March 31, 2000
TAXABLE
BOND
PORTFOLIOS
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
Not FDIC Insured
May Lose Value
No Bank Guarantee
[GRAPHIC OMITTED]
BLACKROCK
FUNDS (LOGO)
PURE INVESTMENT STYLE(REGISTRATION MARK)
<PAGE>
BLACKROCK FUNDS
TAXABLE BOND PORTFOLIOS
* Low Duration Bond * GNMA
* Intermediate Government Bond * Managed Income
* Intermediate Bond * International Bond
* Core Bond * High Yield Bond
* 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........................ 13-46
Low Duration Bond Statement of Assets & Liabilities..................17
Core Bond Statement of Assets &Liabilities.......................... 31
GNMAStatement of Assets & Liabilities................................36
Managed Income Statement of Assets &Liabilities..................... 42
High Yield Statement of Assets & Liabilities........................ 47
PORTFOLIO FINANCIAL STATEMENTS
Statement of Operations.......................................... 48-49
Statement of Cash Flows.......................................... 50-54
Statement of Changes in Net Assets............................... 56-59
Financial Highlights............................................. 60-67
NOTES TO FINANCIAL STATEMENTS.......................................... 68-80
<PAGE>
BLACKROCK FUNDS
March 31, 2000
Dear Shareholder:
We are pleased to present the Semi-Annual Report for the BlackRock Funds
for the six months ending March 31, 2000.
As the first quarter of the new millennium draws to a close, the economy
continues to impress us with its continued strength and resilience -- however we
remain concerned about future volatility. Since we last reported to you on Sept
30, 1999 the stock market as measured by the S&P 500 returned 17.51%, the DJIA
returned 6.43%, the NASDAQ returned 66.68%, and the Lehman Aggregate Index
returned 2.08%.
What makes this economic strength more notable is that it is taking place
under the careful eye of the Federal Reserve which has a strict tightening bias
in place. On March 21, 2000 the Fed raised the rate for overnight bank loans
another 25 bps to 6% -- the highest rate in 3 years and the fifth straight
increase since last June. Historically, rising interest rates tend to discourage
the stock market but this didn't happen on March 21. Despite the rise in rates,
the DJIA jumped up 227 points and the NASDAQ index rose 101.7!
This seems to indicate that investors don't believe that small increases
in the cost of lending will be enough to stop growth from continuing. Is this
positive sentiment well founded?
It may be. It is clear that the business world is changing and that a
major instrument of this change is technology. A key driver in the growth of
technology is the Internet. It is still very early in the new economy, but it is
clear that major changes are taking place in the way that companies do business,
which can have tremendous impact on growth and profitability. One particularly
exciting area for investors is the so-called business to business (or B2B)
transactions in which the Internet will not only expedite the connections
between buyers and sellers but also provide the value- added services that will
likely increase the speed, efficiency and cost-effectiveness of these
transactions. The Internet can be one of the greatest business productivity
tools in history. This is important because as productivity increases, companies
can continue to grow without pricing pressure which means inflation can remain
in check and the economy can continue to grow.
While there appears to be plenty of good reason for optimism and
excitement, there are also reasons for caution.
There are several trends in the industry that may indicate that the market
is moving up faster and higher than is justified by growth fundamentals alone.
For example, many investors are fueling their purchases with borrowed money and
margin borrowing is currently at record highs. The investment industry is also
paying more than ever before to attract investors. Wall Street advertising
increased 95% last year (investment firms paid $1.2 billion to advertise
directly to the public last year, three times what they paid for ads 5 years
ago). Ten years ago, the average holding period for a NASDAQ stock was 2 years;
today its about 5 months.* This may indicate that investors are growing more
impatient, which could spell more and greater volatility ahead.
1
<PAGE>
BLACKROCK FUNDS
You don't have to look very hard to see examples of extreme volatility. On
March 7, 2000 when the DJIA lost 374 points, market action was precipitated when
Procter & Gamble did not make its earnings projections and plunged 31% in one
day. This kind of reaction may be extreme but it is certainly not rare. In fact,
9 days later on March 16th, the Dow rebounded and ran up 500 points. The Dow
ended the month up 1,126 points up from its low.
This is a challenging environment for investors because of both the
volatility and the continuous media interest in the Internet and the stock
market. Never before has the investing public had so much information available
to them via television, newspapers, magazines and the Internet. Today investors
can tune in televised stock market reports virtually round the clock and are
only a keystroke away from market information day or night.
The danger for investors is that focusing on volatility and news can
create a short-term view of investing which is generally not in their best
interest. Successful investing is a long term process and while it may be
interesting to get your market information as it unfolds, it doesn't have much
to do with long-term investing success. In the long run, stocks rise and fall
based on their ability to earn money. The ability to generate earnings depends
on the strength of a company's business franchise, the skill of its management
and other fundamental factors. These factors are all proven long term.
So, while we are pleased by the unprecedented prosperity we are enjoying,
we caution investors to perform a reality check on expectations. Last year four
of our funds returned over 100% to shareholders. We are extremely proud of these
results but we do not depend on them to continue at the same rate. The challenge
for investors is the same in these boom times as it is in lean times: to figure
out the mix of assets that make sense for your particular financial situation,
decide on a course of action and stay the course -- regardless of short-term
volatility.
BlackRock Funds is proud to be able to offer our shareholders a full range
of funds to meet virtually any investment need. We are pleased to announce that
later this year we will expand our offerings to include new equity funds
concentrating on three potential high growth areas: global science and
technology, European markets and Asia Pacific markets.
Thank you for your continued 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.
* Source: Business Week , 4/3 issue
2
<PAGE>
BLACKROCK FUNDS
LOW DURATION BOND PORTFOLIO
TOTAL NET ASSETS (3/31/00):
$318.7 MILLION
PERFORMANCE BENCHMARK:
MERRILL LYNCH 1-3 YEAR TREASURY INDEX
INVESTMENT APPROACH:
SEEKS A TOTAL RATE OF RETURN THAT EXCEEDS THE TOTAL RETURN OF ITS BENCHMARK
BY INVESTING PRIMARILY IN INVESTMENT GRADE SECURITIES WITH MATURITIES FROM 3 TO
5 YEARS. THE PORTFOLIO MAY ALSO INVEST UP TO 20% OF ITS ASSETS IN DEBT
SECURITIES OF FOREIGN ISSUERS AND UP TO 20% IN BELOW INVESTMENT GRADE SECURITIES
RATED B OR HIGHER BY A MAJOR RATING AGENCY OR DEEMED BY THE MANAGER TO BE OF
COMPARABLE CREDIT QUALITY.
RECENT PORTFOLIO MANAGEMENT ACTIVITY:
o TREASURY YIELDS ON THE SHORT END OF THE YIELD CURVE INCREASED SHARPLY
DURING THE SEMI-ANNUAL PERIOD IN RESPONSE TO THE THREE QUARTER-POINT INCREASES
TO THE DISCOUNT RATE BY THE FEDERAL RESERVE AND UNCERTAINTY OVER FUTURE INTEREST
RATE HIKES. THE FEDERAL RESERVE REMAINS BIASED TOWARD TIGHTER MONETARY POLICY
DUE TO CONCERNS ABOUT ROBUST DEMAND AND HIGHER INFLATION IN THE ECONOMY. THE
YIELD ON THE 2-YEAR TREASURY NOTE ROSE 0.88% FROM 5.60% ON SEPTEMBER 30, 1999 TO
6.48% ON MARCH 31, 2000.
o DURING THE PERIOD, THE MANAGER BOUGHT ADDITIONAL U.S. TREASURY AND AGENCY
SECURITIES TO TAKE ADVANTAGE OF THE ATTRACTIVE YIELD LEVELS IN THE MARKET. U.S.
TREASURY AND AGENCY SECURITIES ARE NOW THE LARGEST SECTOR IN THE PORTFOLIO.
ASSET-BACKED SECURITIES (ABS) CONTINUED TO BE A SIGNIFICANT PORTION OF THE
PORTFOLIO, EVEN THOUGH THE MANAGER REDUCED THE ABS EXPOSURE DURING THE PERIOD.
o THE PORTFOLIO'S MORTGAGE HOLDINGS REMAINED RELATIVELY CONSTANT OVER THE
PAST SIX MONTHS. WITH MORTGAGE YIELDS AT HISTORICALLY HIGH LEVELS, THE MANAGER
IS SELECTIVELY ADDING MORTGAGE EXPOSURE TO THE PORTFOLIO. CORPORATE SECURITIES
ARE ALSO PRESENTING RELATIVE VALUE OPPORTUNITIES DUE TO WIDER THAN NORMAL CREDIT
SPREADS IN THAT SECTOR OF THE MARKET. THE MANAGER HAS CONCENTRATED ON HIGH
CREDIT QUALITY CORPORATE ISSUES.
Although the portfolio holdings and sectors listed above were current as of the
end of the semi-annual period ended March 31, 2000, 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 YEARTREASURY
INDEX FROM INCEPTION AND AT EACH SEMI-ANNUAL PERIOD 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
Dec-99 14,835 14,656 14,120 13,712 14,209 14,876 15,197
Mar-00 15,029 14,836 14,288 13,849 14,351 15,077 15,387
</TABLE>
FOR PERIOD ENDING MARCH 31, 2000
AVERAGE ANNUAL TOTAL RETURN
1 Year 3 Year 5 Year From Inception
BlackRock Class 4.25% 5.98% 6.10% 5.47%
Institutional Class 4.20% 5.87% 6.03% 5.43%
Service Class 3.88% 5.56% 5.76% 5.25%
Investor A Class (Load Adjusted) 0.57% 4.31% 4.96% 4.74%
Investor A Class (NAV) 3.71% 5.38% 5.61% 5.15%
Investor B Class (Load Adjusted) (1.67)% 3.48% 4.73% 4.80%
Investor B Class (NAV) 2.83% 4.56% 5.06% 4.80%
Investor C Class (Load Adjusted) 1.93% 4.59% 5.08% 4.81%
Investor C Class (NAV) 2.93% 4.59% 5.08% 4.81%
THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF
THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN
THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO'S SHARE
CLASSES WERE AS FOLLOWS: INSTITUTIONAL SHARES, 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 NET ASSETS (3/31/00):
$396.5 MILLION
PERFORMANCE BENCHMARK:
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT INDEX
INVESTMENT APPROACH:
SEEKS CURRENT INCOME CONSISTENT WITH THE PRESERVATION OF CAPITAL BY
INVESTING IN SECURITIES ISSUED OR GUARANTEED 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:
o TREASURY YIELDS ON THE SHORT END OF THE YIELD CURVE INCREASED SHARPLY
DURING THE SEMI-ANNUAL PERIOD IN RESPONSE TO THE THREE QUARTER-POINT INCREASES
TO THE DISCOUNT RATE BY THE FEDERAL RESERVE AND UNCERTAINTY OVER FUTURE INTEREST
RATE HIKES. THE FEDERAL RESERVE REMAINS BIASED TOWARD TIGHTER MONETARY POLICY
DUE TO CONCERNS ABOUT ROBUST DEMAND AND HIGHER INFLATION IN THE ECONOMY. FOR THE
PERIOD, THE YIELD OF THE 5-YEAR TREASURY ROSE 0.56% FROM 5.76% ON SEPTEMBER 30,
1999 TO 6.32% ON MARCH 31, 2000.
o THE MANAGER INCREASED THE PORTFOLIO'S MORTGAGE PASS-THROUGH EXPOSURE
DURING THE PERIOD, IN ORDER TO CAPITALIZE ON THE RELATIVE VALUE IN THE MORTGAGE
SECTOR DUE TO ITS RECENT UNDERPERFORMANCE VERSUS TREASURIES. MORTGAGE SECURITIES
REMAIN THE LARGEST SECTOR IN THE PORTFOLIO.
o THE PORTFOLIO'S ALLOCATION OF TREASURY AND AGENCY SECURITIES ROSE TOWARDS
THE END OF 1999, BUT THE MANAGER HAS SUBSEQUENTLY REDUCED THE POSITIONS IN FAVOR
OF MORTGAGES. ASSET-BACKED SECURITIES WERE PARED IN RESPONSE TO HIGHER LEVELS OF
SUPPLY AT THE BEGINNING OF THE YEAR. THE MANAGER FAVORS HIGHER QUALITY
ASSET-BACKED SECURITIES WITH FIXED RATES.
Although the portfolio holdings and sectors listed above were current as of the
end of the semi-annual period ended March 31, 2000, the Portfolio is actively
managed and the composition will vary.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE INTERMEDIATE
GOVERNMENT BOND PORTFOLIO AND THE LEHMAN BROTHERS INTERMEDIATE GOVERNMENT INDEX
FROM INCEPTION AND AT EACH SEMI-ANNUAL PERIOD END.
[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
Dec-99 15,376 15,100 14,402 14,118 14,744 16,069
Mar-00 15,626 15,334 14,604 14,304 14,939 16,331
</TABLE>
FOR PERIOD ENDING MARCH 31, 2000
AVERAGE ANNUAL TOTAL RETURN
1 Year 3 Year 5 Year From Inception
Institutional Class 2.28% 5.91% 6.19% 5.77%
Service Class 1.99% 5.60% 5.88% 5.53%
Investor A Class (Load Adjusted) (2.23)% 4.00% 4.86% 4.88%
Investor A Class (NAV) 1.82% 5.42% 5.72% 5.42%
Investor B Class (Load Adjusted) (3.44)% 3.56% 4.85% 5.08%
Investor B Class (NAV) 1.06% 4.64% 5.18% 5.08%
Investor C Class (Load Adjusted) 0.06% 4.64% 5.18% 5.08%
Investor C Class (NAV) 1.06% 4.64% 5.18% 5.08%
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 NET ASSETS (3/31/00):
$684.9 MILLION
PERFORMANCE BENCHMARK:
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE INDEX
INVESTMENT APPROACH:
SEEKS CURRENT INCOME CONSISTENT WITH THE PRESERVATION OF CAPITAL BY
INVESTING IN SECURITIES RATED BBB OR HIGHER BY A MAJOR RATING AGENCY OR DEEMED
BY THE MANAGER TO BE OF COMPARABLE CREDIT QUALITY. THE PORTFOLIO EMPHASIZES
SECURITIES WITH MATURITIES FROM 5 TO 10 YEARS.
RECENT PORTFOLIO MANAGEMENT ACTIVITY:
o TREASURY YIELDS ON THE SHORT END OF THE YIELD CURVE INCREASED SHARPLY
DURING THE SEMI-ANNUAL PERIOD IN RESPONSE TO THE THREE QUARTER-POINT INCREASES
TO THE DISCOUNT RATE BY THE FEDERAL RESERVE AND UNCERTAINTY OVER FUTURE INTEREST
RATE HIKES. THE FEDERAL RESERVE REMAINS BIASED TOWARD TIGHTER MONETARY POLICY
DUE TO CONCERNS ABOUT ROBUST DEMAND AND HIGHER INFLATION IN THE ECONOMY. FOR THE
PERIOD, THE YIELD OF THE 5-YEAR TREASURY ROSE 0.56% FROM 5.76% ON SEPTEMBER 30,
1999 TO 6.32% ON MARCH 31, 2000.
o THE MANAGER SIGNIFICANTLY INCREASED THE PORTFOLIO'S MORTGAGE PASS-THROUGH
EXPOSURE DURING THE PERIOD, IN ORDER TO CAPITALIZE ON THE RELATIVE VALUE IN THE
MORTGAGE SECTOR. THE MANAGER ALSO ADDED MORE COLLATERALIZED MORTGAGE OBLIGATIONS
(CMOS) TO THE PORTFOLIO.
o A LARGE PORTION OF THE PORTFOLIO REMAINS INVESTED IN CORPORATE
SECURITIES, DESPITE A MODEST REDUCTION IN THE ALLOCATION DURING THE PERIOD. THE
ECONOMIC FUNDAMENTALS REMAIN POSITIVE FOR CORPORATE BONDS, BUT THE INCREASING
LEVERAGE UTILIZED BY CORPORATIONS HAS SPARKED SOME CREDIT QUALITY CONCERNS
WITHIN THE SECTOR. THE MANAGER REMAINS FOCUSED ON HIGH CREDIT QUALITY ISSUES
WITH AMPLE LIQUIDITY.
Although the portfolio holdings and sectors listed above were current as of the
end of the semi-annual period ended March 31, 2000, the Portfolio is actively
managed and the composition will vary.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE INTERMEDIATE BOND
PORTFOLIO AND THE LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE INDEX FROM
INCEPTION AND AT EACH SEMI-ANNUAL PERIOD END.
[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
Dec-99 13,414 13,214 12,413 12,442 12,961 13,581 13,219
Mar-00 13,642 13,429 12,596 12,617 13,142 13,818 13,417
</TABLE>
FOR PERIOD ENDING MARCH 31, 2000
AVERAGE ANNUAL TOTAL RETURN
1 Year 3 Year 5 Year From Inception
BlackRock Class 2.30% 5.89% 6.37% 4.91%
Institutional Class 2.15% 5.79% 6.31% 4.87%
Service Class 1.85% 5.48% 6.00% 4.56%
Investor A Class (Load Adjusted) (2.51)% 3.84% 4.96% 3.77%
Investor A Class (NAV) 1.56% 5.26% 5.82% 4.42%
Investor B Class (Load Adjusted) (3.59)% 3.68% 5.18% 4.19%
Investor B Class (NAV) 0.91% 4.75% 5.51% 4.19%
Investor C Class (Load Adjusted) (0.09)% 4.75% 5.51% 4.19%
Investor C Class (NAV) 0.91% 4.75% 5.51% 4.19%%
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 NET ASSETS (3/31/00):
$1.2 BILLION
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:
o TREASURY YIELDS ON THE SHORT END OF THE CURVE CONTINUE TO BE PRESSURED BY
THREE QUARTER-POINT INCREASES TO THE DISCOUNT RATE BY THE FEDERAL RESERVE AND
UNCERTAINTY OF FUTURE FED ACTION, WHILE LONG-TERM YIELDS DECREASED IN REACTION
TO THE TREASURY'S ANNOUNCEMENT TO REPURCHASE UP TO $30 BILLION IN SECURITIES.
THE FEDERAL RESERVE REMAINS BIASED TOWARD TIGHTER MONETARY POLICY DUE TO
CONCERNS ABOUT ROBUST DEMAND AND HIGHER INFLATION IN THE ECONOMY. FOR THE
PERIOD, THE YIELD OF THE 10-YEAR TREASURY ROSE 0.14% FROM 5.88% ON SEPTEMBER 30,
1999 TO 6.02% ON MARCH 31, 2000.
o THE PORTFOLIO MAINTAINED AN OVERWEIGHT POSITION VERSUS THE INDEX IN THE
MORTGAGES, ASSET-BACKED, AND COMMERCIAL MORTGAGE BACKED SECURITY (CMBS) SECTORS,
AS THE MANAGER BELIEVED THESE SECTORS TO OFFER ATTRACTIVE YIELDS AND TOTAL
RETURN OPPORTUNITIES RELATIVE TO TREASURIES. THE PORTFOLIO'S TREASURY ALLOCATION
WAS DECREASED ON STRENGTH AND ROTATED INTO MORTGAGES.
o IN THE MORTGAGE SECTOR WE FAVOR SEASONED PASS-THROUGHS AND 15-YEAR
SECURITIES, WHICH APPEAR TO OFFER AN ATTRACTIVE TOTAL RETURN OPPORTUNITY. WE
CONTINUE TO OVERWEIGHT CMBS GIVEN OUR OUTLOOK FOR CONTINUED STRONG PERFORMANCE
IN THIS SECTOR. WE RECENTLY REDUCED OUR EXPOSURE IN ASSET-BACKS IN FAVOR OF
MORTGAGES. WITHIN THE SECTOR WE FAVOR 5-YEAR FIXED RATE CREDIT CARDS.
o THE PORTFOLIO'S CORPORATE BOND EXPOSURE WAS MODERATELY DECREASED DURING
THE PERIOD. WE REMAIN CAUTIOUS IN THE CORPORATE SECTOR DUE TO STOCK MARKET
VOLATILITY AND THE POTENTIAL FOR INCREASED CORPORATE ISSUANCE. WITHIN THE SECTOR
WE HAVE FOCUSED ON HIGH QUALITY CREDITS.
Although the portfolio holdings and sectors listed above were current as of the
end of the semi-annual period ended March 31, 2000, 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 LEHMANBROTHERS AGGREGATE INDEX
FROM INCEPTION AND AT EACH SEMI-ANNUAL PERIOD END.
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
INSTITUTIONAL CLASS SERVICE CLASS INVESTOR A CLASS INVESTOR B CLASS INVESTOR C CLASS BLACKROCK CLASS LEHMAN 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
Dec-99 15,423 15,275 14,637 14,557 15,003 15,443 15,298
Mar-00 15,808 15,646 14,986 14,878 15,333 15,837 15,636
</TABLE>
FOR PERIOD ENDING MARCH 31, 2000
AVERAGE ANNUAL TOTAL RETURN
1 Year 3 Year 5 Year From Inception
BlackRock Class 2.17% 6.56% 7.10% 6.53%
Institutional Class 2.01% 6.40% 7.01% 6.47%
Service Class 1.71% 6.09% 6.75% 6.29%
Investor A Class (Load Adjusted) (2.51)% 4.47% 5.73% 5.60%
Investor A Class (NAV) 1.53% 5.90% 6.60% 6.19%
Investor B Class (Load Adjusted) (3.72)% 4.04% 5.63% 5.75%
Investor B Class (NAV) 0.78% 5.10% 5.95% 5.75%
Investor C Class (Load Adjusted) (0.22)% 5.12% 5.95% 5.75%
Investor C Class (NAV) 0.78% 5.12% 5.95% 5.75%
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 NET ASSETS (3/31/00):
$34.2 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 OR GUARANTEED BY THE U.S. GOVERNMENT OR ITS
AGENCIES OR RATED AAA BY A MAJOR RATING AGENCY. THE PORTFOLIO EMPHASIZES
SECURITIES WITH MATURITIES FROM 10 TO 15 YEARS.
RECENT PORTFOLIO MANAGEMENT ACTIVITY:
o TREASURY YIELDS ON THE SHORT END OF THE CURVE CONTINUE TO BE PRESSURED BY
THREE QUARTER-POINT INCREASES TO THE DISCOUNT RATE BY THE FEDERAL RESERVE AND
UNCERTAINTY OF FUTURE FED ACTION, WHILE LONG-TERM YIELDS DECREASED IN REACTION
TO THE TREASURY'S ANNOUNCEMENT TO REPURCHASE UP TO $30 BILLION IN SECURITIES.
THE FEDERAL RESERVE REMAINS BIASED TOWARD TIGHTER MONETARY POLICY DUE TO
CONCERNS ABOUT ROBUST DEMAND AND HIGHER INFLATION IN THE ECONOMY. FOR THE
PERIOD, THE YIELD OF THE 10-YEAR TREASURY ROSE 0.14% FROM 5.88% ON SEPTEMBER 30,
1999 TO 6.02% ON MARCH 31, 2000.
o OVER THE SEMI-ANNUAL PERIOD, THE PORTFOLIO'S EXPOSURE TO TREASURIES
INCREASED DRAMATICALLY. THIS INCREASE REFLECTS THE MANAGER'S POSITIVE OUTLOOK
FOR TREASURY SECURITIES BASED ON THE U.S. TREASURY'S COMMITMENT TO BUY BACK SOME
OF ITS OUTSTANDING SECURITIES.
o ALTHOUGH THE PORTFOLIO'S MORTGAGE WEIGHTING DECREASED OVER THE PAST SIX
MONTHS, THE MANAGER SELECTIVELY ADDED POSITIONS IN THE MORTGAGE SECTOR AT THE
END OF THE PERIOD TO TAKE ADVANTAGE OF THE SECTOR'S RELATIVE VALUE VERSUS
TREASURY SECURITIES.
Although the portfolio holdings and sectors listed above were current as of the
end of the semi-annual period ended March 31, 2000, the Portfolio is actively
managed and the composition will vary.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE GOVERNMENT INCOME
PORTFOLIO AND THE LEHMAN BROTHERS MORTGAGE INDEX/MERRILL LYNCH 10-YEAR TREASURY
INDEX FROM INCEPTION AND AT EACH SEMI-ANNUAL PERIOD END.
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
LEHMAN BROTHERS MORTGAGE INDEX/ MERRILL LYNCH
INVESTOR A CLASS INVESTOR B CLASS INVESTOR C CLASS 10 YEAR TREASURY INDEX
<S> <C> <C> <C> <C>
10/3/94 $ 9,550 $10,000 $10,000 $10,000
Dec-94 9,541 9,975 9,975 10,037
Mar-95 10,024 10,462 10,462 10,588
Jun-95 10,718 11,168 11,168 11,335
Sep-95 10,912 11,350 11,350 11,537
Dec-95 11,353 11,793 11,793 12,059
Mar-96 11,132 11,536 11,536 11,779
Jun-96 11,156 11,540 11,540 11,887
Sep-96 11,393 11,766 11,766 12,108
Dec-96 11,740 12,101 12,101 12,497
Mar-97 11,713 12,052 12,052 12,368
Jun-97 12,171 12,499 12,499 12,502
Sep-97 12,588 12,904 12,904 12,906
Dec-97 12,975 13,277 13,277 13,212
Mar-98 13,182 13,464 13,464 13,410
Jun-98 13,510 13,774 13,774 13,641
Sep-98 13,988 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
Dec-99 13,696 13,260 13,807 12,842
Mar-00 13,992 13,251 14,079 13,188
</TABLE>
FOR PERIOD ENDING MARCH 31, 2000
AVERAGE ANNUAL TOTAL RETURN
1 Year 3 Year 5 Year From Inception
Investor A Class (Load Adjusted) (3.87)% 4.48% 5.92% 6.30%
Investor A Class (NAV) 0.70% 6.10% 6.91% 7.19%
Investor B Class (Load Adjusted) (4.56)% 4.25% 5.80% 6.29%
Investor B Class (NAV) (0.05)% 5.31% 6.12% 6.43%
Investor C Class (Load Adjusted) (1.08)% 5.31% 6.11% 6.41%
Investor C Class (NAV) (0.05)% 5.31% 6.11% 6.41%
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 NET ASSETS (3/31/00):
$103.0 MILLION
PERFORMANCE BENCHMARK:
LEHMAN GNMA INDEX
INVESTMENT APPROACH:
SEEKS CURRENT INCOME CONSISTENT WITH THE PRESERVATION OF CAPITAL BY
INVESTING IN SECURITIES ISSUED BY THE GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
("GNMAS"), AS WELL AS OTHER U.S. GOVERNMENT SECURITIES.
RECENT PORTFOLIO MANAGEMENT ACTIVITY:
o TREASURY YIELDS ON THE SHORT END OF THE CURVE CONTINUE TO BE PRESSURED BY
THREE QUARTER-POINT INCREASES TO THE DISCOUNT RATE BY THE FEDERAL RESERVE AND
UNCERTAINTY OF FUTURE FED ACTION, WHILE LONG-TERM YIELDS DECREASED IN REACTION
TO THE TREASURY'S ANNOUNCEMENT TO REPURCHASE UP TO $30 BILLION IN SECURITIES.
THE FEDERAL RESERVE REMAINS BIASED TOWARD TIGHTER MONETARY POLICY DUE TO
CONCERNS ABOUT ROBUST DEMAND AND HIGHER INFLATION IN THE ECONOMY. FOR THE
PERIOD, THE YIELD OF THE 10-YEAR TREASURY ROSE 0.14% FROM 5.88% ON SEPTEMBER 30,
1999 TO 6.02% ON MARCH 31, 2000.
o OVER THE SEMI-ANNUAL PERIOD, GNMAS PERFORMED WELL AS A TREASURY
SUBSTITUTE SINCE IT IS THE ONLY OTHER ASSET CLASS BACKED BY THE FULL FAITH AND
CREDIT OF THE U.S. GOVERNMENT. RECENTLY A BILL WAS INTRODUCED SEEKING TO END THE
QUASI-GOVERNMENTAL STATUS OF FNMA AND FHLMC WHICH CAUSED THEIR SPREADS TO WIDEN
AND GNMA SPREADS TO TIGHTEN ON A FLIGHT TO SAFETY BID.
o THE MANAGER FAVORS DISCOUNT MORTGAGES PARTICULARY IN THE 15- AND 30-YEAR
SECTOR. THE MANAGER ALSO FAVORS PASS-THROUGHS AS THEIR SPREADS HAVE CONTINUED TO
WIDEN RELATIVE TO TREASURIES.
Although the portfolio holdings and sectors listed above were current as of the
end of the semi-annual period ended March 31, 2000, 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 SEMI-ANNUAL
PERIOD END.
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
INSTITUTIONAL SERVICE INVESTOR A INVESTOR B INVESTOR C LEHMAN GNMA
CLASS CLASS CLASS CLASS CLASS INDEX
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
Dec-99 24,259 23,318 21,775 20,620 20,656 29,011
Mar-00 24,781 23,801 22,217 21,000 21,036 29,577
FOR PERIOD ENDING MARCH 31, 2000
AVERAGE ANNUAL TOTAL RETURN
1 Year 3 Year 5 Year From Inception
Institutional Class 1.65% 6.48% 7.12% 7.57%
Service Class 1.34% 6.16% 6.80% 7.25%
Investor A Class (Load Adjusted) (2.91)% 4.53% 5.74% 6.62%
Investor A Class (NAV) 1.17% 5.98% 6.62% 7.07%
Investor B Class (Load Adjusted) (4.08)% 4.13% 5.51% 6.27%
Investor B Class (NAV) 0.42% 5.20% 5.83% 6.27%
Investor C Class (Load Adjusted) (0.58)% 5.20% 5.83% 6.27%
Investor C Class (NAV) 0.42% 5.20% 5.83% 6.27%
IN CONNECTION WITH THE CONVERSION OF VARIOUS COMMON TRUST FUNDS MAINTAINED BY
PNC BANK AND PNC BANK, DELAWARE ("PNC-DE"), AN AFFILIATE OF PNC BANK, INTO THE
FUND BETWEEN MAY 1 AND MAY 15, 1998 (THE "CTF CONVERSION"), THE GNMA PORTFOLIO
WAS ESTABLISHED TO RECEIVE THE ASSETS OF THE GNMA FUND OF PNC BANK. PERFORMANCE
INFORMATION PRESENTED FOR THIS PORTFOLIO INCLUDES PERFORMANCE FOR THE
PREDECESSOR COMMON TRUST FUND WHICH TRANSFERRED ITS ASSETS AND LIABILITIES TO
THE RELATED PORTFOLIO PURSUANT TO THE CTF CONVERSION. PERFORMANCE INFORMATION
PRESENTED IS BASED UPON THE PERFORMANCE OF THE GNMA FUND FOR PERIODS PRIOR TO
THE CTF CONVERSION.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
8
<PAGE>
BLACKROCK FUNDS
MANAGED INCOME PORTFOLIO
TOTAL NET ASSETS (3/31/00):
$1.6 BILLION
PERFORMANCE BENCHMARK:
LEHMAN BROTHERS AGGREGATE INDEX
INVESTMENT APPROACH:
SEEKS CURRENT INCOME CONSISTENT WITH THE PRESERVATION OF CAPITAL BY
INVESTING IN SECURITIES RATED BBB OR HIGHER BY A MAJOR RATING AGENCY OR DEEMED
BY THE MANAGER TO BE OF COMPARABLE CREDIT QUALITY. THE PORTFOLIO EMPHASIZES
SECURITIES WITH MATURITIES FROM 5 TO 10 YEARS.
RECENT PORTFOLIO MANAGEMENT ACTIVITY:
o TREASURY YIELDS ON THE SHORT END OF THE CURVE CONTINUE TO BE PRESSURED BY
THREE QUARTER-POINT INCREASES TO THE DISCOUNT RATE BY THE FEDERAL RESERVE AND
UNCERTAINTY OF FUTURE FED ACTION, WHILE LONG-TERM YIELDS DECREASED IN REACTION
TO THE TREASURY'S ANNOUNCEMENT TO REPURCHASE UP TO $30 BILLION IN SECURITIES.
THE FEDERAL RESERVE REMAINS BIASED TOWARD TIGHTER MONETARY POLICY DUE TO
CONCERNS ABOUT ROBUST DEMAND AND HIGHER INFLATION IN THE ECONOMY. FOR THE
PERIOD, THE YIELD OF THE 10-YEAR TREASURY ROSE 0.14% FROM 5.88% ON SEPTEMBER 30,
1999 TO 6.02% ON MARCH 31, 2000.
o DUE TO THE PORTFOLIO'S INCOME BIAS, THE MANAGER MAINTAINED OVERWEIGHT
POSITIONS VERSUS THE INDEX IN SPREAD SECTORS. THE PORTFOLIO INCREASED ITS
OVERALL MORTGAGE EXPOSURE, FOCUSING ON MORTGAGE PASS-THROUGHS, WHICH CURRENTLY
OFFER ATTRACTIVE YIELDS ON A RELATIVE VALUE BASIS AS COMPARED TO OTHER SPREAD
SECTORS. THE PORTFOLIO'S TREASURY ALLOCATION WAS DECREASED ON STRENGTH AND
ROTATED INTO MORTGAGES.
o IN THE MORTGAGE SECTOR WE FAVOR SEASONED PASS-THROUGHS AND 15-YEAR
SECURITIES, WHICH APPEAR TO OFFER AN ATTRACTIVE TOTAL RETURN OPPORTUNITY. WE
CONTINUE TO OVERWEIGHT CMBS GIVEN OUR OUTLOOK FOR CONTINUED STRONG PERFORMANCE
IN THIS SECTOR. THE PORTFOLIO'S ASSET BACKED SECURITY EXPOSURE WAS REDUCED ON
STRENGTH IN THE CREDIT CARD AND AUTO SECTORS IN FAVOR OF MORTGAGES. WITHIN THE
SECTOR WE FAVOR 5-YEAR FIXED RATE CREDIT CARDS.
o THE PORTFOLIO'S CORPORATE BOND EXPOSURE WAS MODERATELY DECREASED DURING
THE PERIOD. WE REMAIN CAUTIOUS IN THE CORPORATE SECTOR DUE TO STOCK MARKET
VOLATILITY AND THE POTENTIAL FOR INCREASED CORPORATE ISSUANCE. WITHIN THE SECTOR
WE HAVE FOCUSED ON HIGH QUALITY CREDITS.
