[GRAPHIC OMITTED]
BOND PORTFOLIOS
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
[GRAPHIC OMITTED]
MARCH 31, 1998
[LOGO OMITTED]
BLACKROCK FUNDS
PURE INVESTMENT STYLE(TRADEMARK)
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
BOND PORTFOLIOS
* Low Duration Bond
* Intermediate Government
Bond
* Intermediate Bond
* Core Bond
* Government Income
* Managed Income
* International Bond
* Tax-Free Income
* Pennsylvania Tax-Free Income
* New Jersey Tax-Free Income
* Ohio Tax-Free Income
TABLE of CONTENTS
PRESIDENT'S LETTER.........................................................1
PORTFOLIO SUMMARIES
Low Duration Bond....................................................2
Intermediate Government Bond.........................................3
Intermediate Bond....................................................4
Core Bond............................................................5
Government Income....................................................6
Managed Income.......................................................7
International Bond...................................................8
Tax-Free Income......................................................9
Pennsylvania Tax-Free Income........................................10
New Jersey Tax-Free Income..........................................11
Ohio Tax-Free Income................................................12
Note on Performance Information.....................................13
STATEMENT OF NET ASSETS/SCHEDULE OF INVESTMENTS........................14-48
Low Duration Bond Statement of Assets & Liabilities.................18
Core Bond Statement of Assets & Liabilities.........................30
Government Income Statement of Assets & Liabilities.................32
Managed Income Statement of Assets & Liabilities....................37
PORTFOLIO FINANCIAL STATEMENTS
Statements of Operations.........................................50-51
Statement of Cash Flows..........................................52-54
Statements of Changes in Net Assets..............................56-59
Financial Highlights.............................................60-69
NOTES TO FINANCIAL STATEMENTS..........................................70-82
<PAGE>
BLACKROCK FUNDS [LOGO OMITTED]
PRESIDENT'S LETTER
March 31, 1998
Dear Shareholder:
We are pleased to present the Semi-Annual Report for the BlackRock Funds
for March 31, 1998.
The BlackRock Funds have experienced significant growth over the past six
months. In addition to increasing assets in the fund family, your funds have
changed their name from Compass Capital Funds to BlackRock Funds. The name
change was part of a reorganization of PNC Bank's asset management businesses
under BlackRock Advisors, Inc., which now has over $115 billion under
management. While our name has changed, our funds remain committed to our
disciplined Pure Investment Style(SERVICE MARK) which continues to pursue
investor returns that are consistent with their expectations.
We expect that this consolidation will streamline and make more efficient
the delivery of asset management services to the BlackRock Funds.
The last six months have also been a time of asset growth for BlackRock
Funds and for the investment markets in general. During this period we have seen
record flows into our funds which now have total assets of over $15 billion.
Also of note, during May 1998, PNC Bank's $8 billion family of equity and fixed
income common trust funds will merge into BlackRock Funds. The conversion of the
common trust assets will lift BlackRock Funds to approximately a $23 billion
fund family consisting of 35 portfolios and result in three new funds: BlackRock
GNMA, DE Tax-Free Income and KY Tax-Free Income.
Since we last reported to you, the financial markets have continued to
exhibit remarkable strength. After rolling to a 28.6% return in 1997, the S&P
500 continued to grow another 13.8% in the first three months of 1998. Despite
an abundance of polls which show that investors are experiencing a fear of the
high levels of the market, investors continue to buy equities and are showing by
their actions that they are generally optimistic about the market's future.
European markets, as measured by the Morgan Stanley EAFE Index, have also begun
to perk up over the first quarter, posting a 14.3% return. The bond market
registered modest gains over the first quarter.
We believe that economic conditions continue to bode well for the near
term. The economy looks healthy with GDP estimated to grow at 2.8% in 1998 and
no classic signs of recession such as inventory imbalances appear to be present.
Inflation still seems under control with oil prices and other imports decreasing
sharply. Interest rates also appear to be stable for the near term.
While it seems unlikely that the stock market will continue to return the
same magnitude of gains as we have enjoyed in recent years, we believe that the
environment remains positive for continued growth.
We are pleased to announce that we are launching a new mutual fund, the
BlackRock Funds Micro-Cap Equity Portfolio, which is designed to provide
investors with a way to buy the very smallest public companies early in their
life cycles. The fund will pursue stocks of the most dynamic growth companies
with under $300 million in total market capitalization.
Thank you for your continued confidence in BlackRock Funds. We value your
business and appreciate the opportunity to help you achieve your long-term
investment goals.
Sincerely,
[/S/ Karen Sabath]
Karen H. Sabath
MANAGING DIRECTOR
BLACKROCK ADVISORS, INC.
1
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
LOW DURATION BOND
PORTFOLIO
TOTAL ASSETS (3/31/98):
$287.6 MILLION
PERFORMANCE BENCHMARK:
MERRILL LYNCH 1-3 YEAR TREASURY INDEX
INVESTMENT APPROACH:
PURSUES A TOTAL RETURN THAT EXCEEDS THE TOTAL RETURN OF ITS BENCHMARK WHILE
PROVIDING MONTHLY INCOME BY INVESTING IN PRIMARILY INVESTMENT GRADE SECURITIES
WITH MATURITIES FROM 3 TO 5 YEARS. THE PORTFOLIO MAY ALSO INVEST UP TO 20% OF
ITS ASSETS IN DEBT SECURITIES OF FOREIGN ISSUERS AND UP TO 20% IN BELOW
INVESTMENT GRADE SECURITIES RATED HIGHER THAN B BY A MAJOR RATING AGENCY OR
DEEMED BY THE MANAGER TO BE OF COMPARABLE CREDIT QUALITY.
RECENT PORTFOLIO MANAGEMENT ACTIVITY:
(BULLET) THE MANAGER TOOK ADVANTAGE OF A CHALLENGING ENVIRONMENT FOR
THE MORTGAGE SECTOR OVER THE PERIOD TO MODESTLY INCREASE THE PORTFOLIO'S
ALLOCATION IN SECURITIES WHICH TYPICALLY HAVE LESS PREPAYMENT RISK THAN GENERIC
MORTGAGES SUCH AS CMOS, PROJECT LOANS AND COMMERCIAL MORTGAGE-BACKED SECURITIES.
(BULLET) THE PORTFOLIO'S ASSET-BACKED SECURITY ALLOCATION WAS SLIGHTLY
REDUCED, AS THE MANAGER TOOK ADVANTAGE OF THE SECTOR'S STRONG FIRST QUARTER 1998
TOTAL RETURNS BY SELLING SOME OF THE BEST PERFORMERS.
(BULLET) THE MANAGER ALSO SOLD TREASURY SECURITIES TO HELP FINANCE THE
INCREASE IN MORTGAGE-BACKED SECURITY EXPOSURE.
ALTHOUGH THE PORTFOLIO HOLDINGS AND SECTORS LISTED ABOVE WERE CURRENT AS OF
THE DATE OF PRINTING, THE PORTFOLIO IS ACTIVELY MANAGED AND THE COMPOSITION WILL
VARY.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
LOW DURATION BOND PORTFOLIO AND THE MERRILL 1-3 YEAR TREASURY
INDEX FROM INCEPTION AND AT EACH SEMI-ANNUAL PERIOD END.
[GRAPH OMITTED]
PLOT POINTS FOLLOW:
<TABLE>
<CAPTION>
MERRILL
1-3 YEAR
INSTITUTIONAL SERVICE INVESTOR A INVESTOR B INVESTOR C BLACKROCK TREASURY
CLASS CLASS CLASS CLASS CLASS CLASS INDEX
<S> <C> <C> <C> <C> <C> <C> <C>
7/17/92 10,000 10,000 9,550 10,079.1 10,079.1 10,000 10,288
9/30/92 10,079.1 10,079.1 9,625.56 10,136.8 10,136.8 10,079.1 10,594.6
12/31/92 10,136.8 10,136.8 9,680.69 10,294.6 10,294.6 10,136.8 10,613.6
3/31/93 10,294.6 10,294.6 9,831.32 10,468 10,468 10,294.6 10,848.2
6/31/93 10,468 10,468 9,996.99 10,620.4 10,620.4 10,468 10,965.4
9/31/93 10,620.4 10,620.4 10,142.5 10,710.9 10,710.9 10,620.4 11,122.2
12/31/93 10,710.9 10,710.9 10,228.9 10,691.2 10,691.2 10,710.9 11,187.8
3/31/94 10,691.2 10,691.2 10,210.1 10,712.5 10,712.5 10,691.2 11,131.9
6/30/94 10,712.5 10,712.5 10,230.5 10,836.9 10,836.9 10,712.5 11,140.8
9/31/94 10,836.9 10,836.9 10,349.2 10,859.6 10,859.6 10,836.9 11,251.1
12/31/94 10,859.6 10,859.6 10,371 11,214.1 11,214.1 10,859.6 11,251.1
3/31/95 11,214.1 11,214.1 10,709.5 11,520.6 11,520.6 11,214.1 11,629.1
6/30/95 11,520.6 11,520.6 11,002.2 11,767.3 11,767.3 11,520.6 12,002.4
9/30/95 11,767.3 11,767.3 11,237.7 12,000.5 12,000.5 11,767.3 12,182.4
12/31/95 12,000.5 12,000.5 11,460.5 12,003.7 12,003.7 12,000.5 12,489.4
3/31/96 12,023.1 12,008.7 11,463.5 12,115.3 12,115.3 12,023.1 12,530.6
6/30/96 12,149.4 12,125.1 11,570.1 12,298.3 12,298.3 12,149.4 12,657.2
9/30/96 12,347.4 12,313.4 11,744.9 12,536.9 12,536.9 12,347.4 12,866
12/31/96 12,609.5 12,565.5 11,980.2 12,556.4 12,556.4 12,609.5 13,110.5
3/31/97 12,667.8 12,614 12,021.3 12,576.5 12,576.5 12,667.8 13,197
6/30/97 12,938.3 12,875.8 12,457 12,809.1 12,809.1 12,938.3 13,487.4
9/30/97 13,195.7 13,121.7 12,689.9 13,023 13,023 13,199.4 13,751.7
12/31/97 13,369.9 13,285.7 12,843.5 13,155.9 13,155.9 13,378.9 13,982.7
3/31/98 13,587.9 13,491.6 13,037.4 13,196.2 13,329.5 13,602.3 14,188.3
</TABLE>
FOR PERIOD ENDING MARCH 31, 1998
AVERAGE ANNUAL TOTAL RETURN
1 Year 3 Year 5 Year From Inception
BlackRock Class 7.40% 6.66% 5.73% 5.54%
Institutional Class 7.28% 6.60% 5.71% 5.52%
Service Class 6.96% 6.36% 5.56% 5.39%
Investor A Class (Load Adjusted) 3.58% 5.15% 4.84% 4.76%
Investor A Class (NAV) 6.78% 6.22% 5.48% 5.32%
Investor B Class (Load Adjusted) 1.22% 4.62% 4.84% 4.95%
Investor B Class (NAV) 5.99% 5.87% 5.27% 5.13%
Investor C Class (Load Adjusted) 4.93% 5.87% 5.27% 5.13%
Investor C Class (NAV) 5.99% 5.87% 5.27% 5.13%
THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF
THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN
THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO'S SHARE
CLASSES WERE AS FOLLOWS: INSTITUTIONAL SHARES, 7/17/92; SERVICE, 1/12/96;
INVESTOR A SHARES, 1/12/96; INVESTOR B SHARES, 11/18/96; AND INVESTOR C SHARES,
2/24/97; AND BLACKROCK SHARES, 6/3/97. SEE "NOTE ON PERFORMANCE INFORMATION" ON
PAGE 13 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
2
<PAGE>
BLACKROCK FUNDS [LOGO OMITTED]
INTERMEDIATE GOVERNMENT BOND
PORTFOLIO
TOTAL ASSETS (3/31/98):
$139.9 MILLION
PERFORMANCE BENCHMARK:
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT INDEX
INVESTMENT APPROACH:
PURSUES CURRENT INCOME CONSISTENT WITH THE PRESERVATION OF CAPITAL BY
INVESTING IN SECURITIES RATED AAA BY A MAJOR RATING AGENCY OR ISSUED BY THE U.S.
GOVERNMENT OR GOVERNMENT AGENCY. THE PORTFOLIO EMPHASIZES SECURITIES WITH
MATURITIES FROM 5 TO 10 YEARS.
RECENT PORTFOLIO MANAGEMENT ACTIVITY:
(BULLET) THE MANAGER TOOK ADVANTAGE OF A CHALLENGING ENVIRONMENT FOR THE
MORTGAGE SECTOR OVER THE PERIOD TO MODESTLY INCREASE THE PORTFOLIO'S ALLOCATION
IN SECURITIES WHICH TYPICALLY HAVE LESS PREPAYMENT RISK THAN GENERIC MORTGAGES
SUCH AS CMOS, PROJECT LOANS AND COMMERCIAL MORTGAGE-BACKED SECURITIES.
(BULLET) THE PORTFOLIO'S ASSET-BACKED SECURITY ALLOCATION WAS SLIGHTLY
REDUCED, AS THE MANAGER TOOK ADVANTAGE OF THE SECTOR'S STRONG FIRST QUARTER 1998
TOTAL RETURNS BY SELLING SOME OF THE BEST PERFORMERS.
(BULLET) THE MANAGER ALSO SOLD TREASURY SECURITIES TO HELP FINANCE THE
INCREASE IN MORTGAGE-BACKED SECURITY EXPOSURE.
ALTHOUGH THE PORTFOLIO HOLDINGS AND SECTORS LISTED ABOVE WERE CURRENT AS OF
THE DATE OF PRINTING, THE PORTFOLIO IS ACTIVELY MANAGED AND THE COMPOSITION WILL
VARY.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE INTERMEDIATE
GOVERNMENT BOND PORTFOLIO AND THE LEHMAN BROTHERS INTERMEDIATE GOVERNMENT INDEX
FROM INCEPTION AND AT EACH SEMI-ANNUAL PERIOD END.
[GRAPH OMITTED]
PLOT POINTS FOLLOW:
<TABLE>
<CAPTION>
LEHMAN
INTERMEDIATE
INSTITUTIONAL SERVICE INVESTOR A INVESTOR B INVESTOR C GOVERMENT
CLASS CLASS CLASS CLASS CLASS INDEX
<S> <C> <C> <C> <C> <C> <C>
APR-92 10,000 10,000 9,550 10,000 10,000 10,000
JUN-92 10,275.9 10,275.9 9,813.45 10,275.9 10,275.9 10,000
SEP-92 10,714.5 10,714.5 10,232.3 10,714.5 10,714.5 10,746
DEC-92 10,626 10,626 10,147.9 10,626 10,626 10,746
MAR-93 10,986.4 10,986.4 10,492 10,986.4 10,986.4 10,746
JUN-93 11,217.6 11,217.6 10,712.8 11,217.6 11,217.6 10,746
SEP-93 11,452.3 11,448.4 10,933.2 11,448.4 11,448.4 11,567
DEC-93 11,454.4 11,446.7 10,927.2 11,442.1 11,442.1 11,567
MAR-94 11,181.1 11,165.7 10,659 11,161.2 11,161.2 11,567
JUN-94 11,042.5 11,021.8 10,520.6 11,016.3 11,016.3 11,567
SEP-94 11,097.3 11,069.8 10,565.3 11,063.2 11,063.2 11,393.5
DEC-94 11,070.4 11,036.2 10,533.4 11,029.8 11,029.8 11,383.1
MAR-95 11,566.6 11,524.1 10,999 11,517.3 11,517.3 11,856.7
JUN-95 12,056.1 12,001.7 11,454.9 11,994.7 11,994.7 12,411.5
SEP-95 12,238.9 12,173.4 11,618.8 12,166.3 12,166.3 12,604.6
DEC-95 12,597.2 12,519.9 11,959 12,522.5 12,522.5 13,026.4
MAR-96 12,530.9 12,445.2 11,871.1 12,430.5 12,430.5 12,918.6
JUN-96 12,606.8 12,510.5 11,928.7 12,490.8 12,490.8 13,006
SEP-96 12,830.6 12,723.2 12,126.4 12,697.8 12,697.8 13,229.2
DEC-96 13,153 13,033.2 12,416.5 12,981 12,981 13,535.4
MAR-97 13,150.2 13,020.7 12,399.3 12,680 12,680 13,531
JUN-97 13,517.1 13,374.9 12,730.4 13,018.6 13,018.6 13,910
SEP-97 13,867.2 13,710.6 13,043.6 13,180.9 13,180.9 14,266
DEC-97 14,169.5 13,999.9 13,313.6 13,428.7 13,428.7 14,581.3
MAR-98 14,380.7 14,197.2 13,496 13,587.2 13,587.2 14,800
</TABLE>
FOR PERIOD ENDING MARCH 31, 1998
AVERAGE ANNUAL TOTAL RETURN
1 Year 3 Year 5 Year From Inception
Institutional Class 9.35% 7.53% 5.53% 5.23%
Service Class 9.03% 7.20% 5.26% 4.93%
Investor A Class (Load Adjusted) 4.50% 5.60% 4.31% 3.89%
Investor A Class (NAV) 8.84% 7.06% 5.16% 4.82%
Investor B Class (Load Adjusted) 3.18% 5.41% 4.51% 4.35%
Investor B Class (NAV) 8.04% 6.67% 4.93% 4.81%
Investor C Class (Load Adjusted) 6.96% 6.67% 4.93% 4.81%
Investor C Class (NAV) 8.04% 6.67% 4.93% 4.81%
THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF
THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN
THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO'S SHARE
CLASSES WERE AS FOLLOWS: INSTITUTIONAL SHARES, 4/20/92; INVESTOR A SHARES,
5/11/92; SERVICE SHARES, 7/29/93; INVESTOR C SHARES, 10/8/96; AND INVESTOR B
SHARES, 10/11/96. SEE "NOTE ON PERFORMANCE INFORMATION" ON PAGE 13 FOR FURTHER
INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
3
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
INTERMEDIATE BOND
PORTFOLIO
TOTAL ASSETS (3/31/98):
$326.1 MILLION
PERFORMANCE BENCHMARK:
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE INDEX
INVESTMENT APPROACH:
PURSUES CURRENT INCOME CONSISTENT WITH THE PRESERVATION OF CAPITAL BY
INVESTING IN SECURITIES RATED BBB OR HIGHER BY A MAJOR RATING AGENCY OR DEEMED
BY THE MANAGER TO BE OF COMPARABLE CREDIT QUALITY. THE PORTFOLIO EMPHASIZES
SECURITIES WITH MATURITIES FROM 5 TO 10 YEARS.
RECENT PORTFOLIO MANAGEMENT ACTIVITY:
(BULLET) THE MANAGER TOOK ADVANTAGE OF A CHALLENGING ENVIRONMENT FOR
THE MORTGAGE SECTOR OVER THE PERIOD TO MODESTLY INCREASE THE PORTFOLIO'S
ALLOCATION IN SECURITIES WHICH TYPICALLY HAVE LESS PREPAYMENT RISK THAN GENERIC
MORTGAGES SUCH AS CMOS, PROJECT LOANS AND COMMERCIAL MORTGAGE-BACKED SECURITIES.
(BULLET) THE MANAGER SOLD TREASURY SECURITIES AND FINANCIAL CORPORATE
BONDS, BOTH OF WHICH PERFORMED WELL, TO HELP FINANCE THE INCREASE IN
MORTGAGE-BACKED SECURITY EXPOSURE.
ALTHOUGH THE PORTFOLIO HOLDINGS AND SECTORS LISTED ABOVE WERE CURRENT AS OF
THE DATE OF PRINTING, THE PORTFOLIO IS ACTIVELY MANAGED AND THE COMPOSITION WILL
VARY.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE INTERMEDIATE BOND
PORTFOLIO AND THE LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE INDEX FROM
INCEPTION AND AT EACH SEMI-ANNUAL PERIOD END.
[GRAPH OMITTED]
PLOT POINTS FOLLOW:
<TABLE>
<CAPTION>
LEHMAN BROTHERS
INTERMEDIATE
INSTITUTIONAL SERVICE INVESTOR A INVESTOR B GOVERMENT/CORPORATE
CLASS CLASS CLASS CLASS INDEX
<S> <C> <C> <C> <C> <C>
SEP-93 10,009.7 10,010.5 9,509.97 10,010.5 10,020.5
DEC-93 9,953.95 9,945.15 9,447.89 9,945.15 10,037.2
MAR-94 9,674.9 9,660.38 9,177.36 9,660.38 9,833.49
JUN-94 9,592.44 9,571.7 9,093.12 9,571.7 9,774.43
SEP-94 9,654.77 9,628.14 9,144.91 9,626.23 9,854.42
DEC-94 9,643.99 9,610.65 9,129.21 9,609.7 9,843.43
MAR-95 10,044.3 10,002.7 9,501.56 10,001.6 10,274.2
JUN-95 10,498.3 10,446.6 9,919.4 10,441.5 10,787.5
SEP-95 10,695.7 10,636 10,088.8 10,619.8 10,965.2
DEC-95 11,051.4 10,983.3 10,416.6 10,964.8 11,348.9
MAR-96 10,965.5 10,890.3 10,333.7 10,877.6 11,254.9
JUN-96 11,046.4 10,961.8 10,397.4 10,944.7 11,325.4
SEP-96 11,241 11,146.7 10,568.3 11,124.5 11,526.4
DEC-96 11,527.3 11,422 10,824.8 11,394.5 11,809.2
MAR-97 11,521.6 11,407.7 10,806.7 11,375.5 11,247
JUN-97 11,862.6 11,737.4 11,126.6 11,712.2 11,579
SEP-97 12,184.1 12,047.3 11,414.7 12,015.5 11,891
DEC-97 12,403.4 12,254.5 11,606.5 12,217.4 12,145.5
MAR-98 12,600.6 12,439.5 11,776 12,143 12,333.7
</TABLE>
FOR PERIOD ENDING MARCH 31, 1998
AVERAGE ANNUAL TOTAL RETURN
1 Year 3 Year From Inception
Institutional Class 9.37% 7.85% 5.23%
Service Class 9.04% 7.53% 4.93%
Investor A Class (Load Adjusted) 4.45% 5.93% 3.89%
Investor A Class (NAV) 8.86% 7.38% 4.82%
Investor B Class (Load Adjusted) 3.91% 6.09% 4.35%
Investor B Class (NAV) 8.81% 7.36% 4.81%
THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF
THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN
THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO'S SHARE
CLASSES WERE AS FOLLOWS: INSTITUTIONAL SHARES, 9/17/93; SERVICE SHARES, 9/23/93;
INVESTOR A SHARES, 5/20/94; AND INVESTOR B SHARES 2/5/98. SEE "NOTE ON
PERFORMANCE INFORMATION" ON PAGE 13 FOR FURTHER INFORMATION ON HOW PERFORMANCE
DATA WAS CALCULATED.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
4
<PAGE>
BLACKROCK FUNDS [LOGO OMITTED]
CORE BOND
PORTFOLIO
TOTAL ASSETS (3/31/98):
$713.3 MILLION
PERFORMANCE BENCHMARK:
LEHMAN BROTHERS AGGREGATE INDEX
INVESTMENT APPROACH:
PURSUES A TOTAL RETURN THAT EXCEEDS THE TOTAL RETURN OF ITS BENCHMARK WHILE
PROVIDING MONTHLY INCOME BY INVESTING IN SECURITIES RATED BBB OR HIGHER BY A
MAJOR RATING AGENCY OR DEEMED BY THE MANAGER TO BE OF COMPARABLE CREDIT QUALITY.
THE PORTFOLIO EMPHASIZES SECURITIES WITH MATURITIES FROM 5 TO 10 YEARS.
RECENT PORTFOLIO MANAGEMENT ACTIVITY:
(BULLET) AFTER SELLING MORTGAGE-BACKED SECURITIES EARLY IN THE FOURTH
QUARTER OF 1997, THE MANAGER HAS RECENTLY TAKEN ADVANTAGE OF THE CHALLENGING
ENVIRONMENT FOR THE MORTGAGE SECTOR BY MODESTLY INCREASING THE PORTFOLIO'S
ALLOCATION. PARTICULAR EMPHASIS HAS BEEN PLACED UPON SECURITIES WHICH TYPICALLY
HAVE LESS PREPAYMENT RISK THAN GENERIC MORTGAGES SUCH AS PROJECT LOANS AND
COMMERCIAL MORTGAGE-BACKED SECURITIES.
(BULLET) THE MANAGER SOLD TREASURY SECURITIES TO HELP FINANCE THE INCREASE
IN MORTGAGE-BACKED SECURITY EXPOSURE.
ALTHOUGH THE PORTFOLIO HOLDINGS AND SECTORS LISTED ABOVE WERE CURRENT AS OF
THE DATE OF PRINTING, THE PORTFOLIO IS ACTIVELY MANAGED AND THE COMPOSITION WILL
VARY.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE CORE BOND PORTFOLIO
AND THE LEHMAN BROTHERS AGGREGATE INDEX FROM INCEPTION AND AT EACH SEMI-ANNUAL
PERIOD END.
[GRAPH OMITTED]
PLOT POINTS FOLLOW:
<TABLE>
<CAPTION>
LEHMAN
INSTITUTIONAL SERVICE INVESTOR A INVESTOR B INVESTOR C BLACKROCK AGGREGATE
CLASS CLASS CLASS CLASS CLASS CLASS INDEX
<S> <C> <C> <C> <C> <C> <C> <C>
DEC-92 10,032.7 10,032.7 9,581.22 10,032.7 10,032.7 10,032.7 10,192
MAR-93 10,415.7 10,415.7 9,947.02 10,415.7 10,415.7 10,415.7 10,486.8
JUN-93 10,688.1 10,688.1 10,207.1 10,688.1 10,688.1 10,688.1 10,751.4
SEP-93 11,021.4 11,021.4 10,525.4 11,021.4 11,021.4 11,021.4 11,009.7
DEC-93 11,004.9 11,004.9 10,509.7 11,004.9 11,004.9 11,004.9 11,123.2
MAR-94 10,715 10,715 10,232.9 10,715 10,715 10,715 10,574.5
JUN-94 10,612.1 10,612.1 10,134.5 10,612.1 10,612.1 10,612.1 10,760.1
SEP-94 10,695.1 10,695.1 10,213.8 10,695.1 10,695.1 10,695.1 10,605.1
DEC-94 10,748.6 10,748.6 10,264.9 10,748.6 10,748.6 10,748.6 10,865.7
MAR-95 11,268.8 11,268.8 10,761.7 11,268.8 11,268.8 11,268.8 11,348.9
JUN-95 11,930.7 11,930.7 11,393.8 11,930.7 11,930.7 11,930.7 11,848
SEP-95 12,166.4 12,166.4 11,618.9 12,166.4 12,166.4 12,166.4 12,265.1
DEC-95 12,702.6 12,702.6 12,131 12,702.6 12,702.6 12,702.6 12,706.7
MAR-96 12,405 12,399 11,838.3 12,396.1 12,396.1 12,405 12,328.7
JUN-96 12,472.6 12,466.1 11,894.6 12,431.7 12,431.7 12,472.6 12,502.6
SEP-96 12,721.7 12,705.6 12,118.1 12,641.7 12,641.7 12,721.7 12,980.5
DEC-96 13,157.2 13,134 12,518.3 13,035 13,035 13,157.2 13,120.2
MAR-97 13,120.7 13,087.8 12,468.9 12,940 12,940 13,120.7 13,007
JUN-97 13,562.7 13,522.8 12,957.7 13,604.3 13,604.3 13,563.6 13,484
SEP-97 14,002.2 13,950.1 13,362 14,002.9 14,002.9 14,008.5 13,932
DEC-97 14,348 14,283.5 13,676 14,305.4 14,305.4 14,360.2 14,341.6
MAR-98 14,580.5 14,503.4 13,881.1 14,347.9 14,492.8 14,598.5 14,562.5
</TABLE>
FOR PERIOD ENDING MARCH 31, 1998
AVERAGE ANNUAL TOTAL RETURN
1 Year 3 Year 5 Year From Inception
BlackRock Class 11.23% 9.00% 6.98% 7.38%
Institutional Class 11.09% 8.97% 6.96% 7.36%
Service Class 10.76% 8.76% 6.84% 7.25%
Investor A Class (Load Adjusted) 6.16% 7.14% 5.88% 6.03%
Investor A Class (NAV) 10.58% 8.61% 6.75% 7.16%
Investor B Class (Load Adjusted) 4.82% 6.80% 6.00% 6.66%
Investor B Class (NAV) 9.76% 8.07% 6.43% 6.86%
Investor C Class (Load Adjusted) 8.66% 8.07% 6.43% 6.86%
Investor C Class (NAV) 9.76% 8.07% 6.43% 6.86%
THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF
THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN
THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO'S SHARE
CLASSES WERE AS FOLLOWS: INSTITUTIONAL SHARES, 12/9/92; SERVICE SHARES, 1/12/96;
INVESTOR A SHARES, 1/31/96; INVESTOR B SHARES, 3/18/96; AND INVESTOR C SHARES,
2/28/97; AND BLACKROCK SHARES, 5/1/97. SEE "NOTE ON PERFORMANCE INFORMATION" ON
PAGE 13 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
5
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
GOVERNMENT INCOME
PORTFOLIO
TOTAL ASSETS (3/31/98):
$25.2 MILLION
PERFORMANCE BENCHMARK:
LEHMAN BROTHERS MORTGAGE INDEX/MERRILL LYNCH 10-YEAR TREASURY
INVESTMENT APPROACH:
PURSUES CURRENT INCOME CONSISTENT WITH THE PRESERVATION OF CAPITAL
BY INVESTING IN SECURITIES RATED AAA BY A MAJOR RATING AGENCY OR ISSUED BY THE
U.S. GOVERNMENT OR GOVERNMENT AGENCY. THE PORTFOLIO EMPHASIZES SECURITIES WITH
MATURITIES FROM 10 TO 15 YEARS.
RECENT PORTFOLIO MANAGEMENT ACTIVITY:
(BULLET) AFTER SELLING MORTGAGE-BACKED SECURITIES EARLY IN THE FOURTH
QUARTER OF 1997, THE MANAGER HAS RECENTLY TAKEN ADVANTAGE OF THE CHALLENGING
ENVIRONMENT FOR THE MORTGAGE SECTOR BY MODESTLY INCREASING THE PORTFOLIO'S
ALLOCATION. PARTICULAR EMPHASIS HAS BEEN PLACED UPON SECURITIES WHICH TYPICALLY
HAVE LESS PREPAYMENT RISK THAN GENERIC MORTGAGES SUCH AS PROJECT LOANS AND
COMMERCIAL MORTGAGE-BACKED SECURITIES.
(BULLET) THE MANAGER SOLD TREASURY SECURITIES TO HELP FINANCE THE INCREASE
IN MORTGAGE-BACKED SECURITY EXPOSURE.
ALTHOUGH THE PORTFOLIO HOLDINGS AND SECTORS LISTED ABOVE WERE CURRENT AS OF
THE DATE OF PRINTING, THE PORTFOLIO IS ACTIVELY MANAGED AND THE COMPOSITION WILL
VARY.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE GOVERNMENT INCOME
PORTFOLIO AND THE LEHMAN BROTHERS MORTGAGE INDEX/MERRILL LYNCH 10-YEAR TREASURY
INDEX FROM INCEPTION AND AT EACH SEMI-ANNUAL PERIOD END.
[GRAPH OMITTED]
PLOT POINTS FOLLOW:
LEHMAN BROTHERS MORTGAGE
INVESTOR A INVESTOR B INVESTOR C INDEX/MERILL LYNCH 10 YEAR
CLASS CLASS CLASS TREASURY INDEX
10/94 9,541.07 9,975.12 9,975.12 10,037.5
3/95 10,024.5 10,462.4 10,462.4 10,588
6/95 10,718.3 11,168 11,168 11,334.6
9/95 10,912.4 11,350.1 11,350.1 11,536.6
12/95 11,353 11,792.6 11,792.6 12,059.3
3/96 11,132.4 11,536.4 11,536.4 11,778.8
6/96 11,156.1 11,540.4 11,540.4 11,887
9/96 11,393.1 11,765.5 11,765.5 12,108
12/96 11,740 12,101.1 12,101.1 12,497
3/97 11,713.4 12,051.5 12,051.5 12,368.2
6/97 12,179 12,953.8 12,953.8 12,501.8
9/97 12,595.5 12,904.2 12,904.2 12,905.6
12/97 12,983.4 13,277.1 13,277.1 13,211.9
3/98 13,189.9 13,060.4 13,464.3 13,410.2
FOR PERIOD ENDING MARCH 31, 1998
AVERAGE ANNUAL TOTAL RETURN
1 Year 3 Year From Inception
Investor A Class (Load Adjusted) 7.44% 7.90% 8.23%
Investor A Class (NAV) 12.54% 9.57% 9.67%
Investor B Class (Load Adjusted) 6.68% 7.31% 7.95%
Investor B Class (NAV) 11.71% 8.78% 8.90%
Investor C Class (Load Adjusted) 10.59% 8.78% 8.90%
Investor C Class (NAV) 11.71% 8.78% 8.90%
THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF
THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN
THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO'S SHARE
CLASSES WERE AS FOLLOWS: INVESTOR A SHARES, 10/3/94; INVESTOR B SHARES, 10/3/94;
AND INVESTOR C SHARES, 2/28/97. SEE "NOTE ON PERFORMANCE INFORMATION" ON PAGE 13
FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
6
<PAGE>
BLACKROCK FUNDS [LOGO OMITTED]
MANAGED INCOME
PORTFOLIO
TOTAL ASSETS (3/31/98):
$897.4 MILLION
PERFORMANCE BENCHMARK:
LEHMAN BROTHERS AGGREGATE INDEX
INVESTMENT APPROACH:
PURSUES CURRENT INCOME CONSISTENT WITH THE PRESERVATION OF CAPITAL
BY INVESTING IN SECURITIES RATED BBB OR HIGHER BY A MAJOR RATING AGENCY OR
DEEMED BY THE MANAGER TO BE OF COMPARABLE CREDIT QUALITY. THE PORTFOLIO
EMPHASIZES SECURITIES WITH MATURITIES FROM 5 TO 10 YEARS.
RECENT PORTFOLIO MANAGEMENT ACTIVITY:
(BULLET) AFTER SELLING MORTGAGE-BACKED SECURITIES EARLY IN THE FOURTH
QUARTER OF 1997, THE MANAGER HAS RECENTLY TAKEN ADVANTAGE OF THE CHALLENGING
ENVIRONMENT FOR THE MORTGAGE SECTOR BY MODESTLY INCREASING THE PORTFOLIO'S
ALLOCATION. PARTICULAR EMPHASIS HAS BEEN PLACED UPON SECURITIES WHICH TYPICALLY
HAVE LESS PREPAYMENT RISK THAN GENERIC MORTGAGES SUCH AS PROJECT LOANS AND
COMMERCIAL MORTGAGE-BACKED SECURITIES.
(BULLET) THE MANAGER SOLD TREASURY SECURITIES TO HELP FINANCE THE INCREASE
IN MORTGAGE-BACKED SECURITY EXPOSURE.
(BULLET) THE MANAGER MAINTAINS A MODEST OVERWEIGHT IN CORPORATE BONDS IN
VIEW OF THE PORTFOLIO'S INCOME BIAS.
ALTHOUGH THE PORTFOLIO HOLDINGS AND SECTORS LISTED ABOVE WERE CURRENT AS OF
THE DATE OF PRINTING, THE PORTFOLIO IS ACTIVELY MANAGED AND THE COMPOSITION WILL
VARY.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE MANAGED INCOME
PORTFOLIO AND THE LEHMAN BROTHERS AGGREGATE INDEX FROM INCEPTION AND AT EACH
SEMI-ANNUAL PERIOD END.
[GRAPH OMITTED]
PLOT POINTS FOLLOW:
LEHMAN BROTHERS
INSTITUTIONAL SERVICE INVESTOR A INVESTOR B AGGREGATE
CLASS CLASS CLASS CLASS INDEX
NOV-89 10,105 10,105 9,650.27 10,000 10,027
MAR-90 10,004 10,004 9,553.81 9,900.04 9,946.34
JUN-90 10,306.4 10,306.4 9,842.63 10,199.3 10,308.9
SEP-90 10,379.9 10,379.9 9,912.81 10,272 10,396.7
DEC-90 10,943.3 10,943.3 10,450.9 10,829.6 10,922.9
MAR-91 11,161 11,161 10,658.7 11,045 11,227
JUN-91 11,258.8 11,258.8 10,752.1 11,141.8 11,410.6
SEP-91 11,910.1 11,910.1 11,374.1 11,786.3 12,059.1
DEC-91 12,580.1 12,580.1 12,014 12,449.4 12,670.6
MAR-92 12,289.6 12,289.6 11,736.5 12,161.9 12,509
JUN-92 12,749 12,749 12,175.4 12,616.6 13,014.4
SEP-92 13,315.7 13,315.7 12,716.5 13,177.4 13,573.6
DEC-92 13,323.3 13,323.3 12,723.7 13,184.8 13,608.8
MAR-93 14,022.1 14,022.1 13,391.1 13,876.4 14,172.1
JUN-93 14,456.7 14,456.7 13,806.2 14,306.5 14,548.5
SEP-93 14,935.3 14,939.9 14,263.4 14,780.3 14,927.7
DEC-93 14,881.3 14,862.2 14,186.4 14,700.5 14,935.8
MAR-94 14,370.2 14,343.1 13,689.6 14,185.7 14,506.6
JUN-94 14,109.7 14,078.8 13,422.4 13,908.8 14,357.5
SEP-94 14,145.1 14,104.3 13,440 13,927 14,445.3
DEC-94 14,215.3 14,165.8 13,491.9 13,980.8 14,499.9
MAR-95 14,894.3 14,835.1 14,122.3 14,634.1 15,231.2
JUN-95 15,744.1 15,670.7 14,909.1 15,449.4 16,159.3
SEP-95 16,022 15,934.7 15,152.7 15,701.8 16,477.1
DEC-95 16,701.1 16,601.9 15,777.8 16,349.6 17,178.9
MAR-96 16,368.6 16,259.9 15,443.4 16,003.1 16,872.5
JUN-96 16,437.3 16,315 15,489.6 16,050.9 16,968.8
SEP-96 16,716.4 16,579.6 15,734.2 16,304.4 17,281.2
DEC-96 17,276.7 17,122.6 16,242.7 16,831.3 17,799.8
MAR-97 17,226.8 17,060.3 16,176.7 16,763 17,701
JUN-97 17,848.2 17,662.8 16,739.6 17,346.2 18,351
SEP-97 18,431.8 18,228 17,266.9 17,892.6 18,960
DEC-97 18,912.9 18,689.1 17,696.8 18,338.2 19,517.4
MAR-98 19,189 18,948.9 17,935.7 18,585.7 19,818
FOR PERIOD ENDING MARCH 31, 1998
AVERAGE ANNUAL TOTAL RETURN
1 Year 3 Year 5 Year From Inception
Institutional Class 11.39% 8.81% 6.48% 8.06%
Service Class 11.05% 8.50% 6.20% 7.89%
Investor A Class (Load Adjusted) 5.92% 6.64% 5.05% 7.18%
Investor A Class (NAV) 10.87% 8.29% 6.02% 7.77%
Investor B Class (Load Adjusted) 5.42% 6.86% 5.50% 7.72%
Investor B Class (NAV) 10.39% 8.14% 5.93% 7.72%
THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF
THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN
THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO'S SHARE
CLASSES WERE AS FOLLOWS: INSTITUTIONAL SHARES, 11/1/89; INVESTOR A SHARES,
2/5/92; SERVICE SHARES, 7/29/93; AND INVESTOR B SHARES, 7/15/97. SEE "NOTE
ON PERFORMANCE INFORMATION" ON PAGE 13 FOR FURTHER INFORMATION ON HOW
PERFORMANCE DATA WAS CALCULATED. THE COMPARATIVE INDEX FROM PREVIOUS YEARS HAS
CHANGED FROM THE SALOMON BROAD INVESTMENT GRADE INDEX TO THE LEHMAN AGGREGATE TO
MORE ACCURATELY REFLECT THE TYPE OF HOLDINGS OF MANAGED INCOME.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
7
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
INTERNATIONAL BOND
PORTFOLIO
TOTAL ASSETS (3/31/98):
$48.7 MILLION
PERFORMANCE BENCHMARK:
SALOMON NON-U.S. HEDGED WORLD GOVERNMENT BOND INDEX
INVESTMENT APPROACH:
PURSUES CURRENT INCOME CONSISTENT WITH THE PRESERVATION OF CAPITAL BY
INVESTING IN INVESTMENT GRADE INTERNATIONAL FIXED INCOME SECURITIES.
RECENT PORTFOLIO MANAGEMENT ACTIVITY:
(BULLET) THE PORTFOLIO LARGELY REMAINED CURRENCY HEDGED THROUGHOUT THE
PERIOD, WHICH AIDED TOTAL RETURNS DUE TO THE STRONG PERFORMANCE OF THE U.S.
DOLLAR VERSUS OTHER MAJOR FOREIGN CURRENCIES.
(BULLET) THE MANAGER MAINTAINED AN OVERWEIGHT ALLOCATION TO THE DOLLAR BLOC
(U.S., CANADA, AUSTRALIA AND NEW ZEALAND) VERSUS JAPAN DUE TO THE MANAGER'S
NEGATIVE GROWTH OUTLOOK FOR THE JAPANESE ECONOMY.
(BULLET) THE CONTINENTAL EUROPEAN BOND MARKETS POSTED STRONG GAINS OVER THE
PERIOD. THE PORTFOLIO OWNED LONGER MATURITY BONDS IN THE CORE EUROPEAN MARKETS
(E.G. GERMANY, FRANCE) AND SHORTER MATURITY BONDS IN MARKETS THAT EXPERIENCED
SHORT-TERM INTEREST RATE CUTS (E.G. ITALY).
ALTHOUGH THE PORTFOLIO HOLDINGS AND SECTORS LISTED ABOVE WERE CURRENT AS OF
THE DATE OF PRINTING, THE PORTFOLIO IS ACTIVELY MANAGED AND THE COMPOSITION WILL
VARY.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE INTERNATIONAL BOND
PORTFOLIO AND THE SALOMON NON-U.S. HEDGED WORLD GOVERNMENT BOND INDEX FROM
INCEPTION AND AT EACH SEMI-ANNUAL PERIOD END.
[GRAPH OMITTED]
PLOT POINTS FOLLOW:
<TABLE>
<CAPTION>
SALOMON NON-U.S.
