September 30, 1999
TAXABLE
BOND
PORTFOLIOS
ANNUAL REPORT
TO SHAREHOLDERS
Not FDIC Insured
May Lose Value
No Bank Guarantee
BLACKROCK FUNDS (LOGO)
PURE INVESTMENT STYLE (REGISTRATION MARK)
[GRAPHIC OMITTED]
<PAGE>
BLACKROCK FUNDS
TAXABLE BOND PORTFOLIOS
(BULLET) Low Duration Bond (BULLET) GNMA
(BULLET) Intermediate Government Bond (BULLET) Managed Income
(BULLET) Intermediate Bond (BULLET) International Bond
(BULLET) Core Bond (BULLET) High Yield Bond
(BULLET) Government Income
TABLE OF CONTENTS
SHAREHOLDER 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
High Yield Bond........................................................ 11
Note on Performance Information........................................ 12
STATEMENT OF NET ASSETS/SCHEDULE OF INVESTMENTS............................13-45
Core Bond Statement of Assets & Liabilities............................ 31
Managed Income Statement of Assets & Liabilities....................... 41
High Yield Statement of Assets & Liabilities........................... 45
PORTFOLIO FINANCIAL STATEMENTS
Statement of Operations..............................................46-47
Statement of Cash Flows..............................................48-51
Statement of Changes in Net Assets...................................52-55
Financial Highlights.................................................56-63
NOTES TO FINANCIAL STATEMENTS..............................................64-76
REPORT OF INDEPENDENT ACCOUNTANTS............................................77
<PAGE>
BLACKROCK FUNDS
October 14, 1999
Dear Shareholder:
We are pleased to present the Annual Report for the BlackRock Funds for
the fiscal year ended September 30, 1999, our last annual report of the
millenium.
As we look ahead to the new millenium the future looks promising. While
the Fed has indicated a bias to tightening, interest rates remain low and
stable. Inflation still seems to be in check, despite a general consensus that
world economies are strengthening. Over the past twelve months the S&P 500 moved
ahead by 27.8%, and the Dow did even better, returning 34.0%. Broadly, stocks
performed better than bonds over the same period, as the total return of the
Lehman Aggregate Index was -0.38%.
However, these numbers tell only part of the story. A closer look reveals
that much of the equity market's performance was generated in the last quarter
of 1998. As an example, the performance of the S&P 500 for the first nine months
of 1999 is only 5.87%. Additionally, performance has been narrow, with the
largest growth stocks (and, to some degree, the Internet sector) leading the
way. In other words, it looks like the great bull market of recent years may
have slowed its charge. It is still moving forward, but with less energy.
What should investors do?
We believe that the symbolism of the new millenium is appropriate for
investors. The idea that we are marking the passing of 1,000 years of human
history is a wonderful reminder of the virtue of patience.
While we will be hearing much exaggeration and cosmic rhetoric about the
"new age" of investing, we believe that this is a good time to call to mind a
concept that has proven its worth over many years of investment history. This is
the idea of "regression to the mean," which basically means that, over time,
markets tend to perform as they have always performed.
According to Ibbotson, from 1926 to 1998, the market for large company
stocks as measured by the S&P 500 Index has returned 11.22% annually. This is a
respectable return but significantly less generous than the S&P has been
returning in recent years. Therefore, if you believe that markets will revert to
their historical performance, this figure is a more realistic long-term planning
tool. On the other hand, if you are mesmerized by the recent dazzling
performance of internet stocks, 11.22% may look paltry.
Will the concept of "regression to the mean" impact markets in the new
millenium as it has in the past? Or have we really entered a new age in which
valuations are based on new and non-traditional measures and that markets can
continue to climb higher indefinitely. This is what some observers think. For
example, consider that the total market capitalization of AOL is approximately
$136 billion, which is nearly equal to the COMBINED market capitalizations of
Dow Industrial components J.P. Morgan, Alcoa, General Motors and Philip Morris.
There is even a best-selling book titled "Dow 36,000" whose authors believe that
the DJIA should be three times as high because they believe that "old" methods
of valuation are out of date and do not reflect the realities of the new
information economy. Of course we cannot predict the future, but we believe that
while certain factors may change, markets will continue to fluctuate in the
future as they have in the past.
1
<PAGE>
BLACKROCK FUNDS
BlackRock was founded on the belief that adhering to a disciplined
investment approach that seeks to manage risk rather than attempt to time the
markets will add value to client portfolios. That's why we continue to believe
that the best course of action in the new millenium is the same as it was in the
old: 1) work with your financial adviser to set your goals; 2) plan and
implement a sensible asset allocation that meets your goals and fits with your
personal ability to tolerate risk; and 3) consult with your financial advisor to
make ongoing adjustments.
We also believe that mutual funds, which provide a diversified investment
portfolio and professional management, may be the most appropriate investment
vehicle for individual investors.
BlackRock Funds takes pride in the completeness of its mutual fund
offerings. We currently offer 36 different portfolios which can meet the needs
of virtually any investor regardless of investment goal and risk tolerance. In
addition to the traditional asset classes, we also offer funds such as
International Small Cap Equity, Micro-Cap Equity and High Yield Bond for
investors that are interested in more specialized markets.
Continued thanks for your confidence in BlackRock Funds. We appreciate the
opportunity to help you achieve your long-term investment goals.
Sincerely,
/s/ KAREN H. SABATH
Karen H. Sabath
MANAGING DIRECTOR
BLACKROCK ADVISORS, INC.
2
<PAGE>
BLACKROCK FUNDS
LOW DURATION BOND PORTFOLIO
TOTAL ASSETS (9/30/99):
$265.5
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:
(BULLET)IN SHARP CONTRAST TO THE FIRST NINE MONTHS OF 1998, TREASURY YIELDS
ROSE SHARPLY DURING THE FIRST SIX MONTHS OF THE PERIOD AND CONTINUED TO INCREASE
THROUGH FISCAL YEAR END. FOR THE PERIOD, THE YIELD OF THE 2-YEAR TREASURY ROSE
133 BASIS POINTS FROM 4.27% TO END THE PERIOD AT 5.60%.
(BULLET)ASSET-BACKED SECURITIES (ABS) CONTINUED TO BE THE PORTFOLIO'S
LARGEST SECTOR WEIGHTING DURING THE PERIOD, AS THE MANAGER BELIEVED THIS SECTOR
OFFERED ATTRACTIVE TOTAL RETURN OPPORTUNITIES WITHIN THE SHORT DURATION SECTOR.
(BULLET)THE MANAGER INCREASED THE PORTFOLIO'S WEIGHTINGS IN MORTGAGE
PASS-THROUGH SECURITIES AND CORPORATE BONDS DURING THE PERIOD. IN THE MORTGAGE
SECTOR, EMPHASIS WAS PLACED ON ISSUES THAT OFFERED RELATIVE PREPAYMENT
STABILITY. CORPORATES FACED A DIFFICULT THIRD QUARTER AS STEADY SUPPLY CONTINUED
TO ENTER THE MARKET AND INVESTORS BECAME CONCERNED THAT ECONOMIC MOMENTUM COULD
RECEDE LATE IN THE YEAR. FURTHERMORE, INVESTOR APPETITE FOR CREDIT AND LIQUIDITY
RISK CONTINUED TO REMAIN SUPRESSED AFTER LAST YEAR'S VOLATILITY. CORPORATES
STILL OUTPERFORMED TREASURIES IN 1999, HOWEVER, BECAUSE OF THEIR STRONG
PERFORMANCE IN THE FIRST HALF OF THE YEAR. ALTHOUGH LOWER-RATED INVESTMENT GRADE
SECURITIES WERE POPULAR DURING THE FIRST HALF OF THE PERIOD, INVESTORS
INCREASINGLY FOCUSED ON HIGHER CREDIT QUALITY ISSUES DURING THE PAST THREE
MONTHS.
Although the portfolio holdings and sectors listed above were current as of the
end of the annual period ended September 30, 1999, 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 OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<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
Sep-92 10,079 10,079 9,777 10,079 10,079 10,079 10,288
Dec-92 10,137 10,137 9,833 10,137 10,137 10,137 10,595
Mar-93 10,295 10,295 9,986 10,295 10,295 10,295 10,614
Jun-93 10,468 10,468 10,154 10,468 10,468 10,468 10,848
Sep-93 10,620 10,620 10,302 10,620 10,620 10,620 10,965
Dec-93 10,711 10,711 10,390 10,711 10,711 10,711 11,122
Mar-94 10,691 10,691 10,370 10,691 10,691 10,691 11,188
Jun-94 10,713 10,713 10,391 10,713 10,713 10,713 11,132
Sep-94 10,837 10,837 10,512 10,837 10,837 10,837 11,141
Dec-94 10,860 10,860 10,534 10,860 10,860 10,860 11,251
Mar-95 11,214 11,214 10,878 11,214 11,214 11,214 11,251
Jun-95 11,521 11,521 11,175 11,521 11,521 11,521 11,629
Sep-95 11,767 11,767 11,414 11,767 11,767 11,767 12,002
Dec-95 12,001 12,001 11,641 12,001 12,001 12,001 12,182
Mar-96 12,023 12,009 11,644 12,004 12,004 12,023 12,489
Jun-96 12,149 12,125 11,752 12,115 12,115 12,149 12,531
Sep-96 12,347 12,313 11,929 12,298 12,298 12,347 12,657
Dec-96 12,610 12,565 12,168 12,537 12,537 12,610 12,866
Mar-97 12,668 12,614 12,210 12,556 12,556 12,668 13,110
Jun-97 12,938 12,876 12,459 12,789 12,789 12,938 13,197
Sep-97 13,196 13,122 12,692 13,003 13,003 13,199 13,487
Dec-97 13,370 13,286 12,845 13,135 13,135 13,379 13,752
Mar-98 13,588 13,492 13,039 13,309 13,309 13,602 13,983
Jun-98 13,808 13,699 13,235 13,483 13,483 13,828 14,197
Sep-98 14,156 14,035 13,552 13,781 13,781 14,182 14,634
Dec-98 14,256 14,125 13,634 13,838 13,838 14,288 14,745
Mar-99 14,425 14,280 13,778 13,958 13,958 14,461 14,834
Jun-99 14,521 14,366 13,854 14,008 14,008 14,564 14,918
Sep-99 14,709 14,541 14,016 13,651 14,146 14,758 15,106
</TABLE>
For period ending September 30, 1999
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
1 Year 3 Year 5 Year From Inception
BlackRock Class 4.06% 6.13% 6.37% 5.55%
Institutional Class 3.91% 6.01% 6.30% 5.50%
Service Class 3.60% 5.70% 6.06% 5.33%
Investor A Class (Load Adjusted) 0.32% 4.45% 5.28% 4.79%
Investor A Class (NAV) 3.42% 5.52% 5.92% 5.24%
Investor B Class (Load Adjusted) (1.95)% 3.54% 5.05% 4.93%
Investor B Class (NAV) 2.65% 4.78% 5.48% 4.93%
Investor C Class (Load Adjusted) 1.62% 4.78% 5.48% 4.93%
Investor C Class (NAV) 2.65% 4.78% 5.48% 4.93%
- --------------------------------------------------------------------------------
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; Investor C Shares,
2/24/97; and BlackRock Shares, 6/3/97. See "Note on Performance Information" on
page 12 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 ASSETS (9/30/99):
$424.1 MILLION
PERFORMANCE BENCHMARK:
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT INDEX
INVESTMENT APPROACH:
SEEKS CURRENT INCOME CONSISTENT WITH THE PRESERVATION OF CAPITAL BY
INVESTING IN SECURITIES ISSUED BY THE U.S. GOVERNMENT OR ITS AGENCIES OR RATED
AAA BY A MAJOR RATING AGENCY. THE PORTFOLIO EMPHASIZES SECURITIES WITH
MATURITIES FROM 5 TO 10 YEARS.
RECENT PORTFOLIO MANAGEMENT ACTIVITY:
(BULLET)IN SHARP CONTRAST TO THE FIRST NINE MONTHS OF 1998, TREASURY YIELDS
ROSE SHARPLY DURING THE FIRST SIX MONTHS OF THE PERIOD AND CONTINUED TO INCREASE
THROUGH FISCAL YEAR END. FOR THE PERIOD, THE YIELD OF THE 5-YEAR TREASURY ROSE
154 BASIS POINTS FROM 4.22% ON SEPTEMBER 30, 1998 TO 5.76% ON SEPTEMBER 30,
1999.
(BULLET)AS MORTGAGE PRICES DROPPED DURING FOURTH QUARTER 1998, THE
PORTFOLIO'S MORTGAGE ALLOCATION INCREASED FROM 32% IN SEPTEMBER 1998 TO 45% BY
DECEMBER. IN THE FIRST PART OF 1999, THE MANAGER REDUCED MORTGAGE EXPOSURE AS
PRICES ROSE AND PREPAYMENT FEARS INCREASED. RECENTLY, HOWEVER, HIGHER INTEREST
RATES HAVE ALLEVIATED PREPAYMENT FEARS, AND A DECREASE IN NEW ISSUANCE HAS
PROVIDED A FAVORABLE TECHNICAL ENVIRONMENT
FOR MORTGAGES.
Although the portfolio holdings and sectors listed above were current as of the
end of the annual period ended September 30, 1999, 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 OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<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
Dec-98 15,250 15,021 14,336 14,688 14,688 15,819
Mar-99 15,276 15,035 14,343 14,667 14,667 15,776
Jun-99 15,195 14,945 14,251 14,546 14,546 15,746
Sep-99 15,344 15,081 14,375 14,132 14,644 15,907
</TABLE>
For period ending September 30, 1999
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
1 Year 3 Year 5 Year From Inception
Institutional Class 0.75% 6.14% 6.69% 5.92%
Service Class 0.45% 5.83% 6.38% 5.67%
Investor A Class (Load Adjusted) (3.76)% 4.23% 5.38% 4.99%
Investor A Class (NAV) 0.28% 5.65% 6.24% 5.57%
Investor B Class (Load Adjusted) (5.00)% 3.64% 5.35% 5.26%
Investor B Class (NAV) (0.47)% 4.88% 5.77% 5.26%
Investor C Class (Load Adjusted) (1.47)% 4.88% 5.77% 5.26%
Investor C Class (NAV) (0.47)% 4.88% 5.77% 5.26%
- --------------------------------------------------------------------------------
The performance information above includes information relating to each class of
the Portfolio since the commencement of operations of the Portfolio, rather than
the date such class was introduced. The inception dates of the Portfolio's share
classes were as follows: Institutional Shares, 4/20/92; Investor A Shares,
5/11/92; Service Shares, 7/29/93; Investor C Shares, 10/8/96; and Investor B
Shares, 10/11/96. See "Note on Performance Information" on page 12 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 ASSETS (9/30/99):
$546.7 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:
(BULLET)IN SHARP CONTRAST TO THE FIRST NINE MONTHS OF 1998, TREASURY YIELDS
ROSE SHARPLY DURING THE FIRST SIX MONTHS OF THE PERIOD AND CONTINUED TO INCREASE
THROUGH FISCAL YEAR END. FOR THE PERIOD, THE YIELD OF 5-YEAR TREASURY ROSE 154
BASIS POINTS FROM 4.22% ON SEPTEMBER 30, 1998 TO 5.76% ON SEPTEMBER 30, 1999.
(BULLET)THE PORTFOLIO'S MORTGAGE ALLOCATION WAS INCREASED DURING THE
BEGINNING OF THE PERIOD AS THE MANAGER BELIEVED THESE SECURITIES OFFERED
ATTRACTIVE VALUE. AS MORTGAGES RECOVERED, THE MANAGER PARED SOME MORTGAGE
EXPOSURE; HOWEVER, THE PORTFOLIO CURRENTLY MAINTAINS AN OVERWEIGHT MORTGAGE
ALLOCATION VERSUS THE INDEX WITH AN EMPHASIS ON NON-INDEX SECURITIES.
(BULLET)THE PORTFOLIO'S CORPORATE BOND EXPOSURE WAS MODESTLY INCREASED
DURING THE FIRST HALF OF THE PERIOD. DURING THE SECOND HALF, THE PORTFOLIO WAS
SLIGHTLY OVERWEIGHT IN CORPORATES, ALTHOUGH BLACKROCK HAS RECENTLY MOVED TO A
MORE DEFENSIVE POSITION. ALTHOUGH LOWER-RATED INVESTMENT GRADE SECURITIES WERE
POPULAR DURING THE FIRST HALF OF THE PERIOD, LOWER CREDIT QUALITY DID NOT
PROVIDE MUCH INCREMENTAL RETURN DURING THE PAST SIX MONTHS.
Although the portfolio holdings and sectors listed above were current as of the
end of the annual period ended September 30, 1999, 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 OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Institutional Service Investor A Investor B Investor C BlackRock Lehman Brothers Intermediate
Class Class Class Class Class Class Government/Corporate Index
<S> <C> <C> <C> <C> <C> <C> <C>
9/17/93 $10,000 $10,000 $9,600 $10,000 $10,000 $10,000 $10,000
Dec-93 9,954 9,945 9,610 9,945 9,945 9,954 10,037
Mar-94 9,675 9,660 9,547 9,660 9,660 9,675 9,833
Jun-94 9,592 9,572 9,274 9,572 9,572 9,592 9,774
Sep-94 9,655 9,628 9,188 9,626 9,626 9,655 9,854
Dec-94 9,644 9,611 9,241 9,610 9,610 9,644 9,843
Mar-95 10,044 10,003 9,225 10,002 10,002 10,044 10,274
Jun-95 10,498 10,447 9,601 10,441 10,441 10,498 10,788
Sep-95 10,696 10,636 10,023 10,620 10,620 10,696 10,965
Dec-95 11,051 10,983 10,194 10,965 10,965 11,051 11,349
Mar-96 10,966 10,890 10,526 10,878 10,878 10,966 11,255
Jun-96 11,046 10,962 10,442 10,945 10,945 11,046 11,325
Sep-96 11,241 11,147 10,506 11,125 11,125 11,241 11,526
Dec-96 11,527 11,422 10,679 11,394 11,394 11,527 11,809
Mar-97 11,522 11,408 10,938 11,375 11,375 11,522 11,247
Jun-97 11,863 11,737 10,920 11,712 11,712 11,863 11,579
Sep-97 12,184 12,047 11,243 12,016 12,016 12,184 11,891
Dec-97 12,403 12,255 11,534 12,217 12,217 12,403 12,145
Mar-98 12,601 12,440 11,728 12,391 12,391 12,601 12,334
Jun-98 12,825 12,652 11,923 12,573 12,573 12,825 12,566
Sep-98 13,257 13,070 12,310 12,958 12,958 13,262 13,130
Dec-98 13,282 13,084 12,319 12,942 12,942 13,293 13,168
Mar-99 13,354 13,146 12,372 12,973 12,973 13,370 13,143
Jun-99 13,298 13,090 12,305 12,880 12,880 13,319 13,092
Sep-99 13,403 13,214 12,418 12,471 12,991 13,428 13,212
</TABLE>
For period ending September 30, 1999
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
1 Year 3 Year 5 Year From Inception
BlackRock Class 1.25% 6.11% 6.82% 5.01%
Institutional Class 1.10% 6.04% 6.78% 4.98%
Service Class 0.80% 5.73% 6.47% 4.67%
Investor A Class (Load Adjusted) (3.37)% 4.11% 5.46% 3.84%
Investor A Class (NAV) 0.62% 5.55% 6.33% 4.55%
Investor B Class (Load Adjusted) (4.63)% 3.89% 5.64% 4.34%
Investor B Class (NAV) (0.13)% 5.13% 6.07% 4.34%
Investor C Class (Load Adjusted) (1.13)% 5.13% 6.07% 4.34%
Investor C Class (NAV) (0.13)% 5.13% 6.07% 4.34%
- --------------------------------------------------------------------------------
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; BlackRock Shares, 5/1/98
and Investor C Shares, 10/16/98. See "Note on Performance Information" on page
12 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 ASSETS (9/30/99):
$967.0 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 15 YEARS.
RECENT PORTFOLIO MANAGEMENT ACTIVITY:
(BULLET)IN SHARP CONTRAST TO THE FIRST NINE MONTHS OF 1998, TREASURY YIELDS
ROSE SHARPLY DURING THE PAST TWELVE MONTHS. FOR THE PERIOD, THE YIELD OF THE
10-YEAR TREASURY ROSE 147 BASIS POINTS FROM 4.41% ON SEPTEMBER 30, 1998 TO 5.88%
ON SEPTEMBER 30, 1999.
(BULLET)THE PORTFOLIO MAINTAINED AN OVERWEIGHT POSITION VERSUS THE INDEX IN
THE MORTGAGE PASS-THROUGH AND ASSET-BACKED SECURITY SECTORS, AS THE MANAGER
BELIEVED THESE SECTORS OFFERED ATTRACTIVE YIELDS AND TOTAL RETURN OPPORTUNITIES
RELATIVE TO TREASURIES.
(BULLET)THE PORTFOLIO'S CORPORATE BOND EXPOSURE WAS INCREASED SLIGHTLY
DURING THE PERIOD BUT REMAINS UNDERWEIGHT TO THE INDEX, AS THE MANAGER BELIEVES
THAT OTHER SPREAD PRODUCTS, SUCH AS MORTGAGES, OFFER BETTER RELATIVE VALUE. THE
PORTFOLIO EMPHASIZED HIGH QUALITY LIQUID NAMES, AS LOWER QUALITY CORPORATES
OFFERED LITTLE INCREMENTAL RETURN.
Although the portfolio holdings and sectors listed above were current as of the
end of the annual period ended September 30, 1999, the Portfolio is actively
managed and the composition will vary.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE COREBOND PORTFOLIO
AND THE LEHMAN BROTHERS AGGREGATE INDEX FROM INCEPTION AND AT EACH
FISCAL YEAR END.
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<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 15,297 15,297 15,514 15,534
Dec-98 15,520 15,403 14,801 15,287 15,287 15,557 15,586
Mar-99 15,498 15,371 14,762 15,219 15,219 15,542 15,507
Jun-99 15,346 15,220 14,600 15,024 15,020 15,353 15,236
Sep-99 15,457 15,319 14,687 14,633 15,081 15,469 15,339
</TABLE>
For period ending September 30, 1999
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
1 Year 3 Year 5 Year From Inception
BlackRock Class (0.02)% 6.83% 7.72% 6.66%
Institutional Class (0.17)% 6.70% 7.64% 6.60%
Service Class (0.47)% 6.38% 7.42% 6.44%
Investor A Class (Load Adjusted) (4.59)% 4.76% 6.41% 5.71%
Investor A Class (NAV) (0.64)% 6.19% 7.29% 6.34%
Investor B Class (Load Adjusted) (5.83)% 4.15% 6.28% 5.92%
Investor B Class (NAV) (1.38)% 5.40% 6.71% 5.92%
Investor C Class (Load Adjusted) (2.37)% 5.40% 6.71% 5.92%
Investor C Class (NAV) (1.38)% 5.40% 6.71% 5.92%
- --------------------------------------------------------------------------------
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; Investor C Shares,
2/28/97; and BlackRock Shares, 5/1/97. See "Note on Performance Information" on
page 12 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 ASSETS (9/30/99):
$43.9 MILLION
PERFORMANCE BENCHMARK:
LEHMAN BROTHERS MORTGAGE/MERRILL LYNCH 10-YEAR TREASURY INDEX
INVESTMENT APPROACH:
SEEKS CURRENT INCOME CONSISTENT WITH THE PRESERVATION OF CAPITAL BY
INVESTING IN SECURITIES ISSUED BY THE U.S. GOVERNMENT OR GOVERNMENT AGENCY OR
RATED AAA BY A MAJOR RATING AGENCY. THE PORTFOLIO EMPHASIZES SECURITIES WITH
MATURITIES FROM 10 TO 15 YEARS.
RECENT PORTFOLIO MANAGEMENT ACTIVITY:
(BULLET)IN SHARP CONTRAST TO THE FIRST NINE MONTHS OF 1998, TREASURY YIELDS
ROSE SHARPLY DURING THE FIRST SIX MONTHS OF THE PERIOD AND CONTINUED TO INCREASE
THROUGH FISCAL YEAR END. FOR THE PERIOD, THE YIELD OF 10-YEAR TREASURY ROSE 147
BASIS POINTS FROM 4.41% ON SEPTEMBER 30, 1998 TO 5.88% ON SEPTEMBER 30, 1999.
(BULLET)THE PORTFOLIO'S MORTGAGE WEIGHTING DECREASED DURING THE FIRST HALF
OF THE PERIOD, AS HIGH LEVELS OF PREPAYMENT RESULTED IN CASH COMING INTO THE
PORTFOLIO. THE MANAGER REDEPLOYED THESE PROCEEDS INTO TREASURIES AND SPREAD
PRODUCTS SUCH AS COMMERCIAL MORTGAGE-BACKED SECURITIES. PREPAYMENT FEARS
SUBSIDED TOWARDS THE END OF THE PERIOD AS INTEREST RATES ROSE, AND THE RESULTANT
DECREASE IN NEW ISSUANCE PROVIDED A FAVORABLE TECHNICAL ENVIRONMENT FOR
MORTGAGES.
Although the portfolio holdings and sectors listed above were current as of the
end of the annual period ended September 30, 1999, the Portfolio is actively
managed and the composition will vary.
COMPARISONOF 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 OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Investor A Investor B Investor C Lehman Brothers Mortgage Index/
Class Class Class Merrill Lynch 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 14,235 14,235 14,002
Dec-98 14,012 14,233 14,233 13,281
Mar-99 13,894 14,086 14,086 13,132
Jun-99 13,693 13,855 13,855 12,889
Sep-99 13,793 13,651 13,930 12,973
</TABLE>
For period ending September 30, 1999
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
1 Year 3 Year From Inception
Investor A Class (Load Adjusted) (5.83)% 4.96% 6.65%
Investor A Class (NAV) (1.40)% 6.58% 7.64%
Investor B Class (Load Adjusted) (6.58)% 4.54% 6.44%
Investor B Class (NAV) (2.14)% 5.79% 6.87%
Investor C Class (Load Adjusted) (3.12)% 5.79% 6.87%
Investor C Class (NAV) (2.14)% 5.79% 6.87%
- --------------------------------------------------------------------------------
The performance information above includes information relating to each class of
the Portfolio since the commencement of operations of the Portfolio, rather than
the date such class was introduced. The inception dates of the Portfolio's share
classes were as follows: Investor A Shares, 10/3/94; Investor B Shares, 10/3/94;
and Investor C Shares, 2/28/97. See "Note on Performance Information" on page 12
for further information on how performance data was calculated.
Past performance is not predictive of future results.
7
<PAGE>
BLACKROCK FUNDS
GNMA PORTFOLIO
TOTAL ASSETS (9/30/99):
$111.5 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:
(BULLET)IN SHARP CONTRAST TO THE FIRST NINE MONTHS OF 1998, TREASURY YIELDS
ROSE SHARPLY DURING THE PAST TWELVE MONTHS. FOR THE PERIOD, THE YIELD OF THE
10-YEAR TREASURY ROSE 147 BASIS POINTS FROM 4.41% ON SEPTEMBER 30, 1998 TO 5.88%
ON SEPTEMBER 30, 1999.
(BULLET)THE PORTFOLIO REMAINED PRIMARILY INVESTED IN GNMA MORTGAGE
PASS-THROUGHS OVER THE PERIOD. AFTER PARING THE PORTFOLIO'S PASS-THROUGH
HOLDINGS DURING LATE 1998, THE MANAGER INCREASED MORTGAGE HOLDINGS DURING THE
FIRST QUARTER OF 1999 DUE TO THEIR WIDE YIELD SPREADS AND ATTRACTIVE VALUE.
(BULLET)THE MANAGER INITIATED MINOR POSITIONS IN AAA-RATED NON-PREPAYMENT
SENSITIVE COMMERCIAL MORTGAGE-BACKED SECURITIES AND ASSET-BACKED SECURITIES,
WHICH THE MANAGER BELIEVED TO REPRESENT EXCELLENT VALUE DUE TO THEIR HIGH CREDIT
QUALITY, DOMESTIC PROFILE AND WIDE YIELD SPREADS.
Although the portfolio holdings and sectors listed above were current as of the
end of the annual period ended September 30, 1999, 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 GNMA INDEX FROM INCEPTION AND AT EACH FISCAL YEAR END.
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Institutional Service Investor A Investor B Investor C Lehman
Class Class Class Class Class GNMA 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 10,357
Mar-87 10,411 10,396 9,919 10,348 10,348 10,588
Jun-87 10,251 10,228 9,756 10,158 10,158 10,450
Sep-87 10,265 10,234 9,757 10,141 10,141 10,191
Dec-87 10,407 10,368 9,880 10,250 10,250 10,801
Mar-88 10,684 10,636 10,132 10,491 10,491 11,256
Jun-88 10,883 10,826 10,308 10,654 10,654 11,461
Sep-88 11,009 10,943 10,415 10,744 10,744 11,719
Dec-88 11,149 11,074 10,536 10,848 10,848 11,754
Mar-89 11,192 11,109 10,564 10,857 10,857 11,888
Jun-89 11,633 11,537 10,967 11,250 11,250 12,865
Sep-89 11,673 11,569 10,992 11,255 11,255 13,052
Dec-89 12,063 11,947 11,347 11,596 11,596 13,597
Mar-90 12,170 12,044 11,434 11,664 11,664 13,593
Jun-90 12,350 12,213 11,590 11,800 11,800 14,109
Sep-90 12,473 12,325 11,691 11,881 11,881 14,285
Dec-90 13,090 12,925 12,255 12,431 12,431 15,036
Mar-91 13,442 13,262 12,570 12,727 12,727 15,498
Jun-91 13,652 13,460 12,751 12,887 12,887 15,801
Sep-91 14,417 14,204 13,451 13,569 13,569 16,659
Dec-91 15,188 14,952 14,153 14,251 14,251 17,448
Mar-92 14,951 14,708 13,916 13,986 13,986 17,314
Jun-92 15,594 15,329 14,498 14,544 14,544 17,998
Sep-92 16,125 15,839 14,974 14,994 14,994 18,562
Dec-92 16,208 15,908 15,033 15,024 15,024 18,741
Mar-93 16,824 16,501 15,586 15,549 15,549 19,275
Jun-93 17,214 16,871 15,929 15,861 15,861 19,636
Sep-93 17,430 17,070 16,111 16,042 16,012 19,785
Dec-93 17,481 17,108 16,140 16,071 16,010 19,974
Mar-94 16,843 16,470 15,531 15,465 15,378 19,491
Jun-94 16,658 16,278 15,343 15,278 15,163 19,384
Sep-94 16,743 16,348 15,403 15,337 15,193 19,544
Dec-94 16,863 16,453 15,495 15,429 15,256 19,674
Mar-95 17,811 17,365 16,348 16,278 16,065 20,712
Jun-95 18,849 18,364 17,281 17,207 16,950 21,807
Sep-95 19,228 18,718 17,608 17,533 17,239 22,294
Dec-95 19,853 19,313 18,159 18,081 17,745 23,029
Mar-96 19,692 19,142 17,990 17,913 17,548 22,957
Jun-96 19,829 19,261 18,094 18,017 17,617 23,120
Sep-96 20,211 19,617 18,420 18,341 17,901 23,606
Dec-96 20,790 20,164 18,927 18,846 18,359 24,303
Mar-97 20,814 20,172 18,927 18,846 18,324 24,335
Jun-97 21,606 20,924 19,625 19,541 18,964 25,284
Sep-97 22,280 21,561 20,214 20,127 19,497 26,029
Dec-97 22,672 21,924 20,545 20,457 19,779 26,620
Mar-98 22,888 22,116 20,716 20,627 19,907 27,051
Jun-98 23,384 22,574 21,136 21,046 20,277 27,509
Sep-98 23,922 23,077 21,599 21,507 20,682 28,212
Dec-98 24,192 23,322 21,817 21,683 20,852 28,463
Mar-99 24,379 23,485 21,959 21,783 20,948 28,747
Jun-99 24,600 23,680 22,133 21,914 21,074 29,009
Sep-99 24,320 23,393 21,856 20,734 20,770 28,887
</TABLE>
For period ending September 30, 1999
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
1 Year 3 Year 5 Year From Inception
Institutional Class 1.14% 6.68% 7.95% 7.71%
Service Class 0.84% 6.35% 7.62% 7.39%
Investor A Class (Load Adjusted) (3.35)% 4.73% 6.56% 6.74%
Investor A Class (NAV) 0.67% 6.17% 7.44% 7.21%
Investor B Class (Load Adjusted) (4.56)% 4.13% 6.22% 6.41%
Investor B Class (NAV) (0.09)% 5.39% 6.65% 6.41%
Investor C Class (Load Adjusted) (1.13)% 5.39% 6.65% 6.41%
Investor C Class (NAV) (0.09)% 5.39% 6.65% 6.41%
- --------------------------------------------------------------------------------
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 ASSETS (9/30/99):
$1.5 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:
(BULLET)IN SHARP CONTRAST TO THE FIRST NINE MONTHS OF 1998, TREASURY YIELDS
ROSE SHARPLY DURING THE PAST TWELVE MONTHS. FOR THE PERIOD, THE YIELD OF THE
10-YEAR TREASURY ROSE 147 BASIS POINTS FROM 4.41% ON SEPTEMBER 30, 1998 TO 5.88%
ON SEPTEMBER 30, 1999.
(BULLET)CONSISTENT WITH THE PORTFOLIO'S INCOME BIAS, THE MANAGER MAINTAINED
OVERWEIGHT POSITIONS VERSUS THE INDEX IN SPREAD SECTORS. THE PORTFOLIO INCREASED
ITS OVERALL MORTGAGE SECURITY EXPOSURE, FOCUSING ON MORTGAGE PASS-THROUGHS, DUE
TO WIDENING YIELD SPREADS DURING THE BEGINNING OF THE PERIOD.
(BULLET)THE PORTFOLIO'S AGGREGATE CORPORATE BOND AND ASSET-BACKED SECURITY
EXPOSURE REMAINS OVERWEIGHT RELATIVE TO THE INDEX AFTER BEING MODESTLY REDUCED
DURING THE FIRST SIX MONTH PERIOD AND SLIGHTLY INCREASED DURING THE LAST SIX
MONTH PERIOD. WITHIN THE PORTFOLIO'S CORPORATE WEIGHTING, THE MANAGER EMPHASIZED
LOWER-RATED INVESTMENT GRADE SECURITIES IN THE BEGINNING OF THE PERIOD, BUT HAS
SINCE EMPHASIZED HIGH QUALITY LIQUID NAMES AS LOWER RATED SECURITIES PROVIDED
LITTLE INCREMENTAL RETURN.
Although the portfolio holdings and sectors listed above were current as of the
end of the annual period ended September 30, 1999, 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 OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Institutional Service Investor A Investor B Investor C Lehman Brothers
Class Class Class Class Class Aggregate Index
<S> <C> <C> <C> <C> <C> <C>
11/1/89 $10,000 $10,000 $9,550 $10,000 $10,000 $10,000
Dec-89 10,105 10,105 9,650 10,000 10,000 10,027
Mar-90 10,004 10,004 9,554 9,900 9,900 9,946
Jun-90 10,306 10,306 9,843 10,199 10,199 10,309
Sep-90 10,380 10,380 9,913 10,272 10,272 10,397
Dec-90 10,943 10,943 10,451 10,830 10,830 10,923
Mar-91 11,161 11,161 10,659 11,045 11,045 11,227
Jun-91 11,259 11,259 10,752 11,142 11,142 11,411
Sep-91 11,910 11,910 11,374 11,786 11,786 12,059
Dec-91 12,580 12,580 12,014 12,449 12,449 12,671
Mar-92 12,290 12,290 11,737 12,162 12,162 12,509
Jun-92 12,749 12,749 12,175 12,617 12,617 13,014
Sep-92 13,316 13,316 12,717 13,177 13,177 13,574
Dec-92 13,323 13,323 12,724 13,185 13,185 13,609
Mar-93 14,022 14,022 13,391 13,876 13,876 14,172
Jun-93 14,457 14,457 13,806 14,306 14,306 14,549
Sep-93 14,935 14,940 14,263 14,780 14,780 14,928
Dec-93 14,881 14,862 14,186 14,701 14,701 14,936
Mar-94 14,370 14,343 13,690 14,186 14,186 14,507
Jun-94 14,110 14,079 13,422 13,909 13,909 14,357
Sep-94 14,145 14,104 13,440 13,927 13,927 14,445
Dec-94 14,215 14,166 13,492 13,981 13,981 14,500
Mar-95 14,894 14,835 14,122 14,634 14,634 15,231
Jun-95 15,744 15,671 14,909 15,449 15,449 16,159
Sep-95 16,022 15,935 15,153 15,702 15,702 16,477
Dec-95 16,701 16,602 15,778 16,350 16,350 17,179
Mar-96 16,369 16,260 15,443 16,003 16,003 16,872
Jun-96 16,437 16,315 15,490 16,051 16,051 16,969
Sep-96 16,716 16,580 15,734 16,304 16,304 17,281
Dec-96 17,277 17,123 16,243 16,831 16,831 17,800
Mar-97 17,227 17,060 16,177 16,762 16,763 17,701
Jun-97 17,848 17,663 16,740 17,346 17,346 18,351
Sep-97 18,432 18,228 17,267 17,892 17,893 18,960
Dec-97 18,913 18,689 17,697 18,338 18,338 19,517
Mar-98 19,189 18,949 17,936 18,585 18,586 19,818
Jun-98 19,692 19,432 18,384 19,050 19,015 20,282
Sep-98 20,137 19,856 18,778 19,457 19,386 21,140
Dec-98 20,292 19,993 18,900 19,582 19,475 21,212
Mar-99 20,304 19,989 18,888 19,570 19,426 21,103
Jun-99 20,097 19,769 18,673 19,312 19,426 20,918
Sep-99 20,252 19,907 18,796 18,723 19,426 21,060
</TABLE>
For period ending September 30, 1999
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
1 Year 3 Year 5 Year From Inception
Institutional Class 0.57% 6.60% 7.44% 7.38%
Service Class 0.26% 6.28% 7.13% 7.19%
Investor A Class (Load Adjusted) (4.40)% 4.47% 5.95% 6.57%
Investor A Class (NAV) 0.09% 6.10% 6.93% 7.06%
Investor B Class (Load Adjusted) (5.16)% 4.31% 6.18% 6.90%
Investor B Class (NAV) (0.66)% 5.56% 6.61% 6.90%
- --------------------------------------------------------------------------------
The performance information above includes information relating to each class of
the Portfolio since the commencement of operations of the Portfolio, rather than
the date such class was introduced. The inception dates of the Portfolio's share
classes were as follows: 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 12 for further information on how performance
data was calculated. The comparative index from previous years has changed from
the Salomon Broad Investment Grade Index to the Lehman Aggregate to more
accurately reflect the type of holdings of Managed Income.