Although the portfolio holdings and sectors listed above were current as of the
end of the semi-annual period ended March 31, 2000, the Portfolio is actively
managed and the composition will vary.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE MANAGED INCOME
PORTFOLIO AND THE LEHMAN BROTHERS AGGREGATE INDEX FROM INCEPTION AND AT EACH
SEMI-ANNUAL PERIOD END.
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
LEHMAN
BROTHERS
INSTITUTIONAL SERVICE INVESTOR A INVESTOR B INVESTOR C AGGREGATE
CLASS CLASS CLASS CLASS CLASS INDEX
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 16,762 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 17,892 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 18,585 19,818
Jun-98 19,692 19,432 18,384 19,050 19,050 20,282
Sep-98 20,137 19,856 18,778 19,457 19,457 21,140
Dec-98 20,292 19,993 18,900 19,582 19,582 21,212
Mar-99 20,304 19,989 18,888 19,570 19,570 21,103
Jun-99 20,097 19,769 18,673 19,312 19,312 20,918
Sep-99 20,252 19,907 18,796 18,723 18,723 21,060
Dec-99 20,169 19,810 18,697 18,590 18,590 21,003
Mar-00 20,604 20,212 19,039 18,932 18,893 21,467
FOR PERIOD ENDING MARCH 31, 2000
AVERAGE ANNUAL TOTAL RETURN
1 Year 3 Year 5 Year 10 Year From Inception
Institutional Class 1.46% 6.14% 6.70% 7.49% 7.19%
Service Class 1.16% 5.82% 6.39% 7.29% 6.99%
Investor A Class (Load Adjusted) (3.53)% 4.05% 5.22% 6.67% 6.39%
Investor A Class (NAV) 0.99% 5.65% 6.19% 7.16% 6.86%
Investor B Class (Load Adjusted) (4.27)% 3.90% 5.47% 6.95% 6.67%
Investor B Class (NAV) 0.23% 4.97% 5.79% 6.95% 6.67%
Investor C Class (Load Adjusted) (0.96)% 4.90% 5.75% 6.93% 6.65%
Investor C Class (NAV) 0.04% 4.90% 5.75% 6.93% 6.65%
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 NET ASSETS (3/31/00):
$80.4 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 PRIMARILY IN INVESTMENT GRADE INTERNATIONAL FIXED INCOME SECURITIES.
RECENT PORTFOLIO MANAGEMENT ACTIVITY:
o U.S. TREASURIES LED A RALLY ACROSS MOST INTERNATIONAL BOND MARKETS AS
LACK OF SUPPLY AND BUY BACKS DUE TO GOVERNMENT SURPLUSES AND IMPROVED DEFICITS
DROVE YIELDS LOWER. BOND INVESTORS ALSO TOOK HEART IN FAIRLY LOW CORE INFLATION
NUMBERS AND THE BELIEF THAT THE WORLD'S CENTRAL BANKS WOULD KEEP INFLATION IN
CHECK OVER LONGER PERIODS. DUE TO THEIR TENDENCY TO TRADE IN LINE WITH THE U.S.
MARKET, THE DOLLAR BLOC MARKETS SHOWED THE BEST RETURNS FOLLOWED BY NON-EMU
EUROPEAN COUNTRIES SUCH AS THE U.K. AND SWEDEN, WHERE SUPPLY WAS ALSO LIGHT.
JAPAN WAS THE MAJOR EXCEPTION AS LARGE BUDGET DEFICITS AND BETTER ECONOMIC
GROWTH SPARKED A RETRENCHMENT IN JGB (JAPANESE GOVERNMENT BOND) YIELDS.
o THE PORTFOLIO REMAINED GENERALLY CURRENCY HEDGED DURING THE PERIOD, WHICH
RESULTED IN MIXED RETURNS. IN CURRENCY MARKETS, THE EURO CONTINUED TO DEPRECIATE
AFTER STRENGTHENING SOMEWHAT DURING THE FIRST PART OF JANUARY. THE EURO CLOSED
THE QUARTER AT BELOW .96 VS. THE U.S. DOLLAR AND NEAR 98 VERSUS THE JAPANESE
YEN, BOTH NEAR ALL-TIME LOWS. INTERNATIONAL INVESTORS REMAIN SKEPTICAL ON THE
RELATIVE MERITS OF THE EURO GIVEN THE SUPERIOR ECONOMIC PERFORMANCE OF THE
DOLLAR BLOC AND THE COMBINATION OF LARGE CURRENT ACCOUNT SURPLUS AND IMPROVED
GROWTH PROSPECTS IN JAPAN. THE DOLLAR/YEN EXCHANGE RATE ENDED THE QUARTER NEAR
WHERE IT BEGAN AT 102.5 PER DOLLAR AFTER A JANUARY YEN SELL-OFF GAVE WAY TO A
JAPANESE YEAR-END RALLY IN MARCH.
o 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. THE PORTFOLIO'S PERFORMANCE WAS HURT FROM ITS SIGNIFICANT
UNDERWEIGHT POSITION VERSUS THE INDEX IN JAPANESE BONDS, WHICH EXPERIENCED A
SUBSTANTIAL RALLY IN MARCH WHEN KEY ECONOMIC NUMBERS WERE RELEASED INDICATING A
STRONGER THAN ANTICIPATED ECONOMY.
Although the portfolio holdings and sectors listed above were current as of the
end of the semi-annual period ended March 31, 2000, the Portfolio is actively
managed and the composition will vary.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE INTERNATIONAL BOND
PORTFOLIO AND THE SALOMON NON-U.S. HEDGED WORLD GOVERNMENT BOND INDEX FROM
INCEPTION AND AT EACH SEMI-ANNUAL PERIOD END.
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SALOMON
NON-U.S.
HEDGED
WORLD
INSTITUTIONAL SERVICE INVESTOR A INVESTOR B INVESTOR C GOVERNMENT
CLASS CLASS CLASS CLASS CLASS BOND INDEX
7/1/91 $10,000 $10,000 $ 9,500 $10,000 $10,000 $10,000
Sep-91 10,360 10,360 9,894 10,360 10,360 10,482
Dec-91 10,600 10,600 10,123 10,600 10,600 10,909
Mar-92 10,470 10,470 9,999 10,470 10,470 10,846
Jun-92 11,008 11,008 10,513 11,008 11,008 11,157
Sep-92 11,298 11,298 10,789 11,298 11,298 11,581
Dec-92 11,254 11,254 10,747 11,254 11,254 11,766
Mar-93 11,717 11,717 11,190 11,717 11,717 12,169
Jun-93 12,116 12,116 11,571 12,116 12,116 12,483
Sep-93 12,689 12,689 12,118 12,689 12,689 12,932
Dec-93 12,977 12,977 12,393 12,977 12,977 13,225
Mar-94 12,715 12,715 12,143 12,715 12,715 12,803
Jun-94 12,453 12,453 11,892 12,453 12,453 12,561
Sep-94 12,369 12,369 11,812 12,369 12,369 12,580
Dec-94 12,496 12,496 11,933 12,496 12,496 12,732
Mar-95 13,545 13,545 12,936 13,545 13,545 13,323
Jun-95 14,054 14,054 13,421 14,054 14,054 14,016
Sep-95 14,302 14,302 13,658 14,302 14,302 14,427
Dec-95 14,998 14,998 14,323 14,998 14,998 15,032
Mar-96 15,051 15,051 14,374 15,051 15,051 15,011
Jun-96 15,395 15,394 14,697 15,370 15,370 15,291
Sep-96 16,002 15,989 15,259 15,928 15,928 15,797
Dec-96 16,590 16,558 15,793 16,442 16,442 16,340
Mar-97 16,762 16,717 15,938 16,562 16,562 16,458
Jun-97 17,335 17,276 16,378 17,078 17,078 16,988
Sep-97 17,859 17,783 16,853 17,539 17,539 17,565
Dec-97 18,294 18,203 17,244 17,911 17,911 18,069
Mar-98 18,777 18,671 17,679 18,328 18,328 18,527
Jun-98 19,112 18,988 17,972 18,597 18,597 18,955
Sep-98 20,092 19,947 18,872 19,529 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
Dec-99 20,492 20,284 19,140 19,099 19,581 20,403
Mar-00 20,923 20,692 19,517 19,443 19,934 20,846
FOR PERIOD ENDING MARCH 31, 2000
AVERAGE ANNUAL TOTAL RETURN
1 Year 3 Year 5 Year From Inception
Institutional Class 1.08% 7.67% 9.09% 8.79%
Service Class 0.78% 7.35% 8.83% 8.65%
Investor A Class (Load Adjusted) (4.42)% 5.35% 7.57% 7.93%
Investor A Class (NAV) 0.61% 7.16% 8.68% 8.56%
Investor B Class (Load Adjusted) (4.62)% 5.32% 7.74% 8.20%
Investor B Class (NAV) (0.15)% 6.37% 8.04% 8.20%
Investor C Class (Load Adjusted) (1.10)% 6.37% 8.04% 8.20%
Investor C Class (NAV) (0.15)% 6.37% 8.04% 8.20%
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 NET ASSETS (3/31/00):
$100.1 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 HAVE
THE POTENTIAL FOR ABOVE-AVERAGE CURRENT INCOME.
RECENT PORTFOLIO MANAGEMENT ACTIVITY:
o DURING THE PERIOD HIGH YIELD SPREADS HAVE WIDENED AS COMPARED TO
TREASURIES. THE COMBINATION OF CASH EXITING HIGH YIELD MUTUAL FUNDS, INTEREST
RATE CONCERNS AND THE RISING VOLATILITY IN THE U.S. EQUITY MARKETS, CAUSED HIGH
YIELD PERFORMANCE TO SUFFER. INVESTORS, IN RESPONSE TO THE LESS THAN IDEAL
ENVIRONMENT, CONTINUED THEIR AVERSION TO RISK, FAVORING HIGHER QUALITY ISSUES.
THE BB SEGMENT OUTPERFORMED SINGLE B AND TRIPLE CCC TIERS. IN ADDITION, IN THE
FIRST QUARTER OF 2000 MOODY'S DEFAULT RATE WAS 5.64% VERSUS 3.97% FOR THE SAME
PERIOD IN 1999.
o IN RESPONSE TO THE MARKETS NARROWED FOCUS, THE PORTFOLIO FAVORED THE
ENERGY, INFORMATION TECHNOLOGY AND UTILITY SECTORS. THE OUTPERFORMANCE IN THE
ENERGY SECTOR WAS DRIVEN BY HIGHER COMMODITY PRICES, WHILE INFORMATION AND
TECHNOLOGY BENEFITED FROM STRONG DEMAND FOR MICROPROCESSORS. THE UTILITY SECTOR
WAS REWARDED AS A RESULT OF HIGH CREDIT QUALITY AND STABILITY IN THE SECTOR.
o THE PORTFOLIO UNDERWEIGHTED THE SERVICE, HEALTHCARE, AND FOOD/TOBACCO
SECTORS RELATIVE TO THE INDEX. THE POOR PERFORMANCE IN THE SERVICE SECTOR WAS A
RESULT OF SPECIFIC ACCOUNTING AND FINANCIAL REPORTING PROBLEMS, WHILE THE
HEALTHCARE AND FOOD/TOBACCO SECTORS CONTINUE TO REMAIN UNDER PRESSURE AS
BUSINESS FUNDAMENTALS REMAIN POOR.
o WE REMAIN CAUTIOUS IN THE HIGH YIELD MARKET DUE TO THE POOR TECHNICALS
AND FUNDAMENTALS AND REMAIN FOCUSED ON THE LARGER AND MORE LIQUID ISSUES.
Although the portfolio holdings and sectors listed above were current as of the
end of the semi-annual period ended March 31, 2000, 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 SEMI-ANNUAL PERIOD 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>
11/18/98 $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
12/31/99 11,013 10,960 10,397 10,375 10,744 11,011 10,403
3/31/00 10,883 10,822 10,272 10,221 10,595 10,884 10,159
</TABLE>
FOR PERIOD ENDING MARCH 31, 2000
AVERAGE ANNUAL TOTAL RETURN
1 Year From Inception
BlackRock Class 4.15% 6.40%
Institutional Class 3.99% 6.39%
Service Class 3.68% 5.93%
Investor A Class (Load Adjusted) (1.65)% 1.99%
Investor A Class (NAV) 3.50% 5.90%
Investor B Class (Load Ajusted) (1.77)% 2.18%
Investor B Class (NAV) 2.73% 5.07%
Investor C Class (Load Adjusted) 1.73% 5.01%
Investor C Class (NAV) 2.73% 5.01%
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.
12
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
LOW DURATION BOND PORTFOLIO
PAR
AS OF MARCH 31, 2000 (UNAUDITED) MATURITY (000) VALUE
-------- -------- ------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 25.1%
Small Business Administration
Participation Certificates, Series 97,
Class A
6.35%** 08/15/22 $ 1,238 $ 1,227,092
U.S. Treasury Notes
5.00%+ 02/28/01 12,050 11,906,951
5.25% 05/31/01 875 863,474
5.50%+ 07/01-08/01 18,100 17,878,745
5.87%+ 11/30/01 18,115 17,937,833
6.37% 01/31/02 32,035 31,957,928
6.50%+ 02/28/02 15,000 15,001,482
U.S. Treasury Notes (CPI)
3.62% 01/15/08 1,900 1,933,683
3.87% 01/15/09 1,000 1,019,365
------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $99,835,381) 99,726,553
------------
MORTGAGE PASS-THROUGHS -- 19.9%
Federal Home Loan Mortgage
Corp.
6.45%**+ 10/01/00 8,290 8,106,039
7.25% 07/06-06/08 57 56,277
7.50%+ 07/01/07 2,034 2,021,720
8.25% 06/01/09 63 63,511
8.75%** 01/01/13 1,170 1,199,199
6.91% 07/01/27 2,483 2,481,278
5.94%** 06/01/28 1,933 1,923,859
Federal Home Loan Mortgage
Corp. 5 Year Balloon
7.00% 05/00-11/00 340 336,698
Federal Home Loan Mortgage
Corp. 7 Year Balloon
8.00% 01/01/04 299 300,477
Federal Home Loan Mortgage
Corp. 30 Year Balloon
8.25% 09/01/09 311 314,582
7.50% 04/01/22 639 629,509
6.96%**+ 07/01/27 3,713 3,713,308
Federal Home Loan Mortgage
Corp. Gold
7.00% 09/01/11 2,822 2,771,507
Federal National Mortgage Association
6.29% 10/04/00 2,000 1,997,120
6.20%+ 02/26/01 4,565 4,520,251
6.72% 02/26/01 521 518,002
7.50% 06/03-05/09 5,286 5,246,016
6.00%+ 11/03-01/04 4,941 4,727,228
7.00%+ 06/04-03/13 4,928 4,886,110
6.50%+ 10/05-11/08 5,225 5,078,808
5.50%+ 07/01/09 2,679 2,465,058
8.00%+ 08/01/09 2,585 2,586,495
8.50% 08/01/14 93 93,256
Federal National Mortgage Association
10 Year Balloon
6.00% 12/03-02/04 3,513 3,354,820
Federal National Mortgage Association
15 Year Balloon
7.00%+ 12/08-09/14 6,416 6,308,594
Federal National Mortgage Association
30 Year Balloon
7.00% 07/01/01 30 30,333
PAR
MATURITY (000) VALUE
-------- -------- ------------
MORTGAGE PASS-THROUGHS (CONTINUED)
Government National Mortgage
Association
7.25% 04/15/06 $ 371 $ 364,110
8.25%+ 08/08-09/08 3,597 3,648,282
Government National Mortgage
Association 15 Year
7.00% 09/02-05/12 6,302 6,215,519
6.00% 12/15/08 2,051 1,963,901
Government National Mortgage
Association 30 Year
6.50% 03/24-04/24 1,168 1,111,513
------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $80,619,141) 79,033,380
------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS -- 3.4%
Bear Stearns Mortgage Securities, Inc.,
Series 96-6, Class A2
7.00% 11/25/27 130 129,542
Federal National Mortgage Association,
Series 93-216, Class B (PO)
8.46%*** 08/25/23 7 7,270
Federal National Mortgage Association,
Series 98-32, Class B
6.00% 05/18/13 2,050 1,988,199
MLCC Mortgage Investors, Inc.,
Series 95-C3, Class A3
7.07% 12/26/25 200 197,186
MLCC Mortgage Investors, Inc.,
Series 97-B, Class A
6.28%** 03/16/26 2,515 2,507,118
MLCC Mortgage Investors, Inc.,
Series 99-A, Class A
6.38%** 02/15/26 2,578 2,578,842
Residential Accredit Loans, Inc.,
Series 97-QS7, Class A1
7.50% 07/25/27 167 166,062
Residential Accredit Loans, Inc., Series
99-QS2, Class A3
6.50% 02/25/29 1,265 1,200,300
Residential Asset Securitization Trust,
Series 98-A1, Class A1
7.00% 03/25/28 1,323 1,308,528
Residential Asset Securitization Trust,
Series 98-A2, Class A1
6.75%+ 04/25/28 3,166 3,126,977
------------
TOTAL MULTIPLE CLASS MORTGAGE
PASS-THROUGHS
(Cost $13,253,690) 13,210,024
------------
COMMERCIAL MORTGAGE BACKED
SECURITIES -- 13.4%
Asset Securitization Corp., Series 97-D5,
Class A1A
6.50% 02/14/41 2,865 2,816,309
Bayview Financial Acquisition Trust,
Series 98-1, Class AI
7.01% 05/25/29 2,477 2,399,984
Bayview Financial Acquisition Trust,
Series 98-1, Class AII
6.17%** 05/25/29 1,978 1,967,467
Bosque Asset Corp., Series 97-1,
Class A1
7.66% 06/05/02 849 840,871
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
LOW DURATION BOND PORTFOLIO (CONTINUED)
PAR
AS OF MARCH 31, 2000 (UNAUDITED) MATURITY (000) VALUE
-------- -------- ------------
COMMERCIAL MORTGAGE BACKED
SECURITIES (CONTINUED)
Citicorp Mortgage Securities, Inc.,
Series 94-4, Class A6
6.00% 02/25/09 $ 2,131 $ 2,057,443
Copelco Capital Funding Corp.,
Series 99-A, Class A3
5.66% 03/15/02 2,850 2,808,016
Deutsche Mortgage and Asset Receiving
Corp., Series 98-C1, Class A1
6.22% 09/15/07 1,138 1,093,234
Donaldson, Lufkin and Jenrette, Inc.
Mortgage Acceptance Corp.,
Series 95-CF2, Class A1A
6.65% 12/17/27 805 799,182
Donaldson, Lufkin and Jenrette, Inc.
Mortgage Acceptance Corp.,
Series 96-CF2, Class A1A
6.86% 11/12/21 1,831 1,803,521
Housing Securities, Inc., Series 93-G,
Class G4A
6.62% 01/25/09 2,500 2,473,646
IFC Small Business Administration
Loan-Backed Adjustable Rate
Certificates, Series 97-1, Class A
6.50%** 01/15/24 2,135 2,104,404
Lehman Brothers Commercial Conduit
Mortgage Trust, Series 96-C2,
Class A
7.47%++ 10/25/26 900 897,370
Merit Securities Corp., Series 98-11,
Class 2A2
6.17%** 11/28/22 2,965 2,960,972
PNC Mortgage Securities Corp.,
Series 97-6, Class A1
6.49% 10/25/26 2,648 2,647,912
Prudential Home Mortgage Securities,
Inc., Series 94-19, Class A2
7.05% 05/25/24 2,813 2,798,476
Residential Funding Mortgage Securities,
Series 98-NS1, Class A2
6.37% 01/25/09 1,807 1,780,855
Salomon Brothers Mortgage Securities VII,
Series 92-5, Class A1
7.41%** 11/25/22 229 228,770
Structured Asset Mortgage Investments,
Inc., Series 98-9, Class 2A2
6.12% 11/25/13 3,025 2,812,085
Structured Asset Securities Corp.,
Series 98-C2A, Class B
6.45%** 01/25/13 3,166 3,161,683
Union Planters Mortgage Finance Corp.,
Series 98-1, Class A1
6.35% 01/25/28 1,431 1,416,467
Washington Mutual, Series 00-1, Class A1
6.28% 06/25/24 7,200 7,200,000
Wilshire Funding Corp., Series 97,
Class A1
7.25% 08/25/27 1,211 1,193,841
Wilshire Funding Corp., Series 98-2,
Class A3
7.00% 12/28/37 5,027 4,957,545
------------
TOTAL COMMERCIAL MORTGAGE
BACKED SECURITIES
(Cost $53,769,887) 53,220,053
------------
PAR
MATURITY (000) VALUE
-------- -------- ------------
PROJECT LOANS -- 4.8%
Federal Housing Authority, General
Motors Acceptance Corp. Grantor
Trust, Series 97-A, Class A
7.13% 01/01/21 $412,303 $ 12,293,157
Federal Housing Authority, INSD Project,
Series 82
7.43% 09/01/22 1,959 1,943,229
Reilly 143
7.43% 03/01/19 4,389 4,387,395
Reilly Mortgage Securities, Series 99-1
7.43% 02/01/23 262 261,378
------------
TOTAL PROJECT LOANS
(Cost $19,042,575) 18,885,159
------------
ASSET BACKED SECURITIES -- 24.9%
American Business Financial Services,
Series 98-A, Class A
6.10% 10/15/05 2,840 2,832,537
Amresco Independence Funding, Inc.,
Series 99-1, Class A
6.50% 06/15/20 2,889 2,888,507
Amresco Securitized Net Interest Margin
Trust, Series 96-1, Class A
8.10% 04/26/26 90 66,284
Bank One, Series 00-2, Class 4A
6.61% 03/15/30 3,325 3,280,320
Barnett Auto Trust, Series 97-A,
Class A3
6.03% 11/15/01 1,131 1,137,261
Captec Franchise Trust, Series 99-1,
Class A1
6.50% 05/25/05 3,645 3,541,707
Chevy Chase Auto Receivables Trust,
Series 97-3, Class A
6.20% 03/20/04 1,639 1,626,279
Fifth Third Auto Grantor Trust,
Series 96-B, Class A
6.45% 03/15/02 136 136,250
First Security Auto Grantor Trust,
Series 97-A, Class A
6.30% 08/15/03 1,223 1,218,053
First Security Auto Owner Trust,
Series 99-2, Class A3
6.00% 10/15/03 4,150 4,112,391
FMAC Loan Receivables Trust,
Series 98-CA, Class A1
5.99% 11/15/04 2,131 2,037,031
Ford Credit Auto Owner Trust,
Series 99-B, Class A4
5.80% 06/15/02 125 123,457
Franchise Loan Trust, Series 98-1,
Class A1
6.24% 07/15/04 1,983 1,913,955
Health Care Receivables Securitization
Program Notes, NPF VI, Series 98-1,
Class A
6.22% 06/01/02 3,300 3,227,812
Huntington Auto Trust, Series 00-A,
Class A3
7.50% 07/15/04 6,300 6,300,000
Mellon Auto Grantor Trust, Series 00-1,
Class A
7.18% 10/16/06 4,850 4,849,242
Missouri Higher Education Loan Authority,
Series 97, Class P
6.58%** 07/25/08 2,892 2,834,101
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
LOW DURATION BOND PORTFOLIO (CONTINUED)
PAR
AS OF MARCH 31, 2000 (UNAUDITED) MATURITY (000) VALUE
-------- -------- ------------
ASSET BACKED SECURITIES (CONTINUED)
Morgan Stanley Aircraft Finance,
Series 00-2, Class A5
6.58%** 03/15/25 $ 2,520 $ 2,520,787
Navistar Financial Corp Owner Trust,
Series 99-A, Class A3
5.95% 04/15/03 4,950 4,876,523
Newcourt Equipment Trust Securities,
Series 98-1, Class A3
5.24% 12/20/02 3,531 3,485,437
Newcourt Equipment Trust Securities,
Series 98-2, Class A3
5.45% 10/15/02 85 83,859
Nissan Auto Receivables Owner Trust,
Series 99-A, Class A3
6.47% 09/15/03 2,400 2,369,250
PBG Equipment Trust, Series 00-1A,
Class A
6.27% 01/20/12 2,432 2,350,212
Pegasus Aviation Lease Securitization,
Series 00-1, Class A1
6.72%** 03/25/15 2,100 2,100,000
PMC Capital Limited Partnership,
Series 98-1, Class A
6.75%** 04/01/21 3,964 3,964,441
PMC Capital Small Business
Administration Loan-Backed
Adjustable Rate Certificates,
Series 97-1, Class A
6.85%** 09/15/23 1,261 1,248,960
PMC Capital Small Business
Administration Loan-Backed
Adjustable Rate Certificates,
Series 97-1, Class B
7.20%** 09/15/23 671 671,180
Premier Auto Trust, Series 98-3,
Class A3
5.88% 12/08/01 1,120 1,114,925
Ryder Vehicle Lease Trust, Series 98-A,
Class A
6.10% 09/15/08 3,845 3,768,245
Ryder Vehicle Lease Trust, Series 99-A,
Class A3
6.68% 04/15/04 2,450 2,450,766
Sears Credit Account Master Trust,
Series 99-2, Class A
6.35% 02/16/07 4,025 3,947,645
SWB Loan Backed Certificates,
Series 98-1, Class AV
6.25%** 09/15/24 2,750 2,736,174
The Money Store Auto Grantor Trust,
Series 97-4, Class A2
6.35% 03/20/04 242 240,925
The Money Store Home Equity Trust,
Series 98-A, Class MH2
7.23% 05/15/24 2,000 1,807,464
The Money Store Small Business
Administration Loan-Backed
Securities, Series 97-1, Class A
6.21%** 01/15/25 339 339,042
6.40%** 04/15/28 2,699 2,709,523
The Money Store Small Business
Administration Loan-Backed
Securities, Series 97-1, Class B
6.69%** 01/15/25 1,694 1,684,570
PAR
MATURITY (000) VALUE
-------- -------- ------------
ASSET BACKED SECURITIES (CONTINUED)
The Money Store Small Business
Administration Loan Trust,
Series 96-2, Class A
6.28%** 04/15/24 $ 100 $ 99,524
Toyota Auto Receivables Owner Trust,
Series 99-A, Class A3
6.15% 08/16/04 8,071 7,968,851
USAA Auto Loan Grantor Trust,
Series 99-1, Class A
6.10% 02/15/06 4,115 4,068,768
------------
TOTAL ASSET BACKED SECURITIES
(Cost $99,753,219) 98,732,258
------------
CORPORATE BONDS -- 8.5%
FINANCE -- 6.6%
Diageo Capital PLC
6.62% 06/24/04 1,250 1,229,687
Donaldson, Lufkin and Jenrette, Inc.
5.87% 04/01/02 3,050 2,954,687
Firstar Corp.
6.50% 07/15/02 2,760 2,708,068
Golden State Escrow Corp.
6.75% 08/01/01 3,000 2,918,700
Limestone Electron Trust Bond Corp.,
Sr. Notes Series 144A
8.62% 03/15/03 1,500 1,507,258
Morgan Stanley, Dean Witter & Co.
7.12% 01/15/03 2,230 2,215,666
Osprey Trust Osprey Investments
8.31% 01/15/03 1,900 1,900,000
Popular North America, Inc.
6.87% 06/15/01 2,650 2,623,973
TransAmerica Finance Corp.
7.25% 08/15/02 4,550 4,535,949
US West Cap Funding, Inc.,
Series 144A
6.87% 08/15/01 3,435 3,413,531
------------
26,007,519
------------
INDUSTRIAL -- 0.4%
Nabisco, Inc.
6.00% 02/15/01 1,720 1,689,719
------------
INSURANCE -- 0.4%
Metropolitan Life Insurance Co.
6.30% 11/01/03 1,720 1,661,950
------------
PIPELINES -- 0.6%
El Paso Energy Corp.
6.62% 07/15/01 2,440 2,412,550
------------
UTILITY -- 0.2%
Avon Energy Partners Holding
6.73% 12/11/02 690 677,925
------------
YANKEE -- 0.3%
Banco Internacional S.A.
6.03% 07/16/01 986 980,684
Nordbanken
6.64%** 10/25/01 150 148,320
------------
1,129,004
------------
TOTAL CORPORATE BONDS
(Cost $33,932,995) 33,578,667
------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
LOW DURATION BOND PORTFOLIO (CONCLUDED)
PAR/SHARES
AS OF MARCH 31, 2000 (UNAUDITED) MATURITY (000) VALUE
-------- -------- ------------
TAXABLE MUNICIPAL BONDS -- 0.1%
Philadelphia Authority Industrial
Development Tax Claim Collection
Revenue Bond, Series 97A
6.49%
(Cost $534,270) 06/15/04 $ 534 $ 491,652
------------
SHORT TERM INVESTMENT -- 0.0%
Galileo Money Market Fund
(Cost $126,046) 126 126,046
------------
TOTAL INVESTMENTS IN
SECURITIES
(Cost $400,867,204*) 100.0% $397,003,792
============
PAR
(000)
--------
REVERSE REPURCHASE AGREEMENTS -- (28.8%)
Barclays Capital
(Agreement dated 03/20/00 to be
repurchased at $2,423,547.
Collateralized by $2,400,000
U.S. Treasury Notes 5.88% due 11/30/01.
The value of the collateral is
$2,417,859.)
5.90% 04/03/00 2,418 (2,422,756)
Barclays Capital
(Agreement dated 03/30/00 to be
repurchased at $11,213,103.
Collateralized by $11,300,000 U.S.
Treasury Notes 5.00% due 02/28/01.
The value of the collateral is
$11,186,355.)
6.00% 04/13/00 11,187 (11,205,631)
Barclays Capital
(Agreement dated 03/29/00 to be
repurchased at $7,094,662.
Collateralized by $7,070,000 U.S.
Treasury Notes 6.50% due 02/28/02.
The value of the collateral is
$7,113,210.)
5.98% 04/19/00 7,070 (7,073,524)
Lehman Brothers
(Agreement dated 03/23/00 to be
repurchased at $12,941,776.
Collateralized by $12,800,000 U.S.
Treasury Notes 5.88% due 11/30/01.
The value of the collateral is
$12,911,255.)
5.93% 04/06/00 12,912 (12,931,142)
Lehman Brothers
(Agreement dated 02/11/00 to be
repurchased at $15,164,466.
Collateralized by $7,903,045 Federal
National Mortgage Association
5.50-6.50% due 10/01/05 to 07/01/09 and
$8,289,973 Federal Home Loan Bank Notes
6.46% due 10/01/00. The value of the
collateral is $15,740,567.)
5.89% 04/14/00 15,017 (15,125,155)
Lehman Brothers
(Agreement dated 03/27/00 to be
repurchased at $12,238,079.
Collateralized by $12,120,000. U.S.
Treasury Notes 5.88% due 11/30/01.
The value of the collateral is
$12,154,111.)
5.95% 04/17/00 12,196 (12,205,828)
PAR
MATURITY (000) VALUE
-------- -------- ------------
REVERSE REPURCHASE AGREEMENTS (CONTINUED)
Lehman Brothers
(Agreement dated 03/31/00 to be
repurchased at $3,630,060.
Collateralized by $3,600,000 U.S.
Treasury Notes 6.50% due 02/28/02.
The value of the collateral is
$3,640,113.)
6.00% 04/20/00 $ 3,618 $ (3,618,603)
Lehman Brothers
(Agreement dated 02/23/00 to be
repurchased at $3,749,235.
Collateralized by $3,713,308 Federal
Home Loan Bank Notes 6.50% due
07/01/27. The value of the collateral
is $3,736,291.)
5.92% 04/24/00 3,712 (3,735,197)
Salomon Brothers
(Agreement dated 03/28/00 to be
repurchased at $8,018,403.
Collateralized by $8,040,000 U.S.
Treasury Notes 5.50% due 07/31/01.
The value of the collateral is
$7,980,554.)
5.98% 04/11/00 8,000 (8,005,115)
Salomon Brothers
(Agreement dated 02/14/00 to be
repurchased at $15,526,685.
Collateralized by $2,033,795 Federal
Home Loan Bank Notes 7.50% due
07/01/07, $12,106,977 Federal National
Mortgage Association 6.00%-8.00% due
01/01/04 to 08/01/09 and $3,596,817
Government National Mortgage
Association 8.25%due 09/15/08.
The value of the collateral is
$17,598,063.)
5.89% 04/14/00 15,376 (15,486,503)
------------
TOTAL REVERSE REPURCHASE AGREEMENTS
(Cost $91,505,599) $(91,809,454)
============
-----------------------
* Cost for Federal income tax purposes is $401,248,870. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 136,670
Gross unrealized depreciation (4,381,748)
------------
$ (4,245,078)
============
** Rates shown are the rates as of March 31, 2000.
*** Rates shown are the effective yields as of March 31, 2000.
+ Partial principal in the amount of $95,022,386 has been pledged as
collateral for reverse repurchase agreements.