INSTITUTIONAL SERVICE INVESTOR A INVESTOR B INVESTOR C HEDGED WORLD GOVERNMENT
CLASS CLASS CLASS CLASS CLASS BOND INDEX
<S> <C> <C> <C> <C> <C> <C>
JUL-91 10,360 10,360 9,893.8 10,360 10,360 10,482
DEC-91 10,600 10,600 10,123 10,600 10,600 10,908.6
MAR-92 10,470.2 10,470.2 9,999.01 10,470.2 10,470.2 10,846.4
JUN-92 11,008.2 11,008.2 10,512.8 11,008.2 11,008.2 11,156.6
SEP-92 11,297.9 11,297.9 10,789.5 11,297.9 11,297.9 11,580.6
DEC-92 11,253.6 11,253.6 10,747.2 11,253.6 11,253.6 11,765.9
MAR-93 11,717.1 11,717.1 11,189.9 11,717.1 11,717.1 12,169.5
JUN-93 12,115.9 12,115.9 11,570.7 12,115.9 12,115.9 12,483.4
SEP-93 12,689.5 12,689.5 12,118.4 12,689.5 12,689.5 12,931.6
DEC-93 12,976.7 12,976.7 12,392.8 12,976.7 12,976.7 13,225.1
MAR-94 12,714.8 12,714.8 12,142.6 12,714.8 12,714.8 12,803.2
JUN-94 12,452.9 12,452.9 11,892.5 12,452.9 12,452.9 12,561.3
SEP-94 12,368.7 12,368.7 11,812.1 12,368.7 12,368.7 12,580.1
DEC-94 12,495.6 12,495.6 11,933.3 12,495.6 12,495.6 12,732.3
MAR-95 13,545.1 13,545.1 12,935.6 13,545.1 13,545.1 13,323.1
JUN-95 14,053.8 14,053.8 13,421.4 14,053.8 14,053.8 14,015.9
SEP-95 14,301.7 14,301.7 13,658.1 14,301.7 14,301.7 14,426.6
DEC-95 14,997.5 14,997.5 14,322.6 14,997.5 14,997.5 15,032.5
MAR-96 15,050.9 15,050.9 14,373.6 15,050.9 15,050.9 15,011.5
JUN-96 15,395.1 15,393.6 14,696.7 15,369.7 15,369.7 15,290.7
SEP-96 16,002.5 15,989.1 15,258.9 15,928.2 15,928.2 15,796.8
DEC-96 16,590.1 16,558.4 15,792.8 16,442.3 16,442.3 16,340.2
MAR-97 16,762 16,717.4 15,937.7 16,562.3 16,562.3 16,457.8
JUN-97 17,335.1 17,275.5 16,378 17,077.6 17,077.6 16,987.8
SEP-97 17,858.6 17,783.4 16,853 17,538.7 17,538.7 17,565.4
DEC-97 18,294.3 18,203.1 17,244 17,910.5 17,910.5 18,069.5
MAR-98 18,777.3 18,670.9 17,678.5 18,327.8 18,327.8 18,526.7
</TABLE>
FOR PERIOD ENDING MARCH 31, 1998
AVERAGE ANNUAL TOTAL RETURN
1 Year 3 Year 5 Year From Inception
Institutional Class 12.02% 11.50% 9.89% 9.77%
Service Class 11.69% 11.29% 9.77% 9.68%
Investor A Class (Load Adjusted) 5.92% 9.28% 8.57% 8.80%
Investor A Class (NAV) 11.50% 11.16% 9.69% 9.63%
Investor B Class (Load Adjusted) 5.69% 9.30% 8.92% 9.38%
Investor B Class (NAV) 10.67% 10.61% 9.36% 9.38%
Investor C Class (Load Adjusted) 9.56% 10.61% 9.36% 9.38%
Investor C Class (NAV) 10.67% 10.61% 9.36% 9.38%
THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF
THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN
THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO'S SHARE
CLASSES WERE AS FOLLOWS: SERVICE SHARES, 7/1/91; INVESTOR B SHARES, 4/19/96;
INVESTOR A SHARES, 4/22/96; INSTITUTIONAL SHARES, 6/10/96; AND INVESTOR C
SHARES, 9/11/96. SEE "NOTE ON PERFORMANCE INFORMATION" ON PAGE 13 FOR FURTHER
INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
8
<PAGE>
BLACKROCK FUNDS [LOGO OMITTED]
TAX-FREE INCOME
PORTFOLIO
TOTAL ASSETS (3/31/98):
$84.4 MILLION
PERFORMANCE BENCHMARK:
LEHMAN MUNICIPAL BOND INDEX
INVESTMENT APPROACH:
SEEKS AS HIGH A LEVEL OF CURRENT INCOME EXEMPT FROM FEDERAL INCOME TAX AS
IS CONSISTENT WITH THE PRESERVATION OF CAPITAL BY INVESTING IN A PORTFOLIO OF
MUNICIPAL FIXED INCOME SECURITIES RATED BBB OR HIGHER BY A MAJOR RATING AGENCY
OR DEEMED BY THE MANAGER TO BE OF COMPARABLE CREDIT QUALITY.
RECENT PORTFOLIO MANAGEMENT ACTIVITY:
(BULLET) AS THE MANAGER BELIEVES THAT INTEREST RATES ARE AT OR NEAR THEIR
LOWS, THE PORTFOLIO HAS MAINTAINED A RELATIVELY NEUTRAL DURATION (INTEREST RATE
EXPOSURE) STANCE RELATIVE TO ITS BENCHMARK.
(BULLET) THE PORTFOLIO HAS BEEN EMPHASIZING HIGHER RATED CREDITS (AA- AND
AAA-RATED ISSUES) AND SELLING LOWER RATED CREDITS (BBB AND A) TO TAKE ADVANTAGE
OF HISTORICALLY NARROW CREDIT SPREADS BETWEEN HIGHER AND LOWER RATED BONDS.
ALTHOUGH THE PORTFOLIO HOLDINGS AND SECTORS LISTED ABOVE WERE CURRENT AS OF
THE DATE OF PRINTING, THE PORTFOLIO IS ACTIVELY MANAGED AND THE COMPOSITION WILL
VARY.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE TAX-FREE
INCOME PORTFOLIO AND THE LEHMAN MUNICIPAL BOND INDEX FROM INCEPTION AND AT EACH
SEMI-ANNUAL PERIOD END.
[GRAPH OMITTED]
PLOT POINTS FOLLOW:
<TABLE>
<CAPTION>
INSTITUTIONAL SERVICE INVESTOR A INVESTOR B INVESTOR C LEHMAN MUNICIPAL
CLASS CLASS CLASS CLASS CLASS BOND INDEX
<S> <C> <C> <C> <C> <C> <C>
MAY-90 10,117.5 10,117.5 9,662.22 10,117.5 10,117.5 10,000
SEP-90 10,139.1 10,139.1 9,682.89 10,139.1 10,139.1 10,202
DEC-90 10,513.2 10,513.2 10,040.1 10,513.2 10,513.2 10,202
MAR-91 10,720.5 10,720.5 10,238.1 10,720.5 10,720.5 10,202
JUN-91 10,919.2 10,919.2 10,427.8 10,919.2 10,919.2 10,202
SEP-91 11,295.7 11,295.7 10,787.4 11,295.7 11,295.7 11,547.6
DEC-91 11,708 11,708 11,181.2 11,708 11,708 11,547.6
MAR-92 11,776.5 11,776.5 11,246.5 11,776.5 11,776.5 11,547.6
JUN-92 12,215 12,215 11,665.3 12,215 12,215 11,547.6
SEP-92 12,504.5 12,504.5 11,941.8 12,504.5 12,504.5 12,754.6
DEC-92 12,743.7 12,743.7 12,170.2 12,743.7 12,743.7 12,754.6
MAR-93 13,245.9 13,245.9 12,649.8 13,245.9 13,245.9 12,754.6
JUN-93 13,708.2 13,708.2 13,091.4 13,708.2 13,708.2 12,754.6
SEP-93 14,199.7 14,193.6 13,550.9 14,189.4 14,189.4 14,380.6
DEC-93 14,411.5 14,399.5 13,737.9 14,385.2 14,385.2 14,586.4
MAR-94 13,429.7 13,410.3 12,786.2 13,388.7 13,388.7 13,785.7
JUN-94 13,614.5 13,586.8 12,948 13,558.1 13,558.1 13,938.3
SEP-94 13,661.5 13,624.5 12,978.3 13,589.9 13,589.9 14,033.7
DEC-94 13,454.7 13,394.5 12,763.9 13,365.4 13,365.4 13,832.1
MAR-95 14,555.2 14,495.6 13,792.9 14,442.8 14,442.8 14,810.1
JUN-95 14,810.4 14,736.6 14,013.9 14,674.2 14,674.2 15,167.8
SEP-95 15,242.4 15,156 14,404.1 15,082.8 15,082.8 15,604
DEC-95 15,941.4 15,824.6 15,030.6 15,738.8 15,738.8 16,247.6
MAR-96 15,806.3 15,693.6 14,900 15,602.1 15,602.1 16,051.6
JUN-96 15,952.7 15,827.8 15,026.1 15,734.1 15,734.1 16,174.7
SEP-96 16,377.6 16,237.4 15,408.4 16,104.5 16,104.5 16,545.4
DEC-96 16,852.5 16,695.8 15,836.8 16,521.6 16,521.6 16,967
MAR-97 16,838.4 16,669.3 15,804.9 16,458 16,458 16,927.5
JUN-97 17,445.7 17,257.6 16,438.5 16,999.1 16,999.1 17,511
SEP-97 18,031.9 17,823.7 16,971.1 17,515.9 17,515.9 18,040
DEC-97 18,560.2 18,331.7 17,448 17,974.8 17,974.8 18,528.9
MAR-98 18,805.2 18,559 17,655.7 17,974.8 17,974.8 18,742
</TABLE>
FOR PERIOD ENDING MARCH 31, 1998
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
Taxable Taxable Taxable From Taxable
1 Year Equivalent* 3 Year Equivalent* 5 Year Equivalent* Inception Equivalent*
------ ----------- ------ ----------- ------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Institutional Class 11.67% 16.29% 8.91% 12.44% 7.26% 10.13% 8.34% 11.64%
Service Class 11.33% 15.82% 8.59% 11.99% 6.98% 9.74% 8.15% 11.38%
Investor A Class (Load Adjusted) 6.72% 9.38% 6.93% 9.67% 5.92% 8.26% 7.47% 10.43%
Investor A Class (NAV) 11.14% 15.55% 8.38% 11.70% 6.79% 9.48% 8.04% 11.22%
Investor B Class (Load Adjusted) 5.36% 7.48% 6.65% 9.28% 6.08% 8.49% 7.85% 10.96%
Investor B Class (NAV) 10.32% 14.41% 7.93% 11.07% 6.51% 9.09% 7.85% 10.96%
Investor C Class (Load Adjusted) 9.22% 12.87% 7.93% 11.07% 6.51% 9.09% 7.85% 10.96%
Investor C Class (NAV) 10.32% 14.41% 7.93% 11.07% 6.51% 9.09% 7.85% 10.96%
</TABLE>
*TAXABLE EQUIVALENT TOTAL RETURN IS BASED ON THE ANNUALIZED TOTAL RETURN AND A
FEDERAL TAX RATE OF 39.6%. IT REPRESENTS THE RETURN ON A TAXABLE INVESTMENT
NECESSARY TO EQUAL THE AFTER-TAX RETURN OF THE BLACKROCK TAX-FREE
INCOME PORTFOLIO.
THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF
THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN
THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO'S SHARE
CLASSES WERE AS FOLLOWS: INVESTOR A SHARES, 5/14/90; INSTITUTIONAL SHARES,
1/21/93; SERVICE SHARES, 7/29/93; INVESTOR B SHARES, 7/18/96; AND INVESTOR C
SHARES, 2/28/97. SEE "NOTE ON PERFORMANCE INFORMATION" ON PAGE 13 FOR FURTHER
INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
9
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
PENNSYLVANIA TAX-FREE INCOME
PORTFOLIO
TOTAL ASSETS (3/31/98):
$116.2 MILLION
PERFORMANCE BENCHMARK:
LEHMAN LOCAL GENERAL OBLIGATION INDEX
INVESTMENT APPROACH:
SEEKS AS HIGH A LEVEL OF CURRENT INCOME EXEMPT FROM FEDERAL, PENNSYLVANIA
STATE AND LOCAL INCOME TAX AS IS CONSISTENT WITH THE PRESERVATION OF CAPITAL BY
INVESTING IN A PORTFOLIO OF MUNICIPAL FIXED INCOME SECURITIES RATED BBB OR
HIGHER BY A MAJOR RATING AGENCY OR DEEMED BY THE MANAGER TO BE OF COMPARABLE
CREDIT QUALITY.
RECENT PORTFOLIO MANAGEMENT ACTIVITY:
(BULLET) AS THE MANAGER BELIEVES THAT INTEREST RATES ARE AT OR NEAR THEIR
LOWS, THE PORTFOLIO HAS MAINTAINED A RELATIVELY NEUTRAL DURATION (INTEREST RATE
EXPOSURE) STANCE RELATIVE TO ITS BENCHMARK.
(BULLET) THE PORTFOLIO HAS BEEN EMPHASIZING HIGHER RATED CREDITS (AA-
AND AAA-RATED ISSUES) AND SELLING LOWER RATED CREDITS (BBB AND A) TO TAKE
ADVANTAGE OF HISTORICALLY NARROW CREDIT SPREADS BETWEEN HIGHER AND LOWER RATED
BONDS.
ALTHOUGH THE PORTFOLIO HOLDINGS AND SECTORS LISTED ABOVE WERE CURRENT AS OF
THE DATE OF PRINTING, THE PORTFOLIO IS ACTIVELY MANAGED AND THE COMPOSITION WILL
VARY.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE PA TAX-FREE
INCOME PORTFOLIO AND LEHMAN LOCAL GO INDEX FROM INCEPTION AND AT EACH
SEMI-ANNUAL PERIOD END.
[GRAPH OMITTED]
PLOT POINTS FOLLOW:
INSTITUTIONAL SERVICE INVESTOR A INVESTOR B LEHMAN LOCAL
CLASS CLASS CLASS CLASS GO INDEX
DEC-92 10,080 10,080 9,626.4 10,080 10,124
MAR-93 10,491.8 10,492.3 10,020.1 10,492.3 10,473.5
JUN-93 10,808.5 10,808.7 10,322.3 10,808.7 10,797
SEP-93 11,142.3 11,165.4 10,667.2 11,169.8 11,132.2
DEC-93 11,324.1 11,340.9 10,841.3 11,352.1 11,309.1
MAR-94 10,613.5 10,620.7 10,159 10,637.7 10,738.3
JUN-94 10,746.1 10,745.9 10,284.5 10,769.1 10,878.7
SEP-94 10,813.1 10,807.6 10,336.9 10,824 10,942.5
DEC-94 10,544.7 10,532.6 10,068.8 10,517.6 10,790.2
MAR-95 11,352.8 11,332.1 10,827.8 11,296.1 11,448
JUN-95 11,614.3 11,585 11,064 11,526.5 11,739.3
SEP-95 11,981.5 11,944.2 11,400.3 11,859.2 12,104.4
DEC-95 12,483.4 12,439.3 11,866.9 12,326.3 12,516.8
MAR-96 12,342.9 12,282.8 11,715.8 12,144.9 12,433.2
JUN-96 12,448.5 12,379 11,801.8 12,212.4 12,508.5
SEP-96 12,733.9 12,653.4 12,059.2 12,454.6 12,802.8
DEC-96 13,058.3 12,966.2 12,353 12,733.4 13,140.9
MAR-97 13,010.2 12,908.7 12,294 12,397 13,140.5
JUN-97 13,413 13,294.4 12,713.5 12,999.5 13,621
SEP-97 13,810 13,678.7 13,075.8 13,077.2 14,028
DEC-97 14,198.1 14,052.1 13,428.9 13,404.1 14,380.1
MAR-98 14,371.3 14,212.3 13,577.9 13,532.8 14,568.5
FOR PERIOD ENDING MARCH 31, 1998
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
Taxable Taxable Taxable From Taxable
1 Year Equivalent* 3 Year Equivalent* 5 Year Equivalent* Inception Equivalent*
------ ----------- ------ ----------- ------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Institutional Class 10.43% 14.85% 8.18% 11.65% 6.49% 9.24% 7.04% 10.02%
Service Class 10.11% 14.40% 7.85% 11.18% 6.26% 8.91% 6.87% 9.78%
Investor A Class (Load Adjusted) 5.59% 7.96% 6.23% 8.87% 5.31% 7.56% 5.90% 8.40%
Investor A Class (NAV) 9.95% 14.17% 7.69% 10.95% 6.17% 8.79% 6.72% 9.57%
Investor B Class (Load Adjusted) 4.25% 6.05% 5.66% 8.06% 5.22% 7.43% 6.03% 8.59%
Investor B Class (NAV) 9.16% 13.04% 6.92% 9.85% 5.64% 8.03% 6.23% 8.87%
</TABLE>
*TAXABLE EQUIVALENT TOTAL RETURN IS BASED ON THE ANNUALIZED TOTAL RETURN AND A
COMBINED FEDERAL AND STATE TAX RATE OF 42.4%. IT REPRESENTS THE RETURN ON A
TAXABLE INVESTMENT NECESSARY TO EQUAL THE AFTER-TAX RETURN OF THE BLACKROCK
PENNSYLVANIA TAX-FREE INCOMEPORTFOLIO.
THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF
THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN
THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO'S SHARE
CLASSES WERE AS FOLLOWS: INSTITUTIONAL ANDINVESTOR A SHARES, 12/1/92; SERVICE
SHARES, 7/29/93; AND INVESTOR B SHARES, 10/3/94. SEE "NOTE ON PERFORMANCE
INFORMATION" ON PAGE 13 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS
CALCULATED.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
10
<PAGE>
BLACKROCK FUNDS [LOGO OMITTED]
NEW JERSEY TAX-FREE INCOME
PORTFOLIO
TOTAL ASSETS (3/31/98):
$85.5 MILLION
PERFORMANCE BENCHMARK:
LEHMAN LOCAL GENERAL OBLIGATION INDEX
INVESTMENT APPROACH:
SEEKS AS HIGH A LEVEL OF CURRENT INCOME EXEMPT FROM FEDERAL, NEW JERSEY
STATE AND LOCAL INCOME TAX AS IS CONSISTENT WITH THE PRESERVATION OF CAPITAL BY
INVESTING IN A PORTFOLIO OF MUNICIPAL FIXED INCOME SECURITIES RATED BBB OR
HIGHER BY A MAJOR RATING AGENCY OR DEEMED BY THE MANAGER TO BE OF COMPARABLE
CREDIT QUALITY.
RECENT PORTFOLIO MANAGEMENT ACTIVITY:
(BULLET) AS THE MANAGER BELIEVES THAT INTEREST RATES ARE AT OR NEAR THEIR
LOWS, THE PORTFOLIO HAS MAINTAINED A RELATIVELY NEUTRAL DURATION (INTEREST RATE
EXPOSURE) STANCE RELATIVE TO ITS BENCHMARK.
(BULLET) THE PORTFOLIO HAS BEEN EMPHASIZING HIGHER RATED CREDITS (AA- AND
AAA-RATED ISSUES) AND SELLING LOWER RATED CREDITS (BBB AND A) TO TAKE ADVANTAGE
OF HISTORICALLY NARROW CREDIT SPREADS BETWEEN HIGHER AND LOWER RATED BONDS.
ALTHOUGH THE PORTFOLIO HOLDINGS AND SECTORS LISTED ABOVE WERE CURRENT AS OF
THE DATE OF PRINTING, THE PORTFOLIO IS ACTIVELY MANAGED AND THE COMPOSITION WILL
VARY.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
IN THE NJ TAX-FREE INCOME PORTFOLIO AND THE
LEHMAN LOCAL GO INDEX FROM INCEPTION AND AT
EACH SEMI-ANNUAL PERIOD END.
[GRAPH OMITTED]
PLOT POINTS FOLLOW:
SERVICE INVESTOR A INVESTOR B LEHMAN LOCAL
CLASS CLASS CLASS GO INDEX
7/1/91 10,357.2 9,891.12 10,357.2 10,142
DEC-91 10,735.7 10,252.6 10,735.7 10,461.9
MAR-92 10,774.5 10,289.6 10,774.5 10,494.3
JUN-92 11,205.3 10,701.1 11,205.3 10,904.4
SEP-92 11,462.2 10,946.4 11,462.2 11,204.9
DEC-92 11,690.9 11,164.8 11,690.9 11,439.6
MAR-93 12,097.7 11,553.3 12,097.7 11,834.4
JUN-93 12,513.9 11,950.7 12,513.9 12,200
SEP-93 12,867.4 12,288.4 12,867.4 12,578.8
DEC-93 13,044.6 12,457.6 13,044.6 12,778.6
MAR-94 12,369.9 11,813.3 12,369.9 12,133.7
JUN-94 12,504.3 11,941.6 12,504.3 12,292.4
SEP-94 12,583.4 12,017.2 12,583.4 12,364.5
DEC-94 12,432 11,872.5 12,432 12,192.4
MAR-95 13,194.6 12,600.9 13,194.6 12,935.6
JUN-95 13,453.6 12,848.2 13,453.6 13,264.8
SEP-95 13,802.4 13,181.3 13,802.4 13,677.4
DEC-95 14,289 13,646 14,289 14,143.3
MAR-96 14,158.5 13,518.5 14,155.5 14,048.9
JUN-96 14,198.2 13,546 14,184.3 14,134
SEP-96 14,445.3 13,776 14,398.3 14,466.5
DEC-96 14,807.6 14,115.5 14,725.4 14,848.5
MAR-97 14,768.4 14,072.1 14,509 14,848
JUN-97 15,185.3 14,533.7 15,031 15,391
SEP-97 15,622.7 14,946.4 15,429.3 15,851
DEC-97 16,035.1 15,333.5 15,799.6 16,248.9
MAR-98 16,166.6 15,453.1 15,892.8 16,461.7
FOR PERIOD ENDING MARCH 31, 1998
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
Taxable Taxable Taxable From Taxable
1 Year Equivalent* 3 Year Equivalent* 5 Year Equivalent* Inception Equivalent*
------ ----------- ------ ----------- ------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Service Class 9.44% 13.78% 7.00% 10.22% 5.96% 8.70% 7.37% 10.76%
Investor A Class (Load Adjusted) 4.89% 7.14% 5.41% 7.90% 5.02% 7.33% 6.66% 9.72%
Investor A Class (NAV) 9.26% 13.52% 6.86% 10.02% 5.88% 8.58% 7.31% 10.67%
Investor B Class (Load Adjusted) 3.57% 5.21% 5.14% 7.50% 5.18% 7.56% 7.10% 10.37%
Investor B Class (NAV) 8.45% 12.34% 6.39% 9.33% 5.61% 8.19% 7.10% 10.37%
</TABLE>
*TAXABLE EQUIVALENT TOTAL RETURN IS BASED ON THE ANNUALIZED TOTAL RETURN AND A
COMBINED FEDERAL AND STATE TAX RATE OF 46%. IT REPRESENTS THE RETURN ON A
TAXABLE INVESTMENT NECESSARY TO EQUAL THE AFTER-TAX RETURN OF THE BLACKROCK NEW
JERSEY TAX-FREE INCOME PORTFOLIO.
THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF
THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN
THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO'S SHARE
CLASSES WERE AS FOLLOWS: SERVICE SHARES, 7/1/91; INVESTOR A SHARES, 1/26/96; AND
INVESTOR B SHARES, 7/2/96. SEE "NOTE ON PERFORMANCE INFORMATION" ON PAGE 13 FOR
FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
11
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
OHIO TAX-FREE INCOME
PORTFOLIO
TOTAL ASSETS (3/31/98):
$12.3 MILLION
PERFORMANCE BENCHMARK:
LEHMAN LOCAL GENERAL OBLIGATION INDEX
INVESTMENT APPROACH:
SEEKS AS HIGH A LEVEL OF CURRENT INCOME EXEMPT FROM FEDERAL, OHIO STATE AND
LOCAL INCOME TAX AS IS CONSISTENT WITH THE PRESERVATION OF CAPITAL BY INVESTING
IN A PORTFOLIO OF MUNICIPAL FIXED INCOME SECURITIES RATED BBB OR HIGHER BY A
MAJOR RATING AGENCY OR DEEMED BY THE MANAGER TO BE OF COMPARABLE CREDIT QUALITY.
RECENT PORTFOLIO MANAGEMENT ACTIVITY:
(BULLET) AS THE MANAGER BELIEVES THAT INTEREST RATES ARE AT OR NEAR THEIR
LOWS, THE PORTFOLIO HAS MAINTAINED A RELATIVELY NEUTRAL DURATION (INTEREST RATE
EXPOSURE) STANCE RELATIVE TO ITS BENCHMARK.
(BULLET) THE PORTFOLIO HAS BEEN EMPHASIZING HIGHER RATED CREDITS (AA- AND
AAA-RATED ISSUES) AND SELLING LOWER RATED CREDITS (BBB AND A) TO TAKE ADVANTAGE
OF HISTORICALLY NARROW CREDIT SPREADS BETWEEN HIGHER AND LOWER RATED BONDS.
ALTHOUGH THE PORTFOLIO HOLDINGS AND SECTORS LISTED ABOVE WERE CURRENT AS OF
THE DATE OF PRINTING, THE PORTFOLIO IS ACTIVELY MANAGED AND THE COMPOSITION WILL
VARY.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE OH TAX-FREE
INCOME PORTFOLIO AND THE LEHMAN LOCAL GO INDEX FROM INCEPTION AND AT EACH
SEMI-ANNUAL PERIOD END.
[GRAPH OMITTED]
PLOTS POINTS FOLLOW:
INSTITUTIONAL SERVICE INVESTOR A INVESTOR B LEHMAN LOCAL
CLASS CLASS CLASS CLASS GO INDEX
DEC-92 10,010 10,010 9,559.55 10,010 10,124
MAR-93 10,270.3 10,270.3 9,808.13 10,270.3 10,473.5
JUN-93 10,560.9 10,560.9 10,085.6 10,560.9 10,797
SEP-93 10,910 10,906.5 10,419.8 10,910.8 11,132.2
DEC-93 11,024.2 11,014.2 10,529 11,025.1 11,309.1
MAR-94 10,345.7 10,329.9 9,880.91 10,346.5 10,738.3
JUN-94 10,442.3 10,420.5 9,973.18 10,443.1 10,878.7
SEP-94 10,497.6 10,469.2 10,026 10,498.9 10,942.5
DEC-94 10,310.3 10,276.2 9,843.21 10,281.5 10,790.2
MAR-95 11,075.7 11,032.6 10,567.7 11,017.6 11,448
JUN-95 11,300.1 11,249.4 10,774.3 11,211.3 11,739.3
SEP-95 11,625.1 11,564.9 11,075.4 11,502.9 12,104.4
DEC-95 12,145 12,072.6 11,560.5 11,984.6 12,516.8
MAR-96 11,950.4 11,869.6 11,361.5 11,755.8 12,433.2
JUN-96 12,046.5 11,956.5 11,440.2 11,815.1 12,508.5
SEP-96 12,334.7 12,233.5 11,700.3 12,061.3 12,802.8
DEC-96 12,645.6 12,532.5 11,981.2 12,329.8 13,140.9
MAR-97 12,612.3 12,490.1 11,935.6 12,014 13,140.5
JUN-97 13,000.6 12,867.1 12,355 12,600.3 13,621
SEP-97 13,385.4 13,237.7 12,705.9 12,934.2 14,028
DEC-97 13,738.8 13,576.5 13,026.1 13,235.6 14,380.1
MAR-98 13,863.8 13,690.6 13,130.3 13,183.2 14,568.5
FOR PERIOD ENDING MARCH 31, 1998
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
Taxable Taxable Taxable From Taxable
1 Year Equivalent* 3 Year Equivalent* 5 Year Equivalent* Inception Equivalent*
------ ----------- ------ ----------- ------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Institutional Class 9.94% 14.59% 7.79% 11.44% 6.19% 9.09% 6.32% 9.28%
Service Class 9.62% 14.12% 7.47% 10.97% 5.92% 8.69% 6.07% 8.91%
Investor A Class (Load Adjusted) 5.07% 7.44% 5.87% 8.62% 5.05% 7.41% 5.24% 7.69%
Investor A Class (NAV) 9.43% 13.84% 7.33% 10.76% 5.90% 8.66% 6.05% 8.88%
Investor B Class (Load Adjusted) 3.73% 5.48% 5.27% 7.74% 4.91% 7.21% 5.32% 7.81%
InvestorBClass (NAV) 8.62% 12.65% 6.53% 9.59% 5.33% 7.82% 5.52% 8.10%
</TABLE>
*TAXABLE EQUIVALENT TOTAL RETURN IS BASED ON THE ANNUALIZED TOTAL RETURN AND A
COMBINED FEDERAL AND STATE TAX RATE OF 46.8%. IT REPRESENTS THE RETURN ON A
TAXABLE INVESTMENT NECESSARY TO EQUAL THE AFTER-TAX RETURN OF THE BLACKROCK
OHIO TAX-FREE INCOME PORTFOLIO.
THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF
THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN
THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO'S SHARE
CLASSES WERE AS FOLLOWS: INSTITUTIONAL AND INVESTOR ASHARES, 12/1/92; SERVICE
SHARES, 7/29/93; AND INVESTOR B SHARES, 10/13/94. SEE "NOTE ON PERFORMANCE
INFORMATION" ON PAGE 13 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS
CALCULATED.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
12
<PAGE>
BLACKROCK FUNDS [LOGO OMITTED]
NOTE ON PERFORMANCE INFORMATION
The performance information above includes information for each class of
each Portfolio since the commencement of operations of the Portfolio, rather
than the date such class was introduced. Performance information for each class
introduced after the commencement of operations of a Portfolio is therefore
based on the performance history of a predecessor class or predecessor classes.
If a class of shares in a Portfolio (the "Subsequent Class") has more than one
predecessor class, the performance data predating the introduction of the
Subsequent Class is based initially on the performance of the Portfolio's first
operational predecessor class (the "Initial Class"); thereafter, the performance
of the Subsequent Class is based upon the performance of any other predecessor
class or classes which were introduced after the Initial Class and which had
total operating expenses more similar to those of the Subsequent Class. In the
case of Investor A, Investor B, Investor C and Service Shares, the performance
information for periods prior to their introduction dates has not been restated
to reflect the shareholder servicing and processing and/or distribution fees and
certain other expenses borne by these share classes which, if reflected, would
reduce the performance quoted. Accordingly, the performance information may be
used in assessing each Portfolio's performance history but does not reflect how
the distinct classes would have performed on a relative basis prior to the
introduction of these classes, which would require an adjustment to the ongoing
expenses.
Performance information is restated to reflect the current maximum
front-end sales charge (in the case of Investor A Shares) or the maximum
contingent deferred sales charge (in the case of Investor B and Investor C
Shares), and assumes the reinvestment of dividends and distributions. The
maximum front-end sales charges for Investor A Shares are as follows:
Intermediate Government Bond, Intermediate Bond, Core Bond, Tax-Free Income,
Pennsylvania Tax-Free Income, New Jersey Tax-Free Income and Ohio Tax-Free
Income Portfolios -- 4.00%; Government Income and Managed Income Portfolios --
4.50%; Low Duration Bond Portfolio -- 3.00%; and International Bond Portfolio --
5.00%. The maximum contingent deferred sales charge for Investor B Shares and
Investor C Shares of all of the Portfolios is 4.50% and 1.00%, respectively.
The performance information also reflects fee waivers that subsidize and
reduce the total operating expenses of each Portfolio. The Portfolios' returns
would have been lower if there were not such waivers. BlackRock Advisors, Inc.
and the Portfolios' Administrators are under no obligation to waive or continue
waiving their fees. Investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost.
13
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
LOW DURATION BOND PORTFOLIO
PAR
AS OF MARCH 31, 1998 (UNAUDITED) MATURITY (000) VALUE
-------- ---------- -------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 1.2%
Small Business Administration
Participation Certificates,
Series 97, Class A
6.35%** 08/15/22 $2,565 $ 2,571,709
U.S. Treasury Notes
6.25%(DAGGER) 02/28/02 1,215 1,238,887
-------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $3,819,688) 3,810,596
-------------
MORTGAGE PASS-THROUGHS -- 30.0%
Federal Home Loan Mortgage
Corporation
7.37% 03/01/06 119 120,261
7.25% 10/03-06/08 117 120,011
8.25% 06/01/09 117 121,461
6.05% 02/15/11 5,038 5,038,795
8.75% 01/01/13 178 188,425
8.00% 10/01/17 384 399,201
6.60%** 06/01/28 4,039 4,054,509
Federal Home Loan Mortgage
Corporation 5 Year Balloon
7.00% 05/01/00 974 981,356
7.00% 11/01/00 1,298 1,310,344
Federal Home Loan Mortgage
Corporation 7 Year Balloon
8.00% 01/01/04 1,392 1,419,702
Federal Home Loan Mortgage
Corporation 30 Year Balloon
8.25% 09/01/09 136 141,089
7.50% 04/01/22 307 315,519
Federal Home Loan Mortgage
Corporation Multi-Family
6.16%** 10/01/00 10,038 10,040,637
Federal National Mortgage
Association
6.29%(DAGGER) 10/04/00 2,000 2,022,180
6.20%(DAGGER) 02/26/01 7,988 7,967,141
6.00%(DAGGER) 01/01/04 4,776 4,738,183
7.00% 06/01/04 3,712 3,751,241
6.50% 10/01/05 1,338 1,340,086
7.50% 04/01/09 2,730 2,795,577
11.50% 05/01/09 362 408,634
5.50% 12/25/14 569 567,192
5.75% 12/25/16 5,000 4,963,281
Federal National Mortgage
Association 10 Year
6.00%(DAGGER) 02/01/04 3,184 3,158,168
Federal National Mortgage
Association
10 Year Balloon
6.00% 12/01/03 3,209 3,182,777
Federal National Mortgage
Association
15 Year Balloon
7.50%(DAGGER) 10/01/04 587 601,008
Federal National Mortgage
Association
30 Year Balloon
8.50% 12/01/10 4,090 4,278,323
8.50% 09/01/12 265 278,137
Federal National Mortgage
Association 7 Year Balloon
7.00% 03/01/99 37 36,551
PAR
MATURITY (000) VALUE
-------- ---------- -------------
MORTGAGE PASS-THROUGHS (CONTINUED)
General Motors Acceptance Corp.
Grantor Trust, Series 97, Class A
7.46% 07/25/19 $5,832 $ 5,861,956
7.50% 10/10/19 5,797 5,896,169
Government National Mortgage
Association
8.25% 09/15/08 5,115 5,347,694
Government National Mortgage
Association 30 Year
6.50% 03/24-04/24 1,471 1,457,276
MLCC Mortgage Investors, Inc.,
Series 96-C, Class A
6.00%** 09/15/21 3,765 3,781,176
MLCC Mortgage Investors, Inc.,
Series 97-B, Class A
5.90%** 03/16/26 4,841 4,842,445
Salomon Brothers Mortgage
Securities VII, Series 96-6B,
Class A1
6.10%** 06/30/26 1,121 1,120,396
Salomon Brothers Mortgage
Securities VII, Series 96-6G,
Class A1
6.00%** 09/30/27 833 832,897
-------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $93,261,827) 93,479,798
-------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS -- 9.1%
Bear Sterns Mortgage Securities, Inc.,
Series 96-6, Class A2
7.00% 11/25/27 6,093 6,084,432
Federal National Mortgage
Association, Series 93-124,
Class J (PO)
4.29% 10/25/22 1,921 1,856,133
Morgan Stanley Capital I,
Series 86-C, Class U4
9.00% 11/01/06 46 45,886
Residential Accredit Loans, Inc.,
Series 97-QS7, Class A1
7.50% 07/25/27 1,881 1,893,282
Residential Asset Securitization Trust,
Series 96-A8, Class A1
8.00% 12/25/26 2,140 2,155,454
Residential Asset Securitization Trust,
Series 97-A3, Class A1
7.25% 05/25/27 147 147,422
Residential Asset Securitization Trust,
Series 97-A5, Class A3
7.12% 07/25/27 4,862 4,875,658
Residential Asset Securitization Trust,
Series 97-A9, Class A1
7.25% 11/25/27 4,420 4,441,753
Residential Asset Securitization Trust,
Series 98-A2, Class A1
6.75% 04/25/28 3,959 3,954,295
Residential Asset Securitization Trust,
Series 98-A5, Class C2
6.75% 02/25/28 3,000 2,994,375
-------------
TOTAL MULTIPLE CLASS MORTGAGE
PASS-THROUGHS
(Cost $28,314,433) 28,448,690
-------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
BLACKROCK FUNDS [LOGO OMITTED]
SCHEDULE OF INVESTMENTS
LOW DURATION BOND PORTFOLIO (CONTINUED)
PAR
AS OF MARCH 31, 1998 (UNAUDITED) MATURITY (000) VALUE
-------- ---------- -------------
COMMERCIAL MORTGAGE-BACKED
SECURITIES -- 13.0%
AFC Home Equity Loan Trust,
Series 97-1, Class A
5.84%** 03/25/27 $ 367 $ 367,176
Bosque Asset Corp., Series 97-1,
Class A1
7.66%** 06/05/02 2,030 2,038,103
IFC Small Business Administration
Loan-Backed Adjustable Rate
Certificates, Series 97-1, Class A
6.50%** 09/15/24 2,813 2,817,772
Impac Secured Assets Owner Trust,
Series 98-1, Class A3
6.52% 08/25/10 4,000 4,000,000
J.P. Morgan Commercial Mortgage
Finance Corp., Series 97, Class D
6.60% 07/25/29 2,000 1,996,875
Merit Securities Corp., Series 10,
Class 2A1
5.95%** 05/28/25 3,851 3,851,758
PNC Mortgage Securities Corp.,
Series 97-6, Class A2
6.60% 07/25/27 5,050 5,064,006
Prudential Home Mortgage Securities,
Inc., Series 94-19, Class A2
7.05% 05/25/24 2,741 2,763,221
Prudential Home Mortgage Securities,
Series 93-57, Class A4
5.90% 12/25/23 5,350 5,306,531
Sequoia Mortgage Trust, Series 97-1,
Class A1
6.09%** 05/04/29 3,989 3,981,164
Structured Asset Securities Corp.,
Series 97-N1, Class D
6.15%** 09/25/28 4,000 3,998,752
Wilshire Funding Corp., Series 97,
Class A
7.25% 08/25/27 4,309 4,334,831
-------------
TOTAL COMMERCIAL MORTGAGE-
BACKED SECURITIES
(Cost $48,010,258) 40,520,189
-------------
ASSET BACKED SECURITIES -- 38.5%
Arcadia Automobile Receivables Trust,
Series 98-A, Class A3
5.90% 11/15/02 200 199,812
Associates Manufactured Housing
Pass-Through, Series 96-1,
Class A1
6.20% 03/15/27 421 421,450
Banc One Auto Grantor Trust,
Series 96-A, Class A
6.10% 10/15/02 1,483 1,486,572
Banc One Auto Grantor Trust,
Series 97-B, Class A
6.29% 07/20/04 3,384 3,402,187
Barnett Auto Trust, Series 97-A,
Class A3
6.03%(DOUBLE DAGGER) 11/15/01 5,800 5,814,500
Chevy Chase Auto Receivables
Trust, Series 96-2, Class A
5.90% 07/15/03 3,169 3,167,954
Chevy Chase Auto Receivables
Trust, Series 97-3, Class A
6.20% 03/20/04 3,339 3,348,880
PAR
MATURITY (000) VALUE
-------- ---------- -------------
ASSET BACKED SECURITIES (CONTINUED)
Contimortgage Home Equity Loan
Trust, Series 97-4, Class A1
6.37% 03/15/08 $4,092 $ 4,087,142
Contimortgage Home Equity Loan
Trust, Series 97-4, Class A2
6.27% 02/15/12 3,800 3,797,625
EQCC Home Equity Loan Trust,
Series 94-1, Class A
5.80% 03/15/09 2,370 2,345,122
Fifth Third Auto Grantor Trust,
Series 96-B, Class A
6.45% 03/15/02 2,126 2,135,770
Fifth Third Bank Asset Trust,
Series 96, Class A
6.20%(DOUBLE DAGGER) 09/15/01 1,758 1,762,611
First Omni Bank Credit Card Master
Trust, Series 96-A, Class A
6.65% 09/15/03 2,860 2,911,391
First Security Auto Grantor Trust,
Series 97-A, Class A
6.30% 08/15/03 5,956 5,981,461
General Motors Acceptance Corp.
Grantor Trust, Series 95-A, Class A
7.15% 03/15/00 2,254 2,259,335
General Motors Acceptance Corp.
Grantor Trust, Series 97-A, Class A
7.13%** 04/01/20 8,421 8,514,709
Green Tree Financial Corp.,
Series 95-7, Class B1
7.35% 11/15/26 2,000 1,997,188
Green Tree Financial Corp.,
Series 95-A, Class A
7.25% 07/15/05 3,907 3,907,358
Green Tree Financial Corp.,
Series 96-6, Class A4
7.05% 09/15/27 3,000 3,052,969
Home Equity Loan Asset Backed
Certificates, Series 93-2, Class A3
4.65% 12/20/08 1,600 1,587,953
Honda Auto Receivables Grantor
Trust, Series 95-A, Class A
6.20% 12/15/00 1,650 1,652,747
Honda Auto Receivables Grantor
Trust, Series 97-B, Class A
5.95% 05/15/03 5,883 5,883,416
IMC Home Equity Loan Trust,
Series 97-5, Class A1
6.51% 02/20/06 4,032 4,028,650
MBNA Master Credit Card Trust,
Series 97-B, Class A
5.78%** 08/15/14 1,400 1,389,281
MMCA Automobile Trust,
Series 95-1, Class A
5.70% 11/15/00 81 80,667
Nissan Auto Receivables Grantor Trust,
Series 97-A, Class A
6.15% 02/15/03 2,939 2,948,610
NPC Health Care Receivables, Inc.,
Series 97-1, Class A
6.33% 07/01/00 2,500 2,507,422
People's Bank Credit Card Master Trust,
Series 98-1, Class A
5.90%** 11/15/05 4,300 4,309,408
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
LOW DURATION BOND PORTFOLIO (CONTINUED)
PAR
AS OF MARCH 31, 1998 (UNAUDITED) MATURITY (000) VALUE
-------- ---------- -------------
ASSET BACKED SECURITIES (CONTINUED)
PMC Capital Small Business
Administration Loan-Backed
Adjustable Rate Certificates,
Series 97-1, Class A
6.60% 09/15/23 $2,399 $ 2,398,690
PMC Capital Small Business
Administration Loan-Backed
Adjustable Rate Certificates,
Series 97-1, Class B
6.95%** 09/15/23 1,531 1,531,378
Sears Credit Account Master Trust,
Series 95-3, Class A
7.00% 10/15/04 600 612,320
Sears Credit Account Master Trust,
Series 96-1, Class A
6.20% 02/15/06 3,000 3,014,063
Sears Credit Account Master Trust,
Series 97-1, Class A
6.20% 07/15/07 3,530 3,543,426
Student Loan Marketing Association,
Series 97-3, Class CTFS
5.94% 10/25/12 400 395,250
The Money Store Auto Grantor Trust,
Series 97-4 , Class A2
6.35% 03/20/04 3,000 3,012,188
The Money Store Business Loan
Backed Securities, Series 97-1,
Class A
6.24%** 01/15/25 490 490,880
6.39%** 04/15/28 4,562 4,578,865
The Money Store Business Loan
Backed Securities, Series 97-1,
Class B
6.72%** 01/15/25 2,448 2,457,463
The Money Store Home Equity Trust,
Series 98-A , Class AH3
6.17% 08/15/12 1,000 1,000,000
The Money Store Home Equity Trust,
Series 98-A , Class MH2
7.23% 05/15/30 2,000 2,000,000
The Money Store Residential Trust,
Series 97-II, Class A1
6.65% 11/15/07 3,573 3,582,146
World Omni Automobile Lease
Securitization Trust, Series 96-B,
Class A3
6.25%** 11/15/02 4,994 4,996,788
World Omni Automobile Lease
Securitization Trust, Series 97-A,
Class A4
6.90% 06/25/03 1,700 1,723,906
-------------
TOTAL ASSET BACKED SECURITIES
(Cost $112,549,296) 120,319,553
-------------
CORPORATE BONDS -- 3.8%
FINANCE -- 2.5%
Lehman Brothers Holdings
7.00% 05/13/99 3,650 3,688,334
Salomon, Inc.
6.70% 07/05/00 4,000 4,050,815
-------------
7,739,149
-------------
INDUSTRIAL -- 0.8%
Time Warner, Inc.
4.90% 07/29/99 2,600 2,554,722
-------------
PAR
MATURITY (000) VALUE
-------- ---------- -------------
CORPORATE BONDS (CONTINUED)
YANKEE -- 0.5%
Banco Internacional S.A.