Past performance is not predictive of future results.
9
<PAGE>
BLACKROCK FUNDS
INTERNATIONAL BOND PORTFOLIO
TOTAL ASSETS (9/30/99):
$70.3 MILLION
PERFORMANCE BENCHMARK:
SALOMON NON-U.S. HEDGED WORLD GOVERNMENT BOND INDEX
INVESTMENT APPROACH:
PURSUES CURRENT INCOME CONSISTENT WITH THE PRESERVATION OF CAPITAL BY
INVESTING IN INVESTMENT GRADE INTERNATIONAL FIXED INCOME SECURITIES.
RECENT PORTFOLIO MANAGEMENT ACTIVITY:
(BULLET)DURING THE PERIOD, BOND YIELDS GENERALLY FELL IN JAPAN, EUROPE AND
THE DOLLAR BLOC (CANADA AND AUSTRALIA), WHILE U.S. BOND YIELDS ROSE.
(BULLET)THE PORTFOLIO REMAINED PREDOMINANTLY CURRENCY HEDGED INTO U.S.
DOLLARS, ALTHOUGH THE MANAGER ESTABLISHED A MODEST LONG EURO POSITION VERSUS THE
DOLLAR AND THE YEN.
(BULLET)OVER THE PERIOD THE PORTFOLIO WAS REWARDED FOR ITS OVERWEIGHT
POSITION TO CONTINENTAL EUROPE AND THE UNITED KINGDOM, WHICH PERFORMED WELL DUE
TO LACK OF INFLATIONARY PRESSURE AND THE CONTINUED EASING OF MONETARY POLICY IN
THOSE MARKETS. THE PORTFOLIO BENEFITED FROM ITS SIGNIFICANT UNDERWEIGHT POSITION
TO JAPAN DURING THE BEGINNING OF THE PERIOD. THE MANAGER INCREASED THE
PORTFOLIO'S WEIGHTING IN JAPAN DURING THE PERIOD AS THAT MARKET SHOWED SIGNS OF
RECOVERY, BUT REMAINS UNDERWEIGHT VERSUS THE INDEX.
Although the portfolio holdings and sectors listed above were current as of the
end of the annual period ended September 30, 1999, 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 OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<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 10,090
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 19,529 19,492 19,942
Dec-98 20,395 20,232 19,135 19,800 19,726 20,052
Mar-99 20,697 20,518 19,397 20,071 19,958 20,395
Jun-99 20,519 20,327 19,209 19,838 19,729 20,266
Sep-99 20,474 20,266 19,143 19,141 19,624 20,167
</TABLE>
For period ending September 30, 1999
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
1 Year 3 Year 5 Year From Inception
Institutional Class 1.91% 8.56% 10.61% 9.07%
Service Class 1.60% 8.22% 10.38% 8.93%
Investor A Class (Load Adjusted) (3.63)% 6.21% 9.12% 8.18%
Investor A Class (NAV) 1.43% 8.04% 10.25% 8.85%
Investor B Class (Load Adjusted) (3.89)% 5.94% 9.23% 8.51%
Investor B Class (NAV) 0.67% 7.21% 9.67% 8.51%
Investor C Class (Load Adjusted) (0.34)% 7.21% 9.67% 8.51%
Investor C Class (NAV) 0.67% 7.21% 9.67% 8.51%
- --------------------------------------------------------------------------------
The performance information above includes information relating to each class of
the Portfolio since the commencement of operations of the Portfolio, rather than
the date such class was introduced. The inception dates of the Portfolio's share
classes were as follows: Service Shares, 7/1/91; Investor B Shares, 4/19/96;
Investor A Shares, 4/22/96; Institutional Shares, 6/10/96; and Investor C
Shares, 9/11/96. See "Note on Performance Information" on page 12 for further
information on how performance data was calculated.
Past performance is not predictive of future results.
10
<PAGE>
BLACKROCK FUNDS
HIGH YIELD BOND PORTFOLIO
TOTAL ASSETS (9/30/99):
$91.6 MILLION
PERFORMANCE BENCHMARK:
LEHMAN HIGH YIELD INDEX
INVESTMENT APPROACH:
SEEKS CURRENT INCOME BY INVESTING PRIMARILY IN NON-INVESTMENT GRADE
SECURITIES (RATED C OR HIGHER OR DEEMED TO BE OF COMPARABLE QUALITY) WHICH YIELD
A HIGH LEVEL OF CURRENT INCOME.
RECENT PORTFOLIO MANAGEMENT ACTIVITY:
(BULLET)SINCE THE PORTFOLIO'S INCEPTION IN NOVEMBER 1998 THE HIGH YIELD
MARKET HAS PERFORMED WELL AS YIELD SPREADS HAVE NARROWED COMPARED TO TREASURIES.
INVESTORS CONTINUE TO EMPHAZISE HIGHER QUALITY NON-INVESTMENT GRADE CREDITS
INSTEAD OF LOWER TIER CREDITS. THE MANAGER HAS TAKEN ADVANTAGE OF THIS DURING
THE PERIOD BY FOCUSING ON B-RATED CREDITS, WHERE YIELD SPREADS CONTINUE TO
TIGHTEN, WHILE UNDERWEIGHTING CCC-RATED SECURITIES.
(BULLET)THE PORTFOLIO HAS BENEFITED FROM BEING OVERWEIGHT RELATIVE TO THE
INDEX IN THE TELECOM, OIL AND GAS AND CABLE SECTORS. PARTICULAR EMPHASIS HAS
BEEN PLACED ON THESE SECTORS AS IMPROVING FUNDAMENTALS AND THE POTENTIAL FOR
CONSOLIDATION CONTINUE TO BE A MAJOR CONTRIBUTOR TO THEIR STRONG PERFORMANCE.
THE PORTFOLIO HAS BEEN UNDERWEIGHT THE HEALTHCARE AND TEXTILE SECTORS, WHICH
HAVE BEEN WEAK PERFORMERS.
(BULLET)THE MANAGER BELIEVES THAT THE SUPPLY AND DEMAND TECHNICALS OF THE
HIGH YIELD MARKET APPEAR TO BE FAVORABLE, AS STRONG MONEY INFLOWS AND LOWER
SUPPLY RELATIVE TO LAST YEAR MAY BODE WELL FOR HIGH YIELD INVESTORS.
Although the portfolio holdings and sectors listed above were current as of the
end of the annual period ended September 30, 1999, the Portfolio is actively
managed and the composition will vary.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE HIGH YIELD BOND
PORTFOLIO AND THE LEHMAN HIGH YIELD INDEX FROM INCEPTION AND AT EACH MONTH-END.
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Institutional Service Investor A Investor B Investor C BlackRock Lehman High
Class Class Class Class Class Class Yield Index
<S> <C> <C> <C> <C> <C> <C> <C>
11/19/98 $10,000 $10,000 $9,500 $10,000 $10,000 $10,000 $10,000
12/31/98 10,128 10,106 9,616 10,113 10,113 10,110 10,160
1/31/99 10,395 10,370 9,866 10,369 10,369 10,378 10,310
2/28/99 10,380 10,351 9,847 10,343 10,343 10,363 10,250
3/31/99 10,466 10,435 9,926 10,418 10,418 10,451 10,347
4/30/99 10,853 10,819 10,289 10,794 10,794 10,840 10,548
5/31/99 10,586 10,551 10,032 10,517 10,517 10,576 10,405
6/30/99 10,622 10,584 10,062 10,542 10,542 10,613 10,383
7/31/99 10,637 10,597 10,072 10,547 10,547 10,630 10,425
8/31/99 10,599 10,557 10,032 10,498 10,498 10,593 10,309
9/30/99 10,592 10,548 10,022 10,010 10,377 10,587 10,235
</TABLE>
For period ending September 30, 1999
- --------------------------------------------------------------------------------
TOTAL RETURN
From Inception
BlackRock Class 5.87%
Institutional Class 5.93%
Service Class 5.47%
Investor A Class (Load Adjusted) 0.22%
Investor A Class (NAV) 5.50%
Investor B Class (Load Adjusted) 0.06%
Investor B Class (NAV) 4.78%
Investor C Class (Load Adjusted) 3.64%
Investor C Class (NAV) 4.69%
- --------------------------------------------------------------------------------
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: BlackRock Shares; Institutional Shares; Service Shares;
Investor A Shares; Investor B Shares; and Investor C Shares, 11/19/98. See "Note
on Performance Information" on page 12 for further information on how
performance data was calculated.
Past performance is not predictive of future results.
11
<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 and GNMA -- 4.00%;
Government Income and Managed Income -- 4.50%; International Bond and High Yield
Bond -- 5.00%; and Low Duration Bond -- 3.00%. 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 Portfolio's 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.
- --------------------------------------------------------------------------------
IMPORTANT TAX INFORMATION FOR SHAREHOLDERS OF THE BLACKROCK TAXABLE BOND
PORTFOLIOS (UNAUDITED)
During the fiscal year ended September 30, 1999, 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 Government Bond Portfolio ....... $0.0141 $0.0611
Intermediate Bond Portfolio .................. 0.0524 0.0498
Core Bond Portfolio .......................... 0.2043 --
Government Income Portfolio .................. 0.1635 --
GNMA Portfolio ............................... 0.0184 --
Managed Income Portfolio ..................... 0.1516 --
International Bond Portfolio ................. -- 0.0616
Because the Portfolios' fiscal year is not the calendar year, another
notification will be sent with respect to calendar year 1999. The second
notification, which reflects the amounts to be used by calendar year taxpayers
on their U.S. federal income tax returns, has been made in conjunction with Form
1099-DIV and will be mailed in January 2000.
12
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
LOW DURATION BOND PORTFOLIO
Par
AS OF SEPTEMBER 30, 1999 Maturity (000) Value
---------- ------- -------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 19.5%
Small Business Administration
Participation Certificates,
Series 97, Class A
5.85%** 08/15/22 $ 1,370 $ 1,364,944
U.S. Treasury Bonds
8.75%(DAGGER) 11/15/08 9,067 9,923,229
U.S. Treasury Notes
5.00%(DAGGER) 02/28/01 13,245 13,148,306
5.25%(DAGGER) 05/31/01 4,000 3,977,104
5.75%(DAGGER) 06/30/01 9,760 9,776,653
5.50%(DAGGER) 07/01-05/03 5,045 5,019,022
6.50%(DAGGER) 08/31/01 6,090 6,185,633
6.25% 02/28/02 905 916,636
5.63% 12/31/02 1,400 1,395,152
-------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $51,798,603) 51,706,679
-------------
MORTGAGE PASS-THROUGHS -- 31.4%
Federal Home Loan Mortgage
Corp.
5.81%** 10/01/00 8,290 8,196,711
7.25% 07/06-06/08 66 66,618
7.50%(DAGGER) 07/01/07 2,356 2,392,139
8.25% 06/01/09 72 74,470
8.75% 01/01/13 1,326 1,381,189
5.72%** 06/01/28 2,139 2,126,768
Federal Home Loan Mortgage
Corp. 5 Year Balloon
7.00%(DAGGER) 05/00-11/00 553 555,585
Federal Home Loan Mortgage
Corp. 7 Year Balloon
8.00%(DAGGER) 01/01/04 365 371,191
Federal Home Loan Mortgage
Corp. 30 Year Balloon
8.25% 09/01/09 73 75,183
7.50% 04/01/22 733 736,711
6.98% 07/01/27 4,219 4,225,759
Federal Home Loan Mortgage
Corp. Gold
7.00% 09/01/11 3,092 3,094,673
Federal National Mortgage
Association
6.29% 10/04/00 2,000 2,009,839
6.20%(DAGGER) 02/26/01 5,135 5,117,200
6.73% 02/26/01 605 606,833
6.00% 11/03-01/04 5,938 5,783,043
7.00% 06/01/04 1,931 1,898,264
6.50%(DAGGER) 10/08-11/08 5,619 5,550,817
7.50% 05/01/09 1,321 1,325,284
11.50% 05/01/09 236 260,732
5.50%(DAGGER) 07/01/09 2,891 2,722,515
5.81% 03/01/29 837 816,934
Federal National Mortgage
Association 10 Year Balloon
6.00% 12/03-02/04 3,844 3,751,697
Federal National Mortgage
Association 15 Year Balloon
7.00% 12/08-09/14 6,772 6,767,794
8.00%(DAGGER) 08/01/09 2,800 2,851,626
Par
Maturity (000) Value
---------- ------- -------------
MORTGAGE PASS-THROUGHS (CONTINUED)
Government National Mortgage
Association
7.25% 04/15/06 $ 431 $ 428,470
8.25%(DAGGER) 08/08-09/08 4,052 4,181,153
7.50% 07/16/22 2,700 2,721,094
8.00% 05/16/24 5,391 5,433,877
Government National Mortgage
Association 15 Year
7.00% 07/02-05/12 6,600 6,607,059
Government National Mortgage
Association 30 Year
6.50%(DAGGER) 03/24-04/24 1,197 1,151,475
-------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $84,156,010) 83,282,703
-------------
MULTIPLE CLASS MORTGAGE PASS-THROUGHS -- 1.9%
Bear Stearns Mortgage Securities,
Inc., Series 96-6, Class A2
7.00% 11/25/27 1,292 1,286,986
Residential Accredit Loans, Inc.,
Series 97-QS7, Class A1
7.50% 07/25/27 403 402,111
Residential Asset Securitization
Trust, Series 98-A1, Class A1
7.00% 03/25/28 1,570 1,569,013
Residential Asset Securitization
Trust, Series 98-A2, Class A1
6.75%(DOUBLE DAGGER) 04/25/28 1,880 1,876,645
-------------
TOTAL MULTIPLE CLASS MORTGAGE
PASS-THROUGHS
(Cost $5,147,875) 5,134,755
-------------
COMMERCIAL MORTGAGE BACKED
SECURITIES -- 28.0%
American Business Financial Services,
Series 98-A, Class A
6.10% 10/15/05 3,497 3,470,588
Asset Securitization Corp.,
Series 97-D5, Class A1A
6.50% 02/14/41 2,985 2,965,915
Bayview Financial Acquisition
Trust, Series 98-1, Class AI
7.01% 05/25/29 2,748 2,716,239
Bayview Financial Acquisition
Trust, Series 98-1, Class AII
5.64%** 05/25/29 2,307 2,296,141
Bosque Asset Corp., Series 97-1,
Class A1
7.66% 06/05/02 1,005 1,004,348
Boston Edison Co., Series 99-1,
Class A2
6.00% 09/15/05 2,050 2,018,609
Captec Franchise Trust, Series 99-1,
Class A1
6.50% 05/25/05 3,965 3,932,580
Citicorp Mortgage Securities, Inc.,
Series 94-4, Class A6
6.00% 02/25/09 2,116 2,082,938
Copelco Capital Funding Corp.,
Series 99-A, Class A3
5.67% 03/15/02 2,700 2,664,742
Donaldson, Lufkin and Jenrette, Inc.
Mortgage Acceptance Corp.,
Series 95-CF2, Class AIA
6.65% 12/17/27 956 961,701
See accompanying notes to financial statements.
13
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
LOW DURATION BOND PORTFOLIO (CONTINUED)
Par
AS OF SEPTEMBER 30, 1999 Maturity (000) Value
---------- ------- -------------
COMMERCIAL MORTGAGE BACKED
SECURITIES (CONTINUED)
Donaldson, Lufkin and Jenrette,
Inc. Mortgage Acceptance Corp.,
Series 96-CF2, Class A1A
6.86% 11/12/21 $ 2,108 $ 2,105,465
Franchise Loan Trust,
Series 98-1, Class A1
6.24% 07/15/04 2,029 1,991,679
Green Tree Recreational
Equipment & Construction,
Series 98-C, Class A4
6.17% 02/15/11 2,300 2,279,156
Huntton Paige, Series 99-1
7.43% 03/01/19 2,800 2,810,664
ICI Funding Corp. Small Business
Administration Loan-Backed
Adjustable Rate Certificates,
Series 97-1, Class A
6.00%** 01/15/24 2,272 2,249,685
J.P. Morgan Commercial
Mortgage Finance Corp.,
Series 97, Class D
6.36%** 07/25/29 2,000 1,970,000
Merit Securities Corp.,
Series 98-11, Class 2A2
5.66%** 11/28/22 4,172 4,168,975
Morgan Stanley Capital International,
Inc., Series 98-CF1, Class A1
6.33% 10/15/07 1,203 1,166,776
Mortgage Capital Funding, Inc.,
Series 98-MC2, Class A1
6.33% 10/18/07 2,873 2,791,664
Navistar Financial Corp Owner
Trust, Series 99-A, Class A3
5.95% 04/15/03 3,950 3,922,844
PNC Mortgage Securities Corp.,
Series 97-6, Class A1
6.49% 10/25/26 2,948 2,946,525
Prudential Home Mortgage Securities,
Inc., Series 94-19, Class A2
7.05% 05/25/24 3,532 3,537,292
Reilly Mortgage Securities, Series 99-1
7.43% 02/01/23 264 266,168
Republic Bank Home Loan
Owner Trust, Series 98-1, Class A1
6.61% 04/25/07 588 585,904
Residential Funding Mortgage
Securities, Series 98-NS1, Class A2
6.38% 01/25/09 2,153 2,139,763
Salomon Brothers Mortgage
Securities VII, Series 92-5, Class A1
7.69%** 11/25/22 267 267,178
Salomon Brothers Mortgage
Securities VII, Series 96-6B, Class A1
5.73%** 06/30/26 11 10,743
Structured Asset Securities
Corp., Series 98-C2A, Class B
5.70%** 01/25/13 3,167 3,165,586
SWB Loan Backed Certificates,
Series 98-1, Class AV
5.75%** 09/15/24 2,992 2,976,955
Union Planters Mortgage
Finance Corp., Series 98-1, Class A1
6.35% 01/25/28 1,764 1,772,892
Par
Maturity (000) Value
---------- ------- -------------
COMMERCIAL MORTGAGE BACKED
SECURITIES (CONTINUED)
Wilshire Funding Corp.,
Series 97, Class A
7.25% 08/25/27 $ 1,553 $ 1,526,758
Wilshire Funding Corp.,
Series 98-2, Class A3
7.00% 12/28/37 5,662 5,583,874
-------------
TOTAL COMMERCIAL MORTGAGE
BACKED SECURITIES
(Cost $75,018,985) 74,350,347
-------------
PROJECT LOANS -- 5.4%
FEDERAL HOUSING AUTHORITY,
GENERAL MOTORS ACCEPTANCE
CORP. GRANTOR TRUST,
SERIES 97-A, CLASS A
7.14% 01/01/21 12,440 12,473,475
Federal Housing Authority,
INSD Project, Series 82
7.43% 09/01/22 1,978 1,988,903
-------------
TOTAL PROJECT LOANS
(Cost $14,543,388) 14,462,378
-------------
ASSET BACKED SECURITIES -- 41.5%
Amresco Independence
Funding, Inc., Series 99-1, Class A
6.50% 06/15/20 3,000 3,000,000
Arcadia Automobile Receivables
Trust, Series 98-B, Class A3
5.95%(DAGGER) 11/15/02 6,650 6,654,522
Banc One Auto Grantor Trust,
Series 97-A, Class A
6.27% 11/20/03 298 299,986
Barnett Auto Trust, Series 97-A, Class A3
6.03%(DAGGER) 11/15/01 4,078 4,143,323
Chevy Chase Auto Receivables
Trust, Series 97-3, Class A
6.20% 03/20/04 2,280 2,295,547
Dayton Hudson Credit Card
Master Trust, Series 97-1, Class A
6.25% 08/25/05 2,300 2,248,810
Fifth Third Auto Grantor Trust,
Series 96-B, Class A
6.45% 03/15/02 260 260,833
First Security Auto Grantor Trust,
Series 97-A, Class A
6.30% 08/15/03 2,006 2,016,501
First Security Auto Owner Trust,
Series 99-2, Class A3
6.00% 10/15/03 4,150 4,130,547
FMAC Loan Receivables Trust,
Series 98-CA, Class A1
5.99% 11/15/04 2,139 2,081,463
Ford Credit Auto Owner Trust,
Series 99-A, Class A4
5.31% 11/15/01 3,700 3,664,156
Ford Credit Auto Owner Trust,
Series 99-C, Class A4
6.08% 09/16/02 4,175 4,158,039
Green Tree Financial Corp.,
Series 95-A, Class A
7.25% 07/15/05 1,975 1,872,618
See accompanying notes to financial statements.
14
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
LOW DURATION BOND PORTFOLIO (CONTINUED)
Par
AS OF SEPTEMBER 30, 1999 Maturity (000) Value
---------- ------- ------------
ASSET BACKED SECURITIES (CONTINUED)
Green Tree Financial Corp.,
Series 96-10, Class A4
6.42% 11/15/28 $ 3,139 $ 3,146,751
Green Tree Recreational
Equipment & Consumer Trust,
Series 97-C, Class A1
6.49% 02/15/18 1,877 1,867,745
Health Care Receivables
Securitization Program Notes,
NPF VI, Series 98-1, Class A
6.22% 06/01/02 3,300 3,253,331
Honda Auto Lease Trust,
Series 99-A, Class A4
6.45% 09/16/02 5,500 5,509,453
Honda Auto Receivables Grantor
Trust, Series 98-A, Class A
5.50% 07/15/04 3,286 3,246,847
Missouri Higher Education
Loan Authority,
Series 97, Class P
5.40%** 07/25/08 3,209 3,166,974
Newcourt Equipment Trust
Securities, Series 98-1, Class A3
5.24% 12/20/02 4,250 4,197,295
Nissan Auto Receivables Owner
Trust, Series 99-A, Class A3
6.47% 09/15/03 2,275 2,240,875
PBG Equipment Trust,
Series 1A, Class A
6.27% 01/20/12 1,376 1,344,562
PMC Capital Limited Partnership,
Series 98-1, Class A
6.75%** 04/01/21 4,105 4,104,948
PMC Capital Small Business
Administration Loan-Backed
Adjustable Rate Certificates,
Series 97-1, Class A
6.35%** 09/15/23 1,681 1,664,311
PMC Capital Small Business
Administration Loan-Backed
Adjustable Rate Certificates,
Series 97-1, Class B
6.70%** 09/15/23 894 896,067
Ryder Vehicle Lease Trust,
Series 98-A, Class A
6.10% 09/15/08 4,430 4,413,514
Sears Credit Account Master
Trust, Series 95-5, Class A
6.05% 01/15/08 3,000 2,955,662
Sears Credit Account Master
Trust, Series 97-1, Class A
6.20% 07/16/07 4,030 4,003,865
The Money Store Auto Grantor
Trust, Series 97-4, Class A2
6.35% 03/20/04 1,121 1,127,458
The Money Store Business
Loan Backed Securities,
Series 97-1, Class A
5.53%** 01/15/25 371 370,268
5.65%** 04/15/28 3,083 3,092,608
The Money Store Business
Loan Backed Securities,
Series 97-1, Class B
6.02%** 01/15/25 1,855 1,838,005
Par
Maturity (000) Value
---------- ------- -------------
ASSET BACKED SECURITIES (CONTINUED)
The Money Store Home Equity
Trust, Series 98-A, Class MH2
7.23% 05/15/24 $ 2,000 $ 1,873,033
The Money Store Residential
Trust, Series 97-II, Class A1
6.65% 11/15/07 216 215,979
Toyota Auto Receivables Owner
Trust, Series 99-A, Class A3
6.15% 08/16/04 7,775 7,750,703
USAA Auto Loan Grantor Trust,
Series 99-1, Class A
6.10% 02/15/06 5,107 5,086,558
World Omni Automobile Lease
Securitization Trust,
Series 96-B, Class A3
6.25% 11/15/02 5,973 5,982,508
-------------
TOTAL ASSET BACKED SECURITIES
(Cost $110,861,897) 110,175,665
-------------
CORPORATE BONDS -- 10.4%
FINANCE -- 7.6%
Diageo Capital PLC
6.63% 06/24/04 1,250 1,246,875
Donaldson, Lufkin and
Jenrette, Inc.
5.88% 04/01/02 2,900 2,838,375
Firstar Corp.
6.50% 07/15/02 2,700 2,686,627
Goldman Sachs Escrow Corp.,
Series 144A
6.75% 08/01/01 3,000 2,954,160
Popular North America, Inc.
6.88% 06/15/01 2,550 2,541,435
TransAmerica Finance Corp.
7.25% 08/15/02 4,550 4,585,791
US West Capital Funding, Inc.
6.88% 08/15/01 3,435 3,435,000
-------------
20,288,263
-------------
INDUSTRIAL -- 0.9%
Nabisco, Inc.
6.00% 02/15/01 1,720 1,701,533
Williams Cos., Inc.
6.13% 02/01/01 660 657,525
-------------
2,359,058
-------------
INSURANCE -- 0.6%
METROPOLITAN LIFE INSURANCE CO.
6.30% 11/01/03 1,640 1,590,800
-------------
PIPELINES -- 0.5%
El Paso Energy Corp.
6.63% 07/15/01 1,420 1,420,000
-------------
UTILITY -- 0.3%
Avon Energy Partnership
6.73% 12/11/02 690 686,550
-------------
See accompanying notes to financial statements.
15
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
LOW DURATION BOND PORTFOLIO (CONTINUED)
Par
AS OF SEPTEMBER 30, 1999 Maturity (000) Value
---------- ------- -------------
CORPORATE BONDS (CONTINUED)
YANKEE -- 0.5%
Banco Internacional S.A.
6.03% 07/16/01 $ 1,227 $ 1,225,145
Nordbanken
5.91%** 10/25/01 150 146,850
-------------
1,371,995
-------------
TOTAL CORPORATE BONDS
(Cost $27,784,853) 27,716,666
-------------
FOREIGN BONDS -- 0.7%
Newcourt Credit Group
7.63% 06/28/01 2,700 1,859,549
(Cost $1,875,343) -------------
TAXABLE MUNICIPAL BONDS -- 0.2%
PHILADELPHIA AUTHORITY INDUSTRIAL
DEVELOPMENT TAX CLAIM
COLLECTION REVENUE BOND,
SERIES 97A
6.49% 06/15/04 538 521,876
(Cost $537,835) -------------
Shares
-------
SHORT TERM INVESTMENTS -- 0.2%
Galileo Money Market Fund
(Cost $443,042) 443,042 443,042
-------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $372,167,831*) 139.2% 369,653,660
Par
(000)
--------
REVERSE REPURCHASE AGREEMENTS -- (39.7%)
Aubrey Lanston
(Agreement dated 09/30/99 to be
repurchased at $2,631,934.
Collateralized by $2,600,000
U.s. Treasury Notes 5.25%
due 05/31/01. the value of the
collateral Is $2,655,824.)
5.25% 10/07/99 $ 2,629 (2,629,633)
Commerzbank
(Agreement dated 09/24/99 to be
repurchased at $6,225,822.
Collateralized by $6,090,000
U.S. Treasury Notes 6.50% due
08/31/01. The value of the
collateral is $6,219,346.)
5.30% 10/01/99 6,219 (6,225,822)
Lehman Brothers (Agreement dated
09/27/99 to be repurchased at
$1,299,563. Collateralized by
$1,295,000 U.S. Treasury Notes
5.50% due 07/31/01. The value
of the collateral is $1,304,205.)
5.25% 10/04/99 1,298 (1,298,995)
Lehman Brothers
(Agreement dated 09/29/99 to be
repurchased at $23,109,145.
Collateralized by $23,005,000
U.S. Treasury Notes 5.00-5.75%
due 02/28/01 to 06/30/01. The
value of the collateral is
$23,123,699.)
5.34% 10/06/99 23,085 (23,092,024)
Par
Maturity (000) Value
---------- ------- -------------
REVERSE REPURCHASE AGREEMENTS (CONTINUED)
Lehman Brothers (Agreement dated
09/29/99 to be repurchased at
$6,013,633. Collateralized by
$6,000,000 U.S. Treasury Notes
5.50% due 08/31/01. The value
of the collateral is $5,995,207.)
5.25% 10/06/99 $ 6,008 $ (6,009,252)
Lehman Brothers (Agreement dated
09/29/99 to be repurchased at
$10,221,359. Collateralized by
$9,067,000 U.S. Treasury Bonds
8.75% due 11/15/08. The value of
the collateral is $10,222,896.)
5.29% 10/13/99 10,200 (10,203,373)
Lehman Brothers (Agreement dated
09/17/99 to be repurchased at
$7,558,617. Collateralized by
$7,908,008 Federal National
Mortgage Association 5.50-6.50%
due 11/01/08 to 07/01/09.
The value of the collateral is
$7,735,568.)
5.38% 10/19/99 7,526 (7,538,372)
Lehman Brothers
(Agreement dated 09/20/99 to be
repurchased at $8,570,985.
Collateralized by $8,289,973
Federal Home Loan Mortgage Corp.
5.80% due 07/01/01 and $602,674
Federal National Mortgage
Association 6.50% due
10/01/05. The value of
the collateral is $8,818,276.)
5.38% 10/19/99 8,534 (8,548,029)
Lehman Brothers
(Agreement dated 09/27/99 to be
repurchased at $5,344,605.
Collateralized by $6,650,000
Arcadia Automobile Receivables
Trust 5.95% due 11/15/02. The
value of the collateral is
$6,672,108.)
5.55% 10/29/99 5,320 (5,321,640)
Morgan Stanley (Agreement dated
09/15/99 to be repurchased at
$5,459,909. Collateralized by
$5,740,314 Federal National
Mortgage Association 6.20-6.725%
due 02/26/01. The value of the
collateral is $5,753,957.)
5.46% 10/14/99 5,436 (5,449,191)
Morgan Stanley (Agreement dated
09/28/99 to be repurchased at
$7,433,233. Collateralized by
$7,629,752 Federal National
Mortgage Association 7.00-8.00%
due 12/01/08 to 08/01/09. The
value of the collateral is
$7,726,711.)
5.40% 10/18/99 7,411 (7,414,335)
See accompanying notes to financial statements.
16
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
LOW DURATION BOND PORTFOLIO (CONCLUDED)
Par
AS OF SEPTEMBER 30, 1999 Maturity (000) Value
---------- ------- -------------
REVERSE REPURCHASE AGREEMENTS (CONTINUED)
Morgan Stanley (Agreement dated
09/17/99 to be repurchased at
$11,484,466. Collateralized by
$2,356,062 Federal Home Loan
Bank 7.50% due 07/01/07,
$5,310,258 Federal National
Mortgage Association 6.00% due
01/01/04 and $4,051,996
Government National Mortgage
Association 8.25% due 08/15/08
to 09/15/08. The value of the
collateral is $11,821,586.)
5.37% 10/19/99 $11,435 $ (11,453,763)
Salomon Brothers (Agreement dated
09/09/99 to be repurchased at
$3,731,157. Collateralized by
$4,077,634 Barnett Auto Trust
6.03% due 11/15/01 and
$442,032 Federal National
Mortgage Association 7.00% due
12/01/08. The value of the
collateral is $4,598,724.)
5.63% 10/12/99 3,712 (3,724,771)
Salomon Brothers (Agreement dated
09/15/99 to be repurchased at
$5,423,316. Collateralized by
$918,259 Federal Home Loan
Mortgage Corp. Gold 7.00-8.00%
due 05/01/00 to 01/01/04 and
$4,866,440 Federal National
Mortgage Association
6.00-7.00% due 12/01/03 to
06/01/04. The value of the
collateral is $5,709,767.)
5.36% 10/14/99 5,400 (5,412,864)
Salomon Brothers (Agreement dated
09/15/99 to be repurchased at
$1,136,888. Collateralized by
$1,213,909 Government National
Mortgage Association
6.50-7.25% due 04/15/06 to
04/15/24. The value of the
collateral is $1,188,262.)
5.36% 10/14/99 1,132 (1,134,697)
-------------
TOTAL REVERSE REPURCHASE
AGREEMENTS
(Cost $105,345,950) (105,456,761)
OTHER ASSETS IN EXCESS
OF LIABILITIES 0.5% 1,267,396
------- -------------
NET ASSETS (Applicable to
8,079,707 BlackRock shares,
16,047,318 Institutional
shares, 1,718,517 Service
shares, 264,237 Investor A
shares, 768,840 Investor B
shares and 159,937
Investor C shares outstanding) 100% $ 265,464,295
======= =============
Value
-------------
NET ASSET VALUE AND REDEMPTION
PRICE PER BLACKROCK,
INSTITUTIONAL, SERVICE AND
INVESTOR A SHARE
($256,345,512 (DIVIDE) 26,109,779) $ 9.82
======
OFFERING PRICE PER BLACKROCK,
INSTITUTIONAL AND SERVICE SHARE $ 9.82
======
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($9.82 (DIVIDE) .970) $10.12
======
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE
(SUBJECT TO A MAXIMUM CONTINGENT
DEFERRED SALES CHARGE OF 4.5%)
PER INVESTOR B SHARE
($7,548,548 (DIVIDE) 768,840 ) $ 9.82
======
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE
(SUBJECT TO A MAXIMUM CONTINGENT
DEFERRED SALES CHARGE OF 1.0%)
PER INVESTOR C SHARE
($1,570,235 (DIVIDE) 159,937) $ 9.82
======
- --------------------
* Cost for Federal income tax purposes is $372,533,490. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 296,259
Gross unrealized depreciation (3,176,089)
-----------
$(2,879,830)
===========
** Rates shown are the rates as of September 30, 1999.
(DAGGER) Partial principal in the amount of $108,114,311 has been pledged as
collateral for reverse repurchase agreements.
(DOUBLE DAGGER) Principal amount of securities pledged as collateral of
$1,000,000 on 60 long U.S. Treasury Notes futures contracts and 353 short
U.S. Treasury Notes futures contracts expiring December 1999. The value of
such contracts on September 30, 1999 was $50,741,344, thereby resulting in
an unrealized loss of $80,898.
See accompanying notes to financial statements.
17
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
Par
AS OF SEPTEMBER 30, 1999 Maturity (000) Value
---------- ---------- -------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 23.9%
Federal Home Loan Bank Bonds
5.00% 09/20/00 $ 3,000 $ 2,978,737
Small Business Administration
Participation Certificates,
Series 96-20H, Class 1
7.25% 08/01/16 4,846 4,841,254
Small Business Administration
Participation Certificates,
Series 96-20J, Class 1
7.20% 10/01/16 4,229 4,218,044
Small Business Administration
Participation Certificates,
Series 98-20J, Class 1
5.50% 10/01/18 4,856 4,451,629
Small Business Investment Cos.
Pass-Through, Series 96-P10A,
Class 1
6.67% 02/10/06 4,523 4,474,449
U.S. Treasury Bonds
8.75% 11/15/08 20,890 22,862,716
12.75% 11/15/10 11,925 15,852,188
14.00% 11/15/11 7,730 11,135,680
U.S. Treasury Notes
6.50% 10/15/06 29,670 30,356,944
-------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $104,836,704) 101,171,641
-------------
MORTGAGE PASS-THROUGHS -- 32.9%
Federal Home Loan Mortgage
Corp.
9.00% 06/01/01 1 513
7.00% 05/02-05/11 5,056 5,060,450
6.50% 04/01/08 2,997 2,955,319
8.00% 11/01/08 1,591 1,644,195
6.45% 04/29/09 4,100 3,914,021
6.00% 05/15/16 900 892,386
Federal National Mortgage
Association
6.08% 10/01/99 5,323 5,268,040
6.20% 02/26/01 942 938,936
6.73% 02/26/01 6,381 6,398,585
8.50% 06/03-08/09 4,351 4,454,912
6.50% 08/03-05/15 32,092 31,563,395
6.13% 11/25/03 2,323 2,276,758
6.09% 10/01/08 7,298 6,869,689
6.04% 02/25/09 4,500 4,199,844
7.27% 01/25/11 6,205 6,262,590
7.00% 05/01/11 6,091 6,089,303
5.50% 01/14-06/14 4,983 4,692,227
7.58% 11/01/18 4,864 4,870,104
6.00% 11/23-02/29 2,925 2,769,211
Federal National Mortgage Association
10 Year Balloon
6.00% 02/01/04 3,490 3,403,613
Federal National Mortgage Association
Multi-Family
6.50% 10/25/03 1,508 1,506,663
7.71% 12/01/18 4,250 4,370,522
6.32% 10/01/23 9,646 8,874,334
Par
Maturity (000) Value
---------- ---------- -------------
MORTGAGE PASS-THROUGHS (CONTINUED)
Government National Mortgage
Association
7.25% 04/15/06 $ 6,627 $ 6,583,802
8.25% 11/08-02/09 3,745 3,864,525
6.50% 10/23-12/23 8,197 7,842,619
7.00% 12/15/27 566 555,333
MLCC Mortgage Investors, Inc.,
Series 95-C3, Class A1
6.75% 10/01/99 1,507 1,499,179
-------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $142,739,634) 139,621,068
-------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS -- 2.7%
Federal National Mortgage Association
Grantor Trust, Series 96-T6, Class A
6.33% 10/25/00 4,571 4,559,589
General Motors Acceptance Corp.
