September 30, 1998
Bond
Portfolios
Annual Report
to Shareholders
[LOGO OMITTED] BLACKROCK
FUNDS
PURE INVESTMENT STYLE(REGISTRATION MARK)
Not FDIC Insured
May Lose Value
No Bank Guarantee
<PAGE>
BlackRock Funds
BOND PORTFOLIO
* Low Duration Bond * International Bond
* Intermediate Government Bond * Tax-Free Income
* Intermediate Bond * Pennsylvania Tax-Free Income
* Core Bond * New Jersey Tax-Free Income
* Government Income * Ohio Tax-Free Income
* GNMA * Delaware Tax-Free Income
* Managed Income * Kentucky Tax-Free Income
TABLE OF CONTENTS
PRESIDENT'S LETTER.......................................................... 1
Portfolio Summaries
Low Duration Bond..................................................... 3
Intermediate Government Bond.......................................... 4
Intermediate Bond..................................................... 5
Core Bond............................................................. 6
Government Income..................................................... 7
GNMA.................................................................. 8
Managed Income........................................................ 9
International Bond.................................................... 10
Tax-Free Income....................................................... 11
Pennsylvania Tax-Free Income.......................................... 12
New Jersey Tax-Free Income............................................ 13
Ohio Tax-Free Income.................................................. 14
Delaware Tax-Free Income.............................................. 15
Kentucky Tax-Free Income.............................................. 16
Note on Performance Information....................................... 17
Statement of Net Assets/Schedule of Investments.......................... 19-76
Core Bond Statement of Assets & Liabilities........................... 39
Managed Income Statement of Assets & Liabilities...................... 49
International Bond Statement of Assets & Liabilities.................. 51
Portfolio Financial Statements
Statements of Operations........................................... 78-79
Statement of Cash Flows............................................ 80-81
Statements of Changes in Net Assets................................ 82-87
Financial Highlights............................................... 88-99
Notes to Financial Statements...........................................100-115
Report of Independent Accountants...........................................116
<PAGE>
BLACKROCK FUNDS
FUND SPECTRUM
BlackRock Funds is a leading mutual fund company currently managing in excess of
$22 billion in 36 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.(REGISTRATION MARK)
STOCK PORTFOLIOS
- ----------------
Large Cap Value Equity Micro-Cap Equity
Large Cap Growth Equity International Equity
Mid-Cap Value Equity International Small Cap Equity
Mid-Cap Growth Equity International Emerging Markets
Small Cap Value Equity Select Equity
Small Cap Growth Equity Index Equity
STOCK & BOND PORTFOLIOS
- -----------------------
Balanced
BOND PORTFOLIOS
- ---------------
Low Duration Bond
Intermediate Government Bond GNMA
Intermediate Bond Managed Income
Core Bond International Bond
Government Income High Yield Bond
TAX-FREE BOND PORTFOLIOS
- ------------------------
Tax-Free Income Ohio Tax-Free Income
Pennsylvania Tax-Free Income Delaware Tax-Free Income
New Jersey Tax-Free Income Kentucky Tax-Free Income
MONEY MARKET PORTFOLIOS
- -----------------------
Money Market North Carolina Municipal Money Market
U.S. Treasury Money Market Ohio Municipal Money Market
Municipal Money Market Pennsylvania Municipal Money Market
New Jersey 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 36
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>
BLACKROCK FUNDS
PRESIDENT'S LETTER
November 1, 1998
Dear Shareholder:
We are pleased to present the Annual Report for BlackRock Funds for the
fiscal year ended September 30, 1998, a period that stands in stark contrast to
recent years.
When we addressed you this time in 1997, our message celebrated the strong
performance of the capital markets, which were then enjoying one of the longest
sustained bull runs in modern times. At the same time, we cautioned against
expecting such growth to continue unabated.
As we look back over 1998, it is clear that while the US economy generally
remained strong, the financial markets delivered a reality check to investors
who may have forgotten that markets will fluctuate. Over the twelve month period
which ended on September 30, 1998, the domestic stock market as measured by the
S&P 500 Index returned 9.2%, in stark contrast to the 20% annual returns of the
previous three years. The bond market posted strong gains in light of the equity
market's turbulence, returning 11.5% over the same period as measured by the
Lehman Brothers Aggregate Index. As bond prices rose, the yield of the benchmark
30-year Treasury fell below 5.0% for the first time ever. These 12-month returns
mask the significant volatility of the markets on a quarter-to-quarter basis.
For example, the quarterly returns for the S&P 500 Index over this period ranged
from as high as 14.0% in the first quarter of 1998 to -9.9% in the most recent
quarter.
These figures serve as a reminder that investors may do well to adjust
expectations to be more in line with historical returns. According to Ibbotson,
from 1926 through 1997, the S&P 500 Index has returned 11.0% annually. Given
these long-term figures we can assume that the S&P 500 Index returns in excess
of 20% from 1995-1997 were exceptional and should not necessarily set the
benchmark for future expectations.
Importantly, we believe that the strategy for long-term investing has not
changed. Make a plan, allocate assets to reach a specific goal, keep investing
regularly and stick with your program unless, of course, your goals or financial
situation changes.
Of course everything looks clearer in hindsight. Now that the equity
markets have taken back much of what they have previously given, I wonder how
many investors question if it might have been wiser to switch some of their
equity shares into less volatile, income producing bond funds. Of course this is
much easier said than done. When equity markets are returning over 20% as they
had been, it takes real fortitude to take some money off the table and diversify
into an asset class that offers less growth potential along with lower
volatility. However, after so many strong years of equity performance, it is
possible that a portfolio's equity weighting may have increased past its target
level. Therefore, now may be an excellent opportunity to review a portfolio and
possibly reallocate assets from equities into a complementary asset class like
bonds. That's precisely why it is so important to set up an asset allocation
that is in line with your financial goals and time horizons -- and to stay the
course over different market environments while consistently monitoring your
target allocation.
1
<PAGE>
BLACKROCK FUNDS
At times like these, when the markets are showing extreme volatility, we
are proud to be offering our shareholders investment styles which have been
formulated for long-term results. Our emphasis on Pure Investment
Style(REGISTRATION MARK) assures that the BlackRock funds you own will be true
to their stated asset class and investment styles. This can mean investment
results consistent with expectations. Another key BlackRock characteristic is
our dedication to risk-management as an investment approach. Our investment
philosophy is to seek to mitigate risk, rather than to attempt to time the
market. While this approach can never take all of the risk out of investing, our
focus is to try to make sure that the risks we assume are justified in
comparison to the potential rewards.
We believe and will continue to believe that this dedicated risk-oriented
approach is the most prudent long-term process to manage money.
In our ongoing attempt to develop quality investment products we are
pleased to announce that we will soon be launching BlackRock High Yield Bond
Portfolio. This portfolio will seek to provide current income by investing
primarily in bonds that are rated below investment grade.
Thank you for your confidence in BlackRock Funds. We appreciate the
opportunity to help you achieve your long-term investment goals.
Sincerely,
(/S/KAREN SABATH)
Karen H. Sabath
Managing Director
BlackRock Advisors, Inc.
2
<PAGE>
BLACKROCK FUNDS
LOW DURATION BOND PORTFOLIO
Total Net Assets (9/30/98):
$329.3 million
Performance Benchmark:
Merrill Lynch 1-3 Year Treasury Index
Investment Approach:
Seeks a total rate of return that exceeds the total return of its benchmark
by investing primarily in 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 B or higher by a major rating agency or deemed by the Manager to be of
comparable credit quality.
Recent Portfolio Management Activity:
o The Treasury market posted strong gains over the past year, pushing
yields to their lowest levels since 1967. Over the period, the yield of the
2-year Treasury fell over 1.50% to 4.26% on September 30, 1998.
o The Portfolio generally maintained an underweight position versus the
index in the mortgage-backed security sector for much of the period, as the
Manager believed that lower interest rates would result in fast prepayment
levels and lower mortgage bond prices. As mortgage prices fell and yield spreads
compared to Treasuries widened, the Manager selectively added mortgage exposure.
Particular emphasis was placed on securities which the Manager believed to have
low prepayment risk.
o Asset-backed securities (ABS) remained the Portfolio's largest sector
weighting during the period. As ABS spreads widened during the late summer, the
Manager took the opportunity to increase the Portfolio's weighting, focusing on
securities backed by non-prepayment sensitive collateral.
Although the portfolio holdings and sectors listed above were current as of
fiscal year-end, 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 FISCAL YEAR END.
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
<TABLE>
<CAPTION>
Institutional Service Investor A Investor B Investor C BlackRock Merrill 1-3 Year
Class Class Class Class Class Class Treasury Index
<S> <C> <C> <C> <C> <C> <C> <C>
7/17/92 10,000 10,000 9,700 10,000 10,000 10,000 10,000
9/30/92 10,079 10,079 9,777 10,079 10,079 10,079 10,288
12/31/92 10,137 10,137 9,833 10,137 10,137 10,137 10,595
3/31/93 10,295 10,295 9,986 10,295 10,295 10,295 10,614
6/31/93 10,468 10,468 10,154 10,468 10,468 10,468 10,848
9/31/93 10,620 10,620 10,302 10,620 10,620 10,620 10,965
12/31/93 10,711 10,711 10,390 10,711 10,711 10,711 11,122
3/31/94 10,691 10,691 10,370 10,691 10,691 10,691 11,188
6/30/94 10,713 10,713 10,391 10,713 10,713 10,713 11,132
9/31/94 10,837 10,837 10,512 10,837 10,837 10,837 11,141
12/31/94 10,860 10,860 10,534 10,860 10,860 10,860 11,251
3/31/95 11,214 11,214 10,878 11,214 11,214 11,214 11,251
6/30/95 11,521 11,521 11,175 11,521 11,521 11,521 11,629
9/30/95 11,767 11,767 11,414 11,767 11,767 11,767 12,002
12/31/95 12,001 12,001 11,641 12,001 12,001 12,001 12,182
3/31/96 12,023 12,009 11,644 12,004 12,004 12,023 12,489
6/30/96 12,149 12,125 11,752 12,115 12,115 12,149 12,531
9/30/96 12,347 12,313 11,929 12,298 12,298 12,347 12,657
12/31/96 12,610 12,565 12,168 12,537 12,537 12,610 12,866
3/31/97 12,668 12,614 12,210 12,556 12,556 12,668 13,110
6/30/97 12,938 12,876 12,459 12,789 12,789 12,938 13,197
9/30/97 13,196 13,122 12,692 13,003 13,003 13,199 13,487
12/31/97 13,370 13,286 12,845 13,135 13,135 13,379 13,752
3/31/98 13,588 13,492 13,039 13,309 13,309 13,602 13,983
6/30/98 13,808 13,699 13,235 13,483 13,483 13,828 14,197
9/30/98 14,156 14,035 13,552 13,781 13,781 14,182 14,634
</TABLE>
FOR PERIOD ENDING SEPTEMBER 30, 1998
Average Annual Total Return
<TABLE>
<CAPTION>
1 Year 3 Year 5 Year From Inception
<S> <C> <C> <C> <C>
BlackRock Class 7.44% 6.43% 5.96% 5.79%
Institutional Class 7.28% 6.35% 5.91% 5.76%
Service Class 6.96% 6.05% 5.73% 5.61%
Investor A Class (Load Adjusted) 3.58% 4.82% 5.00% 5.02%
Investor A Class (NAV) 6.78% 5.89% 5.64% 5.53%
Investor B Class (Load Adjusted) 1.22% 4.16% 4.92% 5.30%
Investor B Class (NAV) 5.99% 5.41% 5.35% 5.30%
Investor C Class (Load Adjusted) 4.93% 5.41% 5.35% 5.30%
Investor C Class (NAV) 5.99% 5.41% 5.35% 5.30%
</TABLE>
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 ONPERFORMANCE INFORMATION" ON
PAGE 17 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
3
<PAGE>
BLACKROCK FUNDS
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
Total Net Assets (9/30/98):
$480.0 million
Performance Benchmark:
Lehman Brothers Intermediate Government Index
Investment Approach:
Seeks 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:
o The Treasury market posted strong gains over the past year, pushing
yields to their lowest levels since 1967. Over the period, the yield of the
5-year Treasury fell over 1.75% to 4.22% on September 30, 1998.
o The Portfolio generally maintained an underweight position versus the
index in the mortgage-backed security sector for much of the period, as the
Manager believed that lower interest rates would result in fast prepayment
levels and lower mortgage bond prices. As mortgage prices fell and yield spreads
compared to Treasuries widened, the Manager selectively added mortgage exposure.
Particular emphasis was placed on securities which the Manager believed to have
low prepayment risk.
o Asset-backed securities (ABS) remained the Portfolio's largest sector
weighting during the period. As ABS spreads widened during the late summer, the
Manager took the opportunity to increase the Portfolio's weighting, focusing on
securities backed by non-prepayment sensitive collateral.
Although the portfolio holdings and sectors listed above were current as of
fiscal year-end, 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 FISCAL YEAR END
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
<TABLE>
<CAPTION>
Institutional Service Investor A Investor B Investor C Lehman Intermediate
Class Class Class Class Class Government Index
<S> <C> <C> <C> <C> <C> <C>
4/20/92 10,000 10,000 9,600 10,000 10,000 10,000
Jun-92 10,276 10,276 9,865 10,276 10,276 10,000
Sep-92 10,714 10,714 10,286 10,714 10,714 10,746
Dec-92 10,626 10,626 10,201 10,626 10,626 10,746
Mar-93 10,986 10,986 10,547 10,986 10,986 10,746
Jun-93 11,218 11,218 10,769 11,218 11,218 10,746
Sep-93 11,452 11,448 10,990 11,448 11,448 11,567
Dec-93 11,454 11,447 10,984 11,442 11,442 11,567
Mar-94 11,181 11,166 10,715 11,161 11,161 11,567
Jun-94 11,043 11,022 10,576 11,016 11,016 11,567
Sep-94 11,097 11,070 10,621 11,063 11,063 11,393
Dec-94 11,070 11,036 10,589 11,030 11,030 11,383
Mar-95 11,567 11,524 11,057 11,517 11,517 11,857
Jun-95 12,056 12,002 11,515 11,995 11,995 12,411
Sep-95 12,239 12,173 11,680 12,166 12,166 12,605
Dec-95 12,597 12,520 12,022 12,523 12,523 13,026
Mar-96 12,531 12,445 11,933 12,430 12,430 12,919
Jun-96 12,607 12,511 11,991 12,491 12,491 13,006
Sep-96 12,831 12,723 12,190 12,698 12,698 13,229
Dec-96 13,153 13,033 12,482 12,981 12,981 13,535
Mar-97 13,150 13,021 12,464 12,938 12,938 13,531
Jun-97 13,517 13,375 12,797 13,260 13,260 13,910
Sep-97 13,867 13,711 13,112 13,561 13,561 14,266
Dec-97 14,170 14,000 13,383 13,816 13,816 14,581
Mar-98 14,381 14,197 13,567 13,979 13,979 14,800
Jun-98 14,657 14,460 13,811 14,204 14,204 15,075
Sep-98 15,230 15,014 14,334 14,714 14,714 15,779
</TABLE>
FOR PERIOD ENDING SEPTEMBER 30, 1998
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
1 Year 3 Year 5 Year From Inception
<S> <C> <C> <C> <C>
Institutional Class 9.83% 7.55% 5.87% 6.74%
Service Class 9.50% 7.23% 5.57% 6.50%
Investor A Class (Load Adjusted) 4.96% 5.61% 4.60% 5.74%
Investor A Class (NAV) 9.32% 7.06% 5.46% 6.42%
Investor B Class (Load Adjusted) 3.63% 5.29% 4.73% 6.17%
Investor B Class (NAV) 8.51% 6.55% 5.15% 6.17%
Investor C Class (Load Adjusted) 7.42% 6.55% 5.15% 6.17%
Investor C Class (NAV) 8.51% 6.55% 5.15% 6.17%
</TABLE>
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 ONPERFORMANCE INFORMATION" ON PAGE 17 FOR FURTHER
INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
4
<PAGE>
BLACKROCK FUNDS
INTERMEDIATE BOND PORTFOLIO
Total Net Assets (9/30/98):
$566.7 million
Performance Benchmark:
Lehman Brothers Intermediate Government/Corporate Index
Investment Approach:
Seeks 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:
o The Treasury market posted strong gains over the past year, pushing
yields to their lowest levels since 1967. Over the period, the yield of the
5-year Treasury fell over 1.75% to 4.22% on September 30, 1998.
o The Portfolio's weighting in corporate bonds rose slightly over the year,
with a concentration in higher credit quality issues with little overseas
exposure due to the financial instability in developing economies.
o The Portfolio generally maintained an underweight position versus the
index in the mortgage-backed security sector for much of the period, as the
Manager believed that lower interest rates would result in fast prepayment
levels and lower mortgage bond prices. As mortgage prices fell and yield spreads
compared to Treasuries widened, the Manager selectively added mortgage exposure.
Particular emphasis was placed on securities which the Manager believed to have
low prepayment risk.
o Asset-backed securities (ABS) remained the Portfolio's largest sector
weighting during the period. As ABS spreads widened during the late summer, the
Manager took the opportunity to increase the Portfolio's weighting, focusing on
securities backed by non-prepayment sensitive collateral.
Although the portfolio holdings and sectors listed above were current as of
fiscal year-end, 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 FISCAL YEAR END
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
<TABLE>
<CAPTION>
Institutional Service Investor A Investor B BlackRock Lehman Brothers Intermediate
Class Class Class Class Class Government/Corporate Index
<S> <C> <C> <C> <C> <C> <C>
9/17/93 10,000 10,000 9,600 10,000 10,000 10,000
Dec-93 9,954 9,945 9,610 9,945 9,954 10,037
Mar-94 9,675 9,660 9,547 9,660 9,675 9,833
Jun-94 9,592 9,572 9,274 9,572 9,592 9,774
Sep-94 9,655 9,628 9,188 9,626 9,655 9,854
Dec-94 9,644 9,611 9,241 9,610 9,644 9,843
Mar-95 10,044 10,003 9,225 10,002 10,044 10,274
Jun-95 10,498 10,447 9,601 10,441 10,498 10,788
Sep-95 10,696 10,636 10,023 10,620 10,696 10,965
Dec-95 11,051 10,983 10,194 10,965 11,051 11,349
Mar-96 10,966 10,890 10,526 10,878 10,966 11,255
Jun-96 11,046 10,962 10,442 10,945 11,046 11,325
Sep-96 11,241 11,147 10,506 11,125 11,241 11,526
Dec-96 11,527 11,422 10,679 11,394 11,527 11,809
Mar-97 11,522 11,408 10,938 11,375 11,522 11,247
Jun-97 11,863 11,737 10,920 11,712 11,863 11,579
Sep-97 12,184 12,047 11,243 12,016 12,184 11,891
Dec-97 12,403 12,255 11,534 12,217 12,403 12,145
Mar-98 12,601 12,440 11,728 12,391 12,601 12,334
Jun-98 12,825 12,652 11,923 12,573 12,825 12,566
Sep-98 13,257 13,070 12,310 12,828 13,262 13,130
</TABLE>
FOR PERIOD ENDING SEPTEMBER 30, 1998
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
1 Year 3 Year 5 Year From Inception
<S> <C> <C> <C> <C>
BlackRock Class 8.86% 7.44% 5.79% 5.77%
Institutional Class 8.81% 7.42% 5.78% 5.76%
Service Class 8.48% 7.10% 5.48% 5.46%
Investor A Class (Load Adjusted) 3.92% 5.52% 4.50% 4.49%
Investor A Class (NAV) 8.30% 6.97% 5.36% 5.34%
Investor B Class (Load Adjusted) 2.98% 5.55% 4.85% 5.04%
Investor B Class (NAV) 7.83% 6.81% 5.27% 5.25%
</TABLE>
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; INVESTOR B SHARES, 2/5/98 AND BLACKROCK SHARES,
5/1/98. SEE "NOTE ONPERFORMANCE INFORMATION" ON PAGE 17 FOR FURTHER INFORMATION
ON HOW PERFORMANCE DATA WAS CALCULATED.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
5
<PAGE>
BLACKROCK FUNDS
CORE BOND PORTFOLIO
Total Net Assets (9/30/98):
$855.5 million
Performance Benchmark:
Lehman Brothers Aggregate Index
Investment Approach:
Seeks a total rate of return that exceeds the total return of its benchmark
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:
o The Treasury market posted strong gains over the past year, pushing
yields to their lowest levels since 1967. Over the period, the yield of the
10-year Treasury fell 1.70% to 4.41% on September 30, 1998.
o The Portfolio's weighting in corporate bonds rose slightly over the year,
with a concentration in higher credit quality issues with little overseas
exposure due to the financial instability in developing economies.
o The Portfolio generally maintained an underweight position versus the
index in the mortgage-backed security sector for much of the period, as the
Manager believed that lower interest rates would result in fast prepayment
levels and lower mortgage bond prices. As mortgage prices fell and yield spreads
compared to Treasuries widened, the Manager selectively added mortgage exposure.
Particular emphasis was placed on securities that the Manager believed had low
prepayment risk.
o Asset-backed securities (ABS) remained the Portfolio's largest sector
weighting during the period. As ABS spreads widened during the late summer, the
Manager took the opportunity to increase the Portfolio's weighting, focusing on
securities backed by non-prepayment sensitive collateral.
Although the portfolio holdings and sectors listed above were current as of
fiscal year-end, 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 FISCAL YEAR END
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
<TABLE>
<CAPTION>
Institutional Service Investor A Investor B Investor C BlackRock Lehman
Class Class Class Class Class Class Aggregate Index
<S> <C> <C> <C> <C> <C> <C> <C>
12/9/92 10,000 10,000 9,600 10,000 10,000 10,000 10,000
Dec-92 10,033 10,033 9,631 10,033 10,033 10,033 10,192
Mar-93 10,416 10,416 9,999 10,416 10,416 10,416 10,487
Jun-93 10,688 10,688 10,261 10,688 10,688 10,688 10,751
Sep-93 11,021 11,021 10,581 11,021 11,021 11,021 11,010
Dec-93 11,005 11,005 10,565 11,005 11,005 11,005 11,123
Mar-94 10,715 10,715 10,286 10,715 10,715 10,715 10,574
Jun-94 10,612 10,612 10,188 10,612 10,612 10,612 10,760
Sep-94 10,695 10,695 10,267 10,695 10,695 10,695 10,605
Dec-94 10,749 10,749 10,319 10,749 10,749 10,749 10,866
Mar-95 11,269 11,269 10,818 11,269 11,269 11,269 11,349
Jun-95 11,931 11,931 11,453 11,931 11,931 11,931 11,848
Sep-95 12,166 12,166 11,680 12,166 12,166 12,166 12,265
Dec-95 12,703 12,703 12,195 12,703 12,703 12,703 12,707
Mar-96 12,405 12,399 11,900 12,396 12,396 12,405 12,329
Jun-96 12,473 12,466 11,957 12,432 12,432 12,473 12,503
Sep-96 12,722 12,706 12,182 12,642 12,642 12,722 12,980
Dec-96 13,157 13,134 12,584 13,035 13,035 13,157 13,120
Mar-97 13,121 13,088 12,534 12,940 12,940 13,121 13,007
Jun-97 13,563 13,523 13,026 13,604 13,604 13,564 13,484
Sep-97 14,002 13,950 13,432 14,003 14,003 14,009 13,932
Dec-97 14,348 14,283 13,748 14,305 14,305 14,360 14,342
Mar-98 14,580 14,503 13,954 14,493 14,493 14,599 14,562
Jun-98 14,926 14,836 14,268 14,791 14,791 14,950 14,903
Sep-98 15,483 15,377 14,783 15,144 15,297 15,514 15,534
</TABLE>
FOR PERIOD ENDING SEPTEMBER 30, 1998
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
1 Year 3 Year 5 Year From Inception
<S> <C> <C> <C> <C>
BlackRock Class 10.74% 8.43% 7.07% 7.85%
Institutional Class 10.57% 8.37% 7.03% 7.81%
Service Class 10.24% 8.10% 6.88% 7.68%
Investor A Class (Load Adjusted) 5.64% 6.47% 5.90% 6.84%
Investor A Class (NAV) 10.04% 7.93% 6.77% 7.59%
Investor B Class (Load Adjusted) 4.29% 5.98% 5.94% 7.05%
Investor B Class (NAV) 9.20% 7.24% 6.37% 7.24%
Investor C Class (Load Adjusted) 8.11% 7.24% 6.37% 7.24%
Investor C Class (NAV) 9.20% 7.24% 6.37% 7.24%
</TABLE>
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 ONPERFORMANCE INFORMATION" ON
PAGE 17 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
6
<PAGE>
BLACKROCK FUNDS
GOVERNMENT INCOME PORTFOLIO
Total Net Assets (9/30/98):
$32.8 million
Performance Benchmark:
Lehman Brothers Mortgage Index/Merrill Lynch 10-Year Treasury
Investment Approach:
Seeks 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:
o The Treasury market posted strong gains over the past year, pushing
yields to their lowest levels since 1967. Over the period, the yield of the
10-year Treasury fell 1.70% to 4.41% on September 30, 1998. In light of the
Treasury market's strong performance, the Manager substantially reduced the
Portfolio's Treasury weighting and reinvested assets into the mortgage market.
o The Portfolio increased its mortgage-backed security exposure to take
advantage of attractive yield levels during the period, focusing on mortgage
pass-through securities which cheapened over the period as lower interest rates
led to increased prepayment concerns. Particular emphasis was placed on lower
coupon issues which the Manager believed had modest prepayment risk.
o Additionally, the Portfolio's weighting in project and construction loan
securities was maintained, as the Manager believes that those structures provide
more prepayment protection than residential mortgages.
Although the portfolio holdings and sectors listed above were current as of
fiscal year-end, 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 FISCAL YEAR END
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
<TABLE>
<CAPTION>
Lehman Brothers
Investor A Investor B Investor C Mortgage Index/Merrill Lynch
Class Class Class 10 Year Treasury Index
<S> <C> <C> <C> <C>
10/3/94 9,550 10,000 10,000 10,000
Dec-94 9,541 9,975 9,975 10,037
Mar-95 10,024 10,462 10,462 10,588
Jun-95 10,718 11,168 11,168 11,335
Sep-95 10,912 11,350 11,350 11,537
Dec-95 11,353 11,793 11,793 12,059
Mar-96 11,132 11,536 11,536 11,779
Jun-96 11,156 11,540 11,540 11,887
Sep-96 11,393 11,766 11,766 12,108
Dec-96 11,740 12,101 12,101 12,497
Mar-97 11,713 12,052 12,052 12,368
Jun-97 12,171 12,499 12,499 12,502
Sep-97 12,588 12,904 12,904 12,906
Dec-97 12,975 13,277 13,277 13,212
Mar-98 13,182 13,464 13,464 13,410
Jun-98 13,510 13,774 13,774 13,641
Sep-98 13,988 13,808 14,235 14,002
</TABLE>
FOR PERIOD ENDING SEPTEMBER 30, 1998
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
1 Year 3 Year From Inception
<S> <C> <C> <C>
Investor A Class (Load Adjusted) 6.17% 7.00% 8.77%
Investor A Class (NAV) 11.13% 8.64% 10.03%
Investor B Class (Load Adjusted) 5.35% 6.39% 8.00%
Investor B Class (NAV) 10.31% 7.85% 9.25%
Investor C Class (Load Adjusted) 9.21% 7.85% 9.25%
Investor C Class (NAV) 10.31% 7.85% 9.25%
</TABLE>
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 ONPERFORMANCE INFORMATION" ON PAGE 17
FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
7
<PAGE>
BLACKROCK FUNDS
GNMA PORTFOLIO
Total Net Assets (9/30/98):
$118.7 million
Performance Benchmark:
Lehman GNMA Index
Investment Approach:
Seeks current income consistent with the preservation of capital by
investing in securities issued by the Government National Mortgage Association
("GNMAs"), as well as other U.S. government securities.
Recent Portfolio Management Activity:
o The Treasury market posted strong gains over the past year, pushing
yields to their lowest levels since 1967. Over the period, the yield of the
10-year Treasury fell 1.70% to 4.41% on September 30, 1998. In light of the
Treasury market's strong performance, the Manager substantially reduced the
Portfolio's Treasury weighting and reinvested assets into the mortgage market.
o The Portfolio remained primarily invested in GNMA mortgage pass-throughs
over the period, which was characterized by declining interest rates and
heightened prepayment concerns. Accordingly, the Manager emphasized lower coupon
mortgage-backed issues due to their lower prepayment risk versus higher coupon
issues.
Although the portfolio holdings and sectors listed above were current as of
fiscal year-end, the Portfolio is actively managed and the composition will
vary.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE GNMA INCOME
PORTFOLIO AND THE LEHMAN LOCAL GO INDEX
FROM INCEPTION AND AT EACH FISCAL YEAR END
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
<TABLE>
<CAPTION>
Institutional Service Investor A Investor B Investor C Lehman Local
Class Class Class Class Class GO Index
<S> <C> <C> <C> <C> <C> <C>
9/1/86 10,000 10,000 9,550 10,000 10,000 10,000
Dec-86 10,296 10,289 9,822 10,265 10,265 10,358
Mar-87 10,411 10,396 9,919 10,348 10,348 10,591
Jun-87 10,251 10,228 9,756 10,158 10,158 10,453
Sep-87 10,265 10,234 9,757 10,141 10,141 10,195
Dec-87 10,407 10,368 9,880 10,250 10,250 10,807
Mar-88 10,684 10,636 10,132 10,491 10,491 11,261
Jun-88 10,883 10,826 10,308 10,654 10,654 11,467
Sep-88 11,009 10,943 10,415 10,744 10,744 11,731
Dec-88 11,149 11,074 10,536 10,848 10,848 11,760
Mar-89 11,192 11,109 10,564 10,857 10,857 11,894
Jun-89 11,633 11,537 10,967 11,250 11,250 12,871
Sep-89 11,673 11,569 10,992 11,255 11,255 13,057
Dec-89 12,063 11,947 11,347 11,596 11,596 13,603
Mar-90 12,170 12,044 11,434 11,664 11,664 13,598
Jun-90 12,350 12,213 11,590 11,800 11,800 14,113
Sep-90 12,473 12,325 11,691 11,881 11,881 14,289
Dec-90 13,090 12,925 12,255 12,431 12,431 15,040
Mar-91 13,442 13,262 12,570 12,727 12,727 15,502
Jun-91 13,652 13,460 12,751 12,887 12,887 15,806
Sep-91 14,417 14,204 13,451 13,569 13,569 16,664
Dec-91 15,188 14,952 14,153 14,251 14,251 17,453
Mar-92 14,951 14,708 13,916 13,986 13,986 17,318
Jun-92 15,594 15,329 14,498 14,544 14,544 18,002
Sep-92 16,125 15,839 14,974 14,994 14,994 18,567
Dec-92 16,208 15,908 15,033 15,024 15,024 18,748
Mar-93 16,824 16,501 15,586 15,549 15,549 19,282
Jun-93 17,214 16,871 15,929 15,861 15,861 19,642
Sep-93 17,430 17,070 16,110 16,012 16,012 19,790
Dec-93 17,481 17,108 16,139 16,010 16,010 19,980
Mar-94 16,843 16,470 15,531 15,378 15,378 19,496
Jun-94 16,658 16,278 15,343 15,163 15,163 19,389
Sep-94 16,743 16,348 15,403 15,193 15,193 19,548
Dec-94 16,863 16,453 15,495 15,256 15,256 19,678
Mar-95 17,811 17,365 16,347 16,065 16,065 20,717
Jun-95 18,849 18,364 17,280 16,950 16,950 21,812
Sep-95 19,228 18,718 17,606 17,239 17,239 22,300
Dec-95 19,853 19,313 18,157 17,745 17,745 23,032
Mar-96 19,692 19,142 17,989 17,548 17,548 22,962
Jun-96 19,829 19,261 18,093 17,617 17,617 23,123
Sep-96 20,211 19,617 18,420 17,901 17,901 23,608
Dec-96 20,790 20,164 18,926 18,359 18,359 24,305
Mar-97 20,814 20,172 18,926 18,324 18,324 24,337
Jun-97 21,606 20,924 19,623 18,964 18,964 25,286
Sep-97 22,280 21,561 20,212 19,497 19,497 26,031
Dec-97 22,672 21,924 20,543 19,779 19,779 26,621
Mar-98 22,888 22,116 20,714 19,907 19,907 27,051
Jun-98 23,384 22,574 21,134 20,277 20,277 27,510
Sep-98 23,922 23,077 21,597 20,682 20,682 28,213
</TABLE>
FOR PERIOD ENDING SEPTEMBER 30, 1998
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
1 Year 3 Year 5 Year From Inception
<S> <C> <C> <C> <C>
Institutional Class 8.88% 8.06% 6.84% 8.53%
Service Class 8.53% 7.73% 6.51% 8.21%
Investor A Class (Load Adjusted) 4.03% 6.11% 5.47% 7.50%
Investor A Class (NAV) 8.35% 7.55% 6.33% 8.03%
Investor B Class (Load Adjusted) 2.73% 5.49% 5.12% 7.22%
Investor B Class (NAV) 7.57% 6.75% 5.55% 7.22%
Investor C Class (Load Adjusted) 6.49% 6.75% 5.55% 7.22%
Investor C Class (NAV) 7.57% 6.75% 5.55% 7.22%
</TABLE>
IN CONNECTION WITH THE CONVERSION OF VARIOUS COMMON TRUST FUNDS MAINTAINED BY
PNC BANK AND PNC BANK, DELAWARE ("PNC-DE"), AN AFFILIATE OF PNC BANK, INTO THE
FUND BETWEEN MAY 1 AND MAY 15, 1998 (THE "CTF CONVERSION"), THE GNMA PORTFOLIO
WAS ESTABLISHED TO RECEIVE THE ASSETS OF THE GNMA FUND OF PNC BANK. PERFORMANCE
INFORMATION PRESENTED FOR THIS PORTFOLIO INCLUDES PERFORMANCE FOR THE
PREDECESSOR COMMON TRUST FUND WHICH TRANSFERRED ITS ASSETS AND LIABILITIES TO
THE RELATED PORTFOLIO PURSUANT TO THE CTF CONVERSION. PERFORMANCE INFORMATION
PRESENTED IS BASED UPON THE PERFORMANCE OF THE GNMA FUND FOR PERIODS PRIOR TO
THE CTF CONVERSION.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
8
<PAGE>
BLACKROCK FUNDS
MANAGED INCOME PORTFOLIO
Total Net Assets (9/30/98):
$1.6 billion
Performance Benchmark:
Lehman Brothers Aggregate Index
Investment Approach:
Seeks 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:
o The Treasury market posted strong gains over the past year, pushing
yields to their lowest levels since 1967. Over the period, the yield of the
10-year Treasury fell 1.70% to 4.41% on September 30, 1998.
o The Portfolio's weighting in corporate bonds rose slightly over the year,
with a concentration in higher credit quality issues with little overseas
exposure due to the financial instability in developing economies. Additionally,
in light of the Portfolio's income bias, the Manager added a small preferred
stock position during the period.
o After remaining underweighted for much of the period, the Portfolio added
mortgage-backed security exposure as yield spreads widened in response to
heightened prepayment concerns. The Manager focused on lower coupon securities
that the Manager believed had lower prepayment risk than higher coupon issues.
o The Manager increased the Portfolio's asset-backed security (ABS)
weighting over the period, with an emphasis on securities the Manager believed
had little prepayment sensitivity such as auto-loan and credit card issues.
Although the portfolio holdings and sectors listed above were current as of
fiscal year-end, 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 FISCAL YEAR END
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
<TABLE>
<CAPTION>
Institutional Service Investor A Investor B Lehman Brothers
Class Class Class Class Aggregate Index
<S> <C> <C> <C> <C> <C>
11/1/89 10,000 10,000 9,550 10,000 10,000
Dec-89 10,105 10,105 9,650 10,000 10,027
Mar-90 10,004 10,004 9,554 9,900 9,946
Jun-90 10,306 10,306 9,843 10,199 10,309
Sep-90 10,380 10,380 9,913 10,272 10,397
Dec-90 10,943 10,943 10,451 10,830 10,923
Mar-91 11,161 11,161 10,659 11,045 11,227
Jun-91 11,259 11,259 10,752 11,142 11,411
Sep-91 11,910 11,910 11,374 11,786 12,059
Dec-91 12,580 12,580 12,014 12,449 12,671
Mar-92 12,290 12,290 11,737 12,162 12,509
Jun-92 12,749 12,749 12,175 12,617 13,014
Sep-92 13,316 13,316 12,717 13,177 13,574
Dec-92 13,323 13,323 12,724 13,185 13,609
Mar-93 14,022 14,022 13,391 13,876 14,172
Jun-93 14,457 14,457 13,806 14,306 14,549
Sep-93 14,935 14,940 14,263 14,780 14,928
Dec-93 14,881 14,862 14,186 14,701 14,936
Mar-94 14,370 14,343 13,690 14,186 14,507
Jun-94 14,110 14,079 13,422 13,909 14,357
Sep-94 14,145 14,104 13,440 13,927 14,445
Dec-94 14,215 14,166 13,492 13,981 14,500
Mar-95 14,894 14,835 14,122 14,634 15,231
Jun-95 15,744 15,671 14,909 15,449 16,159
Sep-95 16,022 15,935 15,153 15,702 16,477
Dec-95 16,701 16,602 15,778 16,350 17,179
Mar-96 16,369 16,260 15,443 16,003 16,872
Jun-96 16,437 16,315 15,490 16,051 16,969
Sep-96 16,716 16,580 15,734 16,304 17,281
Dec-96 17,277 17,123 16,243 16,831 17,800
Mar-97 17,227 17,060 16,177 16,763 17,701
Jun-97 17,848 17,663 16,740 17,346 18,351
Sep-97 18,432 18,228 17,267 17,893 18,960
Dec-97 18,913 18,689 17,697 18,338 19,517
Mar-98 19,189 18,949 17,936 18,586 19,818
Jun-98 19,692 19,432 18,384 19,015 20,282
Sep-98 20,137 19,856 18,778 19,386 21,140
</TABLE>
FOR PERIOD ENDING SEPTEMBER 30, 1998
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
1 Year 3 Year 5 Year From Inception
<S> <C> <C> <C> <C>
Institutional Class 9.25% 7.91% 6.16% 8.17%
Service Class 8.93% 7.60% 5.87% 7.99%
Investor A Class (Load Adjusted) 3.85% 5.77% 4.68% 7.32%
Investor A Class (NAV) 8.74% 7.41% 5.65% 7.87%
Investor B Class (Load Adjusted) 3.08% 5.86% 5.06% 7.78%
Investor B Class (NAV) 7.94% 7.12% 5.48% 7.78%
</TABLE>
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 17 FOR FURTHER INFORMATION ON HOW PERFORMANCE
DATA WAS CALCULATED. THE COMPARATIVE INDEX FROM PREVIOUS YEARS HAS CHANGED FROM
THESALOMON 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.
9
<PAGE>
BLACKROCK FUNDS
INTERNATIONAL BOND PORTFOLIO
Total Net Assets (9/30/98):
$50.5 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:
o Over the past year, bond yields generally fell across the globe. Bond
markets in Japan, Europe and the dollar bloc (Canada, Australia and the U.S.)
all posted strong gains.
o The Portfolio remained primarily currency hedged during the past twelve
months, which generally resulted in strong returns due to the strength of the
U.S. dollar for much of the period. The dollar rose versus the yen and the
Canadian dollar, but fell versus the DM during August and September 1998 as
investor expectations regarding Federal Reserve policy changed and the U.S.
equity markets fell sharply.
o While slightly underweight relative to the Index, the Portfolio's
weighting in Japan provided strong returns, as Japanese bond yields fell in
response to a weak economy and deflationary concerns. Continental European bond
markets also performed well due to a lack of inflationary concerns and easing of
monetary policy in many countries in preparation for EMU.
Although the portfolio holdings and sectors listed above were current as of
fiscal year-end, 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 FISCAL YEAR END
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
<TABLE>
<CAPTION>
Institutional Service Investor A Investor B Investor C Salomon Non-U.S. Hedged
Class Class Class Class Class World Government Bond Index
<S> <C> <C> <C> <C> <C> <C>
7/1/91 10,000 10,000 9,500 10,000 10,000 10,000
Sep-91 10,360 10,360 9,894 10,360 10,360 10,482
Dec-91 10,600 10,600 10,123 10,600 10,600 10,909
Mar-92 10,470 10,470 9,999 10,470 10,470 10,846
Jun-92 11,008 11,008 10,513 11,008 11,008 11,157
Sep-92 11,298 11,298 10,789 11,298 11,298 11,581
Dec-92 11,254 11,254 10,747 11,254 11,254 11,766
Mar-93 11,717 11,717 11,190 11,717 11,717 12,169
Jun-93 12,116 12,116 11,571 12,116 12,116 12,483
Sep-93 12,689 12,689 12,118 12,689 12,689 12,932
Dec-93 12,977 12,977 12,393 12,977 12,977 13,225
Mar-94 12,715 12,715 12,143 12,715 12,715 12,803
Jun-94 12,453 12,453 11,892 12,453 12,453 12,561
Sep-94 12,369 12,369 11,812 12,369 12,369 12,580
Dec-94 12,496 12,496 11,933 12,496 12,496 12,732
Mar-95 13,545 13,545 12,936 13,545 13,545 13,323
Jun-95 14,054 14,054 13,421 14,054 14,054 14,016
Sep-95 14,302 14,302 13,658 14,302 14,302 14,427
Dec-95 14,998 14,998 14,323 14,998 14,998 15,032
Mar-96 15,051 15,051 14,374 15,051 15,051 15,011
Jun-96 15,395 15,394 14,697 15,370 15,370 15,291
Sep-96 16,002 15,989 15,259 15,928 15,928 15,797
Dec-96 16,590 16,558 15,793 16,442 16,442 16,340
Mar-97 16,762 16,717 15,938 16,562 16,562 16,458
Jun-97 17,335 17,276 16,378 17,078 17,078 16,988
Sep-97 17,859 17,783 16,853 17,539 17,539 17,565
Dec-97 18,294 18,203 17,244 17,911 17,911 18,069
Mar-98 18,777 18,671 17,679 18,328 18,328 18,527
Jun-98 19,112 18,988 17,972 18,597 18,597 18,955
Sep-98 20,092 19,947 18,872 19,492 19,492 19,942
</TABLE>
FOR A PERIOD ENDING SEPTEMBER 30, 1998
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
1 Year 3 Year 5 Year From Inception
<S> <C> <C> <C> <C>
Institutional Class 12.51% 12.00% 9.63% 10.09%
Service Class 12.17% 11.73% 9.47% 9.98%
Investor A Class (Load Adjusted) 6.38% 9.68% 8.26% 9.14%
Investor A Class (NAV) 11.98% 11.57% 9.38% 9.92%
Investor B Class (Load Adjusted) 6.15% 9.57% 8.53% 9.63%
Investor B Class (NAV) 11.15% 10.88% 8.97% 9.63%
Investor C Class (Load Adjusted) 10.04% 10.88% 8.97% 9.63%
Investor C Class (NAV) 11.15% 10.88% 8.97% 9.63%
</TABLE>
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 BSHARES, 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 17 FOR FURTHER
INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
10
<PAGE>
BLACKROCK FUNDS
TAX-FREE INCOME PORTFOLIO
Total Net Assets (9/30/98):
$300.9 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:
o Over the last twelve months, municipal bonds underperformed U.S.
Treasuries, as generally healthy state and local governments were able to issue
new bonds at low interest rates, creating increased supply which outstripped
demand. In light of the sector's underperformance during the past twelve months,
which has left municipal yields as a percentage of Treasury yields at their
cheapest levels since the mid-1980s, the Manager believes that municipal bonds
are attractively priced versus their taxable counterparts.
o In response to credit spread narrowing during the past year, the Manager
has improved the Portfolio's credit profile without giving up substantial yield
by emphasizing higher rated securities (AA and AAA-rated issues) and selling
lower rated securities (A and BBB-rated issues).
Although the portfolio holdings and sectors listed above were current as of
fiscal year-end, 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
FISCAL YEAR END
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
<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>
5/14/90 10,000 10,000 9,600 10,000 10,000 10,000
Jun-90 10,118 10,118 9,662 10,118 10,118 10,132
Sep-90 10,139 10,139 9,683 10,139 10,139 10,202
Dec-90 10,513 10,513 10,040 10,513 10,513 10,202
Mar-91 10,720 10,720 10,238 10,720 10,720 10,202
Jun-91 10,919 10,919 10,428 10,919 10,919 10,202
Sep-91 11,296 11,296 10,787 11,296 11,296 11,548
Dec-91 11,708 11,708 11,181 11,708 11,708 11,548
Mar-92 11,776 11,776 11,247 11,776 11,776 11,548
Jun-92 12,215 12,215 11,665 12,215 12,215 11,548
Sep-92 12,504 12,504 11,942 12,504 12,504 12,755
Dec-92 12,744 12,744 12,170 12,744 12,744 12,755
Mar-93 13,246 13,246 12,650 13,246 13,246 12,755
Jun-93 13,708 13,708 13,091 13,708 13,708 12,755
Sep-93 14,200 14,194 13,551 14,189 14,189 14,381
Dec-93 14,412 14,400 13,738 14,385 14,385 14,586
Mar-94 13,430 13,410 12,786 13,389 13,389 13,786
Jun-94 13,615 13,587 12,948 13,558 13,558 13,938
Sep-94 13,661 13,625 12,978 13,590 13,590 14,034
Dec-94 13,455 13,395 12,764 13,365 13,365 13,832
Mar-95 14,555 14,496 13,793 14,443 14,443 14,810
Jun-95 14,810 14,737 14,014 14,674 14,674 15,168
Sep-95 15,242 15,156 14,404 15,083 15,083 15,604
Dec-95 15,941 15,825 15,031 15,739 15,739 16,248
Mar-96 15,806 15,694 14,900 15,602 15,602 16,052
Jun-96 15,953 15,828 15,026 15,734 15,734 16,175
Sep-96 16,378 16,237 15,408 16,104 16,104 16,545
Dec-96 16,853 16,696 15,837 16,522 16,522 16,967
Mar-97 16,838 16,669 15,805 16,458 16,458 16,927
Jun-97 17,446 17,258 16,439 16,999 16,999 17,511
Sep-97 18,032 17,824 16,971 17,516 17,516 18,040
Dec-97 18,560 18,332 17,448 17,975 17,975 18,529
Mar-98 18,805 18,559 17,656 18,155 18,155 18,742
Jun-98 19,080 18,815 17,892 18,363 18,363 19,027
Sep-98 19,629 19,344 18,386 18,835 18,835 19,552
</TABLE>
FOR PERIOD ENDING SEPTEMBER 30, 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 8.85% 12.35% 8.79% 12.27% 6.69% 9.34% 8.37% 11.68%
Service Class 8.52% 11.89% 8.47% 11.82% 6.38% 8.91% 8.18% 11.42%
Investor A Class (Load Adjusted) 4.03% 5.63% 6.82% 9.52% 5.33% 7.44% 7.53% 10.51%
Investor A Class (NAV) 8.34% 11.64% 8.28% 11.56% 6.19% 8.64% 8.06% 11.25%
Investor B Class (Load Adjusted) 2.69% 3.76% 6.42% 8.96% 5.40% 7.54% 7.84% 10.94%
Investor B Class (NAV) 7.53% 10.51% 7.69% 10.74% 5.83% 8.14% 7.84% 10.94%
Investor C Class (Load Adjusted) 6.45% 9.00% 7.69% 10.74% 5.83% 8.14% 7.84% 10.94%
Investor C Class (NAV) 7.53% 10.51% 7.69% 10.74% 5.83% 8.14% 7.84% 10.94%
</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 BSHARES, 7/18/96; AND INVESTOR C
SHARES, 2/28/97. SEE "NOTE ON PERFORMANCE INFORMATION" ON PAGE 17 FOR FURTHER
INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
11
<PAGE>
BLACKROCK FUNDS
PENNSYLVANIA TAX-FREE PORTFOLIO
Total Net Assets (9/30/98):
$1.1 billion
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:
o Over the last twelve months, municipal bonds underperformed U.S.
Treasuries, as generally healthy state and local governments were able to issue
new bonds at low interest rates, creating increased supply which outstripped
demand. In light of the sector's underperformance during the past twelve months,
which has left municipal yields as a percentage of Treasury yields at their
cheapest levels since the mid-1980s, the Manager believes that municipal bonds
are attractively priced versus their taxable counterparts.
o In response to credit spread narrowing during the past year, the Manager
has improved the Portfolio's credit profile without giving up substantial yield
by emphasizing higher rated securities (AA and AAA-rated issues) and selling
lower rated securities (A and BBB-rated issues).
Although the portfolio holdings and sectors listed above were current as of
fiscal year-end, 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 FISCAL
YEAR END
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
<TABLE>
<CAPTION>
Institutional Service Investor A Investor B Investor C Lehman Local
Class Class Class Class Class GO Index
<S> <C> <C> <C> <C> <C> <C>
12/1/92 10,000 10,000 9,600 10,000 10,000 10,000
Dec-92 10,080 10,080 9,626 10,080 10,080 10,124
Mar-93 10,492 10,492 10,020 10,492 10,492 10,473
Jun-93 10,809 10,809 10,322 10,809 10,809 10,797
Sep-93 11,142 11,165 10,667 11,170 11,170 11,132
Dec-93 11,324 11,341 10,841 11,352 11,352 11,309
Mar-94 10,614 10,621 10,159 10,638 10,638 10,738
Jun-94 10,746 10,746 10,284 10,769 10,769 10,879
Sep-94 10,813 10,808 10,337 10,824 10,824 10,943
Dec-94 10,545 10,533 10,069 10,518 10,518 10,790
Mar-95 11,353 11,332 10,828 11,296 11,296 11,448
Jun-95 11,614 11,585 11,064 11,526 11,526 11,739
Sep-95 11,981 11,944 11,400 11,859 11,859 12,104
Dec-95 12,483 12,439 11,867 12,326 12,326 12,517
Mar-96 12,343 12,283 11,716 12,145 12,145 12,433
Jun-96 12,448 12,379 11,802 12,212 12,212 12,509
Sep-96 12,734 12,653 12,059 12,455 12,455 12,803
Dec-96 13,058 12,966 12,353 12,733 12,733 13,141
Mar-97 13,010 12,909 12,294 12,648 12,648 13,140
Jun-97 13,413 13,294 12,713 12,997 12,997 13,621
Sep-97 13,810 13,679 13,076 13,341 13,341 14,028
Dec-97 14,198 14,052 13,429 13,675 13,675 14,380
Mar-98 14,371 14,212 13,578 13,806 13,806 14,568
Jun-98 14,600 14,428 13,779 14,004 14,004 14,794
Sep-98 14,985 14,799 14,127 14,207 14,351 15,262
</TABLE>
FOR PERIOD ENDING SEPTEMBER 30, 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 8.51% 12.12% 7.74% 11.02% 6.11% 8.70% 7.18% 10.22%
Service Class 8.19% 11.66% 7.42% 10.57% 5.81% 8.27% 6.95% 9.90%
Investor A Class (Load Adjusted) 3.71% 5.28% 5.82% 8.29% 4.84% 6.89% 6.10% 8.69%
Investor A Class (NAV) 8.04% 11.45% 7.26% 10.34% 5.70% 8.12% 6.85% 9.75%
Investor B Class (Load Adjusted) 2.72% 3.87% 5.31% 7.56% 4.71% 6.71% 6.20% 8.83%
Investor B Class (NAV) 7.56% 10.77% 6.57% 9.36% 5.14% 7.32% 6.38% 9.09%
Investor C Class (Load Adjusted) 6.48% 9.23% 6.57% 9.36% 5.14% 7.32% 6.38% 9.09%
Investor C Class (NAV) 7.56% 10.77% 6.57% 9.36% 5.14% 7.32% 6.38% 9.09%
</TABLE>
* TAXABLE EQUIVALENT TOTAL RETURN IS BASED ON THE ANNUALIZED TOTAL RETURN AND
A COMBINED FEDERAL AND STATAE 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 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 ANDINVESTOR A SHARES, 12/1/92; SERVICE
SHARES, 7/29/93; INVESTOR B SHARES, 10/3/94 AND INVESTOR C SHARES, 8/14/98. SEE
"NOTE ON PERFORMANCE INFORMATION" ON PAGE 17 FOR FURTHER INFORMATION ON HOW
PERFORMANCE DATA WAS CALCULATED.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
12
<PAGE>
BLACKROCK FUNDS
NEW JERSEY TAX-FREE INCOME PORTFOLIO
Total Net Assets (9/30/98):
$182.9 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:
o Over the last twelve months, municipal bonds underperformed U.S.
Treasuries, as generally healthy state and local governments were able to issue
new bonds at low interest rates, creating increased supply which outstripped
demand. In light of the sector's underperformance during the past twelve months,
which has left municipal yields as a percentage of Treasury yields at their
cheapest levels since the mid-1980s, the Manager believes that municipal bonds
are attractively priced versus their taxable counterparts.
o In response to credit spread narrowing during the past year, the Manager
has improved the Portfolio's credit profile without giving up substantial yield
by emphasizing higher rated securities (AA and AAA-rated issues) and selling
lower rated securities (A and BBB-rated issues).
Although the portfolio holdings and sectors listed above were current as of
fiscal year-end, 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
FISCAL YEAR END
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
<TABLE>
<CAPTION>
Institutional Service Investor A Investor B Lehman Local
Class Class Class Class GO Index
<S> <C> <C> <C> <C> <C>
7/1/91 10,000 10,000 9,600 10,000 10,000
Sep-91 10,357 10,357 9,891 10,357 10,142
Dec-91 10,736 10,736 10,253 10,736 10,462
Mar-92 10,775 10,775 10,290 10,775 10,494
Jun-92 11,205 11,205 10,701 11,205 10,904
Sep-92 11,462 11,462 10,946 11,462 11,205
Dec-92 11,691 11,691 11,165 11,691 11,440
Mar-93 12,098 12,098 11,553 12,098 11,834
Jun-93 12,514 12,514 11,951 12,514 12,200
Sep-93 12,867 12,867 12,288 12,867 12,579
Dec-93 13,045 13,045 12,458 13,045 12,779
Mar-94 12,370 12,370 11,813 12,370 12,134
Jun-94 12,504 12,504 11,942 12,504 12,292
Sep-94 12,583 12,583 12,017 12,583 12,364
Dec-94 12,432 12,432 11,873 12,432 12,192
Mar-95 13,195 13,195 12,601 13,195 12,936
Jun-95 13,454 13,454 12,848 13,454 13,265
Sep-95 13,802 13,802 13,181 13,802 13,677
Dec-95 14,289 14,289 13,646 14,289 14,143
Mar-96 14,158 14,158 13,519 14,156 14,049
Jun-96 14,198 14,198 13,546 14,184 14,134
Sep-96 14,445 14,445 13,776 14,398 14,466
Dec-96 14,808 14,808 14,115 14,725 14,848
Mar-97 14,768 14,768 14,072 14,653 14,848
Jun-97 15,185 15,185 14,534 15,028 15,391
Sep-97 15,623 15,623 14,946 15,429 15,851
Dec-97 16,035 16,035 15,334 15,800 16,249
Mar-98 16,167 16,167 15,453 15,893 16,462
Jun-98 16,406 16,403 15,673 16,088 16,717
Sep-98 16,932 16,916 16,157 16,555 17,245
</TABLE>
FOR PERIOD ENDING SEPTEMBER 30, 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 8.38% 12.23% 7.04% 10.28% 5.64% 8.23% 7.53% 10.99%
Service Class 8.28% 12.09% 7.01% 10.23% 5.62% 8.21% 7.51% 10.96%
Investor A Class (Load Adjusted) 3.78% 5.52% 5.40% 7.88% 4.66% 6.80% 6.84% 9.99%
Investor A Class (NAV) 8.10% 11.83% 6.84% 9.99% 5.52% 8.06% 7.45% 10.88%
Investor B Class (Load Adjusted) 2.47% 3.61% 4.99% 7.29% 4.74% 6.92% 7.20% 10.51%
Investor B Class (NAV) 7.30% 10.66% 6.24% 9.11% 5.16% 7.53% 7.20% 10.51%
</TABLE>
* TAXABLE EQUIVALENT TOTAL RETURN IS BASED ON THE ANNUALIZED TOTAL RETURN AND
A COMBINED FEDERAL AND STATAE 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;
INVESTOR B SHARES, 7/2/96 AND INSTITUTIONAL SHARES, 5/4/98. SEE "NOTE ON
PERFORMANCE INFORMATION" ON PAGE 17 FOR FURTHER INFORMATION ON HOW PERFORMANCE
DATA WAS CALCULATED.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
13
<PAGE>
BLACKROCK FUNDS
OHIO TAX-FREE INCOME PORTFOLIO
Total Net Assets (9/30/98):
$106.2 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:
o Over the last twelve months, municipal bonds underperformed U.S.
Treasuries, as generally healthy state and local governments were able to issue
new bonds at low interest rates, creating increased supply which outstripped
demand. In light of the sector's underperformance during the past twelve months,
which has left municipal yields as a percentage of Treasury yields at their
cheapest levels since the mid-1980s, the Manager believes that municipal bonds
are attractively priced versus their taxable counterparts.
o In response to credit spread narrowing during the past year, the Manager
has improved the Portfolio's credit profile without giving up substantial yield
by emphasizing higher rated securities (AA and AAA-rated issues) and selling
lower rated securities (A and BBB-rated issues).
