THE BLACKROCK FUNDS
STRATEGIC PORTFOLIO I
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SEMI-ANNUAL REPORT TO SHAREHOLDERS
MARCH 31, 1999
(UNAUDITED)
<PAGE>
<TABLE>
<CAPTION>
THE BLACKROCK FUNDS
STRATEGIC PORTFOLIO I
STATEMENT OF NET ASSETS (UNAUDITED)
MARCH 31, 1999
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PAR
(000) DESCRIPTION VALUE
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<S> <C> <C> <C>
US TREASURY OBLIGATIONS 95.1%
U.S. TREASURY NOTES
$5,750 6.37% 05/15/00 $5,839,803
1,700 6.50% 10/15/06 1,812,338
----------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $7,720,104) 7,652,141
----------
SHORT TERM INVESTMENTS 3.2%
254 Galileo Money market Fund
(COST $254,214) 254,214
----------
TOTAL INVESTMENTS IN SECURITIES
(COST $7,974,318*) 98.3% 7,906,355
OTHER ASSETS IN EXCESS OF LIABILITIES 1.7% 140,419
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NET ASSETS (APPLICABLE TO 935,449
INSTITUTIONAL SHARES OUTSTANDING) 100.0% $8,046,774
======= ==========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE
($8,046,774 / 935,449) $8.60
==========
<FN>
----------------
*Also cost for Federal income tax purposes. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $33,863
Gross unrealized depreciation (101,826)
----------
($67,963)
===========
</FN>
</TABLE>
See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
THE BLACKROCK FUNDS
STRATEGIC PORTFOLIO I
STATEMENT OF OPERATIONS (UNAUDITED)
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For the
Six Months
Ended
3/31/99
------------
<S> <C>
Investment Income:
Interest $ 304,780
Expenses:
Investment advisory fee 11,533
Administration fee 13,263
Custodian fee 1,560
Transfer agent fee 1,894
Legal and audit 350
Printing 641
Registration fees and expenses 1,052
Trustees fees and officer's salary 584
Other 283
-----------
31,160
Less fees waived (16,167)
-----------
Total operating expenses 14,993
-----------
Interest expense 5,005
-----------
Total expenses 19,998
-----------
Net investment income 284,782
-----------
Realized and unrealized gain (loss) on investments and foreign currency
transactions:
Net realized gain from:
Investment transactions 1,178,913
Foreign currency and forward foreign currency transactions 31,618
Change in unrealized appreciation(depreciation) from:
Investments (1,415,312)
Foreign currency and forward foreign currency transactions 6,910
-----------
Net loss on investments and foreign currency transactions (197,871)
-----------
Net increase in net assets resulting from operations $ 86,911
===========
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</TABLE>
See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
THE BLACKROCK FUNDS
STRATEGIC PORTFOLIO I
STATEMENT OF CHANGES IN NET ASSETS
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For the For the Period
Six Months 10/6/97 (a)
Ended through
Increase (decrease) in net assets: 3/31/99 9/30/98
----------- --------------
(Unaudited)
<S> <C> <C>
Operations:
Net investment income $ 284,782 $ 1,533,846
Net realized gain on investment and foreign currency related
transactions 1,210,531 166,753
Net unrealized gain (loss) on investment and foreign currency
related transactions (1,408,402) 1,340,355
------------ ------------
Net increase in net assets resulting from operations 86,911 3,040,954
------------ ------------
Distributions to shareholders from:
Net investment income (284,782) (1,668,846)
Net realized gains (1,284,601) --
------------ ------------
(1,569,383) (1,668,846)
------------ ------------
Capital share transactions:
Proceeds from shares sold 20,000 28,735,000
Net asset value of shares issued in reinvestment
of dividends 1,656,622 1,546,802
Shares redeemed (23,801,286) --
------------ ------------
(22,124,664) 30,281,802
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Total increase (decrease) in net assets (23,607,136) 31,653,910
------------ ------------
Net Assets:
Beginning of period 31,653,910 --
------------ ------------
End of period $ 8,046,774 $ 31,653,910
============ ============
<FN>
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(a) Commencement of operations.
</FN>
</TABLE>
See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
THE BLACKROCK FUNDS
STRATEGIC PORTFOLIO I
FINANCIAL HIGHLIGHTS
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FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: For the For the Period
Six Months 10/6/97 (a)
Ended through
3/31/99 9/30/98
----------- --------------
(Unaudited)
<S> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period $10.46 $10.00
--------- ---------
Net investment income 0.08 0.51
Net realized and unrealized gain on investments (0.05) 0.53
--------- ---------
Net increase from investment operations 0.03 1.04
--------- ---------
Distributions from net investment income (0.22) (0.58)
Distributions from net realized capital gains (1.67) --
--------- ---------
Total dividends and distributions (1.89) (0.58)
--------- ---------
Net asset value, end of period $8.60 $10.46
========= =========
TOTAL RETURN 0.42% 10.84%
RATIOS / SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $8,047 $31,654
Ratio of expenses to average net assets 0.26%(b)(c) 0.26%
Ratio of expenses to average net assets (excluding waivers) 0.54%(c) 0.60%
Ratio of net investment income to average net assets 5.03%(c) 5.39%
Ratio of net investment income to average net assets (excluding waivers) 4.75%(c) 5.05%
Portfolio turnover rate 67% 164%
<FN>
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(a) Commencement of investment operations.