Commercial Mortgage Securities,
Inc., Series 97-C1, Class X (IO)
7.84%*** 07/15/27 18,269 1,416,413
General Motors Acceptance Corp.
Commercial Mortgage Securities,
Inc., Series 97-C2, Class A3
6.57% 11/15/07 2,850 2,736,594
Residential Asset Securitization
Trust, Series 98-A1, Class A1
7.00% 03/25/28 2,617 2,615,022
-------------
TOTAL MULTIPLE CLASS MORTGAGE
PASS-THROUGHS
(Cost $11,544,959) 11,327,618
-------------
COMMERCIAL MORTGAGE BACKED
SECURITIES -- 2.7%
Atherton Franchisee Loan Funding,
Series 98-A, Class A2
6.72% 08/15/10 5,150 4,871,929
General Motors Acceptance Corp.
Commercial Mortgage Securities, Inc.,
Series 99-C2, Class A2
6.95% 09/15/33 1,000 985,117
Morgan Stanley Capital International, Inc.,
Series 97-HF1, Class A1
6.86% 07/15/29 3,886 3,881,619
Residential Funding Mortgage Securities,
Series 96-HS2, Class A4
7.55% 09/25/12 127 126,530
Union Planters Mortgage Finance Corp.,
Series 98-1, Class A1
6.35% 01/25/28 1,472 1,479,448
-------------
TOTAL COMMERCIAL MORTGAGE
BACKED SECURITIES
(Cost $11,703,561) 11,344,643
-------------
PROJECT LOANS -- 5.1%
Federal Housing Authority, General
Motors Acceptance Corp. Grantor
Trust, Series 97-A, Class A
7.01% 01/01/21 950 952,177
Federal Housing Authority, General
Motors Acceptance Corp., Series 93-1
5.94% 04/14/12 2,001 1,834,846
Federal Housing Authority, Merrill Lynch,
Series 29, Class 1A1
7.43% 06/01/22 8,028 8,083,071
See accompanying notes to financial statements.
18
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
INTERMEDIATE GOVERNMENT BOND PORTFOLIO (CONTINUED)
Par
AS OF SEPTEMBER 30, 1999 Maturity (000) Value
-------- ---------- -------------
PROJECT LOANS (CONTINUED)
Federal Housing Authority, Merrill Lynch,
Series 97-23
7.43% 12/01/21 $ 5,411 $ 5,449,250
Federal Housing Authority, USGI,
Series 56
7.46% 01/01/23 5,309 5,348,333
-------------
TOTAL PROJECT LOANS
(Cost $22,060,574) 21,667,677
-------------
ASSET BACKED SECURITIES -- 26.2%
ACLC Business Loan Receivables Trust,
Series 98-1, Class A1
6.44% 09/15/19 8,861 8,628,611
Boston Edison Co.,
Series 99-1, Class A4
6.91% 09/15/09 4,475 4,430,997
Chevy Chase Auto Receivables Trust,
Series 96-1, Class A
6.60%(DOUBLE DAGGER) 12/15/02 375 376,390
Chevy Chase Auto Receivables Trust,
Series 97-3, Class A
6.20% 03/20/04 1,979 1,992,289
Citibank Credit Card Master Trust I,
Series 97-6, Class A (PO)
7.05%*** 08/15/06 8,525 6,090,918
Citibank Credit Card Master Trust I,
Series 99-2, Class A
5.88% 03/10/11 2,275 2,103,309
Contimortgage Home Equity Loan Trust,
Series 95-1, Class A4
8.60% 04/15/10 635 634,110
Dayton Hudson Credit Card Master Trust,
Series 98-1, Class A
5.90% 05/25/06 2,200 2,148,630
DVI Receivables Corp.,
Series 98-1, Class A2
6.04% 04/10/06 2,193 2,202,804
FMAC Loan Receivables Trust,
Series 97-C, Class A
6.75% 12/15/19 4,010 3,890,337
Green Tree Financial Corp.,
Series 97-5, Class A7
7.13% 05/15/29 3,501 3,278,160
Green Tree Home Improvement Loan
Trust, Series 97-C, Class HEA2
6.38% 08/15/28 73 73,127
Health Care Receivables Securitization
Program Notes, NPF VI, Series 98-1,
Class A
6.22% 06/01/02 4,500 4,436,360
Honda Auto Lease Trust,
Series 99-A, Class A4
6.45% 09/16/02 4,100 4,107,047
MBNA Master Credit Card Trust,
Series 99-B, Class A
5.90% 08/15/11 3,550 3,337,941
National Premier Financial,
Series 97-1, Class A
6.82% 07/01/01 2,300 2,306,828
New Century Home Equity Loan Trust,
Series 98-NC3, Class A1
6.00% 08/25/28 2,445 2,433,635
People's Bank Credit Card Master Trust,
Series 99-1, Class A
5.67%** 05/15/05 6,300 6,300,000
Par/Shares
Maturity (000) Value
-------- ---------- -------------
ASSET BACKED SECURITIES (CONTINUED)
PMC Capital Small Business
Administration Loan-Backed
Adjustable Rate Certificates,
Series 97-1, Class A
6.35%** 09/15/23 $ 2,802 $ 2,773,852
Sears Credit Account Master Trust,
Series 97-1, Class A
6.20% 07/16/07 6,560 6,517,458
Sears Credit Account Master Trust,
Series 98-1, Class A
5.80% 08/15/05 10,700 10,524,496
Standard Credit Card Master Trust,
Series 94-4, Class A
8.25% 11/07/03 5,000 5,208,353
SWB Loan Backed Certificates,
Series 99-1, Class A
7.38% 05/15/25 2,041 2,020,227
The Money Store Home Equity Trust,
Series 95-A, Class A8
8.13% 06/15/15 2,902 2,940,331
The Money Store Home Equity Trust,
Series 96-B, Class A13
6.90% 04/15/10 204 203,524
The Money Store Residential Trust,
Series 98-I, Class A4
6.52% 08/15/15 9,000 8,942,493
The Money Store Small Business
Administration Loan Trust,
Series 99-1, Class A
5.52%** 07/15/25 3,193 3,166,060
Travelers Bank Credit Card Master Trust,
Series 98-1, Class A
6.00% 01/18/05 4,900 4,832,674
Union Acceptance Corp.,
Series 96-A, Class A
5.40% 04/07/03 1,776 1,762,716
USAA Auto Loan Grantor Trust,
Series 99-1, Class A
6.10% 02/15/06 3,638 3,623,302
-------------
TOTAL ASSET BACKED SECURITIES
(Cost $112,428,698) 111,286,979
-------------
TAXABLE MUNICIPAL BONDS -- 1.4%
New Jersey Economic Development
Authority State Pension Funding Zero
Coupon Revenue Bond,
Series 97, Class B
6.98%*** 02/15/02 1,527 1,297,950
Stanislaus County, California Taxable
Pension Obligation Refunding
Revenue Bond, Series 95
7.15% 08/15/13 4,645 4,546,294
-------------
TOTAL TAXABLE MUNICIPAL BONDS
(Cost $5,953,564) 5,844,244
-------------
SHORT TERM INVESTMENTS -- 5.5%
Federal Home Loan Bank Discount Notes
5.17% 10/01/99 15,350 15,350,000
Galileo Money Market Fund 8,004,082 8,004,082
-------------
TOTAL SHORT TERM INVESTMENTS
(Cost $23,354,082) 23,354,082
-------------
See accompanying notes to financial statements.
19
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
INTERMEDIATE GOVERNMENT BOND PORTFOLIO (CONCLUDED)
AS OF SEPTEMBER 30, 1999 Value
-------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $433,621,776*) 100.4% $ 425,617,952
LIABILITIES IN EXCESS OF
OTHER ASSETS (0.4%) (1,498,262)
---------- ------------
NET ASSETS (Applicable to 39,317,708
Institutional shares, 2,697,887
Service shares, 731,775 Investor A
shares, 81,751 Investor B shares
and 47,327 Investor C shares outstanding) 100.0% $ 424,119,690
========== =============
NET ASSET VALUE AND REDEMPTION
PRICE PER INSTITUTIONAL,
SERVICE AND INVESTOR A SHARE
($422,842,885 (DIVIDE) 42,747,370) $ 9.89
======
OFFERING PRICE PER
INSTITUTIONAL AND
SERVICE SHARE $ 9.89
======
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($9.89 (DIVIDE) 0.960) $10.30
======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(SUBJECT TO A CONTINGENT
DEFERRED SALES CHARGE OF 4.5%)
PER INVESTOR B SHARE
($808,654 (DIVIDE) 81,751) $ 9.89
======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(SUBJECT TO A CONTINGENT
DEFERRED SALES CHARGE OF 1.0%)
PER INVESTOR C SHARE
($468,151 (DIVIDE) 47,327) $ 9.89
======
- -----------------------
* Also cost for Federal income tax purposes. The gross unrealized appreciation
(depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 394,370
Gross unrealized depreciation (8,398,194)
-----------
$(8,003,824)
===========
** Rates shown are the rates as of September 30, 1999.
*** Rates shown are the effective yields as of September 30, 1999.
(DOUBLE DAGGER) Principal amount of securities pledged as collateral of
$2,570,124 on 37 short U.S. Treasury Bonds futures contracts, 30 long U.S.
Treasury Notes futures contracts and 168 short U.S. Treasury Notes futures
contracts expiring December 1999. The value of such contracts on September
30, 1999 was $25,742,188, thereby resulting in an unrealized gain of
$21,282.
See accompanying notes to financial statements.
20
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
INTERMEDIATE BOND PORTFOLIO
Par
AS OF SEPTEMBER 30, 1999 Maturity (000) Value
-------- ------- ------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 18.2%
Small Business Administration
Participation Certificates,
Series 92-20H, Class 1
7.40% 08/01/12 $ 3,186 $ 3,206,678
Small Business Administration
Participation Certificates,
Series 96-20H, Class 1
7.25% 08/01/16 5,526 5,520,728
Small Business Investment Cos.
Pass-Through, Series 96-P10A, Class 1
6.67% 02/10/06 3,034 3,001,494
Small Business Investment Cos.
Pass-Through, Series 97-P10D, Class 1
6.51% 11/01/07 1,000 967,771
U.S. Treasury Bonds
8.75%(DAGGER) 11/15/08 21,380 23,398,988
12.75%(DAGGER) 11/15/10 11,625 15,453,390
14.00% 11/15/11 2,420 3,486,203
5.25% 02/15/29 660 577,250
U.S. TREASURY NOTES
5.50%(DAGGER) 07/31/01 5,350 5,338,518
5.63% 12/31/02 2,460 2,451,482
5.88% 11/15/05 950 944,872
6.50%(DAGGER) 10/15/06 34,300 35,094,141
------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $100,305,664) 99,441,515
------------
MORTGAGE PASS-THROUGHS -- 16.0%
Federal Home Loan Mortgage
Corp.
5.81%** 07/01/01 9,498 9,391,001
9.50% 01/01/05 126 133,384
9.00% 01/05-12/16 75 78,223
8.50% 07/01/06 13 13,653
7.25% 12/01/06 391 389,062
6.50% 04/01/08 3,879 3,824,530
8.00%(DAGGER) 07/08-09/18 5,013 5,154,088
6.45% 04/29/09 5,000 4,773,196
Federal Home Loan Mortgage
Corp. Gold
7.00% 09/01/11 6,236 6,241,798
Federal National Mortgage Association
6.20%(DAGGER) 02/26/01 5,182 5,164,146
6.00%(DAGGER) 01/04-07/14 3,781 3,669,247
9.50% 03/01/05 7 7,796
8.00%(DAGGER) 03/01/08 2,299 2,319,585
6.04% 02/25/09 5,600 5,226,473
7.50%(DAGGER) 05/01/09 1,748 1,754,052
8.50% 08/01/09 5,514 5,645,199
7.27% 01/25/11 3,250 3,280,235
7.00% 05/01/11 7,768 7,765,258
5.50%(DAGGER) 12/13-06/14 7,292 6,866,160
Federal National Mortgage Association
10 Year Balloon
6.00% 02/01/04 2,678 2,611,500
Government National Mortgage
Association
7.25%(DAGGER) 04/15/06 1,183 1,175,071
8.25%(DAGGER) 08/08-11/08 5,907 6,095,563
9.50% 05/16-11/16 189 202,692
8.50% 02/17-03/17 1,608 1,674,442
6.50% 10/23-12/23 4,473 4,278,878
------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $88,764,547) 87,735,232
------------
Par
Maturity (000) Value
-------- ------- ------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS -- 3.7%
Amresco Securitized Net Interest
Margin Trust, Series 96-1, Class A
8.10% 04/26/26 $ 1,004 $ 953,397
Federal Home Loan Mortgage Corp.,
Series 96T-2, Class A
7.00%(DAGGER) 01/25/21 3,472 3,428,928
Federal National Mortgage Association
Grantor Trust, Series 96-T6, Class A
6.33%(DAGGER) 10/25/00 2,838 2,830,602
Federal National Mortgage Association
Strip Notes, Series 279, Class 1 (PO)
6.92%*** 07/01/26 386 309,094
Federal National Mortgage Association,
Series 89-16, Class B (PO)
8.79%*** 03/25/19 1,123 825,205
General Motors Acceptance Corp.
Commercial Mortgage Securities,
Inc., Series 97-C1, Class X (IO)
7.84%*** 07/15/27 27,177 2,107,102
General Motors Acceptance Corp.
Commercial Mortgage Securities, Inc.,
Series 97-C2, Class A3
6.57% 11/15/07 4,325 4,152,901
MLCC Mortgage Investors, Inc.,
Series 95-C1, Class C
7.58%** 05/25/15 2,022 2,001,568
Residential Asset Securitization Trust,
Series 98-A1, Class A1
7.00% 03/25/28 2,617 2,615,022
Residential Asset Securitization Trust,
Series 98-A2, Class A1
6.75% 04/25/28 1,245 1,242,176
------------
TOTAL MULTIPLE CLASS
MORTGAGE PASS-THROUGHS
(Cost $21,061,144) 20,465,995
------------
COMMERCIAL MORTGAGE
BACKED SECURITIES -- 13.3%
Asset Securitization Corp.,
Series 97-D5, Class A1A
6.50% 02/14/41 6,163 6,123,543
Atherton Franchisee Loan Funding,
Series 98-A, Class A2
6.72% 08/15/10 6,000 5,676,034
Bayview Financial Acquisition Trust,
Series 98-1, Class AI
7.01% 05/25/29 3,237 3,198,893
Bayview Financial Acquisition Trust,
Series 98-1, Class AII
5.64%** 05/25/29 2,374 2,363,057
Bosque Asset Corp.,
Series 97-1, Class A1
7.66% 06/05/02 1,005 1,004,348
Chase Commercial Mortgage Securities
Corp., Series 97-2, Class A1
6.45% 12/19/04 704 688,633
Commercial Mortgage Asset Trust,
Series 99-C1, Class A1
6.25% 08/17/06 487 472,960
Deutsche Mortgage and Asset Receiving
Corp., Series 98-C1, Class A1
6.22% 09/15/07 284 277,047
Franchise Loan Trust,
Series 98-1, Class A1
6.24% 07/15/04 3,784 3,713,652
See accompanying notes to financial statements.
21
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
INTERMEDIATE BOND PORTFOLIO (CONTINUED)
Par
AS OF SEPTEMBER 30, 1999 Maturity (000) Value
-------- ------- ------------
COMMERCIAL MORTGAGE
BACKED SECURITIES (CONTINUED)
General Motors Acceptance Corp.,
Series 97
7.43% 02/21/21 $ 968 $ 974,357
General Motors Acceptance Corp.
Commercial Mortgage Securities, Inc.,
Series 99-C2, Class A2
6.95% 09/15/33 825 812,722
ICI Funding Corp. Secured Assets Corp.,
Series 97-1, Class A10
7.75% 03/25/28 3,400 3,432,832
ICI Funding Corp. Small Business
Administration Loan-Backed
Adjustable Rate Certificates,
Series 97-1, Class A
6.00%** 01/15/24 2,538 2,512,135
J.P. Morgan Commercial Mortgage
Finance Corp., Series 97, Class D
6.36%** 07/25/29 4,000 3,940,000
Lehman Brothers Commercial Conduit
Mortgage Trust, Series 96-C2, Class A
7.43%** 10/25/26 8,160 8,280,529
Master Financial Asset Securitization
Trust, Series 98-2, Class A3
6.60% 11/20/18 6,000 5,831,250
Merit Securities Corp., Series 98-11,
Class 2A2
5.66%** 11/28/22 5,245 5,241,755
Morgan Stanley Capital International,
Inc., Series 97-HF1, Class A1
6.86% 07/15/29 4,393 4,387,917
Morgan Stanley Capital International,
Inc., Series 98-CF1, Class A1
6.33% 10/15/07 2,359 2,288,676
NYC Mortgage Loan Trust, Series 96,
Class A1
6.75% 06/25/06 3,923 3,919,320
Republic Bank Home Loan Owner Trust,
Series 98-1, Class A1
6.61% 04/25/07 588 585,904
Salomon Brothers Mortgage Securities
VII, Series 96-6B, Class A1
5.73%** 06/30/26 7 7,285
Structured Asset Securities Corp.,
Series 98-C2A, Class B
5.70%** 01/25/13 3,410 3,409,093
Union Planters Mortgage Finance Corp.,
Series 98-1, Class A1
6.35% 01/25/28 3,358 3,374,608
------------
TOTAL COMMERCIAL MORTGAGE
BACKED SECURITIES
(Cost $73,735,926) 72,516,550
------------
PROJECT LOANS -- 4.0%
FEDERAL HOUSING AUTHORITY, MERRILL LYNCH,
SERIES 97-23
7.43% 12/01/21 17,123 17,242,401
Federal Housing Authority, USGI,
Series 56
7.46% 01/01/23 4,787 4,822,270
------------
TOTAL PROJECT LOANS
(Cost $22,267,002) 22,064,671
------------
Par
Maturity (000) Value
-------- ------- ------------
ASSET BACKED SECURITIES -- 26.1%
ACLC Business Loan Receivables Trust,
Series 98-1, Class A1
6.44% 09/15/19 $ 3,171 $ 3,088,135
Associates Manufactured Housing Pass-
Through, Series 96-1, Class B1
8.00% 03/15/27 4,200 4,007,062
Barnett Auto Trust, Series 97-A, Class A3
6.03% 11/15/01 1,046 1,062,390
Boston Edison Co., Series 99-1, Class A4
6.91% 09/15/09 5,500 5,445,918
Chevy Chase Auto Receivables Trust,
Series 97-1, Class A
6.50% 10/15/03 3,794 3,745,806
Chevy Chase Auto Receivables Trust,
Series 97-3, Class A
6.20% 03/20/04 2,017 2,030,676
Citibank Credit Card Master Trust I,
Series 97-6, Class A (IO)
7.05%*** 08/15/06 10,450 7,466,287
Citibank Credit Card Master Trust I,
Series 99-2, Class A
5.88% 03/10/11 3,025 2,796,707
Dayton Hudson Credit Card Master Trust,
Series 97-1, Class A
6.25% 08/25/05 4,000 3,910,974
DVI Receivables Corp.,
Series 98-1, Class A2
6.04% 04/10/06 4,386 4,405,608
FMAC Loan Receivables Trust,
Series 97-C, Class A
6.75% 12/15/19 6,817 6,613,575
FMAC Loan Receivables Trust,
Series 98-CA, Class A1
5.99% 11/15/04 3,572 3,476,258
Green Tree Financial Corp.,
Series 94-B, Class A
7.85% 07/15/04 2,444 2,393,729
Green Tree Financial Corp.,
Series 96-7, Class A6
7.65% 10/15/27 3,300 3,346,922
Green Tree Financial Corp.,
Series 96-9, Class B1
7.65% 01/15/28 4,000 3,740,613
Green Tree Financial Corp.,
Series 98-1, Class D
6.35%** 06/15/29 5,800 5,655,586
Green Tree Recreational Equipment &
Consumer Trust, Series 97-C, Class A1
6.49% 02/15/18 5,632 5,603,236
Health Care Receivables Securitization
Program Notes, NPF VI,
Series 98-1, Class A
6.22% 06/01/02 4,400 4,337,774
Honda Auto Lease Trust,
Series 99-A, Class A4
6.45% 09/16/02 5,050 5,058,680
MBNA Master Credit Card Trust,
Series 99-B, Class A
5.90% 08/15/11 4,400 4,137,166
Mellon Bank Home Equity Loan Trust,
Series 96-1, Class B2
5.69%** 04/15/26 871 870,824
National Premier Financial,
Series 97-1, Class A
6.82% 07/01/01 3,000 3,008,906
See accompanying notes to financial statements.
22
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
INTERMEDIATE BOND PORTFOLIO (CONTINUED)
Par
AS OF SEPTEMBER 30, 1999 Maturity (000) Value
-------- ------- ------------
ASSET BACKED SECURITIES (CONTINUED)
PBG Equipment Trust,
Series 1A, Class A
6.27% 01/20/12 $ 8,068 $ 7,885,675
PMC Capital Limited Partnership,
Series 98-1, Class A
6.75%** 04/01/21 2,413 2,413,316
PMC Capital Small Business
Administration Loan-Backed Adjustable
Rate Certificates, Series 97-1, Class A
6.35%** 09/15/23 4,598 4,551,753
Puget Power Conservation Grantor Trust,
Series 97-1, Class A
6.23% 07/11/02 2,536 2,526,802
Sears Credit Account Master Trust,
Series 95-5, Class A
6.05% 01/15/08 5,000 4,926,103
Sears Credit Account Master Trust,
Series 97-1, Class A
6.20% 07/16/07 6,055 6,015,733
Standard Credit Card Master Trust,
Series 94-4, Class A
8.25% 11/07/03 1,650 1,718,756
SWB Loan Backed Certificates,
Series 99-1, Class A
7.38% 05/15/25 2,655 2,628,729
The Money Store Home Equity Trust,
Series 95-A, Class A8
8.13% 06/15/15 2,435 2,467,513
The Money Store Small Business
Administration Loan Trust,
Series 99-1, Class A
5.52%** 07/15/25 3,967 3,933,590
Travelers Bank Credit Card Master
Trust, Series 98-1, Class A
6.00% 01/18/05 5,800 5,720,308
Union Acceptance Corp.,
Series 96-A, Class A
5.40% 04/07/03 1,770 1,757,167
USAA Auto Loan Grantor Trust,
Series 99-1, Class A
6.10% 02/15/06 10,075 10,033,759
------------
TOTAL ASSET BACKED SECURITIES
(Cost $144,789,580) 142,782,036
------------
CORPORATE BONDS -- 35.1%
AUTOMOTIVE -- 1.0%
DAIMLERCHRYSLER HOLDINGS N.A.
6.90% 09/01/04 5,620 5,648,100
------------
FINANCE -- 18.5%
American General Financial Corp.
8.13% 08/15/09 2,250 2,379,375
Associates Corp.
5.75% 11/01/03 3,430 3,297,259
Bear Stearns Capital Trust Investments
7.00% 01/15/27 5,100 5,025,094
Chrysler Financial Co.
5.25% 10/22/01 4,130 4,031,086
Citicorp
6.38% 11/15/08 1,710 1,618,087
Crestar Financial Corp.
8.25% 07/15/02 3,200 3,328,000
Crown Cork & Seal, S.A.
6.75% 12/15/03 2,000 1,961,234
Den Danske Bank
6.38%** 06/15/08 5,600 5,173,000
Par
Maturity (000) Value
-------- ------- ------------
CORPORATE BONDS (CONTINUED)
FINANCE (CONTINUED)
Equitable Life Surplus
6.95% 12/01/05 $ 1,750 $ 1,718,575
ERAC USA Finance Co.
6.95% 03/01/04 1,375 1,353,302
Firstar Corp.
6.50% 07/15/02 2,480 2,467,717
Ford Motor Credit Co.
6.50% 02/28/02 5,850 5,828,062
5.80% 01/12/09 2,810 2,560,612
General Motors Acceptance Corp.
6.85% 06/17/04 400 399,769
5.85% 01/14/09 1,705 1,557,944
Goldman Sachs Group
6.65% 05/15/09 5,485 5,228,975
Household Finance Corp.
7.00% 08/01/03 2,400 2,398,977
J.P. Morgan & Co., Inc.
6.77%** 02/15/12 3,700 3,244,530
KeyBank N.A.
5.80% 04/01/04 2,200 2,105,963
Lehman Brothers Holdings, Inc.
8.75% 05/15/02 3,940 4,084,598
Marsh & McLennan Cos., Inc.
6.63% 06/15/04 6,295 6,216,313
Merrill Lynch & Co., Inc.
6.00% 02/17/09 2,800 2,576,000
Newcourt Credit Group
7.13% 12/17/03 5,035 5,061,786
Popular North America, Inc.
6.88% 06/15/01 4,950 4,933,374
Provident Companies, Inc.
7.41% 03/15/38 3,780 3,264,404
Raytheon Co.
6.30% 03/15/05 4,300 4,122,625
TransAmerica Finance Corp.
7.25% 08/15/02 7,125 7,181,047
TXU Eastern Funding Co.
6.15% 05/15/02 3,810 3,723,051
U.S. Bancorp
6.50% 06/15/04 4,140 4,078,491
------------
100,919,250
------------
INDUSTRIAL -- 9.8%
Anixter, Inc.
8.00%(DOUBLE DAGGER) 09/15/03 4,350 4,133,198
Atlantic Richfield
10.88% 07/15/05 2,960 3,496,500
Coca-Cola Enterprises, Inc.
5.71% 03/18/37 5,000 5,001,550
Cox Enterprises, Inc.
6.63% 06/14/02 2,820 2,794,084
Federated Department Stores
6.13%** 09/01/01 3,230 3,201,738
Litton Industries, Inc.
6.05% 04/15/03 4,100 3,987,250
Monsanto Co.
5.75% 12/01/05 4,125 3,856,875
Nabisco, Inc.
6.70% 06/15/02 4,200 4,152,246
6.85% 06/15/05 300 289,956
Rohm & Haas Co.
6.95% 07/15/04 2,520 2,526,300
Southdown, Inc.
10.00% 03/01/06 2,850 3,097,893
Tyco Intl. Group Corp., S.A.
5.88% 11/01/04 5,865 5,557,088
See accompanying notes to financial statements.
23
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
INTERMEDIATE BOND PORTFOLIO (CONTINUED)
Par
AS OF SEPTEMBER 30, 1999 Maturity (000) Value
-------- ------- ------------
CORPORATE BONDS (CONTINUED)
INDUSTRIAL (CONTINUED)
Union Carbide Corp.
6.75% 04/01/03 $ 2,100 $ 2,047,500
United Technologies Corp.
7.00% 09/15/06 4,170 4,173,261
Williams Holdings of Delaware
6.13% 12/01/03 5,650 5,387,282
------------
53,702,721
------------
INSURANCE -- 0.6%
Metropolitan Life Insurance Co.
6.30% 11/01/03 3,265 3,167,050
------------
PIPELINES -- 0.5%
El Paso Energy Corp.
6.63% 07/15/01 2,745 2,745,000
------------
TELECOMMUNICATIONS -- 0.5%
Sprint Capital Corp.
6.13% 11/15/08 3,010 2,799,300
------------
UTILITY -- 1.9%
National Rural Utilities
5.00% 10/01/02 4,620 4,428,362
US West Capital Funding, Inc.
6.25% 07/15/05 6,440 6,098,422
------------
10,526,784
------------
WASTE MANAGEMENT -- 0.1%
USA Waste Management, Inc.
6.13% 07/15/01 825 793,031
------------
YANKEE -- 2.1%
Nordbanken
5.91%** 10/25/01 4,950 4,846,050
Swedbank
7.50%** 09/29/49 2,200 1,975,380
Yorkshire Power Finance
6.15% 02/25/03 5,100 4,888,605
------------
11,710,035
------------
TOTAL CORPORATE BONDS
(Cost $197,365,608) 192,011,271
------------
TAXABLE MUNICIPAL BONDS -- 2.6%
New Jersey Economic Development
Authority State Pension Funding
Zero Coupon Revenue Bond,
Series 97-B
6.94%*** 02/15/05 2,900 1,979,250
New York State Power Authority and
General Purpose Revenue Bond,
Series 98-B
6.11%** 02/15/11 5,600 5,530,000
Philadelphia Authority Industrial
Development Tax Claim Collection
Revenue Bond, Series 97-A
6.49% 06/15/04 6,860 6,653,916
------------
TOTAL TAXABLE MUNICIPAL BONDS
(Cost $14,471,744) 14,163,166
------------
Shares
-------
SHORT TERM INVESTMENTS -- 0.0%
Galileo Money Market Fund
(Cost $119,644) 119,644 119,644
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $662,880,859*) 119.1% 651,300,080
------------
Par
Maturity (000) Value
-------- ------- ------------
REVERSE REPURCHASE AGREEMENTS -- (19.0%)
Aubrey Lanston
(Agreement dated 09/28/99 to be
repurchased at $5,174,827.
Collateralized by $4,900,000 U.S.
Treasury Notes 6.50% due 10/15/06.
The value of the collateral is
$5,160,512.)
5.30% 10/05/99 $ 5,170 $ (5,171,783)
Aubrey Lanston
(Agreement dated 09/30/99 to be
repurchased at $6,945,333.
Collateralized by $6,600,000 U.S.
Treasury Notes 6.50% due 10/15/06.
The value of the collateral is
$6,971,217.)
5.25% 10/07/99 6,938 (6,939,262)
Lehman Brothers (Agreement dated
09/27/99 to be repurchased at
$5,368,850. Collateralized by
$5,350,000 U.S. Treasury Notes
5.50% due 7/31/01. The value of
the collateral is $5,388,093.)
5.25% 10/04/99 5,363 (5,366,504)
Lehman Brothers (Agreement dated
09/27/99 to be repurchased at
$10,162,181. Collateralized by
$9,600,000 U.S. Treasury Notes
6.50% due 10/15/06. The value
of the collateral is
$10,110,391.)
5.25% 10/12/99 10,140 (10,145,915)
Lehman Brothers (Agreement dated
09/29/99 to be repurchased at
$45,144,381. Collateralized by
$21,380,000 U.S. Treasury Bonds
8.75% due 11/15/08 and
$18,140,000 U.S. Treasury Notes
6.50-12.75% due 10/15/06 to
11/15/10. The value of the
collateral is $45,188,364.)
5.29% 10/13/99 45,052 (45,064,940)
Lehman Brothers (Agreement dated
09/17/99 to be repurchased at
$5,452,529. Collateralized by
$5,908,973 Federal National
Mortgage Association 5.50% due
06/01/14. The value of the
collateral is $5,590,750.)
5.38% 10/19/99 5,429 (5,437,925)
Morgan Stanley
(Agreement dated 08/23/99 to be
repurchased at $6,510,052.
Collateralized by $6,803,258
Federal National Mortgage
Association 6.20-6.33%
due 10/25/00 to 02/26/01.
The value of the collateral
is $6,763,163.)
5.49% 10/21/99 6,452 (6,490,373)
See accompanying notes to financial statements.
24
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
INTERMEDIATE BOND PORTFOLIO (CONCLUDED)
Par
AS OF SEPTEMBER 30, 1999 Maturity (000) Value
-------- ------- ------------
REVERSE REPURCHASE AGREEMENTS (CONTINUED)
Morgan Stanley (Agreement dated
09/29/99 to be repurchased at
$6,886,718. Collateralized by
$6,946,344 Government National
Mortgage Association 7.25-8.25%
due 04/15/06 to 11/15/08. The
value of the collateral is
$7,318,394.)
5.38% 10/28/99 $ 6,857 $ (6,859,049)
Salomon Brothers
(Agreement dated 07/7/99 to
be repurchased at $1,129,411.
Collateralized by $1,177,156
Federal National Mortgage
Association 6.00% due 02/01/04.
The value of the collateral
is $1,153,980.)
5.17% 10/05/99 1,115 (1,128,771)
Salomon Brothers
(Agreement dated 09/15/99 to be
repurchased at $9,090,080.
Collateralized by $3,866,990
Federal Home Loan Mortgage
Corp. 8.00% due 07/01/08 to
09/01/18 and $5,680,642 Federal
National Mortgage Association
6.00-7.50% due 01/01/04 to
05/01/09. The value of the
collateral is $10,257,230.)
5.36% 10/14/99 9,051 (9,072,561)
Salomon Brothers
(Agreement dated 07/21/99 to be
repurchased at $2,428,401.
Collateralized by $610,294 Federal
Home Loan Mortgage Corp. 7.00%
due 01/25/21 and $2,299,464
Federal National Mortgage
Association 8.00% due 03/01/08.
The value of the collateral is
$2,941,115.)
5.24% 10/19/99 2,397 (2,422,121)
------------
TOTAL REVERSE REPURCHASE
AGREEMENTS
(Cost $103,963,825) (104,099,204)
LIABILITIES IN EXCESS OF
OTHER ASSETS (0.1%) (537,965)
------- ------------
NET ASSETS (Applicable to
4,647,402 BlackRock shares,
52,309,786 Institutional
shares, 2,668,946 Service
shares, 262,157 Investor A
shares, 110,931 Investor B
shares and 46,134 Investor C
shares outstanding) 100.0% $546,662,911
======= ============
Value
------------
NET ASSET VALUE AND REDEMPTION
PRICE PER BLACKROCK,
INSTITUTIONAL, SERVICE AND
INVESTOR A SHARE
($545,232,962 (DIVIDE) 59,888,291) $9.10
=====
OFFERING PRICE PER BLACKROCK,
INSTITUTIONAL AND SERVICE
SHARE $9.10
=====
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($9.10 (DIVIDE) 0.960) $9.48
=====
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION PRICE
(SUBJECT TO A CONTINGENT
DEFERRED SALES CHARGE OF
4.5%) PER INVESTOR B SHARE
($1,009,934 (DIVIDE) 110,931) $9.10
=====
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE
($420,015 (DIVIDE) 46,134) $9.10
=====
- -------------------------
* Cost for Federal income tax purposes is $664,080,781. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 666,938
Gross unrealized depreciation (13,447,639)
------------
$(12,780,701)
============
** Rates shown are the rates as of September 30, 1999.
***Rates shown are the effective yields as of September 30, 1999.
(DAGGER)Partial principal in the amount of $98,754,060 has been pledged as
collateral for reverse repurchase agreements.
(DOUBLE DAGGER) Principal amount of securities pledged as collateral of $600,000
on 29 long U.S. Treasury Notes futures contracts, 315 short U.S. Treasury
Notes futures contracts and 29 short U.S. Treasury Bonds futures contracts
expiring December 1999. The value of such contracts on September 30, 1999
was $40,665,469, thereby resulting in an unrealized gain of $23,389.
See accompanying notes to financial statements.
25
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
CORE BOND PORTFOLIO
Par
AS OF SEPTEMBER 30, 1999 Maturity (000) Value
-------- ---------- --------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 24.0%
Overseas Private Investment Co.
5.46%** 02/15/06 $ 303 $ 276,776
5.79%** 02/15/06 273 254,794
6.27%** 12/06-05/12 2,666 2,540,892
5.92%** 12/16/06 2,041 1,961,939
6.38%** 12/16/06 1,887 1,833,761
6.46%** 12/16/06 203 198,373
6.53%** 12/16/06 492 480,602
6.66%** 12/16/06 750 750,938
6.87% 12/16/06 970 941,649
5.88%** 05/29/12 360 340,573
6.81%** 05/29/12 386 386,341
6.84%** 05/29/12 498 491,396
6.91%** 05/29/12 1,020 982,526
Small Business Administration
Participation Certificates,
Series 92-20H, Class 1
7.40% 08/01/12 191 192,401
Small Business Administration
Participation Certificates,
Series 96-20J, Class 1
7.20% 10/01/16 1,224 1,220,540
Small Business Administration
Participation Certificates,
Series 97-20B, Class 1
7.10% 02/01/17 2,318 2,299,651
Small Business Investment Cos.
Pass-Through, Series 97-P10C, Class 1
6.85% 08/01/07 5,303 5,244,441
Small Business Investment Cos.
Pass-Through, Series 97-P10D, Class 1
6.51% 11/10/07 1,400 1,354,879
Small Business Investment Cos.