6.03% 07/16/01 $1,531 $ 1,526,374
Nordbanken
6.31%** 10/25/01 150 149,250
-------------
1,675,624
-------------
TOTAL CORPORATE BONDS
(Cost $11,891,076) 11,969,495
-------------
FOREIGN BONDS -- 2.6%
International Bank for
Reconstruction and Development
4.50% 06/20/00 1,000,000 8,122,357
-------------
TOTAL FOREIGN BONDS
(Cost $8,145,654) 8,122,357
-------------
TAXABLE MUNICIPAL BONDS -- 1.7%
New York City G.O., Ser. 96E
6.55% 08/01/00 200 201,500
New York State Pwr. Auth. Rev.,
Ser. 98B
6.05%** 02/15/15 4,500 4,494,375
Philadelphia Auth. for Ind. Dev. Rev.,
Ser. 97A
6.48% 06/15/04 562 560,050
-------------
TOTAL MUNICIPAL BONDS
(Cost $5,261,782) 5,255,925
-------------
SHORT TERM INVESTMENTS -- 0.1%
Smith Barney Money Market Fund
(Cost $253,625) 254 253,625
-------------
TOTAL INVESTMENTS IN
SECURITIES -- 100.0%
(Cost $311,507,639*) $312,180,228
=============
REVERSE REPURCHASE AGREEMENTS -- (11.2%)
Commerzbank
(Agreement dated 03/24/98 to be
repurchased at $15,561,943. Collateralized
by $15,150,000 U.S. Treasury Notes 5.625%
due 10/31/99. The value of the
collateral is $15,561,943.)
5.50% 04/15/98 15,510 (15,528,769)
Morgan Stanley & Co.
(Agreement dated 03/30/98 to be
repurchased at $3,052,073. Collateralized
by $6,500,000 Federal National Mortgage
Association Bonds 6.00% due
02/01/04. The value of the collateral
is $3,052,073.)
5.57% 05/29/98 3,024 (3,024,936)
Morgan Stanley & Co.
(Agreement dated 03/31/98 to be
repurchased at $3,541,304. Collateralized
by $7,800,000 Federal National Mortgage
Association Bonds 6.00% due
01/01/04. The value of the collateral is
$3,541,304.)
5.59% 06/15/98 3,500 (3,500,543)
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
BLACKROCK FUNDS [LOGO OMITTED]
SCHEDULE OF INVESTMENTS
LOW DURATION BOND PORTFOLIO (CONCLUDED)
REVERSE REPURCHASE
AGREEMENTS (CONTINUED)
Morgan Stanley & Co.
(Agreement dated 03/19/98 to be
repurchased at $7,692,057. Collateralized
by $9,300,000 Federal National Mortgage
Association Bonds, Series 96-T6,
Class C, 6.20% due 02/26/01. The value of
the collateral is $7,692,057.)
5.61% 06/15/98 $7,588 $ (7,603,372)
Paine Webber
(Agreement dated 01/30/98 to be repurchased
at $2,675,740. Collateralized
by $2,000,000 Federal National Mortgage
Association Bonds 6.29% to 7.50%
10/04/00 to 10/01/04. The value of the
collateral is $2,675,740.)
5.62% 04/01/98 2,651 (2,675,740)
-------------
TOTAL REVERSE REPURCHASE
AGREEMENTS
(Cost $32,333,360) $ (32,333,360)
=============
- ---------------
* Also cost for Federal income tax purposes. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 899,707
Gross unrealized depreciation (227,118)
----------
$ 672,589
==========
** Rates shown are the rates as of March 31, 1998.
(DAGGER) Partial principal in the amount of $40,750,000 has been pledged as
collateral for reverse repurchase agreements.
(DOUBLE DAGGER) Principal amount of securities pledged as collateral is
$1,200,000 on 320 long U.S. Treasury Notes and 57 short U.S. Treasury Notes
futures contracts expiring June 1998. The value of such contracts on March
31, 1998 was $66,304,234, thereby resulting in an unrealized loss of
$181,437.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
STATEMENT OF ASSETS AND LIABILITIES
LOW DURATION BOND PORTFOLIO
MARCH 31, 1998 (UNAUDITED)
ASSETS
Investments at value (Cost $311,507,639) ............... $312,180,228
Collateral received for securities loaned .............. 2,646,875
Interest receivable .................................... 1,707,386
Principal receivable ................................... 15,915
Investments sold receivable ............................ 19,852,953
Capital shares sold receivable ......................... 109
Futures margin receivable .............................. 63,547
Futures commissions .................................... 3,494
Prepaid expenses ....................................... 81,315
Unrealized appreciation of cross currency swap ......... 23,902
------------
TOTAL ASSETS .................................... $336,575,724
------------
LIABILITIES
Payable upon return of securities loaned ............... 2,646,875
Investments purchased payable .......................... 11,820,337
Distributions payable .................................. 1,376,377
Accrued expenses payable ............................... 71,865
Reverse repurchase agreements payable .................. 32,324,248
Cross currency swap payable ............................ 718,268
------------
TOTAL LIABILITIES ............................... 48,957,970
------------
NET ASSETS (Applicable to 13,475,068 Blackrock shares,
7,463,776 Institutional shares, 7,948,445 Service
shares, 136,589 Investor A shares, 18,717 Investor B
shares and 22,088 Investor C shares outstanding) ....... $287,617,754
============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER BLACKROCK SHARE ($133,346,351 (DIVIDE) 13,475,068) . $ 9.90
======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER INSTITUTIONAL SHARE ($73,860,059 (DIVIDE) 7,463,776) $ 9.90
======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SERVICE SHARE ($78,655,899 (DIVIDE) 7,948,445) ..... $ 9.90
======
NET ASSET VALUE AND REDEMPTION PRICE
PER INVESTOR A SHARE ($1,351,655 (DIVIDE) 136,589) ..... $ 9.90
======
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE
($9.90 (DIVIDE) .970) .................................. $10.21
======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE ($185,217 (DIVIDE) 18,717) ........ $ 9.90
======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE ($218,573 (DIVIDE) 22,088) ........ $ 9.90
======
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
BLACKROCK FUNDS [LOGO OMITTED]
STATEMENT OF NET ASSETS
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
PAR
AS OF MARCH 31, 1998 (UNAUDITED) MATURITY (000) VALUE
-------- ---------- -------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 18.8%
Small Business Administration
Participation Certificates,
Series 96-20H, Class 1
7.25% 08/01/16 $2,823 $ 2,951,827
Small Business Administration
Participation Certificates,
Series 96-20J, Class 1
7.20% 10/01/16 1,644 1,714,427
Small Business Investment Cos.
Pass-Through, Series 96-P10A,
Class 1
6.67% 02/10/06 2,721 2,758,122
U.S. Treasury Bonds
12.75% 11/15/10 5,060 7,189,399
14.00% 11/15/11 900 1,391,823
U.S. Treasury Notes
5.87% 07/31/99 900 903,285
#5.37% 01/31/00 3,750 3,736,987
#6.25% 06/30/02 5,525 5,639,644
-------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $25,990,112) 26,285,514
-------------
MORTGAGE PASS-THROUGHS -- 31.3%
Federal Home Loan Mortgage
Corporation
8.00% 06/01/17 1,396 1,457,953
Federal Home Loan Mortgage
Corporation 15 Year
7.00% 05/01/02 259 261,943
6.50% 05/13/26 500 494,531
Federal Home Loan Mortgage
Corporation 30 Year
7.00% 05/01/16 986 998,743
6.50% 01/24-09/25 2,882 2,854,480
Federal National Mortgage
Association
6.20% 02/26/01 1,718 1,713,364
6.72% 02/26/01 4,799 4,829,593
6.50% 10/01/05 978 980,063
5.00% 02/25/22 3,000 2,914,687
6.05%** 10/25/22 3,823 3,845,614
Federal National Mortgage
Association 10 Year
6.00% 11/01/03 1,533 1,520,398
6.00% 02/01/04 1,959 1,955,014
Federal National Mortgage
Association 30 Year
8.50% 12/01/10 2,900 3,036,005
7.26% 01/25/11 3,000 3,114,375
Federal National Mortgage
Association Multi-Family
10-Year
7.71% 12/01/18 3,170 3,356,468
Federal National Mortgage
Association Multi-Family
6.50% 10/25/03 4,049 4,085,387
Government National Mortgage
Association 30 Year
6.50% 10/23-12/23 1,406 1,387,139
7.00% 12/17/27 200 201,750
Government National Mortgage
Association 35 Year
9.75% 06/15/24 2,964 3,086,339
PAR
MATURITY (000) VALUE
-------- ---------- -------------
MORTGAGE PASS-THROUGHS (CONTINUED)
MLCC Mortgage Investors, Inc.,
Series 96-C, Class A
6.00%**(DOUBLE DAGGER) 09/15/21 $1,657 $ 1,663,718
-------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $43,287,730) 43,757,564
-------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS -- 6.4%
Community Program Loan Trust,
Series 87-A, Class A4
4.50% 10/01/18 4,209 3,800,188
Federal National Mortgage
Association Grantor Trust,
Series 96-T6, Class A
6.32% 10/25/00 2,575 2,570,523
Residential Asset Securitization Trust,
Series 97-A1, Class A1
7.00% 03/25/27 1,293 1,293,833
Residential Asset Securitization Trust,
Series 97-A3, Class A1
7.25% 05/25/27 1,248 1,253,090
-------------
TOTAL MULTIPLE CLASS MORTGAGE
PASS-THROUGHS
(Cost $8,896,053) 8,917,634
-------------
COMMERCIAL MORTGAGE BACKED
SECURITIES -- 5.4%
GMAC Commercial Mortgage
Securities, Inc., Series 97-C1,
Class X (IO)
8.26% 07/15/27 12,325 1,224,814
Merit Securities Corp., Series 10,
Class 2A1
6.23%** 05/28/25 2,252 2,252,915
Morgan Stanley Capital Corp.,
Series 97-HF1, Class A1
6.86% 07/15/29 1,353 1,386,081
The Money Store Residential Trust,
Series 98-I, Class A4
6.51% 08/15/15 2,800 2,780,750
-------------
TOTAL COMMERCIAL MORTGAGE
BACKED SECURITIES
(Cost $9,125,772) 7,644,560
-------------
PROJECT LOANS -- 5.6%
Federal Housing Authority, General
Motors Acceptance Corp.
7.43% 12/01/21 1,577 1,611,952
Federal Housing Authority, Merrill
Lynch, Series 97-23
7.43% 12/01/21 4,236 4,342,088
Federal Housing Authority, USGI,
Series 2056
7.46% 01/01/23 1,880 1,929,472
-------------
TOTAL PROJECT LOANS
(Cost $7,850,561) 7,883,512
-------------
ASSET BACKED SECURITIES -- 21.5%
Arcadia Automobile Receivables Trust,
Series 98-A, Class A3
5.90% 11/15/02 1,500 1,498,594
Associates Manufactured Housing
Pass-Through, Series 96-1,
Class A1
6.20% 03/15/27 380 380,132
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
STATEMENT OF NET ASSETS
INTERMEDIATE GOVERNMENT BOND PORTFOLIO (CONCLUDED)
PAR
AS OF MARCH 31, 1998 (UNAUDITED) MATURITY (000) VALUE
-------- ---------- -------------
ASSET BACKED SECURITIES (CONTINUED)
Chevy Chase Auto Receivables Trust,
Series 97-3, Class A
6.20% 03/20/04 $1,260 $ 1,263,248
Contimortgage Home Equity Loan
Trust, Series 97-4, Class A5
6.44% 12/15/12 1,450 1,456,570
Dayton Hudson Credit Card Master
Trust, Series 97-1, Class A
6.25% 08/25/05 3,000 3,017,619
EQCC Home Equity Loan Trust,
Series 95-3, Class A2
6.45% 11/15/08 865 866,910
FMAC Loan Receivables Trust,
Series 97-B, Class A
6.85% 09/15/19 1,434 1,441,674
FMAC Loan Receivables Trust,
Series 97-C, Class A
6.75% 12/15/19 1,776 1,787,628
Green Tree Financial Corp.,
Series 95-7, Class A2
6.15% 11/15/26 624 624,664
Green Tree Financial Corp.,
Series 95-8, Class A5
6.90% 12/15/26 800 812,250
Green Tree Financial Corp.,
Series 97-4, Class A
7.36% 02/15/29 1,100 1,138,500
Green Tree Home Improvement Loan
Trust, Series 97-C, Class HEA2
6.38% 08/15/28 1,558 1,561,412
HFC Home Equity Loan Asset Backed
Certificates, Series 93-1, Class A3
4.75% 05/20/08 54 54,317
National Premier Financial,
Series 97-1, Class A
6.81% 07/01/01 2,300 2,310,422
Old Stone Credit Corp., Home Equity
Trust, Series 93-2, Class A1
6.02% 06/15/08 851 842,325
Sears Credit Account Master Trust,
Series 97-1, Class A
6.20% 07/15/07 1,940 1,947,378
Security Pacific Home Equity Loan,
Series 91-1, Class B
8.85% 05/15/98 1,700 1,709,009
Standard Credit Card Master Trust,
Series 95-6, Class A
6.75% 06/07/00 1,500 1,502,404
The Money Store Home Equity Trust,
Series 94-A, Class A2
5.25% 02/15/16 1,171 1,158,550
The Money Store Home Equity Trust,
Series 95-A, Class A8
8.12% 06/15/15 1,125 1,165,465
Travelers Bank Credit Card Master
Trust, Series 98, Class A1
6.00% 01/18/05 1,500 1,499,766
Union Acceptance Corp., Series 96-A,
Class A
5.40% 04/07/03 2,014 2,001,584
-------------
TOTAL ASSET BACKED SECURITIES
(Cost $28,452,668) 30,040,421
-------------
PAR
MATURITY (000) VALUE
-------- ---------- -------------
MUNICIPAL BONDS -- 2.4%
New Jersey Econ. Dev.
Auth. Pension Obligation Bond,
Ser. 97B
6.62% 02/15/02 $1,527 $ 1,211,766
Stanislaus County, CA, Taxable
Pension Obligation, Ser. 95
7.15% 08/15/13 2,000 2,097,500
-------------
TOTAL MUNICIPAL BONDS
(Cost $3,186,667) 3,309,266
-------------
SHORT TERM INVESTMENTS -- 8.8%
Federal Home Loan Mortgage
Corp. Discount Notes
5.90% 04/01/98 12,300 12,300,000
Smith Barney Money Market Fund 44 44,464
-------------
TOTAL SHORT TERM INVESTMENTS
(Cost $12,344,464) 12,344,464
-------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $139,134,027*) 100.2% 140,182,935
LIABILITIES IN EXCESS OF
OTHER ASSETS (0.2%) (295,407)
------ -------------
NET ASSETS (Applicable to 7,668,390
Institutional shares, 5,518,817 Service
shares, 526,605 Investor A shares,
10,649 Investor B shares and 15,653
Investor C shares outstanding) 100.0% $139,887,528
====== ============
NET ASSET VALUE AND REDEMPTION
PRICE PER INSTITUTIONAL,
SERVICE AND INVESTOR A SHARE
($139,619,740 (DIVIDE) 13,713,812) $10.18
======
OFFERING PRICE PER INSTITUTIONAL
AND SERVICE SHARE $10.18
======
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($10.18 (DIVIDE) .960) $10.60
======
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE
(SUBJECT TO A CONTINGENT DEFERRED
SALES CHARGE OF 4.5%)
PER INVESTOR B SHARE
($108,421 (DIVIDE) 10,649) $10.18
======
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE
(SUBJECT TO A CONTINGENT DEFERRED
SALES CHARGE OF 1.0%)
PER INVESTOR C SHARE
($159,367 (DIVIDE) 15,653) $10.18
======
- ----------------
* Also cost for Federal income tax purposes. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $1,255,402
Gross unrealized depreciation (206,494)
----------
$1,048,908
==========
** Rates shown are the rates as of March 31, 1998.
# Total or partial securities on loan.
(DOUBLE DAGGER) Principal amount of securities pledged as collateral of $300,000
on 104 long U.S. Treasury Notes futures contracts expiring June 1998. The
value of such contracts on March 31, 1998 was $11,666,000, thereby
resulting in an unrealized loss of $51,242.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
BLACKROCK FUNDS [LOGO OMITTED]
STATEMENT OF NET ASSETS
INTERMEDIATE BOND PORTFOLIO
PAR
AS OF MARCH 31, 1998 (UNAUDITED) MATURITY (000) VALUE
-------- ---------- -------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 5.8%
Small Business Administration
Participation Certificates,
Series 92-20H, Class 1
7.40% 08/01/12 $3,971 $ 4,161,303
7.25%** 08/01/16 3,765 3,935,770
Small Business Investment Cos.
Pass-Through, Series 96-P10A,
Class 1
6.67%** 02/10/06 3,013 3,053,635
U.S. Treasury Bonds
12.75% 11/15/10 1,655 2,351,473
14.00%(DAGGER) 11/15/11 3,100 4,794,057
6.25% 08/15/23 560 577,332
U.S. Treasury Notes
6.50% 10/15/06 110 115,426
-------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $18,614,328) 18,988,996
-------------
MORTGAGE PASS-THROUGHS -- 18.2%
Federal Home Loan Mortgage
Corporation
8.50% 10/15/98 36 37,810
9.50%(DAGGER) 01/01/05 345 357,769
8.00%(DAGGER) 07/08-09/09 5,077 5,260,904
9.00% 09/97-12/16 152 159,295
7.00% 09/01/25 724 732,549
Federal Home Loan Mortgage
Corporation
8.00%(DAGGER) 09/01/18 2,438 2,539,373
Federal National Mortgage Association
6.72%(DAGGER) 02/26/01 8,140 8,192,271
6.00%(DAGGER) 01/01/04 3,860 3,828,896
9.50% 03/01/05 15 16,271
8.00%(DAGGER) 03/01/08 3,630 3,765,509
6.20%(DAGGER) 10/25/08 6,958 6,939,123
7.50%(DAGGER) 05/01/09 2,973 3,058,385
7.50%(DAGGER) 10/01/10 2,001 2,044,375
6.50%(DAGGER) 02/01/25 4,418 4,376,779
7.00%(DAGGER) 10/01/25 867 876,970
Federal National Mortgage Association
10 Year
6.00% 02/01/04 2,596 2,590,393
Federal National Mortgage Association
30 Year
8.50%(DAGGER) 12/01/10 4,909 5,137,855
7.26% 01/25/11 2,000 2,076,250
Federal National Mortgage Association
Multi-Family
6.50% 10/25/03 1,800 1,823,063
Government National Mortgage
Association
6.50%(DAGGER) 10/23-12/23 3,686 3,649,551
Salomon Brothers Mortgage
Securities VII, Series 96-6B,
Class A1
6.16%** 06/30/26 1,019 1,018,541
PAR
MATURITY (000) VALUE
-------- ---------- -------------
MORTGAGE PASS-THROUGHS (CONTINUED)
Salomon Brothers Mortgage
Securities VII, Series 96-6G,
Class A1
6.06%** 09/30/27 $ 779 $ 778,866
-------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $58,434,383) 59,260,798
-------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS -- 10.8%
Community Program Loan Trust,
Series 87-A, Class A4
4.50% 10/01/18 4,490 4,053,534
Federal Home Loan Mortgage
Corporation, Series T-2, Class A
7.00% 01/25/21 3,501 3,551,129
Federal National Mortgage
Association Grantor Trust,
Series 96-T6, Class A
6.32% 10/25/00 5,328 5,319,285
Federal National Mortgage
Association Strip Notes,
Series 267, Class 1 (PO)
4.95% 10/01/24 788 664,488
Federal National Mortgage
Association Strip Notes,
Series 274, Class 1 (PO)
6.50% 10/01/25 1,060 892,861
Federal National Mortgage
Association Strip Notes,
Series 279, Class 1
4.75% 07/01/26 914 774,425
Federal National Mortgage
Association, Series 89-16,
Class B (PO)
5.65% 03/25/19 1,462 1,176,933
Residential Accredit Loans, Inc.,
Series 97-QS10, Class A1
7.25% 10/25/27 3,118 3,130,675
Residential Asset Securitization
Trust, Series 96-A8, Class A1
8.00% 12/25/26 2,461 2,478,772
Residential Asset Securitization
Trust, Series 97-A3, Class A1
7.25%(DAGGER) 05/25/27 2,860 2,870,883
Residential Asset Securitization
Trust, Series 97-A9, Class A1
7.25% 11/25/27 6,634 6,667,009
Residential Asset Securitization
Trust, Series 98-A5, Class C2
6.75% 02/25/28 3,500 3,493,438
-------------
TOTAL MULTIPLE CLASS MORTGAGE
PASS-THROUGHS
(Cost $34,708,294) 35,073,432
-------------
COMMERCIAL MORTGAGE BACKED
SECURITIES -- 13.7%
Amresco Residential Securities
Mortgage Loan Trust, Series 96-1,
Class A
8.10% 04/26/26 1,669 1,644,896
Bosque Asset Corp., Series 97-1, Class A1
7.66% 06/05/02 2,030 2,038,103
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
STATEMENT OF NET ASSETS
INTERMEDIATE BOND PORTFOLIO (CONTINUED)
PAR
AS OF MARCH 31, 1998 (UNAUDITED) MATURITY (000) VALUE
-------- ---------- -------------
COMMERCIAL MORTGAGE BACKED
SECURITIES (CONTINUED)
GMAC Commercial Mortgage
Securities, Inc., Series 97-C1,
Class X (IO)
8.26% 07/15/27 $28,766 $ 2,858,651
J.P. Morgan Commercial Mortgage
Finance Corp., Series 97, Class D
6.60%** 07/25/29 4,000 3,993,750
Merit Securities Corp., Series 10,
Class 2A1
5.95%** 05/28/25 5,626 5,627,745
Merrill Lynch Mortgage Investors, Inc.,
Series 95-C1, Class C
7.45%** 05/25/15 1,200 1,237,229
Morgan Stanley Capital Corp.,
Series 97-HF1, Class A1
6.86% 07/15/29 3,142 3,217,688
NYC Mortgage Loan Trust, Series 96,
Class A1
6.75% 06/25/06 4,573 4,641,154
People's Bank Credit Card Master Trust,
Series 98-1, Class A
5.90%** 11/15/05 5,600 5,612,250
PNC Mortgage Securities Corp.,
Series 97-6, Class A2
6.60% 07/25/27 5,891 5,908,007
Resolution Trust Corp., Series 93-C3,
Class D
7.10% 12/25/24 1,985 1,991,865
Structured Asset Securities Corp.,
Series 97-N1, Class D
6.15%** 09/25/28 6,000 5,998,128
-------------
TOTAL COMMERCIAL MORTGAGE
BACKED SECURITIES
(Cost $46,677,063) 44,769,466
-------------
PROJECT LOANS -- 5.5%
Federal Housing Authority,
General Motors Acceptance Corp.
7.43% 12/01/21 4,336 4,432,775
Federal Housing Authority,
Merrill Lynch, Series 97-23
7.43% 12/01/21 9,885 10,131,521
Federal Housing Authority, USGI,
Series 2056
7.46% 05/01/21 3,397 3,486,618
-------------
TOTAL PROJECT LOANS
(Cost $17,905,414) 18,050,914
-------------
ASSET BACKED SECURITIES -- 38.3%
Arcadia Automobile Receivables Trust,
Series 98-A, Class A3
5.90% 11/15/02 2,100 2,098,031
Associates Manufactured Housing
Pass-Through, Series 96-1,
Class A1
6.20% 03/15/27 529 528,879
Associates Manufactured Housing
Pass-Through, Series 96-1, Class B1
8.00% 03/15/27 2,500 2,555,859
CBA Mortgage Corp., Series 93-C1,
Class B
7.76%** 12/25/03 1,000 1,007,344
Chevy Chase Auto Receivables Trust,
Series 97-1, Class A
6.50% (DOUBLE DAGGER) 10/15/03 2,666 2,683,757
PAR
MATURITY (000) VALUE
-------- ---------- -------------
ASSET BACKED SECURITIES (CONTINUED)
Chevy Chase Auto Receivables Trust,
Series 97-3, Class A
6.20% 03/20/04 $2,840 $ 2,848,668
Contimortgage Home Equity Loan
Trust, Series 97-4, Class A1
6.37% 03/15/08 5,115 5,108,927
Contimortgage Home Equity Loan
Trust, Series 97-4, Class A2
6.27% 02/15/12 3,000 2,998,125
Contimortgage Home Equity Loan
Trust, Series 97-4, Class A5
6.44% 12/15/12 3,300 3,314,953
Dayton Hudson Credit Card Master
Trust, Series 97-1, Class A
6.25% 08/25/05 6,000 6,035,238
EQCC Home Equity Loan Trust,
Series 94-1, Class A
5.80% 03/15/09 2,576 2,549,046
EQCC Home Equity Loan Trust,
Series 95-3, Class A2
6.45% 11/15/08 1,817 1,820,510
Fifth Third Bank Asset Trust,
Series 96, Class A
6.20% 09/15/01 2,206 2,211,276
First Plus Home Loan Trust,
Series 97-4, Class A5
6.62% 09/10/15 3,500 3,537,188
Fleet Finance Home Equity Trust,
Series 91-2, Class B
8.65% 10/15/06 1,350 1,356,539
FMAC Loan Receivables Trust,
Series 97-B, Class A
6.85% 09/15/19 3,295 3,313,407
FMAC Loan Receivables Trust,
Series 97-C, Class A
6.75% 12/15/19 4,441 4,469,070
Green Tree Financial Corp.,
Series 97-1, Class A6
7.29% 03/15/28 3,400 3,511,247
Green Tree Financial Corp.,
Series 94-A, Class A
6.90% 02/15/04 748 746,721
Green Tree Financial Corp.,
Series 94-B, Class A
7.85% 07/15/04 2,358 2,381,307
Green Tree Financial Corp.,
Series 95-8, Class A5
6.90% 12/15/26 1,600 1,624,500
Green Tree Financial Corp.,
Series 95-A, Class A
7.25% 07/15/05 4,855 4,855,467
Green Tree Financial Corp.,
Series 96-10, Class B1
7.24% 11/15/28 2,900 2,896,375
Green Tree Financial Corp.,
Series 96-7, Class A6
7.65% 10/15/27 1,800 1,878,750
Green Tree Financial Corp.,
Series 96-9, Class B1
7.65% 01/15/28 2,400 2,434,500
Green Tree Financial Corp.,
Series 97-8, Class B1
7.14% 05/15/22 2,000 1,976,875
HFC Home Equity Loan Asset Backed
Certificates, Series 93-1, Class A3
4.75% 05/20/08 105 104,821
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
BLACKROCK FUNDS [LOGO OMITTED]
STATEMENT OF NET ASSETS
INTERMEDIATE BOND PORTFOLIO (CONTINUED)
PAR
AS OF MARCH 31, 1998 (UNAUDITED) MATURITY (000) VALUE
-------- ---------- -------------
ASSET BACKED SECURITIES (CONTINUED)
Honda Auto Receivables Grantor Trust,
Series 97-B, Class A
5.95% 05/15/03 $8,171 $ 8,171,419
Mellon Bank Home Equity Loan Trust,
Series 96-1, Class B2
6.01%** 04/15/26 3,500 3,487,422
MMCA Automobile Trust, Series 95-1,
Class A
5.70% 11/15/00 533 532,405
Nissan Auto Receivables Grantor Trust,
Series 97-A, Class A
6.15% 02/15/03 3,755 3,767,668
PMC Capital Small Business
Administration Loan-Backed
Series 97-1, Class A
6.60%** 09/15/23 5,044 5,044,139
Puget Power Conservation Grantor
Trust, Series 97-1, Class A
6.23% 07/11/02 2,854 2,852,977
Sears Credit Account Master Trust,
Series 97-1, Class A
6.20%** 07/15/07 5,000 5,019,016
Security Pacific Home Equity Loan,
Series 91-1, Class B
8.85% 05/15/98 2,833 2,848,348
Student Loan Marketing Association,
Series 97-3, Class CTFS
6.02% 10/25/12 4,250 4,199,531
The Money Store Home Equity Trust,
Series 94-A, Class A2
5.25% 02/15/16 2,809 2,780,520
The Money Store Home Equity Trust,
Series 95-A, Class A8
8.12% 06/15/15 3,348 3,468,647
The Money Store Home Equity Trust,
Series 95-B, Class A13
7.40% 01/15/16 2,574 2,642,373
Travelers Bank Credit Card Master
Trust, Series 98-1, Class A
6.00% 12/15/04 3,400 3,399,469
Union Acceptance Corp., Series 96-A,
Class A
5.40% 04/07/03 2,477 2,461,947
World Omni Automobile Lease
Securitization Trust, Series 96-A,
Class A2
6.55% 06/25/02 3,136 3,158,818
-------------
TOTAL ASSET BACKED SECURITIES
(Cost $122,222,191) 124,682,079
-------------
CORPORATE BONDS -- 25.1%
FINANCE -- 10.6%
American Savings Bank
6.62% 02/15/06 1,350 1,359,066
Bear Stearns Capital
7.00% 01/15/27 3,300 3,332,010
Crestar Financial Corp.
8.25% 07/15/02 1,800 1,932,174
Equitable Surplus
6.95% 12/01/05 1,000 1,025,313
Finova Capital Corp.
7.12% 05/17/04 1,650 1,709,979
PAR
MATURITY (000) VALUE
-------- ---------- -------------
CORPORATE BONDS (CONTINUED)
FINANCE (CONTINUED)
Ford Motor Credit Co.
6.50% 02/28/02 $3,370 $ 3,415,668
Fuji Jgb Inv Pfd.
9.87% 12/31/49 1,740 1,723,388
Ikon Capital Resources
6.93% 06/07/99 2,400 2,422,785
J.P. Morgan & Co.
5.54%** 02/15/12 2,500 2,300,000
Meridian Bancorp.
6.62% 06/15/00 1,500 1,517,496
National City Capital Trust I
6.75% 06/01/29 3,600 3,620,796
Paine Webber, Inc.
7.87% 02/15/03 1,500 1,588,986
Provident Companies, Inc.
7.40% 03/15/38 2,650 2,650,352
Raytheon
6.30% 03/15/05 2,500 2,485,328
Salomon, Inc.
8.90% 02/15/00 500 525,032
Yorkshire Power Finance
6.15% 02/25/03 3,100 3,077,023
-------------
34,685,396
-------------
INDUSTRIAL -- 6.8%
Anixter, Inc.
8.00% 09/15/03 2,750 2,880,725
Burlington Northern
6.05% 03/15/01 2,500 2,492,000
ERAC USA Finance Co.
6.95% 03/01/04 2,483 2,525,566
Fort James Corp.
6.23% 03/15/01 2,000 1,997,098
News America Holdings
8.50% 02/15/05 3,000 3,302,936
RJR Nabisco, Inc.
6.70% 06/15/02 2,400 2,414,393
6.85% 06/15/05 300 302,442
7.05% 07/15/07 450 457,813
Texaco Capital Co.
9.00% 12/15/99 500 525,000
Time Warner, Inc.
4.90% 07/29/99 5,200 5,109,444
-------------
22,007,417
-------------
UTILITY -- 3.8%
CSW Energy
6.87% 10/01/01 3,000 3,042,477
Mobile Energy Services LLC
8.66% 01/01/17 467 495,113
PECO Energy Co.
5.62% 11/01/01 3,075 3,007,948
Pennsylvania Power & Light
9.25% 10/01/19 3,100 3,235,625
Texas Utilities Electric Co.
7.37% 08/01/01 2,500 2,580,975
-------------
12,362,138
-------------
YANKEE -- 3.9%
BP Overzee BV
5.80% 07/12/99 5,000 4,980,334
Crown Cork & Seal S.A.
6.75% 12/15/03 3,000 3,033,913
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
STATEMENT OF NET ASSETS
INTERMEDIATE BOND PORTFOLIO (CONTINUED)
PAR
AS OF MARCH 31, 1998 (UNAUDITED) MATURITY (000) VALUE
-------- ---------- -------------
CORPORATE BONDS (CONTINUED)
YANKEE (CONTINUED)
Nordbanken
6.41%** 10/25/01 $3,050 $ 3,034,750
Swedbank
7.50% 09/29/49 1,000 1,007,628
Transport de Gas
7.75% 12/23/98 600 599,946
-------------
12,656,571
-------------
TOTAL CORPORATE BONDS
(Cost $81,053,321) 81,711,522
-------------
TAXABLE MUNICIPAL BONDS -- 2.2%
New Jersey Econ. Dev. Auth.
6.94% 02/15/05 2,900 1,905,561
New York City Taxable Ser. E
6.55% 08/01/00 2,900 2,921,750
New York St. Pwr. Auth.
Rev. & General Purpose
6.11% 04/01/98 2,500 2,496,875
-------------
TOTAL MUNICIPAL BONDS
(Cost $7,214,691) 7,324,186
-------------
SHORT TERM INVESTMENTS -- 0.0%
Smith Barney Money Market Fund
(Cost $97,156) 97 97,156
-------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $386,926,841*) 119.6% 389,958,549
REVERSE REPURCHASE
AGREEMENTS -- (18.3%)
Commerzbank
(Agreement dated 03/26/98 to be repurchased
at $1,201,674 Collateralized by
$750,000 U.S. Treasury Bonds 14.00%
due 11/15/11. The value of the
collateral is $1,201,674.)
5.60% 04/09/98 1,199 (1,200,182)
Lehman Brothers
(Agreement dated 03/30/98 to be
repurchased at $2,012,882
Collateralized by $1,260,000 U.S.
Treasury Bonds 14.00% due 11/15/11 The
value of the collateral is $2,012,882.)
5.70% 04/09/98 2,010 (2,010,336)
Morgan Stanley & Co.
(Agreement dated 01/30/98 to be
repurchased at $12,481,740. Collateralized
by $58,000,000 Federal National Mortgage
Association Bonds 6.00% to 7.50%
due 01/01/04 to 05/01/09 and $14,500,000
Federal Home Loan Mortgage Corp.
8.00% due 09/01/09. The value of the
collateral is $12,481,740.)
5.62% 04/01/98 12,364 (12,481,740)
PAR
MATURITY (000) VALUE
-------- ---------- -------------
REVERSE REPURCHASE
AGREEMENTS (CONTINUED)
Morgan Stanley & Co.
(Agreement dated 03/19/98 to be
repurchased at $19,741,053. Collateralized
by $23,807,106 Federal National Mortgage
Association Bonds 6.20% to 6.725%
due 10/25/00 to 02/26/01. The value of
the collateral is $19,741,053.)
5.61% 06/15/98 $19,474 $ (19,513,451)
Morgan Stanley & Co.
(Agreement dated 03/23/98 to be repurchased
at $3,002,574. Collateralized
by $3,894,774 Residential Asset
Securitization Trust 7.25% due 05/25/27.
The value of the collateral is $3,002,574.)
5.69% 06/22/98 2,960 (2,964,211)
Morgan Stanley & Co.
(Agreement dated 03/23/98 to be repurchased
at $13,562,640. Collateralized
by $14,581,114 Federal National Mortgage
Association 8.00% to 8.50% due
03/01/08 to 12/01/10 and $6,906,190
Federal Home Loan Mortgage Corp. 6.50%
to 7.00% due 02/01/25 to 10/01/25. The
value of the collateral is
$13,562,640.)
5.58% 06/22/98 13,374 (13,392,657)
Morgan Stanley & Co.
(Agreement dated 03/24/98 to be repurchased
at $8,214,250. Collateralized
by $16,910,635 Federal Home Loan Mortgage
Corp. 8.00% to 9.50% due 01/01/05
to 09/01/18 and $3,900,000 Federal National
Mortgage Association 7.50% to
8.50% due 10/01/10 to 12/01/10 and $600,000
Government National Mortgage
Association 6.50% due 11/15/23. The value of
the collateral is $8,214,250.)
5.58% 06/23/98 8,100 (8,110,044)
-------------
TOTAL REVERSE REPURCHASE
AGREEMENTS
(Cost $59,672,621) (59,672,621)
LIABILITIES IN EXCESS OF
OTHER ASSETS (1.3%) (4,160,292)
----- ------------
NET ASSETS (Applicable to 27,731,207
Institutional shares, 6,629,591 Service
shares, 122,014 Investor A shares and
1,522 Investor B shares outstanding) 100.0% $326,125,636
====== ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
BLACKROCK FUNDS [LOGO OMITTED]
STATEMENT OF NET ASSETS
INTERMEDIATE BOND PORTFOLIO (CONCLUDED)
AS OF MARCH 31, 1998 (UNAUDITED) VALUE
---------
NET ASSET VALUE AND REDEMPTION
PRICE PER INSTITUTIONAL, SERVICE
AND INVESTOR A SHARE
($326,111,238 (DIVIDE) 34,482,812) $9.46
=====
OFFERING PRICE PER INSTITUTIONAL
AND SERVICE SHARE $9.46
=====
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($9.46 (DIVIDE) .960) $9.85
=====
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE
(SUBJECT TO A CONTINGENT DEFERRED
SALES CHARGE OF 4.5%)
PER INVESTOR B SHARE
($14,398 (DIVIDE) 1,522) $9.46
=====
- ------------------
* Also cost for Federal income tax purposes. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $3,731,994
Gross unrealized depreciation (700,286)
----------
$3,031,708
==========
** Rates shown are the rates as of March 31, 1998.
(DAGGER) Partial principal in the amount of $130,609,819 has been pledged as
collateral for reverse repurchase agreements. Also pledged as collateral
for reverse repurchase aggreements are $1,210,000 of U.S. Treasury Notes at
a rate of 6.625% with a maturity of 07/31/01. These securities were sold
and will settle 04/02/98.
(DOUBLE DAGGER) Principal amount of securities pledged as collateral of
$1,500,000 on 111 long U.S. Treasury Notes futures contracts expiring June
1998. The value of such contracts on March 31, 1998 was $12,197,125,
thereby resulting in an unrealized loss of $41,125.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
CORE BOND PORTFOLIO
PAR
AS OF MARCH 31, 1998 (UNAUDITED) MATURITY (000) VALUE
-------- ---------- -------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 32.8%
Overseas Private Investment Co.
6.10%** 12/16/06 $ 449 $ 448,023
6.27%** 12/16/06 2,200 2,181,437
6.38%** 12/16/06 1,720 1,710,465
6.27%** 05/29/12 220 217,387
6.84%** 05/29/12 440 445,087
Small Business Administration
Participation Certificates,
Series 92-20H, Class 1
7.40% 08/01/12 238 249,678
Small Business Administration
Participation Certificates,
Series 96-20J, Class 1
7.20% 10/01/16 58 60,509
Small Business Administration
Participation Certificates,
Series 97-20B, Class 1
7.10% 02/01/17 2,557 2,658,536
Small Business Investment Cos.
Pass-Through, Series 97-P10C,
Class 1
6.85% 08/01/07 5,500 5,631,861
Small Business Investment Cos.
Pass-Through, Series 97-P10D,
Class 1
6.51% 11/01/07 400 402,500
Small Business Investment Cos.
Pass-Through, Series 98-10A,
Class 1
6.12% 02/10/08 250 246,250
U.S. Treasury Bonds
5.50% 03/31/03 6,250 6,214,999
12.75% 11/15/10 240 340,999
#13.87% 05/15/11 14,675 22,224,994
14.00% 11/15/11 150 231,970
6.25% 08/15/23 5,165 5,324,856
6.37% 08/15/27 7,400 7,822,762
#6.12% 11/15/27 77,975 79,968,041
U.S. Treasury Notes
5.75% 09/30/99 23,885 23,942,322
#5.87% 11/15/99 8,870 8,907,963
#5.50% 02/29/00 8,000 7,986,639
6.00% 08/15/00 8,430 8,490,189
6.25% 02/28/02 2,067 2,107,637
#6.25% 06/30/02 1,855 1,893,491
5.75% 10/31/02 24,950 25,018,111
#5.75% 11/30/02 29,005 29,084,471
-------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $243,454,431) 243,811,177
-------------
MORTGAGE PASS-THROUGHS -- 8.9%
Federal Home Loan Mortgage
Corporation
8.00% 11/01/15 112 116,736
7.00% 03/01/25 801 809,892
7.50% 09/05-10/26 5,470 5,623,662
Federal National Mortgage Association
7.50% 09/01/10 169 173,113
6.00% 04/15/13 10,500 10,326,094
8.00% 10/09-05/22 156 162,260
6.50% 10/01/25 26,000 25,683,125
PAR
MATURITY (000) VALUE
-------- ---------- -------------
MORTGAGE PASS-THROUGHS (CONTINUED)
Federal National Mortgage Association
Multi-Family
6.50% 10/25/03 $ 100 $ 101,281
Government National Mortgage
Association
8.50% 01/10-04/17 326 344,383
7.00% 01/23-12/23 7,507 7,582,831
6.50% 12/23-09/24 14,928 14,781,616
9.00% 10/15/24 476 495,631
7.50% 06/15/27 266 272,790
-------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $65,998,801) 66,473,414
-------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS -- 6.2%
Chase Commercial Mortgage
Securities Corp., Series 97-1,
Class X (IO)
8.69% 04/19/15 35,113 2,869,384
Community Program Loan Trust,
Series 87-A, Class A4
4.50% 10/01/18 9,214 8,318,189
CS First Boston Mortgage Corp.,
Series 97-C1, Class AX (IO)
8.60% 04/20/22 55,183 6,078,763
Federal National Mortgage
Association Strip Notes,
Series 267, Class 1 (PO)
4.97% 01/25/24 1,045 881,370
Federal National Mortgage Association
Strip Notes, Series 274, Class 1 (PO)
7.00% 10/01/25 1,039 874,944
Federal National Mortgage Association
Strip Notes, Series 279, Class 1 (PO)
6.00% 07/01/26 573 485,603
Federal National Mortgage Association,
Series 96-54, Class A (PO)
6.50%** 04/25/21 1,776 1,549,321
Residential Accredit Loans, Inc.,
Series 97-QS7, Class A1
7.50% 07/25/27 4,457 4,486,256
Residential Accredit Loans, Inc.,
Series 97-QS10, Class A1
7.25% 10/25/27 9,444 9,483,946
Residential Asset Securitization Trust,
Series 97-A7, Class A1
7.50% 09/25/27 4,891 4,928,533
Salomon Brothers Mortgage
Securities VI, Series 87-1 (IO)
7.00% 04/20/07 2,938 877,666
Salomon Brothers Mortgage
Securities VI, Series 87-1 (PO)
7.00% 02/17/17 3,067 2,488,109
Salomon Brothers Mortgage
Securities VI, Series 87-2 (IO)
6.00% 03/06/17 2,010 613,088
Salomon Brothers Mortgage
Securities VI, Series 87-2 (PO)
6.00% 03/06/17 2,010 1,628,201
Salomon Brothers Mortgage
Securities, Series 87-3, Class A (PO)
5.00% 10/23/17 504 406,550
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
BLACKROCK FUNDS [LOGO OMITTED]
SCHEDULE OF INVESTMENTS
CORE BOND PORTFOLIO (CONTINUED)
PAR
AS OF MARCH 31, 1998 (UNAUDITED) MATURITY (000) VALUE
-------- ---------- -------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS (CONTINUED)
Salomon Brothers Mortgage
Securities, Series 87-3, Class B (IO)
5.00% 10/23/17 $ 503 $ 164,079
-------------
TOTAL MULTIPLE CLASS MORTGAGE
PASS-THROUGHS
(Cost $45,522,253) 46,134,002
-------------
COMMERCIAL MORTGAGE BACKED
SECURITIES -- 8.9%
Amresco Residential Securities
Mortgage Loan Trust, Series 96-1,
Class A
8.10% 04/26/26 1,711 1,686,797
CS First Boston Mortgage Securities
Corp., Series 97-C2, Class AX (IO)
5.50% 11/17/22 35,177 2,819,669
DLJ Mortgage Acceptance Corp.,
Series 97-CF1, Class A
7.60% 04/15/07 2,000 2,139,346
First Boston Mortgage Securities
Corp., Series 93-M1, Class A
6.75% 09/25/06 116 117,026
First Union-Lehman Brothers
Commercial Mortgage 1
7.38% 04/18/29 4,350 4,616,586
GE Capital Mortgage Services,
Series 97-HE1, Class A4
7.78% 03/25/27 1,666 1,733,421
General Motors Acceptance Corp.,
Series 97-A, Class A
6.50% 04/15/02 8 8,003
GMAC Commercial Mortgage
Securities, Inc., Series 97-C1,
Class X (IO)
8.26%** 07/15/27 48,545 4,824,126
Goldman Sachs Mortgage Securities
Corp. II
7.41% 02/15/27 2,891 3,058,544
Impac Secured Assets Common
Owner Trust
6.71% 01/25/07 4,000 4,000,000
J.P. Morgan Commercial Mortgage
Finance Corp., Series 96-C3,
Class A1
7.33% 04/25/28 1,890 1,956,232
Merit Securities Corp., Series 10,
Class 2A1
5.95%** 05/28/25 10,721 10,724,056
Merrill Lynch Mortgage Investors, Inc.,
Series 95-C3, Class A
6.78%** 12/26/25 251 254,681
Merrill Lynch Mortgage Investors, Inc.,
Series 96-C1, Class A3
7.42% 04/25/28 3,000 3,160,045
Merrill Lynch Mortgage Investors, Inc.,
Series 96-C2, Class E
6.96% 11/21/28 1,915 1,862,612
Mid-State Trust, Series 1, Class A1
7.34% 07/01/35 2,837 2,922,529
Mid-State Trust, Series 6, Class A4
7.79% 07/01/35 1,087 1,115,205
Midland Royalty Acceptance Corp.,
Series 96-C, Class A
7.23% 01/25/29 4,050 4,239,292
PAR
MATURITY (000) VALUE
-------- ---------- -------------
COMMERCIAL MORTGAGE BACKED
SECURITIES (CONTINUED)
PNC Mortgage Securities Corp.,
Series 97-6, Class A2
6.60% 07/25/27 $ 8,416 $ 8,440,011
Structured Asset Securities Corp.,
Series 96-CFL, Class X1 (IO)
12.60% 02/25/28 24,714 1,328,362
Structured Asset Securities Corp.,
Series 97-N1, Class D
6.15%** 09/25/28 5,600 5,598,253
-------------
TOTAL COMMERCIAL MORTGAGE
BACKED SECURITIES
(Cost $70,542,982) 66,604,796
-------------
PROJECT LOANS -- 4.0%
Federal Housing Authority, East Point
Chelsea, Construction Loan Collateral
10.25% 05/01/33 98 105,832
Federal Housing Authority, Elton Home,
Construction Loan Collateral
9.25% 10/30/36 3,047 3,367,161
Federal Housing Authority, General
Motors Acceptance Corp.