(b) Including interest expense, the ratio would have been 0.35% for the period ended March 31, 1999.
(c) Annualized.
</FN>
</TABLE>
See Notes to Financial Statements
<PAGE>
The BlackRock Funds
STRATEGIC PORTFOLIO I
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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NOTE 1. ORGANIZATION AND ACCOUNTING POLICIES
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 37 investment portfolios. These financial statements relate to the
Fund's Strategic Portfolio I (the "Portfolio"). The Portfolio is authorized to
issue an unlimited number of shares with a par value of $0.001.
The following is a summary of significant accounting policies followed by
the Fund in preparation of its financial statements. The preparation of
financial statements in conformity with generally accepted accounting principles
requires the use of management estimates. Actual results could differ from the
estimates.
SECURITIES VALUATION: The Fund values mortgage-backed, asset-backed and
other debt securities on the basis of current market quotations provided by
dealers or pricing services approved by the Fund's Board of Trustees. In
determining the value of a particular security, pricing services may use certain
information with respect to transactions in such securities, quotations from
dealers, market transactions in comparable securities, various relationships
observed in the market between securities, and calculated yield measures based
on valuation technology commonly employed in the market for such securities.
Exchange-traded options are valued at their last sales price as of the close of
options trading on the applicable exchanges. In the absence of a last sale,
options are valued at the average of the quoted bid and asked prices as of the
close of business. A futures contract is valued at the last sale price as of the
close of the commodities exchange on which it trades. Any securities or other
assets for which such current market quotations are not readily available are
valued at fair value as determined in good faith under procedures established by
and under the general supervision and responsibility of the Fund's Board of
Trustees.
Short-term securities which mature in more than 60 days are valued at
current market quotations. Short-term securities which mature in 60 days or less
are valued at amortized cost, if their term to maturity from date of purchase
was 60 days or less, or by amortizing their value on the 61st day prior to
maturity, if their original term to maturity from date of purchase exceeded 60
days.
In connection with transactions in repurchase agreements, the Fund's
custodian takes possession of the underlying collateral securities, the value of
which at least equals the principal amount of the repurchase transaction,
including accrued interest. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-to-market on a
daily basis to ensure the adequacy of the collateral. If the seller defaults and
the value of the collateral declines or if bankruptcy proceedings are commenced
with respect to the seller of the security, realization of the collateral by the
Fund may be delayed or limited.
<PAGE>
THE BLACKROCK FUNDS
STRATEGIC PORTFOLIO I
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
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FOREIGN CURRENCY TRANSLATION: The books and records of Strategic Portfolio
I are maintained in U.S. dollars. Foreign currency amounts are translated into
U.S. dollars on the following basis:
(I) market value of investment securities, assets and liabilities at the
current rate of exchange; and
(II) purchases and sales of investment securities, income and expenses at
the relevant rates of exchange prevailing on the respective dates of
such transactions.
The Portfolio isolates that portion of gains and losses on investment
securities which is due to changes in the foreign exchange rates from that which
is due to changes in market prices of such securities.
The Portfolio reports certain foreign currency related transactions as
components of realized and unrealized gains for financial reporting purposes,
whereas such components are treated as ordinary income for federal income tax
purposes.
FORWARD FOREIGN CURRENCY CONTRACTS: The Portfolio enters into forward
foreign currency contracts as a hedge against either specific transactions or
portfolio positions. These contracts are adjusted by the daily exchange rate of
the underlying currency and any gains or losses are recorded as unrealized until
the contract settlement date. Such contracts, which protect the value of the
Portfolio's investment securities against a decline in the value of currency, do
not eliminate fluctuations in the underlying prices of the securities. They
simply establish an exchange rate at a future date. Also, although such
contracts tend to minimize the risk of loss due to a decline in the value of a
hedged currency, at the same time they tend to limit any potential gain that
might be realized should the value of such foreign currency increase. Risks may
arise upon entering into these contracts from the potential inability of
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.
SECURITY TRANSACTIONS AND INVESTMENT INCOME: Investment transactions are
accounted for on the trade date. The cost of investments sold is determined by
use of specific identification method for both financial reporting and federal
income purposes. Interest income is recorded on the accrual basis and the Fund
accretes premium or amortizes discount on securities purchased using the
interest method.
TAXES: No provision is made for federal taxes as its the Fund's intention
to have the Portfolio continue to qualify as a regulated investment company and
to make the requisite distributions to its shareholders which will be sufficient
to relieve it from federal income and excise taxes.