++ Principal amount of securities pledged as collateral of $1,100,000 on 187
long U.S. Treasury Notes futures contracts and 291 short U.S. Treasury Notes
futures contracts expiring June 2000. The value of such contracts on March
31, 2000 was $65,683,656, thereby resulting in an unrealized loss of
$144,533.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
BLACKROCK FUNDS
STATEMENT OF ASSETS AND LIABILITIES
LOW DURATION BOND PORTFOLIO
MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments at value (Cost $400,867,204) .................................... $397,003,792
Collateral received for securities loaned ................................... 41,094,169
Interest receivable ......................................................... 2,925,615
Principal receivable ........................................................ 121,567
Investments sold receivable ................................................. 19,467,931
Capital shares sold receivable .............................................. 9,000
Prepaid expenses ............................................................ 34,662
------------
TOTAL ASSETS ......................................................... 460,656,736
------------
LIABILITIES
Payable upon return of securities loaned .................................... 41,094,169
Investments purchased payable ............................................... 7,200,000
Reverse repurchase agreements payable ....................................... 91,809,454
Capital shares redeemed payable ............................................. 22,966
Distributions payable ....................................................... 1,668,934
Administrative fees payable ................................................. 15,305
Transfer agent fees payable ................................................. 13,986
Other accrued expenses payable .............................................. 57,795
Futures margin payable ...................................................... 28,332
------------
TOTAL LIABILITIES .................................................... 141,910,941
------------
NET ASSETS (Applicable to 15,747,178 BlackRock shares,
14,424,118 Institutional shares, 1,460,202 Service shares,
236,323 Investor A shares, 825,029 Investor B shares and
89,573 Investor C shares outstanding) ....................................... $318,745,795
============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER
BLACKROCK SHARE ($153,065,016 / 15,747,178) ................................. $ 9.72
======
NET ASSET VALUE AND REDEMPTION PRICE PER
INSTITUTIONAL, SERVICE AND INVESTOR A
SHARE ($156,786,205 / 16,120,643) ........................................... $ 9.73
======
OFFERING PRICE PER INSTITUTIONAL AND SERVICE SHARE ............................. $ 9.73
======
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE
($9.73 / 0.970) ............................................................. $10.03
======
NET ASSET VALUE OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 4.5%)
PER INVESTOR B SHARE ($8,023,294 / 825,029) ................................. $ 9.72
======
NET ASSET VALUE OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 1.0%)
PER INVESTOR C SHARE ($871,280 / 89,573) .................................... $ 9.73
======
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
PAR
AS OF MARCH 31, 2000 (UNAUDITED) MATURITY (000) VALUE
-------- -------- ------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 27.6%
Federal Home Loan Bank Bonds
5.00% 09/20/00 $ 3,000 $ 2,978,460
Small Business Administration
Participation Certificates,
Series 96-20H, Class 1
7.25% 08/01/16 4,619 4,499,728
Small Business Administration
Participation Certificates,
Series 96-20J, Class 1
7.20% 10/01/16 4,105 3,988,555
Small Business Administration
Participation Certificates,
Series 98-20J, Class 1
5.50% 10/01/18 4,742 4,147,210
Small Business Investment Cos.,
Series 96-P10A, Class 1
6.67% 02/10/06 4,523 4,294,034
U.S. Treasury Bonds
12.75% 11/15/10 11,925 15,350,437
14.00% 11/15/11 12,640 17,686,237
12.50%+ 08/15/14 1,360 1,930,392
U.S. Treasury Notes
5.50% 08/31/01 33,000 32,578,019
5.88%+ 11/30/01 13,025 12,897,614
5.75% 08/15/03 5,850 5,734,169
U.S. Treasury Notes (CPI)
3.63% 01/15/08 3,200 3,256,729
------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost $112,479,981) 109,341,584
------------
MORTGAGE PASS-THROUGHS -- 39.9%
Federal Home Loan Mortgage
Corp.
9.00% 06/01/01 0 329
7.00% 05/01/02 63 61,615
8.00% 11/08-06/17 1,435 1,454,411
6.50% 03/11-05/29 7,292 6,978,983
6.00% 05/15/16 900 884,466
Federal Home Loan Mortgage
Corp. Gold
6.50% 04/08-07/29 5,694 5,437,022
7.00% 09/01/11 4,544 4,462,596
Federal National Mortgage Association
6.20% 02/26/01 838 829,404
6.73% 02/26/01 5,253 5,221,462
8.50% 06/03-08/09 3,839 3,875,297
6.50% 08/03-11/29 41,142 39,291,783
6.13% 11/25/03 1,756 1,722,725
6.09% 10/01/08 7,258 6,762,889
5.25% 01/15/09 4,825 4,216,664
6.04% 02/25/09 4,500 4,161,645
7.00% 03/09-03/13 17,437 17,138,139
7.27% 01/25/11 6,205 6,136,801
5.50% 01/14-03/14 3,580 3,294,859
6.00% 01/14-02/29 2,380 2,194,125
7.58% 11/01/18 2,467 2,486,189
Federal National Mortgage Association
10 Year Balloon
6.00% 02/01/04 2,964 2,828,917
Federal National Mortgage Association
Multi-Family
6.50% 10/25/03 1,241 1,233,444
7.71% 12/01/18 4,204 4,321,435
6.32% 10/01/23 9,565 8,969,905
MATURITY PAR VALUE
-------- -------- ------------
MORTGAGE PASS-THROUGHS (CONTINUED)
Government National Mortgage
Association
7.25% 04/15/06 $ 5,700 $ 5,594,851
8.25% 11/08-02/09 3,348 3,411,450
7.00% 09/23-12/27 5,176 5,020,869
6.50% 10/23-12/27 10,838 10,231,106
------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $162,608,513) 158,223,381
------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS -- 1.8%
Federal National Mortgage Association
Grantor Trust, Series 96-T6, Class A
6.33% 10/25/00 3,828 3,801,079
MLCC Mortgage Investors, Inc.,
Series 95-C2 (IO)
10.40%*** 06/15/21 14,320 429,588
MLCC Mortgage Investors, Inc.,
Series 95-C3, Class A1
6.77%** 12/26/25 884 872,889
Residential Asset Securitization Trust,
Series 98-A1, Class A1
7.00% 03/25/28 2,204 2,180,879
------------
TOTAL MULTIPLE CLASS MORTGAGE
PASS-THROUGHS
(Cost $7,328,111) 7,284,435
------------
COMMERCIAL MORTGAGE BACKED
SECURITIES -- 7.5%
Credit Suisse First Boston Mortgage
Securities Corp., Series 00-1, Class 4A
6.63% 04/15/15 3,050 2,912,274
Donaldson, Lufkin and Jenrette, Inc.
Commercial Mortgage Corp.,
Series 99, Class CG3
7.34% 04/15/15 2,450 2,434,879
General Motors Acceptance Corp.
Commercial Mortgage Securities, Inc.,
Series 97-C1, Class X (IO)
8.26%*** 07/15/27 17,771 1,329,300
General Motors Acceptance Corp.
Commercial Mortgage Securities, Inc.,
Series 97-C2, Class A3
6.57% 11/15/07 2,850 2,681,104
General Motors Acceptance Corp.
Commercial Mortgage Securities, Inc.,
Series 99-C2, Class A2
6.95% 09/15/33 1,000 956,145
Morgan Stanley Capital International, Inc.,
Series 97-HF1, Class A1
6.86% 07/15/29 3,658 3,583,068
Residential Funding Mortgage Securities
I, Inc., Series 98-S1, Class A1
6.50% 01/25/13 4,221 4,008,283
Salomon Brothers Mortgage Secutities VII,
Series 00-NL1, Class A1
6.60% 10/01/30 3,880 3,725,406
Structured Asset Mortgage Investments,
Inc., Series 98-9, Class 2A2
6.13% 11/25/13 4,495 4,178,632
Summit Mortgage Trust, Series 00-1,
Class B1
6.14% 12/28/12 2,966 2,810,471
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
INTERMEDIATE GOVERNMENT BOND PORTFOLIO (CONTINUED)
PAR
AS OF MARCH 31, 2000 (UNAUDITED) MATURITY (000) VALUE
-------- -------- ------------
COMMERCIAL MORTGAGE BACKED
SECURITIES (CONTINUED)
Union Planters Mortgage Finance Corp.,
Series 98-1, Class A1
6.35% 01/25/28 $ 1,069 $ 1,057,627
------------
TOTAL COMMERCIAL MORTGAGE
BACKED SECURITIES
(Cost $38,274,444) 29,677,189
------------
PROJECT LOANS -- 5.3%
Federal Housing Authority, General
Motors Acceptance Corp. Grantor
Trust, Series 97-A, Class A
7.01% 01/01/21 939 938,409
Federal Housing Authority, General
Motors Acceptance Corp., Series 93-1
5.94% 04/14/12 1,948 1,738,823
Federal Housing Authority, Merrill Lynch,
Series 29, Class 1A1
7.43% 06/01/22 7,944 7,913,201
Federal Housing Authority, Merrill Lynch,
Series 97-23
7.43% 12/01/21 5,201 5,182,662
Federal Housing Authority, USGI,
Series 56
7.46% 01/01/23 5,267 5,199,804
------------
TOTAL PROJECT LOANS
(Cost $21,652,354) 20,972,899
------------
ASSET BACKED SECURITIES -- 18.6%
ACLC Business Loan Receivables Trust,
Series 98-1, Class A1
6.44% 09/15/19 8,564 8,037,011
Atherton Franchisee Loan Funding,
Series 98-A, Class A2
6.72% 08/15/10 5,150 4,814,448
Boston Edison Co., Series 99-1, Class A4
6.91% 09/15/09 4,475 4,370,117
Chevy Chase Auto Receivables Trust,
Series 96-1, Class A
6.60%++ 12/15/0 2 219 219,472
Chevy Chase Auto Receivables Trust,
Series 97-3, Class A
6.20% 03/20/04 1,423 1,411,436
Citibank Credit Card Master Trust I,
Series 97-6, Class A (PO)
7.61%*** 08/15/06 15,990 11,670,469
DVI Receivables Corp., Series 98-1,
Class A2
6.04% 04/10/06 1,682 1,670,483
FMAC Loan Receivables Trust, Series
97-C, Class A
6.75% 12/15/19 3,852 3,665,003
Green Tree Financial Corp., Series 97-5,
Class A7
7.13% 05/15/29 3,501 3,350,591
Health Care Receivables Securitization
Program Notes, NPF VI, Series 98-1,
Class A
6.22% 06/01/02 4,500 4,401,563
Huntington Auto Trust, Series 00-A,
Class A4
7.42% 07/15/05 8,200 8,197,438
Mellon Auto Grantor Trust, Series 00-1,
Class A
7.18% 10/16/06 5,825 5,824,090
PAR/SHARES
MATURITY (000) VALUE
-------- -------- ------------
ASSET BACKED SECURITIES (CONTINUED)
National Premier Financial, Series 97-1,
Class A
6.82% 07/01/01 $ 2,300 $ 2,299,641
New Century Home Equity Loan Trust,
Series 98-NC3, Class A1
6.00% 08/25/28 794 789,287
PMC Capital Small Business
Administration Loan-Backed Adjustable
Rate Certificates, Series 97-1,
Class A
6.85%** 09/15/23 2,101 2,081,600
Provident Auto Lease Trust, Series 99-1,
Class A2
7.03% 11/14/05 3,000 2,951,250
SWB Loan Backed Certificates,
Series 99-1, Class A
7.38% 05/15/25 1,993 1,948,490
The Money Store Small Business
Administration Loan Trust,
Series 99-1, Class A
6.24%** 07/15/25 3,052 3,017,264
USAA Auto Loan Grantor Trust,
Series 99-1, Class A
6.10% 02/15/06 2,931 2,898,300
------------
TOTAL ASSET BACKED SECURITIES
(Cost $66,759,967) 73,617,953
------------
CORPORATE BONDS -- 0.5%
FINANCE -- 0.5%
Inter-American Development Bank
7.38%
(Cost $1,992,523) 01/15/10 2,000 2,037,272
------------
TAXABLE MUNICIPAL BONDS -- 1.5%
New Jersey Economic Development
Authority Pension Funding Zero
Coupon Revenue Bond,
Series 97, Class B
6.62%*** 02/15/02 1,527 1,341,367
Stanislaus County, California Taxable
Pension Obligation Refunding
Revenue Bond, Series 95
7.15% 08/15/13 4,645 4,540,488
------------
TOTAL TAXABLE MUNICIPAL BONDS
(Cost $5,996,881) 5,881,855
------------
PUT OPTION -- 0.0%
U.S. Treasury Notes, 6.50%, 02/15/10
expiring 06/21/00
(Cost $71,687) 620 62,248
------------
SHORT TERM INVESTMENT -- 0.0%
Galileo Money Market Fund
(Cost $6,084) 6 6,084
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $417,170,545*) 102.7% 407,104,900
LIABILITIES IN EXCESS OF
OTHER ASSETS (2.7%) (10,596,017)
-------- ------------
NET ASSETS (Applicable to 36,347,691
Institutional shares, 2,746,635 Service
shares, 1,381,383 Investor A shares,
119,663 Investor B shares and 33,338
Investor C shares outstanding) 100.0% $396,508,883
======== ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
INTERMEDIATE GOVERNMENT BOND PORTFOLIO (CONCLUDED)
AS OF MARCH 31, 2000 (UNAUDITED) VALUE
------------
NET ASSET VALUE AND REDEMPTION
PRICE PER INSTITUTIONAL, SERVICE
AND INVESTOR A SHARE
($395,015,523 / 40,475,709) $ 9.76
======
OFFERING PRICE PER INSTITUTIONAL
AND SERVICE SHARE $ 9.76
======
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($9.76 / 0.960) $10.17
======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(SUBJECT TO A CONTINGENT
DEFERRED SALES CHARGE OF 4.5%)
PER INVESTOR B SHARE
($1,167,983 / 119,663) $ 9.76
======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(SUBJECT TO A CONTINGENT
DEFERRED SALES CHARGE OF 1.0%)
PER INVESTOR C SHARE
($325,377 / 33,338) $ 9.76
======
------------------------
* Also cost for Federal income tax purposes. The gross unrealized appreciation
(depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 604,423
Gross unrealized depreciation (10,670,068)
------------
$(10,065,645)
============
** Rates shown are the rates as of March 31, 2000.
*** Rates shown are the effective yields as of March 31, 2000.
+ Partial Principal in the amount of $6,450,000 has been pledged as collateral
for reverse repurchase agreements.
++ Principal amount of securities pledged as collateral of $2,570,125 on 37
short U.S. Treasury Bonds futures contracts, 156 short U.S. Treasury Notes
futures contracts and 50 long U.S. Treasury Notes futures contracts expiring
June 2000. The value of such contracts on March 31, 2000 was $23,891,687,
thereby resulting in an unrealized loss of $241,338.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
INTERMEDIATE BOND PORTFOLIO
PAR
AS OF MARCH 31, 2000 (UNAUDITED) MATURITY (000) VALUE
-------- -------- ------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 8.8%
Small Business Administration
Participation Certificates,
Series 92-20H, Class 1
7.40% 08/01/12 $ 3,045 $ 2,999,376
Small Business Administration
Participation Certificates,
Series 96-20H, Class 1
7.25% 08/01/16 5,267 5,131,268
Small Business Investment Cos.
Pass-Through, Series 96-P10A,
Class 1
6.67% 02/10/06 3,371 3,200,523
Small Business Investment Cos.
Pass-Through, Series 97-P10D,
Class 1
6.51% 11/01/07 524 490,325
Small Business Investment Cos.
Pass-Through, Series 98-10A,
Class 1
6.12% 02/10/08 617 564,573
U.S. Treasury Bonds
12.75% 11/15/10 11,625 14,964,195
14.00% 11/15/11 5,485 7,674,763
12.50% 08/15/14 11,210 15,911,538
U.S. Treasury Notes
5.50% 08/31/01 290 286,292
6.38% 01/31/02 800 798,075
5.75% 08/15/03 2,100 2,058,420
4.75% 11/15/08 120 108,438
6.50% 02/15/10 1,720 1,780,602
U.S. Treasury Notes (CPI)
3.63% 01/15/08 4,000 4,070,912
------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $60,659,222) 60,039,300
------------
MORTGAGE PASS-THROUGHS -- 31.2%
Federal Home Loan Mortgage Corp.
5.98%** 07/01/01 9,498 9,287,119
9.00% 12/01-12/16 47 48,250
9.50% 01/01/05 78 79,145
8.50% 07/01/06 13 12,865
7.25% 12/01/06 325 316,079
8.00% 07/08-09/18 4,445 4,472,391
6.50% 03/11-04/29 21,759 20,582,782
6.00% 04/11-01/13 4,770 4,497,754
8.25% 11/01/15 977 982,169
Federal Home Loan Mortgage
Corp. 30 Year Balloon
6.96%** 07/01/27 173 172,712
Federal Home Loan Mortgage
Corp. Gold
6.50%+ 04/08-07/29 9,479 9,018,245
7.00%+ 09/01/11 7,939 7,797,800
Federal National Mortgage Association
6.20% 02/26/01 4,607 4,561,721
6.50% 05/03-02/30 44,974 42,386,818
6.00% 01/04-05/29 10,607 9,994,915
9.50% 03/05-08/29 2,762 2,898,555
7.00% 10/07-05/11 21,135 20,780,119
8.00% 03/08-11/13 5,495 5,504,758
7.50% 07/08-10/14 3,497 3,469,398
5.25% 01/15/09 11,600 10,137,472
5.50% 02/09-03/14 9,151 8,501,986
PAR
MATURITY (000) VALUE
-------- -------- ------------
MORTGAGE PASS-THROUGHS (CONTINUED)
Federal National Mortgage Association (Continued)
6.04% 02/25/09 $ 5,600 $ 5,178,936
8.50%+ 08/09-08/14 6,072 6,126,237
7.27% 01/25/11 3,250 3,214,348
Federal National Mortgage Association
10 Year Balloon
6.00% 02/01/04 2,274 2,170,551
Government National Mortgage
Association
7.25% 04/15/06 1,017 998,562
8.25% 08/08-02/09 5,719 5,747,408
9.50% 05/16-02/17 215 225,031
8.50% 02/17-03/17 1,336 1,370,207
7.00% 10/15/23 7,400 7,177,528
6.50% 10/23-09/25 17,241 16,268,549
------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $216,022,293) 213,980,410
------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS -- 2.5%
Federal Home Loan Mortgage
Corp., Series 96T-2, Class A
7.00% 01/25/21 3,089 2,995,390
Federal National Mortgage Association
Grantor Trust, Series 96-T6, Class A
6.33% 10/25/00 2,376 2,359,717
Federal National Mortgage Association
Strip Notes, Series 279, Class 1 (PO)
6.92%*** 07/01/26 335 251,411
Federal National Mortgage Association,
Series 89-16, Class B (PO)
8.79%*** 03/25/19 976 746,045
Federal National Mortgage Association,
Series 99-55, Class PA
7.00% 06/18/13 3,043 3,018,654
MLCC Mortgage Investors, Inc.,
Series 95-C1, Class C
7.52%** 05/25/15 2,022 2,009,717
MLCC Mortgage Investors, Inc.,
Series 95-C2 (IO)
10.40%*** 06/15/21 23,027 690,813
Residential Asset Securitization Trust,
Series 98-A1, Class A1
7.00% 03/25/28 3,306 3,271,319
Residential Asset Securitization Trust,
Series 98-A2, Class A1
6.75% 04/25/28 1,903 1,879,862
------------
TOTAL MULTIPLE CLASS MORTGAGE
PASS-THROUGHS
(Cost $17,354,148) 17,222,928
------------
COMMERCIAL MORTGAGE BACKED
SECURITIES -- 14.3%
Asset Securitization Corp., Series 97-D5,
Class A1A
6.50% 02/14/41 7,024 6,904,499
Bayview Financial Acquisition Trust,
Series 98-1, Class AI
7.01% 05/25/29 2,917 2,826,442
Bayview Financial Acquisition Trust,
Series 98-1, Class AII
6.18%** 05/25/29 2,164 2,152,315
Bosque Asset Corp., Series 97-1, Class A1
7.66% 06/05/02 849 840,871
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
INTERMEDIATE BOND PORTFOLIO (CONTINUED)
PAR
AS OF MARCH 31, 2000 (UNAUDITED) MATURITY (000) VALUE
-------- -------- ------------
COMMERCIAL MORTGAGE BACKED
SECURITIES (CONTINUED)
Citicorp Mortgage Securities, Inc.,
Series 94-4, Class A6
6.00% 02/25/09 $ 2,863 $ 2,764,608
Credit Suisse First Boston Mortgage
Securities Corp., Series 95-WF1,
Class A2
6.65% 12/21/27 2,097 2,056,398
Credit Suisse First Boston Mortgage
Securities Corp., Series 00-1,
Class A4
6.63% 03/15/15 5,250 5,012,930
Deutsche Mortgage and Asset Receiving
Corp., Series 98-C1, Class A1
6.22% 09/15/07 2,101 2,017,752
Donaldson, Lufkin & Jenrette, Inc.
Commercial Mortgage Corp.,
Series 99, Class CG3
7.34% 09/10/09 1,730 1,719,323
General Motors Acceptance Corp.
Commercial Mortgage Securities, Inc.,
Series 97-C1, Class X (IO)
8.26%*** 07/15/27 26,602 1,989,826
General Motors Acceptance Corp.
Commercial Mortgage Securities, Inc.,
Series 97-C2, Class A3
6.57% 11/15/07 4,325 4,068,692
General Motors Acceptance Corp.
Commercial Mortgage Securities, Inc.,
Series 99-C2, Class A2
6.95% 09/15/33 825 788,820
Housing Securities, Inc., Series 93-G,
Class G4A
6.63% 01/25/09 3,000 2,968,375
Merit Securities Corp., Series 98-11,
Class 2A2
6.18%** 11/28/22 6,220 6,212,096
Morgan Stanley Capital International, Inc.,
Series 97-HF1, Class A1
6.86% 07/15/29 4,136 4,050,424
Morgan Stanley Capital International, Inc.,
Series 98-CF1, Class A1
6.33% 10/15/07 1,381 1,318,124
Morgan Stanley Capital International, Inc.,
Series 99-FNV1, Class A2
6.53% 03/15/31 2,930 2,744,362
Nationslink Funding Corp., Series 99-SL,
Class A6
6.61% 04/10/07 2,100 2,009,642
NYC Mortgage Loan Trust, Series 96,
Class A1
6.75% 06/25/06 3,691 3,607,222
Residential Asset Securitization Trust,
Series 98-A4, Class Ia1
6.75% 05/25/28 7,461 7,316,642
Residential Funding Mortgage
Securities I, Inc., Series 98-S1,
Class A1
6.50% 01/25/13 7,340 6,970,927
Salomon Brothers Mortgage
Securities VII, Series 00-NL1,
Class A1
6.60% 10/01/30 6,655 6,389,840
PAR
MATURITY (000) VALUE
-------- -------- ------------
COMMERCIAL MORTGAGE BACKED
SECURITIES (CONTINUED)
Structured Asset Mortgage Investments,
Inc., Series 98-9, Class 2A2
6.13% 11/25/13 $ 7,260 $ 6,749,793
Structured Asset Securities Corp.,
Series 98-C2A, Class B
6.45%** 01/25/13 3,409 3,397,529
Structured Asset Securities Corp.,
Series 99-C3, Class A
6.28%** 11/20/01 2,567 2,569,296
Summit Mortgage Trust, Series 00-1,
Class B1
6.14% 12/28/12 5,941 5,629,029
Union Planters Mortgage Finance Corp.,
Series 98-1, Class A1
6.35% 01/25/28 2,566 2,539,242
------------
TOTAL COMMERCIAL MORTGAGE
BACKED SECURITIES
(Cost $127,948,761) 97,615,019
------------
PROJECT LOANS -- 3.3%
Federal Housing Authority, Lakeview,
Series 92
8.88% 07/25/22 731 730,426
Federal Housing Authority, Merrill Lynch,
Series 97-23
7.43% 12/01/21 16,485 16,427,626
Federal Housing Authority, USGI,
Series 56
7.46% 01/01/23 5,189 5,122,993
------------
TOTAL PROJECT LOANS
(Cost $22,737,694) 22,281,045
------------
ASSET BACKED SECURITIES -- 20.4%
ACLC Business Loan Receivables Trust,
Series 98-1, Class A1
6.44% 09/15/19 3,065 2,876,404
Atherton Franchisee Loan Funding,
Series 98-A, Class A2
6.72% 08/15/10 6,000 5,609,065
Amresco Securitized Net Interest Margin
Trust, Series 96-1, Class A
8.10% 04/26/26 863 636,338
Auto Leasing Investors, Series 97,
Class A6
6.18% 08/12/05 3,975 3,814,318
Barnett Auto Trust, Series 97-A, Class A3
6.03% 11/15/01 290 291,605
Boston Edison Co., Series 99-1, Class A4
6.91% 09/15/09 5,500 5,371,094
Chevy Chase Auto Receivables Trust,
Series 97-1, Class A
6.50% 10/15/03 2,800 2,794,224
Chevy Chase Auto Receivables Trust,
Series 97-3, Class A
6.20% 03/20/04 1,450 1,438,632
Citibank Credit Card Master Trust I,
Series 97-6, Class A (PO)
7.61%*** 08/15/06 20,615 15,046,074
DVI Receivables Corp., Series 98-1,
Class A2
6.04% 04/10/06 3,364 3,340,966
First Security Auto Owner Trust,
Series 99-2, Class A3 E213
6.00% 10/15/03 200 198,187
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
INTERMEDIATE BOND PORTFOLIO (CONTINUED)
PAR
AS OF MARCH 31, 2000 (UNAUDITED) MATURITY (000) VALUE
-------- -------- ------------
ASSET BACKED SECURITIES (CONTINUED)
FMAC Loan Receivables Trust,
Series 97-C, Class A
6.75% 12/15/19 $ 6,549 $ 6,230,506
FMAC Loan Receivables Trust,
Series 98-CA, Class A1
5.99% 11/15/04 4,611 4,408,703
Franchise Loan Trust, Series 98-1,
Class A1
6.24% 07/15/04 4,570 4,409,932
General Motors Acceptance Corp.,
Series 97
7.43% 02/21/21 962 955,890
Green Tree Financial Corp., Series 94-B,
Class A
7.85% 07/15/04 1,256 1,225,639
Green Tree Financial Corp., Series 96-7,
Class A6
7.65% 10/15/27 3,300 3,291,234
Health Care Receivables Securitization
Program Notes, NPF VI, Series 98-1,
Class A
6.22% 06/01/02 4,400 4,303,750
Huntington Auto Trust, Series 00-A,
Class A4
7.42% 07/15/05 7,100 7,097,781
IFC Small Business Administration
Loan-Backed Adjustable Rate
Certificates, Series 97-1, Class A
6.25%** 01/15/24 2,399 2,364,412
Mellon Auto Grantor Trust, Series 00-1,
Class A
7.18% 10/15/06 10,025 10,023,434
Mellon Bank Home Equity Loan Trust,
Series 96-1, Class B2
6.31%** 04/15/26 332 331,983
Morgan Stanley Aircraft Finance,
Series 00-2, Class A5
6.58% 03/15/25 5,020 5,021,569
National Premier Financial, Series 97-1,
Class A
6.82% 07/01/01 3,000 2,999,531
Nissan Auto Receivables Owner Trust,
Series 99-A, Class A3
6.47% 09/15/03 2,500 2,467,969
Pegasus Aviation Lease Securitization,
Series 00-1, Class A1
6.72%** 03/25/15 4,435 4,435,000
PBG Equipment Trust, Series 00-1A,
Class A
6.27% 01/20/12 9,956 9,620,203
PMC Capital Limited Partnership,
Series 98-1, Class A
6.75%** 04/01/21 2,331 2,330,711
PMC Capital Small Business
Administration Loan-Backed
Adjustable Rate Certificates,
Series 97-1, Class A
6.85%** 09/15/23 3,448 3,415,803
Provident Auto Lease Trust, Series 99-1,
Class A2
7.03% 11/14/05 4,575 4,500,656
Puget Power Conservation Grantor Trust,
Series 97-1, Class A
6.23% 07/11/02 1,786 1,775,486
PAR
MATURITY (000) VALUE
-------- -------- ------------
ASSET BACKED SECURITIES (CONTINUED)
Ryder Vehicle Lease Trust, Series 98-A,
Class A
6.10% 09/15/08 $ 710 $ 695,676
SWB Loan Backed Certificates,
Series 99-1, Class A
7.38% 05/15/25 2,594 2,535,384
The Money Store Small Business
Administration Loan Trust, Series 96-1,
Class A
6.18%** 07/15/21 2,161 2,150,422
The Money Store Small Business
Administration Loan Trust, Series 99-1,
Class A
6.01%** 07/15/25 3,850 3,806,781
USAA Auto Loan Grantor Trust,
Series 99-1, Class A
6.10% 02/15/06 8,117 8,026,062
------------
TOTAL ASSET BACKED SECURITIES
(Cost $112,816,051) 139,841,424
------------
CORPORATE BONDS -- 26.8%
FINANCE -- 11.9%
American General Financial Corp.
8.13% 08/15/09 2,250 2,306,250
Associates Corp., North America
5.75% 11/01/03 3,430 3,250,131
Bear Stearns Capital Trust Investments
7.00% 01/15/27 5,100 4,988,437
Chrysler Financial Co.
5.25% 10/22/01 4,130 4,017,003
Citicorp, Inc.
6.38% 11/15/08 1,710 1,609,537
Crestar Financial Corp.
8.25% 07/15/02 3,200 3,252,000
Equitable Life Surplus
6.95% 12/01/05 1,750 1,679,505
ERAC USA Finance Co.
6.95% 03/01/04 1,375 1,322,063
Firstar Corp.
6.50% 07/15/02 2,480 2,433,336
General Electric Capital Corp.
7.38% 01/19/10 2,000 2,020,373
Goldman Sachs Group
6.65% 05/15/09 5,485 5,069,205
Household Finance Corp.
7.00% 08/01/03 2,400 2,350,779
Inter-American Development Bank
7.38% 01/15/10 3,200 3,259,635
J.P. Morgan & Co., Inc.
6.77%** 02/15/12 3,700 3,293,000
KeyBank N.A.
5.80% 04/01/04 2,200 2,081,186
Lehman Brothers Holdings, Inc.
8.75% 05/15/02 3,940 4,027,035
Limestone Electron Trust Corp.,
Sr. Notes, Series 144A
8.63% 03/15/03 3,500 3,516,935
Marsh & McLennan Cos., Inc.
6.63% 06/15/04 6,295 6,129,756
Morgan Stanley, Dean Witter & Co.
5.63% 01/20/04 4,265 4,017,161
Newcourt Credit Group
7.13% 12/17/03 5,035 4,985,405
Popular North America, Inc.
6.88% 06/15/01 4,950 4,901,384
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
INTERMEDIATE BOND PORTFOLIO (CONTINUED)
PAR
AS OF MARCH 31, 2000 (UNAUDITED) MATURITY (000) VALUE
-------- -------- ------------
CORPORATE BONDS (CONTINUED)
FINANCE (CONTINUED)
TransAmerica Finance Corp.
7.25% 08/15/02 $ 7,125 $ 7,102,997
U.S. Bancorp
6.50% 06/15/04 4,140 3,987,544
------------
81,600,657
------------
INDUSTRIAL -- 7.1%
Anixter, Inc.
8.00%++ 09/15/03 4,350 4,072,360
Atlantic Richfield
10.88% 07/15/05 2,960 3,433,600
Cox Enterprises, Inc.
6.63% 06/14/02 2,820 2,748,662
DaimlerChrysler North America
Holdings
6.90% 09/01/04 620 610,700
7.40% 01/20/05 5,000 4,982,662
Dow Chemical Co.
7.38% 11/01/29 3,600 3,510,000
Federated Department Stores
6.13%** 09/01/01 3,230 3,169,438
Litton Industries, Inc.
6.05% 04/15/03 4,100 3,930,875
Lockheed Martin Corp.
7.95% 12/01/05 720 713,709
Monsanto Co.
5.75% 12/01/05 4,125 3,836,250
Rohm & Haas Co.
6.95% 07/15/04 2,520 2,491,650
Shopping Center Associates
6.75% 01/15/04 2,250 2,124,641
Tyco Intl. Group Corp., S.A.
5.88% 11/01/04 5,865 5,469,113
Union Carbide Corp.
6.75% 04/01/03 2,100 2,067,282
Williams Holdings of Delaware
6.13% 12/01/03 5,650 5,372,446
------------
48,533,388
------------
INSURANCE -- 1.1%
Allstate Corp.
7.20% 12/01/09 1,690 1,632,963
Everest Reinsurance Holdings
8.50% 03/15/05 2,710 2,722,350
Metropolitan Life Insurance Co.
6.30% 11/01/03 3,265 3,154,806
------------
7,510,119
------------
PIPELINES -- 0.7%
El Paso Energy Corp.
6.63% 07/15/01 4,720 4,666,900
------------
PAR/SHARES
MATURITY (000) VALUE
-------- -------- ------------
CORPORATE BONDS (CONTINUED)
TELECOMMUNICATIONS -- 0.5%
AT&T Corp.
6.50% 03/15/29 $ 3,725 $ 3,238,031
------------
UTILITY -- 2.0%
National Rural Utilities
5.00% 10/01/02 4,620 4,387,060
TXU Eastern Funding Co.
6.15% 05/15/02 3,810 3,689,488
US West Capital Funding, Inc.
