.37% 5.54% 5.64% 5.67% 5.24% 4.66% 4.75%/2/
Before
advisory/administration
fee waivers 5.11% 5.23% 5.35% 5.30% 4.84% 4.40% 4.44%/2/
Portfolio turnover rate 272% 291% 580% 247% 9% 272% 291%

INVESTOR C SHARES
----------------------------
Year Ended Year Ended
9/30/98 9/30/97

Net asset value at
beginning of
period $10.11 $ 9.98
----------- ----------------
Income from investment
operations
Net investment income 0.47 0.45
Net gain (loss) on
investments
(both realized and
unrealized) 0.37 0.13
----------- ----------------
Total from investment
operations 0.84 0.58
----------- ----------------
Less distributions
Distributions from net
investment income (0.47) (0.45)
Distributions from net
realized capital gains - - - -
----------- ----------------
Total distributions (0.47) (0.45)
----------- ----------------
Net asset value at end of
period $10.48 $10.11
=========== ================
Total return/3/ 8.51% 5.94%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $ 299 $ 51
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.78%/4/ 1.71%/2/,/4/
Before
advisory/administration
fee waivers 2.04% 2.02%/2/
Ratios of net investment
income
to average net assets
After
advisory/administration
fee waivers 4.51% 4.57%/2/
Before
advisory/administration
fee waivers 4.25% 4.26%/2/
Portfolio turnover rate 272% 291%

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

/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is
reflected.
/4/Including interest expense, ratios for the Investor A, Investor B and
Investor C Shares would have been 1.09%, 1.84% and 1.81%, respectively, for
the year ended September 30, 1998, 1.14%, 1.90% and 1.78%, respectively, for
the year ended September 30, 1997, 1.14% for the year ended September 30,
1996 and 0.70% for the year ended September 30, 1995.
16

[GRAPHIC BlackRock
APPEARS Intermediate Bond
HERE] Portfolio

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

Investment Goal
The fund seeks current income consistent with the preservation of capital.

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in intermediate
bonds. The fund normally invests at least 80% of its total assets in bonds and
at least 65% of its total assets in intermediate bonds. The fund defines inter-
mediate bonds as those with maturities of between five and ten years.

The fund only buys securities that are rated investment grade at the time of
purchase by at least one major rating agency or determined by the manager to be
of similar quality.

The management team evaluates categories of the bond market and individual
securities within those categories. The manager selects bonds from several cat-
egories including: U.S. Treasuries and agency securities, commercial and resi-
dential mortgage-backed securities, asset-backed securities and corporate
bonds. Securities are purchased for the fund when the manager determines that
they have the potential for above-average current income. The fund measures its
performance against the Lehman Brothers Intermediate Government/Corporate Index
(the benchmark).

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

IMPORTANT DEFINITIONS

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

Commercial Mortgage-
Backed Securities
(CMBS): Bonds that are
backed by a mortgage
loan or pools of loans
secured by commercial
property, not residen-
tial mortgages.

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

increase returns. The fund may also enter into interest rate transactions as a
hedging technique. In these transactions, the fund exchanges its right to pay
or receive interest with another party for their right to pay or receive
interest.

The fund can borrow money to buy additional securities. This practice is know
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securi-
ties and agrees to buy them back at a particular date and price). The fund
normally may borrow up to 33 1/3% of the value of its total assets.

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

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

Key Risks

Key Risks
While the fund manager chooses bonds he believes can provide above average
current income, there is no guarantee that shares of the fund will not lose
value. This means you could lose money.

A main difference is that the principal on mortgage- or asset-backed securi-
ties may normally be prepaid at any time, which will reduce the yield and mar-
ket value of these securities. Asset-backed securities and CMBS generally
experience less prepayment than residential mortgage-backed securities. In
periods of falling interest rates, the rate of prepayments tends to increase
(as does price fluctuation) as borrowers are motivated to pay off debt and
refinance at new lower rates. During such periods, reinvestment of the prepay-
ment proceeds by the manager will generally be at lower rates of return than
the return on the assets which were prepaid.

IMPORTANT DEFINITIONS

Lehman Brothers Inter-
mediate
Government/Corporate
Index: An unmanaged
index comprised of
Treasury, agency and
corporate issues from
the more comprehensive
Lehman Aggregate Index.
This index concentrates
on intermediate matu-
rity bonds and thus
excludes all maturities
from the broader index
below one year and
above 9.9 years.

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer generally
must pay back the face
amount of the security.

Certain asset-backed securities are based on loans that are unsecured, which
means that there is no collateral to seize if the underlying borrower defaults.
Other asset-based securities may not have the benefit of as much collateral as
mortgage-backed securities.

The fund's use of derivatives and interest rate transactions may reduce the
fund's returns and/or increase volatility, which is defined as the characteris-
tic of a security or a market to fluctuate significantly in price within a
short period of time. Leverage is a speculative technique which may expose the
fund to greater risk and increase its costs. Increases and decreases in the
value of the fund's portfolio will be magnified when the fund uses leverage.
The fund will also have to pay interest on its borrowings, reducing the fund's
return.

When you invest in this fund you are not making a bank deposit. Your investment
is not insured or guaranteed by the Federal Deposit Insurance Corporation or by
any bank or governmental agency.
19

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). The information shows you how the fund's performance has varied
year by year and provides some indication of the risks of investing in the
fund. The table compares the fund's performance to that of the Lehman Brothers
Intermediate Government/Corporate Index, a recognized unmanaged index of bond
market performance. The chart and the table both assume reinvestment of divi-
dends and distributions. As with all such investments, past performance is not
an indication of future results. Sales charges are not reflected in the bar
chart. If they were, returns would be less than those shown.

The performance for the period before Investor Shares were launched is based
upon performance for older share classes of the fund. Investor A Shares were
launched in May 1994, Investor B Shares were launched in February 1998 and
Investor C Shares were launched in October 1998. The actual return of Investor
Shares would have been lower than shown because Investor Shares have higher
expenses than these older classes. Also, the actual returns of Investor B and C
Shares would have been lower compared to Investor A Shares.

[BAR CHART APPEARS HERE]

Best Quarter
Q2 '95: 4.40% 94 14.10
95 3.92
96 7.11
Worst Quarter 97 6.59
Q1 '94: -2.86%

The bar of 1994 is
based upon performance
for Institutional Shares
of the fund.

Since Inception
1 Year 3 Years 5 Years Inception Date
- ----------------------------------------------------------------------------
Intermediate Bond; Inv A 5.42% 8.45% 8.07% 9.02% 09/15/93
- ----------------------------------------------------------------------------
Intermediate Bond; Inv B 5.19% 8.28% 8.30% 9.47% 09/15/93
- ----------------------------------------------------------------------------
Intermediate Bond; Inv C 9.05% 9.57% 8.74% 9.47% 09/15/93
- ----------------------------------------------------------------------------
LB Intermediate Govt./Corp. 8.43% 6.76% 6.60% 6.29% N/A*
- ----------------------------------------------------------------------------

These returns assume payment of applicable sales charges.

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

Expenses and Fees

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

A Shares B Shares C Shares

Maximum Front-End Sales Charge* 4.0% 0.0% 0.0%
(as percentage of offering price)

Maximum Deferred Sales Charge 0.0% 4.5%** 1.00%***
(as percentage of offering price)

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

A Shares B Shares C Shares

Advisory Fees .50% .50% .50%
Distribution and service (12b-
1) fees .50% 1.15% 1.15%
Other expenses .43% .43% .43%
Total annual fund operating
expenses 1.43% 2.08% 2.08%
Fee waivers and expense
reimbursements* .36% .26% .26%
Net Expenses* 1.07% 1.82% 1.82%

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

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

IMPORTANT DEFINITIONS

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

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

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

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

1 Year 3 Years 5 Years 10 Years

A Shares* $505 $800 $1,117 $2,015
B Shares**
Redemption $635 $977 $1,295 $2,145***
B Shares
No Redemption $185 $627 $1,095 $2,145***
C Shares**
Redemption $285 $627 $1,095 $2,390
C Shares
No Redemption $185 $627 $1,095 $2,390

* Reflects imposition of sales charge.
** Reflects deduction of CDSC.
*** Based on the conversion of the Investor B Shares to Investor A Shares after
seven years.

Fund Management

The co-managers of the fund are Robert Kapito, Vice Chairman of BlackRock
Financial Management, Inc. (BFM) since 1988, Scott Amero, Managing Director of
BFM since 1990, and Michael Lustig, Director of BFM since 1989. They have all
co-managed the fund since 1995.

Financial Highlights
The financial information in the table below shows the fund's financial per-
formance for the periods indicated. Certain information reflects results for a
single fund share. The term "Total Return" indicates how much your investment
would have increased or decreased during this period of time and assumes that
you have reinvested all dividends and distributions. These figures have been
audited by PricewaterhouseCoopers LLP, the fund's independent accountants. The
auditor's report, along with the fund's financial statements, are included in
the Company's annual report which is available upon request (see back cover
for ordering instructions).
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For an Investor A or B Share Outstanding Throughout Each Period)

Intermediate Bond Portfolio

INVESTOR A INVESTOR B
SHARES SHARES
For the For the
Period Period
Year Year Year Year 5/20/94/1 9/5/98/1
Ended Ended Ended Ended / through / through
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94 9/30/98

Net asset value at
beginning of period $ 9.49 $ 9.32 $9.43 $9.05 $9.23 $9.51
------ ------ ----- ----- ----- -----
Income from investment
operations
Net investment income 0.53 0.53 0.52 0.54 0.20 0.29
Net gain (loss) on
investments (both
realized and
unrealized) 0.23 0.17 (0.09) 0.38 (0.17) 0.21
------ ------ ----- ----- ----- -----
Total from investment
operations 0.76 0.70 0.43 0.92 0.03 0.50
------ ------ ----- ----- ----- -----
Less distributions
Distributions from net
investment income (0.53) (0.53) (0.51) (0.54) (0.21) (0.29)
Distributions from net
realized capital gains (0.05) - - (0.03) - - - - (0.05)
------ ------ ----- ----- ----- -----
Total distributions (0.58) (0.53) (0.54) (0.54) (0.21) (0.34)
------ ------ ----- ----- ----- -----
Net asset value at end of
period $ 9.67 $ 9.49 $9.32 $9.43 $9.05 $9.67
====== ====== ===== ===== ===== =====
Total return/3/ 8.30% 7.89% 4.74% 10.35% 0.31% 7.83%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $1,648 $1,116 $ 935 $ 647 $ 87 $ 111
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.06%/4/ 1.00%/4/ 0.97%/4/ 0.76%/4/ 0.85%/2/ 1.75%/2/, /4/
Before
advisory/administration
fee waivers 1.33% 1.29% 1.27% 1.11% 1.28%/2/ 2.02%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 6.80% 6.14% 5.83% 5.89% 5.35%/2/ 5.59%/2/
Before
advisory/administration
fee waivers 6.53% 5.85% 5.53% 5.55% 4.92%/2/ 5.07%/2/
Portfolio turnover rate 221% 321% 670% 262% 92% 221%

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

/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is
reflected.
/4/Including interest expense, ratios for the Investor A and Investor B would
have been 2.22% and 2.79%, respectively, for the year ended September 30,
1998, 1.44% for the year ended September 30, 1997, 1.27% for the year ended
September 30, 1996 and 0.84% for the year ended September 30, 1995.
23

[GRAPHIC BlackRock
APPEARS Core Bond
HERE] Portfolio

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

Investment Goal
The fund seeks to realize a total return that exceeds that of the Lehman
Brothers Aggregate Index (the benchmark).

Primary Investment Strategies
In pursuit of this goal, the fund normally invests at least 80% of its total
assets in bonds and at least 65% of its total assets in bonds with maturities
of between five and fifteen years. The fund may invest up to 10% of its total
assets in bonds of foreign issuers.

The fund only buys securities that are rated investment grade at the time of
purchase by at least one major rating agency or determined by the manager to
be of similar quality.

The management team evaluates several categories of the bond market and indi-
vidual securities within these categories. The fund manager selects bonds from
several categories including: U.S. Treasuries and agency securities, commer-
cial and residential mortgage-backed securities, asset-backed securities and
corporate bonds. Securities are purchased for the fund when the manager deter-
mines that they have the potential for above-average total return. The Fund
measures its performance against the benchmark.

IMPORTANT DEFINITIONS

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

Commercial Mortgage-
Backed Securities
(CMBS): Bonds that are
backed by a mortgage
loan or pools of loans
secured by commercial
property, not residen-
tial mortgages.

Lehman Brothers Aggre-
gate Index: An unman-
aged index comprised of
more than 5,000 taxable
bonds. This is an index
of investment grade
bonds; all securities
included must be rated
investment grade by
Moody's or Standard &
Poor's.

The fund can borrow money to buy additional securities. This practice is known
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securities
and agrees to buy them back at a particular date and price).The fund (normally)
may borrow up to 33 1/3% of the value of its assets.

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

Key Risks

Certain asset-backed securities are based on loans that are unsecured, which
means that there is no collateral to seize if the underlying borrower defaults.
Other asset-based securities may not have the benefit of as much collateral as
mortgage-backed securities.

Treasury obligations differ only in their interest rates, maturities and times
of issuance. Obligations of U.S. Government agencies

IMPORTANT DEFINITIONS

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer generally
must pay back the face
amount of the security.

and authorities are supported by varying degrees of credit. No assurance can
be given that the U.S. Government will provide financial support to its agen-
cies and authorities if it is not obligated by law to do so.

The fund may invest up to 10% of its total assets in bonds of foreign issuers.
Foreign securities involve risks not typically associated with investing in
U.S. securities. These risks include but are not limited to: currency risks
(the risk that the value of interest paid on foreign securities, or the value
of the securities themselves, may fall if currency exchange rates change), the
risk that a security's value will be hurt by changes in foreign political or
social conditions, the possibility of heavy taxation or expropriation and more
difficulty obtaining information on foreign securities or companies. In addi-
tion, a portfolio of foreign securities may be harder to sell and may be sub-
ject to wider price movements than comparable investments in U.S. companies.
There is also less government regulation of foreign securities markets.

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

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

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). The information shows you how the fund's performance has varied
year by year and provides some indication of the risks of investing in the
fund. The table compares the fund's performance to that of the Lehman Brothers
Aggregate Index, a recognized unmanaged index of bond market performance. The
chart and the table both assume reinvestment of dividends and distributions. As
with all such investments, past performance is not an indication of future
results. Sales charges are not reflected in the bar chart. If they were,
returns would be less than those shown.

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

[BAR CHART APPEARS HERE]

Best Quarter Q2 '95: 5.87%

Worst Quarter Q1 '94: -2.63%

The bars for 1993-1996
are based upon performance
for Institutional Shares of
the Fund

93 94 95 96 97 98
----- ------ ------ ------ ------ -----
9.69% -2.33% 18.18% 3.19% 8.51% 7.66%

These returns assume payment of applicable sales charges.

Expenses and fees

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

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

Shareholder Fees (Fees paid directly from your investment)

A Shares B Shares C Shares

Maximum Front-End Sales
Charge* 4.0% 0.0% 0.0%
(as percentage of offering
price)
Maximum Deferred Sales Charge 0.0% 4.5%** 1.00%***
(as percentage of offering
price)

* Reduced front-end sales charges may be available. A CDSC of up to 1.00% is
assessed on certain redemptions of Investor A Shares that are purchased
with no initial sales charge as part of an investment of $1,000,000 or
more.
** The CDSC is 4.5% if shares are redeemed in less than one year. The CDSC
for Investor B Shares decreases for redemptions made in subsequent years.
After six years there is no CDSC on B Shares. (See page 120 for complete
schedule of CDSCs.)
*** There is no CDSC on C Shares after one year.

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

A Shares B Shares C Shares

Advisory Fees .50% .50% .50%
Distribution and service (12b-
1) fees .50% 1.15% 1.15%
Other expenses .46% .46% .46%
Total annual fund operating
expenses 1.46% 2.11% 2.11%
Fee waivers and expense
reimbursements* .44% .34% .34%
Net Expenses* 1.02% 1.77% 1.77%

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

IMPORTANT DEFINITIONS

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

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

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

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

The table does not reflect charges or credits which investors might incur if
they invest through a financial institution. Long-term shareholders in mutual
funds with 12b-1 fees may pay more than the economic equivalent of the maximum
front-end sales charge permitted by the rules of the National Association of
Securities Dealers, Inc.

1 Year 3 Years 5 Years 10 Years

A Shares* $500 $802 $1,125 $2,040
B Shares**
Redemption $630 $978 $1,303 $2,171***
B Shares
No Redemption $180 $628 $1,103 $2,171***
C Shares**
Redemption $280 $628 $1,103 $2,415
C Shares
No Redemption $180 $628 $1,103 $2,415

*Reflects imposition of sales charge.
**Reflects deduction of CDSC.
*** Based on the conversion of the Investor B Shares to Investor A Shares after
seven years.

