THE BLACKROCK FUNDS
THE BLACKROCK STRATEGIC PORTFOLIO I
SEMI-ANNUAL REPORT
MARCH 31, 1998
(UNAUDITED)
See Notes to Financial Statements
<PAGE>
THE BLACKROCK FUNDS
THE BLACKROCK STRATEGIC PORTFOLIO I
STATEMENT OF NET ASSETS (UNAUDITED)
MARCH 31, 1998
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Principal
Amount Value
(000) DESCRIPTION
- --------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS 97.3%
U.S. Treasury Notes
$5,750 6.37% 05/15/00 $ 5,837,514
13,350 5.87% 09/30/02 13,446,654
2,700 6.50% 10/15/06 2,833,191
6,125 6.62% 05/15/07 6,500,768
-----------
TOTAL U.S. TREASURY OBLIGATIONS (COST $28,643,043) $28,618,127
-----------
SHORT TERM INVESTMENTS 1.9%
545 Smith Barney Money Market Fund 545,104
(COST $545,104) -----------
TOTAL INVESTMENTS IN SECURITIES 99.2% $29,163,131
(COST $29,188,147)
OTHER ASSETS IN EXCESS OF LIABILITES 0.8% 229,390
------ -----------
NET ASSETS 100.0% $29,392,621
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See Notes to Financial Statements
<PAGE>
THE BLACKROCK FUNDS
THE BLACKROCK STRATEGIC PORTFOLIO I
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
Investments at value (cost $29,188,147) $29,163,231
Cash denominated in foreign currencies (cost $10,533) 9,959
Interest receivable 376,060
Advisor reimbursement receivable 7,178
Prepaid expenses 52
-----------
Total Assets 29,556,480
-----------
LIABILITIES
Distributions payable 141,523
Accrued expenses payable 22,336
-----------
Total Liabilities 163,859
-----------
NET ASSETS $29,392,621
===========
Net assets were comprised of:
Common stock, at par $2,945
Paid-in capital in excess of par 29,468,806
Accumulated net realized gain (53,640)
Net unrealized appreciation (25,490)
-----------
Net assets $29,392,621
===========
Net asset value per share $9.98
===========
Total shares outstanding 2,944,516
===========
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See Notes to Financial Statements
<PAGE>
THE BLACKROCK FUNDS
THE BLACKROCK STRATEGIC PORTFOLIO I
STATEMENTS OF OPERATIONS (UNAUDITED)
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For the Period
10/6/97 (a)
through
3/31/98
--------------
Investment Income:
Interest $778,897
Expenses:
Investment advisory fee 26,674
Administration fee 30,675
Custodian fee 6,205
Transfer agent fee 4,001
Legal and audit 4,338
Printing 7,080
Registration fees 904
Trustees fees 2,848
Other 2,527
--------
Total expenses 85,252
Less fees voluntarily waived (50,583)
--------
Total operating expenses 34,669
--------
Interest expense 954
--------
Total expenses 35,623
--------
Net investment income 743,274
--------
Realized and unrealized gain on investments:
Net realized gain (loss) on:
Investment transactions 106,717
Foreign exchange transactions (25,357)
--------
81,360
--------
Net change in unrealized appreciation on:
Investments (25,490)
--------
Net gain on investments 55,870
--------
Net increase in net assets resulting from operations $ 20,247
========
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(a) Commencement of Operations
See Notes to Financial Statements
<PAGE>
THE BLACKROCK FUNDS
THE BLACKROCK STRATEGIC PORTFOLIO I
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the Period
10/6/97 (a)
through
3/31/98
--------------
Increase (decrease) in net assets: (Unaudited)
Operations:
Net investment income $ 743,274
Net realized gain on investments 81,360
Net unrealized depreciation on investments (25,490)
-----------
Net increase in net assets resulting from operations 799,144
-----------
Distributions to shareholders from:
Net investment income (878,273)
Net realized gain --
-----------
(878,273)
-----------
Capital share transactions:
Proceeds from shares subscribed 28,735,000
Net asset value of shares issued in reinvestment
of dividend distributions 736,750
Net asset value of shares redeemed --
-----------
29,471,750
-----------
Total increase in net assets 29,392,621
-----------
Net Assets:
Beginning of period --
-----------
End of period $29,392,621
===========
(a) Commencement of operations.