6.25% 07/15/05 6,440 6,083,353
------------
14,159,901
------------
YANKEE -- 3.5%
Canada Mortgage & Housing
7.20% 02/01/05 4,775 4,804,844
Den Danske Bank
6.38%** 06/15/08 5,600 5,229,000
Nordbanken
6.64%** 10/25/01 4,950 4,894,560
Quebec Province
7.50% 09/15/29 2,110 2,112,638
Swedbank
7.50%** 09/29/49 2,200 1,999,938
Yorkshire Power Finance
6.15% 02/25/03 5,100 4,856,730
------------
23,897,710
------------
TOTAL CORPORATE BONDS
(Cost $188,502,361) 183,606,706
------------
TAXABLE MUNICIPAL BONDS -- 2.0%
New Jersey Economic Development
Authority Pension Funding Zero
Coupon Revenue Bond,
Series 97, Class B
6.94%*** 02/15/05 2,900 2,051,750
New York State Power Authority and
General Purpose Revenue Bond,
Series 98-B
6.11%** 02/15/11 5,600 5,439,000
Philadelphia Authority Industrial
Development Tax Claim Collection
Revenue Bond, Series 97-A
6.49% 06/15/04 6,814 6,268,559
------------
TOTAL TAXABLE MUNICIPAL BONDS
(Cost $14,495,166) 13,759,309
------------
PUT OPTIONS -- 0.0%
U.S. Treasury Notes, 6.50%, 02/15/10
expiring 06/21/00
(Cost $123,141) 1,065 106,926
------------
SHORT TERM INVESTMENT -- 0.1%
Galileo Money Market Fund
(Cost $820,784) 697 697,643
------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
INTERMEDIATE BOND PORTFOLIO (CONCLUDED)
AS OF MARCH 31, 2000 (UNAUDITED) VALUE
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $761,356,480*) 109.4% $749,150,710
LIABILITIES IN EXCESS OF
OTHER ASSETS (Including $35,260,260
of investment purchases payable) (9.4%) (64,229,412)
------ ------------
NET ASSETS (Applicable to 15,038,695
BlackRock shares, 58,192,714
Institutional shares, 2,680,967
Service shares, 313,893 Investor A shares,
122,346 Investor B shares and 22,017
Investor C shares outstanding) 100.0% $684,921,298
====== ============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER BLACKROCK,
INSTITUTIONAL AND SERVICE SHARE
($680,812,537 / 75,912,376) $8.97
=====
NET ASSET VALUE AND REDEMPTION
PRICE PER INVESTOR A SHARE
($2,813,787 / 313,893) $8.96
=====
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($8.96 / 0.960) $9.33
=====
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE (SUBJECT TO
A CONTINGENT DEFERRED SALES CHARGE
OF 4.5%) PER INVESTOR B SHARE
($1,097,423 / 122,346) $8.97
=====
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE (SUBJECT TO A
CONTINGENT DEFERRED SALES CHARGE
OF 1.0%) PER INVESTOR C SHARE
($197,551 / 22,017) $8.97
=====
-----------------------
* Cost for Federal income tax purposes is $762,632,124. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 2,016,757
Gross unrealized depreciation (15,498,171)
------------
$(13,481,414)
============
** Rates shown are the rates as of March 31,2000.
*** Rates shown are the effective yields as of March 31, 2000.
+ Partial principal in the amount of $30,553,480 has been pledged as
collateral for reverse repurchase agreements.
++ Principal amount of securities pledged as collateral of $600,000 on 86 long
U.S. Treasury Notes futures contracts, 35 short U.S. Treasury Notes futures
contracts and 89 Long Euro Dollar futures contracts expiring September 2001.
The value of such contracts on March 31, 2000 was $32,503,003, thereby
resulting in an unrealized gain of $43,758.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
CORE BOND PORTFOLIO
PAR
AS OF MARCH 31, 2000 (UNAUDITED) MATURITY (000) VALUE
-------- -------- --------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 19.0%
Overseas Private Investment Co.
5.46% 02/15/06 $ 312 $ 279,372
5.79% 02/15/06 281 251,723
5.92% 12/16/06 2,101 1,979,299
6.38% 12/16/06 1,947 1,862,528
6.46% 12/16/06 210 201,504
6.53% 12/16/06 508 488,230
6.66% 12/16/06 769 726,713
6.87% 12/16/06 1,003 958,007
7.01% 12/16/06 546 524,558
7.42% 12/16/06 1,249 1,248,500
6.27% 12/06-05/12 2,750 2,619,307
5.88% 05/29/12 371 339,632
6.81% 05/29/12 396 374,692
6.84% 05/29/12 515 498,361
6.91% 05/29/12 1,057 978,686
7.35% 05/29/12 278 268,323
Small Business Administration
Participation Certificates,
Series 92-20H, Class 1
7.40% 08/01/12 183 179,963
Small Business Administration
Participation Certificates,
Series 96-20J, Class 1
7.20% 10/01/16 1,188 1,154,135
Small Business Administration
Participation Certificates,
Series 97-20B, Class 1
7.10% 02/01/17 2,199 2,124,250
Small Business Investment Cos.
Pass-Through, Series 97-P10C,
Class 1
6.85% 08/01/07 4,541 4,330,485
Small Business Investment Cos.
Pass-Through, Series 97-P10D,
Class 1
6.51% 11/10/07 733 686,456
Small Business Investment Cos.
Pass-Through, Series 98-10A,
Class 1
6.12% 02/01/08 864 790,402
Student Loan Marketing Association,
Series 97-3, Class A2
6.53%** 10/25/10 3,500 3,442,578
U.S. Treasury Bonds
8.75% 11/15/08 10,015 10,689,762
12.75% 11/15/10 13,400 17,249,127
14.00% 11/15/11 750 1,049,421
10.63% 08/15/15 1,160 1,655,003
9.25% 02/15/16 5,000 6,501,471
8.50% 02/15/20 19,325 24,360,413
8.00% 11/15/21 2,455 2,987,099
6.00% 02/15/26 5,775 5,699,830
6.38% 08/15/27 915 953,195
U.S. Treasury Bonds (CPI)
3.63% 04/15/28 21,010 20,824,307
U.S. Treasury Notes
5.88% 11/01-11/04 64,070 63,257,598
6.50% 02/28/02 19,000 19,001,877
4.75% 11/15/08 3,800 3,433,859
PAR
MATURITY (000) VALUE
-------- -------- --------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS (CONTINUED)
U.S. Treasury Notes (CPI)
3.63% 01/15/08 $ 7,400 $ 7,531,186
3.88% 04/15/29 39,150 39,871,253
--------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $251,815,209) 251,373,105
--------------
MORTGAGE PASS-THROUGHS -- 38.5%
Federal Home Loan Mortgage
Corp. Gold
7.50% 09/05-06/27 2,742 2,721,474
6.00% 03/13-07/14 21,511 20,284,730
5.50%+ 12/13-01/14 24,646 22,759,216
8.00% 11/15-10/25 307 308,913
7.00% 03/01/25 509 490,461
6.50% 04/28-01/30 147,112 138,176,634
Federal National Mortgage Association
6.10% 02/04/09 8,400 7,784,868
5.50%+ 02/09-12/14 85,303 78,665,869
6.36% 04/09/09 3,700 3,471,155
8.00% 10/09-03/23 213 213,936
6.50%+ 09/12-12/29 35,278 33,646,261
6.00% 02/13-05/29 46,301 42,972,334
7.50% 09/22-02/30 31,465 30,821,164
7.00% 02/24-10/25 3,859 3,711,780
Government National Mortgage Association
8.50% 01/10-04/17 170 174,036
7.00% 03/13-09/28 22,794 22,175,305
6.00% 11/15/14 8,596 8,114,869
9.00% 07/15/18 14 14,859
7.50% 05/23-12/29 16,243 16,111,075
6.50% 12/23-09/25 80,798 76,242,351
--------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $518,150,763) 508,861,290
--------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS -- 1.3%
Federal Home Loan Mortgage
Corp., Series 65, Class A (PO)
4.09%*** 03/15/24 955 389,186
Federal Home Loan Mortgage
Corp. Strip Notes, Series 206,
Class (PO)
7.50%*** 12/15/30 3,409 2,240,220
Federal National Mortgage Association
Strip Notes, Series 279, Class 1 (PO)
6.99%*** 07/01/26 210 157,647
Federal National Mortgage Association,
Series 96-3, Class C (PO)
5.00%*** 02/25/24 1,685 870,733
Federal National Mortgage Association,
Series 96-54, Class A (PO)
7.57%*** 04/25/21 840 699,020
Federal National Mortgage Association,
Series 97-44, Class L (PO)
4.35%*** 02/25/24 1,425 717,844
Federal National Mortgage Association,
Series 99-17, Class HJ (PO)
4.00%*** 12/25/23 705 313,505
Federal National Mortgage Association,
Series 99-17, Class JH (PO)
5.00%*** 04/25/24 1,580 739,884
Federal National Mortgage Association,
Series 99-51, Class L (PO)
5.60%*** 10/25/29 684 310,130
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
CORE BOND PORTFOLIO (CONTINUED)
PAR
AS OF MARCH 31, 2000 (UNAUDITED) MATURITY (000) VALUE
-------- -------- --------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS (CONTINUED)
Merrill Lynch Mortgage Investors, Inc.,
Series 95-C2 (IO)
7.32%*** 06/15/21 $ 37,177 $ 1,115,309
MLCC Mortgage Investors, Inc.,
Series 95-C3, Class A1
6.77%** 12/26/25 601 593,565
MLCC Mortgage Investors, Inc.,
Series 96-C1, Class A3
7.42% 04/25/28 3,000 2,995,100
Residential Accredit Loans, Inc.,
Series 97-QS7, Class A1
7.50% 07/25/27 395 393,495
Salomon Brothers Mortgage Securities
VI, Series 87-1 (IO)
7.00%*** 02/17/17 1,485 400,449
Salomon Brothers Mortgage Securities
VI, Series 87-1 (PO)
7.00%*** 02/17/17 1,550 1,185,156
Salomon Brothers Mortgage Securities
VI, Series 87-2 (IO)
6.00%*** 03/06/17 959 255,493
Salomon Brothers Mortgage Securities
VI, Series 87-2 (PO)
6.00%*** 03/06/17 959 735,010
Salomon Brothers Mortgage Securities VII,
Series 00-NL1, Class A1
6.60% 10/01/30 1,195 1,147,387
Salomon Brothers Mortgage Securities,
Series 87-3, Class A (PO)
5.00%*** 10/23/17 434 347,674
Salomon Brothers Mortgage Securities,
Series 87-3, Class B (IO)
5.00%*** 10/23/17 328 82,926
Structured Asset Securities Corp.,
Series 96-CFL, Class X1 (IO)
5.05%*** 02/25/28 16,091 829,669
--------------
TOTAL MULTIPLE CLASS MORTGAGE
PASS-THROUGHS
(Cost $15,237,356) 16,519,402
--------------
COMMERCIAL MORTGAGE BACKED
SECURITIES -- 7.5%
Allied Capital Commercial Mortgage Trust,
Series 98-1, Class A
6.31% 09/25/03 1,226 1,197,904
Capco America Securitization Corp.,
Series 98-D7, Class A1B
6.26% 09/15/08 2,700 2,471,821
Chase Commercial Mortgage Securities
Corp., Series 97-1, Class X (IO)
8.51%*** 04/19/15 41,451 2,712,350
COMM, Series 99-1, Class A2
6.46% 09/15/08 2,285 2,147,984
Credit Suisse First Boston Mortgage
Securities Corp., Series 97-C1,
Class AX (IO)
8.60%*** 04/20/22 61,205 5,000,306
Credit Suisse First Boston Mortgage
Securities Corp., Series 97-C2,
Class AX (IO)
8.32%*** 11/17/22 19,308 1,157,552
Credit Suisse First Boston Mortgage
Securities Corp., Series 00-1,
Class A4
6.63% 3/15/15 8,925 8,521,981
PAR
MATURITY (000) VALUE
-------- -------- --------------
COMMERCIAL MORTGAGE BACKED
SECURITIES (CONTINUED)
Donaldson, Lufkin and Jenrette, Inc.
Mortgage Acceptance Corp.,
Series 95-CF2, Class A1A
6.65% 12/17/27 $ 1,027 $ 1,019,777
Donaldson, Lufkin and Jenrette, Inc.
Mortgage Acceptance Corp.,
Series 96-CF2, Class A1A
6.86% 11/12/21 1,177 1,159,406
Donaldson, Lufkin and Jenrette, Inc.
Mortgage Acceptance Corp.,
Series 97-CF1, Class A1B
7.60% 04/15/07 2,000 1,996,415
First Boston Mortgage Securities Corp.,
Series 93-M1, Class A
6.75% 09/25/06 114 112,711
First Union Lehman Brothers
Commercial Mortgage 1, Series 97-C1,
Class A3
7.38% 04/18/07 10,485 10,462,463
General Motors Acceptance Corp.
Commercial Mortgage Securities, Inc.,
Series 97-C1, Class X (IO)
8.29%*** 07/15/27 54,898 4,106,465
General Motors Acceptance Corp.
Commercial Mortgage Securities, Inc.,
Series 98-C2, Class A2
6.42% 08/15/08 610 574,586
Lehman Brothers Commercial Conduit
Mortgage Trust, Series 98-C4,
Class X (IO)
1.00%*** 09/15/23 17,746 620,830
Lehman Brothers Commercial Conduit
Mortgage Trust, Series 99-C1,
Class A2
6.78% 04/15/09 4,700 4,572,091
Midland Royalty Acceptance Corp.,
Series 96-C, Class A
7.23% 01/25/29 4,050 3,996,722
Morgan Stanley Capital International,
Series 98-HF2, Class A2
6.48% 11/15/30 8,045 7,531,192
Morgan Stanley Capital International,
Series 99-FNV1, Class A2
6.53% 03/15/31 5,160 4,833,075
Mortgage Capital Funding, Inc.,
Series 98-MC3, Class A2
6.34% 11/18/31 4,870 4,512,672
Norwest Asset Securities Corp.,
Series 98-27, Class A1
6.25% 11/25/13 9,141 8,582,792
PNC Mortgage Securities Corp.,
Series 97-6, Class A1
6.49% 10/25/26 5,296 5,295,825
Structured Asset Mortgage Investments
Inc., Series 98-9, Class 2A2
6.13% 11/25/13 1,274 1,184,867
Summit Mortgage Trust, Series 00-1,
Class B1
6.14% 12/28/12 7,910 7,494,591
--------------
TOTAL COMMERCIAL MORTGAGE
BACKED SECURITIES
(Cost $94,943,065) 98,973,018
--------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
27
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
CORE BOND PORTFOLIO (CONTINUED)
PAR
AS OF MARCH 31, 2000 (UNAUDITED) MATURITY (000) VALUE
-------- -------- --------------
PROJECT LOANS -- 1.5%
Evergreen Tower II, Construction Loan
Collateral
7.38% 09/01/39 $ 916 $ 879,071
Evergreen Tower II, Construction Loan
Committment
7.38% 03/01/02 59 56,756
Federal Housing Authority,
Avon On The Green, Construction
Loan Collateral
7.75% 05/01/39 727 713,977
Federal Housing Authority, East Point
Chelsea
10.23% 05/01/33 97 102,639
10.25% 05/01/33 1,812 1,909,732
Federal Housing Authority, Merrill Lynch,
Series 97-23
7.43% 12/01/21 3,027 3,016,774
Federal Housing Authority, University
Park Apartments
7.88% 10/01/37 7,640 7,458,175
Pheasant Run Manor, Construction
Loan Collateral
6.88% 08/01/41 854 792,310
Pheasant Run Manor, Construction
Loan Committment
6.88% 08/01/01 409 379,227
Reilly 143
7.43% 03/01/19 3,721 3,719,748
Renaissance Apartments, Construction
Loan Collateral
7.50% 06/01/39 983 951,086
Renaissance Apartments, Construction
Loan Committment
7.50% 06/01/01 94 91,295
--------------
TOTAL PROJECT LOANS
(Cost $20,622,412) 20,070,790
--------------
ASSET BACKED SECURITIES -- 3.3%
Amresco Securitized Net Interest Margin
Trust, Series 96-1, Class A
8.10% 04/26/26 539 397,704
Associates Manufactured Housing
Pass-Through, Series 96-1, Class B1
8.00% 03/15/27 2,815 2,500,072
Boston Edison Company, Series 99-1,
Class A5
7.03% 03/15/12 4,600 4,463,437
Chevy Chase Auto Receivables Trust,
Series 97-2, Class A
6.35% 01/15/04 1,867 1,846,444
Chevy Chase Auto Receivables Trust,
Series 97-3, Class A
6.20% 03/20/04 691 685,321
Citibank Credit Card Master Trust I,
Series 97-6, Class A (PO)
7.61%*** 08/15/06 1,650 1,204,270
CNL Funding, Series 99-1, Class A1
7.30% 03/18/10 3,795 3,738,733
FMAC Loan Receivables Trust,
Series 97-B, Class A
6.85% 09/15/19 5,188 4,954,390
Ford Credit Auto Owner Trust,
Series 99-C, Class A4
6.08% 09/16/02 6,850 6,775,078
PAR
MATURITY (000) VALUE
-------- -------- --------------
ASSET BACKED SECURITIES (CONTINUED)
Green Tree Financial Corp.,
Series 94-B, Class A
7.85% 07/15/04 $ 53 $ 52,155
Green Tree Financial Corp.,
Series 95-A, Class A
7.25% 07/15/05 2,786 2,670,657
Green Tree Home Improvement Loan
Trust, Series 94-D, Class M
9.05% 01/15/15 402 407,618
Health Care Receivables Securitization
Program Notes, NPF VI, Series 98-1,
Class A
6.22% 06/01/02 6,800 6,651,250
Mellon Bank Home Equity Loan Trust,
Series 96-1, Class B2
6.42% ** 04/15/26 494 493,231
Mid-State Trust I, Series 1, Class A1
7.34%++ 07/01/35 3,222 3,157,367
Mid-State Trust I, Series 6, Class A4
7.79% 07/01/35 862 810,540
Pegasus Aviation Lease Securitization,
Series 99-1A, Class A1
6.30% 03/25/29 1,825 1,760,190
Puget Power Conservation Grantor Trust,
Series 97-1, Class A
6.23% 07/11/02 1,679 1,668,957
--------------
TOTAL ASSET BACKED SECURITIES
(Cost $45,468,095) 44,237,414
--------------
CORPORATE BONDS -- 16.3%
AIR TRANSPORTATION -- 0.1%
Continental Airlines
7.06% 09/15/09 965 916,750
--------------
FINANCE -- 4.0%
American General Institutional Capital
7.57% 12/01/45 1,125 1,035,000
AT&T Capital Corp.
6.25% 05/15/01 4,000 3,960,000
Chase Manhattan Bank
6.63% 08/15/05 1,190 1,151,325
Donaldson, Lufkin and Jenrette, Inc.,
7.07% 12/13/02 6,440 6,360,621
FMR Corp.
7.57% 06/15/29 3,405 3,260,287
Golden State Escrow Corp.
7.00% 08/01/03 860 792,593
IBM Credit Corp.
6.45% 11/12/02 3,540 3,485,165
Inter-American Development Bank
7.38% 01/15/10 5,600 5,704,362
J.P. Morgan & Co., Inc.
6.77%** 02/15/12 100 89,000
Lehman Brothers Holdings, Inc.
7.75% 01/15/05 4,620 4,607,872
Merrill Lynch & Co., Inc.
5.75% 11/04/02 2,445 2,355,220
MidAmerican Funding LLC
5.85% 03/01/01 4,845 4,786,036
National City Corp.
6.88% 05/15/19 2,690 2,400,784
Reliant Energy Finance Co. II
7.40% 11/15/02 2,770 2,715,723
Simon Property Group LP, Inc.
6.63% 06/15/03 4,200 4,020,114
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
28
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
CORE BOND PORTFOLIO (CONTINUED)
PAR
AS OF MARCH 31, 2000 (UNAUDITED) MATURITY (000) VALUE
-------- -------- --------------
CORPORATE BONDS (CONTINUED)
FINANCE (CONTINUED)
Wells Fargo Capital
7.73% 12/01/26 $ 2,310 $ 2,142,525
Zurich Capital Trust International
8.38% 06/01/37 3,785 3,619,406
--------------
52,486,033
--------------
INDUSTRIAL -- 4.8%
Atlantic Richfield
7.00% 04/15/38 2,255 2,177,678
Corning, Inc.
6.30% 03/01/09 3,000 2,787,960
Cox Enterprises, Inc.
6.63% 06/14/02 2,380 2,319,792
DaimlerChrysler NA Hldg.
6.67% 02/15/02 4,800 4,748,356
Dow Chemical Co.
7.38% 11/01/29 2,950 2,876,250
Enron Corp.
6.45% 11/15/01 3,000 2,951,588
Ford Motor Co.
6.38% 02/01/29 2,000 1,682,500
7.45% 07/16/31 10,115 9,805,526
General Motors Corp.
6.75% 05/01/28 4,000 3,585,000
Hyder PLC
7.38% 12/15/28 2,585 2,229,953
Jones Apparel Group, Inc.
6.25% 10/01/01 7,050 6,838,500
Monsanto Co.
6.85% 12/01/28 5,010 4,415,062
Nabisco, Inc.
6.00% 02/15/01 2,445 2,401,955
TJX Companies Inc.,
7.45% 12/15/09 2,945 2,919,231
Tyco Intl. Group SA
6.25% 06/15/03 6,340 6,037,602
Union Carbide
7.88% 04/01/23 3,365 3,363,540
Yosemite Securities Trust I
8.25% 11/15/04 2,820 2,810,625
--------------
63,951,118
--------------
INSURANCE -- 1.0%
Allstate Corp.
7.20% 12/01/09 2,695 2,604,044
Equitable Cos., Inc.
9.00% 12/15/04 3,480 3,693,150
Florida Windstorm Underwriting
Association
7.13% 02/25/19 860 804,986
Liberty Mutual Insurance Co.
7.70% 10/15/45 3,940 3,324,375
Royal & Sun Alliance Insurance
8.95% 10/15/29 2,470 2,503,518
--------------
12,930,073
MULTIMEDIA -- 0.4%
Time Warner, Inc.
6.63% 05/15/29 5,990 5,128,937
--------------
PAR
MATURITY (000) VALUE
-------- -------- --------------
CORPORATE BONDS (CONTINUED)
TELECOMMUNICATIONS -- 1.4%
AT&T Corp.
6.50% 03/15/29 $ 4,205 $ 3,655,280
Chesapeake & Potomac Telephone of
Maryland
8.30% 08/01/31 3,375 3,486,569
CSX Corp.
5.85% 12/01/03 1,460 1,377,466
Lucent Technologies, Inc.
6.45% 03/15/29 3,460 3,053,450
Sprint Capital Corp.
5.70% 11/15/03 2,800 2,653,000
U.S. West Capital Funding, Inc.
6.88% 08/01-07/28 3,890 3,764,450
--------------
17,990,215
--------------
TRANSPORTATION -- 0.3%
Federal Express Corp.
7.11% 01/02/14 3,156 2,855,962
6.72% 01/15/22 1,789 1,664,624
--------------
4,520,586
--------------
UTILITY -- 0.8%
Atlantic Richfield Co.
9.13% 03/01/11 4,960 5,673,000
Reliant Energy, Inc.
6.50% 02/01/08 4,910 4,560,162
--------------
10,233,162
--------------
YANKEE -- 3.5%
Abbey National Capital Trust I
8.96% 12/29/49 2,790 2,850,181
Avon Energy Partners Holding
7.05% 12/11/07 2,215 2,086,375
6.46% 03/04/08 5,000 4,533,700
Bank of Tokyo-Mitsubishi
8.40% 04/15/10 1,975 2,051,531
Deutsche Bank Capital Funding Trust
Investment
7.87%** 12/29/49 7,765 7,333,072
Empresa Electrica Pehuenche
7.30% 05/01/03 4,985 4,826,353
Pemex Finance Ltd.
9.14% 08/15/04 2,520 2,558,909
9.03% 02/15/11 2,450 2,523,500
Swedbank
7.50%** 09/29/49 2,800 2,545,375
9.00% 12/29/49 7,500 7,490,625
TXU Eastern Funding Co.
6.15% 05/15/02 310 300,195
United Mexican States
11.38% 09/15/16 2,395 2,811,131
Yorkshire Power Finance
6.50% 02/25/08 5,435 4,952,644
--------------
46,863,591
--------------
TOTAL CORPORATE BONDS
(Cost $220,572,272) 215,020,465
--------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
29
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
CORE BOND PORTFOLIO (CONCLUDED)
PAR/SHARES
AS OF MARCH 31, 2000 (UNAUDITED) MATURITY (000) VALUE
-------- -------- --------------
TAXABLE MUNICIPAL BONDS -- 0.6%
New Jersey Economic Development
Authority State Pension Funding Zero
Coupon Revenue Bond, Series 97-B
6.80%*** 02/15/05 $ 200 $ 141,500
7.56%*** 02/15/16 10,100 3,156,250
7.59%*** 02/15/17 3,575 1,032,281
7.21%*** 02/15/18 5,500 1,471,250
7.62%*** 02/15/20 6,265 1,433,119
7.63%*** 02/21-02/23 7,810 1,561,149
New York State Power Authority and
General Purpose Revenue Bond,
Series 98D
6.26% 02/15/03 7,100 6,904,750
--------------
TOTAL TAXABLE MUNICIPAL BONDS
(Cost $15,921,233) 15,700,299
--------------
PREFERRED STOCK -- 0.3%
Centaur Funding Corp., Cumulative 144A
9.08%
(Cost $4,150,000) 4,150 4,270,350
--------------
PUT OPTION -- 0.0%
U.S. Treasury Notes, 6.50%, 02/15/10
expiring 6/21/00
(Cost $232,984) 2,015 202,306
--------------
SHORT TERM INVESTMENTS -- 11.7%
Federal Home Loan Bank Discount Notes
6.00% 04/03/00 97,900 97,867,367
U.S. Treasury Bills
5.96% 04/18/00 50,000 49,859,277
Galileo Money Market Fund 7,071 7,071,239
--------------
TOTAL SHORT TERM INVESTMENTS
(Cost $154,797,883) 154,797,883
--------------
TOTAL INVESTMENTS IN
SECURITIES -- 100.0%
(Cost $1,341,911,273*) $1,322,319,682
==============
------------------
* Cost for Federal income tax purposes is $1,342,641,252. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 7,128,116
Gross unrealized depreciation (27,449,686)
------------
$(20,321,570)
============
** Rates shown are the rates as of March 31, 2000.
*** Rates shown are the effective yields as of March 31, 2000.
+ Partial principal in the amount of $64,706,649 has been pledged as
collateral for reverse repurchase agreements.
++ Principal amount of securities pledged as collateral of $1,498,657 on 245
long U.S. Treasury Notes futures contracts and 71 short U.S. Treasury Bonds
futures contracts expiring June 2000. The value of such contracts on March
31, 2000 was $30,937,609, thereby resulting in an unrealized gain of
$162,049.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
30
<PAGE>
BLACKROCK FUNDS
STATEMENT OF ASSETS AND LIABILITIES
CORE BOND PORTFOLIO
MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments at value (Cost $1,341,911,273) ....................... $1,322,319,682
Collateral received for securities loaned ........................ 178,981,251
Interest receivable .............................................. 12,873,313
Principal receivable ............................................. 88,666
Investments sold receivable ...................................... 34,756,386
Capital shares sold receivable ................................... 27,725
Prepaid expenses ................................................. 49,796
Futures margin receivable ........................................ 88,200
--------------
TOTAL ASSETS .............................................. 1,549,185,019
--------------
LIABILITIES
Payable upon return of securities loaned ......................... 178,981,251
Investments purchased payable .................................... 105,337,783
Reverse repurchase agreements payable ............................ 65,204,225
Capital shares redeemed payable .................................. 56,244
Distributions payable ............................................ 6,041,014
Advisory fees payable ............................................ 240,191
Administrative fees payable ...................................... 154,899
Transfer agent fees payable ...................................... 42,235
Other accrued expenses payable ................................... 42,239
--------------
TOTAL LIABILITIES ......................................... 356,100,081
--------------
NET ASSETS (Applicable to 22,215,927 BlackRock shares,
98,554,629 Institutional shares, 6,324,291 Service shares,
650,763 Investor A shares, 1,375,446 Investor B shares and
446,847 Investor C shares outstanding) ........................... $1,193,084,938
==============
NET ASSET VALUE AND REDEMPTION PRICE PER
BLACKROCK, INSTITUTIONAL, SERVICE AND
INVESTOR A SHARE ($1,176,304,892 / 127,745,610) .................. $9.21
=====
OFFERING PRICE PER BLACKROCK, INSTITUTIONAL AND SERVICE SHARE ....... $9.21
=====
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE
($9.21 / 0.960) .................................................. $9.59
=====
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 4.5%)
PER INVESTOR B SHARE ($12,664,944 / 1,375,446) ................... $9.21
=====
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 1.0%)
PER INVESTOR C SHARE ($4,115,102 / 446,847) ...................... $9.21
=====
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
31
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
GOVERNMENT INCOME PORTFOLIO
PAR
AS OF MARCH 31, 2000 (UNAUDITED) MATURITY (000) VALUE
-------- -------- ------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 8.8%
Federal National Mortgage Association
6.14% 09/10/08 $ 300 $ 279,108
Small Business Administration
Participation Certificates,
Series 96-20J, Class 1
7.20% 10/01/16 393 381,883
Small Business Administration
Participation Certificates,
Series 98-20J, Class 1
5.50% 10/01/18 231 201,688
U.S. Treasury Bonds
9.25%+ 02/15/16 1,000 1,300,294
U.S. Treasury Notes
6.50%+ 10/15/06 840 847,965
------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost $3,035,571) 3,010,938
------------
MORTGAGE PASS-THROUGHS -- 104.2%
Federal Home Loan Mortgage
Corp.
5.50% 01/01-10/11 1,830 1,690,190
7.00%++ 03/01/11 987 969,889
8.00%++ 05/12-12/26 3,096 3,124,315
6.00% 12/12-07/14 3,602 3,396,731
7.50% 11/01/25 38 37,372
6.92%** 07/01/27 361 360,913
6.50% 07/01/29 500 469,641
Federal Home Loan Mortgage
Corp. Gold
5.50% 05/01/14 500 461,673
6.50% 04/26-06/29 5,922 5,559,470
Federal National Mortgage
Association
7.00% 08/09-12/11 887 872,392
8.50% 01/01/13 780 798,042
8.00% 11/13-08/14 441 444,833
5.50% 12/13-01/14 856 787,462
6.00% 03/14-01/29 6,557 6,093,372
7.50% 06/24-04/26 715 702,983
6.50% 07/01/29 1,240 1,178,351
Government National Mortgage
Association
8.00% 04/20/13 177 178,381
6.00% 01/14-06/14 965 910,736
6.50% 11/23-06/29 5,153 4,865,530
7.50% 04/27-12/27 586 581,483
7.00% 10/27-06/28 2,254 2,186,883
------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $36,656,268) 35,670,642
------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS -- 1.8%
Federal National Mortgage Association,
Series 96-54, Class A (PO)
5.85%*** 04/25/21 201 167,026
Residential Accredit Loans, Inc.,
Series 98-D7, Class CB6
6.75% 05/25/28 193 187,685
PAR/SHARES
MATURITY (000) VALUE
-------- -------- ------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS (CONTINUED)
Salomon Brothers Mortgage Securities VI,
Series 87-1 (IO)
6.00%*** 02/17/17 $ 261 $ 70,367
Salomon Brothers Mortgage Securities VI,
Series 87-1 (PO)
6.00%*** 02/17/17 261 199,483
------------
TOTAL MULTIPLE CLASS MORTGAGE
PASS-THROUGHS
(Cost $648,215) 624,561
------------
COMMERCIAL MORTGAGE BACKED
SECURITIES -- 2.1%
Capco America Securitization Corp.,
Series 98-D7, Class A1B
6.26% 09/15/08 70 64,084
Deutsche Mortgage and Asset Receiving
Corp., Series 98-C1, Class A1
6.22% 09/15/07 109 105,119
Goldman Sachs Mortgage Securities
Corp., Series 98-1, Class A
8.00% 09/20/27 177 178,331
Goldman Sachs Mortgage Securities
Corp., Series 98-2, Class A
7.75% 05/19/27 188 187,973
Union Planters Mortgage Finance Corp.,
Series 98-1, Class A1
6.35% 01/25/28 177 174,814
------------
TOTAL COMMERCIAL MORTGAGE
BACKED SECURITIES
(Cost $727,339) 710,321
------------
PROJECT LOAN -- 0.8%
Federal Housing Authority, INSD Project,
Series 82
7.43%
(Cost $286,755) 09/01/22 279 276,994
------------
ASSET BACKED SECURITIES -- 0.8%
Chase Manhattan Grantor Trust,
Series 96-B, Class A
6.61% 09/15/02 22 22,369
The Money Store Small Business
Administration Loan Trust, Series 99-1,
Class A
6.24%** 07/15/25 277 274,297
------------
TOTAL ASSET BACKED SECURITIES
(Cost $299,685) 296,666
------------
SHORT TERM INVESTMENTS -- 0.1%
Galileo Money Market Fund
(Cost $21,421) 21 21,421
------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
32
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
GOVERNMENT INCOME PORTFOLIO (CONCLUDED)
AS OF MARCH 31, 2000 (UNAUDITED) VALUE
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $41,675,254*) 118.6% $ 40,611,543
LIABILITIES IN EXCESS OF
OTHER ASSETS (Including
$8,466,344 of investment
purchases payable) (18.6%) (6,372,549)
-------- ------------
NET ASSETS (Applicable to 578,004
Investor A shares, 2,775,205
Investor B shares and 154,669
Investor C shares outstanding) 100.0% $ 34,238,994
======== ============
NET ASSET VALUE AND REDEMPTION
PRICE PER INVESTOR A SHARE
($5,641,373 / 578,004) $ 9.76
======
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($9.76 / 0.955) $10.22
======
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE (SUBJECT TO A
CONTINGENT DEFERRED SALES CHARGE OF 4.5%)
PER INVESTOR B SHARE
($27,087,910 / 2,775,205) $ 9.76
======
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE (SUBJECT TO A
CONTINGENT DEFERRED SALES CHARGE OF 1.0%)
PER INVESTOR C SHARE
($1,509,711 / 154,669) $ 9.76
======
----------------------
* Cost for Federal income tax purposes is $42,019,293. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 91,735
Gross unrealized depreciation (1,499,485)
-----------
$(1,407,750)
===========
** Rates shown are the rates as of March 31, 2000.
*** Rates shown are the effective yields as of March 31, 2000.
+ Partial principal in the amount of $1,666,772 has been pledged as collateral
for reverse repurchase agreements.