Pass-Through, Series 98-10A, Class 1
6.12% 02/01/08 875 829,372
Student Loan Marketing Association,
Series 97-3, Class A2
5.50%** 10/25/10 3,500 3,410,312
U.S. Treasury Bonds
5.50% 03/31/03 4,245 4,206,517
8.75% 11/15/08 30,615 33,506,082
12.75% 11/15/10 13,400 17,812,940
14.00% 11/15/11 750 1,080,435
7.50% 11/15/16 19,175 21,241,689
8.50% 02/15/20 10,110 12,427,093
5.25% 02/15/29 4,745 4,150,077
U.S. Treasury Bonds (CPI)
3.63%(DAGGER) 04/15/28 21,010 20,028,161
U.S. Treasury Notes
5.50% 08/31/01 6,950 6,934,684
5.63% 12/31/02 11,945 11,903,637
6.00% 08/04-08/09 27,547 27,776,884
6.50% 10/15/06 52,525 53,741,101
U.S. Treasury Notes (CPI)
3.63% 01/15/08 7,400 7,389,128
3.88% 04/15/29 8,150 7,987,218
U.S. Treasury Strip Principals
6.38% 02/15/11 3,865 1,881,807
--------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $261,822,666) 258,059,609
--------------
Par
Maturity (000) Value
-------- ---------- --------------
MORTGAGE PASS-THROUGHS -- 31.8%
Federal Home Loan Mortgage
Corp. Gold
7.50% 09/05-06/27 $ 2,794 $ 2,823,625
6.00%(DAGGER) 02/12-07/14 19,218 18,509,611
5.50%(DAGGER) 12/13-01/14 25,707 24,229,222
8.00% 11/01/15 77 78,784
7.00% 03/01/25 543 534,471
6.50% 11/28-07/29 57,268 54,976,947
Federal National Mortgage Association
6.10% 02/04/09 8,400 7,864,668
6.36% 04/09/09 3,700 3,510,930
6.50%(DAGGER) 04/09-07/29 33,907 33,049,780
8.00% 10/09-05/22 102 103,714
5.50%(DAGGER) 06/11-05/24 79,680 75,023,948
7.00%** 09/11-10/25 13,273 13,189,381
6.00% 03/13-05/29 40,655 38,514,901
7.50% 06/29-09/29 20,998 21,070,091
Government National Mortgage
Association
8.50% 01/10-04/17 185 192,665
7.00% 12/22-09/28 6,624 6,504,248
6.50% 12/23-08/24 11,978 11,458,154
9.00% 10/15/24 469 467,879
7.50% 05/27-09/29 16,188 16,238,951
9.17% 03/15/37 3,032 3,260,665
7.70% 11/15/38 927 934,097
MLCC Mortgage Investors, Inc.,
Series 95-C3, Class A1
6.75%** 12/26/25 1,025 1,019,442
MLCC Mortgage Investors, Inc.,
Series 96-C1, Class A3
7.42% 04/25/28 3,000 3,012,016
Morgan Stanley Capital, Series
99-FNV1, Class A2
6.53% 03/15/31 5,940 5,676,354
--------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $349,817,080) 342,244,544
--------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS -- 2.9%
Amresco Securitized Net Interest
Margin Trust, Series 96-1, Class A
8.10% 04/26/26 627 595,864
Chase Commercial Mortgage Securities
Corp., Series 97-1, Class X (IO)
8.51%*** 04/19/15 42,570 2,908,143
Credit Suisse First Boston Mortgage
Corp., Series 97-C1, Class AX (IO)
8.60%*** 04/20/22 61,842 5,321,274
Federal Home Loan Mortgage
Corp., Series 65, Class A (PO)
4.09%*** 03/15/24 955 428,278
Federal National Mortgage Association
Strip Notes, Series 279, Class 1 (PO)
6.99%*** 07/01/26 242 193,817
Federal National Mortgage Association,
Series 96-3, Class C (PO)
5.00%*** 02/25/24 996 567,464
Federal National Mortgage Association,
Series 96-54, Class A (PO)
7.57%*** 04/25/21 953 827,696
Federal National Mortgage Association,
Series 97-44, Class L (PO)
4.35%*** 02/25/24 990 534,600
See accompanying notes to financial statements.
26
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
CORE BOND PORTFOLIO (CONTINUED)
Par
AS OF SEPTEMBER 30, 1999 Maturity (000) Value
-------- ---------- --------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS (CONTINUED)
Federal National Mortgage Association,
Series 99-17, Class HJ (PO)
4.00%*** 12/25/23 $ 695 $ 297,547
Federal National Mortgage Association,
Series 99-17, Class JH (PO)
5.00%*** 04/25/24 865 393,034
Federal National Mortgage Association,
Series 99-51, Class L (PO)
5.60%*** 10/25/29 700 357,000
First Union-Lehman Brothers
Commercial Mortgage 1,
Series 97-C1, Class A3
7.38% 04/18/29 4,700 4,752,880
General Motors Acceptance Corp.
Commercial Mortgage Securities,
Inc., Series 97-C1, Class X (IO)
7.84%*** 07/15/27 45,812 3,551,867
J.P. Morgan Commercial Mortgage
Finance Corp., Series 97-C5, Class A2
7.07% 09/15/29 5,100 5,101,545
Residential Accredit Loans, Inc.,
Series 97-QS7, Class A1
7.50% 07/25/27 954 952,828
Salomon Brothers Mortgage Securities VI,
Series 87-1 (IO)
6.00%*** 02/17/17 1,779 465,774
Salomon Brothers Mortgage Securities VI,
Series 87-1 (PO)
6.00%*** 02/17/17 1,816 1,423,615
Salomon Brothers Mortgage Securities VI,
Series 87-2 (IO)
6.00%*** 03/06/17 1,110 302,033
Salomon Brothers Mortgage Securities VI,
Series 87-2 (PO)
6.00%*** 03/06/17 1,104 863,880
Salomon Brothers Mortgage Securities,
Series 87-3, Class A (PO)
5.00%*** 10/23/17 495 405,876
Salomon Brothers Mortgage Securities,
Series 87-3, Class B (IO)
5.00%*** 10/23/17 383 94,811
Structured Asset Securities Corp.,
Series 96-CFL, Class X1 (IO)
5.05%*** 02/25/28 19,700 1,022,020
--------------
TOTAL MULTIPLE CLASS MORTGAGE
PASS-THROUGHS
(Cost $33,553,460) 31,361,846
--------------
COMMERCIAL MORTGAGE
BACKED SECURITIES -- 3.4%
Capco America Securitization Corp.,
Series 98-D7, Class A1B
6.26% 09/15/08 2,700 2,524,469
COMM, Series 99-1, Class A2
6.46% 09/15/08 2,285 2,175,963
Credit Suisse First Boston Mortgage
Securities Corp., Series 97-C2,
Class AX (IO)
8.32%*** 11/17/22 19,442 1,232,036
Donaldson, Lufkin and Jenrette, Inc.
Mortgage Acceptance Corp.,
Series 97-CF1, Class A
7.60% 04/15/07 2,000 2,029,686
Par
Maturity (000) Value
-------- ---------- --------------
COMMERCIAL MORTGAGE
BACKED SECURITIES (CONTINUED)
Empire Funding Home Loan Owner
Trust, Series 98-2, Class A4
6.53% 03/25/19 $ 7,000 $ 6,868,750
First Boston Mortgage Securities Corp.,
Series 93-M1, Class A
6.75% 09/25/06 114 112,289
General Electric Capital Mortgage
Services, Series 97-HE1, Class A4
7.78% 03/25/27 1,666 1,676,396
General Motors Acceptance Corp.
Commercial Mortgage Securities, Inc.,
Series 99-C2, Class A2
6.95% 09/15/33 1,605 1,581,113
Goldman Sachs Mortgage Securities
Corp. II, Series 96-PL, Class A2
7.41% 02/15/27 2,891 2,906,661
J.P. Morgan Commercial Mortgage
Finance Corp., Series 96-C3, Class A1
7.33% 04/25/28 1,437 1,446,208
Lehman Brothers Commercial Conduit
Mortgage Trust, Series 98-C4,
Class X (IO)
1.00%*** 09/15/23 17,860 648,516
Mid-State Trust, Series 1, Class A1
7.34% 07/01/35 2,372 2,306,783
Mid-State Trust, Series 6, Class A4
7.79% 07/01/35 909 824,966
Midland Royalty Acceptance Corp.,
Series 96-C2, Class A2
7.23% 01/25/29 4,050 4,023,413
PNC Mortgage Securities Corp.,
Series 97-6, Class A1
6.49% 10/25/26 5,897 5,893,050
--------------
TOTAL COMMERCIAL MORTGAGE
BACKED SECURITIES
(Cost $36,851,897) 36,250,299
--------------
PROJECT LOANS -- 1.5%
Avon on the Green, Construction
Loan Collateral
7.75% 05/01/39 729 736,646
Desert Mirage Apartments, Construction
Loan Collateral
7.25% 11/25/37 915 901,067
Desert Mirage Apartments, Construction
Loan Committment
7.25% 06/01/01 85 83,988
Evergreen Tower II, Construction
Loan Collateral
7.38% 09/01/39 916 901,121
Evergreen Tower II, Construction
Loan Committment
7.38% 03/01/00 59 58,179
Federal Housing Authority, Greens
at Viera East Apartments
7.88% 12/01/38 928 940,574
Federal Housing Authority, East Point
Chelsea
10.23% 05/01/33 98 105,215
Federal Housing Authority, Merrill Lynch,
Series 97-23
7.43% 12/01/21 3,150 3,171,952
See accompanying notes to financial statements.
27
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
CORE BOND PORTFOLIO (CONTINUED)
Par
AS OF SEPTEMBER 30, 1999 Maturity (000) Value
-------- ---------- --------------
PROJECT LOANS (CONTINUED)
Federal Housing Authority, University
Park Apartments
7.88% 10/01/37 $ 7,654 $ 7,691,416
Greens at Viera East Apartments,
Construction Loan Collateral
7.88% 12/01/38 0 281
Pheasant Run Manor, Construction
Loan Collateral
6.88% 08/01/41 464 439,049
Pheasant Run Manor, Construction
Loan Committment
6.88% 08/01/01 799 755,650
Federal Housing Authority,
Sakonnet Bay Manor
7.63% 10/01/38 837 840,975
--------------
TOTAL PROJECT LOANS
(Cost $16,899,442) 16,626,113
--------------
ASSET BACKED SECURITIES -- 10.4%
Arcadia Automobile Receivables Trust,
Series 98-B, Class A3
5.95% 11/15/02 17,500 17,511,900
Associates Manufactured Housing
Pass-Through, Series 96-1, Class B1
8.00% 03/15/27 2,815 2,685,686
Boston Edison Co.,
Series 99-1, Class A5
7.03% 03/15/12 2,300 2,281,152
Chevy Chase Auto Receivables Trust,
Series 97-2, Class A
6.35% 01/15/04 2,686 2,702,284
Chevy Chase Auto Receivables Trust,
Series 97-3, Class A
6.20% 03/20/04 961 967,354
CIT Group Securitization Corp.,
Series 95-2, Class B
7.65% 05/15/26 300 250,781
FMAC Loan Receivables Trust,
Series 97-B, Class A
6.85% 09/15/19 5,396 5,254,380
Ford Credit Auto Owner Trust,
Series 99-C, Class A4
6.08% 09/16/02 6,850 6,822,172
Green Tree Financial Corp.,
Series 93-3, Class B
6.85% 10/15/18 3,246 3,078,164
Green Tree Financial Corp.,
Series 94-B, Class A
7.85% 07/15/04 114 111,336
Green Tree Financial Corp.,
Series 95-A, Class A
7.25% 07/15/05 5,534 5,248,259
Green Tree Financial Corp.,
Series 96-2, Class B2
7.90% 04/15/27 3,650 2,852,315
Green Tree Financial Corp.,
Series 97-2, Class B
7.56% 06/15/28 5,000 4,678,390
Green Tree Financial Corp.,
Series 97-3, Class B2
8.03%(DOUBLE DAGGER) 07/15/28 2,400 1,858,940
Green Tree Home Improvement Loan
Trust, Series 94-D, Class M
9.05% 01/15/15 638 645,302
Health Care Receivables Securitization
Program Notes, NPF VI,
Series 98-1A, Class A
6.22% 06/01/02 6,800 6,703,833
Par
Maturity (000) Value
-------- ---------- --------------
ASSET BACKED SECURITIES (CONTINUED)
Honda Auto Lease Trust,
Series 99-A, Class A4
6.45% 09/16/02 $ 9,050 $ 9,065,555
MBNA Master Credit Card Trust,
Series 99-B, Class A
5.90% 08/15/11 2,700 2,538,716
MBNA Master Credit Card Trust,
Series 99-J, Class A
7.00% 02/15/12 3,950 3,969,134
Mellon Bank Home Equity Loan Trust,
Series 96-1, Class B2
5.69%** 04/15/26 1,294 1,293,796
Pegasus Aviation Lease Securitization,
Series 99-1A, Class A1
6.30% 03/25/29 1,942 1,898,785
Puget Power Conservation Grantor Trust,
Series 97-1, Class A
6.23% 07/11/02 2,384 2,375,194
Sears Credit Account Master Trust,
Series 95-5, Class A
6.05% 01/15/08 10,600 10,443,339
Sears Credit Account Master Trust,
Series 97-1, Class A
6.20% 07/16/07 10,500 10,431,908
Sears Credit Account Master Trust,
Series 98-1, Class A
5.80% 08/15/05 5,400 5,311,428
The Money Store Home Equity Trust,
Series 95-A, Class A8
8.13% 06/15/15 904 916,083
World Omni Automobile Lease
Securitization Trust,
Series 96-B, Class A3
6.25% 11/15/02 533 533,991
--------------
TOTAL ASSET BACKED SECURITIES
(Cost $115,240,782 112,430,177
--------------
CORPORATE BONDS -- 21.1%
AEROSPACE -- 0.3%
United Technology Corp.
6.50% 06/01/09 3,735 3,606,629
--------------
AIR TRANSPORTATION -- 0.1%
Continental Airlines
7.06% 09/15/09 965 929,197
--------------
AUTOMOTIVE -- 0.7%
DaimlerChrysler Holdings N.A.
7.20% 09/01/09 7,650 7,688,250
--------------
FINANCE -- 7.1%
AT&T Capital Corp.
6.25% 05/15/01 4,000 3,965,000
Chase Manhattan Corp.
5.75% 04/15/04 1,580 1,513,617
CIT Group, Inc.
7.13% 10/15/04 2,160 2,159,578
Dresdner Funding Trust 1
8.15% 06/30/31 3,275 3,070,313
FMR Corp.
7.57% 06/15/29 5,185 5,068,338
Ford Motor Credit Co.
6.70% 07/16/04 3,885 3,865,575
5.80% 01/12/09 6,905 6,292,181
Goldman Sachs Escrow Corp.,
Series 144A
7.00% 08/01/03 860 834,002
See accompanying notes to financial statements.
28
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
CORE BOND PORTFOLIO (CONTINUED)
Par
AS OF SEPTEMBER 30, 1999 Maturity (000) Value
-------- ---------- --------------
CORPORATE BONDS (CONTINUED)
FINANCE (CONTINUED)
J.P. Morgan & Co., Inc.
5.54%** 02/15/12 $ 100 $ 87,690
Lehman Brothers Holdings, Inc.
6.75% 09/24/01 5,200 5,179,720
6.20% 01/15/02 6,000 5,894,400
6.63% 04/01/04 2,250 2,187,090
Merrill Lynch & Co., Inc.
5.75% 11/04/02 2,445 2,379,254
6.00% 02/17/09 2,175 2,001,000
MidAmerican Funding LLC
5.85% 03/01/01 4,845 4,800,281
National City Corp.
6.88% 05/15/19 5,000 4,576,248
Newcourt Credit Group
6.88% 02/16/05 465 454,644
Pemex Finance Ltd.
9.14% 08/15/04 2,520 2,524,158
Simon Property Group LP, Inc.
6.63% 06/15/03 4,200 4,041,618
TXU Eastern Funding Co.
6.15% 05/15/02 310 302,925
Wachovia Corp
5.63% 12/15/08 4,910 4,413,157
Yorkshire Power Finance
6.50% 02/25/08 5,435 4,945,850
Zurich Capital Trust International
8.38% 06/01/37 5,925 5,821,313
--------------
76,377,952
--------------
INDUSTRIAL -- 5.5%
Atlantic Richfield
9.13% 03/01/11 4,960 5,784,600
7.00% 04/15/38 2,255 2,241,630
Coca-Cola Enterprises, Inc.
5.71% 03/18/37 7,485 7,487,320
Conoco, Inc.
6.95% 04/15/29 2,145 1,994,850
Corning, Inc.
6.30% 03/01/09 3,000 2,822,730
Cox Enterprises, Inc.
6.63% 06/14/02 2,380 2,358,128
Enron Corp.
6.45% 11/15/01 3,000 2,970,350
Ford Motor Co.
7.45% 07/16/31 8,670 8,555,347
Hyder PLC
7.38% 12/15/28 2,585 2,277,705
Jones Apparel Group, Inc.
6.25% 10/01/01 7,050 6,917,813
Nabisco, Inc.
6.00% 02/15/01 2,445 2,418,749
7.55% 06/15/15 1,660 1,581,897
Tyco Intl. Group SA
6.25% 06/15/03 6,340 6,154,327
Williams Cos., Inc.
6.13% 02/01/01 2,290 2,281,413
Williams Holdings of Delaware
6.13% 12/01/03 3,450 3,289,579
--------------
59,136,438
--------------
INSURANCE -- 0.8%
Equitable Cos., Inc.
9.00% 12/15/04 3,480 3,788,850
7.00% 04/01/28 1,565 1,425,527
Par
Maturity (000) Value
-------- ---------- --------------
CORPORATE BONDS (CONTINUED)
INSURANCE (CONTINUED)
Florida Windstorm Underwriting
Association
7.13% 02/25/19 $ 3,410 $ 3,187,122
--------------
8,401,499
--------------
TELECOMMUNICATIONS -- 3.3%
AT&T Corp.
6.00% 03/15/09 3,400 3,162,000
6.50% 03/15/29 4,995 4,403,692
Chesapeake & Potomac
Telephone of Maryland
8.30% 08/01/31 3,375 3,622,569
CSX Corp.
5.85% 12/01/03 1,460 1,393,716
MCI Worldcom, Inc.
7.75% 04/01/27 3,696 3,866,940
7.13% 06/15/27 1,635 1,653,394
SBC Communications, Inc.
7.38% 06/15/25 4,275 4,061,250
Sprint Capital Corp.
5.70% 11/15/03 2,800 2,677,500
6.13% 11/15/08 2,000 1,860,000
6.38% 05/01/09 5,900 5,561,616
U.S. West Capital Funding, Inc.
6.88% 08/01-07/28 3,890 3,784,313
--------------
36,046,990
--------------
TRANSPORTATION -- 0.4%
Federal Express Corp.
7.11% 01/02/14 3,228 3,013,906
6.72% 01/15/22 1,820 1,718,242
--------------
4,732,148
--------------
UTILITY -- 1.4%
Avon Energy Partners Holdings
7.05% 12/11/07 2,215 2,103,586
6.46% 03/04/08 5,000 4,550,650
Illinois Power Co.
7.50% 06/15/09 1,165 1,165,383
Niagara Mohawk Power Corp.
7.75% 10/01/08 2,765 2,820,300
Reliant Energy, Inc.
6.50% 02/01/08 4,910 4,627,675
--------------
15,267,594
--------------
WASTE MANAGEMENT -- 0.5%
USA Waste Management, Inc.
6.13% 07/15/01 5,350 5,142,688
--------------
YANKEE -- 1.0%
Den Norske Stats Oljesel
7.38% 05/01/16 950 918,763
Deutsche Bank Capital Funding
Trust Investment
7.87%** 12/29/49 2,240 2,135,011
Empresa Electrica Pehuenche
7.30% 05/01/03 4,985 4,808,307
Swedbank
7.50%** 09/29/49 2,800 2,514,120
--------------
10,376,201
--------------
TOTAL CORPORATE BONDS
(Cost $236,052,118) 227,705,586
--------------
See accompanying notes to financial statements.
29
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
CORE BOND PORTFOLIO (CONCLUDED)
Par/Shares
AS OF SEPTEMBER 30, 1999 Maturity (000) Value
-------- ---------- --------------
TAXABLE MUNICIPAL BONDS -- 1.4%
New Jersey Economic Development
Authority State Pension Funding
Zero Coupon Revenue Bond, Series 97-B
6.80%*** 02/15/05 $ 200 $ 136,500
7.56%*** 02/15/16 10,100 3,004,750
7.59%*** 02/15/17 3,575 983,125
7.21%*** 02/15/18 5,500 1,402,500
7.62%*** 02/15/20 6,265 1,378,300
7.63%*** 02/21-02/23 7,810 1,494,581
New York State Power Authority
and General Purpose Revenue
Bond, Series 98D
6.26% 02/15/03 7,100 7,002,375
-------------
TOTAL TAXABLE MUNICIPAL BONDS
(Cost $15,602,843) 15,402,131
--------------
SHORT TERM INVESTMENTS -- 3.1%
Federal Home Loan Bank Discount
Notes
5.17% 10/01/99 9,700 9,700,000
Federal Home Loan Mortgage
Corp. Discount Notes
5.20% 10/01/99 16,250 16,250,000
Galileo Money Market Fund 7,080,314 7,080,314
--------------
TOTAL SHORT TERM INVESTMENTS
(Cost $33,030,314) 33,030,314
--------------
PREFERRED STOCK -- 0.4%
Centaur Funding Corp., Cumulative
144A
9.08% 4,150 4,290,482
--------------
(Cost $4,150,000)
TOTAL INVESTMENTS IN
SECURITIES -- 100.0%
(Cost $1,103,020,602*) $1,077,401,101
==============
- ----------------------
* Cost for Federal income tax purposes is $1,103,416,734. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 2,014,633
Gross unrealized depreciation (28,030,266)
------------
$(26,015,633)
============
** Rates shown are the rates as of September 30, 1999.
*** Rates shown are the effective yields as of September 30, 1999.
(DAGGER)Partial principal in the amount of $97,450,655 has been pledged as
collateral for reverse repurchase agreements.
(DOUBLE DAGGER)Principal amount of securities pledged as collateral of
$2,400,000 on 173 long U.S. Treasury Notes futures contracts and 202 short
U.S. Treasury Bonds futures contracts expiring December 1999. The value of
such contracts on September 30, 1999 was $42,067,000, thereby resulting in
an unrealized gain of $193,040.
See accompanying notes to financial statements.
30
<PAGE>
BLACKROCK FUNDS
STATEMENT OF ASSETS AND LIABILITIES
CORE BOND PORTFOLIO
SEPTEMBER 30, 1999
ASSETS
Investments at value (Cost $1,103,020,602) ................ $1,077,401,101
Collateral received for securities loaned ................. 37,971,708
Interest receivable ....................................... 12,545,208
Principal receivable ...................................... 114,977
Investments sold receivable ............................... 8,665,241
Capital shares sold receivable ............................ 1,390,994
Prepaid expenses .......................................... 29,667
--------------
TOTAL ASSETS ....................................... 1,138,118,896
--------------
LIABILITIES
Payable upon return of securities loaned .................. 37,971,708
Investments purchased payable ............................. 33,584,229
Reverse repurchase agreements payable ..................... 90,270,868
Capital shares redeemed payable ........................... 3,521,558
Distributions payable ..................................... 5,080,433
Advisory fees payable ..................................... 256,169
Administrative fees payable ............................... 71,716
Transfer agent fees payable ............................... 64,611
Other accrued expenses payable ............................ 190,102
Futures margin payable .................................... 108,644
---------------
TOTAL LIABILITIES .................................. 171,120,038
---------------
NET ASSETS (Applicable to 17,266,409 BlackRock shares,
76,524,752 Institutional shares, 7,062,261 Service
shares, 727,748 Investor A shares, 1,544,744
Investor B shares and 726,233 Investor C shares
outstanding) .............................................. $ 966,998,858
==============
NET ASSET VALUE AND REDEMPTION PRICE PER
BLACKROCK, INSTITUTIONAL, SERVICE AND
INVESTOR A SHARE ($945,853,555 (DIVIDE) 101,581,170) ...... $9.31
=====
OFFERING PRICE PER BLACKROCK, INSTITUTIONAL AND
SERVICE SHARE ............................................. $9.31
=====
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE
($9.31 (DIVIDE) 0.960) ..................................... $9.70
=====
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales
charge of 4.5%) PER INVESTOR B SHARE
($14,383,286 (DIVIDE) 1,544,744) .......................... $9.31
=====
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales
charge of 1.0%) PER INVESTOR C SHARE
($6,762,017 (DIVIDE) 726,233) ............................. $9.31
=====
See accompanying notes to financial statements.
31
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
GOVERNMENT INCOME PORTFOLIO
Par
AS OF SEPTEMBER 30, 1999 Maturity (000) Value
-------- ---------- ------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 53.9%
Small Business Administration
Participation Certificates,
Series 96-20J, Class 1
7.20% 10/01/16 $ 405 $ 403,856
Small Business Administration
Participation Certificates,
Series 98-20J, Class 1
5.50% 10/01/18 236 216,493
U.S. Treasury Bonds
7.50% 11/15/16 1,200 1,329,336
8.50%(DAGGER) 02/15/20 2,775 3,410,997
U.S. Treasury Notes
5.00% 02/28/01 400 397,080
6.50%(DAGGER) 08/01-10/06 2,040 2,085,742
6.25% 02/28/02 650 658,358
5.50%(DAGGER) 05/31/03 15,290 15,139,201
------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $23,887,364) 23,641,063
------------
MORTGAGE PASS-THROUGHS -- 83.5%
Federal Home Loan Mortgage
Corp.
7.00%(DOUBLE DAGGER) 08/10-03/11 1,050 1,051,461
6.00% 10/11-07/14 4,749 4,574,322
8.00%(DOUBLE DAGGER) 05/12-11/26 3,379 3,464,434
5.50% 10/13-05/14 2,409 2,270,262
7.50% 11/01/25 40 39,954
6.92% 07/01/27 410 410,140
6.50% 04/01/29 2,991 2,871,460
Federal Home Loan Mortgage
Corp. Gold
6.50% 06/01/29 2,486 2,386,429
Federal Home Loan Mortgage
Corp. (TBA)
6.50% 06/15/13 2,000 1,961,250
Federal National Mortgage Association
6.14% 09/10/08 300 282,201
7.00% 08/09-12/11 1,405 1,404,468
8.50% 01/01/13 806 833,877
6.50% 01/13-07/29 1,302 1,263,199
8.00% 11/13-08/14 668 681,890
5.50% 12/13-01/14 900 847,128
6.00% 05/14-01/29 3,746 3,522,332
7.50% 06/24-04/26 763 765,692
Government National Mortgage
Association
6.00% 01/14-06/14 989 950,065
6.50% 11/23-06/29 4,333 4,145,825
7.00% 10/27-06/28 2,380 2,337,346
7.50% 04/27-11/27 612 614,707
------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $37,335,024) 36,678,442
------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS -- 1.7%
Federal National Mortgage Association,
Series 96-54, Class A (PO)
5.85%*** 04/25/21 228 197,772
Residential Accredit Loans, Inc.,
Series 98-D7, Class CB6
6.75% 05/25/28 215 212,844
Salomon Brothers Mortgage
Securities VI, Series 87-1 (IO)
6.00%*** 02/17/17 306 80,033
Par
Maturity (000) Value
-------- ---------- ------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS (CONTINUED)
Salomon Brothers Mortgage
Securities VI, Series 87-1 (PO)
6.00%*** 02/17/17 $ 306 $ 239,620
------------
TOTAL MULTIPLE CLASS MORTGAGE
PASS-THROUGHS
(Cost $735,563) 730,269
------------
COMMERCIAL MORTGAGE
BACKED SECURITIES -- 2.5%
Capco America Securitization Corp.,
Series 98-D7, Class A1B
6.26% 09/15/08 70 65,449
Commercial Mortgage Asset Trust,
Series 99-C1, Class A1
6.25% 08/17/06 292 283,776
Goldman Sachs Mortgage Securities
Corp., Series 98-1, Class A
8.00% 09/20/27 198 202,174
Goldman Sachs Mortgage Securities
Corp., Series 98-2, Class A
7.75% 05/19/27 206 208,873
Morgan Stanley Capital International, Inc.,
Series 98-CF1, Class A1
6.33% 10/15/07 116 112,190
Union Planters Mortgage Finance
Corp., Series 98-1, Class A1
6.35% 01/25/28 243 244,537
------------
TOTAL COMMERCIAL MORTGAGE
BACKED SECURITIES
(Cost $1,137,227) 1,116,999
------------
PROJECT LOANS -- 2.3%
Federal Housing Authority, Excelsior II
Apartments
8.04% 02/01/39 699 721,777
Federal Housing Authority, INSD
Project, Series 82
7.43% 09/01/22 282 283,995
------------
TOTAL PROJECT LOANS
(Cost $992,209) 1,005,772
------------
ASSET BACKED SECURITIES -- 0.7%
Chase Manhattan Grantor Trust,
Series 96-B, Class A
6.61% 09/15/02 37 36,735
The Money Store Small Business
Administration Loan Trust,
Series 99-1, Class A
5.52%** 07/15/25 290 287,824
------------
TOTAL ASSET BACKED SECURITIES
(Cost $326,790) 324,559
------------
Shares
----------
SHORT TERM INVESTMENTS -- 0.1%
Galileo Money Market Fund (Cost $31,624) 31,624 31,624
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $64,445,801*) 144.7% 63,528,728
See accompanying notes to financial statements.
32
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
GOVERNMENT INCOME PORTFOLIO (CONCLUDED)
Par
AS OF SEPTEMBER 30, 1999 Maturity (000) Value
---------- ---------- ------------
REVERSE REPURCHASE
AGREEMENTS -- (42.8%)
Aubrey Lanston
(Agreement dated 09/30/99 to be
repurchased at $263,081.
Collateralized by $250,000 U.S.
Treasury Notes 6.50% due
10/15/06. The value of the
collateral is $264,099.)
5.25% 10/07/99 $ 263 $ (262,851)
Lehman Brothers
(Agreement dated 09/29/99 to be
repurchased at $14,587,631.
Collateralized by $14,500,000
U.S. Treasury Notes 5.50% due
05/31/03. The value of the
collateral is $14,625,185.)
5.34% 10/06/99 14,573 (14,576,823)
Lehman Brothers
(Agreement dated 09/27/99 to be
repurchased at $529,280.
Collateralized by $500,000 U.S.
Treasury Notes 6.50% due
10/15/06. The value of the
collateral is $528,198.)
5.25% 10/12/99 528 (528,433)
Lehman Brothers
(Agreement dated 09/29/99 to be
repurchased at $3,430,700.
Collateralized by $2,775,000
U.S. Treasury Bonds 8.50% due
02/15/20. The value of the
collateral is $3,441,122.)
5.29% 10/13/99 3,424 (3,424,662)
------------
TOTAL REVERSE REPURCHASE AGREEMENTS
(Cost $18,787,094) (18,792,769)
LIABILITIES IN EXCESS OF
OTHER ASSETS (1.9%) (836,968)
---------- ------------
NET ASSETS (Applicable to 676,578
Investor A shares, 3,502,628
Investor B shares and 245,394
Investor C shares outstanding) 100.0% $ 43,898,991
========== ============
Value
------------
NET ASSET VALUE AND REDEMPTION
PRICE PER INVESTOR A SHARE
($6,712,667 (DIVIDE) 676,578) $ 9.92
======
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($9.92 (DIVIDE) 0.955) $10.39
======
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE
(SUBJECT TO A CONTINGENT
DEFERRED SALES CHARGE OF 4.5%)
PER INVESTOR B SHARE
($34,751,627 (DIVIDE) 3,502,628) $ 9.92
======
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE
(SUBJECT TO A CONTINGENT
DEFERRED SALES CHARGE OF 1.0%)
PER INVESTOR C SHARE
($2,434,697 (DIVIDE) 245,394) $ 9.92
======
- -------------------------
* Cost for Federal income tax purposes is $64,780,030. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 110,308
Gross unrealized depreciation (1,361,610)
------------
$(1,251,302)
============
** Rates shown are the rates as of September 30, 1999.
***Rates shown are the effective yields as of September 30, 1999.
(DAGGER)Partial principal in the amount of $18,025,000 has been pledged as
collateral for reverse repurchase agreements.
(DOUBLE DAGGER)Principal amount of securities pledged as collateral of $672,284
on 61 short U.S. Treasury Notes futures contracts expiring December 1999.
The value of such contracts on September 30, 1999 was $6,643,094, thereby
resulting in an unrealized gain of $2,952.
See accompanying notes to financial statements.
33
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
GNMA PORTFOLIO
Par
AS OF SEPTEMBER 30, 1999 Maturity (000) Value
-------- ---------- -------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 14.9%
U.S. Treasury Bonds
8.50%(DAGGER) 02/15/20 $ 1,600 $ 1,966,701
U.S. Treasury Notes
6.00% 08/15/00 4,020 4,041,341
5.50%(DAGGER) 05/03-05/09 10,460 10,125,775
4.75% 02/15/04 500 480,000
-------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost $16,619,008) 16,613,817
-------------
MORTGAGE PASS-THROUGHS -- 87.2%
Federal Home Loan Mortgage Corp.
6.00% 04/11-06/29 9,208 8,721,264
5.50% 04/13-05/14 2,840 2,676,405
7.50% 05/01/27 582 585,045
6.92% 07/01/27 1,127 1,127,885
6.50% 06/01/29 92 88,561
Federal National Mortgage Association
7.00% 05/11-09/11 2,700 2,697,785
6.50% 02/13-07/29 1,393 1,356,308
6.00% 06/13-01/14 1,760 1,692,859
8.00% 11/13-08/14 1,648 1,680,276
5.50% 12/13-03/14 3,142 2,958,611
Government National Mortgage Association
8.00%(DOUBLE DAGGER)/
(DAGGER) 12/07-06/28 9,677 9,869,232
8.50% 01/17-09/21 2,621 2,726,977
7.00%(DAGGER) 09/17-07/29 20,342 19,944,874
9.00% 05/18-07/21 1,725 1,810,669
7.50% 02/22-11/27 11,349 11,389,296
6.50% 07/23-03/29 29,211 27,945,119
-------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $98,276,428) 97,271,166
-------------
COMMERCIAL MORTGAGE BACKED
SECURITIES -- 3.0%
Chase Commercial Mortgage Securities
Corp., Series 97-2, Class A1
6.45% 12/19/04 1,049 1,026,764
Commercial Mortgage Asset Trust,
Series 99-C1, Class A1
6.25% 08/17/06 682 662,145
Morgan Stanley Capital International, Inc.,
Series 97-HF1, Class A1
6.86% 07/15/29 1,098 1,096,979
Residential Accredit Loans, Inc.,
Series 98-D7, Class CB6
6.75% 05/25/28 574 567,585
-------------
TOTAL COMMERCIAL MORTGAGE
BACKED SECURITIES
(Cost $3,418,164) 3,353,473
-------------
PROJECT LOANS -- 15.8%
Federal Housing Authority,
Castle Terrace
8.00% 10/01/38 1,499 1,533,488
Federal Housing Authority,
Excelsior II Apartments
8.04% 02/01/39 999 1,031,108
Federal Housing Authority,
Arrowhead Springs Apartments
7.55% 02/01/39 1,115 1,113,335
Par
Maturity (000) Value
---------- ---------- -------------
PROJECT LOANS (CONTINUED)
Federal Housing Authority,
Creekwood Apartments
7.30% 11/15/38 $ 1,993 $ 1,976,158
Greens at Viera East Apartments,
Construction Loan Collateral
7.88% 12/01/38 1,340 1,358,607
Prairie District Lofts, Construction
Loan Collateral
7.41% 12/01/38 1,186 1,172,431
Prairie District Lofts, Construction
Loan Committment
7.41% 12/01/38 299 295,595
Renaissance Place Apartments,
Construction Loan Collateral
7.38% 02/01/39 1,878 1,856,735
Federal Housing Authority,
Triangle Point Apartments
7.75% 09/30/38 1,967 1,987,137
Federal Housing Administration,
Village at Stone Falls
7.38% 01/01/39 1,575 1,555,471
Federal Housing Authority, INSD Project,
Series 82
7.43% 09/01/22 1,483 1,490,972
Federal Housing Authority, Timber Ridge
Apartments, Project Loan
7.50% 12/15/38 2,199 2,207,149
-------------
TOTAL PROJECT LOANS
(Cost $17,491,865) 17,578,186
-------------
ASSET BACKED SECURITIES -- 0.8%
The Money Store Small Business
Administration Loan Trust,
Series 99-1, Class A
5.52%** 07/15/25 871 863,471
(Cost $870,843) -------------
CORPORATE BONDS -- 0.6%
FINANCE -- 0.6%
Federal National Mortgage Association,
Series 98, Class B
6.14% 09/10/08 770 724,316
(Cost $718,114) -------------
Shares
----------
SHORT TERM INVESTMENTS -- 0.1%
Galileo Money Market Fund 99,794 99,794
(Cost $99,794) -------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $137,494,216*) 122.4% 136,504,223
See accompanying notes to financial statements.
34
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
GNMA PORTFOLIO (CONCLUDED)
Par
AS OF SEPTEMBER 30, 1999 Maturity (000) Value
-------- ---------- -------------
REVERSE REPURCHASE AGREEMENTS -- (18.7%)
Aubrey Lanston
(Agreement dated 09/27/99 to be
repurchased at $10,402,501.
Collateralized by $10,450,000
U.S. Treasury Notes 5.50% due
05/15/09. The value of the
collateral is $10,333,968.)
2.35% 10/04/99 $10,398 $(10,400,466)
Lehman Brothers
(Agreement dated 09/29/99 to be
repurchased at $1,978,061.
Collateralized by $1,600,000
U.S. Treasury Bonds 8.50% due
02/15/20. The value of the
collateral is $1,984,071.)
5.29% 10/13/99 1,974 (1,974,580)
Lehman Brothers
(Agreement dated 09/24/99 to be
repurchased at $8,542,319.
Collateralized by $8,819,880
Government National Mortgage
Association 7.00-8.00% due
03/20/24 to 08/20/25. The value
of the collateral is
$8,788,129.)
5.37% 10/25/99 8,503 (8,511,880)
-------------
TOTAL REVERSE REPURCHASE AGREEMENTS
(Cost $20,874,750) (20,886,926)
LIABILITIES IN EXCESS OF
OTHER ASSETS (3.7%) (4,102,457)
---------- -------------
NET ASSETS (Applicable to 11,448,311
Institutional shares, 10,011
Service shares, 114,492 Investor
A shares, 23,707 Investor B shares
and 2,459 Investor C shares outstanding) 100.0% $ 111,514,840
========== =============
Value
-------------
NET ASSET VALUE AND REDEMPTION
PRICE PER INSTITUTIONAL, SERVICE
AND INVESTOR A SHARE
($111,263,270 (DIVIDE) 11,572,814) $ 9.61
======
OFFERING PRICE PER INSTITUTIONAL
AND SERVICE SHARE $ 9.61
======
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($9.61 (DIVIDE) 0.960) $10.01
======
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE (SUBJECT TO A
CONTINGENT DEFERRED SALES CHARGE
OF 4.5%) PER INVESTOR B SHARE
($227,928 (DIVIDE) 23,707) $ 9.61
======
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION PRICE
(SUBJECT TO A CONTINGENT
DEFERRED SALES CHARGE OF
1.0%) PER INVESTOR C SHARE
($23,642 (DIVIDE) 2,459) $ 9.61
======
- ----------------------------
* Cost for Federal income tax purposes is $137,618,631. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 788,188
Gross unrealized depreciation (1,902,596)
-------------
$ (1,114,408)
=============
** Rates shown are the rates as of September 30, 1999.
(DAGGER)Partial principal in the amount of $20,869,880 has been pledged as
collateral for reverse repurchase agreements.