Although the portfolio holdings and sectors listed above were current as of
fiscal year-end, 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 FISCAL
YEAR END
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
<TABLE>
<CAPTION>
Institutional Service Investor A Investor B Investor C Lehman Local
Class Class Class Class Class GO Index
<S> <C> <C> <C> <C> <C> <C>
12/1/92 10,000 10,000 9,600 10,000 10,000 10,000
Dec-92 10,010 10,010 9,560 10,010 10,010 10,124
Mar-93 10,270 10,270 9,808 10,270 10,270 10,473
Jun-93 10,561 10,561 10,086 10,561 10,561 10,797
Sep-93 10,910 10,907 10,420 10,911 10,911 11,132
Dec-93 11,024 11,014 10,529 11,025 11,025 11,309
Mar-94 10,346 10,330 9,881 10,347 10,347 10,738
Jun-94 10,442 10,420 9,973 10,443 10,443 10,879
Sep-94 10,498 10,469 10,026 10,499 10,499 10,943
Dec-94 10,310 10,276 9,843 10,281 10,281 10,790
Mar-95 11,076 11,033 10,568 11,018 11,018 11,448
Jun-95 11,300 11,249 10,774 11,211 11,211 11,739
Sep-95 11,625 11,565 11,075 11,503 11,503 12,104
Dec-95 12,145 12,073 11,560 11,985 11,985 12,517
Mar-96 11,950 11,870 11,361 11,756 11,756 12,433
Jun-96 12,046 11,957 11,440 11,815 11,815 12,509
Sep-96 12,335 12,234 11,700 12,061 12,061 12,803
Dec-96 12,646 12,533 11,981 12,330 12,330 13,141
Mar-97 12,612 12,490 11,936 12,260 12,260 13,140
Jun-97 13,001 12,867 12,355 12,600 12,600 13,621
Sep-97 13,385 13,238 12,706 12,934 12,934 14,028
Dec-97 13,739 13,577 13,026 13,236 13,236 14,380
Mar-98 13,864 13,691 13,130 13,316 13,316 14,568
Jun-98 14,084 13,899 13,323 13,488 13,488 14,794
Sep-98 14,531 14,328 13,730 13,735 13,874 15,262
</TABLE>
FOR PERIOD ENDING SEPTEMBER 30, 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 8.56% 12.57% 7.73% 11.35% 5.92% 8.69% 6.62% 9.72%
Service Class 8.23% 12.08% 7.41% 10.88% 5.62% 8.25% 6.36% 9.34%
Investor A Class (Load Adjusted) 3.71% 5.45% 5.79% 8.50% 4.71% 6.91% 5.58% 8.19%
Investor A Class (NAV) 8.05% 11.82% 7.24% 10.63% 5.57% 8.18% 6.33% 9.29%
Investor B Class (Load Adjusted) 2.42% 3.55% 5.19% 7.62% 4.50% 6.61% 5.59% 8.21%
Investor B Class (NAV) 7.25% 10.64% 6.44% 9.45% 4.92% 7.22% 5.78% 8.49%
Investor C Class (Load Adjusted) 6.18% 9.07% 6.44% 9.45% 4.92% 7.22% 5.78% 8.49%
Investor C Class (NAV) 7.25% 10.64% 6.44% 9.45% 4.92% 7.22% 5.78% 8.49%
</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; INVESTOR B SHARES, 10/13/94 AND INVESTOR C SHARES, 8/26/98. SEE
"NOTE ONPERFORMANCE INFORMATION" ON PAGE 17 FOR FURTHER INFORMATION ON HOW
PERFORMANCE DATA WAS CALCULATED.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
14
<PAGE>
BLACKROCK FUNDS
DELAWARE TAX-FREE INCOME PORTFOLIO
Total Net Assets (9/30/98):
$119.5 million
Performance Benchmark:
Lehman Local General Obligation Index
Investment Approach:
Seeks as high a level of current income exempt from Federal, Delaware 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:
o Over the last twelve months, municipal bonds underperformed U.S.
Treasuries, as generally healthy state and local governments were able to issue
new bonds at low interest rates, creating increased supply which outstripped
demand. In light of the sector's underperformance during the past twelve months,
which has left municipal yields as a percentage of Treasury yields at their
cheapest levels since the mid-1980s, the Manager believes that municipal bonds
are attractively priced versus their taxable counterparts.
o In response to credit spread narrowing during the past year, the Manager
has improved the Portfolio's credit profile without giving up substantial yield
by emphasizing higher rated securities (AA and AAA-rated issues) and selling
lower rated securities (A and BBB-rated issues).
Although the portfolio holdings and sectors listed above were current as of
fiscal year-end, the Portfolio is actively managed and the composition will
vary.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE DE TAX-FREE
INCOME PORTFOLIO AND LEHMAN LOCAL GO INDEX FROM INCEPTION AND AT EACH
FISCAL YEAR ENDAT EACH
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
<TABLE>
<CAPTION>
Institutional Service Investor A Investor B Investor C Lehman Local
Class Class Class Class Class GO Index
<S> <C> <C> <C> <C> <C> <C>
12/31/89 10,000 10,000 10,000 10,000 10,000 10,000
Mar-90 10,057.6 10,050 10,045.8 10,027 10,027 10,030
Jun-90 10,248.4 10,233.1 10,224.4 10,186.3 10,186.3 10,272
Sep-90 10,348 10,324.8 10,311.7 10,254 10,254 10,280
Dec-90 10,660 10,628.3 10,610.3 10,531.4 10,531.4 10,645
Mar-91 10,865.5 10,825 10,802.2 10,701.9 10,701.9 10,879
Jun-91 11,019.9 10,970.6 10,942.8 10,821 10,821 11,065
Sep-91 11,326.1 11,267.1 11,233.9 11,088.1 11,088.1 11,519
Dec-91 11,632.6 11,563.4 11,524.4 11,353.8 11,353.8 11,882
Mar-92 11,601.9 11,524.2 11,480.5 11,289.3 11,289.3 11,919
Jun-92 11,950.1 11,861.3 11,811.3 11,593 11,593 12,385
Sep-92 12,185.8 12,086.3 12,030.2 11,785.9 11,785.9 12,726
Dec-92 12,300.3 12,190.7 12,129 11,860.5 11,860.5 12,992
Mar-93 12,599.6 12,478.1 12,409.7 12,112.4 12,112.4 13,441
Jun-93 12,857.5 12,723.9 12,648.9 12,322.9 12,322.9 13,856
Sep-93 13,215.1 13,068.2 12,985.6 12,627.4 12,627.4 14,286
Dec-93 13,319.1 13,161.1 13,072.5 12,688.1 12,688.1 14,513
Mar-94 12,706.7 12,546.5 12,456.5 12,067.2 12,067.2 13,781
Jun-94 12,904.7 12,732.4 12,635.8 12,218.1 12,218.1 13,961
Sep-94 12,987.6 12,804.6 12,702.1 12,259.2 12,259.2 14,043
Dec-94 12,878.5 12,687.5 12,580.6 12,119.1 12,119.1 13,847
Mar-95 13,494 13,284.1 13,166.6 12,660.2 12,660.2 14,692
Jun-95 13,810.8 13,585.9 13,460 12,918.3 12,918.3 15,065
Sep-95 14,167.5 13,926.4 13,791.5 13,211.9 13,211.9 15,534
Dec-95 14,561.8 14,303.3 14,158.9 13,538.5 13,538.5 16,063
Mar-96 14,498.5 14,230.5 14,080.8 13,438.6 13,438.6 15,956
Jun-96 14,557.8 14,277.9 14,121.7 13,452.4 13,452.4 16,053
Sep-96 14,785.7 14,490.7 14,326.1 13,621.7 13,621.7 16,430
Dec-96 15,082.7 14,770.7 14,596.8 13,853.2 13,853.2 16,864
Mar-97 15,064.9 14,742.2 14,562.5 13,794.7 13,794.7 16,864
Jun-97 15,426.9 15,085.2 14,895 14,083.5 14,083.5 17,481
Sep-97 15,785.3 15,424.3 15,223.3 14,367.1 14,367.1 18,003
Dec-97 16,059 15,680 15,469.1 14,719.3 14,571.9 18,455
Mar-98 16,207.5 15,813.1 15,593.9 14,838 14,662 18,698
Jun-98 16,517.3 16,098.8 15,866.4 15,062.6 14,884 18,989
Sep-98 17,085.9 16,641.4 16,394.8 15,535 15,350.7 19,590
</TABLE>
FOR PERIOD ENDING SEPTEMBER 30, 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 7.82% 11.24% 6.30% 9.06% 5.19% 7.46% 6.15% 8.84%
Service Class 7.50% 10.78% 5.98% 8.60% 4.87% 7.00% 5.83% 8.38%
Investor A Class (Load Adjusted) 3.01% 4.33% 4.39% 6.31% 3.84% 5.52% 5.29% 7.61%
Investor A Class (NAV) 7.32% 10.52% 5.81% 8.35% 4.70% 6.76% 5.65% 8.12%
Investor B Class (Load Adjusted) 1.75% 2.52% 3.78% 5.43% 3.50% 5.03% 4.87% 7.00%
Investor B Class (NAV) 6.54% 9.40% 5.02% 7.22% 3.92% 5.64% 4.87% 7.00%
Investor C Class (Load Adjusted) 5.47% 7.86% 5.02% 7.22% 3.92% 5.64% 4.87% 7.00%
Investor C Class (NAV) 6.54% 9.40% 5.02% 7.22% 3.92% 5.64% 4.87% 7.00%
</TABLE>
* TAXABLE EQUIVALENT TOTAL RETURN IS BASED ON THE ANNUALIZED TOTAL RETURN AND
A COMBINED FEDERAL AND STATAE TAX RATE OF 43.8%. IT REPRESENTS THE RETURN
ON A TAXABLE INVESTMENT NECESSARY TO EQUAL THE AFTER-TAX RETURN OF THE
BLACKROCK DELAWARE TAX-FREE INCOME PORTFOLIO.
IN CONNECTION WITH THE CONVERSION OF VARIOUS COMMON TRUST FUNDS MAINTAINED BY
PNC BANK AND PNC BANK, DELAWARE ("PNC-DE"), AN AFFILIATE OF PNC BANK, INTO THE
FUND BETWEEN MAY 1 AND MAY 15, 1998 (THE "CTF CONVERSION"), THE DELAWARE
TAX-FREE INCOME PORTFOLIO WAS ESTABLISHED TO RECEIVE THE ASSETS OF THE DE
TAX-FREE INCOME FUND OF PNC-DE. PERFORMANCE INFORMATION PRESENTED FOR THIS
PORTFOLIO INCLUDES PERFORMANCE FOR THE PREDECESSOR COMMON TRUST FUND WHICH
TRANSFERRED ITS ASSETS AND LIABILITIES TO THE RELATED PORTFOLIO PURSUANT TO THE
CTF CONVERSION. PERFORMANCE INFORMATION PRESENTED IS BASED UPON THE PERFORMANCE
OF THE DE TAX-FREE INCOME FUND FOR PERIODS PRIOR TO THE CTF CONVERSION. THE
INCEPTION DATE OF THE LEHMAN LOCAL G.O. WAS JANUARY 1, 1990. BASED ON THE
PERFORMANCE OF THE DE TAX-FREE INCOME FUND, THE PORTFOLIO'S PREDECESSOR COMMON
TRUST FUND, THE ANNUAL TOTAL RETURN OF THE DELAWARE TAX-FREE INCOME PORTFOLIO
FOR THE CALENDAR YEARS 1987, 1988 AND 1989 WAS 0.27%, 0.74% AND 0.63%,
RESPECTIVELY.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
15
<PAGE>
BLACKROCK FUNDS
KENTUCKY TAX-FREE INCOME PORTFOLIO
Total Net Assets (9/30/98):
$197.5 million
Performance Benchmark:
Lehman Local General Obligation Index
Investment Approach:
Seeks as high a level of current income exempt from Federal, Kentucky 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:
o Over the last twelve months, municipal bonds underperformed U.S.
Treasuries, as generally healthy state and local governments were able to issue
new bonds at low interest rates, creating increased supply which outstripped
demand. In light of the sector's underperformance during the past twelve months,
which has left municipal yields as a percentage of Treasury yields at their
cheapest levels since the mid-1980s, the Manager believes that municipal bonds
are attractively priced versus their taxable counterparts.
o In response to credit spread narrowing during the past year, the Manager
has improved the Portfolio's credit profile without giving up substantial yield
by emphasizing higher rated securities (AA and AAA-rated issues) and selling
lower rated securities (A and BBB-rated issues).
Although the portfolio holdings and sectors listed above were current as of
fiscal year-end, the Portfolio is actively managed and the composition will
vary.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE KY TAX-FREE
INCOME PORTFOLIO AND LEHMAN LOCAL GO INDEX FROM INCEPTION AND AT EACH
FISCAL YEAR END
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
<TABLE>
<CAPTION>
Institutional Service Investor A Investor B Investor C Lehman Local
Class Class Class Class Class GO Index
<S> <C> <C> <C> <C> <C> <C>
12/31/89 10,000 10,000 10,000 10,000 10,000 10,000
Mar-90 10,086.1 10,078.6 10,074.3 10,055.5 10,055.5 10,030
Jun-90 10,198 10,182.7 10,174.1 10,136.1 10,136.1 10,272
Sep-90 10,254.5 10,231.5 10,218.5 10,161.3 10,161.3 10,280
Dec-90 10,751.5 10,719.5 10,701.4 10,621.9 10,621.9 10,645
Mar-91 10,940.1 10,899.4 10,876.4 10,775.5 10,775.5 10,879
Jun-91 11,143.1 11,093.3 11,065.2 10,942.1 10,942.1 11,065
Sep-91 11,414.8 11,355.4 11,321.8 11,175 11,175 11,519
Dec-91 11,736.8 11,667 11,627.7 11,455.6 11,455.6 11,882
Mar-92 11,773 11,694.2 11,649.9 11,455.9 11,455.9 11,919
Jun-92 12,093.2 12,003.4 11,952.8 11,732 11,732 12,385
Sep-92 12,368 12,267 12,210.2 11,962.3 11,962.3 12,726
Dec-92 12,614.1 12,501.8 12,438.6 12,163.4 12,163.4 12,992
Mar-93 12,960.7 12,835.7 12,765.5 12,459.9 12,459.9 13,441
Jun-93 13,269.6 13,131.9 13,054.5 12,718.3 12,718.3 13,856
Sep-93 13,684.4 13,532.4 13,446.9 13,076.3 13,076.3 14,286
Dec-93 13,817.7 13,654 13,562 13,163.6 13,163.6 14,513
Mar-94 13,213.4 13,046.9 12,953.4 12,548.9 12,548.9 13,781
Jun-94 13,393.5 13,214.8 13,114.6 12,681.4 12,681.4 13,961
Sep-94 13,503.4 13,313.3 13,206.8 12,746.6 12,746.6 14,043
Dec-94 13,370.1 13,172 13,061 12,582.2 12,582.2 13,847
Mar-95 14,087.2 13,868.2 13,745.6 13,217.4 13,217.4 14,692
Jun-95 14,412.3 14,177.7 14,046.5 13,481.5 13,481.5 15,065
Sep-95 14,802.8 14,551 14,410.2 13,804.9 13,804.9 15,534
Dec-95 15,165 14,895.9 14,745.6 14,099.9 14,099.9 16,063
Mar-96 15,117.3 14,838 14,682 14,012.8 14,012.8 15,956
Jun-96 15,168.2 14,876.8 14,714.1 14,017.1 14,017.1 16,053
Sep-96 15,417.6 15,110.1 14,938.5 14,204.4 14,204.4 16,430
Dec-96 15,720 15,395 15,213.8 14,439.1 14,439.1 16,864
Mar-97 15,746.1 15,409 15,221.2 14,419.1 14,419.1 16,864
Jun-97 16,132 15,774.9 15,576 14,727.8 14,727.8 17,481
Sep-97 16,521.3 16,143.6 15,933.3 15,037.7 15,037.7 18,003
Dec-97 16,807.7 16,411.2 16,190.6 15,406.2 15,252 18,455
Mar-98 16,963.2 16,550.6 16,321.2 15,530.5 15,346.3 18,698
Jun-98 17,366.3 16,924.9 16,682.4 15,833.3 15,645.5 18,989
Sep-98 17,910.7 17,443.4 17,185 16,282.9 16,089.8 19,590
</TABLE>
FOR PERIOD ENDING SEPTEMBER 30, 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 7.99% 11.64% 6.42% 9.36% 5.45% 7.94% 7.01% 10.22%
Service Class 7.66% 11.16% 6.10% 8.89% 5.14% 7.49% 6.69% 9.75%
Investor A Class (Load Adjusted) 3.15% 4.59% 4.49% 6.54% 4.11% 5.99% 6.10% 8.89%
Investor A Class (NAV) 7.48% 10.90% 5.92% 8.63% 4.96% 7.23% 6.51% 9.49%
Investor B Class (Load Adjusted) 1.89% 2.75% 3.89% 5.67% 3.76% 5.48% 5.71% 8.32%
Investor B Class (NAV) 6.69% 9.75% 5.14% 7.49% 4.18% 6.09% 5.71% 8.32%
Investor C Class (Load Adjusted) 5.62% 8.19% 5.14% 7.49% 4.18% 6.09% 5.71% 8.32%
Investor C Class (NAV) 6.69% 9.75% 5.14% 7.49% 4.18% 6.09% 5.71% 8.32%
</TABLE>
* TAXABLE EQUIVALENT TOTAL RETURN IS BASED ON THE ANNUALIZED TOTAL RETURN AND
A COMBINED FEDERAL AND STATE TAX RATE OF 45.7%. IT REPRESENTS THE RETURN ON
A TAXABLE INVESTMENT NECESSARY TO EQUAL THE AFTER-TAX RETURN OF THE
BLACKROCK KENTUCKY TAX-FREE INCOME PORTFOLIO.
IN CONNECTION WITH THE CONVERSION OF VARIOUS COMMON TRUST FUNDS MAINTAINED BY
PNC BANK AND PNC BANK, DELAWARE ("PNC-DE"), AN AFFILIATE OF PNC BANK, INTO THE
FUND BETWEEN MAY 1 AND MAY 15, 1998 (THE "CTF CONVERSION"), THE KENTUCKY
TAX-FREE INCOME PORTFOLIO WAS ESTABLISHED TO RECEIVE THE ASSETS OF THE KY
TAX-FREE INCOME FUND OF PNC BANK. PERFORMANCE INFORMATION PRESENTED FOR THIS
PORTFOLIO INCLUDES PERFORMANCE FOR THE PREDECESSOR COMMON TRUST FUND WHICH
TRANSFERRED ITS ASSETS AND LIABILITIES TO THE RELATED PORTFOLIO PURSUANT TO THE
CTF CONVERSION. PERFORMANCE INFORMATION PRESENTED IS BASED UPON THE PERFORMANCE
OF THE KY TAX-FREE INCOME FUND FOR PERIODS PRIOR TO THE CTF CONVERSION. THE
INCEPTION DATE OF THE LEHMAN LOCAL G.O. WAS JANUARY 1, 1990. BASED ON THE
PERFORMANCE OF THE KY TAX-FREE INCOME FUND, THE PORTFOLIO'S PREDECESSOR COMMON
TRUST FUND, THE ANNUAL TOTAL RETURN OF THE KY TAX-FREE INCOME PORTFOLIO FOR THE
CALENDAR YEARS 1987, 1988 AND 1989 WAS 0.79%, 2.70% AND 1.66%, RESPECTIVELY.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
16
<PAGE>
BLACKROCK FUNDS
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,
Delaware Tax-Free Income, Kentucky Tax-Free Income, Pennsylvania Tax-Free
Income, New Jersey Tax-Free Income, Ohio Tax-Free Income and GNMA 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.
17
<PAGE>
BLACKROCK FUNDS
BOND REPORT
Important Tax Information for Shareholders of the BlackRock Bond Portfolios
(unaudited)
During the fiscal year ended September 30, 1998, the following Portfolios
of the BlackRock Funds declared the following dividends from net realized
capital gains:
Short-term Long-term
capital gain, capital gain,
per share per share
------------- -------------
Intermediate Bond Portfolio .................... $0.0496 $0.0002
Core Bond Portfolio ............................ 0.0916 --
Government Income Portfolio .................... 0.1118 --
Managed Income Portfolio ....................... 0.0467 --
International Bond Portfolio ................... 0.3792 0.0450
Tax-Free Income Portfolio ...................... 0.0362 0.0146
Important Tax Information for the Tax-Free Income, Pennsylvania Tax-Free Income,
New Jersey Tax-Free Income, Ohio Tax-Free Income, Delaware Tax-Free Income, and
Kentucky Tax-Free Income Portfolios
During the fiscal year ended September 30, 1998, 100% of the income
dividends paid by the Tax-Free Income, Pennsylvania Tax-Free Income, New Jersey
Tax-Free Income, Ohio Tax-Free Income, Delaware Tax-Free Income, and Kentucky
Tax-Free Income Portfolios were exempt-interest dividends for purposes of
federal income taxes and accordingly, were exempt from such taxes. However, the
percentage of these dividends which must be included in federal alternative
minimum taxable income for purposes of determining any liability for the
alternative minimum tax is as follows: Tax-Free Income Portfolio 14.4%,
Pennsylvania Tax-Free Income Portfolio 1.9%, New Jersey Tax-Free Income
Portfolio 12.2%, Ohio Tax-Free Income Portfolio 4.5%, Delaware Tax-Free Income
Portfolio 2.1%, and Kentucky Tax-Free Income Portfolio 6.8%.
In January 1999, you will be furnished with a schedule showing the annual
percentage breakdown by state or U.S. possession of the source of interest
earned by each Portfolio in 1998.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
LOW DURATION BOND PORTFOLIO
Par
As of September 30, 1998 Maturity (000) Value
---------- ---------- ------------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 2.2%
Small Business Administration
Participation Certificates,
Series 97, Class A
6.35%** 08/15/22 $2,185 $ 2,190,727
U.S. Treasury Bonds
8.75%+ 11/15/08 1,690 2,012,635
U.S. Treasury Notes
5.62%+ 05/15/08 1,675 1,834,465
-----------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $5,900,765) 6,037,827
-----------
MORTGAGE PASS-THROUGHS -- 26.8%
Federal Home Loan Mortgage
Corporation
7.50%+ 07/01/07 3,111 3,234,104
7.25% 07/06-06/08 89 92,176
8.25% 06/01/09 101 106,289
8.75% 01/01/13 155 165,006
8.00% 10/01/17 335 351,710
6.39%** 06/01/28 3,063 3,112,810
Federal Home Loan Mortgage
Corporation 5 Year Balloon
7.00%+ 05/00-11/00 1,647 1,654,599
Federal Home Loan Mortgage
Corporation 7 Year Balloon
8.00% 01/01/04 855 870,543
Federal Home Loan Mortgage
Corporation 30 Year Balloon
8.25% 09/01/09 112 117,283
7.50%+ 04/01/22 975 1,014,094
Federal Home Loan Mortgage
Corporation Multi-Family
6.22%**++ 10/01/00 10,038 10,018,680
Federal National Mortgage
Association
6.29%+ 10/04/00 2,000 2,058,440
6.20%+ 02/26/01 8,215 8,379,233
6.72%++ 02/26/01 903 929,243
7.00%+ 06/01/04 3,013 3,075,260
6.50%+ 10/01/05 1,065 1,075,035
11.50% 05/01/09 311 340,100
6.00%+ 01/04-01/14 11,548 11,730,057
Federal National Mortgage
Association 7 Year Balloon
7.00% 03/01/99 25 25,019
Federal National Mortgage
Association 10 Year Balloon
6.00%+ 12/03-02/04 5,495 5,586,988
Federal National Mortgage
Association 30 Year
8.50% 12/10-09/12 4,399 4,591,450
Government National Mortgage
Association
7.25% 04/15/06 589 611,915
8.25%+ 08/08-09/08 5,433 5,746,940
6.00%+ 07/20/27 4,083 4,118,267
Government National Mortgage
Association 30 Year
6.50% 03/24-04/24 1,362 1,394,548
6.50%**+ 04/20/27 6,440 6,540,220
MLCC Mortgage Investors, Inc.,
Series 96-C, Class A
6.06%** 09/15/21 3,163 3,165,857
MLCC Mortgage Investors, Inc.,
Series 97-B, Class A
5.92%** 03/16/26 4,115 4,108,719
Par
Maturity (000) Value
---------- ---------- ------------------
MORTGAGE PASS-THROUGHS (Continued)
Salomon Brothers Mortgage
Securities VII, Series 96-6B,
Class A1
6.10%** 06/30/26 $2,862 $ 2,858,178
Salomon Brothers Mortgage
Securities VII, Series 96-6G,
Class A1
6.00%** 09/30/27 1,174 1,172,231
-----------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $87,264,904) 88,244,994
-----------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS -- 5.5%
Bear Sterns Mortgage Securities,
Inc., Series 96-6, Class A2
7.00% 11/25/27 5,304 5,287,611
Federal Home Loan Mortgage Corp.,
Series 35, Class PE (IO)
7.00% 03/15/28 612 145,839
Federal Home Loan Mortgage Corp.,
Series 43, Class IB (IO)
7.00% 04/15/28 540 123,312
Residential Accredit Loans, Inc.,
Series 97-QS7, Class A1
7.50%+ 07/25/27 1,221 1,227,745
Residential Asset Securitization
Trust, Series 98-A1, Class A1
7.00%+ 03/25/28 4,280 4,346,610
Residential Asset Securitization
Trust, Series 98-A2, Class A1
6.75%+ 04/25/28 3,734 3,757,635
Residential Asset Securitization
Trust, Series 98-A5, Class A1
6.75%+ 06/25/28 3,044 3,063,285
-----------
TOTAL MULTIPLE CLASS MORTGAGE
PASS-THROUGHS
(Cost $17,875,802) 17,952,037
-----------
COMMERCIAL MORTGAGE BACKED
SECURITIES -- 51.2%
American Business Financial
Services, Series 98-A, Class A
6.10% 10/15/05 5,477 5,511,718
Asset Securitization Corp.,
Series 97-D5, Class A1A
6.50% 02/14/41 3,509 3,597,924
BA Mortgage Securities, Inc.,
Series 98-4, Class 2A1
6.50% 08/25/13 3,800 3,868,958
Bayview Financial Acquisition
Trust, Series 98-1, Class AI
7.01% 05/25/29 3,574 3,690,376
Bayview Financial Acquisition
Trust, Series 98-1, Class AII
5.94%** 05/25/29 3,234 3,229,032
Bosque Asset Corp., Series 97-1,
Class A1
7.66% 06/05/02 1,488 1,505,944
Chase Credit Card Master Trust,
Series 97-5, Class A
6.19%+ 08/15/05 6,075 6,286,479
Chase Manhattan Auto Owner Trust,
Series 98-C, Class A3
5.80% 01/15/02 3,400 3,443,074
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
LOW DURATION BOND PORTFOLIO (Continued)
Par
As of September 30, 1998 Maturity (000) Value
---------- ---------- ------------------
COMMERCIAL MORTGAGE BACKED
SECURITIES (Continued)
Chase Mortgage Finance Corp.,
Series 98-S2, Class A1
6.50% 07/25/28 $6,000 $ 6,094,513
Fingerhut Master Trust, Series
98-1, Class A
6.07% 02/15/05 1,850 1,893,686
First Plus Home Loan Trust,
Series 98-5, Class A4
6.25% 04/10/14 3,000 3,038,437
First Plus Home Loan Trust,
Series 98-5, Class A6
6.42% 10/10/18 1,700 1,714,875
Franchise Loan Trust, Series 98-I,
Class A1
6.24% 07/15/04 2,374 2,385,059
Franchise Loan Receivables Trust,
Series 98-CA, Class A1
6.20% 09/15/20 2,425 2,440,156
GE Capital Mortgage Services,
Inc., Series 98-12, Class 2A1
6.60%+ 07/25/28 5,990 6,093,503
Health Care Receivables
Securitization Program, Series
98-1, Class A
6.22% 06/01/02 3,300 3,344,201
IFC Small Business Administration
Loan-Backed Adjustable Rate
Certificates, Series 97-1,
Class A
6.50%** 09/15/24 3,038 3,044,039
Impac Secured Assets Owner Trust,
Series 98-1, Class A3
6.52% 08/25/10 4,000 4,065,497
J.P. Morgan Commercial Mortgage
Finance Corp., Series 97,
Class D
6.57%** 07/25/29 2,000 2,000,625
Merit Securities Corp., Series 10,
Class 2A1
5.85%** 05/28/25 1,051 1,054,008
Merit Securities Corp., Series
98-11, Class 1A1
6.58% 07/28/22 6,230 6,232,319
Merit Securities Corp., Series
98-11, Class 2A2
5.95%** 11/28/22 5,000 4,992,187
Missouri Higher Education Loan
Authority, Series 97, Class P
5.16%** 07/25/08 4,089 4,004,187
Morgan Stanley Capital I,
Series 98-CF1, Class A1
6.33% 10/15/07 2,663 2,728,849
Norwest Integrated Structured
Assets, Inc., Series 98-1,
Class 2A1
7.00% 06/25/28 3,853 3,877,380
Olympic Automobile Receivables
Trust, Series 97-A, Class A2
6.12% 08/15/00 151 151,499
PNC Mortgage Securities Corp.,
Series 97-6, Class A2
6.60%+ 07/25/27 7,907 7,986,437
Premier Auto Trust, Series 98-4,
Class A3
5.69% 12/08/01 7,000 7,118,125
Prime Credit Card Master Trust,
Series 92-2, Class A2
7.45% 11/15/02 4,450 4,567,560
Prudential Home Mortgage Securities,
Inc., Series 94-19, Class A2
7.05% 05/25/24 6,406 6,490,590
Par
Maturity (000) Value
---------- ---------- ------------------
COMMERCIAL MORTGAGE BACKED
SECURITIES (Continued)
Republic Bank Home Loan Owner
Trust, Series 98-1, Class A1
6.61% 04/25/07 $4,393 $ 4,393,851
Ryder Vehicle Lease Trust, Series
98-A, Class A
6.10% 09/15/08 5,893 5,939,132
Salomon Brothers Mortgage
Securities VII, Series 92-5,
Class A1
7.94% 11/25/22 735 736,426
Sears Credit Account Master Trust,
Series 95-5, Class A
6.05% 01/16/08 3,000 3,099,300
Sequoia Mortgage Trust, Series
97-1, Class A1
6.03%** 05/04/29 3,118 3,113,263
SMS Student Loan Trust, Series 97,
Class A
5.36%** 10/27/25 5,400 5,233,781
Standard Credit Card Master Trust,
Series 94-4, Class A
8.25% 11/07/03 6,250 6,817,310
Standard Credit Card Master Trust,
Series 95-3, Class A
7.85% 02/07/02 3,125 3,251,042
Structured Asset Securitization
Corp., Series 97-N1, Class D
6.12%** 09/25/28 3,696 3,686,966
Structured Asset Securitization
Corp., Series 98-C2, Class B
5.97% 01/25/13 3,708 3,698,942
Union Planters Mortgage Finance
Corp., Series 98-1, Class A1
6.35% 01/25/28 2,639 2,667,285
Wilshire Funding Corp., Series 97,
Class A
7.25% 08/25/27 3,214 3,249,941
Wilshire Funding Corp., Series 98-2,
Class A3
7.00% 12/28/37 7,071 7,079,862
------------
TOTAL COMMERCIAL MORTGAGE
BACKED SECURITIES
(Cost $168,016,031) 169,418,338
------------
ASSET BACKED SECURITIES -- 37.9%
Arcadia Automobile Receivables Trust,
Series 98-A, Class A3
5.90% 11/15/02 2,900 2,922,632
Arcadia Automobile Receivables Trust,
Series 98-B, Class A3
5.95% 11/15/02 6,650 6,735,682
Arcadia Automobile Receivables Trust,
Series 98-C, Class A3
5.83% 02/15/08 4,100 4,129,789
Banc One Auto Grantor Trust,
Series 96-A, Class A
6.10% 10/15/02 1,002 1,007,655
Banc One Auto Grantor Trust,
Series 97-A, Class A
6.27% 11/20/03 565 572,960
Banc One Auto Grantor Trust,
Series 97-B, Class A
6.29% 07/20/04 3,120 3,156,757
Barnett Auto Trust, Series 97-A,
Class A3
6.03%++ 11/15/01 7,800 7,884,766
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
LOW DURATION BOND PORTFOLIO (Continued)
Par
As of September 30, 1998 Maturity (000) Value
---------- ---------- ------------------
Asset Backed Securities (Continued)
Chevy Chase Auto Receivables Trust,
Series 96-2, Class A
5.90% 07/15/03 $3,348 $ 3,382,630
Chevy Chase Auto Receivables Trust,
Series 97-3, Class A
6.20% 03/20/04 4,004 4,056,275
Contimortgage Home Equity Loan Trust,
Series 97-4, Class A2
6.27% 02/15/12 3,173 3,172,792
Dayton Hudson Credit Card Master Trust,
Series 97-1, Class A
6.25% 08/25/05 2,300 2,387,698
Federal Housing Authority, General
Motors Acceptance Corp. Grantor
Trust, Series 97-A, Class A
7.13%** 04/01/20 12,708 12,803,165
Fifth Third Auto Grantor Trust,
Series 96-B, Class A
6.45% 03/15/02 712 718,263
First Security Auto Grantor Trust,
Series 97-A, Class A
6.30% 08/15/03 4,660 4,685,309
General Motors Acceptance Corp.
Grantor Trust, Series 95-A, Class A
7.15% 03/15/00 1,236 1,236,815
Green Tree Financial Corp., Series 95-7,
Class B1
7.35% 11/15/26 2,000 1,985,000
Green Tree Financial Corp., Series 95-A,
Class A
7.25% 07/15/05 2,122 2,135,823
Green Tree Home Improvement Loan
Trust, Series 98-D, Class HIA4
6.35% 06/20/29 3,275 3,314,125
Green Tree Recreational, Equipment &
Consumer Trust, Series 97-C, Class A1
6.49% 02/15/18 2,944 2,998,811
Home Equity Loan Asset Backed
Certificates, Series 93-2, Class A3
4.65% 12/20/08 658 656,590
Honda Auto Receivables Grantor Trust,
Series 95-A, Class A
6.20% 12/15/00 916 916,267
Honda Auto Receivables Grantor Trust,
Series 97-A, Class A
5.85% 02/15/03 6,763 6,784,206
Honda Auto Receivables Grantor Trust,
Series 97-B, Class A
5.95% 05/15/03 1,543 1,546,735
MMCA Automobile Trust, Series 95-1,
Class A
5.70% 11/15/00 35 35,267
Nissan Auto Receivables Grantor Trust,
Series 95-A, Class A
6.10% 08/15/01 335 335,927
Nissan Auto Receivables Grantor Trust,
Series 97-A, Class A
6.15% 02/15/03 2,563 2,571,445
NPF Health Care Receivables, Inc.,
Series 97-1, Class A
6.33% 07/01/00 2,500 2,511,576
PBG Equipment Trust, Series 1A,
Class A
6.27% 01/20/12 1,666 1,678,486
Par
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 $2,362 $ 2,364,143
PMC Capital Small Business
Administration Loan-Backed
Adjustable Rate Certificates,
Series 97-1, Class B
6.95%** 09/15/23 1,257 1,257,965
Sears Credit Account Master Trust,
Series 95-3, Class A
7.00% 10/15/04 600 616,293
Sears Credit Account Master Trust,
Series 97-1, Class A
6.20% 07/15/07 4,030 4,163,883
The Money Store Auto Grantor Trust,
Series 97-4, Class A2
6.35% 03/20/04 3,400 3,414,875
The Money Store Business Loan
Backed Securities, Series 97-1,
Class A
6.24%** 01/15/25 469 470,361
6.40% 04/15/28 3,852 3,869,226
The Money Store Business Loan
Backed Securities, Series 97-1,
Class B
6.72%** 01/15/25 2,347 2,353,271
The Money Store Home Equity
Trust, Series 98-A, Class AH3
6.17% 08/15/12 1,000 1,005,524
The Money Store Home Equity
Trust, Series 98-A, Class MH2
7.23% 05/15/24 2,000 2,027,315
The Money Store Residential Trust,
Series 97-II, Class A1
6.65% 11/15/07 2,569 2,575,066
The Money Store Residential Trust,
Series 97-II, Class A2
6.68% 07/15/10 800 806,907
World Omni Automobile Lease
Securitization Trust, Series 96-A,
Class A1
6.30% 06/25/02 2,631 2,638,664
World Omni Automobile Lease
Securitization Trust, Series 96-B,
Class A3
6.25% 11/15/02 6,565 6,640,601
World Omni Automobile Lease
Securitization Trust, Series 97-A,
Class A4
6.90% 06/25/03 4,090 4,193,089
-----------
TOTAL ASSET BACKED SECURITIES
(Cost $123,789,219) 124,720,629
-----------
CORPORATE BONDS -- 3.2%
Finance -- 2.0%
GS Escrow Corp., Series 144A
6.75% 08/01/01 3,000 2,981,730
Lehman Brothers Holdings, Inc.
6.75% 09/24/01 1,600 1,573,183
Salomon, Inc.
6.70% 07/05/00 2,100 2,151,150
-----------
6,706,063
-----------
Industrial -- 0.8%
Time Warner, Inc.
4.90% 07/29/99 2,600 2,586,584
-----------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
LOW DURATION BOND PORTFOLIO (Continued)
Par
As of September 30, 1998 Maturity (000) Value
---------- ---------- ------------------
CORPORATE BONDS (Continued)
Yankee -- 0.4%
Banco Internacional S.A.
6.03% 07/16/01 $1,312 $ 1,327,183
Nordbanken
6.28%** 10/25/01 150 148,969
-----------
1,476,152
-----------
TOTAL CORPORATE BONDS
(Cost $10,714,148) 10,768,799
-----------
TAXABLE MUNICIPAL BONDS -- 1.6%
New York City G.O., Series 96E
6.55% 08/01/00 200 204,750
New York State Power Authority Bond,
Series 98B
6.05%** 02/15/15 4,500 4,640,625
Philadelphia Authority for Industrial
Development Bond, Series 97A
6.48% 06/15/04 551 548,364
-----------
TOTAL TAXABLE MUNICIPAL BONDS
(Cost $5,251,014) 5,393,739
-----------
SHORT TERM INVESTMENTS -- 0.3%
Galileo Money Market Fund
(Cost $1,243,562) 1,244 1,243,562
-----------
TOTAL INVESTMENTS INSECURITIES -- 128.7%
(Cost $420,055,445*) 423,779,925
REVERSE REPURCHASE AGREEMENTS -- (33.5%)
Aubrey Lanston
(Agreement dated 09/15/98 to be
repurchased at $2,463,499.
Collateralized by $2,050,000 U.S.
Treasury Bonds 8.75% due 11/15/08.
The value of the collateral is
$2,509,110.)
5.55% 10/01/98 2,457 (2,463,499)
Aubrey Lanston
(Agreement dated 09/15/98 to be
repurchased at $10,635,106.
Collateralized by $10,325,000 U.S.
Treasury Notes 5.50% due 05/31/00.
The value of the collateral is
$10,696,009.)
5.55% 10/01/98 10,609 (10,635,106)
Aubrey Lanston
(Agreement dated 09/29/98 to be
repurchased at $1,101,096.
Collateralized by $1,000,000 U.S.
Treasury Note 5.625% due 05/15/08.
The value of the collateral is
$1,116,450.)
5.125% 10/06/98 1,100 (1,100,313)
Goldman Sachs
(Agreement dated 09/16/98 to be
repurchased at $1,241,870.
Collateralized by $1,200,000
Treasury Notes 5.625% due 04/30/00.
The value of the collateral is
$1,249,917.)
5.56% 10/01/98 1,239 (1,241,870)
Goldman Sachs
(Agreement dated 09/25/98 to be
repurchased at $4,050,748.80.
Collateralized by $4,082,545 Government
National Mortgage Association 2
6.00% due 07/20/27. The value
of the collateral is $4,764,625.)
5.40% 10/26/98 4,032 (4,036,234)
Par
Maturity (000) Value
---------- ---------- ------------------
REVERSE REPURCHASE AGREEMENTS (Continued)
Goldman Sachs
(Agreement dated 09/24/98 to be
repurchased at $3,552,282.22.
Collateralized by $3,650,000 Federal Home
Loan Mortgage Corp. Multi-Family
6.23% due 07/01/01.The value of
the collateral is $3,662,094.)
5.50% 10/26/98 $3,535 $ (3,538,780)
Goldman Sachs
(Agreement dated 09/11/98 to be
repurchased at $2,069,684.
Collateralized by $2,000,000 Federal
National Mortgage Association
6.29% due 10/04/00. The value of
the collateral is $2,068,923.)
5.48% 11/05/98 2,052 (2,059,384)
Goldman Sachs
(Agreement dated 09/11/98 to be
repurchased at $7,994,619.
Collateralized by $8,269,513 PNC
Mortgage Securities Corp. 6.60%
due 07/25/27. The value of the
collateral is $8,397,690.)
5.75% 11/05/98 7,925 (7,951,582)
Goldman Sachs
(Agreement dated 09/11/98 to be
repurchased at $3,079,820.
Collateralized by $3,170,459
Residential Asset Securitization Trust
6.75% due 06/25/28. The value of the
collateral is $3,208,020.)
5.75% 11/05/98 3,053 (3,063,240)
Goldman Sachs
(Agreement dated 09/11/98 to be
repurchased at $3,768,820.
Collateralized by $3,883,670
Residential Asset Securitization Trust
6.75% due 04/25/28. The value of the
collateral is $3,930,416.)
5.75% 11/05/98 3,736 (3,748,531)
Goldman Sachs
(Agreement dated 09/17/98 to be
repurchased at $1,244,270.
Collateralized by $1,282,376
Residential Accredit Loans 7.50%
due 07/25/27. The value of the
collateral is $1,297,605.)
5.63% 12/16/98 1,227 (1,229,878)
Lehman Brothers
(Agreement dated 09/23/98 to be
repurchased at $5,666,790.
Collateralized by $5,990,000 GE
Capital Mortgage Services 6.60% due
07/25/28. The value of the collateral
is $6,126,448.)
5.70% 10/23/98 5,640 (5,647,144)
Merrill Lynch
(Agreement dated 09/02/98 to be
repurchased at $709,147.
Collateralized by $722,835 Federal
Home Loan Mortgage Corporation
Gold 7.00% due 05/01/00. The value
of the collateral is $730,175.)
5.64% 10/05/98 706 (708,705)
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
LOW DURATION BOND PORTFOLIO (Continued)
Par
As of September 30, 1998 Maturity (000) Value
---------- ---------- ------------------
REVERSE REPURCHASE AGREEMENTS (Continued)
Merrill Lynch
(Agreement dated 09/01/98 to be
repurchased at $2,521,580.
Collateralized by $2,561,845
Government National Mortgage
Association 6.50% due 04/20/27.
The value of the collateral is
$2,615,750.)
5.65% 10/26/98 $2,500 $ (2,511,771)
Merrill Lynch
(Agreement dated 09/11/98 to be
repurchased at $987,496.
Collateralized by $974,534 Federal
Home Loan Mortgage Corporation
Gold 7.50% due 04/01/22. The value
of the collateral is $1,020,185.)
5.68% 11/05/98 979 (982,244)
Merrill Lynch
(Agreement dated 09/11/98 to be
repurchased at $3,442,617.
Collateralized by $3,506,896 Federal
National Mortgage Association
6.00% due 01/01/04. The value of
the collateral is $3,592,741.)
5.68% 11/05/98 3,413 (3,424,309)
Merrill Lynch
(Agreement dated 09/11/98 to be
repurchased at $1,281,021.
Collateralized by $1,304,220 Federal
National Mortgage Association
6.00% due 12/01/03. The value of
the collateral is $1,335,587.)
5.68% 11/05/98 1,270 (1,274,208)
Merrill Lynch
(Agreement dated 09/11/98 to be
repurchased at $1,042,973.
Collateralized by $1,064,552 Federal
National Mortgage Association
6.50% due 10/01/05. The value of
the collateral is $1,080,801.)
5.68% 11/05/98 1,034 (1,037,426)
Merrill Lynch
(Agreement dated 09/11/98 to be
repurchased at $2,527,747.
Collateralized by $2,488,994 Federal
Home Loan Mortgage Corporation
7.50% due 07/01/07. The value of
the collateral is $2,602,880.)
5.68% 11/05/98 2,506 (2,514,303)
Merrill Lynch
(Agreement dated 09/14/98 to be
repurchased at $11,268,325.
Collateralized by $11,381,923
Federal National Mortgage Association
6.00-8.50% due 12/01/03 to
12/01/10. The value of the
collateral is $11,761,782.)
5.65% 11/16/98 11,158 (11,189,521)
Merrill Lynch
(Agreement dated 09/14/98 to be
repurchased at $4,404,654.
Collateralized by $4,537,100
Residential Asset Securitization
Trust 7.00% due 03/25/28. The
value of the collateral is $4,633,702.)
5.72% 11/16/98 4,361 (4,373,472)
Par
Maturity (000) Value
---------- ---------- ------------------
REVERSE REPURCHASE AGREEMENTS (Continued)
Morgan Stanley
(Agreement dated 09/15/98 to be
repurchased at $3,933,178.
Collateralized by $3,800,000 U.S.
Treasury Notes 5.625% due 04/30/00.
The value of the collateral is $3,958,071.)
5.55% 10/01/98 $3,924 $ (3,933,178)
Morgan Stanley
(Agreement dated 09/10/98 to be
repurchased at $3,928,006.
Collateralized by $3,967,133 Government
National Mortgage Association
6.50% due 04/20/27. The value of
the collateral is $4,050,608.)
5.62% 10/26/98 3,900 (3,912,786)
Morgan Stanley
(Agreement dated 09/16/98 to be
repurchased at $11,982,108.
Collateralized by $12,256,069 Federal
National Mortage Association
6.00-6.20% due 01/01/04 to 02/26/01.
The value of the collateral is $12,561,733.)
5.64% 11/18/98 11,865 (11,892,883)
Morgan Stanley
(Agreement dated 09/16/98 to be
repurchased at $621,081.
Collateralized by $622,200 Federal
Home Loan Mortgage Corp.
7.50% due 07/01/07. The value of
the collateral is $650,669.)
5.65% 11/18/98 615 (616,448)
Morgan Stanley
(Agreement dated 09/17/98 to be
repurchased at $878,602.
Collateralized by $902,725 Federal
National Mortgage Association
6.725% due 02/26/01. The value of
the collateral is $934,302.)
5.65% 11/19/98 870 (872,048)
Morgan Stanley
(Agreement dated 09/21/98 to be
repurchased at $5,465,571.
Collateralized by $5,433,232 Government
National Mortgage Association
8.25% due 08/15/08 to 09/15/08. The
value of the collateral is $5,784,293.)
5.59% 11/20/98 5,415 (5,423,528)
Salomon Brothers
(Agreement dated 09/02/98 to be
repurchased at $4,977,029.
Collateralized by $6,075,000 Chase
Credit Card Master Trust 6.194% due
08/15/05.The value of the collateral
is $6,303,203.)
4.50% 10/05/98 4,957 (4,974,550)
Salomon Brothers
(Agreement dated 09/14/98 to be
repurchased at $3,947,062.
Collateralized by $4,000,000 Federal
National Mortgage Association
6.00% due 01/18/14. The value of
the collateral is $4,055,000.)
5.67% 10/14/98 3,929 (3,939,639)
-----------
TOTAL REVERSE REPURCHASE
AGREEMENTS
(Cost $110,296,580) (110,296,580)
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
LOW DURATION BOND PORTFOLIO (CONCLUDED)
As of September 30, 1998 Value
------------
OTHER ASSETS IN EXCESS
OF LIABILITIES 4.8% $ 15,879,642
------- ------------
NET ASSETS (Applicable to 14,005,764
BlackRock shares, 16,637,014
Institutional shares, 1,833,631
Service shares, 284,206
Investor A shares, 39,717 Investor B
shares and 34,084 Investor C
shares outstanding) 100.0% $329,362,987
====== ============
NET ASSET VALUE AND REDEMPTION
PRICE PER BLACKROCK,
INSTITUTIONAL, SERVICE AND
INVESTOR A SHARE
($328,622,695 (DIVIDE) 32,760,615) $10.03
======
OFFERING PRICE PER BLACKROCK,
INSTITUTIONAL AND SERVICE SHARE $10.03
======
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($10.03 (DIVIDE) .970) $10.34
======
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE
(subject to a contingent deferred
sales charge of 4.5%)
PER INVESTOR B SHARE
($398,393 (DIVIDE) 39,717) $10.03
======
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE
(subject to a contingent deferred
sales charge of 1.0%)
PER INVESTOR C SHARE
($341,899 (DIVIDE) 34,084) $10.03
======
- ----------------------------
* Also cost for Federal income tax purposes. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $3,954,065
Gross unrealized depreciation (229,585)
----------
$3,724,480
==========
** Rates shown are the rates as of September 30, 1998.
+ Partial principal in the amount of $110,295,000 has been pledged as
collateral for reverse repurchase agreements.
++ Principal amount of securities pledged as collateral of $2,600,000 on
280 long Eurodollar futures contracts expiring September 2000, 265
short U.S.Treasury Note futures contracts expiring December 1998 and
98 long U.S. Treasury Note futures contracts expiring December 1998.
The value of such contracts on September 30, 1998 was $118,662,187,
thereby resulting in an unrealized loss of $192,266.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
Par
AS OF SEPTEMBER 30, 1998 Maturity (000) Value
---------- ---------- ------------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 33.0%
Federal Home Loan Bank Bonds
5.00% 09/20/00 $3,000 $ 3,016,693
Small Business Administration
Participation Certificates,
Series 96-20H, Class 1
7.25% 08/01/16 5,236 5,667,359
Small Business Administration
Participation Certificates,
Series 96-20J, Class 1
7.20% 10/01/16 4,428 4,774,456
Small Business Investment Cos.
Pass-Through, Series 96-P10A,
Class 1
6.67% 02/10/06 7,663 8,012,074
U.S. Treasury Bonds
12.75% 11/15/10 8,425 12,547,429
14.00% 11/15/11 5,800 9,438,279
U.S. Treasury Bonds (CPI)
3.62% 04/15/28 4,000 4,025,870
U.S. Treasury Notes
5.62% 04/30/00 40,940 41,671,385
5.50% 05/31/00 29,575 30,089,570
6.50% 08/31/01 11,570 12,233,732
6.37% 09/30/01 6,825 7,201,629
5.50% 05/31/03 1,325 1,389,752
5.62% 05/15/08 6,400 7,009,300
U.S. Treasury Notes (CPI)
3.37% 01/15/07 11,130 11,288,602
-----------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $155,095,262) 158,366,130
-----------
MORTGAGE PASS-THROUGHS -- 32.5%
Federal Home Loan Mortgage
Corporation
6.00% 06/30/99 900 908,437
9.00% 06/01/01 1 970
7.00% 05/01/02 188 191,718
8.00% 11/08-06/17 2,213 2,322,899
6.50% 07/18-09/28 1,970 2,006,176
Federal National Mortgage Association
6.20% 02/26/01 1,507 1,537,474
6.72% 02/26/01 9,099 9,366,767
8.50% 06/01/03 77 80,279
6.12% 11/25/03 5,318 5,359,422
6.50% 08/03-07/08 37,866 39,046,322
6.09% 10/01/08 7,370 7,602,616
8.50% 12/01/10 7,279 7,597,799
7.26% 01/25/11 6,205 6,447,245
5.50% 10/15/13 7,000 6,965,000
7.58% 11/01/18 4,964 5,353,446
6.00% 11/03-04/24 15,989 16,181,921
Federal National Mortgage Association
Multi-Family
6.50% 10/25/03 2,012 2,029,227
Federal National Mortgage Association
Multi-Family 10 Year Balloon
7.71% 12/01/18 3,141 3,423,570
Par
Maturity (000) Value
---------- ---------- ------------------
MORTGAGE PASS-THROUGHS (Continued)
Government National Mortgage Association
7.25% 04/15/06 $ 9,136 $ 9,487,237
8.25% 11/08-02/09 4,988 5,251,468
6.50% 10/23-12/23 6,157 6,298,611
9.75% 06/15/24 11,141 11,448,263
6.00% 07/20/27 6,254 6,308,835
7.00% 12/27-07/28 883 911,283
-----------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $153,085,651) 156,126,985
-----------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS -- 3.2%
Federal Home Loan Mortgage
Corporation, Series 35,
Class PE (IO)
7.00% 3/15/28 877 208,988
Federal Home Loan Mortgage
Corporation, Series 43,
Class IB (IO)
7.00% 04/15/28 774 176,747
Federal National Mortgage
Association Grantor Trust,
Series 96-T6, Class A
6.32% 10/25/00 7,458 7,609,123
Residential Asset Securitization
Trust, Series 98-A1, Class A1
7.00% 03/25/28 7,134 7,244,350
-----------
TOTAL MULTIPLE CLASS MORTGAGE
PASS-THROUGHS
(Cost $15,028,495) 15,239,208
-----------
COMMERCIAL MORTGAGE BACKED
SECURITIES -- 10.6%
CS First Boston Mortgage
Securities Corp., Series
95-WF1, Class A1
6.45% 12/21/27 19 18,957
GE Capital Mortgage Services,
Inc., Series 98-10, Class 1A1
6.65% 05/25/28 4,725 4,828,741
GE Capital Mortgage Services,
Inc., Series 98-12, Class 2A1
6.60% 07/25/28 8,790 8,941,885
GMAC Commercial Mortgage
Securities, Inc., Series 97-C1,
Class X (IO)
1.65% 07/15/27 12,158 1,139,829
GMAC Commercial Mortgage
Securities, Inc., Series 98-C2,
Class A2
6.42% 05/15/31 2,400 2,494,580
Merit Securities Corp., Series
98-10, Class 2A1
5.85%** 05/28/25 1,811 1,815,826
Merit Securities Corp., Series
98-11, Class 1A1
6.58% 05/15/15 8,586 8,588,439
Merrill Lynch Mortgage Investors,
Inc., Series 95-C3, Class A1
6.76%** 12/26/25 2,023 2,082,771
MLCC Mortgage Investors, Inc.,
Series 96-C, Class A
6.06%** 09/15/21 1,392 1,392,977
Morgan Stanley Capital Corp.,
Series 97-HF1, Class A1
6.86% 07/15/29 4,263 4,470,236
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
INTERMEDIATE GOVERNMENT BOND PORTFOLIO (Continued)
Par
AS OF SEPTEMBER 30, 1998 Maturity (000) Value
---------- ---------- ------------------
COMMERCIAL MORTGAGE BACKED
SECURITIES (Continued)
Residential Funding Mortgage
Securities, Series 96-HS2,
Class A4
7.55% 09/25/12 $3,838 $ 3,866,801
Structured Asset Securitization
Corp., Series 98-C2, Class A
5.77%** 10/25/98 638 636,830
The Money Store Residential
Trust, Series 98-I, Class A4
6.51% 08/15/15 9,000 9,109,482
Union Planters Mortgage Finance
Corp., Series 98-1, Class A1
6.35% 01/25/28 1,286 1,300,021
-----------
TOTAL COMMERCIAL MORTGAGE
BACKED SECURITIES
(Cost $50,075,873) 50,687,375
-----------
PROJECT LOANS -- 4.8%
Federal Housing Authority,
General Motors Acceptance Corp.,
Series 93-1
5.94% 04/14/12 2,225 2,243,187
Federal Housing Authority,
General Motors Acceptance Corp.
Grantor Trust, Series 97-A,
Class A
7.01% 12/01/20 971 978,508
Federal Housing Authority, Merrill
Lynch, Series 29, Class 1A1
7.43% 06/01/22 8,187 8,458,519
Federal Housing Authority, Merrill
Lynch, Series 97-23
7.43% 12/01/21 5,516 5,707,318
Federal Housing Authority, USGI,
Series 2056
7.46% 01/01/23 5,415 5,621,164
-----------
TOTAL PROJECT LOANS
(Cost $22,686,362) 23,008,696
-----------
ASSET BACKED SECURITIES -- 24.8%
ACLC Franchise Loan Receivables
Trust, Series 98-1, Class A1
6.43% 07/15/13 9,356 9,572,176
Atherton Franchisee Loan Funding,
Series 98-A, Class A2
6.72% 08/15/19 5,150 5,281,969
Chevy Chase Auto Receivables Trust,
Series 96-1, Class A
6.60% ++ 12/15/02 833 842,145
Chevy Chase Auto Receivables Trust,
Series 96-2, Class A
5.90% 07/15/03 1,757 1,775,600
Chevy Chase Auto Receivables Trust,
Series 97-3, Class A
6.20% 03/20/04 3,475 3,520,412
Citibank Credit Card Master Trust I,
Series 97-6, Class A
6.14% 08/15/06 7,800 5,720,499
Contimortgage Home Equity Loan Trust,
Series 95-1, Class A4
8.60% 04/15/10 5,000 5,046,233
Dayton Hudson Credit Card Master Trust,
Series 98-1, Class A
5.90% 05/25/06 2,200 2,266,859
DVI Receivables Corp., Series 98-IV,
Class A2
6.03% 09/10/06 3,000 3,000,938
Par
Maturity (000) Value
---------- ---------- ------------------
ASSET BACKED SECURITIES (Continued)
Fingerhut Master Trust, Series
98-1, Class A
6.07% 02/15/05 $ 775 $ 793,301
Fingerhut Master Trust, Series
98-2, Class A
6.23% 02/15/07 1,850 1,929,770
EQCC Home Equity Loan Trust,
Series 95-3, Class A2
6.45% 11/15/08 420 420,655
First Security Auto Grantor
Trust, Series 97-B, Class A
6.10% 04/15/03 3,422 3,450,054
FMAC Loan Receivables Trust,
Series 97-C, Class A
6.75% 12/15/19 4,318 4,503,695
Green Tree Financial Corp.,
Series 97-4, Class A
7.36% 02/15/29 3,600 3,908,250
Green Tree Financial Corp.,
Series 97-5, Class A7
7.13% 05/15/29 3,501 3,766,690
Green Tree Home Improvement
Loan Trust, Series 97-C,
Class HEA2
6.38% 08/15/28 2,954 2,967,569
Health Care Receivables
Securitization Program, Series
98-1, Class A
6.22% 06/01/02 4,500 4,560,274
Honda Auto Receivables Grantor
Trust, Series 97-B, Class A
5.95% 05/15/03 1,728 1,732,343
MMCA Automobile Trust, Series
95-1, Class A
5.70% 11/15/00 352 352,669
National Premier Financial,
Series 97-1, Class A
6.81% 07/01/01 2,300 2,323,000
New Century Home Equity Loan
Trust, Series 98-NC3, Class A1
6.00% 08/25/28 5,375 5,344,945
Onyx Acceptance Grantor Trust,
Series 96-1, Class A
5.40% 05/15/01 940 940,645
Sears Credit Account Master
Trust, Series 97-1, Class A
6.20% 07/15/07 6,560 6,777,933
Sears Credit Account Master
Trust, Series 98-1, Class A
5.80% 08/01/01 10,700 10,793,625
Standard Credit Card Master
Trust, Series 94-4, Class A
8.25% 11/07/03 9,000 9,816,926
The Money Store Home Equity
Trust, Series 94-A, Class A2
5.25% 02/15/16 710 707,947
The Money Store Home Equity
Trust, Series 95-A, Class A8
8.12% 06/15/15 4,308 4,447,846
The Money Store Home Equity
Trust, Series 96-B, Class A13
6.90% 04/15/10 4,350 4,358,234
Travelers Bank Credit Card Master
Trust, Series 98-1, Class A
6.00% 01/18/05 4,900 5,086,813
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
INTERMEDIATE GOVERNMENT BOND PORTFOLIO (Concluded)
Par
As of September 30, 1998 Maturity (000) Value
---------- ---------- ------------------
ASSET BACKED SECURITIES (Continued)
Union Acceptance Corp., Series 96-A,
Class A
5.40% 04/07/03 $3,224 $ 3,211,439
-----------
TOTAL ASSET BACKED SECURITIES
(Cost $116,718,650) 119,221,454
-----------
TAXABLE MUNICIPAL BONDS -- 1.4%
New Jersey Economic Development
Authority Pension Obligation Bond,
Series 97, Class B
6.62% 2/15/02 1,527 1,287,536
Stanislaus County, California
Taxable Pension Obligation,
Series 95
7.15% 08/15/13 4,830 5,337,150
-----------
TOTAL TAXABLE MUNICIPAL BONDS
(Cost $6,056,053) 6,624,686
-----------
SHORT TERM INVESTMENTS -- 0.0%
Galileo Money Market Fund
(Cost $25,209) 25 25,209
-----------
TOTAL INVESTMENTS INSECURITIES
(Cost $518,771,555*) 110.3% 529,299,743
LIABILITIES IN EXCESS OF
OTHER ASSETS (Including
$34,593,495 of investment
purchases payable) (10.3%) (49,281,444)
------- -----------
NET ASSETS (Applicable to 42,156,896
Institutional shares, 2,834,638
Service shares, 760,875 Investor A
shares, 34,451 Investor B shares and
28,507 Investor C shares outstanding) 100.0% $480,018,299
======= ============
Value
--------------
NET ASSET VALUE AND REDEMPTION
PRICE PER INSTITUTIONAL, SERVICE
AND INVESTOR A SHARE
($479,358,674 (DIVIDE) 45,752,409) $10.48
======
OFFERING PRICE PER INSTITUTIONAL
AND SERVICE SHARE $10.48
======
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($10.48 (DIVIDE) .960) $10.92
======
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE
(subject to a contingent deferred
sales charge of 4.5%)
PER INVESTOR B SHARE
($360,945 (DIVIDE) 34,451) $10.48
======
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE
(subject to a contingent deferred
sales charge of 1.0%)
PER INVESTOR C SHARE
($298,680 (DIVIDE) 28,507) $10.48
======
- ----------------------------
* Cost for Federal income tax purposes is $518,997,979. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $10,852,778
Gross unrealized depreciation (551,014)
-----------
$10,301,764
===========
** Rates shown are the rates as of September 30, 1998.
++ Principal amount of securities pledged as collateral of $2,570,124 on
327 long U.S.Treasury Bonds future contracts expiring December 1998.