++ Principal amount of securities pledged as collateral of $672,284 on 47 long
U.S. Treasury Notes futures contracts expiring June 2000. The value of such
contracts on March 31, 2000 was $4,609,672, thereby resulting in an
unrealized gain of $115,185.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
33
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
GNMA PORTFOLIO
PAR
AS OF MARCH 31, 2000 (UNAUDITED) MATURITY (000) VALUE
-------- -------- ------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 1.3%
Federal National Mortgage Association
6.14% 09/10/08 $ 770 $ 716,377
U.S. Treasury Notes
5.50% 05/31/03 10 9,737
4.75%+ 02/15/04 300 283,875
5.88%+ 11/15/04 595 584,494
------------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS
(Cost $1,603,020) 1,594,483
------------
MORTGAGE PASS-THROUGHS -- 95.2%
Federal Home Loan Mortgage
Corp.
5.50% 02/09-10/13 4,546 4,228,760
6.00% 07/14-06/29 5,026 4,587,012
7.50% 02/01/27 570 561,475
6.92% 07/01/27 993 992,511
6.50% 06/29-07/29 1,375 1,290,829
Federal Home Loan Mortgage
Corp. Gold
6.00% 06/01/14 688 648,637
6.50% 06/29-07/29 5,737 5,384,753
Federal National Mortgage Association
6.00% 04/11-08/29 3,482 3,231,993
7.00% 05/01/11 1,449 1,426,086
6.50% 02/13-08/29 2,182 2,068,182
5.50%+ 12/13-02/14 3,005 2,765,428
8.00% 08/01/14 1,492 1,502,554
Government National Mortgage
Association
8.00%++/+ 12/07-10/29 9,140 9,226,021
8.50% 01/17-09/21 2,418 2,479,574
9.00% 05/18-07/21 1,384 1,434,425
7.50% 01/22-11/29 18,438 18,285,167
7.00%+ 05/23-07/29 20,806 20,154,809
6.50%+ 06/23-05/29 38,110 35,976,707
------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $118,282,704) 116,244,923
------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS -- 0.4%
Residential Accredit Loans, Inc.,
Series 98-QS6, Class CB6
6.75%
(Cost $508,757) 05/25/28 514 500,494
------------
PROJECT LOANS -- 2.4%
Federal Housing Administration, Prairie
District Lofts, Construction Loan
Collateral
7.41% 12/01/38 1,393 1,340,041
Federal Housing Administration, Prairie
District Lofts, Construction Loan
Commitment
7.41% 12/01/38 92 88,498
Federal Housing Authority, INSD Project,
Series 82
7.43% 09/01/22 1,466 1,454,219
------------
TOTAL PROJECT LOANS
(Cost $2,987,210) 2,882,758
------------
PAR/SHARES
MATURITY (000) VALUE
-------- -------- ------------
ASSET BACKED SECURITY -- 0.6%
The Money Store Small Business
Administration Loan Trust,
Series 99-1, Class A
6.00%**
(Cost $832,125) 07/15/25 $ 832 $ 822,890
------------
SHORT TERM INVESTMENT -- 0.1%
Galileo Money Market Fund
(Cost $122,354) 122 122,354
------------
TOTAL INVESTMENTS IN
SECURITIES
(Cost $124,336,170*) 100.0% $122,167,902
============
REVERSE REPURCHASE AGREEMENTS -- (11.8%)
Lehman Brothers
(Agreement dated 03/15/00 to be
repurchased at $976,909.
Collateralized by $1,090,723 Federal
National Mortgage Association 5.50%
due 02/01/09. The value of the
collateral is $1,030,601.)
6.06% 04/14/00 972 (974,782)
Salomon Brothers
(Agreement dated 03/28/00 to be
repurchased at $229,929.
Collateralized by $230,000 U.S.
Treasury Notes 5.88% due 11/15/04.
The value of the collateral is $231,112.)
5.65% 04/11/00 229 (229,569)
Salomon Brothers
(Agreement dated 03/29/00 to be
repurchased at $151,731.
Collateralized by $160,000
U.S. Treasury Notes 4.75% due 02/15/04.
The value of the collateral is $152,402.)
6.05% 04/11/00 151 (151,476)
Salomon Brothers
(Agreement dated 03/27/00 to be
repurchased at $108,831.
Collateralized by $115,000
U.S. Treasury Notes 4.75% due 02/15/04.
The value of the collateral is $109,539.)
5.85% 04/13/00 109 (108,619)
Salomon Brothers
(Agreement dated 02/14/00 to be
repurchased at $7,822,921.
Collateralized by $8,169,614
Government National Mortgage Association
7.00-8.00% due 03/20/24 to 08/20/25.
The value of the collateral
is $8,048,612.)
5.88% 04/14/00 7,747 (7,806,471)
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
34
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
GNMA PORTFOLIO (CONCLUDED)
PAR
AS OF MARCH 31, 2000 (UNAUDITED) MATURITY (000) VALUE
-------- -------- ------------
REVERSE REPURCHASE AGREEMENTS (CONTINUED)
Salomon Brothers
(Agreement dated 03/23/00 to be
repurchased at $2,900,515.
Collateralized by $3,173,164
Government National Mortgage
Association 6.50% due 10/15/24.
The value of the collateral is
$3,014,837.)
6.05% 04/24/00 $ 2,885 $ (2,889,364)
------------
TOTAL REVERSE REPURCHASE AGREEMENTS
(Cost $12,093,356) $(12,160,281)
============
----------------------
* Cost for Federal income tax purposes is $124,576,761. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 490,604
Gross unrealized depreciation (2,899,463)
-----------
$(2,408,859)
===========
** Rates shown are the rates as of March 31, 2000.
+ Partial principal in the amount of $12,938,501 has been pledged as
collateral for reverse repurchase agreements.
++ Principal amount of securities pledged as collateral of $2,206,426 on 95
short U.S. Treasury Notes futures contracts expiring June 2000. The value of
such contracts on March 31, 2000 was $9,344,000, thereby resulting in an
unrealized loss of $186,508.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
35
<PAGE>
BLACKROCK FUNDS
STATEMENT OF ASSETS AND LIABILITIES
GNMA PORTFOLIO
MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments at value (Cost $124,336,170) ................................. $122,167,902
Collateral received for securities loaned ................................ 374,125
Interest receivable ...................................................... 730,203
Principal receivable ..................................................... 17,603
Investments sold receivable .............................................. 7,056,875
Prepaid expenses ......................................................... 55,053
------------
TOTAL ASSETS ...................................................... 130,401,761
------------
LIABILITIES
Payable upon return of securities loaned ................................. 374,125
Investments purchased payable ............................................ 14,198,689
Distributions payable .................................................... 577,335
Administrative fees payable .............................................. 20,090
Transfer agent fees payable .............................................. 4,362
Reverse repurchase agreements payable .................................... 12,160,281
Futures margin payable ................................................... 16,599
------------
TOTAL LIABILITIES ................................................. 27,351,481
------------
NET ASSETS (Applicable to 10,614,690 Institutional shares, 20,660
Service shares, 175,878 Investor A shares, 31,593 Investor B shares
and 5,296 Investor C shares outstanding) ................................. $103,050,280
============
NET ASSET VALUE AND REDEMPTION PRICE PER INSTITUTIONAL, SERVICE
AND INVESTOR A SHARE ($102,699,875 / 10,811,228) ....................... $9.50
=====
OFFERING PRICE PER INSTITUTIONAL AND SERVICE SHARE .......................... $9.50
=====
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE
($9.50 / 0.96) ........................................................... $9.90
=====
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 4.5%)
PER INVESTOR B SHARE ($300,101 / 31,593) ................................. $9.50
=====
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 1.0%)
PER INVESTOR C SHARE ($50,304 / 5,296) ................................... $9.50
=====
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
36
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
MANAGED INCOME PORTFOLIO
PAR
AS OF MARCH 31, 2000 (UNAUDITED) MATURITY (000) VALUE
-------- -------- --------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 15.3%
Overseas Private Investment Co.
6.84% 02/15/05 $ 726 $ 702,235
6.46% 12/06/06 175 167,920
5.92% 12/16/06 1,751 1,649,416
6.38% 12/16/06 1,622 1,552,107
6.53% 12/16/06 423 406,859
6.66% 12/16/06 923 872,056
6.87% 12/16/06 836 798,339
7.01% 12/16/06 656 629,469
7.42% 12/16/06 1,498 1,498,200
6.27% 12/06-05/12 3,352 3,192,539
5.46% 05/29/12 439 393,660
5.79% 05/29/12 396 354,701
5.88% 05/29/12 523 478,623
6.81% 05/29/12 558 527,975
6.91% 05/29/12 1,489 1,379,057
7.35% 05/29/12 391 378,091
Small Business Administration
Participation Certificates,
Series 96-20B, Class 1
6.38% 02/01/16 5,940 5,502,939
Small Business Administration
Participation Certificates,
Series 96-20K, Class 1
6.95% 11/10/16 8,572 8,209,646
Small Business Administration
Participation Certificates,
Series 97, Class A
6.35%** 08/15/22 2,888 2,863,211
Small Business Administration
Participation Certificates,
Series 97-20B, Class 1
7.10% 02/01/17 6,786 6,554,830
Small Business Administration
Participation Certificates,
Series 97-20F, Class 1
7.20% 06/01/17 2,000 1,943,723
Small Business Administration
Participation Certificates,
Series 97-20G, Class 1
6.85% 07/01/17 11,715 11,150,352
Student Loan Marketing Association,
Series 97-3, Class A2
6.53%** 10/25/10 6,300 6,196,641
U.S. Treasury Bonds
8.75% 11/15/08 15,180 16,202,754
12.75% 11/15/10 8,725 11,231,241
14.00% 11/15/11 13,800 19,309,341
12.50% 08/15/14 820 1,163,913
11.25% 02/15/15 6,350 9,378,335
10.63% 08/15/15 5,560 7,932,603
9.25% 02/15/16 6,530 8,490,921
8.50% 02/15/20 17,649 22,247,706
U.S. Treasury Bonds (CPI)
3.63% 04/15/28 38,565 38,224,150
3.88% 04/15/29 44,500 45,319,815
U.S. Treasury Notes
5.88% 11/15/04 27,190 26,709,890
4.75% 11/15/08 9,525 8,607,240
U.S. Treasury Notes (CPI)
3.63% 01/15/08 12,625 12,848,815
--------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost $286,564,723) 285,069,313
--------------
PAR
MATURITY (000) VALUE
-------- -------- --------------
MORTGAGE PASS-THROUGHS -- 45.4%
Federal Home Loan Mortgage Corp.
9.00%** 07/01/01 $ 19 $ 20,123
7.50%** 12/06-10/27 11,578 11,543,452
5.27%** 10/15/07 4,396 3,962,872
6.50%** 03/09-04/30 63,143 59,497,925
6.45%** 04/29/09 9,750 9,074,617
6.00%** 11/12-07/14 1,622 1,529,722
7.00%** 05/26-12/26 21,582 20,766,101
Federal Home Loan Mortgage
Corp. Gold
6.50% 12/11-02/30 95,362 89,585,165
6.00% 05/01/14 2,463 2,323,047
Federal National Mortgage Association
9.50% 03/01/05 12 12,781
6.80% 07/23/07 12,025 11,652,225
7.00% 06/08-05/26 6,183 5,985,226
6.04% 02/25/09 26,800 24,784,908
6.36% 04/09/09 5,000 4,690,750
8.00% 08/01/09 3,565 3,567,580
6.50% 02/11-01/29 42,716 40,282,893
6.00%+ 02/13-08/29 119,368 110,901,594
5.50%+ 09/13-06/24 256,763 236,302,401
8.50% 08/01/14 2,036 2,051,636
7.50% 08/29-02/30 38,925 38,116,351
Federal National Mortgage Association
10 Year Balloon
6.00% 12/01/03 2,734 2,612,891
Government National Mortgage
Association
8.20% 04/12-05/13 605 621,408
9.50% 09/16-10/17 176 184,490
8.50% 01/17-11/21 352 360,946
9.00% 03/18-11/20 679 703,889
8.00% 02/22-03/26 1,830 1,851,572
7.50% 04/23-12/29 65,666 65,139,030
6.50% 11/23-12/27 63,476 59,905,191
7.00% 02/26-09/28 21,272 20,633,565
Government National Mortgage
Association II
9.50% 05/17-12/24 589 610,750
7.50% 01/29-09/29 1,680 1,666,376
MLCC Mortgage Investors, Inc.,
Series 95-C, Class D
7.91%** 05/25/15 3,506 3,491,122
MLCC Mortgage Investors, Inc.,
Series 96-C1, Class A2
7.24% 04/25/28 7,113 7,052,027
MLCC Mortgage Investors, Inc.,
Series 96-C1, Class A3
7.42% 04/25/28 5,500 5,491,017
--------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $874,523,987) 846,975,643
--------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS -- 0.7%
Federal Home Loan Mortgage
Corp., Series 65,
Class A (PO)
4.09%*** 03/15/24 2,585 1,053,450
Federal Home Loan Mortgage
Corp. Strip Notes,
Series 206, Class (PO)
5.68%*** 12/15/30 5,167 3,395,782
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
37
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
MANAGED INCOME PORTFOLIO (CONTINUED)
PAR
AS OF MARCH 31, 2000 (UNAUDITED) MATURITY (000) VALUE
-------- -------- --------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS (CONTINUED)
Federal National Mortgage Association
Strip Notes, Series 279, Class 1 (PO)
6.00%*** 07/01/26 $ 515 $ 386,487
Federal National Mortgage Association,
Series 96-3, Class C (PO)
5.00%*** 02/25/24 1,693 875,187
Federal National Mortgage Association,
Series 97-44, Class L (PO)
4.35%*** 02/25/24 2,259 1,137,810
Federal National Mortgage Association,
Series 99-17, Class HJ (PO)
5.00%*** 12/25/23 1,850 822,672
Federal National Mortgage Association,
Series 99-17, Class JH (PO)
5.00%*** 04/25/24 1,630 763,298
Federal National Mortgage Association,
Series 99-51, Class L (PO)
5.00%*** 10/25/29 1,417 642,061
Merrill Lynch Mortgage Investors, Inc.,
Series 95-C2 (IO)
10.40%*** 06/15/21 54,665 1,639,940
Merrill Lynch Mortgage Investors, Inc.,
Series 97-C1, Class A3
7.12% 06/18/29 1,000 978,777
Residential Accredit Loans, Inc.,
Series 97-QS7, Class A1
7.50% 07/25/27 464 462,086
--------------
TOTAL MULTIPLE CLASS MORTGAGE
PASS-THROUGHS
(Cost $12,656,223) 12,157,550
--------------
COMMERCIAL MORTGAGE BACKED
SECURITIES -- 4.4%
Capco America Securitization Corp.,
Series 98-D7, Class A1B
6.26% 09/15/08 3,340 3,057,734
COMM, Series 99-1, Class A2
6.46% 09/15/08 7,833 7,363,469
Commercial Capital Access One,
Series 98-3, Class A1
6.30% 11/15/28 6,306 5,984,103
Deutsche Mortgage and Asset
Receiving Corp., Series 98-C1,
Class A2
6.54% 02/15/08 3,000 2,804,539
FFCA Secured Lending Corp.,
Series 98-1, Class A1B
6.73% 07/18/13 8,246 7,701,147
Lehman Brothers Commercial Conduit
Mortgage Trust, Series 98-C1,
Class A3
6.48% 01/18/08 1,490 1,405,303
Midland Royalty Acceptance Corp.,
Series 96-C, Class A
7.23% 01/25/29 6,200 6,118,439
Morgan Stanley Capital International, Inc.,
Series 99-RM1, Class A2
6.71% 12/15/31 7,613 7,394,824
Mortgage Capital Funding, Inc.,
Series 98-MC3, Class A2
6.34% 11/18/31 1,000 926,627
PAR
MATURITY (000) VALUE
-------- -------- --------------
COMMERCIAL MORTGAGE BACKED
SECURITIES (CONTINUED)
Norwest Asset Securities Corp.,
Series 98-27, Class A1
6.25% 11/25/13 $ 13,813 $ 12,968,825
Prudential Securities Secured Financing
Corp., Series 98-C1, Class A1B
6.51% 07/15/08 9,145 8,706,436
Summit Mortgage Trust, Series 00-1,
Class B1
6.14% 12/28/12 9,185 8,702,356
Union Planters Mortgage Finance Corp.,
Series 98-1, Class A3
6.60% 01/25/28 9,094 8,741,127
USGI, Series 87
7.43% 12/01/22 892 879,923
--------------
TOTAL COMMERCIAL MORTGAGE
BACKED SECURITIES
(Cost $84,765,035) 82,754,852
--------------
PROJECT LOANS -- 2.2%
Federal Housing Authority,
Elmwood Manor
9.75% 03/01/32 846 858,067
Federal Housing Authority, Lakeland
Nursing
7.88% 12/01/34 11,744 11,509,120
Federal Housing Authority, Meadowbrook
of Topeka
8.50% 08/01/22 1,644 1,631,392
Federal Housing Authority, Ponds at
Punaluu
7.63% 04/01/37 284 284,380
Federal Housing Authority, Riverwalk
8.22% 06/01/36 1,556 1,542,170
Federal Housing Authority, University
Park Apartments
7.88% 10/01/37 4,487 4,380,198
Federal Housing Authority, Washington
PC94, Non-Public
6.90% 02/01/14 888 830,984
Federal Housing Authority, Whittier
Rehab at Westborough
8.13% 02/28/37 7,102 7,018,160
Meadows II Apartments, Construction
Loan Collateral
7.00% 12/01/39 3,354 3,154,649
Meadows II Apartments, Construction
Loan Commitment
7.00% 12/01/00 509 478,940
Quabbin Valley Healthcare, Construction
Loan Collateral
7.66% 06/01/39 933 901,778
Quabbin Valley Healthcare, Construction
Loan Commitment
7.66% 03/08/02 39 38,095
Whittier Rehab at Haverhill,
Construction Loan Collateral
7.60% 12/01/39 8,667 8,340,125
Whittier Rehab at Haverhill, Construction
Loan Commitment
7.60% 11/01/00 512 492,489
--------------
TOTAL PROJECT LOANS
(Cost $42,896,168) 41,460,547
--------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
38
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
MANAGED INCOME PORTFOLIO (CONTINUED)
PAR
AS OF MARCH 31, 2000 (UNAUDITED) MATURITY (000) VALUE
-------- -------- --------------
ASSET BACKED SECURITIES -- 7.8%
ACLC Business Loan Receivables Trust,
Series 98-1, Class A1
6.44% 07/15/13 $ 10,367 $ 9,729,013
Arcadia Automobile Receivables Trust,
Series 98-C, Class A2
5.38%** 02/15/02 440 439,103
Associates Manufactured Housing
Pass-Through, Series 96-1, Class B1
8.00% 03/15/27 3,200 2,842,000
Boston Edison Company, Series 99-1,
Class A5
7.03% 03/15/12 7,800 7,568,438
Chase Credit Card Master Trust,
Series 97-5, Class A
6.19%++ 08/15/05 12,430 12,171,207
CNL Funding, Series 99-1, Class A1
7.30% 03/18/10 4,994 4,920,655
Daimler-Benz Auto Grantor Trust,
Series 97-A, Class A
6.05%** 03/31/05 1,235 1,223,811
Equicon Home Equity Loan Trust,
Series 93-1, Class I (IO)
7.00%*** 02/18/13 5,098 6,372
Fifth Third Auto Grantor Trust,
Series 96-B, Class A
6.45% 03/15/02 207 207,100
FMAC Loan Receivables Trust,
Series 97-B, Class A
6.85% 09/15/19 5,995 5,724,357
FMAC Loan Receivables Trust,
Series 97-C, Class A
6.75% 12/15/19 2,311 2,199,002
Ford Credit Auto Owner Trust,
Series 99-C, Class A4
6.08% 09/16/02 11,100 10,978,594
Green Tree Financial Corp.,
Series 94-B, Class A
7.85% 07/15/04 562 548,148
Green Tree Financial Corp.,
Series 95-A, Class A
7.25% 07/15/05 2,616 2,507,659
Green Tree Financial Corp.,
Series 96-5, Class A7
8.25% 07/15/27 5,534 5,729,286
Green Tree Financial Corp.,
Series 96-7, Class A6
7.65% 10/15/27 9,025 9,001,027
Green Tree Home Improvement Loan
Trust, Series 94-D, Class M
9.05% 01/15/15 287 291,156
Green Tree Home Improvement Loan
Trust, Series 96-C, Class HIB1
7.75% 06/15/21 5,029 4,969,720
Green Tree Home Improvement Loan
Trust, Series 97-A, Class HEM2
7.90% 03/15/28 5,150 4,335,656
Health Care Receivables Securitization
Program Notes, NPF VI, Series 98-1,
Class A
6.22% 06/01/02 13,800 13,498,125
Keycorp Student Loan Trust, Series 95-B,
Class A
6.36%** 09/27/24 6,949 6,946,661
Mellon Bank Home Equity Loan Trust,
Series 96-1, Class B2
6.42%** 04/15/26 475 474,261
PAR
MATURITY (000) VALUE
-------- -------- --------------
ASSET BACKED SECURITIES (CONTINUED)
Newcourt Equipment Trust Securities,
Series 98-2, Class A3
5.45% 10/15/02 $ 13,094 $ 12,914,214
Puget Power Conservation Grantor Trust,
Series 97-1, Class A
6.23% 07/11/02 4,759 4,729,894
Railcar Leasing LLC, Series 97-1,
Class A1
6.75% 07/15/06 10,185 9,966,287
Sears Credit Account Master Trust,
Series 95-5, Class A
6.05% 01/15/08 2,932 2,856,242
The Money Store Business Loan Backed
Securities, Series 97-1, Class A
6.40%** 04/15/28 5,556 5,578,429
The Money Store Home Equity Trust,
Series 97-C, Class MH2
7.36% 02/15/24 2,775 2,469,299
Toyota Auto Receivables Owner Trust,
Series 99-A, Class A3
6.15% 08/16/04 225 222,152
--------------
TOTAL ASSET BACKED SECURITIES
(Cost $149,450,326) 145,047,868
--------------
CORPORATE BONDS -- 15.7%
AEROSPACE -- 0.3%
Lockheed Martin Corp.
8.50% 12/01/29 5,840 5,851,806
--------------
AIR TRANSPORTATION -- 0.1%
Continental Airlines
7.06% 03/15/11 2,045 1,942,750
--------------
FINANCE -- 6.9%
Allmerica Financial Corp.
7.63% 10/15/25 1,640 1,526,645
American General Institutional Capital
7.57% 12/01/45 7,555 6,950,600
8.13% 03/15/46 2,800 2,744,000
Chrysler Corp.
7.45% 03/01/27 5,125 5,020,380
CSW Investments
6.95% 08/01/01 7,705 7,658,616
Dana Credit Corp.
7.25% 12/16/02 4,620 4,573,169
Donaldson, Lufkin and Jenrette, Inc.
7.07% 12/13/02 10,250 10,123,660
FMR Corp.
7.57% 06/15/29 3,455 3,308,163
Golden State Escrow Corp.
7.00% 08/01/03 10,300 9,492,686
Goldman Sachs Group L.P.
6.25% 02/01/03 6,030 5,838,495
6.65% 05/15/09 4,665 4,311,365
Great Western Finance
8.21% 02/01/27 5,000 4,837,500
Inter-American Development Bank
7.38% 01/15/10 8,600 8,760,270
Larwin Group - Participation in Asset
Exchange
8.00% 12/01/09 13 12,515
Lehman Brothers Holdings, Inc.
7.75% 01/15/05 1,630 1,625,721
7.38% 05/15/07 1,500 1,500,000
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
39
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
MANAGED INCOME PORTFOLIO (CONTINUED)
PAR
AS OF MARCH 31, 2000 (UNAUDITED) MATURITY (000) VALUE
-------- -------- --------------
CORPORATE BONDS (CONTINUED)
FINANCE (CONTINUED)
Limestone Electron Trust, Sr. Notes,
Series 144A
8.63% 03/15/03 $ 8,000 $ 8,038,709
Merrill Lynch & Co., Inc.
5.75% 11/04/02 5,165 4,975,341
MidAmerican Funding, LLC
6.93% 03/01/29 8,050 7,142,282
Morgan Stanley Dean Witter & Co.,
7.13% 01/15/03 9,410 9,349,514
National City Corp.
6.88% 05/15/19 1,670 1,490,450
Paine Webber Group, Inc.
6.38% 05/15/04 2,565 2,430,688
Provident Companies, Inc.
7.41% 03/15/38 4,430 3,452,936
Riggs Capital Trust
8.63% 12/31/26 400 346,000
Riggs Capital Trust II Preferred Securities,
Series C
8.88% 03/15/27 2,000 1,769,469
Washington Mutual Capital, Inc.
8.38% 06/01/27 1,250 1,225,000
Wells Fargo Capital
7.73% 12/01/26 3,490 3,236,975
Zurich Capital Trust I
8.38% 06/01/37 7,090 6,779,813
--------------
128,520,962
--------------
INDUSTRIAL -- 3.3%
Atlantic Richfield
9.88% 03/01/16 4,885 5,965,806
DaimlerChrysler North America Holdings
6.90% 09/01/04 1,700 1,674,500
Dayton Hudson Corp.
5.95% 06/15/00 3,400 3,394,934
Dow Chemical Co.
7.38% 11/01/29 7,760 7,566,000
Ford Motor Co.
7.45% 07/16/31 14,920 14,463,514
General Motors
8.80% 03/01/21 3,000 3,337,500
Hyder PLC
6.75% 12/15/04 6,500 6,180,265
Monsanto Co.
6.50% 12/01/18 2,080 1,847,040
Saga Petroleum ASA Debs.
7.25% 09/23/27 4,880 4,568,900
Tyco Intl. Group Corp., S.A.
5.88% 11/01/04 2,910 2,713,575
Union Carbide
7.88% 04/01/23 5,345 5,342,681
Yosemite Securities Trust I
8.25% 11/15/04 4,550 4,534,873
--------------
61,589,588
--------------
PAR
MATURITY (000) VALUE
-------- -------- --------------
CORPORATE BONDS (CONTINUED)
INSURANCE -- 1.2%
AFC Capital Trust I
8.21% 02/03/27 $ 5,850 $ 5,534,368
Equitable Cos., Inc.
9.00% 12/15/04 5,555 5,895,244
Florida Windstorm Underwriting
Association
7.13% 02/25/19 5,715 5,349,411
Liberty Mutual Insurance Co.
7.88% 10/15/26 1,700 1,557,625
7.70% 10/15/47 5,490 4,632,188
--------------
22,968,836
--------------
TELECOMMUNICATIONS -- 1.0%
AT&T Corp.
6.50% 03/15/29 5,545 4,820,102
Time Warner, Inc.
9.13% 01/15/13 2,075 2,281,121
6.63% 05/15/29 5,140 4,401,125
US West Capital Funding, Inc.
6.88% 07/15/28 3,070 2,701,600
US West Communications
7.20% 11/01/04 4,160 4,128,800
--------------
18,332,748
--------------
TRANSPORTATION -- 0.1%
Federal Express Corp.
6.72% 01/15/22 2,966 2,759,172
--------------
YANKEE -- 2.8%
Abbey National Capital Trust I
8.96% 12/29/49 5,940 6,068,127
Avon Energy Partners Holdings
6.73% 12/11/02 1,100 1,080,750
Bank of Tokyo-Mitsubishi
8.40% 04/15/10 2,925 3,038,344
Empresa Electrica Pehuenche
7.30%** 05/01/03 11,000 10,649,926
Israel Electric Corp. Ltd.
7.13% 07/15/05 1,915 1,857,224
Pemex Finance Ltd.
9.14% 08/15/04 4,410 4,478,090
9.03% 02/15/11 7,060 7,271,800
Province of Manitoba
7.50% 02/22/10 3,250 3,301,643
Sun Life Canada Capital Trust
8.53% 05/29/49 3,050 2,832,688
TXU Eastern Funding Co.
6.15% 05/15/02 4,345 4,207,565
United Mexican States
11.38% 09/15/16 3,535 4,149,206
Yorkshire Power Finance
6.50% 02/25/08 2,350 2,141,438
--------------
51,076,801
--------------
TOTAL CORPORATE BONDS
(Cost $298,964,336) 293,042,663
--------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
40
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
MANAGED INCOME PORTFOLIO (CONCLUDED)
PAR/SHARES
AS OF MARCH 31, 2000 (UNAUDITED) MATURITY (000) VALUE
-------- -------- ------------
TAXABLE MUNICIPAL BONDS -- 0.6%
Los Angeles County Pension Obligation
Revenue Bond, Series 95D
6.97% 06/30/08 $ 7,355 $ 7,186,128
New Jersey Economic Development
Authority State Pension Funding Zero
Coupon Revenue Bond, Series 97-B
7.51%*** 02/16-02/17 2,175 666,031
7.21%*** 02/15/18 14,500 3,878,750
7.48%*** 02/20-02/22 1,600 340,738
7.47%*** 02/15/23 225 41,063
--------------
TOTAL TAXABLE MUNICIPAL BONDS
(Cost $13,243,177) 12,112,710
--------------
PREFERRED STOCK -- 0.5%
Centaur Funding Corp.,
Cumulative 144A
9.08%
(Cost $8,000,000) 8,000 8,232,000
--------------
PUT OPTION -- 0.0%
U.S. Treasury Notes, 6.50%, 2/15/10
expiring 06/21/00
(Cost $292,242) 2,528 253,761
--------------
SHORT TERM INVESTMENTS -- 7.4%
Federal Home Loan Bank
Discount Notes
5.60% 04/03/00 28,800 28,791,040
6.00% 04/03/00 100,900 100,866,367
Galileo Money Market Fund 7,059 7,059,447
--------------
TOTAL SHORT TERM INVESTMENTS
(Cost $136,716,854) 136,716,854
--------------
TOTAL INVESTMENTS IN
SECURITIES -- 100.0%
(Cost $1,908,073,071*) $1,863,823,761
==============
------------------------
* Cost for Federal income tax purposes is $1,911,419,206. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 8,920,132
Gross unrealized depreciation (56,515,577)
------------
$(47,595,445)
============
** Rates shown are the rates as of March 31, 2000.
*** Rates shown are the effective yields as of March 31,2000.
+ Partial principal in the amount of $116,246,824 has been pledged as
collateral for reverse repurchase agreements.