(DOUBLE DAGGER)Principal amount of securities pledged as collateral of
$2,206,426 on 257 short U.S. Treasury Notes futures contracts expiring
December 1999. The value of such contracts on September 30, 1999 was
$28,076,875, thereby resulting in an unrealized loss of $13,242.
See accompanying notes to financial statements.
35
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
MANAGED INCOME PORTFOLIO
Par
AS OF SEPTEMBER 30, 1999 Maturity (000) Value
-------- ------- --------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 17.4%
Overseas Private Investment Co.
6.84% 02/15/05 $ 702 $ 692,422
6.46%** 12/06/06 170 165,310
5.92%** 12/16/06 1,701 1,634,950
6.38%** 12/16/06 1,572 1,528,134
6.53% 12/16/06 410 400,502
6.66% 12/16/06 900 901,125
6.87% 12/16/06 808 784,708
6.27% 12/06-05/29 3,251 3,097,672
5.46%** 05/29/12 427 390,003
5.79% 05/29/12 385 359,028
5.88%** 05/29/12 508 479,948
6.81% 05/29/12 544 544,390
6.91% 05/29/12 1,437 1,384,468
Small Business Administration
Participation Certificates,
Series 96-20B, Class 1
6.38% 02/01/16 6,269 6,018,029
Small Business Administration
Participation Certificates,
Series 96-20K, Class 1
6.95% 11/10/16 8,813 8,691,747
Small Business Administration
Participation Certificates,
Series 97, Class A
5.85%** 08/15/22 3,197 3,184,867
Small Business Administration
Participation Certificates,
Series 97-20B, Class 1
7.10% 02/01/17 6,313 6,263,810
Small Business Administration
Participation Certificates,
Series 97-20F, Class 1
7.20% 06/01/17 2,070 2,062,944
Small Business Administration
Participation Certificates,
Series 97-20G, Class 1
6.85% 07/01/17 12,224 11,993,921
Student Loan Marketing Association,
Series 97-3, Class A2
5.50%** 10/25/10 6,300 6,138,563
U.S. Treasury Bonds
8.75% 11/15/08 23,380 25,587,855
12.75% 11/15/10 8,725 11,598,351
7.50% 11/15/16 21,820 24,171,768
8.50% 02/15/20 28,245 34,718,421
5.25% 02/15/29 8,320 7,276,847
U.S. Treasury Bonds (CPI)
3.63%(DAGGER) 04/15/28 38,565 36,762,780
3.88% 04/15/29 9,000 8,820,240
U.S. Treasury Notes
5.63% 12/31/02 23,705 23,622,914
6.00%(DAGGER) 08/04-08/09 47,436 47,822,690
6.50% 10/15/06 21,560 22,059,174
U.S. Treasury Notes (CPI)
3.63% 01/15/08 12,625 12,606,452
--------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $317,607,071) 311,764,033
--------------
Par
Maturity (000) Value
-------- ------- --------------
MORTGAGE PASS-THROUGHS -- 41.3%
Federal Home Loan Mortgage
Corp.
9.00% 07/01/01 $ 30 $ 31,336
6.50% 12/02-04/29 85,597 82,365,100
6.28%** 10/15/07 4,469 4,267,755
6.45% 04/29/09 9,750 9,307,732
7.50% 10/09-10/27 12,833 13,005,192
6.00% 11/12-07/14 2,445 2,353,912
7.00% 05/01/26 589 579,301
Federal Home Loan Mortgag
Corp. Gold
6.00% 05/01/14 18,888 18,191,794
6.50%(DAGGER) 04/29-06/29 58,803 56,451,012
Federal National Mortgage Association
9.50% 03/01/05 15 15,593
7.00% 06/06-05/26 6,658 6,581,421
6.80% 07/23/07 12,025 11,859,519
6.04% 02/25/09 26,800 25,012,405
6.36% 04/09/09 5,000 4,744,500
6.50% 02/11-08/29 91,042 87,564,875
6.00%(DAGGER) 04/13-01/29 87,423 82,669,075
5.50%(DAGGER) 12/13-05/14 268,784 253,077,210
Government National Mortgage
Association
8.20% 06/15/12 291 297,760
8.00% 05/13-05/27 4,589 4,706,588
7.25% 04/15/15 1,209 1,232,064
9.50% 09/16-10/17 212 227,483
8.50% 01/17-11/21 429 445,853
9.00% 03/18-11/20 765 802,655
7.50% 04/23-04/27 976 981,045
6.50% 01/24-12/27 33,213 31,770,624
7.00% 12/27-01/28 22,248 21,844,616
Government National Mortgage
Association II
9.50% 05/17-12/24 674 715,230
7.50% 01/29-09/29 2,000 2,007,558
MLCC Mortgage Investors, Inc.,
Series 95-C, Class D
7.98%** 05/25/15 3,506 3,419,292
MLCC Mortgage Investors, Inc.,
Series 96-C1, Class A2
7.24% 04/25/28 7,113 7,134,711
MLCC Mortgage Investors, Inc.,
Series 96-C1, Class A3
7.42% 04/25/28 5,500 5,522,029
--------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $761,723,561) 739,185,240
--------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS -- 0.3%
Federal Home Loan Mortgage
Corp., Series 65, Class A (PO)
4.09%*** 03/15/24 1,795 804,984
Federal National Mortgage Association
Series 96-3, Class C (PO)
5.00%*** 02/25/24 1,681 958,057
Federal National Mortgage Association
Strip Notes, Series 279, Class 1 (PO)
6.00%*** 07/01/26 512 409,729
Federal National Mortgage Association,
Series 97-44, Class L (PO)
4.35%*** 02/25/24 1,874 1,011,804
See accompanying notes to financial statements.
36
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
MANAGED INCOME PORTFOLIO (CONTINUED)
Par
AS OF SEPTEMBER 30, 1999 Maturity (000) Value
-------- ------- --------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS (CONTINUED)
Federal National Mortgage Association,
Series 99-51, Class L (PO)
5.00%*** 10/25/29 $ 1,000 $ 510,000
Federal National Mortgage Association,
Series 99-17, Class HJ (PO)
4.00%*** 12/25/23 1,290 552,281
Federal National Mortgage Association,
Series 99-17, Class JH (PO)
5.00%*** 04/25/24 1,630 740,631
Residential Accredit Loans, Inc.,
Series 97-QS7, Class A1
7.50% 08/15/27 1,120 1,118,916
--------------
TOTAL MULTIPLE CLASS
MORTGAGE PASS-THROUGHS
(Cost $6,563,065) 6,106,402
--------------
COMMERCIAL MORTGAGE
BACKED SECURITIES -- 4.7%
Advanta Mortgage Loan Trust,
Series 96-1, Class A7
7.07% 03/25/27 1,600 1,581,000
Capco America Securitization Corp.,
Series 98-D7, Class A1B
6.26% 09/15/08 3,340 3,122,861
COMM, Series 99-1, Class A2
6.46% 09/15/08 7,833 7,459,384
Commercial Capital Access One,
Series 98-3, Class A1
6.30% 11/15/28 6,592 6,367,103
Deutsche Mortgage and Asset Receiving
Corp., Series 98-C1, Class A2
6.54% 02/15/08 3,000 2,845,034
Empire Funding Home Loan Owner
Trust, Series 98-2, Class A4
6.53% 03/25/19 15,000 14,718,750
FFCA Secured Lending Corp.,
Series 98-1, Class A1B
6.73% 07/18/13 8,246 7,696,683
FPlus, Series 98-3, Class A8
7.17%** 05/10/24 7,300 6,795,844
General Motors Acceptance Corp.
Commercial Mortgage Securities, Inc.,
Series 99-C2, Class A2
6.95% 09/15/33 1,900 1,871,723
JP Morgan Commercial Mortgage
Finance Corp., Series 96-C3, Class A1
7.33% 04/25/28 1,797 1,807,760
Lehman Brothers Commercial Conduit
Mortgage Trust, Series 96-c2, Class A
7.43%** 10/25/26 9,267 9,404,263
Midland Royalty Acceptance Corp.,
Series 96-C, Class A
7.23% 01/25/29 6,200 6,159,299
Morgan Stanley Capital International, Inc.,
Series 99-RM1, Class A2
6.71% 12/15/31 4,933 4,727,689
Union Planters Mortgage Finance Corp.,
Series 98-1, Class A3
6.60% 01/25/28 9,094 8,972,727
USGI, Series 87
7.43% 12/01/22 900 905,226
--------------
TOTAL COMMERCIAL MORTGAGE
BACKED SECURITIES
(Cost $87,151,737) 84,435,346
--------------
Par
Maturity (000) Value
-------- ------- --------------
PROJECT LOANS -- 2.1%
Federal Housing Authority, Audobon Villas
7.94% 11/15/37 $ 5,243 $ 5,376,733
Federal Housing Authority, Lakeland
Nursing
7.88% 12/01/34 11,772 11,827,077
Federal Housing Authority,
Meadowbrook of Topeka
8.50% 08/01/22 1,651 1,699,044
Federal Housing Authority, Riverwalk
8.22% 06/01/36 1,559 1,590,958
Federal Housing Authority, University
Park Project Loans Apartments
7.88% 10/01/37 4,495 4,517,181
Federal Housing Authority, Washington
PC94, Non-Public
6.90% 02/01/14 785 754,279
Meadows II Apartments, Construction
Loan Collateral
7.00% 12/01/39 1,949 1,874,798
Meadows II Apartments, Construction
Loan Committment
7.00% 12/01/00 1,914 1,840,285
Ponds at Punaluu, Construction Loan
Collateral
7.63% 04/01/37 284 284,380
Quabbin Valley Healthcare,
Construction Loan Collateral
7.66% 06/01/39 937 929,293
Quabbin Valley Healthcare,
Construction Loan Committment
7.66% 03/08/00 40 39,522
Villages of Winterset, Construction
Loan Collateral
7.13% 10/31/38 443 431,866
Villages of Winterset, Construction
Loan Committment
7.13% 06/01/01 57 55,366
Whittier Rehab at Westborough
Project Loan
8.13% 02/28/37 7,114 7,228,176
--------------
TOTAL PROJECT LOANS
(COST $39,148,787) 38,448,958
--------------
ASSET BACKED SECURITIES -- 15.4%
ACLC Business Loan Receivables
Trust, Series 98-1, Class A1
6.44% 07/15/13 10,727 10,445,161
Arcadia Automobile Receivables Trust,
Series 97-B, Class A3
6.30% 07/16/01 477 477,644
Arcadia Automobile Receivables Trust,
Series 98-B, Class A3
5.95% 11/15/02 17,500 17,511,900
Arcadia Automobile Receivables Trust,
Series 98-C, Class A2
5.38%** 02/15/02 1,555 1,550,927
Associates Manufactured Housing
Pass-Through, Series 96-1, Class B1
8.00% 03/15/27 3,200 3,053,000
Boston Edison Co.,
Series 99-1, Class A5
7.03% 03/15/12 3,800 3,768,859
Chase Credit Card Master Trust,
Series 97-5, Class A
6.19% 08/15/05 25,830 25,641,699
See accompanying notes to financial statements.
37
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
MANAGED INCOME PORTFOLIO (CONTINUED)
Par
AS OF SEPTEMBER 30, 1999 Maturity (000) Value
-------- ------- --------------
ASSET BACKED SECURITIES (CONTINUED)
CIT Group Securitization Corp.,
Series 95-2, Class B
7.65% 05/15/26 $ 7,650 $ 6,394,922
Daimler-Benz Auto Grantor Trust,
Series 97-A, Class A
6.05%**/(DOUBLE DAGGER) 03/31/05 1,845 1,846,446
Equicon Home Equity Loan Trust,
Series 93-1, Class I (IO)
7.00%*** 02/18/13 6,140 46,053
Fifth Third Auto Grantor Trust,
Series 96-B, Class A
6.45% 03/15/02 395 396,466
FMAC Loan Receivables Trust,
Series 97-B, Class A
6.85% 09/15/19 6,234 6,070,968
FMAC Loan Receivables Trust,
Series 97-C, Class A
6.75% 12/15/19 2,406 2,334,203
Ford Credit Auto Owner Trust,
Series 98-C, Class A5
5.86% 10/15/02 3,200 3,180,704
Ford Credit Auto Owner Trust,
Series 99-C, Class A4
6.08% 09/16/02 11,100 11,054,906
Green Tree Financial Corp.,
Series 93-3, Class B
6.85% 10/15/18 3,246 3,078,164
Green Tree Financial Corp.,
Series 94-B, Class A
7.85% 07/15/04 1,195 1,170,144
Green Tree Financial Corp.,
Series 95-A, Class A
7.25% 07/15/05 5,196 4,927,943
Green Tree Financial Corp.,
Series 96-2, Class B2
7.90%(DOUBLE DAGGER) 04/15/27 2,500 1,953,640
Green Tree Financial Corp.,
Series 96-5, Class A7
8.25% 07/15/27 5,534 5,709,754
Green Tree Financial Corp.,
Series 96-7, Class A6
7.65% 10/15/27 9,025 9,153,324
Green Tree Financial Corp.,
Series 96-8, Class B1
7.95% 01/01/05 3,000 2,849,961
Green Tree Financial Corp.,
Series 97-1, Class B1
7.23% 03/15/28 9,000 8,382,611
Green Tree Financial Corp.,
Series 97-3, Class B1
7.51% 07/15/28 2,500 2,316,406
Green Tree Financial Corp.,
Series 97-3, Class B2
8.03% 07/15/28 7,050 5,460,637
Green Tree Home Improvement Loan
Trust, Series 94-D, Class M
9.05% 01/15/15 456 460,930
Green Tree Home Improvement Loan
Trust, Series 96-C, Class HIB1
7.75% 06/15/21 5,697 5,642,816
Green Tree Home Improvement Loan
Trust, Series 97-A, Class HEM2
7.90% 03/15/28 5,150 4,902,156
Par
Maturity (000) Value
-------- ------- --------------
ASSET BACKED SECURITIES (CONTINUED)
Health Care Receivables Securitization
Program Notes, NPF VI,
Series 98-1, Class A
6.22% 06/01/02 $13,800 $ 13,604,838
Honda Auto Lease Trust,
Series 99-A, Class A4
6.45% 09/16/02 14,700 14,725,266
Keycorp Student Loan Trust,
Series 95-B, Class A
5.41%** 09/27/24 7,635 7,650,075
MBNA Master Credit Card Trust,
Series 99-B, Class A
5.90% 08/15/11 4,400 4,137,166
MBNA Master Credit Card Trust,
Series 99-J, Class A
7.00% 02/15/12 6,200 6,230,033
Mellon Bank Home Equity Loan Trust,
Series 96-1, Class B2
5.69%** 04/15/26 1,244 1,244,035
Newcourt Equipment Trust Securities,
Series 98-2, Class A3
5.45% 10/15/02 15,400 15,209,044
Puget Power Conservation Grantor
Trust, Series 97-1, Class A
6.23% 07/11/02 6,757 6,731,399
Railcar Leasing LLC,
Series 97-1, Class A1
6.75% 07/15/06 10,047 9,952,695
Sears Credit Account Master Trust,
Series 95-5, Class A
6.05% 01/15/08 3,812 3,755,661
Sears Credit Account Master Trust,
Series 96-3, Class A
7.00% 07/15/08 11,600 11,743,513
Sears Credit Account Master Trust,
Series 96-4, Class A
6.45% 10/16/06 4,200 4,167,009
Sears Credit Account Master Trust,
Series 97-1, Class A
6.20% 07/15/07 8,000 7,948,120
Sears Credit Account Master Trust,
Series 98-1, Class A
5.80% 08/15/05 7,900 7,770,423
The Money Store Business Loan
Backed Securities,
Series 97-1, Class A
5.65%** 04/15/28 6,347 6,367,135
The Money Store Home Equity Trust,
Series 97-C, Class MH2
7.36% 02/15/24 2,775 2,730,772
Toyota Auto Receivables Owner Trust,
Series 99-A, Class A3
6.15% 08/16/04 225 224,297
World Omni Automobile Lease
Securitization Trust,
Series 97-B, Class A1
6.07% 11/25/03 2,000 2,007,307
--------------
TOTAL ASSET BACKED SECURITIES
(Cost $283,684,857) 275,981,132
--------------
See accompanying notes to financial statements.
38
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
MANAGED INCOME PORTFOLIO (CONTINUED)
Par
AS OF SEPTEMBER 30, 1999 Maturity (000) Value
-------- ------- --------------
CORPORATE BONDS -- 17.2%
AEROSPACE -- 0.3%
United Tech Corp.
6.50% 06/01/09 $ 6,010 $ 5,803,437
--------------
AIR TRANSPORTATION -- 0.1%
CONTINENTAL AIRLINES
7.06% 03/15/11 2,045 1,969,126
--------------
AUTOMOTIVE -- 0.1%
DaimlerChrysler Holdings N.A.
6.90% 09/01/04 1,700 1,708,500
--------------
FINANCE -- 7.8%
Allmerica Financial Corp.
7.63% 10/15/25 1,640 1,542,593
American General Capital Securities
7.57% 12/01/45 4,480 4,104,800
Associates Corp.
6.25% 11/01/08 5,000 4,731,250
AT&T Capital Corp.
5.48%** 04/09/01 3,500 3,468,080
Chrysler Corp.
7.45% 03/01/27 6,105 6,083,927
Crown Cork & Seal, S.A.
6.75% 12/15/03 3,000 2,941,850
CSW Investments
6.95% 08/01/01 7,705 7,749,073
ERAC USA Finance Co.
6.95% 03/01/04 1,017 1,000,952
Fairfax Financial Hldgs.
7.38% 03/15/06 2,780 2,618,788
FMR Corp.
7.57% 06/15/29 7,095 6,935,363
Ford Motor Credit Co.
6.70% 07/16/04 9,485 9,437,575
Frank Russel Co.
5.63% 01/15/09 6,400 5,748,160
Golden State Holding Corp.
7.00% 08/01/03 10,300 9,988,631
Goldman Sachs Group, Inc.
6.25% 02/01/03 6,030 5,864,970
6.65% 05/15/09 4,665 4,447,250
Great Western Finance
8.21% 02/01/27 5,000 4,800,000
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 7,968,800
6.20% 01/15/02 4,700 4,617,280
7.38% 05/15/07 1,500 1,516,502
Merrill Lynch & Co., Inc.
5.75% 11/04/02 5,165 5,026,113
6.00% 02/17/09 400 368,000
MidAmerican Funding, LLC
6.93% 03/01/29 8,050 7,344,015
National City Corp.
6.88% 05/15/19 11,000 10,067,746
Newcourt Credit Group
6.88% 02/16/05 900 879,957
Paine Webber, Inc.
6.38% 05/15/04 2,565 2,470,969
Pemex Finance Ltd.
9.14% 08/15/04 4,410 4,417,277
Riggs Capital Trust
8.63% 12/31/26 400 376,500
Par
Maturity (000) Value
-------- ------- --------------
CORPORATE BONDS (CONTINUED)
FINANCE (CONTINUED)
Riggs Capital Trust II Preferred
Securities, Series C
8.88% 03/15/27 $ 2,000 $ 1,872,910
Washington Mutual Capital, Inc.
8.38% 06/01/27 1,250 1,223,438
Yorkshire Power Finance
6.50% 02/25/08 2,350 2,138,500
Zurich Capital Trust I
8.38% 06/01/27 8,150 8,007,375
--------------
139,771,159
--------------
INDUSTRIAL -- 4.0%
Alberton's, Inc.
7.45% 08/01/29 2,100 2,079,000
Atlantic Richfield
9.88% 03/01/16 4,885 6,100,144
Coca-Cola Enterprises, Inc.
5.71% 03/18/37 12,520 12,523,881
Conoco, Inc.
6.95% 04/15/29 2,995 2,785,350
Dayton Hudson Corp.
5.95% 06/15/00 3,400 3,400,000
Ford Motor Co.
7.45% 07/16/31 15,405 15,201,282
General Motors
8.80% 03/01/21 3,000 3,348,750
Hyder PLC
6.75% 12/15/04 6,500 6,216,925
Nabisco, Inc.
6.85% 06/15/05 8,300 8,022,116
7.05% 07/15/07 3,380 3,269,204
7.55% 06/15/15 3,080 2,935,086
Tyco Intl. Group Corp., S.A.
5.88% 11/01/04 2,910 2,757,225
Xerox Corp.
5.91% 04/01/99 3,600 3,586,500
--------------
72,225,463
--------------
Insurance -- 1.0%
Equitable Cos., Inc.
9.00% 12/15/04 5,555 6,048,006
7.00% 04/01/28 4,670 4,253,810
Florida Windstorm Underwriting
Association
7.13% 02/25/19 5,715 5,341,468
Prudential Insurance Co.
6.38% 07/23/06 2,750 2,609,063
--------------
18,252,347
--------------
TELECOMMUNICATIONS -- 1.9%
AT&T Corp.
6.00% 03/15/09 6,290 5,849,700
6.50% 03/15/29 5,615 4,950,296
Sprint Capital Corp.
6.38% 05/01/09 2,540 2,394,323
6.90% 05/01/19 4,060 3,776,746
Time Warner, Inc.
9.13% 01/15/13 2,075 2,334,026
US West Capital Funding, Inc.
6.88% 07/15/28 6,070 5,349,188
Worldcom, Inc.
7.75% 04/01/27 9,710 10,159,088
--------------
34,813,367
--------------
See accompanying notes to financial statements.
39
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
MANAGED INCOME PORTFOLIO (CONCLUDED)
Par
AS OF SEPTEMBER 30, 1999 Maturity (000) Value
-------- ------- --------------
CORPORATE BONDS (CONTINUED)
TRANSPORTATION -- 0.2%
Federal Express Corp.
6.72% 01/15/22 $ 3,017 $ 2,848,046
--------------
REGIONAL AGENCY -- 0.3%
Quebec Province
7.50% 09/15/29 4,460 4,482,300
--------------
UTILITY -- 0.6%
Avon Energy Partnership
6.73% 12/11/02 1,100 1,094,500
Israel Electric Corp. Ltd.
7.13% 07/15/05 1,915 1,877,658
8.10% 12/15/46 8,860 7,374,574
--------------
10,346,732
--------------
WASTE MANAGEMENT -- 0.3%
USA Waste Management, Inc.
6.13% 07/15/01 5,455 5,243,619
--------------
YANKEE -- 0.6%
Empresa Electrica Pehuenche
7.30% 05/01/03 11,000 10,610,106
--------------
TOTAL CORPORATE BONDS
(Cost $318,540,187) 308,074,202
--------------
FOREIGN BONDS -- 0.2%
Newcourt Credit Group
7.63% 06/28/01 4,690 3,230,106
(Cost $3,263,386) --------------
TAXABLE MUNICIPAL BONDS -- 0.7%
Los Angeles County Pension Obligation
Revenue Bond, Series 95D
6.97% 06/30/08 7,355 7,299,838
New Jersey Economic Development
Authority State Pension Funding Zero
Coupon Revenue Bond, Series 97B
7.56%*** 02/15/16 1,600 476,000
7.59%*** 02/15/17 575 158,125
7.21%*** 02/15/18 14,500 3,697,500
7.62%*** 02/20-02/21 1,010 215,337
7.63%*** 02/22-02/23 815 150,925
--------------
TOTAL TAXABLE MUNICIPAL BONDS
(Cost $12,934,199) 11,997,725
--------------
SHORT TERM INVESTMENTS -- 0.2%
Federal Home Loan Mortgage Corp.
Discount Notes
5.17% 10/01/99 3,500 3,500,000
(Cost $3,500,000) --------------
Shares
-------
PREFERRED STOCK -- 0.5%
Centaur Funding Corp.,
Cumulative 144A
9.08% 8,000 8,270,808
(Cost $8,000,000) --------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $1,842,116,850*) 100.0% $1,790,993,952
==============
REVERSE REPURCHASE AGREEMENTS -- (17.0%)
Aubrey Lanston
(Agreement dated 09/30/99 to be
repurchased at $31,681,812.
Collateralized by $31,000,000
U.S. Treasury notes 6.00% Due
08/15/09. The value of the
collateral is $31,488,556.)
3.75% 10/04/99 31,349 (31,352,015)
Par
Maturity (000) Value
-------- -------- --------------
REVERSE REPURCHASE AGREEMENTS (CONTINUED)
Aubrey Lanston
(Agreement dated 09/23/99 to be
repurchased at $37,470,937.
Collateralized by $39,715,780
U.S. Treasury Notes (CPI) 3.63%
due 04/15/28. The value of the
collateral is $37,450,353.)
5.30% 10/22/99 $ 37,312 $ (37,355,582)
Lehman Brothers
(Agreement dated 09/15/99 to be
repurchased at $57,767,354.
Collateralized by $58,553,153
Federal Home Loan Mortgage
Corp. Gold 6.50% due
04/01/29-06/01/29 and $3,374,088
Federal National Mortgage
Association 5.50% due 12/01/13.
The value of the collateral
is $59,902,726.)
5.36% 10/14/99 57,519 (57,656,023)
Lehman Brothers
(Agreement dated 09/17/99 to be
repurchased at $111,895,852.
Collateralized by $121,466,453
Federal National Mortage
Association 5.50-6.00% due
12/01/13 to 01/01/29. The value
of the collateral is
$114,853,225.)
5.38% 10/19/99 111,413 (111,596,078)
Morgan Stanley
(Agreement dated 09/15/99 to be
repurchased at $24,573,037.
Collateralized by $27,067,750
Federal National Mortgage
Association 5.50-6.00% due
01/01/14-01/01/29. The value of
the collateral is $25,497,471.)
5.38% 10/14/99 24,467 (24,525,503)
--------------
TOTAL REVERSE REPURCHASE AGREEMENTS
(Cost $262,059,388) $(262,485,201)
==============
- --------------------------
* Cost for Federal income tax purposes is $1,845,288,663. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 2,982,178
Gross unrealized depreciation (57,276,889)
--------------
$ (54,294,711)
==============
** Rates shown are the rates as of September 30, 1999.
*** Rates shown are the effective yields as of September 30, 1999.
(DAGGER)Partial principal in the amount of $281,177,044 has been pledged as
collateral for reverse repurchase agreements.
(DOUBLE DAGGER)Principal amount of securities pledged as collateral of
$8,400,000 on 802 long U.S. Treasury Bonds futures contracts and 85 short
U.S. Treasury Notes futures contracts expiring December 1999. The value of
such contracts on September 30, 1999 was $100,738,500, thereby resulting in
an unrealized gain of $212,024.
See accompanying notes to financial statements.
40
<PAGE>
BLACKROCK FUNDS
STATEMENT OF ASSETS AND LIABILITIES
MANAGED INCOME PORTFOLIO
SEPTEMBER 30, 1999
ASSETS
Investments at value (Cost $1,842,116,850) ......... $1,790,993,952
Collateral received for securities loaned .......... 64,906,405
Interest receivable ................................ 17,558,576
Principal receivable ............................... 1,321
Investments sold receivable ........................ 15,461,982
Capital shares sold receivable ..................... 196,218
Prepaid expenses ................................... 5,995
--------------
TOTAL ASSETS ................................ 1,889,124,449
--------------
LIABILITIES
Cash Overdraft ..................................... 140,276
Payable upon return of securities loaned ........... 64,906,405
Investments purchased payable ...................... 6,084,726
Capital shares redeemed payable .................... 819,509
Distributions payable .............................. 8,044,534
Advisory fees payable .............................. 565,290
Administrative fees payable ........................ 181,696
Transfer agent fees payable ........................ 83,645
Other accrued expenses payable ..................... 265,729
Deferred dollar roll income ........................ 8,446
Reverse repurchase agreements payable .............. 262,485,201
Futures margin payable ............................. 685,630
Net unrealized depreciation on
forward foreign currency contracts ............... 9,620
--------------
TOTAL LIABILITIES ........................... 344,280,707
--------------
NET ASSETS (Applicable to 126,353,410
Institutional shares, 27,322,500 Service
shares, 1,521,912 Investor A shares
and 586,681 Investor B shares outstanding) ......... $1,544,843,742
==============
NET ASSET VALUE AND REDEMPTION PRICE PER
INSTITUTIONAL, SERVICE AND INVESTOR A
SHARE ($1,539,026,022 (DIVIDE) 155,197,822) ........ $ 9.92
======
OFFERING PRICE PER INSTITUTIONAL AND SERVICE SHARE .... $ 9.92
======
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE
($9.92 (DIVIDE) 0.955) ............................. $10.39
======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales
charge of 4.5%) PER INVESTOR B SHARE
($5,817,720 (DIVIDE) 586,681) ...................... $ 9.92
======
See accompanying notes to financial statements.
41
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
INTERNATIONAL BOND PORTFOLIO
Par**
AS OF SEPTEMBER 30, 1999 Maturity (000) Value
---------- ------- -----------
FOREIGN BONDS -- 60.8%
AUSTRIA -- 2.9%
Allgemeine Hypobk AG
5.00% 09/02/09 2,000 $ 2,043,707
-----------
CANADA -- 3.7%
Canada Trust Company Mortgage
5.63% 01/01/02 1,976 1,334,877
Highway 407 International, Inc.
6.47% 07/27/29 2,000 1,292,149
-----------
2,627,026
-----------
DENMARK -- 3.4%
Kingdom of Denmark
8.00% 05/03-03/06 15,000 2,403,789
-----------
FRANCE -- 5.3%
European Investment Bank
5.00% 04/15/08 1,955 2,029,995
Government of France
5.50% 10/25/07 1,524 1,666,584
-----------
3,696,579
-----------
GERMANY -- 11.9%
Bundesobligation 126
4.50% 02/18/03 2,600 2,790,560
Deutsche Telekom International
Financial
5.25% 05/20/08 0 1
Deutschland Republic
6.25% 04/26/06 4,000 4,579,437
Dresdner Funding Trust II
5.79% 06/30/11 1,000 982,449
-----------
8,352,447
-----------
ITALY -- 2.6%
Buoni Poliennali del Tes
6.75% 07/01/07 1,549 1,802,354
-----------
NETHERLANDS -- 9.9%
Government of Netherlands
7.00% 06/15/05 3,000 3,535,219
5.50% 01/15/28 3,409 3,427,225
-----------
6,962,444
-----------
SPAIN -- 2.3%
Bonos y Oblig del Estado
4.25% 07/30/02 1,543 1,650,832
-----------
SWEDEN -- 4.9%
Swedish Government
6.00% 02/09/05 25,000 3,433,434
-----------
UNITED KINGDOM -- 13.9%
Abbey National Treasury Services
8.00% 04/02/03 600 1,015,166
Bayerische Landesbank Girozentrale
7.88% 12/07/06 1,100 1,901,626
Federal National Mortgage Assoc.
Global Bond
6.88%(DOUBLE DAGGER) 06/07/02 2,500 4,134,131
Halifax Building Society PLC
6.50% 02/16/04 450 726,505
United Kingdom Treasury
9.00% 10/13/08 1,000 1,988,796
-----------
9,766,224
-----------
TOTAL FOREIGN BONDS
(Cost $43,277,858) 42,738,836
-----------
Par
Maturity (000) Value
---------- ------- -----------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 0.2%
U.S. Treasury Notes
6.50% 10/15/06 $ 160 $ 163,705
(Cost $164,285) -----------
CORPORATE BONDS -- 12.4%
First USA Credit Card Master Trust
5.68%** 10/15/99 3,000 3,003,750
Ford Motor Credit Co.
6.70% 07/16/04 3,000 2,985,000
Sears Credit Account Master Trust
7.00% 01/15/04 2,750 2,759,169
-----------
TOTAL CORPORATE BONDS
(Cost $8,761,484) 8,747,919
-----------
SHORT TERM INVESTMENTS -- 25.0%
Federal Home Loan Mortgage
Corp. Discount Notes
5.20% 10/01/99 17,600 17,600,000
(Cost $17,600,000) -----------
TOTAL INVESTMENTS IN SECURITIES
(Cost $69,803,627*) 98.4% 69,250,460
OTHER ASSETS IN EXCESS
OF LIABILITIES 1.6% 1,098,704
---------- -----------
NET ASSETS (Applicable to 5,483,834
Institutional shares, 345,169 Service
shares, 244,200 Investor A shares,
226,363 Investor B shares, and 209,909
Investor C shares outstanding) 100.0% $70,349,164
========== ===========
NET ASSET VALUE AND REDEMPTION
PRICE PER INSTITUTIONAL, SERVICE
AND INVESTOR A SHARE
($65,634,014 (DIVIDE) 6,073,203) $10.81
======
OFFERING PRICE PER INSTITUTIONAL
AND SERVICE SHARE $10.81
======
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($10.81 (DIVIDE) 0.950) $11.38
======
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE
(SUBJECT TO A CONTINGENT DEFERRED
SALES CHARGE OF 4.5%)
PER INVESTOR B SHARE
($2,446,599 (DIVIDE) 226,363) $10.81
======
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE
(SUBJECT TO A CONTINGENT DEFERRED
SALES CHARGE OF 1.0%)
PER INVESTOR C SHARE
($2,268,551 (DIVIDE) 209,909) $10.81
======
- --------------------------------
* Also cost for Federal income tax purposes. The gross unrealized appreciation
(depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 544,235
Gross unrealized depreciation (1,097,402)
-----------
$ (553,167)
===========
** In local currency.
(DOUBLE DAGGER)Principal amount of securities pledged as collateral of
$1,000,000 on 12 long Japanese Bond futures contracts expiring March 2000.
The value of such contracts on September 30, 1999 was $14,874,319, thereby
resulting in an unrealized gain of $427,578.
See accompanying notes to financial statements.
42
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
HIGH YIELD BOND PORTFOLIO
Number
AS OF SEPTEMBER 30, 1999 of Shares Value
---------- -----------
PREFERRED STOCKS -- 7.2%
Hyperion Telecommunications, Inc.,
Series B (PIK) 12.875% 3,231 $ 2,876,093
Key Energy Services, Inc. Warrant 1,000 2,000
Nextel Communications, Inc.,
Series D (PIK) 13.00% 1,032 1,083,600
Nextel Communications, Inc., Cumulative
Series E (PIK) 11.125% 1,084 1,051,480
Nextlink Communications, Inc.
(PIK) 14.00% 31,462 1,557,369
-----------
TOTAL PREFERRED STOCKS
(Cost $6,771,579) 6,570,542
-----------
Par
Maturity (000)
---------- -------
COMMERCIAL MORTGAGE BACKED
SECURITIES -- 2.0%
Donaldson, Lufkin & Jenrette, Inc.,
Commercial Mortgage Corp.,
Series 98-CG1, Class B4
7.35%** 01/10/13 $ 2,531 1,806,273
-----------
(Cost $2,003,507)
CORPORATE BONDS -- 90.6%
ELECTRONICS -- 3.1%
Amkor Technologies, Inc.,
Series 144A
10.50% 05/01/09 2,000 1,920,000
Condor Systems, Inc.,
Series 144A
11.88% 05/01/09 1,000 890,000
-----------
2,810,000
-----------
FINANCIAL -- 0.8%
BGLS, Inc., Series B
15.75% 01/31/01 700 700,000
-----------
INDUSTRIAL -- 37.1%
American Plumbing & Mechanical, Inc.,
Series 144A
11.63% 10/15/08 1,000 900,000
Ameriserve Food Distributor
8.88%(DAGGER) 10/15/06 750 570,000
Charles River Laboratories, Inc.
13.50% 10/01/09 1,000 1,010,000
Concentra Operating Corp., Series 144A
13.00% 08/15/09 2,000 2,000,000
Fountain View, Inc., Series B
11.25% 04/15/08 1,000 720,000
Golden Northwest Aluminum
First Mortgage Notes
12.00% 12/15/06 1,750 1,802,500
Hudson Respiratory Care, Inc.
9.13% 04/15/08 2,000 1,560,000
Huntsman ICI Hldgs.,
Series 144A (STEP)
13.00%*** 12/31/09 3,500 910,000
Kasper A.S.L. Ltd.
12.75% 03/31/04 1,500 1,447,500
Knology Hldgs., Inc. (STEP)
13.36%*** 10/15/07 2,000 1,100,000
Knowles Electronics, Inc.
13.13% 10/01/09 1,000 979,540
Lyondell Chemical
10.88%(DAGGER) 05/01/09 2,600 2,613,000
National Equipment Services,
Series D
10.00% 11/30/04 2,000 1,980,000
Nebco Evans Hldg. Co. (STEP)
17.25%*** 07/15/07 800 296,000
Par
Maturity (000) Value
---------- ------- -----------
CORPORATE BONDS (CONTINUED)
INDUSTRIAL (CONTINUED)
Northeast Optic Network
12.75% 08/15/08 $ 2,000 $ 2,040,000
Pogo Producing Co., Series 144A
10.38% 02/15/09 1,000 1,037,500
Polaroid Corp.
11.50% 02/15/06 1,000 1,043,750
PSINet Inc., Series 144A
11.00%(DAGGER) 08/01/09 1,000 985,000
Repap New Brunswick
10.63% 04/15/05 1,000 872,500
Republic Tech RTI Capital, Series 144A
13.75% 07/15/09 1,000 950,000
Revlon Consumer Products
8.63%(DAGGER) 02/01/08 2,000 1,630,000
Sinclair Broadcast Group
9.00% 07/15/07 2,000 1,895,000
St. John Knits Intl., Inc., Series 144A
12.50% 07/01/09 1,000 915,000
U.S. Home
8.88% 02/15/09 1,000 910,000
Veritas DGC, Inc.