The value of such contracts on September 30, 1998 was $38,732,469,
thereby resulting in an unrealized gain of $1,221,172.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
27
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
INTERMEDIATE BOND PORTFOLIO
Par
As of September 30, 1998 Maturity (000) Value
---------- ---------- ------------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 6.4%
Small Business Administration
Participation Certificates,
Series 92-20H, Class 1
7.40% 08/01/12 $ 3,713 $ 3,968,629
Small Business Administration
Participation Certificates,
Series 96-20H, Class 1
7.25% 08/01/16 5,970 6,462,778
Small Business Investment Cos.
Pass-Through, Series 96-P10A,
Class 1
6.67% 02/10/06 5,140 5,374,559
Small Business Investment Cos.
Pass-Through, Series 97-P10D,
Class 1
6.51% 11/01/07 1,000 1,040,607
U.S. Treasury Bonds
14.00% 11/15/11 25 40,682
6.25% 08/15/23 335 383,751
6.12% 11/15/27 240 276,687
U.S. Treasury Bonds (CPI)
3.62% 04/15/28 5,000 5,032,338
U.S. Treasury Notes
5.75% 04/30/03 585 619,163
U.S. Treasury Notes (CPI)
3.37% + 01/15/07 13,115 13,302,157
-----------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $35,384,657) 36,501,351
-----------
MORTGAGE PASS-THROUGHS -- 16.2%
Federal Home Loan Mortgage
Corporation
9.50% 01/01/05 260 270,283
8.50% 07/01/06 35 36,343
7.25% 12/01/06 567 583,164
5.50% 10/19/13 6,000 5,970,000
9.00% 12/01-12/16 118 122,556
8.00% + 07/08-09/18 6,606 6,956,432
6.50% + 12/23-09/28 1,829 1,863,128
Federal Home Loan Mortgage
Corporation Multi-Family
6.22%** 07/01/01 8,000 7,985,000
Federal National Mortgage Association
6.20% + 02/26/01 6,105 6,226,769
9.50% 03/01/05 12 13,035
8.00% ++ 03/01/08 3,136 3,286,892
7.50% 05/01/09 2,504 2,627,584
6.00% + 01/04-01/14 8,371 8,481,306
6.50% ++ 02/01/25 4,054 4,129,182
Federal National Mortgage
Association 10 Year Balloon
6.00% 02/01/04 3,806 3,859,752
Federal National Mortgage Association
30 Year
7.26% 01/25/11 3,250 3,376,953
8.50% ++ 12/10-09/12 8,522 8,894,194
Par
Maturity (000) Value
---------- ---------- ------------------
MORTGAGE PASS-THROUGHS (Continued)
Government National Mortgage
Association
7.25% + 04/15/06 $ 1,616 $ 1,678,178
8.25% + 08/08-11/08 7,820 8,233,319
9.50% 05/16-02/17 393 424,934
6.50% + 10/23-12/23 5,211 5,327,074
6.00% + 07/20/27 7,210 7,272,685
8.50% 02/17-03/47 2,243 2,368,479
MLCC Mortgage Investors, Inc.,
Series 95-C1, Class C
7.64%** 05/25/15 2,022 2,105,408
MLCC Mortgage Investors, Inc.,
Series 96-C, Class A
6.06%** 09/15/21 759 759,806
Salomon Brothers Mortgage Securities
VII, Series 96-6B, Class A1
6.10%** 06/30/26 555 554,658
Salomon Brothers Mortgage Securities
VII, Series 96-6G, Class A1
6.00%** 09/30/27 267 266,765
-----------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $89,857,612) 93,673,879
-----------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS -- 6.6%
Federal Home Loan Mortgage
Corporation, Series 2035,
Class PE (IO)
10.00% 03/15/28 1,037 247,115
Federal Home Loan Mortgage Corp.,
Series 2043, Class IB (IO)
10.00% 04/15/28 915 208,946
Federal Home Loan Mortgage Corp.,
Series 96T-2, Class A
7.00% 01/25/21 3,157 3,251,047
Federal National Mortgage Association
Grantor Trust, Series 96-T6, Class A
6.32% 10/25/00 4,407 4,496,582
Federal National Mortgage Association
Strip Notes, Series 279, Class 1 (PO)
4.75% 07/01/26 705 641,103
Federal National Mortgage Association,
Series 89-16, Class B (PO)
5.65% 03/25/19 1,235 1,074,823
GMAC Commercial Mortgage Securities,
Inc., Series 97-C1, Class X (IO)
8.26%** 07/15/27 28,408 2,663,281
Residential Accredit Loans, Inc.,
Series 97-QS12, Class A7
7.25% 11/25/27 4,570 4,745,091
Residential Accredit Loans, Inc.,
Series 97-QS10, Class A1
7.25% 10/25/27 5,224 5,277,864
Residential Asset Securitization Trust,
Series 98-A1, Class A1
7.00% + 03/25/28 7,134 7,244,350
Residential Asset Securitization Trust,
Series 98-A2, Class A1
6.75% 04/25/28 2,489 2,505,090
Residential Asset Securitization Trust,
Series 98-A5, Class A1
6.75% + 02/25/28 5,219 5,251,346
-------------
TOTAL MULTIPLE CLASS MORTGAGE
PASS-THROUGHS
(Cost $37,017,185) 37,606,638
-------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
28
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
INTERMEDIATE BOND PORTFOLIO (CONTINUED)
Par
AS OF SEPTEMBER 30, 1998 Maturity (000) Value
---------- ---------- ------------------
COMMERCIAL MORTGAGE BACKED
SECURITIES -- 32.4%
ACLC Business Loan Receivables Trust,
Series 98-1, Class A1
6.43% 07/15/13 $ 3,348 $ 3,425,831
Amresco Securitized Net Interest Margin,
Series 96-1, Class A
8.10% 04/26/26 2,254 2,211,598
Arcadia Automobile Receivables Trust,
Series 98-A, Class A3
5.90% 11/15/02 4,800 4,837,459
Asset Securitization Corp., Series 97-D5,
Class A1A
6.50% 04/14/07 7,244 7,428,414
Atherton Franchisee Loan Funding,
Series 98-A, Class A2
6.72% 08/15/19 6,000 6,153,750
BA Mortgage Securities, Inc.,
Series 98-3, Class 2A1
6.50% 06/01/13 6,300 6,424,031
Bayview Financial Acquisition Trust,
Series 98-1, Class AI
7.01% 10/01/01 4,209 4,346,127
Bosque Asset Corp., Series 97-1,
Class A1
7.66% 06/05/02 1,488 1,505,944
Chase Credit Card Master Trust,
Series 97-5, Class A
6.19% 08/15/05 12,155 12,578,132
Citibank Credit Card Master Trust I,
Series 97-6, Class A (IO)
6.28% 08/15/06 10,250 7,517,323
DLJ Commercial Mortgage Corp.,
Series 98-CG1, Class A1A
6.11% 12/10/07 9,184 9,435,049
DVI Receivables Corp., Series 98-I,
Class A2
6.03% 09/10/06 6,000 6,001,875
Fingerhut Master Trust, Series 98-1,
Class A
6.07% 02/15/05 3,175 3,249,975
Fingerhut Master Trust, Series 98-2,
Class A
6.23%** 02/15/07 950 990,963
Franchise Loan Trust, Series 98-I,
Class A1
6.24% 07/15/04 3,833 3,850,876
Franchisee Loan Receivables Trust,
Series 98-CA, Class A1
6.20% 11/15/04 4,050 4,075,313
GE Capital Mortgage Services, Inc.,
Series 98-10, Class 1A1
6.65% 05/25/28 5,739 5,865,004
General Motors Acceptance Corp.,
Series 97
7.43% 02/21/21 1,306 1,319,403
GMAC Commercial Mortgage Securities,
Inc., Series 98-C2, Class A1
6.15% 11/15/07 1,155 1,187,212
GMAC Commercial Mortgage Securities,
Inc., Series 98-C2, Class A2
6.42% 08/15/31 2,700 2,806,402
Health Care Receivables Securitization
Program, Series 98-1, Class A
6.22% 06/01/02 4,400 4,458,935
Par
Maturity (000) Value
---------- ---------- ------------------
COMMERCIAL MORTGAGE BACKED
SECURITIES (Continued)
J.P. Morgan Commercial Mortgage
Finance Corp., Series 97, Class D
6.62% 07/25/29 $ 4,000 $ 4,001,250
Master Financial Asset Securitization
Trust, Series 98-2, Class A3
6.60% 11/20/18 6,000 6,097,500
Merit Securities Corp., Series 98-10,
Class 2A1
5.98%** 05/28/25 2,170 2,176,016
Merit Securities Corp., Series 98-11,
Class 1A1
6.58% 07/28/22 11,397 11,400,583
Merit Securities Corp., Series 98-11,
Class 2A2
5.95% 11/28/22 5,900 5,890,781
Morgan Stanley Capital Corp.,
Series 97-HF1, Class A1
6.86% 07/15/29 4,819 5,053,310
Morgan Stanley Capital Corp.,
Series 98 CF-1, Class A1
6.33% 08/01/08 4,580 4,692,600
Norwest Integrated Structured Assets,
Inc., Series 98-1, Class 2A1
7.00% 05/25/28 5,505 5,539,115
NYC Mortgage Loan Trust, Series 96,
Class A1
6.75% 06/25/06 4,363 4,505,209
PNC Mortgage Securities Corp.,
Series 97-6, Class A2
6.60% 07/25/27 4,691 4,737,717
Republic Bank Home Loan Owner Trust,
Series 98-1, Class A1
6.61% 04/25/07 4,393 4,393,851
Resolution Trust Corp., Series 93-C3,
Class D
7.10% 12/25/24 3,382 3,408,443
Sears Credit Account Master Trust,
Series 95-5, Class A
6.05% 11/30/05 5,000 5,165,500
Structured Asset Securitization Corp.,
Series 97-N1, Class D
6.12%** 09/25/28 5,544 5,530,449
Structured Asset Securitization Corp.,
Series 98-C2A, Class B
5.96%** 01/25/13 3,993 3,983,476
Union Planters Mortgage Finance Corp.,
Series 98-1, Class A1
6.35% 01/25/28 5,035 5,088,015
-----------
TOTAL COMMERCIAL MORTGAGE
BACKED SECURITIES
(Cost $187,899,643) 181,333,431
-----------
Project Loans -- 4.1%
Federal Housing Authority, Merrill
Lynch, Series 97-23
7.43% 12/01/21 17,454 18,058,928
Federal Housing Authority, USGI,
Series 2056
7.46% 01/01/23 4,876 5,061,611
---------
Total Project Loans
(Cost $22,715,857) 23,120,539
------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
29
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
INTERMEDIATE BOND PORTFOLIO (CONTINUED)
Par
AS OF SEPTEMBER 30, 1998 Maturity (000) Value
---------- ---------- ------------------
ASSET BACKED SECURITIES -- 23.7%
Associates Manufactured Housing
Pass-Through, Series 96-1, Class B1
8.00% 03/15/27 $4,200 $ 4,373,250
Barnett Auto Trust, Series 97-A,
Class A3
6.03% 11/15/01 2,000 2,021,735
CBA Mortgage Corp., Series 93-C1,
Class B
7.76% 12/25/03 1,000 999,063
Chevy Chase Auto Receivables Trust,
Series 96-2, Class A
5.90% 07/15/03 2,313 2,337,498
Chevy Chase Auto Receivables Trust,
Series 97-1, Class A
6.50% 10/15/03 7,173 7,329,167
Chevy Chase Auto Receivables Trust,
Series 97-3, Class A
6.20% 03/20/04 2,250 2,279,111
Contimortgage Home Equity Loan
Trust, Series 97-4, Class A2
6.27% 02/15/12 2,214 2,213,576
Dayton Hudson Credit Card Master
Trust, Series 97-1, Class A
6.25% 08/25/05 4,000 4,152,519
EQCC Home Equity Loan Trust,
Series 95-3, Class A2
6.45% 11/15/08 260 259,816
First Security Auto Grantor Trust,
Series 97-B, Class A
6.10% 04/15/03 2,445 2,464,324
FMAC Loan Receivables Trust,
Series 97-C, Class A
6.75% 12/15/19 7,340 7,656,282
Green Tree Financial Corp.,
Series 94-B, Class A
7.85% 07/15/04 3,246 3,276,858
Green Tree Financial Corp.,
Series 96-7, Class A6
7.65% 10/15/27 3,300 3,518,091
Green Tree Financial Corp.,
Series 96-9, Class B1
7.65% 01/15/28 4,000 4,003,402
Green Tree Financial Corp.,
Series 97-1, Class A6
7.29% 03/15/28 5,600 6,038,320
Green Tree Financial Corp.,
Series 97-8, Class B1
7.14% 05/15/22 2,000 1,950,000
Green Tree Financial Corp.,
Series 98-1, Class D
6.35% 06/15/29 5,800 5,888,377
Green Tree Recreational, Equipment &
Consumer Trust, Series 97-C,
Class A1
6.49% 05/15/13 8,833 8,996,433
Honda Auto Receivables Grantor Trust,
Series 97-B, Class A
5.95% 05/15/03 1,543 1,546,742
Mellon Bank Home Equity Loan Trust,
Series 96-1, Class B2
6.01%** 04/15/26 2,468 2,467,859
Par
Maturity (000) Value
---------- ---------- ------------------
ASSET BACKED SECURITIES (Continued)
MMCA Automobile Trust, Series 95-1,
Class A
5.70% 11/15/00 $ 232 $ 232,739
National Premier Financial,
Series 97-1, Class A
6.81%** 07/01/01 3,000 3,030,000
Nissan Auto Receivables Grantor Trust,
Series 95-A, Class A
6.10% 08/15/01 1,006 1,007,781
Nissan Auto Receivables Grantor
Trust, Series 97-A, Class A
6.15% 02/15/03 2,742 2,750,848
PBG Equipment Trust, Series 1A,
Class A
6.27% 01/20/12 8,827 8,891,437
PMC Capital Small Business
Administration Loan-Backed
Adjustable Rate Certificates,
Series 97-1, Class A
6.60%** 09/15/23 6,461 6,465,737
Puget Power Conservation Grantor
Trust, Series 97-1, Class A
6.23% 07/11/02 3,949 3,988,899
Sears Credit Account Master Trust,
Series 97-1, Class A
6.20% 07/15/07 6,055 6,256,156
Standard Credit Card Master Trust,
Series 94-4, Class A
8.25% 11/07/03 3,900 4,254,001
The Money Store Home Equity Trust,
Series 94-A, Class A2
5.25% 02/15/16 1,708 1,702,547
The Money Store Home Equity Trust,
Series 95-A, Class A8
8.12%** 06/15/15 3,615 3,732,614
The Money Store Home Equity Trust,
Series 95-B, Class A13
7.40% 01/15/16 5,574 5,751,813
Travelers Bank Credit Card Master
Trust, Series 98-1, Class A
6.00% 01/18/05 5,800 6,021,125
Union Acceptance Corp., Series 96-A,
Class A
5.40% 04/07/03 3,214 3,201,381
World Omni Automobile Lease
Securitization Trust, Series 96-A,
Class A2
6.55% 06/25/02 3,048 3,067,845
-------------
TOTAL ASSET BACKED SECURITIES
(Cost $131,978,862) 134,127,346
-------------
CORPORATE BONDS -- 27.1%
Finance -- 12.0%
American Savings Bank
6.62% 02/15/06 2,500 2,596,620
Associates Corp., N.A.
6.00% 04/15/03 3,400 3,500,662
BankAmerica Capital II
8.00% 12/15/26 725 783,906
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
30
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
INTERMEDIATE BOND PORTFOLIO (CONTINUED)
Par
AS OF SEPTEMBER 30, 1998 Maturity (000) Value
---------- ---------- ------------------
CORPORATE BONDS (Continued)
FINANCE (Continued)
Bear Stearns Capital Trust I
7.00% 01/15/27 $ 5,100 $ 5,154,060
Crestar Financial Corp.
8.25% 07/15/02 3,200 3,490,816
Den Danske Bank
6.37%** 06/15/08 5,600 5,767,000
Diageo Capital
6.00% 03/27/03 5,000 5,114,307
Equitable Life Surplus
6.95% 12/01/05 1,750 1,880,918
Ford Motor Credit Co.
6.50% 02/28/02 5,850 6,083,094
Ikon Capital Resources
6.93% 06/07/99 4,000 4,007,517
J.P. Morgan & Co., Inc.
5.54%** 02/15/12 3,700 3,340,027
Lehman Brothers Holdings, Inc.
8.75% 05/15/02 3,940 4,123,880
Provident Companies, Inc.
7.40% 03/15/38 4,600 4,565,419
Raytheon Co.
6.30% 03/15/05 4,300 4,488,541
Salomon, Inc.
8.90% 02/15/00 1,100 1,151,412
Toyota Motor Credit
5.50% 09/17/01 5,370 5,423,115
Yorkshire Power Finance
6.15% 02/25/03 5,100 5,198,644
------------
66,669,938
------------
INDUSTRIAL -- 8.3%
Anixter, Inc.
8.00% ++ 09/15/03 4,350 4,584,866
Burlington Northern Santa Fe
6.05% 03/15/01 4,300 4,369,918
ERAC USA Finance Co.
6.95% 03/01/04 1,375 1,418,831
Federated Department Stores
6.12% 09/01/01 3,230 3,254,901
Fort James Corp.
6.23% 03/15/01 3,400 3,434,263
Litton Industries, Inc.
6.05% 04/15/03 4,100 4,201,311
McLeodUSA, Inc.
10.50% 03/01/07 785 571,559
RJR Nabisco, Inc.
6.70% 06/15/02 4,200 4,227,839
8.75% 04/15/04 2,350 2,440,025
6.85% 06/15/05 300 298,877
Security Capital Group
6.95% 06/15/05 4,825 4,855,681
Texaco Capital, Inc.
9.00% 12/15/99 500 522,491
Time Warner, Inc.
4.90% 07/29/99 8,700 8,655,108
Tyco Intl. Group
6.12% 06/15/01 5,475 5,592,933
-------------
48,428,603
-------------
UTILITY -- 4.2%
Central & Southwest Corp.
6.87% 10/01/01 5,000 5,176,049
Mobile Energy Services, L.L.C.
8.66% 01/01/17 871 217,836
Par
Maturity (000) Value
---------- ---------- ------------------
CORPORATE BONDS (Continued)
UTILITY (Continued)
PECO Energy Co.
5.62% 11/01/01 $ 3,075 $ 3,017,409
Pennsylvania Power & Light
9.25% 10/01/19 4,050 4,209,975
Texas Utilities
7.37% 08/01/01 3,851 4,057,260
#US West Capital Funding, Inc.
6.25% 07/15/05 6,440 6,850,661
-------------
23,529,190
-------------
Yankee -- 2.6%
Crown Cork & Seal, S.A.
6.75% 12/15/03 2,000 2,047,990
Nordbanken
6.28% 10/25/01 4,950 4,915,969
Ontario Province
5.50% 10/01/08 5,110 5,188,583
Swedbank
7.50% 09/29/49 2,200 2,168,530
Transport de Gas
7.75% 12/23/98 600 579,000
-------------
14,900,072
-------------
TOTAL CORPORATE BONDS
(Cost $151,662,288) 153,527,803
-------------
TAXABLE MUNICIPAL BONDS -- 3.4%
New Jersey Economic Development
Authority
6.94% 02/15/05 2,900 2,084,317
New York City G.O., Series 96E
6.55% 08/01/00 4,600 4,709,250
New York Power Authority &
General Purpose Bond
6.11% 11/16/98 5,600 5,803,038
Philadelphia Authority for Industiral
Revenue, Series 97-A
6.48% 06/15/04 7,027 6,991,622
-------------
TOTAL TAXABLE MUNICIPAL BONDS
(Cost $12,077,832) 19,588,227
-------------
Short Term Investments -- 0.8%
Galileo Money Market Fund
(Cost $4,691,869) 4,692 4,691,869
-------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $673,285,805*) 120.7% 684,171,083
REVERSE REPURCHASE AGREEMENTS -- (21.8%)
Aubrey Lanston (Agreement dated
09/15/98 to be repurchased at
$17,381,832. Collateralized by
$16,875,000 U.S. Treasury Notes
5.50% due 05/31/00. The value
of the collateral is $17,211,375.)
5.55% 10/01/98 17,339 (17,381,832)
Aubrey Lanston
(Agreement dated 09/23/98 to
be repurchased at $1,513,347.
Collateralized by $1,000,000
U.S. Treasury Bonds 12.75%
due 11/15/10. The value of
the collateral is $1,537,468.)
5.55% 10/02/98 1,511 (1,513,114)
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
31
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
INTERMEDIATE BOND PORTFOLIO (CONTINUED)
Par
AS OF SEPTEMBER 30, 1998 Maturity (000) Value
---------- ---------- ------------------
Reverse Repurchase Agreements (Continued)
Goldman Sachs
(Agreement dated 09/25/98 to be
repurchased at $7,153,108.
Collateralized by $7,209,601
Government National Mortgage
Association 6.00% due 07/20/27.
The value of the collateral is
$7,308,733.)
5.40% 10/26/98 $ 7,120 $ (7,126,408)
Goldman Sachs
(Agreement dated 09/25/98 to be
repurchased at $2,491,746.
Collateralized by $1,152,089
Government National Mortgage
Association 6.50% due 11/15/23
and $1,329,269 Federal National
Mortgage Association 30 Year
Balloon 8.50% due 12/01/10.
The value of the collateral is
$2,572,506.)
5.50% 10/26/98 2,480 (2,482,273)
Goldman Sachs & Co.
(Agreement dated 09/29/98 to be
repurchased at $6,868,336.
Collateralized by $7,134,069
Residential Asset Securitization
Trust 7.00% due 03/25/28.
The value of the collateral is
$7,283,636.)
5.50% 10/29/98 6,837 (6,839,089)
Goldman Sachs & Co.
(Agreement dated 09/16/98 to be
repurchased at $5,242,508.
Collateralized by $5,435,073
Residential Asset Securitization
Trust 6.75% due 04/25/28.
The value of the collateral is
$5,497,112.)
5.67% 11/18/98 5,191 (5,203,264)
Lehman Brothers
(Agreement dated 09/25/98 to be
repurchased at $5,686,769.
Collateralized by $5,756,694
U.S. Treasury Notes (CPI)
3.375% due 01/15/07. The
value of the collateral is
$5,709,677.)
5.370% 10/02/98 5,681 (5,685,922)
Lehman Brothers
(Agreement dated 09/25/98 to be
repurchased at $6,111,315.
Collateralized by $6,052,680
U.S. Treasury Bonds (CPI)
3.625% due 04/15/28. The value
of the collateral is
$6,120,490.)
5.32% 10/02/98 6,105 (6,110,413)
Merrill Lynch
(Agreement dated 09/01/98 to be
repurchased at $15,662,525.
Collateralized by $15,913,671
Federal National Mortgage
Association Bonds 6.00% to 6.33%
due 10/25/00 to 01/18/14 and
$5,000,000 Federal National
Mortgage Association 6.00% due
01/18/14. The value of the collateral
is $16,255,951.)
5.70% 10/29/98 15,520 (15,593,720)
Par
Maturity (000) Value
---------- ---------- ------------------
REVERSE REPURCHASE AGREEMENTS (Continued)
Merrill Lynch
(Agreement dated 09/15/98 to be
repurchased at $2,586,930.
Collateralized by $2,558,757
Federal Home Loan Mortgage
Corporation 8.00% due 07/01/08
to 09/01/18. The value of the
collateral is $2,700,516.)
5.65% 11/16/98 $ 2,562 $ (2,568,433)
Morgan Stanley & Co.
(Agreement dated 09/18/98 to be
repurchased at $3,085,635.
Collateralized by $2,835,000
U.S. Treasury Notes 5.625%
due 05/15/08. The value of the
collateral is $3,165,135.)
5.50% 10/01/98 3,080 (3,085,635)
Morgan Stanley & Co.
(Agreement dated 09/28/98 to be
repurchased at $7,032,200.
Collateralized
by $7,225,000 Federal Home
Mortgage Association Bonds
6.22% due 07/01/01. The value
of the collateral is
$7,248,939.)
5.52% 10/28/98 7,000 (7,003,220)
Morgan Stanley & Co.
(Agreement dated 09/11/98 to be
repurchased at $9,258,540.
Collateralized by $9,236,948
Government National Mortgage
Association 7.25% to 8.25% due
04/15/06 to 11/15/08. The value
of the collateral is
$9,769,867.)
5.60% 11/05/98 9,180 (9,208,560)
Morgan Stanley & Co.
(Agreement dated 09/21/98 to be
repurchased at $12,763,314.
Collateralized by $12,824,318
Federal National Mortgage
Association 6.50% to 8.50% due
03/01/08 to 02/01/25 and
$4,054,429 Federal Home Loan
Mortgage Corporation 6.50% due
02/01/25. The value of the
collateral is $13,344,029.)
5.59% 11/20/98 12,645 (12,665,136)
Paine Webber
(Agreement dated 09/15/98 to be
repurchased at $10,425,175.
Collateralized by $8,102,940
Federal National Mortgage
Association Bonds 6.00% to 7.50%
due 01/01/04 to 05/01/09 and
$2,541,137 Federal Home Loan
Mortgage Corporation 8.00% due
09/01/09. The value of the collateral
is $11,012,438.)
5.60% 11/17/98 10,324 (10,349,695)
Salomon Brothers
(Agreement dated 09/02/98 to be
repurchased at $9,958,154.
Collateralized by $12,155,000
Chase Credit Card Master Trust
Bonds 6.194% due 08/15/05. The
value of the collateral is
$12,611,593)
4.50% 10/05/98 9,918 (9,953,195)
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
32
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
INTERMEDIATE BOND PORTFOLIO (CONCLUDED)
AS OF SEPTEMBER 30, 1998 Value
------------------
Reverse Repurchase Agreements (Continued)
Salomon Brothers
(Agreement dated 08/31/98 to be
repurchased at $862,140.
Collateralized by $820,018 Federal
Home Loan Mortgage Corporation
8.00% due 09/01/18. The value
of the collateral is $867,248.)
5.65% 11/30/98 $ 850 $ (854,135)
--------------
Total Reverse Repurchase
Agreements
(Cost $123,708,023) (123,624,044)
OTHER ASSETS IN EXCESS
OF LIABILITIES 1.1% 6,197,454
------ -------------
NET ASSETS (Applicable to 4,999,175
BlackRock shares, 50,716,990
Institutional shares, 2,681,824
Service shares, 170,349 Investor A
and 11,508 Investor B shares outstanding) 100.0% $566,744,493
====== ============
NET ASSET VALUE AND REDEMPTION
PRICE PER BLACKROCK,
INSTITUTIONAL, SERVICE
AND INVESTOR A SHARE
($566,633,154 (DIVIDE) 58,568,338) $ 9.67
======
OFFERING PRICE PER BLACKROCK,
INSTITUTIONAL AND SERVICE
SHARE $ 9.67
======
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($9.67 (DIVIDE) .960) $10.07
======
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE
(subject to a contingent deferred
sales charge of 4.5%)
PER INVESTOR B SHARE
($111,339 (DIVIDE) 11,508) $ 9.67
======
- ----------------------------
* Also cost for Federal income tax purposes. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $12,678,587
Gross unrealized depreciation (1,793,309)
------------
$10,885,278
============
** Rates shown are the rates as of September 30, 1998.
# Total or partial securities on loan.
+ Partial principal in the amount of $123,709,023 has been pledged as
collateral for reverse repurchase agreements.
++ Principal amount of securities pledged as collateral of $2,100,000 on 294
long U.S.Treasury Notes and 24 long U.S. Treasury Bonds future contracts
expiring December, 1998. The value of such contracts on September 30, 1998
was $37,502,641, thereby resulting in an unrealized gain of $1,164,461.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
33
<PAGE>
BlackRock Funds
SCHEDULE OF INVESTMENTS
CORE BOND PORTFOLIO
Par
As of September 30, 1998 Maturity (000) Value
---------- ------ ----------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 15.6%
Overseas Private Investment Co.
6.46% 12/06/06 $ 187 $ 194,313
5.92% 12/16/06 1,932 1,957,357
6.38% 12/16/06 1,772 1,839,458
6.53% 12/16/06 461 480,028
6.27% 12/06-05/12 2,499 2,589,253
5.88% 05/29/12 341 343,557
6.84% 05/29/12 450 484,760
Small Business Administration
Participation Certificates,
Series 92-20H, Class 1
7.40% 08/01/12 223 238,118
Small Business Administration
Participation Certificates,
Series 96-20J, Class 1
7.20% 10/01/16 57 60,951
Small Business Administration
Participation Certificates,
Series 97-20B, Class 1
7.10% 02/01/17 2,481 2,720,864
Small Business Investment Cos.
Pass-Through, Series 97-P10C,
Class 1
6.85% 08/01/07 5,500 5,826,550
Small Business Investment Cos.
Pass-Through, Series 97-P10D,
Class 1
6.51% 11/01/07 400 416,243
Small Business Investment Cos.
Pass-Through, Series 98-10A,
Class 1
6.12% 02/10/08 250 254,574
U.S. Treasury Bonds
8.75% 11/15/08 8,415 10,021,493
12.75% 11/15/10 6,400 9,531,578
14.00% 11/15/11 7,000 11,391,026
8.50% 02/15/20 11,865 16,899,553
6.25%# 08/15/23 20,241 23,186,604
6.50% 11/15/26 4,175 4,979,040
6.12% 11/15/27 3,665 4,225,245
U.S. Treasury Bonds (CPI)
3.62% 04/15/28 31,960 32,166,702
U.S. Treasury Notes
5.25% 08/15/03 6,435 6,723,803
5.62% 05/15/08 2,240 2,453,255
U.S. Treasury Notes (CPI)
3.37% 01/15/07 6,725 6,820,831
-------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $139,938,346) 145,805,156
-------------
MORTGAGE PASS-THROUGHS -- 19.2%
Federal Home Loan Mortgage
Corporation
6.00% 02/12-06/13 11,714 7,397,275
5.50% 10/15/13 27,000 26,865,000
8.00% 11/01/15 97 101,449
7.00% 03/01/25 726 745,117
7.50% 09/05-10/26 4,326 4,459,675
6.50% 07/01/28 653 664,264
Par
Maturity (000) Value
---------- ------- ---------
MORTGAGE PASS-THROUGHS (Continued)
Federal National Mortgage Association
8.00% 10/09-05/22 $ 136 $ 143,382
6.50% 07/13-09/28 46,251 47,157,201
6.00% 04/13-10/28 59,325 59,265,592
Government National Mortgage
Association
8.50% 01/10-04/17 256 270,110
6.50% 12/23-09/24 14,019 14,330,277
9.00% 10/15/24 474 489,066
7.50% 06/15/27 251 260,261
6.00% 07/20/27 9,207 9,288,007
7.00% 12/22-11/28 9,623 7,661,680
MLCC Mortgage Investors, Inc.,
Series 95-C3, Class A1
6.78% 12/26/25 243 249,932
MLCC Mortgage Investors, Inc.,
Series 96-C1, Class A3
7.42% 04/25/28 3,000 3,282,188
MLCC Mortgage Investors, Inc.,
Series 96-C2, Class E
6.96% 11/21/28 1,915 1,920,386
MLCC Mortgage Investors, Inc.,
Series 92-D, Class A
7.75% 07/15/17 135 136,064
-------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $176,835,883) 184,686,926
-------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS -- 3.2%
Chase Commercial Mortgage
Securities Corporation,
Series 97-1, Class X (IO)
8.69% 04/19/15 33,698 2,600,898
CS First Boston Mortgage Corporation,
Series 97-C1, Class AX (IO)
8.60% 04/20/22 54,797 5,866,836
Federal Home Loan Mortgage
Corporation, Series 2035,
Class PE (IO)
7.00% 03/15/28 1,553 370,077
Federal Home Loan Mortgage
Corporation, Series 2043,
Class IB (IO)
7.00% 04/15/28 1,370 312,847
Federal National Mortgage Association
Strip Notes, Series 267, Class 1 (PO)
4.97% 01/25/24 37 33,301
Federal National Mortgage Association
Strip Notes, Series 279, Class 1 (PO)
6.99% 07/01/26 421 382,867
Federal National Mortgage Association,
Series 96-54, Class A (PO)
7.57% 04/25/21 1,596 1,484,302
Residential Accredit Loans, Inc.,
Series 97-QS10, Class A1
7.25% 10/25/27 7,687 7,765,998
Residential Accredit Loans, Inc.,
Series 97-QS7, Class A1
7.50% 07/25/27 2,893 2,909,221
Residential Asset Securitization Trust,
Series 97-A7, Class A1
7.50% 09/25/27 3,431 3,450,090
Salomon Brothers Mortgage Securities
VI, Series 87-1 (IO)
7.00% 04/20/07 2,441 543,047
Salomon Brothers Mortgage Securities
VI, Series 87-1 (PO)
7.00% 02/17/17 2,613 2,216,209
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
34
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
CORE BOND PORTFOLIO (CONTINUED)
Par
As of September 30, 1998 Maturity (000) Value
---------- ------- ---------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS (Continued)
Salomon Brothers Mortgage Securities
VI, Series 87-2 (IO)
6.00% 03/06/17 $1,606 $ 357,431
Salomon Brothers Mortgage Securities
VI, Series 87-2 (PO)
6.00% 03/06/17 1,606 1,362,454
Salomon Brothers Mortgage Securities,
Series 87-3, Class A (PO)
5.00% 10/23/17 425 372,055
Salomon Brothers Mortgage Securities,
Series 87-3, Class B (IO)
5.00% 10/23/17 413 113,632
-------------
TOTAL MULTIPLE CLASS MORTGAGE
PASS-THROUGHS
(Cost $29,848,184) 30,141,265
-------------
COMMERCIAL MORTGAGE BACKED
SECURITIES -- 15.6%
Amresco Residential Securities
Mortgage Loan Trust, Series 96-1,
Class A
8.10% 04/26/26 1,409 1,382,241
Chase Credit Card Master Trust,
Series 97-5, Class A
6.19% 08/15/05 17,220 17,819,452
Chase Mortgage Finance Corp.,
Series 98-S4, Class A3
6.55% 07/25/28 6,000 6,097,023
Citibank Credit Card Master Trust I,
Series 97-6, Class A
5.78% 08/15/06 11,100 8,140,711
CS First Boston Mortgage Securities
Corp., Series 97-C2, Class AX (IO)
5.50% 11/17/22 35,041 2,659,677
DLJ Mortgage Acceptance Corp.,
Series 97-CF1, Class A
7.60% 04/15/07 2,000 2,204,038
DLJ Mortgage Acceptance Corp.,
Series 98-2, Class 1PA1
6.75% 04/25/28 8,505 8,621,936
Empire Funding Home Loan Owner
Trust, Series 98-2, Class A4
6.53% 02/25/19 7,000 7,035,000
Fingerhut Master Trust, Series 98-2,
Class A
6.23% 02/15/07 2,750 2,868,576
First Boston Mortgage Securities Corp.,
Series 93-M1, Class A
6.75% 09/25/06 116 120,122
First Union-Lehman Brothers
Commercial Mortgage 1
7.38% 04/18/29 4,350 4,763,892
First Union-Lehman Brothers
Commercial Mortgage, Series 98-C2,
Class A2
6.56% 11/15/35 6,475 6,799,349
GE Capital Mortgage Services,
Series 97-HE1, Class A4
7.78% 03/25/27 1,666 1,734,202
GMAC Commercial Mortgage
Securities, Inc., Series 97-C1,
Class X (IO)
8.26% 07/15/27 47,886 4,489,400
Par
Maturity (000) Value
---------- ------- ----------
COMMERCIAL MORTGAGE BACKED
SECURITIES (Continued)
GMAC Commercial Mortgage Securities,
Inc., Series 98-C2, Class A2
6.42% 05/15/31 $6,500 $ 6,756,154
Goldman Sachs Mortgage Securities
Corp. II
7.41% 02/15/27 2,891 3,141,422
Health Care Receivables Securitization
Program, Series 98-1, Class A
6.22% 06/01/02 6,800 6,891,081
Impac Secured Assets Common Owner
Trust, Series 98-1, Class A1
6.71% 01/25/07 2,775 2,781,114
J.P. Morgan Commercial Mortgage
Finance Corp., Series 96-C3,
Class A1
7.33% 04/25/28 1,855 1,983,483
Merit Securities Corp., Series 10,
Class 2A1
5.95% 05/28/25 2,502 2,508,581
Merit Securities Corp., Series 98-11,
Class 1A1
6.05% 05/15/15 4,103 4,104,210
Mid-State Trust, Series 6, Class A4
7.79% 07/01/35 1,027 1,027,130
Mid-State Trust, Series 1, Class A1
7.34% 07/01/35 2,680 2,816,048
Midland Royalty Acceptance Corp.,
Series 96-C, Class A
7.23% 01/25/29 4,050 4,379,485
Mortgage Capital Funding, Inc.,
Series 98-MC2, Class A1
6.32% 06/18/30 5,200 5,400,810
PNC Mortgage Securities Corp.,
Series 97-6, Class A2
6.60% 07/25/27 6,701 6,768,167
Prudential Securities Secured
Financing, Series 98-C1, Class A1B
6.45% 07/15/08 6,775 7,077,758
Structured Asset Securitization Corp.,
Series 96-CFL, Class X1 (IO)
12.60% 02/25/28 22,292 1,243,936
Structured Asset Securitization Corp.,
Series 97-N1, Class D
6.17% 09/25/28 5,175 5,161,752
Structured Asset Securitization Corp.,
Series 98-C2, Class A
5.90% 11/25/98 3,283 3,275,128
-------------
Total Commercial Mortgage
Backed Securities
(Cost $141,829,232) 140,051,878
-------------
Project Loans -- 3.2%
Federal Housing Authority, East Point
Chelsea, Construction Loan Collateral
10.25% 05/01/33 98 105,781
Federal Housing Authority, Elton Home,
Construction Loan Collateral
9.25% 10/30/36 3,040 3,445,820
Federal Housing Authority, Huntoon
Paige, Construction Loan Collateral
7.31% 10/01/24 5,637 5,947,307
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
35
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
CORE BOND PORTFOLIO (CONTINUED)
Par
As of September 30, 1998 Maturity (000) Value
---------- ------- ---------
PROJECT LOANS (Continued)
Federal Housing Authority, Merrill
Lynch, Series 97-23
7.43% 12/01/21 $ 412 $ 425,918
Federal Housing Authority, University
Park Apartments
7.87% 10/01/37 7,675 8,284,445
Federal Housing Authority, Village
Green, Construction Loan Collateral
8.25% 09/01/34 5,226 5,539,963
Reilly Mortgage Securities, Series 97-A
6.89% 11/18/11 5,470 5,689,046
-------------
Total Project Loans
(Cost $28,285,780) 29,438,280
-------------
Asset Backed Securities -- 15.3%
Arcadia Automobile Receivables Trust,
Series 98-B, Class A3
5.95% 11/15/02 17,500 17,725,479
Associates Manufactured Housing
Pass-Through, Series 96-1, Class B1
8.00% 03/15/27 2,815 2,931,119
Banc One Auto Grantor Trust,
Series 97-A, Class A
6.27%++ 11/20/03 3,391 3,437,761
Banc One Auto Grantor Trust,
Series 97-B, Class A
6.29% 07/20/04 8,173 8,267,696
Barnett Auto Trust, Series 97,
Class A2
5.92% 07/15/00 2,616 2,620,074
Brazos Student Loan Finance Corp.,
Series 98-A, Class A2
6.13% 06/01/23 8,600 8,487,125
Chase Manhattan Grantor Trust,
Series 96-B, Class A
6.61% 09/16/02 3,751 3,820,665
Chevy Chase Auto Receivables Trust,
Series 97-2, Class A
6.35% 01/15/04 5,009 5,086,011
Chevy Chase Auto Receivables Trust,
Series 97-3, Class A
6.20% 03/20/04 1,687 1,709,333
CIT Group Securitization Corp.,
Series 95-2, Class B
7.65% 05/15/26 300 297,375
Copelco Capital Funding Corp.,
Series 97-A, Class A3
6.27% 04/20/05 2,645 2,656,159
FMAC Loan Receivables Trust,
Series 97-B, Class A
6.85% 09/01/19 5,791 6,073,301
Green Tree Financial Corp.,
Series 93-3, Class B
6.85% 10/15/18 4,000 4,010,469
Green Tree Financial Corp.,
Series 94-B, Class A
7.85% 07/15/04 151 152,412
Green Tree Financial Corp.,
Series 95-7, Class B1
7.35% 11/15/26 600 595,500
Green Tree Financial Corp.,
Series 95-A, Class A
7.25% 07/15/05 5,948 5,985,924
Par
Maturity (000) Value
---------- ------- ----------
ASSET BACKED SECURITIES (Continued)
Green Tree Financial Corp.,
Series 96-2, Class B2
7.90% 04/15/27 $ 3,650 $ 3,472,577
Green Tree Financial Corp.,
Series 97-2, Class B
7.56% 06/15/28 5,000 5,016,897
Green Tree Financial Corp.,
Series 97-3, Class A7
7.64% 07/15/28 4,200 4,597,980
Green Tree Financial Corp.,
Series 97-3, Class B2
8.03% 07/15/28 2,400 2,308,854
Green Tree Financial Corp.,
Series 97-4, Class A
7.36% 02/15/29 5,000 5,428,125
Green Tree Home Improvement Loan
Trust, Series 94-D, Class M
9.05% 01/15/15 700 736,689
Honda Auto Receivables Grantor
Trust, Series 97-B, Class A
5.95% 05/15/03 3,456 3,464,691
Mellon Bank Home Equity Loan
Trust, Series 96-1, Class B2
6.01% 04/15/26 3,667 3,666,533
Nissan Auto Receivables Grantor
Trust, Series 95-A, Class A
6.10% 08/15/01 870 871,221
Puget Power Conservation Grantor
Trust, Series 97-1, Class A
6.23% 07/11/02 3,712 3,749,565
Sears Credit Account Master Trust,
Series 95-5, Class A
6.05% 01/16/08 10,000 10,331,000
Sears Credit Account Master Trust,
Series 97-1, Class A
6.20% 07/15/07 10,500 10,848,826
Sears Credit Account Master Trust,
Series 98-1, Class A
5.80% 08/15/05 5,400 5,447,250
The Money Store Home Equity Trust,
Series 94-A, Class A2
5.25% 02/15/16 1,988 1,982,252
The Money Store Home Equity Trust,
Series 95-A, Class A8
8.12% 06/15/15 1,342 1,385,761
The Money Store Home Equity Trust,
Series 96-B, Class A5
7.18% 12/15/14 5,068 5,085,159
World Omni Automobile Lease
Securitization Trust, Series 96-B,
Class A3
6.25% 11/15/02 586 592,257
-------------
TOTAL ASSET BACKED SECURITIES
(Cost $140,765,669) 142,842,040
-------------
CORPORATE BONDS -- 18.1%
Finance -- 8.5%
American General Institutional Capital
8.12% 03/15/46 700 760,037
Amvescap PLC
6.37% 05/15/03 4,000 4,073,600
AT&T Capital Corp.
6.25% 05/15/01 4,000 4,050,732
BGB Finance
6.62% 12/30/99 5,500 5,579,546
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
36
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
CORE BOND PORTFOLIO (CONTINUED)
Par
As of September 30, 1998 Maturity (000) Value
---------- ------- ---------
CORPORATE BONDS (Continued)
Finance (Continued)
Crestar Financial Corp.
8.25% 07/15/02 $ 400 $ 436,352
Eqitable Co.
7.00% 04/01/28 2,400 2,478,223
Equitable Life Assurance Society
7.70% 12/01/15 250 274,056
Farmers Exchange Capital
7.22% 07/15/48 1,675 1,674,093
Ford Motor Credit Corp.
7.75% 10/01/99 1,000 1,024,367
8.00% 06/15/02 1,000 1,100,000
6.12% 04/28/03 223 231,039
General Electric Capital Corp.
6.90% 09/15/15 4,670 5,132,196
General Electric Global Insurance
Holding Corp.
7.00% 02/15/26 5,275 5,839,134
Goldman Sachs Escrow Corp.
7.00% 08/01/03 3,865 3,836,438
HSBC America Capital II
8.38% 05/15/27 1,800 1,755,177
Jones Apparel Corp.
6.25% 10/01/01 7,050 7,069,346
J.P. Morgan & Co., Inc.
5.54%** 02/15/12 100 90,271
Lehman Brothers Holdings, Inc.
6.15% 03/15/00 2,000 1,964,243
6.75% 09/24/01 5,200 5,112,845
6.20% 01/15/02 6,000 5,810,139
#Liberty Mutual Insurance Co.
7.69% 10/15/45 4,395 4,301,462
Merrill Lynch & Co.
6.47% 06/27/00 4,200 4,276,153
National City Capital Trust I
6.75% 06/01/29 2,700 2,719,844
Safeco Capital Trust I
8.07% 07/15/37 2,800 2,958,635
Yorkshire Power Finance
6.49% 02/25/08 6,400 6,594,073
-------------
79,142,001
-------------
Industrial -- 4.5%
Aramark Corp.
6.75% 08/01/04 3,965 4,063,654
ERAC USA Finance Co.
6.95% 03/01/04 820 846,139
IBM Corp.
6.50% 01/15/28 4,000 4,164,030
McLeodUSA, Inc.
10.50% 03/01/07 1,180 859,158
RJR Nabisco, Inc.
8.75% 04/15/04 2,975 3,088,967
7.55% 06/15/15 3,175 3,126,006
Security Capital Group
6.95% 06/15/05 2,650 2,666,851
7.15% 06/15/07 3,000 3,016,379
Time Warner, Inc.
4.90% 07/29/99 6,500 6,466,460
6.10% 12/30/01 2,400 2,457,000
United Parcel Service
8.37% 04/01/30 8,500 11,119,445
-------------
41,874,089
-------------
Par
Maturity (000) Value
---------- ------- ----------
CORPORATE BONDS (Continued)
Telecommunications -- 2.8%
BellSouth Telecommunications, Inc.
7.00% 12/01/45 $ 3,800 $ 4,244,914
Chesapeake & Potomac Telephone
of Maryland
8.30% 08/01/31 3,375 4,298,224
Comcast Cable Communications
8.37% 05/01/07 2,800 3,303,196
Frontier Corp.
6.00% 10/15/03 2,235 2,338,593
U.S. West Capital Funding, Inc.
6.87% 07/15/28 6,200 6,694,955
Worldcom, Inc.
7.75% 04/01/27 4,855 5,699,002
-------------
26,578,884
-------------
Utility -- 1.4%
Consumers Energy Co.
6.37% 02/01/08 5,000 5,130,236
#National Rural Utilities Corp.
6.20% 02/01/08 4,700 5,001,542
Pennsylvania Power & Light
9.25% 10/01/19 200 207,900
Texas Utilities Capital Trust
8.17% 01/30/37 1,072 1,105,363
Texas Utilities Electric Co.
7.37% 08/01/01 125 131,695
Trans-Canada Pipelines
6.49% 01/21/09 2,029 2,122,464
-------------
13,699,200
-------------
Yankee -- 0.9%
Den Norske Stats Oljesel
7.37% 05/01/16 950 1,072,944
Empresa Electrica Pehuenche
7.30% 05/01/03 4,985 4,472,171
Swedbank
7.50% 09/29/49 2,800 2,759,947
-------------
8,305,062
-------------
TOTAL CORPORATE BONDS
(Cost $166,894,498) 169,599,236
-------------
TAXABLE Municipal Bonds -- 2.1%
New Jersey Economic
Development Authority
6.80% 02/15/05 200 143,746
7.09% 06/30/11 4,185 2,086,683
7.56% 02/15/16 10,100 3,594,691
7.59% 02/15/17 3,575 1,196,731
7.21% 02/15/18 5,500 1,734,590
7.62% 02/20-02/21 8,925 2,458,431
7.63% 02/22-02/23 5,150 1,265,115
New York Power Authority and
General Purpose Bond, Series D
6.26% 02/15/03 7,100 7,410,625
-------------
TOTAL TAXABLE MUNICIPAL BONDS
(Cost $16,722,235) 19,890,612
-------------
See accompanying notes to financial statements.
37
<PAGE>
BlackRock Funds
SCHEDULE OF INVESTMENTS
CORE BOND PORTFOLIO (Concluded)
Par
As of September 30, 1998 Maturity (000) Value
-------- ----- ---------
Short Term Investments -- 7.7%
Federal Home Loan Mortgage
Corp. Discount Notes
5.38% 10/01/98 $64,950 $ 64,950,000
Galileo Money Market Fund 7,020 7,020,344
-------------
Total Short Term Investments
(Cost $71,970,344) 71,970,344
-------------
Total Investments IN
SECURITIES -- 100.0%
(Cost $913,090,171*) $934,425,737
-------------
-------------
- ---------------
* Cost for Federal income tax purposes is $913,098,092. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $24,328,324
Gross unrealized depreciation (2,944,653)
------------
$21,383,671
------------
------------
# Total or partial securities on loan.
** Rates shown are the rates as of September 30, 1998.
++ Principal amount of securities pledged as collateral of $2,500,000 on 220
short U.S.Treasury Bonds future contracts and 90 long U.S.Treasury Bonds
future contracts expiring December, 1998. The value of such contracts on
September 30, 1998 was $38,845,047, thereby resulting in an unrealized loss
of $550,091.
See accompanying notes to financial statements.
38
<PAGE>
BlackRock Funds
STATEMENT OF ASSETS AND LIABILITIES
CORE BOND PORTFOLIO
September 30, 1998
<TABLE>
<S> <C>
ASSETS
Investments at value (Cost $913,090,171) ....................... $ 934,425,737
Collateral received for securities loaned ...................... 31,460,250
Interest receivable ............................................ 8,505,503
Principal sold receivable ...................................... 110,689
Investments sold receivable .................................... 129,618,926
Capital shares sold receivable ................................. 589,246
Futures commissions ............................................ 2,882
Prepaid expenses ............................................... 539
--------------
Total assets ............................................ 1,104,713,772
--------------
LIABILITIES
Payable upon return of securities loaned ....................... 31,460,250
Investments purchased payable .................................. 212,534,061
Capital shares redeemed payable ................................ 457,681
Distributions payable .......................................... 4,041,395
Accrued expenses payable ....................................... 495,186
Deferred dollar roll income .................................... 14,993
Reverse repurchase agreements payable .......................... 2,272
Futures margin payable ......................................... 173,579
--------------
Total liabilities ....................................... 249,179,417
--------------
--------------
NET ASSETS (Applicable to 9,163,258 BlackRock shares,
66,590,027 Institutional shares, 6,928,642 Service
shares, 504,846 Investor A shares, 1,159,602
Investor B shares and 201,100 Investor C
shares outstanding) ............................................ $ 855,534,355
--------------
--------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER BLACKROCK SHARE ($92,772,889 (DIVIDE) 9,163,258) ........... $ 10.12
--------------
--------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER INSTITUTIONAL SHARE ($673,823,206 (DIVIDE) 66,590,027) ..... $ 10.12
--------------
--------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SERVICE SHARE ($70,110,759 (DIVIDE) 6,928,642) ............. $ 10.12
--------------
--------------
NET ASSET VALUE AND REDEMPTION PRICE
PER INVESTOR A SHARE ($5,108,250 (DIVIDE) 504,846) ............. $ 10.12
--------------
--------------
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE
($10.12 (DIVIDE) 0.960) ........................................ $ 10.54
--------------
--------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 4.5%)
PER INVESTOR B SHARE ($11,733,991 (DIVIDE) 1,159,602) ......... $ 10.12
--------------
--------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 1.0%)
PER INVESTOR C SHARE ($2,034,990 (DIVIDE) 201,100) ........... $ 10.12
--------------
--------------
</TABLE>
See accompanying notes to financial statements.
39
<PAGE>
BlackRock Funds
STATEMENT OF NET ASSETS
GOVERNMENT INCOME PORTFOLIO
Par
As of September 30, 1998 Maturity (000) Value
-------- ------- ----------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 36.0%
Small Business Administration
Participation Certificates,
Series 96-20J, Class 1
7.20% 10/01/16 $ 424 $ 457,129
U.S. Treasury Bonds
6.25%+ 08/15/23 3,545 4,060,892
6.37% 08/15/27 1,500 1,769,412
6.12%+ 11/15/27 1,575 1,815,760
U.S. Treasury Bonds (CPI)
3.62% 04/15/28 275 276,779
U.S. Treasury Notes
6.50% 08/31/01 200 211,473
6.25%+ 02/28/02 650 688,342
5.75% 11/30/02 1,425 1,499,032
5.50% 05/31/03 800 839,096
5.62% 05/15/08 155 169,756
----------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $11,088,844) 11,787,671
----------
MORTGAGE PASS-THROUGHS -- 83.4%
Federal Home Loan Mortgage Corporation
7.00%++ 08/10-01/11 1,601 1,645,069
6.50% 02/15/11 4,000 4,082,500
6.00% 10/11-06/13 965 975,674
8.00% 05/12-11/26 5,212 5,397,864
7.50% 11/25-06/27 133 137,595
Federal National Mortgage Association
7.00% 08/10-12/11 510 523,008
8.50% 01/01/13 1,189 1,261,393
6.50% 01/13-07/13 1,945 1,986,181
8.00% 11/01/13 265 278,284
7.50% 06/24-10/20 1,871 2,553,119
6.00% 10/14/28 2,000 1,993,750
Government National Mortgage Association
8.00% 04/20/13 326 335,677
7.00% 05/26-12/27 3,030 3,131,633
7.50% 04/27-12/27 867 899,243
6.00% 07/20/27 347 350,491
6.50% 11/23-03/28 1,744 1,782,736
----------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $27,012,977) 27,334,217
----------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS -- 7.6%
Federal Home Loan Mortgage
Corporation, Series, Class PE (IO)
7.00% 03/15/28 57 13,583
Federal Home Loan Mortgage
Corporation, Series, Class IB (IO)
7.00% 04/15/28 50 11,418
Federal National Mortgage Association,
Series 96-54, Class A (PO)
5.85% 04/25/21 374 348,126
Residential Accredit Loans, Inc.,
Series 98-QS4, Class A1
6.50% 03/25/28 260 260,580
Residential Accredit Loans, Inc.,
Series 98-QS5, Class A1
6.75% 04/25/28 362 363,925
Residential Accredit Loans, Inc.,
Series 97-QS12, Class A7
7.25% 11/25/27 298 309,462
Par
Maturity (000) Value
-------- ------- ----------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS (Continued)
Residential Asset Securitization Trust,
Series 98-A6, Class A1
6.75% 07/25/28 $ 372 $ 374,098
Residential Asset Securitization Trust,
Series 98-A8, Class A2
6.75% 08/25/28 369 371,066
Salomon Brothers Mortgage Securities
VI, Series 87-1 (IO)
5.50% 04/20/07 422 93,826
Salomon Brothers Mortgage Securities
VI, Series 87-1 (PO)
6.00% 02/17/17 422 357,605
----------
Total Multiple Class Mortgage
Pass-Throughs
(Cost $2,478,188) 2,503,689
----------
COMMERCIAL MORTGAGE BACKED
SECURITIES -- 6.5%
DLJ Mortgage Acceptance Corp.,
Series 98-2, Class 1PA1
6.75% 06/19/28 297 300,765
Federal Housing Authority, INSD
Project, Series 82
7.43% 09/01/22 293 303,835
Goldman Sachs Mortgage Securities
Corp., Series 98-1, Class A
8.00% 08/19/19 239 252,128
Goldman Sachs Mortgage Securities
Corp., Series 98-2, Class A
7.75% 05/19/27 240 251,909
Merit Securities Corp., Series 98-11,
Class 1A1
6.58%** 10/01/98 152 152,008
MLCC Mortgage Investors, Inc.,
Series 96-C2, Class E
6.96% 11/21/28 70 70,197
Morgan Stanley Capital 1,
Series 98-WF1, Class A1
6.25% 07/15/07 191 195,470
Morgan Stanley Capital 1,
Series 98-CF1, Class A1
6.33% 10/15/07 249 255,033
Structured Asset Securitization Corp.,
Series 98-C2, Class A
5.77%** 10/25/98 91 90,976
Union Planters Mortgage Finance Corp.,
Series 98-1, Class A1
6.35% 01/25/28 244 246,556
----------
TOTAL COMMERCIAL MORTGAGE
BACKED SECURITIES
(Cost $2,095,805) 2,118,877
----------
Project Loans -- 0.7%
Excelsior II Apartments, Construction
Loan Collateral
7.87% 02/01/39 126 138,462
Excelsior II Apartments, Construction
Loan Committment
8.04% 02/01/39 74 80,485
----------
Total Project Loans
(Cost $200,943) 218,947
----------
See accompanying notes to financial statements.