7.43% 12/01/21 395 403,567
Federal Housing Authority, Huntoon
Paige, Construction Loan Collateral
7.31% 10/01/24 5,854 6,086,216
Federal Housing Authority, Merrill
Lynch, Series 97-23
7.43% 12/01/21 415 425,694
Federal Housing Authority, Village
Green, Construction Loan Collateral
8.25% 09/01/34 5,242 5,611,214
Federal Housing Authority, University
Park Apartments
7.87% 10/01/37 7,711 8,132,272
Reilly Mortgage Securities
6.89% 11/18/11 5,542 5,618,218
-------------
TOTAL PROJECT LOANS
(Cost $29,049,757) 29,750,174
-------------
ASSET BACKED SECURITIES -- 18.9%
Associates Manufactured Housing
Pass-Through, Series 96-1, Class B1
8.00% 03/15/27 2,815 2,877,898
Banc One Auto Grantor Trust,
Series 97-A, Class A
6.27%(DOUBLE DAGGER) 11/20/03 4,434 4,453,320
Banc One Auto Grantor Trust,
Series 97-B, Class A
6.29% 07/20/04 10,061 10,114,610
Barnett Auto Trust, Series 97,
Class A2
5.92% 07/15/00 4,900 4,903,062
Chase Manhattan Grantor Trust,
Series 96-B, Class A
6.61% 09/16/02 5,073 5,114,309
Chevy Chase Auto Receivables Trust,
Series 97-2, Class A
6.35% 01/15/04 1,395 1,402,332
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
27
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
CORE BOND PORTFOLIO (CONTINUED)
PAR
AS OF MARCH 31, 1998 (UNAUDITED) MATURITY (000) VALUE
-------- ---------- -------------
ASSET BACKED SECURITIES (CONTINUED)
Chevy Chase Auto Receivables Trust,
Series 97-3, Class A
6.20% 03/20/04 $1,285 $ 1,288,683
CIT Group Securitization Corp.,
Series 95-2, Class B
7.65% 05/15/26 300 305,859
Contimortgage Home Equity Loan Trust,
Series 97-4, Class A1
6.37% 03/15/08 5,115 5,108,927
Copelco Capital Funding Corp.,
Series 97-A, Class A3
6.27% 04/20/05 2,645 2,656,985
Dayton Hudson Credit Card Master
Trust, Series 97-1, Class A
6.25% 08/25/05 1,750 1,760,278
Discover Card Master Trust I,
Series 92-B, Class A
6.80% 06/16/00 1,248 1,246,833
Discover Card Master Trust I,
Series 94-2, Class A
6.03%** 10/16/04 4,700 4,734,516
First USA Master Credit Card Trust,
Series 95-1, Class A
5.76%** 03/01/00 1,000 1,000,781
FMAC Loan Receivables Trust,
Series 97-B, Class A
6.85% 09/01/19 5,973 6,006,161
Green Tree Financial Corp.,
Series 93-3, Class B
6.85% 10/15/18 4,000 3,806,252
Green Tree Financial Corp.,
Series 93-4, Class A
6.60% 01/15/19 600 603,722
Green Tree Financial Corp.,
Series 94-5, Class A
7.95% 11/15/19 400 415,000
Green Tree Financial Corp.,
Series 94-B, Class A
7.85% 07/15/04 168 170,093
Green Tree Financial Corp.,
Series 95-7, Class B1
7.35% 11/15/26 600 599,156
Green Tree Financial Corp.,
Series 95-A, Class A
7.25% 07/15/05 6,120 6,119,613
Green Tree Financial Corp.,
Series 96-2, Class B2
7.90% 04/15/27 3,650 3,539,361
Green Tree Financial Corp.,
Series 97-2, Class B
7.56% 06/15/28 5,000 5,048,440
Green Tree Financial Corp.,
Series 97-3, Class A7
7.64% 07/15/28 4,200 4,413,940
Green Tree Financial Corp.,
Series 97-3, Class B2
8.03% 07/15/28 2,400 2,330,251
Green Tree Financial Corp.,
Series 97-4, Class A
7.36% 02/15/29 5,000 5,175,000
Green Tree Home Improvement Loan
Trust, Series 94-D, Class M
9.05% 01/15/15 700 741,782
Honda Auto Receivables Grantor Trust,
Series 97-B, Class A
5.95% 05/15/03 4,576 4,575,995
PAR
MATURITY (000) VALUE
-------- ---------- -------------
ASSET BACKED SECURITIES (CONTINUED)
Keycorp Student Loan Trust,
Series 97-2, Class A
6.02% 01/27/23 $8,600 $ 8,578,500
MBNA Master Credit Card Trust,
Series 94-C, Class A
6.00%** 03/14/04 1,155 1,160,775
MBNA Master Credit Card Trust,
Series 95-I, Class A
5.85%** 03/15/03 1,150 1,152,695
Mellon Bank Home Equity Loan Trust,
Series 96-1, Class B2
6.01%** 04/15/26 5,200 5,181,312
Merrill Lynch Mortgage Investors, Inc.,
Series 92-D, Class A
7.75% 07/15/17 234 236,002
Nissan Auto Receivables Grantor Trust,
Series 95-A, Class A
6.10% 08/15/01 1,304 1,305,659
Puget Power Conservation Grantor Trust,
Series 97-1, Class A
6.23% 07/11/02 4,327 4,325,481
Sears Credit Account Master Trust,
Series 97-1, Class A
6.20% 07/15/07 10,500 10,539,934
Standard Credit Card Master Trust,
Series 95-6, Class A
6.75% 06/07/00 2,201 2,204,528
Student Loan Marketing Association,
Series 97-3, Class CTFS
6.02%** 10/25/12 2,500 2,470,313
The Money Store Home Equity Trust,
Series 94-A, Class A2
5.25% 02/15/16 3,278 3,243,940
The Money Store Home Equity Trust,
Series 95-A, Class A8
8.12% 06/15/15 1,661 1,720,449
Triangle Funding, Ltd., Series 97-3A,
Class 1B
5.96%** 10/15/05 7,150 7,132,125
World Omni Automobile Lease
Securitization Trust, Series 96-B,
Class A3
6.25% 11/15/02 589 588,877
-------------
TOTAL ASSET BACKED SECURITIES
(Cost $135,159,159) 140,353,749
-------------
CORPORATE BONDS -- 14.3%
FINANCE -- 7.6%
BGB Finance
6.62% 12/30/99 5,500 5,544,001
CoreStates Capital
8.00% 12/15/26 3,500 3,698,592
Crestar Financial Corp.
8.25% 07/15/02 400 429,372
Equitable Life Assurance Society
7.70% 12/01/15 250 267,444
Finova Capital Corp.
7.12% 05/17/04 150 155,453
Ford Motor Credit Corp.
7.75% 10/01/99 1,000 1,024,273
8.00% 06/15/02 1,000 1,066,250
Fuji Jgb Inv Pfd.
9.87% 12/31/49 3,565 3,530,964
GMAC Pass-Through Trust
6.50% 01/17/00 2,800 2,820,040
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
28
<PAGE>
BLACKROCK FUNDS [LOGO OMITTED]
SCHEDULE OF INVESTMENTS
CORE BOND PORTFOLIO (CONCLUDED)
PAR
AS OF MARCH 31, 1998 (UNAUDITED) MATURITY (000) VALUE
-------- ---------- -------------
CORPORATE BONDS (CONTINUED)
FINANCE (CONTINUED)
HSBC America Capital II
8.38% 05/15/27 $1,800 $ 1,888,302
J.P. Morgan & Co.
5.54%** 02/15/12 100 92,000
Lehman Brothers Holdings, Inc.
6.20% 01/15/02 6,000 5,962,728
Liberty Mutual Insurance Co.
8.50% 05/15/25 300 348,428
7.87% 10/15/26 2,550 2,772,397
7.69% 10/15/45 1,800 1,873,734
Merrill Lynch & Co.
6.47% 06/27/00 4,200 4,240,191
Metropolitan Life Insurance Co.
6.30% 11/01/03 400 397,807
National City Capital Trust I
6.75%** 06/01/29 2,700 2,715,597
NB Capital Trust IV
8.25% 04/15/27 900 977,774
Riggs Capital Trust
8.62% 12/31/26 4,750 5,018,834
Salomon, Inc.
6.70% 07/05/00 5,200 5,266,059
Yorkshire Power Finance
6.49% 02/25/08 6,400 6,308,624
-------------
56,398,864
-------------
INDUSTRIAL -- 4.0%
EOP Operating Limited Partnership
6.75% 02/15/08 3,500 3,466,796
ERAC USA Finance Co.
6.95% 03/01/04 3,620 3,682,058
Federated Department Stores, Inc.
7.00% 02/15/28 2,000 1,976,583
News America Holdings
8.50% 02/15/05 2,400 2,642,348
RJR Nabisco, Inc.
7.55% 06/15/15 3,175 3,310,619
Safeco Capital Trust
8.07% 07/15/37 2,800 2,912,166
Sears Roebuck Co.
9.25% 04/15/98 2,000 2,001,976
Time Warner, Inc.
4.90% 07/29/99 6,500 6,386,773
6.10% 12/30/01 3,500 3,456,261
-------------
29,835,580
-------------
TELECOMMUNICATIONS -- 0.6%
Comcast Cable Communications
8.37% 05/01/07 4,000 4,423,380
-------------
UTILITY -- 1.7%
Consumers Energy Co.
6.37% 02/01/08 5,000 4,928,723
National Rural Utilities Corp.
6.20% 02/01/08 4,700 4,651,160
Pennsylvania Power & Light
9.25% 10/01/19 200 208,750
Texas Utilities Capital Trust
8.17% 01/30/37 2,750 2,812,203
Texas Utilities Electric Co.
7.37% 08/01/01 125 129,049
-------------
12,729,885
-------------
PAR
MATURITY (000) VALUE
-------- ---------- -------------
CORPORATE BONDS (CONTINUED)
YANKEE -- 0.4%
Swedbank
7.50%** 09/29/49 $2,800 $ 2,821,359
-------------
TOTAL CORPORATE BONDS
(Cost $105,659,988) 106,209,068
-------------
MUNICIPAL BONDS -- 1.5%
New Jersey Econ. Dev. Auth.
6.80% 02/15/05 200 131,592
7.09% 06/30/11 4,185 1,842,195
7.56% 02/15/16 10,100 3,187,660
7.59% 02/15/17 3,575 1,053,910
7.21% 02/15/18 5,500 1,519,759
7.62% 02/15/20 6,265 1,520,891
7.62% 02/15/21 2,660 606,586
7.63% 02/15/22 3,735 798,431
7.63% 02/15/23 1,415 284,231
-------------
TOTAL MUNICIPAL BONDS
(Cost $9,275,726) 10,945,255
-------------
SHORT TERM INVESTMENTS -- 4.5%
Federal Home Loan Mortgage
Corp. Discount Notes
5.90% 04/01/98 33,000 33,000,000
Smith Barney Money Market Fund 98 98,170
-------------
TOTAL SHORT TERM INVESTMENTS
(Cost $33,098,170) 33,098,170
-------------
TOTAL INVESTMENTS IN
SECURITIES -- 100.0%
(Cost $737,761,267*) $ 743,379,805
=============
- ----------------
* Also cost for Federal income tax purposes. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $7,618,390
Gross unrealized depreciation (1,999,852)
----------
$5,618,538
==========
** Rates shown are the rates as of March 31, 1998.
# Total or partial securities on loan.
(DOUBLE DAGGER) Principal amount of securities pledged as collateral of
$2,500,000 on 501 short U.S. Treasury Notes future contracts expiring June
1998. The value of such contracts on March 31, 1998 was $59,260,875,
thereby resulting in an unrealized loss of $84,176.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
29
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
STATEMENT OF ASSETS AND LIABILITIES
CORE BOND PORTFOLIO
MARCH 31, 1998 (UNAUDITED)
ASSETS
Investments at value (Cost $737,761,267) ..................... $743,379,805
Collateral received for securities loaned .................... 70,254,438
Interest receivable .......................................... 9,534,842
Principal receivable ......................................... 243,555
Investments sold receivable .................................. 11,385,073
Capital shares sold receivable ............................... 198,131
Futures commissions .......................................... 4,866
Prepaid expenses ............................................. 109,459
------------
TOTAL ASSETS .......................................... 835,110,169
------------
LIABILITIES
Payable upon return of securities loaned ..................... 70,254,438
Investments purchased payable ................................ 47,354,227
Capital shares redeemed payable .............................. 7,733
Distributions payable ........................................ 3,724,991
Accrued expenses payable ..................................... 237,264
Deferred dollar roll income .................................. 1,863
Futures margin payable ....................................... 219,219
------------
TOTAL LIABILITIES ..................................... 121,799,735
------------
NET ASSETS (Applicable to 8,774,465 Blackrock
shares, 45,621,917 Institutional
shares, 17,064,474 Service shares, 320,952
Investor A shares, 883,048 Investor B shares
and 58,137 Investor C shares outstanding) .................... $713,310,434
============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER BLACKROCK SHARE ($86,065,461 (DIVIDE) 8,774,465) ......... $ 9.81
======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER INSTITUTIONAL SHARE ($447,486,542 (DIVIDE) 45,621,917) ... $ 9.81
======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SERVICE SHARE ($167,378,488 (DIVIDE) 17,064,474) ......... $ 9.81
======
NET ASSET VALUE AND REDEMPTION PRICE
PER INVESTOR A SHARE ($3,148,104 (DIVIDE) 320,952) ........... $ 9.81
======
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE
($9.81 (DIVIDE) .960) ........................................ $10.22
======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE ($8,661,594 (DIVIDE) 883,048) ........... $ 9.81
======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE ($570,245 (DIVIDE) 58,137) .............. $ 9.81
======
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
30
<PAGE>
BLACKROCK FUNDS [LOGO OMITTED]
SCHEDULE OF INVESTMENTS
GOVERNMENT INCOME PORTFOLIO
PAR
AS OF MARCH 31, 1998 (UNAUDITED) MATURITY (000) VALUE
-------- ---------- -------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 35.1%
Small Business Administration
Participation Certificates,
Series 96-20J, Class 1
7.20% 10/01/16 $ 435 $ 453,819
U.S. Treasury Bonds
12.75% 11/15/10 1,500 2,131,245
6.25% 08/15/23 555 572,177
6.37% 08/15/27 50 52,856
#6.12% 11/15/27 2,755 2,825,418
U.S. Treasury Notes
5.75% 10/31/02 600 601,638
#5.75% 11/30/02 1,135 1,138,110
6.87% 05/15/06 2,975 3,189,497
-------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $10,970,957) 10,964,760
-------------
MORTGAGE PASS-THROUGHS -- 36.5%
Federal Home Loan Mortgage
Corporation
7.00%(DOUBLE DAGGER) 08/10-05/26 4,356 4,420,775
7.50% 11/25-06/27 160 163,770
Federal National Mortgage Association
6.50% 10/01/25 2,500 2,469,531
7.00% 08/10-12/25 1,500 1,521,993
Government National Mortgage
Association
6.50% 11/23-10/26 1,829 1,809,858
7.50% 04/27-12/27 989 1,013,337
-------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $11,312,179) 11,399,264
-------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS -- 4.3%
Federal National Mortgage Association,
Series 96-54, Class A (PO)
5.85% 04/25/21 417 363,821
Residential Accredit Loans, Inc.
Series 1998-QS5, Class A1
6.75% 04/25/28 400 399,125
Salomon Brothers Mortgage
Securities VI, Series 87-1 (IO)
5.00% 04/20/07 508 151,664
Salomon Brothers Mortgage
Securities VI, Series 87-1 (PO)
5.92% 02/17/17 508 411,841
-------------
TOTAL MULTIPLE CLASS MORTGAGE
PASS-THROUGHS
(Cost $1,306,544) 1,326,451
-------------
COMMERCIAL MORTGAGE BACKED
SECURITIES -- 0.2%
Merrill Lynch Mortgage Investors, Inc.,
Series 96-C2, Class E
(Cost $69,595)
6.96% 11/21/28 70 68,085
-------------
PAR
MATURITY (000) VALUE
-------- ---------- -------------
PROJECT LOANS -- 0.7%
Excelsior II Apartments, Construction
Loan Collateral
7.87% 02/01/39 $ 71 $ 75,159
Excelsior II Apartments, Construction
Loan Commitment
8.04% 02/01/39 129 137,811
-------------
TOTAL PROJECT LOANS
(Cost $200,925) 212,970
-------------
ASSET BACKED SECURITIES -- 1.7%
Chase Manhattan Grantor Trust,
Series 96-B, Class A
6.61% 09/15/02 107 107,670
Chevy Chase Auto Receivables Trust,
Series 96-2, Class A
5.90% 07/15/03 118 118,428
Merrill Lynch, Class 42
7.43% 09/01/22 296 304,377
-------------
TOTAL ASSET BACKED SECURITIES
(Cost $527,682) 530,475
-------------
SHORT TERM INVESTMENTS -- 21.5%
Federal Home Loan Mortgage
Corp. Discount Notes
5.90% 04/01/98 6,650 6,650,000
Smith Barney Money Market Fund 77 77,148
-------------
TOTAL SHORT TERM INVESTMENTS
(Cost $6,727,148) 6,727,148
-------------
TOTAL INVESTMENTS IN
SECURITIES -- 100.0%
(Cost $31,115,030*) $ 31,229,153
=============
- ----------------
* Also cost for Federal income tax purposes. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $193,025
Gross unrealized depreciation (78,902)
--------
$114,123
========
# Total or partial securities on loan.
(DOUBLE DAGGER) Principal amount of securities pledged as collateral of $112,957
on 22 short U.S. Treasury Notes futures contracts expiring June 1998. The
value of such contracts on March 31, 1998 was $2,406,625, thereby resulting
in an unrealized gain of $1,400.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
31
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
STATEMENT OF ASSETS AND LIABILITIES
GOVERNMENT INCOME PORTFOLIO
MARCH 31, 1998 (UNAUDITED)
ASSETS
Investments at value (Cost $31,115,030) ........................ $31,229,153
Collateral received for securities loaned ...................... 4,169,856
Interest receivable ............................................ 331,429
Principal receivable ........................................... 15,858
Investments sold receivable .................................... 2,336,284
Capital shares sold receivable ................................. 265,651
Futures commissions ............................................ 207
Prepaid expenses ............................................... 16,651
-----------
TOTAL ASSETS ............................................ 38,365,089
-----------
LIABILITIES
Payable upon return of securities loaned ....................... 4,169,856
Investments purchased payable .................................. 8,771,551
Capital shares redeemed payable ................................ 17,165
Distributions payable .......................................... 128,079
Accrued expenses payable ....................................... 33,070
Deferred dollar roll income .................................... 1,757
Futures margin payable ......................................... 6,703
-----------
TOTAL LIABILITIES ....................................... 13,128,181
-----------
NET ASSETS (Applicable to 496,552 Investor A shares,
1,769,031 Investor B shares
and 134,628 Investor C shares outstanding) ..................... $25,236,908
===========
NET ASSET VALUE AND REDEMPTION PRICE
PER INVESTOR A SHARE ($5,220,941 (DIVIDE) 496,552) ............. $10.51
======
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE
($10.51 (DIVIDE) .955) ......................................... $11.01
======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE ($18,600,433 (DIVIDE) 1,769,031) .......... $10.51
======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE ($1,415,534 (DIVIDE) 134,628) ............. $10.51
======
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
32
<PAGE>
BLACKROCK FUNDS [LOGO OMITTED]
SCHEDULE OF INVESTMENTS
MANAGED INCOME PORTFOLIO
PAR
AS OF MARCH 31, 1998 (UNAUDITED) MATURITY (000) VALUE
-------- ---------- -------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 39.1%
Overseas Private Investment Co.
6.53%** 02/15/04 $ 374 $ 373,353
6.27%** 12/16/06 2,640 2,617,725
6.38%** 12/16/06 1,433 1,425,387
6.27%** 05/29/12 310 306,319
6.84% 05/29/12 620 627,169
Small Business Administration
Participation Certificates,
Series 96-20B, Class 1
6.37% 02/01/16 4,081 4,079,778
Small Business Administration
Participation Certificates,
Series 96-20K, Class 1
6.95% 11/10/16 9,586 9,874,092
Small Business Administration
Participation Certificates,
Series 97-20B, Class 1
7.10% 02/01/17 2,411 2,506,619
Small Business Administration
Participation Certificates,
Series 97-20F, Class 1
7.20% 06/01/17 2,218 2,315,959
Small Business Administration
Participation Certificates,
Series 97-20G, Class 1
6.85% 07/01/17 12,733 13,081,383
U.S. Treasury Bonds
12.75% 11/15/10 8,000 11,366,639
#13.87% 05/15/11 16,575 25,102,506
6.25% 08/15/23 7,585 7,819,755
6.37% 08/15/27 10,000 10,571,300
#6.12%(DAGGER) 11/15/27 77,045 79,014,270
U.S. Treasury Notes
5.75% 09/30/99 19,400 19,446,558
5.87% 11/15/99 23,000 23,098,438
#5.50% 02/29/00 8,000 7,986,639
#6.37% 05/15/00 40,010 40,618,948
6.00% 08/15/00 8,655 8,716,796
#5.75% 10/31/02 31,700 31,786,538
#5.75%(DAGGER) 11/30/02 37,210 37,311,952
5.50%(DAGGER) 03/31/03 40,000 39,775,996
#6.87% 05/15/06 27,350 29,321,932
#6.50% 10/15/06 4,940 5,183,690
-------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $413,342,555) 414,329,741
-------------
MORTGAGE PASS-THROUGHS -- 13.8%
Federal Home Loan Mortgage
Corporation
7.00% 09/25-12/26 10,002 10,108,763
7.50% 01/10-12/26 17,240 17,726,406
6.50% 03/11-04/28 723 715,300
Federal National Mortgage Association
6.50% 04/13/98 37,500 37,042,969
6.00% 04/16/98 12,000 11,801,250
7.00% 10/10-12/25 6,125 6,208,298
Government National Mortgage
Association
9.50% 06/15/00 105 113,455
8.50% 07/01-04/01 672 709,461
9.00% 06/00-04/01 2,071 2,217,556
6.50% 12/23-05/17 41,475 41,053,254
7.00% 07/15/20 15,500 15,635,626
7.50% 04/23-07/27 956 981,818
PAR
MATURITY (000) VALUE
-------- ---------- -------------
MORTGAGE PASS-THROUGHS (CONTINUED)
Government National Mortgage
Association II
9.50% 12/01-12/02 $ 1,481 $ 1,596,424
-------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $143,818,033) 145,910,580
-------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS -- 3.7%
Community Program Loan Trust,
Series 87-A, Class A4
4.50% 10/01/18 12,511 11,295,003
Federal National Mortgage Association
Strip Notes, Series 267, Class 1 (PO)
6.00% 01/25/24 1,160 978,466
Federal National Mortgage Association
Strip Notes, Series 274, Class 1 (PO)
6.42% 10/01/25 5,722 4,820,880
Federal National Mortgage Association
Strip Notes, Series 279, Class 1 (PO)
6.00% 07/01/26 1,052 891,654
Federal National Mortgage Association,
Series 96-56, Class E (PO)
7.00%** 04/25/23 1,718 1,378,964
Residential Accredit Loans, Inc.,
Series 97-QS10, Class A1
7.25% 10/25/27 12,745 12,798,724
Residential Asset Securitization Trust,
Series 97-A7, Class A1
7.50% 09/25/27 6,761 6,812,755
-------------
TOTAL MULTIPLE CLASS MORTGAGE
PASS-THROUGHS
(Cost $37,642,074) 38,976,446
-------------
COMMERCIAL MORTGAGE BACKED
SECURITIES -- 3.4%
CS First Boston Mortgage Securities
Corp., Series 95-AEW1, Class C
7.45% 11/25/27 2,000 2,019,564
J.P. Morgan Commercial Mortgage
Finance Corp., Series 96-C3,
Class A1
7.33% 04/25/28 2,362 2,445,290
Merrill Lynch Mortgage Investors, Inc.,
Series 95-C, Class D
7.94%** 05/25/15 2,200 2,276,084
Merrill Lynch Mortgage Investors, Inc.,
Series 96-C1, Class A2
7.24% 04/25/28 5,313 5,519,507
Merrill Lynch Mortgage Investors, Inc.,
Series 96-C1, Class A3
7.42% 04/25/28 5,500 5,793,416
Merrill Lynch Mortgage Investors, Inc.,
Series 96-C2, Class E
6.96% 11/21/28 2,725 2,650,453
Morgan Stanley, Series 95, Class D
8.25% 08/15/27 1,000 1,057,661
PNC Mortgage Securities Corp.,
Series 97-6, Class A2
6.60% 07/25/27 10,100 10,128,013
Structured Asset Securities Corp.,
Series 97-N1, Class C
5.65%** 09/25/28 4,264 4,262,866
-------------
TOTAL COMMERCIAL MORTGAGE
BACKED SECURITIES
(Cost $35,547,607) 36,152,854
-------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
33
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
MANAGED INCOME PORTFOLIO (CONTINUED)
PAR
AS OF MARCH 31, 1998 (UNAUDITED) MATURITY (000) VALUE
-------- ---------- -------------
PROJECT LOANS -- 3.2%
Federal Housing Authority, Audobon
Villas, Construction Loan Collateral
8.12% 07/31/36 $5,077 $ 5,407,403
Federal Housing Authority, Audobon
Villas, Construction Loan Commitment
8.12% 07/31/36 192 204,622
Federal Housing Authority, Huntoon
Paige, Construction Loan Collateral
7.31% 10/01/24 8,908 9,261,633
Federal Housing Authority, Lakeland
Nursing, Construction Loan Collateral
7.87% 12/01/34 4,972 5,243,541
Federal Housing Authority, University
Park Apartments, Construction
Loan Collateral
7.87% 10/01/37 4,524 4,771,813
Federal Housing Authority, Village
Green, Construction Loan Collateral
8.25% 09/01/34 4,969 5,319,272
Federal Housing Authority, Whittier
Rehab At Westborough,
Construction Loan Collateral
8.12% 02/28/37 2,842 3,020,774
Federal Housing Authority, Whittier
Rehab At Westborough,
Construction Loan Commitment
8.12% 02/28/37 315 335,037
-------------
TOTAL PROJECT LOANS
(Cost $32,146,561) 33,564,095
-------------
ASSET BACKED SECURITIES -- 16.1%
Associates Manufactured Housing
Pass-Through, Series 96-1, Class B1
8.00% 03/15/27 1,500 1,533,516
Associates Manufactured Housing
Pass-Through, Series 96-2, Class A1
5.70% 06/15/27 105 104,727
Banc One Auto Grantor Trust,
Series 97-B, Class A
6.29% 07/20/04 3,156 3,172,310
CIT Group Securitization Corp.,
Series 95-2, Class B
7.65% 05/15/26 3,950 4,027,148
Copelco Capital Funding Corp.,
Series 97-A, Class A3
6.27% 04/20/05 4,555 4,575,640
Corporate Bond Backed Certificates,
Series 97-10
8.12% 09/15/17 5,502 5,933,782
Daimler-Benz Auto Grantor Trust,
Series 97-A, Class A
6.05% 03/31/05 4,853 4,863,979
Discover Card Master Trust I,
Series 94-2, Class A
5.76%** 10/16/04 3,500 3,525,703
Equicon Home Equity Loan Trust,
Series 93-1, Class I (IO)
4.66%** 02/18/13 12,693 279,646
Equivantage Home Equity Loan Trust,
Series 96-1, Class A
6.55% 10/25/25 2,631 2,621,365
Green Tree Financial Corp.,
Series 94-B, Class A
7.85% 07/15/04 1,096 1,107,308
PAR
MATURITY (000) VALUE
-------- ---------- -------------
ASSET BACKED SECURITIES (CONTINUED)
Green Tree Financial Corp.,
Series 95-7, Class B1
7.35% 11/15/26 $3,925 $ 3,919,480
Green Tree Financial Corp.,
Series 95-A, Class A
7.25% 07/15/05 5,746 5,746,115
Green Tree Financial Corp.,
Series 96-2, Class B2
7.90% 04/15/27 2,500 2,424,220
Green Tree Financial Corp.,
Series 96-5, Class A6
7.75% 07/15/27 7,450 7,837,196
Green Tree Financial Corp.,
Series 96-5, Class A7
8.25% 07/15/27 5,534 6,049,025
Green Tree Financial Corp.,
Series 96-7, Class A6
7.65% 10/15/27 4,725 4,931,719
Green Tree Financial Corp.,
Series 96-8, Class B1
7.95% 01/01/05 3,000 3,076,875
Green Tree Financial Corp.,
Series 97-1, Class B1
7.23% 03/02/28 7,300 7,279,974
Green Tree Financial Corp.,
Series 97-2, Class A7
7.62% 04/15/27 2,717 2,863,889
Green Tree Financial Corp.,
Series 97-3, Class B2
8.03% 07/15/28 3,800 3,689,564
Green Tree Home Improvement Loan
Trust, Series 96-C, Class HIB1
7.75% 06/15/21 4,450 4,498,674
Green Tree Home Improvement Loan
Trust, Series 97-A, Class HEM2
7.90% 03/15/28 5,150 5,315,768
Keycorp Student Loan Trust,
Series 95-B, Class A
5.90%** 09/27/24 7,379 7,378,891
Mellon Bank Home Equity Loan Trust,
Series 96-1, Class B2
6.38%** 04/15/26 5,000 4,982,031
Newcourt Receivables Asset Trust,
Series 97-1, Class A3
6.11% 05/20/05 8,000 8,013,750
Nissan Auto Receivables Grantor Trust,
Series 95-A, Class A
6.10% 08/15/01 3,267 3,272,327
Nissan Auto Receivables Grantor Trust,
Series 97-A, Class A
6.15% 02/17/03 9,060 9,091,547
Puget Power Conservation Grantor
Trust, Series 97-1, Class A
6.23% 07/11/02 6,555 6,552,644
Railcar Leasing LLC, Series 97-1,
Class A1
6.75% 07/15/06 11,703 12,017,218
Sears Credit Account Master Trust,
Series 97-1, Class A
6.20% 07/15/03 8,000 8,030,426
The Money Store Home Equity,
Series 97-C, Class MH2
7.35% 02/15/24 1,075 1,085,077
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
34
<PAGE>
BLACKROCK FUNDS [LOGO OMITTED]
SCHEDULE OF INVESTMENTS
MANAGED INCOME PORTFOLIO (CONTINUED)
PAR
AS OF MARCH 31, 1998 (UNAUDITED) MATURITY (000) VALUE
-------- ---------- -------------
ASSET BACKED SECURITIES (CONTINUED)
Triangle Funding, Ltd., Series 97-3A,
Class 1B
5.78%** 10/15/05 $ 8,900 $ 8,877,750
World Omni Automobile Lease
Securitization Corp., Series 97-B,
Class A1
6.07% 11/25/03 12,500 12,523,438
-------------
TOTAL ASSET BACKED SECURITIES
(Cost $170,048,010) 171,202,722
-------------
CORPORATE BONDS -- 20.0%
FINANCE -- 15.4%
AFC Capital Trust I
8.20% 02/03/27 5,000 5,546,092
Allmerica Financial Corp.
7.62% 10/15/25 2,900 3,066,968
American General Capital Securities
7.57% 12/01/45 8,550 8,803,868
AON Capital Trust
8.20% 01/01/27 3,900 4,380,874
Banco Santiago S.A.
7.00% 07/18/07 5,320 5,187,320
BGB Finance
6.62% 12/30/99 8,000 8,064,000
CoreStates Capital
8.00% 12/15/26 2,660 2,810,930
Equitable Life Assurance Society
7.70% 12/01/15 3,500 3,744,218
Fairfax Financial
8.30% 04/15/26 4,000 4,375,391
#Federal Express
7.60% 07/01/47 2,750 2,966,648
Finova Capital Corp.
7.12% 05/17/04 8,300 8,601,714
7.40% 05/06/06 4,350 4,597,848
Fuji Jgb Inv Pfd.
9.87%** 12/31/49 4,817 4,771,011
GMAC Pass-Through Trust
6.50% 01/17/00 5,050 5,086,144
Goldman Sachs Group LP
6.25% 02/01/03 6,030 6,001,059
Household International Corp.
6.00% 03/15/99 5,000 5,000,000
HSBC America Capital II
8.38% 05/15/27 7,500 7,867,925
Ikon Capital Resources
6.93% 06/07/99 7,300 7,369,305
Larwin Group - Participation in Asset
Exchange
8.00% 12/01/99 1 1,215
Lehman Brothers Holdings, Inc.
6.20% 01/15/02 7,200 7,155,274
Liberty Mutual Insurance Co.
7.69% 10/15/00 4,000 4,163,853
8.50% 05/15/25 4,250 4,936,060
Lowes Co.
6.87% 02/15/28 3,000 3,015,362
Mellon Capital II
7.99%(DOUBLE DAGGER) 01/15/27 6,350 6,722,491
Merrill Lynch & Co.
6.47% 06/27/00 8,200 8,278,468
Metropolitan Life Insurance Co.
6.30% 11/01/03 3,950 3,928,346
Paine Webber, Inc.
6.31% 07/22/99 5,000 5,012,342
PAR
MATURITY (000) VALUE
-------- ---------- -------------
CORPORATE BONDS (CONTINUED)
FINANCE (CONTINUED)
Pan American Beverages Co.
#7.25% 07/01/09 $ 2,800 $ 2,763,082
Salomon, Inc.
8.90% 02/15/00 2,500 2,625,161
Textron Financial Corp.
6.12% 03/15/04 6,500 6,480,475
Time Warner Entertainment
7.25% 09/01/08 2,755 2,866,567
Yorkshire Power Finance
6.15% 02/25/03 4,600 4,565,905
6.49% 02/25/08 2,500 2,464,306
--------------
163,220,222
--------------
INDUSTRIAL -- 3.1%
ERAC USA Finance Co.
6.95% 03/01/04 3,017 3,068,720
McKesson Corp.
6.30% 03/01/05 5,500 5,434,355
RJR Nabisco, Inc.
6.85% 06/15/05 5,550 5,595,168
7.05% 07/15/07 1,950 2,006,063
7.55% 06/15/15 5,350 5,578,523
Time Warner, Inc.
4.90% 07/29/99 4,500 4,414,095
6.10% 12/30/01 7,300 7,208,772
--------------
33,305,696
--------------
UTILITY -- 1.5%
CSW Energy
6.87% 10/01/01 2,250 2,281,858
Israel Electric Corp., Ltd.
7.87% 12/15/26 2,900 2,976,996
Mobile Energy Services LLC
8.66% 01/01/17 2,006 2,128,985
Pennsylvania Power & Light Co.
9.37% 07/01/21 1,000 1,093,750
Texas Utilities Electric Co.
7.87% 04/01/24 2,925 3,017,674
USA Waste Services, Inc.
6.50% 12/15/02 4,000 4,015,162
--------------
15,514,425
--------------
TOTAL CORPORATE BONDS
(Cost $207,665,356) 212,040,343
--------------
MUNICIPAL BONDS -- 0.7%
Los Angeles County Taxable
Pension Obligation
6.97% 06/30/08 3,855 4,042,931
New Jersey Econ. Dev. Auth.
7.40% 02/15/18 14,500 4,006,639
--------------
TOTAL MUNICIPAL BONDS
(Cost $7,610,403) 8,049,570
--------------
SHORT TERM INVESTMENTS -- 0.0%
Smith Barney Money Market Fund
(Cost $92,244) 92 92,244
--------------
TOTAL INVESTMENTS IN
SECURITIES -- 100%
(Cost $1,047,912,843*) $1,060,318,595
==============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
35
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
MANAGED INCOME PORTFOLIO (CONCLUDED)
PAR
AS OF MARCH 31, 1998 (UNAUDITED) MATURITY (000) VALUE
-------- ---------- -------------
REVERSE REPURCHASE AGREEMENTS -- (10.5%)
Aubrey Lanston
(Agreement dated 03/24/98
to be repurchased at $6,319,686.
Collateralized by $6,000,000 U.S.
Treasury Bonds 6.125% due 11/15/27.
The value of the collateral is
$6,319,686.)
5.35% 04/06/98 $ 6,308 $ (6,314,999)
Aubrey Lanston
(Agreement dated 03/24/98
to be repurchased at $31,598,429.
Collateralized by $30,000,000 U.S.
Treasury Bonds 6.125% due 11/15/27.
The value of the collateral is
$31,598,429.)
5.35% 04/06/98 31,538 (31,574,995)
Commerzbank
(Agreement dated 03/23/98 to be
repurchased at $31,918,145.
Collateralized by $31,075,000 U.S.
Treasury Notes 5.75% due 11/30/02.
The value of the collateral is
$31,918,145.)
5.35% 04/06/98 31,852 (31,894,477)
Morgan Stanley & Co.
(Agreement dated 03/31/98 to be
repurchased at $24,816,549.
Collateralized by $25,000,000 U.S.
Treasury Notes 5.50% due 03/31/03.
The value of the collateral is
$24,816,549.)
5.875% 04/01/98 24,813 (24,816,549)
-------------
TOTAL REVERSE REPURCHASE
AGREEMENTS
(Cost $94,601,020) $ (94,601,020)
=============
- ---------------
* Also cost for Federal income tax purposes. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $14,891,839
Gross unrealized depreciation (2,486,087)
-----------
$12,405,752
===========
** Rates shown are the rates as of March 31, 1998.
# Total or partial securities on loan.
(DAGGER) Partial principal in the amount of $92,075,000 has been pledged as
collateral for reverse repurchase agreements.
(DOUBLE DAGGER) Principal amount of securities pledged as collateral of
$4,000,000 on 2,107 short U.S. Treasury Notes futures contracts expiring
June 1998. The value of such contracts on March 31, 1998 was $241,924,375,
thereby resulting in an unrealized gain of $1,793,194.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
36
<PAGE>
BLACKROCK FUNDS [LOGO OMITTED]
STATEMENT OF ASSETS AND LIABILITIES
MANAGED INCOME PORTFOLIO (CONCLUDED)
MARCH 31, 1998 (UNAUDITED)
ASSETS
Investments at value (Cost $1,047,912,843) ................. $1,060,318,595
Collateral received for securities loaned .................. 216,943,044
Interest receivable ........................................ 13,844,591
Principal receivable ....................................... 515
Investments sold receivable ................................ 21,136,225
Capital shares sold receivable ............................. 212,567
Futures commissions ........................................ 19,370
Prepaid expenses ........................................... 28,155
--------------
TOTAL ASSETS ........................................ 1,312,503,062
--------------
LIABILITIES
Payable upon return of securities loaned ................... 216,943,044
Investments purchased payable .............................. 97,345,817
Capital shares redeemed payable ............................ 5,180
Distributions payable ...................................... 4,758,267
Accrued expenses payable ................................... 649,047
Deferred dollar roll income ................................ 17,031
Reverse repurchase agreements payable ...................... 94,544,706
Futures margin payable ..................................... 806,031
--------------
TOTAL LIABILITIES .......................................... 415,069,123
--------------
NET ASSETS (Applicable to 50,501,280 Institutional
shares, 33,667,310 Service shares,
1,624,868 Investor A shares and 198,359
Investor B shares outstanding) ............................. $ 897,433,939
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER INSTITUTIONAL SHARE ($527,044,401 (DIVIDE) 50,501,280) . $10.44
======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SERVICE SHARE ($351,361,809 (DIVIDE) 33,667,310) ....... $10.44
======
NET ASSET VALUE AND REDEMPTION PRICE
PER INVESTOR A SHARE ($16,957,598 (DIVIDE) 1,624,868) ...... $10.44
======
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE
($10.44 (DIVIDE) .955) ..................................... $10.93
======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE ($2,070,131 (DIVIDE) 198,359) ......... $10.44
======
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
37
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
STATEMENT OF NET ASSETS
INTERNATIONAL BOND PORTFOLIO
PAR**
AS OF MARCH 31, 1998 (UNAUDITED) MATURITY (000) VALUE
-------- ---------- -------------
FOREIGN BONDS -- 77.2%
CANADA -- 6.7%
Canada Trust Company Mortgage
5.63% 01/01/02 $ 2,350 $ 1,659,108
Government of Canada
7.25% 06/01/07 2,000 1,597,604
-------------
3,256,712
-------------
DENMARK -- 3.4%
Kingdom of Denmark
8.00% 05/15/03 10,000 1,624,201
-------------
FRANCE -- 8.3%
European Investment Bank
5.00% 04/15/08 2,180 2,342,895
Government of France
5.50% 10/25/07 10,000 1,681,330
-------------
4,024,225
-------------
GERMANY -- 15.0%
Federal Republic of Germany
5.25% 02/21/01 3,500 1,942,531
6.50% 07/04/27 4,500 2,787,589
Treuhandanstalt
7.75% 10/01/02 4,200 2,563,596
-------------
7,293,716
-------------
ITALY -- 3.4%
Bayerische Vereinsbank
9.65% 08/04/00 2,740,000 1,666,588
-------------
JAPAN -- 16.9%
Federal National Mortgage Association
1.75% 03/26/08 310,000 2,291,680
International Bank For Reconstruction
& Development
5.25% 03/20/02 250,000 2,178,226
Japan Development Bank
6.50% 09/20/01 200,000 1,778,201
Kingdom of Belgium
6.87% 07/09/01 220,000 1,963,239
-------------
8,211,346
-------------
NETHERLANDS -- 3.1%
Dutch Government
5.75% 02/15/07 3,000 1,527,573
-------------
SPAIN -- 4.5%
Government of Spain
11.30% 01/15/02 280,000 2,193,932
-------------
SWEDEN -- 3.5%
Kingdom of Sweden
10.25% 05/05/00 12,400 1,711,853
-------------
UNITED KINGDOM -- 12.4%
Abbey National Treasury Services
8.00% 04/02/03 600 1,059,388
Bayerische Landesbank Girozentrale
7.87% 12/07/06 1,100 2,019,346
Halifax Building Society PLC
6.50% 02/16/04 450 755,449
United Kingdom Government
7.25% 12/07/07 1,200 2,201,667
-------------
6,035,850
-------------
TOTAL FOREIGN BONDS
(Cost $38,199,784) 37,545,996
-------------
PAR**
MATURITY (000) VALUE
-------- ---------- -------------
UNITED STATES TREASURY OBLIGATION -- 4.2%
U.S. Treasury Notes
6.25% 08/31/02 $ 880 $ 898,955
6.50% 10/15/06 1,100 1,154,263
-------------
TOTAL UNITED STATES TREASURY
OBLIGATION
(Cost $2,048,421) 2,053,218
-------------
SHORT TERM INVESTMENTS -- 14.3%
Federal Home Loan Bank Corp.