See Notes to Financial Statements
<PAGE>
THE BLACKROCK FUNDS
THE BLACKROCK STRATEGIC PORTFOLIO I
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout the period: For the Period
10/6/97 (a) through
3/31/98
-------------------
(Unaudited)
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period $ 10.00
--------
Net investment income (b) 0.25
Net realized and unrealized gain (loss) on investments 0.03
--------
Net increase from investment operations 0.28
--------
Distributions from net investment income (0.30)
Distributions from net realized capital gains --
--------
Total dividends and distributions (0.30)
--------
Net asset value, end of period $9.98
========
TOTAL RETURN 3.03%
RATIOS / SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $29,393
Ratio of expenses to average net assets (b) 0.27%
Ratio of expenses to average net assets (excluding waivers) (b) 0.64%
Ratio of net investment income to average net assets (b) 5.57%
Ratio of net investment income to average net assets
(excluding waivers) (b) 5.20%
Portfolio turnover 150%
- --------------------------------------------------------------------------------
(a) Commencement of investment operations.
(b) Annualized
See Notes to Financial Statements
<PAGE>
BLACKROCK FUNDS
STRATEGIC PORTFOLIO I
NOTES TO FINANCIAL STATEMENTS
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NOTE 1. ORGANIZATION AND ACCOUNTING POLICIES
BlackRock Funds[SERVICE MARK] (the "Fund") (formerly the Compass Capital
(REGISTRATION MARK) Funds) was organized on December 22, 1988 as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. These financial
statements relate to the Fund's Strategic Portfolio I (the "Portfolio"). The
Portfolio is authorized to issue an unlimited number of shares with a par value
of $0.001.
The following is a summary of significant accounting policies followed by
the Fund.
SECURITIES VALUATION: The Fund values mortgage-backed, asset-backed and
other debt securities on the basis of current market quotations provided by
dealers or pricing services approved by the Fund's Board of Trustees. In
determining the value of a particular security, pricing services may use certain
information with respect to transactions in such securities, quotations from
dealers, market transactions in comparable securities, various relationships
observed in the market between securities, and calculated yield measures based
on valuation technology commonly employed in the market for such securities.
Exchange-traded options are valued at their last sales price as of the close of
options trading on the applicable exchanges. In the absence of a last sale,
options are valued at the average of the quoted bid and asked prices as of the
close of business. A futures contract is valued at the last sale price as of the
close of the commodities exchange on which it trades. Any securities or other
assets for which such current market quotations are not readily available are
valued at fair value as determined in good faith under procedures established by
and under the general supervision and responsibility of the Fund's Board of
Trustees.
Short-term securities which mature in more than 60 days are valued at
current market quotations. Short-term securities which mature in 60 days or less
are valued at amortized cost, if their term to maturity from date of purchase
was 60 days or less, or by amortizing their value on the 61st day prior to
maturity, if their original term to maturity from date of purchase exceeded 60
days.
In connection with transactions in repurchase agreements, the Fund's
custodian takes possession of the underlying collateral securities, the value of
which at least equals the principal amount of the repurchase transaction,
including accrued interest. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-to-market on a
daily basis to ensure the adequacy of the collateral. If the seller defaults and
the value of the collateral declines or if bankruptcy proceedings are commenced
with respect to the seller of the security, realization of the collateral by the
Fund may be delayed or limited.
FOREIGN CURRENCY TRANSLATION- The books and records of Strategic Portfolio
I are maintained in U.S. dollars. Foreign currency amounts are translated into
U.S. dollars on the following basis:
(I) Market value of investment securities, assets and liabilities at the
current rate of exchange; and
<PAGE>
(II) purchases and sales of investment securities, income and expenses at
the relevant rates of exchange prevailing on the respective dates of
such transactions.
The Portfolio isolates that portion of gains and losses on investment
securities which is due to changes in the foreign exchange rates from that which
is due to changes in market prices of such securities.
The Portfolio reports certain foreign currency related transactions as
components of realized and unrealized gains for financial reporting purposes,
whereas such components are treated as ordinary income for federal income tax
purposes.
FORWARD FOREIGN CURRENCY CONTRACTS- The Portfolio enters into forward
foreign currency contracts as a hedge against either specific transactions or
portfolio positions. These contracts are adjusted by the daily exchange rate of
the underlying currency and any gains or losses are recorded as unrealized until
the contract settlement date. Such contracts, which protect the value of the
Portfolio's investment securities against a decline in the value of currency, do
not eliminate fluctuations in the underlying prices of the securities. They
simply establish an exchange rate at a future date. Also, although such
contracts tend to minimize the risk of loss due to a decline in the value of a
hedged currency, at the same time they tend to limit any potential gain that
might be realized should the value of such foreign currency increase. Risks may
arise upon entering into these contracts from the potential inability of counter
parties to meet the terms of their contracts and from unanticipated movements in
the value of a foreign currency relative to the U.S. dollar.