40
<PAGE>
BlackRock Funds
STATEMENT OF NET ASSETS
GOVERNMENT INCOME PORTFOLIO (Concluded)
Par
As of September 30, 1998 Maturity (000) Value
-------- ------- ----------
ASSET BACKED SECURITIES -- 0.5%
Chase Manhattan Grantor Trust,
Series 96-B, Class A
6.61% 09/15/02 $ 79 $ 80,435
Chevy Chase Auto Receivables Trust,
Series 96-2, Class A
5.90% 07/15/03 89 89,904
----------
Total Asset Backed Securities
(Cost $167,260) 170,339
----------
Short Term Investments -- 0.5%
Galileo Money Market Fund
(Cost $174,514) 175 174,514
----------
TOTAL INVESTMENTS IN SECURITIES
(Cost $43,218,531*) 135.2% 44,308,254
==========
REVERSE REPURCHASE AGREEMENTS -- (13.5%)
Commerzbank
(Agreement dated 09/28/98 to be
repurchased at $476,942.
Collateralized by $450,000 U.S.
Treasury Note 6.25% due 02/28/02.
The value of the collateral is
$478,862.)
5.45% 10/05/98 476 (476,654)
Lehman Brothers
(Agreement dated 09/24/98 to be
repurchased at $1,807,081.
Collateralized by $1,575,000 U.S.
Treasury Bond 6.125% due 11/15/27.
The value of the collateral is
$1,851,935.)
4.95% 10/01/98 1,805 (1,807,081)
Lehman Brothers
(Agreement dated 09/25/98 to be
repurchased at $2,031,599.
Collateralized by $1,800,000 U.S.
Treasury Bonds 6.25% due 08/15/23.
The value of the collateral is
$2,076,316.)
5.32% 10/02/98 2,030 (2,031,299)
Morgan Stanley
(Agreement dated 09/15/98 to be
repurchased at $105,008.
Collateralized by $100,000 U.S.
Treasury Notes 6.25% 02/28/02.
The value of the collateral is
$106,414.)
5.55% 10/01/98 100 (105,009)
----------
Total Reverse Repurchase
Agreements
(Cost $4,415,147) (4,420,043)
Liabilities in Excess of
Other Assets (Including
$7,495,733 of investment
purchases payable) (21.7%) (11,547,066)
------ ----------
Value
----------
NET ASSETS (Applicable to 557,445
Investor A shares, 2,320,626
Investor B shares and 142,973
Investor C shares outstanding) 100.0% $32,761,188
===== ===========
NET ASSET VALUE AND REDEMPTION
PRICE PER INVESTOR A SHARE
($6,045,305 (DIVIDE) 557,445) $10.84
======
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($10.84 (DIVIDE) .955) $11.35
======
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION PRICE
(subject to a contingent deferred
sales charge of 4.5%)
PER INVESTOR B SHARE
($25,165,393 (DIVIDE) 2,320,626) $10.84
======
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE
(subject to a contingent deferred
sales charge of 1.0%)
PER INVESTOR C SHARE
($1,550,490 (DIVIDE) 142,973) $10.84
======
- ----------
* Also cost for Federal income tax purposes. The gross
unrealized appreciation (depreciation) on a tax basis
is as follows:
Gross unrealized appreciation $1,169,507
Gross unrealized depreciation (79,784)
----------
$1,089,723
==========
** Rates shown are the rates as of September 30, 1998.
+ Partial principal in the amount of $ 3,835,000 has been pledged as
collateral for reverse repurchase agreements.
++ Principal amount of securities pledged as collateral of $112,957
on 2 short U.S. Treasury Bonds and 51 short U.S. Treasury Notes
future contracts expiring December 1998. The value of such
contracts on September 30, 1998 was $6,026,500, thereby resulting
in an unrealized loss of $205,633.
See accompanying notes to financial statements.
41
<PAGE>
BlackRock Funds
STATEMENT OF NET ASSETS
GNMA PORTFOLIO
Par
As of September 30, 1998 Maturity (000) Value
-------- ------- ----------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 15.2%
U.S. Treasury Bonds
6.25% 08/15/23 $1,540 $1,764,111
6.12% 11/15/27 975 1,124,042
U.S. Treasury Bonds (CPI)
3.62% 04/15/28 1,300 1,308,408
U.S. Treasury Notes
5.75% 09/30/99 750 758,677
6.00% 08/15/00 4,020 4,136,333
6.25% 02/28/02 750 794,240
5.75% 11/30/02 7,075 7,442,565
5.50% 05/31/03 650 681,765
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $17,620,816) 18,010,141
----------
MORTGAGE PASS-THROUGHS -- 69.8%
Federal Home Loan Mortgage
Corporation
7.50% 02/27-05/27 881 902,371
Federal National Mortgage Association
6.50% 02/13-06/28 5,522 6,076,312
8.00% 11/01/13 1,060 1,113,135
Government National Mortgage
Association
9.00% 05/18-07/21 2,515 2,682,881
8.50% 01/17-09/21 2,529 3,114,838
8.00% 01/17-10/25 12,127 11,505,228
6.50% 06/23-04/26 8,313 8,497,040
7.50% 01/22-11/27 19,508 20,240,038
6.00% 07/20/27 1,477 1,489,586
7.00%++ 01/28-05/28 26,499 27,309,282
----------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $80,041,368) 82,930,711
----------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS -- 0.9%
Residential Asset Securitization Trust,
Series 98-A8, Class A2
6.75% 06/25/28 1,060 1,066,816
----------
(Cost $1,058,850)
COMMERCIAL MORTGAGE BACKED
SECURITIES -- 2.6%
Federal Housing Authority, INSD
Project, Series 82
7.43% 09/01/22 1,541 1,595,137
Merit Securities Corp., Series 98-11,
Class 1A1
6.58% 07/28/22 684 684,035
Morgan Stanley Capital, Inc.
Series 98-WF1, Class A1
6.25% 07/15/07 739 756,819
----------
TOTAL COMMERCIAL MORTGAGE
BACKED SECURITIES
(Cost $3,012,718) 3,035,991
----------
Par
Maturity (000) Value
-------- ------- ----------
PROJECT LOANS -- 13.9%
Castle Terrace, Construction Loan
Collateral
9.00% 10/01/38 $ 403 $ 439,750
Castle Terrace, Construction Loan
Committment
8.00% 10/01/38 1,101 1,201,770
Excelsior II Apartments, Construction
Loan Collateral
7.87% 02/01/39 663 725,284
Excelsior II Apartments, Construction
Loan Committment
7.87% 02/01/39 337 369,453
Federal Housing Administration,
Arrowhead Springs Apartments,
Construction Loan Collateral
7.55% 02/01/39 758 809,708
Federal Housing Administration,
Arrowhead Springs Apartments,
Construction Loan Committment
7.55% 02/01/39 357 381,965
Federal Housing Administration,
Creekwood Apartments,
Construction Loan Collateral
7.30% 11/30/38 1,778 1,896,373
Federal Housing Administration,
Creekwood Apartments,
Construction Loan Committment
7.18% 11/30/38 222 237,252
Federal Housing Administration,
Greens At Viera East Apartments,
Construction Loan Collateral
7.87% 12/01/38 1,026 1,104,558
Federal Housing Administration,
Greens At Viera East Apartments,
Construction Loan Committment
7.87% 12/01/38 318 342,200
Federal Housing Administration,
Prairie District Lofts, Construction
Loan Collateral
7.41% 12/01/38 569 602,245
Federal Housing Administration,
Prairie District Lofts, Construction
Loan Committment
7.41% 12/01/38 916 970,068
Federal Housing Administration,
Renaissance Place Apartments,
Construction Loan Collateral
7.37% 02/01/39 1,272 1,354,014
Federal Housing Administration,
Renaissance Place Apartments,
Construction Loan Committment
7.37% 02/01/39 607 646,185
Federal Housing Administration,
Triangle Point Apartments,
Construction Loan Collateral
7.75% 09/30/38 591 639,550
Federal Housing Administration,
Triangle Point Apartments,
Construction Loan Committment
7.75% 09/30/38 1,376 1,488,593
Federal Housing Administration,
Village At Stone Falls, Construction
Loan Collateral
7.37% 01/01/39 1,009 1,072,362
See accompanying notes to financial statements.
42
<PAGE>
BlackRock Funds
STATEMENT OF NET ASSETS
GNMA PORTFOLIO (Concluded)
Par
As of September 30, 1998 Maturity (000) Value
-------- ------- ----------
PROJECT LOANS (Continued)
Federal Housing Administration,
Village At Stone Falls, Construction
Loan Committment
7.37% 01/01/39 $ 543 $ 577,646
Timber Ridge Apartments, Construction
Loan Collateral
7.50% 06/01/37 1,314 1,417,257
Timber Ridge Apartments, Construction
Loan Committment
7.50% 06/01/37 186 200,868
-----------
TOTAL PROJECT LOANS
(Cost $15,265,529) 16,477,101
-----------
SHORT TERM INVESTMENTS -- 0.7%
Galileo Money Market Fund
(Cost $851,516) 852 851,516
-----------
TOTAL INVESTMENTS IN SECURITIES
(Cost $117,850,797*) 103.1% 122,372,276
LIABILITIES IN EXCESS
OF OTHER ASSETS (3.1%) (3,632,283)
------ -----------
NET ASSETS (Applicable to 11,676,556
Institutional shares, 10 Service
shares, 52,918 Investor A shares,
16,463 Investor B shares and 10
Investor C shares outstanding) 100.0% $118,739,993
===== ============
Value
----------
NET ASSET VALUE AND REDEMPTION
PRICE PER INSTITUTIONAL, SERVICE
AND INVESTOR A SHARE
($118,573,474 (DIVIDE) 11,729,484) $10.11
======
OFFERING PRICE PER INSTITUTIONAL
AND SERVICE SHARE $10.11
======
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($10.11 (DIVIDE) .955) $10.59
======
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE
(subject to a contingent deferred
sales charge of 4.5%)
PER INVESTOR B SHARE
($166,417 (DIVIDE) 16,463) $10.11
======
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE
(subject to a contingent deferred
sales charge of 4.0%)
PER INVESTOR C SHARE
($102 (DIVIDE) 10) $10.11
======
- ----------
* Also cost for Federal income tax purposes. The gross unrealized
appreciation on a tax basis is $4,521,479
++ Principal amount of securities pledged as collateral of $500,000 on 127
short U.S. Treasury Notes future contracts, 34 long U.S. Treasury Note
future contracts and 19 long U.S. Treasury Bond future contracts expiring
December, 1998. The value of such contracts on September 30, 1998 was
$21,828,875, thereby resulting in an unrealized loss of $643,289.
See accompanying notes to financial statements.
43
<PAGE>
BlackRock Funds
SCHEDULE OF INVESTMENTS
MANAGED INCOME PORTFOLIO
Par
As of September 30, 1998 Maturity (000) Value
-------- ------- ----------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 15.2%
Overseas Private Investment Co.
6.84% 02/15/05 $ 620 $ 667,721
6.46% 12/06/06 156 161,927
5.92% 12/16/06 1,610 1,631,131
6.27% 12/16/06 2,735 2,829,258
6.38% 12/16/06 1,476 1,532,882
6.53% 12/16/06 384 400,024
5.88% 05/29/12 481 484,104
6.27% 05/29/12 310 326,259
Small Business Administration
Participation Certificates,
Series 97, Class A
6.35% 08/15/22 5,099 5,111,692
Small Business Administration
Participation Certificates,
Series 96-20B, Class 1
6.37% 02/01/16 6,961 7,237,122
Small Business Administration
Participation Certificates,
Series 96-20K, Class 1
6.95% 11/10/16 9,416 10,020,140
Small Business Administration
Participation Certificates,
Series 97-20B, Class 1
7.10% 02/01/17 6,757 7,411,115
Small Business Administration
Participation Certificates,
Series 97-20F, Class 1
7.20% 06/01/17 2,186 2,361,559
Small Business Administration
Participation Certificates,
Series 97-20G, Class 1
6.85% 07/01/17 12,402 13,215,418
U.S. Treasury Bonds
8.75% 11/15/08 9,880 11,766,174
12.75% 11/15/10 9,375 13,962,273
8.50% 02/15/20 28,500 40,593,111
6.25% 08/15/23 3,032 3,473,237
6.50% 11/15/26 12,150 14,489,900
6.12% 11/15/27 8,663 9,987,257
5.50% 08/15/28 18,680 20,211,213
U.S. Treasury Bonds (CPI)
3.62% 04/15/28 38,565 38,814,420
U.S. Treasury Notes
5.75% 09/30/99 19,840 20,069,541
5.87% 11/15/99 23,000 23,330,899
5.25% 08/15/03 7,540 7,878,395
6.12% 08/15/07 700 783,496
5.62% 05/15/08 7,115 7,792,370
U.S. Treasury Notes (CPI)
3.37% 01/15/07 13,545 13,738,015
-----------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $267,675,025) 280,280,653
-----------
MORTGAGE PASS-THROUGHS -- 19.8%
Federal Home Loan Mortgage
Corporation
9.00% 07/01/01 63 65,481
6.50% 08/10-03/11 17,451 17,822,890
6.00% 11/12-06/13 7,377 7,462,715
7.00% 05/01/26 971 997,194
8.00% 02/01/27 6,105 6,328,218
7.50% 12/6-10/27 20,090 20,949,642
Par
Maturity (000) Value
-------- ------- ----------
MORTGAGE PASS-THROUGHS (Continued)
Federal National Mortgage Association
9.50% 03/01/05 $ 25 $ 26,071
6.80% 07/23/07 12,025 12,574,542
6.00% 12/99-10/17 107,783 107,756,714
Federal National Mortgage Association
4.43%** 12/25/08 4,595 4,549,419
7.00% 10/10-05/26 3,651 3,746,815
6.50% 02/11-09/28 68,513 69,670,627
Government National Mortgage
Association
7.25% 04/15/15 1,249 1,297,662
9.00% 03/18-11/20 1,656 1,766,433
8.50% 01/17-11/21 596 629,307
9.50% 09/16-12/24 1,460 1,569,217
6.00% 07/20/27 20,326 20,503,714
7.50% 04/23-09/27 1,308 1,356,699
6.50% 11/23-01/28 46,290 47,316,965
7.00% 02/26-09/28 25,936 26,765,274
8.00% 02/22-05/37 5,082 5,397,460
MLCC Mortgage Investors, Inc.,
Series 95-C, Class D
8.04%** 05/25/15 3,506 3,763,472
MLCC Mortgage Investors,
Inc., Series 96-C1, Class A2
7.24% 04/25/28 7,113 7,558,674
MLCC Mortgage Investors, Inc.,
Series 96-C1, Class A3
7.42% 04/25/28 5,500 6,017,344
MLCC Mortgage Investors, Inc.,
Series 96-C2, Class E
6.96% 11/21/28 2,725 2,732,664
------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $351,243,810) 378,625,213
------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS -- 1.3%
Federal Home Loan Mortgage Corporation,
Series 2035, Class PE (IO)
7.00% 03/15/28 2,930 698,214
Federal Home Loan Mortgage Corporation,
Series 2043, Class IB (IO)
7.00% 04/15/28 2,587 590,757
Federal National Mortgage Association
Strip Notes, Series 279, Class 1 (PO)
6.00% 07/01/26 740 673,145
Residential Accredit Loans, Inc.,
Series 97-QS10, Class A1
7.25% 10/25/27 10,374 10,480,327
Residential Accredit Loans, Inc.,
Series 97-QS7, Class A1
7.50% 08/15/27 3,397 3,416,333
Residential Asset Securitization Trust,
Series 97-A7, Class A1
7.50% 09/25/27 7,782 7,826,067
------------
TOTAL MULTIPLE CLASS MORTGAGE
PASS-THROUGHS
(Cost $23,570,783) 23,684,843
------------
COMMERCIAL MORTGAGE BACKED
SECURITIES -- 15.8%
ACLC Franchise Loan Receivables
Trust, Series 98-1, Class A1
6.43% 07/15/13 10,439 10,680,533
Advanta Mortgage Loan Trust,
Series 96-1, Class A7
7.07% 03/25/27 1,600 1,673,250
See accompanying notes to financial statements.
44
<PAGE>
BlackRock Funds
SCHEDULE OF INVESTMENTS
MANAGED INCOME PORTFOLIO (Continued)
Par
As of September 30, 1998 Maturity (000) Value
-------- ------- ----------
Commercial Mortgage Backed
Securities (Continued)
Chase Credit Card Master Trust,
Series 97-5, Class A
6.19% 08/15/05 $ 49,515 $ 51,238,685
Chase Mortgage Finance Corp.,
Series 98-S2, Class A1
6.50% 07/25/28 7,100 7,211,840
Citicorp Mortgage Securities, Inc.,
Series 98-6, Class A1
6.50% 07/25/28 12,633 12,820,771
CS First Boston Mortgage Securities
Corp., Series 95-AEW1, Class C
7.45% 11/25/27 4,050 4,115,812
Discover Card Master Trust I
Series 1998-6, Class A
5.85% 01/17/06 8,175 8,370,119
DLJ Mortgage Acceptance Corp.,
Series 98-2, Class 1PA1
6.75% 04/25/28 19,482 19,750,249
Empire Funding Home Loan Owner
Trust, Series 98-2, Class A4
6.53% 02/25/19 15,000 15,075,000
FFCA Secured Lending Corp.,
Series 1998-1, Class A1B
6.73% 07/18/13 8,246 8,585,407
Fingerhut Master Trust, Series 98-2,
Class A
6.23% 02/15/07 2,800 2,920,732
First Nationwide Trust, Series 98-3,
Class 1PPA
6.50% 07/31/28 16,775 16,918,900
First Union-Lehman Brothers
Commercial Mortgage,
Series 98-C2, Class A2
6.56% 11/18/08 16,250 17,064,004
FPlus Series 98-3, Class A8
7.17%** 05/10/24 7,300 7,637,625
GMAC Commercial Mortgage Securities,
Inc., Series 98-C2, Class A2
6.42% 05/15/31 13,000 13,512,308
Health Care Receivables Securitization
Program, Series 98-1, Class A
6.22% 06/01/02 13,800 13,984,841
Impac Secured Assets Common
Owner Trust, Series 98-1, Class A1
6.70% 02/25/07 1,942 1,946,780
J.P. Morgan Commercial Mortgage
Finance Corp., Series 96-C3,
Class A1
7.33% 04/25/28 2,319 2,479,353
Merit Securities Corp., Series 98-10,
Class 2A1
5.85%** 05/28/25 2,531 2,538,331
Merit Securities Corp., Series 98-11,
Class 1A1
6.58%** 05/15/15 9,270 9,272,474
Midland Royalty Acceptance Corp.,
Series 96-C, Class A
7.23% 01/25/29 6,200 6,704,397
Morgan Stanley, Series 95, Class D
8.25% 08/15/27 2,000 2,136,279
Mortgage Capital Funding, Inc.,
Series 98-MC2, Class A1
6.32% 06/18/30 11,558 12,004,644
Par
Maturity (000) Value
-------- ------- ----------
COMMERCIAL MORTGAGE BACKED
SECURITIES (Continued)
PNC Mortgage Securities Corp.,
Series 97-6, Class A2
6.60% 07/25/27 $ 8,936 $ 9,025,351
Prudential Securities Secured Financing
Corp., Series 95-MCF2, Class F
6.50% 07/15/28 14,000 14,625,625
Ryland Acceptance Corp., Series 78,
Class B
9.55% 03/01/16 178 179,400
Structured Asset Securitization Corp.,
Series 98-C2, Class A
5.85%** 01/25/13 4,013 4,002,934
Union Planters Mortgage Finance Corp.,
Series 98-1, Class A3
6.60% 01/25/28 9,094 9,445,873
USGI, Series 87
7.43% 12/01/22 916 948,302
------------
TOTAL COMMERCIAL MORTGAGE
BACKED SECURITIES
(Cost $325,210,557) 286,869,819
------------
PROJECT LOANS -- 3.3%
Federal Housing Authority, Huntoon
Paige, Construction Loan Collateral
7.31% 10/01/24 16,338 17,237,085
Federal Housing Authority, Lakeland
Nursing, Construction Loan Collateral
7.87% 12/01/34 11,831 12,606,916
Federal Housing Authority,
Meadowbrook of Topeka,
Construction Loan Collateral
8.50% 08/01/22 1,667 1,834,166
Federal Housing Authority, Riverwalk,
Construction Loan Collateral
8.22% 06/01/36 1,565 1,708,788
Federal Housing Authority, University
Park Apartments, Construction Loan
Collateral
7.87% 10/01/37 4,517 4,875,822
Federal Housing Authority, Village
Green, Construction Loan Collateral
8.25% 09/01/34 4,957 5,254,094
Federal Housing Authority, Washington
Pc94, Non-Public, Construction
Loan Collateral
6.90% 02/01/14 2,202 2,261,378
Federal Housing Authority, Whittier
Rehab At Westborough, Construction
Loan Commitment
8.12% 02/28/37 221 240,746
Reilly Mortgage Securities, Series 97-A
6.89% 11/11/18 6,545 6,806,537
Whittier Rehab At Westborough
Project Loan
8.12% 02/28/37 7,146 7,773,073
------------
TOTAL PROJECT LOANS
(Cost $57,854,388) 60,598,605
------------
ASSET BACKED SECURITIES -- 18.7%
Arcadia Automobile Receivables Trust,
Series 97-B, Class A3
6.30% 07/16/01 7,910 7,936,500
Arcadia Automobile Receivables Trust,
Series 97-C, Class A2
6.05% 11/15/00 5,993 5,997,041
See accompanying notes to financial statements.
45
<PAGE>
BlackRock Funds
SCHEDULE OF INVESTMENTS
MANAGED INCOME PORTFOLIO (Continued)
Par
As of September 30, 1998 Maturity (000) Value
-------- ------- ----------
ASSET BACKED SECURITIES (Continued)
Arcadia Automobile Receivables Trust,
Series 98-B, Class A3
5.95% 11/15/02 $ 17,500 $ 17,725,479
Arcadia Automobile Receivables
Trust, Series 98-C, Class A2
5.51% 02/15/02 2,750 2,742,695
Arcadia Automobile Receivables Trust,
Series 98-C, Class A3
5.83% 02/15/08 10,450 10,525,926
Associates Manufactured Housing
Pass-Through, Series 96-1, Class B1
8.00% 03/15/27 3,200 3,332,000
Banc One Auto Grantor Trust,
Series 97-B, Class A
6.29% 07/20/04 9,584 9,695,753
Brazos Student Loan Finance Corp.,
Series 98-A, Class A2
6.06%** 06/01/23 1,800 1,776,375
CIT Group Securitization Corp.,
Series 95-2, Class B
7.65% 05/15/26 7,650 7,583,062
Copelco Capital Funding Corp.,
Series 97-A, Class A3
6.27% 04/20/05 11,555 11,603,748
Corporate Bond Backed Certificates,
Series 97-10
8.12% 09/15/17 5,442 6,125,130
Daimler-Benz Auto Grantor Trust,
Series 97-A, Class A
6.05%** 03/31/05 3,663 3,708,264
Equicon Home Equity Loan Trust,
Series 93-1, Class I (IO)
10.74% 02/18/13 9,411 117,637
Fifth Third Auto Grantor Trust,
Series 96-B, Class A
6.45% 03/15/02 1,082 1,091,760
First Security Auto Grantor Trust,
Series 97-B, Class A
6.10% 04/15/03 2,261 2,279,500
FMAC Loan Receivables Trust,
Series 97-B, Class A
6.85% 09/01/19 6,691 7,017,158
FMAC Loan Receivables Trust,
Series 97-C, Class A
6.75% 12/15/19 1,295 1,351,109
Green Tree Financial Corp.
Series 97-3, Class B1
7.51% 07/15/28 2,500 2,489,938
Green Tree Financial Corp.,
Series 93-3, Class B
6.85% 10/15/18 4,000 4,010,469
Green Tree Financial Corp.,
Series 94-B, Class A
7.85% 07/15/04 983 992,202
Green Tree Financial Corp.,
Series 95-7, Class B1
7.35% 11/15/26 7,525 7,468,562
Green Tree Financial Corp.,
Series 95-A, Class A
7.25% 07/15/05 5,585 5,620,586
Green Tree Financial Corp.,
Series 96-2, Class B2
7.90% 04/15/27 2,500 2,378,478
Green Tree Financial Corp.,
Series 96-5, Class A7
8.25% 07/15/27 5,534 6,196,626
Par
Par
Maturity (000) Value
-------- ------- ----------
ASSET BACKED SECURITIES (Continued)
Green Tree Financial Corp.,
Series 96-7, Class A6
7.65% 10/15/27 $ 9,025 $ 9,621,445
Green Tree Financial Corp.,
Series 96-8, Class B1
7.95% 01/01/05 3,000 3,032,267
Green Tree Financial Corp.,
Series 97-1, Class B1
7.23% 03/02/28 9,000 8,908,803
Green Tree Financial Corp.,
Series 97-2, Class A7
7.62% 04/15/27 2,717 2,954,233
Green Tree Financial Corp.,
Series 97-3, Class A7
7.64% 07/15/28 6,050 6,623,281
Green Tree Financial Corp.,
Series 97-3, Class B2
8.03% 07/15/28 7,050 6,782,259
Green Tree Home Improvement Loan
Trust, Series 94-D, Class M
9.05% 01/15/15 500 526,206
Green Tree Home Improvement Loan
Trust, Series 96-C, Class HIB1
7.75% 06/15/21 6,850 6,852,360
Green Tree Home Improvement Loan
Trust, Series 97-A, Class Hem2
7.90% 03/15/28 5,150 5,364,773
Keycorp Student Loan Trust,
Series 95-B, Class A
5.75% 09/27/24 9,851 9,850,585
Mellon Bank Home Equity Loan Trust,
Series 96-1, Class B2
6.01%** 04/15/26 3,526 3,525,512
Newcourt Receivables Asset Trust,
Series 97-1, Class A3
6.11% 05/20/05 15,400 15,450,531
Nissan Auto Receivables Grantor Trust,
Series 95-A, Class A
6.10% 08/15/01 2,180 2,183,526
Nissan Auto Receivables Grantor Trust,
Series 97-A, Class A
6.15% 02/17/03 6,616 6,637,916
Puget Power Conservation Grantor
Trust, Series 97-1, Class A
6.23% 07/11/02 10,521 10,626,427
Railcar Leasing LLC, Series 97-1,
Class A1
6.75% 07/15/06 11,169 12,026,169
Sears Credit Account Master Trust,
Series 95-5, Class A
6.05% 01/16/08 3,812 3,938,177
Sears Credit Account Master Trust,
Series 96, Class A
6.45% 10/15/06 4,200 4,347,759
Sears Credit Account Master Trust,
Series 97-1, Class A
6.20% 07/15/03 8,000 8,265,772
Sears Credit Account Master Trust,
Series 98-1, Class A
5.80% 08/01/01 7,900 7,969,125
Sears Credit Card Master Trust,
Series 96-3, Class A
7.00% 07/15/08 11,600 12,441,786
See accompanying notes to financial statements.
46
<PAGE>
BlackRock Funds
SCHEDULE OF INVESTMENTS
MANAGED INCOME PORTFOLIO (Continued)
Par
As of September 30, 1998 Maturity (000) Value
-------- ------- ----------
ASSET BACKED SECURITIES (Continued)
The Money Store Business Loan
Backed Securities, Series 97-1,
Class A
6.39%** 04/15/28 $ 7,931 $ 7,966,053
The Money Store Home Equity Trust,
Series 96-B, Class A5
7.18% 12/15/14 12,950 12,995,407
The Money Store Home Equity Trust,
Series 97-C, Class MH2
7.35% 02/15/24 2,775 2,851,994
World Omni Automobile Lease
Securitization Corp., Series 97-B,
Class A1
6.07% 11/25/03 12,500 12,558,594
------------
TOTAL ASSET BACKED SECURITIES
(Cost $288,487,992) 314,066,958
------------
CORPORATE BONDS -- 22.5%
Finance -- 11.8%
AFC Capital Trust I
8.20% 02/03/27 6,100 6,948,255
Allmerica Financial Corp.
7.62% 10/15/25 400 434,569
AMB Property L.P.
6.90%** 06/30/05 2,600 2,670,538
American General Capital Securities
7.57% 12/01/45 10,250 10,954,926
Ameritech Capital Funding Corp.
6.55% 01/15/28 3,330 3,433,906
Amvescap PLC
6.60% 05/15/05 2,200 2,255,308
AT&T Capital Corp.
6.25% 05/15/01 4,500 4,557,074
Bank of New York
7.78% 12/01/26 2,150 2,281,687
BankAmerica Institutional
7.70% 12/31/26 3,100 3,222,568
BGB Finance
6.62% 12/30/99 8,000 8,115,704
British Gas Finance
6.62% 06/01/18 3,700 3,644,078
Calenergy Co Inc
7.23% 09/15/05 5,225 5,226,633
Crown Cork & Seal, S.A.
6.75% 12/15/03 3,000 3,071,986
Equitable Life Assurance Society
7.70% 12/01/15 7,000 7,673,557
Fairfax Financial
8.30%(DOUBLE DAGGER) 04/15/26 7,400 7,865,307
Farmers Exchange Capital
7.20% 07/15/48 4,000 3,997,833
Federal Express
7.60% 07/01/47 2,750 2,674,225
First of America
8.12% 01/31/27 5,350 5,760,360
Ford Motor Credit Corp.
6.12% 04/28/03 815 844,381
General Electric Global Insurance
Holding Corp.
7.00% 02/15/26 2,050 2,269,237
General Motors
8.80% 03/01/21 3,000 3,746,250
Goldman Sachs Escrow Corp.
7.00% 08/01/03 12,025 11,936,135
Par
Maturity (000) Value
-------- ------- ----------
CORPORATE BONDS (Continued)
Finance (Continued)
Goldman Sachs Group LP
6.25% 02/01/03 $ 6,030 $ 6,118,771
Household International Corp.
6.00% 03/15/99 10,000 10,025,000
HSBC America Capital II
8.38% 05/15/27 9,900 9,653,475
Ikon Capital Resources
6.93% 06/07/99 11,700 11,721,986
Larwin Group - Participation in
Asset Exchange
8.00% 12/01/99 13 12,515
Lehman Brothers Holdings, Inc.
6.75% 09/24/01 8,000 7,865,916
6.20% 01/15/02 7,200 6,972,167
Liberty Mutual Insurance Co.
7.69% 10/15/47 8,250 8,074,417
Lowes Co.
6.87% 02/15/28 3,000 3,108,519
Mellon Capital II
7.99% 01/15/27 9,040 9,712,902
Merrill Lynch & Co.
6.47% 06/27/00 8,550 8,705,026
Metropolitan Life Insurance Co.
6.30% 11/01/03 3,600 3,717,849
Paine Webber, Inc.
6.31% 07/22/99 5,000 5,020,292
Panamerican Beverages
7.25% 07/01/09 8,735 8,020,769
Riggs Capital Trust II Preferred
Securities, Series C
8.87% 03/15/27 4,500 4,672,070
Salomon, Inc.
8.90% 02/15/00 3,600 3,768,259
Yorkshire Power Finance
6.49% 02/25/08 4,100 4,224,328
------------
214,978,778
------------
Industrial -- 5.6%
Albertson's, Inc.
6.62% 06/01/28 3,825 3,844,889
Burlington North Santa Fe
6.70% 08/01/28 1,795 1,819,469
Dayton Hudson Corp.
5.95% 06/15/00 3,400 3,442,843
ERAC USA Finance Co.
6.95% 03/01/04 1,017 1,049,419
Hasbro, Inc.
6.60% 07/15/28 3,825 3,867,554
IBM Corp.
6.50% 01/15/28 4,700 4,892,736
Litton Industries, Inc.
6.75% 04/15/18 1,630 1,650,470
Mckesson Corp.
6.30% 03/01/05 5,500 5,658,963
Proctor & Gamble
9.36% 01/01/21 9,350 12,382,536
RJR Nabisco, Inc.
8.75% 04/15/04 8,075 8,384,339
6.85% 06/15/05 8,300 8,268,937
7.05% 07/15/07 3,380 3,364,663
7.55% 06/15/15 5,950 5,858,184
TCI Communications, Inc.
6.37% 05/01/03 4,140 4,327,775
See accompanying notes to financial statements.
47
<PAGE>
BlackRock Funds
SCHEDULE OF INVESTMENTS
MANAGED INCOME PORTFOLIO (Concluded)
Par
As of September 30, 1998 Maturity (000) Value
-------- ------- ----------
CORPORATE BONDS (Continued)
Industrial (Continued)
Time Warner, Inc.
4.90% 07/29/99 $ 9,600 $ 9,550,464
6.10% 12/30/01 8,350 8,548,313
USA Waste Management, Inc.
6.12% 07/15/01 5,455 5,555,574
Williams Companies, Inc.
6.50% 08/01/06 9,360 9,596,409
--------------
102,063,537
--------------
Telecommunications -- 1.7%
BellSouth Telecommunications, Inc.
7.00% 12/01/45 6,200 6,925,912
U.S. West Capital Funding, Inc.
6.87% 07/15/28 11,450 12,364,070
Worldcom, Inc.
7.75% 04/01/27 9,710 11,398,003
--------------
30,687,985
--------------
Utility -- 2.0%
Avon Energy Partnership
6.73% 12/11/02 1,100 1,144,846
CSW Energy
6.87% 10/01/01 2,250 2,329,222
Israel Electric Corp., Ltd.
7.12% 07/15/05 13,650 13,910,201
7.87% 12/15/26 6,000 5,906,145
Mobile Energy Services, L.L.C.
8.66% 01/01/17 3,577 894,275
Pennsylvania Power & Light Co.
9.37% 07/01/21 2,500 2,762,500
Philadelphia Electric
9.08% 12/20/99 3,000 3,106,014
Texas Utilities Electric Co.
7.87% 04/01/24 6,000 6,496,535
--------------
36,549,738
--------------
Yankee -- 1.4%
Den Norske Stats Oljesel
7.37% 05/01/16 300 338,824
Empresa Electrica Pehuenche
7.30% 05/01/03 11,000 9,868,381
Landeskreditbank Baden-Wurttemberg
7.62% 02/01/23 8,865 10,379,235
Transcanada
6.49% 01/29/09 3,818 3,993,873
--------------
24,580,313
--------------
TOTAL CORPORATE BONDS
(Cost $404,342,961) 408,860,351
--------------
Par
Maturity (000) Value
-------- ------- ----------
TAXABLE MUNICIPAL BONDS -- 1.2%
Los Angeles County Taxable
Pension Obligation
8.62% 06/30/06 $ 7,800 $ 9,399,000
6.97% 06/30/08 7,355 8,191,631
New Jersey Economic Development
Authority
7.21% 02/15/18 14,500 4,573,010
--------------
TOTAL TAXABLE MUNICIPAL BONDS
(Cost $19,795,455) 22,163,641
--------------
SHORT TERM INVESTMENTS -- 2.2%
Federal Home Loan Bank Corp.
Discount Notes
5.38% 10/01/98 32,735 32,735,000
Galileo Money Market Fund 7,527 7,527,408
--------------
TOTAL SHORT TERM INVESTMENTS
(Cost $40,262,408) 40,262,408
--------------
TOTAL INVESTMENTS IN
SECURITIES -- 100.0%
(Cost $1,778,443,379*) $1,815,412,491
==============
- ----------
* Also cost for Federal income tax purposes. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $44,566,312
Gross unrealized depreciation (7,597,200)
-----------
$36,969,112
===========
# Total or partial securities on loan.
** Rates shown are the rates as of September 30, 1998.
++ Principal amount of securities pledged as collateral of $7,900,000 on 40
short U.S. Treasury Bonds and 1,105 short U.S.Treasury Notes future
contracts expiring December 1998. The value of such contracts on September
30, 1998 was $139,447,188, thereby resulting in an unrealized loss of
$8,017,953.
See accompanying notes to financial statements.
48
<PAGE>
BlackRock Funds
STATEMENT OF ASSETS AND LIABILITIES
MANAGEDINCOME PORTFOLIO
September 30, 1998
ASSETS
Investments at value (Cost $1,778,443,379) .......... $1,815,412,491
Collateral received for securities loaned ........... 9,514,000
Interest receivable ................................. 17,944,132
Principal receivable ................................ 3,045
Investments sold receivable ......................... 153,749,635
Capital shares sold receivable ...................... 284,242
Futures commissions ................................. 9,489
--------------
TOTAL ASSETS ................................. 1,996,917,034
--------------
LIABILITIES
Payable upon return of securities loaned ............ 9,514,000
Investments purchased payable ....................... 203,790,040
Capital shares redeemed payable ..................... 752,693
Distributions payable ............................... 7,775,189
Accrued expenses payable ............................ 1,141,946
Deferred dollar roll income ......................... 8,347
Reverse repurchase agreements payable ............... 160,576,834
Futures margin payable .............................. 1,126,719
--------------
TOTAL LIABILITIES ............................ 384,685,768
--------------
NET ASSETS (Applicable to 125,422,613 Institutional
shares, 24,204,344 Service shares,
1,399,501 Investor A shares and 435,798
Investor B shares outstanding) ...................... $1,612,231,266
--------------
--------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER INSTITUTIONAL SHARE
($1,335,053,946 (DIVIDE) 125,422,613) ............... $ 10.64
--------------
--------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SERVICE SHARE
($257,641,561 (DIVIDE) 24,204,344) .................. $ 10.64
--------------
--------------
NET ASSET VALUE AND REDEMPTION PRICE
PER INVESTOR A SHARE
($14,896,948 (DIVIDE) 1,399,501) .................... $ 10.64
--------------
--------------
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE
($10.64 (DIVIDE) 0.955) ............................. $ 11.14
--------------
--------------
NETASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE ($4,638,811 (DIVIDE) 435,798)... $ 10.64
--------------
--------------
See accompanying notes to financial statements.
49
<PAGE>
BlackRock Funds
SCHEDULE OF INVESTMENTS
INTERNATIONAL BOND PORTFOLIO
Par**
As of September 30, 1998 Maturity (000) Value
-------- ----- -----------
Foreign Bonds -- 85.3%
Canada -- 5.8%
Canada Trust Company Mortgage
5.63% 01/01/02 $ 2,255 $ 1,487,042
Government of Canada
9.50% 06/01/10 1,250 1,139,303
-------------
2,626,345
-------------
Denmark -- 4.0%
Kingdom of Denmark
8.00% 05/15/03 10,000 1,807,078
-------------
France -- 10.3%
European Investment Bank
5.00% 04/15/08 2,180 2,718,138
Government of France
5.50% 10/25/07 10,000 1,972,773
-------------
4,690,911
-------------
Germany -- 22.9%
Deutsche Telekom International
Financial
5.25% 05/20/08 2,000 1,259,461
Deutschland Republic
6.50% 07/04/27 5,500 4,096,329
Federal Republic of Germany
5.25% 02/21/01 3,500 2,175,786
Treuhandanstalt
7.75% 10/01/02 4,200 2,894,905
-------------
10,426,481
-------------
Italy -- 8.7%
Bayerische Vereinsbank
9.65% 08/04/00 2,740,000 1,822,922
Buoni Poliennali del Tes
6.75% 07/01/07 3,000,000 2,129,384
-------------
3,952,306
-------------
Japan -- 10.6%
Federal National Mortgage Association
1.75% 03/26/08 310,000 2,426,572
Japan-203B
1.80% 06/20/08 300,000 2,411,107
-------------
4,837,679
-------------
Spain -- 5.3%
Government of Spain
11.30% 01/15/02 280,000 2,428,775
-------------
Sweden -- 3.8%
Kingdom of Sweden
10.25% 05/05/00 12,400 1,723,347
-------------
United Kingdom -- 13.9%
Abbey National Treasury Services
8.00% 04/02/03 600 1,084,011
Bayerische Landesbank Girozentrale
7.87% 12/07/06 1,100 2,051,052
Halifax Building Society PLC
6.50% 02/16/04 450 772,382
United Kingdom Government
7.25% 12/07/07 1,200 2,398,080
-------------
6,305,525
-------------
Total Foreign Bonds
(Cost $35,583,409) 38,798,447
-------------
Par**
Maturity (000) Value
-------- ------ -----------
United States Corporate Bonds -- 4.8%
U.S. Treasury Bonds
5.50% 08/15/28 $2,000 $ 2,163,941
-------------
(Cost $2,043,712)
Short Term Investments -- 9.9%
Federal Home Loan Mortgage Corp.
Discount Notes
5.38% 10/01/98 4,500 4,500,000
-------------
(Cost $4,500,000)
TOTAL INVESTMENTS IN
SECURITIES -- 100.0%
(Cost $42,127,121*) $ 45,462,388
=============
- ---------------
* Also cost for Federal income tax purposes. The gross unrealized
appreciation on a tax basis is $3,335,267.
** In local currency.
See accompanying notes to financial statements.
50
<PAGE>
BlackRock Funds
STATEMENT OF ASSETS AND LIABILITIES
INTERNATIONAL BOND PORTFOLIO
September 30, 1998
<TABLE>
<S> <C>
ASSETS
Investments at value (Cost $42,127,121) ....................... $45,462,388
Cash denominated in foreign currencies ($6,197,242) ........... 6,049,005
Cash .......................................................... 56,651
Interest receivable ........................................... 1,128,527
Capital shares sold receivable ................................ 91,184
Cash segregated for futures collateral ........................ 200,000
Net unrealized appreciation on forward foreign
currency contracts .......................................... 131,444
-----------
TOTAL ASSETS ........................................... 53,119,199
-----------
LIABILITIES
Capital shares redeemed payable ............................... 250
Distributions payable ......................................... 209,990
Accrued expenses payable ...................................... 87,210
Net unrealized depreciation on forward foreign
currency contracts .......................................... 2,324,559
-----------
TOTAL LIABILITIES ...................................... 2,622,009
-----------
NET ASSETS (Applicable to 3,885,275 Institutional shares, 209,889
Service shares, 151,735 Investor A shares, 134,499
Investor B shares and 111,109 Investor C shares outstanding) . $50,497,190
-----------
-----------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER INSTITUTIONAL SHARE ($43,671,750 (DIVIDE) 3,885,275) ...... $ 11.24
-----------
-----------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SERVICE SHARE ($2,359,217 (DIVIDE) 209,889) ............... $ 11.24
-----------
-----------
NET ASSET VALUE AND REDEMPTION PRICE
PER INVESTOR A SHARE ($1,705,546 (DIVIDE) 151,735) ............ $ 11.24
-----------
-----------
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE
(11.24 (DIVIDE) 0.950) ........................................ $ 11.83
-----------
-----------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 1.0%)
PER INVESTOR B SHARE ($1,511,818 (DIVIDE) 134,499) ............ $ 11.24
-----------
-----------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 4.5%)
PER INVESTOR C SHARE ($1,248,859 (DIVIDE) 111,109) ............ $ 11.24
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
51
<PAGE>
BlackRock Funds
STATEMENT OF NET ASSETS
TAX-FREE INCOME PORTFOLIO
Par
As of September 30, 1998 Maturity (000) Value
-------- ------ ----------
Municipal Bonds -- 96.3%
Alabama -- 1.9%
Alabama Hsg. Fin. Auth. Single
Family Mtg. Rev., Coll. Home Mtg.
Bd. Prj., Ser. 94B -1
6.65% 10/01/25 $1,195 $ 1,302,550
Alabama Rev., Private Col. & Tuskegee
Univ. Prj., Ser. 96A
5.90% 09/01/16 1,000 1,098,750
Alabama G.O., Ser. 90
7.00% 08/01/05 340 367,200
Courtland Ind. Dev. Rev., Champion Int.
Corp. Prj., Ser. 92
7.20% 12/01/13 1,000 1,113,750
Mobile G.O., Ser. 96
5.00% 02/15/16 1,000 1,020,000
Shelby Cnty. Bd. of Ed. Rev., Ser. 95
5.70% 02/01/09 680 748,000
-------------
5,650,250
-------------
Alaska -- 0.9%
Alaska Ind. Dev. & Expt. Auth. Revolving
Fund Rev., Ser. 97A
6.00% 04/01/07 2,500 2,800,000
-------------
Arizona -- 0.6%
Maricopa Cnty. G.O., Arizona Cmnty.
Coll. Dist. Prj., Ser. 95A
6.00% 07/01/06 340 372,725
Phoenix G.O., Ser. 92
6.12% 07/01/03 1,030 1,133,000
6.37% 07/01/13 200 220,000
-------------
1,725,725
-------------
California -- 3.9%
California Hsg. Fin. Agcy. Rev.,
Home Mtg. Prj., Ser. 93C
5.65% 08/01/14 2,000 2,090,000
California St. Amt. Veterans G.O.,
Ser. 97BH
5.40% 12/01/16 2,000 2,065,000
California St. G.O., Ser. 90
6.50% 11/01/06 340 401,625
California St. G.O., Ser. 91
6.20% 09/01/03 1,000 1,112,500
California St. G.O., Ser. 94
6.20% 11/01/02 1,000 1,097,500
Los Angeles G.O., Ser. 94A
5.80% 09/01/07 340 383,775
M-S-R Pub. Pwr. Agy. Rev.,
San Juan Prj., Ser. 97G
5.37% 07/01/14 2,850 3,028,125
Sacramento Mun. Elec. Util. Rev.,
Ser. 92C
5.75% 11/15/09 510 555,262
Tri City Hosp. Dist. Rev., Ser. 96A
5.37% 02/15/07 1,000 1,103,750
-------------
11,837,537
-------------
Colorado -- 3.3%
Arapahoe Cnty. Cap. Imp. Trust Fund
Hwy. Rev., Ser. 86
7.16% 08/31/04 900 712,125
Denver City & Cnty. Arpt. Rev., Ser. 90A
8.00% 11/15/25 2,745 2,998,912
Par
Maturity (000) Value
-------- ------ -----------
Municipal Bonds (Continued)
Colorado (Continued)
Denver City & Cnty. Apt. Rev., Ser. 96D
5.50% 11/15/25 $3,000 $ 3,161,250
Denver City & Cnty. Apt. Rev.,
Prerefunded Ser. 91D
7.00% 11/15/25 210 228,900
Denver City & Cnty. Apt. Rev.,
Prerefunded Ser. 92C
6.75% 11/15/13 60 67,425
Denver City & Cnty. Apt. Rev.,
Unrefunded Ser. 91D
7.00% 11/15/25 790 847,275
Denver City & Cnty. Apt. Rev.,
Unrefunded Ser. 92C
6.75% 11/15/13 440 482,350
Highlands Ranch Met. Dist.
No. 2 G.O., Ser. 96
6.25% 06/15/07 1,000 1,163,750
Jefferson Cnty. Sch. Dist. G.O., Ser. 92
6.00% 12/15/12 300 328,500
-------------
9,990,487
-------------
Connecticut -- 1.6%
Mashantucket Western Pequot Tribe
Spl. Rev., Sub-144A- Ser. 97B
5.75% 09/01/27 4,500 4,708,125
-------------
Delaware -- 2.3%
Delaware Trans. Auth. Trans. Sys.
Rev., Ser. 92
5.62% 07/01/05 440 473,550
New Castle Cnty. G.O., Ser. 98
5.00% 10/01/07 2,810 3,006,700
5.00% 10/01/09 3,175 3,389,312
-------------
6,869,562
-------------
District of Columbia -- 0.4%
District of Columbia G.O., Ser. 93
6.00% 06/01/11 950 1,079,437
District of Columbia G.O., Ser. 93A-1
6.00% 06/01/11 50 57,437
-------------
1,136,874
-------------
Florida -- 1.3%
Florida Dept. of Trans. G.O., Ser. 91
6.25% 07/01/07 400 430,000
Santa Rosa Bay Bldg. Auth. Rev.,
Ser. 96
6.25% 07/01/28 3,000 3,341,250
-------------
3,771,250
-------------
Georgia -- 2.2%
Atlanta Apt. Fac. Rev., Ser. 94A
6.50% 01/01/10 1,000 1,203,750
Columbus Wtr. & Sew. Rev., Ser. 92
6.25% 05/01/05 1,620 1,786,050
Forsyth Cnty. Sch. Dist. G.O., Ser. 92
6.70% 07/01/12 1,000 1,220,000
Georgia G.O., Ser. 92A
6.00% 03/01/04 340 377,825
Georgia Mun. Elec. Auth. Pwr. Rev.,
Ser. 92B
6.12% 01/01/14 400 435,000
See accompanying notes to financial statements.
52
<PAGE>
BlackRock Funds
STATEMENT OF NET ASSETS
TAX-FREE INCOME PORTFOLIO (Continued)
Par
As of September 30, 1998 Maturity (000) Value
---------- ------ ----------
Municipal Bonds (Continued)
Georgia (Continued)
Georgia Mun. Elec. Auth. Pwr. Rev.,
Ser. 93B
5.70% 01/01/19 $1,000 $ 1,117,500
Gwinnett Cnty. G.O., Ser. 92
6.00% 01/01/10 400 435,000
-------------
6,575,125
-------------
Hawaii -- 1.4%
Hawaii Dept. of Budget and Fin. Rev.,
Ser. 90C
7.37% 12/01/20 4,000 4,350,000
-------------
Illinois -- 6.2%
Chicago Motor Fuel Tax Rev., Ser. 90
7.00% 01/01/05 2,500 2,709,375
Chicago Pk. Dist. G.O., Ser. 96
5.50% 01/01/16 2,250 2,376,566
Chicago Res. Mtg. Rev., Ref. Ser. 92B
7.00% 10/01/09 555 259,466
Cook Cnty. G.O., Ser. 96
5.87% 11/15/22 2,000 2,265,000
Cook Cnty. G.O., Ser. 97A
5.62% 11/15/22 2,000 2,125,000
Illinois G.O., Ser. 94
5.50% 08/01/06 680 745,450
Illinois Hlth. Facs. Auth. Rev., Hosp.
Sisters Svcs. Inc. Prj., Ser 98A
5.25% 06/01/11 4,000 4,250,000
Illinois Hsg. Dev. Auth. Rev., Multi-Family
Prj., Ser. 94-5
6.65% 09/01/14 3,000 3,285,000
Winnebago & Boone Cnty. G.O., Sch.
Dist. No. 205 Prj., Ser. 92C
5.90% 02/01/05 500 551,875
-------------
18,567,732
-------------
Indiana -- 1.1%
Indianapolis Ind. Pub. Imp. Bd. Rev.,
Prerefunded Ser. 91C
6.70% 01/01/02 2,000 2,210,000
Indianapolis Int. Apt. Auth. Rev., Federal
Express Corp. Prj., Ser. 94
7.10% 01/15/17 1,000 1,127,500
-------------
3,337,500
-------------
Kansas -- 0.3%
Johnson Cnty. G.O., Internal Insp. Prj.,
Ser. 92A
6.00% 09/01/07 400 433,500
Kansas Dept. of Trans. Rev., Ser. 94A
6.00% 09/01/12 400 438,500
-------------
872,000
-------------
Maryland -- 0.0%
Baltimore Port Fac. Rev., E.I. du Pont
Co. Prj., Ser. 84A
6.50% 10/01/11 100 110,375
-------------
Massachusetts -- 3.1%
Massachusetts Bay Trans. Auth. Rev.,
Ser. 95B
5.37% 03/01/20 1,000 1,032,500
Par
Maturity (000) Value
-------- ----- -------
Municipal Bonds (Continued)
Massachusetts (Continued)
Massachusetts St. Hlth. & Ed. Fac.
Auth. Rev., Newton-Wellesley Hosp.
Prj., Ser. 97G
6.12% 07/01/15 $1,000 $ 1,120,000
Massachusetts St. Indl. Fin. Agy. Rev.,
Pkg. Fac. Avon Assoc. Prj., Ser. 98A
5.37% 04/01/20 5,000 5,106,280
Massachusetts St. Wtr. Res. Auth. Rev.,
Ser. 94A
5.70% 08/01/08 680 738,650
New England Ed. Ln. Marketing Corp.
Rev., Student Ln. Red. Prj., Ser. 93F
5.62% 07/01/04 1,350 1,434,375
-------------
9,431,805
-------------
Michigan -- 1.1%
Greater Detroit Res. Recovery Auth.
Rev., Ser. 93A
6.25% 12/13/08 1,000 1,162,500
Huron Valley Sch. Dist. G.O., Ser. 96
5.87% 05/01/16 2,000 2,262,500
-------------
3,425,000
-------------
Minnesota -- 0.9%
Metropolitan Council Minneapolis Rev.,
St. Paul Metro. Area Prj., Ser. 91D
6.60% 09/01/04 510 537,412
Southern Minnesota Mun. Pwr. Agcy.
Sply. Sys. Rev., Ser. 86C
5.00% 01/01/17 2,310 2,310,577
-------------
2,847,989
-------------
Missouri -- 2.8%
Lake of The Ozarks Cmnty. Bdg. Corp.
Sys. Rev., Ser. 98
5.25% 12/01/14 4,915 4,798,294
Missouri Env. Imp. & Energy Res.
Auth. Poll. Ctrl. Rev., Assc. Elec.
Coop. Thomas Hill Prj., Ser. 96
5.50% 12/01/11 3,415 3,662,648
-------------
8,460,942
-------------
Nebraska -- 0.5%
Omaha Pub. Pwr. Dist. Elec. Rev.,
Ser. 92B
6.15% 02/01/12 1,000 1,155,000
Omaha Pub. Pwr. Dist. Elec. Rev.,
Prerefunded Ser. 92A
6.30% 02/01/02 340 370,600
-------------
1,525,600
-------------
Nevada -- 1.3%
Clark Cnty. Nevada Passenger Fac.
Charge Rev., Ref. Las Vegas
McCarran Intl. Prj., Ser. 98
5.50% 07/01/15 3,570 3,837,750
-------------
New Jersey -- 1.9%
New Jersey Econ. Dev. Auth. Mkt.
Trans. Fac. Rev., Ser. 94A
5.80% 07/01/08 495 546,975
New Jersey Trans. Trust Fund Auth.
Rev., Ser. 96B
5.25% 06/15/15 2,000 2,075,000
See accompanying notes to financial statements.
53
<PAGE>
BlackRock Funds
STATEMENT OF NET ASSETS
TAX-FREE INCOME PORTFOLIO (Continued)
Par
As of September 30, 1998 Maturity (000) Value
---------- ------- -------------
Municipal Bonds (Continued)
New Jersey (Continued)
South Jersey Port. Corp. Rev., Ser. 93
5.60% 01/01/23 $2,980 $ 3,106,690
-------------
5,728,665
-------------
New Mexico -- 1.2%
Los Alamos Cnty. Util. Inc. Sys. Rev.,
Ser. 94A
5.80%++ 07/01/06 1,500 1,657,500
New Mexico Fin. Auth. Rev., Fed. Hwy.
Grant Prj., Ser. 98A
5.25% 09/01/14 2,000 2,090,000
-------------
3,747,500
-------------
New York -- 8.6%
New York City G.O., Ser. 95A
6.00%++ 08/01/05 1,000 1,105,000
New York City G.O., Ser. 95E
6.50% 08/01/02 285 312,788
New York City G.O., Ser. 96A
6.00% 08/01/05 2,000 2,215,000
New York City G.O., Ser. 96D
5.60% 11/01/05 1,000 1,097,500
New York City G.O., Prerefunded Ser. 95B
6.37% 08/15/09 805 927,763
New York City G.O., Unrefunded Ser. 95B
6.37% 08/15/09 3,035 3,406,828
New York City G.O., Unrefunded Ser. 95E
6.50% 08/01/02 715 780,244
New York City Ind. Dev. Agcy. Rev.,
Terminal One Group Assn. Prj., Ser. 94
6.00% 01/01/08 360 389,700
6.00% 01/01/19 500 534,375
New York St. Dorm. Auth. Rev.,
Albany Cnty. Prj., Ser. 97
5.50% 04/01/06 1,000 1,081,250
New York St. Dorm. Auth. Rev.,
St. Josephs Hosp. Prj., Ser. 97
5.25% 07/01/18 3,000 3,093,750
New York St. Hsg. Fin. Agcy. Rev.,
Ser. 96A
6.37% 11/01/04 4,000 4,440,000
New York St. Loc. Govt. Assist Corp.
Rev., Ser. 95A
5.70% 04/01/08 340 374,000
New York St. Urb. Dev. Corp. Rev.,
Ser. 93
5.62% 01/01/07 2,750 2,970,000
Port Auth. NY & NJ Spl. Oblig. Rev.,
JFK Intl. Air Term. Prj., Ser. 97-6
6.25% 12/01/09 2,680 3,138,950
-------------
25,867,148
-------------
North Carolina -- 2.0%
Eastern Mun. Pwr. Agcy. Sys. Rev.,
Ser. 93C
5.25% 01/01/04 1,000 1,056,250
5.37% 01/01/05 1,250 1,337,500
North Carolina Med. Care, Comm.