Discount Notes
5.90% 04/01/98 6,950 6,950,000
(Cost $6,950,000) -------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $47,198,205*) 95.7% 46,549,214
OTHER ASSETS IN EXCESS
OF LIABILITIES(DOUBLE DAGGER) 4.3% 2,105,987
------ -------------
NET ASSETS (Applicable to 3,566,737
Institutional shares, 608,856 Service
shares, 122,248 Investor A shares,
121,523 Investor B shares and 93,398
Investor C shares outstanding) 100.0% $ 48,655,201
====== ============
NET ASSET VALUE AND REDEMPTION
PRICE PER INSTITUTIONAL,
SERVICE AND INVESTOR A SHARE
($46,337,986 (DIVIDE) 4,297,841) $10.78
======
OFFERING PRICE PER INSTITUTIONAL
AND SERVICE SHARE $10.78
======
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($10.78 (DIVIDE) .950) $11.35
======
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE
(SUBJECT TO A CONTINGENT DEFERRED
SALES CHARGE OF 4.5%) PER INVESTOR B SHARE
($1,310,225 (DIVIDE) 121,523) $10.78
======
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE
(SUBJECT TO A CONTINGENT DEFERRED
SALES CHARGE OF 1.0%)
PER INVESTOR C SHARE
($1,006,990 (DIVIDE) 93,398) $10.78
======
- --------------
* Also cost for Federal income tax purposes. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $1,197,425
Gross unrealized depreciation (1,846,416)
----------
$ (648,991)
==========
** In local currency.
(DOUBLE DAGGER) Segregated cash of $200,000 on 5 long Life Italian Government
Bond futures contracts expiring June 1998. The value of such contracts on
March 31, 1998 was $654,271, thereby resulting in an unrealized gain of
$4,473.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
38
<PAGE>
BLACKROCK FUNDS [LOGO OMITTED]
STATEMENT OF NET ASSETS
TAX-FREE INCOME PORTFOLIO
PAR
AS OF MARCH 31, 1998 (UNAUDITED) MATURITY (000) VALUE
-------- ---------- -------------
MUNICIPAL BONDS -- 94.7%
ALABAMA -- 1.8%
Courtland Ind. Dev. Rev., Champion Int.
Corp. Prj., Ser. 92
7.20% 12/01/13 $ 500 $ 556,875
Mobile G.O., Ser. 96
5.00% 02/15/16 1,000 991,250
-------------
1,548,125
-------------
ARIZONA -- 0.3%
Phoenix G.O., Ser. 92
6.37% 07/01/13 200 218,000
-------------
CALIFORNIA -- 8.6%
California Hsg. Fin. Agcy. Rev., Home
Mtg. Prj., Ser. 93C
5.65% 08/01/14 2,000 2,060,000
M-S-R Pub. Pwr. Agy. Rev., San Juan
Prj., Ser. 97G
5.37% 07/01/14 2,850 2,953,312
San Francisco City and Cnty. Redev.
Fin. Auth. Rev.,Tax Allocation,
Ser. 93B
5.25% 08/01/21 2,250 2,241,562
-------------
7,254,874
-------------
COLORADO -- 4.9%
Arapahoe Cnty. Cap. Imp. Trust Fund
Rev., Ser. 86
7.16% 08/31/04 900 680,625
Denver City & Cnty Aprt. Rev.,
Ser. 96D
5.50% 11/15/25 1,500 1,535,625
Denver City & Cnty. Aprt. Rev.,
Prerefunded Ser. 91D
7.00% 11/15/25 210 229,162
Denver City & Cnty. Aprt. Rev.,
Prerefunded Ser. 92C
6.75% 11/15/13 60 67,050
Denver City & Cnty. Aprt. Rev.,
Unrefunded Ser. 91D
7.00% 11/15/25 790 849,250
Denver City & Cnty. Aprt. Rev.,
Unrefunded Ser. 92C
6.75% 11/15/13 440 479,050
Jefferson Cnty. Sch. Dist. G.O., Ser. 92
6.00% 12/15/12 300 325,875
-------------
4,166,637
-------------
FLORIDA -- 9.0%
Bd. of Fin. General Services Rev.,
Dept. of Environmental Preservation
2000A Prj., Ser. 95
5.75% 07/01/13 3,000 3,210,000
Bd. of Fin. General Services Rev.,
Dept. of Environmental Preservation
2000A Prj., Ser. 98
5.50% 07/01/10 1,665 1,816,931
Florida Dept. of Trans. G.O., Ser. 91
6.25% 07/01/07 400 428,500
Santa Rosa Bay Bldg. Auth. Rev.,
Ser. 96
6.25% 07/01/28 2,000 2,167,500
-------------
7,622,931
-------------
PAR
MATURITY (000) VALUE
-------- ---------- -------------
GEORGIA -- 1.5%
Georgia G.O., Ser. 92B
6.30% 03/01/10 $ 310 $ 358,050
Georgia Mun. Elec. Auth. Rev.,
Ser. 92B
6.12% 01/01/14 400 431,500
Gwinnett Cnty. G.O., Ser. 92
6.00% 01/01/10 400 431,000
-------------
1,220,550
-------------
HAWAII -- 2.6%
Hawaii Dept. of Budget and Fin. Rev.,
Ser. 90C
7.37% 12/01/20 2,000 2,187,500
-------------
ILLINOIS -- 1.0%
Chicago Res. Mtg. Rev., Ref. Ser. 92B
7.00% 10/01/09 640 289,600
Winnebago & Boone Cnty. G.O., Sch.
Dist. No. 205 Prj., Ser. 92C
5.90% 02/01/05 500 545,625
-------------
835,225
-------------
INDIANA -- 1.3%
Indianapolis Int. Apt. Auth. Rev.,
Federal Express Corp. Prj., Ser. 94
7.10% 01/15/17 1,000 1,127,500
-------------
KANSAS -- 1.0%
Johnson Cnty. G.O., Internal Insp.,
Ser. 92A
6.00% 09/01/07 400 429,000
Kansas Dept. of Trans. Rev., Ser. 94A
6.00% 09/01/12 400 435,500
-------------
864,500
-------------
MARYLAND -- 0.1%
Baltimore Port Fac. Rev., E.I. du Pont
Co. Prj., Ser. 84A
6.50% 10/01/11 100 109,750
-------------
MASSACHUSETTS -- 1.1%
Massachusetts St. Hlth. Fac. Auth.
Rev., Hallmark Health System Prj.,
Ser. 97
5.00% 07/01/21 1,000 963,750
-------------
MICHIGAN -- 1.4%
Greater Detroit Res. Recovery Auth.
Rev., Ser. 93A
6.25% 12/13/08 1,000 1,147,500
-------------
MINNESOTA -- 0.9%
Southern Minnesota Mun. Pwr. Agcy.
Sply. Sys. Rev., Ser. 86C
5.00% 01/01/17 750 730,312
-------------
NEVADA -- 2.6%
Nevada State Mun. Bd. G.O., Ser. 98
5.00% 05/15/22 2,250 2,185,313
-------------
NEW JERSEY -- 3.0%
New Jersey Trans. Trust Fund Auth.
Rev., Ser. 96B
5.25% 06/15/15 1,000 1,017,500
South Jersey Port. Corp. Rev., Ser. 93
5.60% 01/01/23 1,500 1,539,375
-------------
2,556,875
-------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
39
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
STATEMENT OF NET ASSETS
TAX-FREE INCOME PORTFOLIO (CONTINUED)
PAR
AS OF MARCH 31, 1998 (UNAUDITED) MATURITY (000) VALUE
-------- ---------- -------------
MUNICIPAL BONDS (CONTINUED)
NEW YORK -- 10.0%
N.Y. State Dorm Auth. Rev., Albany
Cnty. Prj., Ser. 97
5.50% 04/01/06 $1,000 $ 1,052,500
New York City G.O., Ser. 95A
6.00% 08/01/05 1,000 1,081,250
New York City G.O., Ser. 96A
6.00% 08/01/05 1,000 1,085,000
New York City G.O., Ser. 96D
5.60% 11/01/05 1,000 1,078,750
New York City Ind. Dev. Agcy. Rev.,
Terminal One Group Assn. Prj.,
Ser. 94
6.00% 01/01/08 360 385,650
6.00% 01/01/19 500 525,000
New York St. Hsg. Fin. Agcy. Rev.,
Ser. 96A
6.37% 11/01/04 2,000 2,182,500
New York St. Urb. Dev. Corp. Rev.,
Ser. 93
5.62% 01/01/07 1,000 1,067,500
-------------
8,458,150
-------------
NORTH CAROLINA -- 0.4%
North Carolina Mun. Pwr. Agcy. Rev.,
Catawba Elec. Prj., Ser. 92A
6.00% 01/01/10 300 332,250
-------------
OHIO -- 2.7%
Cleveland-Cuyahoga Cnty. Port Auth.
Rev., Ser. 97
6.00% 03/01/07 750 766,875
Columbus Refuse Coal, Fired Plant
5-E-L, G.O., Ser. 91
6.62% 09/15/01 150 162,750
Ohio St. Higher Ed. Fac. Rev., Univ.
Dayton Prj., Ser. 97
5.35% 12/01/07 1,000 1,027,500
Ohio Wtr. Dev. Auth. Rev., Clean Wtr.
Prj., Ser. 92
5.65% 12/01/05 300 320,625
-------------
2,277,750
-------------
OREGON -- 0.4%
Portland Swr. Sys. Rev., Ser. 92A
6.00% 10/01/12 300 327,375
-------------
PENNSYLVANIA -- 15.7%
Beaver Cnty. G.O., Ser. 96A
5.75% 10/01/15 1,000 1,095,000
Delaware Cnty. Auth. Rev., Mercy Hlth.
Corp. Prj., Ser. 96
5.75% 12/15/20 2,400 2,526,000
Montgomery Cnty. Higher Ed. and Hlth.
Auth. Rev., Holy Redeemer Hosp.
Prj., Ser. 97A
5.25% 10/01/23 3,000 2,996,250
Pennsylvania G.O., Ser. 96
5.37% 05/15/09 1,000 1,057,500
Philadelphia Mun. Auth. Ref. Rev.,
Ser. 93D
6.12% 07/15/08 1,000 1,090,000
Pittsburgh Pwr. & Swr. Auth. Rev.,
Ser. 98A
5.00% 09/01/17 2,500 2,431,250
PAR
MATURITY (000) VALUE
-------- ---------- -------------
PENNSYLVANIA (CONTINUED)
Tredyffrin Township G.O., Ser. 96
5.25% 11/15/21 $2,000 $ 2,032,500
-------------
13,228,500
-------------
RHODE ISLAND -- 0.6%
Rhode Island St. Hlth. & Ed. Bldg.
Corp. Rev., Ser. 96
5.50% 05/15/16 500 520,000
-------------
SOUTH CAROLINA -- 1.1%
Piedmont Mun. Pwr. Agcy. Elec. Rev.,
Ser. 85B
6.25% 01/01/18 500 527,500
South Carolina Pub. Svc. Auth. Rev.,
Santee Cooper Prj., Ser. 91D
6.50% 07/01/14 100 110,750
Spartanburg Wtr. Rev., Prerefunded
Ser. 93
6.20% 06/01/09 15 16,294
Spartanburg Wtr. Rev., Unrefunded
Ser. 92
6.20% 06/01/09 285 305,663
-------------
960,207
-------------
SOUTH DAKOTA -- 0.7%
South Dakota Lease Rev., Tran. Cert.,
Ser. 93A
6.37% 09/01/05 500 560,000
-------------
TENNESSEE -- 0.8%
Tennesse Hsg. Dev. Agcy. Rev.,
Ser. 97-3A
5.23% 01/01/06 1,000 688,750
-------------
TEXAS -- 13.5%
Austin Util. Systems Rev., Ser. 97
5.12% 11/15/15 2,000 2,002,500
Brazos River Auth. Pol. Ctrl. Rev.,
Texas Util. Elec. Co. Prj., Ser. 89
8.25% 01/01/19 1,000 1,047,070
Houston G.O., Ser. 97A
5.50% 03/01/06 6,195 6,675,113
Sabine River Auth. Pol. Ctrl. Rev.,
Texas Util. Elec. Prj., Ser. 90B
8.25% 10/01/20 1,000 1,102,500
University of Texas, Univ. Rev.,
Ser. 91A
7.00% 08/15/07 500 555,250
-------------
11,382,433
-------------
UTAH -- 0.1%
Salt Lake City Hosp. Rev., Ser. 88A
8.12% 05/15/15 100 126,750
-------------
VERMONT -- 1.3%
Vermont G.O., Ser. 90A
6.75% 02/01/08 1,000 1,067,500
-------------
VIRGINIA -- 1.2%
Hampton G.O., Ser. 95
6.00% 01/15/08 400 440,000
Virginia Hsg. Dev. Auth. Rev.,
Commonwealth Mtg. Prj., Ser. 95A-1
6.70% 07/01/05 500 540,000
-------------
980,000
-------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
40
<PAGE>
BLACKROCK FUNDS [LOGO OMITTED]
STATEMENT OF NET ASSETS
TAX-FREE INCOME PORTFOLIO (CONCLUDED)
PAR
AS OF MARCH 31, 1998 (UNAUDITED) MATURITY (000) VALUE
-------- ---------- -------------
MUNICIPAL BONDS (CONTINUED)
WASHINGTON -- 4.8%
Seattle Met. Mun. G.O., Ser. 93
5.40% 01/01/08 $1,000 $ 1,045,000
Washington St. G.O., Ser. 96A
5.37% 07/01/21 2,000 2,032,500
Washington St. Pub. Pwr. Sply. Sys.
Rev., Nuclear Prj. No. 1, Ser. 97B
5.12% 07/01/17 1,000 985,000
-------------
4,062,500
-------------
WISCONSIN -- 0.3%
Milwaukee Met. Swr. Dist. G.O.,
Ser. 92A
6.12% 10/01/03 250 273,750
-------------
TOTAL MUNICIPAL BONDS
(Cost $76,778,766) 79,985,257
-------------
SHORT TERM INVESTMENTS -- 5.7%
Philadelphia Hosp. and Higher Ed. Fac.
Auth. Rev., Children's Hosp. of
Philadelphia Prj., Ser. 92 FRDD
3.75%** 04/01/98 2,600 2,600,000
West Virginia Pub. Energy Auth. Rev.,
Morgantown Energy Assocs. Prj.,
Ser. 90A FRDD
5.05%** 07/01/08 900 905,625
Smith Barney Tax-Free Money Market
Fund 1,263 1,262,638
-------------
TOTAL SHORT TERM INVESTMENTS
(Cost $4,762,638) 4,768,263
-------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $81,541,404*) 100.4% 84,753,520
LIABILITIES IN EXCESS OF
OTHER ASSETS (0.4%) (326,391)
------ -------------
NET ASSETS (Applicable to 1,176,256
Institutional shares, 5,518,628 Service
shares, 494,115 Investor A shares,
153,597 Investor B shares and 5,057
Investor C shares outstanding) 100.0% $ 84,427,129
====== =============
VALUE
-------------
NET ASSET VALUE AND REDEMPTION
PRICE PER INSTITUTIONAL, SERVICE
AND INVESTOR A SHARE
($82,604,113 (DIVIDE) 7,188,999) $11.49
======
OFFERING PRICE PER INSTITUTIONAL
AND SERVICE SHARE $11.49
======
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($11.49 (DIVIDE) .960) $11.97
======
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE
(SUBJECT TO A CONTINGENT DEFERRED
SALES CHARGE OF 4.5%)
PER INVESTOR B SHARE
($1,764,913 (DIVIDE) 153,597) $11.49
======
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE
(SUBJECT TO A CONTINGENT DEFERRED
SALES CHARGE OF 1.0%)
PER INVESTOR C SHARE
($58,103 (DIVIDE) 5,057) $11.49
======
- ---------------
* Also cost for Federal income tax purposes. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $3,245,837
Gross unrealized depreciation (33,721)
----------
$3,212,116
==========
** Rates shown are the rates as of March 31, 1998, and the maturities shown
are the longer of the next interest readjustment date or the date the
principal amount can be recovered through demand.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
41
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
STATEMENT OF NET ASSETS
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
PAR
AS OF MARCH 31, 1998 (UNAUDITED) MATURITY (000) VALUE
-------- ---------- -------------
MUNICIPAL BONDS -- 95.3%
PENNSYLVANIA -- 95.0%
Allegheny Cnty. Hosp. Dev. Auth. Rev.,
Univ. of Pittsburgh Med. Ctr. Prj.,
Ser 95
5.35% 12/01/17 $1,000 $ 1,011,250
Allegheny Cnty. G.O., Ser. 91C-38
6.20% 09/01/01 250 266,250
Allegheny Cnty. Hosp. Dev. Auth. Rev.,
Children's Hosp. Prj., Ser. 90A
7.00% 07/01/06 500 513,950
Allegheny Cnty. Res. Fin. Auth. Mtg. Rev.,
Single Fam. Mtg. Prj., Ser. 94Y
6.25% 05/01/17 340 362,100
Beaver Cnty. G.O., Ser. 96A
5.80% 10/01/06 3,500 3,845,624
Bethlehem Area Sch. Dist. G.O.,
Ser. 97
5.50% 09/01/05 1,000 1,071,250
Cambria Cnty. Unltd. Tax G.O., Ser. 91
8.25% 06/01/00 385 404,731
Cambria Twp. Wtr. Auth. Ind. Rev.,
Ser. 93A
6.00% 12/01/02 1,000 1,040,000
Central Bucks Sch. Dist. Unltd. Tax
G.O., Ser. 94A
6.70% 11/15/09 500 566,875
Chester Cnty. Unltd. Tax G.O., Ser. 91
6.70% 12/15/04 385 416,280
Coatesville Sch. Dist. G.O., Ser. 97
5.12% 04/01/17 2,050 2,057,687
Crawford Central Sch. Dist. Unltd. Tax
G.O., Ser. 95
5.75% 02/15/11 1,585 1,670,194
Dauphin Cnty. Gen. Auth. Rev., A-F
Sch. Dist. Pooled Fin. Prog., Ser. 86
5.50% 06/01/07 550 550,561
6.85% 06/01/09 800 864,000
Dauphin Cnty. Pinnacle Gen. Auth.
Hlth. Sys. Rev., Ser. 97
5.50% 05/15/17 2,000 2,057,500
Deer Lakes Sch. Dist. Unltd. Tax G.O.,
Ser. 95
6.35% 01/15/14 1,000 1,140,000
6.45% 01/15/19 1,300 1,504,750
Delaware Cnty. Auth. Rev., Mercy
Hlth. Corp. Prj., Ser. 96
5.75% 12/15/20 3,000 3,157,500
Delaware Cnty. Mem. Hosp. Auth. Rev.,
Ser. 95
5.50% 08/15/19 3,000 3,071,250
Erie Higher Ed. Bldg. Auth. Coll. Rev.,
Mercyhurst Coll. Prj., Ser. 93A
5.75% 03/15/13 3,000 3,093,750
Erie Cnty. Prison Auth. Lease Rev.,
Ser. 91
6.25% 11/01/11 500 534,375
Harrisburg Auth. Lease Rev., Ser. 91
6.50% 06/01/04 500 538,750
Indiana Cnty. Indl. Dev. Auth. Poll. Ctrl.
Rev., N.Y. St. Elec. & Gas Corp.,
Ser. 95A MBIA
6.00% 06/01/06 1,000 1,103,750
Lancaster Cnty. Hosp. Auth. Rev., Hlth.
Center-Masonic Homes Prj., Ser. 94
5.30% 11/15/08 500 516,250
PAR
MATURITY (000) VALUE
-------- ---------- -------------
MUNICIPAL BONDS (CONTINUED)
PENNSYLVANIA (CONTINUED)
Lebanon Cnty. Hosp. Auth. Rev., Good
Samaritan Hosp. Prj., Ser. 93
5.55% 11/15/04 $ 355 $ 371,419
Ligonier Valley Sch. Dist. Unltd.
Tax G.O., Ser. 94
5.65% 03/01/14 2,000 2,140,000
Montgomery Cnty. Hghr. Ed. & Hlth.
Auth. Rev., Beaver Coll., Ser. 96
5.75% 04/01/12 1,690 1,795,625
Montgomery Cnty. Hghr. Ed. & Hlth.
Auth. Rev., Holy Redeemer, Ser. A
5.25% 10/01/27 1,000 993,749
Moon Twp. Wtr. & Swr. Auth. Rev.,
Ser. 94
6.70% 12/01/19 1,000 1,045,000
New Garden Twp. Swr. Auth. Rev.,
Ser. 91
7.00% 03/01/15 420 453,075
Northampton Cnty. Hghr. Ed. Auth.
Rev., Moravian Coll., Ser. 94
6.10% 07/01/12 1,950 2,110,874
Northampton Cnty. Ind. Dev. Auth. Poll.
Ctrl. Rev., Met. Ed. Co. Prj., Ser. 95A
6.10% 07/15/21 1,000 1,080,000
Northumberland Cnty. Auth. Comwlth.
Lease Rev., Ser. 91
6.25% 10/15/09 2,500 2,671,875
Parkland Sch. Dist. Rev., Ser. 96
5.75% 09/01/14 1,910 2,031,762
Pennsbury Sch. Dist. Unltd. Tax G.O.,
Ser. 94
6.65% 08/15/09 685 775,761
Pennsylvania Comwlth. Tpke. Rev.,
Ser. 91L
6.50% 06/01/04 445 481,156
Pennsylvania Convention Ctr. Rev.,
Ser. 94A
6.60% 09/01/09 1,000 1,127,500
Pennsylvania Fin. Auth. Rev., Mun.
Cap. Imp. Prj., Ser. 93
6.60% 11/01/09 3,260 3,569,700
Pennsylvania Hghr. Ed. Fac. Auth. Rev.,
Duquesne Univ., Ser. 91C
6.75% 04/01/20 1,000 1,072,500
Pennsylvania Hghr. Ed. Fac. Auth. Rev.,
Philadelphia Coll. of Textiles &
Science, Ser. 93
5.15% 02/01/04 1,230 1,282,275
Pennsylvania Hsg. Fin. Agcy. Amt.
Single Fam. Mtg., Ser. 96A
6.05% 10/01/16 2,500 2,640,625
Pennsylvania Hsg. Fin. Agcy. Rev.,
Ser. 92
6.40% 07/01/12 500 534,375
Pennsylvania Hsg. Fin. Agcy. Rev.,
Single Fam. Mtg., Ser. 94-39B
6.87% 10/01/24 1,500 1,627,500
Pennsylvania Ifra. Invest. Auth. Rev.,
Pennvest Prj., Ser. 90B
6.80% 09/01/10 2,000 2,230,000
Pennsylvania Ifra. Invest. Auth. Rev.,
Pennvest Prj., Ser. 94
6.00% 09/01/06 1,930 2,135,063
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
42
<PAGE>
BLACKROCK FUNDS [LOGO OMITTED]
STATEMENT OF NET ASSETS
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO (CONTINUED)
PAR
AS OF MARCH 31, 1998 (UNAUDITED) MATURITY (000) VALUE
-------- ---------- -------------
MUNICIPAL BONDS (CONTINUED)
PENNSYLVANIA (CONTINUED)
Pennsylvania Ifra. Invest. Auth. Rev.,
Pennvest Prj., PG-Rmk Ser. 96
6.00% 09/01/04 $3,000 $ 3,281,249
Pennsylvania Intrgov. Coop. Auth.
Spec. Tax Rev., City of Philadelphia
Fdg. Prog., Ser. 93
5.60% 06/15/15 1,450 1,509,813
Pennsylvania Intrgov. Coop. Auth.
Spec. Tax Rev., City of Philadelphia
Fdg. Prog., Ser. 94
7.00% 06/15/04 500 572,500
Pennsylvania Intrgov. Coop. Auth.
Spec. Tax Rev., City of Philadelphia
Fdg. Prog., Ser. 96
5.50% 06/15/20 3,000 3,075,000
Pennsylvania St. Hghr. Ed. Fac. Rev.,
Susquehanna Univ., Ser. 90
6.90% 03/01/02 750 766,350
Pennsylvania St. Pub. Sch. Bldg. Auth.
Rev., Mid Valley Sch. Dist. Prj.,
Ser. 92D
6.25% 01/01/07 500 544,375
Pennsylvania St. Tpke. Comnwlth. Oil
Franchise Tax Rev., Ser. 94A
5.87% 12/01/08 500 546,250
Pennsylvania St. Tpke. Comnwlth. Tpke.
Rev., Ser. 92P
6.00% 12/01/09 500 540,000
Pennsylvania Unltd. Tax G.O., Ser. 94A
6.50% 11/01/05 250 272,500
Philadelphia Auth. For Ind. Dev. &
Commercial Rev., Girard Estate Coal
Mining Prj., Ser 96
5.37% 11/15/12 1,000 1,022,500
Philadelphia Auth. for Ind. Dev. Rev.,
Nat. Bd. of Med. Examiners Prj.,
Ser. 92
6.75% 05/01/12 500 545,000
Philadelphia G.O., Ser. 94B
5.90% 11/15/09 2,600 2,827,500
Philadelphia Mun. Auth. Rev., Ser. 93A
5.62% 11/15/14 2,600 2,704,000
Philadelphia Mun. Auth. Ref. Rev.,
Ser. 93D
6.12% 07/15/08 500 545,000
Philadelphia Prk Auth Rev., Ser. 97
5.40% 09/01/15 1,000 1,026,249
Philadelphia Sch. Dist. Ref. Ser. 95A.
6.25% 09/01/04 1,000 1,103,750
Philadelphia Sch. Dist. Unltd. Tax G.O.,
Ser. 91A
6.70% 07/01/99 250 258,750
Philadelphia Sch. Dist., Ser. 97A
5.00% 04/01/05 1,000 1,031,250
PAR
MATURITY (000) VALUE
-------- ---------- -------------
MUNICIPAL BONDS (CONTINUED)
PENNSYLVANIA (CONTINUED)
Philadelphia Wtr. & Waste Rev.,
AMBAC-TCRS, Ser. 93
5.75% 06/15/13 $1,260 $ 1,327,724
Philadelphia Wtr. & Waste Wtr. Rev.,
Ser. 93
5.50% 06/15/07 1,250 1,340,625
Philadelphia Wtr. & Waste Wtr. Rev.,
Ser. 95
6.75% 08/01/03 500 558,750
Pittsburgh G.O., Ser. 95A
5.25% 03/01/11 1,000 1,028,750
Pittsburgh Wtr. & Swr. Rev., Ser. 98A
5.00% 09/01/21 3,000 2,902,500
Pottstown Borough Auth. Swr. Rev.,
Ser. 96
5.50% 11/01/16 1,560 1,610,700
Ringgold Sch. Dist. Rev., Ser. 95
6.20% 02/01/19 500 554,375
Riverside Beaver Cnty. Sch. Dist.,
Ser 96
5.50% 02/15/17 1,500 1,537,500
Schuylkill Redev. Auth. Comnwlth.
Rev., Ser. 91A
7.12% 06/01/13 1,250 1,375,000
Scranton Lackawanna Hlth. & Welfare
Auth. Rev., Ref Hosp. Cmnty. Med.
Ctr. Prj., Ser. 98A
5.25% 07/01/04 2,215 2,314,675
Seneca Valley Sch. Dist. G.O.,
Ser. 98-A
5.00% 07/01/14 1,500 1,479,375
Southeastern Trans. Auth. Spec. Rev.,
Ser 97
5.37% 03/01/17 2,000 2,055,000
Southeastern Trans. Auth. Spec. Rev.,
Ser. 95A
5.87% 03/01/09 1,230 1,326,863
Tredyffrin Township G.O., Ser. 96
5.25% 11/15/21 2,000 2,032,500
Westmoreland Cnty. Ind. Dev. Auth. Rev.,
Westmoreland Hlth. Sys. Prj., Ser. 93A
6.00% 07/01/11 200 215,000
Wilson Penn Sch. Dist. G.O., Ser. 97
5.50% 05/15/14 1,440 1,499,400
5.50% 05/15/17 1,500 1,550,625
-------------
110,409,859
-------------
PUERTO RICO -- 0.3%
Puerto Rico Elec. Pwr. Auth. Rev.,
Ser. 91P
6.75% 07/01/03 250 273,438
-------------
TOTAL MUNICIPAL BONDS
(Cost $105,258,346) 110,683,297
-------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
43
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
STATEMENT OF NET ASSETS
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO (CONCLUDED)
PAR
AS OF MARCH 31, 1998 (UNAUDITED) MATURITY (000) VALUE
-------- ---------- -------------
SHORT TERM INVESTMENTS -- 5.5%
Delaware Cnty. Ind. Dev. Auth.
Apt. Fac. Rev., United Parcel
Service Prj., Ser. 85 FRDD
3.70%** 04/01/98 $ 100 $ 100,000
Philadelphia Hosp. and Hghr.
Ed. Fac. Auth. Rev., Children's
Hosp. of Philadelphia Prj., Ser. 92 FRDD
3.75%** 04/01/98 3,250 3,250,000
Smith Barney Tax-Free Money
Market Fund 2,996 2,995,750
Vanguard Tax-Exempt Money Fund 100 100,000
-------------
TOTAL SHORT TERM INVESTMENTS
(Cost $6,445,750) 6,445,750
-------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $111,704,096*) 100.8% 117,129,047
LIABILITIES IN EXCESS OF
OTHER ASSETS (0.8%) (944,532)
------ -------------
NET ASSETS (Applicable to 974,114
Institutional shares, 5,442,611 Service
shares, 2,883,347 Investor A shares and
1,318,939 Investor B shares outstanding) 100.0% $116,184,515
====== ============
NET ASSET VALUE AND REDEMPTION
PRICE PER INSTITUTIONAL, SERVICE
AND INVESTOR A SHARE
($101,756,476 (DIVIDE) 9,300,072) $10.94
======
OFFERING PRICE PER INSTITUTIONAL
AND SERVICE SHARE $10.94
======
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($10.94 (DIVIDE) .960) $11.40
======
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE
(SUBJECT TO A CONTINGENT DEFERRED
SALES CHARGE OF 4.5%)
PER INVESTOR B SHARE
($14,428,039 (DIVIDE) 1,318,939) $10.94
======
- --------------
* Also cost for Federal income tax purposes. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $5,469,755
Gross unrealized depreciation (44,804)
----------
$5,424,951
==========
** Rates shown are the rates as of March 31, 1998, and the maturities shown
are the longer of the next interest readjustment date or the date the
principal amount can be recovered through demand.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
44
<PAGE>
BLACKROCK FUNDS [LOGO OMITTED]
STATEMENT OF NET ASSETS
NEW JERSEY TAX-FREE INCOME PORTFOLIO
PAR
AS OF MARCH 31, 1998 (UNAUDITED) MATURITY (000) VALUE
-------- ---------- -------------
MUNICIPAL BONDS -- 98.8%
NEW JERSEY -- 81.2%
Absecon Bd. of Ed. G.O., Ser. 92
5.62% 12/15/02 $ 770 $ 790,790
Brick Township Mun. Util. Auth. Rev.,
Ser. 77
6.75% 12/01/16 1,000 1,155,000
Brigantine G.O., Ser. 92
6.25% 08/01/03 730 800,262
Cherry Hill Township G.O., Ser. 92
6.00% 06/01/06 500 539,375
Dover Township G.O., Ser. 92
6.00% 10/15/03 1,000 1,096,250
Edison Township G.O., Ser. 91
6.50% 06/01/04 500 561,250
Essex Cnty. Imp. Auth. Lease Rev.,
Jail & Yth. Hsg. Prj., Ser. 94
6.90% 12/01/14 500 585,000
Essex Cnty. Util. Auth. Sol. Wste. Rev.,
Ser. 96
5.75% 04/01/05 2,000 2,175,000
Knowlton Township Bd. of Ed. G.O.,
Ser. 91
6.60% 08/15/11 169 199,209
Lacey Township Wtr. Auth. Rev.,
Ser. 93
6.00% 12/01/12 1,000 1,105,000
Mercer Cnty. Imp. Rev., Hamilton Bd.
of Ed. Prj., Ser. 92
5.90% 06/01/03 500 533,750
Middlesex Cnty. Import Auth. Rev.,
Ser. 96
5.80% 09/15/13 1,000 1,055,000
Morristown G.O., Ser. 95
6.40% 08/01/14 500 568,125
New Jersey Econ. Dev. Auth. Rev. Cap.
Apprec., St. Barnabas Medical Ctr.
Prj., Ser. 97A
5.63% 07/01/23 4,000 1,095,000
New Jersey Econ. Dev. Auth. Rev.,
Invamed Inc. Prj., Ser. 95
6.00% 07/01/06 300 322,125
6.10% 07/01/07 200 214,500
New Jersey Econ. Dev. Auth. Rev., Mkt.
Trans. Fac. Prj., Ser. 94
5.87% 07/01/11 4,000 4,350,000
New Jersey Econ. Dev. Auth. Rev.,
Performing Arts Ctr. Prj., Ser. 96C
5.75% 06/15/08 3,000 3,285,000
New Jersey Econ. Dev. Auth. Rev.,
Trenton OFC Complex Prj., Ser. 89
6.62% 06/15/01 1,050 1,127,437
New Jersey Econ. Dev. Auth. Rev.,
W.Y. Hldg. Co. Prj., Ser. 95
5.95% 06/01/05 865 911,494
New Jersey Ed. Auth. Rev., Rowan
Coll. Prj., Ser. 96
5.87%(DOUBLE DAGGER) 07/01/16 2,185 2,343,412
New Jersey Hlth. Care Fac. Fin. Auth.
Rev., Cathederal Hlth. Ctr. Prj.,
Ser. 90
7.25% 02/15/21 1,000 1,101,250
New Jersey Hlth. Care Fac. Fin. Auth.
Rev., Kennedy Hlth. Sys. Prj., Ser. 98
5.25% 07/01/15 700 700,875
PAR
MATURITY (000) VALUE
-------- ---------- -------------
MUNICIPAL BONDS (CONTINUED)
NEW JERSEY (CONTINUED)
New Jersey St. G.O., Ser. 92D
5.90% 02/15/08 $3,000 $ 3,258,750
6.00% 02/15/11 2,000 2,250,000
New Jersey St. Hsg. & Mtg. Fin.
Agcy. Rev., Ser. 92A
6.70% 05/01/05 500 538,125
6.70% 11/01/05 1,000 1,076,250
6.95% 11/01/13 750 809,062
New Jersey St. Hwy. Auth. Rev.,
Gard. St. Pkwy. Prj., Ser. 92
6.00% 01/01/05 1,350 1,452,937
6.20% 01/01/10 750 851,250
6.25% 01/01/14 500 533,125
New Jersey St. Tpke. Auth. Rev.,
Ser. 91A
6.90% 01/01/14 970 974,986
New Jersey St. Tpke. Auth. Rev.,
Ser. 91C
6.25% 01/01/10 1,350 1,437,750
6.50% 01/01/16 500 569,375
New Jersey Trans. Trust Fund
Auth. Rev., Ser. 96B
5.25% 06/15/15 3,000 3,052,500
New Jersey Wstwtr. Treatment
Trust Rev., Ser. 96C
6.25% 05/15/03 2,500 2,746,875
6.25% 05/15/06 3,000 3,382,500
Newark Bd. of Ed. G.O., Ser. 94
5.87% 12/15/13 1,000 1,068,750
North Bergen Township G.O., Ser. 92
5.90% 08/15/01 500 530,625
North Hudson Swr. Auth. Rev., Ser. 96
6.00% 08/01/05 1,000 1,111,250
Northwest Bergen Cnty. Rev., Ser. 92
5.90% 07/15/06 755 822,950
Ocean Cnty. Util. Auth. Rev., Ser. 95A
6.30% 01/01/12 1,005 1,102,988
Passaic Valley Wtr. Comm. Sply. Rev.,
Ser. 92A
5.95% 12/15/02 500 540,000
Point Pleasant G.O., Ser. 95
5.70% 12/01/03 500 538,125
Port Auth. N.Y. & N.J. Rev., Ser. 95
5.75% 11/01/09 3,275 3,475,594
Port Auth. N.Y. & N.J. Spl. Oblig. Rev.,
JFK Intl. Air Terminal Prj., Ser. 97
6.25% 12/01/09 3,000 3,412,500
5.75% 12/01/22 2,105 2,212,881
South Jersey Port Corp. Rev., Ser. 93
5.60% 01/01/23 1,500 1,539,375
Warren Cnty. Pol. Ctrl. Fin. Auth. Rev.,
Ser. 92B
5.70% 12/01/03 500 535,625
Weehawken Township G.O., Ser. 92
6.15% 07/01/04 350 378,438
West Windsor Plainsboro Township Bd.
of Ed. G.O., Ser. 93
5.80% 03/15/06 1,000 1,081,250
Winslow Township Tax G.O., Ser. 92
6.40% 10/01/05 870 959,175
Woodbridge Township G.O., Ser. 92
6.05% 08/15/05 500 540,000
-------------
69,398,115
-------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
45
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
STATEMENT OF NET ASSETS
NEW JERSEY TAX-FREE INCOME PORTFOLIO (CONCLUDED)
PAR
AS OF MARCH 31, 1998 (UNAUDITED) MATURITY (000) VALUE
-------- ---------- -------------
MUNICIPAL BONDS (CONTINUED)
PENNSYLVANIA -- 1.7%
Delaware River Joint Toll Bdg. Rev.,
Ser. 92
6.25% 07/01/12 $1,400 $ 1,491,000
-------------
PUERTO RICO -- 15.9%
Puerto Rico Pub. Bldgs. Auth. Rev.,
Ser. 97B
5.00% 07/01/15 1,000 997,500
Puerto Rico Elec. Pwr. Auth. Rev.,
Ser. 94S
6.12% 07/01/08 1,000 1,132,500
Puerto Rico Elec. Pwr. Auth. Rev.,
Ser. 94T
5.50% 07/01/20 2,250 2,275,313
Puerto Rico Elec. Pwr. Auth. Rev.,
Ser. 97AA
5.25% 07/01/16 1,000 1,012,500
Puerto Rico Elec. Pwr. Auth. Rev.,
Ser. 97BB
5.50% 07/01/09 1,500 1,625,625
Puerto Rico Elec. Pwr. Auth. Rev.,
Ser. 98DD
5.12% 07/01/13 2,000 2,042,500
5.25% 07/01/16 2,025 2,070,563
Puerto Rico Infrastructure Fin. Auth.
Rev., Ser. 97A
5.00% 07/01/28 2,500 2,425,000
-------------
13,581,501
-------------
TOTAL MUNICIPAL BONDS
(Cost $79,466,659) 84,470,616
-------------
PAR
MATURITY (000) VALUE
-------- ---------- -------------
SHORT TERM INVESTMENTS -- 5.8%
Uinta Cnty. Pol. Ctl. Rev., Chevron
USA, Inc. Prj., Ser. 92 FRDD
3.85%** 04/01/98 $ 500 $ 500,000
Smith Barney Tax Free Money
Market Fund 4,492 4,492,231
-------------
TOTAL SHORT TERM INVESTMENTS
(Cost $4,992,231) 4,992,231
-------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $84,458,890*) 104.6% 89,462,847
LIABILITIES IN EXCESS OF
OTHER ASSETS (4.6%) (3,947,931)
------ -------------
NET ASSETS (Applicable to 7,076,891
Service shares, 110,447 Investor A
shares and 73,710 Investor B
shares outstanding) 100.0% $ 85,514,916
====== =============
NET ASSET VALUE AND REDEMPTION
PRICE PER SERVICE AND
INVESTOR A SHARE
($84,646,819 (DIVIDE) 7,187,338) $11.78
======
OFFERING PRICE PER SERVICE SHARE $11.78
======
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($11.78 (DIVIDE) .960) $12.27
======
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE
(SUBJECT TO A CONTINGENT DEFERRED
SALES CHARGE OF 4.5%)
PER INVESTOR B SHARE
($868,097 (DIVIDE) 73,710) $11.78
======
- -------------------
* Also cost for Federal income tax purposes. The gross unrealized
appreciation (depreciation) on a tax basis is $5,003,957.
** Rates shown are the rates as of March 31, 1998, and the maturities shown
are the longer of the next interest readjustment date or the date the
principal amount can be recovered through demand.
(DOUBLE DAGGER) Principal amount of securities pledged as collateral of $185,000
on 10 long U.S. Treasury Notes futures contracts expiring June 1998. The
value of such contracts on March 31,1998 was $1,202,500, thereby resulting
in an unrealized loss of $8,125.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
46
<PAGE>
BLACKROCK FUNDS [LOGO OMITTED]
STATEMENT OF NET ASSETS
OHIO TAX-FREE INCOME PORTFOLIO
PAR
AS OF MARCH 31, 1998 (UNAUDITED) MATURITY (000) VALUE
-------- ---------- -------------
MUNICIPAL BONDS -- 98.0%
OHIO -- 96.3%
Akron Swr. Sys. Rev., Ser. 96
5.87% 12/01/16 $ 500 $ 535,000
Brunswick G.O., Ser. 94
6.30% 12/01/05 210 229,687
Butler Cnty. Hosp. Fac. Rev.,
Middletown Reg. Hosp., Ser. 91
6.75% 11/15/03 50 54,687
Butler Cnty. Trans. Imp. Dist. Rev.,
Ser. 97A
6.00% 04/01/11 600 660,000
Cleveland Apt. Sys. Rev., Ser. 94B
5.70% 01/01/04 150 163,312
Cleveland Packaging Fac. Rev., Ser. 96
6.00% 09/15/06 500 554,375
Cleveland-Cuyahoga Cnty. Port Auth.