Fund Management
The manager of the fund is Keith Anderson, Managing Director at BlackRock
Financial Management, Inc. since 1988. He has served as fund manager since June
1997.
29

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

Core Bond Portfolio

INVESTOR A
SHARES
- -----------------------------------------------------------------------------------------------------------

For the For the
Period Period
Year Year 4/1/96 1/31/96/1
Ended Ended through / through
9/30/98 9/30/97 9/30/96 3/31/96

Net asset value
at beginning of
period $ 9.82 $ 9.55 $ 9.61 $ 9.99
------ ------ ------ ------
Income from
investment
operations
Net investment
income 0.55 0.58 0.28 0.08
Net gain (loss)
on investments
(both realized
and unrealized) 0.40 0.26 (0.06) (0.38)
------ ------ ------ ------
Total from
investment
operations 0.95 0.84 0.22 (0.30)
------ ------ ------ ------
Less
distributions
Distributions
from net
investment
income (0.56) (0.57) (0.28) (0.08)
Distributions
from net
realized
capital gains (0.09) - - - - - -
------ ------ ------ ------
Total
distributions (0.65) (0.57) (0.28) (0.08)
------ ------ ------ ------
Net asset value
at end of period $10.12 $ 9.82 $ 9.55 $ 9.61
====== ====== ====== ======
Total returns/3/ 10.04% 9.52% 2.36% (2.96)%
Ratios/Supplemental
data
Net assets at
end of period
(in thousands) $5,108 $2,441 $ 320 $ 80
Ratios of
expenses to
average net
assets
After
advisory/administration
fee waivers 0.98%/4/ 1.01%/4/ 1.02%/2/,/4/ 1.02%/2/,/4/
Before
advisory/administration
fee waivers 1.32% 1.30% 1.31%/2/ 1.27%/2/
Ratios of net
investment
income
to average net
assets
After
advisory/administration
fee waivers 5.78% 6.31% 6.29%/2/ 5.43%/2/
Before
advisory/administration
fee waivers 5.44% 6.02% 6.00%/2/ 5.19%/2/
Portfolio
turnover rate 405% 441% 308% 723%

Net asset value
at beginning of
period $ 9.82 $ 9.55 $ 9.61 $ 9.58 $ 9.82 $ 9.64
----------- ----------- --------------- ---------------- ----------- ----------------
Income from
investment
operations
Net investment
income 0.47 0.51 0.26 0.01 0.47 0.29
Net gain (loss)
on investments
(both realized
and unrealized) 0.40 0.26 (0.07) 0.03 0.40 0.17
----------- ----------- --------------- ---------------- ----------- ----------------
Total from
investment
operations 0.87 0.77 0.19 0.04 0.87 0.46
----------- ----------- --------------- ---------------- ----------- ----------------
Less
distributions
Distributions
from net
investment
income (0.48) (0.50) (0.25) (0.01) (0.48) (0.28)
Distributions
from net
realized
capital gains (0.09) - - - - - - (0.09) - -
----------- ----------- --------------- ---------------- ----------- ----------------
Total
distributions (0.57) (0.50) (0.25) (0.01) (0.57) (0.28)
----------- ----------- --------------- ---------------- ----------- ----------------
Net asset value
at end of period $ 10.12 $ 9.82 $ 9.55 $ 9.61 $10.12 $ 9.82
=========== =========== =============== ================ =========== ================
Total returns/3/ 9.20% 8.71% 1.98% (0.33)% 9.20% 4.82%
Ratios/Supplemental
data
Net assets at
end of period
(in thousands) $11,734 $5,295 $1,497 $ 77 $2,035 $ 128
Ratios of
expenses to
average net
assets
After
advisory/administration
fee waivers 1.76%/4/ 1.75%/4/ 1.72%/2/,/4/ 1.77%/2/,/4/ 1.73%/4/ 1.74%/2/,/4/
Before
advisory/administration
fee waivers 2.10% 2.04% 2.01%/2/ 2.02%/2/ 2.07% 2.03%/2/
Ratios of net
investment
income
to average net
assets
After
advisory/administration
fee waivers 5.03% 5.61% 5.68%/2/ 4.71%/2/ 4.92% 5.41%/2/
Before
advisory/administration
fee waivers 4.69% 5.32% 5.39%/2/ 4.46%/2/ 4.58% 5.12%/2/
Portfolio
turnover rate 405% 441% 308% 723% 405% 441%

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

/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is
reflected.
/4/Including interest expense, ratios for the Investor A, Investor B and
Investor C Shares would have been 1.27%, 2.01% and 1.90%, respectively, for
the year ended September 30, 1998, 1.36%, 2.17% and 1.93%, respectively, for
the year ended September 30, 1997, 1.27% and 2.00%, respectively, for the
period ended September 30, 1996, and 1.11% and 1.86% for the period ended
March 31, 1996.
30

[GRAPHIC BlackRock
APPEARS Government Income
HERE] Portfolio

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

Investment Goal
The fund seeks current income consistent with the preservation of capital.

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in the highest
rated government and agency bonds in the ten to fifteen year maturity range.
The fund normally invests at least 80% of its total assets in bonds and at
least 65% of its total assets in obligations issued or guaranteed by the U.S.
Government and its agencies. Securities purchased by the fund are rated in the
highest rating category (AAA or Aaa) at the time of purchase by at least one
major rating agency or are determined by the fund manager to be of similar
quality.

The management team evaluates categories of the government/agency market and
individual bonds within these categories. The manager selects bonds from sev-
eral categories including: U.S. Treasuries and agency securities, commercial
and residential mortgage-backed securities (including CMOs), asset-backed secu-
rities and corporate bonds. Securities are purchased for the fund when the man-
ager determines that they have the potential for above-average current income.
The fund measures its performance against the Lehman Mortgage/10 Year Treasury
Index (the benchmark).

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

IMPORTANT DEFINITIONS

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

Collateralized Mortgage
Obligations (CMO): Are
Bonds that are backed
by cash flows from
pools of mortgages.
CMOs may have multiple
classes with different
payment rights and
protections.

Commercial Mortgage-
Backed Securities
(CMBS): A fixed-income
security that is backed
by a mortgage loan or
pools of loans secured
by commercial property,
not residential mort-
gages.

Lehman Mortgage/10 Year
Treasury Index: An
unmanaged index com-
prised of 50% alloca-
tion to the mortgage
component of the Lehman
Brothers Aggregate
Index and a 50% alloca-
tion of the Merrill
Lynch 10 year Treasury
Index.

actions as a hedging technique. In these transactions, the fund exchanges its
right to pay or receive interest with another party for their right to pay or
receive interest.

The fund can borrow money to buy additional securities. This practice is known
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securi-
ties and agrees to buy them back at a particular date and price). The fund
normally may borrow up to 33 1/3% of the value of its total assets.

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

Key Risks
Key Risks
While the fund manager chooses bonds he believes can provide above average
current income, there is no guarantee that shares of the fund will not lose
value. This means you could lose money.

A main risk of investing in the fund is interest rate risk. Typically, when
interest rates rise, there is a corresponding decline in the market value of
bonds such as those held by the fund.

A main difference is that the principal on mortgage-or asset-backed securities
may normally be prepaid at any time, which will reduce the yield and market
value of these securities. Asset-backed securities and CMBS generally experi-
ence less prepayment than residential mortgage-backed securities. In periods
of falling interest rates, the rate of prepayments tends to increase (as does
price fluctuation) as borrowers are motivated to pay off debt and refinance at
new lower rates. During such periods, reinvestment of the prepayment proceeds
by the manager will generally be at lower rates of return than the return on
the assets which were prepaid.

IMPORTANT DEFINITIONS

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer generally
must pay back the face
amount of the security.

Certain asset-backed securities are based on loans that are unsecured, which
means that there is no collateral to seize if the underlying borrower defaults.
Other asset-based securities may not have the benefit of as much collateral as
mortgage-backed securities.

The fund's use of derivative and interest rate transactions may reduce the
fund's returns and/or increase volatility, which is defined as the characteris-
tic of a security or a market to fluctuate significantly in price within a
short period of time. Leverage is a speculative technique which may expose the
fund to greater risk and increase its cost. Increases and decreases in the
value of the fund's portfolio will be magnified when the fund uses leverage.
The fund will also have to pay interest on its borrowings, reducing the fund's
return.

When you invest in this fund you are not making a bank deposit. Your investment
is not insured or guaranteed by the Federal Deposit Insurance Corporation or by
any bank or governmental agency.
33

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). The information shows you how the fund's performance has varied
year by year and provides some indication of the risks of investing in the
fund. The table compares the fund's performance to that of the Lehman Mort-
gage/10 Year Treasury Index, a recognized unmanaged index of bond market per-
formance. The chart and the table both assume reinvestment of dividends and
distributions. As with all such investments, past performance is not an indica-
tion of future results. Sales charges are not reflected in the bar chart. If
they were, returns would be less than those shown.

The performance for the period before Investor C Shares were launched is based
upon performance for Investor B Shares of the fund. Investor C Shares were
launched in February 1997.

[BAR CHART APPEARS HERE]

Best Quarter Q2 '95: 6.92%

Worst Quarter Q1 '96: -1.94%

95 96 97 98
------ ------ ------ ------
18.99% 3.41% 10.52% 8.00%

As of 12/31/98
- --------------------------------------------------------------------------------
A V E R A G E A N N U A L T O T A L R E T U R N S
- --------------------------------------------------------------------------------
Since Inception
1 Year 3 Years Inception Date
- --------------------------------------------------------------------------------
Government Income; Inv A 3.10% 5.63% 8.27% 10/03/94
- --------------------------------------------------------------------------------
Government Income; Inv B 2.38% 5.21% 7.50% 10/03/94
- --------------------------------------------------------------------------------
Government Income; Inv C 6.13% 6.46% 8.68% 10/03/94
- --------------------------------------------------------------------------------
Leh. Mtg./10 Yr. Tsy. 9.86% 7.57% 10.03% N/A*
- --------------------------------------------------------------------------------

* For comparative purposes, the value of the index on 10/01/94 is used as the
beginning value on 10/03/94.

EXPENSES AND FEES

These returns assume payment of applicable sales charges.

time front-end transaction fee each time you buy shares. The other options (In-
vestor B and Investor C Shares) have no front-end charges but have higher on-
going fees, which are paid over the life of the investment, and have a contin-
gent deferred sales charge (CDSC) that you may pay when you redeem your shares.
Which option should you choose? It depends on your individual circumstances.
You should know that the lowest sales charge won't necessarily be the least
expensive option over time. For example, if you intend to hold your shares long
term it may cost less to buy A Shares than B or C Shares.

Shareholder Fees
(Fees paid directly from your investment)

A Shares B Shares C Shares

Maximum Front-End Sales Charge* 4.5% 0.0% 0.0%
(as percentage of offering price)
Maximum Deferred Sales Charge 0.0% 4.5%** 1.00%***
(as percentage of offering
price)

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

A Shares B Shares C Shares

Advisory Fees .50% .50% .50%
Distribution and service (12b-1) fees .50% 1.15% 1.15%
Other expenses .73% .73% .73%
Total annual fund operating expenses 1.73% 2.38% 2.38%
Fee waivers and expense reimbursements* .66% .56% .56%
Net Expenses* 1.07% 1.82% 1.82%

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

IMPORTANT DEFINITIONS

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

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

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

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

1 Year 3 Years 5 Years 10 Years

A Shares* $554 $ 910 $1,287 $2,347
B Shares**
Redemption $635 $1,039 $1,420 $2,435***
B Shares
No Redemption $185 $ 689 $1,220 $2,435***
C Shares**
Redemption $285 $ 689 $1,220 $2,674
C Shares
No Redemption $185 $ 689 $1,220 $2,674

*Reflects imposition of sales charge.
**Reflects deduction of CDSC.
*** Based on the conversion of the Investor B Shares to Investor A Shares after
seven years.

Fund Management
The co-managers of the fund are Robert Kapito, Vice Chairman of BlackRock
Financial Management, Inc. (BFM) since 1988, Scott Amero, Managing Director of
BFM since 1990 and Michael Lustig, Director of BFM since 1989. They have all
co-managed the fund since 1995.
36

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

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

Government Income Portfolio

INVESTOR A
SHARES
- --------------------------------------------------------------------------------
For the
Period
Year Year Year 10/03/94/1
Ended Ended Ended / through
9/30/98 9/30/97 9/30/96 9/30/95

Net asset value
at beginning of
period $10.49 $10.20 $10.68 $10.00
------ ------ ------ ------
Income from
investment
operations
Net investment
income 0.53 0.73 0.68 0.55
Net gain (loss)
on investments
(both realized
and unrealized) 0.54 0.30 (0.22) 0.68
------ ------ ------ ------
Total from
investment
operations 1.07 1.03 0.46 1.23
------ ------ ------ ------
Less
distributions
Distributions
from net
investment
income (0.61) (0.74) (0.66) (0.55)
Distributions
from net
realized
capital gains (0.11) - - (0.28) - -
------ ------ ------ ------
Total
distributions (0.72) (0.74) (0.94) (0.55)
------ ------ ------ ------
Net asset value
at end of period $10.84 $10.49 $10.20 $10.68
====== ====== ====== ======
Total return/3/ 11.13% 10.48% 4.43% 14.27%
Ratios/Supplemental
data
Net assets at
end of period
(in thousands) $6,045 $4,876 $3,651 $2,990
Ratios of
expenses to
average net
assets
After
advisory/administration
fee waivers 1.05%/4/ 1.02%/4/ 0.91%/4/ 0.37%/2/, /4/
Before
advisory/administration
fee waivers 1.63% 1.74% 1.67% 1.81%/2/
Ratios of net
investment
income to
average net
assets
After
advisory/administration
fee waivers 5.86% 8.02% 8.59% 6.89%/2/
Before
advisory/administration
fee waivers 5.28% 7.30% 7.83% 5.44%/2/
Portfolio
turnover rate 477% 393% 434% 258%

INVESTOR B INVESTOR
SHARES C SHARES
------------------------------------------------------ -----------------------------
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
9/30/98 9/30/97 9/30/96 9/30/95 9/30/98 9/30/97

Net asset value
at beginning of
period $ 10.49 $ 10.20 $10.68 $ 10.00 $10.49 $10.30
----------- ----------- ----------- ------------------ ----------- -----------------
Income from
investment
operations
Net investment
income 0.54 0.66 0.60 0.50 0.51 0.37
Net gain (loss)
on investments
(both realized
and unrealized) 0.50 0.30 (0.21) 0.68 0.53 0.20
----------- ----------- ----------- ------------------ ----------- -----------------
Total from
investment
operations 1.04 0.96 0.39 1.18 1.04 0.57
----------- ----------- ----------- ------------------ ----------- -----------------
Less
distributions
Distributions
from net
investment
income (0.58) (0.67) (0.59) (0.50) (0.58) (0.38)
Distributions
from net
realized
capital gains (0.11) - - (0.28) - - (0.11) - -
----------- ----------- ----------- ------------------ ----------- -----------------
Total
distributions (0.69) (0.67) (0.87) (0.50) (0.69) (0.38)
----------- ----------- ----------- ------------------ ----------- -----------------
Net asset value
at end of period $ 10.84 $ 10.49 $10.20 $ 10.68 $10.84 $10.49
=========== =========== =========== ================== =========== =================
Total return/3/ 10.31% 9.66% 3.68% 13.52% 10.31% 5.64%
Ratios/Supplemental
data
Net assets at
end of period
(in thousands) $25,165 $14,796 $11,119 $10,188 $1,551 $ 849
Ratios of
expenses to
average net
assets
After
advisory/administration
fee waivers 1.80%/4/ 1.77%/4/ 1.64%/4/ 1.05%/2/, /4/ 1.80%/4/ 1.70%/2/, /4/
Before
advisory/administration
fee waivers 2.38% 2.49% 2.40% 2.50%/2/ 2.38% 2.42%/2/
Ratios of net
investment
income to
average net
assets
After
advisory/administration
fee waivers 5.03% 7.26% 7.81% 6.17%/2/ 4.98% 7.11%/2/
Before
advisory/administration
fee waivers 4.45% 6.54% 7.05% 4.72%/2/ 4.40% 6.39%/2/
Portfolio
turnover rate 477% 393% 434% 258% 477% 393%

- -------------------------------------------------------------
/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is
reflected.
/4/Including interest expense, ratios for the Investor A, Investor B and
Investor C Shares would have been 1.46%, 2.01% and 2.14%, respectively, for
the year ended September 30, 1998, 1.41%, 2.14% and 3.24%, respectively, for
the year ended September 30, 1997, 2.96% and 3.69%, respectively, for the
year ended September 30, 1996, and 0.92% and 1.60%, respectively, for the
period ended September 30, 1995.
37

[GRAPHIC BlackRock
APPEARS GNMA
HERE] Portfolio

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

Investment Goal
The fund seeks current income consistent with the preservation of capital.

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in securities
issued by the Government National Mortgage Association (GNMA) as well as other
U.S. Government securities in the five to ten year maturity range. The fund
normally invests at least 80% of its total assets in bonds (including U.S.
Treasuries and agency securities and mortgage-backed and asset-backed securi-
ties) and at least 65% of its total assets in GNMA securities.

Securities are purchased for the fund when the manager determines that they
have the potential for above-average current income. The fund measures its per-
formance against the Lehman GNMA Index (the benchmark).

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

The fund manager may, when consistent with the fund's investment objective, use
options or futures (commonly known as derivatives). The primary purpose of
using derivatives is to attempt to reduce risk to the fund as a whole (hedge)
but they may also be used to maintain liquidity, commit cash pending investment
or to increase returns. The fund may also enter into interest rate transactions
as a hedging technique. In these transactions, the fund exchanges its right to
pay or receive interest with another party for their right to pay or receive
interest.

IMPORTANT DEFINITIONS

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

Commercial Mortgage-
Backed Securities
(CMBS): Bonds that are
backed by a mortgage
loan or pool of loans
secured by commercial
property, not residen-
tial mortgages.

GNMA Securities: Secu-
rities issued by the
Government National
Mortgage Association
(GNMA). These securi-
ties represent inter-
ests in pools of resi-
dential mortgage loans
originated by private
lenders and pass income
from the initial debt-
ors (homeowners)
through intermediaries
to investors. GNMA
securities are backed
by the full faith and
credit of the U.S. Gov-
ernment.

Lehman GNMA Index: An
unmanaged index com-
prised of mortgage-
backed pass through
securities of the Gov-
ernment National Mort-
gage Association
(GNMA).

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer generally
must pay back the face
amount of the security.

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

KEY RISKS

Key Risks
While the fund manager chooses bonds he believes can provide above average cur-
rent income, there is no guarantee that shares of the fund will not lose value.
This means you could lose money.

A main risk of investing in the fund is interest rate risk. Typically, when
interest rates rise, there is a corresponding decline in the market value of
bonds such as those held by the fund.

In addition to GNMA securities, the fund may make investments in other residen-
tial and commercial mortgage-backed securities and other asset-backed securi-
ties. The characteristics of mortgage-backed and asset-backed securities differ
from traditional fixed income securities.

A main difference is that the principal on mortgage-or asset-backed securities
may normally be prepaid at any time, which will reduce the yield and market
value of these securities. Asset-backed securities and CMBS generally experi-
ence less prepayment than residential mortgage-backed securities. In periods of
falling interest rates, the rate of prepayments tends to increase (as does
price fluctuation) as borrowers are motivated to pay off debt and refinance at
new lower rates. During such periods, reinvestment of the prepayment proceeds
by the manager will generally be at lower rates of return than the return on
the assets which were prepaid.

Certain asset-backed securities are based on loans that are unsecured, which
means that there is no collateral to seize if the underlying borrower defaults.
Other asset-based securities may not have the benefit of as much collateral as
mortgage-backed securities.

IMPORTANT DEFINITIONS

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

When you invest in this fund you are not making a bank deposit. Your invest-
ment is not insured or guaranteed by the Federal Deposit Insurance Corporation
or by any bank or governmental agency.
40

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). The information shows you how the fund's performance has varied
year by year and provides some indication of the risks of investing in the
fund. The table compares the fund's performance to that of the Lehman GNMA
Index, a recognized unmanaged index of bond market performance. The chart and
the table both assume reinvestment of dividends and distributions. As with all
such investments, past performance is not an indication of future results.
Sales charges are not reflected in the bar chart. If they were, returns would
be less than those shown.

The performance for the period before the fund was launched is based upon per-
formance for a predecessor common trust fund which transferred its assets and
liabilities to the fund. The fund was launched in May 1998.