Health Care Facs. Rev., Duke Univ.
Health Sys. Prj., Ser. 98B
5.00% 06/01/28 3,250 3,210,165
Par
Maturity (000) Value
-------- ----- --------
Municipal Bonds (Continued)
North Carolina (Continued)
North Carolina Mun. Pwr. Agcy. Rev.,
Catawba Elec. Prj., Ser. 92A
6.00% 01/01/10 $ 300 $ 344,250
-------------
5,948,165
-------------
Ohio -- 2.1%
Cleveland Pkg. Facs. Rev., Ser. 96
5.37% 09/15/12 2,370 2,553,655
Cleveland-Cuyahoga Cnty. Port Auth.
Rev., Ser. 97
6.00% 03/01/07 750 772,500
Columbus Refuse Coal, Fired Plant
5-E-L, G.O., Ser. 91
6.62% 09/15/01 110 115,638
Ohio St. Higher Ed. Fac. Commn. Rev.,
Univ. Dayton Prj., Ser. 97
5.35% 12/01/17 2,000 2,122,500
Ohio Wtr. Dev. Auth. Rev., Clean Wtr.
Prj., Ser. 92
5.65% 12/01/05 300 324,000
Olentangy Loc. Sch. Dist. G.O., Ser. 95A
5.85% 12/01/09 340 377,400
-------------
6,265,693
-------------
Oklahoma -- 0.4%
Grand River Dam Auth. Rev., Ser. 93
8.00% 06/01/02 1,000 1,141,250
-------------
Oregon -- 0.1%
Portland Swr. Sys. Rev., Ser. 92A
6.00% 10/01/12 300 330,000
-------------
Pennsylvania -- 20.1%
Allegheny Cnty. Hosp. Dev. Auth. Rev.,
Univ. of Pittsburgh Med. Ctr. Prj.,
Ser. 95
5.35% 12/01/17 1,595 1,652,819
Beaver Cnty. G.O., Ser. 96A
5.75% 10/01/15 1,000 1,115,000
Beaver Cnty. Indl. Dev. Auth. Poll. Ctl.
Rev., St. Joe Minerals Corp. Prj.,
Ser. 77
6.00% 05/01/07 2,425 2,429,486
Dauphin Cnty. Gen. Auth. Rev.,
Hotel & Conf. Ctr. Hyatt Regency
Prj., Ser. 98
6.20% 01/01/19 5,000 5,043,720
Delaware Cnty. Auth. Rev., Mercy Hlth.
Corp. Prj., Ser. 96
5.75% 12/15/20 2,400 2,646,000
Delaware Valley Regl. Fin. Auth. Loc.
Govt. Rev., Ser. 98A
5.50% 08/01/28 8,000 8,830,000
Indiana Cnty. Ind. Dev. Auth. Poll. Ctrl.
Rev., N.Y. St. Elec. & Gas Corp. Prj.,
Ser. 95A
6.00% 06/01/06 2,500 2,821,875
Lehigh Cnty. Gen. Purp. Auth. Rev.,
Kidspeace Oblig. Prj., Ser. 98
6.00% 11/01/23 4,000 4,365,000
Montgomery Cnty. Hghr. Ed. and Hlth.
Auth. Rev., Holy Redeemer Hosp.
Prj., Ser. 97A
5.25% 10/01/23 3,000 3,082,500
See accompanying notes to financial statements.
54
<PAGE>
BlackRock Funds
STATEMENT OF NET ASSETS
TAX-FREE INCOME PORTFOLIO (Continued)
Par
As of September 30, 1998 Maturity (000) Value
-------- ------ ---------
Municipal Bonds (Continued)
Pennsylvania (Continued)
Pennsylvania Convention Ctr. Auth.
Rev., Ser. 94A
6.60% 09/01/09 $4,250 $ 4,855,585
Pennsylvania G.O., Ser. 94
5.50% 06/15/08 1,000 1,081,250
Pennsylvania G.O., Ser. 96
5.37% 05/15/09 3,000 3,240,000
Pennsylvania Intrgovtl. Coop. Auth. Spl.
Tax Rev., City of Phila. Fdg. Prj.,
Ser. 96
5.50% 06/15/20 4,000 4,190,000
Philadelphia Indl. Dev. Auth. Rev.,
PGH Dev. Corp. Prj., Ser. 93
5.25% 07/01/17 1,935 1,973,700
Philadelphia Mun. Auth. Ref. Rev.,
Ser. 93D
6.12% 07/15/08 1,000 1,098,750
Pittsburgh Pwr. & Swr. Auth. Rev.,
Ser. 98A
5.00% 09/01/17 3,500 3,548,125
Pottstown Borough Auth. Swr. Rev.,
Ser. 96
5.50% 11/01/16 3,150 3,311,438
Tredyffrin Township G.O., Ser. 96
5.25% 11/15/21 2,000 2,052,500
Village Ctr. Cmnty., Dev. Dist. Util. Rev.,
Ser. 98A
5.25% 10/01/15 3,000 3,119,155
-------------
60,456,903
-------------
Puerto Rico -- 0.4%
Puerto Rico Elec. Pwr. Auth. Rev.,
Ser. 94S
7.00% 07/01/06 1,000 1,178,750
-------------
Rhode Island -- 1.1%
Rhode Island Depositors Econ.
Protection Corp. Spec. Obl.
Rev., Ser. 93A
5.62% 08/01/09 1,000 1,092,500
Rhode Island St. Hlth. & Ed. Bldg.
Corp. Rev., Hosp. Financing
Lifespan Oblig. Group Prj., Ser. 96
5.50% 05/15/16 2,000 2,130,000
-------------
3,222,500
-------------
South Carolina -- 0.3%
Piedmont Mun. Pwr. Agcy. Elec.
Rev., Ser. 85B
6.25% 01/01/18 500 528,125
South Carolina Pub. Svc. Auth. Rev.,
Santee Cooper Prj., Ser. 91D
6.50% 07/01/14 100 111,250
Spartanburg Wtr. Rev., Prerefunded
Ser. 93
6.20% 06/01/09 15 16,369
Spartanburg Wtr. Rev., Unrefunded
Ser. 92
6.20% 06/01/09 285 307,444
-------------
963,188
-------------
Par
Maturity (000) Value
-------- ------ ----------
Municipal Bonds (Continued)
South Dakota -- 0.2%
South Dakota Lease Rev., Tran. Cert.
Prj., Ser. 93A
6.37% 09/01/05 $ 500 $ 567,500
-------------
Texas -- 7.9%
Austin Util. Syst. Rev., Ser. 97
5.12% 11/15/15 2,000 2,052,500
Austin Util. Syst. Rev., Ser. 98
6.50% 11/15/05 2,000 2,312,500
Brazos River Auth. Pol. Ctrl. Rev.,
Texas Util. Elec. Co. Prj., Ser. 89
8.25% 01/01/19 1,000 1,029,440
Dallas Indl. Dev. Corp. Rev., Ser. 87
7.50% 08/01/17 2,400 2,634,000
Houston Apt. Sys. Spl. Facs. Rev.,
Ser. 97A
6.00% 07/15/07 2,660 2,989,075
5.37% 07/15/08 1,000 1,075,000
Sabine River Auth. Pol. Ctrl. Rev.,
Texas Util. Elec. Prj., Ser. 90B
8.25% 10/01/20 2,500 2,731,250
San Antonio Apt. Rev., Ser. 91
7.12% 07/01/07 2,000 2,295,000
7.12% 07/01/08 2,645 3,035,168
Spring Branch Sch. Dist. G.O., Ser. 95
5.95% 02/01/12 2,245 2,438,671
Texas Wtr. Dev. Rev., St. Revolving
Fd. Prj., Ser. 92
6.20% 07/15/05 680 746,300
University of Texas Rev., Prerefunded
Ser. 91A
7.00% 08/15/07 160 176,800
University of Texas Rev., Unrefunded
Ser. 91A
7.00% 08/15/07 340 374,000
-------------
23,889,704
-------------
Utah -- 4.5%
Intermountain Pwr. Agcy., Utah Pwr.
Sup. Rev., Ser. 88B
7.75% 07/01/20 5,000 5,100,000
Jordan Sch. Dist. G.O., Ser. 93
6.05% 06/15/03 340 370,600
Salt Lake City Hosp. Rev., Ser. 88A
8.12% 05/15/15 100 130,625
Tooele Cnty. Haz. Waste Treatment Rev.,
Union Pacific Prj., Ser. 98
5.70% 11/01/26 7,750 7,846,845
-------------
13,448,070
-------------
Vermont -- 1.3%
Burlington Elec. Rev., Ser. 96A
6.00% 07/01/06 1,545 1,738,125
Vermont G.O., Ser. 94A
6.00% 01/15/03 1,000 1,091,250
Vermont G.O., Prerefunded Ser. 90A
6.75% 02/01/08 1,000 1,060,000
-------------
3,889,375
-------------
Virginia -- 3.8%
Fairfax Cnty. Pub. Imp. G.O., Ser. 97A
5.25% 06/01/15 5,285 5,516,189
Hampton G.O., Ser. 95
6.00% 01/15/08 400 448,500
See accompanying notes to financial statements.
55
<PAGE>
BlackRock Funds
STATEMENT OF NET ASSETS
TAX-FREE INCOME PORTFOLIO (Concluded)
Par
As of September 30, 1998 Maturity (000) Value
-------- ----- -------
Municipal Bonds (Continued)
Virginia (Continued)
Pocahontas Pkwy. Toll Rd. Rev.,
Ser. 98B
5.85% 08/15/23 $15,300 $ 3,748,500
Virginia Hsg. Dev. Auth. Rev.,
Commonwealth Mtg. Prj., Ser. 95A-1
6.70% 07/01/05 500 531,250
Virginia Hsg. Dev. Auth. Rev.,
Multi-Family Prj., Ser. 95C
6.70% 11/01/15 1,000 1,105,000
-------------
11,349,439
-------------
Washington -- 2.5%
Seattle Met. Mun. G.O., Ser. 93
5.40% 01/01/08 1,000 1,062,500
Washington G.O., Ser. 96A
5.37% 07/01/21 2,000 2,070,000
Washington St. Pub. Pwr. Sply. Sys.
Rev., Nuclear Prj. No. 1, Ser. 97B
5.12% 07/01/17 1,000 1,020,000
Washington St. Pub. Pwr. Sply. Sys.
Rev., Nuclear Prj. No. 3, Ser. 96A
6.00% 07/01/06 3,000 3,360,000
-------------
7,512,500
-------------
Wisconsin -- 0.8%
Milwaukee Met. Swr. Dist. G.O., Ser. 92A
6.12% 10/01/03 250 276,563
Wisconsin Trans. Rev., Ser. 92A
5.50% 07/01/05 2,000 2,095,000
-------------
2,371,563
-------------
Total Municipal Bonds
(Cost $272,967,608) 289,709,541
-------------
Short Term Investments -- 5.5%
Arapahoe Cnty. Cap. Imp. Trust Fund
Hwy. Rev., Ser. 86E-470 FRDD
6.90% 03/01/99 750 901,875
California Hlth. Fac. Fin. Auth. Rev.,
Sutter Hlth. Cnt. Prj., Ser. 90A FRDD
3.80% 10/01/98 500 500,000
Maury Cnty. Ind. Dev. Pol. Ctrl. Rev.,
Saturn Corp. Prj., Ser. 94 FRDD
6.50% 03/01/99 1,800 2,004,750
Orleans Rev., Levee Dist. Pub. Imp. Prj.,
Ser. 86 FRDD
5.95% 12/01/98 2,820 3,133,725
Smith Barney Tax-Free
Money Market Fund 10,121 10,120,918
-------------
Total Short Term Investments
(Cost $16,032,342) 16,661,268
-------------
TOTAL INVESTMENTS IN
SECURITIES -- 101.8%
(Cost $288,999,950*) 306,370,809
Value
-------------
LIABILITIES IN EXCESS
OF OTHER ASSETS (1.8%) $ (5,521,613)
------- -------------
NET ASSETS (Applicable to 24,375,052
Institutional shares, 462,943 Service
shares, 549,031 Investor A shares,
173,366 Investor B shares and 87,314
Investor C shares outstanding) 100.0% $300,849,196
------- ------------
------- ------------
NET ASSET VALUE AND REDEMPTION
PRICE PER INSTITUTIONAL, SERVICE
AND INVESTOR A SHARE
($297,791,434 (DIVIDE) 25,387,026) $11.73
-------
-------
OFFERING PRICE PER INSTITUTIONAL
AND SERVICE SHARE $11.73
-------
-------
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($11.73 (DIVIDE) .960) $12.22
-------
-------
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE
(subject to a contingent deferred
sales charge of 4.5%)
PER INVESTOR B SHARE
($2,033,594 (DIVIDE) 173,366) $11.73
-------
-------
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE
(subject to a contingent deferred
sales charge of 1.0%)
PER INVESTOR C SHARE
($1,024,168 (DIVIDE) 87,314) $11.73
-------
-------
- --------------
* Also cost for Federal income tax purposes. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $17,435,282
Gross unrealized depreciation (64,421)
------------
$17,370,861
------------
------------
** Rates shown are the rates as of September 30, 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.
++ Principal amount of securities pledged as collateral of $1,500,000 on 50
short U.S. Treasury Notes contracts expiring September 30, 1997. The value
of such contracts on September 30, 1998 was $6,573,438, thereby resulting
in an unrealized loss of $15,625.
See accompanying notes to financial statements.
56
<PAGE>
BlackRock Funds
STATEMENT OF NET ASSETS
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
Par
As of September 30, 1998 Maturity (000) Value
---------- ------ ----------
Municipal Bonds -- 98.6%
Pennsylvania -- 96.5%
Allegheny Cnty. Apartment Rev.,
Ser. 97A
5.75% 01/01/06 $ 4,000 $ 4,390,000
Allegheny Cnty. Auth Swr Rev.,
Ser. 86B
6.95%** 12/01/98 1,000 1,023,750
Allegheny Cnty. G.O., Ser. 90C
7.00% 12/01/00 1,000 1,068,750
Allegheny Cnty. G.O., Ser. 96C
5.10% 10/01/09 6,000 6,345,000
Allegheny Cnty. Higher Ed. Bldg. Auth.
Rev., Duquesne Univ. Prj., Ser. 96
5.00% 03/01/21 1,180 1,187,375
Allegheny Cnty. Hosp. Dev. Auth.
Rev., Mercy Hosp. of Pittsburgh
Prj., Ser. 91
6.75% 04/01/0 11,000 1,090,000
Allegheny Cnty. Hosp. Dev. Auth.
Rev., Ser. 95A
6.00% 09/01/10 5,000 5,406,250
6.20% 09/15/15 1,000 1,073,750
Allegheny Cnty. Hosp. Dev. Auth.
Rev., Univ. of Pittsburgh Med.
Ctr. Prj., Ser. 95
5.35% 12/01/17 10,000 10,362,500
Allegheny Cnty. Inst. Dist. Rev.,
Ser. 90
7.30% 04/01/09 2,000 2,100,000
Allegheny Cnty. Res. Fin. Auth. Mtg.
Rev., Single Fam. Mtg. Prj., Ser. 94Y
6.25% 05/01/17 340 366,775
Allegheny Cnty. San. Auth. Swr. Rev.,
Ser. 86A
7.25%** 06/01/99 300 307,704
Allegheny Cnty. San. Auth. Swr. Rev.,
Ser. 86B
7.25%** 12/01/98 100 102,568
7.30%** 12/01/98 500 513,000
7.45%** 12/01/98 500 513,480
Allegheny Cnty. Unltd. Tax G.O.,
Ser. 93C
5.00% 10/01/08 2,500 2,628,125
Alleghney Cnty. San. Auth. Swr. Rev.,
Ser. 86A
7.30%** 12/01/98 250 256,500
Allentown Pkg. Auth. Pkg. Rev., Gtd.,
Ser. 91
6.62% 11/15/01 750 812,812
Armstrong Cnty. Hosp. Auth. Hlth. Ctr.
Rev., Canterbury Pl. Prj., Ser. 91
6.50% 12/01/01 650 693,062
Armstrong Cnty. Hosp. Auth. Hosp.
Rev., St. Francis Med. Ctr. Prj.,
Ser. 92A
6.10% 06/01/02 1,000 1,078,750
Baldwin & Whitehall Sch. Dist. Rev.,
Ser. 92A
6.60% 08/15/02 1,000 1,100,000
Bangor Area Sch. Dist. G.O., Ser. 94
6.30% 03/01/04 1,655 1,764,644
Beaver Cnty. Hosp. Auth. Rev., Med
Ctr. Beaver Inc., Prj. Ser. 92A
6.25% 07/01/11 1,000 1,102,500
Beaver Cnty. Hosp. Auth. Rev., Ser. 96A
5.80% 10/01/06 5,830 6,522,312
Par
Maturity (000) Value
---------- ------ ----------
Municipal Bonds (Continued)
Pennsylvania (Continued)
Beaver Cnty. Hosp. Medical Ctr. Auth.
Rev., Ser. 92A
6.60% 07/01/04 $ 2,000 $ 2,227,500
Bensalem Twp. Wtr. & Swr. Rev.,
Ser. 93A
6.50% 06/01/02 1,000 1,075,000
Berks Cnty. G.O. Unltd., Ser. 98
5.37% 11/15/28 6,685 6,927,331
Berks Cnty. Hlth. Care G. O., Ser. 98
5.00% 03/01/28 4,700 4,606,000
Berks Cnty. Kidder Mld. G.O., Ser. 92
6.30% 11/10/20 2,000 2,200,000
Berks Cnty. Mun. Auth. Coll. Rev., Ser. 90
7.30% 12/01/00 1,000 1,075,000
Bethel Park Sch. Dist. G.O., Ser. 99
6.00% 08/01/99 80 81,734
Bethel Park Sch. Dist. G.O., Ser. 92B
7.00% 02/01/00 250 260,937
Bethlehem Area Sch. Dist. G.O.,
Ser. 98
5.00% 10/15/18 11,000 11,068,750
Bethlehem Wtr. Auth. Rev., Ser. 92
6.25% 11/15/01 750 804,375
6.35%++ 11/15/01 1,000 1,076,250
Bethlehem Wtr. Auth. Rev., Ser. 92A
6.10% 11/15/02 500 543,125
Bradford Area Sch. Dist. G.O., Ser. 95
5.80% 10/01/05 1,465 1,629,812
Bristol Twp. Auth. Swr. Rev., Ser. 84
10.00% 04/01/02 835 932,069
Bucks Cnty. Cmnty. Coll. Auth. Coll.
Bldg. Rev., Ser. 92
6.20% 06/15/02 1,000 1,080,000
Bucks Cnty. Unltd. Tax G.O., Ser. 95
5.87% 05/01/05 1,575 1,744,312
Butler Penn Area Sch. Dist. G.O.,
Ser. 98B
5.37% 10/01/18 2,000 2,087,500
Cambria Cnty. Unltd. Tax G.O., Ser. 91
8.25% 06/01/00 260 271,050
Cambria Twp. Wtr. Auth. Ind. Rev.,
Ser. 93A
6.00% 12/01/02 1,000 1,035,000
Central Bucks Sch. Dist. G.O., Ser. 91
6.75% 02/01/05 1,000 1,068,750
6.90% 02/01/08 750 796,875
Central Bucks Sch. Dist. G.O.,
Ser. 94A
6.45% 11/15/04 1,000 1,135,000
Central Bucks Sch. Dist. Unltd. Tax
G.O., Ser. 94A
6.70% 11/15/09 500 573,750
Central Dauphin Sch. Dist. G.O.,
Ser. 91
6.00% 06/01/01 1,500 1,588,125
Chester Cnty. Unltd. Tax G.O., Ser. 91
6.60% 08/01/01 1,000 1,080,000
7.00% 08/01/01 750 814,687
6.70% 12/15/04 385 416,762
Coatesville Sch. Dist. G.O., Ser. 97
5.12% 04/01/17 10,050 10,251,000
Coatesville Sch. Dist. G.O., Ser. 91
7.12% 11/01/00 150 160,312
7.25% 11/01/00 750 803,437
6.70% 03/01/01 1,000 1,070,000
See accompanying notes to financial statements.
57
<PAGE>
BlackRock Funds
STATEMENT OF NET ASSETS
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO (Continued)
Par
As of September 30, 1998 Maturity (000) Value
---------- ------ ----------
Municipal Bonds (Continued)
Pennsylvania (Continued)
Conestoga Valley Sch. Dist. G.O.,
Ser. 91B
7.00% 05/01/01 $ 750 $ 810,000
7.10% 05/01/01 750 811,875
Council Rock Sch. Auth. Rev., Ser. 78,
6.62% 09/01/01 1,325 1,427,687
Council Rock Sch. Dist. G.O., Ser. 91
6.60% 03/01/02 1,000 1,065,000
Crawford Central Sch. Dist. G.O.,
Ser. 95
7.00% 02/15/05 1,765 2,065,050
Crawford Central Sch. Dist. Unltd.
Tax G.O., Ser. 95
5.75% 02/15/11 1,585 1,705,856
Cumberland Cnty. Mun. Auth. Coll.
Rev., Messiah Coll. Prj., Ser 95
5.12% 10/01/15 2,000 2,052,500
Dauphin Cnty. Gen. Auth. Hosp. Rev.,
Hapsco Western PA. Hosp. Prj.,
Ser. 92
6.25%** 07/01/16 1,000 1,077,500
Dauphin Cnty. Gen. Auth. Rev.,
Hotel & Conf. Ctr. Hyatt Regency
Prj., Ser. 98
6.20% 01/01/19 13,225 13,340,719
Dauphin Cnty. Gen. Auth. Rev., Sch.
Dist. Pooled Fin. Prj., Ser. 86
5.50% 06/01/07 550 550,896
6.85% 06/01/09 2,300 2,492,625
Dauphin Cnty. Gen. Auth. Rev., Ser. 86
6.71%** 06/01/26 1,325 1,452,531
Dauphin Cnty. Gen. Auth. Var. Rev., Ser. 86
5.60%** 06/01/26 525 525,987
5.70%** 06/01/26 660 661,340
6.80%** 06/01/26 2,305 2,523,487
Dauphin Cnty. Gen. Auth. Rev.,
Harrisburg Int. Apt. Prj., Ser. 91
7.12% 06/01/01 750 809,062
Dauphin Cnty. Gen. Auth. Rev.
Ser. 86 A-F
6.20% 01/01/29 5,000 4,993,750
Dauphin Cnty. Pinnacle Gen. Auth.
Hlth. Sys. Rev., Ser. 97
5.50% 05/15/17 3,500 3,683,750
Deer Lakes Sch. Dist. Unltd. Tax G.O.,
Ser. 95
6.35% 01/15/14 1,000 1,172,500
6.45% 01/15/19 1,300 1,564,875
Delaware Cnty. Auth. Coll. Rev.,
Haverford Coll. Prj., Ser. 90
7.25% 11/15/00 1,000 1,091,250
7.00% 11/15/02 600 651,750
Delaware Cnty. Auth. Hosp. Rev.,
Delaware Cnty. Mem. Hosp. Prj.,
Ser. 89A
7.20% 08/15/99 1,450 1,527,009
Delaware Cnty. Auth. Hosp. Rev.,
Ser. 95
5.50% 08/15/15 6,480 6,812,100
Delaware Cnty. Auth. Rev., Mercy
Hlth. Corp. Prj., Ser. 96
5.75% 12/15/20 3,735 4,117,836
Delaware Cnty. G.O., Ser. 95
5.50% 10/01/15 1,500 1,590,000
Par
Maturity (000) Value
---------- ------ ----------
Municipal Bonds (Continued)
Pennsylvania (Continued)
Delaware Cnty. Ind. Dev. Auth. Rev.,
Wtr. Fac. Philadelphia Suburban
Wtr. Prj., Ser. 92
6.50% 06/01/10 $1,000 $ 1,100,000
Delaware Cnty. Mem. Hosp. Auth.
Rev., Ser. 95
5.50% 08/15/19 3,000 3,120,000
Delaware River Port Auth. PA & NJ
Rev., Ser. 95
5.40% 01/11-01/14 6,200 6,640,750
Delaware Valley Regl. Fin. Auth. Loc.
Govt. Rev., Ser. 96A
5.90% 04/15/16 2,540 2,736,850
Delaware Valley Regl. Fin. Auth. Loc.
Govt. Rev., Ser. 98A
5.50% 08/01/28 24,000 26,490,000
Derry Penn Area Sch. Dist. G.O.,
Ser. 92A
6.60% 09/01/10 750 819,375
Dover Area Sch. Dist. G.O., Ser. 96
5.75% 04/01/12 2,445 2,668,106
Downingtown Penn G.O., Ser. 91
6.70% 01/15/02 750 816,562
East Whiteland-Tredyffrin Jnt. Trans.
Auth. Rev., Hwy. Imp. Prj., Ser. 94
6.30% 01/01/16 775 837,969
Elizabeth Forward Sch. Dist. G.O.,
Ser. 90
7.05% 01/15/00 500 521,250
7.25% 01/15/00 750 784,687
Ephrata Sch. Dist. G.O., Ser. 91A
6.80% 04/15/01 750 805,312
Ephrate Sch. Dist. G.O., Ser. 98A
5.25% 04/15/11 3,535 3,769,194
Erie Cnty. Prison Auth. Lease Rev.,
Ser. 91
6.35% 11/01/00 2,500 2,637,500
6.45% 11/01/01 1,000 1,078,750
6.25% 11/01/11 3,225 3,458,812
Erie Swr. Auth. Rev., Ser. 97
5.62% 06/01/17 2,800 2,975,000
Fairview Sch. Dist. G.O., Ser. 95
6.00% 02/15/05 1,000 1,113,750
Falls Twnsp. G.O., Ser. 90
6.90% 12/15/00 1,000 1,065,000
Falls Twnsp. Hosp. Auth. Rev.,
Delaware Valley Med. Ctr. Prj.,
Ser. 92
7.00% 08/01/22 2,000 2,217,500
Forest Hills G.O., Ser. 92
6.45% 05/01/09 750 812,812
Fox Chapel Area Sch. Dist. G.O.,
Ser. 92A
6.30% 02/15/02 2,000 2,152,500
Franklin Cnty. Ind. Dev. Auth. Hosp.
Rev., Chambersburg Hosp. Prj.,
Ser. 91
6.50% 07/01/04 1,000 1,043,000
Gettysburg College Mun. Auth. Rev.,
Ser. 98
5.00% 08/15/23 6,000 6,052,500
Governor Mifflin Sch. Dist. G.O.,
Ser. 92
6.30% 02/01/02 1,000 1,077,500
See accompanying notes to financial statements.
58
<PAGE>
BlackRock Funds
STATEMENT OF NET ASSETS
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO (Continued)
Par
As of September 30, 1998 Maturity (000) Value
---------- ------ ----------
Municipal Bonds (Continued)
Pennsylvania (Continued)
Great Valley Sch. Dist. Chester Cnty.
G.O., Ser. 92
6.10% 03/01/00 $1,000 $ 1,033,750
Greater Johnstown Wtr. Auth. Rev.,
Ser. 92
6.10% 01/01/04 685 736,375
Greene Cnty. Gen. Facs. Auth. Rev.,
Ser. 91A
7.00% 07/01/01 3,325 3,657,500
Greensburg Salem Sch. Dist. G.O.,
Ser. 92
6.45%++ 09/15/18 1,000 1,082,500
Hampton Township Sch. Dist. G.O.,
Ser. 91A
6.95% 02/15/01 1,000 1,072,500
Harrisburg Auth. Wtr. Rev., Ser. 91
7.00% 07/15/01 1,000 1,085,000
Harrisburg Auth. Wtr. Rev., Ser. 92
6.55% 08/15/02 1,600 1,756,000
Harrisburg Pkg. Auth. Rev., Ser. 86B
7.40% 11/15/00 500 537,500
Hatboro Sch. Dist. G.O., Ser. 91A
6.65% 04/01/07 1,000 1,068,750
6.70% 04/01/08 1,000 1,068,750
Hempfield Sch. Dist., Ser. 91
6.00% 09/15/01 650 678,437
Hempfield Twp. Mun. Auth. Gtd. Swr.
Rev., Westmoreland Cnty. Prj.,
Ser. 91
6.50% 09/01/02 1,000 1,097,500
Indiana Cnty. Ind. Dev. Auth. Poll. Ctrl.
Rev., N.Y. St. Elec. & Gas Corp. Prj.,
Ser. 95A
6.00% 06/01/06 1,000 1,128,750
Jeannette Sch. Dist. G.O., Ser. 91
6.65% 06/15/01 750 806,250
Jefferson Cnty. Mun. Auth. Rev., Ser. 92
6.50% 06/01/06 1,515 1,658,925
Lancaster Cnty. Hosp. Auth. Rev., Hlth.
Center-Masonic Homes Prj., Ser. 94
5.30% 11/15/08 500 523,750
Lancaster Cnty. Hosp. Auth. Rev., Hlth.
United Church Homes Prj., Ser. 89
9.12% 10/01/99 3,500 3,762,710
Lancaster Swr. Auth. Sply. Spec. Obl.,
Ser. 78
5.90% 12/01/98 60 60,222
Lancaster Swr. Auth. Sply. Spec. Obl.,
Ser. 98
5.25% 04/01/21 11,480 11,767,000
Langhorne Hghr. Ed. & Hlth. Auth. Rev.,
Ser. 92
6.30% 11/15/03 740 809,375
Langhorne Manor Boro Hghr. Ed. and
Hlth. Auth. Rev., Ser. 92
6.15% 11/15/02 510 556,536
6.50% 11/15/14 1,500 1,627,500
Langhorne Manor Boro Hghr. Ed. and
Hlth. Auth. Rev., Ser. 94
6.90% 11/15/14 1,000 1,161,250
Lebanon Cnty. Hosp. Auth. Rev., Good
Samaritan Hosp. Prj., Ser. 93
5.55% 11/15/04 355 374,969
5.65% 11/15/05 760 808,450
Par
Maturity (000) Value
---------- ------ ----------
Municipal Bonds (Continued)
Pennsylvania (Continued)
Lehigh Cnty. Gen. Purp. Auth. Rev.,
Ser. 90A
7.00% 07/01/08 $1,500 $ 1,605,000
Lehigh Cnty. Gen. Purp. Auth. Rev.,
Ser. 90B
7.00% 07/01/00 1,200 1,290,000
Lehigh Cnty. Gen. Purp. Auth. Rev.,
Kidspeace Oblig., Ser. 98
5.70% 11/01/09 4,000 4,415,000
6.00% 11/18-11/23 5,000 5,463,750
Lehigh Cnty. Gen. Purp. Auth. Rev.,
Lehigh Valley Hospital, Inc. Prj.,
Ser. 92A
5.75% 07/01/99 1,000 1,017,390
Lehigh Cnty. Gen. Purp. Auth. Rev.,
St. Lukes Hosp, Bethlehem Prj.,
Ser. 93
6.00% 11/15/02 1,750 1,896,562
Lehigh Cnty. Unltd. G.O., Ser. 91
6.90% 08/01/00 500 537,500
Ligonier Valley Sch. Dist. Unltd. Tax
G.O., Ser. 94
5.65% 03/01/14 2,000 2,170,000
Lower Merion Twp. Sch. Dist. G.O.,
Ser. 98D
5.00% 05/15/07 2,110 2,262,975
Lower Providence Twp. Swr. Auth.
Rev., Ser. 92
6.62% 05/01/02 1,000 1,091,250
Luzerne Cnty. Flood Protn. Auth.
Gtd. Rev., Ser. 96
5.50% 07/15/16 1,360 1,490,900
5.60% 07/15/21 4,720 5,203,800
Lycoming Cnty. Auth. Coll. Rev.,
Coll. Tech. Prj., Ser. 90
6.80% 11/01/00 1,000 1,063,750
Lycoming Cnty. Auth. Hosp. Rev.,
Divine Providence Hosp. Prj.,
Ser. 95
5.37% 11/15/10 6,480 6,925,500
Lycoming Cnty. G.O., Ser. 91A
6.85% 08/15/01 1,000 1,083,750
Manheim Central Sch. Dist. G.O.,
Ser. 91
6.70% 03/01/04 1,000 1,063,750
McKeesport Area Sch. Dist. G.O.,
Ser. 96A
5.75% 10/01/06 1,750 1,951,250
Media Boro Gtd. Wtr. Rev., Ser. 92
6.55% 01/01/17 500 547,500
Methacton Sch. Dist. Auth. Rev.,
Ser. 78
6.50% 10/01/06 475 552,187
Middletown Twp. Swr. Auth. Swr.
Rev., Ser. 68
5.62% 05/01/01 15 15,562
Monroeville Hosp. Auth. Rev., Forbes
Hlth. System Prj., Ser. 95
5.75% 10/01/05 1,500 1,410,000
Montgomery Cnty. Hghr. Ed. and Hlth.
Auth. Coll. Rev., Cnty. Cmnty. Coll.
Prj., Ser. 90
7.00% 11/01/00 500 532,500
See accompanying notes to financial statements.
59
<PAGE>
BlackRock Funds
STATEMENT OF NET ASSETS
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO (Continued)
Par
As of September 30, 1998 Maturity (000) Value
---------- ------ ----------
Municipal Bonds (Continued)
Pennsylvania (Continued)
Montgomery Cnty. Hghr. Ed. and Hlth.
Auth. Hosp. Rev., Bmh. Rlty. Corp.
Prj., Ser. 91
6.75% 12/01/99 $ 750 $ 793,125
Montgomery Cnty. Hghr. Ed. and Hlth.
Auth. Hosp. Rev., Kiddler
Mld-Abington Mem. Hosp. Prj.,
Ser. 91A
6.66% 07/05/11 2,400 2,601,000
Montgomery Cnty. Hghr. Ed. and Hlth.
Auth. Hosp. Rev., Sacred Heart Hosp.
Norristown Prj., Ser. 87A
6.80% 02/01/13 750 754,402
Montgomery Cnty. Hghr. Ed. and Hlth.
Auth. Hosp. Rev., Abington Memorial
Hosp. Prj., Ser. 91A
6.10% 06/01/99 1,000 1,018,290
Montgomery Cnty. Hghr. Ed. and Hlth.
Auth. Hosp. Rev., Beaver Coll. Prj., Ser. 96
5.75% 04/01/12 1,690 1,852,662
Montgomery Cnty. Hghr. Ed. and Hlth.
Auth. Hosp. Rev., Holy Redeemer Hosp.
Prj., Ser. 97A
5.25% 10/01/23 11,825 12,150,187
5.25% 10/01/27 9,000 9,191,250
Montgomery Cnty. Hghr. Ed. and Hlth.
Auth. Hosp. Rev., Pottstown Healthcare
Corp. Prj., Ser. 98
5.00% 01/01/16 6,235 6,289,556
Montgomery Cnty. Hghr. Ed. and Hlth.
Auth. Hosp. Rev., St. Josephs Univ. Prj.,
Ser. 92
6.50% 12/15/12 750 836,250
Montgomery Cnty. Hosp. Auth. Rev.,
Suburban Gen. Hospital Prj., Ser. 76
7.75% 05/01/02 50 53,875
Montgomery Cnty. Ind. Dev. Auth. Rev.,
Poll. Ctl. Prj., Ser. 91B
6.70% 12/01/21 1,000 1,091,250
Moon Area Sch. Dist. Unltd Tax G.O.,
Ser. 83
10.00% 05/15/99 170 176,824
Moon Twp. Wtr. & Swr. Auth. Rev.,
Ser. 94
6.70% 12/01/19 1,000 1,038,750
New Garden Twp. Swr. Auth. Rev.,
Ser. 91
7.00% 03/01/15 420 448,875
Norristown Penn G.O., Ser. 90
6.90% 11/15/00 1,000 1,065,000
7.05% 11/15/00 1,250 1,335,937
North Allegheny Sch. Dist. G.O.,
Ser. 90
7.20% 05/01/00 750 791,250
7.60% 05/01/00 750 795,000
North Huntingdon Twp. Mun., Ser. 91
6.65% 04/01/04 1,635 1,741,275
Northampton Area Sch. Dist. Rev.,
Ser. 94
6.87% 09/01/99 1,000 1,032,050
Northampton Cnty. Hghr. Ed. Auth. Rev.,
Lafayette Coll. Prj., Ser. 97
5.00% 11/01/27 2,250 2,255,625
Par
Maturity (000) Value
---------- ------ ----------
Municipal Bonds (Continued)
Pennsylvania (Continued)
Northampton Cnty. Hghr. Ed. Auth.
Rev., Lehigh Univ. Prj., Ser. 89
7.00% 11/15/04 $2,700 $ 2,855,250
7.10% 11/15/09 2,100 2,220,750
Northampton Cnty. Hghr. Ed. Auth.
Rev., Lehigh Univ. Prj., Ser. 91
7.00% 10/15/11 4,000 4,410,000
Northampton Cnty. Hghr. Ed. Auth.
Rev., Moravian Coll. Prj., Ser. 94
6.10% 07/01/12 1,950 2,123,062
Northampton Cnty. Hosp. Auth. Rev.,
Easton Hosp. Prj., Ser. 88
7.70% 01/01/04 1,000 1,029,340
Northampton Cnty. Ind. Dev. Auth. Poll.
Ctrl. Rev., Met. Ed. Co. Prj., Ser. 95A
6.10% 07/15/21 1,000 1,097,500
Northeast Sch. Dist. G.O., Ser. 91
7.00% 01/15/10 890 953,412
Northeast Sch. Dist. G.O., Ser. 98
5.20% 09/01/23 4,000 4,085,000
Northeastern Hosp. and Ed. Auth. Coll.
Rev., Luzerne Cnty. Coll. Prj., Ser. 97
5.15% 08/15/16 3,245 3,334,237
Northeastern Hosp. and Ed. Auth. Univ.
Rev., Wilkes Univ. Prj., Ser. 93
5.40% 10/01/03 845 879,856
Northeastern Hosp. Auth. Hosp. Rev.,
Nesbitt Mem. Hosp. Prj., Ser. 90A
7.50% 07/01/00 1,250 1,353,125
Northeastern Hosp. Auth. Rev.,
Wilkes-Barre Hosp. Prj., Ser. 87A
7.65% 07/01/99 805 846,007
Northeastern Hosp. and Ed. Auth. Hlth.
Care Rev., Wyoming Vy. Hlth. Care
Prj., Ser. 94A
6.50% 01/01/07 1,000 1,141,250
Northgate Sch. Auth. Bldg. Rev., Ser. 78
6.37% 02/15/07 825 957,000
Northumberland Cnty. Auth. Comwlth.
Lease Rev., Ser. 91
6.25% 10/15/01 4,000 4,285,000
6.60% 10/15/01 1,250 1,351,562
7.75% 10/15/01 2,110 2,350,012
Northumberland Cnty. Auth. Gtd.
Lease Rev., Ser. 92
6.70% 08/15/02 1,000 1,103,750
Parkland Sch. Dist. Rev., Ser. 96
5.75% 09/01/14 2,910 3,146,437
Penn Cambria & Blair Cntys. Rev.,
Blgd. Auth. Prj., Ser. 77
6.37% 02/01/07 1,700 1,899,750
Penn Hills G.O., Ser. 93
5.87% 12/01/02 2,000 2,157,500
Pennsbury Sch. Dist. Unltd. Tax G.O.,
Ser. 94
6.65% 08/15/09 685 784,325
Pennsylvania Convention Ctr. Auth.
Rev., Ser. 94A
6.60% 09/01/09 12,465 14,241,262
Pennsylvania Econ. Dev. Fin. Auth.
Sch. Rev., Baldwin Sch. Prj.,
Ser. 94A
6.35% 04/01/04 555 600,094
See accompanying notes to financial statements.
60
<PAGE>
BlackRock Funds
STATEMENT OF NET ASSETS
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO (Continued)
Par
As of September 30, 1998 Maturity (000) Value
---------- ------ ----------
Municipal Bonds (Continued)
Pennsylvania (Continued)
Pennsylvania Fin. Auth. Rev., Mun.
Cap. Imp. Prj., Ser. 93
6.60% 11/01/09 $22,805 $ 25,285,044
Pennsylvania G.O., Ser. 94
5.50% 06/15/08 1,000 1,081,250
Pennsylvania Higher Ed. Fac. Auth.
Rev., Duquesne Univ. Prj., Ser. 91C
6.75%(DOUBLE DAGGER) 04/01/20 1,000 1,072,500
Pennsylvania Higher Ed. Fac. Auth.
Rev., Philadelphia Coll. of Textiles &
Science Prj., Ser. 93
5.15% 02/01/04 1,230 1,302,582
Pennsylvania Higher Ed. Fac. Auth.
Rev., Philadelphia Coll. Osteopathic
Prj., Ser. 93
5.35% 12/01/10 3,735 3,949,762
Pennsylvania Higher Ed. Fac. Auth.
Rev., Susquehanna Univ. Prj., Ser. 90
7.15% 03/01/05 1,605 1,628,272
Pennsylvania Higher Ed. Fac. Auth.
Rev., Thomas Jefferson Univ. Prj.,
Ser. 89A
7.00% 07/01/03 2,315 2,414,545
Pennsylvania Higher Ed. Fac. Auth.
Rev., Thomas Jefferson Univ. Prj.,
Ser. 89B
7.30% 07/01/99 2,500 2,621,025
Pennsylvania Higher Ed. Fac. Auth.
Rev., Thomas Jefferson Univ. Prj.,
Ser. 90
7.30% 11/01/00 1,500 1,635,000
Pennsylvania Hsg. Fin. Agcy. Amt.
Single Fam. Mtg. Rev., Ser. 96A
6.05% 10/01/16 2,500 2,681,250
Pennsylvania Hsg. Fin. Agcy. Ref.
Multi-family FHA. Insd. Rev., Ser. 92
8.10% 07/01/13 2,000 2,180,000
Pennsylvania Hsg. Fin. Agcy. Ref. Res.
Rev., Section 8, Ser. 91A
7.60%** 07/01/13 1,000 1,076,250
Pennsylvania Hsg. Fin. Agcy. Rev.,
Ser. 92
6.40% 07/01/12 1,500 1,610,625
Pennsylvania Hsg. Fin. Agcy. Rev.,
Single Fam. Mtg. Prj., Ser. 91
6.95% 10/01/05 250 265,937
Pennsylvania Hsg. Fin. Agcy. Rev.,
Single Fam. Mtg. Prj., Ser. 94A
6.60% 04/01/17 1,000 1,081,250
Pennsylvania Hsg. Fin. Agcy. Rev.,
Single Fam. Mtg. Prj., Ser. 94B
6.87% 10/01/24 1,500 1,635,000
Pennsylvania Hsg. Fin. Agcy. Rev., Ser. 98
5.50% 04/01/30 9,000 1,631,250
Pennsylvania Ifra. Invest. Auth. Rev.
Pennvest Ln. Pool, Ser. 93
6.00%** 09/01/03 1,990 2,181,538
Pennsylvania Ifra. Invest. Auth. Rev.,
Pennvest Prj., Ser. 90
5.25% 07/01/02 6,620 6,959,275
Pennsylvania Ifra. Invest. Auth. Rev.,
Pennvest Prj., Ser. 90B
6.80% 09/01/10 3,985 4,478,144
Pennsylvania Ifra. Invest. Auth. Rev.,
Pennvest Prj., Ser. 94
6.00% 09/01/06 1,930 2,185,725
Par
Maturity (000) Value
---------- ------ ----------
Municipal Bonds (Continued)
Pennsylvania (Continued)
Pennsylvania Ind. Dev. Auth. Rev.,
Pennvest Prj., Ser. 90
6.00%** 09/01/00 $ 775 $ 808,906
Pennsylvania Intrgovtl. Coop. Auth.
Spl. Tax Rev., City of Phila. Fdg.
Prj., Ser. 92
6.80% 06/15/02 5,505 6,069,262
Pennsylvania Intrgovtl. Coop. Auth.
Spl. Tax Rev., City of Phila. Fdg.
Prj., Ser. 93
5.15% 06/15/05 10,000 10,500,000
5.87% 06/15/23 15,000 15,825,000
Pennsylvania Intrgovtl. Coop. Auth.
Spl. Tax Rev., City of Phila. Fdg.
Prj., Ser. 94
7.00% 06/15/04 500 578,125
Pennsylvania Intrgovtl. Coop. Auth.
Spl. Tax Rev., City of Phila. Fdg.
Prg., Ser. 96
5.60% 06/15/12 1,000 1,071,250
5.50% 06/16-06/20 13,000 13,636,250
Pennsylvania St. Fin. Auth. Cmnty. Coll.
Rev., Beaver Cnty Prj., Ser. 94A
5.87% 12/01/07 825 913,688
Pennsylvania St. Hghr. Ed. Auth. Coll.
and Univ. Rev., Ser. 91
7.00% 10/01/01 1,385 1,513,113
Pennsylvania St. Hghr. Ed. Fac. Auth.
Coll. and Univ. Rev., Ser. 93
5.25% 02/01/05 1,000 1,070,000
Pennsylvania St. Hghr. Ed. Auth. Rev.,
Temple Univ. Prj., Ser. 98
5.00% 04/01/21 16,955 17,124,550
Pennsylvania St. Hghr. Ed. Fac. Auth.
Coll. and Univ. Rev., Bryn Mawr
Coll. Prj., Ser. 95
6.00% 12/01/15 1,200 1,329,000
Pennsylvania St. Hghr. Ed. Fac. Auth.
Coll. and Univ. Rev., Hahnemann
Univ. Prj., Ser. 89
6.80% 07/01/99 1,000 1,025,640
7.00% 07/01/99 1,000 1,046,620
7.20% 07/01/99 750 786,053
Pennsylvania St. Hghr. Ed. Fac. Auth.
Coll. and Univ. Rev., Phila. Coll. Text.
and Sci. Prj., Ser. 93
5.35% 02/01/06 1,050 1,136,625
Pennsylvania St. Hghr. Ed. Fac. Auth.
Rev., Drexel Univ. Prj., Ser. 90
7.00% 05/01/00 50 52,562
Pennsylvania St. Hghr. Ed. Fac. Auth.
Rev., Ser. 91E
6.90% 06/15/01 1,000 1,081,250
Pennsylvania St. Hghr. Ed. Fac. Rev.,
Susquehanna Univ. Prj., Ser. 90
6.90% 03/01/02 750 760,313
Pennsylvania St. Hghr. Ed. Fac. Rev.,
Thomas Jefferson Univ. Prj., Ser. 90
7.55% 11/01/00 750 821,250
Pennsylvania St. Ind. Dev. Auth. Rev.,
Economic Dev. Prj., Ser. 94
7.00% 01/01/06 1,000 1,181,250
6.00% 01/01/12 4,000 4,375,000
See accompanying notes to financial statements.
61
<PAGE>
BlackRock Funds
STATEMENT OF NET ASSETS
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO (Continued)
Par
As of September 30, 1998 Maturity (000) Value
---------- ------ ----------
Municipal Bonds (Continued)
Pennsylvania (Continued)
Pennsylvania St. Infra. Investment
Auth. Rev., Ser. 90
6.45%** 09/01/04 $ 1,600 $ 1,784,000
Pennsylvania St. Pub. Sch. Bldg. Auth.
Rev., Mid Valley Sch. Dist. Prj., Ser. 92D
6.25% 01/01/07 500 546,875
Pennsylvania St. Third G.O., Ser. 91A
6.10% 11/15/01 7,000 7,568,750
6.50% 11/15/01 3,250 3,554,688
Pennsylvania St. Third Rev., Ser. 91A
6.50% 11/15/11 1,500 1,640,625
Pennsylvania St. Tpke. Comnwlth.
Rev., Ser. 91L
6.50% 06/01/04 1,445 1,564,213
Pennsylvania St. Tpke. Comnwlth.
Rev., Ser. 92P
6.00% 12/01/09 500 543,125
Pennsylvania St. Tpke. Comnwlth. Oil
Franchise Tax Rev., Ser. 94A
5.87% 12/01/08 500 561,250
Pennsylvania St. Univ. Rev., Ser. 89
6.75% 07/01/99 1,000 1,034,670
Pennsylvania St. Univ. Rev., Ser. 91
6.75% 07/01/01 1,000 1,093,750
7.00% 07/01/01 1,950 2,145,000
Pennsylvania St. Univ. Rev., Ser. 94
5.00% 05/01/03 1,000 1,051,250
Pennsylvania Tpke. Comm. Tpke. Rev.,
Ser. 86G
7.00%** 12/01/00 500 543,750
Pennsylvania Tpke. Comm. Tpke. Rev.,
Ser. 86J
7.20%** 12/01/01 2,275 2,548,000
Pennsylvania Tpke. Comm. Tpke. Rev.,
Ser. 89K
7.62% 12/01/99 2,000 2,135,000
Pennsylvania Tpke. Comm. Tpke. Rev.,
Ser. 92O
5.50% 12/01/17 4,895 5,115,275
Pennsylvania Trafford Dist. G.O.,
Ser. 94
5.85% 05/01/04 1,000 1,096,250
Pennsylvania Unltd. Tax G.O.,
Ser. 94A
6.50% 11/01/05 250 273,125
Philadelphia Arpt. Rev., Ser. 97A
6.00% 06/05-06/06 10,435 18,433,951
5.12% 06/15/12 4,815 5,031,675
5.25% 06/15/15 5,770 6,008,013
Philadelphia Arpt. Rev., Ser. 98
6.00% 06/15/06 5,125 5,733,594
Philadelphia Auth. for Ind. Dev. & Coml.
Rev., Girard Estate Coal Mining Prj.,
Ser. 96
5.50% 11/15/16 1,650 1,740,750
Philadelphia Auth. for Ind. Dev. &
Commercial Rev., Girard Estate
Coal Mining Prj., Ser 96
5.37% 11/15/12 3,945 4,137,319
Philadelphia Auth. for Ind. Dev. Lease
Rev., City of Phila. Prj., Ser. 96A
5.40% 02/15/17 2,500 2,618,750
Philadelphia Auth. for Ind. Dev. Rev.
Pgh. Dev. Corp. Prj., Ser. 89
7.00% 07/01/99 750 784,965
Par
As of September 30, 1998 Maturity (000) Value
---------- ------ ----------
Municipal Bonds (Continued)
Pennsylvania (Continued)
Philadelphia Auth. for Ind. Dev. Rev.,
Inst. Cancer Rsrch. Prj., Ser. 90B
7.25% 07/01/03 $ 2,515 $ 2,691,050
Philadelphia Auth. for Ind. Dev. Rev.,
Nat. Bd. of Med. Examiners Prj.,
Ser. 92
6.75% 05/01/12 500 548,125
Philadelphia Auth. for Ind. Dev. Rev.,
Pgh. Dev. Corp. Prj., Ser. 93
5.50% 07/01/10 1,035 1,099,688
Philadelphia G.O. Unltd., Ser 93A
5.25% 05/15/04 300 320,625
Philadelphia G.O. Unltd., Ser. 94B
5.90% 11/15/09 2,600 2,873,000
Philadelphia G.O. Unltd., Ser. 95
6.00% 05/15/04 2,345 2,594,156
6.00% 05/15/05 2,485 2,780,094
Philadelphia Gas Works Rev., Ser. 93
5.50% 07/01/04 5,000 5,406,250
Philadelphia Gas Works Rev., Ser. 98A
5.38% 07/01/13 4,155 4,393,913
Philadelphia Gas Works Rev.,
Fifteenth, Ser. 94
5.25% 08/01/24 2,900 2,961,625
Philadelphia Hosp. & Higher Ed. Fac.
Auth. Hosp. Rev., Albert Einstein
Med. Ctr. Prj., Ser. 89
7.62% 04/01/11 2,450 2,549,176
Philadelphia Hosp. & Higher Ed. Fac.
Auth. Hosp. Rev., Children's Hosp.
of Phila. Prj., Ser. 93
5.00% 02/15/21 2,250 2,264,063
Philadelphia Hosp. & Higher Ed. Fac.
Auth. Hosp. Rev., Children's Seashore
House Prj., Ser. 92A
7.00% 08/15/03 1,000 1,106,250
Philadelphia Hosp. & Higher Ed. Fac.
Auth. Hosp. Rev., Children's Seashore
House Prj., Ser. 92B
7.00% 08/15/12 1,575 1,732,500
Philadelphia Hosp. & Higher Ed. Fac.
Auth. Hosp. Rev., Frankford Hosp.
Prj., Ser. 93A
6.00% 06/01/14 500 528,750
Philadelphia Hosp. & Higher Ed. Fac.
Auth. Hosp. Rev., Frankford Hosp.
Prj., Ser. 95
5.50% 01/01/07 1,235 1,343,063
5.60% 01/01/08 1,245 1,352,381
Philadelphia Hosp. & Higher Ed. Fac.
Auth. Hosp. Rev., Magee Rehab.
Hosp. Prj., Ser. 91
7.00% 12/01/05 1,000 1,090,000
Philadelphia Hosp. & Higher Ed. Fac.
Auth. Hosp. Rev., Nazareth Hosp.
Franciscan Prj., Ser. 96B
5.00% 07/01/10 4,590 4,767,863
Philadelphia Hosp. & Higher Ed. Fac.
Auth. Hosp. Rev., Presbyterian Med.
Ctr. Prj., Ser. 93
5.60% 12/01/00 595 618,800
6.10% 12/01/03 1,000 1,103,750
Philadelphia Mun. Auth. Gas Works
Lease Ref. Rev., Ser. 89
7.62% 05/01/14 500 519,295
See accompanying notes to financial statements.
62
<PAGE>
BlackRock Funds
STATEMENT OF NET ASSETS
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO (Continued)
Par
As of September 30, 1998 Maturity (000) Value
---------- ------ ----------
Municipal Bonds (Continued)
Pennsylvania (Continued)
Philadelphia Mun. Auth. Gas Works
Lease Ref. Rev., Ser. 93D
6.12% 07/15/08 $ 2,650 $ 2,911,688
Philadelphia Mun. Auth. Rev., Justice
Lease Prj., Ser. 91B
7.12% 11/15/01 1,055 1,177,644
7.10% 11/15/11 1,200 1,338,000
Philadelphia Mun. Auth. Rev., Ser. 88
7.80% 04/01/18 3,765 3,990,900
Philadelphia Mun. Auth. Rev., Ser. 93A
5.05% 11/15/03 2,000 2,112,500
5.20% 11/15/04 4,000 4,280,000
5.62% 11/15/14 2,600 2,775,500
Philadelphia Pkg. Auth. Apt. Pkg. Rev.,
Ser. 97
5.75% 09/01/06 3,000 3,345,000
Philadelphia Pkg. Auth. Rev., Ser. 97
5.40% 09/01/15 5,900 6,224,500
Philadelphia Regl. Port Auth. Lease
Rev., Kidder Mld. Prj., Ser. 93
6.20% 09/01/20 2,000 2,175,000
Philadelphia Regl. Port Auth. Lease
Rev., Ser. 90
6.85% 08/01/00 500 528,125
Philadelphia Sch. Dist. G.O., Ser. 94A
5.80% 07/01/08 1,910 2,086,675
5.85% 07/01/09 1,710 1,868,175
Philadelphia Sch. Dist. G.O., Ser. 95A
6.25% 09/01/04 5,985 6,733,125
6.25% 09/01/07 5,990 6,963,375
Philadelphia Sch. Dist. G.O., Ser. 95B
5.50% 09/01/10 2,500 2,712,500
5.50% 09/01/18 4,890 5,140,613
Philadelphia Sch. Dist. G.O., Ser. 97A
5.00% 04/01/05 5,000 5,300,000
Philadelphia Sch. Dist. Unltd. Tax
G.O. , Ser. 91B
7.00% 07/01/01 2,000 2,185,000
Philadelphia Sch. Dist. Unltd. Tax
G.O., Ser. 92A
6.40% 05/15/02 2,000 2,182,500
Philadelphia Sch. Dist. Untld. Tax
G.O., Ser. 95A
6.25% 09/01/06 2,255 2,596,069
Philadelphia Sch. Dist. Untld. Tax
G.O., Ser. 95B
5.50% 09/01/11 2,000 2,162,500
Philadelphia Untld. Tax G.O., Ser. 95
5.00% 05/15/20 5,000 5,025,000
Philadelphia Wtr. & Swr. Rev., Ser. 89
6.85% 10/01/99 2,000 2,068,700
Philadelphia Wtr. & Swr. Rev., Ser. 92
7.35% 09/01/04 7,820 8,905,025
Philadelphia Wtr. & Waste Wtr. Rev.,
Ser. 93
5.50% 06/15/06 3,000 3,288,750
5.50% 06/15/07 6,780 7,474,950
5.75% 06/15/13 5,260 5,621,625
5.00% 06/15/16 4,500 4,539,375
Philadelphia Wtr. & Waste Wtr.
Rev., Ser. 95
6.75% 08/01/03 500 563,750
Par
As of September 30, 1998 Maturity (000) Value
---------- ------ ----------
Municipal Bonds (Continued)
Pennsylvania (Continued)
Philadelphia Wtr. & Waste Wtr.
Rev., Ser. 97A
5.25% 08/01/08 $ 160 $ 173,600
5.00% 08/01/12 2,765 2,861,775
5.00% 08/01/22 12,990 13,119,900
5.12% 08/01/27 20,645 21,006,288
Pittsburgh & Allegheny Cnty. Aud.