++ Principal amount of securities pledged as collateral of $6,900,000 on 106
long U.S. Treasury Bonds futures contracts and 756 short U.S. Treasury Notes
futures contracts expiring June 2000. The value of such contracts on March
31, 2000 was $84,322,438, thereby resulting in an unrealized loss of
$1,553,936.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
41
<PAGE>
BLACKROCK FUNDS
STATEMENT OF ASSETS AND LIABILITIES
MANAGED INCOME PORTFOLIO
MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments at value (Cost $1,908,073,071) ............................... $1,863,823,761
Collateral received for securities loaned ................................ 101,289,780
Interest receivable ...................................................... 17,380,113
Principal receivable ..................................................... 1,858
Investments sold receivable .............................................. 2,968,026
Capital shares sold receivable ........................................... 199,297
Prepaid expenses ......................................................... 21,828
Futures margin receivable ................................................ 68,381
--------------
TOTAL ASSETS ...................................................... 1,985,753,044
--------------
LIABILITIES
Payable upon return of securities loaned ................................. 101,289,780
Investments purchased payable ............................................ 135,813,015
Capital shares redeemed payable .......................................... 176,622
Distributions payable .................................................... 8,696,855
Advisory fees payable .................................................... 532,050
Administrative fees payable .............................................. 299,704
Transfer agent fees payable .............................................. 41,410
Other accrued expenses payable ........................................... 187,383
Deferred dollar roll income .............................................. 23,398
Reverse repurchase agreements payable .................................... 104,366,867
Futures margin payable ................................................... 29,562
--------------
TOTAL LIABILITIES ................................................. 351,456,646
--------------
NET ASSETS (Applicable to 133,026,773 Institutional shares, 32,483,463
Service shares, 1,514,704 Investor A shares, 520,344 Investor B shares
and 1,034 Investor C shares outstanding) ................................. $1,634,296,398
==============
NET ASSET VALUE AND REDEMPTION PRICE PER INSTITUTIONAL, SERVICE
AND INVESTOR A SHARE ($1,629,210,535 / 167,024,940) .................... $ 9.75
======
OFFERING PRICE PER INSTITUTIONAL AND SERVICE SHARE .......................... $ 9.75
======
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE
($9.75 / 0.955) .......................................................... $10.21
======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 4.5%)
PER INVESTOR B SHARE ($5,075,786 / 520,344) .............................. $ 9.75
======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 4.5%)
PER INVESTOR C SHARE ($10,077 / 1,034) ................................... $ 9.75
======
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
42
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
INTERNATIONAL BOND PORTFOLIO
PAR**
AS OF MARCH 31, 2000 (UNAUDITED) MATURITY (000) VALUE
-------- -------- -----------
FOREIGN BONDS -- 85.9%
BELGIUM -- 4.0%
Kingdom of Belgium
9.00% 03/28/03 $ 3,000 $ 3,199,020
-----------
CANADA -- 1.6%
Canada Trust Company Mortgage
5.63% 01/01/02 1,839 1,251,031
-----------
DENMARK -- 2.6%
Kingdom of Denmark
8.00% 05/03-03/06 15,000 2,112,771
-----------
FRANCE -- 1.8%
Government of France
5.50% 10/25/07 1,524 1,483,543
-----------
GERMANY -- 12.6%
Bundesobligation 126
4.50% 02/18/03 5,490 5,233,274
Bundesrepublic Deutschland
6.25% 01/04/30 2,500 2,599,826
Deutsche Telekom International Financial
5.25% 05/20/08 0 1
Deutschland Republic
6.25% 04/26/06 1,410 1,431,358
Dresdner Funding Trust II
5.79% 06/30/11 1,000 864,918
-----------
10,129,377
-----------
ITALY -- 4.4%
Buoni Poliennali del Tes
6.75% 07/01/07 1,549 1,605,008
Tecnost International
5.62%** 06/23/04 2,000 1,962,452
-----------
3,567,460
-----------
JAPAN -- 9.0%
Japan Government
0.90% 12/22/08 610,000 5,473,435
2.40% 03/20/20 175,000 1,749,914
-----------
7,223,349
-----------
NETHERLANDS -- 4.0%
Government of Netherlands
5.50% 01/15/28 3,409 3,186,957
-----------
NEW ZEALAND -- 11.1%
New Zealand Government
10.00% 03/15/02 12,000 6,283,931
5.50% 04/15/03 5,500 2,618,369
-----------
8,902,300
-----------
NORWAY -- 4.2%
Norwegian Government
5.50% 05/15/09 30,000 3,402,680
-----------
SOUTH AFRICA -- 2.9%
Republic of South Africa
13.00% 08/31/10 16,500 2,372,029
-----------
SPAIN -- 4.1%
Bonos y Oblig del Estado
3.25% 01/31/05 3,750 3,317,362
-----------
PAR**
MATURITY (000) VALUE
-------- -------- -----------
FOREIGN BONDS (CONTINUED)
SWEDEN -- 11.2%
AB Spintab
8.50% 12/19/01 $ 25,000 $ 3,040,795
Statens Bostadsfinansier
9.00% 06/15/01 25,000 3,021,177
Swedish Government
6.00% 02/09/05 25,000 2,978,006
-----------
9,039,978
-----------
UNITED KINGDOM -- 12.4%
Abbey National Treasury Services
8.00% 04/02/03 600 981,540
Bayerische Landesbank Girozentrale
7.88% 12/07/06 1,100 1,856,873
Federal National Mortgage Association
Global Bond
6.88%++ 06/07/02 2,500 3,988,649
Halifax Building Society PLC
6.50% 02/16/04 450 708,804
OTE PLC
6.13% 02/07/07 2,500 2,412,996
-----------
9,948,862
-----------
TOTAL FOREIGN BONDS
(Cost $72,193,575) 69,136,719
-----------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 0.2%
U.S. Treasury Notes
6.50%
(Cost $164,038) 10/15/06 160 161,517
-----------
ASSET BACKED SECURITIES -- 7.3%
Chase Manhattan Grantor Trust,
Series 96-B, Class A
6.61% 09/15/02 1,625 1,625,116
First USA Credit Card Master Trust,
Series 95-2, Class A
6.24%** 04/17/00 3,000 3,008,437
Sears Credit Account Master Trust,
Series 94-1, Class A
7.00% 01/15/04 1,250 1,249,297
-----------
TOTAL ASSET BACKED SECURITIES
(Cost $5,885,561) 5,882,850
-----------
CORPORATE BOND -- 3.6%
Ford Motor Credit Co.
6.70%
(Cost $2,995,674) 07/16/04 3,000 2,913,750
-----------
SHORT TERM INVESTMENT -- 4.8%
Federal Home Loan Bank Discount Notes
6.00%
(Cost $3,798,733) 04/03/00 3,800 3,798,733
-----------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
43
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
INTERNATIONAL BOND PORTFOLIO (CONCLUDED)
AS OF MARCH 31, 2000 (UNAUDITED) VALUE
-----------
TOTAL INVESTMENTS IN SECURITIES
(Cost $85,037,581*) 101.8%$81,893,569
LIABILITIES IN EXCESS OF
OTHER ASSETS (1.8%) (1,445,327)
------ -----------
NET ASSETS (Applicable to 6,495,367
Institutional shares, 344,825
Service shares, 352,166
Investor A shares, 270,926
Investor B shares and 208,117
Investor C shares
outstanding) 100.0% $80,448,242
====== ===========
NET ASSET VALUE AND REDEMPTION
PRICE PER INSTITUTIONAL, SERVICE
AND INVESTOR A SHARE
($75,424,137 / 7,192,358) $10.49
======
OFFERING PRICE PER INSTITUTIONAL
AND SERVICE SHARE $10.49
======
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($10.49 / 0.950) $11.04
======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(SUBJECT TO A CONTINGENT DEFERRED
SALES CHARGE OF 4.5%) PER
INVESTOR B SHARE
($2,841,513 / 270,926) $10.49
======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE (SUBJECT TO
A CONTINGENT DEFERRED SALES CHARGE
OF 1.0%) PER INVESTOR C SHARE
($2,182,592 / 208,117) $10.49
======
---------------------
* Also cost for Federal income tax purposes. The gross unrealized appreciation
(depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 701,369
Gross unrealized depreciation (3,845,381)
-----------
$(3,144,012)
===========
** In local currency.
++ Principal amount of securities pledged as collateral of $1,000,000 on 9 long
Japanese Notes Futures Contracts expiring June 2000. The value of such
contracts on March 31, 2000 was $11,550,849, thereby resulting in an
unrealized gain of $81,105.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
44
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
HIGH YIELD BOND PORTFOLIO
NUMBER
AS OF MARCH 31, 2000 (UNAUDITED) OF SHARES VALUE
--------- ------------
COMMON STOCKS -- 1.4%
Completel Europe NV 28,000 $ 558,250
Nextel Partners, Inc., Class A 30,000 870,000
------------
TOTAL COMMON STOCKS
(Cost $1,229,607) 1,428,250
------------
PREFERRED STOCK -- 6.4%
Adelphia Business Solutions, Inc.,
Series B (PIK) 12.875% 3,442 3,390,518
Key Energy Services, Inc. Warrants 1,000 9,000
Nextel Communications, Inc., Cumulative
Series E (PIK) 11.125% 2,285 2,216,444
Nextlink Communications, Inc.
(PIK) 14.00% 1,139 57,813
R&B Falcon Corp. (PIK) 13.875% 1,000 1,110,000
Republic Tech Warrants 1,000 10
------------
TOTAL PREFERRED STOCK
(Cost $6,648,382) 6,783,785
------------
PAR
MATURITY (000)
-------- --------
COMMERCIAL MORTGAGE BACKED
SECURITIES -- 1.8%
Donaldson, Lufkin & Jenrette, Inc.,
Commercial Mortgage Corp.,
Series 98-CG1, Class B4
7.15%** 01/10/13 $ 2,531 1,881,012
(Cost $2,018,895) ------------
CORPORATE BONDS -- 90.3%
ELECTRONICS -- 3.19%
Amkor Technologies, Inc.
10.50% 05/01/09 2,000 1,960,000
Condor Systems, Inc., Series 144A
11.88% 05/01/09 1,000 477,500
Knowles Electronics, Inc., Series 144A
13.13% 10/01/09 1,000 900,000
------------
3,337,500
------------
FINANCIAL -- 3.6%
Ameriserve Finance, Inc., Series 144A
12.00% 09/15/06 500 215,000
BGLS, Inc., Series B
15.75% 01/31/01 700 700,000
Madison River Capital, Series 144A
13.25% 03/01/10 2,000 1,900,000
PX Escrow Corp., Senior Discount Notes,
Series 144A (STEP)
18.23%*** 02/01/06 2,000 1,020,000
------------
3,835,000
------------
INDUSTRIAL -- 36.7%
American Plumbing & Mechanical, Inc.,
Series B
11.63% 10/15/08 1,000 910,000
Amtran, Inc.
10.50% 08/01/04 1,000 890,000
Bio-Rad Laboratories, Inc., Series 144A
11.63% 02/15/07 1,000 1,006,250
Concentra Operating Corp., Series 144A
13.00% 08/15/09 2,000 1,590,000
Doman Industries Ltd., Sr. Notes
8.75% 03/15/04 2,000 1,700,000
Fountain View, Inc., Series B
11.25% 04/15/08 1,000 680,000
Golden Northwest Aluminum First Mortgage Notes
12.00% 12/15/06 1,750 1,824,375
PAR
MATURITY (000) VALUE
-------- -------- ------------
CORPORATE BONDS (CONTINUED)
INDUSTRIAL (CONTINUED)
Hollywood Entertainment Co., Series B
10.63% 08/15/04 $ 1,000 $ 880,000
Hosiery Corp. of America, Inc., Sr.
Sub. Notes
13.75% 08/01/02 500 520,000
Huntsman ICI Holdings, LLC (STEP)
13.00%*** 12/31/09 1,500 450,000
Iasis Healthcare Corp., Series 144A
13.00% 10/15/09 2,000 1,980,000
Kasper A.S.L. Ltd.
12.75% 03/31/04 1,500 1,380,000
Knology Hldgs., Inc. (STEP)
14.33%*** 10/15/07 4,000 2,600,000
Lyondell Chemical Corp.
10.88% 05/01/09 2,500 2,325,000
National Equipment Services Co.,
Series D
10.00% 11/30/04 2,000 1,820,000
Nebco Evans Hldg. Co. (STEP)
17.25%*** 07/15/07 800 0
Oxford Health Plans, Sr. Notes
11.00% 05/15/05 1,000 985,000
Pogo Producing Co.
10.38% 02/15/09 1,450 1,464,500
Polaroid Corp.
11.50% 02/15/06 1,000 1,017,500
PSINet Inc., Sr. Notes, Series 144A
10.50%+ 12/01/06 3,000 2,895,000
Repap New Brunswick Co.
10.63% 04/15/05 3,000 2,730,000
Republic Tech, Sr. Notes, Series 144A
13.75% 07/15/09 1,000 250,000
Revlon Consumer Products
8.63% 02/01/08 2,000 880,000
St. John Knits Intl., Inc.
12.50% 07/01/09 1,000 920,000
Stericycle, Inc.
12.38% 11/15/09 500 510,000
U.S. Home Corp.
8.88% 02/15/09 1,000 995,000
United Industries Corp., Series B
9.88% 04/01/09 1,250 875,000
Verio Inc., Sr. Notes, Series 144A
10.63% 11/15/09 1,000 970,000
Veritas DGC, Inc.
9.75% 10/15/03 1,000 1,000,000
Waterford Gaming LLC, Sr. Notes,
Series 144A
9.50% 03/15/10 980 940,800
Willis Corroon Corp.
9.00% 02/01/09 1,000 780,000
Woods Equipment Co., Series B
12.00% 07/15/09 1,000 880,000
------------
38,648,425
------------
OIL & GAS -- 12.4%
CMS Energy and Atlantic Methanol Co.,
Series 144A
10.88 12/15/04 2,000 1,900,000
Grey Wolf, Inc., Series C
8.88% 07/01/07 3,000 2,707,500
Key Energy Services, Inc., Series B
14.00% 01/15/09 1,000 1,085,000
R&B Falcon Corp.
12.25%+ 03/15/06 2,000 2,150,000
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
45
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
HIGH YIELD BOND PORTFOLIO (CONCLUDED)
PAR
AS OF MARCH 31, 2000 (UNAUDITED) MATURITY (000) VALUE
-------- -------- ------------
CORPORATE BONDS (CONTINUED)
OIL & GAS (CONTINUED)
Swift Energy Co.
10.25% 08/01/09 $ 1,550 $ 1,503,500
Triton Energy Ltd.
9.25% 04/15/05 2,000 1,990,000
Western Gas Resources Corp.
10.00% 06/15/09 1,700 1,700,000
------------
13,036,000
------------
RETAIL -- 4.0%
Mattress Discounters Corp., Series 144A
12.63% 07/15/07 1,500 1,365,000
Sbarro, Inc., Sr. Notes, Series 144A
11.00% 09/15/09 1,000 990,000
Sonic Automotive, Inc., Series B
11.00% 08/01/08 2,000 1,820,000
------------
4,175,000
------------
SPECIAL PURPOSE -- 3.1%
Hanger Orthopedic Group
11.25% 06/15/09 1,000 770,000
Penhall Acquisition Corp. (STEP)
12.00% 08/01/06 1,500 1,485,000
Zais Investment Grade Ltd., Series 144A
9.95% 09/23/14 1,000 999,900
------------
3,254,900
------------
TELECOMMUNICATIONS -- 27.4%
Alliance Atlantis Communications Inc.,
Sr. Sub. Notes
13.00% 12/15/09 1,500 1,492,500
Flag Telecommunications Hldg. Ltd.,
Series 144A
11.63% 03/30/10 500 480,000
Global Crossing Hldg. Ltd., Series 144A
9.13% 11/15/06 1,500 1,436,250
Globenet Communications Group Ltd.,
Series B
13.00 07/15/07 1,500 1,470,000
Hyperion Telecommunications, Inc., Sr.
Notes, Series B
12.25% 09/01/04 1,350 1,431,000
IPC Info. Systems (STEP)
11.92%*** 05/01/08 3,000 2,610,000
James Cable Partners LP, Series B
10.75% 08/15/04 1,000 985,000
Leap Wireless International, Inc.,
Series 144A
12.50% 04/15/10 1,000 1,012,500
MGC Communications, Inc., Series 144A
13.00%+ 04/01/10 3,000 2,932,500
Nextel Communication, Inc.
9.38% 11/15/09 2,000 1,845,000
Nextel Partners, Inc., Series 144A
11.00% 03/15/10 1,500 1,447,500
Nextlink Communications, Inc., Sr.
Discount Notes (STEP)
12.15%*** 12/01/09 3,017 1,568,840
Spectrasite Hldgs., Inc. (STEP)
13.96%*** 07/15/08 2,000 1,240,000
Teligent, Inc.
11.50% 12/01/07 2,000 1,800,000
United Pan-Europe Communications,
Series 144A
11.25% 02/01/10 2,000 1,910,000
PAR/SHARES
MATURITY (000) VALUE
-------- -------- ------------
CORPORATE BONDS (CONTINUED)
TELECOMMUNICATIONS (CONTINUED)
United Pan-Europe Communications
(STEP)
12.50%***+ 11/01/09 $ 4,000 $ 1,960,000
Versatel Telecom BV, Sr. Notes
11.88% 07/15/09 500 490,000
Voicestream Wireless Holding Co.,
Series 144A
10.38% 11/15/09 1,800 1,800,000
Worldwide Fiber, Inc., Series 144A
12.00% 08/01/09 1,000 950,000
------------
28,861,090
------------
TOTAL CORPORATE BONDS
(Cost $100,131,473) 95,147,915
------------
SHORT TERM INVESTMENT -- 0.1%
Galileo Money Market Fund
(Cost $67,259) 67 67,259
------------
TOTAL INVESTMENTS IN
SECURITIES -- 100.0%
(Cost $110,095,616*) $105,308,221
============
----------------------
* Also cost for Federal income tax purposes. The gross unrealized appreciation
(depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 1,464,171
Gross unrealized depreciation (6,251,566)
-----------
$(4,787,395)
===========
** Rates shown are the rates as of March 31, 2000.
*** Rates shown are the effective yields as of March 31, 2000.
+ Partial principal in the amount of $10,906,000 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.
46
<PAGE>
BLACKROCK FUNDS
STATEMENT OF ASSETS AND LIABILITIES
HIGH YIELD BOND PORTFOLIO
MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments at value (Cost $110,095,616) ....................................... $105,308,221
Collateral received for securities loaned ...................................... 4,660,250
Interest receivable ............................................................ 2,543,940
Investments sold receivable .................................................... 6,446,438
Capital shares sold receivable ................................................. 109,646
Prepaid expenses ............................................................... 36,565
------------
TOTAL ASSETS ............................................................ 119,105,060
------------
LIABILITIES
Payable upon return of securities loaned ....................................... 4,660,250
Investments purchased payable .................................................. 4,612,200
Capital shares redeemed payable ................................................ 79,809
Distributions payable .......................................................... 902,392
Advisory fees payable .......................................................... 31,657
Administrative fees payable .................................................... 19,111
Transfer agent fees payable .................................................... 6,182
Other accrued expenses payable ................................................. 193,540
Reverse repurchase agreements payable .......................................... 8,475,429
------------
TOTAL LIABILITIES ....................................................... 18,980,570
------------
NET ASSETS (Applicable to 11 BlackRock shares, 7,820,521 Institutional shares,
11 Service shares, 478,397 Investor A shares, 1,783,833 Investor B shares
and 543,516 Investor C shares outstanding) ..................................... $100,124,490
============
NET ASSET VALUE AND REDEMPTION PRICE PER BLACKROCK,
INSTITUTIONAL, SERVICE AND INVESTOR A SHARE ($78,195,074 / 8,298,940) .......... $ 9.42
======
OFFERING PRICE PER BLACKROCK, INSTITUTIONAL AND SERVICE SHARE ..................... $ 9.42
======
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE
($9.42 / 0.95) ................................................................. $ 9.92
======
NET ASSET VALUE AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 4.5%)
PER INVESTOR B SHARE ($16,809,502 / 1,783,833) ................................. $ 9.42
======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 1.0%)
PER INVESTOR C SHARE ($5,119,914 / 543,516) .................................... $ 9.42
======
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
47
<PAGE>
BLACKROCK FUNDS
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
INTERMEDIATE
LOW DURATION GOVERNMENT INTERMEDIATE CORE GOVERNMENT
BOND BOND BOND BOND INCOME
FOR THE PERIOD ENDED MARCH 31, 2000 (UNAUDITED) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- ------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Investment income:
Interest ................................... $11,538,706 $13,869,467 $24,021,581 $ 37,370,235 $1,733,394
Dividends .................................. -- -- -- 188,410 --
----------- ----------- ----------- ------------ ----------
Total investment income .................. 11,538,706 13,869,467 24,021,581 37,558,645 1,733,394
----------- ----------- ----------- ------------ ----------
Expenses:
Investment advisory fee .................... 693,970 1,022,843 1,530,748 2,551,509 100,064
Administration fee ......................... 266,216 470,508 637,913 1,029,605 46,029
Custodian fee .............................. 38,217 42,412 65,764 91,462 12,034
Transfer agent fee ......................... 40,731 70,240 88,613 159,097 35,788
Shareholders servicing fees ................ 26,694 34,466 23,110 77,785 50,136
Shareholders processing fees ............... 20,850 28,330 20,893 65,537 30,081
Distribution fees .......................... 34,439 6,096 5,372 68,114 127,188
Legal and audit ............................ 4,047 6,237 10,152 13,041 801
Printing ................................... 8,398 19,744 21,759 36,850 1,559
Registration fees and expenses ............. 23,864 23,133 24,997 26,028 15,626
Trustees' fees and officers' salary ........ 2,602 3,574 4,676 7,148 375
Other ...................................... 4,833 6,637 8,687 13,277 696
----------- ----------- ----------- ------------ ----------
1,164,861 1,734,220 2,442,684 4,139,453 420,377
Less fees waived ........................... (387,359) (433,949) (631,613) (1,227,265) (78,843)
----------- ----------- ----------- ------------ ----------
Total operating expenses ................. 777,502 1,300,271 1,811,071 2,912,188 341,534
----------- ----------- ----------- ------------ ----------
Interest expense ........................... 2,255,254 258,382 2,819,123 2,069,404 353,323
----------- ----------- ----------- ------------ ----------
Total expenses ........................... 3,032,756 1,558,653 4,630,194 4,981,592 694,857
----------- ----------- ----------- ------------ ----------
Net investment income ...................... 8,505,950 12,310,814 19,391,387 32,577,053 1,038,537
----------- ----------- ----------- ------------ ----------
Realized and unrealized gain (loss) on
investments and foreign currency
transactions:
Net realized gain (loss) from:
Investment transactions ................. (1,383,734) (3,079,901) (8,170,154) (14,853,345) (864,517)
Futures and options ..................... 345,071 254,536 446,971 1,711,088 181,114
Foreign currency and forward
foreign currency transactions ......... (20,385) -- -- -- --
----------- ----------- ----------- ------------ ----------
(1,059,048) (2,825,365) (7,723,183) (13,142,257) (683,403)
----------- ----------- ----------- ------------ ----------
Changes in unrealized appreciation
(depreciation) from:
Investments ............................. (1,349,238) (2,061,821) (624,991) 6,027,908 (146,638)
Future contracts ........................ (63,585) (263,031) 19,596 (31,414) 112,084
Foreign currency and forward
foreign currency transactions ......... 5,149 -- -- -- --
----------- ----------- ----------- ------------ ----------
(1,407,674) (2,324,852) (605,395) 5,996,494 (34,554)
----------- ----------- ----------- ------------ ----------
Net gain (loss) on investments and
foreign currency transactions .............. (2,466,722) (5,150,217) (8,328,578) (7,145,763) (717,957)
----------- ----------- ----------- ------------ ----------
Net increase in net assets
resulting from operations .................. $ 6,039,228 $ 7,160,597 $11,062,809 $ 25,431,290 $ 320,580
=========== =========== =========== ============ ==========
</TABLE>
<TABLE>
<CAPTION>
MANAGED INTERNATIONAL HIGH YEILD
GNMA INCOME BOND BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Investment income:
Interest ................................... $ 4,312,338 $ 60,583,101 $ 1,943,225 $ 5,307,844
Dividends .................................. -- 363,200 -- 484,189
----------- ------------ ----------- -----------
Total investment income .................. 4,312,338 60,946,301 1,943,225 5,792,033
----------- ------------ ----------- -----------
Expenses:
Investment advisory fee .................... 291,966 3,783,646 200,976 228,666
Administration fee ......................... 122,095 1,641,984 84,045 105,186
Custodian fee .............................. 18,847 136,848 25,510 11,010
Transfer agent fee ......................... 18,370 263,046 17,800 24,472
Shareholders servicing fees ................ 2,354 238,423 12,947 30,657
Shareholders processing fees ............... 1,451 228,321 8,883 18,393
Distribution fees .......................... 1,076 21,216 18,957 74,962
Legal and audit ............................ 1,831 21,959 1,009 89,352
Printing ................................... 13,469 67,472 1,889 1,525
Registration fees and expenses ............. 23,362 24,992 22,469 10,616
Trustees' fees and officers' salary ........ 911 12,676 542 306
Other ...................................... 1,694 23,545 1,007 948
----------- ------------ ----------- -----------
497,426 6,464,128 396,034 596,093
Less fees waived ........................... (173,396) (868,472) (337) (143,391)
----------- ------------ ----------- -----------
Total operating expenses ................. 324,030 5,595,656 395,697 452,702
----------- ------------ ----------- -----------
Interest expense ........................... 439,501 6,112,124 -- 212,934
----------- ------------ ----------- -----------
Total expenses ........................... 763,531 11,707,780 395,697 665,636
----------- ------------ ----------- -----------
Net investment income ...................... 3,548,807 49,238,521 1,547,528 5,126,397
----------- ------------ ----------- -----------
Realized and unrealized gain (loss) on
investments and foreign currency
transactions:
Net realized gain (loss) from:
Investment transactions ................. (403,208) (28,016,826) (422,406) (745,209)
Futures and options ..................... 639,051 (46,347) 564,826 --
Foreign currency and forward
foreign currency transactions ......... -- 3,158,110 1,921,544 --
----------- ------------ ----------- -----------
235,843 (24,905,063) 2,063,964 (745,209)
----------- ------------ ----------- -----------
Changes in unrealized appreciation
(depreciation) from:
Investments ............................. (1,178,275) 6,873,693 (2,605,442) (2,185,686)
Future contracts ........................ (173,868) (1,766,494) (345,123) --
Foreign currency and forward
foreign currency transactions ......... -- 8,839 911,930 --
----------- ------------ ----------- -----------
(1,352,143) 5,116,038 (2,038,635) (2,185,686)
----------- ------------ ----------- -----------
Net gain (loss) on investments and
foreign currency transactions .............. $(1,116,300) (19,789,025) 25,329 (2,930,895)
----------- ------------ ----------- -----------
Net increase in net assets
resulting from operations .................. $ 2,432,507 $ 29,449,496 $ 1,572,857 $ 2,195,502
=========== ============ =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
48-49
<PAGE>
BLACKROCK FUNDS
STATEMENT OF CASH FLOWS
LOW DURATION BOND PORTFOLIO
FOR THE PERIOD ENDED MARCH 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Cash provided by (used in) Operating Activities
Investment income received ...................................... $ 11,065,368
Operating expenses paid ......................................... (816,170)
Interest expense paid ........................................... (2,255,254)
-------------
Net increase in cash from operating activities ..................... 7,993,944
-------------
Cash provided by (used in) Investing Activities
Purchases of long-term investments .............................. (444,623,961)
Proceeds from disposition of long-term portfolio investments .... 402,186,242
Net proceeds from disposition of short-term investments ......... 316,996
-------------
Net decrease in cash from investing activities ..................... (42,120,723)
-------------
Cash provided by (used in) Financing Activities
Cash dividends paid ............................................. (6,052,008)
Net borrowing relative to reverse repurchase agreements ......... (13,647,308)
Proceeds related to capital stock purchases ..................... 124,880,861
Cash paid related to capital stock redemptions .................. (71,054,766)
-------------
Net increase in cash from financing activities ..................... 34,126,779
-------------
Net increase (decrease) in cash .................................... --
Cash at beginning of year .......................................... --
-------------
Cash at end of period .............................................. $ --
=============
Net increase in net assets resulting from operations ............... $ 6,039,228
Adjustments:
Increase in interest receivable ................................. (367,405)
Amortization of premium and accretion of discount ............... (105,933)
Decrease in accrued expenses .................................... (27,692)
Increase in prepaid expenses .................................... (10,976)
Net realized and changes in unrealized gain (loss) on investments 2,466,722
-------------
Total adjustments .................................................. 1,954,716
-------------
NET INCREASE IN CASH FROM OPERATING ACTIVITIES ..................... $ 7,993,944
=============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
50
<PAGE>
BLACKROCK FUNDS
STATEMENT OF CASH FLOWS
INTERMEDIATE BOND PORTFOLIO
FOR THE PERIOD ENDED MARCH 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Cash provided by (used in) Operating Activities
Investment income received ...................................... $ 24,638,455
Operating expenses paid ......................................... (1,813,629)
Interest expense paid ........................................... (2,819,123)
-------------
Net increase in cash from operating activities ..................... 20,005,703
-------------
Cash provided by (used in) Investing Activities
Purchases of long-term investments .............................. (965,675,962)
Proceeds from disposition of long-term portfolio investments .... 889,773,491
Net proceeds from disposition of short-term investments ......... (577,999)
-------------
Net decrease in cash from investing activities ..................... (76,480,470)
-------------
Cash provided by (used in) Financing Activities
Cash dividends paid ............................................. (17,330,172)
Net borrowing relative to reverse repurchase agreements ......... (71,499,365)
Proceeds related to capital stock purchases ..................... 214,367,165
Cash paid related to capital stock redemptions .................. (69,062,861)
-------------
Net increase in cash from financing activities ..................... 56,474,767
-------------
Net increase (decrease) in cash .................................... --
Cash at beginning of year .......................................... --
-------------
Cash at end of period .............................................. $ --
=============
Net increase in net assets resulting from operations ............... $ 11,062,809
Adjustments:
Decrease in interest receivable ................................. 504,849
Amortization of premium and accretion of discount ............... 112,025
Increase in accrued expenses .................................... 12,281
Increase in prepaid expenses .................................... (14,839)
Net realized and change in unrealized gain (loss) on investments 8,328,578
-------------
Total adjustments .................................................. 8,942,894
-------------
NET INCREASE IN CASH FROM OPERATING ACTIVITIES ..................... $ 20,005,703
=============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
51
<PAGE>
BLACKROCK FUNDS
STATEMENT OF CASH FLOWS
GOVERNMENT INCOME PORTFOLIO
FOR THE PERIOD ENDED MARCH 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Cash provided by (used in) Operating Activities
Investment income received ...................................... $ 2,116,875
Operating expenses paid ......................................... (368,665)
Interest expense paid ........................................... (353,323)
------------
Net increase in cash from operating activities ..................... 1,394,887
------------
Cash provided by (used in) Investing Activities
Purchases of long-term investments .............................. (46,033,782)
Proceeds from disposition of long-term portfolio investments .... 71,712,079
Net proceeds from disposition of short-term investments ......... 10,203
------------
Net increase in cash from investing activities ..................... 25,688,500
------------
Cash provided by (used in) Financing Activities
Cash dividends paid ............................................. (521,356)
Net borrowing relative to reverse repurchase agreements ......... (17,156,676)
Proceeds related to capital stock purchases ..................... 5,844,631
Cash paid relate to capital stock redemptions ................... (15,249,986)
------------
Net decrease in cash from financing activities ..................... (27,083,387)
------------
Net increase (decrease) in cash .................................... --
Cash at beginning of year .......................................... --
------------
Cash at end of period .............................................. $ --
============
Net increase in net assets resulting from operations ............... $ 320,580
Adjustments:
Decrease in interest receivable ................................. 386,976
Amortization of premium and accretion of discount ............... (3,495)
Decrease in accrued expenses .................................... (27,582)
Decrease in prepaid expenses .................................... 451
Net realized and changes in unrealized gain (loss) on investments 717,957
------------
Total adjustments .................................................. 1,074,307
------------
NET INCREASE IN CASH FROM OPERATING ACTIVITIES ..................... $ 1,394,887