9.75% 10/15/03 1,000 1,012,500
Waterford Gaming, LLC Sr. Notes,
Series 144A
9.50% 03/15/10 1,000 972,500
Wec Co., Inc., Series 144A
12.00% 07/15/09 1,000 980,000
Willis Corroon Corp.
9.00% 02/01/09 1,000 905,000
-----------
34,037,290
-----------
OIL AND GAS -- 9.9%
Chesapeake Energy Corp.
9.13%(DAGGER) 04/15/06 1,500 1,380,000
Dual Drilling Co.
9.88% 01/15/04 100 104,000
Grey Wolf, Inc., Series C
8.88% 07/01/07 1,500 1,350,000
Key Energy Services, Inc., Series B
14.00% 01/15/09 1,000 1,065,000
R&B Falcon Corp.
12.25% 03/15/06 2,000 2,110,000
Swift Energy Co.
10.25% 08/01/09 1,550 1,557,750
Western Gas Resources, Series 144A
10.00% 06/15/09 1,500 1,533,750
-----------
9,100,500
-----------
RETAIL -- 7.1%
Group One Automotive, Inc.
10.88% 03/01/09 1,000 950,000
J. Crew Group, Inc., Series B (STEP)
13.44%*** 10/15/08 1,500 787,500
J.H. Heafner Co., Series D
10.00% 05/15/08 1,000 940,000
Mattress Discounters Corp.
12.63% 07/15/07 1,000 950,000
Sbarro, Inc., Sr. Notes, Series 144A
11.00% 09/15/09 1,000 988,750
Sonic Automotive, Inc., Series B
11.00% 08/01/08 2,000 1,910,000
-----------
6,526,250
-----------
See accompanying notes to financial statements.
43
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
HIGH YIELD BOND PORTFOLIO (CONCLUDED)
Par
AS OF SEPTEMBER 30, 1999 Maturity (000) Value
---------- ------- -----------
CORPORATE BONDS (CONTINUED)
SPECIAL PURPOSE -- 7.8%
Nextel Partners, Inc. (STEP)
13.57%*** 02/01/09 $ 4,100 $ 2,439,500
Penhall Acquisition Corp.(STEP)
12.00%*** 08/01/06 2,000 1,960,000
Pinnacle Hldgs., Inc. (STEP)
12.26%*** 03/15/08 3,000 1,732,500
Zais Investment Grade Ltd.
9.95% 09/23/14 1,000 990,000
-----------
7,122,000
-----------
TELECOMMUNICATIONS -- 24.8%
Allegiance Telecom, Inc., Series
144A (STEP)
12.52%*** 02/15/08 3,000 1,935,000
Diamond Cable Communications PLC
10.62% 12/15/05 1,000 902,500
Echostar DBS Corp.
9.38%(DAGGER) 02/01/09 2,000 1,975,000
Echostar DBS Corp., Series 144A
9.25% 02/01/06 1,000 987,500
Globenet Communications Group Ltd.,
Series 144A
13.00% 07/15/07 1,500 1,485,000
Hyperion Telecommunications, Series
B (STEP)
12.29%*** 04/15/03 2,000 1,690,000
IPC Info. Systems (STEP)
11.92%*** 05/01/08 3,000 2,280,000
James Cable Partners LP, Series B
10.75% 08/15/04 1,000 1,005,000
Spectrasite Holdings, Inc., Series
144A (STEP)
11.25%*** 04/15/09 2,000 1,000,000
Teligent, Inc.
11.50% 12/01/07 2,000 1,840,000
United Pan-Europe Communications,
Series 144A (STEP)
12.50%*** 08/01/09 4,000 2,240,000
United Pan-Europe Communications, NV,
Series 144A
10.88% 08/01/09 1,500 1,522,500
Versatel Telecom BV, Sr. Notes
11.88% 07/15/09 1,000 950,000
Viatel, Inc. (STEP)
11.93%*** 04/15/08 1,600 928,000
Williams Communications Group, Inc.,
Sr. Notes
10.88% 10/01/09 1,000 992,490
Worldwide Fiber, Inc., Series 144A
12.00% 08/01/09 1,000 975,000
-----------
22,707,990
-----------
TOTAL CORPORATE BONDS
(Cost $85,207,468) 83,004,030
-----------
Shares Value
---------- -----------
SHORT TERM INVESTMENTS -- 0.2%
Galileo Money Market Fund 194,162 $ 194,162
(Cost $194,162) -----------
TOTAL INVESTMENTS IN
SECURITIES -- 100.0%
(Cost $94,176,716*) $91,575,007
===========
- -----------------------
* Also cost for Federal income tax purposes. The gross unrealized appreciation
(depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 753,363
Gross unrealized depreciation (3,355,072)
-----------
$(2,601,709)
===========
** Rates shown are the rates as of September 30, 1999.
***Rates shown are the effective yields as of September 30, 1999.
(DAGGER)Partial principal in the amount of $9,250,000 has been pledged as
collateral for reverse repurchase agreements.
--------------------------------------------------
INVESTMENT ABBREVIATIONS
CPI Consumer Price Index
IO Interest Only
PIK Payment In Kind
PO Principal Only
STEP Step Bonds
--------------------------------------------------
See accompanying notes to financial statements.
44
<PAGE>
BLACKROCK FUNDS
STATEMENT OF ASSETS AND LIABILITIES
HIGH YIELD BOND PORTFOLIO
SEPTEMBER 30, 1999
ASSETS
Investments at value (Cost $94,176,716) .................... $91,575,007
Interest receivable ........................................ 1,593,994
Investments sold receivable ................................ 3,068,771
Capital shares sold receivable ............................. 177,857
Prepaid expenses ........................................... 30,644
-----------
Total assets ........................................ 96,446,273
-----------
LIABILITIES
Investments purchased payable .............................. 5,475,188
Capital shares redeemed payable ............................ 5,964
Distributions payable ...................................... 696,704
Transfer agent fees payable ................................ 8,913
Other accrued expenses payable ............................. 103,050
Reverse repurchase agreements payable ...................... 6,831,443
-----------
Total liabilities ................................... 13,121,262
-----------
NET ASSETS (Applicable to 11 BlackRock shares,
6,561,608 Institutional shares, 11 Service
shares, 453,319 Investor A shares, 1,274,781
Investor B shares and 271,952 Investor C
shares outstanding) ........................................ $83,325,011
===========
NET ASSET VALUE AND REDEMPTION PRICE PER BLACKROCK,
INSTITUTIONAL, SERVICE AND INVESTOR A SHARE
($68,271,709 (DIVIDE) 7,014,949) ........................... $ 9.73
======
OFFERING PRICE PER BLACKROCK, INSTITUTIONAL
AND SERVICE SHARE .......................................... $ 9.73
======
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE
($9.73 (DIVIDE) 0.950) ..................................... $10.24
======
NET ASSET VALUE AND REDEMPTION PRICE
(subject to a maximum contingent deferred
sales charge of 4.5%) PER INVESTOR B SHARE
($12,406,541 (DIVIDE) 1,274,781) ........................... $ 9.73
======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred
sales charge of 1.0%) PER INVESTOR C SHARE
($2,646,761 (DIVIDE) 271,952) .............................. $ 9.73
======
See accompanying notes to financial statements.
45
<PAGE>
BLACKROCK FUNDS
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Intermediate
Low Duration Government Intermediate Core
Bond Bond Bond Bond
FOR THE PERIOD ENDED SEPTEMBER 30, 1999 Portfolio Portfolio Portfolio Portfolio
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment income:
Interest ...................................... $ 24,421,063 $ 29,864,362 $ 43,481,151 $ 63,329,067
Dividend ...................................... -- -- -- 349,605
------------ ------------ ------------ ------------
Total Investment Income .............. 24,421,063 29,864,362 43,481,151 63,678,672
------------ ------------ ------------ ------------
Expenses:
Investment advisory fee ....................... 1,474,052 2,269,860 2,765,839 4,630,434
Administration fee ............................ 613,780 1,044,136 1,233,704 1,952,797
Custodian fee ................................. 85,328 100,156 134,224 189,847
Transfer agent fee ............................ 73,232 152,503 168,894 277,362
Shareholders servicing fees ................... 42,659 71,423 46,537 173,513
Shareholders processing fees .................. 36,024 60,266 43,405 148,549
Distribution fees ............................. 29,672 6,773 5,874 140,631
Legal and audit ............................... 16,792 27,917 43,468 44,979
Printing ...................................... 30,105 53,644 56,820 90,126
Registration fees and expenses ................ 42,344 42,853 43,454 89,362
Trustees' fees and officers' salary ........... 5,310 7,481 9,228 15,152
Other ......................................... 26,824 15,506 35,003 54,333
------------ ------------ ------------ ------------
2,476,122 3,852,518 4,586,450 7,807,085
Less fees waived .............................. (865,919) (982,062) (1,219,418) (2,378,468)
------------ ------------ ------------ ------------
Total operating expenses .................... 1,610,203 2,870,456 3,367,032 5,428,617
------------ ------------ ------------ ------------
Interest expense .............................. 5,415,586 931,838 6,296,639 3,507,923
------------ ------------ ------------ ------------
Total expenses ....................... 7,025,789 3,802,294 9,663,671 8,936,540
------------ ------------ ------------ ------------
Net investment income ......................... 17,395,274 26,062,068 33,817,480 54,742,132
------------ ------------ ------------ ------------
Realized and unrealized gain (loss) on investments
and foreign currency transactions:
Net realized gain (loss) from:
Investment transactions ..................... (896,197) (2,881,688) (4,686,514) (14,819,766)
Futures, options and swap contracts ......... 774,798 (213,396) 585,468 4,402,103
Foreign currency and forward
foreign currency transactions ............ 22,966 -- -- --
------------ ------------ ------------ ------------
(98,433) (3,095,084) (4,101,046) (10,417,663)
------------ ------------ ------------ ------------
Change in unrealized appreciation
(depreciation) from:
Investments ................................ (6,238,651) (18,532,012) (22,466,057) (47,011,093)
Futures .................................... 110,076 (1,198,976) (1,141,333) 743,381
Foreign currency and forward
foreign currency transactions ............ (5,150) -- -- --
------------ ------------ ------------ ------------
(6,133,725) (19,730,988) (23,607,390) (46,267,712)
------------ ------------ ------------ ------------
Net loss on investments and
foreign currency transactions ................. (6,232,158) (22,826,072) (27,708,436) (56,685,375)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations ..................... $ 11,163,116 $ 3,235,996 $ 6,109,044 $ (1,943,243)
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Government Managed International High Yeild
Income GNMA Income Bond Bond
FOR THE PERIOD ENDED SEPTEMBER 30, 1999 Portfolio Portfolio Portfolio Portfolio Portfolio 1
----------- ------------ ------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Investment income:
Interest ...................................... $ 3,140,950 $ 8,090,139 $ 120,078,257 $ 2,865,867 $ 5,569,680
Dividend ...................................... -- -- 673,973 -- 572,176
----------- ------------ ------------- ----------- -----------
Total Investment Income .............. 3,140,950 8,090,139 120,752,230 2,865,867 6,141,856
----------- ------------ ------------- ----------- -----------
Expenses:
Investment advisory fee ....................... 216,293 634,360 7,687,219 327,368 263,946
Administration fee ............................ 99,496 265,278 3,351,362 136,887 94,182
Custodian fee ................................. 34,483 45,845 300,760 70,756 17,609
Transfer agent fee ............................ 46,780 37,296 499,357 24,110 26,377
Shareholders servicing fees ................... 107,761 3,370 471,603 19,062 25,179
Shareholders processing fees .................. 64,657 2,050 449,461 13,206 15,107
Distribution fees ............................. 271,685 1,722 41,453 28,673 57,531
Legal and audit ............................... 2,126 21,776 96,073 2,818 146,826
Printing ...................................... 6,868 29,161 192,888 6,298 94,238
Registration fees and expenses ................ 28,563 46,662 68,866 40,868 74,621
Trustees' fees and officers' salary ........... 2,132 2,331 26,111 1,112 818
Other ......................................... 9,276 9,153 86,236 6,200 9,175
----------- ------------ ------------- ----------- -----------
890,120 1,099,004 13,271,389 677,358 825,609
Less fees waived .............................. (156,328) (398,908) (1,897,607) -- (346,897)
----------- ------------ ------------- ----------- -----------
Total operating expenses .................... 733,792 700,096 11,373,782 677,358 478,712
----------- ------------ ------------- ----------- -----------
Interest expense .............................. 388,568 299,401 12,816,441 -- 175,871
----------- ------------ ------------- ----------- -----------
Total expenses ....................... 1,122,360 999,497 24,190,223 677,358 654,583
----------- ------------ ------------- ----------- -----------
Net investment income ......................... 2,018,590 7,090,642 96,562,007 2,188,509 5,487,273
----------- ------------ ------------- ----------- -----------
Realized and unrealized gain (loss) on investments
and foreign currency transactions:
Net realized gain (loss) from:
Investment transactions ..................... (1,136,136) (1,603,496) (22,540,668) 430,530 (683,582)
Futures, options and swap contracts ......... (14,127) 850,856 13,215,459 69,671 --
Foreign currency and forward
foreign currency transactions ............ -- -- 50,945 (574,817) --
----------- ------------ ------------- ----------- -----------
(1,150,263) (752,640) (9,274,264) (74,616) (683,582)
----------- ------------ ------------- ----------- -----------
Change in unrealized appreciation
(depreciation) from:
Investments ................................ (2,006,796) (5,547,769) (88,092,007) (3,737,533) (2,601,709)
Futures .................................... 208,625 630,299 8,228,816 427,893 --
Foreign currency and forward
foreign currency transactions ............ -- -- (8,839) 1,758,171 --
----------- ------------ ------------- ----------- -----------
(1,798,171) (4,917,470) (79,872,030) (1,551,469) (2,601,709)
----------- ------------ ------------- ----------- -----------
Net loss on investments and
foreign currency transactions ................. (2,948,434) (5,670,110) (89,146,294) (1,626,085) (3,285,291)
----------- ------------ ------------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations ..................... $ (929,844) $ 1,420,532 $ 7,415,713 $ 562,424 $ 2,201,982
=========== ============ ============= =========== ===========
<FN>
- --------------
1 For the period November 19, 1998 (commencement of operations) through
September 30, 1999.
</FN>
</TABLE>
See accompanying notes to financial statements.
46 & 47
<PAGE>
BLACKROCK FUNDS
STATEMENT OF CASH FLOWS
LOW DURATION BOND PORTFOLIO
FOR THE YEAR ENDED SEPTEMBER 30, 1999
Cash provided by (used in) Operating Activities
Investment income received ................................. $ 24,562,030
Operating expenses paid .................................... (1,666,623)
Interest expense paid ...................................... (5,415,586)
-------------
Net increase in cash from operating activities ................ 17,479,821
-------------
Cash provided by (used in) Investing Activities
Purchases of long-term investments ......................... (750,177,615)
Proceeds from disposition of long-term
portfolio investments ................................... 812,098,531
Net proceeds from disposition of short-term investments .... 800,520
-------------
Net increase in cash from investing activities ................ 62,721,436
-------------
Cash provided by (used in) Financing Activities
Cash dividends paid ........................................ (12,222,198)
Net borrowing relative to reverse repurchase agreements .... (4,822,010)
Proceeds related to capital stock purchases ................ 153,592,782
Cash paid related to capital stock redemptions ............. (216,749,831)
-------------
Net decrease in cash from financing activities ................ (80,201,257)
-------------
Net increase (decrease) in cash ............................... --
Cash at beginning of year ..................................... --
-------------
Cash at end of year ........................................... $ --
=============
Net increase in net assets resulting from operations .......... $ 11,163,116
Adjustments:
Increase in interest receivable ............................ (160,154)
Amortization of premium and accretion of discount .......... 301,121
Decrease in accrued expenses ............................... (32,734)
Increase in prepaid expenses ............................... (23,686)
Net realized and changes in unrealized gain
(loss) on investments .................................... 6,232,158
-------------
Total adjustments ............................................. 6,316,705
-------------
NET INCREASE IN CASH FROM OPERATING ACTIVITIES ................ $ 17,479,821
=============
See accompanying notes to financial statements.
48
<PAGE>
BLACKROCK FUNDS
STATEMENT OF CASH FLOWS
INTERMEDIATE BOND PORTFOLIO
FOR THE YEAR ENDED SEPTEMBER 30, 1999
Cash provided by (used in) Operating Activities
Investment income received ............................ $ 41,597,201
Operating expenses paid ............................... (3,408,378)
Interest expense paid ................................. (6,296,639)
---------------
Net increase in cash from operating activities ........... 31,892,184
---------------
Cash provided by (used in) Investing Activities
Purchases of long-term investments .................... (1,616,050,671)
Proceeds from disposition of long-term
portfolio investments ............................... 1,626,300,625
Net proceeds from disposition of short-term investments 4,572,225
---------------
Net increase in cash from investing activities ........... 14,822,179
---------------
Cash provided by (used in) Financing Activities
Cash dividends paid ................................... (32,548,025)
Net borrowing relative to reverse repurchase agreements (19,518,775)
Proceeds related to capital stock purchases ........... 125,647,027
Cash related to capital stock redemptions ............. (120,294,590)
---------------
Net decrease in cash from financing activities ........... (46,714,363)
---------------
Net increase (decrease) in cash .......................... --
Cash at beginning of year ................................ --
---------------
Cash at end of year ...................................... $ --
===============
Net increase in net assets resulting from operations ..... $ 6,109,044
Adjustments:
Increase in interest receivable ....................... (2,433,135)
Amortization of premium and accretion of discount ..... 549,185
Decrease in accrued expenses .......................... (15,968)
Increase in prepaid expenses .......................... (25,378)
Net realized and changes in unrealized gain
(loss) on investments ............................... 27,708,436
---------------
Total adjustments ........................................ 25,783,140
---------------
NET INCREASE IN CASH FROM OPERATING ACTIVITIES ........... $ 31,892,184
===============
See accompanying notes to financial statements.
49
<PAGE>
BLACKROCK FUNDS
STATEMENT OF CASH FLOWS
GOVERNMENT INCOME PORTFOLIO
FOR THE YEAR ENDED SEPTEMBER 30, 1999
Cash provided by (used in) Operating Activities
Investment income received ............................ $ 2,895,655
Operating expenses paid ............................... (685,292)
Interest expense paid ................................. (388,568)
-------------
Net increase in cash from operating activities ........... 1,821,795
-------------
Cash provided by (used in) Investing Activities
Purchases of long-term investments .................... (136,881,669)
Proceeds from disposition of long-term
portfolio investments ............................... 108,073,146
Net proceeds from disposition of short-term
investments ......................................... 142,890
-------------
Net decrease in cash from investing activities ........... (28,665,633)
-------------
Cash provided by (used in) Financing Activities
Cash dividends paid ................................... (1,211,598)
Net proceeds relative to reverse repurchase
agreements .......................................... 14,372,726
Proceeds related to capital stock purchases ........... 26,236,581
Cash paid related to capital stock redemptions ........ (12,553,871)
-------------
Net increase in cash from financing activities ........... 26,843,838
-------------
Net increase (decrease) in cash .......................... --
Cash at beginning of year ................................ --
-------------
Cash at end of year ...................................... $ --
=============
Net decrease in net assets resulting from operations ..... $ (929,844)
Adjustments:
Increase in interest receivable ....................... (340,867)
Amortization of premium and accretion of discount ..... 95,572
Increase in accrued expenses .......................... 49,370
Increase in prepaid expenses .......................... (870)
Net realized and changes in unrealized gain
(loss) on investments ................................ 2,948,434
-------------
Total adjustments ........................................ 2,751,639
-------------
NET INCREASE IN CASH FROM OPERATING ACTIVITIES ........... $ 1,821,795
=============
See accompanying notes to financial statements.
50
<PAGE>
BLACKROCK FUNDS
STATEMENT OF CASH FLOWS
MANAGED INCOME PORTFOLIO
FOR THE YEAR ENDED SEPTEMBER 30, 1999
Cash provided by (used in) Operating Activities
Investment income received ...................... $ 121,912,607
Operating expenses paid ......................... (11,425,363)
Interest expense paid ........................... (12,816,441)
---------------
Net increase in cash from operating activities ..... 97,670,803
---------------
Cash provided by (used in) Investing Activities
Purchases of long-term investments .............. (5,005,986,179)
Proceeds from disposition of long-term
portfolio investments ......................... 4,843,887,655
Net proceeds from disposition of short-term
investments ................................... 36,758,130
---------------
Net decrease in cash from investing activities ..... (125,340,394)
---------------
Cash provided by (used in) Financing Activities
Cash dividends paid ............................. (92,221,837)
Net proceeds relative to reverse repurchase
agreements .................................... 101,908,367
Proceeds related to capital stock purchases ..... 464,949,516
Cash paid related to capital stock redemptions .. (447,106,731)
---------------
Net increase in cash from financing activities ..... 27,529,315
---------------
Net increase (decrease) in cash .................... (140,276)
Cash at beginning of year .......................... --
---------------
Cash at end of year ................................ $ (140,276)
===============
Net increase in net assets resulting from operations $ 7,415,713
Adjustments:
Decrease in interest receivable ................. 385,655
Amortization of premium and accretion of discount 774,722
Decrease in accrued expenses .................... (45,586)
Increase in prepaid expenses .................... (5,995)
Net realized and changes in unrealized gain
(loss) on investments ......................... 89,146,294
---------------
Total adjustments .................................. 90,255,090
---------------
NET INCREASE IN CASH FROM OPERATING ACTIVITIES ..... $ 97,670,803
===============
See accompanying notes to financial statements.
51
<PAGE>
BLACKROCK FUNDS
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Low Duration Intermediate Government
Bond Portfolio Bond Portfolio
----------------------------- -----------------------------
For the For the For the For the
Year Ended Year Ended Year Ended Year Ended
9/30/99 9/30/98 9/30/99 9/30/98
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ....................... $ 17,395,274 $ 17,152,014 $ 26,062,068 $ 15,170,724
Net realized gain (loss) on investments,
futures, swap contracts and foreign
currency related transactions ............. (98,433) 1,489,712 (3,095,084) 5,199,304
Net unrealized gain (loss) on investments,
futures contracts and foreign currency
related transactions ...................... (6,133,725) 2,743,208 (19,730,988) 9,657,287
------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations ................. 11,163,116 21,384,934 3,235,996 30,027,315
------------- ------------- ------------- -------------
Distributions to shareholders from:
Net investment income:
BlackRock Class ............................. (6,048,576) (6,991,384) -- --
Institutional Class ......................... (10,205,420) (5,569,323) (23,884,375) (11,983,641)
Service Class ............................... (982,999) (4,082,739) (1,570,838) (2,952,271)
Investor A Class ............................ (146,545) (80,989) (566,000) (313,796)
Investor B Class ............................ (153,762) (8,711) (25,528) (5,639)
Investor C Class ............................ (33,050) (8,683) (15,327) (7,054)
------------- ------------- ------------- -------------
Total distribution from net investment income (17,570,352) (16,741,829) (26,062,068) (15,262,401)
------------- ------------- ------------- -------------
Net realized gains:
BlackRock Class ............................. -- -- -- --
Institutional Class ......................... -- -- (3,300,185) --
Service Class ............................... -- -- (226,970) --
Investor A Class ............................ -- -- (64,227) --
Investor B Class ............................ -- -- (3,359) --
Investor C Class ............................ -- -- (2,283) --
------------- ------------- ------------- -------------
Total distributions from net realized gains . -- -- (3,597,024) --
------------- ------------- ------------- -------------
Total distributions to shareholders ......... (17,570,352) (16,741,829) (29,659,092) (15,262,401)
------------- ------------- ------------- -------------
Capital share transactions ...................... (57,491,456) 69,892,569 (29,475,513) 312,660,657
------------- ------------- ------------- -------------
Total increase (decrease) in net assets ..... (63,898,692) 74,535,674 (55,898,609) 327,425,571
------------- ------------- ------------- -------------
Net assets:
Beginning of period ......................... 329,362,987 254,827,313 480,018,299 152,592,728
------------- ------------- ------------- -------------
End of period ............................... $ 265,464,295 $ 329,362,987 $ 424,119,690 $ 480,018,299
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Intermediate Core
Bond Portfolio Bond Portfolio
----------------------------- -----------------------------
For the For the For the For the
Year Ended Year Ended Year Ended Year Ended
9/30/99 9/30/98 9/30/99 9/30/98
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ....................... $ 33,817,480 $ 25,472,505 $ 54,742,132 $ 42,612,702
Net realized gain (loss) on investments,
futures, swap contracts and foreign
currency related transactions ............. (4,101,046) 5,387,354 (10,417,663) 17,428,853
Net unrealized gain (loss) on investments,
futures contracts and foreign currency
related transactions ...................... (23,607,390) 8,072,392 (46,267,712) 13,393,733
------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations ................. 6,109,044 38,932,251 (1,943,243) 73,435,288
------------- ------------- ------------- -------------
Distributions to shareholders from:
Net investment income:
BlackRock Class ............................. (2,641,213) -- (7,653,342) (5,050,600)
Institutional Class ......................... (29,342,529) (20,947,487) (41,755,750) (28,236,789)
Service Class ............................... (1,493,193) (3,490,893) (4,174,386) (194,059)
Investor A Class ............................ (132,451) (68,932) (341,839) (9,446,081)
Investor B Class ............................ (30,269) (1,147) (640,192) (398,527)
Investor C Class ............................ (7,995) (817,619) (249,542) (27,851)
------------- ------------- ------------- -------------
Total distribution from net investment income (33,647,650) (25,326,078) (54,815,051) (43,353,907)
------------- ------------- ------------- -------------
Net realized gains:
BlackRock Class ............................. (510,365) -- (13,815,881) (3,729,958)
Institutional Class ......................... (5,190,232) (1,533,689) (2,995,248) (450,932)
Service Class ............................... (290,823) (278,199) (1,570,759) (1,587,760)
Investor A Class ............................ (21,977) (5,904) (119,321) (23,612)
Investor B Class ............................ (1,947) -- (277,734) (55,299)
Investor C Class ............................ (132) -- (73,497) (1,658)
------------- ------------- ------------- -------------
Total distributions from net realized gains . (6,015,476) (1,817,792) (18,852,440) (5,849,219)
------------- ------------- ------------- -------------
Total distributions to shareholders ......... (39,663,126) (27,143,870) (73,667,491) (49,203,126)
------------- ------------- ------------- -------------
Capital share transactions ...................... 13,472,500 205,815,141 187,075,237 259,333,943
------------- ------------- ------------- -------------
Total increase (decrease) in net assets ..... (20,081,582) 217,603,522 111,464,503 283,566,105
------------- ------------- ------------- -------------
Net assets:
Beginning of period ......................... 566,744,493 349,140,971 855,534,355 571,968,250
------------- ------------- ------------- -------------
End of period ............................... $ 546,662,911 $ 566,744,493 $ 966,998,858 $ 855,534,355
============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements.
52 & 53
<PAGE>
BLACKROCK FUNDS
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
Government
Income Portfolio
-----------------------------
For the For the
Year Ended Year Ended
9/30/99 9/30/98
------------- -------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ....................... $ 2,018,590 $ 1,235,776
Net realized gain (loss)on investments,
futures, swap contracts and foreign
currency related transactions ............. (1,150,263) 754,990
Net unrealized gain (loss) on investments,
futures contracts and foreign
currency related transactions ............. (1,798,171) 607,625
------------ ------------
Net increase (decrease) in net assets
resulting from operations ................. (929,844) 2,598,391
------------ ------------
Distributions to shareholders from:
Net investment income:
BlackRock Class ............................. -- --
Institutional Class ......................... -- --
Service Class ............................... -- --
Investor A Class ............................ (362,323) (331,498)
Investor B Class ............................ (1,504,558) (965,806)
Investor C Class ............................ (119,390) (69,148)
------------ ------------
Total distribution from net investment income (1,986,271) (1,366,452)
------------ ------------
Capital:
BlackRock Class ............................. -- --
Institutional Class ......................... -- --
Service Class ............................... -- --
Investor A Class ............................ (44,311) --
Investor B Class ............................ (229,401) --
Investor C Class ............................ (16,072) --
------------ ------------
Total distributions from capital ............ (289,784) --
------------ ------------
Net realized gains:
BlackRock Class ............................. -- --
Institutional Class ......................... -- --
Service Class ............................... -- --
Investor A Class ............................ (101,189) (51,565)
Investor B Class ............................ (445,394) (226,059)
Investor C Class ............................ (37,364) (9,696)
------------ ------------
Total distributions from net realized gains . (583,947) (287,320)
------------ ------------
Total distributions to shareholders ......... (2,860,002) (1,653,772)
------------ ------------
Capital share transactions ...................... 14,927,649 11,295,834
------------ ------------
Total increase (decrease) in net assets ..... 11,137,803 12,240,453
------------ ------------
Net assets:
Beginning of period ......................... 32,761,188 20,520,735
------------ ------------
End of period ............................... $ 43,898,991 $ 32,761,188
============ ============
</TABLE>
<TABLE>
<CAPTION>
GNMA Managed
Portfolio Income Portfolio
------------------------------- ----------------------------------
For the
For the Period 5/18/98 1 For the For the
Year Ended through Year Ended Year Ended
9/30/99 9/30/98 9/30/99 9/30/98
------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ....................... $ 7,090,642 $ 2,681,619 $ 96,562,007 $ 67,146,905
Net realized gain (loss)on investments,
futures, swap contracts and foreign
currency related transactions ............. (752,640) 687,615 (9,274,264) 25,885,211
Net unrealized gain (loss) on investments,
futures contracts and foreign
currency related transactions ............. (4,917,470) 482,471 (79,872,030) 12,918,888
------------- ------------- --------------- ---------------
Net increase (decrease) in net assets
resulting from operations ................. 1,420,532 3,851,705 7,415,713 105,951,004
------------- ------------- --------------- ---------------
Distributions to shareholders from:
Net investment income:
BlackRock Class ............................. -- -- -- --
Institutional Class ......................... (6,866,829) (2,564,992) (79,275,756) (47,894,845)
Service Class ............................... (2,614) (2) (16,129,657) (19,460,184)
Investor A Class ............................ (60,535) (2,179) (938,291) (829,070)
Investor B Class ............................ (10,508) (923) (267,898) (111,579)
Investor C Class ............................ (485) (2) (1,887) --
------------- ------------- --------------- ---------------
Total distribution from net investment income (6,940,971) (2,568,098) (96,613,489) (68,295,678)
------------- ------------- --------------- ---------------
Capital:
BlackRock Class ............................. -- -- -- --
Institutional Class ......................... -- -- -- --
Service Class ............................... -- -- -- --
Investor A Class ............................ -- -- -- --
Investor B Class ............................ -- -- -- --
Investor C Class ............................ -- -- -- --
------------- ------------- --------------- ---------------
Total distributions from capital ............ -- -- -- --
------------- ------------- --------------- ---------------
Net realized gains:
BlackRock Class ............................. -- -- -- --
Institutional Class ......................... (216,280) -- (19,011,738) (2,168,258)
Service Class ............................... -- -- (3,866,356) (1,199,800)
Investor A Class ............................ (1,241) -- (252,718) (70,278)
Investor B Class ............................ (413) -- (71,999) (4,924)
Investor C Class ............................ (1) -- -- --
------------- ------------- --------------- ---------------
Total distributions from net realized gains . (217,935) -- (23,202,811) (3,443,260)
------------- ------------- --------------- ---------------
Total distributions to shareholders ......... (7,158,906) (2,568,098) (119,816,300) (71,738,938)
------------- ------------- --------------- ---------------
Capital share transactions ...................... (1,486,779) 117,456,386 45,013,063 758,310,929
------------- ------------- --------------- ---------------
Total increase (decrease) in net assets ..... (7,225,153) 118,739,993 (67,387,524) 792,522,995
------------- ------------- --------------- ---------------
Net assets:
Beginning of period ......................... 118,739,993 -- 1,612,231,266 819,708,271
------------- ------------- --------------- ---------------
End of period ............................... $ 111,514,840 $ 118,739,993 $ 1,544,843,742 $ 1,612,231,266
============= ============= =============== ===============
</TABLE>
<TABLE>
<CAPTION>
International High Yield
Bond Portfolio Bond Portfolio
----------------------------- ----------------
For the For the For the
Year ended Year ended Period 11/19/98 1
9/30/99 9/30/98 through 9/30/99
------------- ------------ ----------------
<S> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ....................... $ 2,188,509 $ 1,952,167 $ 5,487,273
Net realized gain (loss)on investments,
futures, swap contracts and foreign
currency related transactions ............. (74,616) 3,224,013 (683,582)
Net unrealized gain (loss) on investments,
futures contracts and foreign
currency related transactions ............. (1,551,469) 576,217 (2,601,709)
------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations ................. 562,424 5,752,397 2,201,982
------------ ------------ ------------
Distributions to shareholders from:
Net investment income:
BlackRock Class ............................. -- -- (8)
Institutional Class ......................... (2,894,971) (2,043,103) (4,262,789)
Service Class ............................... (158,774) (320,780) (8)
Investor A Class ............................ (107,062) (64,752) (231,248)
Investor B Class ............................ (88,432) (51,701) (554,384)
Investor C Class ............................ (80,994) (37,046) (124,941)
------------ ------------ ------------
Total distribution from net investment income (3,330,233) (2,517,382) (5,173,378)
------------ ------------ ------------
Capital:
BlackRock Class ............................. -- -- --
Institutional Class ......................... -- -- --
Service Class ............................... -- -- --
Investor A Class ............................ -- -- --
Investor B Class ............................ -- -- --
Investor C Class ............................ -- -- --
------------ ------------ ------------
Total distributions from capital ............ -- -- --
------------ ------------ ------------
Net realized gains:
BlackRock Class ............................. -- -- --
Institutional Class ......................... -- (1,522,323) --
Service Class ............................... -- (266,359) --
Investor A Class ............................ -- (41,747) --
Investor B Class ............................ -- (38,402) --
Investor C Class ............................ -- (21,891) --
------------ ------------ ------------
Total distributions from net realized gains . -- (1,890,722) --
------------ ------------ ------------
Total distributions to shareholders ......... (3,330,233) (4,408,104) (5,173,378)
------------ ------------ ------------
Capital share transactions ...................... 22,619,783 (3,333,959) 86,296,407
------------ ------------ ------------
Total increase (decrease) in net assets ..... 19,851,974 (1,989,666) 83,325,011
------------ ------------ ------------
Net assets:
Beginning of period ......................... 50,497,190 52,486,856 --
------------ ------------ ------------
End of period ............................... $ 70,349,164 $ 50,497,190 $ 83,325,011
============ ============ ============
<FN>
- -------------------
1 Commencement of operations.
</FN>
</TABLE>
See accompanying notes to financial statements.