[BAR CHART APPEARS HERE]

Best Quarter Q2 '95: 5.71%

Worst Quarter Q1 '94: -3.77%

91 92 93 94 95 96 97 98
------ ------ ------ ------ ------ ----- ----- ------
15.49% 6.22% 7.36% -3.99% 17.18% 4.23% 9.19% 7.05%

As of 12/31/98
- --------------------------------------------------------------------------------
A V E R A G E A N N U A L T O T A L R E T U R N S
- --------------------------------------------------------------------------------
Since Inception
1 Year 3 Years 5 Years Inception Date
- --------------------------------------------------------------------------------
GNMA; Inv A 2.81% 5.35% 5.65% 7.39% 05/31/90
- --------------------------------------------------------------------------------
GNMA; Inv B 1.49% 4.75% 5.29% 7.11% 05/31/90
- --------------------------------------------------------------------------------
GNMA; Inv C 5.21% 6.00% 5.72% 7.11% 05/31/90
- --------------------------------------------------------------------------------
Lehman GNMA Index 6.92% 7.31% 7.33% 8.09% N/A*
- --------------------------------------------------------------------------------

* For comparative purposes, the value of the index on 06/01/90 is used as the
beginning value on 05/31/90.

These returns assume payment of applicable sales charge.

EXPENSES
AND FEES

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

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

Shareholder Fees
(Fees paid directly from your investment)

A Shares B Shares C Shares

Maximum Front-End Sales
Charge* 4.0% 0.0% 0.0%
(as percentage of offering
price)
Maximum Deferred Sales Charge 0.0% 4.5%** 1.00%***
(as percentage of offering
price)

* Reduced front-end sales charges may be available. A CDSC of up to 1.00% is
assessed on certain redemptions of Investor A Shares that are purchased
with no initial sales charge as part of an investment of $1,000,000 or
more.
** The CDSC is 4.5% if shares are redeemed in less than one year. The CDSC
for Investor B Shares decreases for redemptions made in subsequent years.
After six years there is no CDSC on B Shares. (See page 120 for complete
schedule of CDSCs.)
*** There is no CDSC on C Shares after one year.

IMPORTANT DEFINITIONS

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

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

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

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

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

A Shares B Shares C Shares

Advisory Fees .55% .55% .55%
Distribution and service (12b-
1) fees .50% 1.15% 1.15%
Other expenses* .49% .49% .49%
Total annual fund operating
expenses 1.54% 2.19% 2.19%
Fee waivers and expense
reimbursements** .47% .37% .37%
Net Expenses** 1.07% 1.82% 1.82%

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

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

1 Year 3 Years

A Shares* $505 $ 823
B Shares**
Redemption $635 $1,000
B Shares
No Redemption $185 $ 650
C Shares**
Redemption $285 $ 650
C Shares
No Redemption $185 $ 650

*Reflects imposition of sales charge.
**Reflects deduction of CDSC.
43

Fund Management
The co-managers of the fund are Robert Kapito, Vice Chairman of BlackRock
Financial Management, Inc. (BFM) since 1988, Scott Amero, Managing Director of
BFM since 1990, and Michael Lustig, Director of BFM since 1989. They have all
co-managed the fund since inception.

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

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

GNMA Portfolio

INVESTOR INVESTOR INVESTOR
A SHARES B SHARES C SHARES
For the For the For the
Period Period Period
5/18/98/1 5/18/98/1 5/18/98/1
/ through / through / through
9/30/98 9/30/98 9/30/98

Net asset value at beginning
of period $10.00 $10.00 $10.00
------ ------ ------
Income from investment
operations
Net investment income 0.20 0.17 0.23
Net gain (loss) on
investments (both realized
and unrealized) 0.11 0.11 0.05
------ ------ ------
Total from investment
operations 0.31 0.28 0.28
------ ------ ------
Less distributions
Distributions from net
investment income (0.20) (0.17) (0.17)
Distributions from net
realized capital gains - - - - - -
------ ------ ------
Total distributions (0.20) (0.17) (0.17)
------ ------ ------
Net asset value at end of
period $10.11 $10.11 $10.11
====== ====== ======
Total return/3/ 3.12% 2.85% 2.85%
Ratios/Supplemental data
Net assets at end of period
(in thousands) $ 535 $ 166 $ - -
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.06%/2/,/4/ 1.70%/2/,/4/ 0.57%/2/,/4/
Before
advisory/administration
fee waivers 1.43%/2/ 2.07%/2/ 0.94%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 5.69%/2/ 4.53%/2/ 5.26%/2/
Before
advisory/administration
fee waivers 5.32%/2/ 4.16%/2/ 4.90%/2/
Portfolio turnover rate 56% 56% 56%

[GRAPHIC BlackRock
APPEARS Managed Income
HERE] Portfolio

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

Investment Goal
The fund seeks current income consistent with the preservation of capital.

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in investment grade
bonds in the five to ten year maturity range. The fund normally invests at
least 80% of its total assets in bonds and only buys securities rated invest-
ment grade at the time of purchase by at least one major rating agency or
determined by the manager to be of similar quality. The fund may invest up to
10% of its total assets in bonds of foreign issuers.

The management team evaluates categories of the bond market and individual
bonds within those categories. The manager selects bonds from several catego-
ries including: U.S. Treasuries and agency securities, commercial and residen-
tial mortgage-backed securities, asset-backed securities and corporate bonds.
Securities are purchased for the fund when the manager determines that they
have the potential for above-average current income. The fund measures its per-
formance against the Lehman Brothers Aggregate Index (the benchmark).

The fund manager may, when consistent with the fund's investment objective, use
options or futures (commonly known as derivatives). The primary purpose of
using derivatives is to attempt to reduce risk to the fund as a whole (hedge)
but they may also be used to maintain liquidity, commit cash pending investment
or to increase returns. The fund may also enter into interest rate or foreign
currency transactions as a hedging technique. In these transactions, the fund
exchanges its right to pay or receive interest or currencies with another party
for their right to pay or receive interest or another currency in the future.

IMPORTANT DEFINITIONS

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

Commercial Mortgage-
Backed Securities
(CMBS): Bonds that are
backed by a mortgage
loan or pools of loans
secured by commercial
property, not residen-
tial mortgages.

The fund can borrow money to buy additional securities. This practice is known
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securi-
ties and agrees to buy them back at a particular date and price). The Fund
normally may borrow up to 33 1/3% of the value of its total assets.

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

KEY RISKS

Treasury obligations differ only in their interest rates, maturities and times
of issuance. Obligations of U.S. Government agencies

IMPORTANT DEFINITIONS

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer generally
must pay back the face
amount of the security.

and authorities are supported by varying degrees of credit. No assurance can be
given that the U.S. Government will provide financial support to its agencies
and authorities if it is not obligated by law to do so.

January 1, 2000. Year 2000 problems may also hurt issuers whose securities the
fund holds or securities markets generally.

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

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A and B Shares (in
the table). The information shows you how the fund's performance has varied
year by year and provides some indication of the risks of investing in the
fund. The table compares the fund's performance to that of the Lehman Brothers
Aggregate Index, a recognized unmanaged index of bond market performance. The
chart and the table both assume reinvestment of dividends and distributions. As
with all such investments, past performance is not an indication of future
results. Sales charges are not reflected in the bar chart. If they were,
returns would be less than those shown.

The performance for the period before Investor Shares were launched is based
upon performance for older share classes of the fund. Investor A Shares were
launched in February 1992 and Investor B Shares were launched in July 1997. The
actual return of Investor Shares would have been lower than shown because
Investor Shares have higher expenses than these older classes. Also, the actual
return of Investor B Shares would have been lower compared to Investor A
Shares.

[BAR CHART APPEARS HERE]

Best Quarter Q3 '91: 5.78%

Worst Quarter Q1 '94: -3.50%

90 91 92 93 94 95 96 97 98
------ ------ ------ ------ ------ ------ ----- ----- ------
8.30% 14.96% 5.91% 11.50% -4.90% 16.94% 2.95% 8.95% 6.79%

As of 12/31/98
- --------------------------------------------------------------------------------
A V E R A G E A N N U A L T O T A L R E T U R N S
- --------------------------------------------------------------------------------
Since Inception
1 Year 3 Years 5 Years Inception Date
- --------------------------------------------------------------------------------
Managed Income; Inv A 2.01% 4.57% 4.93% 7.19% 11/01/89
- --------------------------------------------------------------------------------
Managed Income; Inv B 1.23% 4.60% 5.27% 7.61% 11/01/89
- --------------------------------------------------------------------------------
Lehman Aggregate 8.69% 7.29% 7.27% 8.66% N/A
- --------------------------------------------------------------------------------

These returns assume payment of applicable sales charges.

EXPENSES AND FEES

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

Shareholder Fees
(Fees paid directly from your investment)

A Shares B Shares C Shares

Maximum Front-End Sales
Charge* 4.5% 0.0% 0.0%
(as percentage of offering
price)
Maximum Deferred Sales Charge 0.0% 4.5%** 1.00%***
(as percentage of offering
price)

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

A Shares B Shares C Shares

Advisory Fees .49% .49% .49%
Distribution and service (12b-1) fees .50% 1.15% 1.15%
Other expenses .39% .39% .39%
Total annual fund operating expenses 1.38% 2.03% 2.03%
Fee waivers and expense reimbursements* .26% .16% .16%
Net Expenses* 1.12% 1.87% 1.87%

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

1 Year 3 Years 5 Years 10 Years

A Shares* $559 $842 $1,146 $2,008
B Shares**
Redemption $640 $971 $1,278 $2,100***
B Shares
No Redemption $190 $621 $1,078 $2,100***
C Shares**
Redemption $290 $621 $1,078 $2,346
C Shares
No Redemption $190 $621 $1,078 $2,346

*Reflects imposition of sales charge.
**Reflects deduction of CDSC.
*** Based on the conversion of the Investor B Shares to Investor A Shares after
seven years.

Fund Management
The manager of the fund is Keith Anderson. He has been a Managing Director at
BlackRock Financial Management, Inc. since 1988 and manager of the fund since
June 1997.

IMPORTANT DEFINITIONS

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

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

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

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

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

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

Managed Income Portfolio

INVESTOR
INVESTOR A SHARES B SHARES
For the
Period
Year Year Year Year Year Year 7/15/97/1/
Ended Ended Ended Ended Ended Ended through
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94 9/30/98 9/30/97

Net asset value at
beginning of period $ 10.41 $ 10.09 $10.38 $ 9.79 $ 11.18 $10.41 $10.39
------- ------- ------- ------- ------- ------ ------
Income from investment
operations
Net investment income 0.59 0.65 0.59 0.60 0.57 0.52 0.09
Net gain (loss) on
investments (both
realized and
unrealized) 0.29 0.31 (0.20) 0.60 (1.19) 0.29 0.02
------- ------- ------- ------- ------- ------ ------
Total from investment
operations 0.88 0.96 0.39 1.20 (0.62) 0.81 0.11
------- ------- ------- ------- ------- ------ ------
Less distributions
Distributions from net
investment income (0.60) (0.64) (0.58) (0.60) (0.60) (0.53) (0.09)
Distribution in excess
of net investment
income - - - - - - (0.01) (0.02) - - - -
Distributions from net
realized capital gains (0.05) - - (0.10) - - (0.14) (0.05) - -
Distributions in excess
of net realized gains - - - - - - - - (0.01) - - - -
------- ------- ------- ------- ------- ------ ------
Total distributions (0.65) (0.64) (0.68) (0.61) (0.77) (0.58) (0.09)
------- ------- ------- ------- ------- ------ ------
Net asset value at end of
period $10.64 $ 10.41 $ 10.09 $ 10.38 $ 9.79 $10.64 $10.41
======= ======= ======= ======= ======= ====== ======
Total return/3/ 8.74% 9.74% 3.83% 12.74% (5.76)% 7.94% 1.35%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $14,897 $15,230 $11,193 $11,977 $10,921 $4,639 $ 468
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.10%/4/ 1.05%/4/ 1.05% 1.05% 1.00% 1.82%/4/ 1.31%/2/,/4/
Before
advisory/administration
fee waivers 1.28% 1.30% 1.29% 1.25% 1.22% 2.00% 1.56%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 6.44% 6.54% 5.67% 5.96% 5.66% 5.32% 4.68%/2/
Before
advisory/administration
fee waivers 6.26% 6.29% 5.44% 5.76% 5.44% 5.14% 4.43%/2/
Portfolio turnover rate 376% 428% 638% 203% 61% 376% 428%

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

/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is
reflected.
/4/Including interest expense, ratios for Investor A and Investor B Shares
would have been 1.90% and 2.43%, respectively, for the year ended September
30, 1998, 1.41% and 2.14% respectively, for the year ended September 30,
1997. For the periods prior to September 30, 1997, interest income was pre-
sented net of interest expense.
51

[GRAPHIC BlackRock
APPEARS International Bond
HERE] Portfolio

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

Investment Goal
The fund seeks current income consistent with the preservation of capital.

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in bonds of foreign
issuers in the five to fifteen year maturity range. The fund normally invests
at least 80% of its total assets in bonds and at least 65% of its total assets
in bonds of a diversified group of foreign issuers from at least three devel-
oped countries. The fund may invest more than 25% of its total assets in the
securities of issuers located in Canada, France, Germany, Japan and the United
Kingdom. The Fund may from time to time invest in bonds of issuers in emerging
market countries. The fund may also invest in foreign currencies. The fund may
only buy securities rated investment grade at the time of purchase by at least
one major rating agency or determined by the manager to be of similar quality.

The management team evaluates categories of the bond markets of various world
economies and seeks individual securities within those categories. Securities
are purchased for the fund when the manager determines that they have the
potential for above-average current income. The fund measures its performance
against the Salomon Non-U.S. Hedged World Government Bond Index (the bench-
mark).

IMPORTANT DEFINITIONS

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer generally
must pay back the face
amount of the security.

increase returns. The fund may also enter into interest rate or foreign cur-
rency transactions as a hedging technique. In these transactions, the fund
exchanges its right to pay or receive interest or currencies with another party
for their right to pay or receive interest or another currency in the future.

The fund can borrow money to buy additional securities. This practice is known
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securities
and agrees to buy them back at a particular date and price). The Fund normally
may borrow up to 33 1/3% of the value of its total assets.

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

KEY RISKS

Three of the main risks of investing in the fund are interest rate risk, credit
risk and the risks associated with investing in bonds of foreign issuers. Typi-
cally, when interest rates rise, there is a corresponding decline in the market
value of bonds such as those held by the fund. Credit risk refers to the possi-
bility that the issuer of the bond will not be able to make principal and
interest payments.

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

IMPORTANT DEFINITIONS

Salomon Non-U.S. Hedged
World Government Bond
Index: An unmanaged
index that tracks the
performance of 13 gov-
ernment bond markets:
Australia, Austria,
Belgium, Canada, Den-
mark, France, Germany,
Italy, Japan, the Neth-
erlands, Spain, Sweden
and the United Kingdom.

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

Investing a significant portion of assets in one country makes the fund more
dependent upon the political and economic circumstances of a particular coun-
try than a mutual fund that is more widely diversified. For example, the Japa-
nese economy (especially Japanese banks, securities firms and insurance compa-
nies) has experienced considerable difficulty recently. In addition, the
Japanese Yen has gone up and down in value versus the U.S. dollar. Japan may
also be affected by recent turmoil in other Asian countries. The ability to
concentrate in Canada, France, Germany and the United Kingdom may make the
fund's performance more dependent on developments in those countries.

The fund's expenses can be expected to be higher than those of funds investing
primarily in domestic securities because the costs related to investing abroad
are usually higher than domestic expenses.

Forward foreign currency exchange do not eliminate fluctuations in the value
of foreign securities but rather allow the fund to establish a fixed rate of
exchange for a future point in time. These strategies can have the effect of
reducing returns and minimizing opportunities for gain.
54

When you invest in this fund you are not making a bank deposit. Your investment
is not insured or guaranteed by the Federal Deposit Insurance Corporation or by
any bank or governmental agency.
55

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). The information shows you how the fund's performance has varied
year by year and provides some indication of the risks of investing in the
fund. The table compares the fund's performance to that of the Salomon Non-U.S.
Hedged World Government Bond Index, a recognized unmanaged index of bond market
performance. The chart and the table both assume reinvestment of dividends and
distributions. As with all such investments, past performance is not an indica-
tion of future results. Sales charges are not reflected in the bar chart. If
they were, returns would be less than those shown.

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

[BAR CHART APPEARS HERE]

Best Quarter Q1 '95: 8.40%

Worst Quarter Q2 '94: -2.06%

The bars for 1992-1996
are based upon performance
for Service Shares of the fund.

92 93 94 95 96 97 98
------ ------ ------ ------ ----- ----- ------
6.17% 15.31% -3.71% 20.02% 10.26% 9.75% 10.97%

As of 12/31/98
- --------------------------------------------------------------------------------
A V E R A G E A N N U A L T O T A L R E T U R N S
- --------------------------------------------------------------------------------
Since Inception
1 Year 3 Years 5 Years Inception Date
- --------------------------------------------------------------------------------
International Bond; Inv A 2.37% 4.43% 4.66% 4.29% 07/01/91
- --------------------------------------------------------------------------------
International Bond; Inv B 1.16% 4.40% 4.96% 4.77% 07/01/91
- --------------------------------------------------------------------------------
International Bond; Inv C 4.87% 5.64% 5.39% 4.97% 07/01/91
- --------------------------------------------------------------------------------
Salomon Non-U.S. Hedged Govt. 11.54% 11.48% 9.41% 10.06% N/A
- --------------------------------------------------------------------------------

These returns assume payment of applicable sales charges.

Expenses and Fees

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

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

Shareholder Fees
(Fees paid directly from your investment)

A Shares B Shares C Shares

Maximum Front-End Sales Charge* 5.0% 0.0% 0.0%
(as percentage of offering price)
Maximum Deferred Sales Charge 0.0% 4.5%** 1.00%***
(as percentage of offering price)

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

A Shares B Shares C Shares

Advisory Fees .55% .55% .55%
Distribution and service (12b-1) fees .50% 1.15% 1.15%
Other expenses .68% .68% .68%
Total annual fund operating expenses 1.73% 2.38% 2.38%
Fee waivers and expense reimbursements* .23% .13% .13%
Net Expenses* 1.50% 2.25% 2.25%

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

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

IMPORTANT DEFINITIONS

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

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

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

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

1 Year 3 Years 5 Years 10 Years

A Shares* $645 $ 996 $1,371 $2,421
B Shares**
Redemption $678 $1,080 $1,459 $2,469***
B Shares
No Redemption $228 $ 730 $1,259 $2,469***
C Shares**
Redemption $328 $ 730 $1,259 $2,706
C Shares
No Redemption $228 $ 730 $1,259 $2,706

*Reflects imposition of sales charge.
**Reflects deduction of CDSC.
*** Based on the conversion of the Investor B Shares to Investor A Shares after
seven years.