============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
52
<PAGE>
BLACKROCK FUNDS
STATEMENT OF CASH FLOWS
GNMA PORTFOLIO
FOR THE PERIOD ENDED MARCH 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Cash provided by (used in) Operating Activities
Investment income received ...................................... $ 4,555,229
Operating expenses paid ......................................... (322,464)
Interest expense paid ........................................... (439,501)
------------
Net increase in cash from operating activities ..................... 3,793,264
------------
Cash provided by (used in) Investing Activities
Purchases of long-term investments .............................. (91,997,854)
Proceeds from disposition of long-term portfolio investments .... 108,090,142
Net proceeds from disposition of short-term investments ......... (22,560)
------------
Net increase in cash from investing activities ..................... 16,069,728
------------
Cash provided by (used in) Financing Activities
Cash dividends paid ............................................. (3,556,485)
Net borrowing relative to reverse repurchase agreements ......... (8,726,643)
Proceeds related to capital stock purchases ..................... 10,366,116
Cash paid related to capital stock redemptions .................. (17,945,980)
------------
Net decrease in cash from financing activities ..................... (19,862,992)
------------
Net increase (decrease) in cash .................................... --
Cash at beginning of year .......................................... --
------------
Cash at end of period .............................................. $ --
============
Net increase in net assets resulting from operations ............... $ 2,432,507
Adjustments:
Decrease in interest receivable ................................. 256,552
Amortization of premium and accretion of discount ............... (13,661)
Decrease in accrued expenses .................................... (4,946)
Decrease in prepaid expenses .................................... 6,512
Net realized and changes in unrealized gain (loss) on investments 1,116,300
------------
Total adjustments .................................................. 1,360,757
------------
NET INCREASE IN CASH FROM OPERATING ACTIVITIES ..................... $ 3,793,264
============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
53
<PAGE>
BLACKROCK FUNDS
STATEMENT OF CASH FLOWS
MANAGED INCOME PORTFOLIO
FOR THE PERIOD ENDED MARCH 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Cash provided by (used in) Operating Activities
Investment income received ...................................... $ 61,001,259
Operating expenses paid ......................................... (5,647,302)
Interest expense paid ........................................... (6,112,124)
---------------
Net increase in cash from operating activities ..................... 49,241,833
---------------
Cash provided by (used in) Investing Activities
Purchases of long-term investments .............................. (1,910,094,493)
Proceeds from disposition of long-term portfolio investments .... 2,092,297,312
Net proceeds from disposition of short-term investments ......... (133,195,557)
---------------
Net increase in cash from investing activities ..................... 49,007,262
---------------
Cash provided by (used in) Financing Activities
Cash dividends paid ............................................. (46,570,489)
Net borrowing relative to reverse repurchase agreements ......... (158,118,334)
Proceeds related to capital stock purchases ..................... 646,929,467
Cash paid related to capital stock redemptions .................. (540,349,463)
---------------
Net decrease in cash from financing activities ..................... (98,108,819)
---------------
Net increase in cash ............................................... 140,276
Cash at beginning of year .......................................... (140,276)
---------------
Cash at end of period .............................................. $ --
===============
Net increase in net assets resulting from operations ............... $ 29,116,850
Adjustments:
Decrease in interest receivable ................................. 178,571
Amortization of premium and accretion of discount ............... (80,284)
Decrease in accrued expenses .................................... (35,813)
Increase in prepaid expenses .................................... (15,833)
Net realized and changes in unrealized gain (loss) on investments 20,078,342
---------------
Total adjustments .................................................. 20,124,983
---------------
NET INCREASE IN CASH FROM OPERATING ACTIVITIES ..................... $ 49,241,833
===============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
54
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
BLACKROCK FUNDS
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
LOW DURATION INTERMEDIATE GOVERNMENT
BOND PORTFOLIO BOND PORTFOLIO
------------------------------- -----------------------------
FOR THE FOR THE
SIX MONTHS FOR THE SIX MONTHS FOR THE
ENDED YEAR ENDED ENDED YEAR ENDED
3/31/00 9/30/99 3/31/00 9/30/99
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ......................................... $ 8,505,950 $ 17,395,274 $ 12,310,814 $ 26,062,068
Net realized gain (loss) on investments, futures
and foreign currency related transactions ................... (1,059,048) (98,433) (2,825,365) (3,095,084)
Net unrealized gain (loss) on investments, futures contracts
and foreign currency related transactions ................... (1,407,674) (6,133,725) (2,324,852) (19,730,988)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations 6,039,228 11,163,116 7,160,597 3,235,996
------------ ------------ ------------ ------------
Distributions to shareholders from:
Net investment income:
BlackRock Class ............................................... (3,026,427) (6,048,576) -- --
Institutional Class ........................................... (4,731,654) (10,205,420) (11,179,076) (23,884,375)
Service Class ................................................. (473,501) (982,999) (756,663) (1,570,838)
Investor A Class .............................................. (71,779) (146,545) (268,972) (566,000)
Investor B Class .............................................. (199,265) (153,762) (27,611) (25,528)
Investor C Class .............................................. (27,848) (33,050) (9,973) (15,327)
------------ ------------ ------------ ------------
Total distributions from net investment income ................ (8,530,474) (17,570,352) (12,242,295) (26,062,068)
------------ ------------ ------------ ------------
Net realized gains:
BlackRock Class ............................................... -- -- -- --
Institutional Class ........................................... -- -- (531,362) (3,300,185)
Service Class ................................................. -- -- (36,299) (226,970)
Investor A Class .............................................. -- -- (18,784) (64,227)
Investor B Class .............................................. -- -- (1,376) (3,359)
Investor C Class .............................................. -- -- (659) (2,283)
------------ ------------ ------------ ------------
Total distributions from net realized gains ................... -- -- (588,480) (3,597,024)
------------ ------------ ------------ ------------
Total distributions to shareholders ........................... (8,530,474) (17,570,352) (12,830,775) (29,659,092)
------------ ------------ ------------ ------------
Capital share transactions ........................................ 55,772,746 (57,491,456) (21,940,629) (29,475,513)
------------ ------------ ------------ ------------
Total increase (decrease) in net assets ....................... 53,281,500 (63,898,692) (27,610,807) (55,898,609)
------------ ------------ ------------ ------------
Net assets:
Beginning of period ........................................... 265,464,295 329,362,987 424,119,690 480,018,299
------------ ------------ ------------ ------------
End of period ................................................. $318,745,795 $265,464,295 $396,508,883 $424,119,690
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE CORE
BOND PORTFOLIO BOND PORTFOLIO
---------------------------- --------------------------------
FOR THE FOR THE
SIX MONTHS FOR THE SIX MONTHS FOR THE
ENDED YEAR ENDED ENDED YEAR ENDED
3/31/00 9/30/99 3/31/00 9/30/99
------------ ------------ -------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ......................................... $ 19,391,387 $ 33,817,480 $ 32,577,053 $ 54,742,132
Net realized gain (loss) on investments, futures
and foreign currency related transactions ................... (7,723,183) (4,101,046) (13,142,257) (10,417,663)
Net unrealized gain (loss) on investments, futures contracts
and foreign currency related transactions ................... (605,395) (23,607,390) 5,996,494 (46,267,712)
------------ ------------ -------------- ------------
Net increase (decrease) in net assets resulting from operations 11,062,809 6,109,044 25,431,290 (1,943,243)
------------ ------------ -------------- ------------
Distributions to shareholders from:
Net investment income:
BlackRock Class ............................................... (3,333,628) (2,641,213) (5,784,502) (7,653,342)
Institutional Class ........................................... (15,511,087) (29,342,529) (24,357,591) (41,755,750)
Service Class ................................................. (715,836) (1,493,193) (1,916,817) (4,174,386)
Investor A Class .............................................. (90,319) (132,451) (188,703) (341,839)
Investor B Class .............................................. (25,668) (30,269) (351,386) (640,192)
Investor C Class .............................................. (11,056) (7,995) (117,640) (249,542)
------------ ------------ -------------- ------------
Total distributions from net investment income ................ (19,687,594) (33,647,650) (32,716,639) (54,815,051)
------------ ------------ -------------- ------------
Net realized gains:
BlackRock Class ............................................... (2,426) (510,365) (241,923) (13,815,881)
Institutional Class ........................................... (25,959) (5,190,232) (1,056,940) (2,995,248)
Service Class ................................................. (1,333) (290,823) (96,076) (1,570,759)
Investor A Class .............................................. (216) (21,977) (9,978) (119,321)
Investor B Class .............................................. (57) (1,947) (21,048) (277,734)
Investor C Class .............................................. (24) (132) (6,041) (73,497)
------------ ------------ -------------- ------------
Total distributions from net realized gains ................... (30,015) (6,015,476) (1,432,006) (18,852,440)
------------ ------------ -------------- ------------
Total distributions to shareholders ........................... (19,717,609) (39,663,126) (34,148,645) (73,667,491)
------------ ------------ -------------- ------------
Capital share transactions ........................................ 146,913,187 13,472,500 234,803,435 187,075,237
------------ ------------ -------------- ------------
Total increase (decrease) in net assets ....................... 138,258,387 (20,081,582) 226,086,080 111,464,503
------------ ------------ -------------- ------------
Net assets:
Beginning of period ........................................... 546,662,911 566,744,493 966,998,858 855,534,355
------------ ------------ -------------- ------------
End of period ................................................. $684,921,298 $546,662,911 $1,193,084,938 $966,998,858
============ ============ ============== ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
56-57
<PAGE>
BLACKROCK FUNDS
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
GOVERNMENT GNMA
INCOME PORTFOLIO PORTFOLIO
-------------------------- ---------------------------
FOR THE FOR THE
SIX MONTHS FOR THE SIX MONTHS FOR THE
ENDED YEAR ENDED ENDED YEAR ENDED
3/31/00 9/30/99 3/31/00 9/30/99
----------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ..................... $ 1,038,537 $ 2,018,590 $ 3,548,807 $ 7,090,642
Net realized gain (loss)on investments,
futures, and foreign currency related
transactions ............................ (683,403) (1,150,263) 235,843 (752,640)
Net unrealized gain (loss) on investments,
futures contracts and foreign
currency related transactions ........... (34,554) (1,798,171) (1,352,143) (4,917,470)
----------- ----------- ------------ ------------
Net increase (decrease) in net assets
resulting from operations ............... 320,580 (929,844) 2,432,507 1,420,532
----------- ----------- ------------ ------------
Distributions to shareholders from:
Net investment income:
BlackRock Class ........................... -- -- -- --
Institutional Class ....................... -- -- (3,507,803) (6,866,829)
Service Class ............................. -- -- (4,125) (2,614)
Investor A Class .......................... (190,960) (362,323) (48,078) (60,535)
Investor B Class .......................... (861,180) (1,504,558) (6,877) (10,508)
Investor C Class .......................... (51,076) (119,390) (798) (485)
----------- ----------- ------------ ------------
Total distributions from net investment
income .................................. (1,103,216) (1,986,271) (3,567,681) (6,940,971)
----------- ----------- ------------ ------------
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 ....................... -- -- (204,646) (216,280)
Service Class ............................. -- -- (184) --
Investor A Class .......................... -- (101,189) (2,752) (1,241)
Investor B Class .......................... -- (445,394) (473) (413)
Investor C Class .......................... -- (37,364) (48) (1)
----------- ----------- ------------ ------------
Total distributions from net realized gains -- (583,947) (208,103) (217,935)
----------- ----------- ------------ ------------
Total distributions to shareholders ....... (1,103,216) (2,860,002) (3,775,784) (7,158,906)
----------- ----------- ------------ ------------
Capital share transactions .................... (8,877,361) 14,927,649 (7,121,283) (1,486,779)
----------- ----------- ------------ ------------
Total increase (decrease) in net assets ... (9,659,997) 11,137,803 (8,464,560) (7,225,153)
----------- ----------- ------------ ------------
Net assets:
Beginning of period ....................... 43,898,991 32,761,188 111,514,840 118,739,993
----------- ----------- ------------ ------------
End of period ............................. $34,238,994 $43,898,991 $103,050,280 $111,514,840
=========== =========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
MANAGED INTERNATIONAL
INCOME PORTFOLIO BOND PORTFOLIO
-------------------------------- -------------------------
FOR THE FOR THE
SIX MONTHS FOR THE SIX MONTHS FOR THE
ENDED YEAR ENDED ENDED YEAR ENDED
3/31/00 9/30/99 3/31/00 9/30/99
-------------- -------------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ..................... $ 49,238,521 $ 96,562,007 $ 1,547,528 $ 2,188,509
Net realized gain (loss)on investments,
futures, and foreign currency related
transactions ............................ (24,905,063) (9,274,264) 2,063,964 (74,616)
Net unrealized gain (loss) on investments,
futures contracts and foreign
currency related transactions ........... 5,116,038 (79,872,030) (2,038,635) (1,551,469)
-------------- -------------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations ............... 29,449,496 7,415,713 1,572,857 562,424
-------------- -------------- ----------- -----------
Distributions to shareholders from:
Net investment income:
BlackRock Class ........................... -- -- -- --
Institutional Class ....................... (40,578,024) (79,275,756) (2,457,917) (2,894,971)
Service Class ............................. (8,686,562) (16,129,657) (145,680) (158,774)
Investor A Class .......................... (434,518) (938,291) (116,618) (107,062)
Investor B Class .......................... (144,134) (267,898) (93,769) (88,432)
Investor C Class .......................... (246) (1,887) (80,283) (80,994)
-------------- -------------- ----------- -----------
Total distributions from net investment
income .................................. (49,843,484) (96,613,489) (2,894,267) (3,330,233)
-------------- -------------- ----------- -----------
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 ....................... (2,991,619) (19,011,738) (662,036) --
Service Class ............................. (658,497) (3,866,356) (41,498) --
Investor A Class .......................... (35,544) (252,718) (32,042) --
Investor B Class .......................... (13,390) (71,999) (28,940) --
Investor C Class .......................... -- -- (26,893) --
-------------- -------------- ----------- -----------
Total distributions from net realized gains (3,699,050) (23,202,811) (791,409) --
-------------- -------------- ----------- -----------
Total distributions to shareholders ....... (53,542,534) (119,816,300) (3,685,676) (3,330,233)
-------------- -------------- ----------- -----------
Capital share transactions .................... 113,545,694 45,013,063 12,211,897 22,619,783
-------------- -------------- ----------- -----------
Total increase (decrease) in net assets ... 89,452,656 (67,387,524) 10,099,078 19,851,974
-------------- -------------- ----------- -----------
Net assets:
Beginning of period ....................... 1,544,843,742 1,612,231,266 70,349,164 50,497,190
-------------- -------------- ----------- -----------
End of period ............................. $1,634,296,398 $1,544,843,742 $80,448,242 $70,349,164
============== ============== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
HIGH YIELD
BOND PORTFOLIO
-------------------------------
FOR THE
SIX MONTHS FOR THE
ENDED PERIOD 11/19/98 1
3/31/00 THROUGH 9/30/99
------------ -----------------
(UNAUDITED)
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ..................... $ 5,126,397 $ 5,487,273
Net realized gain (loss)on investments,
futures, and foreign currency related
transactions ............................ (745,209) (683,582)
Net unrealized gain (loss) on investments,
futures contracts and foreign
currency related transactions ........... (2,185,686) (2,601,709)
------------ -----------
Net increase (decrease) in net assets
resulting from operations ............... 2,195,502 2,201,982
------------ -----------
Distributions to shareholders from:
Net investment income:
BlackRock Class ........................... (6) (8)
Institutional Class ....................... (3,956,726) (4,262,789)
Service Class ............................. (6) (8)
Investor A Class .......................... (261,397) (231,248)
Investor B Class .......................... (793,823) (554,384)
Investor C Class .......................... (275,475) (124,941)
------------ -----------
Total distributions from net investment
income .................................. (5,287,433) (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 ....................... -- --
Service Class ............................. -- --
Investor A Class .......................... -- --
Investor B Class .......................... -- --
Investor C Class .......................... -- --
------------ -----------
Total distributions from net realized gains -- --
------------ -----------
Total distributions to shareholders ....... (5,287,433) (5,173,378)
------------ -----------
Capital share transactions .................... 19,891,410 86,296,407
------------ -----------
Total increase (decrease) in net assets ... 16,799,479 83,325,011
------------ -----------
Net assets:
Beginning of period ....................... 83,325,011 --
------------ -----------
End of period ............................. $100,124,490 $83,325,011
============ ===========
<FN>
-------------
1 Commencement of operations.
</FN>
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
58-59
<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
10/1/99 through 3/31/00 6 $ 9.82 $ 0.30 $(0.09) $(0.31) $ -- $ -- $ -- $ 9.72
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
10/1/99 through 3/31/00 6 $ 9.82 $ 0.30 $(0.09) $(0.30) $ -- $ -- $ -- $ 9.73
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) -- 9.83
6/30/95 9.71 0.58 0.13 (0.58) -- (0.01) -- 9.83
SERVICE CLASS
10/1/99 through 3/31/00 6 $ 9.82 $ 0.29 $(0.09) $(0.29) $ -- $ -- $ -- $ 9.73
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
10/1/99 through 3/31/00 6 $ 9.82 $ 0.28 $(0.09) $(0.28) $ -- $ -- $ -- $ 9.73
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
10/1/99 through 3/31/00 6 $ 9.82 $ 0.24 $(0.10) $(0.24) $ -- $ -- $ -- $ 9.72
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
10/1/99 through 3/31/00 6 $ 9.82 $ 0.25 $(0.10) $(0.24) $ -- $ -- $ -- $ 9.73
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
10/1/99 through 3/31/00 6 $ 9.89 $ 0.29 $(0.12) $(0.29) $ -- $(0.01) $ -- $ 9.76
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
10/1/99 through 3/31/00 6 $ 9.89 $ 0.28 $(0.12) $(0.28) $ -- $(0.01) $ -- $ 9.76
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
10/1/99 through 3/31/00 6 $ 9.89 $ 0.27 $(0.12) $(0.27) $ -- $(0.01) $ -- $ 9.76
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
10/1/99 through 3/31/00 6 $ 9.89 $ 0.23 $(0.12) $(0.23) $ -- $(0.01) $ -- $ 9.76
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
10/1/99 through 3/31/00 6 $ 9.89 $ 0.23 $(0.12) $(0.23) $ -- $(0.01) $ -- $ 9.76
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
</TABLE>
<TABLE>
<CAPTION>
RATIO OF RATIO OF NET
NET EXPENSES TO RATIO OF EXPENSES INVESTMENT INCOME
ASSETS RATIO OF AVERAGE NET TO AVERAGE RATIO OF NET TO AVERAGE
END OF EXPENSES TO ASSETS NET ASSETS NVESTMENT INCOME NET ASSETS
TOTAL PERIOD AVERAGE NET (EXCLUDING (EXCLUDING TO AVERAGE NET (EXCLUDING
RETURN (000) ASSETS INTEREST EXPENSE) WAIVERS) ASSETS WAIVERS)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
---------------------------
LOW DURATION BOND PORTFOLIO
---------------------------
BLACKROCK CLASS
10/1/99 through 3/31/00 6 1.35% $ 153,065 2.07%2 0.40%2 2.35%2 6.39%2 6.11%2
9/30/99 4.06 79,326 2.26 0.41 2.59 6.04 5.71
9/30/98 7.44 140,493 1.59 0.40 1.99 5.93 5.53
6/3/97 1 through 9/30/97 2.68 68,300 1.01 2 0.40 2 1.34 2 5.97 2 5.64 2
INSTITUTIONAL CLASS
10/1/99 through 3/31/00 6 1.31% $ 140,286 2.22%2 0.55%2 2.50%2 6.21%2 5.93%2
9/30/99 3.91 157,553 2.39 0.56 2.67 5.89 5.62
9/30/98 7.28 166,887 1.80 0.55 2.20 5.77 5.37
9/30/97 6.89 102,490 1.54 0.55 1.87 5.15 4.82
4/1/96 through 9/30/96 2.70 135,686 0.64 2 0.55 2 0.92 2 5.63 2 5.36 2
7/1/95 through 3/31/96 4.25 52,843 0.96 2 0.63 2 1.16 2 4.92 2 4.72 2
6/30/95 6.99 44,486 0.57 0.57 1.05 6.08 5.60
SERVICE CLASS
10/1/99 through 3/31/00 6 1.23% $ 14,202 2.52%2 0.85%2 2.80%2 5.90%2 5.62%2
9/30/99 3.60 16,872 2.70 0.86 2.97 5.59 5.32
9/30/98 6.96 18,393 1.98 0.85 2.38 5.49 5.09
9/30/97 6.57 82,873 1.85 0.85 2.18 4.86 4.53
4/1/96 through 9/30/96 2.54 91,870 0.97 2 0.85 2 1.25 2 5.28 2 5.01 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 4.72 2
INVESTOR A CLASS
10/1/99 through 3/31/00 6 1.19%3 $ 2,298 2.69%2 1.02%2 2.97%2 5.72%2 5.44%2
9/30/99 3.42 3 2,594 2.79 1.02 3.07 5.38 5.10
9/30/98 6.78 3 2,850 2.32 1.02 2.72 5.29 4.89
9/30/97 6.39 3 1,079 2.02 1.02 2.35 4.72 4.39
4/1/96 through 9/30/96 2.46 3 938 1.12 1.02 2 1.40 2 5.10 2 4.82 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 4.41 2
INVESTOR B CLASS
10/1/99 through 3/31/00 6 1.00%4 $ 8,024 3.44%2 1.77%2 3.72%2 4.95%2 4.67%2
9/30/99 2.65 4 7,549 3.41 1.75 3.67 4.59 4.34
9/30/98 5.99 4 398 3.08 1.76 3.48 4.50 4.10
11/18/96 1 through 9/30/97 4.31 4 13 2.19 2 1.73 2 2.52 2 4.50 2 4.17 2
INVESTOR C CLASS
10/1/99 through 3/31/00 6 1.00%4 $ 871 3.44%2 1.77%2 3.72%2 4.98%2 4.70%2
9/30/99 2.65 4 1,570 3.47 1.77 3.72 4.62 4.37
9/30/98 5.99 4 342 2.98 1.75 3.38 4.47 4.07
2/24/97 1 through 9/30/97 2.91 4 72 2.23 2 1.72 2 2.56 2 4.49 2 4.16 2
--------------------------------------
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
--------------------------------------
INSTITUTIONAL CLASS
10/1/99 through 3/31/00 6 1.61% $ 354,722 0.74%2 0.60%2 0.96%2 6.12%2 5.90%2
9/30/99 0.75 388,917 0.81 0.60 1.02 5.77 5.56
9/30/98 9.83 441,691 0.63 0.59 0.89 5.72 5.46
9/30/97 8.08 96,605 0.67 0.55 0.98 5.88 5.57
9/30/96 4.82 126,312 0.70 0.53 1.00 5.86 5.56
9/30/95 10.28 134,835 0.42 0.42 0.79 5.94 5.57
SERVICE CLASS
10/1/99 through 3/31/00 6 1.55% $ 26,805 1.04%2 0.90%2 1.26%2 5.82%2 5.60%2
9/30/99 0.45 26,687 1.11 0.90 1.32 5.47 5.26
9/30/98 9.50 29,697 0.91 0.88 1.17 5.51 5.25
9/30/97 7.75 50,535 0.97 0.85 1.28 5.58 5.27
9/30/96 4.51 47,494 1.00 0.83 1.30 5.56 5.26
9/30/95 9.99 49,762 0.69 0.69 1.06 5.67 5.30
INVESTOR A CLASS
10/1/99 through 3/31/00 6 1.40%3 $ 13,489 1.21%2 1.07%2 1.43%2 5.65%2 5.43%2
9/30/99 0.28 3 7,239 1.25 1.06 1.46 5.29 5.08
9/30/98 9.32 3 7,972 1.09 1.05 1.35 5.33 5.07
9/30/97 7.57 3 5,374 1.14 1.02 1.45 5.42 5.11
9/30/96 4.36 3 5,903 1.14 0.95 1.44 5.45 5.16
9/30/95 9.98 3 9,802 0.70 0.70 1.07 5.67 5.30
INVESTOR B CLASS
10/1/99 through 3/31/00 6 1.32%4 $ 1,168 1.96%2 1.82%2 2.18%2 4.89%2 4.67%2
9/30/99 (0.47)4 809 1.97 1.80 2.19 4.57 4.34
9/30/98 8.51 4 361 1.84 1.79 2.10 4.61 4.35
10/11/96 1 through 9/30/97 5.94 4 28 1.90 2 1.77 2 2.21 2 4.62 2 4.31 2
INVESTOR C CLASS
10/1/99 through 3/31/00 6 1.32%4 $ 325 1.96%2 1.82%2 2.18%2 4.89%2 4.67%2
9/30/99 (0.47)4 468 2.00 1.81 2.22 4.56 4.34
9/30/98 8.51 4 299 1.81 1.78 2.07 4.48 4.22
10/8/96 1 through 9/30/97 5.94 4 51 1.78 2 1.71 2 2.09 2 4.50 2 4.19 2
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO
TURNOVER
RATE
-------------------------------------------
<S> <C>
---------------------------
LOW DURATION BOND PORTFOLIO
---------------------------
BLACKROCK CLASS
10/1/99 through 3/31/00 6 107%
9/30/99 177
9/30/98 227
6/3/97 1 through 9/30/97 371
INSTITUTIONAL CLASS
10/1/99 through 3/31/00 6 107%
9/30/99 177
9/30/98 227
9/30/97 371
4/1/96 through 9/30/96 228
7/1/95 through 3/31/96 185
6/30/95 586
SERVICE CLASS
10/1/99 through 3/31/00 6 107%
9/30/99 177
9/30/98 227
9/30/97 371
4/1/96 through 9/30/96 228
1/12/96 1 through 3/31/96 185
INVESTOR A CLASS
10/1/99 through 3/31/00 6 107%
9/30/99 177
9/30/98 227
9/30/97 371
4/1/96 through 9/30/96 228
1/12/96 1 through 3/31/96 185
INVESTOR B CLASS
10/1/99 through 3/31/00 6 107%
9/30/99 177
9/30/98 227
11/18/96 1 through 9/30/97 371
INVESTOR C CLASS
10/1/99 through 3/31/00 6 107%
9/30/99 177
9/30/98 227
2/24/97 1 through 9/30/97 371
--------------------------------------
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
--------------------------------------
INSTITUTIONAL CLASS
10/1/99 through 3/31/00 6 86%
9/30/99 191
9/30/98 272
9/30/97 291
9/30/96 580
9/30/95 247
SERVICE CLASS
10/1/99 through 3/31/00 6 86%
9/30/99 191
9/30/98 272
9/30/97 291
9/30/96 580
9/30/95 247
INVESTOR A CLASS
10/1/99 through 3/31/00 6 86%
9/30/99 191
9/30/98 272
9/30/97 291
9/30/96 580
9/30/95 247
INVESTOR B CLASS
10/1/99 through 3/31/00 6 86%
9/30/99 191
9/30/98 272
10/11/96 1 through 9/30/97 291
INVESTOR C CLASS
10/1/99 through 3/31/00 6 86%
9/30/99 191
9/30/98 272
10/8/96 1 through 9/30/97 291
</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>
---------------------------
INTERMEDIATE BOND PORTFOLIO
---------------------------
BLACKROCK CLASS
10/1/99 through 3/31/00 6 $ 9.10 $ 0.29 $(0.12) $(0.30) $ -- $ -- $ -- $ 8.97
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
INSTITUTIONAL CLASS
10/1/99 through 3/31/00 6 $ 9.10 $ 0.29 $(0.13) $(0.29) $ -- $ -- $ -- $ 8.97
9/30/99 9.67 0.57 (0.47) (0.57) -- (0.10) -- 9.10
9/30/98 9.49 0.57 0.23 (0.57) -- (0.05) -- 9.67
9/30/97 9.32 0.58 0.17 (0.58) -- -- -- 9.49
9/30/96 9.43 0.56 (0.09) (0.55) -- (0.03) -- 9.32
9/30/95 9.05 0.56 0.38 (0.56) -- -- -- 9.43
SERVICE CLASS
10/1/99 through 3/31/00 6 $ 9.10 $ 0.27 $(0.13) $(0.27) $ -- $ -- $ -- $ 8.97
9/30/99 9.67 0.54 (0.47) (0.54) -- (0.10) -- 9.10
9/30/98 9.49 0.58 0.20 (0.55) -- (0.05) -- 9.67
9/30/97 9.32 0.55 0.17 (0.55) -- -- -- 9.49
9/30/96 9.43 0.53 (0.09) (0.52) -- (0.03) -- 9.32
9/30/95 9.05 0.54 0.38 (0.54) -- -- -- 9.43
INVESTOR A CLASS
10/1/99 through 3/31/00 6 $ 9.10 $ 0.26 $(0.13) $(0.27) $ -- $ -- $ -- $ 8.96
9/30/99 9.67 0.52 (0.47) (0.52) -- (0.10) -- 9.10
9/30/98 9.49 0.53 0.23 (0.53) -- (0.05) -- 9.67
9/30/97 9.32 0.53 0.17 (0.53) -- -- -- 9.49
9/30/96 9.43 0.52 (0.09) (0.51) -- (0.03) -- 9.32
9/30/95 9.05 0.54 0.38 (0.54) -- -- -- 9.43
INVESTOR B CLASS
10/1/99 through 3/31/00 6 $ 9.10 $ 0.23 $(0.13) $(0.23) $ -- $ -- $ -- $ 8.97
9/30/99 9.67 0.45 (0.47) (0.45) -- (0.10) -- 9.10
2/5/98 1 through 9/30/98 9.51 0.29 0.21 (0.29) -- (0.05) -- 9.67
INVESTOR C CLASS
10/1/99 through 3/31/00 6 $ 9.10 $ 0.23 $(0.13) $(0.23) $ -- $ -- $ -- $ 8.97
10/16/98 1 through 9/30/99 9.65 0.43 (0.45) (0.43) -- (0.10) -- 9.10
-------------------
CORE BOND PORTFOLIO
-------------------
BLACKROCK CLASS
10/1/99 through 3/31/00 6 $ 9.31 $ 0.30 $(0.09) $(0.30) $ -- $(0.01) $ -- $ 9.21
9/30/99 10.12 0.59 (0.60) (0.58) -- (0.22) -- 9.31
9/30/98 9.82 0.61 0.40 (0.62) -- (0.09) -- 10.12
5/1/97 1 through 9/30/97 9.57 0.26 0.24 (0.25) -- -- -- 9.82
INSTITUTIONAL CLASS
10/1/99 through 3/31/00 6 $ 9.31 $ 0.29 $(0.09) $(0.29) $ -- $(0.01) $ -- $ 9.21
9/30/99 10.12 0.57 (0.59) (0.57) -- (0.22) -- 9.31
9/30/98 9.82 0.59 0.40 (0.60) -- (0.09) -- 10.12
9/30/97 9.55 0.62 0.26 (0.61) -- -- -- 9.82
4/1/96 through 9/30/96 9.61 0.30 (0.06) (0.30) -- -- -- 9.55
7/1/95 though 3/31/96 9.85 0.47 (0.07) (0.47) -- (0.17) -- 9.61
6/30/95 9.36 0.62 0.50 (0.62) -- (0.01) -- 9.85
SERVICE CLASS
10/1/99 through 3/31/00 6 $ 9.31 $ 0.28 $(0.09) $(0.28) $ -- $(0.01) $ -- $ 9.21
9/30/99 10.12 0.54 (0.59) (0.54) -- (0.22) -- 9.31
9/30/98 9.82 0.56 0.40 (0.57) -- (0.09) -- 10.12
9/30/97 9.55 0.59 0.26 (0.58) -- -- -- 9.82
4/1/96 through 9/30/96 9.61 0.30 (0.07) (0.29) -- -- -- 9.55
1/12/96 1 through 3/31/96 9.91 0.11 (0.30) (0.11) -- -- -- 9.61
INVESTOR A CLASS
10/1/99 through 3/31/00 6 $ 9.31 $ 0.27 $(0.09) $(0.27) $ -- $(0.01) $ -- $ 9.21
9/30/99 10.12 0.53 (0.60) (0.52) -- (0.22) -- 9.31
9/30/98 9.82 0.55 0.40 (0.56) -- (0.09) -- 10.12
9/30/97 9.55 0.58 0.26 (0.57) -- -- -- 9.82
4/1/96 through 9/30/96 9.61 0.28 (0.06) (0.28) -- -- -- 9.55
1/31/96 1 through 3/31/96 9.99 0.08 (0.38) (0.08) -- -- -- 9.61
INVESTOR B CLASS
10/1/99 through 3/31/00 6 $ 9.31 $ 0.24 $(0.09) $(0.24) $ -- $(0.01) $ -- $ 9.21
9/30/99 10.12 0.46 (0.60) (0.45) -- (0.22) -- 9.31
9/30/98 9.82 0.47 0.40 (0.48) -- (0.09) -- 10.12
9/30/97 9.55 0.51 0.26 (0.50) -- -- -- 9.82
4/1/96 through 9/30/96 9.61 0.26 (0.07) (0.25) -- -- -- 9.55
3/18/96 1 through 3/31/96 9.58 0.01 0.03 (0.01) -- -- -- 9.61
</TABLE>
<TABLE>
<CAPTION>
RATIO OF RATIO OF NET
NET EXPENSES TO RATIO OF EXPENSES INVESTMENT INCOME
ASSETS RATIO OF AVERAGE NET TO AVERAGE RATIO OF NET TO AVERAGE
END OF EXPENSES TO ASSETS NET ASSETS INVESTMENT INCOME NET ASSETS PORTFOLIO
TOTAL PERIOD AVERAGE NET (EXCLUDING (EXCLUDING TO AVERAGE NET (EXCLUDING TURNOVER
RETURN (000) ASSETS INTEREST EXPENSE) WAIVERS) ASSETS WAIVERS) RATE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
---------------------------
INTERMEDIATE BOND PORTFOLIO
---------------------------
BLACKROCK CLASS
10/1/99 through 3/31/00 6 1.74% $134,881 1.60%2 0.45%2 1.40%2 6.42%2 6.22%2 123%
9/30/99 1.25 42,311 1.61 0.44 1.87 6.27 6.00 221
5/1/98 1 through 9/30/98 8.86 48,365 1.43 2 0.45 2 1.70 2 5.98 2 5.71 2 221
INSTITUTIONAL CLASS
10/1/99 through 3/31/00 6 1.70% $521,888 1.75%2 0.60%2 1.55%2 6.40%2 6.20% 123%
9/30/99 1.10 476,236 1.74 0.60 1.96 6.12 5.90 221
9/30/98 8.81 490,674 1.72 0.59 1.99 6.05 5.78 221
9/30/97 8.40 295,709 0.98 0.53 1.27 6.18 5.89 321
9/30/96 5.10 207,909 0.83 0.53 1.13 5.97 5.67 670
9/30/95 10.76 124,979 0.55 0.47 0.89 6.10 5.76 262
SERVICE CLASS
10/1/99 through 3/31/00 6 1.63% $ 24,043 2.05%2 0.90%2 1.85%2 6.09%2 5.89%2 123%
9/30/99 0.80 24,299 2.05 0.90 2.26 5.81 5.60 221
9/30/98 8.48 25,946 2.06 0.89 2.33 5.78 5.51 221
9/30/97 8.07 52,316 1.27 0.83 1.56 5.88 5.59 321
9/30/96 4.79 45,362 1.14 0.83 1.44 5.67 5.36 670
9/30/95 10.46 36,718 0.82 0.74 1.17 5.82 5.47 262
INVESTOR A CLASS
10/1/99 through 3/31/00 6 1.47%3 $ 2,814 2.22%2 1.07%2 2.02%2 5.93%2 5.73%2 123%
9/30/99 0.62 3 2,387 2.21 1.08 2.43 5.70 5.49 221
9/30/98 8.30 3 1,648 2.22 1.06 2.49 5.64 5.37 221
9/30/97 7.89 3 1,116 1.44 1.00 1.73 5.70 5.41 321
9/30/96 4.74 3 935 1.27 0.97 1.57 5.53 5.23 670
9/30/95 10.35 3 647 0.84 0.76 1.19 5.81 5.47 262
INVESTOR B CLASS