54 & 55
<PAGE>
BLACKROCK FUNDS
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Net Net gain Distributions Distributions Net
asset (loss) on Distributions in excess Distributions in excess asset
value Net investments from net of net from net of net value
beginning Investment (both realized investment investment realized realized end of
of period income and unrealized) income income gains gains period
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------
LOW DURATION BOND PORTFOLIO
- ---------------------------
BLACKROCK CLASS
9/30/99 $10.03 $ 0.61 $(0.22) $(0.60) $-- $ -- $-- $ 9.82
9/30/98 9.89 0.59 0.12 (0.57) -- -- -- 10.03
6/3/97 1 through 9/30/97 9.82 0.19 0.07 (0.19) -- -- -- 9.89
INSTITUTIONAL CLASS
9/30/99 $10.03 $ 0.58 $(0.20) $(0.59) $-- $ -- $-- $ 9.82
9/30/98 9.89 0.56 0.14 (0.56) -- -- -- 10.03
9/30/97 9.79 0.58 0.08 (0.56) -- -- -- 9.89
4/1/96 through 9/30/96 9.79 0.28 (0.01) (0.27) -- -- -- 9.79
7/1/95 through 3/31/96 9.83 0.42 -- (0.41) -- (0.01) -- 9.79
6/30/95 9.71 0.58 0.13 (0.58) -- (0.01) -- 9.83
SERVICE CLASS
9/30/99 $10.03 $ 0.55 $(0.20) $(0.56) $-- $ -- $-- $ 9.82
9/30/98 9.89 0.66 0.01 (0.53) -- -- -- 10.03
9/30/97 9.79 0.54 0.09 (0.53) -- -- -- 9.89
4/1/96 through 9/30/96 9.79 0.26 (0.01) (0.25) -- -- -- 9.79
1/12/96 1 through 3/31/96 9.91 0.11 (0.12) (0.11) -- -- -- 9.79
INVESTOR A CLASS
9/30/99 $10.03 $ 0.54 $(0.21) $(0.54) $-- $ -- $-- $ 9.82
9/30/98 9.89 0.51 0.14 (0.51) -- -- -- 10.03
9/30/97 9.79 0.52 0.09 (0.51) -- -- -- 9.89
4/1/96 through 9/30/96 9.79 0.25 (0.01) (0.24) -- -- -- 9.79
1/12/96 1 through 3/31/96 9.91 0.10 (0.12) (0.10) -- -- -- 9.79
INVESTOR B CLASS
9/30/99 $10.03 $ 0.45 $(0.19) $(0.47) $-- $ -- $-- $ 9.82
9/30/98 9.89 0.41 0.17 (0.44) -- -- -- 10.03
11/18/96 1 through 9/30/97 9.86 0.41 -- (0.38) -- -- -- 9.89
INVESTOR C CLASS
9/30/99 $10.03 $ 0.46 $(0.20) $(0.47) $-- $ -- $-- $ 9.82
9/30/98 9.89 0.44 0.14 (0.44) -- -- -- 10.03
2/24/97 1 through 9/30/97 9.87 0.26 0.02 (0.26) -- -- -- 9.89
- --------------------------------------
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
- --------------------------------------
INSTITUTIONAL CLASS
9/30/99 $10.48 $ 0.59 $(0.51) $(0.59) $-- $(0.08) $-- $ 9.89
9/30/98 10.11 0.57 0.39 (0.59) -- -- -- 10.48
9/30/97 9.92 0.59 0.19 (0.59) -- -- -- 10.11
9/30/96 10.02 0.58 (0.11) (0.57) -- -- -- 9.92
9/30/95 9.64 0.58 0.38 (0.58) -- -- -- 10.02
SERVICE CLASS
9/30/99 $10.48 $ 0.56 $(0.51) $(0.56) $-- $(0.08) $-- $ 9.89
9/30/98 10.11 0.58 0.35 (0.56) -- -- -- 10.48
9/30/97 9.92 0.56 0.19 (0.56) -- -- -- 10.11
9/30/96 10.02 0.56 (0.12) (0.54) -- -- -- 9.92
9/30/95 9.64 0.56 0.37 (0.55) -- -- -- 10.02
INVESTOR A CLASS
9/30/99 $10.48 $ 0.54 $(0.51) $(0.54) $-- $(0.08) $-- $ 9.89
9/30/98 10.11 0.53 0.38 (0.54) -- -- -- 10.48
9/30/97 9.92 0.54 0.19 (0.54) -- -- -- 10.11
9/30/96 10.03 0.55 (0.13) (0.53) -- -- -- 9.92
9/30/95 9.64 0.55 0.39 (0.55) -- -- -- 10.03
INVESTOR B CLASS
9/30/99 $10.48 $ 0.46 $(0.51) $(0.46) $-- $(0.08) $-- $ 9.89
9/30/98 10.11 0.47 0.37 (0.47) -- -- -- 10.48
10/11/96 1 through 9/30/97 9.98 0.45 0.13 (0.45) -- -- -- 10.11
INVESTOR C CLASS
9/30/99 $10.48 $ 0.46 $(0.51) $(0.46) $-- $(0.08) $-- $ 9.89
9/30/98 10.11 0.47 0.37 (0.47) -- -- -- 10.48
10/8/96 1 through 9/30/97 9.98 0.45 0.13 (0.45) -- -- -- 10.11
- ---------------------------
INTERMEDIATE BOND PORTFOLIO
- ---------------------------
BLACKROCK CLASS
9/30/99 $ 9.67 $ 0.58 $(0.47) $(0.58) $-- $(0.10) $-- $ 9.10
5/1/98 1 through 9/30/98 9.46 0.24 0.26 (0.24) -- (0.05) -- 9.67
</TABLE>
<TABLE>
<CAPTION>
Ratio of
Net expenses to Ratio of expenses
assets Ratio of average net to average Ratio of net
end of expenses to assets net assets investment income
Total period average net (excluding (excluding to average net
return (000) assets interest expense) waivers) assets
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------
LOW DURATION BOND PORTFOLIO
- ---------------------------
BLACKROCK CLASS
<S> <C> <C> <C> <C> <C> <C>
9/30/99 4.06% $ 79,326 2.26% 0.41% 2.59% 6.04%
9/30/98 7.44 140,493 1.59 0.40 1.99 5.93
6/3/97 1 through 9/30/97 2.68 68,300 1.01 2 0.40 2 1.34 2 5.97 2
INSTITUTIONAL CLASS
9/30/99 3.91% $ 157,553 2.39% 0.56% 2.67% 5.89%
9/30/98 7.28 166,887 1.80 0.55 2.20 5.77
9/30/97 6.89 102,490 1.54 0.55 1.87 5.15
4/1/96 through 9/30/96 2.70 135,686 0.64 2 0.55 2 0.92 2 5.63 2
7/1/95 through 3/31/96 4.25 52,843 0.96 2 0.63 2 1.16 2 4.92 2
6/30/95 6.99 44,486 0.57 0.57 1.05 6.08
SERVICE CLASS
9/30/99 3.60% $ 16,872 2.70% 0.86% 2.97% 5.59%
9/30/98 6.96 18,393 1.98 0.85 2.38 5.49
9/30/97 6.57 82,873 1.85 0.85 2.18 4.86
4/1/96 through 9/30/96 2.54 91,870 0.97 2 0.85 2 1.25 2 5.28 2
1/12/96 1 through 3/31/96 (0.11) 181,670 1.18 2 0.85 2 1.38 2 4.92 2
INVESTOR A CLASS
9/30/99 3.42%3 $ 2,594 2.79% 1.02% 3.07% 5.38%
9/30/98 6.78 3 2,850 2.32 1.02 2.72 5.29
9/30/97 6.39 3 1,079 2.02 1.02 2.35 4.72
4/1/96 through 9/30/96 2.46 3 938 1.12 1.02 2 1.40 2 5.10 2
1/12/96 1 through 3/31/96 (0.15) 3 719 1.34 2 1.01 2 1.54 2 4.61 2
INVESTOR B CLASS
9/30/99 2.65%4 $ 7,549 3.41% 1.75% 3.67% 4.59%
9/30/98 5.99 4 398 3.08 1.76 3.48 4.50
11/18/96 1 through 9/30/97 4.31 4 13 2.19 2 1.73 2 2.52 2 4.50 2
INVESTOR C CLASS
9/30/99 2.65%4 $ 1,570 3.47% 1.77% 3.72% 4.62%
9/30/98 5.99 4 342 2.98 1.75 3.38 4.47
2/24/97 1 through 9/30/97 2.91 4 72 2.23 2 1.72 2 2.56 2 4.49 2
- --------------------------------------
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
- --------------------------------------
INSTITUTIONAL CLASS
9/30/99 0.75% $ 388,917 0.81% 0.60% 1.02% 5.77%
9/30/98 9.83 441,691 0.63 0.59 0.89 5.72
9/30/97 8.08 96,605 0.67 0.55 0.98 5.88
9/30/96 4.82 126,312 0.70 0.53 1.00 5.86
9/30/95 10.28 134,835 0.42 0.42 0.79 5.94
SERVICE CLASS
9/30/99 0.45% $ 26,687 1.11% 0.90% 1.32% 5.47%
9/30/98 9.50 29,697 0.91 0.88 1.17 5.51
9/30/97 7.75 50,535 0.97 0.85 1.28 5.58
9/30/96 4.51 47,494 1.00 0.83 1.30 5.56
9/30/95 9.99 49,762 0.69 0.69 1.06 5.67
INVESTOR A CLASS
9/30/99 0.28%3 $ 7,239 1.25% 1.06% 1.46% 5.29%
9/30/98 9.32 3 7,972 1.09 1.05 1.35 5.33
9/30/97 7.57 3 5,374 1.14 1.02 1.45 5.42
9/30/96 4.36 3 5,903 1.14 0.95 1.44 5.45
9/30/95 9.98 3 9,802 0.70 0.70 1.07 5.67
INVESTOR B CLASS
9/30/99 (0.47)%4 $ 809 1.97% 1.80% 2.19% 4.57%
9/30/98 8.51 4 361 1.84 1.79 2.10 4.61
10/11/96 1 through 9/30/97 5.94 4 28 1.90 2 1.77 2 2.21 2 4.62 2
INVESTOR C CLASS
9/30/99 (0.47)%4 $ 468 2.00% 1.81% 2.22% 4.56%
9/30/98 8.51 4 299 1.81 1.78 2.07 4.48
10/8/96 1 through 9/30/97 5.94 4 51 1.78 2 1.71 2 2.09 2 4.50 2
- ---------------------------
INTERMEDIATE BOND PORTFOLIO
- ---------------------------
BLACKROCK CLASS
9/30/99 1.25% $ 42,311 1.61% 0.44% 1.87% 6.27%
5/1/98 1 through 9/30/98 8.86 48,365 1.43 2 0.45 2 1.70 2 5.98 2
</TABLE>
<TABLE>
<CAPTION>
Ratio of net
investment income
to average
net assets Portfolio
(excluding turnover
waivers) rate
- ---------------------------------------------------------------------
<S> <C> <C>
- ---------------------------
LOW DURATION BOND PORTFOLIO
- ---------------------------
BLACKROCK CLASS
9/30/99 5.71% 177%
9/30/98 5.53 227
6/3/97 1 through 9/30/97 5.64 2 371
INSTITUTIONAL CLASS
9/30/99 5.62% 177%
9/30/98 5.37 227
9/30/97 4.82 371
4/1/96 through 9/30/96 5.36 2 228
7/1/95 through 3/31/96 4.72 2 185
6/30/95 5.60 586
SERVICE CLASS
9/30/99 5.32% 177%
9/30/98 5.09 227
9/30/97 4.53 371
4/1/96 through 9/30/96 5.01 2 228
1/12/96 1 through 3/31/96 4.72 2 185
INVESTOR A CLASS
9/30/99 5.10% 177%
9/30/98 4.89 227
9/30/97 4.39 371
4/1/96 through 9/30/96 4.82 2 228
1/12/96 1 through 3/31/96 4.41 2 185
INVESTOR B CLASS
9/30/99 4.34% 177%
9/30/98 4.10 227
11/18/96 1 through 9/30/97 4.17 2 371
INVESTOR C CLASS
9/30/99 4.37% 177%
9/30/98 4.07 227
2/24/97 1 through 9/30/97 4.16 2 371
- --------------------------------------
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
- --------------------------------------
INSTITUTIONAL CLASS
9/30/99 5.56% 191%
9/30/98 5.46 272
9/30/97 5.57 291
9/30/96 5.56 580
9/30/95 5.57 247
SERVICE CLASS
9/30/99 5.26% 191%
9/30/98 5.25 272
9/30/97 5.27 291
9/30/96 5.26 580
9/30/95 5.30 247
INVESTOR A CLASS
9/30/99 5.08% 191%
9/30/98 5.07 272
9/30/97 5.11 291
9/30/96 5.16 580
9/30/95 5.30 247
INVESTOR B CLASS
9/30/99 4.34% 191%
9/30/98 4.35 272
10/11/96 1 through 9/30/97 4.31 2 291
INVESTOR C CLASS
9/30/99 4.34% 191%
9/30/98 4.22 272
10/8/96 1 through 9/30/97 4.19 2 291
- ---------------------------
INTERMEDIATE BOND PORTFOLIO
- ---------------------------
BLACKROCK CLASS
9/30/99 6.00% 221%
5/1/98 1 through 9/30/98 5.71 2 221
</TABLE>
See accompanying notes to financial statements.
56 & 57
<PAGE>
BLACKROCK FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Net Net gain Distributions Distributions
asset (loss) on Distributions in excess Distributions in excess
value Net investments from net of net Distributions from net of net
beginning investment (both realized investment investment from realized realized
of period income and unrealized) income income capital gains gains
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL CLASS
9/30/99 $ 9.67 $ 0.57 $(0.47) $(0.57) $-- $ -- $(0.10) $--
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) -- -- -- --
SERVICE CLASS
9/30/99 $ 9.67 $ 0.54 $(0.47) $(0.54) $-- $ -- $(0.10) $--
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) -- -- -- --
INVESTOR A CLASS
9/30/99 $ 9.67 $ 0.52 $(0.47) $(0.52) $-- $ -- $(0.10) $--
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) -- -- -- --
INVESTOR B CLASS
9/30/99 $ 9.67 $ 0.45 $(0.47) $(0.45) $-- $ -- $(0.10) $--
2/5/98 1 through 9/30/98 9.51 0.29 0.21 (0.29) -- -- (0.05) --
INVESTOR C CLASS
10/16/98 1 THROUGH 9/30/99 $ 9.65 $ 0.43 $(0.45) $(0.43) $-- $ -- $(0.10) $--
- -------------------
CORE BOND PORTFOLIO
- -------------------
BLACKROCK CLASS
9/30/99 $10.12 $ 0.59 $(0.60) $(0.58) $-- $ -- $(0.22) $--
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
9/30/99 $10.12 $ 0.57 $(0.59) $(0.57) $-- $ -- $(0.22) $--
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 though 3/31/96 9.85 0.47 (0.07) (0.47) -- -- (0.17) --
6/30/95 9.36 0.62 0.50 (0.62) -- -- (0.01) --
SERVICE CLASS
9/30/99 $10.12 $ 0.54 $(0.59) $(0.54) $-- $ -- $(0.22) $--
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
9/30/99 $10.12 $ 0.53 $(0.60) $(0.52) $-- $ -- $(0.22) $--
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
9/30/99 $10.12 $ 0.46 $(0.60) $(0.45) $-- $ -- $(0.22) $--
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
9/30/99 $10.12 $ 0.47 $(0.61) $(0.45) $-- $ -- $(0.22) $--
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
9/30/99 $10.84 $ 0.55 $(0.70) $(0.54) $-- $(0.07) $(0.16) $--
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>
<TABLE>
<CAPTION>
Ratio of
Net Net expenses to Ratio of expenses
asset assets Ratio of average net to average Ratio of net
value end of expenses to assets net assets investment income
end of Total period average net (excluding (excluding to average net
period return (000) assets interest expense) waivers) assets
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL CLASS
9/30/99 $ 9.10 1.10% $ 476,236 1.74% 0.60% 1.96% 6.12%
9/30/98 9.67 8.81 490,674 1.72 0.59 1.99 6.05
9/30/97 9.49 8.40 295,709 0.98 0.53 1.27 6.18
9/30/96 9.32 5.10 207,909 0.83 0.53 1.13 5.97
9/30/95 9.43 10.76 124,979 0.55 0.47 0.89 6.10
SERVICE CLASS
9/30/99 $ 9.10 0.80% $ 24,299 2.05% 0.90% 2.26% 5.81%
9/30/98 9.67 8.48 25,946 2.06 0.89 2.33 5.78
9/30/97 9.49 8.07 52,316 1.27 0.83 1.56 5.88
9/30/96 9.32 4.79 45,362 1.14 0.83 1.44 5.67
9/30/95 9.43 10.46 36,718 0.82 0.74 1.17 5.82
INVESTOR A CLASS
9/30/99 $ 9.10 0.62%3 $ 2,387 2.21% 1.08% 2.43% 5.70%
9/30/98 9.67 8.30 3 1,648 2.22 1.06 2.49 5.64
9/30/97 9.49 7.89 3 1,116 1.44 1.00 1.73 5.70
9/30/96 9.32 4.74 3 935 1.27 0.97 1.57 5.53
9/30/95 9.43 10.35 3 647 0.84 0.76 1.19 5.81
INVESTOR B CLASS
9/30/99 $ 9.10 (0.13)%4 $ 1,010 2.81% 1.79% 3.02% 4.89%
2/5/98 1 through 9/30/98 9.67 7.83 4 111 2.79 2 1.75 2 3.06 2 4.50 2
INVESTOR C CLASS
10/16/98 1 THROUGH 9/30/99$ 9.10 (0.18)%4 $ 420 2.81%2 1.82%2 3.02%2 4.99%2
- -------------------
CORE BOND PORTFOLIO
- -------------------
BLACKROCK CLASS
9/30/99 $ 9.31 (0.02)% $ 160,791 0.79% 0.40% 1.07% 6.13%
9/30/98 10.12 10.74 92,723 0.68 0.40 1.02 6.14
5/1/97 1 through 9/30/97 9.82 5.30 48,139 0.56 2 0.40 2 0.85 2 6.54 2
INSTITUTIONAL CLASS
9/30/99 $ 9.31 (0.17)% $ 712,529 0.93% 0.55% 1.19% 5.94%
9/30/98 10.12 10.57 673,823 0.83 0.55 1.17 6.00
9/30/97 9.82 10.03 393,657 0.84 0.55 1.14 6.52
4/1/96 through 9/30/96 9.55 2.55 162,626 0.80 2 0.55 2 1.09 2 6.50 2
7/1/95 though 3/31/96 9.61 3.93 64,707 0.75 2 0.66 2 1.00 2 5.80 2
6/30/95 9.85 11.79 32,191 0.55 0.55 1.75 6.62
SERVICE CLASS
9/30/99 $ 9.31 (0.47)% $ 65,758 1.23% 0.86% 1.48% 5.63%
9/30/98 10.12 10.24 70,111 1.18 0.85 1.52 5.72
9/30/97 9.82 9.71 122,308 1.35 0.85 1.64 6.09
4/1/96 through 9/30/96 9.55 2.40 117,207 1.082 0.85 2 1.372 6.102
1/12/96 1 through 3/31/96 9.61 (1.90) 232,040 0.942 0.85 2 1.192 5.372
INVESTOR A CLASS
9/30/99 $ 9.31 (0.64)%3 $ 6,776 1.41% 1.03% 1.66% 5.48%
9/30/98 10.12 10.04 3 5,108 1.27 0.98 1.61 5.49
9/30/97 9.82 9.52 3 2,441 1.36 1.01 1.65 5.96
4/1/96 through 9/30/96 9.55 2.36 3 320 1.27 2 1.02 2 1.56 2 6.04 2
1/31/96 1 through 3/31/96 9.61 (2.96)3 80 1.11 2 1.02 2 1.36 2 5.34 2
INVESTOR B CLASS
9/30/99 $ 9.31 (1.38)%4 $ 14,383 2.15% 1.77% 2.41% 4.72%
9/30/98 10.12 9.20 4 11,734 2.01 1.76 2.35 4.78
9/30/97 9.82 8.71 4 5,295 2.17 1.75 2.46 5.19
4/1/96 through 9/30/96 9.55 1.98 4 1,497 2.00 2 1.72 2 2.29 2 5.40 2
3/18/96 1 through 3/31/96 9.61 (0.33)4 77 1.86 2 1.77 2 2.11 2 4.62 2
INVESTOR C CLASS
9/30/99 $ 9.31 (1.38)%4 $ 6,762 2.16% 1.76% 2.40% 4.81%
9/30/98 10.12 9.20 4 2,035 1.90 1.73 2.24 4.75
2/28/97 1 through 9/30/97 9.82 4.82 4 128 1.93 2 1.74 2 2.22 2 5.22 2
- -------------------------
GOVERNMENT INCOME PORTFOL
- -------------------------
INVESTOR A CLASS
9/30/99 $ 9.92 (1.40)%3 $ 6,713 1.96% 1.07% 2.32% 5.30%
9/30/98 10.84 11.13 3 6,045 1.46 1.05 2.04 5.45
9/30/97 10.49 10.48 3 4,876 1.41 1.02 2.13 7.63
9/30/96 10.20 4.43 3 3,651 2.96 0.91 3.72 6.54
10/3/94 1 though 9/30/95 10.68 14.27 3 2,990 0.92 2 0.37 2 2.36 2 6.34 2
</TABLE>
<TABLE>
<CAPTION>
Ratio of net
investment income
to average
net assets Portfolio
(excluding turnover
waivers) rate
- -----------------------------------------------------
<S> <C> <C>
INSTITUTIONAL CLASS
9/30/99 5.90% 221%
9/30/98 5.78 221
9/30/97 5.89 321
9/30/96 5.67 670
9/30/95 5.76 262
Service Class
9/30/99 5.60% 221%
9/30/98 5.51 221
9/30/97 5.59 321
9/30/96 5.36 670
9/30/95 5.47 262
INVESTOR A CLASS
9/30/99 5.49% 221%
9/30/98 5.37 221
9/30/97 5.41 321
9/30/96 5.23 670
9/30/95 5.47 262
INVESTOR B CLASS
9/30/99 4.68% 221%
2/5/98 1 through 9/30/98 4.23 2 221
INVESTOR C CLASS
10/16/98 1 THROUGH 9/30/99 4.77%2 221%
- -------------------
CORE BOND PORTFOLIO
- -------------------
BLACKROCK CLASS
9/30/99 5.85% 328%
9/30/98 5.80 405
5/1/97 1 through 9/30/97 6.25 2 441
INSTITUTIONAL CLASS
9/30/99 5.68% 328%
9/30/98 5.66 405
9/30/97 6.23 441
4/1/96 through 9/30/96 6.20 2 308
7/1/95 though 3/31/96 5.55 2 723
6/30/95 5.43 435
SERVICE CLASS
9/30/99 5.37% 328%
9/30/98 5.38 405
9/30/97 5.81 441
4/1/96 through 9/30/96 5.81 2 308
1/12/96 1 through 3/31/96 5.12 2 723
INVESTOR A CLASS
9/30/99 5.23% 328%
9/30/98 5.15 405
9/30/97 5.67 441
4/1/96 through 9/30/96 5.75 2 308
1/31/96 1 through 3/31/96 5.10 2 723
INVESTOR B CLASS
9/30/99 4.47% 328%
9/30/98 4.44 405
9/30/97 4.90 441
4/1/96 through 9/30/96 5.11 2 308
3/18/96 1 through 3/31/96 4.37 2 723
INVESTOR C CLASS
9/30/99 4.56% 328%
9/30/98 4.41 405
2/28/97 1 through 9/30/97 4.93 2 441
- --------------------------
GOVERNMENT INCOME PORTFOIO
- --------------------------
INVESTOR A CLASS
9/30/99 4.94% 195%
9/30/98 4.87 477
9/30/97 6.91 393
9/30/96 5.78 434
10/3/94 1 though 9/30/95 4.89 2 258
</TABLE>
See accompanying notes to financial statements.
58 & 59
<PAGE>
BLACKROCK FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Net Net gain Distributions Distributions
asset (loss) on Distributions in excess Net Distributions in excess
value Net investments from net of net Distributions from net of net
beginning investment (both realized investment investment from realized realized
of period income and unrealized) income income capital gains gains
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTOR B CLASS
9/30/99 $10.84 $ 0.47 $(0.70) $(0.46) $ -- $(0.07) $(0.16) $--
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
9/30/99 $10.84 $ 0.47 $(0.70) $(0.46) $ -- $(0.07) $(0.16) $--
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
9/30/99 $10.11 $0.61 $(0.49) $(0.60) $ -- $ -- $(0.02) $--
5/18/98 1 through 9/30/98 10.00 0.23 0.10 (0.22) -- -- -- --
Service Class
9/30/99 $10.11 $ 0.58 $(0.49) $(0.57) $ -- $ -- $(0.02) $--
5/18/98 1 through 9/30/98 10.00 0.27 0.04 (0.20) -- -- -- --
INVESTOR A CLASS
9/30/99 $10.11 $ 0.56 $(0.49) $(0.55) $ -- $ -- $(0.02) $--
5/18/98 1 through 9/30/98 10.00 0.20 0.11 (0.20) -- -- -- --
Investor B Class
9/30/99 $10.11 $ 0.48 $(0.49) $(0.47) $ -- $ -- $(0.02) $--
5/18/98 1 through 9/30/98 10.00 0.17 0.11 (0.17) -- -- -- --
INVESTOR C CLASS
9/30/99 $10.11 $ 0.48 $(0.49) $(0.47) $ -- $ -- $(0.02) $--
5/18/98 1 through 9/30/98 10.00 0.23 0.05 (0.17) -- -- -- --
- ------------------------
MANAGED INCOME PORTFOLIO
- ------------------------
INSTITUTIONAL CLASS
9/30/99 $10.64 $ 0.62 $(0.57) $(0.62) $ -- $ -- $(0.15) $--
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) -- -- --
SERVICE CLASS
9/30/99 $10.64 $ 0.59 $(0.57) $(0.59) $ -- $ -- $(0.15) $--
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) -- -- --
INVESTOR A CLASS
9/30/99 $10.64 $ 0.58 $(0.57) $(0.58) $ -- $ -- $(0.15) $--
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) -- -- --
INVESTOR B CLASS
9/30/99 $10.64 $ 0.50 $(0.57) $(0.50) $ -- $ -- $(0.15) $--
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) -- -- -- --
INVESTOR C CLASS
5/19/99 1 through 9/30/99 $10.14 $ 0.08 $(0.22) $(0.08) $ -- $ -- $ -- $--
- ----------------------------
INTERNATIONAL BOND PORTFOLIO
- ----------------------------
INSTITUTIONAL CLASS
9/30/99 $11.24 $ 0.30 $(0.09) $(0.64) $ -- $ -- $ -- $--
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
9/30/99 $11.24 $ 0.24 $(0.06) $(0.61) $ -- $ -- $ -- $--
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) --
</TABLE>
<TABLE>
<CAPTION>
Ratio of
Net Net expenses to Ratio of expenses
asset assets Ratio of average net to average Ratio of net
value end of expenses to assets net assets investment income
end of Total period average net (excluding (excluding to average net
period return (000) assets interest expense) waivers) assets
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTOR B CLASS
9/30/99 $ 9.92 (2.14)%4 $ 34,753 2.72% 1.81% 3.08% 4.55%
9/30/98 10.84 10.31 4 25,165 2.01 1.80 2.59 4.82
9/30/97 10.49 9.66 4 14,796 2.14 1.77 2.86 6.89
9/30/96 10.20 3.68 4 11,119 3.69 1.64 4.45 5.76
10/3/94 1 through 9/30/95 10.68 13.52 4 10,188 1.60 2 1.05 2 3.05 2 5.62 2
INVESTOR C CLASS
9/30/99 $ 9.92 (2.14)%4 $ 2,435 2.70% 1.81% 3.06% 4.52%
9/30/98 10.84 10.31 4 1,551 2.14 1.80 2.72 4.64
2/28/97 1 through 9/30/97 10.49 5.64 4 849 3.24 2 1.70 2 3.96 2 5.57 2
- --------------
GNMA PORTFOLIO
- --------------
INSTITUTIONAL CLASS
9/30/99 $ 9.61 1.14% $ 110,611 0.86% 0.60% 1.21% 6.15%
5/18/98 1 through 9/30/98 10.11 1.36 -- 0.63 2 0.60 2 1.00 2 6.09 2
Service Class
9/30/99 $ 9.61 0.84% $ 97 1.31% 0.88% 1.64% 6.12%
5/18/98 1 through 9/30/98 10.11 3.18 -- 0.74 2 0.57 2 1.11 2 8.78 2
INVESTOR A CLASS
9/30/99 $ 9.61 0.67%3 $ 1,106 1.37% 1.08% 1.69% 5.76%
5/18/98 1 through 9/30/98 10.11 3.12 3 535 1.10 2 1.06 2 1.47 2 5.65 2
Investor B Class
9/30/99 $ 9.61 (0.09)%4 $ 229 2.08% 1.81% 2.43% 4.94%
5/18/98 1 through 9/30/98 10.11 2.85 4 166 1.73 2 1.70 2 2.10 2 4.50 2
INVESTOR C CLASS
9/30/99 $ 9.61 (0.09)%4 $ 24 2.16% 1.71% 2.50% 5.15%
5/18/98 1 through 9/30/98 10.11 2.85 4 -- 0.57 2 0.57 2 0.94 2 5.26 2
- ------------------------
MANAGED INCOME PORTFOLIO
- ------------------------
INSTITUTIONAL CLASS
9/30/99 $ 9.92 0.57% $1,252,991 1.45% 0.65% 1.57% 6.11%
9/30/98 10.64 9.25 1,335,054 1.30 0.63 1.48 6.04
9/30/97 10.41 10.25 537,260 0.92 0.58 1.17 6.65
9/30/96 10.09 4.33 564,744 0.58 0.58 0.81 6.17
9/30/95 10.38 13.27 443,148 0.57 0.57 0.77 6.44
SERVICE CLASS
9/30/99 $ 9.92 0.26% $ 270,943 1.76% 0.95% 1.88% 5.81%
9/30/98 10.64 8.93 257,641 1.69 0.93 1.87 5.76
9/30/97 10.41 9.93 266,750 1.27 0.88 1.52 6.37
9/30/96 10.09 4.05 165,073 0.88 0.88 1.11 5.87
9/30/95 10.38 12.97 116,846 0.85 0.85 1.05 6.14
INVESTOR A CLASS
9/30/99 $ 9.92 0.09%3 $ 15,092 1.93% 1.12% 2.04% 5.62%
9/30/98 10.64 8.74 3 14,897 1.90 1.10 2.08 5.64
9/30/97 10.41 9.74 3 15,230 1.41 1.05 1.66 6.18
9/30/96 10.09 3.83 3 11,193 1.05 1.05 1.29 5.67
9/30/95 10.38 12.74 3 11,977 1.05 1.05 1.25 5.96
INVESTOR B CLASS
9/30/99 $ 9.92 (0.66)%4 $ 5,818 2.68% 1.87% 2.80% 4.88%
9/30/98 10.64 7.94 4 4,639 2.43 1.82 2.61 4.71
7/15/97 1 through 9/30/97 10.41 1.35 4 468 2.14 2 1.31 2 2.39 2 3.85
INVESTOR C CLASS
5/19/99 1 through 9/30/99 $ 9.92 --% $ --5 2.53%2 1.79%2 2.64%2 4.93%
- ----------------------------
INTERNATIONAL BOND PORTFOLIO
- ----------------------------
INSTITUTIONAL CLASS
9/30/99 $10.81 1.91% $ 59,265 1.03% 1.03% 1.03% 3.79%
9/30/98 11.24 12.51 43,672 1.01 1.01 1.16 4.08
9/30/97 10.95 11.59 43,310 0.98 0.98 1.08 5.28
6/10/96 1 through 9/30/96 11.71 4.48 30,882 0.92 2 0.92 2 1.32 2 6.28 2
SERVICE CLASS
9/30/99 $10.81 1.60% $ 3,730 1.33% 1.33% 1.33% 3.50%
9/30/98 11.24 12.17 2,359 1.31 1.31 1.46 3.79
9/30/97 10.95 11.23 6,708 1.30 1.29 1.40 5.01
2/1/96 through 9/30/96 11.71 5.39 7,836 1.09 2 1.09 2 1.20 2 3.82 2
3/1/95 through 1/31/96 11.39 16.79 37,627 1.23 2 1.23 2 1.23 2 5.62 2
2/28/95 10.52 1.50 45,657 1.24 1.24 1.24 5.96
</TABLE>
<TABLE>
<CAPTION>
Ratio of net
investment income
to average
net assets Portfolio
(excluding turnover
waivers) rate
- -----------------------------------------------------
<S> <C> <C>
INVESTOR B CLASS
9/30/99 4.19% 195%
9/30/98 4.24 477
9/30/97 6.17 393
9/30/96 5.00 434
10/3/94 1 through 9/30/95 4.17 2 258
INVESTOR C CLASS
9/30/99 4.16% 195%
9/30/98 4.06 477
2/28/97 1 through 9/30/97 4.85 2 393
- --------------
GNMA PORTFOLIO
- --------------
INSTITUTIONAL CLASS
9/30/99 5.81% 124%
5/18/98 1 through 9/30/98 5.72 2 56
Service Class
9/30/99 5.79% 124%
5/18/98 1 through 9/30/98 8.41 2 56
INVESTOR A CLASS
9/30/99 5.44% 124%
5/18/98 1 through 9/30/98 5.28 2 56
Investor B Class
9/30/99 4.59% 124%
5/18/98 1 through 9/30/98 4.13 2 56
INVESTOR C CLASS
9/30/99 4.81% 124%
5/18/98 1 through 9/30/98 4.90 2 56
- ------------------------
MANAGED INCOME PORTFOLIO
- ------------------------
INSTITUTIONAL CLASS
9/30/99 5.99% 239%
9/30/98 5.86 376
9/30/97 6.40 428
9/30/96 5.95 638
9/30/95 6.24 203
SERVICE CLASS
9/30/99 5.69% 239%
9/30/98 5.58 376
9/30/97 6.12 428
9/30/96 5.65 638
9/30/95 5.94 203
INVESTOR A CLASS
9/30/99 5.50% 239%
9/30/98 5.46 376
9/30/97 5.93 428
9/30/96 5.44 638
9/30/95 5.76 203
INVESTOR B CLASS
9/30/99 4.77% 239%
9/30/98 4.53 376
7/15/97 1 through 9/30/97 3.60 2 428
INVESTOR C CLASS
5/19/99 1 through 9/30/99 4.82% 2 239%
- ----------------------------
INTERNATIONAL BOND PORTFOLIO
- ----------------------------
INSTITUTIONAL CLASS
9/30/99 3.79% 317%
9/30/98 3.93 225
9/30/97 5.18 272
6/10/96 1 through 9/30/96 5.88 2 108
SERVICE CLASS
9/30/99 3.50% 317%
9/30/98 3.64 225
9/30/97 4.91 272
2/1/96 through 9/30/96 3.72 2 108
3/1/95 through 1/31/96 5.62 2 159
2/28/95 5.96 131
</TABLE>
See accompanying notes to financial statements.
60 & 61
<PAGE>
BLACKROCK FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Net Net gain Distributions Distributions Net
asset (loss) on Distributions in excess Distributions in excess asset
value Net investments from net of net from net of net value
beginning investment (both realized investment investment realized realized end of
of period income and unrealized) income income gains gains period
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTOR A CLASS
9/30/99 $11.24 $ 0.23 $(0.07) $(0.59) $-- $ -- $-- $10.81
9/30/98 10.95 0.47 0.76 (0.52) -- (0.42) -- 11.24
9/30/97 11.71 1.10 0.05 (1.42) -- (0.49) -- 10.95
4/22/96 1 through 9/30/96 11.37 0.26 0.32 (0.24) -- -- -- 11.71
INVESTOR B CLASS
9/30/99 $11.24 $ 0.13 $(0.05) $(0.51) $-- $ -- $-- $10.81
9/30/98 10.95 0.40 0.74 (0.43) -- (0.42) -- 11.24
9/30/97 11.71 1.06 -- (1.33) -- (0.49) -- 10.95
4/19/96 1 through 9/30/96 11.36 0.22 0.33 (0.20) -- -- -- 11.71
INVESTOR C CLASS
9/30/99 $11.24 $ 0.13 $(0.05) $(0.51) $-- $ -- $-- $10.81
9/30/98 10.95 0.54 0.60 (0.43) -- (0.42) -- 11.24
9/30/97 11.71 1.15 (0.09) (1.33) -- (0.49) -- 10.95
9/11/96 1 through 9/30/96 11.58 0.02 0.12 (0.01) -- -- -- 11.71
- -------------------------
HIGH YIELD BOND PORTFOLIO
- -------------------------
BLACKROCK CLASS
11/19/98 1 through 9/30/99 $10.00 $ 0.90 $(0.32) $(0.85) $-- $ -- $-- $ 9.73
INSTITUTIONAL CLASS
11/19/98 1 through 9/30/99 $10.00 $ 0.90 $(0.31) $(0.86) $-- $ -- $-- $ 9.73
SERVICE CLASS
11/19/98 1 through 9/30/99 $10.00 $ 0.85 $(0.31) $(0.81) $-- $ -- $-- $ 9.73
INVESTOR A CLASS
11/19/98 1 through 9/30/99 $10.00 $ 0.86 $(0.31) $(0.82) $-- $ -- $-- $ 9.73
INVESTOR B CLASS
11/19/98 1 through 9/30/99 $10.00 $ 0.79 $(0.31) $(0.75) $-- $ -- $-- $ 9.73
INVESTOR C CLASS
11/19/98 1 through 9/30/99 $10.00 $ 0.78 $(0.31) $(0.74) $-- $ -- $-- $ 9.73
</TABLE>
<TABLE>
<CAPTION>
Ratio of
Net expenses to Ratio of expenses
assets Ratio of average net to average Ratio of net
end of expenses to assets net assets investment income
Total period average net (excluding (excluding to average net
return (000) assets interest expense) waivers) assets
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTOR A CLASS
9/30/99 1.43% 3 $ 2,638 1.49% 1.49% 1.49% 3.30%
9/30/98 11.98 3 1,705 1.48 1.48 1.63 3.59
9/30/97 11.02 3 1,015 1.42 1.42 1.52 4.49
4/22/96 1 through 9/30/96 5.13 3 176 1.45 2 1.45 2 1.86 2 5.29 2
INVESTOR B CLASS
9/30/99 0.67% 4 $ 2,447 2.24% 2.24% 2.24% 2.56%
9/30/98 11.15 4 1,512 2.22 2.22 2.37 2.83
9/30/97 10.11 4 979 2.12 2.12 2.22 3.65
4/19/96 1 through 9/30/96 4.90 4 136 2.09 2 2.09 2 2.49 2 4.61 2
INVESTOR C CLASS
9/30/99 0.67% 4 $ 2,269 2.24% 2.24% 2.24% 2.55%
9/30/98 11.15 4 1,249 2.22 2.22 2.37 2.83
9/30/97 10.13 4 474 2.11 2.11 2.21 3.57
9/11/96 1 through 9/30/96 1.24 4 19 1.53 2 1.53 2 1.93 2 2.79 2
- -------------------------
HIGH YIELD BOND PORTFOLIO
- -------------------------
BLACKROCK CLASS
11/19/98 1 through 9/30/99 5.87% $ -- 0.33%2 0.28%2 0.41%2 10.45%2
INSTITUTIONAL CLASS
11/19/98 1 through 9/30/99 5.93% $ 63,860 1.02%2 0.71%2 1.67%2 10.49%2
SERVICE CLASS
11/19/98 1 through 9/30/99 5.47% $ -- 2.21%2 1.59%2 3.33%2 9.93%2
INVESTOR A CLASS
11/19/98 1 through 9/30/99 5.50%3 $ 4,412 1.54%2 1.15%2 2.21%2 10.17%2
INVESTOR B CLASS
11/19/98 1 through 9/30/99 4.78%4 $ 12,407 2.27%2 1.88%2 2.94%2 9.41%2
INVESTOR C CLASS
11/19/98 1 through 9/30/99 4.69%4 $ 2,647 2.25%2 1.88%2 2.92%2 9.36%2
</TABLE>
<TABLE>
<CAPTION>
Ratio of net
investment income
to average
net assets Portfolio
(excluding turnover
waivers) rate
- -----------------------------------------------------------
<S> <C> <C>
INVESTOR A CLASS
9/30/99 3.30% 317%
9/30/98 3.44 225
9/30/97 4.39 272
4/22/96 1 through 9/30/96 4.88 2 108
INVESTOR B CLASS
9/30/99 2.56% 317%
9/30/98 2.68 225
9/30/97 3.55 272
4/19/96 1 through 9/30/96 4.21 2 108
INVESTOR C CLASS
9/30/99 2.55% 317%
9/30/98 2.68 225
9/30/97 3.47 272
9/11/96 1 through 9/30/96 2.38 2 108
- -------------------------
HIGH YIELD BOND PORTFOLIO
- -------------------------
BLACKROCK CLASS
11/19/98 1 through 9/30/99 10.38%2 185%
INSTITUTIONAL CLASS
11/19/98 1 through 9/30/99 9.85%2 185%
SERVICE CLASS
11/19/98 1 through 9/30/99 8.81%2 185%
INVESTOR A CLASS
11/19/98 1 through 9/30/99 9.49%2 185%
INVESTOR B CLASS
11/19/98 1 through 9/30/99 8.73%2 185%
INVESTOR C CLASS
11/19/98 1 through 9/30/99 8.69%2 185%
<FN>
1 Commencement of operations of share class.
2 Annualized.
3 Sales load not relected in total return.
4 Contingent deferred sales load not relected in total return.
5 There were no Investor C shares outstanding as of September 30, 1999.
</FN>
</TABLE>
See accompanying notes to financial statements.