Auth. Rev., Ser. 78
6.40% 12/01/01 445 445,823
Pittsburgh & Allegheny Cnty. Rev.,
Ser. 91B
6.00% 07/15/01 500 530,625
Pittsburgh G.O. Unltd., Ser. 95A
5.20% 03/01/10 10,000 10,500,000
5.25% 03/01/11 10,450 10,959,438
Pittsburgh G.O. Unltd., Ser. 95B
5.12% 03/01/09 5,000 5,256,250
Pittsburgh G.O. Unltd., Ser. 96A
6.00% 03/01/05 8,225 9,170,875
Pittsburgh Pub. Pkg. Auth. Rev.,
Ser 92A
5.87% 12/01/12 1,500 1,606,875
Pittsburgh Sch. Dist. G.O., Ser 97
5.50% 09/01/09 7,500 8,071,875
Pittsburgh Wtr. & Swr. Auth. Rev.,
Ser. 91A
6.60% 09/01/01 1,100 1,205,875
Pittsburgh Wtr. & Swr. Rev., Ser. 98A
5.00% 09/01/21 5,280 5,313,000
Pleasant Valley Sch. Dist. G.O., Ser. 95
5.60% 11/15/14 1,385 1,481,950
Pocono Mountain Sch. Dist. G.O.,
Ser. 98A
5.00% 11/15/08 1,935 2,058,356
5.00% 11/15/09 2,145 2,265,656
5.00% 11/15/10 2,260 2,370,175
5.00% 11/15/11 2,380 2,478,175
Pottsgrove Sch. Dist. G.O., Ser. 94A
6.85% 09/01/99 1,000 1,033,190
Pottstown Borough Auth. Swr. Rev.,
Ser. 96
5.50% 11/01/16 1,560 1,639,950
Punxsutawney Area Sch. Dist. G.O.,
Ser. 95
5.80% 04/15/05 1,000 1,105,000
Purchase Line Sch. Dist. G.O., Ser. 91
6.95% 01/15/01 1,000 1,070,000
Reading G.O., Ser. 92
6.50% 11/15/02 1,000 1,101,250
Ridley Park Hosp. Auth. Rev., Taylor
Hosp. Prj., Ser. 90A
8.62% 12/01/00 3,185 3,567,200
Ringgold Sch. Dist. Rev., Ser. 95
6.20% 02/01/19 500 562,500
Riverside Beaver Cnty. Sch. Dist. Rev.,
Ser. 96
5.50% 02/15/17 3,725 4,064,906
Rose Tree Media Sch. Dist. G.O.,
Ser. 92A
6.55% 09/15/01 945 1,018,238
Sayre Hlth. Care Fac. Aut. Rev.,
Guthrie Prj., Ser. 91A
7.10% 03/01/17 3,000 3,262,500
See accompanying notes to financial statements.
63
<PAGE>
BlackRock Funds
STATEMENT OF NET ASSETS
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO (Continued)
Par
As of September 30, 1998 Maturity (000) Value
---------- ------ ----------
Municipal Bonds (Continued)
Pennsylvania (Continued)
Sayre Health Care Fac. Auth, Rev.,
Hlth. Care, Tioga Nursing Fac. Prj.,
Ser. 89A
7.25% 10/01/10 $ 1,500 $ 1,580,160
Sayre Health Care Fac. Auth. Rev.,
VHA Cap Fing. Prj., Ser. 85
7.15% 12/01/10 1,400 1,543,500
Sayre Health Care Fac. Auth. Variable
Rate Hosp. Rev., Ser. 85H
7.62%** 12/01/15 750 805,313
Schuylkill Redev. Auth. Comnwlth.
Rev., Ser. 91A
7.12% 06/01/13 2,000 2,197,500
Scranton Lackawanna Hlth & Welfare
Auth Rev., Univ of Scranton Prj.,
Ser. 90B
7.40% 06/15/10 1,665 1,798,200
Scranton Lackawanna Hlth. & Welfare
Aut. Rev., Ref Hosp. Cmnty. Med.
Ctr. Prj., Ser. 98A
5.25% 07/01/04 2,215 2,358,975
Scranton Lackawanna Hlth. & Welfare
Aut. Rev., Univ. of Scranton Prj.,
Ser. 90B
7.25% 06/15/00 1,310 1,409,888
Scranton Lackawanna Hlth. & Welfare
Aut. Rev., Univ. of Scranton Prj.,
Ser. 90C
7.50% 06/15/00 3,860 4,173,625
Solanco Sch Dist G.O., Ser 94
6.30% 02/15/04 500 557,500
Somerset Cnty. Gen. Auth. Cmnwlth.
Lease Rev., Ser. 91
6.45% 10/15/00 1,000 1,056,250
6.25% 10/15/01 1,750 1,874,688
6.70% 10/15/01 1,500 1,625,625
South Fork Mun. Auth. Hosp. Rev.,
Good Samaritan Med Ctr. Prj.,
Ser. 96B
5.37% 07/01/16 4,000 4,175,000
Southeastern Trans. Auth. Rev., Ser. 94
6.00% 06/01/01 2,000 2,107,500
6.10% 06/01/02 1,000 1,071,250
Southeastern Trans. Auth. Rev.,
Ser. 95A
5.75% 03/01/08 1,285 1,407,075
5.87% 03/01/09 1,230 1,346,850
Southeastern Trans. Auth. Rev., Ser. 97
5.75% 03/01/06 2,900 3,215,375
5.75% 03/01/07 1,700 1,899,750
5.50% 03/01/12 2,525 2,717,531
5.55% 03/01/13 3,500 3,762,500
5.37% 03/01/17 4,770 4,978,688
Springford Sch., Dist. G.O., Ser. 97
5.15% 02/01/18 10,010 10,210,200
St. Mary Hosp. Langhorne Hosp.
Franciscan Health Rev., Ser. 89C
7.00% 07/01/03 750 783,150
St. Mary Hosp. Auth. Bucks Cnty.
Catholic Hlth. Initiatives Rev.,
Ser. 98A
5.00% 12/01/18 5,000 4,962,500
State Higher Ed. Fac. Auth. Rev., Ser 93I
7.50% 06/15/01 1,670 1,830,738
Par
As of September 30, 1998 Maturity (000) Value
---------- ------ ----------
Municipal Bonds (Continued)
Pennsylvania (Continued)
State of Pennsylvania G.O., Ser. 89A
6.60% 06/01/99 $ 2,500 $ 2,590,475
State Pub. Sch. Bldg. Auth. Coll. Rev.,
Butler Cnty. Cmnty. Coll. Prj., Ser. 89E
7.20% 10/15/99 750 786,953
State Pub. Sch. Bldg. Auth. Coll. Rev.,
Harrisburg Area Cmnty. Coll. Prj.,
Ser. 90
7.15% 10/01/99 385 403,222
State Pub. Sch. Bldg. Auth. Coll. Rev.,
Harrisburg Area Cmnty. Coll. Prj.,
Ser. 91D
6.80% 04/01/02 1,335 1,466,831
State Pub. Sch. Bldg. Auth. Coll. Rev.,
Shenandoah Valley Sch. Dist. Prj.,
Ser. 89
7.37% 09/15/10 1,000 1,054,050
State Tpk. Commn. Tpk. Rev., Ser 92P
5.80% 12/01/06 1,500 1,618,125
Stroudsburg Area Sch. Dist. G.O.,
Ser. 98
5.25% 10/01/10 2,835 3,047,625
5.25% 10/01/12 2,985 3,160,369
Swarthmore Boro. Auth. Coll. Rev.,
Ser. 90
6.95% 09/15/00 500 535,000
7.37% 09/15/00 1,500 1,616,250
Tarentum Gtd. Elec. Rev., Ser. 93
5.87% 09/01/18 750 817,500
Unionville Chadds Ford Sch. Dist.
G.O., Ser. 91
6.75% 06/01/06 1,000 1,076,250
Unionville Chadds Ford Sch. Dist.
G.O., Unltd., Ser. 93
5.60% 06/01/03 1,000 1,071,250
Upper St. Clair Twp. Sch. Auth. Bldg.
Rev., Ser. 78
6.50% 02/15/04 500 532,500
Warren Cnty. G.O., Ser. 91
7.15% 07/01/01 1,200 1,305,000
Washington Cnty. Auth. Lease Rev.,
Ser. 85C
7.30%** 06/15/00 6,840 7,438,500
Washington Cnty. Ind. Dev. Auth.
Pollution Ctrl. Rev., West Penn
Pwr. Co. Prj., Ser. 93
4.95% 03/01/03 5,190 5,423,550
Washington Cnty. Ind. Dev. Auth.
Pollution Ctrl. Rev., West Penn
Pwr. Co. Prj., Ser. 95G
6.05% 04/01/14 2,500 2,715,625
West Chester Area Sch. Dist. G.O.,
Ser. 91A
6.70% 01/15/01 1,000 1,063,750
West Chester Area Sch. Dist. Untld.
Tax G.O., Ser. 91A
6.70% 01/01/01 1,000 1,063,750
West Goshen Swr. Auth. Rev., Ser. 91
7.00% 09/01/01 1,500 1,631,250
West Jefferson Hills Sch. Dist. Unltd
Tax G.O., Ser. 91A
6.70% 08/01/01 1,250 1,348,438
West Mifflin San. Swr. Mun. Auth.
Swr. Rev., Ser. 96
5.70% 08/01/15 1,445 1,603,950
See accompanying notes to financial statements.
64
<PAGE>
BlackRock Funds
STATEMENT OF NET ASSETS
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO (Concluded)
Par
As of September 30, 1998 Maturity (000) Value
---------- ------ ----------
Municipal Bonds (Continued)
Pennsylvania (Continued)
West Shore Sch. Dist. G.O., Ser. 98
5.00% 11/15/08 $ 5,215 $ 5,514,863
5.00% 11/15/09 5,480 5,760,850
5.00% 11/15/10 5,760 6,012,000
West Whiteland Twp. Unltd. Tax G.O.,
Ser. 92
6.75% 12/01/02 1,100 1,221,000
West York Area Sch. Dist. G.O., Ser. 91
6.80% 03/01/01 900 964,125
Westmoreland Cnty. G.O., Ser. 91
6.35% 12/01/99 1,000 1,035,000
Westmoreland Cnty. G.O., Ser. 92
6.55% 08/01/01 750 805,313
Westmoreland Cnty. Ind. Dev. Auth.
Rev., Westmoreland Hlth. Sys. Prj.,
Ser 93A
6.00% 07/01/11 200 217,250
Westmoreland Cnty. Mun. Auth. Mun.
Svc. Rev ., Ser. 87K
2.00% 07/01/03 1,000 915,000
Westmoreland Cnty. Unltd. Tax G.O.,
Ser. 97
5.50% 12/01/16 1,160 1,228,150
Westview Mun. Auth. Spl. Oblig.Rev.,
Ser. 85
9.25% 11/15/05 750 940,313
Williampsort Area Sch. Auth. Sch.
Rev., Ser. 78
6.00% 03/01/07 155 166,819
Wilson Sch. Dist. G.O., Ser. 97
5.50% 05/15/14 1,440 1,542,600
5.50% 05/15/17 7,435 7,843,925
York Cnty. Hosp. Auth. Rev., York
Hosp. Prj., Ser. 91
7.00% 01/01/01 285 310,294
7.10% 01/01/01 355 387,394
York Cnty. Solid Waste & Refuse Auth.
Sold Waste Sys. Rev., Ser. 92
6.45% 02/01/99 1,000 1,019,290
---------------
1,087,570,203
---------------
Puerto Rico -- 2.1%
Puerto Rico Elec. Pwr. Auth. Rev.,
Ser. 89N
6.80% 07/01/00 1,000 1,039,460
Puerto Rico Elec. Pwr. Auth. Rev.,
Ser. 91P
6.75% 07/01/03 250 272,812
Puerto Rico Elec. Pwr. Auth. Rev.,
Ser. 95X
6.00% 07/01/12 5,000 5,456,250
Puerto Rico Elec. Pwr. Auth. Rev.,
Ser. 97A
5.50% 07/01/02 8,090 8,504,612
5.37% 07/01/14 3,000 3,221,250
Puerto Rico Indl. Tourist Edl. Med. &
Env. Ctl. Facs. Rev., Ser. 98A
5.50% 10/01/14 1,500 1,620,000
Puerto Rico Pub. Bldg. Auth. Pub. Ed.
and Hlth. Fac. Rev., Ser. 93M
4.90% 07/01/00 3,000 3,056,250
Puerto Rico Pub. Impt. Prj. Rev.,
Ser. 89A
7.37% 07/01/99 750 784,185
---------------
23,954,819
---------------
Par
(000) Value
----- ------------
Total Municipal Bonds
(Cost $1,048,542,191) $1,111,525,022
---------------
Short Term Investments -- 1.1%
Smith Barney Tax-Free
Money Market Fund $12,471 12,470,973
Vanguard Tax-Exempt Money
Market Fund 100 100,000
---------------
Total Short Term Investments
(Cost $12,570,973) 12,570,973
---------------
TOTAL INVESTMENTS IN
SECURITIES -- 99.7%
(Cost $1,061,113,164*) 1,124,095,995
OTHER ASSETS IN EXCESS
OF LIABILITIES 0.3% 3,139,570
------- ---------------
NET ASSETS (Applicable to 94,529,682
Institutional shares, 1,853,684 Service
shares, 3,112,945 Investor A shares,
1,578,675 Investor B shares and 16,522
Investor C shares outstanding) 100.0% $1,127,235,565
------- ---------------
------- ---------------
NET ASSET VALUE AND REDEMPTION
PRICE PER INSTITUTIONAL, SERVICE
AND INVESTOR A SHARE
($1,109,450,572 (DIVIDE) 99,496,311) $11.15
-------
-------
OFFERING PRICE PER INSTITUTIONAL
AND SERVICE SHARE $11.15
-------
-------
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($11.15 (DIVIDE) .960) $11.61
-------
-------
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE
(subject to a contingent deferred
sales charge of 4.5%)
PER INVESTOR B SHARE
($17,600,787 (DIVIDE) 1,578,675) $11.15
-------
-------
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE
(subject to a contingent deferred
sales charge of 1.0%)
PER INVESTOR C SHARE
($184,206 (DIVIDE) 16,522) $11.15
-------
-------
- ----------------
* Also cost for Federal income tax purposes. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $63,059,949
Gross unrealized depreciation (77,118)
------------
$62,982,831
------------
------------
++ Principal amount of securities pledged as collateral of $3,000,000 on 250
short U.S. Treasury Bond future contracts expiring December 1998. The value
of such contracts on September 30, 1998 was $32,867,188, thereby resulting
in an unrealized loss of $265,625.
See accompanying notes to financial statements.
65
<PAGE>
BlackRock Funds
STATEMENT OF NET ASSETS
NEW JERSEY TAX-FREE INCOME PORTFOLIO
Par
As of September 30, 1998 Maturity (000) Value
--------- --------- ----------
MUNICIPAL BONDS -- 98.5%
New Jersey -- 77.6%
Absecon Bd. of Ed. G.O., Ser. 92
5.62% 12/15/02 $ 770 $ 783,252
Atlantic City, Ctfs. Partn. Rev., Pub
Fac. Lease Agreement Prj., Ser. 91
7.30% 03/01/04 1,535 1,786,356
Bergen Cnty. G.O., Ser. 90
6.25% 11/15/00 45 47,419
6.25% 11/15/00 600 633,750
Bergen Cnty. Util. Auth. Rev., Ser. 92A
6.00% 06/15/01 1,590 1,685,400
Brigantine G.O., Ser. 92
6.25% 08/01/03 730 803,000
Camden Cnty. G.O., Ser. 89
7.00% 06/01/99 430 440,492
Camden Cnty. Imp. Auth. Lease
Rev., Ser. 92
6.00% 12/01/02 1,000 1,092,500
Cherry Hill Twp. G.O., Ser. 92
6.00% 06/01/06 500 545,000
Dover Twp. G.O., Ser. 92
6.00% 10/15/03 1,000 1,103,750
6.10% 10/15/04 540 596,025
Edison Twp. G.O., Ser. 91
6.50% 06/01/04 950 1,052,062
Essex Cnty. Imp. Auth. Lease Rev.,
Jail & Yth. Hsg. Prj., Ser. 94
6.90% 12/01/14 500 592,500
Essex Cnty. Util. Auth. Solid Waste
Rev., Ser. 96
5.75% 04/01/05 2,000 2,205,000
Hamilton Twp. Atlantic City Sch. Dist .
G.O., Ser. 92
5.87% 12/15/07 860 938,475
Hudson Cnty. Impt. Auth. Fac. Lease
Rev., Hudson Cnty. Lease Proj.,
Ser. 98 MB
4.75% 10/01/19 3,000 2,977,500
Jersey City G.O., Ser. 96A
6.00% 10/01/05 1,655 1,855,669
6.00% 10/01/06 3,000 3,397,500
Knowlton Twp. Bd. of Ed. G.O.,
Ser. 91
6.60% 08/15/11 169 207,025
Lacey Twp. Wtr. Auth. Rev., Ser. 93
6.00% 12/01/12 1,000 1,118,750
Mercer Cnty. Imp. Auth. Rev.,
Hamilton Bd. of Ed. Prj., Ser. 92
5.90% 06/01/03 500 536,250
Middlesex Cnty. Imp. Auth. Rev.,
Ser. 96
5.80% 09/15/13 1,725 1,878,094
Monmouth Cnty. G.O., Ser. 90
6.90% 08/01/04 430 462,250
Monmouth Cnty. Imp. Auth. Correc ......
Fac. Rev., Ser. 91
6.30% 08/01/01 1,000 1,087,500
Monmouth Cnty. Imp. Auth. Rec .........
Fac. Rev., Ser. 90
6.62% 12/01/99 1,170 1,237,275
Morristown Cnty. G.O., Ser. 95
6.40% 08/01/14 500 573,750
New Jersey Bldg. Auth. Rev., Ser. 97
5.00% 06/15/11 2,000 2,095,000
Par
Maturity (000) Value
--------- --------- ----------
MUNICIPAL BONDS (Continued)
New Jersey (Continued)
New Jersey Econ. Dev. Auth. Rev.,
Ser. 94
5.80% 07/01/07 $ 1,500 $1,659,375
New Jersey Econ. Dev. Auth. Mkt
Trans. Fac. Rev., Ser. 94A
5.80% 07/01/08 1,290 1,425,450
New Jersey Econ. Dev. Auth. Rev.,
Invamed Inc. Prj., Ser. 95
6.00% 07/01/06 300 326,250
6.10% 07/01/07 200 217,250
New Jersey Econ. Dev. Auth. Rev.,
Mkt. Trans. Fac. Prj., Ser. 94
5.87% 07/01/11 4,000 4,415,000
New Jersey Econ. Dev. Auth. Rev.,
Performing Arts Ctr. Prj., Ser. 96C
5.00% 06/15/16 1,985 2,027,181
5.75% 06/15/08 4,440 4,972,800
New Jersey Econ. Dev. Auth. Rev.,
St. Barnabas Med. Ctr. Prj., Ser. 97A
0.000% 07/01/23 4,000 1,185,000
New Jersey Econ. Dev. Auth. Rev.,
Trenton OFC Complex Prj., Ser. 89
6.62% 06/15/01 1,050 1,120,875
New Jersey Econ. Dev. Auth. Rev.,
W.Y. Hldg. Co. Prj., Ser. 95
5.95% 06/01/05 865 923,387
New Jersey Ed. Auth. Rev., Rowan
Coll. Prj., Ser. 96
5.87%++ 07/01/16 2,185 2,408,962
New Jersey G.O., Ser. 86B
6.25% 01/15/04 860 964,275
New Jersey G.O., Ser. 91
6.00% 08/01/02 4,075 4,401,000
6.25% 08/01/02 1,160 1,270,200
New Jersey Hlth. Care Fac. FHA
Insd. Mtg. Rev., Cathedral Hlth
Prj., Ser. 90A
6.95% 02/15/01 640 686,400
New Jersey Hlth. Care Fac. Fin. Auth
Rev., Capital Hlth. Ctr. Prj., Ser. 97
5.12% 07/01/12 2,250 2,275,312
New Jersey Hlth. Care Fac. Fin. Auth
Rev., Cathederal Hlth. Ctr. Prj.,
Ser. 90
7.25% 02/15/21 1,000 1,097,500
New Jersey Hlth. Care Fac. Fin. Auth
Rev., Kennedy Hlth. Sys. Prj.,
Ser. 98
5.25% 07/01/15 700 732,375
New Jersey Hlth. Care Fac. Fin. Auth
Rev., Princeton Med. Ctr. Prj.,
Ser. 98
5.00% 07/01/23 2,000 2,032,500
New Jersey Hlth. Care Fac. Fin. Auth
Rev., Robert Wood Johnson Univ
Prj., Ser. 96C
5.75%++ 07/01/07 2,595 2,903,156
New Jersey Hlth. Care Fac. Fin. Auth
Rev., Society of The Vy. Hosp. Prj.,
Ser. 89C
6.60% 07/01/00 430 447,669
See accompanying notes to financial statements.
66
<PAGE>
BlackRock Funds
STATEMENT OF NET ASSETS
NEW JERSEY TAX-FREE INCOME PORTFOLIO (Continued)
Par
As of September 30, 1998 Maturity (000) Value
-------- ------ ----------
MUNICIPAL BONDS (Continued)
New Jersey (Continued)
New Jersey Sports & Expo. Rev.,
Ser. 92A
6.50% 03/01/07 $ 600 $ 661,500
New Jersey St. Ed. Fac. Auth. Rev.,
Hghr. Ed. Equip. Leasing Prj.,
Ser. 94A
5.00% 09/01/99 1,000 1,015,460
New Jersey St. Ed. Fac. Auth. Rev.,
Hghr. Ed. Fac. Tr. Fd. Prj., Ser. 95A
5.12% 09/01/07 1,800 1,941,750
New Jersey St. Ed. Fac. Auth. Rev.,
Princeton Univ. Prj., Ser. 90A
6.45% 07/01/99 430 434,274
New Jersey St. Ed. Fac. Auth. Rev.,
Ser. 99
5.00% 07/01/18 1,000 1,001,250
New Jersey St. Ed. Fac. Auth. Rev.,
St. Peters College Prj., Ser. 98B
5.50% 07/01/27 4,220 4,336,050
New Jersey G.O., Ser. 92D
6.00% 02/15/11 2,000 2,327,500
New Jersey G.O., Ser. 96
6.00% 07/15/06 2,000 2,280,000
New Jersey G.O., Ser. 98
5.00% 03/01/12 3,750 3,904,687
New Jersey St. Hsg. & Mtg. Fin. Agcy
Rev., Ser. 92A
6.70% 05/01/05 500 539,375
6.70% 11/01/05 1,000 1,078,750
6.95% 11/01/13 750 810,937
New Jersey St. Hsg. & Mtg. Fin
Amt. Rev., Ser. 97A
5.55% 05/01/27 2,000 2,065,000
New Jersey St. Hwy. Auth. Rev.,
Garden St. Pkwy. Prj., Ser. 92
6.00% 01/01/05 3,250 3,505,937
6.20% 01/01/10 750 880,312
6.25% 01/01/14 500 536,250
New Jersey St. Mun. Util. Wtr. Sys
Auth. Rev., Ser. 97
5.00% 01/01/28 2,000 2,012,500
New Jersey St. Tpke. Auth. Rev.,
Ser. 91A
6.40% 01/01/02 860 925,575
6.90% 01/01/14 970 971,756
New Jersey St. Tpke. Auth. Rev.,
Ser. 91C
6.25% 01/01/10 2,210 2,353,650
6.50% 01/01/16 500 599,375
New Jersey St. Tpke. Auth. Rev.,
Ser. 92A
5.80% 01/01/02 1,260 1,335,600
New Jersey St. Waste Wtr. Trtmnt
Trust Rev., Ser. 89B
6.90% 05/15/99 430 440,453
New Jersey St. Waste Wtr. Trtmnt
Trust Rev., Ser. 90
6.87% 06/15/00 395 421,169
6.87% 06/15/06 35 37,275
New Jersey St. Waste Wtr. Trtmnt
Trust Rev., Ser. 96C
6.25% 05/15/03 2,500 2,762,500
6.25% 05/15/06 5,955 6,825,919
Par
Maturity (000) Value
-------- ------ ----------
MUNICIPAL BONDS (Continued)
New Jersey (Continued)
New Jersey Trans. Auth. Rev., Ser. 96A
6.00% 12/15/05 $1,000 $ 1,130,000
New Jersey Trans. Auth. Rev., Ser. 94A
6.25% 12/15/03 1,000 1,115,000
New Jersey Trans. Trust Fund Auth
Rev., Ser. 96B
5.25% 06/15/15 3,000 3,112,500
Newark Bd. of Ed. G.O., Ser. 94
5.87% 12/15/13 1,000 1,102,500
North Bergen Twp. G.O., Ser. 92
5.90% 08/15/01 500 531,250
North Jersey Dist. Wtr. Sply. Rev.,
Ser. 93
5.50% 07/01/03 860 924,500
Northwest Bergen Cnty. Rev., Ser. 92
5.90% 07/15/06 755 834,275
Northwest Bergen Cnty. Util. Auth
Sys. Rev., Ser. 92
6.00% 07/15/07 860 951,375
Ocean Cnty. G.O., Ser. 89
6.75% 07/13/03 1,030 1,163,900
Ocean Cnty. G.O., Ser. 90
6.80% 06/15/00 430 453,112
Ocean Cnty. G.O., Ser. 91
6.37% 04/15/03 430 476,225
Ocean Cnty. G.O., Ser. 91A
6.25% 10/01/04 430 467,625
Ocean Cnty. Util. Auth. Rev., Ser. 95A
6.30% 01/01/12 1,005 1,119,319
Ocean Twp. Swr. Auth. Rev., Ser. 92
6.00% 12/01/08 1,705 1,864,844
Passaic Valley Wtr. Sply. Comm. Rev.,
Ser. 92A
5.95% 12/15/02 500 543,125
Point Pleasant G.O., Ser. 95
5.70% 12/01/03 500 547,500
Rutgers Univ. Rev., Ser. 92A
6.10% 05/01/03 1,000 1,091,250
Salem Cnty. Indl. Pol. Ctrl. Fin. Auth
Rev., Ser. 94
6.20% 08/01/30 1,000 1,102,500
South Jersey Port. Corp. Rev., Ser. 93
5.60% 01/01/23 3,000 3,127,500
Warren Cnty. Pol. Ctrl. Fin. Auth. Rev.,
Ser. 92B
5.70% 12/01/03 500 540,625
Weehawken Twp. G.O., Ser. 92
6.15% 07/01/04 350 377,563
West Windsor Plainsboro Twp. Bd. of
Ed. G.O., Ser. 93
5.80% 03/15/06 1,000 1,088,750
Winslow Twp. Tax G.O., Ser. 92
6.40% 10/01/05 870 966,788
Woodbridge Twp. G.O., Ser. 90
6.65% 08/01/00 475 504,094
Woodbridge Twp. G.O., Ser. 92
6.05% 08/15/05 500 546,250
6.25% 08/15/08 1,000 1,096,250
------------
142,006,885
------------
See accompanying notes to financial statements.
67
<PAGE>
BlackRock Funds
STATEMENT OF NET ASSETS
NEW JERSEY TAX-FREE INCOME PORTFOLIO (Concluded)
Par
As of September 30, 1998 Maturity (000) Value
-------- ------- ------------
MUNICIPAL BONDS (Continued)
New York -- 8.8%
Gloucester Cnty. Srs. Hsg. Dev. Corp.
Rev., Sect. 8 Colonial Park Prj.,
Ser. 94A
6.20% 09/15/11 $ 1,250 $ 1,332,813
Port Auth. N.Y. & N.J. Rev., Ser. 92
6.10% 10/15/02 645 700,631
Port Auth. N.Y. & N.J. Rev., Ser. 95
5.75% 11/01/09 3,275 3,557,469
Port Auth. N.Y. & N.J. Spl. Oblig. Rev.,
JFK Intl. Air Term. Prj., Ser. 97
5.75% 12/01/22 2,105 2,283,925
Port Auth. N.Y. & N.J. Spl. Oblig. Rev.,
JFK Intl. Air Term. Prj., Ser. 97-6
6.25% 12/01/09 7,000 8,198,750
------------
16,073,588
------------
Pennsylvania -- 0.8%
Delaware River Joint Toll Bdg. Rev.,
Ser. 92
6.25% 07/01/12 1,400 1,496,250
------------
Puerto Rico -- 10.7%
Puerto Rico Pub. Bldgs. Auth. Rev.,
Ser. 97B
5.00% 07/01/15 1,000 1,033,750
Puerto Rico Comwlth. Hwy. & Trans
Auth. Rev., Ser. 93X
5.50% 07/01/13 2,000 2,230,000
Puerto Rico Comwlth. Hwy. & Trans
Auth. Rev., Ser. 96Z
6.25% 07/01/06 1,760 2,032,800
Puerto Rico Elec. Pwr. Auth. Rev.,
Ser, 98
7.13% 07/01/13 1,660 1,917,300
Puerto Rico Elec. Pwr. Auth. Rev.,
Ser. 94S
6.12% 07/01/08 1,000 1,165,000
Puerto Rico Elec. Pwr. Auth. Rev.,
Ser. 94T
5.50% 07/01/20 2,250 2,320,313
Puerto Rico Elec. Pwr. Auth. Rev.,
Ser. 97AA
5.25% 07/01/16 1,000 1,051,250
Puerto Rico Elec. Pwr. Auth. Rev.,
Ser. 97BB
5.50% 07/01/09 1,500 1,672,500
Puerto Rico Elec. Pwr. Auth. Rev.,
Ser. 98DD
5.25% 07/01/16 2,025 2,143,969
Puerto Rico Infra. Fin. Auth. Rev.,
Ser. 97A
5.00% 07/01/28 4,000 4,035,000
------------
19,601,882
------------
Virgin Islands -- 0.6%
Virgin Islands Wtr. & Pwr. Auth. Elec
Sys. Rev., Ser. 98
5.30% 07/01/21 1,100 1,120,625
------------
TOTAL MUNICIPAL BONDS
(Cost $168,128,014) 180,299,230
------------
Par
(000) Value
--------- ------------
SHORT TERM INVESTMENTS -- 1.1%
Smith Barney Tax Free Money
Market Fund
(Cost $1,936,775) $ 1,937 $ 1,936,775
------------
TOTAL INVESTMENTS IN
SECURITIES
(Cost $170,064,789*) 99.6% 182,236,005
OTHER ASSETS IN EXCESS
OF LIABILITIES 0.4% 757,789
--------- ------------
NET ASSETS (Applicable to 12,068,941
Institutional shares, 2,882,702 Service
shares, 118,608 Investor A shares and
87,059 Investor B shares outstanding) 100.0% $182,993,794
========= ============
NET ASSET VALUE AND REDEMPTION
PRICE PER INSTITUTIONAL, SERVICE
AND INVESTOR A SHARE
($181,942,729 (DIVIDE) 15,070,251) $12.07
======
OFFERING PRICE PER INSTITUTIONAL
AND SERVICE SHARE $12.07
======
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($12.07 (DIVIDE) .960) $12.57
======
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE
(subject to a contingent deferred
sales charge of 4.5%)
PER INVESTOR B SHARE
($1,051,065 (DIVIDE) 87,059) $12.07
======
- --------------
* Also cost for Federal income tax purposes. The gross unrealized
appreciation on a tax basis is $12,171,216.
++ Principal amount of securities pledged as collateral of $685,000 on 38
short U.S. Treasury Bond future contracts expiring December 1998. The value
of such contracts on September 30, 1998 was $4,995,813, thereby resulting
in an unrealized loss of $21,219.
See accompanying notes to financial statements.
68
<PAGE>
BlackRock Funds
STATEMENT OF NET ASSETS
OHIO TAX-FREE INCOME PORTFOLIO
Par
As of September 30, 1998 Maturity (000) Value
--------- --------- ----------
Municipal Bonds -- 103.4%
Ohio -- 88.8%
Akron Swr. Sys. Rev., Ser. 96
5.87% 12/01/16 $ 500 $ 548,125
Akron Swr. Sys. Rev., Ser. 98
5.50% 12/01/12 1,070 1,177,000
Brunswick G.O., Ser. 94
6.30% 12/01/05 210 234,412
Butler Cnty. Hosp. Fac. Rev.,
Middletown Reg. Hosp. Prj., Ser. 91
6.75% 11/15/03 50 54,875
Butler Cnty. Sales Tax Rev., Ser. 97
5.00% 12/15/13 500 513,750
Butler Cnty. Trans. Impt. Dist. Rev.,
Ser. 97A
6.00% 04/01/11 600 681,750
Cincinnati Wtrwks. Impt. Rev., Ser. 89
6.75% 12/01/01 1,000 1,092,500
Clermont Cnty. Swr. Sys. Rev., Ser. 90
7.25% 12/01/00 1,415 1,547,656
Cleveland Arpt. Sys. Rev., Ser. 94B
5.70% 01/01/04 150 165,562
Cleveland Ctfs. Partnr. Cleveland
Stadium Prj. Ser. 97
5.25% 11/15/10 2,500 2,684,375
Cleveland G.O. Ltd., Ser. 94
6.25% 11/15/06 1,915 2,180,706
Cleveland Pkg. Fac. Rev., Ser. 96
6.00% 09/15/06 1,275 1,448,719
Cleveland Pub. Pwr. Sys. Rev. First Mtg.,
Ser. 94B
6.10% 11/15/03 1,000 1,106,250
Cleveland Pub. Pwr. Sys. Rev., Ser. 94A
6.30% 11/15/05 4,000 4,570,000
Cleveland Wtrwks. Rev., First Mtg.,
Ser. F-92A
6.50% 01/01/02 500 550,625
Cleveland Wtrwks. Rev., Impt. First
Mtg., Ser. 96H
6.00% 01/01/06 2,000 2,250,000
Cleveland-Cuyahoga Cnty. Port Auth.
Rev., Ser. 97
6.00% 03/01/07 500 515,000
Columbus G.O. Ltd., Ser. 89
6.75% 07/01/99 1,000 1,025,650
Columbus G.O. Ltd., Ser. 91-2
6.50% 09/15/01 1,105 1,189,256
Columbus G.O. Ltd., Ser. 94-1
5.60% 05/15/05 1,000 1,101,250
Columbus G.O. Unltd., Ser. 86
7.37% 07/01/06 1,000 1,227,500
Columbus G.O. Unltd., Ser. 92B
6.10% 01/01/03 1,000 1,090,000
Columbus G.O., Mun. Arpt. No. 30-E-U
Ser. 91
6.15% 04/15/02 1,475 1,563,500
Columbus Mun. Apt. Auth. Rev.,
Columbus Int. Apt. Prj., Ser. 94A
6.00% 01/01/04 150 164,250
Columbus Pub. Impt. Rev., Ser.93
5.35% 09/15/06 1,075 1,162,344
Columbus Wtrwks. Enlargement No. 44
G.O. Unltd., Ser. 92
6.00% 05/01/03 500 554,375
Par
Maturity (000) Value
--------- --------- ----------
Municipal Bonds (Continued)
Ohio (Continued)
Cuyahoga Cnty. G.O., Ser. 89
7.00% 10/01/99 $1,000 $ 1,055,570
Cuyahoga Cnty. G.O., Ser. 91
6.70% 10/01/01 1,000 1,100,000
Cuyahoga Cnty. Hosp. Rev., Meridia
Hlth. Sys. Prj., Ser. 95
6.10% 08/15/04 500 558,750
Cuyahoga Cnty. Hosp. Rev., Ser. 96
6.00% 01/15/05 500 549,375
Cuyahoga Cnty. Hosp. Rev., Univ. Hlth.
Sys. Prj., Ser. 96B
6.00% 01/15/04 3,125 3,406,250
Cuyahoga Cnty. Jail Fac. G.O. Unltd.,
Ser. 91
7.00% 10/01/01 1,000 1,108,750
Fairfield City Sch. Dist. G.O., Ser. 94
7.45% 12/01/14 1,000 1,303,750
Franklin Cnty. G.O., Ser. 91
6.37% 12/01/01 1,635 1,790,325
Greater Cleveland Regl. Tran. Auth.
G.O., Ser. 96
6.25% 12/01/06 2,935 3,389,925
Hamilton Cnty. Elec. Sys. Mtg. Rev.,
Ser. 92A
6.00% 10/15/12 500 540,625
Hamilton Cnty. Swr. Sys. Rev., Ser. 91A
6.40% 06/01/01 325 353,437
6.40% 12/01/04 675 731,531
Kings Sch. Dist. G.O., Ser. 94
7.60% 12/01/05 200 237,000
Loveland City Sch. Dist. G.O., Ser. 92
6.65% 12/01/02 145 161,494
Lucas Cnty. G.O., Ser. 96
6.00% 12/01/03 2,310 2,549,663
6.00% 12/01/05 500 563,125
Medina Cnty. G.O. Unltd., Ser. 86
7.25% 12/01/03 50 58,000
Montgomery Cnty. G.O. Ltd., Ser. 91A
6.75%++ 09/01/01 1,500 1,621,875
North Royalton City Sch. Dist. G.O.,
Ser. 94
6.62% 12/01/06 100 118,125
Northwest Sch. Dist. G.O., Ser. 98
6.00% 12/01/13 1,030 1,202,525
Northwestern Sch. Dist. G.O., Wayne
& Ashland Cntys. Prj., Ser. 94
7.20% 12/01/10 300 382,875
Ohio G.O., Ser. 95
6.00% 08/01/05 225 254,250
Ohio Hsg. Fin. Agcy. Res. Mort.
Rev., Ser. 94B-2
6.35% 09/01/04 150 159,750
Ohio Hsg. Fin. Agcy. Rev., Wind River
Prj., Ser. 94A
5.55% 11/01/18 1,050 1,092,000
Ohio Pfc. Hghr. Ed. Rev., Ser. 92-A
5.50% 12/01/07 400 424,500
Ohio St. Bldg. Auth. Adult Corr. Fac.
Rev., Ser. 94
5.90% 10/01/09 2,000 2,215,000
Ohio St. Bldg. Auth. Disalle Govt. Ctr.
Rev., Ser. 96A
6.00% 10/01/05 1,000 1,121,250
See accompanying notes to financial statements.
69
<PAGE>
BlackRock Funds
STATEMENT OF NET ASSETS
OHIO TAX-FREE INCOME PORTFOLIO (Continued)
Par
As of September 30, 1998 Maturity (000) Value
--------- --------- ----------
Municipal Bonds (Continued)
Ohio (Continued)
Ohio St. Bldg. Auth. St. Corr. Fac. Rev.,
Ser. 91A
6.58% 10/01/02 $4,000 $ 4,380,000
Ohio St. Bldg. Auth. St. Fac. Rev., Admin.
Bldg. Fd. Prj., Ser. 92A
6.00% 10/01/04 1,020 1,115,625
Ohio St. Bldg. Auth. Rev., Ser. 87
7.05% 04/01/00 1,000 1,068,750
Ohio St. Bldg. Data Ctr. Rev., Ser. 93A
5.90% 10/01/07 450 510,188
Ohio St. Hghr. Ed. Fac. Comm. Rev.,
Ohio Dominican Coll. Prj., Ser. 94
6.62% 12/01/04 250 273,750
Ohio St. Nat. Res. Cap. Fac. G.O.,
Ser. 94A
5.40% 10/01/05 1,000 1,081,250
Ohio St. Pub. Fac. Comn. Hghr. Ed.
Fac. Rev., Ser. 89B
6.50% 12/01/99 1,000 1,056,250
Ohio St. Pub. Fac. Comn. Hghr. Ed.
Rev., Ser. 92A
5.50% 12/01/03 2,000 2,135,000
Ohio St. Tpke. Rev., Ser. 96
6.00% 02/15/05 4,400 4,889,500
Ohio St. Wtr. Dev. PCRB Fac. Rev.,
Wtr. Ctrl. State Match Prj., Ser. 95
5.70% 06/01/11 1,300 1,408,875
Ohio St. Wtr. Dev. Auth. Pollution Ctrl.
Fac. Rev. Republic Steel Prj.,
Ser. 95
6.37% 06/01/07 3,710 4,039,263
Ohio St. Wtr. Dev. Auth. Rev., Pure
Wtr. Prj., Ser. 92
5.75% 06/01/04 1,500 1,631,250
Ohio St. Wtr. Dev. Auth. Rev., Steel-
Cargill North Star Broken Hill Prj.,
Ser. 95
6.30% 09/01/20 500 552,500
Olentangy Sch. Dist. G.O., Ser. 95A
6.00% 12/01/08 225 250,594
Scioto Cnty. Rev., Marine Term Norfolk
Southern. Corp. Prj., Ser. 98
5.30% 08/01/13 3,000 3,090,000
Summit Cnty. Hosp. Rev., Cuyahoga
Falls Gen. Hosp. Prj., Ser. 94
6.65% 07/01/14 200 213,500
Toledo G.O., Ser. 96
6.00% 12/01/06 500 568,750
Univ. Akron Gen. Rec. Rev., Ser. 97
5.25% 01/01/17 500 517,500
Univ. Cincinnati Gen. Rec. Rev.,
Ser. 91L
6.90% 06/01/07 1,500 1,636,875
Par
Maturity (000) Value
--------- --------- ----------
Municipal Bonds (Continued)
Ohio (Continued)
Univ. Toledo Gen. Rec. Rev., Ser. 92A
5.90%++ 06/01/20 $ 425 $ 449,969
Wadsworth City Sch. Dist. G.O. Unltd.,
Ser. 98
5.00% 12/01/22 1,000 1,003,750
Westerville City Sch. Dist. G.O., Ser. 87
6.25% 12/01/05 1,000 1,141,250
Westlake G.O., Ser. 96
6.40% 12/01/08 1,560 1,844,700
Worthington City Sch. Dist. G.O. Unltd.,
Ser. 89
7.10% 12/01/99 1,000 1,042,500
-------------
94,350,739
-------------
Puerto Rico -- 14.5%
Puerto Rico Comwlth. G.O., Ser. 96
5.40% 07/01/25 $3,000 $ 3,138,750
Puerto Rico Comwlth. Hwy. & Trans.
Auth. Rev., Ser. 98
6.33%** 07/01/18 5,000 5,212,500
Puerto Rico Elec. Pwr. Auth. Rev.,
Ser. 98EE
5.25% 07/01/16 1,600 1,694,000
Puerto Rico Elec. Pwr. Auth. Rev.,
Ser. 99FF
5.25% 07/01/10 5,000 5,456,250
-------------
15,501,500
-------------
Total Municipal Bonds
(Cost $102,387,871) 109,852,239
-------------
Short Term Investments -- 0.2%
Smith Barney Tax Free Money
Market Fund
(Cost $241,969) 242 241,969
-------------
See accompanying notes to financial statements.
70
<PAGE>
BlackRock Funds
STATEMENT OF NET ASSETS
OHIO TAX-FREE INCOME PORTFOLIO (Concluded)
As of September 30, 1998 Value
------------
TOTAL INVESTMENTS IN
SECURITIES
(Cost $102,629,840*) 103.7% $110,094,208
LIABILITIES IN EXCESS
OF OTHER ASSETS (3.7%) (3,899,194)
------- ------------
NET ASSETS (Applicable to 9,290,603
Institutional shares, 65,504 Service
shares, 255,026 Investor A shares,
102,576 Investor B shares and 48,419
Investor C shares outstanding) 100.0% $106,195,014
------- ------------
------- ------------
NET ASSET VALUE AND REDEMPTION
PRICE PER INSTITUTIONAL, SERVICE
AND INVESTOR A SHARE
($104,552,465 (DIVIDE) 9,611,133) $10.88
-------
-------
OFFERING PRICE PER INSTITUTIONAL
AND SERVICE SHARE $10.88
-------
-------
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($10.88 (DIVIDE) .960) $11.33
-------
-------
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE
(subject to a contingent deferred
sales charge of 4.5%)
PER INVESTOR B SHARE
($1,115,830 (DIVIDE) 102,576) $10.88
-------
-------
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE
(subject to a contingent deferred
sales charge of 1.0%)
PER INVESTOR C SHARE
($526,719 (DIVIDE) 48,419) $10.88
-------
-------
- -----------------
* Also cost for Federal income tax purposes. The gross unrealized
appreciation on a tax basis is $7,464,368.
** Rates shown are the rates as of September 30, 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.
++ Principal amount of securities pledged as collateral of $600,000 on 12
short U.S. Treasury Notes future contracts expiring June 1998. The value of
such contracts on September 30, 1998 was $1,577,625, thereby resulting in
an unrealized loss of $26,813.
See accompanying notes to financial statements.
71
<PAGE>
BlackRock Funds
STATEMENT OF NET ASSETS
DELAWARE TAX-FREE INCOME PORTFOLIO
Par
As of September 30, 1998 Maturity (000) Value
-------- ------- ----------
MUNICIPAL BONDS -- 98.4%
Delaware -- 79.9%
Delaware River & Bay Auth. Rev.,
Ser. 93
4.60% 01/01/05 $ 2,000 $ 2,057,500
Delaware River & Bay Auth. Rev.,
Ser. 96
6.00% 01/01/05 1,460 1,620,600
6.00% 01/01/06 1,160 1,302,100
Delaware St. Econ. Dev. Auth. Pol.
Ctrl. Rev., Delmarva Pwr. Prj.,
Ser. 91B
7.15% 07/01/18 500 549,375
Delaware St. Econ. Dev. Auth. Rev.,
First Mtg. Gilpin ACA CBI Prj.,
Ser. 98
5.62% 07/01/19 2,000 2,072,500
5.62% 07/01/25 1,500 1,550,625
Delaware St. Econ. Dev. Auth.
Rev., United Wtr. Delaware, Inc.
Prj., Ser. 95
6.20% 06/01/25 2,000 2,241,720
Delaware St. Econ. Dev. Auth. Rev.,
Wtr. Dev. Prj., Ser. 92B
6.45% 12/01/07 1,165 1,354,312
Delaware St. G.O., Ser. 90
6.85% 05/01/99 500 510,165
6.85% 05/01/00 500 525,625
Delaware St. G.O., Ser. 91A
6.30% 08/15/05 1,730 1,872,725
Delaware St. G.O., Ser. 92A
6.25% 03/01/02 1,400 1,533,000
Delaware St. G.O., Ser. 97B
5.00% 05/01/15 1,000 1,020,000
Delaware St. Hlth. Fac. Auth. Rev.,
Christiana Care Hlth. Svcs. Prj.,
Ser. 98
5.00% 10/01/15 5,000 5,075,000
Delaware St. Hlth. Fac. Auth. Rev.,
Med. Ctr. of Delaware Prj., Ser. 92
6.25% 10/01/04 2,185 2,463,587
6.25% 10/01/05 2,175 2,484,937
6.25% 10/01/06 4,000 4,625,000
Delaware St. Hsg. Auth. Rev.,
Multi-Family Mtg. Prj., Ser. 91
7.15% 07/01/14 3,000 3,240,000
Delaware St. Hsg. Auth. Rev.,
Multi-Family Mtg. Prj., Ser. 92C
7.37% 01/01/15 2,000 2,187,500
Delaware St. Rlty. Transfer Tax Rev.,
Ld. & Wtr. Consv. Trust Fund Prj.,
Ser. 93
5.50% 04/01/02 1,500 1,584,375
5.75% 04/01/03 1,500 1,620,000
Delaware St. Sld. Wst. Auth. Sld.
Wst. Sys. Rev., Ser. 90A
6.75% 07/01/99 500 511,530
6.75% 07/01/00 500 524,375
Delaware St. Sld. Wst. Auth. Sld.
Wst. Sys. Rev., Ser. 92
5.80% 07/01/01 1,500 1,576,875
6.00% 07/01/02 2,000 2,140,000
Delaware Trans. Auth. Trans. Sys.
Rev., Ser. 90
7.10% 07/01/01 2,335 2,513,044
Delaware Trans. Auth. Trans. Sys.
Rev., Ser. 91
6.00% 07/01/01 4,765 5,044,944
6.35% 07/01/01 500 542,500
Par
Maturity (000) Value
-------- ------- ----------
MUNICIPAL BONDS (Continued)
Delaware (Continued)
Delaware Trans. Auth. Trans. Sys.
Rev., Ser. 92
5.40% 07/01/03 $ 1,000 $ 1,063,750
5.62% 07/01/05 2,400 2,583,000
++Delaware Trans. Auth. Trans. Sys.
Rev., Ser. 93
5.10% 07/01/04 1,500 1,588,125
5.50% 07/01/08 1,000 1,070,000
Delaware Trans. Auth. Trans. Sys.
Rev., Ser. 94
6.10% 07/01/07 1,000 1,118,750
Dover Elec. Rev., Ser. 90
6.95% 07/01/99 500 513,290
7.00% 07/01/00 500 528,750
7.00% 07/01/01 500 536,875
Dover Elec. Rev., Ser. 93
6.00% 07/01/07 500 545,625
New Castle Cnty. G.O., Ser. 91
6.00% 10/15/98 1,000 1,000,750
New Castle Cnty. G,O., Ser. 91
6.20% 10/15/00 500 526,250
New Castle Cnty. G.O., Ser. 91
6.25% 10/15/01 3,000 3,228,750
6.30% 10/15/02 1,000 1,093,750
6.50% 10/15/04 1,000 1,095,000
6.50% 10/15/05 1,000 1,095,000
New Castle Cnty. G.O., Ser. 98
5.00% 10/01/18 3,500 3,548,125
Sussex Cnty. G.O., Ser. 93
5.60% 10/15/08 3,000 3,232,500
5.70% 10/15/12 2,000 2,147,500
Univ. of Delaware Hsg. & Dining
Sys. Rev., Ser. 89
7.00% 11/01/00 2,000 2,109,760
Wilmington G.O., Ser. 92A
6.20% 01/01/02 1,000 1,067,500
6.00% 07/01/03 500 533,750
Wilmington G.O., Ser. 92B
6.25% 04/01/02 3,050 3,351,188
Wilmington G.O., Ser. 96A
6.00% 10/01/03 3,525 3,877,500
5.50% 10/01/16 1,500 1,593,750
Wilmington Parking Auth.
Guaranteed Parking Rev., Ser. 92A
5.60% 09/15/02 500 533,750
5.80% 09/15/04 1,000 1,086,250
6.00% 09/15/06 500 545,000
------------
95,558,152
------------
PUERTO RICO -- 14.5%
Puerto Rico Comwlth. Infra. Fin.
Auth. Spl. Rites, Ser. 98
6.38%** 07/01/21 4,000 4,065,000
Puerto Rico Comwlth. G.O., Ser. 97
5.37% 07/01/21 2,500 2,621,875
Puerto Rico Elec. Pwr. Auth. Rev.,
Ser. 97BB
5.50% 07/01/09 1,150 1,282,250
Puerto Rico Elec. Pwr. Auth. Rev.,
Ser. 98EE
5.25% 07/01/16 1,800 1,905,750
Puerto Rico Pub. Bldgs. Auth. Gtd.
Govt. Facs. Rev., Ser. 95A
6.25% 07/01/10 1,000 1,182,500
See accompanying notes to financial statements.
72
<PAGE>
BlackRock Funds
STATEMENT OF NET ASSETS
DELAWARE TAX-FREE INCOME PORTFOLIO (Concluded)
Par
As of September 30, 1998 Maturity (000) Value
-------- ------- ----------
MUNICIPAL BONDS (Continued)
Puerto Rico (Continued)
Puerto Rico Pub. Fin. Corp. Rites.,
Ser. 98
7.15%** 06/01/12 $ 5,000 $ 6,250,000
------------
17,307,375
------------
Virgin Islands -- 4.0%
Virgin Islands Pub. Fin. Auth. Rev.,
Ser. 98
5.50% 10/01/18 4,500 4,730,625
------------
TOTAL MUNICIPAL BONDS
(Cost $111,222,146) 117,596,152
------------
SHORT TERM INVESTMENTS -- 0.3%
Smith Barney Tax Free Money
Market Fund
(Cost $355,947) 356 355,947
------------
TOTAL INVESTMENTS IN
SECURITIES
(Cost $111,578,093*) 98.7% 117,952,099
OTHER ASSETS IN EXCESS
OF LIABILITIES 1.3% 1,573,732
-------- ------------
NET ASSETS (Applicable to 11,082,214
Institutional shares, 10 Service shares,
246,371 Investor A shares, 168,369
Investor B shares and 69,279
Investor C shares outstanding) 100.0% $119,525,831
===== ============
Value
------------
NET ASSET VALUE AND REDEMPTION
PRICE PER INSTITUTIONAL, SERVICE
AND INVESTOR A SHARE
($117,069,974 (DIVIDE) 11,328,595) $10.33
======
OFFERING PRICE PER INSTITUTIONAL
AND SERVICE SHARE $10.33
======
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($10.33 (DIVIDE) .960) $10.76
======
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE
(subject to a contingent deferred
sales charge of 4.5%)
PER INVESTOR B SHARE
($1,739,921 (DIVIDE) 168,369) $10.33
======
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE
(subject to a contingent deferred
sales charge of 1.0%)
PER INVESTOR C SHARE
($715,936 (DIVIDE) 69,279) $10.33
======
- ----------
* Also cost for Federal income tax purposes. The gross unrealized
appreciation on a tax basis is $6,374,006.
** Rates shown are the rates as of September 30, 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.
++ Principal amount of securities pledged as collateral of $500,000 on 22
short U.S. Treasury Bonds futures contracts expiring December, 1998. The
value of such contracts on September 30, 1998 was $2,812,313, thereby
resulting in an unrealized loss of $51,344.
See accompanying notes to financial statements.
73
<PAGE>
BlackRock Funds
STATEMENT OF NET ASSETS
KENTUCKY TAX-FREE INCOME PORTFOLIO
Par
As of September 30, 1998 Maturity (000) Value
-------- ------- ----------
MUNICIPAL BONDS -- 100.2%
Kentucky -- 87.2%
Ashland Env. Imp. Rev., Allied Chemical
Corp. Prj., Ser. 78
5.80% 03/01/03 $ 370 $ 387,575
Boone Cnty. Sch. Dist. Fin. Corp. Sch.
Bldg. Rev., Ser. 91C
6.40% 09/01/01 440 471,350
6.50% 09/01/01 490 539,000
6.60% 09/01/01 550 607,062
Campbell & Kenton Cnty. Rev., Sanit.
Dist. #1 Prj., Ser. 98A
5.00% 08/01/18 4,210 4,257,362
Christian Cnty. Hosp. Rev., Jennie
Stuart Med. Ctr. Prj., Ser. 96A
6.00% 07/01/17 1,000 1,075,000
Christian Cnty. Hosp. Rev., Jennie
Stuart Med. Ctr. Prj., Ser. 97A
5.25% 07/01/03 1,000 1,040,000
Danville Multi-City Lease Rev.,
Owensboro Rivpk Prj., Ser. 93B
5.45% 07/01/08 1,800 1,908,000
5.55% 07/01/11 1,000 1,055,000
Grayson Cnty. Sch. Dist. Fin. Corp.
Sch. Bldg. Rev., Ser. 95B
5.95% 01/01/08 1,290 1,427,062
Harlan Cnty. Sch. Dist. Fin. Corp. Sch.
Bldg. Rev., Ser. 90
7.25% 12/01/02 160 173,600
Henderson Elec. Lt. & Pwr. Rev.,
Ser. 73
5.70% 03/01/03 2,365 2,385,386
Jefferson Cnty. Cap. Prj. Corp. Rev.,
Ser. 93A
5.75% 08/15/04 1,275 1,388,156
5.90% 08/15/05 1,000 1,087,500
6.10% 08/15/07 2,500 2,740,625
Jefferson Cnty. Cap. Prj. Corp.
Rev., Ser. 97
5.25% 06/01/15 2,145 2,241,525
5.37% 06/01/22 3,000 3,131,250
Jefferson Cnty. Hlth. Fac. Rev.,
Alliant Hlth. Sys. Inc. Prj., Ser. 97
5.12% 10/01/17 5,000 5,118,750
5.12% 10/01/27 2,000 2,025,000
Jefferson Cnty. Hlth. Fac. Rev.,
Jewish Hosp. Hlth. Svcs. Inc. Prj.,
Ser. 96
5.65% 01/01/17 3,000 3,213,750
Jefferson Cnty. Multi-family Hsg. Rev.,
Taylorsville Rd. Prj., Ser. 93A
5.75% 06/01/23 3,860 4,033,700
Jefferson Cnty. Multi-family Hsg. Rev.,
Whipps Mill Prj., Ser. 93A
5.87% 06/01/23 2,250 2,356,875
Jefferson Cnty. Sch. Dist. Fin. Corp.
Sch. Bldg. Rev., Ser. 92B
6.00% 01/01/03 2,005 2,177,931
6.20% 01/01/06 2,000 2,182,500
6.20% 01/01/07 2,750 3,007,812
Kenton Cnty. Apt. Bd. Rev., Cincinnati
Northern Kentucky Prj., Ser 97A
5.75% 03/01/05 1,490 1,633,412
5.85% 03/01/06 1,655 1,834,981
5.95% 03/01/07 1,730 1,937,600
6.30% 03/01/15 1,000 1,132,500
Par
Maturity (000) Value
-------- ------- ----------
MUNICIPAL BONDS (Continued)
Kentucky (Continued)
Kenton Cnty. Sch. Dist. Fin. Corp.
Sch. Bldg. Rev., Ser. 97
5.30% 03/01/13 $ 1,500 $ 1,582,500
5.37% 03/01/17 2,800 2,933,000
Kenton Cnty. Wtr. Dist. Wtrwks. Rev.
Ser. 92
6.37% 02/01/17 1,000 1,106,250
Kentucky Dev. Fin. Auth. Hosp. Rev.,
St. Lukes Hosp. Prj., Ser. 89A
7.15% 10/01/98 385 385,000
7.20% 10/01/99 900 930,303
7.25% 10/01/99 540 568,210
Kentucky Dev. Fin. Hosp. Rev., Sisters
Charity Nazareth Corp. Prj., Ser. 89
6.90% 11/01/98 500 501,280
Kentucky Hghr. Ed. Stud. Ln. Insd.
Rev., Ser 95B
6.60% 06/01/02 3,435 3,658,275
Kentucky Hghr. Ed. Stud. Ln. Insd.
Rev., Ser. 94C
5.15% 06/01/02 1,130 1,162,487
Kentucky Hghr. Ed. Stud. Ln. Rev.,
Ser. 85A
9.25% 06/01/01 1,785 1,934,494
Kentucky Hghr. Ed. Stud. Ln. Rev.,
Ser. 91C
6.25% 06/01/00 1,075 1,113,969
Kentucky Hsg. Corp. Hsg. Rev.,
Ser. 89A
6.85% 01/01/00 90 93,262
Kentucky Hsg. Corp. Hsg. Rev.,
Ser. 90A
7.40% 01/01/10 735 767,156
Kentucky Hsg. Corp. Hsg. Rev.,
Ser. 96D
5.80% 07/01/13 3,350 3,530,062
Kentucky Hsg. Corp. Hsg. Rev.,
Ser. 97F
5.70% 01/01/28 2,100 2,178,750
Kentucky Ifra. Auth. Rev., Ser. 97L
5.50% 06/01/08 2,500 2,740,625
Kentucky St. Pol. Abtmnt. & Wtr. Rsc.