Fund Management
The fund's manager is Andrew Gordon, a Managing Director at BlackRock Financial
Management, Inc. (BFM) since 1996. Prior to joining BFM he was responsible for
non-dollar (international) research at Barclay Investments from 1994 to 1996
and at CS First Boston from 1986 to 1994. He has served as fund manager since
1997.
58

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

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

International Bond Portfolio

INVESTOR A SHARES INVESTOR B SHARES
------------------------------------------------------------------------------
For the For the
Period Period
Year Year 4/22/96/1/ Year Year 4/19/96/1/
Ended Ended through Ended Ended through
9/30/98 9/30/97 9/30/96 9/30/98 9/30/97 9/30/96

Net asset value at
beginning of period $10.95 $11.71 $11.37 $10.95 $11.71 $11.36
------ ------ ------ ------ ------ ------
Income from investment
operations
Net investment income 0.47 1.10 0.26 0.40 1.06 0.22
Net gain (loss) on
investments (both
realized and
unrealized) 0.76 0.05 0.32 0.75 - - 0.33
------ ------ ------ ------ ------ ------
Total from investment
operations 1.23 1.15 0.58 1.15 1.06 0.55
------ ------ ------ ------ ------ ------
Less distributions
Distributions from net
investment income (0.52) (1.42) (0.24) (0.43) (1.33) (0.20)
Distributions from net
realized capital
gains (0.42) (0.49) - - (0.42) (0.49) - -
------ ------ ------ ------ ------ ------
Total distributions (0.94) (1.91) (0.24) (0.85) (1.82) (0.20)
------ ------ ------ ------ ------ ------
Net asset value at end
of period $11.24 $10.95 $11.71 $11.24 $10.95 $11.71
====== ====== ====== ====== ====== ======
Total return/3/ 11.98% 11.02% 5.13% 11.15% 10.11% 4.90%
Ratios/Supplemental
data
Net assets at end of
period
(in thousands) $1,705 $1,015 $ 176 $1,512 $ 979 $ 136
Ratios of expenses to
average
net assets
After
advisory/administration
fee waivers 1.48%/4/ 1.42%/3/,/4/ 1.45%/2/ 2.22%/4/ 2.12%/3/,/4/ 2.09%/2/
Before
advisory/administration
fee waivers 1.63% 1.52% 1.86%/2/ 2.37% 2.22% 2.49%/2/
Ratios of net
investment income to
average net assets
After
advisory/administration
fee waivers 3.59% 4.49% 5.29%/2/ 2.83% 3.65% 4.61%/2/
Before
advisory/administration
fee waivers 3.44% 4.39% 4.88%/2/ 2.68% 3.55% 4.21%/2/
Portfolio turnover rate 225% 272% 108% 225% 272% 108%

INVESTOR C SHARES
---------------------------------------
For the
Period
Year Year 4/19/96/1/
Ended Ended through
9/30/98 9/30/97 9/30/96

Net asset value at
beginning of period $10.95 $11.71 $11.58
----------- --------------- ------------
Income from investment
operations
Net investment income 0.54 1.15 0.02
Net gain (loss) on
investments (both
realized and
unrealized) 0.61 (0.09) 0.12
----------- --------------- ------------
Total from investment
operations 1.15 1.06 0.14
----------- --------------- ------------
Less distributions
Distributions from net
investment income (0.43) (1.33) (0.01)
Distributions from net
realized capital
gains (0.42) (0.49) - -
----------- --------------- ------------
Total distributions (0.85) (1.82) (0.01)
----------- --------------- ------------
Net asset value at end
of period $11.24 $10.95 $11.71
=========== =============== ============
Total return/3/ 11.15% 10.13% 1.24%
Ratios/Supplemental
data
Net assets at end of
period
(in thousands) $1,249 $ 474 $ 19
Ratios of expenses to
average
net assets
After
advisory/administration
fee waivers 2.22%/4/ 2.11%/2/,/4/ 1.53%/2/
Before
advisory/administration
fee waivers 2.37% 2.21% 1.93%/2/
Ratios of net
investment income to
average net assets
After
advisory/administration
fee waivers 2.83% 3.57% 2.79%/2/
Before
advisory/administration
fee waivers 2.68% 3.47% 2.38%/2/
Portfolio turnover rate 225% 272% 108%

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

/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is
reflected.
/4/Including interest expense, ratios for the Investor A, Investor B and
Investor C Shares would have been 1.48%, 2.22% and 2.22%, respectively, for the
year ended September 30, 1998, 1.42%, 2.12% and 2.11%, respectively, for the
year ended September 30, 1997.
59

[GRAPHIC BlackRock
APPEARS High Yield Bond
HERE] Portfolio

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

Investment Goal
The fund seeks to provide current income by investing primarily in non-invest-
ment grade bonds.

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in non-investment
grade bonds in the ten to fifteen year maturity range. The fund normally
invests at least 80% of its total assets in bonds or convertible securities
and at least 65% of its total assets in high yield bonds. The high yield secu-
rities (commonly called "junk bonds") acquired by the fund will generally be
in the lower rating categories of the major rating agencies (BB or lower by
Standard & Poor's or Ba or lower by Moody's) or will be determined by the fund
manager to be of similar quality. The fund may invest up to 10% of its total
assets in bonds of foreign issuers.

The management team evaluates categories of the high yield market and individ-
ual bonds within these categories. Securities are purchased for the fund when
the manager determines that they have the potential for above-average current
income. The fund measures its performance against the Lehman High Yield Index
(the benchmark).

To add additional diversification, the portfolio manager can invest in a wide
range of securities including mezzanine investments, collateralized bond obli-
gations, bank loans and mortgage-backed and asset-backed securities. The fund
can also invest, to the extent consistent with its investment objective, in
foreign and emerging market securities and currencies. The fund may invest in
securities rated as low as "C." These securities are very risky and have
uncertainties regarding the issuer's ability to make interest and principal
payments.

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

IMPORTANT DEFINITIONS

Asset-Backed Securi-
ties: Bonds that are
backed by a pool of
assets, usually loans
such as installment
sale contracts or
credit card receiv-
ables.
Bank Loans: The fund
may invest in fixed and
floating rate loans
arranged through pri-
vate negotiations
between a company or a
foreign government and
one or more financial
institutions. The fund
considers such invest-
ments to be debt secu-
rities.
Bonds: Debt obligations
such as bonds and
debentures, U.S. Gov-
ernment securities,
debt obligations of
domestic and foreign
corporations, debt
obligations of foreign
governments and their
political subdivisions,
asset-backed securi-
ties, various mortgage-
backed securities (both
residential and commer-
cial), other floating
or variable rate obli-
gations, municipal
obligations and zero
coupon debt securities.
Collateralized Bond
Obligations (CBO): The
fund many invest in
collateralized bond
obligations which are
securities backed by a
diversified pool of
high yield securities.
Commercial Mortgage-
Backed Securities
(CMBS): Bonds that are
backed by a mortgage
loan or pool of loans
secured by commercial
property, not residen-
tial mortgages.
Duration: A mathemati-
cal calculation of the
average life of a bond
(or bonds in a bond
fund) that serves as a
useful measure of its
price risk. Each year
of duration represents
an expected 1% change
in the price of a bond
for every 1% change in
interest rates. For
example, if a bond fund
has an average duration
of four years, its
price will fall about
4% when interest rates
rise by one percentage
point. Conversely, the
bond fund's price will
rise about 4% when
interest rates fall by
one percentage point.

High Yield Bonds: Some-
times referred to as
"junk bonds" these are
debt securities, which
are, rated less than
investment grade (below
the fourth highest rat-
ing of the major rating
agencies). These secu-
rities generally pay
more interest than
higher rated securi-
ties. The higher yield
is an incentive to
investors who otherwise
may be hesitant to pur-
chase the debt of such
a low-rated issuer.

The fund manager may, when consistent with the fund's investment objective, use
options or futures (commonly known as derivatives). The primary purpose of
using derivatives is to attempt to reduce risk to the fund as a whole (hedge)
but they also may be used to maintain liquidity, commit cash pending investment
or to increase returns. The fund may also enter into interest rate or foreign
currency transactions as a hedging technique. In these transactions, the fund
exchanges its right to pay or receive interest or currencies with another party
for their right to pay or receive interest or another currency in the future.

The fund can borrow money to buy additional securities. This practice is known
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securities
and agrees to buy them back at a particular date and price). The fund currently
may borrow up to 33 1/3% of the value of its total assets.

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

KEY RISKS

Non-investment grade bonds carry greater risks than securities which have
higher credit ratings, including a high risk of default. The yields of non-
investment grade securities will move up and down over time. The credit rating
of a high yield security does not necessarily address its market value risk.
Ratings and market value may change from time to time, positively or negative-
ly, to reflect new developments regarding the issuer. These companies are often
young and growing and have a lot of debt. High yield bonds are considered spec-
ulative, meaning there is a significant risk that companies issuing these secu-
rities may not be able to

IMPORTANT DEFINITIONS

Lehman High Yield
Index: An unmanaged
index that is comprised
of issues that meet the
following criteria: at
least $100 million par
value outstanding, max-
imum credit rating of
B1 (including defaulted
issues) and at least
one year to maturity.

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer generally
must pay back the face
amount of the security.

Mezzanine Investments:
These are subordinated
debt securities which
receive payments of
interest and principal
after other more senior
security holders are
paid. They are gener-
ally issued in private
placements in connec-
tion with an equity
security.

repay principal and pay interest or dividends on time. In addition, other cred-
itors of a high yield issuer may have the right to be paid before the high
yield bond holder.

During an economic downturn, a period of rising interest rates or a recession,
issuers of high yield securities who have a lot of debt may experience finan-
cial problems. They may not have enough cash to make their principal and inter-
est payments. An economic downturn could also hurt the market for lower-rated
securities and the fund.

The market for high yield bonds is not as liquid as the markets for higher
rated securities. This means that it may be harder to buy and sell high yield
bonds, especially on short notice. The market could also be hurt by legal or
tax changes.

Mezzanine securities carry the risk that the issuer will not be able to meet
its obligations and that the equity securities purchased with the mezzanine
investments may lose value.

The market for bank loans may not be highly liquid and the fund may have diffi-
culty selling them. These investments expose the fund to the risk of investing
in both the financial institution and the underlying borrower.

The pool of high yield securities underlying CBOs is typically separated into
groupings called tranches representing different degrees of credit quality. The
higher quality tranches have greater degrees of protection and pay lower inter-
est rates. The lower tranches, with greater risk, pay higher interest rates.

The expenses of the fund will be higher than those of mutual funds investing
primarily in investment grade securities. The costs of investing in the high
yield market are usually higher for several reasons, such as the higher costs
for investment research and higher commission costs.

A main difference is that the principal on mortgage-or asset-backed securities
may normally be prepaid at any time, which will reduce the yield and market
value of these securities. Asset-backed securities and CMBS generally experi-
ence less prepayment than residential mortgage-backed securities. In periods of
falling interest rates, the rate of prepayments tends to increase (as does
price fluctuation) as borrowers are motivated to pay off debt and refinance at
new lower rates. During such periods, reinvestment of the prepayment proceeds
by the manager will generally be at lower rates of return than the return on
the assets which were prepaid. Certain commercial mortgage-backed securi-
62

ties are issued in several classes with different levels of yield and credit
protection. The fund's investments in commercial mortgage-backed securities
with several classes will normally be in the lower classes that have less
credit protection.

Certain asset-backed securities are based on loans that are unsecured, which
means that there is no collateral to seize if the underlying borrower defaults.
Other asset-based securities may not have the benefit of as much collateral as
mortgage-backed securities.

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

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

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

EXPENSES AND FEES

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

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

Shareholder Fees
(Fees paid directly from your investment)

A Shares B Shares C Shares

Maximum Front-End Sales Charge* 5.0% 0.0% 0.0%
(as percentage of offeringn price)
Maximum Deferred Sales Charge 0.0% 4.5%** 1.00%***
(as percentage of offering price)

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

A Shares B Shares C Shares

Advisory Fees .50% .50% .50%
Distribution and service (12b-1) fees .50% 1.15% 1.15%
Other expenses* .40% .40% .40%
Total annual fund operating expenses 1.40% 2.05% 2.05%
Fee waivers and expense reimbursements** .23% .13% .13%
Net Expenses** 1.17% 1.92% 1.92%

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

IMPORTANT DEFINITIONS

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

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

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

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

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

1 Year 3 Years

A Shares* $613 $900
B Shares**
Redemption $645 $980
B Shares
No Redemption $195 $630
C Shares**
Redemption $295 $630
C Shares
No Redemption $195 $630

*Reflects imposition of sales charge.
**Reflects deduction of CDSC.

Fund Management
The fund is co-managed by Dennis Schaney and Keith Anderson. Dennis Schaney is
co-leader of the High Yield Team and a Managing Director of BlackRock Finan-
cial Management, Inc. (BFM) since February 1998. Prior to joining BFM he was a
Managing Director in the Global Fixed Income Research and Economics Department
of Merrill Lynch for nine years. Keith Anderson, co-leader of the High Yield
Team, has served as Managing Director of BFM since 1988. Both have co-managed
the fund since its inception.
66

[GRAPHIC BlackRock
APPEARS Tax-Free Income
HERE] Portfolio

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

IMPORTANT DEFINITIONS

General Obligation
Bonds: Bonds which are
secured by the issuer's
pledge of its full
faith, credit and tax-
ing power for the pay-
ment of principal and
interest.

Lehman Municipal Bond
Index: An unmanaged
index of municipal
bonds with the follow-
ing characteristics:
minimum credit rating
of Baa-3, outstanding
par value of at least
$3 million, issued as
part of a deal of at
least $50 million, and
issued within the last
5 years remaining matu-
rities of not less than
one year.

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer must pay
back the face amount of
the security.

Investment Goal:
The fund seeks as high a level of current income exempt from Federal income tax
as is consistent with preservation of capital.

Primary Investment Strategies:
In pursuit of this goal, the fund manager invests primarily in bonds issued by
or on behalf of states and possessions of the United States, their political
subdivisions and their agencies and authorities (and related tax-exempt deriva-
tive securities) the interest on which the manager believes is exempt from Fed-
eral income tax (municipal securities). The fund normally invests at least 80%
of its net assets in municipal securities, including both general obligation
and revenue bonds, from a diverse range of issuers. The other 20% of net assets
can be invested in securities which are subject to regular Federal income tax
or the Federal Alternative Minimum Tax. The fund emphasizes municipal securi-
ties in the ten to twenty year maturity range. The fund may only buy securities
rated investment grade at the time of purchase by at least one major rating
agency or determined by the manager to be of similar quality. The fund intends
to invest so that no more than 25% of its net assets are represented by the
municipal securities of issuers located in the same state.

The management team evaluates sectors of the municipal market and individual
bonds within those categories. The fund measures its performance against the
Lehman Municipal Bond Index (the benchmark).

It is possible that in extreme market conditions the fund may invest more than
20% of its assets in securities that are not municipal securities (and there-
fore are subject to federal income tax) and may hold an unlimited amount of
uninvested cash reserves. If market conditions improve, these strategies could
result in reducing the potential gain from the market upswing, thus reducing
the fund's opportunity to achieve its investment objective.

The fund manager may, when consistent with the fund's investment objective,
use options or futures (commonly known as derivatives). The primary purpose of
using derivatives is to attempt to reduce risk to the fund as a whole (hedge)
but they may also be used to maintain liquidity, commit cash pending invest-
ment or to increase returns. The fund may also enter into interest rate trans-
actions as a hedging technique. In these transactions, the fund exchanges its
right to pay or receive interest with another party for their right to pay or
receive interest.

The fund can borrow money to buy additional securities. This practice is known
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securi-
ties and agrees to buy them back at a particular date and price). The fund
normally may borrow up to 33 1/3% of the value of its total assets.

Should the Company's Board of Trustees determine that the investment objective
of the fund should be changed, shareholders will be given at least 30 days
notice before any such change is made. The fund may not change the requirement
that it normally invest at least 80% of its net assets in municipal securities
without shareholder approval.

KEY RISKS

Key Risks
There is no guarantee that shares of the fund will not lose value. This means
you could lose money.

Revenue bonds include private activity bonds, which are not payable from the
general revenues of the issuer. Consequently, the

IMPORTANT DEFINITIONS

Revenue Bonds: Bonds
which are secured only
by the revenues from a
particular facility or
class of facilities,
such as a water or
sewer system, or from
the proceeds of a spe-
cial excise tax or
other revenue source.

credit quality of private activity bonds is usually directly related to the
credit standing of the corporate user of the facility involved. To the extent
that the fund's assets are invested in private activity bonds, the fund will be
subject to the particular risks presented by the laws and economic conditions
relating to such projects and bonds to a greater extent than if its assets were
not so invested. Municipal securities also include "moral obligation" bonds,
which are normally issued by special purpose public authorities. If the issuer
of moral obligation bonds is unable to pay its debts from current revenues, it
may draw on a reserve fund the restoration of which is a moral but not a legal
obligation of the state or municipality which created the issuer.

The fund may invest in bonds the interest on which may be subject to the Fed-
eral Alternative Minimum Tax. The fund may invest up to 20% of its total assets
in these bonds when added together with any of the fund's other taxable invest-
ments. Interest on these bonds that is received by taxpayers subject to the
Federal Alternative Minimum Tax is taxable.

The fund may invest 25% or more of its assets in municipal securities whose
interest is paid solely from revenues of similar projects. For example, the
fund may invest more than 25% of its assets in municipal securities related to
water or sewer systems. This type of concentration exposes the fund to the
legal and economic risks relating to those projects.

There may be less information available on the financial condition of issuers
of municipal securities than for public corporations. The market for municipal
bonds may be less liquid than for taxable bonds. This means that it may be
harder to buy and sell municipal securities, especially on short notice.

The fund will rely on legal opinions of counsel to issuers of municipal securi-
ties as to the tax-free status of investments and will not do its own analysis.

The fund's use of derivatives and interest rate transactions may reduce the
fund's returns and/or increase volatility, which is defined as the characteris-
tic of a security or a market to fluctuate significantly in price within a
short period of time. The income from certain derivatives may be subject to
Federal income tax. Leverage is a speculative technique which may expose the
fund to greater risk and increase its costs. Increases and decreases in the
value of the fund's portfolio will be magnified when the fund uses leverage.
The fund will also have to pay interest on its borrowings, reducing the fund's
return.

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

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

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). The information shows you how the fund's performance has var-
ied year by year and provides some indication of the risks of investing in the
fund. The table compares the fund's performance to that of the Lehman Munici-
pal Bond Index, a recognized unmanaged index of bond market performance. The
chart and the table both assume reinvestment of dividends and distributions.
As with all such investments, past performance is not an indication of future
results. Sales charges are not reflected in the bar chart. If they were,
returns would be less than those shown.
70

The performance for the period before Investor B and C Shares were launched is
based upon performance for older share classes of the fund. Investor B Shares
were launched in July 1996 and Investor C Shares were launched in February
1997. The actual returns of Investor B and C Shares would have been lower than
shown because Investor B and C Shares have higher expenses than these other
Classes. Also, the actual returns of Investor B and C Shares would have been
lower compared to Investor A Shares.