SECURITY TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Realized and unrealized gains or losses are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis and the Fund accretes premium or amortizes discount on securities
purchased using the interest method.
TAXES: It is the Fund's intention to continue to meet the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders. Therefore,
no federal income or excise tax provision is required.
DIVIDENDS TO SHAREHOLDERS: Dividends from net investment income are
declared daily and paid monthly. Net realized capital gains, if any, will be
distributed at least annually.
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Pursuant to an Investment Advisory Agreement, BlackRock Advisors, Inc., a
wholly-owned subsidiary of BlackRock, Inc., serves as investment adviser to the
Portfolio. For its advisory services, BlackRock Advisors Inc., is entitled to
receive fees, computed daily and paid monthly, at the annual rate of 0.20% of
the Portfolio's average daily net assets.
BlackRock Advisors, Inc., may, at its discretion, waive all or any portion
of its advisory fee for the Portfolio and may reimburse the Portfolio for
certain operating expenses. For the period ended March 31, 1998, advisory fees
and waiver for the Portfolio were as follows:
<PAGE>
GROSS NET
ADVISORY ADVISORY
FEE WAIVER FEE
-------- ------- --------
Strategic Portfolio I $26,674 $26,674 $0
PFPC Inc. ("PFPC"), an indirect wholly-owned subsidiary of PNC Bank Corp.,
BlackRock Advisors, Inc., and BlackRock Distributors, Inc. ("BDI") act as
co-administrators for the Fund. The combined administration fee is computed
daily and payable monthly, based on a percentage of the average daily net assets
of the Portfolio, at the following annual rates: 0.23% of the first $500
million, 0.21% of the next $500 million, 0.19% of the average daily net assets
in excess of $1 billion.
PFPC, BlackRock Advisors, Inc. and BDI may, at their discretion,
voluntarily waive all or any portion of their administration fees for the
Portfolio. For the period ended March 31, 1998, administration fees and waivers
for the Portfolio were as follows:
GROSS NET
ADMINISTRATION ADMINISTRATION
FEE WAIVER FEE
-------------- -------- --------------
Strategic Portfolio I $30,675 $16,732 $13,943
In addition, PNC Bank, National Association serves as custodian for the
Portfolio. PFPC serves as transfer and dividend disbursing agent.
PFPC, BlackRock Advisors, Inc. and BDI have also voluntarily agreed to
reimburse expenses in the amount of $7,177 with respect to the Strategic
Portfolio I for the period ended March 31, 1998.
NOTE 3. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term
investments and government securities, for the period ended March 31, 1998 were
$17,808,936 and $17,090,537, respectively. Purchases and sales of government
securities for the period ended March 31, 1998 were $50,043,249 and $21,330,973,
respectively. The federal income tax basis of the investments of the Portfolio
at March 31, 1998 was $29,188,147 and, accordingly, as of March 31, 1998 net
unrealized depreciation for federal income tax purposes aggregated $25,490 which
$35,323 related to depreciated securities and $9,833 related to appreciated
securities.
<PAGE>
NOTE 4. CAPITAL SHARES
Transactions in capital shares were as follows:
For the Period
10/6/97 (a)
Through
3/31/98
--------------
Shares subscribed ................................... 2,870,975
Shares issued in connection with the reinvestment
of dividends and distributions....................... 73,541
---------
2,944,516
Shares redeemed --
---------
Net increase 2,944,516
=========
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(a) Commencement of Operations
<PAGE>
CO-ADMINISTRATOR AND DISTRIBUTOR CO-ADMINISTRATOR AND TRANSFER AGENT
BlackRock Distributors, Inc. PFPC Inc.
West Conshohocken, PA 19428 Wilmington, DE 19809
INVESTMENT ADVISER CO-ADMINISTRATOR
BlackRock Advisors, Inc. BlackRock Advisors, Inc.
New York, NY 10154 New York, NY 10154
CUSTODIAN COUNSEL
PNC Bank, National Association Simpson, Thatcher & Bartlett
Philadelphia, PA 19103 New York, NY 10017
(A partnership which includes professional
corporations)
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand, L.L.P.
Philadelphia, PA 19103
This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of Fund shares.
BlackRock Funds
103 Bellevue Parkway
Wilmington, DE 19809
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SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT FEDERALLY
INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN SHARES OF THE FUND
INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
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