Fin. Auth. Rev., Ser. 88A
7.10% 08/01/99 265 272,977
Kentucky St. Ppty. & Bldgs. Comm.
Econ. Dev. Rev., Prj. 30-Fifth Ser.,
Ser. 88
7.40% 06/01/00 500 512,965
Kentucky St. Ppty. & Bldgs. Comm.
Rev., Ref. Prj. 31-Fourth Ser., Ser. 88
7.30% 06/01/99 1,000 1,025,670
7.40% 06/01/00 675 692,570
Kentucky St. Ppty. & Bldgs. Comm. Rev.,
Ref. Prj. 32-Third Ser., Ser. 88
6.40% 12/01/98 500 502,380
Kentucky St. Ppty. & Bldgs. Comm.
Rev., Ref. Prj. 34-Second Ser.,
Ser. 89
7.10% 06/01/99 800 819,504
Kentucky St. Ppty. & Bldgs. Comm.
Rev., Ref. Prj. 49, Ser. 89
6.90% 12/01/98 615 618,401
Kentucky St. Ppty. & Bldgs. Comm.
Rev., Ref. Prj. 50, Ser. 91
6.60% 02/01/00 500 518,750
See accompanying notes to financial statements.
74
<PAGE>
BlackRock Funds
STATEMENT OF NET ASSETS
KENTUCKY TAX-FREE INCOME PORTFOLIO (Continued)
Par
As of September 30, 1998 Maturity (000) Value
-------- ------- ----------
Municipal Bonds (Continued)
Kentucky (Continued)
Kentucky St. Ppty. & Bldgs. Comm.
Rev., Ref. Prj. 51, Ser. 91
6.50% 08/01/01 $ 740 $ 807,525
Kentucky St. Ppty. & Bldgs. Comm.
Rev., Ref. Prj. 53, Ser. 91
5.75% 10/01/11 4,500 4,709,375
Kentucky St. Ppty. & Bldgs. Comm.
Rev., Ref. Prj. 54, Ser. 92
5.90% 09/01/07 2,750 2,973,438
Kentucky St. Ppty. & Bldgs. Comm.
Rev., Ref. Prj. 55, Ser. 93
4.60%(DOUBLE DAGGER) 09/01/03 3,000 3,090,000
4.90% 09/01/06 2,000 2,097,500
Kentucky St. Ppty. & Bldgs. Comm.
Rev., Ref. Prj. 59, Ser. 95
6.00% 11/01/05 2,110 2,360,563
Kentucky St. Tpke. Auth. Econ. Dev.
Rd. Rev., Ref. Revitalization Prj.,
Ser. 90
7.12% 05/15/00 1,400 1,496,250
Kentucky St. Tpke. Auth. Econ. Dev.
Rd. Rev., Ref. Revitalization Prj.,
Ser. 92
5.50% 01/01/01 2,040 2,116,500
5.70% 01/01/03 3,000 3,221,250
Kentucky St. Tpke. Auth. Econ. Dev.
Rd. Rev., Ref. Revitalization Prj.,
Ser. 93
5.40% 07/01/05 3,000 3,251,250
Kentucky St. Tpke. Auth. Econ. Dev.
Rd. Rev., Ref. Revitalization Prj.,
Ser. 95
6.50% 07/01/07 1,000 1,176,250
6.50% 07/01/08 3,000 3,558,750
Kentucky St. Tpke. Auth. Res. Rec.
Rd. Rev., Ser. 79
7.10% 07/01/02 625 664,844
Lexington Ctr. Corp. Mtg. Rev.,
Ser. 93A
5.20% 10/01/04 1,790 1,897,400
Lexington-Fayette Urban Cnty. Govt.
Kentucky Sch. Bldg. Rev., Ser. 89
7.00% 12/01/99 500 535,000
Lexington-Fayette Urban Cnty. Govt. Prj.
Rev., Univ. of Kentucky Alumni
Assoc., Inc. Prj., Ser. 94
6.50% 11/01/06 660 762,300
Lexington-Fayette Urban Cnty. Govt.
Pub. Facs. Corp. Mtg. Rev.,
Ref. Ser. 93
4.50% 02/01/06 2,100 2,163,000
Lexington-Fayette Urban Cnty. Govt.
Student Hsg. Rev., Ref.
Transylvania Univ. Prj., Ser. 92
6.10% 04/01/99 155 156,550
6.20% 04/01/00 160 161,600
Louisville & Jefferson Cnty. Auth.
Rev., Ser. 98A
5.00% 07/01/18 2,000 1,997,500
5.00% 07/01/25 1,380 1,383,450
Louisville & Jefferson Cnty. Met.
Swr. Dist. Rev., Ser. 93
5.30% 05/15/10 2,000 2,112,500
Par
Maturity (000) Value
-------- ------- ----------
MUNICIPAL BONDS (Continued)
Kentucky (Continued)
Louisville & Jefferson Cnty. Reg.
Arpt. Auth. Apt. Sys. Rev.,
Ser. 97A
5.75% 07/01/01 $ 1,000 $ 1,051,250
5.75% 07/01/03 1,070 1,154,263
Louisville & Jefferson Cnty. Swr.
and Drain Sys. Rev., Ser. 98A
5.00% 05/15/22 7,000 7,070,000
Louisville & Jefferson Cnty. Swr.
Dist. Rev., Ser. 98A
5.00% 05/15/30 5,000 5,050,000
Louisville Ind. Bldg. Rev., Enterprise
Zone Dist. Prj., Ser. 88
5.75% 04/01/00 1,465 1,480,617
Louisville Parking Auth. Riv. City
First Mtg. Rev., Ser. 91
6.50% 06/01/01 265 290,506
Louisville Pub. Pptys. Corp. Rev.,
Ser. 98
5.00% 12/01/22 3,210 3,230,063
McCracken Cnty. Hosp. Rev., Mercy
Health Systems Prj., Ser. 94A
6.10% 11/01/04 400 445,500
Muhlenberg Cnty. Ind. Dev. Rev.,
Harsco Corp., Ser. 87
7.00% 09/01/01 1,000 1,082,500
Owensboro Elec. Lt & Pwr. Rev.,
Ser. 93B
5.05% 01/01/07 3,000 3,157,500
Somerset Ind. Bldg. Rev., CR/PL,
Inc. Prj., Ser. 84
7.50% 10/01/10 3,000 3,281,250
Univ. of Kentucky Rev., Cons.
Edl. Bldg. Prj., Ser. 92N
6.00% 05/01/08 1,680 1,827,000
6.00% 05/01/10 1,000 1,087,500
Univ. of Kentucky Rev., Cons.
Edl. Bldg. Prj., Ser. 94
4.60% 05/01/07 2,540 2,635,250
Univ. of Kentucky Rev., Hosp.
Rev., Ser. 93A
5.30% 08/01/03 1,765 1,873,106
5.40% 08/01/04 750 805,313
Univ. of Louisville Rev., Cons.
Edl. Bldg. Prj., Ser. 92H
5.87% 05/01/11 1,150 1,229,063
Univ. of Louisville Rev., Cons.
Edl. Bldg. Prj., Ser. 93I
5.10% 05/01/02 1,545 1,608,731
Univ. of Louisville Rev., Cons.
Edl. Bldg. Prj., Ser. 93J
5.00% 05/01/06 2,370 2,485,538
Western Kentucky Univ. Rev.,
Hsg. & Dining Sys. Prj., Ser. 90L
7.10% 12/01/00 350 373,188
Winchester Util. Rev., Ser. 93
5.45% 07/01/10 1,500 1,586,250
------------
172,216,287
------------
Puerto Rico -- 12.1%
Puerto Rico Comwlth. Ref-Pub.
Impt. G.O., Ser. 96
5.50% 07/01/06 1,700 1,876,375
Puerto Rico Comwlth. G.O., Ser. 97
5.37% 07/01/21 4,250 4,457,188
See accompanying notes to financial statements.
75
<PAGE>
BlackRock Funds
STATEMENT OF NET ASSETS
KENTUCKY TAX-FREE INCOME PORTFOLIO (Concluded)
Par
As of September 30, 1998 Maturity (000) Value
-------- ------- ----------
MUNICIPAL BONDS (Continued)
Puerto Rico (Continued)
Puerto Rico Comwlth. Hwy. &
Trans. Auth. Rev., Ser. 96Y
6.25% 07/01/04 $ 2,000 $ 2,255,000
Puerto Rico Comwlth. Ifra. Fin.
Auth. Rev., Ser. 97A
5.00% 07/01/21 3,500 3,539,375
Puerto Rico Elec. Pwr. Auth.
Rev., Ser. 92R
5.90% 07/01/01 1,000 1,051,250
Puerto Rico Elec. Pwr. Auth.
Rev., Ser. 98
7.13%** 10/01/98 2,000 2,310,000
Puerto Rico Elec. Pwr. Auth. Rev.,
Ser. 99FF
5.25% 07/01/10 4,915 5,363,494
Puerto Rico Ifra. Fin. Auth. Spl. Rev.,
Ser. 97A
5.00% 07/01/11 1,000 1,055,000
Puerto Rico Pub. Bldg. Auth. Gtd.
Pub. Ed. & Hlth. Fac. Rev., Ser. 93M
5.20% 07/01/02 2,000 2,082,500
------------
23,990,182
------------
Virgin Islands -- 0.9%
Virgin Islands Wtr. & Pwr. Auth.
Elect. Sys. Rev., Ref. Ser 98
5.30% 07/01/18 1,685 1,718,700
------------
TOTAL INVESTMENTS IN
SECURITIES
(Cost $185,983,594*) 100.2% 197,925,169
LIABILITIES IN EXCESS
OF OTHER ASSETS (0.2%) (457,240)
-------- ------------
NET ASSETS (Applicable to 19,060,466
Institutional shares, 10 Service shares,
94,577 Investor A shares, 10 Investor B
shares and 10 Investor C shares outstanding) 100.0% $197,467,929
======== ============
Value
------------
NET ASSET VALUE AND REDEMPTION
PRICE PER INSTITUTIONAL, SERVICE
AND INVESTOR A SHARE
($197,467,721 (DIVIDE) 19,155,053) $10.31
======
OFFERING PRICE PER INSTITUTIONAL
AND SERVICE SHARE $10.31
======
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($10.31 (DIVIDE) .960) $10.74
======
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE
(subject to a contingent deferred
sales charge of 4.5%)
PER INVESTOR B SHARE
($104 (DIVIDE) 10) $10.31
======
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE
(subject to a contingent deferred
sales charge of 1.0%)
PER INVESTOR C SHARE
($104 (DIVIDE) 10) $10.31
======
- ----------
* Also cost for Federal income tax purposes. The gross unrealized
appreciation on a tax basis is $11,941,575.
** Rates shown are the rates as of September 30, 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.
++ Principal amount of securities pledged as collateral of $1,000,000 on 20
short U.S. Treasury Bonds futures contracts expiring December, 1998. The
value of such contracts on September 30, 1998 was $2,629,375, thereby
resulting in an unrealized loss of $6,250.
INVESTMENT ABBREVIATIONS
------------------------
ARM Adjustable Rate Mortgage
CMT Constant Maturity Treasury
CPI Consumer PriceIndex
FRDD Floating Rate Daily Demand
G.O. General Obligations
IO Interest Only
PO Prinicipal Only
See accompanying notes to financial statements.
76
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
BLACKROCK FUNDS
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Intermediate
Low Duration Government Intermediate Core Government
For the Period Ended Bond Bond Bond Bond Income GNMA
September 30, 1998 Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio(1)
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Interest ....................... $ 22,424,522 $ 17,044,764 $ 32,937,846 $ 49,127,924 $ 1,752,487 $ 2,958,830
------------ ------------ ------------ ------------ ------------ ------------
Expenses:
Investment advisory fee ........ 1,490,875 1,338,804 2,120,755 3,591,424 128,063 242,151
Administration fee ............. 685,803 615,850 970,610 1,608,398 58,909 99,875
Custodian fee .................. 87,332 62,165 98,992 153,783 29,467 12,392
Transfer agent fee ............. 72,684 90,274 131,916 237,926 31,084 13,912
Shareholders servicing fees .... 119,647 95,973 94,378 273,621 63,716 146
Shareholders processing fees ... 117,679 89,835 93,112 261,283 38,230 88
Distribution fees .............. 2,958 2,086 186 66,520 151,243 144
Legal and audit ................ 26,167 16,337 43,158 67,254 5,560 17,412
Printing ....................... 75,031 29,369 88,124 162,246 4,563 2,316
Registration fees and
expenses ..................... 180,306 101,180 135,996 322,861 29,888 34,298
Organization ................... -- -- 4,405 -- 12,555 --
Trustees' fees and officer's
salary ....................... 5,570 6,069 8,068 12,310 4,245 2,236
Other .......................... 31,868 14,518 27,627 92,334 11,054 1,063
------------ ------------ ------------ ------------ ------------ ------------
2,895,920 2,462,460 3,817,327 6,849,960 568,577 426,033
Less fees voluntarily waived
and expenses reimbursed ...... (1,202,303) (691,140) (1,155,103) (2,414,342) (148,264) (161,449)
------------ ------------ ------------ ------------ ------------ ------------
Total operating expenses .. 1,693,617 1,771,320 2,662,224 4,435,618 420,313 264,584
------------ ------------ ------------ ------------ ------------ ------------
Interest expense .................. 3,578,891 102,720 4,803,117 2,079,604 96,398 12,627
------------ ------------ ------------ ------------ ------------ ------------
Total expenses ............ 5,272,508 1,874,040 7,465,341 6,515,222 516,711 277,211
------------ ------------ ------------ ------------ ------------ -------------
Net investment income ............. 17,152,014 15,170,724 25,472,505 42,612,702 1,235,776 2,681,619
------------ ------------ ------------ ------------ ------------ ------------
Realized and unrealized gain
(loss) on investments and
foreign currency transactions:
Net realized gain (loss) from:
Investment transactions ...... 952,040 3,380,014 3,699,728 19,456,399 871,098 1,279,226
Forward futures contracts .... 631,465 1,819,290 1,687,626 (2,027,546) (116,108) (591,611)
Foreign currency transactions,
forward foreign currency,
futures and swap
contracts ................. (93,793) -- -- -- -- --
Change in unrealized appreciation
(depreciation) from:
Investments .................. 3,062,967 8,515,624 6,952,636 14,291,575 813,449 1,125,028
Futures ...................... (319,759) 1,141,663 1,119,756 (897,842) (205,824) (642,557)
Market discount amortization . -- -- -- -- -- --
Foreign currency transactions,
forward foreign currency
and future contracts ...... -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Net gain on investments and
foreign currency transactions .. 4,232,920 14,856,591 13,459,746 30,822,586 1,362,615 1,170,086
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets
resulting from operations ...... $ 21,384,934 $ 30,027,315 $ 38,932,251 $ 73,435,288 $ 2,598,391 $ 3,851,705
============ ============ ============ ============ ============ ============
</TABLE>
- ----------
(1) For the period May 18, 1998 through September 30, 1998.
(2) For the period May 11, 1998 through September 30, 1998.
See accompanying notes to financial statements.
78
<PAGE>
BLACKROCK FUNDS
<TABLE>
<CAPTION>
Pennsylvania New Jersey
Managed International Tax-Free Tax-Free Tax-Free
Income Bond Income Income Income
Portfolio Portfolio Portfolio Portfolio Portfolio
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Investment income:
Interest ....................... $ 83,201,518 $ 2,502,120 $ 8,529,474 $ 26,292,489 $ 6,465,560
------------- ------------- ------------- ------------- -------------
Expenses:
Investment advisory fee ........ 5,528,165 288,514 818,207 2,482,934 615,392
Administration fee ............. 2,424,129 113,124 376,375 1,056,431 283,081
Custodian fee .................. 248,440 51,649 35,284 77,060 31,054
Transfer agent fee ............. 363,228 23,329 60,354 180,468 50,490
Shareholders servicing fees .... 536,423 18,701 107,358 205,049 129,222
Shareholders processing fees ... 519,721 15,125 99,603 157,751 127,046
Distribution fees .............. 17,200 16,612 12,862 107,395 6,491
Legal and audit ................ 103,123 8,346 16,351 28,379 16,058
Printing ....................... 163,573 17,604 16,023 32,597 16,360
Registration fees and
expenses ..................... 232,986 51,586 90,110 249,778 67,746
Organization ................... -- -- -- 465 --
Trustees' fees and officer's
salary ....................... 14,523 8,576 2,387 5,864 2,878
Other .......................... 67,013 8,343 12,450 13,181 14,549
------------- ------------- ------------- ------------- -------------
10,218,524 621,509 1,647,364 4,597,352 1,360,367
Less fees voluntarily waived
and expenses reimbursed ...... (2,011,658) (71,556) (455,087) (1,188,473) (374,129)
------------- ------------- ------------- ------------- -------------
Total operating expenses .. 8,206,866 549,953 1,192,277 3,408,879 986,238
------------- ------------- ------------- ------------- -------------
Interest expense .................. 7,847,747 -- -- -- --
------------- ------------- ------------- ------------- -------------
Total expenses ............ 16,054,613 549,953 1,192,277 3,408,879 986,238
------------- ------------- ------------- ------------- -------------
Net investment income ............. 67,146,905 1,952,167 7,337,197 22,883,610 5,479,322
------------- ------------- ------------- ------------- -------------
Realized and unrealized gain
(loss) on investments and
foreign currency transactions:
Net realized gain (loss) from:
Investment transactions ...... 39,052,524 1,080,438 1,424,901 1,888,697 757,276
Forward futures contracts .... (13,167,313) 297,002 (53,371) 1,822,679 701,179
Foreign currency transactions,
forward foreign currency,
futures and swap
contracts ................. -- 1,846,573 -- -- --
Change in unrealized appreciation
(depreciation) from:
Investments .................. 17,407,043 2,627,433 7,335,600 25,669,246 4,450,958
Futures ...................... (4,488,155) (114,978) (15,364) (264,303) (21,076)
Market discount amortization . -- -- 1,206 -- --
Foreign currency transactions,
forward foreign currency
and future contracts ...... -- (1,936,238) -- -- --
------------- ------------- ------------- ------------- -------------
Net gain on investments and
foreign currency transactions .. 38,804,099 3,800,230 8,692,972 29,116,319 5,888,337
------------- ------------- ------------- ------------- -------------
Net increase in net assets
resulting from operations ...... $ 105,951,004 $ 5,752,397 $ 16,030,169 $ 51,999,929 $ 11,367,659
============= ============= ============= ============= =============
<CAPTION>
Ohio Delaware Kentucky
Tax-Free Tax-Free Tax-Free
Income Income Income
Portfolio Portfolio(2) Portfolio(2)
------------ ------------- ------------
<S> <C> <C> <C>
Investment income:
Interest ....................... $ 2,558,769 $ 2,264,270 $ 4,347,893
------------ ------------ ------------
Expenses:
Investment advisory fee ........ 244,011 255,393 456,081
Administration fee ............. 103,078 106,801 190,725
Custodian fee .................. 24,346 9,974 17,114
Transfer agent fee ............. 17,602 15,683 25,641
Shareholders servicing fees .... 20,376 3,797 225
Shareholders processing fees ... 16,861 2,278 135
Distribution fees .............. 6,625 5,082 --
Legal and audit ................ 8,317 27,786 34,161
Printing ....................... 6,782 2,261 4,190
Registration fees and
expenses ..................... 37,534 26,112 58,038
Organization ................... 432 -- --
Trustees' fees and officer's
salary ....................... 6,150 2,505 2,016
Other .......................... 6,250 2,377 1,994
------------ ------------ ------------
498,364 460,049 790,320
Less fees voluntarily waived
and expenses reimbursed ...... (161,145) (122,893) (209,429)
------------ ------------ ------------
Total operating expenses .. 337,219 337,156 580,891
------------ ------------ ------------
Interest expense .................. -- -- --
------------ ------------ ------------
Total expenses ............ 337,219 337,156 580,891
------------ ------------ ------------
Net investment income ............. 2,221,550 1,927,114 3,767,002
------------ ------------ ------------
Realized and unrealized gain
(loss) on investments and
foreign currency transactions:
Net realized gain (loss) from:
Investment transactions ...... 99,282 343,586 595,954
Forward futures contracts .... 600,759 1,188,632 1,182,324
Foreign currency transactions,
forward foreign currency,
futures and swap
contracts ................. -- -- --
Change in unrealized appreciation
(depreciation) from:
Investments .................. 2,710,585 2,592,835 4,596,134
Futures ...................... (16,171) (51,278) (6,119)
Market discount amortization . -- -- --
Foreign currency transactions,
forward foreign currency
and future contracts ...... -- -- --
------------ ------------ ------------
Net gain on investments and
foreign currency transactions .. 3,394,455 4,073,775 6,368,293
------------ ------------ ------------
Net increase in net assets
resulting from operations ...... $ 5,616,005 $ 6,000,889 $ 10,135,295
============ ============ ============
</TABLE>
- ----------
(1) For the period May 18, 1998 through September 30, 1998.
(2) For the period May 11, 1998 through September 30, 1998.
See accompanying notes to financial statements.
79
<PAGE>
BLACKROCK FUNDS
STATEMENT OF CASH FLOWS
LOW DURATION BOND PORTFOLIO
FOR THE YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<S> <C>
Cash provided by (used in) Operating Activities
Investment income received ................................... $ 21,927,370
Operating expenses paid ...................................... (1,579,362)
Interest expense paid ........................................ (3,578,891)
---------------
Net increase in cash from operating activities .................. 16,769,117
Cash provided by (used in) Investing Activities
Purchases of long-term investments ........................... (1,033,873,188)
Proceeds from disposition of long-term portfolio investment .. 888,416,426
Net purchases of short-term investments ...................... (754,012)
---------------
Net decrease in cash from investing activities .................. (146,210,774)
Cash provided by (used in) Financing Activities
Cash dividends paid .......................................... (9,897,738)
Net borrowing relative to reverse repurchase agreements ...... 78,759,141
Net proceeds related to capital stock transactions ........... 60,580,254
---------------
Net increase in cash from financing activities .................. 129,441,657
---------------
Net increase (decrease) in cash ................................. --
Cash at beginning of year ....................................... --
---------------
Cash at end of period ........................................... $ --
===============
Net increase in net assets resulting from operations ............ $ 21,384,934
Adjustments:
Increase in interest receivable .............................. (934,264)
Amortization of premium and accretion of discount ............ 437,112
Increase in accrued expenses ................................. 55,555
Decrease in prepaid expenses ................................. 58,700
Net realized and changes in unrealized gain (loss) on investments (4,232,920)
---------------
Total adjustments ............................................... (4,615,817)
---------------
NET INCREASE IN CASH FROM OPERATING ACTIVITIES .................. $ 16,769,117
===============
</TABLE>
See accompanying notes to financial statements.
80
<PAGE>
BLACKROCK FUNDS
STATEMENT OF CASH FLOWS
INTERMEDIATE BOND PORTFOLIO
FOR THE YEAR ENDED SEPTEMBER 30, 1998
Cash provided by (used in) Operating Activities
Investment income received .................................. $ 31,562,602
Operating expenses paid ..................................... (2,505,495)
Interest Expenses paid ...................................... (4,803,117)
--------------
Net increase in cash from operating activities ................. 24,253,990
Cash provided by (used in) Investing Activities
Purchases of long-term investments .......................... (1,507,581,003)
Proceeds from disposition of long-term portfolio investment . 1,249,407,173
Net purchases of short-term investments ..................... (4,119,188)
--------------
Net decrease in cash from investing activities ................. (262,293,018)
Cash provided by (used in) Financing Activities
Cash dividends paid ......................................... (24,264,948)
Net borrowing relative to reverse repurchase agreements ..... 57,443,519
Net proceeds related to capital stock transactions .......... 204,860,457
--------------
Net increase in cash from financing activities ................. 238,039,028
--------------
Net increase (decrease) in cash ................................ --
Cash at beginning of year ...................................... --
--------------
Cash at end of period .......................................... $ --
--------------
--------------
Net increase in net assets resulting from operations ........... $ 38,932,251
Adjustments:
Increase in interest receivable ............................. (1,705,998)
Amoritization of premium and accretion of discount .......... 330,754
Increase in accrued expenses ................................ 134,631
Decrease in prepaid expenses ................................ 22,098
Net realized and changes in unrealized gain (loss) on investment (13,459,746)
--------------
Total adjustments .............................................. (14,678,261)
--------------
NET INCREASE IN CASH FROM OPERATING ACTIVITIES.................. $ 24,253,990
==============
See accompanying notes to financial statements.
81
<PAGE>
BLACKROCK FUNDS
STATEMENT OF CHANGES IN NET ASSETS
Low Duration
Bond Portfolio
-------------------------------
For the For the
Year Ended Year Ended
9/30/98 9/30/97
------------ ------------
Increase (decrease) in net assets:
Operations:
Net investment income .............. $ 17,152,014 $ 12,657,616
Net realized gain on investment,
futures and foreign currency
related transactions ............. 1,489,712 1,558,927
Net unrealized gain on investment,
futures and foreign currency
related transactions ............. 2,743,208 563,518
------------ ------------
Net increase in net assets
resulting from operations ........ 21,384,934 14,780,061
------------ ------------
Distributions to shareholders from:
Net investment income:
BlackRock Shares ................... (6,991,384) (811,188)
Institutional Shares ............... (5,569,323) (7,000,339)
Service Shares ..................... (4,082,739) (4,542,121)
Investor A Shares .................. (80,989) (52,116)
Investor B Shares .................. (8,711) (1,130)
Investor C Shares .................. (8,683) (1,370)
------------ ------------
Total distribution from net
investment income ................ (16,741,829) (12,408,264)
------------ ------------
Net realized gains:
BlackRock Shares ................... -- --
Institutional Shares ............... -- --
Service Shares ..................... -- --
Investor A Shares .................. -- --
Investor B Shares .................. -- --
Investor C Shares .................. -- --
------------ ------------
Total distributions from net
realized gains ................... -- --
------------ ------------
Total distributions to shareholders (16,741,829) (12,408,264)
------------ ------------
Capital share transactions ............. 69,892,569 23,961,267
------------ ------------
Total increase (decrease) in
net assets ....................... 74,535,674 26,333,064
------------ ------------
Net assets:
Beginning of period ................ 254,827,313 228,494,249
------------ ------------
End of period ...................... $329,362,987 $254,827,313
============ ============
See accompanying notes to financial statements.
82
<PAGE>
<TABLE>
<CAPTION>
Intermediate Government Intermediate
Bond Portfolio Bond Portfolio
------------------------------- --------------------------------
For the For the For the For the
Year Ended Year Ended Year Ended Year Ended
9/30/98 9/30/97 9/30/98 9/30/97
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .............. $ 15,170,724 $ 8,904,981 $ 25,472,505 $ 19,965,011
Net realized gain on investment,
futures and foreign currency
related transactions ............. 5,199,304 1,503,723 5,387,354 1,882,563
Net unrealized gain on investment,
futures and foreign currency
related transactions ............. 9,657,287 1,636,886 8,072,392 3,764,341
Net increase in net assets ------------ ------------ ------------ ------------
resulting from operations ........ 30,027,315 12,045,590 38,932,251 25,611,915
------------ ------------ ------------ ------------
Distributions to shareholders from:
Net investment income:
BlackRock Shares ................... -- -- -- --
Institutional Shares ............... (11,983,641) (5,867,247) (20,947,487) (16,909,305)
Service Shares ..................... (2,952,271) (2,729,498) (3,490,893) (2,846,163)
Investor A Shares .................. (313,796) (312,753) (68,932) (59,232)
Investor B Shares .................. (5,639) (1,207) (1,147) --
Investor C Shares .................. (7,054) (912) (817,619) --
------------ ------------ ------------ ------------
Total distribution from net
investment income ................ (15,262,401) (8,911,617) (25,326,078) (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. (15,262,401) (8,911,617) (27,143,870) (20,236,028)
------------ ------------ ------------ ------------
Capital share transactions.............. 312,660,657 (30,250,028) 205,815,141 89,558,760
------------ ------------ ------------ ------------
Total increase (decrease) in
net assets ....................... 327,425,571 (27,116,055) 217,603,522 94,934,647
------------ ------------ ------------ ------------
Net assets:
Beginning of period ................ 152,592,728 179,708,783 349,140,971 254,206,324
------------ ------------ ------------ ------------
End of period ...................... $480,018,299 $152,592,728 $566,744,493 $349,140,971
============ ============ ============ ============
<CAPTION>
Core
Bond Portfolio
--------------------------------
For the For the
Year Ended Year Ended
9/30/98 9/30/97
------------- -------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .............. $ 42,612,702 $ 25,767,812
Net realized gain on investment,
futures and foreign currency
related transactions ............. 17,428,853 5,761,244
Net unrealized gain on investment,
futures and foreign currency
related transactions ............. 13,393,733 8,195,455
Net increase in net assets ------------ ------------
resulting from operations ........ 73,435,288 39,724,511
------------ ------------
Distributions to shareholders from:
Net investment income:
BlackRock Shares ................... (5,050,600) (869,439)
Institutional Shares ............... (28,236,789) (16,945,454)
Service Shares ..................... (194,059) (7,314,612)
Investor A Shares .................. (9,446,081) (61,926)
Investor B Shares .................. (398,527) (160,271)
Investor C Shares .................. (27,851) (2,213)
------------ ------------
Total distribution from net
investment income ................ (43,353,907) (25,353,915)
------------ ------------
Net realized gains:
BlackRock Shares ................... 3,729,958 --
Institutional Shares ............... (450,932) (900,868)
Service Shares ..................... (1,587,760) (548,738)
Investor A Shares .................. (23,612) (2,549)
Investor B Shares .................. (55,299) (10,003)
Investor C Shares .................. (1,658) --
------------ ------------
Total distributions from net
realized gains ................... (5,849,219) (1,462,158)
------------ ------------
Total distributions to shareholders. (49,203,126) (26,816,073)
------------ ------------
Capital share transactions.............. 259,333,943 277,409,859
------------ ------------
Total increase (decrease) in
net assets ....................... 283,566,105 290,318,297
------------ ------------
Net assets:
Beginning of period ................ 571,968,250 281,649,953
------------ ------------
End of period ...................... $855,534,355 $571,968,250
============ ============
</TABLE>
See accompanying notes to financial statements.
83
<PAGE>
BLACKROCK FUNDS
STATEMENT OF CHANGES IN NET ASSETS (Continued)
<TABLE>
<CAPTION>
Government GNMA
Income Portfolio Portfolio
--------------------------- -----------------
For the For the For the
Year Ended Year Ended Period 5/18/98(1)
9/30/98 9/30/97 through 9/30/98
----------- ----------- -----------------
<S> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................ $ 1,235,776 $ 1,077,544 $ 2,681,619
Net realized gain on investment, futures and
foreign currency related transactions .............. 754,990 271,561 687,615
Net unrealized gain on investment, futures and
foreign currency related transactions .............. 607,625 262,790 482,471
----------- ----------- ------------
Net increase in net assets resulting from operations.. 2,598,391 1,611,895 3,851,705
----------- ----------- ------------
Distributions to shareholders from:
Net investment income:
BlackRock Shares ..................................... -- -- --
Institutional Shares ................................. -- -- (2,564,992)
Service Shares ....................................... -- -- (2)
Investor A Shares .................................... (331,498) (281,858) (2,179)
Investor B Shares .................................... (965,806) (803,601) (923)
Investor C Shares .................................... (69,148) (9,876) (2)
----------- ----------- ------------
Total distribution from net investment income ........ (1,366,452) (1,095,335) (2,568,098)
----------- ----------- ------------
Net realized gains:
BlackRock Shares ..................................... -- -- --
Institutional Shares ................................. -- -- --
Service Shares ....................................... -- -- --
Investor A Shares .................................... (51,565) (5,470) --
Investor B Shares .................................... (226,059) (17,978) --
Investor C Shares .................................... (9,696) -- --
----------- ----------- ------------
Total distributions from net realized gains .......... (287,320) (23,448) --
----------- ----------- ------------
Total distributions to shareholders .................. (1,653,772) (1,118,783) (2,568,098)
----------- ----------- ------------
Capital share transactions ............................... 11,295,834 5,257,723 117,456,386
----------- ----------- ------------
Total increase (decrease) in net assets .............. 12,240,453 5,750,835 118,739,993
----------- ----------- ------------
Net assets:
Beginning of period .................................. 20,520,735 14,769,900 --
----------- ----------- ------------
End of period ........................................ $32,761,188 $20,520,735 $118,739,993
=========== =========== ============
</TABLE>
- ----------
(1) Commencement of operations.
84
<PAGE>
BLACKROCK FUNDS
<TABLE>
<CAPTION>
Managed International
Income Portfolio Bond Portfolio
--------------------------------- -----------------------------
For the For the For the For the
Year Ended Year Ended Year Ended Year Ended
9/30/98 9/30/97 9/30/98 9/30/97
--------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................ $ 67,146,905 $ 49,437,034 $ 1,952,167 $ 2,208,747
Net realized gain on investment, futures and
foreign currency related transactions .............. 25,885,211 12,920,378 3,224,013 2,436,020
Net unrealized gain on investment, futures and
foreign currency related transactions .............. 12,918,888 11,601,175 576,217 34,232
--------------- ------------- ------------ ------------
Net increase in net assets resulting from operations . 105,951,004 73,958,587 5,752,397 4,678,999
--------------- ------------- ------------ ------------
Distributions to shareholders from:
Net investment income:
BlackRock Shares ..................................... -- -- -- --
Institutional Shares ................................. (47,894,845) (35,140,503) (2,043,103) (4,304,959)
Service Shares ....................................... (19,460,184) (13,614,074) (320,780) (986,122)
Investor A Shares .................................... (829,070) (746,570) (64,752) (39,266)
Investor B Shares .................................... (111,579) (939) (51,701) (24,272)
Investor C Shares .................................... -- -- (37,046) (8,314)
--------------- ------------- ------------ ------------
Total distribution from net investment income ........ (68,295,678) (49,502,086) (2,517,382) (5,362,933)
--------------- ------------- ------------ ------------
Net realized gains:
BlackRock Shares ..................................... -- -- -- --
Institutional Shares ................................. (2,168,258) -- (1,522,323) (1,349,956)
Service Shares ....................................... (1,199,800) -- (266,359) (338,728)
Investor A Shares .................................... (70,278) -- (41,747) (8,738)
Investor B Shares .................................... (4,924) -- (38,402) (5,334)
Investor C Shares .................................... -- -- (21,891) (2,081)
--------------- ------------- ------------ ------------
Total distributions from net realized gains .......... (3,443,260) -- (1,890,722) (1,704,837)
--------------- ------------- ------------ ------------
Total distributions to shareholders .................. (71,738,938) (49,502,086) (4,408,104) (7,067,770)
--------------- ------------- ------------ ------------
Capital share transactions ............................... 758,310,929 54,242,164 (3,333,959) 15,826,437
--------------- ------------- ------------ ------------
Total increase (decrease) in net assets .............. 792,522,995 78,698,665 (1,989,666) 13,437,666
--------------- ------------- ------------ ------------
Net assets:
Beginning of period .................................. 819,708,271 741,009,606 52,486,856 39,049,190
--------------- ------------- ------------ ------------
End of period ........................................ $ 1,612,231,266 $ 819,708,271 $ 50,497,190 $ 52,486,856
=============== ============= ============ ============
<CAPTION>
Tax-Free
Income Portfolio
-------------------------------
For the For the
Year Ended Year Ended
9/30/98 9/30/97
------------- ------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................ $ 7,337,197 $ 2,691,330
Net realized gain on investment, futures and
foreign currency related transactions .............. 1,371,530 964,362
Net unrealized gain on investment, futures and
foreign currency related transactions .............. 7,321,442 1,610,054
------------- ------------
Net increase in net assets resulting from operations . 16,030,169 5,265,746
------------- ------------
Distributions to shareholders from:
Net investment income:
BlackRock Shares ..................................... -- --
Institutional Shares ................................. (4,403,844) (441,451)
Service Shares ....................................... (2,561,816) (2,039,202)
Investor A Shares .................................... (253,639) (230,762)
Investor B Shares .................................... (53,271) (14,013)
Investor C Shares .................................... (5,054) (7)
------------- ------------
Total distribution from net investment income ........ (7,277,624) (2,725,435)
------------- ------------
Net realized gains:
BlackRock Shares ..................................... -- --
Institutional Shares ................................. (42,951) --
Service Shares ....................................... (264,642) --
Investor A Shares .................................... (24,838) --
Investor B Shares .................................... (4,938) --
Investor C Shares .................................... (1) --
------------- ------------
Total distributions from net realized gains .......... (337,370) --
------------- ------------
Total distributions to shareholders .................. (7,614,994) (2,725,435)
------------- ------------
Capital share transactions ............................... 217,780,281 22,719,262
------------- ------------
Total increase (decrease) in net assets .............. 226,195,456 25,259,573
------------- ------------
Net assets:
Beginning of period .................................. 74,653,740 49,394,167
------------- ------------
End of period ........................................ $ 300,849,196 $ 74,653,740
============= ============
</TABLE>
- ----------
(1) Commencement of operations.
See accompanying notes to financial statement.
85
<PAGE>
BLACKROCK FUNDS
STATEMENT OF CHANGES IN NET ASSETS (Continued)
<TABLE>
<CAPTION>
Pennsylvania Tax-Free
Income Portfolio
---------------------------------
For the For the
Year Ended Year Ended
9/30/98 9/30/97
-------------- ------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .................................. $ 22,883,610 $ 4,048,359
Net realized gain on investment, futures and
foreign currency related transactions ................ 3,711,376 671,291
Net unrealized gain on investment, futures and
foreign currency related transactions ................ 25,404,943 2,210,503
-------------- ------------
Net increase in net assets resulting from operations ... 51,999,929 6,930,153
-------------- ------------
Distributions to shareholders from:
Net investment income:
Institutional Shares ................................... (18,470,332) (228,163)
Service Shares ......................................... (2,557,439) (1,835,040)
Investor A Shares ...................................... (1,412,477) (1,633,868)
Investor B Shares ...................................... (550,801) (373,390)
Investor C Shares ...................................... (440) --
-------------- ------------
Total distribution from net investment income .......... (22,991,489) (4,070,461)
-------------- ------------
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 .................... (22,991,489) (4,070,461)
-------------- ------------
Capital share transactions ................................. 997,436,145 14,020,773
-------------- ------------
Total increase (decrease) in net assets ................ 1,026,444,585 16,880,465
-------------- ------------
Net assets:
Beginning of period .................................... 100,790,980 83,910,515
-------------- ------------
End of period .......................................... $1,127,235,565 $100,790,980
============== ============
</TABLE>
See accompanying notes to financial statements.
86
<PAGE>
<TABLE>
<CAPTION>
New Jersey Tax-Free
Income Portfolio
------------------------------
For the For the
Year Ended Year Ended
9/30/98 9/30/97
------------ -----------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .................................. $ 5,479,322 $ 3,973,148
Net realized gain on investment, futures and
foreign currency related transactions ................ 1,458,455 154,383
Net unrealized gain on investment, futures and
foreign currency related transactions ................ 4,429,882 2,731,365
------------ -----------
Net increase in net assets resulting from operations ... 11,367,659 6,858,896
------------ -----------
Distributions to shareholders from:
Net investment income:
Institutional Shares ................................... (1,777,115) --
Service Shares ......................................... (3,661,512) (3,840,942)
Investor A Shares ...................................... (55,807) (42,517)
Investor B Shares ...................................... (30,377) (15,000)
Investor C Shares ...................................... -- --
------------ -----------
Total distribution from net investment income .......... (5,524,811) (3,898,459)
------------ -----------
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 .................... (5,524,811) (3,898,459)
------------ -----------
Capital share transactions ................................. 90,239,477 (5,049,556)
------------ -----------
Total increase (decrease) in net assets ................ 96,082,325 (2,089,119)
------------ -----------
Net assets:
Beginning of period .................................... 86,911,469 89,000,588
------------ -----------
End of period .......................................... $182,993,794 $86,911,469
============ ===========
<CAPTION>
Delaware Kentucky
Ohio Tax-Free Tax-Free Tax-Free
Income Portfolio Income Portfolio Income Portfolio
------------------------------ ----------------- -----------------
For the For the For the For the
Year Ended Year Ended Period 5/11/98(1) Period 5/11/98(1)
9/30/98 9/30/97 through 9/30/98 through 9/30/98
------------ ----------- ----------------- -----------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .................................. $ 2,221,550 $ 478,442 $ 1,927,114 $ 3,767,002
Net realized gain on investment, futures and
foreign currency related transactions ................ 700,041 45,769 1,532,218 1,778,278
Net unrealized gain on investment, futures and
foreign currency related transactions ................ 2,694,414 314,435 2,541,557 4,590,015
------------ ----------- ------------ ------------
Net increase in net assets resulting from operations ... 5,616,005 838,646 6,000,889 10,135,295
------------ ----------- ------------ ------------
Distributions to shareholders from:
Net investment income:
Institutional Shares ................................... (1,752,198) -- (2,056,266) (3,778,443)
Service Shares ......................................... (338,008) (35,296) (2) (2)
Investor A Shares ...................................... (110,681) (310,363) (34,547) (3,692)
Investor B Shares ...................................... (28,760) (118,178) (16,992) (1)
Investor C Shares ...................................... (1,554) (15,202) (5,877) (1)
------------ ----------- ------------ ------------
Total distribution from net investment income .......... (2,231,201) (479,039) (2,113,684) (3,782,139)
------------ ----------- ------------ ------------
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 .................... (2,231,201) (479,039) (2,113,684) (3,782,139)
------------ ----------- ------------ ------------
Capital share transactions ................................. 91,225,062 1,445,504 115,638,626 191,114,773
------------ ----------- ------------ ------------
Total increase (decrease) in net assets ................ 94,609,866 1,805,111 119,525,831 197,467,929
------------ ----------- ------------ ------------
Net assets:
Beginning of period .................................... 11,585,148 9,780,037 -- --
------------ ----------- ------------ ------------
End of period .......................................... $106,195,014 $11,585,148 $119,525,831 $197,467,929
============ =========== ============ ============
</TABLE>
- ----------
(1) Commencement of operations.
See accompanying notes to financial statements.
87
<PAGE>
BlackRock Funds
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
For the period ended of period income and unrealized) income income gains gains
- ------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------
Low Duration Bond Portfolio
- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BlackRock Class
9/30/98 $ 9.89 $0.59 $0.12 $(0.57) $ -- $ -- $ --
6/3/97(1) through 9/30/97 9.82 0.19 0.07 (0.19) -- -- --
Institutional Class
9/30/98 $ 9.89 $0.56 $0.14 $(0.56) $ -- $ -- $ --
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
9/30/98 $ 9.89 $0.66 $0.01 $(0.53) $ -- $ -- $ --
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
9/30/98 $ 9.89 $0.51 $0.14 $(0.51) -- -- --
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
9/30/98 $ 9.89 $0.41 $0.17 $(0.44) $ -- $ -- $ --
11/18/96(1) through 9/30/97 9.86 0.41 -- (0.38) -- -- --
Investor C Class
9/30/98 $ 9.89 $0.44 $0.14 $(0.44) $ -- $ -- $ --
2/24/97(1) through 9/30/97 9.87 0.26 0.02 (0.26) -- -- --
- --------------------------------------
Intermediate Government Bond Portfolio
- --------------------------------------
Institutional Class
9/30/98 $10.11 $0.57 $0.39 $(0.59) $ -- $ -- $ --
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) --
Service Class
9/30/98 $10.11 $0.58 $0.35 $(0.56) $ -- $ -- $ --
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) --
Investor A Class
9/30/98 $10.11 $0.53 $0.38 $(0.54) $ -- $ -- $ --
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) --
Investor B Class
9/30/98 $10.11 $0.47 $0.37 $(0.47) $ -- $ -- $ --
10/11/96(1) through 9/30/97 9.98 0.45 0.13 (0.45) -- -- --
Investor C Class
9/30/98 $10.11 $0.47 $0.37 $(0.47) $ -- $ -- $ --
10/8/96(1) through 9/30/97 9.98 0.45 0.13 (0.45) -- -- --
</TABLE>
See accompanying notes to financial statements.
88
<PAGE>
BlackRock Funds
<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>
$10.03 7.44% $ 140,493 0.40%(5) 0.80% 7.12% 6.72% 227%
9.89 2.68 68,300 0.40(2,5) 0.73(2) 6.58(2) 6.25(2) 371
$10.03 7.28% $ 166,887 0.55%(5) 0.95% 7.02% 6.62% 227%
9.89 6.89 102,490 0.55(5) 0.88 6.14 5.81 371
9.79 2.70 135,686 0.55(2,5) 0.83(2) 5.72(2) 5.45(2) 228
9.79 4.25 52,843 0.63(2,5) 0.83(2) 5.25(2) 5.05(2) 185
9.83 6.99 44,486 0.57 1.05 6.08 5.60 586
9.71 2.33 31,265 0.57 1.02 4.70 4.25 455
9.96 4.63 51,611 0.56(2) 0.66(2) 5.32(2) 5.22(2) 513
$10.03 6.96% $ 18,393 0.85%(5) 1.25% 6.62% 6.22% 227%
9.89 6.57 82,873 0.855 1.18 5.86 5.53 371
9.79 2.54 91,870 0.85(2,5) 1.13(2) 5.40(2) 5.13(2) 228
9.79 (0.11) 181,670 0.85(2,5) 1.05(2) 5.25(2) 5.05(2) 185
$10.03 6.78%(3) $ 2,850 1.02%(5) 1.42% 6.59% 6.19% 227%
9.89 6.39(3) 1,079 1.02(5) 1.35 5.72 5.39 371
9.79 2.46(3) 938 1.02(2,5) 1.30(2) 5.20(2) 4.92(2) 228
9.79 (0.15)(3) 719 1.01(2,5) 1.21(2) 4.94(2) 4.74(2) 185
$10.03 5.99%(4) $ 398 1.76%(5) 2.16% 5.82% 5.42% 227%
9.89 4.31(4) 13 1.73(2,5) 2.06(2) 4.96(2) 4.63(2) 371
$10.03 5.99%(4) $ 342 1.75%(5) 2.15% 5.70% 5.30% 227%
9.89 2.91(4) 72 1.72(2,5) 2.05(2) 5.00(2) 4.67(2) 371
$10.48 9.83% $ 441,691 0.59%(6) 0.85% 5.76% 5.50% 272%
10.11 8.08 96,605 0.55(6) 0.86 6.00 5.69 291
9.92 4.82 126,312 0.53(6) 0.83 6.03 5.73 580
10.02 10.28 134,835 0.42(6) 0.79 5.94 5.57 247
9.64 (3.08) 128,974 0.40 0.80 5.48 5.08 9
$10.48 9.50% $ 29,697 0.88%(6) 1.14% 5.54% 5.28% 272%
10.11 7.75 50,535 0.85(6) 1.16 5.70 5.39 291
9.92 4.51 47,494 0.83(6) 1.13 5.73 5.43 580
10.02 9.99 49,762 0.69(6) 1.06 5.67 5.30 247
9.64 (3.31) 60,812 0.65 1.05 5.30 4.90 9
$10.48 9.32%(3) $ 7,972 1.05%(6) 1.31% 5.37% 5.11% 272%
10.11 7.57(3) 5,374 1.02(6) 1.33 5.54 5.23 291
9.92 4.36(3) 5,903 0.95(6) 1.25 5.64 5.35 580
10.03 9.98(3) 9,802 0.70(6) 1.07 5.67 5.30 247
9.64 (3.36)(3) 8,508 0.65 1.05 5.24 4.84 9
$10.48 8.51%(4) $ 361 1.79%(6) 2.05% 4.66% 4.40% 272%
10.11 5.94(4) 28 1.77(2,6) 2.08(2) 4.75(2) 4.44(2) 291
$10.48 8.51%(4) $ 299 1.78%(6) 2.04% 4.51% 4.25% 272%
10.11 5.94(4) 51 1.71(2,6) 2.02(2) 4.57(2) 4.26(2) 291
</TABLE>
89
<PAGE>
BlackRock Funds
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
- ------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------
Intermediate Bond Portfolio
- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BlackRock Class
5/1/98(1) through 9/30/98 $ 9.46 $0.24 $0.26 $(0.24) $ -- $(0.05) $ --
Institutional Class
9/30/98 $ 9.49 $0.57 $0.23 $(0.57) $ -- $(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) --
Service Class
9/30/98 $ 9.49 $0.58 $0.20 $(0.55) $ -- $(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) --
Investor A Class
9/30/98 $ 9.49 $0.53 $0.23 $(0.53) $ -- $(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 9/30/98 $ 9.51 $0.29 $0.21 $(0.29) $ -- $(0.05) $ --
- -------------------
Core Bond Portfolio
- -------------------
BlackRock Class
9/30/98 $ 9.82 $0.61 $0.40 $(0.62) $ -- $(0.09) $ --
5/1/97(1) through 9/30/97 9.57 0.26 0.24 (0.25) -- -- --
Institutional Class
9/30/98 $ 9.82 $0.59 $0.40 $(0.60) $ -- $(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 through 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) --
Service Class
9/30/98 $ 9.82 $0.56 $0.40 $(0.57) $ -- $(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
9/30/98 $ 9.82 $0.55 $0.40 $(0.56) $ -- $(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
9/30/98 $ 9.82 $0.47 $0.40 $(0.48) $ -- $(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
9/30/98 $ 9.82 $0.47 $0.40 $(0.48) $ -- $(0.09) $ --
2/28/97(1) through 9/30/97 9.64 0.29 0.17 (0.28) -- -- --
- ---------------------------
Government Income Portfolio
- ---------------------------
Investor A Class
9/30/98 $10.49 $0.53 $0.54 $(0.61) $ -- $(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) -- -- --
</TABLE>
(1) Commencement of operations.
See accompanying notes to financial statements.
90
<PAGE>
BlackRock Funds
<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>
$ 9.67 8.86% $ 48,365 0.45%(2,7) 0.72%(2) 6.96%(2) 6.69%(2) 221%
$ 9.67 8.81% $ 490,674 0.59%(7) 0.86% 7.18% 6.91% 221%
9.49 8.40 295,709 0.53(7) 0.82 6.63 6.34 321
9.32 5.10 207,909 0.53(7) 0.83 6.27 5.97 670
9.43 10.76 124,979 0.47(7) 0.81 6.18 5.84 262
9.05 (3.52) 71,896 0.45 0.88 5.54 5.11 92%
$ 9.67 8.48% $ 25,946 0.89%(7) 1.16% 6.95% 6.68% 221%
9.49 8.07 52,316 0.83(7) 1.12 6.32 6.03 321
9.32 4.79 45,362 0.83(7) 1.13 5.98 5.67 670
9.43 10.46 36,718 0.74(7) 1.09 5.90 5.55 262
9.05 (3.80) 35,764 0.70 1.13 5.33 4.90 92
$ 9.67 8.30%(3) $ 1,648 1.06%(7) 1.33% 6.80% 6.53% 221%
9.49 7.89(3) 1,116 1.00(7) 1.29 6.14 5.85 321
9.32 4.74(3) 935 0.97(7) 1.27 5.83 5.53 670
9.43 10.35(3) 647 0.76(7) 1.11 5.89 5.55 262
9.05 0.31(3) 87 0.85(2) 1.28(2) 5.35(2) 4.92(2) 92
$ 9.67 7.83%(4) $ 111 1.75%(2) 2.02%(2) 5.54%(2) 5.27%(2) 221%
$10.12 10.74% $ 92,723 0.40%(8) 0.74% 6.42% 6.08% 405%
9.82 5.30 48,139 0.40(2,8) 0.69(2) 6.70(2) 6.41(2) 441
$10.12 10.57% $ 673,823 0.55%(8) 0.89% 6.28% 5.94% 405%
9.82 10.03 393,657 0.55(8) 0.85 6.81 6.52 441
9.55 2.55 162,626 0.55(2,8) 0.84(2) 6.75(2) 6.45(2) 308
9.61 3.93 64,707 0.66(2,8) 0.91(2) 5.89(2) 5.64(2) 723
9.85 11.79 32,191 0.55 1.75 6.62 5.43 435
9.36 (0.69) 12,507 0.55 2.65 5.61 3.51 722
$10.12 10.24% $ 70,111 0.85%(8) 1.19% 6.05% 5.71% 405%
9.82 9.71 122,308 0.85(8) 1.14 6.59 6.31 441
9.55 2.40 117,207 0.85(2,8) 1.14(2) 6.33(2) 6.04(2) 308
9.61 (1.90) 232,040 0.85(2,8) 1.10(2) 5.46(2) 5.21(2) 723
$10.12 10.04%(3) $ 5,108 0.98%(8) 1.32% 5.78% 5.44% 405%
9.82 9.52(3) 2,441 1.01(8) 1.30 6.31 6.02 441
9.55 2.36(3) 320 1.02(2,8) 1.31(2) 6.29(2) 6.00(2) 308
9.61 (2.96)(3) 80 1.02(2,8) 1.27(2) 5.43(2) 5.19(2) 723
$10.12 9.20%(4) $ 11,734 1.76%(8) 2.10% 5.03% 4.69% 405%
9.82 8.71(4) 5,295 1.75(8) 2.04 5.61 5.32 441
9.55 1.98(4) 1,497 1.72(2,8) 2.01(2) 5.68(2) 5.39(2) 308
9.61 (0.33)(4) 77 1.77(2,8) 2.02(2) 4.71(2) 4.46(2) 723
$10.12 9.20%(4) $ 2,035 1.73%(8) 2.07% 4.92% 4.58% 405%
9.82 4.82(4) 128 1.74(2,8) 2.03(2) 5.41(2) 5.12(2) 441
$10.84 11.13%(3) $ 6,045 1.05%(9) 1.63% 5.86% 5.28% 477%
10.49 10.48(3) 4,876 1.02(9) 1.74 8.02 7.30 393
10.20 4.43(3) 3,651 0.91(9) 1.67 8.59 7.83 434
10.68 14.27(3) 2,990 0.37(2,9) 1.81(2) 6.89(2) 5.44(2) 258
</TABLE>
91
<PAGE>
BlackRock Funds
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
- ------------------------------------------------------------------------------------------------------------------------------------
Investor B Class
<S> <C> <C> <C> <C> <C> <C> <C>
9/30/98 $10.49 $0.54 $ 0.50 $(0.58) $ -- $(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
9/30/98 $10.49 $0.51 $ 0.53 $(0.58) $ -- $(0.11) $ --
2/28/97(1) through 9/30/97 10.30 0.37 0.20 (0.38) -- -- --
- --------------
GNMA Portfolio
- --------------
Institutional Class
5/18/98(1) through 9/30/98 $10.00 $0.23 $ 0.10 $(0.22) $ -- $ -- $ --
Service Class
5/18/98(1) through 9/30/98 $10.00 $0.27 $ 0.04 $(0.20) $ -- $ -- $ --
Investor A Class
5/18/98(1) through 9/30/98 $10.00 $0.20 $ 0.11 $(0.20) $ -- $ -- $ --
Investor B Class
5/18/98(1) through 9/30/98 $10.00 $0.17 $ 0.11 $(0.17) $ -- $ -- $ --
Investor C Class
5/18/98(1) through 9/30/98 $10.00 $0.23 $ 0.05 $(0.17) $ -- $ -- $ --
- ------------------------
Managed Income Portfolio
- ------------------------
Institutional Class
9/30/98 $10.41 $0.67 $ 0.26 $(0.65) $ -- $(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)
Service Class
9/30/98 $10.41 $0.60 $ 0.30 $(0.62) $ -- $(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)
Investor A Class
9/30/98 $10.41 $0.59 $ 0.29 $(0.60) $ -- $(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)
Investor B Class
9/30/98 $10.41 $0.52 $ 0.29 $(0.53) $ -- $(0.05) $ --
7/15/97(1) through 9/30/97 10.39 0.09 0.02 (0.09) -- -- --
- ----------------------------
International Bond Portfolio
- ----------------------------
Institutional Class
9/30/98 $10.95 $0.45 $ 0.83 $(0.57) $ -- $(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
9/30/98 $10.95 $0.18 $ 1.06 $(0.53) $ -- $(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) --
Investor A Class
9/30/98 $10.95 $0.47 $ 0.76 $(0.52) $ -- $(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) -- -- --
</TABLE>
(1) Commencement of operations.
See accompanying notes to financial statements.