[BAR CHART APPEARS HERE]

Best Quarter Q1 '95: 8.06%

Worst Quarter Q1 '94: -6.93%

91 92 93 94 95 96 97 98
------ ------ ------ ------ ------ ----- ----- ------
11.36% 8.85% 12.88% -7.09% 17.76% 5.36% 9.61% 5.92%

As of 12/31/98
- --------------------------------------------------------------------------------
A V E R A G E A N N U A L T O T A L R E T U R N S
- --------------------------------------------------------------------------------
Since Inception
1 Year 3 Years 5 Years Inception Date
- --------------------------------------------------------------------------------
Tax-Free Income; Inv A 1.67% 5.47% 5.13% 7.37% 05/14/90
- --------------------------------------------------------------------------------
Tax-Free Income; Inv B 0.40% 5.03% 5.18% 7.64% 05/14/90
- --------------------------------------------------------------------------------
Tax-Free Income; Inv C 4.08% 6.28% 5.61% 7.64% 05/14/90
- --------------------------------------------------------------------------------
Lehman Municipal 6.48% 6.69% 6.23% 8.29% N/A*
- --------------------------------------------------------------------------------

* For comparative purposes, the value of the index on 05/01/90 is used as the
beginning value on 05/14/90.

Expenses and Fees

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

These returns assume payment of applicable sales charge.

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

Shareholder Fees
(Fees paid directly from your investment)

A Shares B Shares C Shares

Maximum Front-End Sales Charge* 4.0% 0.0% 0.0%
(as percentage of offering price)
Maximum Deferred Sales Charge 0.0% 4.5%** 1.00%***
(as percentage of offering price)

* Reduced front-end sales charges may be available. A CDSC of up to 1.00% is
assessed on certain redemptions of Investor A Shares that are purchased
with no initial sales charge as part of an investment of $1,000,000 or
more.
** The CDSC is 4.5% if shares are redeemed in less than one year. The CDSC
for Investor B Shares decreases for redemptions made in subsequent years.
After six years there is no CDSC on B Shares. (See page 120 for complete
schedule of CDSCs.)
*** There is no CDSC on C Shares after one year.

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

A Shares B Shares C Shares

Advisory Fees .50% .50% .50%
Distribution and service (12b-
1) fees .50% 1.15% 1.15%
Other expenses .45% .45% .45%
Total annual fund operating
expenses 1.45% 2.10% 2.10%
Fee waivers and expense
reimbursements* .38% .28% .28%
Net Expenses* 1.07% 1.82% 1.82%

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

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

IMPORTANT DEFINITIONS

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

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

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

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

1 Year 3 Years 5 Years 10 Years

A Shares* $505 $804 $1,126 $2,035
B Shares**
Redemption $635 $981 $1,303 $2,165***
B Shares
No Redemption $185 $631 $1,103 $2,165***
C Shares**
Redemption $285 $631 $1,103 $2,409
C Shares
No Redemption $185 $631 $1,103 $2,409

*Reflects imposition of sales charge.
**Reflects deduction of CDSC.
*** Based on the conversion of the Investor B Shares to Investor A Shares after
seven years.

Fund Management
The manager for the fund is Kevin Klingert, Managing Director at BlackRock
Financial Management, Inc. (BFM) since 1991. Before joining BFM he was Assis-
tant Vice President at Merrill Lynch, Pierce, Fenner & Smith. He has been fund
manager since 1995.

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

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

Tax-Free Income Portfolio

INVESTOR A SHARES INVESTOR B SHARES INVESTOR C SHARES
For the For the
Period Period
Year Year Year Year Year Year Year 7/18/96/1 Year 2/28/97/1
Ended Ended Ended Ended Ended Ended Ended / through Ended / through
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94 9/30/98 9/30/97 9/30/96 9/30/98 9/30/97

Net asset value at
beginning of period $11.34 $10.84 $10.61 $10.04 $11.31 $11.34 $10.84 $10.74 $11.34 $11.04
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations
Net investment income 0.47 0.50 0.45 0.48 0.48 0.40 0.44 0.08 0.36 0.28
Net gain (loss) on
investments (both
realized and
unrealized) 0.45 0.51 0.21 0.59 (0.93) 0.44 0.49 0.10 0.48 0.27
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 0.92 1.01 0.66 1.07 (0.45) 0.84 0.93 0.18 0.84 0.55
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions
Distributions from net
investment income (0.48) (0.51) (0.43) (0.48) (0.48) (0.40) (0.43) (0.08) (0.40) (0.25)
Distributions from net
realized capital gains (0.05) - - - - (0.02) (0.34) (0.05) - - - - (0.05) - -
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.53) (0.51) (0.43) (0.50) (0.82) (0.45) (0.43) (0.08) (0.45) (0.25)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value at end of
period $11.73 $11.34 $10.84 $10.61 $10.04 $11.73 $11.34 $10.84 $11.73 $11.34
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total return3 8.34% 9.58% 6.94% 10.99% (4.19)% 7.53% 8.77% 1.72% 7.53% 5.02%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $6,440 $5,530 $4,873 $6,591 $6,972 $2,034 $ 926 $ 10 $1,024 - -
Ratios of expenses to
average
net assets
After
advisory/administration
fee waivers 1.05% 1.02% 1.04% 1.00% 0.95 % 1.79% 1.75% 1.65%/2/ 1.70% 1.70%2
Before
advisory/administration
fee waivers 1.33% 1.37% 1.37% 1.78% 2.18 % 2.07% 2.10% 1.98%/2/ 1.98% 2.05%2
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 4.17% 4.60% 4.67% 4.74% 4.53 % 3.39% 3.65% 3.84%/2/ 3.19% 3.95%2
Before
advisory/administration
fee waivers 3.89% 4.25% 4.35% 3.96% 3.30 % 3.11% 3.30% 3.51%/2/ 2.91% 3.60%2
Portfolio turnover rate 100% 262% 268% 92% 40 % 100% 262% 268% 100% 262%

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

/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is
reflected.

[GRAPHIC BlackRock
APPEARS Delaware Tax-Free Income
HERE] Portfolio

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

Investment Goal
The fund seeks as high a level of current income exempt from Federal income tax
and, to the extent possible, Delaware state income tax, as is consistent with
preservation of capital.

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in bonds issued by
or on behalf of states and possessions of the United States, their political
subdivisions and their agencies and authorities (and related tax-exempt deriva-
tive securities) the interest on which the manager believes is exempt from Fed-
eral income tax (municipal securities). The fund normally invests at least 65%
of its total assets in municipal securities of issuers located in the state of
Delaware. The fund normally invests at least 80% of its net assets in municipal
securities, including both general obligation and revenue bonds, from a diverse
range of issuers. The other 20% of net assets can be invested in securities
which are subject to regular Federal income tax or the Federal Alternative Min-
imum Tax. The fund emphasizes municipal securities in the ten to twenty year
maturity range. The fund may only buy securities rated investment grade at the
time of purchase by at least one major rating agency or determined by the man-
ager to be of similar quality.

The management team evaluates sectors of the municipal market and individual
bonds within those categories. The fund measures it performance against the
Lehman Municipal Bond Index (the benchmark).

IMPORTANT DEFINITIONS

General Obligation
Bonds: Bonds which are
secured by the issuer's
pledge of its full
faith, credit and tax-
ing power for the pay-
ment of principal and
interest.

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer must pay
back the face amount of
the security.

The fund manager may, when consistent with the fund's investment objective,
use options or futures (commonly known as derivatives). The primary purpose of
using derivatives is to attempt to reduce risk to the fund as a whole (hedge)
but they may also be used to maintain liquidity, commit cash pending invest-
ment or to increase returns. The fund may also enter into interest rate trans-
actions as a hedging technique. In these transactions, the fund exchanges its
right to pay or receive interest with another party for their right to pay or
receive interest.

Key Risks

Key Risks
There is no guarantee that shares of the fund will not lose value. This means
you could lose money.

The fact that the fund concentrates its investments in securities of issuers
located in Delaware raises special concerns. In particular, changes in the
economic conditions and governmental policies of Delaware and its political
subdivisions could hurt the value of the fund's shares.

IMPORTANT DEFINITIONS

Revenue bonds include private activity bonds, which are not payable from the
general revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the corpo-
rate user of the facility involved. To the extent that the fund's assets are
invested in private activity bonds, the fund will be subject to the particular
risks presented by the laws and economic conditions relating to such projects
and bonds to a greater extent than if its assets were not so invested. Munici-
pal securities also include "moral obligation" bonds, which are normally issued
by special purpose public authorities. If the issuer of moral obligation bonds
is unable to pay its debts from current revenues, it may draw on a reserve fund
the restoration of which is a moral but not a legal obligation of the state or
municipality which created the issuer.

The fund will rely on legal opinions of counsel to issuers of municipal securi-
ties as to the tax-free status of investments and will not do its own analysis.

The fund's use of derivatives and interest rate transactions may reduce the
fund's returns and/or increase volatility, which is defined as the characteris-
tic of a security or a market to fluctuate significantly in price within a
short period of time. The income from certain derivatives may be subject to
Federal income tax. Leverage is a speculative technique which may expose the
fund to greater risk and increase its costs. Increases and decreases in the
value of the fund's portfolio will be magnified when the fund uses leverage.
The fund will also have to pay interest on its borrowings, reducing the fund's
return.

Securities loans involve the risk of a delay in receiving additional collateral
if the value of the securities goes up while they are on
77

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

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

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

The fund is a non-diversified portfolio under the Investment Company Act,
which means that fund performance is more dependent on the performance of a
smaller number of securities and issuers than in a diversified portfolio. The
change in value of any one security may affect the overall value of the fund
more than it would a diversified fund's.
78

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). The information shows you how the fund's performance has var-
ied year by year and provides some indication of the risks of investing in the
fund. The table compares the fund's performance to that of the Lehman Munici-
pal Bond Index, a recognized unmanaged index of bond market performance. The
chart and the table both assume reinvestment of dividends and distributions.
As with all such investments, past performance is not an indication of future
results. Sales charges are not reflected in the bar chart. If they were,
returns would be less than those shown.

[BAR CHART APPEARS HERE]

Best Quarter Q1 '95: 4.66%

Worst Quarter Q1 '94: -4.71%

89 90 91 92 93 94 95 96 97 98
- ------- ------ ------ ------ ------ ------ ------ ----- ----- ------
6.86% 6.10% 8.61% 5.25% 7.78% -3.76% 12.55% 3.09% 5.98% 6.20%

As of 12/31/98
- --------------------------------------------------------------------------------
A V E R A G E A N N U A L T O T A L R E T U R N S
- --------------------------------------------------------------------------------
Since Inception
1 Year 3 Years 5 Years 10 Years Inception Date
- --------------------------------------------------------------------------------
DE Tax-Free; Inv A 1.95% 3.66% 3.83% 5.40% 5.23% 09/30/86
- --------------------------------------------------------------------------------
DE Tax-Free; Inv B 0.68% 3.07% 3.48% 5.05% 4.79% 09/30/86
- --------------------------------------------------------------------------------
DE Tax-Free; Inv C 4.37% 4.31% 3.90% 5.05% 4.79% 09/30/86
- --------------------------------------------------------------------------------
Lehman Municipal 6.48% 6.69% 6.23% 8.22% 7.94% N/A*
- --------------------------------------------------------------------------------

* For comparative purposes, the value of the index on 10/01/86 is used as the
beginning value on 09/30/86.

These returns assume payment of applicable sales charges.

EXPENSES
AND FEES

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

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

Shareholder Fees
(Fees paid directly from your investment)

A Shares B Shares C Shares

Maximum Front-End Sales
Charge* 4.0% 0.0% 0.0%
(as percentage of offering
price)
Maximum Deferred Sales Charge 0.0% 4.5%** 1.00%***
(as percentage of offering
price)

* Reduced front-end sales charges may be available. A CDSC of up to 1.00% is
assessed on certain redemptions of Investor A Shares that are purchased
with no initial sales charge as part of an investment of $1,000,000 or
more.
** The CDSC is 4.5% if shares are redeemed in less than one year. The CDSC
for Investor B Shares decreases for redemptions made in subsequent years.
After six years there is no CDSC on B Shares. (See page 120 for complete
schedule of CDSCs.)
*** There is no CDSC on C Shares after one year.
80

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

A Shares B Shares C Shares

Advisory Fees .55% .55% .55%
Distribution and service (12b-
1) fees .50% 1.15% 1.15%
Other expenses* .40% .40% .40%
Total annual fund operating
expenses 1.45% 2.10% 2.10%
Fee waivers and expense
reimbursements** .28% .18% .18%
Net Expenses** 1.17% 1.92% 1.92%

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

1 Year 3 Years

A Shares* $514 $814
B Shares**
Redemption $645 $991
B Shares
No Redemption $195 $641
C Shares**
Redemption $295 $641
C Shares
No Redemption $195 $641

*Reflects imposition of sales charge.
**Reflects deduction of CDSC.

IMPORTANT DEFINITIONS

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

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

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

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

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

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

Delaware Tax-Free Income Portfolio

INVESTOR INVESTOR INVESTOR
A SHARES B SHARES C SHARES
For the For the For the
Period Period Period
5/11/98/1 5/11/98/1 5/11/98/1
/ through / through / through
9/30/98 9/30/98 9/30/98

Net asset value at beginning of period $10.00 $10.00 $10.00
------ ------ ------
Income from investment operations
Net investment income 0.15 0.12 0.12
Net gain (loss) on investments (both
realized and unrealized) 0.34 0.34 0.34
------ ------ ------
Total from investment operations 0.49 0.46 0.46
------ ------ ------
Less distributions
Distributions from net investment
income (0.16) (0.13) (0.13)
Distributions from net realized capital
gains - - - - - -
------ ------ ------
Total distributions (0.16) (0.13) (0.13)
------ ------ ------
Net asset value at end of period $10.33 $10.33 $10.33
====== ====== ======
Total return/3/ 4.97% 4.67% 4.67%
Ratios/Supplemental data
Net assets at end of period (in
thousands) $2,546 $1,740 $ 716
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 1.15%/2/ 1.83%/2/ 1.89%/2/
Before advisory/administration fee
waivers 1.33%/2/ 2.01%/2/ 2.07%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 3.68%/2/ 2.89%/2/ 2.81%/2/
Before advisory/administration fee
waivers 3.50%/2/ 2.71%/2/ 2.63%/2/
Portfolio turnover rate 54% 54% 54%

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

/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is
reflected.
82

[GRAPHIC BlackRock
APPEARS Ohio Tax-Free Income
HERE] Portfolio

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

Investment Goal
The fund seeks as high a level of current income exempt from Federal income tax
and, to the extent possible, Ohio state income tax, as is consistent with pres-
ervation of capital.

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in bonds issued by
or on behalf of states and possessions of the United States, their political
subdivisions and their agencies and authorities (and related tax-exempt deriva-
tive securities) the interest on which the manager believes is exempt from Fed-
eral income tax (municipal securities). The fund normally invests at least 65%
of its net assets in municipal securities of issuers located in the state of
Ohio. The fund normally invests at least 80% of its net assets in municipal
securities, including both general obligation and revenue bonds, from a diverse
range of issuers. The other 20% of net assets can be invested in securities
which are subject to regular Federal income tax or the Federal Alternative Min-
imum Tax. The fund emphasizes municipal securities in the ten to twenty year
maturity range. The fund may only buy securities rated investment grade at the
time of purchase by at least one major rating agency or determined by the man-
ager to be of similar quality.

The management team evaluates categories of the municipal market and individual
bonds within those categories. The fund measures it performance against the
Lehman Municipal Bond Index (the benchmark).

It is possible that in extreme market conditions the fund may invest more than
20% of its assets in securities that are not municipal securities (and there-
fore are subject to regular federal income tax) and may hold an unlimited
amount of uninvested cash reserves. If market conditions improve, these strate-
gies could result in reducing the potential gain from the market upswing, thus
reducing the fund's opportunity to achieve its investment objective.

IMPORTANT DEFINITIONS

General Obligation
Bonds: Bonds which are
secured by the issuer's
pledge of its full
faith, credit and tax-
ing power for the pay-
ment of principal and
interest.

Lehman Municipal Bond
Index: An unmanaged
index of municipal
bonds with the follow-
ing characteristics;
minimum credit rating
of Baa-3, outstanding
par value of at least
$3 million, issued as
part of a deal of at
least $50 million, and
issued within the last
5 years remaining matu-
rities of not less than
one year.

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer must pay
back the face amount of
the security.

The fund manager may, when consistent with the fund's investment objective,
use options or futures (commonly known as derivatives). The primary purpose of
using derivatives is to attempt to reduce risk to the fund as a whole (hedge)
but they may also be used to maintain liquidity, commit cash pending invest-
ment or to increase returns. The fund may also enter into interest rate trans-
actions as a hedging technique. In these transactions, the fund exchanges its
right to pay or receive interest with another party for their right to pay or
receive interest.

The fund can borrow money to buy additional securities. This practice is known
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securi-
ties and agrees to buy them back at a particular date and price). The fund
normally may borrow up to 33 1/3% of the value of its total assets.

KEY RISKS

Key Risks
There is no guarantee that shares of the fund will not lose value. This means
you could lose money.

The fact that the fund concentrates its investments in securities of issuers
located in Ohio raises special concerns. In particular, changes in the eco-
nomic conditions and governmental policies of Ohio and its political subdivi-
sions could hurt the value of the fund's shares.

IMPORTANT DEFINITIONS

Revenue Bonds: Bonds
which are secured only
by the revenues from a
particular facility or
class of
facilities, such as a
water or sewer system,
or from the proceeds of
a special excise tax or
other revenue source.

The fund will rely on legal opinions of counsel to issuers of municipal securi-
ties as to the tax-free status of investments and will not do its own analysis.

The fund's use of derivatives and interest rate transactions may reduce the
fund's returns and/or increase volatility, which is defined as the characteris-
tic of a security or a market to fluctuate significantly in price within a
short period of time. The income from certain derivatives may be subject to
Federal income tax. Leverage is a speculative technique which may expose the
fund to greater risk and increase its costs. Increases and decreases in the
value of the fund's portfolio will be magnified when the fund uses leverage.
The fund will also have to pay interest on its borrowings, reducing the fund's
return.

Securities loans involve the risk of a delay in receiving additional collateral
if the value of the securities goes up while they are on
85

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

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

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

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). The information shows you how the fund's performance has varied
year by year and provides some indication of the risks of investing in the
fund. The table compares the fund's performance to that of the Lehman Municipal
Bond Index, a recognized unmanaged index of bond market performance. The chart
and the table both assume reinvestment of dividends and distributions. As with
all such investments, past performance is not an indication of future results.
Sales charges are not reflected in the bar chart. If they were, returns would
be less than those shown.

The performance for the period before Investor B and C Shares were launched is
based upon performance for older share classes of the fund. Investor B Shares
were launched in October 1994 and Investor C Shares were launched in August
1998. The actual returns of Investor B and C Shares would have been lower than
shown because Investor B and C Shares have higher expenses than these other
classes. Also, the actual returns of Investor B and C Shares would have been
lower compared to Investor A Shares.