62 & 63
<PAGE>
BLACKROCK FUNDS
NOTES TO FINANCIAL STATEMENTS
BlackRock Funds SM ("the 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 36 publicly-offered portfolios, 9 of which are included in these
financial statements (the "Portfolios"). Each Portfolio is authorized to issue
an unlimited number of shares with a par value of $0.001. Portfolios of the Fund
offer as many as six classes of shares. Shares of all classes of a Portfolio
represent equal pro rata interests in such Portfolio, except that each class
bears different expenses which reflect the difference in the range of services
provided to them. The following table provides a list of the Portfolios included
in this report along with a summary of their respective class-specific fee
arrangements as provided under the Fund's Amended and Restated Distribution and
Service Plan (the "Plan"). Fees are expressed as a percentage of average daily
net asset values of the respective classes.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Share Classes
- ------------------------------------------------------------------------------------------------------------------------------------
BlackRock Institutional Service Investor A Investor B Investor C
- ------------------------------------------------------------------------------------------------------------------------------------
Contractual Actual Contractual Actual Contractual Actual Contractual Actual Contractual Actual Contractual Actual
Fees Fees(4) Fees Fees(4) Fees(1) Fees(4) Fees(2) Fees(4) Fees(3) Fees(4) Fees(3) Fees(4)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Low Duration Bond None None None None 0.30% 0.30% 0.50% 0.40% 1.15% 1.15% 1.15% 1.15%
- ------------------------------------------------------------------------------------------------------------------------------------
Intermediate Government
Bond N/A N/A None None 0.30% 0.30% 0.50% 0.40% 1.15% 1.15% 1.15% 1.15%
- ------------------------------------------------------------------------------------------------------------------------------------
Intermediate Bond None None None None 0.30% 0.30% 0.50% 0.40% 1.15% 1.15% 1.15% 1.15%
- ------------------------------------------------------------------------------------------------------------------------------------
Core Bond None None None None 0.30% 0.30% 0.50% 0.40% 1.15% 1.15% 1.15% 1.15%
- ------------------------------------------------------------------------------------------------------------------------------------
Government Income N/A N/A N/A N/A N/A N/A 0.50% 0.40% 1.15% 1.15% 1.15% 1.15%
- ------------------------------------------------------------------------------------------------------------------------------------
GNMA N/A N/A None None 0.30% 0.30% 0.50% 0.40% 1.15% 1.15% 1.15% 1.15%
- ------------------------------------------------------------------------------------------------------------------------------------
Managed Income N/A N/A None None 0.30% 0.30% 0.50% 0.40% 1.15% 1.15% 1.15% 1.15%
- ------------------------------------------------------------------------------------------------------------------------------------
International Bond N/A N/A None None 0.30% 0.30% 0.50% 0.40% 1.15% 1.15% 1.15% 1.15%
- ------------------------------------------------------------------------------------------------------------------------------------
High Yield Bond None None None None 0.30% 0.30% 0.50% 0.40% 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, 1999.
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 these
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 or on the basis of
quotations provided by a pricing service or dealer which uses information with
respect to transactions on bonds, quotations from bond dealers, market
transactions in comparable securities and various relationships between
securities in determining value. Short-term obligations with maturities of 60
days or less are valued at amortized cost which approximates market value.
Discounts and premiums on debt securities are amortized for book and tax
purposes using the effective yield-to-maturity method over the term of the
instrument. Securities for which market quotations are not readily available are
carried at fair value as determined in accordance with procedures adopted by the
Board of Directors.
64
<PAGE>
BLACKROCK FUNDS
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, are 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 for and elect the tax
treatment applicable to regulated investment companies under subchapter M of the
Internal Revenue Code of 1986, as amended, 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 Low Duration
Bond, Managed Income and International Bond Portfolios 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 Portfolios isolate 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 Portfolios report 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 Low Duration Bond, Managed Income
and International Bond Portfolios enter 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 Portfolios' 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
Portfolios intend to settle the contracts prior to delivery. Under the terms of
foreign currency contracts open at September 30, 1999, the Portfolios are
obligated to deliver or receive currency in exchange for U.S. dollars as
indicated below:
<TABLE>
<CAPTION>
Unrealized
Value at Foreign
Settlement Currency Currency Contract September 30, Exchange
Date Amount Sold Amount 1999 Gain/(Loss)
- --------- -------------- ----------------------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Low Duration Bond Portfolio
11/05/99 2,742,981 Canadian Dollar .............$ 1,861,680 $ 1,867,218 $ (5,538)
=========== =========== =========
Managed Income Portfolio
11/05/99 4,764,660 Canadian Dollar .............$ 3,233,808 $ 3,243,428 $ (9,620)
=========== =========== =========
International Bond Portfolio
10/18/99 16,000,000 European Currency Unit ......$16,704,000 $17,039,041 $(335,041)
10/18/99 450,000,000 Japanese Yen ................ 4,273,301 4,215,851 57,450
10/27/99 17,338,000 Danish Krone ................ 2,438,537 2,487,089 (48,552)
10/27/99 6,159,000 Great British Pound ......... 10,091,522 10,139,941 (48,419)
10/27/99 26,522,000 Swedish Krone ............... 3,226,521 3,242,378 (15,857)
11/05/99 7,886,000 Canadian Dollar ............. 5,352,283 5,368,205 (15,922)
07/19/00 11,777,700 Hong Kong Dollar ............ 1,500,000 1,505,376 (5,376)
----------- ----------- ---------
$43,586,164 $43,997,881 $(411,717)
=========== =========== =========
</TABLE>
65
<PAGE>
BLACKROCK FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
UNREALIZED
VALUE AT FOREIGN
SETTLEMENT CURRENCY CURRENCY CONTRACT SEPTEMBER 30, EXCHANGE
DATE AMOUNT BOUGHT AMOUNT 1999 GAIN/(LOSS)
- --------- ------------ ------------------------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C>
International Bond Portfolio
11/05/99 4,000,000 Canadian Dollar ............. $2,713,262 $2,722,903 $9,641
========== ========== ======
</TABLE>
INTEREST RATE SWAPS -- The Fund may enter into interest rate 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 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 the Fund. At the
termination of the agreement, the Fund will receive from or pay to the counter
party, the accumulated net realized gain or loss, which will then be recorded as
realized. The Fund did not hold any interest rate swaps at September 30, 1999.
Risk may arise upon entering into interest rate 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 is 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 Government Managed
Bond Bond Income Income
Portfolio Portfolio Portfolio Portfolio
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Average daily balance of reverse repurchase
agreements outstanding during the period
ended September 30, 1999 $ 103,186,593 $ 121,455,918 $ 7,672,140 $ 254,292,397
Weighted Average Interest Rate 4.79% 4.91% 4.95% 4.13%
Maximum Amount of reverse repurchase
agreements outstanding at any month-end
during the period ended September 30, 1999 1 $ 151,662,727 $ 185,041,187 $ 18,792,769 $ 391,893,759
Percentage of total assets 33.55% 24.78% 28.13% 18.86%
Amount of reverse repurchase agreements
outstanding at September 30, 1999 $ 105,456,761 $ 104,099,204 $ 18,792,769 $ 262,485,201
Percentage of total assets 27.98% 15.64% 28.13% 13.89%
<FN>
- ------------
1 The maximum amount of reverse repurchase agreements outstanding at any
month end occurred on December 31, 1998, February 28, 1999, September 30,
1999 and February 28, 1999, respectively.
</FN>
</TABLE>
FUTURES TRANSACTIONS -- The Fund invests in financial futures contracts
solely for the purpose of hedging its existing portfolio securities, or
securities that the Fund intends to purchase, against fluctuations in fair value
caused by changes in prevailing market interest rates. Certain Portfolios may
enter into futures contracts subject to certain limitations. Upon entering into
a futures contract, the Portfolio is required to deposit cash or pledge
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
66
<PAGE>
BLACKROCK FUNDS
received by the Portfolio each day (daily variation margin) and are recorded as
unrealized gains or losses until the contracts are closed. When the contracts
are closed, the Portfolio records a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transaction and
the Portfolio's basis in the contracts. Risks of entering into futures contracts
include the possibility that there will not be a perfect price correlation
between the futures contracts and the underlying securities. Second, it is
possible that a lack of liquidity for futures contracts could exist in the
secondary market, resulting in an inability to close a futures position prior to
its maturity date. Third, the purchase of a futures contract involves the risk
that a Portfolio could lose more than the original margin deposit required to
initiate a futures transaction.
OPTION SELLING/PURCHASING -- The Fund invests in financial options
contracts solely for the purpose of hedging its existing portfolio securities,
or securities that the Fund intends to purchase, against fluctuations in fair
value caused by changes in prevailing market interest rates. When the Fund sells
or purchases an option, an amount equal to the premium received or paid by the
Fund is recorded as a liability or an asset and is subsequently adjusted to the
current market value of the option written or purchased. Premiums received or
paid from writing or purchasing options which expire unexercised are treated by
the Fund on the expiration date as realized gains or losses. The difference
between the premium and the amount paid or received on effecting a closing
purchase or sale transaction, including brokerage commissions, is also treated
as a realized gain or loss. If an option is exercised, the premium paid or
received is added to the cost of the purchase or proceeds from the sale in
determining whether the Fund has realized a gain or a loss on investment
transactions. The Fund as writer of an option, may have no control over whether
the underlying securities may be sold (call) or purchased (put) and as a result
bears the market risk of an unfavorable change in the price of the security
underlying the written option.
Written Option transactions entered into during the year ended September
30, 1999 are summarized as follows:
<TABLE>
<CAPTION>
Intermediate Government Managed
Bond Intermediate Bond Core Bond Income
--------------------- ----------------------- ----------------------- ----------------------
Number of Number of Number of Number of
Contracts Premium Contracts Premium Contracts Premium Contracts Premium
--------- -------- --------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at 9/30/98 -- $ -- -- $ -- -- $ -- -- $ --
Written 900 40,781 1,100 49,844 5,450 484,767 8,750 780,080
Closed/Expired (900) (40,781) (1,100) (49,844) (5,450) (484,767) (8,750) (780,080)
--------- -------- --------- ------- --------- ---------- --------- ---------
Balance at 9/30/99 -- $ -- -- $ -- -- $ -- -- $ --
========= ======== ========= ======== ========= ========== ========= =========
</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 may enter into mortgage dollar
rolls (principally using TBA's) in which the Portfolio sells mortgage securities
for delivery in the current month and simultaneously contracts to repurchase
similar, but not identical, securities at an agreed-upon price on a fixed date.
The Portfolio accounts for such dollar rolls as purchases and sales and receives
compensation as consideration for entering into the commitment to repurchase. A
Portfolio must maintain liquid securities having a value not less than the
repurchase price (including accrued interest) for such dollar rolls.
In a "fee" roll, the compensation is recorded as deferred income and
amortized to income over the roll period. In a "drop" roll, the compensation is
paid via a lower price for the security upon its repurchase. The counterparty
receives all principal and interest payments, including prepayments, made in
respect of a security subject to such a contract while it is the holder.
Mortgage dollar rolls may be renewed with a new purchase and repurchase price
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.
67
<PAGE>
BLACKROCK FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SECURITIES LENDING -- Prior to the close of each business day, loans of
securities are secured by collateral at least equal to 102% of the market value
of the securities on loan. However, due to market fluctuations, the collateral
may fall under 102% of the market value of the securities on loan. On the next
business day the collateral is adjusted to meet the 102% requirement based on
the prior day's market fluctuations and the current day's security lending
activity. 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, 1999, is as follows:
<TABLE>
<CAPTION>
Value of Income
Market Value of Collateral Earned on
Portfolio Securities On Loan Received Securities Loaned*
--------- ------------------ ----------- ----------------
<S> <C> <C> <C>
Intermediate Bond Portfolio .... $ 577,250 $ 605,550 $ 5,362
Core Bond Portfolio ............ 36,753,616 37,971,708 46,127
Managed Income Portfolio ....... 62,884,292 64,906,405 59,415
<FN>
*Income is included in interest income on the Statement of Operations.
</FN>
</TABLE>
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.
("BlackRock"), a wholly-owned subsidiary of BlackRock, Inc., serves as
investment adviser to the Portfolios. BlackRock Financial Management, Inc.,
("BFM") a wholly-owned subsidiary of BlackRock, 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 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 & GNMA Portfolio & GNMA Portfolio
------------------------------- ----------------------------
Investment Investment
Average Daily Net Assets Advisory Fee Advisory Fee
----------------------------- ------------------------------- ----------------------------
<S> <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>
For the year ended September 30, 1999, 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 ..................... $1,474,052 $754,500 $719,552
Intermediate Government Bond Portfolio .......... 2,269,860 716,541 1,553,319
Intermediate Bond Portfolio ..................... 2,765,839 1,051,834 1,714,005
Core Bond Portfolio ............................. 4,630,434 2,137,403 2,493,031
Government Income Portfolio ..................... 216,293 106,976 109,317
GNMA Portfolio .................................. 634,360 304,908 329,452
Managed Income Portfolio ........................ 7,687,219 1,600,525 6,086,694
International Bond Portfolio .................... 327,368 -- 327,368
High Yield Bond Portfolio ....................... 263,946 260,621 3,325
</TABLE>
BlackRock pays BFM, Inc. fees for its sub-advisory services.
68
<PAGE>
BLACKROCK FUNDS
PFPC, Inc. ("PFPC"), an indirect wholly-owned subsidiary of PNC Bank Corp.,
BlackRock and BlackRock Distributors, Inc. ("BDI") act as co-administrators for
the Fund. For these services, the co-administrators receive a combined
administration fee computed daily and payable monthly, based on a percentage of
the average daily net assets of each Portfolio, at the following annual rates:
.085% of the first $500 million, .075% of the next $500 million and .065% of
assets in excess of $1 billion. In addition, each of the classes, except for the
BlackRock Class, are charged an administration fee based on the following
percentage of average daily net assets of each respective class: .145% of the
first $500 million, .135% of the next $500 million and .125% of assets in excess
of $1 billion. The BlackRock Class is charged an administration fee of .035% of
the first $500 million, .025% of the next $500 million and .015% of assets in
excess of $1 billion based upon average daily net assets of its class.
For the year ended September 30, 1999, 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 ................... $ 613,780 $111,419 $ 502,361
Intermediate Government Bond Portfolio ........ 1,044,136 265,521 778,615
Intermediate Bond Portfolio ................... 1,233,704 167,584 1,066,120
Core Bond Portfolio ........................... 1,952,797 241,065 1,711,732
Government Income Portfolio ................... 99,496 49,352 50,144
GNMA Portfolio ................................ 265,278 94,000 171,278
Managed Income Portfolio ...................... 3,351,362 297,082 3,054,280
International Bond Portfolio .................. 136,887 -- 136,887
High Yield Bond Portfolio ..................... 94,182 86,276 7,906
</TABLE>
Prior to February 1, 1999, BlackRock may have, at its discretion, waived
all or any portion of its advisory fees for any Portfolio. In addition, PFPC,
BlackRock and BDI may have, at their discretion, voluntarily waived all or any
portion of their administration fees for any Portfolio.
In the interest of limiting the expenses of the Portfolios, BlackRock and
the Fund have entered into an expense limitation agreement effective February 1,
1999. The agreement sets a limit on certain of the operating expenses of each
Portfolio for the next year and requires BlackRock to waive or reimburse fees or
expenses if these operating expenses exceed that limit. These expense limits
apply to expenses charged on Portfolio assets as a whole, but not expenses
separately charged to the different share classes of a Portfolio.
If in the following two years the operating expenses of a Portfolio that
previously received a waiver or reimbursement from BlackRock are less than the
expense limit for that Portfolio, the Portfolio is required to repay BlackRock
up to the amount of fees waived or expenses reimbursed under the agreement if:
(1) the Portfolio has more than $50 million in assets, (2) BlackRock continues
to be the Portfolio's investment adviser and (3) the Board of Trustees of the
Fund has approved the payments to BlackRock on a quarterly basis.
The expense limits as a percentage of average daily net assets and amounts
subject to possible reimbursement under the expense limitation agreement were as
follows:
Low Duration Bond Portfolio .................... .385% $ 506,416
Intermediate Government Bond Portfolio ......... .475% 594,654
Intermediate Bond Portfolio .................... .435% 727,071
Core Bond Portfolio ............................ .380% 1,515,671
Government Income Portfolio .................... .550% 104,469
GNMA Portfolio ................................. .485% 213,829
Managed Income Portfolio ....................... .485% 1,187,847
International Bond Portfolio ................... .865% --
High Yield Bond Portfolio ...................... .525% 331,554
PFPC Trust Co. (formerly PNC Bank, National Association) 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 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 arrangements with various Service Organizations (including PNC Bank
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.
69
<PAGE>
BLACKROCK FUNDS
NOTES TO FINANCIAL STATEMENTS CONTINUED)
(C) PURCHASES AND SALES OF SECURITIES
For the year ended September 30, 1999, purchases and sales of securities,
other than short-term and government securities, were as follows:
Purchases Sales
--------------- ---------------
Low Duration Bond Portfolio ............. $ 245,016,961 $ 216,797,928
Intermediate Government Bond Portfolio .. 209,730,074 262,393,922
Intermediate Bond Portfolio ............. 571,651,372 519,579,315
Core Bond Portfolio ..................... 1,914,447,722 1,342,111,297
Government Income Portfolio ............. 60,893,283 43,555,706
GNMA Portfolio .......................... 121,211,526 77,461,387
Managed Income Portfolio ................ 2,160,886,839 1,927,868,299
International Bond Portfolio ............ 127,204,430 126,543,804
High Yield Bond Portfolio ............... 208,010,089 116,307,181
For the year ended September 30, 1999, purchases and sales of government
securities were as follows:
Purchases Sales
-------------- --------------
Low Duration Bond Portfolio ............. $ 507,704,420 $ 474,005,359
Intermediate Government Bond Portfolio .. 695,058,750 663,274,452
Intermediate Bond Portfolio ............. 1,037,369,048 972,018,310
Core Bond Portfolio ..................... 1,775,221,918 1,638,293,564
Government Income Portfolio ............. 72,022,414 58,617,167
GNMA Portfolio .......................... 77,342,325 76,714,143
Managed Income Portfolio ................ 2,646,655,414 2,598,852,635
International Bond Portfolio ............ 18,685,823 20,493,594
High Yield Bond Portfolio ............... 2,004,063 2,000,781
(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
9/30/99 9/30/98
------------------------- ---------------------------
Shares Value Shares Value
--------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Shares sold:
BlackRock Class ........ 832,804 $ 8,225,913 10,953,938 $ 108,478,776
Institutional Class .... 5,049,746 50,160,391 7,756,306 77,356,855
Service Class .......... 481,738 4,773,870 804,858 7,979,540
Investor A Class ....... 7,997,051 79,368,911 3,255,674 32,355,524
Investor B Class ....... 849,840 8,398,923 44,066 437,617
Investor C Class ....... 295,280 2,913,761 31,759 314,906
Shares issued in conversion:
Institutional Class .... -- -- 6,225,309 61,630,555
Shares issued in reinvestment
of dividends:
BlackRock Class ........ 437,739 4,345,898 506,324 5,019,138
Institutional Class .... 77,974 773,054 111,942 1,108,874
Service Class .......... 32,267 319,928 34,827 345,071
Investor A Class ....... 6,974 69,156 6,222 61,676
Investor B Class ....... 1,678 16,527 48 472
Investor C Class ....... 230 2,256 48 476
Shares redeemed:
BlackRock Class ........ (7,196,600) (71,522,179) (4,357,893) (43,261,535)
Institutional Class .... (5,717,416) (56,567,681) (7,815,690) (77,483,136)
Service Class .......... (629,119) (6,237,880) (7,382,461) (73,660,500)
Investor A Class ...... (8,023,994) (79,648,051) (3,086,710) (30,685,324)
Investor B Class ...... (122,395) (1,210,268) (5,711) (56,529)
Investor C Class ...... (169,657) (1,673,985) (5,037) (49,887)
---------- ------------ ----------- -------------
Net increase (decrease) ..... (5,795,860) $(57,491,456) 7,077,819 $ 69,892,569
========== ============ =========== =============
</TABLE>
70
<PAGE>
BLACKROCK FUNDS
<TABLE>
<CAPTION>
Intermediate Government Bond Portfolio
-----------------------------------------------------------
For the Year Ended For the Year Ended
9/30/99 9/30/98
--------------------------- -----------------------------
Shares Value Shares Value
---------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class .... 3,507,375 $ 35,391,770 5,388,703 $ 55,601,975
Service Class .......... 827,540 8,427,966 2,085,488 21,357,363
Investor A Class ....... 23,464,426 235,348,637 420,548 4,312,104
Investor B Class ....... 81,567 823,939 37,733 387,253
Investor C Class ....... 33,550 335,611 34,215 351,716
Shares issued in conversion:
Institutional Class .... -- -- 33,310,235 339,098,189
Shares issued in reinvestment
of dividends:
Institutional Class .... 290,113 2,975,693 5,852 59,670
Service Class .......... 20,453 209,851 -- --
Investor A Class ....... 33,385 339,213 25,882 264,001
Investor B Class ....... 744 7,498 36 368
Investor C Class ....... 1 11 -- 7
Shares redeemed:
Institutional Class .... (6,636,676) (67,012,012) (6,104,045) (62,424,167)
Service Class .......... (984,744) (9,969,516) (4,249,778) (43,949,478)
Investor A Class ....... (23,526,911) (235,853,068) (217,155) (2,225,240)
Investor B Class ....... (35,011) (353,173) (6,083) (62,159)
Investor C Class ....... (14,731) (147,933) (10,751) (110,945)
----------- ------------- ----------- -------------
Net increase (decrease) ..... (2,938,919) $ (29,475,513) 30,720,880 $ 312,660,657
=========== ============= =========== =============
</TABLE>
<TABLE>
<CAPTION>
Intermediate Bond Portfolio
----------------------------------------------------------
For the Year Ended For the Year Ended
9/30/99 9/30/98
-------------------------- ----------------------------
Shares Value Shares Value
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Shares sold:
BlackRock Class ........ 1,378,815 $ 12,608,853 4,981,102 $ 47,321,273
Institutional Class .... 10,315,220 96,225,816 11,557,172 110,245,081
Service Class .......... 1,242,448 11,610,084 3,123,968 29,665,129
Investor A Class ....... 370,766 3,469,555 149,506 1,420,708
Investor B Class ....... 109,782 1,027,624 17,767 169,383
Investor C Class ....... 74,567 685,199 -- --
Shares issued in conversion:
Institutional Class .... -- -- 25,659,119 242,478,670
Shares issued in reinvestment
of dividends:
BlackRock Class ........ 134,838 1,259,759 18,335 174,351
Institutional Class .... 533,001 5,011,399 151,911 1,435,680
Service Class .......... 62,444 584,579 33,520 317,235
Investor A Class ....... 9,745 91,018 6,876 65,200
Investor B Class ....... 2,299 21,264 73 697
Investor C Class ....... 112 1,043 -- --
Shares redeemed:
BlackRock Class ........ (1,865,426) (17,440,794) (262) (2,485)
Institutional Class .... (9,255,425) (86,356,153) (17,805,567) (169,025,115)
Service Class .......... (1,317,770) (12,268,337) (5,989,510) (57,406,495)
Investor A Class ....... (288,703) (2,680,316) (103,601) (983,789)
Investor B Class ....... (12,658) (116,792) (6,332) (60,382)
Investor C Class ....... (28,545) (261,301) -- --
----------- ------------ ----------- -------------
Net increase ................ 1,465,510 $ 13,472,500 21,794,077 $ 205,815,141
=========== ============ =========== =============
</TABLE>
71
<PAGE>
BLACKROCK FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Core Bond Portfolio
-----------------------------------------------------------
For the Year Ended For the Year Ended
9/30/99 9/30/98
--------------------------- -----------------------------
Shares Value Shares Value
---------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Shares sold:
BlackRock Class ........ 12,304,751 $ 117,815,392 4,306,598 $ 42,116,116
Institutional Class .... 22,622,724 217,677,987 34,726,690 344,428,847
Service Class .......... 3,059,912 29,525,974 8,725,323 86,107,989
Investor A Class ....... 449,024 4,340,261 361,195 3,567,308
Investor B Class ....... 670,156 6,468,706 763,581 7,536,362
Investor C Class ....... 732,575 7,100,978 212,705 2,114,971
Shares issued in reinvestment
of dividends:
BlackRock Class ........ 686,453 6,616,617 330,228 3,250,694
Institutional Class .... 1,547,546 15,039,732 555,928 5,446,836
Service Class .......... 176,475 1,716,378 168,746 1,651,673
Investor A Class ....... 38,763 373,736 19,882 195,729
Investor B Class ....... 58,104 561,236 31,539 310,362
Investor C Class ....... 6,424 60,884 768 7,570
Shares redeemed:
BlackRock Class ........ (4,888,053) (46,820,534) (376,161) (3,709,600)
Institutional Class .... (14,235,545) (136,184,476) (8,783,259) (86,598,628)
Service Class .......... (3,102,768) (29,354,941) (14,421,591) (143,884,759)
Investor A Class ....... (264,885) (2,547,956) (124,790) (1,229,336)
Investor B Class ....... (343,118) (3,277,734) (174,749) (1,726,105)
Investor C Class ....... (213,866) (2,037,003) (25,456) (252,086)
----------- ------------- ----------- -------------
Net increase ................ 19,304,672 $ 187,075,237 26,297,177 $ 259,333,943
=========== ============= =========== =============
</TABLE>
<TABLE>
<CAPTION>
Government Income Portfolio
-------------------------------------------------------
For the Year Ended For the Year Ended
9/30/99 9/30/98
------------------------- -------------------------
Shares Value Shares Value
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Investor A Class ....... 260,226 $ 2,715,739 325,203 $ 3,439,854
Investor B Class ....... 1,949,007 20,327,259 1,133,444 12,022,192
Investor C Class ....... 285,429 3,023,210 111,159 1,177,933
Shares issued in reinvestment
of dividends:
Investor A Class ....... 30,494 315,789 31,395 330,860
Investor B Class ....... 116,786 1,207,289 67,664 713,719
Investor C Class ....... 5,135 53,075 2,312 24,407
Shares redeemed:
Investor A Class ....... (171,587) (1,749,782) (263,954) (2,785,911)
Investor B Class ....... (883,791) (9,009,692) (290,930) (3,081,821)
Investor C Class ....... (188,143) (1,955,238) (51,448) (545,399)
---------- ------------ ---------- ------------
Net increase ................ 1,403,556 $ 14,927,649 1,064,845 $ 11,295,834
========== ============ ========== ============
</TABLE>
72
<PAGE>
BLACKROCK FUNDS
<TABLE>
<CAPTION>
GNMA Portfolio
---------------------------------------------------------
For the Year Ended For the Period
9/30/99 5/18/98 1 through 9/30/98
------------------------- ----------------------------
Shares Value Shares Value
--------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class .... 1,140,847 $ 11,252,768 647,172 $ 6,506,570
Service Class .......... 10,000 100,000 10 100
Investor A Class ....... 163,262 1,623,804 57,226 576,633
Investor B Class ....... 15,005 149,441 16,426 165,246
Investor C Class ....... 2,509 24,987 10 100
Shares issued in conversion:
Institutional Class .... -- -- 12,043,846 120,438,460
Shares issued in reinvestment
of dividends:
Institutional Class .... 20,941 210,041 -- 2
Service Class .......... 1 7 -- 2
Investor A Class ....... 953 9,420 29 291
Investor B Class ....... 837 8,294 37 370
Investor C Class ....... 1 5 -- 1
Shares redeemed:
Institutional Class .... (1,390,033) $(13,772,698) (1,014,462) (10,187,732)
Service Class .......... -- -- -- --
Investor A Class ....... (102,641) (1,006,748) (4,337) (43,657)
Investor B Class ....... (8,598) (85,468) -- --
Investor C Class ....... (61) (632) -- --
---------- ------------ ----------- -------------
Net increase (decrease) ..... (146,977) $ (1,486,779) 11,745,957 $ 117,456,386
========== ============ =========== =============
</TABLE>
<TABLE>
<CAPTION>
Managed Income Portfolio
-----------------------------------------------------------
For the Year Ended For the Year Ended
9/30/99 9/30/98
--------------------------- ----------------------------
Shares Value Shares Value
---------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class .... 19,369,006 $ 198,295,963 28,686,745 $ 301,709,745
Service Class .......... 23,985,008 246,124,482 22,149,435 232,274,400
Investor A Class ....... 1,652,130 17,049,147 9,725,828 101,726,116
Investor B Class ....... 241,920 2,480,512 422,716 4,431,406
Investor C Class ....... 89,834 911,388 -- --
Shares issued in conversion:
Institutional Class .... -- -- 70,076,349 730,896,316
Shares issued in reinvestment
of dividends:
Institutional Class .... 1,741,803 17,972,961 284,166 2,960,491
Service Class .......... 800,827 8,224,822 335,029 3,503,288
Investor A Class ....... 84,338 865,048 65,247 682,731
Investor B Class ....... 25,489 261,167 7,746 81,187
Investor C Class ....... 112 1,120 -- --
Shares redeemed:
Institutional Class .... (20,180,012) (206,556,608) (25,254,987) (264,941,084)
Service Class .......... (21,667,679) (221,936,261) (23,914,429) (251,581,067)
Investor A Class ....... (1,614,057) (16,588,344) (9,855,158) (103,016,193)
Investor B Class ....... (116,526) (1,183,067) (39,630) (416,407)
Investor C Class ....... (89,946) (909,267) -- --
----------- ------------- ----------- -------------
Net increase ................ 4,322,247 $ 45,013,063 72,689,057 $ 758,310,929
=========== ============= =========== =============
<FN>
- -------------
1 Commencement of operations.
</FN>
</TABLE>
73
<PAGE>
BLACKROCK FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
International Bond Portfolio
-------------------------------------------------------
For the Year Ended For the Year Ended
9/30/99 9/30/98
------------------------- --------------------------
Shares Value Shares Value
--------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class .... 2,263,708 $ 25,360,758 807,871 $ 8,882,021
Service Class .......... 273,669 3,040,289 100,604 1,092,321
Investor A Class ....... 110,247 1,215,695 90,092 969,639
Investor B Class ....... 120,051 1,333,373 63,765 687,221
Investor C Class ....... 146,359 1,627,582 95,780 1,035,900
Shares issued in reinvestment
of dividends:
Institutional Class .... 23,195 257,254 149,376 1,571,786
Service Class .......... 4,843 53,860 24,714 260,973
Investor A Class ....... 8,011 89,058 8,842 94,462
Investor B Class ....... 4,349 48,278 5,400 57,581
Investor C Class ....... 3,763 41,792 2,650 28,325
Shares redeemed:
Institutional Class .... (688,344) (7,645,996) (1,026,741) (11,137,837)
Service Class .......... (143,232) (1,588,480) (527,989) (5,850,929)
Investor A Class ....... (25,793) (287,680) (39,912) (429,622)
Investor B Class ....... (32,536) (356,783) (24,092) (263,096)
Investor C Class ....... (51,322) (569,217) (30,616) (332,704)
---------- ------------ ---------- ------------
Net increase (decrease) ..... 2,016,968 $ 22,619,783 (300,256) $ (3,333,959)
========== ============ ========== ============
</TABLE>
High Yield Bond Portfolio
--------------------------
For the Period
11/19/98 1 thru 9/30/99
--------------------------
Shares Value
---------- ------------
Shares sold:
BlackRock Class ........ 11 $ 100
Institutional Class .... 6,762,768 68,071,217
Service Class .......... 11 100
Investor A Class ....... 479,652 4,861,542
Investor B Class ....... 1,695,082 17,092,840
Investor C Class ....... 285,616 2,901,857
Shares issued in reinvestment
of dividends:
BlackRock Class ........ -- 7
Institutional Class .... 88 880
Service Class .......... -- 7
Investor A Class ...... 6,305 63,254
Investor B Class ....... 15,397 154,087
Investor C Class ....... 2,815 28,278
Shares redeemed:
BlackRock Class ........ -- --
Institutional Class .... (201,248) (2,030,800)
Service Class .......... -- --
Investor A Class ...... (32,638) (329,155)
Investor B Class ...... (435,698) (4,353,940)
Investor C Class ...... (16,479) (163,867)
---------- ------------
Net increase ................ 8,561,682 $ 86,296,407
========== ============
- ------------
1 Commencement of operations.
74
<PAGE>
BLACKROCK FUNDS
On September 30, 1999, one shareholder held approximately 12% of the
outstanding shares of the Government Income Portfolio and one shareholder held
approximately 15% of the outstanding shares of the High Yield Bond Portfolio.
Some of the shareholders are actually omnibus accounts, which are held on behalf
of several individual shareholders.
(E) AT SEPTEMBER 30, 1999, 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 ................................... $269,516,553 $437,374,167 $562,998,093 $1,006,877,502
Undistributed net investment income ............... 344,097 -- 514,538 --
Distributions in excess of net
investment income ............................... -- -- -- (72,919)
Accumulated net realized gain (loss) on
investment transactions,
futures, options, swap contracts
and foreign exchange contracts .................. (1,797,720) (5,273,272) (5,292,619) (14,324,928)
Net unrealized depreciation on investment
transactions, futures contracts
and foreign exchange contracts .................. (2,598,635) (7,981,205) (11,557,101) (25,480,797)
------------- ------------ ------------ --------------
$265,464,295 $424,119,690 $546,662,911 $ 966,998,858
============= ============ ============ ==============
</TABLE>
<TABLE>
<CAPTION>
Government Managed International High Yield
Income GNMA Income Bond Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
----------- ------------ -------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Capital paid-in $45,989,278 $112,604,456 $1,602,554,335 $68,717,324 $86,296,407
Undistributed net investment
income 32,319 263,192 -- 944,808 313,895
Accumulated net realized gain (loss) on
investment transactions, futures,
options, swap contracts and
foreign exchange contracts (1,208,762) (282,960) (6,794,296) 1,139,886 (683,582)
Net unrealized depreciation on
investment transactions, futures
contracts and foreign exchange
contracts (913,844) (1,069,848) (50,916,307) (452,854) (2,601,709)
----------- ------------ -------------- ----------- -----------
$43,898,991 $111,514,840 $1,544,843,742 $70,349,164 $83,325,011
=========== ============ ============== =========== ===========
</TABLE>
(F) CAPITAL LOSS CARRYOVERS
At September 30, 1999, capital loss carryovers were available to offset
possible future realized capital gains as follows:
Capital Loss Carryforward Year of Expiration
------------------------- ------------------
Low Duration Bond Portfolio: $470,894 9/30/04
767,646 9/30/03
170,313 9/30/02
High Yield Bond Portfolio: 683,582 9/30/07
On September 30, 1999, deferred post-October losses for the Intermediate
Government Bond Portfolio were $5,104,142, for the Intermediate Bond Portfolio
were $4,074,417, for the Core Bond Portfolio were $11,549,317, for the
Government Income Portfolio were $637,620, for the GNMA Portfolio were $206,164
and for the Managed Income Portfolio were $2,931,382.
75
<PAGE>
BLACKROCK FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(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 of
directors 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 Common
Trust 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 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>
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>
76
<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 net assets of the Low Duration
Bond, Intermediate Government Bond, Intermediate Bond, Government Income, GNMA,
and International Bond Portfolios and the statements of assets and liabilities,
including the schedules of investments, of the Core Bond, Managed Income, and
High Yield Bond 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, Intermediate Bond, Government Income and Managed Income
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, and High-Yield Bond Portfolios of the Fund at
September 30, 1999, the results of their operations, the changes in their net
assets, their cash flows for the Low Duration Bond, Intermediate Bond,
Government Income and Managed Income Portfolios and the financial highlights for
each of the periods presented (except for the year ended June 30, 1995 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, 1999 by correspondence with
the custodians and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
November 15, 1999
77
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
BLACKROCK FUNDS
Investment Adviser
BlackRock Advisors, Inc.
New York, New York 10154
Sub-Adviser
BlackRock Financial Management, Inc.
New York, New York 10154
Custodian
PFPC Trust Co.
Philadelphia, Pennsylvania 19103
Co-Administrator and Transfer Agent
PFPC Inc.
Wilmington, Delaware 19809
Co-Administrator and Distributor
BlackRock Distributors, Inc.
West Conshohocken, Pennsylvania 19428
Co-Administrator
BlackRock Advisors, Inc.
New York, New York 10154
Counsel
Simpson, Thacher & Bartlett
New York, New York 10017
(A partnership which includes professional corporations)
Independent Accountants
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania 19103
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>
BLACKROCK FUNDS
FUND SPECTRUM
BLACKROCK FUNDS IS A LEADING MUTUAL FUND COMPANY CURRENTLY MANAGING IN EXCESS OF
$25 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 IRAaccounts 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 (LOGO)
[GRAPHIC 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 9/30/99 TP