<PAGE>
THE BLACKROCK FUNDS
STRATEGIC PORTFOLIO I
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS: Dividends from net investment income are
declared by the Portfolio each day on "settled" shares (i.e. shares for which
the Portfolio has received payment in federal funds) and are paid monthly. Net
realized capital gains, if any, will be distributed at least annually. The
character of distributions made during the year from net investment income or
net realized gains may differ from their ultimate characterization for federal
income tax purposes due to differences between generally accepted accounting
principles and tax accounting principles related to the character of income and
expense recognition.
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Pursuant to an Investment Advisory Agreement, BlackRock Advisors, Inc., a
wholly-owned subsidiary of BlackRock, Inc., serves as investment adviser to the
Portfolio. For its advisory services, BlackRock Advisors Inc., is entitled to
receive fees, computed daily and paid monthly, at the annual rate of 0.20% of
the Portfolio's average daily net assets.
BlackRock Advisors, Inc.,may, at its discretion, waive all or any portion
of its advisory fee for the Portfolio and may reimburse the Portfolio for
certain operating expenses. For the period ended March 31, 1999, advisory fees
and waiver for the Portfolio were as follows:
GROSS NET
ADVISORY ADVISORY
FEE WAIVER FEE
--- ------ ---
Strategic Portfolio I $ 11,533 $ 6,707 $ 4,826
PFPC Inc. ("PFPC"), an indirect wholly-owned subsidiary of PNC Bank Corp.,
BlackRock Advisors, Inc., and BlackRock Distributors, Inc. ("BDI") act as
co-administrators for the Fund. The combined administration fee is computed
daily and payable monthly, based on a percentage of the average daily net assets
of the Portfolio, at the following annual rates: 0.23% of the first $500
million, 0.21% of the next $500 million, 0.19% of the average daily net assets
in excess of $1 billion.
PFPC, BlackRock Advisors, Inc. and BDI may, at their discretion,
waive all or any portion of their administration fees for the Portfolio. For the
period ended March 31, 1999, administration fees and waivers for the Portfolio
were as follows:
GROSS NET
ADMINISTRATION ADMINISTRATION
FEE WAIVER FEE
--- ----- ---
Strategic Portfolio I $13,263 $9,460 $3,803
<PAGE>
THE BLACKROCK FUNDS
STRATEGIC PORTFOLIO I
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
In addition, PFPC Trust Co. (formerly PNC Bank, National Association)
serves as custodian for the Portfolio. PFPC serves as transfer and dividend
disbursing agent.
NOTE 3. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term
investments and government securities, for the period ended March 31, 1999 were
$0 and $7,220,932 respectively. Purchases and sales of government securities for
the period ended March 31, 1999 were $7,362,266 and $21,741,992, respectively.
<PAGE>
THE BLACKROCK FUNDS
STRATEGIC PORTFOLIO I
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED) (CONCLUDED)
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NOTE 4. CAPITAL SHARES
<TABLE>
<CAPTION>
Transactions in capital shares were as follows:
For the Six For the Period
Months 10/06/97 (a)
Ended Through
3/31/99 09/30/98
----------- --------------
(Unaudited)
<S> <C> <C>
Shares sold...................................................... 2,301 2,870,975
Shares issued in reinvestment
of dividends..................................................... 185,603 154,205
Shares redeemed.................................................. (2,277,635) --
---------- ---------
Net increase (2,089,731) 3,025,180
========== =========
</TABLE>
NOTE 5. AT MARCH 31, 1999, NET ASSETS CONSISTED OF:
Capital paid-in................................................. $8,157,138
Accumulated net realized loss on investment transactions
and foreign exchange contracts................................ (42,317)
Net unrealized depreciation on investment transactions and
foreign exchange contracts.................................... (68,047)
----------
$8,046,774
==========
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(a) Commencement of Operations
<PAGE>
INVESTMENT ADVISER CO-ADMINISTRATOR AND TRANSFER AGENT
BlackRock Advisors, Inc. PFPC Inc.
New York, New York 10154 Wilmington, Delaware 19809
SUB-ADVISER CO-ADMINISTRATOR AND DISTRIBUTOR
BlackRock Financial Management, Inc. BlackRock Distributors, Inc.
New York, New York 10154 West Conshohocken, Pennsylvania 19428
CUSTODIAN CO-ADMINISTRATOR
PFPC Trust Co. BlackRock Advisors, Inc.
Philadelphia, Pennsylvania 19103 New York, New York 10154
COUNSEL
Simpson, Thatcher & Bartlett
New York, New York 10017
(A partnership which includes
professional corporations)
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania 19103
This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of Fund shares.
The BlackRock Funds
103 Bellevue Parkway
Wilmington, DE 19809
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SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT FEDERALLY
INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN SHARES OF THE FUND
INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
- --------------------------------------------------------------------------------