[BAR CHART APPEARS HERE]

Best Quarter Q1 '95: 7.36%

Worst Quarter Q1 '94: -6.15%

93 94 95 96 97 98
----- ------ ------ ------ ------ -----
10.14% -6.51% 17.45% 3.64% 8.15% 5.86%

These returns assume payment of applicable sales charges.
87

EXPENSES
AND FEES

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

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

Shareholder Fees
(Fees paid directly from your investment)

A Shares B Shares C Shares

Maximum Front-End Sales
Charge* 4.0% 0.0% 0.0%
(as percentage of offering
price)
Maximum Deferred Sales Charge 0.0% 4.5%** 1.00%***
(as percentage of offering
price)

* Reduced front-end sales charges may be available. A CDSC of up to 1.00% is
assessed on certain redemptions of Investor A Shares that are purchased
with no initial sales charge as part of an investment of $1,000,000 or
more.
** The CDSC is 4.5% if shares are redeemed in less than one year. The CDSC
for Investor B Shares decreases for redemptions made in subsequent years.
After six years there is no CDSC on B Shares. (See page 120 for complete
schedule of CDSCs.)
*** There is no CDSC on C Shares after one year.
88

IMPORTANT DEFINITIONS

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

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

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

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

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

A Shares B Shares C Shares

Advisory Fees .50% .50% .50%
Distribution and service (12b-
1) fees .50% 1.15% 1.15%
Other expenses .50% .50% .50%
Total annual fund operating
expenses 1.50% 2.15% 2.15%
Fee waivers and expense
reimbursements* .43% .33% .33%
Net Expenses* 1.07% 1.82% 1.82%

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

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

1 Year 3 Years 5 Years 10 Years

A Shares* $505 $815 $1,147 $2,084
B Shares**
Redemption $635 $991 $1,324 $2,214***
B Shares
No Redemption $185 $641 $1,124 $2,214***
C Shares**
Redemption $285 $641 $1,124 $2,457
C Shares
No Redemption $185 $641 $1,124 $2,457

*Reflects imposition of sales charge.
**Reflects deduction of CDSC.
*** Based on the conversion of the Investor B Shares to Investor A Shares after
seven years.

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

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

Ohio Tax-Free Income Portfolio

INVESTOR A INVESTOR B INVESTOR C
SHARES SHARES SHARES
For the For the
Period Period
Year Year Year Year Year Year Year Year 10/13/94/1/ 8/26/98/1
Ended Ended Ended Ended Ended Ended Ended Ended through / through
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94 9/30/98 9/30/97 9/30/96 9/30/95 9/30/98

Net asset value at
beginning of period $10.50 $10.15 $10.05 $ 9.60 $10.53 $10.50 $10.15 $10.05 $ 9.58 $10.74
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations
Net investment income 0.45 0.45 0.46 0.52 0.53 0.37 0.37 0.38 0.42 0.03
Net gain (loss) on
investments (both
realized and
unrealized) 0.38 0.35 0.10 0.45 (0.91) 0.38 0.35 0.10 0.47 0.14
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 0.83 0.80 0.56 0.97 (0.38) 0.75 0.72 0.48 0.89 0.17
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions
Distributions from net
investment income (0.45) (0.45) (0.46) (0.52) (0.53) (0.37) (0.37) (0.38) (0.42) (0.03)
Distributions from net
realized capital gains - - - - - - - - (0.02) - - - - - - - - - -
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.45) (0.45) (0.46) (0.52) (0.55) (0.37) (0.37) (0.38) (0.42) (0.03)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value at end of
period $10.88 $10.50 $10.15 $10.05 $ 9.60 $10.88 $10.50 $10.15 $10.05 $10.88
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total return/3/ 8.05% 8.03% 5.66% 10.46% (3.75)% 7.25% 7.23% 4.87% 9.33% 1.60%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $2,774 $2,614 $2,833 $3,303 $3,825 $1,116 $ 622 $ 161 $ 106 $ 527
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.06% 1.02% 0.91% 0.38% 0.10% 1.79% 1.75% 1.66% 1.17%/2/ 1.71%/2/
Before
advisory/administration
fee waivers 1.39% 1.53% 1.50% 1.45% 1.49% 2.12% 2.26% 2.26% 2.25%/2/ 2.04%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 4.22% 4.35% 4.57% 5.42% 5.18% 3.41% 3.52% 3.80% 4.48%/2/ 2.82%/2/
Before
advisory/administration
fee waivers 3.89% 3.84% 3.98% 4.35% 3.79% 3.08% 3.01% 3.21% 3.41%/2/ 2.49%/2/
Portfolio turnover rate 77% 87% 136% 63% 61% 77% 87% 136% 63% 77%

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

/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is
reflected.
90

[GRAPHIC BlackRock
APPEARS Kentucky Tax-Free Income
HERE] Portfolio

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

Investment Goal
The fund seeks as high a level of current income exempt from Federal income tax
and, to the extent possible, Kentucky state income tax, as is consistent with
preservation of capital.

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in bonds issued by
or on behalf of states and possessions of the United States, their political
subdivisions and their agencies and authorities (and related tax-exempt deriva-
tive securities) the interest on which the manager believes is exempt from Fed-
eral income tax (municipal securities). The fund normally invests at least 65%
of its total assets in municipal securities of issuers located in the state of
Kentucky. The fund normally invests at least 80% of its net assets in municipal
securities, including both general obligation and revenue bonds, from a diverse
range of issuers. The other 20% of net assets can be invested in securities
which are subject to regular Federal income tax or the Federal Alternative Min-
imum Tax. The fund emphasizes municipal securities in the ten to twenty year
maturity range. The fund may only buy securities rated investment grade at the
time of purchase by at least one major rating agency or determined by the man-
ager to be of similar quality.

IMPORTANT DEFINITIONS

General Obligation
Bonds: Bonds which are
secured by the issuer's
pledge of its full
faith, credit and tax-
ing power for the pay-
ment of principal and
interest.

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer must pay
back the face amount of
the security.
91

The fund manager may, when consistent with the fund's investment objective,
use options or futures (commonly known as derivatives). The primary purpose of
using derivatives is to attempt to reduce risk to the fund as a whole (hedge)
but they may also be used to maintain liquidity, commit cash pending invest-
ment or to increase returns. The fund may also enter into interest rate trans-
actions as a hedging technique. In these transactions, the fund exchanges its
right to pay or receive interest with another party for their right to pay or
receive interest.

The fund can borrow money to buy additional securities. This practice is known
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securi-
ties and agrees to buy them back at a particular date and price). The Fund
normally may borrow up to 33 1/3% of the value of its total assets.

Key Risks

Key Risks
There is no guarantee that shares of the fund will not lose value. This means
you could lose money.

The fact that the fund concentrates its investments in securities of issuers
located in Kentucky raises special concerns. In particular, changes in the
economic conditions and governmental policies of Kentucky and its political
subdivisions could hurt the value of the fund's shares.

IMPORTANT DEFINITIONS

The fund will rely on legal opinions of counsel to issuers of municipal securi-
ties as to the tax-free status of investments and will not do its own analysis.

The fund's use of derivatives and interest rate transactions may reduce the
fund's returns and/or increase volatility, which is defined as the characteris-
tic of a security or a market to fluctuate significantly in price within a
short period of time. The income from certain derivatives may be subject to
Federal income tax. Leverage is a speculative technique which may expose the
fund to greater risk and increase its costs. Increases and decreases in the
value of the fund's portfolio will be magnified when the fund uses leverage.
The fund will also have to pay interest on its borrowings, reducing the fund's
return.
93

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

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

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). The information shows you how the fund's performance has varied
year by year and provides some indication of the risks of investing in the
fund. The table compares the fund's performance to that of the Lehman Municipal
Bond Index, a recognized unmanaged index of bond market performance. The chart
and the table both assume reinvestment of dividends and distributions. As with
all such investments, past performance is not an indication of future results.
Sales charges are not reflected in the bar chart. If they were, returns would
be less than those shown.

[BAR CHART APPEARS HERE]

Best Quarter Q1 '95: 5.25%

Worst Quarter Q1 '94: -4.49%

89 90 91 92 93 94 95 96 97 98
- ------ ------ ------ ------ ------ ------ ------ ----- ----- ------
7.59% 7.01% 8.66% 6.79% 9.03% -3.69% 12.90% 3.17% 6.42% 5.85%

As of 12/31/98
- --------------------------------------------------------------------------------
A V E R A G E A N N U A L T O T A L R E T U R N S
- --------------------------------------------------------------------------------
Since Inception
1 Year 3 Years 5 Years 10 Years Inception Date
- --------------------------------------------------------------------------------
KY Tax-Free; Inv A 1.62% 3.83% 4.01% 5.91% 6.00% 11/30/87
- --------------------------------------------------------------------------------
KY Tax-Free; Inv B 0.34% 3.25% 3.67% 5.55% 5.60% 11/30/87
- --------------------------------------------------------------------------------
KY Tax-Free; Inv C 4.02% 4.48% 4.09% 5.55% 5.60% 11/30/87
- --------------------------------------------------------------------------------
Lehman Municipal 6.48% 6.69% 6.23% 8.22% 8.47% N/A
- --------------------------------------------------------------------------------

These returns assume payment of applicable sales charges.

Expenses and Fees

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

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

Shareholder Fees
(Fees paid directly from your investment)

A Shares B Shares C Shares

Maximum Front-End Sales
Charge* 4.0% 0.0% 0.0%
(as percentage of offering
price)
Maximum Deferred Sales Charge 0.0% 4.5%** 1.00%***
(as percentage of offering
price)

* Reduced front-end sales charges may be available. A CDSC of up to 1.00% is
assessed on certain redemptions of Investor A Shares that are purchased
with no initial sales charge as part of an investment of $1,000,000 or
more.
** The CDSC is 4.5% if shares are redeemed in less than one year. The CDSC
for Investor B Shares decreases for redemptions made in subsequent years.
After six years there is no CDSC on B Shares. (See page 120 for complete
schedule of CDSCs.)
*** There is no CDSC on C Shares after one year.

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

A Shares B Shares C Shares

Advisory Fees .55% .55% .55%
Distribution and service (12b-
1) fees .50% 1.15% 1.15%
Other expenses* .47% .47% .47%
Total annual fund operating
expenses 1.52% 2.17% 2.17%
Fee waivers and expense
reimbursements** .35% .25% .25%
Net Expenses** 1.17% 1.92% 1.92%

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

1 Year 3 Years

A Shares* $514 $ 828
B Shares**
Redemption $645 $1,005
B Shares
No Redemption $195 $ 655
C Shares**
Redemption $295 $ 655
C Shares
No Redemption $195 $ 655

*Reflects imposition of sales charge.
**Reflects deduction of CDSC.

IMPORTANT DEFINITIONS

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

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

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

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

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

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

Kentucky Tax-Free Income Portfolio

INVESTOR INVESTOR INVESTOR
A SHARES B SHARES C SHARES
For the For the For the
Period Period Period
5/11/98/1/ 5/11/98/1/ 5/11/98/1/
through through through
9/30/98 9/30/98 9/30/98

Net asset value at beginning of period $10.00 $10.00 $10.00
------ ------ ------
Income from investment operations
Net investment income 0.16 0.15 0.15
Net gain (loss) on investments (both
realized and unrealized) 0.31 0.29 0.29
------ ------ ------
Total from investment operations 0.47 0.44 0.44
------ ------ ------
Less distributions
Distributions from net investment
income (0.16) (0.13) (0.13)
Distributions from net realized capital
gains - - - - - -
------ ------ ------
Total distributions (0.16) (0.13) (0.13)
------ ------ ------
Net asset value at end of period $10.31 $10.31 $10.31
====== ====== ======
Total return/3/ 4.76% 4.45% 4.45%
Ratios/Supplemental data
Net assets at end of period (in
thousands) $ 975 $ - - $ - -
Ratios of expenses to average net
assets
After advisory/administration fee
waivers 1.17%/2/ 0.67%/2/ 0.67%/2/
Before advisory/administration fee
waivers 1.42%/2/ 0.92%/2/ 0.92%/2/
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers 4.07%/2/ 0.64%/2/ 5.00%/2/
Before advisory/administration fee
waivers 3.82%/2/ 0.39%/2/ 4.75%/2/
Portfolio turnover rate 7% 7% 7%

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

/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is
reflected.

[GRAPHIC BlackRock
APPEARS New Jersey Tax-Free Income
HERE] Portfolio

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

Investment Goal
The fund seeks as high a level of current income exempt from Federal income tax
and, to the extent possible, New Jersey state income tax, as is consistent with
preservation of capital.

Primary Investment Strategies
In pursuit of this goal, the fund manager invests primarily in bonds issued by
or on behalf of states and possessions of the United States, their political
subdivisions and their agencies and authorities (and related tax-exempt deriva-
tive securities) the interest on which the manager believes is exempt from Fed-
eral income tax (municipal securities). The fund normally invests at least 65%
of its net assets in municipal securities of issuers located in the state of
New Jersey. The fund normally invests at least 80% of its net assets in munici-
pal securities, including both general obligation and revenue bonds, from a
diverse range of issuers. The other 20% of net assets can be invested in secu-
rities which are subject to regular Federal income tax or the Federal Alterna-
tive Minimum Tax. In addition, for New Jersey tax purposes, the fund intends to
invest at least 80% of its total assets in municipal securities of issuers
located in the state of New Jersey and in securities issued by the U.S. Govern-
ment, its agencies and authorities. The fund emphasizes municipal securities in
the ten to twenty year maturity range. The fund may only buy securities rated
investment grade at the time of purchase by at least one major rating agency or
determined by the manager to be of similar quality.

IMPORTANT DEFINITIONS

General Obligation
Bonds: Bonds which are
secured by the issuer's
pledge of its full
faith, credit and tax-
ing power for the pay-
ment of principal and
interest.

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer must pay
back the face amount of
the security.
99

cash reserves. If market conditions improve, these strategies could result in
reducing the potential gain from the market upswing, thus reducing the fund's
opportunity to achieve its investment objective.

The fund manager may, when consistent with the fund's investment objective,
use options or futures (commonly known as derivatives). The primary purpose of
using derivatives is to attempt to reduce risk to the fund as a whole (hedge)
but they may also be used to maintain liquidity, commit cash pending invest-
ment or to increase returns. The fund may also enter into interest rate trans-
actions as a hedging technique. In these transactions, the fund exchanges its
right to pay or receive interest with another party for their right to pay or
receive interest.

The fund can borrow money to buy additional securities. The fund may borrow
from banks or other financial institutions or through reverse repurchase
agreements (under which the fund sells securities and agrees to buy them back
at a particular date and price). The fund normally may borrow up to 33 1/3% of
the value of its total assets.

Key Risks

Key Risks
There is no guarantee that shares of the fund will not lose value. This means
you could lose money.

IMPORTANT DEFINITIONS

100

The fact that the fund concentrates its investments in securities of issuers
located in New Jersey raises special concerns. In particular, changes in the
economic conditions and governmental policies of New Jersey and its political
subdivisions could hurt the value of the fund's shares.

Revenue bonds include private activity bonds, which are not payable from the
general revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the cor-
porate user of the facility involved. To the extent that the fund's assets are
invested in private activity bonds, the fund will be subject to the particular
risks presented by the laws and economic conditions relating to such projects
and bonds to a greater extent than if its assets were not so invested. Munici-
pal securities also include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obliga-
tion bonds is unable to pay its debts from current revenues, it may draw on a
reserve fund the restoration of which is a moral but not a legal obligation of
the state or municipality which created the issuer.

The fund may invest in bonds the interest on which may be subject to the Fed-
eral Alternative Minimum Tax. The fund may invest up to 20% of its total
assets in these bonds when added together with any of the fund's other taxable
investments. Interest on these bonds that is received by taxpayers subject to
the Federal Alternative Minimum Tax is taxable.

The fund will rely on legal opinions of counsel to issuers of municipal secu-
rities as to the tax-free status of investments and will not do its own analy-
sis.

The fund's use of derivatives and interest rate transactions may reduce the
fund's returns and/or increase volatility, which is defined as the character-
istic of a security or a market to fluctuate significantly in price within a
short period of time. The income from certain derivatives may be subject to
Federal income tax. Leverage is a speculative technique which may expose the
fund to greater risk and increase its costs. Increases and decreases in
101

the value of the fund's portfolio will be magnified when the fund uses lever-
age. The fund will also have to pay interest on its borrowings, reducing the
fund's return.

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

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

102

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). The information shows you how the fund's performance has var-
ied year by year and provides some indication of the risks of investing in the
fund. The table compares the fund's performance to that of the Lehman Munici-
pal Bond Index, a recognized unmanaged index of bond market performance. The
chart and the table both assume reinvestment of dividends and distributions.
As with all such investments, past performance is not an indication of future
results. Sales charges are not reflected in the bar chart. If they were,
returns would be less than those shown.

The performance for the period before Investor Shares were launched is based
upon performance for older share classes of the fund. Investor A Shares were
launched in January 1996, Investor B Shares were launched in July 1996 and
Investor C Shares were launched in December 1998. The actual return of
Investor Shares would have been lower than shown because Investor Shares have
higher expenses than these older classes. Also, the actual returns of Investor
B and C Shares would have been lower compared to Investor A Shares.

[BAR CHART APPEARS HERE]

92 8.90%
Best Quarter 93 11.58%
Q1 '95: 6.13% 94 -4.70%
95 14.94%
96 3.44%
Worst Quarter 97 8.08%
Q1 '94: -5.17% 98 5.80%

The bars for 1992-1996 are
based upon performance
for Service Shares
of the fund

As of 12/31/98
- ----------------------------------------------------------------------------
A V E R A G E A N N U A L T O T A L R E T U R N S
- ----------------------------------------------------------------------------
Since Inception
1 Year 3 Years 5 Years Inception Date
- ----------------------------------------------------------------------------
NJ Tax-Free; Inv A 1.56% 4.33% 4.46% 6.66% 07/01/91
- ----------------------------------------------------------------------------
NJ Tax-Free; Inv B 0.28% 3.86% 4.50% 6.98% 07/01/91
- ----------------------------------------------------------------------------
NJ Tax-Free; Inv C 3.96% 5.10% 4.92% 6.98% 07/01/91
- ----------------------------------------------------------------------------
Lehman Municipal 6.48% 6.69% 6.23% 7.95% N/A
- ----------------------------------------------------------------------------

These returns assume payment of applicable sales charges.