Rev., Ser. 97
6.00% 03/01/07 500 511,250
Columbus Mun. Apt. Auth. Rev.,
Columbus Int. Apt., Ser. 94A
6.00% 01/01/04 150 161,812
Columbus Pub. Imps. Rev., Ser. 93
5.35% 09/15/06 600 635,250
Cuyahoga Cnty. Hosp. Rev., Ser. 96
6.00% 01/15/05 500 545,625
East Liverpool Hosp. Rev., East
Liverpool City Hosp., Ser. 98B
4.75% 10/01/13 260 252,525
Fairfield City Sch. Dist. G.O., Ser. 94
7.45% 12/01/14 300 376,125
Kings Loc. Sch. Dist. G.O., Ser. 94
7.60% 12/01/05 200 233,000
Loveland City Sch. Dist. G.O., Ser. 92
6.65% 12/01/02 145 159,681
Lucas Cnty. G.O., Ser. 96
6.00% 12/01/05 500 555,000
Mahoning Cnty. Hosp. Facs Rev.,
Forum Hlth. Oblig. Grp., Ser. 97A
4.90% 11/15/10 500 500,625
Medina G.O., Ser. 86
7.25% 12/01/03 50 57,625
North Royalton City Sch. Dist. G.O.,
Ser. 94
6.62% 12/01/06 100 116,000
Northwestern Loc. Sch. Dist. G.O.,
Wayne & Ashland Cntys., Ser. 94
7.20% 12/01/10 300 374,250
Ohio G.O., Ser. 95
6.00% 08/01/05 225 251,156
Ohio Hsg. Fin. Agcy. Res. Mort. Rev.,
Ser. 94B-2
6.35% 09/01/04 150 157,688
Ohio Hsg. Fin. Agcy. Rev.,Wind River
Prj., Ser. 94A
5.55% 11/01/18 250 254,375
Ohio Pfc. Hghr. Ed. Rev., Ser. 92II-A
5.50% 12/01/07 400 421,000
Ohio St. Bldg. Data Ctr. Rev., Ser. 93A
5.90% 10/01/07 450 500,625
Ohio St. Higher Ed. Fac. Comm. Rev.,
Ohio Dominican Coll., Ser. 94
6.62% 12/01/04 250 271,875
Ohio St. Tpke. Rev., Ser. 96
6.00% 02/15/05 400 437,500
PAR
MATURITY (000) VALUE
-------- ---------- -------------
MUNICIPAL BONDS (CONTINUED)
OHIO (CONTINUED)
Ohio St. Wtr. Dev. Auth. Rev.,
Steel-Cargill North Star Broken Hill
Prj., Ser. 95
6.30% 09/01/20 $ 500 $ 544,375
Olentangy Loc. Sch. Dist. G.O.,
Ser. 95A
6.00% 12/01/08 225 246,938
Rocky River Sch. Dist. G.O., Ser. 98
4.70% 12/01/10 270 267,638
Student Loan Funding Corp. Rev.,
Ser. 93A
5.75% 08/01/03 65 67,844
Summit Cnty. Hosp. Rev., Cuyahoga
Falls Gen. Hosp. Prj., Ser. 94
6.65% 07/01/14 200 212,500
Toledo G.O., Ser. 96
6.00% 12/01/06 500 557,500
Univ. of Toledo Gen. Rec. Rev.,
Ser. 92A
5.90%(DOUBLE DAGGER) 06/01/20 425 443,594
Westlake G.O., Ser. 96
6.40% 12/01/08 500 581,875
-------------
11,892,312
-------------
PUERTO RICO -- 1.7%
Puerto Rico Elec. Pwr. Auth. Rev.,
Ser. 98DD
5.00% 07/01/11 200 204,500
-------------
TOTAL MUNICIPAL BONDS
(Cost $11,396,802) 12,096,812
-------------
SHORT TERM INVESTMENTS -- 2.6%
Smith Barney Tax Free Money
Market Fund
(Cost $315,303) 315 315,303
-------------
CALL OPTIONS -- 0.0%
U.S. Treasury Futures
Exp 5/16/98
(Cost $5,271) 40 4,125
-------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $11,717,376*) 100.6% 12,416,240
LIABILITIES IN EXCESS OF
OTHER ASSETS (0.6%) (72,429)
------ -------------
NET ASSETS (Applicable to 80,621
Institutional shares, 772,565 Service
shares, 235,892 Investor A shares
and 73,468 Investor B shares
outstanding) 100.0% $ 12,343,811
====== =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
47
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
STATEMENT OF NET ASSETS
OHIO TAX-FREE INCOME PORTFOLIO (CONCLUDED)
AS OF MARCH 31, 1998 (UNAUDITED) VALUE
---------
NET ASSET VALUE AND REDEMPTION
PRICE PER INSTITUTIONAL,
SERVICE AND INVESTOR A SHARE
($11,563,738 (DIVIDE) 1,089,078) $10.62
======
OFFERING PRICE PER INSTITUTIONAL
AND SERVICE SHARE $10.62
======
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($10.62 (DIVIDE) .960) $11.06
======
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE
(SUBJECT TO A CONTINGENT DEFERRED
SALES CHARGE OF 4.5%)
PER INVESTOR B SHARE
($780,073 (DIVIDE) 73,468) $10.62
======
- ----------------------
* Also cost for Federal income tax purposes. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $705,091
Gross unrealized depreciation (6,227)
--------
$698,864
========
(DOUBLE DAGGER) Principal amount of securities pledged as collateral of $100,000
on 2 short U.S. Treasury Notes and 1 long Index futures contract expiring
June 1998. The value of such contracts on March 31, 1998 was $363,000,
thereby resulting in an unrealized gain of $156.
INVESTMENT ABBREVIATIONS
ARM Adjustable Rate Mortgage
CMT Constant Maturity Treasury
FRDD Floating Rate Daily Demand
G.O. General Obligations
IO Interest Only
PO Prinicipal Only
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
48
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
BLACKROCK FUNDS [LOGO OMITTED]
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
INTERMEDIATE
LOW DURATION GOVERNMENT INTERMEDIATE CORE GOVERNMENT MANAGED
BOND BOND BOND BOND INCOME INCOME
FOR THE PERIOD ENDED MARCH 31, 1998 (UNAUDITED) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Interest ........................... $10,249,426 $4,721,355 $14,160,631 $23,901,540 $857,981 $32,698,012
----------- ---------- ----------- ----------- -------- -----------
Expenses:
Investment advisory fee ............ 690,048 358,304 857,886 1,636,763 57,651 2,050,336
Administration fee ................. 317,422 164,820 394,627 737,303 26,520 911,004
Custodian fee ...................... 34,781 17,997 42,414 75,002 9,673 98,957
Transfer agent fee ................. 41,556 26,047 54,472 109,416 18,961 133,865
Service fees ....................... 123,850 91,540 88,252 264,255 45,900 474,861
Distribution fees .................. 950 709 15 26,215 66,546 4,659
Legal and audit .................... 8,177 5,383 15,174 21,856 618 30,009
Printing ........................... 10,870 7,341 14,915 18,262 810 35,166
Registration fees and expenses ..... 25,885 17,891 35,222 52,246 15,892 31,755
Organization ....................... -- -- 2,257 634 4,130 --
Trustees' fees and officer's salary 2,328 1,559 3,187 3,979 175 7,507
Other .............................. 13,414 15,810 14,783 66,764 2,204 42,791
----------- ---------- ----------- ----------- -------- -----------
1,269,281 707,401 1,523,204 3,012,695 249,080 3,820,910
Less fees voluntarily waived and
expenses reimbursed .............. (473,495) (210,715) (471,150) (972,159) (63,792) (884,947)
----------- ---------- ----------- ----------- -------- -----------
Total operating expenses ....... 795,786 496,686 1,052,054 2,040,536 185,288 2,935,963
----------- ---------- ----------- ----------- -------- -----------
Interest expense ..................... 1,380,485 21,139 2,334,382 2,047,271 85,667 4,802,441
----------- ---------- ----------- ----------- -------- -----------
Total expenses ................. 2,176,271 517,825 3,386,436 4,087,807 270,955 7,738,404
----------- ---------- ----------- ----------- -------- -----------
Net investment income ................ 8,073,155 4,203,530 10,774,195 19,813,733 587,026 24,959,608
----------- ---------- ----------- ----------- -------- -----------
Realized and unrealized gain (loss) on
investments and foreign
currency transactions:
Net realized gain (loss) from:
Investment transactions .......... (210,250) 661,295 499,308 8,661,779 580,403 13,742,104
Futures contracts ................ 367,298 339,856 157,400 (807,965) (30,651) (11,222,522)
Foreign currency transactions and
forward foreign currency
contracts ...................... (21,126) -- -- -- -- --
Change in unrealized appreciation
(depreciation) from:
Investments ...................... 78,586 84,451 37,620 (1,425,451) (162,151) (705,845)
Futures .......................... (310,059) (130,688) (86,734) (430,938) 1,075 5,328,114
Foreign currency transactions,
forward foreign currency and
swap contracts ................. (3,333) -- -- -- -- --
----------- ---------- ----------- ----------- -------- -----------
Net gain (loss) on investments and
foreign currency transactions .... (98,884) 954,914 607,594 5,997,425 388,676 7,141,851
----------- ---------- ----------- ----------- -------- -----------
Net increase in net assets
resulting from operations ........ $ 7,974,271 $5,158,444 $11,381,789 $25,811,158 $975,702 $32,101,459
=========== ========== =========== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
PENNSYLVANIA NEW JERSEY OHIO
INTERNATIONAL TAX-FREE TAX-FREE TAX-FREE TAX-FREE
BOND INCOME INCOME INCOME INCOME
FOR THE PERIOD ENDED MARCH 31, 1998 (UNAUDITED) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ---------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Investment income:
Interest ........................... $1,279,832 $2,051,282 $2,832,056 $2,257,897 $323,341
---------- ---------- ---------- ---------- --------
Expenses:
Investment advisory fee ............ 136,709 196,989 269,418 215,815 30,953
Administration fee ................. 57,169 90,615 123,932 99,275 14,238
Custodian fee ...................... 29,503 12,502 14,461 11,746 8,165
Transfer agent fee ................. 11,258 17,911 37,422 23,774 4,500
Service fees ....................... 16,318 106,403 175,044 130,546 18,778
Distribution fees .................. 6,941 4,893 49,694 3,091 2,628
Legal and audit .................... 1,514 2,065 4,571 8,770 1,331
Printing ........................... 2,008 2,689 5,769 4,141 505
Registration fees and expenses ..... 16,282 18,354 10,022 9,018 3,016
Organization ....................... -- -- 465 -- 432
Trustees' fees and officer's salary 430 580 1,220 882 109
Other .............................. 4,531 4,817 5,721 5,231 3,228
---------- ---------- ---------- ---------- --------
282,663 457,818 697,739 512,289 87,883
Less fees voluntarily waived and
expenses reimbursed .............. (12,329) (122,355) (168,067) (135,452) (30,700)
---------- ---------- ---------- ---------- --------
Total operating expenses ....... 270,334 335,463 529,672 376,837 57,183
---------- ---------- ---------- ---------- --------
Interest expense ..................... -- -- -- -- --
---------- ---------- ---------- ---------- --------
Total expenses ................. 270,334 335,463 529,672 376,837 57,183
---------- ---------- ---------- ---------- --------
Net investment income ................ 1,009,498 1,715,819 2,302,384 1,881,060 266,158
---------- ---------- ---------- ---------- --------
Realized and unrealized gain (loss) on
investments and foreign
currency transactions:
Net realized gain (loss) from:
Investment transactions .......... 623,349 864,283 208,157 405,243 51,951
Futures contracts ................ 242,202 (4,222) (47,992) 43,540 (38,214)
Foreign currency transactions and
forward foreign currency
contracts ...................... 818,629 -- -- -- --
Change in unrealized appreciation
(depreciation) from:
Investments ...................... (1,212,074) 580,996 1,538,091 591,260 121,281
Futures .......................... (110,505) -- -- (8,080) 10,768
Foreign currency transactions,
forward foreign currency and
swap contracts ................. 1,102,416 -- -- -- --
---------- ---------- ---------- ---------- --------
Net gain (loss) on investments and
foreign currency transactions .... 1,464,017 1,441,057 1,698,256 1,031,963 145,786
---------- ---------- ---------- ---------- --------
Net increase in net assets
resulting from operations ........ $2,473,515 $3,156,876 $4,000,640 $2,913,023 $411,944
========== ========== ========== ========== ========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
50-51
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
STATEMENT OF CASH FLOWS
LOW DURATION BOND PORTFOLIO
FOR THE PERIOD ENDED MARCH 31, 1998
Operating Activities
Investment income received ................................ $ 9,972,956
Operating expenses paid ................................... (2,229,869)
-------------
Net increase in cash from operating activities ............... 7,743,087
Investing Activities
Purchases of long-term investments ........................ (417,600,801)
Proceeds from disposition of long-term portfolio investment 381,117,594
Net disposition of short-term investments ................. 235,925
-------------
Net decrease in cash from investing activities ............... (36,247,282)
Financing Activities
Cash dividends paid ....................................... (7,652,576)
Net borrowing relative to reverse repurchase agreements ... 804,617
Net proceeds related to capital stock transactions ........ 35,352,154
-------------
Net increase in cash from financing activities ............... 28,504,195
-------------
Net increase (decrease) in cash .............................. --
Cash at beginning of year .................................... --
-------------
Cash at end of period ........................................ $ --
=============
Net increase in net assets resulting from operations ......... $7,974,271
Adjustments:
Increase in dividend and interest receivable .............. (276,470)
Decrease in accrued expenses .............................. (30,983)
Increase in prepaid expenses .............................. (22,615)
Net realized and changes in unrealized gain on investment .... 98,884
-------------
Total adjustments ............................................ (231,184)
-------------
NET INCREASE IN CASH FROM OPERATION ACTIVITIES ............... $ 7,743,087
=============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
52
<PAGE>
BLACKROCK FUNDS [LOGO OMITTED]
STATEMENT OF CASH FLOWS
INTERMEDIATE BOND PORTFOLIO
FOR THE PERIOD ENDED MARCH 31, 1998
Operating Activities
Investment income received ................................ $ 14,716,795
Operating expenses paid ................................... (3,431,027)
-------------
Net increase in cash from operating activities ............... 11,285,768
Investing Activities
Purchases of long-term investments ........................ (462,966,979)
Proceeds from disposition of long-term portfolio investment 491,924,836
Net disposition of short-term investments ................. 475,525
-------------
Net increase in cash from investing activities ............... 29,433,382
Financing Activities
Cash dividends paid ....................................... (12,644,713)
Net borrowing relative to reverse repurchase agreements ... (6,507,716)
Net proceeds related to capital stock transactions ........ (21,566,721)
-------------
Net decrease in cash from financing activities ............... (40,719,150)
-------------
Net increase (decrease) in cash .............................. --
Cash at beginning of year .................................... --
-------------
Cash at end of period ........................................ $ --
=============
Net increase in net assets resulting from operations ......... $11,381,789
Adjustments:
Increase in dividend and interest receivable .............. 556,164
Increase in accrued expenses .............................. (5,675)
Decrease in prepaid expenses .............................. (38,916)
Net realized and changes in unrealized gain on investment .... (607,594)
-------------
Total adjustments ............................................ (96,021)
-------------
NET INCREASE IN CASH FROM OPERATION ACTIVITIES ............... $ 11,285,768
=============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
53
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
STATEMENT OF CASH FLOWS
MANAGED INCOME PORTFOLIO
FOR THE PERIOD ENDED MARCH 31, 1998
Operating Activities
Investment income received ................................ $ 32,062,602
Operating expenses paid ................................... (7,638,200)
---------------
Net increase in cash from operating activities ............... 24,424,402
Investing Activities
Purchases of long-term investments ........................ (2,065,406,506)
Proceeds from disposition of long-term portfolio investment 2,096,421,062
Net purchases of short-term investments ................... (62,958)
---------------
Net increase in cash from investing activities ............... 30,951,598
---------------
Financing Activities
Cash dividends paid ....................................... (29,802,263)
Net borrowing relative to reverse repurchase agreements ... (105,864,185)
Net proceeds related to capital stock transactions ........ 80,290,448
---------------
Net decrease in cash from financing activities ............... (55,376,000)
---------------
Net increase (decrease) in cash .............................. --
Cash at beginning of year .................................... --
---------------
Cash at end of period ........................................ $ --
===============
Net increase in net assets resulting from operations ......... $32,101,459
Adjustments:
Increase in dividend and interest receivable .............. (635,410)
Increase in accrued expenses .............................. 116,766
Increase in prepaid expenses .............................. (16,562)
Net realized and changes in unrealized gain on investment .... (7,141,851)
---------------
Total adjustments ............................................ (7,677,057)
---------------
NET INCREASE IN CASH FROM OPERATION ACTIVITIES ............... $ 24,424,402
===============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
54
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
BLACKROCK FUNDS [LOGO OMITTED]
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
LOW DURATION INTERMEDIATE GOVERNMENT INTERMEDIATE
BOND PORTFOLIO BOND PORTFOLIO BOND PORTFOLIO
-------------------------- -------------------------- ---------------------------
FOR THE FOR THE FOR THE
SIX MONTHS FOR THE SIX MONTHS FOR THE SIX MONTHS FOR THE
ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED
3/31/98 9/30/97 3/31/98 9/30/97 3/31/98 9/30/97
------------ ------------ ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................... $ 8,073,155 $ 12,657,616 $ 4,203,530 $ 8,904,981 $ 10,774,195 $ 19,965,011
Net realized gain on investment,
futures and foreign currency
related transactions .................. 135,922 1,558,927 1,001,151 1,503,723 656,708 1,882,563
Net unrealized gain (loss) on
investment, futures and foreign
currency related transactions ......... (234,806) 563,518 (46,237) 1,636,886 (49,114) 3,764,341
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets
resulting from operations ............. 7,974,271 14,780,061 5,158,444 12,045,590 11,381,789 25,611,915
------------ ------------ ------------ ------------ ------------ ------------
Distributions to shareholders from:
Net investment income:
BlackRock Shares ........................ (3,188,290) (811,188) -- -- -- --
Institutional Shares .................... (2,410,036) (7,000,339) (2,490,270) (5,867,247) (8,999,473) (16,909,305)
Service Shares .......................... (2,172,035) (4,542,121) (1,510,055) (2,729,498) (1,727,988) (2,846,163)
Investor A Shares ....................... (30,504) (52,116) (145,676) (312,753) (32,257) (59,232)
Investor B Shares ....................... (2,261) (1,130) (2,055) (1,207) (103) --
Investor C Shares ....................... (3,428) (1,370) (2,423) (912) -- --
------------ ------------ ------------ ------------ ------------ ------------
Total distribution from net
investment income ..................... (7,806,554) (12,408,264) (4,150,479) (8,911,617) (10,759,821) (19,814,700)
------------ ------------ ------------ ------------ ------------ ------------
Net realized gains:
BlackRock Shares .......................... -- -- -- -- -- --
Institutional Shares ...................... -- -- -- -- (1,533,689) (349,958)
Service Shares ............................ -- -- -- -- (278,199) (69,712)
Investor A Shares ......................... -- -- -- -- (5,904) (1,658)
Investor B Shares ......................... -- -- -- -- -- --
Investor C Shares ......................... -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Total distributions from net
realized gains ......................... -- -- -- -- (1,817,792) (421,328)
------------ ------------ ------------ ------------ ------------ ------------
Total distributions to shareholders ....... (7,806,554) (12,408,264) (4,150,479) (8,911,617) (12,577,613) (20,236,028)
------------ ------------ ------------ ------------ ------------ ------------
Capital share transactions .................. 32,622,724 23,961,267 (13,713,165) (30,250,028) (21,819,511) 89,558,760
------------ ------------ ------------ ------------ ------------ ------------
Total increase (decrease) in net assets ... 32,790,441 26,333,064 (12,705,200) (27,116,055) (23,015,335) 94,934,647
------------ ------------ ------------ ------------ ------------ ------------
Net assets:
Beginning of period ..................... 254,827,313 228,494,249 152,592,728 179,708,783 349,140,971 254,206,324
------------ ------------ ------------ ------------ ------------ ------------
End of period ........................... $287,617,754 $254,827,313 $139,887,528 $152,592,728 $326,125,636 $349,140,971
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
CORE GOVERNMENT MANAGED
BOND PORTFOLIO INCOME PORTFOLIO INCOME PORTFOLIO
--------------------------- ------------------------ ---------------------------
FOR THE FOR THE FOR THE
SIX MONTHS FOR THE SIX MONTHS FOR THE SIX MONTHS FOR THE
ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED
3/31/98 9/30/97 3/31/98 9/30/97 3/31/98 9/30/97
------------ ------------ ----------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................... $ 19,813,733 $ 25,767,812 $ 587,026 $ 1,077,544 $ 24,959,608 $ 49,437,034
Net realized gain on investment,
futures and foreign currency
related transactions .................. 7,853,814 5,761,244 549,752 271,561 2,519,582 12,920,378
Net unrealized gain (loss) on
investment, futures and foreign
currency related transactions ......... (1,856,389) 8,195,455 (161,076) 262,790 4,622,269 11,601,175
------------ ------------ ----------- ----------- ------------ ------------
Net increase in net assets
resulting from operations ............. 25,811,158 39,724,511 975,702 1,611,895 32,101,459 73,958,587
------------ ------------ ----------- ----------- ------------ ------------
Distributions to shareholders from:
Net investment income:
BlackRock Shares ........................ (2,375,982) (869,439) -- -- -- --
Institutional Shares .................... (13,254,818) (16,945,454) -- -- (16,838,749) (35,140,503)
Service Shares .......................... (5,033,919) (7,314,612) -- -- (9,379,981) (13,614,074)
Investor A Shares ....................... (85,178) (61,926) (176,155) (281,858) (425,450) (746,570)
Investor B Shares ....................... (174,881) (160,271) (440,398) (803,601) (33,674) (939)
Investor C Shares ....................... (8,731) (2,213) (32,872) (9,876) -- --
------------ ------------ ----------- ----------- ------------ ------------
Total distribution from net
investment income ..................... (20,933,509) (25,353,915) (649,425) (1,095,335) (26,677,854) (49,502,086)
------------ ------------ ----------- ----------- ------------ ------------
Net realized gains:
BlackRock Shares .......................... (450,932) -- -- -- -- --
Institutional Shares ...................... (3,729,896) (900,868) -- -- (2,168,258) --
Service Shares ............................ (1,587,760) (548,738) -- -- (1,199,800) --
Investor A Shares ......................... (23,612) (2,549) (51,565) (5,470) (70,278) --
Investor B Shares ......................... (55,299) (10,003) (226,059) (17,978) (4,924) --
Investor C Shares ......................... (1,658) -- (9,696) -- -- --
------------ ------------ ----------- ----------- ------------ ------------
Total distributions from net
realized gains ......................... (5,849,157) (1,462,158) (287,320) (23,448) (3,443,260) --
------------ ------------ ----------- ----------- ------------ ------------
Total distributions to shareholders ....... (26,782,666) (26,816,073) (936,745) (1,118,783) (30,121,114) (49,502,086)
------------ ------------ ----------- ----------- ------------ ------------
Capital share transactions .................. 142,313,692 277,409,859 4,677,216 5,257,723 75,745,323 54,242,164
------------ ------------ ----------- ----------- ------------ ------------
Total increase (decrease) in net assets ... 141,342,184 290,318,297 4,716,173 5,750,835 77,725,668 78,698,665
------------ ------------ ----------- ----------- ------------ ------------
Net assets:
Beginning of period ..................... 571,968,250 281,649,953 20,520,735 14,769,900 819,708,271 741,009,606
------------ ------------ ----------- ----------- ------------ ------------
End of period ........................... $713,310,434 $571,968,250 $25,236,908 $20,520,735 $897,433,939 $819,708,271
============ ============ =========== =========== ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
56-57
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
BLACKROCK FUNDS [LOGO OMITTED]
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
INTERNATIONAL TAX-FREE PENNSYLVANIA TAX-FREE
BOND PORTFOLIO INCOME PORTFOLIO INCOME PORTFOLIO
--------------------------- -------------------------- ---------------------------
FOR THE FOR THE FOR THE
SIX MONTHS FOR THE SIX MONTHS FOR THE SIX MONTHS FOR THE
ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED
3/31/98 9/30/97 3/31/98 9/30/97 3/31/98 9/30/97
------------ ----------- ----------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .................... $ 1,009,498 $ 2,208,747 $ 1,715,819 $ 2,691,330 $ 2,302,384 $ 4,048,359
Net realized gain on investment,
futures and foreign currency
related transactions ................... 1,684,180 2,436,020 860,061 964,362 160,165 671,291
Net unrealized gain (loss) on
investment, futures and foreign
currency related transactions .......... (220,163) 34,232 580,996 1,610,054 1,538,091 2,210,503
----------- ----------- ----------- ----------- ------------ ------------
Net increase in net assets
resulting from operations .............. 2,473,515 4,678,999 3,156,876 5,265,746 4,000,640 6,930,153
----------- ----------- ----------- ----------- ------------ ------------
Distributions to shareholders from:
Net investment income:
Institutional Shares ..................... (1,049,380) (4,304,959) (252,591) (441,451) (150,997) (228,163)
Service Shares ........................... (168,525) (986,122) (1,398,219) (2,039,202) (1,276,853) (1,835,040)
Investor A Shares ........................ (29,353) (39,266) (135,148) (230,762) (713,129) (1,633,868)
Investor B Shares ........................ (22,190) (24,272) (23,477) (14,013) (247,775) (373,390)
Investor C Shares ........................ (15,343) (8,314) (455) (7) -- --
----------- ----------- ----------- ----------- ------------ ------------
Total distribution from net
investment income ...................... (1,284,791) (5,362,933) (1,809,890) (2,725,435) (2,388,754) (4,070,461)
----------- ----------- ----------- ----------- ------------ ------------
Net realized gains:
Institutional Shares ..................... (1,522,323) (1,349,956) (42,951) -- -- --
Service Shares ........................... (266,359) (338,728) (264,641) -- -- --
Investor A Shares ........................ (41,747) (8,738) (24,838) -- -- --
Investor B Shares ........................ (38,402) (5,334) (4,938) -- -- --
Investor C Shares ........................ (21,891) (2,081) (1) -- -- --
----------- ----------- ----------- ----------- ------------ ------------
Total distributions from net
realized gains ........................ (1,890,722) (1,704,837) (337,369) -- -- --
----------- ----------- ----------- ----------- ------------ ------------
Total distributions to shareholders ...... (3,175,513) (7,067,770) (2,147,259) (2,725,435) (2,388,754) (4,070,461)
----------- ----------- ----------- ----------- ------------ ------------
Capital share transactions ................... (3,129,657) 15,826,437 8,763,772 22,719,262 13,781,649 14,020,773
----------- ----------- ----------- ----------- ------------ ------------
Total increase (decrease) in
net assets ............................ (3,831,655) 13,437,666 9,773,389 25,259,573 15,393,535 16,880,465
----------- ----------- ----------- ----------- ------------ ------------
Net assets:
Beginning of period ...................... 52,486,856 39,049,190 74,653,740 49,394,167 100,790,980 83,910,515
----------- ----------- ----------- ----------- ------------ ------------
End of period ............................ $48,655,201 $52,486,856 $84,427,129 $74,653,740 $116,184,515 $100,790,980
=========== =========== =========== =========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
NEW JERSEY TAX-FREE OHIO TAX-FREE
INCOME PORTFOLIO INCOME PORTFOLIO
---------------------------- ---------------------------
FOR THE FOR THE
SIX MONTHS FOR THE SIX MONTHS FOR THE
ENDED YEAR ENDED ENDED YEAR ENDED
3/31/98 9/30/97 3/31/98 9/30/97
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................... $ 1,881,060 $ 3,973,148 $ 266,158 $ 478,442
Net realized gain on investment,
futures and foreign currency
related transactions .................. 448,783 154,383 13,737 45,769
Net unrealized gain (loss) on
investment, futures and foreign
currency related transactions ......... 583,180 2,731,365 132,049 314,435
----------- ----------- ----------- -----------
Net increase in net assets
resulting from operations ............. 2,913,023 6,858,896 411,944 838,646
----------- ----------- ----------- -----------
Distributions to shareholders from:
Net investment income:
Institutional Shares .................... -- -- (22,753) (35,296)
Service Shares .......................... (1,958,979) (3,840,942) (182,680) (310,363)
Investor A Shares ....................... (28,567) (42,517) (55,480) (118,178)
Investor B Shares ....................... (15,391) (15,000) (12,500) (15,202)
Investor C Shares ....................... -- -- -- --
----------- ----------- ----------- -----------
Total distribution from net
investment income ..................... (2,002,937) (3,898,459) (273,413) (479,039)
----------- ----------- ----------- -----------
Net realized gains:
Institutional Shares .................... -- -- -- --
Service Shares .......................... -- -- -- --
Investor A Shares ....................... -- -- -- --
Investor B Shares ....................... -- -- -- --
Investor C Shares ....................... -- -- -- --
----------- ----------- ----------- -----------
Total distributions from net
realized gains ....................... -- -- -- --
----------- ----------- ----------- -----------
Total distributions to shareholders ..... (2,002,937) (3,898,459) (273,413) (479,039)
----------- ----------- ----------- -----------
Capital share transactions .................. (2,306,639) (5,049,556) 620,132 1,445,504
----------- ----------- ----------- -----------
Total increase (decrease) in
net assets ........................... (1,396,553) (2,089,119) 758,663 1,805,111
----------- ----------- ----------- -----------
Net assets:
Beginning of period ..................... 86,911,469 89,000,588 11,585,148 9,780,037
----------- ----------- ----------- -----------
End of period ........................... $85,514,916 $86,911,469 $12,343,811 $11,585,148
=========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
58-59
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
BLACKROCK FUNDS [LOGO OMITTED]
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NET NET GAIN DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS
ASSET (LOSS) ON DISTRIBUTIONS IN EXCESS FROM NET IN EXCESS
VALUE NET INVESTMENTS FROM NET OF NET REALIZED OF NET
BEGINNING INVESTMENT (BOTH REALIZED INVESTMENT INVESTMENT CAPITAL REALIZED
OF PERIOD INCOME AND UNREALIZED) INCOME INCOME GAINS GAINS
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------
LOW DURATION BOND PORTFOLIO
- ---------------------------
BLACKROCK CLASS
10/1/97 through 3/31/98 12 $ 9.89 $0.30 $ -- $(0.29) $ -- $ -- $ --
6/3/97 1 through 9/30/97 9.82 0.19 0.07 (0.19) -- -- --
INSTITUTIONAL CLASS
10/1/97 through 3/31/98 12 $ 9.89 $0.30 $(0.01) $(0.28) $ -- $ -- $ --
9/30/97 9.79 0.58 0.08 (0.56) -- -- --
4/1/96 through 9/30/96 9.79 0.28 (0.01) (0.27) -- -- --
7/1/95 through 3/31/96 9.83 0.42 -- (0.41) (0.04) (0.01) --
6/30/95 9.71 0.58 0.13 (0.58) -- (0.01) --
6/30/94 9.96 0.48 (0.25) (0.48) -- -- --
7/17/92 1 through 6/30/93 10.00 0.51 (0.06) (0.49) -- -- --
SERVICE CLASS
10/1/97 through 3/31/98 12 $ 9.89 $0.28 $ -- $(0.27) $ -- $ -- $ --
9/30/97 9.79 $0.54 0.09 (0.53) -- -- --
4/1/96 through 9/30/96 9.79 0.26 (0.01) (0.25) -- -- --
1/12/96 1 through 3/31/96 9.91 0.11 (0.12) (0.11) -- -- --
INVESTOR A CLASS
10/1/97 through 3/31/98 12 $ 9.89 $0.26 $ 0.01 $(0.26) $ -- $ -- $ --
9/30/97 9.79 0.52 0.09 (0.51) -- -- --
4/1/96 through 9/30/96 9.79 0.25 (0.01) (0.24) -- -- --
1/12/96 1 through 3/31/96 9.91 0.10 (0.12) (0.10) -- -- --
INVESTOR B CLASS
10/1/97 through 3/31/98 12 $ 9.89 $0.20 $ 0.03 $(0.22) $ -- $ -- $ --
11/18/96 1 through 9/30/97 9.86 0.41 -- (0.38) -- -- --
INVESTOR C CLASS
10/1/97 through 3/31/98 12 $ 9.89 $0.22 $ 0.01 $(0.22) $ -- $ -- $ --
2/24/97 1 through 9/30/97 9.87 0.26 0.02 (0.26) -- -- --
- --------------------------------------
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
- --------------------------------------
INSTITUTIONAL CLASS
10/1/97 through 3/31/98 12 $10.11 $0.31 $ 0.06 $(0.30) $ -- $ -- $ --
9/30/97 9.92 0.59 0.19 (0.59) -- -- --
9/30/96 10.02 0.58 (0.11) (0.57) -- -- --
9/30/95 9.64 0.58 0.38 (0.58) -- -- --
9/30/94 10.60 0.55 (0.86) (0.55) -- (0.10) --
9/30/93 10.46 0.54 0.16 (0.54) -- (0.02) --
SERVICE CLASS
10/1/97 through 3/31/98 12 $10.11 $0.29 $ 0.07 $(0.29) $ -- $ -- $ --
9/30/97 9.92 0.56 0.19 (0.56) -- -- --
9/30/96 10.02 0.56 (0.12) (0.54) -- -- --
9/30/95 9.64 0.56 0.37 (0.55) -- -- --
9/30/94 10.60 0.53 (0.86) (0.53) -- (0.10) --
7/29/93 1 through 9/30/93 10.45 0.09 0.15 (0.09) -- -- --
INVESTOR A CLASS
10/1/97 through 3/31/98 12 $10.11 $0.28 $ 0.07 $(0.28) $ -- $ -- $ --
9/30/97 9.92 0.54 0.19 (0.54) -- -- --
9/30/96 10.03 0.55 (0.13) (0.53) -- -- --
9/30/95 9.64 0.55 0.39 (0.55) -- -- --
9/30/94 10.60 0.53 (0.87) (0.52) -- (0.10) --
9/30/93 10.46 0.54 0.16 (0.54) -- (0.02) --
INVESTOR B CLASS
10/1/97 through 3/31/98 12 $10.11 $0.24 $ 0.07 $(0.24) $ -- $ -- $ --
10/11/96 1 through 9/30/97 9.98 0.45 0.13 (0.45) -- -- --
INVESTOR C CLASS
10/1/97 through 3/31/98 12 $10.11 $0.24 $ 0.07 $(0.24) $ -- $ -- $ --
10/8/96 1 through 9/30/97 9.98 0.45 0.13 (0.45) -- -- --
- ---------------------------
INTERMEDIATE BOND PORTFOLIO
- ---------------------------
INSTITUTIONAL CLASS
10/1/97 through 3/31/98 12 $ 9.49 $0.30 $ 0.02 $(0.30) $ -- $(0.05) $ --
9/30/97 9.32 0.58 0.17 (0.58) -- -- --
9/30/96 9.43 0.56 (0.09) (0.55) -- (0.03) --
9/30/95 9.05 0.56 0.38 (0.56) -- -- --
9/30/94 10.01 0.54 (0.88) (0.56) -- (0.06) --
9/17/93 1 through 9/30/93 10.00 0.02 (0.01) -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
RATIO OF NET
NET NET RATIO OF EXPENSES INVESTMENT INCOME
ASSET ASSETS RATIO OF TO AVERAGE RATIO OF NET TO AVERAGE
VALUE END OF EXPENSES TO NET ASSETS INVESTMENT INCOME NET ASSETS PORTFOLIO
END OF TOTAL PERIOD AVERAGE NET (EXCLUDING TO AVERAGE NET (EXCLUDING TURNOVER
PERIOD RETURN (000) ASSETS WAIVERS) ASSETS WAIVERS) RATE