92
<PAGE>
BlackRock Funds
<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>
$10.84 10.31%(4) $ 25,165 1.80%(9) 2.38% 5.03% 4.45% 477%
10.49 9.66(4) 14,796 1.77(9) 2.49 7.26 6.54 393
10.20 3.68(4) 11,119 1.64(9) 2.40 7.81 7.05 434
10.68 13.52(4) 10,188 1.05(2,9) 2.50(2) 6.17(2) 4.72(2) 258
$10.84 10.31%(4) $ 1,551 1.80%(9) 2.38% 4.98% 4.40% 477%
10.49 5.64(4) 849 1.70(2,9) 2.42(2) 7.11(2) 6.39(2) 393
$10.11 3.31% $ 118,039 0.60%(2,11) 0.97%(2) 6.12%(2) 5.75%(2) 56%
$10.11 3.18% $ -- 0.57%(2,11) 0.94%(2) 8.95%(2) 8.58%(2) 56%
$10.11 3.12%(3) $ 535 1.06%(2,11) 1.43%(2) 5.69%(2) 5.32%(2) 56%
$10.11 2.85%(4) $ 166 1.70%(2,11) 2.07%(2) 4.53%(2) 4.16%(2) 56%
$10.11 2.85%(4) $ -- 0.57%(2,11) 0.94%(2) 5.26%(2) 4.90%(2) 56%
$10.64 9.25% $1,335,054 0.63%(10) 0.81% 6.71% 6.53% 376%
10.41 10.25 537,260 0.58(10) 0.83 6.99 6.74 428
10.09 4.33 564,744 0.58 0.81 6.17 5.95 638
10.38 13.27 443,148 0.57 0.77 6.44 6.24 203
9.79 (5.27) 395,060 0.55 0.77 6.11 5.89 61
$10.64 8.93% $ 257,641 0.93%(10) 1.11% 6.52% 6.34% 376%
10.41 9.93 266,750 0.88(10) 1.13 6.76 6.51 428
10.09 4.05 165,073 0.88 1.11 5.87 5.65 638
10.38 12.97 116,846 0.85 1.05 6.14 5.94 203
9.79 (5.49) 67,655 0.80 1.02 5.95 5.73 61
$10.64 8.74%(3) $ 14,897 1.10%(10) 1.28% 6.44% 6.26% 376%
10.41 9.74(3) 15,230 1.05(10) 1.30 6.54 6.29 428
10.09 3.83(3) 11,193 1.05 1.29 5.67 5.44 638
10.38 12.74(3) 11,977 1.05 1.25 5.96 5.76 203
9.79 (5.76)(3) 10,921 1.00 1.22 5.66 5.44 61
$10.64 7.94%(4) $ 4,639 1.82%(10) 2.00% 5.32% 5.14% 376%
10.41 1.35(4) 468 1.31(2,10) 1.56(2) 4.68(2) 4.43(2) 428
$11.24 12.51% $ 43,672 1.01%(12) 1.16% 4.08% 3.93% 225%
10.95 11.59 43,310 0.98(12) 1.08 5.28 5.18 272
11.71 4.48 30,882 0.92(2) 1.32(2) 6.28(2) 5.88(2) 108
$11.24 12.17% $ 2,359 1.31%(12) 1.46% 3.79% 3.64% 225%
10.95 11.23 6,708 1.29(12) 1.39 5.02 4.92 272
11.71 5.39 7,836 1.09(2) 1.20(2) 3.82(2) 3.72(2) 108
11.39 16.79 37,627 1.23(2) 1.23(2) 5.62(2) 5.62(2) 159
10.52 1.50 45,657 1.24 1.24 5.96 5.96 131
10.75 10.24 46,888 1.38 1.38 6.00 6.00 128
$11.24 11.98% $ 1,705 1.48%(12) 1.63% 3.59% 3.44% 225%
10.95 11.02(3) 1,015 1.42(12) 1.52 4.49 4.39 272
11.71 5.13(3) 176 1.45(2) 1.86(2) 5.29(2) 4.88(2) 108
</TABLE>
93
<PAGE>
BlackRock Funds
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 B Class
9/30/98 $10.95 $0.40 $ 0.75 $(0.43) $ -- $(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
9/30/98 $10.95 $0.54 $ 0.61 $(0.43) $ -- $(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
9/30/98 $11.34 $0.54 $ 0.44 $(0.54) $ -- $(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) --
Service Class
9/30/98 $11.34 $0.38 $ 0.56 $(0.50) $ -- $(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) --
Investor A Class
9/30/98 $11.34 $0.47 $ 0.45 $(0.48) $ -- $(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) --
Investor B Class
9/30/98 $11.34 $0.40 $ 0.44 $(0.40) $ -- $(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
9/30/98 $11.34 $0.36 $ 0.48 $(0.40) $ -- $(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
9/30/98 $10.77 $0.52 $ 0.38 $(0.52) $ -- $ -- $ --
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) --
Service Class
9/30/98 $10.77 $0.47 $ 0.39 $(0.48) $ -- $ -- $ --
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) --
Investor A Class
9/30/98 $10.77 $0.45 $(0.40) $(0.47) $ -- $ -- $ --
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) --
Investor B Class
9/30/98 $10.77 $0.39 $ 0.41 $(0.42) $ -- $ -- $ --
9/30/97 10.44 0.40 0.33 (0.40) -- -- --
9/30/96 10.33 0.40 0.11 (0.40) -- -- --
</TABLE>
(1) Commencement of operations.
See accompanying notes to financial statements.
94
<PAGE>
BlackRock Funds
<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>
$11.24 11.15%(4) $ 1,512 2.22%(12) 2.37% 2.83% 2.68% 225%
10.95 10.11(4) 979 2.12(2,12) 2.22 3.65 3.55 272
11.71 4.90(4) 136 2.09(2) 2.49(2) 4.61(2) 4.21(2) 108
$11.24 11.15%(4) $ 1,249 2.22%(12) 2.37% 2.83% 2.68% 225%
10.95 10.13(4) 474 2.11(12) 2.21 3.57 3.47 272
11.71 1.24(4) 19 1.53(2) 1.93(2) 2.79(2) 2.38(2) 108
$11.73 8.85% $ 285,921 0.60% 0.88% 4.61% 4.33% 100%
11.34 10.09 9,419 0.55 0.90 5.07 4.72 262
10.84 7.45 8,350 0.55 0.89 5.10 4.78 268
10.61 11.54 271 0.52 1.30 5.19 4.41 92
10.04 (3.77) 132 0.50 1.73 4.97 3.74 40
$11.73 8.52% $ 5,430 0.88% 1.16% 4.34% 4.06% 100%
11.34 9.77 58,779 0.85 1.20 4.76 4.41 262
10.84 7.14 36,161 0.85 1.18 4.88 4.56 268
10.61 11.24 4,713 0.80 1.57 4.92 4.15 92
10.04 (4.02) 2,109 0.75 1.98 4.75 3.52 40
$11.73 8.34%(3) $ 6,440 1.05% 1.33% 4.17% 3.89% 100%
11.34 9.58(3) 5,530 1.02 1.37 4.60 4.25 262
10.84 6.94(3) 4,873 1.04 1.37 4.67 4.35 268
10.61 10.99(3) 6,591 1.00 1.78 4.74 3.96 92
10.04 (4.19)(3) 6,972 0.95 2.18 4.53 3.30 40
$11.73 7.53%(4) $ 2,034 1.79% 2.07% 3.39% 3.11% 100%
11.34 8.77(4) 926 1.75 2.10 3.65 3.30 262
10.84 1.72(4) 10 1.65(2) 1.98(2) 3.84(2) 3.51(2) 268
$11.73 7.53%(4) $ 1,024 1.70% 1.98% 3.19% 2.91% 100%
11.34 5.02(4) -- 1.70(2) 2.05(2) 3.95(2) 3.60(2) 262
$11.15 8.51% $1,054,070 0.58% 0.82% 4.66% 4.42% 43%
10.77 8.43 5,108 0.55 0.86 4.97 4.66 97
10.44 6.29 3,609 0.55 0.85 5.01 4.72 119
10.33 10.81 2,092 0.52 0.84 5.23 4.91 66
9.82 (2.96) 639 0.39 0.99 5.27 4.67 30
$11.15 8.19% $ 20,669 0.86% 1.10% 4.39% 4.15% 43%
10.77 8.10 50,395 0.85 1.16 4.67 4.36 97
10.44 5.97 34,297 0.85 1.15 4.74 4.44 119
10.33 10.51 13,815 0.79 1.11 5.04 4.72 66
9.82 (3.20) 11,518 0.55 1.15 4.97 4.37 30
$11.15 8.04%(3) $ 34,712 1.01% 1.25% 4.25% 4.01% 43%
10.77 7.95(3) 32,900 0.97 1.30 4.54 4.23 97
10.44 5.81(3) 38,031 1.00 1.30 4.58 4.29 119
10.33 10.30(3) 42,775 0.98 1.30 4.88 4.56 66
9.82 (3.06)(3) 46,563 0.41 1.01 5.06 4.46 30
$11.15 7.56%(4) $ 17,601 1.78% 2.02% 3.46% 3.22% 43%
10.77 7.12(4) 12,388 1.76 2.07 3.73 3.42 97
10.44 5.04(4) 7,974 1.74 2.03 3.81 3.51 119
</TABLE>
95
<PAGE>
BlackRock Funds
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>
Investor C Class
8/14/98(1) through 9/30/98 $11.00 $0.42 $0.15 $(0.42) $ -- $ -- $ --
- ------------------------------------
New Jersey Tax-Free Income Portfolio
- ------------------------------------
Institutional Class
5/4/98(1) through 9/30/98 $11.71 $0.23 $0.36 $(0.23) $ -- $ -- $ --
Service Class
9/30/98 $11.65 $0.52 $0.42 $(0.52) $ -- $ -- $ --
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) --
Investor A Class
9/30/98 $11.65 $0.50 $0.42 $(0.50) $ -- $ -- $ --
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
9/30/98 $11.65 $0.41 $0.42 $(0.41) $ -- $ -- $ --
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) -- -- --
- ------------------------------
Ohio Tax-Free Income Portfolio
- ------------------------------
Institutional Class
9/30/98 $10.50 $0.48 $0.37 $(0.47) $ -- $ -- $ --
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) --
Service Class
9/30/98 $10.50 $0.48 $0.37 $(0.47) $ -- $ -- $ --
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) --
Investor A Class
9/30/98 $10.50 $0.45 $0.38 $(0.45) $ -- $ -- $ --
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) --
Investor B Class
9/30/98 $10.50 $0.37 $0.38 $(0.37) $ -- $ -- $ --
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) -- -- --
Investor C Class
08/26/98(1) through 9/30/98 $10.74 $0.03 $0.14 $(0.03) $ -- $ -- $ --
- ----------------------------------
Delaware Tax-Free Income Portfolio
- ----------------------------------
Institutional Class
5/11/98(1) through 9/30/98 $10.00 $0.17 $0.34 $(0.18) $ -- $ -- $ --
Service Class
5/11/98(1) through 9/30/98 $10.00 $0.16 $0.34 $(0.17) $ -- $ -- $ --
Investor A Class
5/11/98(1) through 9/30/98 $10.00 $0.15 $0.34 $(0.16) $ -- $ -- $ --
Investor B Class
5/11/98(1) through 9/30/98 $10.00 $0.12 $0.34 $(0.13) $ -- $ -- $ --
Investor C Class
5/11/98(1) through 9/30/98 $10.00 $0.12 $0.34 $(0.13) $ -- $ -- $ --
</TABLE>
(1) Commencement of operations.
See accompanying notes to financial statements.
96
<PAGE>
BlackRock Funds
<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>
$11.15 7.56%(4) $ 184 1.58%(2) 1.82%(2) 2.98%(2) 2.74%(2) 43%
$12.07 8.38% $ 145,708 0.60%(2) 0.90%(2) 4.67%(2) 4.37%(2) 24%
$12.07 8.28% $ 34,803 0.88% 1.18% 4.37% 4.07% 24%
11.65 8.11 84,596 0.85 1.17 4.59 4.27 77
11.27 0.15 88,077 0.85(2) 1.17(2) 4.44(2) 4.13(2) 109
11.61 10.35 97,976 0.88(2) 0.90(2) 4.43(2) 4.41(2) 26
10.94 1.49 96,857 0.79 0.87 4.71 4.63 28
11.31 5.18 111,354 0.38 0.86 4.75 4.27 12
$12.07 8.10%(3) $ 1,432 1.06% 1.36% 4.26% 3.96% 24%
11.65 7.94(3) 1,548 1.02 1.34 4.41 4.09 77
11.27 (0.01)(3) 894 1.01(2) 1.33(2) 4.29(2) 3.98(2) 109
11.61 0.63(3) 14 1.02(2) 1.36(2) 2.79(2) 2.45(2) 26
$12.07 7.30%(4) $ 1,051 1.80% 2.10% 3.43% 3.13% 24%
11.65 7.14(4) 767 1.74 2.06 3.60 3.28 77
11.27 2.04(4) 30 1.74(2) 2.06(2) 3.48(2) 3.16(2) 109
$10.88 8.56% $ 101,066 0.60% 0.93% 4.64% 4.31% 77%
10.50 8.53 928 0.55 1.06 4.80 4.29 87
10.15 6.12 409 0.51 1.10 4.96 4.37 136
10.05 10.75 200 0.12 1.19 5.61 4.54 63
9.60 (3.75) 127 0.10 1.49 5.16 3.77 61
$10.88 8.23% $ 712 0.88% 1.21% 4.37% 4.04% 77%
10.50 8.21 7,421 0.85 1.36 4.51 4.00 87
10.15 5.80 6,377 0.79 1.38 4.69 4.10 136
10.05 10.45 5,150 0.39 1.46 5.39 4.31 63
9.60 (4.00) 4,428 0.35 1.74 5.06 3.67 61
$10.88 8.05%(3) $ 2,774 1.06% 1.39% 4.22% 3.89% 77%
10.50 8.03(3) 2,614 1.02 1.53 4.35 3.84 87
10.15 5.66(3) 2,833 0.91 1.50 4.57 3.98 136
10.05 10.46(3) 3,303 0.38 1.45 5.42 4.35 63
9.60 (3.75)(3) 3,825 0.10 1.49 5.18 3.79 61
$10.88 7.25%(4) $ 1,116 1.79% 2.12% 3.41% 3.08% 77%
10.50 7.23(4) 622 1.75 2.26 3.52 3.01 87
10.15 4.87(4) 161 1.66 2.26 3.80 3.21 136
10.05 9.33(4) 106 1.17(2) 2.25(2) 4.48(2) 3.41(2) 63
$10.88 1.60%(4) $ 527 1.71%(2) 2.04%(2) 2.82%(2) 2.49%(2) 77%
$10.33 5.16% $ 114,524 0.70%(2) 0.88%(2) 4.18%(2) 4.00%(2) 54%
$10.33 5.04% -- 0.67%(2) 0.85%(2) 5.00%(2) 4.82%(2) 54%
$10.33 4.97%(3) $ 2,546 1.15%(2) 1.33%(2) 3.68%(2) 3.50%(2) 54%
$10.33 4.67%(4) $ 1,740 1.83%(2) 2.01%(2) 2.89%(2) 2.71%(2) 54%
$10.33 4.67%4 $ 716 1.89%(2) 2.07%(2) 2.81%(2) 2.63%(2) 54%
</TABLE>
97
<PAGE>
BlackRock Funds
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
- ------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------
Kentucky Tax-Free Income Portfolio
- ----------------------------------
Institutional Class
<S> <C> <C> <C> <C> <C> <C> <C>
5/11/98(1) through 9/30/98 $10.00 $0.18 $0.31 $(0.18) $ -- $ -- $ --
Service Class
5/11/98(1) through 9/30/98 $10.00 $0.19 $0.29 $(0.17) $ -- $ -- $ --
Investor A Class
5/11/98(1) through 9/30/98 $10.00 $0.16 $0.31 $(0.16) $ -- $ -- $ --
Investor B Class
5/11/98(1) through 9/30/98 $10.00 $0.15 $0.29 $(0.13) $ -- $ -- $ --
Investor C Class
5/11/98(1) through 9/30/98 $10.00 $0.15 $0.29 $(0.13) $ -- $ -- $ --
</TABLE>
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 1.59%, 3.08%, and 2.98% respectively,
for the period ended September 30, 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 1.80%, 1.98%, 2.32%, respectively,
for the period ended September 30, 1998 and 1.54%, 1.85%, and 2.02%,
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.
6 Including interest expense, ratios for the Investor B and Investor C
classes would have been 1.84% and 1.81% respectively, for the period ended
September 30, 1998, and 1.90% and 1.78%, respectively, for the period ended
September 30, 1997, the Institutional, Service, and Investor A would have
been 0.63%, 0.91%, and 1.09%, respectively, for the period ended September
30 1998, and 0.67%, 0.97%, and 1.14%, respectively, for the period ended
September 30, 1997, and would 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 BlackRock class would have been
1.43% for the period ended September 30, 1998, the Institutional, Service,
Investor A and Investor B classes would have been 1.72%, 2.06%, 2.22% and
2.79%, respectively, for the period ended September 30, 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.
See accompanying notes to financial statements.
98
<PAGE>
<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>
$10.31 4.95% $196,493 0.70%(2) 0.95%(2) 4.54%(2) 4.29%(2) 7%
$10.31 4.82% $ -- 0.67%(2) 0.92%(2) 5.00%(2) 4.75%(2) 7%
$10.31 4.76%(3) $ 975 1.17%(2) 1.42%(2) 4.07%(2) 3.82%(2) 7%
$10.31 4.45%(4) $ -- 0.67%(2) 0.92%(2) 0.64%(2) 0.39%(2) 7%
$10.31 4.45%(4) $ -- 0.67%(2) 0.92%(2) 5.00%(2) 4.75%(2) 7%
</TABLE>
8 Including interest expense, ratios for the BlackRock and Investor C classes
would have been .68% and 1.90% respectively, for the period ended September
30, 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 .83%, 1.18%, 1.27%, and 2.01%, respectively, for the period September
30, 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
2.14% for the period ended September 30, 1998, and 3.24% for the period
ended September 30, 1997, the Investor A and Investor B classes would have
been 1.46% and 2.01%, respectively, for the period ended September 30,
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 September 30, 1995.
10 Including interest expense, ratios for the Institutional, Service, Investor
A, and Investor B classes would have been 1.30%, 1.69%, 1.90%, and 2.43%
respectively, for the period ended September 30, 1998, and 0.92%, 1.27%,
1.41%, and 2.14%, respectively, for the period ended September 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 0.63%, .74%, 1.10%,
1.73%, and 0.08%, respectively, for the period ended September 30,1998.
12 Including interest expense, ratios for the Institutional Service, Investor
A, Investor B, Investor C classes would have been 1.01%, 1.31%, 1.48%,
2.22% and 2.22%, respectively, for the period ended September 30, 1998, and
0.98%, 1.30%, 1.42%, 2.12% and 2.11%, respectively, for the period ended
September 30, 1997.
See accompanying notes to financial statements.
99
<PAGE>
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS
BlackRock Funds(SM) ("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 35 publicly-offered
portfolios, 14 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
- ----------------------------------------------------------------------------------------------------------------
Contractual Actual Contractual Actual Contractual Actual Contractual Actual
Fees Fees(4) Fees Fees(4) Fees(1) Fees(4) Fees(2) Fees(4)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Low Duration Bond None None None None 0.30% 0.30% 0.50% 0.40%
- ----------------------------------------------------------------------------------------------------------------
Intermediate Government Bond N/A N/A None None 0.30% 0.30% 0.50% 0.40%
- ----------------------------------------------------------------------------------------------------------------
Intermediate Bond None None None None 0.30% 0.30% 0.50% 0.40%
- ----------------------------------------------------------------------------------------------------------------
Core Bond None None None None 0.30% 0.30% 0.50% 0.40%
- ----------------------------------------------------------------------------------------------------------------
Government Income N/A N/A None None 0.30% N/A 0.50% 0.40%
- ----------------------------------------------------------------------------------------------------------------
GNMA N/A N/A None None 0.30% 0.30% 0.50% 0.40%
- ----------------------------------------------------------------------------------------------------------------
Managed Income N/A N/A None None 0.30% 0.30% 0.50% 0.40%
- ----------------------------------------------------------------------------------------------------------------
International Bond N/A N/A None None 0.30% 0.30% 0.50% 0.40%
- ----------------------------------------------------------------------------------------------------------------
Tax-Free Income N/A N/A None None 0.30% 0.30% 0.50% 0.40%
- ----------------------------------------------------------------------------------------------------------------
Pennsylvania Tax-Free Income N/A N/A None None 0.30% 0.30% 0.50% 0.40%
- ----------------------------------------------------------------------------------------------------------------
New Jersey Tax-Free Income N/A N/A None None 0.30% 0.30% 0.50% 0.40%
- ----------------------------------------------------------------------------------------------------------------
Ohio Tax-Free Income N/A N/A None None 0.30% 0.30% 0.50% 0.40%
- ----------------------------------------------------------------------------------------------------------------
Delaware Tax-Free Income N/A N/A None None 0.30% 0.30% 0.50% 0.40%
- ----------------------------------------------------------------------------------------------------------------
Kentucky Tax-Free Income N/A N/A None None 0.30% 0.30% 0.50% 0.40%
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------
- ------------------------------------------
Investor B Investor C
- ------------------------------------------
Contractual Actual Contractual Actual
Fees(3) Fees(4) Fees(3) Fees(4)
- ------------------------------------------
<C> <C> <C> <C>
1.15% 1.15% 1.15% 1.15%
- ------------------------------------------
1.15% 1.15% 1.15% 1.15%
- ------------------------------------------
1.15% 1.15% 1.15% N/A
- ------------------------------------------
1.15% 1.15% 1.15% 1.15%
- ------------------------------------------
1.15% 1.15% 1.15% 1.15%
- ------------------------------------------
1.15% 1.15% 1.15% 1.15%
- ------------------------------------------
1.15% 1.15% 1.15% N/A
- ------------------------------------------
1.15% 1.15% 1.15% 1.15%
- ------------------------------------------
1.15% 1.15% 1.15% 1.15%
- ------------------------------------------
1.15% 1.15% 1.15% 1.15%
- ------------------------------------------
1.15% 1.15% 1.15% N/A
- ------------------------------------------
1.15% 1.15% 1.15% 1.15%
- ------------------------------------------
1.15% 1.15% 1.15% 1.15%
- ------------------------------------------
1.15% 1.15% 1.15% 1.15%
- ------------------------------------------
</TABLE>
(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 September 30, 1998.
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
100
<PAGE>
BlackRock Funds
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.
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 September 30, 1998, the
International Bond Portfolio is obligated to deliver or receive currency in
exchange for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
Unrealized
Value at Foreign
Settlement Currency Contract September 30, Exchange
Date Sold Amount 1998 Gain/(Loss)
- ---------- --------------------------------------------------------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
10/30/98 Danish Krone ............................................ $ 1,693,101 $ 1,836,905 $ (143,804)
10/26/98 German Deutsche Mark .................................... 9,882,682 10,604,498 (721,816)
11/17/98 European Currency Unit .................................. 2,732,729 2,767,254 (34,525)
11/17/98 French Franc ........................................... 2,037,024 2,056,544 (19,520)
10/26/98 Great British Pound ..................................... 6,159,551 6,402,253 (242,702)
10/19/98 Spanish Peso ........................................... 2,379,577 2,536,423 (156,846)
10/19/98 Italian Lira ........................................... 1,713,945 1,825,828 (111,883)
10/19/98 Italian Lira ........................................... 1,995,800 2,106,156 (110,356)
10/19/98 Japanese Yen ........................................... 9,943,034 10,494,404 (551,370)
10/26/98 Netherland Guilder ...................................... 1,679,718 1,800,514 (120,796)
11/07/98 Canadian Dollar ........................................ 2,683,721 2,647,205 36,516
10/30/98 Swedish Krone .......................................... 1,670,180 1,781,121 (110,941)
----------- ----------- -----------
$44,571,063 $46,859,105 $(2,288,043)
=========== =========== ===========
</TABLE>
101
<PAGE>
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
Unrealized
Value at Foreign
Settlement Currency Contract September 30, Exchange
Date Bought Amount 1998 Gain/(Loss)
- ---------- --------------------------------------------------------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
10/26/98 Netherland Guilder ..................................... $(1,705,586) $1,800,514 $94,928
=========== ========== =======
</TABLE>
Cross Currency Swaps -- The Low Duration Bond Portfolio 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 Bond Portfolio. At the termination of the
agreement, the Low Duration Bond Portfolio will receive from or pay to the
counter party, the accumulated net unrealized gain or loss, which will then be
recorded as realized. The Low Duration Bond Portfolio did not hold any cross
currency swaps at September 30, 1998.
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
Bond Bond
Portfolio Portfolio
------------- -------------
<S> <C> <C>
Average daily balance of reverse repurchase
agreements outstanding during the period
ended September 30, 1998 $ 58,343,525 $ 84,300,706
Weighted Average Interest Rate 5.14% 5.50%
Maximum Amount of reverse repurchase
agreements outstanding at any month-end
during the period ended September 30, 19981 $110,296,580 $123,624,044
Percentage of total assets 24.90% 17.52%
Amount of reverse repurchase agreements
outstanding at September 30, 1998 $110,296,580 $123,624,044
Percentage of total assets 24.90% 17.10%
</TABLE>
- --------------
1 The maximum amount of reverse repurchase agreements outstanding at any month
end occurred on September 30, 1998.
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
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
102
<PAGE>
BlackRock Funds
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.
Written Option transactions entered into during the fiscal year ended
September 30, 1998 are summarized as follows ($ in thousands)
<TABLE>
<CAPTION>
Managed
Core Bond Income
---------------------------- ----------------------------
Number of Number of
Contracts Premium Contracts Premium
----------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Balance at 9/30/97 0 0 0 0
Written 1,590 111,227 2,310 112,770
Expired (1,590) (111,227) (2,310) (112,770)
---------- -------- ---------- ---------
Balance at 9/30/98 0 0 0 0
========== ======== =========== =========
</TABLE>
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, Ohio Tax-Free Income,
Delaware Tax-Free Income and Kentucky 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. The market value of the securities a Portfolio is required to
purchase may decline below the agreed upon repurchase price of those securities.
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.
103
<PAGE>
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
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 September 30, 1998 is as
follows:
<TABLE>
<CAPTION>
Value of Income
Market Value of Collateral Earned on
Portfolio Securities Loaned Received Securities Loaned*
--------- ----------------- ---------- ------------------
<S> <C> <C> <C>
Intermediate Bond Portfolio 6,850,661 7,148,400 5,275
Core Bond Portfolio 31,045,145 31,460,250 188,371
Managed Income Portfolio 8,957,624 9,514,000 233,211
</TABLE>
*Income is included in Interest Income on the Statement of Operations.
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:
<TABLE>
<CAPTION>
Each Portfolio
Except the International International
Bond Portfolio Bond Portfolio
------------------------- --------------------------
Investment Investment
Average Daily Net Assets Advisory Fee Advisory Fee
------------------------------------ ------------------------- --------------------------
<S> <C> <C> <C>
first $1 billion ................... .500% .550%
$1 billion-- $2 billion .450 .500
$2 billion-- $3 billion .425 .475
greater than $3 billion .400 .450
</TABLE>
104
<PAGE>
BlackRock Funds
BlackRock Advisors, Inc. may, at its discretion, waive all or any portion
of its advisory fee for any Portfolio. For the period ended September 30, 1998,
advisory fees and waivers for each Portfolio were as follows:
<TABLE>
<CAPTION>
Gross Net Advisory
Advisory Fee Waiver Fee
------------ ---------- ------------
<S> <C> <C> <C>
Low Duration Bond Portfolio ............................ $1,490,875 $1,018,525 $ 472,350
Intermediate Government Bond Portfolio ................. 1,338,804 524,070 814,734
Intermediate Bond Portfolio ............................ 2,120,754 996,976 1,123,778
Core Bond Portfolio .................................... 3,591,424 2,294,530 1,296,894
Government Income Portfolio ............................ 128,063 110,545 17,518
GNMA Portfolio ......................................... 242,151 130,075 112,076
Managed Income Portfolio ............................... 5,528,166 1,717,518 3,810,648
International Bond Portfolio ........................... 288,514 66,288 222,226
Tax-Free Income Portfolio .............................. 818,207 352,305 465,902
Pennsylvania Tax-Free Income Portfolio ................. 2,482,934 1,043,606 1,439,328
New Jersey Tax-Free Income Portfolio ................... 615,392 296,295 319,097
Ohio Tax-Free Income Portfolio ......................... 244,011 136,519 107,492
Delaware Tax-Free Income Portfolio ..................... 255,393 90,702 164,691
Kentucky Tax-Free Income Portfolio ..................... 456,081 159,676 296,405
</TABLE>
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.
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 September 30, 1998, administration fees and
waivers for each Portfolio were as follows:
<TABLE>
<CAPTION>
Gross Net
Administration Administration
Fee Waiver Fee
-------------- ---------- --------------
<S> <C> <C> <C>
Low Duration Bond Portfolio ............... $ 685,803 $ 183,778 $ 502,025
Intermediate Government Bond Portfolio..... 615,850 167,070 448,780
Intermediate Bond Portfolio ............... 970,610 158,127 802,483
Core Bond Portfolio ....................... 1,608,398 119,812 1,488,586
Government Income Portfolio ............... 58,909 37,719 21,190
GNMA Portfolio ............................ 99,875 31,374 68,501
Managed Income Portfolio .................. 2,424,129 294,140 2,129,989
International Bond Portfolio .............. 113,124 5,268 107,856
Tax-Free Income Portfolio ................. 376,375 102,782 273,593
Pennsylvania Tax-Free Income Portfolio..... 1,056,431 144,867 911,564
New Jersey Tax-Free Portfolio ............. 283,081 77,834 205,247
Ohio Tax-Free Income Portfolio ............ 103,078 24,626 78,452
Delaware Tax-Free Income Portfolio ........ 106,801 32,191 74,610
Kentucky Tax-Free Income Portfolio ........ 190,725 49,753 140,972
</TABLE>
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 agreements with various service organizations (including PNCBank
and its affiliates) that provide support services to their customers who are the
beneficial owners of Shares in each Investor Class and the Service Class. Refer
to the fee table in the "Notes to Financial Statements" for fee information.
105
<PAGE>
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
(C) Purchases and Sales of Securities
For the period ended September 30, 1998, purchases and sales of securities,
other than short-term and government securities, were as follows:
Purchases Sales
-------------- --------------
Low Duration Bond Portfolio .......... $ 595,775,622 $ 367,832,651
Intermediate Government Bond Portfolio 598,173,283 238,306,573
Intermediate Bond Portfolio .......... 813,484,458 475,680,526
Core Bond Portfolio .................. 1,258,657,439 658,219,872
Government Income Portfolio .......... 112,356,229 92,701,712
GNMA Portfolio ....................... 136,545,564 32,263,174
Managed Income Portfolio ............. 2,388,973,260 1,416,539,163
International Bond Portfolio ......... 86,964,051 94,910,585
Tax-Free Income Portfolio ............ 361,751,179 156,192,664
Pennsylvania Tax-Free Income Portfolio 1,162,349,911 173,688,135
New Jersey Tax-Free Income Portfolio . 115,483,175 29,361,708
Ohio Tax-Free Income Portfolio ....... 128,848,010 38,120,767
Delaware Tax-Free Income Portfolio ... 176,511,216 55,720,436
Kentucky Tax-Free Income Portfolio ... 219,447,069 34,942,148
For the period ended September 30, 1998, purchases and sales of government
securities were as follows:
Purchases Sales
-------------- --------------
Low Duration Bond Portfolio ............... $ 426,621,153 $ 430,032,291
Intermediate Government Bond Portfolio .... 533,921,246 481,040,787
Intermediate Bond Portfolio ............... 717,956,663 718,711,585
Core Bond Portfolio ....................... 2,060,343,464 2,223,282,418
Government Income Portfolio ............... 62,849,993 65,658,078
GNMA Portfolio ............................ 53,728,831 36,507,799
Managed Income Portfolio .................. 62,849,993 65,658,078
International Bond ........................ 9,413,650 7,490,242
106
<PAGE>
BlackRock Funds
(D) Capital Shares
Transactions in capital shares for each period were as follows:
<TABLE>
<CAPTION>
Low Duration Bond Portfolio
---------------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/98 9/30/97
------------------------------ --------------------------------
Shares Value Shares Value
----------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class ............................ 7,756,306 $ 77,356,855 9,541,701 $ 93,935,828
Service Class .................................... 804,858 7,979,540 1,132,716 11,157,805
Investor A Class ................................ 3,255,674 32,355,524 85,589 842,196
Investor B Class ................................ 44,066 437,617 5,749 56,680
Investor C Class ................................ 31,759 314,906 9,115 89,854
BlackRock Class .................................. 10,953,938 108,478,776 6,966,004 68,669,680
Shares issued in conversion:
Institutional Class ............................. 6,225,309 61,630,555 -- --
Shares issued in reinvestment of dividends:
Institutional Class ............................. 111,942 1,108,874 158,388 1,558,102
Service Class ................................... 34,827 345,071 42,765 420,674
Investor A Class ................................ 6,222 61,676 4,534 44,601
Investor B Class ................................ 48 472 103 1,011
Investor C Class ................................ 48 476 67 659
BlackRock Class ................................ 506,324 5,019,138 16,200 159,941
Shares redeemed
Institutional Class ............................. (7,815,690) (77,483,136) (13,193,893) (129,934,032)
Service Class ................................... (7,382,461) (73,660,500) (2,178,583) (21,443,691)
Investor A Class ................................ (3,086,710) (30,685,324) (76,835) (756,077)
Investor B Class ................................ (5,711) (56,529) (4,538) (44,639)
Investor C Class ................................ (5,037) (49,887) (1,868) (18,379)
BlackRock Class ................................. (4,357,893) (43,261,535) (78,809) (778,946)
----------- ------------ ----------- --------------
Net increase .......................................... 7,077,819 $ 69,892,569 2,428,405 $ 23,961,267
=========== ============ ============= ==============
</TABLE>
<TABLE>
<CAPTION>
Intermediate Government Bond Portfolio
---------------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/98 9/30/97
------------------------------ -------------------------------
Shares Value Shares Value
----------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class .............................. 5,388,703 $ 55,601,975 2,452,390 $ 24,490,535
Service Class .................................... 2,085,488 21,357,363 1,283,146 12,844,383
Investor A Class ................................ 420,548 4,312,104 105,820 1,057,798
Investor B Class ................................ 37,733 387,253 2,685 26,800
Investor C Class ................................ 34,215 351,716 5,048 50,676
Shares issued in conversion:
Institutional Class ............................. 33,310,235 339,098,189 -- --
Shares issued in reinvestment of dividends:
Institutional Class ............................. 5,852 59,670 9,190 91,949
Service Class ................................... -- -- -- --
Investor A Class ................................ 25,882 264,001 30,294 303,064
Investor B Class ................................ 36 368 80 805
Investor C Class ................................ -- 7 5 48
Shares redeemed:
Institutional Class ............................. (6,104,045) (62,424,167) (5,632,607) (56,411,658)
Service Class ................................... (4,249,778) (43,949,478) (1,069,763) (10,707,605)
Investor A Class ................................ (217,155) (2,225,240) (199,281) (1,996,720)
Investor B Class ................................ (6,083) (62,159) -- --
Investor C Class ................................ (10,751) (110,945) (10) (103)
----------- ------------ ----------- --------------
Net increase (decrease) ............................... 30,720,880 $312,660,657 (3,013,003) $(30,250,028)
=========== ============ ============= ==============
</TABLE>
107
<PAGE>
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
Intermediate Bond Portfolio
---------------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/98 9/30/97
------------------------------ -------------------------------
Shares Value Shares Value
----------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class .............................. 11,557,172 $ 110,245,081 14,078,950 $132,363,271
Service Class ................................... 3,123,968 29,665,129 2,188,370 20,573,260
Investor A Class ................................ 149,506 1,420,708 69,283 651,172
Investor B Class ................................ 17,767 169,383 -- --
BlackRock Class ................................. 4,981,102 47,321,273 -- --
Shares issued in conversion:
Institutional Class .............................. 25,659,119 242,478,670 -- --
Shares issued in reinvestment of dividends:
Institutional Class .............................. 151,911 1,435,680 37,056 348,956
Service Class .................................... 33,520 317,235 5,459 51,427
Investor A Class ................................ 6,876 65,200 6,270 58,868
Investor B Class ................................ 73 697 -- --
BlackRock Class ................................. 18,335 174,351 -- --
Shares redeemed:
Institutional Class .............................. (17,805,567) (169,025,115) (5,264,514) (49,462,645)
Service Class .................................... (5,989,510) (57,406,495) (1,546,069) (14,477,894)
Investor A Class ................................. (103,601) (983,789) (58,329) (547,655)
Investor B Class ................................. (6,332) (60,382) -- --
BlackRock Class .................................. (262) (2,485) -- --
----------- ------------ ----------- --------------
Net increase .......................................... 21,794,077 $ 205,815,141 9,516,476 $ 89,558,760
=========== ============ ============= ==============
</TABLE>
<TABLE>
<CAPTION>
Core Bond Portfolio
---------------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/98 9/30/97
------------------------------ -------------------------------
Shares Value Shares Value
----------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Shares sold:
BlackRock Class ................................. 4,306,598 $ 42,116,116 4,934,301 $ 47,586,434
Institutional Class ............................. 34,726,690 344,428,847 29,299,878 283,017,326
Service Class ................................... 8,725,323 86,107,989 3,045,187 29,223,563
Investor A Class ................................ 361,195 3,567,308 245,580 2,363,831
Investor B Class ................................. 763,581 7,536,362 448,413 4,335,426
Investor C Class ................................ 212,705 2,114,971 13,310 127,658
Shares issued in reinvestment of dividends:
BlackRock Class ................................. 330,228 3,250,694 33,880 329,429
Institutional Class ............................. 555,928 5,446,836 347,674 3,360,503
Service Class ................................... 168,746 1,651,673 92,333 893,766
Investor A Class ................................. 19,882 195,729 4,335 41,932
Investor B Class ................................ 31,539 310,362 9,931 96,069
Investor C Class ................................ 768 7,570 99 955
Shares redeemed:
BlackRock Class ................................. (376,161) (3,709,600) (65,588) (637,357)
Institutional Class ............................. (8,783,259) (86,598,628) (6,587,896) (63,633,339)
Service Class ................................... (14,421,591) (143,884,759) (2,955,892) (28,624,306)
Investor A Class ................................ (124,790) (1,229,336) (34,859) (336,574)
Investor B Class ................................ (174,749) (1,726,105) (75,937) (732,254)
Investor C Class ................................ (25,456) (252,086) (326) (3,203)
----------- ------------- ----------- ------------
Net increase .......................................... 26,297,177 $ 259,333,943 28,754,423 $277,409,859
=========== ============ ============= ==============
</TABLE>
108
<PAGE>
BlackRock Funds
<TABLE>
<CAPTION>
Government Income Portfolio
---------------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/98 9/30/97
------------------------------ -----------------------------
Shares Value Shares Value
----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Shares sold:
Investor A Class ................................ 325,203 $ 3,439,854 256,567 $ 2,652,913
Investor B Class ................................ 1,133,444 12,022,192 477,835 4,941,586
Investor C Class ................................ 111,159 1,177,933 88,341 918,353
Shares issued in reinvestment of dividends:
Investor A Class ................................ 31,395 330,860 26,197 270,290
Investor B Class ................................ 67,664 713,719 46,827 483,160
Investor C Class ................................ 2,312 24,407 1 10
Shares redeemed:
Investor A Class ................................ (263,954) (2,785,911) (176,033) (1,818,482)
Investor B Class ................................ (290,930) (3,081,821) (204,745) (2,114,414)
Investor C Class ................................ (51,448) (545,399) (7,392) (75,693)
----------- ----------- --------- -----------
Net increase ......................................... 1,064,845 $11,295,834 507,598 $ 5,257,723
=========== =========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
GNMA Portfolio
------------------------------
For the Period
5/18/981 through 9/30/98
------------------------------
Shares Value
----------- ------------
<S> <C> <C>
Shares sold:
Institutional Class .............................. 647,172 $ 6,506,570
Service Class .................................... 10 100
Investor A Class ................................. 57,226 576,633
Investor B Class ................................ 16,426 165,246
Investor C Class ................................ 10 100
Shares issued in conversion:
Institutional Class .............................. 12,043,846 120,438,460
Shares issued in reinvestment of dividends:
Institutional Class ............................. -- 2
Service Class ................................... -- 2
Investor A Class ................................. 29 291
Investor B Class ................................ 37 370
Investor C Class ................................ -- 1
Shares redeemed:
Institutional Class ............................. (1,014,462) (10,187,732)
Service Class ................................... -- --
Investor A Class ................................. (4,337) (43,657)
Investor B Class ................................ -- --
Investor C Class ................................ -- --
----------- ------------
Net increase ......................................... 11,745,957 $117,456,386
=========== ============
</TABLE>
- ------------
(1) Commencement of operations.
109
<PAGE>
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
Managed Income Portfolio
---------------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/98 9/30/97
------------------------------ --------------------------------
Shares Value Shares Value
----------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class ............................. 28,686,745 $ 301,709,745 12,846,748 $ 131,687,832
Service Class .................................... 22,149,435 232,274,400 15,408,052 157,786,790
Investor A Class ................................ 9,725,828 101,726,116 7,443,166 76,236,917
Investor B Class ................................. 422,716 4,431,406 45,930 477,672
Shares issued in conversion:
Institutional Class ............................. 70,076,349 730,896,316 -- --
Shares issued in reinvestment of dividends:
Institutional Class ............................. 284,166 2,960,491 155,258 1,590,301
Service Class ................................... 335,029 3,503,288 20,375 211,674
Investor A Class ................................ 65,247 682,731 63,378 649,112
Investor B ...................................... 7,746 81,187 8 82
Shares redeemed:
Institutional Class .............................. (25,254,987) (264,941,084) (17,364,305) (178,134,379)
Service Class ................................... (23,914,429) (251,581,067) (6,160,521) (63,050,157)
Investor A Class ................................. (9,855,158) (103,016,193) (7,152,716) (73,203,528)
Investor B Class ................................. (39,630) (416,407) (972) (10,152)
----------- ------------- ------------ --------------
Net increase ......................................... 72,689,057 $ 758,310,929 5,304,401 $ 54,242,164
=========== ============= ============ ==============
</TABLE>
<TABLE>
<CAPTION>
International Bond Portfolio
---------------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/98 9/30/97
------------------------------ --------------------------------
Shares Value Shares Value
----------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class ............................. 807,871 $ 8,882,021 1,142,937 $12,421,898
Service Class ................................... 100,604 1,092,321 139,912 1,531,711
Investor A Class ................................ 90,092 969,639 78,318 840,293
Investor B Class ................................ 63,765 687,221 80,871 868,230
Investor C Class ................................ 95,780 1,035,900 41,760 454,009
Shares issued in reinvestment of dividends:
Institutional Class ............................. 149,376 1,571,786 365,395 3,942,629
Service Class .................................... 24,714 260,973 75,424 813,694
Investor A Class ................................. 8,842 94,462 3,381 36,474
Investor B Class ................................. 5,400 57,581 1,498 16,166
Investor C Class ................................. 2,650 28,325 518 5,582
Shares redeemed:
Institutional Class .............................. (1,026,741) (11,137,837) (191,333) (2,081,160)
Service Class .................................... (527,989) (5,850,929) (272,100) (2,923,532)
Investor A Class ................................. (39,912) (429,622) (4,003) (42,834)
Investor B Class ................................ (24,092) (263,096) (4,522) (49,857)
Investor C Class ................................. (30,616) (332,704) (626) (6,866)
----------- ------------- ------------ --------------
Net increase (decrease) ............................... (300,256) $ (3,333,959) 1,457,430 $15,826,437
=========== ============= ============ ==============
</TABLE>
110
<PAGE>
BlackRock Funds
<TABLE>
<CAPTION>
Tax-Free Income Portfolio
-----------------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/98 9/30/97
------------------------------ --------------------------------
Shares Value Shares Value
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class .............................. 6,919,177 $ 80,423,674 404,008 $ 4,442,500
Service Class ................................... 1,975,361 22,644,691 2,510,940 27,987,671
Investor A Class ................................. 210,734 2,415,265 92,510 1,034,677
Investor B Class ................................ 113,149 1,299,966 85,030 942,339
Investor C Class ................................ 87,176 1,010,999 28 300
Shares issued in conversion:
Institutional Class .............................. 18,151,463 207,289,708 -- --
Shares issued in reinvestment of dividends:
Institutional Class ............................. 4,724 53,637 359 4,016
Service Class ................................... 24,014 273,213 7,475 82,630
Investor A Class ................................. 18,627 213,361 17,898 197,486
Investor B Class ................................. 3,724 42,714 741 8,241
Investor C Class ................................. 110 1,270 -- 6
Shares redeemed:
Institutional Class .............................. (1,530,999) (17,675,320) (344,261) (3,736,207)
Service Class .................................... (6,720,377) (77,990,670) (671,498) (7,387,745)
Investor A Class ................................. (168,026) (1,932,633) (72,411) (800,770)
Investor B Class ................................ (25,128) (289,594) (5,081) (55,882)
----------- ------------ ------------ ------------
Net increase .......................................... 19,063,729 $217,780,281 2,025,738 $22,719,262
=========== ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Pennsylvania Tax-Free Income Portfolio
---------------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/98 9/30/97
------------------------------ --------------------------------
Shares Value Shares Value
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class ............................. 9,572,099 $105,653,542 359,752 $ 3,785,471
Service Class ................................... 2,812,012 30,669,634 2,241,265 23,779,002
Investor A Class ................................ 895,649 9,825,497 339,479 3,583,613
Investor B Class ................................ 578,240 6,336,016 515,026 5,456,963
Investor C Class ................................ 16,522 182,840 -- --
Shares issued in conversion:
Institutional Class ............................. 88,644,492 963,565,622 -- --
Shares issued in reinvestment of dividends:
Institutional Class .............................. 777 8,537 -- --
Service Class ................................... 40,268 441,197 6,366 67,558
Investor A Class ................................. 108,476 1,184,635 135,984 1,435,832
Investor B Class ................................. 29,789 325,778 21,169 223,692
Investor C Class ................................ 1 10 -- --
Shares redeemed:
Institutional Class ............................. (4,161,868) (45,745,931) (231,245) (2,448,673)
Service Class ................................... (5,676,998) (62,689,684) (854,225) (9,016,968)
Investor A Class ................................. (945,403) (10,360,756) (1,063,741) (11,260,693)
Investor B Class ................................. (179,478) (1,960,782) (149,836) (1,585,024)
Investor C Class ................................. (1) (10)
----------- ------------ ------------ ------------
Net increase .......................................... 91,734,577 $997,436,145 1,319,994 $ 14,020,773
=========== ============ ============ ============
</TABLE>
111
<PAGE>
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
New Jersey Tax-Free Income Portfolio
---------------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/98 9/30/97
------------------------------ -------------------------------
Shares Value Shares Value
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class .............................. 4,688,925 $ 56,230,912 -- $ --
Service Class .................................... 1,095,326 12,919,769 1,278,806 14,808,210
Investor A Class ................................. 46,487 552,690 67,377 778,355
Investor B Class ................................. 23,690 280,849 68,828 786,661
Shares issued in conversion:
Institutional Class ............................. 7,941,083 93,069,494 -- --
Shares issued in reinvestment of dividends:
Institutional Class ............................. -- -- -- --
Service Class .................................... 102,249 1,205,295 109,148 1,247,035
Investor A Class ................................. 3,225 37,984 3,271 37,397
Investor B Class ................................. 2,459 28,992 971 11,145
Shares redeemed:
Institutional Class ............................. (561,067) (6,654,369) -- --
Service Class ................................... (5,573,838) (66,623,417) (1,945,268) (22,445,678)
Investor A Class ................................. (63,928) (749,845) (17,148) (196,030)
Investor B Class ................................. (4,914) (58,877) (6,663) (76,651)
----------- ------------ ----------- -----------
Net increase (decrease) ............................... 7,699,697 $ 90,239,477 (440,678) $(5,049,556)
=========== ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Ohio Tax-Free Income Portfolio
---------------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/98 9/30/97
------------------------------ -------------------------------
Shares Value Shares Value
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class .............................. 769,961 $ 8,300,574 72,824 $ 749,554
Service Class ................................... 202,902 2,150,390 169,110 1,742,076
Investor A Class ................................. 117,734 1,256,315 17,880 185,594
Investor B Class ................................ 43,310 462,005 51,355 526,826
Investor C Class ................................ 48,417 520,000 -- --
Shares issued in conversion:
Institutional Class ............................. 8,832,820 93,097,927 -- --
Shares issued in reinvestment of dividends:
Institutional Class .............................. -- -- 10 101
Investor A Class ................................. 8,404 89,206 10,837 111,485
Investor B Class ................................. 1,842 19,597 738 7,599
Investor C Class ................................ 2 24 -- --
Shares redeemed:
Institutional Class ............................. (400,563) (4,278,793) (24,696) (251,354)
Service Class ................................... (843,984) (9,094,525) (90,540) (931,224)
Investor A Class ................................. (120,005) (1,278,452) (58,809) (605,214)
Investor B Class ................................ (1,803) (19,206) (8,704) (89,939)
----------- ------------ ----------- -----------
Net increase .......................................... 8,659,037 $91,225,062 140,005 $1,445,504
=========== ============ =========== ===========
</TABLE>
112
<PAGE>
BlackRock Funds
Delaware Tax-Free Income Portfolio
----------------------------------
For the Period
5/11/981 through 9/30/98
----------------------------------
Shares Value
-------------- ----------------
Shares sold:
Institutional Class .................. 521,512 $ 5,306,999
Service Class ........................ 10 100
Investor A Class ..................... 368,575 3,720,920
Investor B Class ..................... 173,512 1,749,948
Investor C Class ..................... 69,280 700,205
Shares issued in conversion:
Institutional Class .................. 11,804,724 118,047,237
Shares issued in reinvestment of dividends:
Institutional Class .................. -- 1
Service Class ........................ -- 1
Investor A Class ..................... 478 4,857
Investor B Class ..................... 809 8,208
Investor C Class ..................... -- 1
Shares redeemed:
Institutional Class .................. (1,244,022) (12,590,407)
Service Class ........................ -- --
Investor A Class ..................... (122,682) (1,249,255)
Investor B Class ..................... (5,952) (60,179)
Investor C Class ..................... (1) (10)
------------- -------------
Net increase .............................. 11,566,243 $ 115,638,626
============= =============
Kentucky Tax-Free Income Portfolio
----------------------------------
For the Period
5/11/981 through 9/30/98
----------------------------------
Shares Value
------------- --------------
Shares sold:
Institutional Class .................. 679,481 $ 6,873,676
Service Class ........................ 10 100
Investor A Class ..................... 94,545 964,702
Investor B Class ..................... 10 100
Investor CClass ...................... 10 100
Shares issued in conversion:
Institutional Class .................. 21,994,285 219,942,850
Shares issued in reinvestment of dividends:
Institutional Class .................. -- 1
Service Class ........................ -- 1
Investor A Class ..................... 32 321
Investor B Class ..................... -- 1
Shares redeemed: .......................... -- 1
Institutional Class .................. (3,613,300) (36,667,080)
------------- -------------
Net increase .............................. 19,155,073 $ 191,114,773
============= =============
- -------------
(1) Commencement of operations.
113
<PAGE>
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Concluded)
(E) At September 30, 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 ....................... $ 327,008,009 $ 466,849,680 $ 549,525,593 $ 819,802,265
Undistributed net investment income ... 496,209 -- 344,708 --
Accumulated net realized gain (loss) on
investment transactions
and futures contracts ............... (1,676,321) 1,418,836 4,823,903 14,945,175
Net unrealized appreciation on
investment transactions
and futures contracts ............... 3,535,090 11,749,783 12,050,289 20,786,915
------------- ------------- ------------- -------------
$ 329,362,987 $ 480,018,299 $ 566,744,493 $ 855,534,355
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Government Managed International Tax-Free
Income GNMA Income Bond Income
Portfolio Portfolio Portfolio Portfolio Portfolio
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Capital paid-in ................. $ 31,351,413 $ 114,023,638 $1,557,541,272 $ 46,097,541 $ 282,342,240
Undistributed net investment
income ........................ -- 113,521 -- 2,164,743 37,437
Accumulated net realized gain on
investment transactions, future
contracts and foreign exchange
contracts ..................... 525,448 687,615 25,734,261 1,136,291 1,112,821
Net unrealized appreciation on
investment transactions, future
contracts and foreign exchange
contracts ..................... 884,327 3,915,219 28,955,728 1,098,615 17,356,698
-------------- -------------- -------------- -------------- --------------
$ 32,761,188 $ 118,739,993 $1,612,231,266 $ 50,497,190 $ 300,849,196
============== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Pennsylvania New Jersey Ohio Delaware Kentucky
Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free
Income Income Income Income Income
Portfolio Portfolio Portfolio Portfolio Portfolio
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Capital paid-in ................ $1,062,425,193 $ 170,073,445 $ 98,388,659 $ 111,857,455 $ 183,762,822
Undistributed net investment
income ....................... -- 29,200 -- -- --
Accumulated net realized gain on
investment transactions and
futures contracts ............ 2,090,137 741,011 368,758 1,345,649 1,763,139
Net unrealized appreciation on
investment transactions and
futures contracts ............ 62,720,235 12,150,138 7,437,597 6,322,727 11,941,968
-------------- -------------- -------------- -------------- --------------
$1,127,235,565 $ 182,993,794 $ 106,195,014 $ 119,525,831 $ 197,467,929
============== ============== ============== ============== ==============
</TABLE>
114
<PAGE>
BlackRock Funds
(F) Capital Loss Carryovers
At September 30, 1998, capital loss carryovers were available to offset
possible future realized capital gains as follows:
Low Duration BondPortfolio
Capital Loss Carryforward Year of Expiration
------------------------- -----------------
$470,894 9/30/04
767,646 9/30/03
525,941 9/30/02
(G) Conversion of Common Trust Funds
On January 13, 1998, January 22, 1998 and February 9, 1998, the Board of
Trustees of the Fund, the Board of Directors of PNC Bank and the Board
ofDirectors of PNC Bank, Delaware, respectively, approved an asset purchase
agreement among the Fund,PNC Bank, Delaware regarding 25 common trust funds for
which either PNC Bank or PNC Bank, Delaware serve as trustee (each a "PNC
CommonTrust Fund"). The agreement provided for the acquisition by the Fund of
all of the assets and liabilities of each PNC Common Trust Fund managed by the
Advisor in a tax-free 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 following is a summary of shares issued, net assets converted, net
assets value per share issued and unrealized appreciation of assets acquired as
of the conversion date.
Funds converted on May 11, 1998:
<TABLE>
<CAPTION>
PNC BlackRock Shares Net Assets Net Assets Value Unrealized
Common Trust Fund Fund Issued Converted Per Share Issued Appreciation
- --------------------------- ----------------------- ---------- ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C>
PNC Tax-Free Income Tax-Free Income 18,151,463 $207,289,708 $11.42 $ 7,404,139
PNC Pennsylvania Tax-Free Pennsylvania Tax-Free
Income Income 62,664,588 681,164,104 10.87 19,651,255
PNC Long -Term Pennsylvania Pennsylvania Tax-Free
Tax-Free Income Income 25,979,904 282,401,518 10.87 13,777,176
PNC New Jersey Tax-Free New Jersey Tax-Free
Income Income 7,941,083 93,069,494 11.72 3,307,561
PNC Ohio Tax-Free Income Ohio Tax-Free Income 8,832,820 93,097,927 10.54 4,176,201
PNC Delaware Tax-Free Delaware Tax-Free
Income Income 11,804,724 118,047,237 10.00 3,781,171
PNC Kentucky Tax-Free Kentucky Tax-Free
Income Income 21,994,285 219,942,850 10.00 7,351,951
</TABLE>
Funds converted on May 18, 1998
<TABLE>
<CAPTION>
Unrealized
PNC BlackRock Shares Net Assets Net Assets Value Appreciation
Common Trust Fund Fund Issued Converted Per Share Issued (Depreciation)
- --------------------------- ----------------------- ---------- ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C>
PNC Short Term Bond Low Duration Bond 3,805,870 $ 37,678,109 $ 9.90 $ 48,131
PNC Short Term Government Low Duration Bond
Bond 2,419,439 23,952,446 9.90 (4,521)
PNC Intermediate Government Intermediate Government
Bond Bond 33,310,235 339,098,189 10.18 1,048,107
PNC Intermediate Bond Intermediate Bond 25,659,119 242,478,670 9.45 938,554
PNC Managed Income Managed Income 53,447,855 557,461,128 10.43 4,696,910
PNC Income Managed Income 16,628,494 173,435,188 10.43 1,754,561
PNC GNMA GNMA 12,043,846 120,438,460 10.00 3,432,748
</TABLE>
115
<PAGE>
BlackRock Funds
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of the BlackRock Funds:
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, of the Core Bond, Managed Income, International
Bond, Tax-Free Income, Pennsylvania Tax-Free Income, New Jersey Tax-Free Income,
Ohio Tax-Free Income, Delaware Tax-Free Income and Kentucky Tax-Free Income
Portfolios and the statements of net assets of the Low Duration Bond,
Intermediate Government Bond, Intermediate Bond, Government Income and GNMA
Portfolios of the BlackRock Funds (the "Fund"), and the related statements of
operations and of changes in net assets, of cash flows of the Low Duration Bond
and Intermediate Bond Portfolios and the financial highlights present fairly, in
all material respects, the financial position of the Low Duration Bond,
Intermediate Government Bond, Intermediate Bond,Core Bond, Government Income,
GNMA, Managed Income, International Bond, Tax-Free Income, Pennsylvania Tax-Free
Income, New Jersey Tax-Free Income, Ohio Tax-Free Income, Delaware Tax-Free
Income and Kentucky Tax-Free Income Portfolios of the Fund at September 30,
1998, the results of their operations, the changes in their net assets, their
cash flows for the Low Duration Bond and Intermediate Bond Portfolios and the
financial highlights for each of the periods presented (except for the year
ended June 30, 1995 and prior periods for the Low Duration Bond and Core Bond
Portfolios, formerly the BFM Institutional Trust Short Duration and Core Fixed
Income Portfolios, respectively, which were audited by other auditors, whose
report dated August 7, 1995 expressed an unqualified opinion thereon), in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities owned at September 30, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
November 13, 1998
116
<PAGE>
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<PAGE>
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<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
BlackRock Funds
<TABLE>
<S> <C>
Investment Adviser Co-Administrator and Transfer Agent
BlackRock Advisors,Inc. PFPC Inc.
New York, New York 10154 Wilmington,Delaware 19809
Sub-Adviser -- Low Duration Bond Co-Administrator and Distributor
Portfolio, Intermediate Government Bond BlackRock Distributors, Inc.
Portfolio, Intermediate Bond Portfolio, West Conshohocken, Pennsylvania 19428
Core Bond Portfolio, Government Income
Portfolio, GNMA Portfolio, Managed Co-Administrator
Income Portfolio, International Bond BlackRock Advisors, Inc.
Portfolio, Tax-Free Income Portfolio, New York, New York 10154
Pennsylvania Tax-Free Income Portfolio,
New Jersey Tax-Free Income Portfolio, Counsel
Ohio Tax-Free Income Portfolio, Delaware Simpson, Thacher & Bartlett
Tax-Free Income Portfolio and Kentucky New York, New York 10017
Tax-Free Income Portfolio (A partnership which includes professional
BlackRock Financial Management,Inc. corporations)
New York, New York 10154
Independent Accountants
Custodian PricewaterhouseCoopers, L.L.P.
PNC Bank, National Association Philadelphia, Pennsylvania 19103
Philadelphia, Pennsylvania 19103
</TABLE>
To reduce expenses, the Fund will mail only one copy of annual and semi-annual
reports and most prospectuses to your household, even if more than one person in
the household has a Fund account. Please call (800) 441-7762 if you would like
to receive additional reports or prospectuses.
<PAGE>
BLACK ROCK
FUNDS
[LOGO OMITTED]
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.
AR 9/30/98 BP