103

Expenses and Fees

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

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

Shareholder Fees
(Fees paid directly from your investment)

A Shares B Shares C Shares

Maximum Front-End Sales
Charge* 4.0% 0.0% 0.0%
(as percentage of offering
price)
Maximum Deferred Sales Charge 0.0% 4.5%** 1.00%***
(as percentage of offering
price)

* Reduced front-end sales charges may be available. A CDSC of up to 1.00% is
assessed on certain redemptions of Investor A Shares that are purchased
with no initial sales charge as part of an investment of $1,000,000 or
more.
** The CDSC is 4.5% if shares are redeemed in less than one year. The CDSC
for Investor B Shares decreases for redemptions made in subsequent years.
After six years there is no CDSC on B Shares. (See page 120 for complete
schedule of CDSCs.)
*** There is no CDSC on C Shares after one year.

104

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

A Shares B Shares C Shares

Advisory Fees .50% .50% .50%
Distribution and service (12b-
1) fees .50% 1.15% 1.15%
Other expenses 47% .47% .47%
Total annual fund operating
expenses 1.47% 2.12% 2.12%
Fee waivers and expense
reimbursements* .40% .30% .30%
Net Expenses* 1.07% 1.82% 1.82%

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

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

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

1 Year 3 Years 5 Years 10 Years

A Shares* $505 $812 $1,141 $2,071
B Shares**
Redemption $635 $985 $1,312 $2,185***
B Shares
No Redemption $185 $635 $1,112 $2,185***
C Shares**
Redemption $285 $635 $1,112 $2,428
C Shares
No Redemption $185 $635 $1,112 $2,428

*Reflects imposition of sales charge.
**Reflects deduction of CDSC.
*** Based on the conversion of the Investor B Shares to Investor A Shares
after seven years.

IMPORTANT DEFINITIONS

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

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

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

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

105

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

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

New Jersey Tax-Free Income Portfolio

INVESTOR A SHARES INVESTOR B SHARES
For the For the For the
Period Period Period
Year Year 2/1/96 1/26/96/1/ Year Year 7/2/96/1/
Ended Ended through through Ended Ended through
9/30/98 9/30/97 9/30/96 1/31/96 9/30/98 9/30/97 9/30/96

Net asset value at
beginning of period $11.65 $11.27 $11.61 $11.54 $11.65 $11.27 $11.15
------ ------ ------ ------ ------ ------ ------
Income from investment
operations
Net investment income 0.50 0.51 0.34 - - 0.41 0.41 0.09
Net gain (loss) on
investments (both
realized and
unrealized) 0.42 0.37 (0.34) 0.07 0.42 0.38 0.12
------ ------ ------ ------ ------ ------ ------
Total from investment
operations 0.92 0.88 0.00 0.07 0.83 0.79 0.21
------ ------ ------ ------ ------ ------ ------
Less distributions
Distributions from net
investment income (0.50) (0.50) (0.34) - - (0.41) (0.41) (0.09)
------ ------ ------ ------ ------ ------ ------
Total distributions (0.50) (0.50) (0.34) - - (0.41) (0.41) (0.09)
------ ------ ------ ------ ------ ------ ------
Net asset value at end of
period $12.07 $11.65 $11.27 $11.61 $12.07 $11.65 $11.27
====== ====== ====== ====== ====== ====== ======
Total return/3/ 8.10% 7.94% (0.01)% 0.63% 7.30% 7.14% 2.04%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $1,432 $1,548 $ 894 $ 14 $1,051 $ 767 $ 30
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.06% 1.02% 1.01%/2/ 1.02%/2/ 1.80% 1.74% 1.74%/2/
Before
advisory/administration
fee waivers 1.36% 1.34% 1.33%/2/ 1.36%/2/ 2.10% 2.06% 2.06%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 4.26% 4.41% 4.29%/2/ 2.79%/2/ 3.43% 3.60% 3.48%/2/
Before
advisory/administration
fee waivers 3.96% 4.09% 3.98%/2/ 2.45%/2/ 3.13% 3.28% 3.16%/2/
Portfolio turnover rate 24% 77% 109% 26% 24% 77% 109%

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

/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is reflected
in total return.
106

[GRAPHIC BlackRock
APPEARS Pennsylvania Tax-Free Income
HERE] Portfolio

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

Investment Goal
The fund seeks as high a level of current income exempt from Federal income tax
and, to the extent possible, Pennsylvania state income tax, as is consistent
with preservation of capital.

Primary Investment Strategies:
In pursuit of this goal, the fund manager invests primarily in bonds issued by
or on behalf of states and possessions of the United States, their political
subdivisions and their agencies and authorities (and related tax-exempt deriva-
tive securities) the interest on which the manager believes is exempt from Fed-
eral income tax (municipal securities). The fund normally invests at least 65%
of its net assets in municipal securities of issuers located in the state of
Pennsylvania. The fund normally invests at least 80% of its net assets in
municipal securities including both general obligation and revenue bonds from a
diverse range of issuers. The other 20% of net assets can be invested in secu-
rities which are subject to regular Federal income tax or the Federal Alterna-
tive Minimum Tax. The fund emphasizes municipal securities in the ten to twenty
year maturity range. The fund may only buy securities rated investment grade at
the time of purchase by at least one major rating agency or determined by the
manager to be of similar quality.

IMPORTANT DEFINITIONS

General Obligation
Bonds: Bonds which are
secured by the issuer's
pledge of its full
faith, credit and
taxing power for the
payment of principal
and interest.

Maturity: The date upon
which debt securities
are due to be repaid,
that is, the date when
the issuer must pay
back the face amount of
the security.
107

The fund manager may, when consistent with the fund's investment objective,
use options or futures (commonly known as derivatives). The primary purpose of
using derivatives is to attempt to reduce risk to the fund as a whole (hedge)
but they may also be used to maintain liquidity, commit cash pending invest-
ment or to increase returns. The fund may also enter into interest rate trans-
actions as a hedging technique. In these transactions, the fund exchanges its
right to pay or receive interest with another party for their right to pay or
receive interest.

The fund can borrow money to buy additional securities. This practice is known
as "leverage." The fund may borrow from banks or other financial institutions
or through reverse repurchase agreements (under which the fund sells securi-
ties and agrees to buy them back at a particular date and price). The fund
normally may borrow up to 33 1/3% of the value of its total assets.

Key Risks

There is no guarantee that shares of the fund will not lose value. This means
you could lose money.

The fact that the fund concentrates its investments in securities of issuers
located in Pennsylvania raises special concerns. In particular, changes in the
economic conditions and governmental policies of Pennsylvania and its politi-
cal subdivisions could hurt the value of the fund's shares.

IMPORTANT DEFINITIONS

108

The fund will rely on legal opinions of counsel to issuers of municipal securi-
ties as to the tax-free status of investments and will not do its own analysis.

The fund's use of derivatives and interest rate transactions may reduce the
fund's returns and/or increase volatility, which is defined as the characteris-
tic of a security or a market to fluctuate significantly in price within a
short period of time. The income from certain derivatives may be subject to
Federal income tax. Leverage is a speculative technique which may expose the
fund to greater risk and increase its costs. Increases and decreases in the
value of the fund's portfolio will be magnified when the fund uses leverage.
The fund will also have to pay interest on its borrowings, reducing the fund's
return.

Securities loans involve the risk of a delay in receiving additional collateral
if the value of the securities goes up while they are on
109

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

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

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

110

Risk / Return Information
The chart and table below give you a picture of the fund's long-term perfor-
mance for Investor A Shares (in the chart) and for Investor A, B and C Shares
(in the table). The information shows you how the fund's performance has varied
year by year and provides some indication of the risks of investing in the
fund. The table compares the fund's performance to that of the Lehman Municipal
Bond Index, a recognized unmanaged index of bond market performance. The chart
and the table both assume reinvestment of dividends and distributions. As with
all such investments, past performance is not an indication of future results.
Sales charges are not reflected in the bar chart. If they were, returns would
be less than those shown.

The performance for the period before Investor B and C Shares were launched is
based upon performance for other share classes of the fund. Investor B Shares
were launched in October 1994 and Investor C Shares were launched in August
1998. The actual returns of Investors B and C Shares would have been lower than
shown because Investor B and C Shares have higher expenses than those older
Classes. Also, the actual returns of Investor B and C Shares would have been
lower compared to Investor A Shares.

[BAR CHART APPEARS HERE]

Best Quarter 93 12.62
Q1 '95: 7.54% 94 -7.12
95 17.86
96 4.10
Worst Quarter 97 8.23
Q1 '94: -6.29% 98 5.65

As of 12/31/98
- ----------------------------------------------------------------------------
A V E R A G E A N N U A L T O T A L R E T U R N S
- ----------------------------------------------------------------------------
Since Inception
1 Year 3 Years 5 Years Inception Date
- ----------------------------------------------------------------------------
PA Tax-Free; Inv A 1.39% 4.56% 4.59% 5.91% 12/01/92
- ----------------------------------------------------------------------------
PA Tax-Free; Inv B 0.59% 4.08% 4.45% 6.18% 12/01/92
- ----------------------------------------------------------------------------
PA Tax-Free; Inv C 4.28% 5.33% 4.87% 6.18% 12/01/92
- ----------------------------------------------------------------------------
Lehman Municipal 6.48% 6.69% 6.23% 7.92% N/A
- ----------------------------------------------------------------------------

These returns assume payment of applicable sales charges.
111

Expenses and Fees

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

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

Shareholder Fees
(Fees paid directly from your investment)

A Shares B Shares C Shares

Maximum Front-End Sales
Charge* 4.0% 0.0% 0.0%
(as percentage of offering
price)
Maximum Deferred Sales Charge 0.0% 4.5%** 1.00%***
(as percentage of offering
price)

* Reduced front-end sales charges may be available. A CDSC of up to 1.00% is
assessed on certain redemptions of Investor A Shares that are purchased
with no initial sales charge as part of an investment of $1,000,000 or
more.
** The CDSC is 4.5% if shares are redeemed in less than one year. The CDSC
for Investor B Shares decreases for redemptions made in subsequent years.
After six years there is no CDSC on B Shares. (See page 120 for complete
schedule of CDSCs.)
*** There is no CDSC on C Shares after one year.

112

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

A Shares B Shares C Shares

Advisory Fees .50% .50% .50%
Distribution and service (12b-
1) fees .50% 1.15% 1.15%
Other expenses .39% .39% .39%
Total annual fund operating
expenses 1.39% 2.04% 2.04%
Fee waivers and expense
reimbursements* .32% .22% .22%
Net Expenses* 1.07% 1.82% 1.82%

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

1 Year 3 Years 5 Years 10 Years

A Shares* $505 $792 $1,101 $1,975
B Shares**
Redemption $635 $968 $1,278 $2,106***
B Shares
No Redemption $185 $618 $1,078 $2,106***
C Shares**
Redemption $285 $618 $1,078 $2,351
C Shares
No Redemption $185 $618 $1,078 $2,351

*Reflects imposition of sales charge.
**Reflects deduction of CDSC.
*** Based on the conversion of the Investor B Shares to Investor A Shares after
seven years.

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

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

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

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

113

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

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

Pennsylvania Tax-Free Income Portfolio

INVESTOR A INVESTOR B INVESTOR C
SHARES SHARES SHARES
For the For the
Period Period
Year Year Year Year Year Year Year Year 10/03/94/1/ 8/14/98
Ended Ended Ended Ended Ended Ended Ended Ended through through
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94 9/30/98 9/30/97 9/30/96 9/30/95 9/30/98

Net asset value at
beginning of period $ 10.77 $ 10.44 $ 10.33 $ 9.82 $ 10.70 $ 10.77 $ 10.44 $10.33 $ 9.82 $11.00
------- ------- ------- ------- ------- ------- ------- ------ ------ ------
Income from investment
operations
Net investment income 0.45 0.48 0.48 0.48 0.52 0.39 0.40 0.40 0.42 0.42
Net gain (loss) on
investments (both
realized and
unrealized) 0.40 0.33 0.11 0.51 (0.85) 0.41 0.33 0.11 0.51 0.15
------- ------- ------- ------- ------- ------- ------- ------ ------ ------
Total from investment
operations 0.85 0.81 0.59 0.99 (0.33) 0.80 0.73 0.51 0.93 0.57
------- ------- ------- ------- ------- ------- ------- ------ ------ ------
Less distributions
Distributions from net
investment income (0.47) (0.48) (0.48) (0.48) (0.52) (0.42) (0.40) (0.40) (0.42) (0.42)
Distributions from net
realized capital gains - - - - - - - - (0.03) - - - - - - - - - -
------- ------- ------- ------- ------- ------- ------- ------ ------ ------
Total distributions (0.47) (0.48) (0.48) (0.48) (0.55) (0.42) (0.40) (0.40) (0.42) (0.42)
------- ------- ------- ------- ------- ------- ------- ------ ------ ------
Net asset value at end of
period $ 11.15 $ 10.77 $ 10.44 $ 10.33 $ 9.82 $ 11.15 $ 10.77 $10.44 $10.33 $11.15
======= ======= ======= ======= ======= ======= ======= ====== ====== ======
Total return/3/ 8.04% 7.95% 5.81% 10.30% (3.06)% 7.56% 7.12% 5.04% 9.69% 7.56%
Ratios/Supplemental data
Net assets at end of
period (in thousands) $34,712 $32,900 $38,031 $42,775 $46,563 $17,601 $12,388 $7,974 $4,008 $ 184
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers 1.01% 0.97% 1.00% 0.98% 0.41% 1.78% 1.76% 1.74% 1.57%/2/ 1.58%/2/
Before
advisory/administration
fee waivers 1.25% 1.30% 1.30% 1.30% 1.01% 2.02% 2.07% 2.03% 1.89%/2/ 1.82%/2/
Ratios of net investment
income to average net
assets
After
advisory/administration
fee waivers 4.25% 4.54% 4.58% 4.88% 5.06% 3.46% 3.73% 3.81% 4.07%/2/ 2.98%/2/
Before
advisory/administration
fee waivers 4.01% 4.23% 4.29% 4.56% 4.46% 3.22% 3.42% 3.51% 3.75%/2/ 2.74%/2/
Portfolio turnover rate 43% 97% 119% 66% 30% 43% 97% 119% 66% 43%

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/1/Commencement of operations of share class.
/2/Annualized.
/3/Neither front-end sales load nor contingent deferred sales load is reflected
in total return.
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[GRAPHIC
APPEARS
HERE] About Your Investment

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Buying Shares from a Registered Investment Professional

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

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

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

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What Price Per Share Will You Pay?

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

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

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

PFPC, the Company's transfer agent, will probably receive your order from your
registered representative, who takes your order. However, you can also fill out
a purchase application and mail it to the transfer agent with your check.
Please call (800) 441-7762
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for a purchase application. Purchase orders received by the transfer agent
before the close of regular trading on the New York Stock Exchange (NYSE)
(currently 4 p.m. (Eastern time)) on each day the NYSE is open will be priced
based on the NAV calculated at the close of trading on that day plus any
applicable sales charge. NAV is calculated separately for each class of shares
of each fund at 4 p.m. (Eastern time) each day the NYSE is open. Shares will
not be priced on days the NYSE is closed. Purchase orders received after the
close of trading will be priced based on the next calculation of NAV. Foreign
securities and certain other securities held by a fund may trade on days when
the NYSE is closed. In these cases, net asset value of shares may change when
fund shares cannot be bought or sold.

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

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When Must You Pay?

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

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How Much is the Minimum Investment?

The minimum investment for the initial purchase of Investor Shares is $500.
There is a $50 minimum for all later investments. The Company permits a lower
initial investment if you are an employee of the Company or one of its service
providers or you participate in the Automatic Investment Plan in which you
make regular, periodic investments through a savings or checking account. Your
investment professional can advise you on how to begin an Automatic Investment
Plan. The Company won't accept a purchase order of $1 million or more for
Investor

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B or Investor C Shares. The fund may reject any purchase order, modify or waive
the minimum investment requirements and suspend and resume the sale of any
share class of the Company at any time.

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Which Pricing Option Should You Choose?

BlackRock Funds offers different pricing options to investors in the form of
different share classes. Your registered representative can help you decide
which option works best for you. Through
this prospectus, you can choose from Investor A, B, or C Shares.
A Shares (Front-End Load)
. One time sales charge paid at time of purchase
. Never a charge for redeeming shares
. Lower ongoing fees
. Free exchange with other A Shares in BlackRock Funds family
. Advantage: Makes sense for investors who have long-term investment horizon
because ongoing fees are less than for other Investor Share classes.
. Disadvantage: You pay sales charge up-front, and therefore you start off
owning fewer shares.

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

C Shares (Level Load)
. No front-end sales charge when you buy shares
. Contingent deferred sales charge (CDSC) of 1.00% if shares are redeemed
within 12 months of purchase
. Higher ongoing fees than A Shares
. Free exchange with other C Shares in BlackRock Funds family

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. Advantage: No up-front sales charge so you start off owning more shares.
These shares may make sense for investors who have a shorter investment
horizon relative to A or B Shares.
. Disadvantage: You pay higher ongoing fees than on A shares each year you own
shares, which means that you can expect lower total performance per share.
Shares do not convert to A Shares.

Investor B Shares received through the reinvestment of dividends and distribu-
tions convert to A Shares 7 years after the reinvestment or at the same time as
the conversion of the investor's most recently purchased B Shares that were not
received through reinvestment (whichever is earlier).

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

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How Much is the Sales Charge?

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

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Purchase of Investor A Shares

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

The following schedule of front-end sales charges and quantity discounts
applies to the Low Duration Bond Portfolio.

AMOUNT OF SALES CHARGE AS SALES CHARGE AS
TRANSACTION AT % OF OFFERING % OF NET ASSET
OFFERING PRICE PRICE* VALUE*

Less than $25,000 3.00% 3.09%
$25,000 but less than
$50,000 2.75% 2.83%
$50,000 but less than
$100,000 2.50% 2.56%
$100,000 but less than
$250,000 2.00% 2.04%
$250,000 but less than
$500,000 1.50% 1.52%
$500,000 but less than
$1,000,000 1.00% 1.01%
$1million or more 0.0% 0.0%

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

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The following schedule of front-end sales charges and quantity discounts
applies to the Intermediate Government Bond, Intermediate Bond, Core Bond, Tax-
Free Income, Pennsylvania Tax-Free Income, New Jersey Tax-Free Income, Ohio
Tax-Free Income, Kentucky Tax-Free Income, Delaware Tax-Free Income and GNMA
Portfolios.

AMOUNT OF SALES CHARGE AS SALES CHARGE AS
TRANSACTION AT % OF OFFERING % OF NET ASSET
OFFERING PRICE PRICE* VALUE*

Less than $25,000 4.00% 4.17%
$25,000 but less than
$50,000 3.75% 3.90%
$50,000 but less than
$100,000 3.50% 3.63%
$100,000 but less than
$250,000 3.00% 3.09%
$250,000 but less than
$500,000 2.00% 2.04%
$500,000 but less than
$1,000,000 1.00% 1.01%
$1 million or more 0.0% 0.0%

The following schedule of front-end sales charges and quantity discounts
applies to the Government Income and Managed Income Portfolios.