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------
LOW DURATION BOND PORTFOLIO
- ---------------------------
BLACKROCK CLASS
10/1/97 through 3/31/98 12 $ 9.90 3.05% $133,346 0.40%2,5 0.74%2 7.03%2 6.69%2 127%
6/3/97 1 through 9/30/97 9.89 2.68 68,300 0.40 2,5 0.73 2 6.58 2 6.25 2 371
INSTITUTIONAL CLASS
10/1/97 through 3/31/98 12 $ 9.90 2.97% $ 73,860 0.54%2,5 0.88%2 6.88%2 6.54%2 127%2
9/30/97 9.89 6.89 102,490 0.55 5 0.88 6.14 5.81 371
4/1/96 through 9/30/96 9.79 2.70 135,686 0.55 2,5 0.83 2 5.72 2 5.45 2 228
7/1/95 through 3/31/96 9.79 4.25 52,843 0.63 2,5 0.83 2 5.25 2 5.05 2 185
6/30/95 9.83 6.99 44,486 0.57 1.05 6.08 5.60 586
6/30/94 9.71 2.33 31,265 0.57 1.02 4.70 4.25 455
7/17/92 1 through 6/30/93 9.96 4.63 51,611 0.56 2 0.66 2 5.32 2 5.22 2 513
SERVICE CLASS
10/1/97 through 3/31/98 12 $ 9.90 2.82% $ 78,656 0.84%2,5 1.18%2 6.58%2 6.24%2 127%
9/30/97 9.89 6.57 82,873 0.85 5 1.18 5.86 5.53 371
4/1/96 through 9/30/96 9.79 2.54 91,870 0.85 2,5 1.13 2 5.40 2 5.13 2 228
1/12/96 1 through 3/31/96 9.79 (0.11) 181,670 0.85 2,5 1.05 2 5.25 2 5.05 2 185
INVESTOR A CLASS
10/1/97 through 3/31/98 12 $ 9.90 2.73%3 $ 1,352 1.02%2,5 1.36%2 6.40%2 6.06%2 127%
9/30/97 9.89 6.39 3 1,079 1.02 5 1.35 5.72 5.39 371
4/1/96 through 9/30/96 9.79 2.46 3 938 1.02 2,5 1.30 2 5.20 2 4.92 2 228
1/12/96 1 through 3/31/96 9.79 (0.15)3 719 1.01 2,5 1.21 2 4.94 2 4.74 2 185
INVESTOR B CLASS
10/1/97 through 3/31/98 12 $ 9.90 2.35%4 $ 185 1.74%2,5 2.08%2 5.51%2 5.17%2 127%
11/18/96 1 through 9/30/97 9.89 4.31 4 13 1.73 2,5 2.06 2 4.96 2 4.63 2 371
INVESTOR C CLASS
10/1/97 through 3/31/98 12 $ 9.90 2.35%4 $ 219 1.72%2,5 2.06%2 5.51%2 5.17%2 127%
2/24/97 1 through 9/30/97 9.89 2.91 4 72 1.72 2,5 2.05 2 5.00 2 4.67 2 371
- --------------------------------------
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
- --------------------------------------
INSTITUTIONAL CLASS
10/1/97 through 3/31/98 12 $10.18 3.70% $ 78,072 0.56%2,6 0.86%2 6.03%2 5.73%2 108%
9/30/97 10.11 8.08 96,605 0.55 6 0.86 6.00 5.69 291
9/30/96 9.92 4.82 126,312 0.53 6 0.83 6.03 5.73 580
9/30/95 10.02 10.28 134,835 0.42 6 0.79 5.94 5.57 247
9/30/94 9.64 (3.08) 128,974 0.40 0.80 5.48 5.08 9
9/30/93 10.60 6.88 137,065 0.73 0.81 5.23 5.15 80
SERVICE CLASS
10/1/97 through 3/31/98 12 $10.18 3.55% $ 56,187 0.86%2,6 1.16%2 5.73%2 5.43%2 108%
9/30/97 10.11 7.75 50,535 0.85 6 1.16 5.70 5.39 291
9/30/96 9.92 4.51 47,494 0.83 6 1.13 5.73 5.43 580
9/30/95 10.02 9.99 49,762 0.69 6 1.06 5.67 5.30 247
9/30/94 9.64 (3.31) 60,812 0.65 1.05 5.30 4.90 9
7/29/93 1 through 9/30/93 10.60 2.30 15,035 0.67 2 0.75 2 5.14 2 5.06 2 80
INVESTOR A CLASS
10/1/97 through 3/31/98 12 $10.18 3.46%3 $ 5,361 1.03%2,6 1.33%2 5.57%2 5.27%2 108%
9/30/97 10.11 7.57 3 5,374 1.02 6 1.33 5.54 5.23 291
9/30/96 9.92 4.36 3 5,903 0.95 6 1.25 5.64 5.35 580
9/30/95 10.03 9.98 3 9,802 0.70 6 1.07 5.67 5.30 247
9/30/94 9.64 (3.36)3 8,508 0.65 1.05 5.24 4.84 9
9/30/93 10.60 6.84 3 7,666 0.76 0.84 5.19 5.11 80
INVESTOR B CLASS
10/1/97 through 3/31/98 12 $10.18 3.08%4 $ 108 1.77%2,6 2.07%2 4.75%2 4.45%2 108%
10/11/96 1 through 9/30/97 10.11 5.94 4 28 1.77 2,6 2.08 2 4.75 2 4.44 2 291
INVESTOR C CLASS
10/1/97 through 3/31/98 12 $10.18 3.08%4 $ 159 1.74%2,6 2.04%2 4.71%2 4.41%2 108%
10/8/96 1 through 9/30/97 10.11 5.94 4 51 1.71 2,6 2.02 2 4.57 2 4.26 2 291
- ---------------------------
INTERMEDIATE BOND PORTFOLIO
- ---------------------------
INSTITUTIONAL CLASS
10/1/97 through 3/31/98 12 $ 9.46 3.41% $262,260 0.56%2,7 0.84%2 7.69%2 7.41%2 126%
9/30/97 9.49 8.40 295,709 0.53 7 0.82 6.63 6.34 321
9/30/96 9.32 5.10 207,909 0.53 7 0.83 6.27 5.97 670
9/30/95 9.43 10.76 124,979 0.47 7 0.81 6.18 5.84 262
9/30/94 9.05 (3.52) 71,896 0.45 0.88 5.54 5.11 92
9/17/93 1 through 9/30/93 10.01 0.10 56,713 0.45 2 0.84 2 4.72 2 4.33 2 4
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
60-61
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
BLACKROCK FUNDS [LOGO OMITTED]
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NET NET GAIN DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS
ASSET (LOSS) ON DISTRIBUTIONS IN EXCESS FROM NET IN EXCESS
VALUE NET INVESTMENTS FROM NET OF NET REALIZED OF NET
BEGINNING INVESTMENT (BOTH REALIZED INVESTMENT INVESTMENT CAPITAL REALIZED
OF PERIOD INCOME AND UNREALIZED) INCOME INCOME GAINS GAINS
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
SERVICE CLASS
10/1/97 through 3/31/98 12 $ 9.49 $0.28 $ 0.02 $(0.28) $ -- $(0.05) $ --
9/30/97 9.32 0.55 0.17 (0.55) -- -- --
9/30/96 9.43 0.53 (0.09) (0.52) -- (0.03) --
9/30/95 9.05 0.54 0.38 (0.54) -- -- --
9/30/94 10.01 0.54 (0.91) (0.53) -- (0.06) --
9/23/93 1 through 9/30/93 9.99 -- 0.02 -- -- -- --
INVESTOR A CLASS
10/1/97 through 3/31/98 12 $ 9.49 $0.28 $ 0.02 $(0.28) $ -- $(0.05) $ --
9/30/97 9.32 0.53 0.17 (0.53) -- -- --
9/30/96 9.43 0.52 (0.09) (0.51) -- (0.03) --
9/30/95 9.05 0.54 0.38 (0.54) -- -- --
5/20/94 1 through 9/30/94 9.23 0.20 (0.17) (0.21) -- -- --
INVESTOR B CLASS
2/5/98 1 through 3/31/98 12 $ 9.51 0.07 $(0.05) $(0.07) $ -- $ -- $ --
- -------------------
CORE BOND PORTFOLIO
- -------------------
BLACKROCK CLASS
10/1/97 through 3/31/98 12 $ 9.82 $0.31 $ 0.09 $(0.32) $ -- $(0.09) $ --
5/1/97 1 through 9/30/97 9.57 0.26 0.24 (0.25) -- -- --
INSTITUTIONAL CLASS
10/1/97 through 3/31/98 12 $ 9.82 $0.30 $ 0.10 $(0.32) $ -- $(0.09) $ --
9/30/97 9.55 0.62 0.26 (0.61) -- -- --
4/1/96 through 9/30/96 9.61 0.30 (0.06) (0.30) -- -- --
7/1/95 though 3/31/96 9.85 0.47 (0.07) (0.47) -- (0.17) --
6/30/95 9.36 0.62 0.50 (0.62) -- (0.01) --
6/30/94 10.37 0.55 (0.60) (0.55) -- (0.41) --
12/9/92 1 through 6/30/93 10.00 0.32 0.37 (0.32) -- -- --
SERVICE CLASS
10/1/97 through 3/31/98 12 $ 9.82 $0.28 $ 0.10 $(0.30) $ -- $(0.09) $ --
9/30/97 9.55 0.59 0.26 (0.58) -- -- --
4/1/96 through 9/30/96 9.61 0.30 (0.07) (0.29) -- -- --
1/12/96 1 through 3/31/96 9.91 0.11 (0.30) (0.11) -- -- --
INVESTOR A CLASS
10/1/97 through 3/31/98 12 $ 9.82 $0.28 $ 0.09 $(0.29) $ -- $(0.09) $ --
9/30/97 9.55 0.58 0.26 (0.57) -- -- --
4/1/96 through 9/30/96 9.61 0.28 (0.06) (0.28) -- -- --
1/31/96 1 through 3/31/96 9.99 0.08 (0.38) (0.08) -- -- --
INVESTOR B CLASS
10/1/97 through 3/31/98 12 $ 9.82 $0.24 $ 0.10 $(0.26) $ -- $(0.09) $ --
9/30/97 9.55 0.51 0.26 (0.50) -- -- --
4/1/96 through 9/30/96 9.61 0.26 (0.07) (0.25) -- -- --
3/18/96 1 through 3/31/96 9.58 0.01 0.03 (0.01) -- -- --
INVESTOR C CLASS
10/1/97 through 3/31/98 12 $ 9.82 $0.24 $ 0.10 $(0.26) $ -- $(0.09) $ --
2/28/97 1 through 9/30/97 9.64 0.29 0.17 (0.28) -- -- --
- ---------------------------
GOVERNMENT INCOME PORTFOLIO
- ---------------------------
INVESTOR A CLASS
10/1/97 through 3/31/98 12 $10.49 $0.25 $ 0.18 $(0.30) $ -- $(0.11) $ --
9/30/97 10.20 0.73 0.30 (0.74) -- -- --
9/30/96 10.68 0.68 (0.22) (0.66) -- (0.28) --
10/3/94 1 though 9/30/95 10.00 0.55 0.68 (0.55) -- -- --
INVESTOR B CLASS
10/1/97 through 3/31/98 12 $10.49 $0.30 $ 0.15 $(0.32) $ -- $(0.11) $ --
9/30/97 10.20 0.66 0.30 (0.67) -- -- --
9/30/96 10.68 0.60 (0.21) (0.59) -- (0.28) --
10/3/94 1 through 9/30/95 10.00 0.50 0.68 (0.50) -- -- --
INVESTOR C CLASS
10/1/97 through 3/31/98 12 $10.49 $0.27 $ 0.18 $(0.32) $ -- $(0.11) $ --
2/28/97 1 through 9/30/97 10.30 0.37 0.20 (0.38) -- -- --
</TABLE>
<TABLE>
<CAPTION>
RATIO OF NET
NET NET RATIO OF EXPENSES INVESTMENT INCOME
ASSET ASSETS RATIO OF TO AVERAGE RATIO OF NET TO AVERAGE
VALUE END OF EXPENSES TO NET ASSETS INVESTMENT INCOME NET ASSETS PORTFOLIO
END OF TOTAL PERIOD AVERAGE NET (EXCLUDING TO AVERAGE NET (EXCLUDING TURNOVER
PERIOD RETURN (000) ASSETS WAIVERS) ASSETS WAIVERS) RATE
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SERVICE CLASS
10/1/97 through 3/31/98 12 $ 9.46 3.26% $ 62,698 0.86%2,7 1.14%2 7.39%2 7.11%2 126%
9/30/97 9.49 8.07 52,316 0.83 7 1.12 6.32 6.03 321
9/30/96 9.32 4.79 45,362 0.83 7 1.13 5.98 5.67 670
9/30/95 9.43 10.46 36,718 0.74 7 1.09 5.90 5.55 262
9/30/94 9.05 (3.80) 35,764 0.70 1.13 5.33 4.90 92
9/23/93 1 through 9/30/93 10.01 0.20 91 0.70 2 1.09 2 4.35 2 3.96 2 4
INVESTOR A CLASS
10/1/97 through 3/31/98 12 $ 9.46 3.17%3 $ 1,154 1.03%2,7 1.31%2 7.22%2 6.94%2 126%
9/30/97 9.49 7.89 3 1,116 1.00 7 1.29 6.14 5.85 321
9/30/96 9.32 4.74 3 935 0.97 7 1.27 5.83 5.53 670
9/30/95 9.43 10.35 3 647 0.76 7 1.11 5.89 5.55 262
5/20/94 1 through 9/30/94 9.05 0.31 3 87 0.85 2 1.28 2 5.35 2 4.92 2 92
INVESTOR B CLASS
2/5/98 1 through 3/31/98 12 $ 9.46 0.19%4 $ 14 1.61%2,7 1.89%2 5.82%2 5.54%2 126%
- -------------------
CORE BOND PORTFOLIO
- -------------------
BLACKROCK CLASS
10/1/97 through 3/31/98 12 $ 9.81 4.21% $ 86,065 0.40%2,8 0.70%2 6.87%2 6.57%2 257%
5/1/97 1 through 9/30/97 9.82 5.30 48,139 0.40 2,8 0.69 2 6.70 2 6.41 2 441
INSTITUTIONAL CLASS
10/1/97 through 3/31/98 12 $ 9.81 4.13% $447,487 0.55%2,8 0.85%2 6.75%2 6.45%2 257%
9/30/97 9.82 10.03 393,657 0.55 8 0.85 6.81 6.52 441
4/1/96 through 9/30/96 9.55 2.55 162,626 0.55 2,8 0.84 2 6.75 2 6.45 2 308
7/1/95 though 3/31/96 9.61 3.93 64,707 0.66 2,8 0.91 2 5.89 2 5.64 2 723
6/30/95 9.85 11.79 32,191 0.55 1.75 6.62 5.43 435
6/30/94 9.36 (0.69) 12,507 0.55 2.65 5.61 3.51 722
12/9/92 1 through 6/30/93 10.37 6.88 7,803 0.55 2 2.44 2 5.57 2 3.68 2 354
SERVICE CLASS
10/1/97 through 3/31/98 12 $ 9.81 3.97% $167,378 0.85%2,8 1.15%2 6.46%2 6.16%2 257%
9/30/97 9.82 9.71 122,308 0.85 8 1.14 6.59 6.31 441
4/1/96 through 9/30/96 9.55 2.40 117,207 0.85 2,8 1.14 2 6.33 2 6.04 2 308
1/12/96 1 through 3/31/96 9.61 (1.90) 232,040 0.85 2,8 1.10 2 5.46 2 5.21 2 723
INVESTOR A CLASS
10/1/97 through 3/31/98 12 $ 9.81 3.89%3 $ 3,148 1.02%2,8 1.32%2 6.28%2 5.98%2 257%
9/30/97 9.82 9.52 3 2,441 1.01 8 1.30 6.31 6.02 441
4/1/96 through 9/30/96 9.55 2.36 3 320 1.02 2,8 1.31 2 6.29 2 6.00 2 308
1/31/96 1 through 3/31/96 9.61 (2.96)3 80 1.02 2,8 1.27 2 5.43 2 5.19 2 723
INVESTOR B CLASS
10/1/97 through 3/31/98 12 $ 9.81 3.50%4 $ 8,662 1.76%2,8 2.06%2 5.52%2 5.22%2 257%
9/30/97 9.82 8.71 4 5,295 1.75 8 2.04 5.61 5.32 441
4/1/96 through 9/30/96 9.55 1.98 4 1,497 1.72 2,8 2.01 2 5.68 2 5.39 2 308
3/18/96 1 through 3/31/96 9.61 (0.33)4 77 1.77 2,8 2.02 2 4.71 2 4.46 2 723
INVESTOR C CLASS
10/1/97 through 3/31/98 12 $ 9.81 3.50%4 $ 570 1.73%2,8 2.03%2 5.48%2 5.18%2 257%
2/28/97 1 through 9/30/97 9.82 4.82 4 128 1.74 2,8 2.03 2 5.41 2 5.12 2 441
- ---------------------------
GOVERNMENT INCOME PORTFOLIO
- ---------------------------
INVESTOR A CLASS
10/1/97 through 3/31/98 12 $10.51 4.73%3 $ 5,221 1.03%2,9 1.58%2 6.45%2 5.90%2 298%
9/30/97 10.49 10.48 3 4,876 1.02 9 1.74 8.02 7.30 393
9/30/96 10.20 4.43 3 3,651 0.91 9 1.67 8.59 7.83 434
10/3/94 1 though 9/30/95 10.68 14.27 3 2,990 0.37 2,9 1.81 2 6.89 2 5.44 2 258
INVESTOR B CLASS
10/1/97 through 3/31/98 12 $10.51 4.34%4 $ 18,600 1.78%2,9 2.33%2 5.66%2 5.11%2 298%
9/30/97 10.49 9.66 4 14,796 1.77 9 2.49 7.26 6.54 393
9/30/96 10.20 3.68 4 11,119 1.64 9 2.40 7.81 7.05 434
10/3/94 1 through 9/30/95 10.68 13.52 4 10,188 1.05 2,9 2.50 2 6.17 2 4.72 2 258
INVESTOR C CLASS
10/1/97 through 3/31/98 12 $10.51 4.34%4 $ 1,416 1.77%2,9 2.32%2 5.54%2 4.99%2 298%
2/28/97 1 through 9/30/97 10.49 5.64 4 849 1.70 2,9 2.42 2 7.11 2 6.39 2 393
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
62-63
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
BLACKROCK FUNDS [LOGO OMITTED]
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NET NET GAIN DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS
ASSET (LOSS) ON DISTRIBUTIONS IN EXCESS FROM NET IN EXCESS
VALUE NET INVESTMENTS FROM NET OF NET REALIZED OF NET
BEGINNING INVESTMENT (BOTH REALIZED INVESTMENT INVESTMENT CAPITAL REALIZED
OF PERIOD INCOME AND UNREALIZED) INCOME INCOME GAINS GAINS
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------
MANAGED INCOME PORTFOLIO
- ------------------------
INSTITUTIONAL CLASS
10/1/97 through 3/31/98 12 $10.41 $0.32 $ 0.11 $(0.35) $ -- $(0.05) $ --
9/30/97 10.09 0.68 0.32 (0.68) -- -- --
9/30/96 10.38 0.64 (0.21) (0.62) -- (0.10) --
9/30/95 9.79 0.65 0.60 (0.65) (0.01) -- --
9/30/94 11.17 0.64 (1.21) (0.64) (0.02) (0.14) (0.01)
9/30/93 10.74 0.67 0.56 (0.67) -- (0.13) --
SERVICE CLASS
10/1/97 through 3/31/98 12 $10.41 $0.31 $ 0.10 $(0.33) $ -- $(0.05 $ --
9/30/97 10.09 0.66 0.31 (0.65) -- -- --
9/30/96 10.38 0.61 (0.20) (0.60) -- (0.10) --
9/30/95 9.79 0.63 0.60 (0.63) (0.01) -- --
9/30/94 11.17 0.59 (1.18) (0.62) (0.02) (0.14) (0.01)
7/29/93 1 through 9/30/93 10.96 0.11 0.21 (0.11) -- -- --
INVESTOR A CLASS
10/1/97 through 3/31/98 12 $10.41 $0.31 $ 0.09 $(0.32) $ -- $(0.05) $ --
9/30/97 10.09 0.65 0.31 (0.64) -- -- --
9/30/96 10.38 0.59 (0.20) (0.58) -- (0.10) --
9/30/95 9.79 0.60 0.60 (0.60) (0.01) -- --
9/30/94 11.18 0.57 (1.19) (0.60) (0.02) (0.14) (0.01)
9/30/93 10.74 0.66 0.57 (0.66) -- (0.13) --
INVESTOR B CLASS
10/1/97 through 3/31/98 12 $10.41 $0.27 $ 0.09 $(0.28) $ -- $(0.05) $ --
7/15/97 1 through 9/30/97 10.39 0.09 0.02 (0.09) -- -- --
- ----------------------------
INTERNATIONAL BOND PORTFOLIO
- ----------------------------
INSTITUTIONAL CLASS
10/1/97 through 3/31/98 12 $10.95 $0.56 $(0.03) $(0.28) $ -- $(0.42) $ --
9/30/97 11.71 0.78 0.42 (1.47) -- (0.49) --
6/10/96 1 through 9/30/96 11.37 0.21 0.30 (0.17) -- -- --
SERVICE CLASS
10/1/97 through 3/31/98 12 $10.95 $0.96 $(0.44) $(0.27) $ -- $(0.42) $ --
9/30/97 11.71 1.36 (0.19) (1.44) -- (0.49) --
2/1/96 through 9/30/96 11.39 0.89 (0.29) (0.28) -- -- --
3/1/95 through 1/31/96 10.52 0.62 1.13 (0.88) -- -- --
2/28/95 10.75 0.62 (0.48) (0.13) -- (0.24) --
2/28/94 10.76 0.65 0.46 (0.90) -- (0.22) --
2/28/93 10.21 0.52 0.47 (0.30) -- (0.14) --
INVESTOR A CLASS
10/1/97 through 3/31/98 12 $10.95 $0.24 $ 0.27 $(0.26) $ -- $(0.42) $ --
9/30/97 11.71 1.10 (0.05) (1.42) -- (0.49) --
4/22/96 1 through 9/30/96 11.37 0.26 0.32 (0.24) -- -- --
INVESTOR B CLASS
10/1/97 through 3/31/98 12 $10.95 $0.09 $ 0.38 $(0.22) $ -- $(0.42) $ --
9/30/97 11.71 1.06 -- (1.33) -- (0.49) --
4/19/96 1 through 9/30/96 11.36 0.22 0.33 (0.20) -- -- --
INVESTOR C CLASS
10/1/97 through 3/31/98 12 $10.95 $0.11 $ 0.36 $(0.22) $ -- $(0.42) $ --
9/30/97 11.71 1.15 (0.09) (1.33) -- (0.49) --
9/11/96 1 through 9/30/96 11.58 0.02 0.12 (0.01) -- -- --
- -------------------------
TAX-FREE INCOME PORTFOLIO
- -------------------------
INSTITUTIONAL CLASS
10/1/97 through 3/31/98 12 $11.34 $0.27 $ 0.21 $(0.28) $ -- $(0.05) $ --
9/30/97 10.84 0.56 0.51 (0.57) -- -- --
9/30/96 10.61 0.49 0.28 (0.54) -- -- --
9/30/95 10.04 0.53 0.59 (0.53) -- (0.02) --
9/30/94 11.31 0.53 (0.93) (0.53) -- (0.34) --
1/21/93 1 through 9/30/93 10.61 0.42 0.70 (0.42) -- -- --
SERVICE CLASS
10/1/97 through 3/31/98 12 $11.34 $0.25 $ 0.21 $(0.26) $ -- $(0.05) $ --
9/30/97 10.84 0.53 0.50 (0.53) -- -- --
9/30/96 10.61 0.51 0.23 (0.51) -- -- --
9/30/95 10.04 0.50 0.59 (0.50) -- (0.02) --
9/30/94 11.31 0.51 (0.93) (0.51) -- (0.34) --
7/29/93 1 through 9/30/93 10.97 0.09 0.34 (0.09) -- -- --
</TABLE>
<TABLE>
<CAPTION>
RATIO OF NET
NET NET RATIO OF EXPENSES INVESTMENT INCOME
ASSET ASSETS RATIO OF TO AVERAGE RATIO OF NET TO AVERAGE
VALUE END OF EXPENSES TO NET ASSETS INVESTMENT INCOME NET ASSETS PORTFOLIO
END OF TOTAL PERIOD AVERAGE NET (EXCLUDING TO AVERAGE NET (EXCLUDING TURNOVER
PERIOD RETURN (000) ASSETS WAIVERS) ASSETS WAIVERS) RATE
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------
MANAGED INCOME PORTFOLIO
- ------------------------
INSTITUTIONAL CLASS
10/1/97 through 3/31/98 12 $10.44 4.11% $527,044 0.60%2,10 0.81%2 7.38%2 7.17%2 239%
9/30/97 10.41 10.25 537,260 0.58 10 0.83 6.99 6.74 428
9/30/96 10.09 4.33 564,744 0.58 0.81 6.17 5.95 638
9/30/95 10.38 13.27 443,148 0.57 0.77 6.44 6.24 203
9/30/94 9.79 (5.27) 395,060 0.55 0.77 6.11 5.89 61
9/30/93 11.17 12.13 341,791 0.74 0.78 6.25 6.21 72
SERVICE CLASS
10/1/97 through 3/31/98 12 $10.44 3.96% $351,362 0.90%2,10 1.11%2 7.05%2 6.84%2 239%
9/30/97 10.41 9.93 266,750 0.88 10 1.13 6.76 6.51 428
9/30/96 10.09 4.05 165,073 0.88 1.11 5.87 5.65 638
9/30/95 10.38 12.97 116,846 0.85 1.05 6.14 5.94 203
9/30/94 9.79 (5.49) 67,655 0.80 1.02 5.95 5.73 61
7/29/93 1 through 9/30/93 11.17 2.93 15,322 0.80 2 0.84 2 5.83 2 5.79 2 72
INVESTOR A CLASS
10/1/97 through 3/31/98 12 $10.44 3.87%3 $ 16,958 1.07%2,10 1.28%2 6.92%2 6.71%2 239%
9/30/97 10.41 9.74 3 15,230 1.05 10 1.30 6.54 6.29 428
9/30/96 10.09 3.83 3 11,193 1.05 1.29 5.67 5.44 638
9/30/95 10.38 12.74 3 11,977 1.05 1.25 5.96 5.76 203
9/30/94 9.79 (5.76)3 10,921 1.00 1.22 5.66 5.44 61
9/30/93 11.18 12.13 3 7,252 0.84 0.88 6.09 6.05 72
INVESTOR B CLASS
10/1/97 through 3/31/98 12 $10.44 3.48%4 $ 2,070 1.77%2,10 1.98%2 5.94%2 5.73%2 239%
7/15/97 1 through 9/30/97 10.41 1.35 4 468 1.31 2,10 1.56 2 4.68 2 4.43 2 428
- ----------------------------
INTERNATIONAL BOND PORTFOLIO
- ----------------------------
INSTITUTIONAL CLASS
10/1/97 through 3/31/98 12 $10.78 5.14% $ 38,455 0.99%2 1.04%2 4.16%2 4.11%2 160%
9/30/97 10.95 11.59 43,310 0.98 11 1.08 5.28 5.18 272
6/10/96 1 through 9/30/96 11.71 4.48 30,882 0.92 2 1.32 2 6.28 2 5.88 2 108
SERVICE CLASS
10/1/97 through 3/31/98 12 $10.78 4.99% $ 6,565 1.29%2 1.34%2 3.86%2 3.81%2 160%
9/30/97 10.95 11.23 6,708 1.29 11 1.39 5.02 4.92 272
2/1/96 through 9/30/96 11.71 5.39 7,836 1.09 2 1.20 2 3.82 2 3.72 2 108
3/1/95 through 1/31/96 11.39 16.79 37,627 1.23 2 1.23 2 5.62 2 5.62 2 159
2/28/95 10.52 1.50 45,657 1.24 1.24 5.96 5.96 131
2/28/94 10.75 10.24 46,888 1.38 1.38 6.00 6.00 128
2/28/93 10.76 9.55 38,257 1.30 1.30 6.31 6.31 115
INVESTOR A CLASS
10/1/97 through 3/31/98 12 $10.78 4.90%3 $ 1,318 1.46%2 1.51%2 3.72%2 3.67%2 160%
9/30/97 10.95 11.02 3 1,015 1.42 11 1.52 4.49 4.39 272
4/22/96 1 through 9/30/96 11.71 5.13 3 176 1.45 2 1.86 2 5.29 2 4.88 2 108
INVESTOR B CLASS
10/1/97 through 3/31/98 12 $10.78 4.51%4 $ 1,310 2.20%2 2.25%2 2.92%2 2.87%2 160%
9/30/97 10.95 10.11 4 979 2.12 2,11 2.22 3.65 3.55 272
4/19/96 1 through 9/30/96 11.71 4.90 4 136 2.09 2 2.49 2 4.61 2 4.21 2 108
INVESTOR C CLASS
10/1/97 through 3/31/98 12 $10.78 4.51%4 $ 1,007 2.19%2 2.24%2 2.91%2 2.86%2 160%
9/30/97 10.95 10.13 4 474 2.11 11 2.21 3.57 3.47 272
9/11/96 1 through 9/30/96 11.71 1.24 4 19 1.53 2 1.93 2 2.79 2 2.38 2 108
- -------------------------
TAX-FREE INCOME PORTFOLIO
- -------------------------
INSTITUTIONAL CLASS
10/1/97 through 3/31/98 12 $11.49 4.29% $ 13,515 0.56%2 0.87%2 4.64%2 4.33%2 81%
9/30/97 11.34 10.09 9,419 0.55 0.90 5.07 4.72 262
9/30/96 10.84 7.45 8,350 0.55 0.89 5.10 4.78 268
9/30/95 10.61 11.54 271 0.52 1.30 5.19 4.41 92
9/30/94 10.04 (3.77) 132 0.50 1.73 4.97 3.74 40
1/21/93 1 through 9/30/93 11.31 10.72 675 0.50 2 1.28 2 5.14 2 4.36 2 71
SERVICE CLASS
10/1/97 through 3/31/98 12 $11.49 4.12% $ 63,411 0.86%2 1.17%2 4.34%2 4.03%2 81%
9/30/97 11.34 9.77 58,779 0.85 1.20 4.76 4.41 262
9/30/96 10.84 7.14 36,161 0.85 1.18 4.88 4.56 268
9/30/95 10.61 11.24 4,713 0.80 1.57 4.92 4.15 92
9/30/94 10.04 (4.02) 2,109 0.75 1.98 4.75 3.52 40
7/29/93 1 through 9/30/93 11.31 3.92 634 0.71 2 1.49 2 4.99 2 4.21 2 71
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
64-65
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
BLACKROCK FUNDS [LOGO OMITTED]
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NET NET GAIN DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS
ASSET (LOSS) ON DISTRIBUTIONS IN EXCESS FROM NET IN EXCESS
VALUE NET INVESTMENTS FROM NET OF NET REALIZED OF NET
BEGINNING INVESTMENT (BOTH REALIZED INVESTMENT INVESTMENT CAPITAL REALIZED
OF PERIOD INCOME AND UNREALIZED) INCOME INCOME GAINS GAINS
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTOR A CLASS
10/1/97 through 3/31/98 12 $11.34 $0.24 $ 0.21 $(0.25) $ -- $(0.05) $ --
9/30/97 10.84 0.50 0.51 (0.51) -- -- --
9/30/96 10.61 0.45 0.21 (0.43) -- -- --
9/30/95 10.04 0.48 0.59 (0.48) -- (0.02) --
9/30/94 11.31 0.48 (0.93) (0.48) -- (0.34) --
9/30/93 10.60 0.55 0.83 (0.55) -- (0.12) --
INVESTOR B CLASS
10/1/97 through 3/31/98 12 $11.34 $0.19 $ 0.22 $(0.21) $ -- $(0.05) $ --
9/30/97 10.84 0.44 0.49 (0.43) -- -- --
7/18/96 1 through 9/30/96 10.74 0.08 0.10 (0.08) -- -- --
INVESTOR C CLASS
10/1/97 through 3/31/98 12 $11.34 $0.17 $ 0.24 $(0.21) $ -- $(0.05) $ --
2/28/97 1 through 9/30/97 11.04 0.28 0.27 (0.25) -- -- --
- --------------------------------------
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
- --------------------------------------
INSTITUTIONAL CLASS
10/1/97 through 3/31/98 12 $10.77 $0.26 $ 0.17 $(0.26) $ -- $ -- $ --
9/30/97 10.44 0.53 0.33 (0.53) -- -- --
9/30/96 10.33 0.52 0.12 (0.53) -- -- --
9/30/95 9.82 0.52 0.51 (0.52) -- -- --
9/30/94 10.70 0.53 (0.85) (0.53) -- (0.03) --
12/1/92 1 through 9/30/93 10.00 0.39 0.73 (0.39) -- (0.03) --
SERVICE CLASS
10/1/97 through 3/31/98 12 $10.77 $0.24 $ 0.18 $(0.25) $ -- $ -- $ --
9/30/97 10.44 0.50 0.33 (0.50) -- -- --
9/30/96 10.33 0.50 0.11 (0.50) -- -- --
9/30/95 9.82 0.50 0.51 (0.50) -- -- --
9/30/94 10.70 0.51 (0.85) (0.51) -- (0.03) --
7/29/93 1 through 9/30/93 10.43 0.09 0.28 (0.09) -- (0.01) --
INVESTOR A CLASS
10/1/97 through 3/31/98 12 $10.77 $0.23 $ 0.18 $(0.24) $ -- $ -- $ --
9/30/97 10.44 0.48 0.33 (0.48) -- -- --
9/30/96 10.33 0.48 0.11 (0.48) -- -- --
9/30/95 9.82 0.48 0.51 (0.48) -- -- --
9/30/94 10.70 0.52 (0.85) (0.52) -- (0.03) --
12/1/92 1 through 9/30/93 10.00 0.42 0.73 (0.42) -- (0.03) --
INVESTOR B CLASS
10/1/97 through 3/31/98 12 $10.77 $0.19 $ 0.18 $(0.20) $ -- $ -- $ --
9/30/97 10.44 0.40 0.33 (0.40) -- -- --
9/30/96 10.33 0.40 0.11 (0.40) -- -- --
10/3/94 1 through 9/30/95 9.82 0.42 0.51 (0.42) -- -- --
- ------------------------------------
NEW JERSEY TAX-FREE INCOME PORTFOLIO
- ------------------------------------
SERVICE CLASS
10/1/97 through 3/31/98 12 $11.65 $0.26 $ 0.14 $(0.27) $ -- $ -- $ --
9/30/97 11.27 0.52 0.37 (0.51) -- -- --
2/1/96 through 9/30/96 11.61 0.73 (0.32) (0.75) -- -- --
3/1/95 through 1/31/96 10.94 0.46 0.65 (0.44) -- -- --
2/28/95 11.31 0.51 (0.36) (0.51) -- (0.01) --
2/28/94 11.30 0.54 0.04 (0.54) -- (0.03) --
2/28/93 10.46 0.52 0.85 (0.53) -- -- --
INVESTOR A CLASS
10/1/97 through 3/31/98 12 $11.65 $0.25 $ 0.14 $(0.26) $ -- $ -- $ --
9/30/97 11.27 0.51 0.37 (0.50) -- -- --
2/1/96 through 9/30/96 11.61 0.34 (0.34) (0.34) -- -- --
1/26/96 1 through 1/31/96 11.54 -- 0.07 -- -- -- --
INVESTOR B CLASS
10/1/97 through 3/31/98 12 $11.65 $0.20 $ 0.15 $(0.22) $ -- $ -- $ --
9/30/97 11.27 0.41 0.38 (0.41) -- -- --
7/2/96 1 through 9/30/96 11.15 0.09 0.12 (0.09) -- -- --
</TABLE>
<TABLE>
<CAPTION>
RATIO OF NET
NET NET RATIO OF EXPENSES INVESTMENT INCOME
ASSET ASSETS RATIO OF TO AVERAGE RATIO OF NET TO AVERAGE
VALUE END OF EXPENSES TO NET ASSETS INVESTMENT INCOME NET ASSETS PORTFOLIO
END OF TOTAL PERIOD AVERAGE NET (EXCLUDING TO AVERAGE NET (EXCLUDING TURNOVER
PERIOD RETURN (000) ASSETS WAIVERS) ASSETS WAIVERS) RATE
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTOR A CLASS
10/1/97 through 3/31/98 12 $11.49 4.04%3 $ 5,678 1.04%2 1.35%2 4.19%2 3.88%2 81%
9/30/97 11.34 9.58 3 5,530 1.02 1.37 4.60 4.25 262
9/30/96 10.84 6.94 3 4,873 1.04 1.37 4.67 4.35 268
9/30/95 10.61 10.99 3 6,591 1.00 1.78 4.74 3.96 92
9/30/94 10.04 (4.19)3 6,972 0.95 2.18 4.53 3.30 40
9/30/93 11.31 13.48 3 7,831 0.57 1.36 5.06 4.27 71
INVESTOR B CLASS
10/1/97 through 3/31/98 12 $11.49 3.65%4 $ 1,765 1.76%2 2.07%2 3.36%2 3.05%2 81%
9/30/97 11.34 8.77 4 926 1.75 2.10 3.65 3.30 262
7/18/96 1 through 9/30/96 10.84 1.72 4 10 1.65 2 1.98 2 3.84 2 3.51 2 268
INVESTOR C CLASS
10/1/97 through 3/31/98 12 $11.49 3.65%4 $ 58 1.73%2 2.04%2 3.24%2 2.93%2 81%
2/28/97 1 through 9/30/97 11.34 5.02 4 -- 1.70 2 2.05 2 3.95 2 3.60 2 262
- --------------------------------------
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
- --------------------------------------
INSTITUTIONAL CLASS
10/1/97 through 3/31/98 12 $10.94 4.06% $ 10,658 0.55%2 0.86%2 4.70%2 4.39%2 36%
9/30/97 10.77 8.43 5,108 0.55 0.86 4.97 4.66 97
9/30/96 10.44 6.29 3,609 0.55 0.85 5.01 4.72 119
9/30/95 10.33 10.81 2,092 0.52 0.84 5.23 4.91 66
9/30/94 9.82 (2.96) 639 0.39 0.99 5.27 4.67 30
12/1/92 1 through 9/30/93 10.70 11.69 256 0.09 2 0.97 2 5.19 2 4.31 2 40
SERVICE CLASS
10/1/97 through 3/31/98 12 $10.94 3.91% $ 59,551 0.84%2 1.15%2 4.41%2 4.10%2 36%
9/30/97 10.77 8.10 50,395 0.85 1.16 4.67 4.36 97
9/30/96 10.44 5.97 34,297 0.85 1.15 4.74 4.44 119
9/30/95 10.33 10.51 13,815 0.79 1.11 5.04 4.72 66
9/30/94 9.82 (3.20) 11,518 0.55 1.15 4.97 4.37 30
7/29/93 1 through 9/30/93 10.70 3.54 3,894 0.34 2 0.01 2 4.90 2 4.02 2 40
INVESTOR A CLASS
10/1/97 through 3/31/98 12 $10.94 3.83%3 $ 31,548 0.99%2 1.30%2 4.27%2 3.96%2 36%
9/30/97 10.77 7.95 3 32,900 0.97 1.30 4.54 4.23 97
9/30/96 10.44 5.81 3 38,031 1.00 1.30 4.58 4.29 119
9/30/95 10.33 10.30 3 42,775 0.98 1.30 4.88 4.56 66
9/30/94 9.82 (3.06)3 46,563 0.41 1.01 5.06 4.46 30
12/1/92 1 through 9/30/93 10.70 11.69 3 35,934 0.07 2 0.95 2 5.19 2 4.31 2 40
INVESTOR B CLASS
10/1/97 through 3/31/98 12 $10.94 3.48%4 $ 14,428 1.76%2 2.07%2 3.48%2 3.17%2 36%
9/30/97 10.77 7.12 4 12,388 1.76 2.07 3.73 3.42 97
9/30/96 10.44 5.04 4 7,974 1.74 2.03 3.81 3.51 119
10/3/94 1 through 9/30/95 10.33 9.69 4 4,008 1.57 2 1.89 2 4.07 2 3.75 2 66
- ------------------------------------
NEW JERSEY TAX-FREE INCOME PORTFOLIO
- ------------------------------------
SERVICE CLASS
10/1/97 through 3/31/98 12 $11.78 3.48% $ 83,346 0.86%2 1.17%2 4.37%2 4.06%2 13%
9/30/97 11.65 8.11 84,596 0.85 1.17 4.59 4.27 77
2/1/96 through 9/30/96 11.27 0.15 88,077 0.85 2 1.17 2 4.44 2 4.13 2 109
3/1/95 through 1/31/96 11.61 10.35 97,976 0.88 2 0.90 2 4.43 2 4.41 2 26
2/28/95 10.94 1.49 96,857 0.79 0.87 4.71 4.63 28
2/28/94 11.31 5.18 111,354 0.38 0.86 4.75 4.27 12
2/28/93 11.30 13.48 47,169 0.48 1.04 5.04 4.48 16
INVESTOR A CLASS
10/1/97 through 3/31/98 12 $11.78 3.39%3 $ 1,301 1.04%2 1.35%2 4.23%2 3.92%2 13%
9/30/97 11.65 7.94 3 1,548 1.02 1.34 4.41 4.09 77
2/1/96 through 9/30/96 11.27 (0.01)3 894 1.01 2 1.33 2 4.29 2 3.98 2 109
1/26/96 1 through 1/31/96 11.61 0.63 3 14 1.02 2 1.36 2 2.79 2 2.45 2 26
INVESTOR B CLASS
10/1/97 through 3/31/98 12 $11.78 3.01%4 $ 868 1.78%2 2.09%2 3.43%2 3.12%2 13%
9/30/97 11.65 7.14 4 767 1.74 2.06 3.60 3.28 77
7/2/96 1 through 9/30/96 11.27 2.04 4 30 1.74 2 2.06 2 3.48 2 3.16 2 109
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
66-67
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
BLACKROCK FUNDS [LOGO OMITTED]
FINANCIAL HIGHLIGHTS (CONCLUDED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NET NET GAIN DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS
ASSET (LOSS) ON DISTRIBUTIONS IN EXCESS FROM NET IN EXCESS
VALUE NET INVESTMENTS FROM NET OF NET REALIZED OF NET
BEGINNING INVESTMENT (BOTH REALIZED INVESTMENT INVESTMENT CAPITAL REALIZED
OF PERIOD INCOME AND UNREALIZED) INCOME INCOME GAINS GAINS
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------
OHIO TAX-FREE INCOME PORTFOLIO
- ------------------------------
INSTITUTIONAL CLASS
10/1/97 through 3/31/98 12 $10.50 $0.25 $ 0.12 $(0.25) $ -- $ -- $ --
9/30/97 10.15 0.51 0.34 (0.50) -- -- --
9/30/96 10.05 0.50 0.10 (0.50) -- -- --
9/30/95 9.60 0.55 0.45 (0.55) -- -- --
9/30/94 10.53 0.53 (0.91) (0.53) -- (0.02) --
12/1/92 1 through 9/30/93 10.00 0.36 0.53 (0.36) -- -- --
SERVICE CLASS
10/1/97 through 3/31/98 12 $10.50 $0.23 $ 0.13 $(0.24) $ -- $ -- $ --
9/30/97 10.15 0.47 0.35 (0.47) -- -- --
9/30/96 10.05 0.48 0.10 (0.48) -- -- --
9/30/95 9.60 0.52 0.45 (0.52) -- -- --
9/30/94 10.53 0.49 (0.91) (0.49) -- (0.02) --
7/29/93 1 through 9/30/93 10.24 0.09 0.29 (0.09) -- -- --
INVESTOR A CLASS
10/1/97 through 3/31/98 12 $10.50 $0.22 $ 0.13 $(0.23) $ -- $ -- $ --
9/30/97 10.15 0.45 0.35 (0.45) -- -- --
9/30/96 10.05 0.46 0.10 (0.46) -- -- --
9/30/95 9.60 0.52 0.45 (0.52) -- -- --
9/30/94 10.53 0.53 (0.91) (0.53) -- (0.02) --
12/1/92 1 through 9/30/93 10.00 0.36 0.53 (0.36) -- -- --
INVESTOR B CLASS
10/1/97 through 3/31/98 12 $10.50 $0.18 $ 0.13 $(0.19) $ -- $ -- $ --
9/30/97 10.15 0.37 0.35 (0.37) -- -- --
9/30/96 10.05 0.38 0.10 (0.38) -- -- --
10/13/94 1 through 9/30/95 9.58 0.42 0.47 (0.42) -- -- --
</TABLE>
<TABLE>
<CAPTION>
RATIO OF NET
NET NET RATIO OF EXPENSES INVESTMENT INCOME
ASSET ASSETS RATIO OF TO AVERAGE RATIO OF NET TO AVERAGE
VALUE END OF EXPENSES TO NET ASSETS INVESTMENT INCOME NET ASSETS PORTFOLIO
END OF TOTAL PERIOD AVERAGE NET (EXCLUDING TO AVERAGE NET (EXCLUDING TURNOVER
PERIOD RETURN (000) ASSETS WAIVERS) ASSETS WAIVERS) RATE
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------
OHIO TAX-FREE INCOME PORTFOLIO
- ------------------------------
INSTITUTIONAL CLASS
10/1/97 through 3/31/98 12 $10.62 3.58% $ 856 0.56%2 1.06%2 4.67%2 4.17%2 30%
9/30/97 10.50 8.53 928 0.55 1.06 4.80 4.29 87
9/30/96 10.15 6.12 409 0.51 1.10 4.96 4.37 136
9/30/95 10.05 10.75 200 0.12 1.19 5.61 4.54 63
9/30/94 9.60 (3.75) 127 0.10 1.49 5.16 3.77 61
12/1/92 1 through 9/30/93 10.53 9.10 1,676 0.08 2 2.59 2 4.99 2 2.48 2 36
SERVICE CLASS
10/1/97 through 3/31/98 12 $10.62 3.42% $ 8,203 0.86%2 1.36%2 4.37%2 3.87%2 30%
9/30/97 10.50 8.21 7,421 0.85 1.36 4.51 4.00 87
9/30/96 10.15 5.80 6,377 0.79 1.38 4.69 4.10 136
9/30/95 10.05 10.45 5,150 0.39 1.46 5.39 4.31 63
9/30/94 9.60 (4.00) 4,428 0.35 1.74 5.06 3.67 61
7/29/93 1 through 9/30/93 10.53 3.68 907 0.32 2 2.83 2 4.71 2 2.20 2 36
INVESTOR A CLASS
10/1/97 through 3/31/98 12 $10.62 3.33%3 $ 2,505 1.03%2 1.53%2 4.20%2 3.70%2 30%
9/30/97 10.50 8.03 3 2,614 1.02 1.53 4.35 3.84 87
9/30/96 10.15 5.66 3 2,833 0.91 1.50 4.57 3.98 136
9/30/95 10.05 10.46 3 3,303 0.38 1.45 5.42 4.35 63
9/30/94 9.60 (3.75)3 3,825 0.10 1.49 5.18 3.79 61
12/1/92 1 through 9/30/93 10.53 9.10 3 2,386 0.07 2 2.58 2 4.90 2 2.39 2 36
INVESTOR B CLASS
10/1/97 through 3/31/98 12 $10.62 2.95%4 $ 780 1.77%2 2.27%2 3.42%2 2.92%2 30%
9/30/97 10.50 7.23 4 622 1.75 2.26 3.52 3.01 87
9/30/96 10.15 4.87 4 161 1.66 2.26 3.80 3.21 136
10/13/94 1 through 9/30/95 10.05 9.33 4 106 1.17 2 2.25 2 4.48 2 3.41 2 63
<FN>
1 Commencement of operations of share class.
2 Annualized.
3 Sales load not reflected in total return.
4 Contingent deferred sales load not reflected in total return.
5 Including interest expense, ratios for the BlackRock, Investor B, and
Investor C classes would have been 1.40%, 2.72%, and 2.70% respectively,
for the period ended March 31, 1998, and 1.01%, 2.19%, and 2.23%,
respectively, for the period ended September 30, 1997, the Institutional,
Service, and Investor A would have been 1.54%, 1.85%, and 2.02%,
respectively, for the period March 31, 1998, and 0.92%, 1.24%, and 1.42%,
respectively, for the period ended September 30, 1997, and would have been
0.64%, 0.97%, and 1.12%, respectively, for the period September 30, 1996
and 0.96%, 1.18%, and 1.34%, respectively, for the period ended March 31,
1996. For the periods prior to March 31, 1996, interest income was
presented net of interest expense.
6 Including interest expense, ratios for the Investor B and Investor C
classes would have been 1.79% and 1.77% respectively, for the period ended
March 31, 1998, and 1.90% and 1.78%, respectively, for the period ended
September 30, 1997, the Institutional, Service, and Investor A would have
been 0.59%, 0.89%, and 1.06%, respectively, for the period ended March 31,
1998, and 0.67%, 0.97%, and 1.14%, respectively, for the period ended
September 30, 1997, and would have have been 0.70%, 1.00%, and 1.14%,
respectively, for the period September 30, 1996 and 0.42%, 0.69%, and
0.70%, respectively, for the period ended September 30, 1995.
7 Including interest expense, ratios for the Investor B class would have been
2.74% for the period ended March 31, 1998, the Institutional, Service, and
Investor A classes would have been 1.92%, 2.22%, and 2.39%, respectively,
for the period ended March 31, 1998, and would have been 0.98%, 1.27%, and
1.44%, respectively, for the period ended September 30, 1997, and 0.83%,
1.14%, and 1.27%, respectively, for the period ended September 30, 1996,
and would have been 0.55%, 0.82%, and 0.84%, respectively, for the period
September 30, 1995.
8 Including interest expense, ratios for the BlackRock and Investor C classes
would have been 1.02% and 2.30% respectively, for the period ended March
31, 1998, and 0.56% and 1.93%, respectively, for the period ended September
30, 1997, the Institutional, Service, Investor A, and Investor B would have
been 1.17%, 1.49%, 1.64%, and 2.36%, respectively, for the period ended
March 31, 1998, and 0.84%, 1.35%, 1.36%, and 2.17%, respectively, for the
period ended September 30, 1997, and would have been 0.80%, 1.08%, 1.27%,
and 2.00%, respectively, for the period September 30, 1996 and 0.75%,
0.94%, 1.11%, and 1.86%, respectively, for the period ended March 31, 1996.
For the periods prior to March 31, 1996, interest income was presented net
of interest expense.
9 Including interest expense, ratios for the Investor C class would have been
2.46%, for the period ended March 31, 1998, and 3.24% for the period ended
September 30, 1997, the Investor A and Investor B classes would have been
1.79% and 2.52%, respectively, for the period ended March 31, 1998, and
would have been 1.41%, and 2.14%, respectively, for the period ended
September 30, 1997, and 2.96%, and 3.69%, respectively, for the period
ended September 30, 1996, and would have been 0.92% and 1.60%,
respectively, for the period ended September 30, 1995.
10 Including interest expense, ratios for the Institutional, Service, Investor
A and Investor B classes would have been 1.77%, 2.06%, 2.24%, and 2.89%
respectively, for the period ended March 31, 1998, and 0.92%, 1.27%, 1.41%,
and 2.14%, respectively, for the period endedSeptember 30, 1997. For
periods prior to October 1, 1996, interest income was presented net of
interest expense.
11 Including interest expense, ratios for the Institutional, Service, Investor
A, Investor B, and Investor C classes would have been 0.98%, 1.30%, 1.42%,
2.12%, and 2.11% for the period ended September 30, 1997. For periods prior
to October 1, 1996, interest income was presented net of interest expense.
12 Unaudited.
</FN>
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
68-69
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
BlackRock Funds(SERVICE MARK) ("the Fund") (formerly The Compass Capital
Fund) 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. The Fund currently has 31
publicly-offered portfolios, 11 of which are included in these financial
statements (the "Portfolios"). Each Portfolio is authorized to issue an
unlimited number of shares with a par value of $0.001. Portfolios of the Fund
offer as many as six classes of shares. Shares of all classes of a Portfolio
represent equal pro rata interests in such Portfolio, except that each class
bears different expenses which reflect the difference in the range of services
provided to them. The following table provides a list of the Portfolios included
in this report along with a summary of their respective class-specific fee
arrangements as provided under the Fund's Amended and Restated Distribution and
Service Plan (the "Plan"). Fees are expressed as a percentage of average daily
net asset values of the respective classes.
<TABLE>
<CAPTION>
Portfolio Share Classes
- ------------------------------------------------------------------------------------------------------------------------------------
BlackRock Institutional Service Investor A Investor B Investor C
- ------------------------------------------------------------------------------------------------------------------------------------
Contractual Actual Contractual Actual Contractual Actual Contractual Actual Contractual Actual Contractual Actual
Fees Fees(4) Fees Fees(4) Fees(1) Fees(4) Fees(2) Fees(4) Fees(3) Fees(4) Fees(3) Fees(4)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Low Duration Bond None None None None 0.30% 0.30% 0.50% 0.40% 1.15% 1.15% 1.15% 1.15%
- ------------------------------------------------------------------------------------------------------------------------------------
Intermediate
Government Bond N/A N/A None None 0.30% 0.30% 0.50% 0.40% 1.15% 1.15% 1.15% 1.15%
- ------------------------------------------------------------------------------------------------------------------------------------
Intermediate Bond N/A N/A None None 0.30% 0.30% 0.50% 0.40% 1.15% 1.15% 1.15% N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Core Bond None None None None 0.30% 0.30% 0.50% 0.40% 1.15% 1.15% 1.15% 1.15%
- ------------------------------------------------------------------------------------------------------------------------------------
Government Income N/A N/A None None 0.30% N/A 0.50% 0.40% 1.15% 1.15% 1.15% 1.15%
- ------------------------------------------------------------------------------------------------------------------------------------
Managed Income N/A N/A None None 0.30% 0.30% 0.50% 0.40% 1.15% 1.15% 1.15% N/A
- ------------------------------------------------------------------------------------------------------------------------------------
International Bond N/A N/A None None 0.30% 0.30% 0.50% 0.40% 1.15% 1.15% 1.15% 1.15%
- ------------------------------------------------------------------------------------------------------------------------------------
Tax-Free Income N/A N/A None None 0.30% 0.30% 0.50% 0.40% 1.15% 1.15% 1.15% 1.15%
- ------------------------------------------------------------------------------------------------------------------------------------
Pennsylvania Tax-
Free Income N/A N/A None None 0.30% 0.30% 0.50% 0.40% 1.15% 1.15% 1.15% N/A
- ------------------------------------------------------------------------------------------------------------------------------------
New Jersey Tax-
Free Income N/A N/A None None 0.30% 0.30% 0.50% 0.40% 1.15% 1.15% 1.15% N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Ohio Tax-Free
Income N/A N/A None None 0.30% 0.30% 0.50% 0.40% 1.15% 1.15% 1.15% N/A
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) -- the maximum annual contractual fees are comprised of a .15% service fee
and .15% shareholder processing fee.
(2) -- the maximum annual contractual fees are comprised of a .10% distribution
fee, .25% service fee and .15% shareholder processing fee.
(3) -- the maximum annual contractual fees are comprised of a .75% distribution
fee, .25% service fee and .15% shareholder processing fee.
(4) -- the actual fees are as of March 31, 1998.
</FN>
</TABLE>
In addition, Institutional and Service shares bear a Transfer Agent fee at
an annual rate not to exceed .03% and Investor A, Investor B and Investor C
shares bear a Transfer Agent fee at an annual rate not to exceed .10% of the
average daily net asset of such respective classes.
(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The preparation of
financial statements in conformity with generally accepted accounting principles
requires the use of management estimates. Actual results could differ from the
estimates.
SECURITY VALUATION -- Portfolio securities for which market quotations are
readily available are valued at market value, which is currently determined
using the last reported sales price. If no sales are reported, as in the case of
some securities traded over-the-counter, portfolio securities are valued at the
mean between the last reported bid and asked prices. Corporate bonds and
tax-exempt bonds are valued on the basis of quotations provided by a pricing
service which uses information with respect to transactions on bonds, quotations
from bond dealers, market transactions in comparable securities and various
relationships between securities in determining value. Short-term obligations
with maturities of 60 days or less are valued at amortized cost which
approximates market value. Discounts and premiums on debt securities are
amortized for book and tax purposes using the effective yield-to-maturity method
over the term of the instrument.
70
<PAGE>
BLACKROCK FUNDS [LOGO OMITTED]
DIVIDENDS TO SHAREHOLDERS -- Dividends from net investment income are
declared by each Portfolio each day on "settled" shares (i.e. shares for which
the particular Portfolio has received payment in federal funds) and are paid
monthly. Over the course of a year, substantially all of each Portfolio's net
investment income will be declared as dividends. The amount of the daily
dividend for each Portfolio will be based on periodic projections of its net
investment income. Net realized capital gains, if any, will be distributed at
least annually. The character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes due to differences between
generally accepted accounting principles and tax accounting principles related
to the character of income and expense recognition.
FEDERAL TAXES -- No provision is made for federal taxes as it is the Fund's
intention to have each Portfolio continue to qualify as a regulated investment
company and to make the requisite distributions to its shareholders which will
be sufficient to relieve it from federal income and excise taxes.
FOREIGN CURRENCY TRANSLATION -- The books and records of the International
Bond Portfolio 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
(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 International Bond 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 International Bond 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 International Bond 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 International Bond 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 counterparties to meet the terms of their contracts and
from unanticipated movements in the value of a foreign currency relative to the
U.S. dollar.
The aggregate principal amounts of the contracts are not recorded as the
International Bond Portfolio intends to settle the contracts prior to delivery.
Under the terms of foreign currency contracts open at March 31, 1998, the
International Bond Portfolio is obligated to deliver or receive currency in
exchange for U.S. dollars as indicated below:
UNREALIZED
VALUE AT FOREIGN
SETTLEMENT CURRENCY CONTRACT MARCH 31, EXCHANGE
DATE SOLD AMOUNT 1998 GAIN/(LOSS)
- ---------- ------------------------- ------------- ------------- ------------
04/17/98 Canadian Dollar ......... $ 3,061,935 $ 3,106,928 $ (44,993)
04/27/98 Danish Krone ............ 1,745,783 1,725,042 20,741
05/26/98 German Deutsche Mark .... 7,635,391 7,538,124 97,267
04/17/98 European Currency Unit .. 2,348,875 2,313,357 35,518
04/17/98 French Franc ............ 1,733,818 1,695,999 37,819
05/26/98 Great British Pound ..... 6,171,748 6,182,034 (10,286)
04/17/98 Spanish Peso ............ 2,267,101 2,217,035 50,066
04/27/98 Swedish Krone ........... 1,869,017 1,853,132 15,885
04/17/98 Italian Lira ............ 1,761,055 1,727,447 33,608
04/13/98 Japanese Yen ............ 9,238,025 8,571,982 666,043
05/26/98 Netherland Guild ........ 1,567,069 1,547,250 19,819
----------- ----------- --------
$39,399,817 $38,478,330 $921,487
=========== =========== ========
71
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
CROSS CURRENCY SWAPS -- Low Duration may enter into cross currency swaps in
accordance with its investment objectives. A swap agreement obligates two
parties to exchange returns realized on a notional amount agreed upon by both
parties. The obligations of the parties are calculated on a net basis based on
the daily fluctuations in the indices on which the contract is based. The daily
net fluctuation is recorded as unrealized gains or losses by Low Duration. At
the termination of the agreement, Low Duration will receive from or pay to the
counter party, the accumulated net unrealized gain or loss, which will then be
recorded as realized.
At March 31, 1998, Low Duration had an outstanding cross currency swap with
JP Morgan dated January 12, 1998, (which represents approximately 0% of the net
assets of Low Duration), terminating on June 20, 2000. The notional value of the
swap was $7,532,957 and Low Duration had recorded net unrealized appreciation of
$23,902 consisting of $97,019, owed to JP Morgan, $88,933 due from broker and
$32,488 recorded as unrealized appreciation due to daily exchange rate
differences. Payments made by Low Duration are based on the London Interbank
Offered Rate (LIBOR) calculated on the original notional amount plus accumulated
interest added on the monthly LIBOR reset date. Payments received by Low
Duration are based on the fixed rate 4.5% calculated on the original notional
amount of 1,000,000,000 Japanese yen.
Risks may arise upon entering into cross currency swaps in the event of the
default or bankruptcy of a swap agreement counter party.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Investment transactions are
accounted for on the trade date. The cost of investments sold is determined by
use of the specific identification method for both financial reporting and
federal income tax purposes. Interest income is recorded on the accrual basis.
Expenses not directly attributable to a specific Portfolio or class are
allocated among all of the Portfolios or classes of the Fund based on their
relative net assets.
REPURCHASE AGREEMENTS -- Money market instruments may be purchased from
banks and non-bank dealers subject to the seller's agreement to repurchase them
at an agreed upon date and price. Collateral for repurchase agreements may have
longer maturities than the maximum permissible remaining maturity of portfolio
investments. The seller will be required on a daily basis to maintain the value
of the securities subject to the agreement at not less than the repurchase
price. The agreements are conditioned upon the collateral being deposited under
the Federal Reserve book-entry system or held in a separate account by the
Fund's custodian or an authorized securities depository.
REVERSE REPURCHASE AGREEMENTS -- The Fund enters into reverse repurchase
agreements with qualified, third party brokers-dealers as determined by and
under the direction of the Fund's Board of Trustees. Interest on the value of
the reverse repurchase agreements issued and outstanding is based upon
competitive market rates at the time of issuance. At the time the Fund enters
into a reverse repurchase agreement, it identifies for segregation certain
liquid securities having a value not less than the repurchase price, including
accrued interest, of the reverse repurchase agreement.
<TABLE>
<CAPTION>
LOW DURATION INTERMEDIATE MANAGED
BOND BOND INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------- ----------
<S> <C> <C> <C>
Average daily balance of reverse repurchase
agreements outstanding during the period
ended March 31, 1998 ...................... $52,410,343 $81,193,616 $176,225,232
Weighted Average Interest Rate 4.88% 5.67% 5.34%
Maximum Amount of reverse repurchase
agreements outstanding at any month-end
during the period ended March 31, 19981 ... $63,006,410 $90,796,061 $242,715,718
Percentage of total assets 21.26% 20.12% 22.76%
Amount of reverse repurchase agreements
outstanding at March 31, 1998 ............. $32,324,248 $59,666,744 $94,544,706
Percentage of total assets 9.68% 14.94% 8.62%
<FN>
- ---------------------
1 The maximum amount of reverse repurchase agreements outstanding at any month
end occurred on December 31, 1997, October 31, 1997, and December 31, 1997,
respectively.
</FN>
</TABLE>
FUTURES TRANSACTIONS -- The Fund invests in financial futures contracts
solely for the purpose of hedging its existing portfolio securities, or
securities that the Fund intends to purchase, against fluctuations in fair value
caused by changes in prevailing market interest rates. Certain Portfolios may
enter into futures contracts subject to certain limitations. Upon entering into
a futures contract, the Portfolio is required to deposit cash or pledge U.S.
Government securities of an initial margin. Subsequent payments, which are
dependent on the daily fluctuations in the value of the underlying security or
72
<PAGE>
BLACKROCK FUNDS [LOGO OMITTED]
securities, are made or received by the Portfolio each day (daily variation
margin) and are recorded as unrealized gains or losses until the contracts are
closed. When the contracts are closed, the Portfolio records a realized gain or
loss equal to the difference between the proceeds from (or cost of) the closing
transaction and the Portfolio's basis in the contracts. Risks of entering into
futures contracts include the possibility that there will not be a perfect price
correlation between the futures contracts and the underlying securities. Second,
it is possible that a lack of liquidity for futures contracts could exist in the
secondary market, resulting in an inability to close a futures position prior to
its maturity date. Third, the purchase of a futures contract involves the risk
that a Portfolio could lose more than the original margin deposit required to
initiate a futures transaction.
OPTION SELLING/PURCHASING -- The Fund invests in financial options
contracts solely for the purpose of hedging its existing portfolio securities,
or securities that the Fund intends to purchase, against fluctuations in fair
value caused by changes in prevailing market interest rates. When the Fund sells
or purchases an option, an amount equal to the premium received or paid by the
Fund is recorded as a liability or an asset and is subsequently adjusted to the
current market value of the option written or purchased. Premiums received or
paid from writing or purchasing options which expire unexercised are treated by
the Fund on the expiration date as realized gains or losses. The difference
between the premium and the amount paid or received on effecting a closing
purchase or sale transaction, including brokerage commissions, is also treated
as a realized gain or loss. If an option is exercised, the premium paid or
received is added to the cost of the purchase or proceeds from the sale in
determining whether the Fund has realized a gain or a loss on investment
transactions. The Fund as writer of an option, may have no control over whether
the underlying securities may be sold (call) or purchased (put) and as a result
bears the market risk of an unfavorable change in the price of the security
underlying the written option.
TBA PURCHASE COMMITMENTS -- The Portfolios may enter into "TBA" (to be
announced) purchase commitments to purchase securities for a fixed price at a
future date, typically not exceeding 45 days. TBA purchase commitments may be
considered securities in themselves, and involve a risk of loss if the value of
the security to be purchased declines prior to settlement date, which risk is in
addition to the risk of decline in the value of a Portfolio's other assets.
Unsettled TBA purchase commitments are valued at the current market value of the
underlying securities, according to the procedures described under "Security
Valuation" above.
MORTGAGE DOLLAR ROLLS -- Each Portfolio (except the Tax-Free Income,
Pennsylvania Tax-Free Income, New Jersey Tax-Free Income and Ohio Tax-Free
Income Portfolios) may enter into mortgage dollar rolls (principally using
TBA's) in which the Portfolio sells mortgage securities for delivery in the
current month and simultaneously contracts to repurchase similar, but not
identical, securities at an agreed-upon price on a fixed date. The Portfolio
accounts for such dollar rolls as purchases and sales and receives compensation
as consideration for entering into the commitment to repurchase. A Portfolio
must maintain liquid securities having a value not less than the repurchase
price (including accrued interest) for such dollar rolls.
In a "fee" roll, the compensation is recorded as deferred income and
amortized to income over the roll period. In a "drop" roll, the compensation is
paid via a lower price for the security upon its repurchase. The counterparty
receives all principal and interest payments, including prepayments, made in
respect of a security subject to such a contract while it is the holder.
Mortgage dollar rolls may be renewed with a new purchase and repurchase price
fixed and a cash settlement made on settlement date without physical delivery of
the securities subject to the contract. A Portfolio engages in dollar rolls for
the purpose of enhancing its yield, principally by earning a negotiated fee.
SECURITIES LENDING -- Loans of securities are required at all times to be
secured by collateral at least equal to 102% of the market value of the
securities on loan. However, in the event of default or bankruptcy by the other
party to the agreement, realization and/or retention of the collateral may be
subject to legal proceedings. The market value of securities on loan to brokers
and the value of collateral held by the Fund with respect to such loans
(including rights to draw on letters of credit) at March 31, 1998 is as follows:
VALUE OF
MARKET VALUE OF COLLATERAL
PORTFOLIO SECURITIES LOANED RECEIVED
--------- ----------------- --------------
Intermediate Government Bond Portfolio ... $ 4,401,686 $ 4,526,375
Core Bond Portfolio ...................... 67,394,733 70,254,438
Government Income Portfolio .............. 3,984,039 4,169,856
Managed Income Portfolio ................. 208,050,836 216,943,044
73
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
OTHER -- Securities denominated in currencies other than U.S. dollars are
subject to changes in value due to fluctuations in exchange rates.
Some countries in which the Portfolios invest require governmental approval
for the repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if there is a deterioration in a
country's balance of payments or for other reasons, a country may impose
temporary restrictions on foreign capital remittances abroad.
The securities exchanges of certain foreign markets are substantially
smaller, less liquid and more volatile than the major securities markets in the
United States. Consequently, acquisition and disposition of securities by the
Portfolios may be inhibited.
(B) TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Pursuant to an Investment Advisory Agreement, BlackRock Advisors,Inc.
(formerly PNC Asset Management Group, Inc.), a wholly-owned subsidiary of
BlackRock, Inc., serves as investment adviser for the Portfolios. BlackRock
Financial Management, Inc., a wholly-owned subsidiary of BlackRock Advisors,
Inc., serves as sub-adviser for all of the Portfolios. BlackRock, Inc. is an
indirect majority-owned subsidiary of PNC Bank Corp.
For its advisory services, BlackRock Advisors, Inc. is entitled to receive
fees, computed daily and paid monthly, at the following annual rates, based on
each Portfolio's average daily net assets:
EACH PORTFOLIO
EXCEPT THE INTERNATIONAL INTERNATIONAL
BOND PORTFOLIO BOND PORTFOLIO
------------------------ -----------------------
INVESTMENT INVESTMENT
AVERAGE 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 Advisors, Inc. may, at its discretion, waive all or any portion
of its advisory fee for any Portfolio. For the period ended March 31, 1998,
advisory fees and waivers for each Portfolio were as follows:
GROSS NET ADVISORY
ADVISORY FEE WAIVER FEE
------------ ---------- ------------
Low Duration Bond Portfolio $ 690,048 $391,916 $ 298,132
Intermediate Government Bond Portfolio 358,304 141,694 216,610
Intermediate Bond Portfolio 857,886 352,365 505,521
Core Bond Portfolio 1,636,763 921,848 714,915
Government Income Portfolio 57,651 51,264 6,387
Managed Income Portfolio 2,050,336 603,684 1,446,652
International Bond Portfolio 136,709 9,538 127,171
Tax-Free Income Portfolio 196,989 94,119 102,870
Pennsylvania Tax-Free Income Portfolio 269,418 108,519 160,899
New Jersey Tax-Free Income Portfolio 215,815 97,576 118,239
Ohio Tax-Free Income Portfolio 30,953 25,733 5,220
BlackRock Advisors, Inc. pays BlackRock Financial Management,Inc. fees for
its sub-advisory services.
PFPC Inc. ("PFPC"), an indirect wholly-owned subsidiary of PNC Bank Corp.,
BlackRock Advisors, Inc., and BlackRock Distributors, Inc. ("BDI") (formerly
Compass Distributors, Inc.) 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 each Portfolio, at the following annual
rates:23% of the first $500 million, .21% of the next $500 million and .19% of
assets in excess of $1 billion.
74
<PAGE>
BLACKROCK FUNDS [LOGO OMITTED]
PFPC, BlackRock Advisors, Inc. and BDI may, at their discretion,
voluntarily waive all or any portion of their administration fees for any
Portfolio. For the period ended March 31, 1998, administration fees and waivers
for each Portfolio were as follows:
GROSS NET
ADMINISTRATION ADMINISTRATION
FEE WAIVER FEE
-------------- --------- --------------
Low Duration Bond Portfolio $317,422 $ 81,579 $235,843
Intermediate Government Bond Portfolio 164,820 69,021 95,799
Intermediate Bond Portfolio 394,627 118,785 275,842
Core Bond Portfolio 737,303 50,311 686,992
Government Income Portfolio 26,520 12,528 13,992
Managed Income Portfolio 911,004 281,263 629,741
International Bond Portfolio 57,169 2,791 54,378
Tax-Free Income Portfolio 90,615 28,236 62,379
Pennsylvania Tax-Free Income Portfolio 123,932 59,548 64,384
New Jersey Tax-Free Income Portfolio 99,275 37,876 61,399
Ohio Tax-Free Income Portfolio 14,238 4,967 9,271
In addition, PNC Bank serves as custodian for each of the Fund's
Portfolios. PFPC serves as transfer and dividend disbursing agent.
Under the Fund's Distribution and Service Plan (the "Plan"), Investor
Shares of the Portfolios bear the expense of payments ("distribution fees") made
to BDI, as the Fund's distributor (the "Distributor"), or affiliates of PNC
Bank, for distribution and sales support services. Under the Plan, the Fund has
entered into service arrangements with Service Organizations (including PNC Bank
and its affiliates) with respect to each class of Investor Shares and Service
Shares. Refer to the fee table in the "Notes to Financial Statements" for fee
information.
(C) PURCHASES AND SALES OF SECURITIES
For the period ended March 31, 1998, purchases and sales of securities,
other than short-term and government securities, were as follows:
PURCHASES SALES
------------ ------------
Low Duration Bond Portfolio $247,460,706 $180,014,249
Intermediate Government Bond Portfolio 58,406,450 60,622,093
Intermediate Bond Portfolio 211,982,728 198,757,330
Core Bond Portfolio 391,147,697 203,101,733
Government Income Portfolio 35,348,196 36,197,108
Managed Income Portfolio 453,334,746 394,368,030
International Bond Portfolio 53,530,750 59,268,355
Tax-Free Income Portfolio 60,415,452 53,623,829
Pennsylvania Tax-Free Income Portfolio 43,109,346 27,868,536
New Jersey Tax-Free Income Portfolio 8,631,102 9,373,389
Ohio Tax-Free Income Portfolio 3,085,021 3,431,857
For the period ended March 31, 1998, purchases and sales of government
securities were as follows:
PURCHASES SALES
--------------- --------------
Low Duration Bond Portfolio $ 168,600,270 $ 175,470,228
Intermediate Government Bond Portfolio 70,420,011 79,880,433
Intermediate Bond Portfolio 244,628,860 254,787,307
Core Bond Portfolio 1,359,743,689 1,403,185,199
Government Income Portfolio 38,787,703 40,836,094
Managed Income Portfolio 1,693,104,864 1,684,735,212
International Bond 5,326,150 3,262,975
75
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(D) CAPITAL SHARES
Transactions in capital shares for each period were as follows:
<TABLE>
<CAPTION>
LOW DURATION BOND PORTFOLIO
--------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED
3/31/98 (UNAUDITED) 9/30/97
----------------------------- -------------------------------
SHARES VALUE SHARES VALUE
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Shares sold:
BlackRock Class .................................. 8,222,100 $ 81,277,587 6,966,004 $ 68,669,680
Institutional Class .............................. 1,205,654 11,937,275 9,541,701 93,935,828
Service Class .................................... 472,361 4,676,379 1,132,716 11,157,805
Investor A Class ................................. 58,813 582,016 85,589 842,196
Investor B Class ................................. 21,133 209,557 5,749 56,680
Investor C Class ................................. 16,869 166,721 9,115 89,854
Shares issued in reinvestment of dividends:
BlackRock Class .................................. 208,909 2,068,311 16,200 159,941
Institutional Class .............................. 66,703 660,079 158,388 1,558,102
Service Class .................................... 18,472 182,809 42,765 420,674
Investor A Class ................................. 2,765 27,364 4,534 44,601
Investor B Class ................................. 28 287 103 1,011
Investor C Class ................................. 12 118 67 659
Shares redeemed:
BlackRock Class .................................. (1,859,336) (18,417,098) (78,809) (778,946)
Institutional Class .............................. (4,167,728) (41,256,599) (13,193,893) (129,934,032)
Service Class .................................... (918,795) (9,096,879) (2,178,583) (21,443,691)
Investor A Class ................................. (34,009) (337,242) (76,835) (756,077)
Investor B Class ................................. (3,758) (37,106) (4,538) (44,639)
Investor C Class ................................. (2,107) (20,855) (1,868) (18,379)
---------- ------------ ----------- -------------
Net increase .......................................... 3,308,086 $ 32,622,724 2,428,405 $ 23,961,267
========== ============ =========== =============
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
--------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED
3/31/98 (UNAUDITED) 9/30/97
----------------------------- -------------------------------
SHARES VALUE SHARES VALUE
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class ............................ 959,190 $ 9,782,612 2,452,390 $ 24,490,535
Service Class .................................. 1,254,381 12,820,663 1,283,146 12,844,383
Investor A Class ............................... 67,227 686,560 105,820 1,057,798
Investor B Class ............................... 13,961 142,082 2,685 26,800
Investor C Class ............................... 10,676 108,744 5,048 50,676
Shares issued in reinvestment of dividends:
Institutional Class ............................ 3,223 32,783 9,190 91,949
Service Class .................................. -- -- -- --
Investor A Class ............................... 13,683 139,254 30,294 303,064
Investor B Class ............................... 5 47 80 805
Investor C Class ............................... -- -- 5 48
Shares redeemed:
Institutional Class ............................ (2,850,174) (28,994,001) (5,632,607) (56,411,658)
Service Class .................................. (734,492) (7,492,563) (1,069,763) (10,707,605)
Investor A Class ............................... (85,905) (876,523) (199,281) (1,996,720)
Investor B Class ............................... (6,082) (62,152) -- --
Investor C Class ............................... (66) (671) (10) (103)
---------- ------------ ---------- ------------
Net decrease ........................................ (1,354,373) $(13,713,165) (3,013,003) $(30,250,028)
========== ============ ========== ============
</TABLE>
76
<PAGE>
BLACKROCK FUNDS [LOGO OMITTED]
<TABLE>
<CAPTION>
INTERMEDIATE BOND PORTFOLIO
--------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED
3/31/98 (UNAUDITED) 9/30/97
----------------------------- -------------------------------
SHARES VALUE SHARES VALUE
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class ............................. 2,852,532 $ 27,076,926 14,078,950 $132,363,271
Service Class ................................... 1,579,213 14,991,750 2,188,370 20,573,260
Investor A Class ................................ 36,661 347,388 69,283 651,172
Investor B Class ................................ 1,518 14,421 -- --
Shares issued in reinvestment of dividends:
Institutional Class ............................. 150,124 1,418,727 37,056 348,956
Service Class ................................... 24,969 236,059 5,459 51,427
Investor A Class ................................ 3,874 36,715 6,270 58,868
Investor B Class ................................ -- 40 -- --
Shares redeemed:
Institutional Class ............................. (6,425,804) (60,966,243) (5,264,514) (49,462,645)
Service Class ................................... (488,437) (4,631,960) (1,546,069) (14,477,894)
Investor A Class ................................ (36,089) (343,334) (58,329) (547,655)
---------- ------------ ---------- ------------
Net increase (decrease) .............................. (2,301,439) $(21,819,511) 9,516,476 $ 89,558,760
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
CORE BOND PORTFOLIO
--------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED
3/31/98 (UNAUDITED) 9/30/97
----------------------------- -------------------------------
SHARES VALUE SHARES VALUE
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Shares sold:
BlackRock Class ................................. 3,885,488 $ 37,956,253 4,934,301 $ 47,586,434
Institutional Class ............................. 10,486,222 103,083,674 29,299,878 283,017,326
Service Class ................................... 7,375,349 72,751,072 3,045,187 29,223,563
Investor A Class ................................ 133,971 1,316,612 245,580 2,363,831
Investor B Class ................................ 398,574 3,919,331 448,413 4,335,426
Investor C Class ................................ 46,198 454,201 13,310 127,658
Shares issued in reinvestment of dividends:
BlackRock Class ................................. 169,096 1,660,232 33,880 329,429
Institutional Class ............................. 467,124 4,569,962 347,674 3,360,503
Service Class ................................... 151,267 1,479,203 92,333 893,766
Investor A Class ................................ 10,236 100,504 4,335 41,932
Investor B Class ................................ 16,828 165,149 9,931 96,069
Investor C Class ................................ 333 3,270 99 955
Shares redeemed:
BlackRock Class ................................. (182,712) (1,796,600) (65,588) (637,357)
Institutional Class ............................. (5,422,097) (53,243,925) (6,587,896) (63,633,339)
Service Class ................................... (2,918,306) (28,680,925) (2,955,892) (28,624,306)
Investor A Class ................................ (71,814) (705,388) (34,859) (336,574)
Investor B Class ................................ (71,585) (704,356) (75,937) (732,254)
Investor C Class ................................ (1,477) (14,577) (326) (3,203)
---------- ------------ ---------- ------------
Net increase ......................................... 14,472,695 $142,313,692 28,754,423 $277,409,859
========== ============ ========== ============
</TABLE>
77
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
GOVERNMENT INCOME PORTFOLIO
--------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED
3/31/98 (UNAUDITED) 9/30/97
----------------------------- -------------------------------
SHARES VALUE SHARES VALUE
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Shares sold:
Investor A Class ................................ 183,736 $ 1,934,237 256,567 $ 2,652,913
Investor B Class ................................ 436,313 4,599,267 477,835 4,941,586
Investor C Class ................................ 54,973 580,063 88,341 918,353
Shares issued in reinvestment of dividends:
Investor A Class ................................ 20,470 215,279 26,197 270,290
Investor B Class ................................ 39,113 411,153 46,827 483,160
Investor C Class ................................ 1,191 12,524 1 10
Shares redeemed:
Investor A Class ................................ (172,455) (1,817,278) (176,033) (1,818,482)
Investor B Class ................................ (116,843) (1,232,061) (204,745) (2,114,414)
Investor C Class ................................ (2,486) (25,968) (7,392) (75,693)
---------- ----------- ---------- ------------
Net increase ......................................... 444,012 $ 4,677,216 507,598 $ 5,257,723
========== =========== ========== ============
</TABLE>
<TABLE>
<CAPTION>
MANAGED INCOME PORTFOLIO
--------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED
3/31/98 (UNAUDITED) 9/30/97
----------------------------- -------------------------------
SHARES VALUE SHARES VALUE
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class .............................. 7,854,043 $ 82,139,908 12,846,748 $131,687,832
Service Class .................................... 12,878,602 134,811,467 15,408,052 157,786,790
Investor A Class ................................. 7,617,198 79,588,329 7,443,166 76,236,917
Investor B Class ................................. 159,503 1,668,088 45,930 477,672
Shares issued in reinvestment of dividends:
Institutional Class .............................. 261,747 2,725,741 155,258 1,590,301
Service Class .................................... 191,229 1,993,642 20,375 211,674
Investor A Class ................................. 37,267 389,166 63,378 649,112
Investor B ....................................... 2,475 25,857 8 82
Shares redeemed:
Institutional Class .............................. (9,244,850) (96,607,940) (17,364,305) (178,134,379)
Service Class .................................... (5,036,830) (52,660,966) (6,160,521) (63,050,157)
Investor A Class ................................. (7,493,181) (78,238,201) (7,152,716) (73,203,528)
Investor B Class ................................. (8,585) (89,768) (972) (10,152)
---------- ------------ ---------- ------------
Net increase .......................................... 7,218,618 $ 75,745,323 5,304,401 $ 54,242,164
========== ============ ========== ============
</TABLE>
78
<PAGE>
BLACKROCK FUNDS [LOGO OMITTED]
<TABLE>
<CAPTION>
INTERNATIONAL BOND PORTFOLIO
--------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED
3/31/98 (UNAUDITED) 9/30/97
----------------------------- -------------------------------
SHARES VALUE SHARES VALUE
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class ............................. 203,892 $ 2,187,489 1,142,937 $12,421,898
Service Class ................................... 62,662 677,000 139,912 1,531,711
Investor A Class ................................ 48,788 520,709 78,318 840,293
Investor B Class ................................ 35,300 378,018 80,871 868,230
Investor C Class ................................ 53,047 568,000 41,760 454,009
Shares issued in reinvestment of dividends:
Institutional Class ............................. 147,628 1,552,871 365,395 3,942,629
Service Class ................................... 22,701 239,113 75,424 813,694
Investor A Class ................................ 6,074 64,391 3,381 36,474
Investor B Class ................................ 3,964 41,976 1,498 16,166
Investor C Class ................................ 1,695 17,951 518 5,582
Shares redeemed:
Institutional Class ............................. (739,552) (8,022,022) (191,333) (2,081,160)
Service Class ................................... (89,067) (956,542) (272,100) (2,923,532)
Investor A Class ................................ (25,327) (271,492) (4,003) (42,834)
Investor B Class ................................ (7,167) (77,142) (4,522) (49,857)
Investor C Class ................................ (4,639) (49,977) (626) (6,866)
-------- ----------- --------- -----------
Net increase (decrease) .............................. (280,001) $(3,129,657) 1,457,430 $15,826,437
======== =========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
TAX-FREE INCOME PORTFOLIO
--------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED
3/31/98 (UNAUDITED) 9/30/97
----------------------------- -------------------------------
SHARES VALUE SHARES VALUE
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class ............................ 368,259 $ 4,235,530 404,008 $ 4,442,500
Service Class .................................. 1,495,168 17,128,391 2,510,940 27,987,671
Investor A Class ............................... 135,200 1,541,974 92,510 1,034,677
Investor B Class ............................... 77,066 882,968 85,030 942,339
Investor C Class ............................... 5,004 58,000 28 300
Shares issued in reinvestment of dividends:
Institutional Class ............................ 3,949 44,717 359 4,016
Service Class .................................. 19,499 221,229 7,475 82,630
Investor A Class ............................... 10,927 124,722 17,898 197,486
Investor B Class ............................... 1,752 20,012 741 8,241
Investor C Class ............................... 25 286 -- 6
Shares redeemed:
Institutional Class ............................ (26,639) (305,647) (344,261) (3,736,207)
Service Class .................................. (1,179,984) (13,502,234) (671,498) (7,387,745)
Investor A Class ............................... (139,708) (1,607,334) (72,411) (800,770)
Investor B Class ............................... (6,842) (78,842) (5,081) (55,882)
----------- ----------- --------- -----------
Net increase ........................................ 763,676 $ 8,763,772 2,025,738 $22,719,262
=========== =========== ========= ===========
</TABLE>
79
<PAGE>
[LOGO OMITTED] BLACKROCK FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
--------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED
3/31/98 (UNAUDITED) 9/30/97
----------------------------- -------------------------------
SHARES VALUE SHARES VALUE
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class ............................. 502,320 $5,511,702 359,752 $3,785,471
Service Class ................................... 1,554,065 16,926,607 2,241,265 23,779,002
Investor A Class ................................ 250,719 2,740,235 339,479 3,583,613
Investor B Class ................................ 257,152 2,802,886 515,026 5,456,963
Shares issued in reinvestment of dividends:
Institutional Class ............................. 3 32 -- --
Service Class ................................... 13,689 149,516 6,366 67,558
Investor A Class ................................ 60,042 653,698 135,984 1,435,832
Investor B Class ................................ 12,911 140,634 21,169 223,692
Shares redeemed:
Institutional Class ............................. (2,391) (26,134) (231,245) (2,448,673)
Service Class ................................... (803,545) (8,758,279) (854,225) (9,016,968)
Investor A Class ................................ (481,637) (5,255,533) (1,063,741) (11,260,693)
Investor B Class ................................ (101,248) (1,103,715) (149,836) (1,585,024)
--------- ----------- ---------- -----------
Net increase ......................................... 1,262,080 $13,781,649 1,319,994 $14,020,773
========= =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
NEW JERSEY TAX-FREE INCOME PORTFOLIO
--------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED
3/31/98 (UNAUDITED) 9/30/97
----------------------------- -------------------------------
SHARES VALUE SHARES VALUE
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Shares sold:
Service Class .................................... 586,866 $ 6,898,617 1,278,806 $ 14,808,210
Investor A Class ................................. 7,874 93,115 67,377 778,355
Investor B Class ................................. 7,794 91,526 68,828 786,661
Shares issued in reinvestment of dividends:
Service Class .................................... 54,139 636,496 109,148 1,247,035
Investor A Class ................................. 1,959 23,036 3,271 37,397
Investor B Class ................................. 1,240 14,580 971 11,145
Shares redeemed:
Service Class .................................... (823,079) (9,676,135) (1,945,268) (22,445,678)
Investor A Class ................................. (32,210) (374,224) (17,148) (196,030)
Investor B Class ................................. (1,148) (13,650) (6,663) (76,651)
-------- ----------- ---------- ------------
Net decrease .......................................... (196,565) $(2,306,639) (440,678) $ (5,049,556)
======== =========== ========== ============
</TABLE>
80
<PAGE>
BLACKROCK FUNDS [LOGO OMITTED]
<TABLE>
<CAPTION>
OHIO TAX-FREE INCOME PORTFOLIO
--------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED
3/31/98 (UNAUDITED) 9/30/97
----------------------------- -------------------------------
SHARES VALUE SHARES VALUE
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class ............................. 4,688 $ 49,499 72,824 $ 749,554
Service Class ................................... 161,095 1,705,745 169,110 1,742,076
Investor A Class ................................ 9,636 102,883 17,880 185,594
Investor B Class ................................ 14,082 150,613 51,355 526,826
Shares issued in reinvestment of dividends:
Institutional Class ............................. -- -- 10 101
Service Class ................................... -- -- -- --
Investor A Class ................................ 4,666 49,419 10,837 111,485
Investor B Class ................................ 597 6,331 738 7,599
Shares redeemed:
Institutional Class ............................. (12,452) (132,713) (24,696) (251,354)
Service Class ................................... (95,116) (1,016,171) (90,540) (931,224)
Investor A Class ................................ (27,303) (290,826) (58,809) (605,214)
Investor B Class ................................ (438) (4,648) (8,704) (89,939)
------- ----------- ------- ----------
Net increase ......................................... 59,455 $ 620,132 140,005 $1,445,504
======= =========== ======= ==========
</TABLE>
(E) AT MARCH 31, 1998, NET ASSETS CONSISTED OF:
<TABLE>
<CAPTION>
LOW INTERMEDIATE
DURATION GOVERNMENT INTERMEDIATE CORE
BOND BOND BOND BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Capital paid-in ..................................... $289,781,773 $141,523,965 $322,829,495 $702,782,014
Undistributed net investment income ................. 269,960 132,968 212,654 --
Distributions in excess of net
investment income ................................. -- -- -- (483,459)
Accumulated net realized gain (loss) on
investment transactions
and futures contracts ............................. (2,947,446) (2,767,564) 93,258 5,475,084
Net unrealized appreciation on
investment transactions
and futures contracts ............................. 513,467 998,159 2,990,229 5,536,795
------------ ------------ ------------ ------------
$287,617,754 $139,887,528 $326,125,636 $713,310,434
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT MANAGED INTERNATIONAL TAX-FREE
INCOME INCOME BOND INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Capital paid-in .................................... $24,732,795 $881,426,138 $46,301,843 $80,729,870
Undistributed net investment income ................ -- -- 192,862 --
Distributions in excess of net
investment income ................................ (93,537) (2,272,736) -- (116,207)
Accumulated net realized gain on
investment transactions, future contracts
and foreign exchange contracts ................... 482,023 4,071,906 1,858,258 601,350
Net unrealized appreciation on investment
transactions, future contracts and
foreign exchange contracts ....................... 115,627 14,208,631 302,238 3,212,116
----------- ------------ ----------- -----------
$25,236,908 $897,433,939 $48,655,201 $84,427,129
=========== ============ =========== ===========
</TABLE>
81
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[LOGO OMITTED] BLACKROCK FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
PENNSYLVANIA NEW JERSEY OHIO
TAX-FREE TAX-FREE TAX-FREE
INCOME INCOME INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------
<S> <C> <C> <C>
Capital paid-in ..................................... $112,199,127 $80,834,890 $11,959,930
Undistributed net investment income ................. -- -- --
Distributions in excess of net
investment income ................................. (130,533) (57,390) (4,580)
Accumulated net realized loss on
investment transactions and
futures contracts ................................. (1,309,030) (258,461) (310,574)
Net unrealized appreciation on investment
transactions and futures contracts ................ 5,424,951 4,995,877 699,035
------------ ----------- -----------
$116,184,515 $85,514,916 $12,343,811
============ =========== ===========
</TABLE>
(F) CAPITAL LOSS CARRYOVERS
At September 30, 1997, capital loss carryovers were available to offset
possible future realized capital gains as follows: $2,954,478 in the Low
Duration Portfolio which expire in the year 2004, $3,689,145 in the Intermediate
Government Bond Portfolio which expire in the year 2004, $1,465,940 in the
Pennsylvania Tax-Free Income Portfolio which expire in the year 2004, $774,073
in the New Jersey Tax-Free Income Portfolio which expire in the year 2005 and
$334,935 in the Ohio Tax-Free Income Portfolio which expire in the year 2004.
(G) PNC COMMON TRUST CONVERSION
On January 22, 1998, January 13, 1998 and February 9, 1998, the Board of
Trustees of the Fund, the Board of Directors of PNC Bank and the Board of
Directors of PNC Bank, Delaware, respectively, approved an asset purchase
agreement among the Fund, PNC Bank and PNC Bank, Delaware regarding 25 common
trust funds for which either PNC Bank or PNC Bank, Delaware serve as trustee
(each a "PNC Common Trust Fund"). The agreement provides for the acquisition by
the Fund of all of the assets and liabilities of each PNC Common Trust Fund in
exchange for Institutional Shares of the corresponding Portfolio(s) of the Fund
and the distribution of such Institutional Shares to the participating trusts of
the PNC Common Trust Funds in liquidation of the PNC Common Trust Funds. The
conversion is expected to occur in May, 1998.
82
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[LOGO OMITTED] BLACKROCK FUNDS
Investment Adviser
BlackRock Advisors, Inc.
New York, New York 10154
Sub-Adviser -- Low Duration Bond
Portfolio, Intermediate Government Bond
Portfolio, Intermediate Bond Portfolio,
Core Bond Portfolio, Government Income
Portfolio, Managed Income Portfolio,
International Bond Portfolio, Tax-Free
Income Portfolio, Pennsylvania Tax-Free
Income Portfolio, New Jersey Tax-Free
Income Portfolio and Ohio Tax-Free
Income Portfolio
BlackRock Financial Management, Inc.
New York, New York 10154
Custodian
PNC Bank, National Association
Philadelphia, Pennsylvania 19103
Co-Administrator and Transfer Agent
PFPC Inc.
Wilmington, Delaware 19809
Co-Administrator and Distributor
BlackRock Distributors, Inc.
West Conshohocken, Pennsylvania 19428
Co-Administrator
BlackRock Advisors, Inc.
New York, New York 10154
Counsel
Simpson, Thatcher & Bartlett
New York, New York 10017
(A partnership which includes professional corporations)
Independent Accountants
Coopers & Lybrand, L.L.P.
Philadelphia, Pennsylvania 19103
<PAGE>
BLACKROCK FUNDS [LOGO OMITTED]
FUND SPECTRUM
BLACKROCK FUNDS IS A LEADING MUTUAL FUND COMPANY CURRENTLY MANAGING IN EXCESS OF
$23 BILLION IN 35 PORTFOLIOS DESIGNED TO FIT A BROAD RANGE OF INVESTMENT GOALS.
EACH PORTFOLIO IS MANAGED BY RECOGNIZED EXPERTS IN EQUITY, FIXED INCOME,
INTERNATIONAL, AND TAX-FREE INVESTING WHO ADHERE TO A PURE INVESTMENT
STYLE.(SERVICE MARK)
STOCK PORTFOLIOS
- ----------------
Large Cap Value Equity
Large Cap Growth Equity
Mid-Cap Value Equity
Mid-Cap Growth Equity
Small Cap Value Equity
Small Cap Growth Equity
Micro-Cap Equity
International Equity
International Small Cap Equity
International Emerging Markets
Select Equity
Index Equity
STOCK & BOND PORTFOLIOS
- ----------------------
Balanced
BOND PORTFOLIOS
- ---------------
Low Duration Bond
Intermediate Government Bond
Intermediate Bond
Core Bond
Government Income
GNMA
Managed Income
International Bond
TAX-FREE BOND PORTFOLIOS
- ------------------------
Tax-Free Income
Pennsylvania Tax-Free Income
New Jersey Tax-Free Income
Ohio Tax-Free Income
Delaware Tax-Free Income
Kentucky Tax-Free Income
MONEY MARKET PORTFOLIOS
- -----------------------
Money Market
U.S. Treasury Money Market
Municipal Money Market
New Jersey Municipal Money Market
North Carolina Municipal Money Market
Ohio Municipal Money Market
Pennsylvania Municipal Money Market
Virginia Municipal Money Market
SHAREHOLDER PRIVILEGES
24 HOUR ACCOUNT INFORMATION
Call us at 1-800-441-7762, 24 hours a day, 7 days a week to get information
about your account balances, recent transactions and share prices. Note:
Institutional and Service Share Class investors should call 1-800-441-7764. You
can also reach us on the Internet through the World Wide Web by accessing
http://www.blackrock.com.
EXCHANGE PRIVILEGES
Should your investment goals change, shareholders in our Investor Class shares
may exchange all or part of their investments into the same share class of any
other portfolio of BlackRock Funds. (1)
AUTOMATIC INVESTMENT PLANS
Investor Class shareholders who want to invest regularly can arrange to have $50
or more automatically deducted from their checking or savings account and
invested in any of the BlackRock portfolios.
SYSTEMATIC WITHDRAWAL PLANS
Investor Class shareholders can establish a systematic withdrawal plan and
receive periodic payments of $100 or more from their BlackRock portfolios, as
long as their account is at least $1,000.
RETIREMENT PLANS
Shareholders may make investments in conjunction with individual IRA accounts or
rollover IRAs.
GENERAL INFORMATION ABOUT THE BLACKROCK FUNDS
If you would like additional reports or have questions regarding any of the 35
BlackRock Funds, please call 1-800-FUTURE4 (1-800-388-8734)
(1) BLACKROCK FUNDS RESERVES THE RIGHT TO MODIFY OR TERMINATE THE EXCHANGE
PRIVILEGES AT ANY TIME.
<PAGE>
[GRAPH OMITTED]
[LOGO OMITTED]
BLACKROCK FUNDS
P. O. Box 8907
Wilmington, DE 19899
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 THE PRINCIPAL AMOUNT
INVESTED.
SR 3/31/98 BP