AMOUNT OF SALES CHARGE AS SALES CHARGE AS
TRANSACTION AT % OF OFFERING % OF NET ASSET
OFFERING PRICE PRICE* VALUE*

Less than $25,000 4.50% 4.71%
$25,000 but less than
$50,000 4.25% 4.70%
$50,000 but less than
$100,000 4.00% 4.17%
$100,000 but less than
$250,000 3.50% 3.63%
$250,000 but less than
$500,000 2.50% 2.56%
$500,000 but less than
$1,000,000 1.50% 1.52%
$1 million or more 0.0% 0.0%

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The following schedule of front-end sales charges and quantity discounts
applies to the International Bond Portfolio and the High Yield Bond Portfolio.

AMOUNT OF SALES CHARGE AS SALES CHARGE AS
TRANSACTION AT % OF OFFERING % OF NET ASSET
OFFERING PRICE PRICE* VALUE*

Less than $25,000 5.00% 5.26%
$25,000 but less than
$50,000 4.75% 4.99%
$50,000 but less than
$100,000 4.50% 4.71%
$100,000 but less than
$250,000 4.00% 4.17%
$250,000 but less than
$500,000 3.00% 3.09%
$500,000 but less than
$1,000,000 2.00% 2.04%
$1 million or more 0.0% 0.0%

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Purchase of Investor B Shares

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

CONTINGENT DEFERRED
SALES CHARGE (AS %
OF DOLLAR AMOUNT
NUMBER OF YEARS SUBJECT TO THE
ELAPSED SINCE PURCHASE CHARGE)

Up to one year 4.50%
More than one but less than two years 4.00%
More than two, but less than three
years 3.50%
More than three but less than four
years 3.00%
More than four but less than five
years 2.00%
More than five but less than six
years 1.00%
More than six years 0.00%

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Purchase of Investor C Shares

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

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

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Can the Sales Charge be Reduced or Eliminated?

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

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Right of Accumulation (Investor A Shares)

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

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Letter of Intent (Investor A Shares)

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

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

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Reinvestment Privilege (Investor A Shares)

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

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Quantity Discounts (Investor A Shares)

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

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Waiving the Sales Charge (Investor A Shares)

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

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Waiving the Contingent Deferred Sales Charge (Investor B and Investor C Shares)

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

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Distribution and Service Plan

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

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

(1) Responding to customer questions on the services performed by the
Service Organization and investments in Investor Shares;

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(2) Assisting customers in choosing and changing dividend options,
account designations and addresses; and
(3) Providing other similar shareholder liaison services.

For a separate shareholder processing fee of up to .15% per year of the average
daily net asset value of Investor Shares owned by each Service Organization's
customers, Service Organizations may provide one or more of these additional
services:

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

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

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

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

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How to Sell Shares

You can redeem shares at any time (although certain verification may be required
for redemptions in excess of $25,000 or in certain other cases). The Company
will redeem your shares at the next net asset value (NAV) calculated after your
order is received by the fund's transfer agent minus any applicable CDSC.
Except when CDSCs are applied, BlackRock Funds will

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not charge for redemptions. Shares may be redeemed by sending a written redemp-
tion request to BlackRock Funds c/o PFPC, P.O. Box 8907, Wilmington, DE 19899-
8907.

You can also make redemption requests through your registered investment pro-
fessional, who may charge for this service. Shareholders should indicate
whether they are redeeming Investor A, Investor B or Investor C Shares. If a
shareholder owns more than one class of a fund and does not indicate which
class he or she is redeeming, the fund will redeem shares so as to minimize the
CDSC charged.

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

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Expedited Redemptions

If a shareholder has given authorization for expedited redemption, shares can be
redeemed by telephone and the proceeds sent by check to the shareholder or by
Federal wire transfer to a single previously designated bank account. You are
responsible for any charges imposed by your bank for this service. Once autho-
rization is on file, PFPC will honor requests by telephone at (800) 441-7762.
The Company is not responsible for the efficiency of the Federal wire system or
the shareholder's firm or bank. The Company may refuse a telephone redemption
request if it believes it is advisable to do so and may use reasonable proce-
dures to make sure telephone instructions are genuine. The Company and its
service providers will not be liable for any loss that results from acting upon
telephone instructions that they reasonably believed to be genuine in accor-
dance with those procedures. The Company may alter the terms of or terminate
this expedited redemption privilege at any time. Any redemption request of
$25,000 or more must be in writing.

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The Company's Rights

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

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

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Accounts with Low Balances

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

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Management

BlackRock Funds' Adviser is BlackRock Advisors, Inc. (BlackRock). BlackRock was
organized in 1994 to perform advisory services for investment companies and is
located at 345 Park Avenue, New York, NY 10154. BlackRock is a subsidiary of
PNC Bank Corp., one of the largest diversified financial services companies in
the United States. BlackRock Financial Management, Inc. (BFM), an affiliate of
BlackRock located at 345 Park Avenue, New York, New York 10154, acts as sub-
adviser to the funds.

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IMPORTANT DEFINITIONS

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

Sub-Adviser: The sub-
adviser of a fund is
responsible for its
day-to-day management
and will generally make
all buy and sell deci-
sions. Sub-advisers
also provide research
and credit analysis.
The sub-adviser for all
the funds is BlackRock
Financial Management,
Inc.

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

Low Duration Bond 0.16%
Intermediate Government Bond 0.30%
Intermediate Bond 0.26%
Core Bond 0.18%
Government Income 0.07%
Managed Income 0.34%
International Bond 0.23%
GNMA 0.17%
Tax-Free Income 0.28%
Pennsylvania Tax-Free Income 0.29%
New Jersey Tax-Free Income 0.26%
Ohio Tax-Free Income 0.22%
Delaware Tax-Free Income 0.17%
Kentucky Tax-Free Income 0.15%

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

Maximum Annual Contractual Fee Rate (Before Waivers)

Each Fund Except
Int'l Bond, GNMA, Int'l Bond, GNMA,
KY Tax-Free, KY Tax-Free,
DE Tax Free DE Tax-Free
INVESTMENT INVESTMENT
AVG DAILY NET ASSETS ADVISORY FEE ADVISORY FEE

first $1 billion .500% .550%
$1 billion--$2
billion .450% .500%
$2 billion--$3
billion .425% .475%
greater than $3
billion .400% .450%

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

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

BlackRock and the Company have entered into an expense limitation agreement.
The agreement sets a limit on certain of the

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

Low Duration Bond .385%
Intermediate Government Bond .475%
Intermediate Bond .435%
Core Bond .380%
Government Income .550%
GNMA .485%
Managed Income .485%
International Bond .865%
High Yield Bond .525%
Tax-Free Income .485%
Delaware Tax-Free Income .585%
Ohio Tax-Free Income .515%
Kentucky Tax-Free Income .585%
New Jersey Tax-Free Income .475%
Pennsylvania Tax-Free Income .470%

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

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Dividends and Distributions

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

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

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

Your distributions will be reinvested at net asset value in new shares of the
same class of the fund unless you instruct PFPC in writing to pay them in
cash. There are no sales charges on these reinvestments.

128

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Taxation of Distributions

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

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

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

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

Each of the Tax-Free Income, Pennsylvania Tax-Free Income, New Jersey Tax-Free
Income, Ohio Tax-Free Income, Delaware Tax-Free Income and Kentucky Tax-Free
Income Portfolios intends to pay most of its dividends as exempt interest divi-
dends, which means such dividends are exempt from regular federal income tax
(but not necessarily other federal taxes). These dividends will generally be
subject to state and local taxes. The state or municipality where you live may
not charge you state and local taxes on dividends earned on certain securities.
The funds will have to meet certain requirements in order for their dividends
to be exempt from these federal, state and local taxes. Dividends earned on
securities issued by the U.S. government and its agencies may also be exempt
from some types of state and local taxes.

These tax-free income funds may invest a portion of their assets in securities
that generate income that is not exempt from federal, state or local income
tax. Any capital gains distributed by the funds may be taxable as well.

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

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

129

[GRAPHIC
APPEARS
HERE] Services for Shareholders

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

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

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

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Exchange Privilege

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

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

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

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

130

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form contact PFPC. The Company has the right to reject any telephone request.

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

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Automatic Investment Plan (AIP)

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

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

Retirement Plans

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

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Statements

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

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

Systematic Withdrawal Plan (SWP)

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

131

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exceed income the invested principal in their account will be depleted.

To participate in the SWP, shareholders must have their dividends automatically
reinvested and may not hold share certificates. Shareholders may change or can-
cel the SWP at any time, upon written notice to PFPC. If an investor purchases
additional Investor A Shares of a fund at the same time he or she redeems
shares through the SWP, that investor may lose money because of the sales
charge involved. No CDSC will be assessed on redemptions of Investor B or
Investor C Shares made through the SWP that do not exceed 12% of the account's
net asset value on an annualized basis. For example, monthly, quarterly and
semi-annual SWP redemp-tions of Investor B or Investor C Shares will not be
subject to the CDSC if they do not exceed 1%, 3% and 6%, respectively, of an
account's net asset value on the redemption date. SWP redemptions of Investor B
or Investor C Shares in excess of this limit will still pay the applicable
CDSC.

132

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

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

Statement of Additional Information (SAI)
A Statement of Additional Information, dated January, 28, 1999, has been filed
with the Securities and Exchange Commission (SEC). The SAI, which includes
additional information about the BlackRock Funds, may be obtained free of
charge, along with the Company's annual and semi-annual reports, by calling
(800) 441-7762. The SAI, as supplemented from time to time is incorporated by
reference into this Prospectus.

Shareholder Account Service Representatives
Representatives are available to discuss account balance information, mutual
fund prospectuses, literature and to discuss programs and services available.
Hours: 8 a.m. to 6 p.m. (Eastern time), Monday-Friday. Call: (800) 441-7762

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

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

Email
Request prospectuses, SAI, Annual or Semi-Annual Reports and literature. Forward
mutual fund inquiries. Available 24 hours a day, 7 days a week. Mail to:
funds@blackrock.com

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

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

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

INVESTMENT COMPANY ACT FILE NO. 811-05742 [GRAPHIC] BLACKROCK
FUNDS

BLACKROCK FUNDS SM

THE BOND PORTFOLIOS/INVESTOR CLASSES

SUPPLEMENT TO PROSPECTUS DATED JANUARY 28, 1999

BlackRock Low Duration Bond Portfolio

Fund Management

The section "Fund Management" on page 8 has been amended to read in its
entirety as follows:

The fund is managed by a team of investment professionals at BlackRock
Financial Management, Inc. (BFM), including the following individuals who
have day-to-day responsibility: Scott Amero, Managing Director of BFM since
1990, Keith Anderson, Managing Director of BFM since 1988 and Rajiv Sobti,
Managing Director of BFM since March 1998. Prior to joining BFM, Rajiv
Sobti was a Managing Director and head of Quantitative Research with Don-
aldson Lufkin & Jenrette for 12 years. Scott Amero has been a member of the
team managing the fund since 1992, Keith Anderson since 1992 and Rajiv
Sobti since 1998. Scott Amero has been a portfolio co-manager since incep-
tion, Keith Anderson since 1999 and Rajiv Sobti since 1999.

BlackRock Intermediate Government Bond Portfolio

Fund Management

The section "Fund Management" on page 15 has been amended to read in its
entirety as follows:

The fund is managed by a team of investment professionals at BlackRock
Financial Management, Inc. (BFM), including the following individuals who
have day-to-day responsibility: Scott Amero, Managing Director of BFM since
1990, Keith Anderson, Managing Director of BFM since 1988 and Rajiv Sobti,
Managing Director of BFM since March 1998. Prior to joining BFM, Rajiv
Sobti was a Managing Director and head of Quantitative Research with Don-
aldson Lufkin & Jenrette for 12 years. Scott Amero has been a member of the
team managing the fund since 1995, Keith Anderson since 1995 and Rajiv
Sobti since 1998. Scott Amero has been a portfolio co-manager since 1995,
Keith Anderson since 1999 and Rajiv Sobti since 1999.

BlackRock Intermediate Bond Portfolio

Fund Management

The section "Fund Management" on page 22 has been amended to read in its
entirety as follows:

The fund is managed by a team of investment professionals at BlackRock
Financial Management, Inc. (BFM), including the following individuals who
have day-to-day responsibility: Scott Amero, Managing Director of BFM since
1990, Keith Anderson, Managing Director of BFM since 1988 and Rajiv Sobti,
Managing Director of BFM since March 1998. Prior to joining BFM, Rajiv
Sobti was a Managing Director and head of Quantitative Research with Don-
aldson Lufkin & Jenrette for 12 years. Scott Amero has been a member of the
team managing the fund since 1995, Keith Anderson since 1995 and Rajiv
Sobti since 1998. Scott Amero has been a portfolio co-manager since 1995,
Keith Anderson since 1999 and Rajiv Sobti since 1999.

BlackRock Core Bond Portfolio

Fund Management

The section "Fund Management" on page 29 has been amended to read in its
entirety as follows:

The fund is managed by a team of investment professionals at BlackRock
Financial Management, Inc. (BFM), including the following individuals who
have day-to-day responsibility: Keith Anderson, Managing Director of BFM
since 1988, Scott Amero, Managing Director of BFM since 1990 and Rajiv
Sobti, Managing Director of BFM since March 1998. Prior to joining BFM,
Rajiv Sobti was a Managing Director and head of Quantitative Research with
Donaldson Lufkin & Jenrette for 12 years. Keith Anderson has been a member
of the team managing the fund since 1997, Scott Amero since 1992 and Rajiv
Sobti since 1998. Keith Anderson has been a portfolio co-manager since
1997, Scott Amero since 1999 and Rajiv Sobti since 1999.

BlackRock Government Income Portfolio

Fund Management

The section "Fund Management" on page 36 has been amended to read in its
entirety as follows:

The fund is managed by a team of investment professionals at BlackRock
Financial Management, Inc. (BFM), including the following individuals who
have day-to-day responsibility: Rajiv Sobti, Managing Director of BFM since
March 1998 and Andrew Phillips, Managing Director of BFM since 1991. Prior
to joining BFM, Rajiv Sobti was a Managing Director and head of Quantita-
tive Research with Donaldson Lufkin & Jenrette for 12 years. Rajiv Sobti
has been a member of the team managing the fund since 1998 and Andrew Phil-
lips since 1995. Both have been portfolio co-managers since 1999.

BlackRock GNMA Portfolio

Fund Management

The section "Fund Management" on page 44 has been amended to read in its
entirety as follows:

The fund is managed by a team of investment professionals at BlackRock
Financial Management, Inc. (BFM), including the following individuals who
have day-to-day responsibility: Rajiv Sobti, Managing Director of BFM since
March 1998 and Andrew Phillips, Managing Director of BFM since 1991. Prior
to joining BFM, Rajiv Sobti was a Managing Director and head of Quantita-
tive Research with Donaldson Lufkin & Jenrette for 12 years. Rajiv Sobti
and Andrew Phillips have been members of the team managing the fund since
1998 and portfolio co-managers since 1999.

BlackRock Managed Income Portfolio

Fund Management

The section "Fund Management" on page 50 has been amended to read in its
entirety as follows:

The fund is managed by a team of investment professionals at BlackRock
Financial Management, Inc. (BFM), including the following individuals who
have day-to-day responsibility: Keith Anderson, Managing Director of BFM
since 1988, Scott Amero, Managing Director of BFM since 1990 and Rajiv
Sobti, Managing Director of BFM since March 1998. Prior to joining BFM,
Rajiv Sobti was a Managing Director and head of Quantitative Research with
Donaldson

Lufkin & Jenrette for 12 years. Keith Anderson has been a member of the
team managing the fund since 1997, Scott Amero since 1990 and Rajiv Sobti
since 1998. Keith Anderson has been a portfolio co-manager since 1997,
Scott Amero since 1999 and Rajiv Sobti since 1999.

BlackRock International Bond Portfolio

Fund Management

The section "Fund Management" on page 58 has been amended to read in its
entirety as follows:

The fund is managed by a team of investment professionals at BlackRock
Financial Management, Inc. (BFM), including the following individuals who
have day-to-day responsibility: Andrew Gordon, Managing Director of BFM
since 1996 and Keith Anderson, Managing Director of BFM since 1988. Prior
to joining BFM, Andrew Gordon was responsible for non-dollar (internation-
al) research at Barclay Investments from 1994 to 1996 and at CS First Bos-
ton from 1986 to 1994. Andrew Gordon has been a member of the team managing
the fund since 1997 and Keith Anderson since 1996. Andrew Gordon has been a
portfolio co-manager since 1997 and Keith Anderson since 1999.

BlackRock High Yield Bond Portfolio

Fund Management

The section "Fund Management" on page 66 has been amended to read in its
entirety as follows:

The fund is managed by a team of investment professionals at BlackRock
Financial Management, Inc. (BFM), including the following individuals who
have day-to-day responsibility: Dennis Schaney and Michael Buchanan. Dennis
Schaney is co-leader of the High Yield Team and a Managing Director of BFM
since February 1998. Prior to joining BFM, he was a Managing Director in
the Global Fixed Income Research and Economics Department of Merrill Lynch
for nine years. Michael Buchanan, co-leader of the High Yield Team, has
served as Director of BFM since June 1998. Prior to joining BFM, Michael
Buchanan was Vice President of Investments at Conseco Capital Management
where he was a portfolio manager responsible for high yield debt, bank
loan, and emerging markets debt trading. Dennis Schaney and Michael
Buchanan have been members of the team managing the fund since inception.
Dennis Schaney has been a portfolio co-manager since inception and Michael
Buchanan since 1999.

Annual Fund Operating Expenses

The footnote to the Annual Fund Operating Expenses table regarding waivers for
each of the funds appearing on pages 8, 15, 21, 28, 35, 43, 50, 57, 65, 72, 81,
89, 97, 105 and 113 has been amended to read in its entirety as follows:

BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit certain (but not all) fund expenses for the next year.
The fund may have to repay these waivers and reimbursements to BlackRock in
the following two years if the repayment can be made within these expense
limits. In addition, BlackRock Distributors, Inc., the fund's distributor,
has contractually agreed to waive 12b-1 distribution fees on Investor A
Shares in the amount of .095% of average daily net assets (otherwise pay-
able at the maximum annual rate of .10% of average daily net assets) for
the next year. "Net Expenses" in the table have been restated to reflect
these waivers and reimbursements.

The section "Purchase of Investor B Shares" on page 120 is amended by adding
the following after the chart:

Investor B Shares of the Intermediate Government Bond and Managed Income
Portfolios purchased from December 1, 1999 to December 31, 1999 are subject
to a CDSC at the rates shown in the chart below:

CONTINGENT DEFERRED SALES
NUMBER OF YEARS CHARGE (AS % OF DOLLAR AMOUNT
ELAPSED SINCE PURCHASE SUBJECT TO THE CHARGE)
---------------------- -----------------------------

Up to one year 3.50%
More than one but less than two years 3.00%
More than two but less than three years 2.00%
More than three but less than four years 1.00%
More than four years 0.00%

This supplement is dated November 22, 1999.