10/1/99 through 3/31/00 6 1.40%4 $ 1,097 2.97%2 1.82%2 2.77%2 5.15%2 4.95%2 123%
9/30/99 (0.13)4 1,010 2.81 1.79 3.02 4.89 4.68 221
2/5/98 1 through 9/30/98 7.83 4 111 2.79 2 1.75 2 3.06 2 4.50 2 4.23 2 221
INVESTOR C CLASS
10/1/99 through 3/31/00 6 1.40%4 $ 198 2.97%2 1.82%2 2.77%2 5.15%2 4.95%2 123%
10/16/98 1 through 9/30/99 (0.18)4 420 2.81 2 1.82 2 3.02 2 4.99 2 4.77 2 221
-------------------
CORE BOND PORTFOLIO
-------------------
BLACKROCK CLASS
10/1/99 through 3/31/00 6 2.54% $204,557 0.97%2 0.40%2 1.21%2 6.47%2 6.23%2 130%
9/30/99 (0.02) 160,791 0.79 0.40 1.07 6.13 5.85 328
9/30/98 10.74 92,723 0.68 0.40 1.02 6.14 5.80 405
5/1/97 1 through 9/30/97 5.30 48,139 0.56 2 0.40 2 0.85 2 6.54 2 6.25 2 441
INSTITUTIONAL CLASS
10/1/99 through 3/31/00 6 2.51% $907,521 0.96%2 0.55%2 1.20%2 6.46%2 6.22%2 130%
9/30/99 (0.17) 712,529 0.93 0.55 1.19 5.94 5.68 328
9/30/98 10.57 673,823 0.83 0.55 1.17 6.00 5.66 405
9/30/97 10.03 393,657 0.84 0.55 1.14 6.52 6.23 441
4/1/96 through 9/30/96 2.55 162,626 0.80 2 0.55 2 1.09 2 6.50 2 6.20 2 308
7/1/95 though 3/31/96 3.93 64,707 0.75 2 0.66 2 1.00 2 5.80 2 5.55 2 723
6/30/95 11.79 32,191 0.55 0.55 1.75 6.62 5.43 435
SERVICE CLASS
10/1/99 through 3/31/00 6 2.43% $ 58,235 1.27%2 0.85%2 1.51%2 6.13%2 5.89%2 130%
9/30/99 (0.47) 65,758 1.23 0.86 1.48 5.63 5.37 328
9/30/98 10.24 70,111 1.18 0.85 1.52 5.72 5.38 405
9/30/97 9.71 122,308 1.35 0.85 1.64 6.09 5.81 441
4/1/96 through 9/30/96 2.40 117,207 1.08 2 0.85 2 1.37 2 6.10 2 5.81 2 308
1/12/96 1 through 3/31/96 (1.90) 232,040 0.94 2 0.85 2 1.19 2 5.37 2 5.12 2 723
INVESTOR A CLASS
10/1/99 through 3/31/00 6 2.39%3 $ 5,992 1.45%2 1.02%2 1.69%2 5.96%2 5.72%2 130%
9/30/99 (0.64)3 6,776 1.41 1.03 1.66 5.48 5.23 328
9/30/98 10.04 3 5,108 1.27 0.98 1.61 5.49 5.15 405
9/30/97 9.52 3 2,441 1.36 1.01 1.65 5.96 5.67 441
4/1/96 through 9/30/96 2.36 3 320 1.27 2 1.02 2 1.56 2 6.04 2 5.75 2 308
1/31/96 1 through 3/31/96 (2.96)3 80 1.11 2 1.02 2 1.36 2 5.34 2 5.10 2 723
INVESTOR B CLASS
10/1/99 through 3/31/00 6 2.20%4 $ 12,665 2.20%2 1.77%2 2.44%2 5.96%2 5.72%2 130%
9/30/99 (1.38)4 14,383 2.15 1.77 2.41 4.72 4.47 328
9/30/98 9.20 4 11,734 2.01 1.76 2.35 4.78 4.44 405
9/30/97 8.71 4 5,295 2.17 1.75 2.46 5.19 4.90 441
4/1/96 through 9/30/96 1.98 4 1,497 2.00 2 1.72 2 2.29 2 5.40 2 5.11 2 308
3/18/96 1 through 3/31/96 (0.33)4 77 1.86 2 1.77 2 2.11 2 4.62 2 4.37 2 723
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
62-63
<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>
INVESTOR C CLASS
10/1/99 through 3/31/00 6 $ 9.31 $ 0.24 $(0.09) $(0.24) $ -- $ -- $(0.01) $ --
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
10/1/99 through 3/31/00 6 $ 9.92 $ 0.29 $(0.15) $(0.30) $ -- $ -- $ -- $ --
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) -- -- -- --
INVESTOR B CLASS
10/1/99 through 3/31/00 6 $ 9.92 $ 0.25 $(0.15) $(0.26) $ -- $ -- $ -- $ --
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
10/1/99 through 3/31/00 6 $ 9.92 $ 0.25 $(0.15) $(0.26) $ -- $ -- $ -- $ --
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
10/1/99 through 3/31/00 6 $ 9.61 $ 0.32 $(0.09) $(0.32) $ -- $ -- $(0.02) $ --
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
10/1/99 through 3/31/00 6 $ 9.61 $ 0.29 $(0.08) $(0.30) $ -- $ -- $(0.02) $ --
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
10/1/99 through 3/31/00 6 $ 9.61 $ 0.29 $(0.08) $(0.30) $ -- $ -- $(0.02) $ --
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
10/1/99 through 3/31/00 6 $ 9.61 $ 0.25 $(0.08) $(0.26) $ -- $ -- $(0.02) $ --
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
10/1/99 through 3/31/00 6 $ 9.61 $ 0.25 $(0.08) $(0.26) $ -- $ -- $(0.02) $ --
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
10/1/99 through 3/31/00 6 $ 9.92 $ 0.31 $(0.15) $(0.31) $ -- $ -- $(0.02) $ --
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
10/1/99 through 3/31/00 6 $ 9.92 $ 0.30 $(0.15) $(0.30) $ -- $ -- $(0.02) $ --
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
10/1/99 through 3/31/00 6 $ 9.92 $ 0.29 $(0.15) $(0.29) $ -- $ -- $(0.02) $ --
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) -- -- --
</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 C CLASS
10/1/99 through 3/31/00 6 $ 9.21 2.20%4 $ 4,115 1.91%2 1.77%2 2.15%2 5.15%2
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 PORTFOLIO
---------------------------
INVESTOR A CLASS
10/1/99 through 3/31/00 6 $ 9.76 2.16%3 $ 5,641 3.26%2 1.07%2 2.86%2 5.83%2
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
INVESTOR B CLASS
10/1/99 through 3/31/00 6 $ 9.76 1.97%4 $ 27,088 4.01%2 1.82%2 3.61%2 5.13%2
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
10/1/99 through 3/31/00 6 $ 9.76 1.97%4 $ 1,510 4.01%2 1.82%2 3.61%2 5.27%2
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
10/1/99 through 3/31/00 6 $ 9.50 2.15% $ 100,833 1.43%2 0.60%2 1.76%2 6.76%2
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
10/1/99 through 3/31/00 6 $ 9.50 2.07% $ 196 1.73%2 0.90%2 2.06%2 6.52%2
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
10/1/99 through 3/31/00 6 $ 9.50 2.03%3 $ 1,671 1.90%2 1.07%2 2.23%2 6.35%2
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
10/1/99 through 3/31/00 6 $ 9.50 1.84%4 $ 300 2.65%2 1.82%2 2.98%2 5.51%2
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
10/1/99 through 3/31/00 6 $ 9.50 1.84%4 $ 50 2.65%2 1.82%2 2.98%2 5.50%2
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
10/1/99 through 3/31/00 6 $ 9.75 2.14% $1,297,563 1.55%2 0.65%2 1.44%2 6.40%2
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
10/1/99 through 3/31/00 6 $ 9.75 2.07% $ 316,871 1.85%2 0.95%2 1.74%2 6.10%2
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
10/1/99 through 3/31/00 6 $ 9.75 2.03%3 $ 14,776 2.04%2 1.12%2 1.93%2 5.93%2
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
</TABLE>
<TABLE>
<CAPTION>
RATIO OF NET
INVESTMENT INCOME
TO AVERAGE
NET ASSETS PORTFOLIO
(EXCLUDING TURNOVER
WAIVERS) RATE
----------------------------------------------------
<S> <C>
INVESTOR C CLASS
10/1/99 through 3/31/00 6 4.91%2 130%
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 PORTFOLIO
---------------------------
INVESTOR A CLASS
10/1/99 through 3/31/00 6 5.43%2 88%
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
INVESTOR B CLASS
10/1/99 through 3/31/00 6 4.73%2 88%
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
10/1/99 through 3/31/00 6 4.87%2 88%
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
10/1/99 through 3/31/00 6 6.43%2 81%
9/30/99 5.81 124
5/18/98 1 through 9/30/98 5.72 2 56
SERVICE CLASS
10/1/99 through 3/31/00 6 6.19%2 81%
9/30/99 5.79 124
5/18/98 1 through 9/30/98 8.41 2 56
INVESTOR A CLASS
10/1/99 through 3/31/00 6 6.02%2 81%
9/30/99 5.44 124
5/18/98 1 through 9/30/98 5.28 2 56
INVESTOR B CLASS
10/1/99 through 3/31/00 6 5.18%2 81%
9/30/99 4.59 124
5/18/98 1 through 9/30/98 4.13 2 56
INVESTOR C CLASS
10/1/99 through 3/31/00 6 5.17%2 81%
9/30/99 4.81 124
5/18/98 1 through 9/30/98 4.90 2 56
------------------------
MANAGED INCOME PORTFOLIO
------------------------
INSTITUTIONAL CLASS
10/1/99 through 3/31/00 6 6.29%2 115%
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
10/1/99 through 3/31/00 6 5.99%2 115%
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
10/1/99 through 3/31/00 6 5.82%2 115%
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
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
64-65
<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 B CLASS
10/1/99 through 3/31/00 6 $ 9.92 $ 0.25 $(0.15) $(0.25) $ -- $(0.02) $ -- $ 9.75
9/30/99 10.64 0.50 (0.57) (0.50) -- (0.15) -- 9.92
9/30/98 10.41 0.52 0.29 (0.53) -- (0.05) -- 10.64
7/15/97 1 through 9/30/97 10.39 0.09 0.02 (0.09) -- -- -- 10.41
INVESTOR C CLASS
10/1/99 through 3/31/00 6 $ 9.92 $ 0.18 $(0.15) $(0.18) $ -- $(0.02) $ -- $ 9.75
5/19/99 1 through 9/30/99 10.14 0.08 (0.22) (0.08) -- -- -- 9.92
----------------------------
INTERNATIONAL BOND PORTFOLIO
----------------------------
INSTITUTIONAL CLASS
10/1/99 through 3/31/00 6 $10.81 $ 0.28 $(0.05) $(0.43) $ -- $(0.12) $ -- $10.49
9/30/99 11.24 0.30 (0.09) (0.64) -- -- -- 10.81
9/30/98 10.95 0.45 0.83 (0.57) -- (0.42) -- 11.24
9/30/97 11.71 0.78 0.42 (1.47) -- (0.49) -- 10.95
6/10/96 1 through 9/30/96 11.37 0.21 0.30 (0.17) -- -- -- 11.71
SERVICE CLASS
10/1/99 through 3/31/00 6 $10.81 $ 0.26 $(0.05) $(0.41) $ -- $(0.12) $ -- $10.49
9/30/99 11.24 0.24 (0.06) (0.61) -- -- -- 10.81
9/30/98 10.95 0.18 1.06 (0.53) -- (0.42) -- 11.24
9/30/97 11.71 1.36 (0.19) (1.44) -- (0.49) -- 10.95
2/1/96 through 9/30/96 11.39 0.89 (0.29) (0.28) -- -- -- 11.71
3/1/95 through 1/31/96 10.52 0.62 1.13 (0.88) -- -- -- 11.39
2/28/95 10.75 0.62 (0.48) (0.13) -- (0.24) -- 10.52
INVESTOR A CLASS
10/1/99 through 3/31/00 6 $10.81 $ 0.25 $(0.05) $(0.40) $ -- $(0.12) $ -- $10.49
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
10/1/99 through 3/31/00 6 $10.81 $ 0.21 $(0.05) $(0.36) $ -- $(0.12) $ -- $10.49
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
10/1/99 through 3/31/00 6 $10.81 $ 0.21 $(0.05) $(0.36) $ -- $(0.12) $ -- $10.49
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
10/1/99 through 3/31/00 6 $ 9.73 $ 0.61 $(0.34) $(0.58) $ -- $ -- $ -- $ 9.42
11/19/98 1 through 9/30/99 10.00 0.90 (0.32) (0.85) -- -- -- 9.73
INSTITUTIONAL CLASS
10/1/99 through 3/31/00 6 $ 9.73 $ 0.56 $(0.29) $(0.58) $ -- $ -- $ -- $ 9.42
11/19/98 1 through 9/30/99 10.00 0.90 (0.31) (0.86) -- -- -- 9.73
SERVICE CLASS
10/1/99 through 3/31/00 6 $ 9.73 $ 0.53 $(0.29) $(0.55) $ -- $ -- $ -- $ 9.42
11/19/98 1 through 9/30/99 10.00 0.85 (0.31) (0.81) -- -- -- 9.73
INVESTOR A CLASS
10/1/99 through 3/31/00 6 $ 9.73 $ 0.53 $(0.29) $(0.55) $ -- $ -- $ -- $ 9.42
11/19/98 1 through 9/30/99 10.00 0.86 (0.31) (0.82) -- -- -- 9.73
INVESTOR B CLASS
10/1/99 through 3/31/00 6 $ 9.73 $ 0.49 $(0.28) $(0.52) $ -- $ -- $ -- $ 9.42
11/19/98 1 through 9/30/99 10.00 0.79 (0.31) (0.75) -- -- -- 9.73
INVESTOR C CLASS
10/1/99 through 3/31/00 6 $ 9.73 $ 0.48 $(0.27) $(0.52) $ -- $ -- $ -- $ 9.42
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 B CLASS
10/1/99 through 3/31/00 6 1.84%4 $ 5,076 2.79%2 1.87%2 2.66%2 5.16%2
9/30/99 (0.66)4 5,818 2.68 1.87 2.80 4.88
9/30/98 7.94 4 4,639 2.43 1.82 2.61 4.71
7/15/97 1 through 9/30/97 1.35 4 468 2.14 2 1.31 2 2.39 2 3.85 2
INVESTOR C CLASS
10/1/99 through 3/31/00 6 1.63%4 $ 10 2.62%2 1.82%2 2.66%2 4.88%2
5/19/99 1 through 9/30/99 -- -- 2.53 2 1.79 2 2.64 2 4.93 2
----------------------------
INTERNATIONAL BOND PORTFOLIO
----------------------------
INSTITUTIONAL CLASS
10/1/99 through 3/31/00 6 2.09% $ 68,113 0.98%2 0.98%2 0.98%2 4.42%2
9/30/99 1.91 59,265 1.03 1.03 1.03 3.79
9/30/98 12.51 43,672 1.01 1.01 1.16 4.08
9/30/97 11.59 43,310 0.98 0.98 1.08 5.28
6/10/96 1 through 9/30/96 4.48 30,882 0.92 2 0.92 2 1.32 2 6.28 2
SERVICE CLASS
10/1/99 through 3/31/00 6 2.02% $ 3,616 1.28%2 1.28%2 1.28%2 4.09%2
9/30/99 1.60 3,730 1.33 1.33 1.33 3.50
9/30/98 12.17 2,359 1.31 1.31 1.46 3.79
9/30/97 11.23 6,708 1.30 1.29 1.40 5.01
2/1/96 through 9/30/96 5.39 7,836 1.09 2 1.09 2 1.20 2 3.82 2
3/1/95 through 1/31/96 16.79 37,627 1.23 2 1.23 2 1.23 2 5.62 2
2/28/95 1.50 45,657 1.24 1.24 1.24 5.96
INVESTOR A CLASS
10/1/99 through 3/31/00 6 1.97%3 $ 3,694 1.44%2 1.44%2 1.44%2 3.91%2
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
10/1/99 through 3/31/00 6 1.78%4 $ 2,842 2.20%2 2.20%2 2.20%2 3.17%2
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
10/1/99 through 3/31/00 6 1.78%4 $ 2,183 2.21%2 2.21%2 2.21%2 3.17%2
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
10/1/99 through 3/31/00 6 (1.15)% $ -- 1.03%2 0.55%2 1.35%2 11.80%2
11/19/98 1 through 9/30/99 5.87 -- 0.33 2 0.28 2 0.41 2 10.45 2
INSTITUTIONAL CLASS
10/1/99 through 3/31/00 6 (1.18)% $ 73,688 1.18%2 0.70%2 1.50%2 11.65%2
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
10/1/99 through 3/31/00 6 (1.26)% $ -- 1.48%2 1.00%2 1.80%2 11.35%2
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
10/1/99 through 3/31/00 6 (1.20)%3 $ 4,507 1.65%2 1.17%2 2.00%2 11.13%2
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
10/1/99 through 3/31/00 6 (1.49)%4 $ 16,810 2.40%2 1.92%2 2.70%2 10.32%2
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
10/1/99 through 3/31/00 6 (1.39)%4 $ 5,120 2.40%2 1.92%2 2.69%2 10.33%2
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 B CLASS
10/1/99 through 3/31/00 6 5.05%2 115%
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
10/1/99 through 3/31/00 6 4.77%2 115%
5/19/99 1 through 9/30/99 4.82 2 239
----------------------------
INTERNATIONAL BOND PORTFOLIO
----------------------------
INSTITUTIONAL CLASS
10/1/99 through 3/31/00 6 4.42%2 176%
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
10/1/99 through 3/31/00 6 4.09%2 176%
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
INVESTOR A CLASS
10/1/99 through 3/31/00 6 3.91%2 176%
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
10/1/99 through 3/31/00 6 3.17%2 176%
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
10/1/99 through 3/31/00 6 3.17%2 176%
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
10/1/99 through 3/31/00 6 11.48%2 101%
11/19/98 1 through 9/30/99 10.38 2 185
INSTITUTIONAL CLASS
10/1/99 through 3/31/00 6 11.33%2 101%
11/19/98 1 through 9/30/99 9.85 2 185
SERVICE CLASS
10/1/99 through 3/31/00 6 11.03%2 101%
11/19/98 1 through 9/30/99 8.81 2 185
INVESTOR A CLASS
10/1/99 through 3/31/00 6 10.81%2 101%
11/19/98 1 through 9/30/99 9.49 2 185
INVESTOR B CLASS
10/1/99 through 3/31/00 6 10.00%2 101%
11/19/98 1 through 9/30/99 8.73 2 185
INVESTOR C CLASS
10/1/99 through 3/31/00 6 10.01%2 101%
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 reflected in total return.
4 Contingent deferred sales load not reflected in total return.
5 There were no Investor C shares outstanding as of September 30, 1999.
6 Unaudited.
</FN>
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
66-67
<PAGE>
BLACKROCK FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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, nine 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. Each portfolio
of the Fund may offer as many as seven 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%
------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1)-- the maximum annual contractual fees are comprised of a .15% service fee
and .15% shareholder processing fee.
(2)-- the maximum annual contractual fees are comprised of a .10% distribution
fee, .25% service fee and .15% shareholder processing fee.
(3)-- the maximum annual contractual fees are comprised of a .75% distribution
fee, .25% service fee and .15% shareholder processing fee.
(4)-- the actual fees are as of March 31, 2000.
</FN>
</TABLE>
In addition, Institutional and Service shares bear a Transfer Agent fee at
an annual rate not to exceed .03% and Investor A, Investor B and Investor C
shares bear a Transfer Agent fee at an annual rate not to exceed .10% of the
average daily net asset of such respective classes.
(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The preparation of
financial statements in conformity with generally accepted accounting principles
requires the use of management estimates. Actual results could differ from 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. Portfolio securites which are primarily
traded on foreign securities exchanges are normally valued at the preceeding
closing values of such securites on their respective exchanges. 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. As of March 31, 2000, there were no securities valued in
accordance with such procedures.
68
<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 International Bond Portfolio
entered 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.
69
<PAGE>
BLACKROCK FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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 March 31, 2000, 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 MARCH 31, EXCHANGE
DATE AMOUNT SOLD AMOUNT 2000 GAIN/(LOSS)
--------- -------------- -------------------------------------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
International Bond Portfolio
04/17/00 17,340,000 Danish Krone ............................... $ 2,297,906 $ 2,229,938 $ 67,968
04/17/00 17,968,945 New Zealand Dollar ......................... 8,822,752 8,913,496 (90,744)
04/17/00 29,052,434 European Currency Unit ..................... 28,718,538 27,813,349 905,189
04/17/00 7,128,000 Great Britain Pound ........................ 11,376,288 11,355,616 20,672
04/17/00 1,039,678,170 Japanese Yen ............................... 9,732,543 10,150,135 (417,592)
04/17/00 1,847,000 Canadian Dollar ............................ 1,273,793 1,273,749 44
04/17/00 79,503,000 Swedish Krone .............................. 9,273,109 9,201,736 71,373
04/17/00 30,156,400 Norwegian Krone ............................ 3,582,396 3,564,291 18,105
04/28/00 15,734,264 South African Rand ......................... 2,428,952 2,406,035 22,917
07/19/00 11,777,700 Hong Kong Dollar ........................... 1,500,000 1,513,065 (13,065)
----------- ----------- ---------
$79,006,277 $78,421,410 $ 584,867
=========== =========== =========
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
VALUE AT FOREIGN
SETTLEMENT CURRENCY CURRENCY CONTRACT MARCH 31, EXCHANGE
DATE AMOUNT BOUGHT AMOUNT 2000 GAIN/(LOSS)
--------- -------------- -------------------------------------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
International Bond Portfolio
04/17/00 150,000,000 Japanese Yen ............................... $1,361,495 $1,464,415 $102,920
========== =========== =========
</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. Risk may arise upon entering into interest rate swaps in the event of
the default or bankruptcy of a swap agreement counter party. The Fund did not
hold any interest rate swaps during the period ended March 31, 2000.
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.
70
<PAGE>
BLACKROCK FUNDS
<TABLE>
<CAPTION>
LOW DURATION INTERMEDIATE GOVERNMENT
BOND BOND CORE BOND INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ---------- ------------
<S> <C> <C> <C> <C>
Average daily balance of reverse repurchase
agreements outstanding during the period
ended March 31, 2000 ........................ $ 79,764,045 $102,511,685 $79,495,423 $13,071,299
Weighted Average Interest Rate ................. 4.64% 4.73% 5.57% 5.20%
Maximum Amount of reverse repurchase
agreements outstanding at any month-end
during the period ended March 31, 2000 1 .... $106,580,872 $169,395,389 $94,702,282 $14,995,266
Percentage of total assets ..................... 28.06% 23.68% 8.74% 28.10%
Amount of reverse repurchase agreements
outstanding at March 31, 2000 ............... $ 91,809,454 $ 32,610,536 $65,204,225 $ 1,636,635
Percentage of total assets ..................... 21.88% 4.31% 4.76% 4.00%
</TABLE>
<TABLE>
<CAPTION>
MANAGED HIGH YIELD
GNMA INCOME BOND
PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ -----------
<S> <C> <C> <C>
Average daily balance of reverse repurchase
agreements outstanding during the period
ended March 31, 2000 ........................ $16,242,568 $223,586,726 $6,906,385
Weighted Average Interest Rate ................. 5.29% 4.77% 6.08%
Maximum Amount of reverse repurchase
agreements outstanding at any month-end
during the period ended March 31, 2000 1 .... $20,156,284 $298,367,512 $8,664,414
Percentage of total assets ..................... 15.24% 16.00% 9.55%
Amount of reverse repurchase agreements
outstanding at March 31, 2000 ............... $12,160,281 $104,366,867 $8,475,429
Percentage of total assets ..................... 9.35% 5.54% 7.12%
<FN>
------------------
1 The maximum amount of reverse repurchase agreements outstanding at any month
end occurred on January 31, 2000, November 30, 1999, October 31, 1999,
January 31, 2000, November 30, 1999, October 31, 1999 and November 30, 1999,
respectively.
</FN>
</TABLE>
FUTURES TRANSACTIONS -- The Fund may invest 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 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 may invest 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. There were no options held by the Portfolios at
March 31, 2000.
71
<PAGE>
BLACKROCK FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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. The market
value of the Securities a Portfolio is required to purchase may decline below
the agreed upon repurchase price of those securities.
In a "fee" roll, the compensation is recorded as deferred income and
amortized to income over the roll period. In a "drop" roll, the compensation is
paid via a lower price for the security upon its repurchase. The counterparty
receives all principal and interest payments, including prepayments, made in
respect of a security subject to such a contract while it is the holder.
Mortgage dollar rolls may be renewed with a new purchase and repurchase price
and a cash settlement made on settlement date without physical delivery of the
securities subject to the contract. A Portfolio engages in dollar rolls for the
purpose of enhancing its yield, principally by earning a negotiated fee.
SECURITIES LENDING -- 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 March 31, 2000, 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>
Low Duration Bond Portfolio ............... $ 39,888,711 $ 41,094,169 $ 4,156
Intermediate Government Bond Portfolio .... 9,599,456 10,022,250 6,094
Intermediate Bond Portfolio ............... 17,152,462 17,967,925 14,095
Core Bond Portfolio ....................... 170,780,472 178,981,251 106,727
GNMA Portfolio ............................ 358,555 374,125 223
Managed Income Portfolio .................. 96,866,092 101,289,780 62,239
International Bond Portfolio .............. 161,517 167,800 4
High Yield Bond Portfolio ................. 4,402,400 4,660,250 11,122
<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 The
PNC Financial Services Group, Inc.
72
<PAGE>
BLACKROCK FUNDS
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 period ended March 31, 2000, 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 ................. $ 693,970 $ 318,766 $ 375,204
Intermediate Government Bond Portfolio ...... 1,022,843 433,949 588,894
Intermediate Bond Portfolio ................. 1,530,748 622,488 908,260
Core Bond Portfolio ......................... 2,551,509 1,207,310 1,344,199
Government Income Portfolio ................. 100,064 78,843 21,221
GNMA Portfolio .............................. 291,966 173,396 118,570
Managed Income Portfolio .................... 3,783,646 868,472 2,915,174
International Bond Portfolio ................ 200,976 74 200,902
High Yield Bond Portfolio ................... 228,666 109,988 118,678
</TABLE>
BlackRock pays BFM fees for its sub-advisory services.
PFPC, Inc. ("PFPC"), an indirect wholly-owned subsidiary of The PNC
Financial Services Group, Inc. and BlackRock 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 period ended March 31, 2000, 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 ............... $ 266,216 $ 68,593 $ 197,623
Intermediate Government Bond Portfolio .... 470,508 -- 470,508
Intermediate Bond Portfolio ............... 637,913 9,125 628,788
Core Bond Portfolio ....................... 1,029,605 19,955 1,009,650
Government Income Portfolio ............... 46,029 -- 46,209
GNMA Portfolio ............................ 122,095 -- 122,095
Managed Income Portfolio .................. 1,641,984 -- 1,641,984
International Bond Portfolio .............. 84,045 263 83,782
High Yield Bond Portfolio ................. 105,186 33,403 71,783
</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 and
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.
73
<PAGE>
BLACKROCK FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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% $ 884,487
Intermediate Government Bond Portfolio ........ .475% 1,028,604
Intermediate Bond Portfolio ................... .435% 1,352,190
Core Bond Portfolio ........................... .380% 2,735,361
Government Income Portfolio ................... .550% 183,311
GNMA Portfolio ................................ .485% 387,224
Managed Income Portfolio ...................... .485% 2,056,320
International Bond Portfolio .................. .865% 301
High Yield Bond Portfolio ..................... .525% 441,542
PFPC Trust Co. 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
BlackRock Distributors, Inc., 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.
(C) PURCHASES AND SALES OF SECURITIES
For the period ended March 31, 2000, purchases and sales of securities,
other than short-term and government securities, were as follows:
PURCHASES SALES
------------ ------------
Low Duration Bond Portfolio .............. $100,006,422 $ 8,938,012
Intermediate Government Bond Portfolio ... 119,260,697 68,947,886
Intermediate Bond Portfolio .............. 399,177,441 205,603,313
Core Bond Portfolio ...................... 665,335,352 481,795,187
Government Income Portfolio .............. 22,265,157 21,932,384
GNMA Portfolio ........................... 54,072,818 38,558,044
Managed Income Portfolio ................. 51,740,274 813,956,836
International Bond Portfolio ............. 134,356,582 101,272,863
High Yield Bond Portfolio ................ 112,788,866 96,998,544
For the period ended March 31, 2000, purchases and sales of government
securities were as follows:
PURCHASES SALES
-------------- --------------
Low Duration Bond Portfolio .............. $ 367,032,244 $ 317,137,789
Intermediate Government Bond Portfolio ... 282,762,557 267,953,447
Intermediate Bond Portfolio .............. 561,462,402 896,036,221
Core Bond Portfolio ...................... 914,911,338 875,191,020
Government Income Portfolio .............. 24,859,578 94,638,842
GNMA Portfolio ........................... 45,853,973 61,347,168
Managed Income Portfolio ................. 1,194,691,120 2,198,624,827
International Bond Portfolio ............. -- 9,139,936
74
<PAGE>
BLACKROCK FUNDS
(D) CAPITAL SHARES
Transactions in capital shares for each period were as follows:
<TABLE>
<CAPTION>
LOW DURATION BOND PORTFOLIO
------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED
3/31/00 (UNAUDITED) 9/30/99
------------------------------ ------------------------------
SHARES VALUE SHARES VALUE
---------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares sold:
BlackRock Class ...................... 10,073,070 $ 97,931,084 832,804 $ 8,225,913
Institutional Class .................. 1,752,814 17,095,456 5,049,746 50,160,391
Service Class ........................ 328,426 3,200,044 481,738 4,773,870
Investor A Class ..................... 130,342 1,267,105 7,997,051 79,368,911
Investor B Class ..................... 415,996 4,057,118 849,840 8,398,923
Investor C Class ..................... 103,367 1,008,143 295,280 2,913,761
Shares issued in reinvestment of dividends:
BlackRock Class ...................... 158,236 1,542,926 437,739 4,345,898
Institutional Class .................. 38,178 372,738 77,974 773,054
Service Class ........................ 15,204 148,392 32,267 319,928
Investor A Class ..................... 4,650 45,349 6,974 69,156
Investor B Class ..................... 4,926 48,048 1,678 16,527
Investor C Class ..................... 429 4,197 230 2,256
Shares redeemed:
BlackRock Class ...................... (2,563,835) (24,989,771) (7,196,600) (71,522,179)
Institutional Class .................. (3,414,192) (33,261,655) (5,717,416) (56,567,681)
Service Class ........................ (601,945) (5,857,848) (629,119) (6,237,880)
Investor A Class ..................... (162,906) (1,585,380) (8,023,994) (79,648,051)
Investor B Class ..................... (364,733) (3,555,685) (122,395) (1,210,268)
Investor C Class ..................... (174,160) (1,697,515) (169,657) (1,673,985)
----------- ------------ ---------- ------------
Net increase (decrease) ................... 5,743,867 $ 55,772,746 (5,795,860) $(57,491,456)
=========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED
3/31/00 (UNAUDITED) 9/30/99
------------------------------ ------------------------------
SHARES VALUE SHARES VALUE
---------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class .................. 2,742,707 $ 26,797,692 3,507,375 $ 35,391,770
Service Class ........................ 516,475 5,038,734 827,540 8,427,966
Investor A Class ..................... 17,155,803 167,605,349 23,464,426 235,348,637
Investor B Class ..................... 138,142 1,354,628 81,567 823,939
Investor C Class ..................... 4,885 48,002 33,550 335,611
Shares issued in reinvestment of dividends:
Institutional Class .................. 59,088 582,040 290,113 2,975,693
Service Class ........................ 3,728 36,786 20,453 209,851
Investor A Class ..................... 14,300 140,051 33,385 339,213
Investor B Class ..................... 848 8,292 744 7,498
Investor C Class ..................... 157 1,531 1 11
Shares redeemed:
Institutional Class .................. (5,771,812) (56,380,423) (6,636,676) (67,012,012)
Service Class ........................ (471,455) (4,593,692) (984,744) (9,969,516)
Investor A Class ..................... (16,520,495) (161,403,534) (23,526,911) (235,853,068)
Investor B Class ..................... (101,078) (990,186) (35,011) (353,173)
Investor C Class ..................... (19,031) (185,899) (14,731) (147,933)
----------- ------------ ----------- ------------
Net decrease .............................. (2,247,738) $(21,940,629) (2,938,919) $(29,475,513)
=========== ============ =========== ============
</TABLE>
75
<PAGE>
BLACKROCK FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
INTERMEDIATE BOND PORTFOLIO
------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED
3/31/00 (UNAUDITED) 9/30/99
------------------------------ ------------------------------
SHARES VALUE SHARES VALUE
---------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares sold:
BlackRock Class ...................... 10,370,847 $ 93,702,859 1,378,815 $ 12,608,853
Institutional Class .................. 12,514,843 112,020,946 10,315,220 96,225,816
Service Class ........................ 621,047 5,565,863 1,242,448 11,610,084
Investor A Class ..................... 301,842 2,730,103 370,766 3,469,555
Investor B Class ..................... 28,822 258,760 109,782 1,027,624
Investor C Class ..................... 9,617 86,797 74,567 685,199
Shares issued in reinvestment of dividends:
BlackRock Class ...................... 121,572 1,091,142 134,838 1,259,759
Institutional Class .................. 32,731 294,292 533,001 5,011,399
Service Class ........................ 24,760 222,653 62,444 584,579
Investor A Class ..................... 6,500 58,466 9,745 91,018
Investor B Class ..................... 2,168 19,503 2,299 21,264
Investor C Class ..................... 139 1,249 112 1,043
Shares redeemed:
BlackRock Class ...................... (101,126) (900,454) (1,865,426) (17,440,794)
Institutional Class .................. (6,664,646) (59,768,880) (9,255,425) (86,356,153)
Service Class ........................ (633,786) (5,686,533) (1,317,770) (12,268,337)
Investor A Class ..................... (256,606) (2,304,190) (288,703) (2,680,316)
Investor B Class ..................... (19,575) (175,724) (12,658) (116,792)
Investor C Class ..................... (33,873) (303,665) (28,545) (261,301)
---------- ------------ ---------- ------------
Net increase .............................. 16,325,276 $146,913,187 1,465,510 $ 13,472,500
========== ============ =========== ============
</TABLE>
<TABLE>
<CAPTION>
CORE BOND PORTFOLIO
------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED
3/31/00 (UNAUDITED) 9/30/99
------------------------------ -------------------------------
SHARES VALUE SHARES VALUE
---------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Shares sold:
BlackRock Class ...................... 5,974,531 $ 54,522,568 12,304,751 $117,815,392
Institutional Class .................. 27,835,425 254,438,247 22,622,724 217,677,987
Service Class ........................ 1,277,018 11,693,924 3,059,912 29,525,974
Investor A Class ..................... 119,404 1,093,899 449,024 4,340,261
Investor B Class ..................... 189,971 1,738,457 670,156 6,468,706
Investor C Class ..................... 240,872 2,194,438 732,575 7,100,978
Shares issued in reinvestment of dividends:
BlackRock Class ...................... 426,906 3,921,988 686,453 6,616,617
Institutional Class .................. 277,418 2,560,778 1,547,546 15,039,732
Service Class ........................ 23,925 221,019 176,475 1,716,378
Investor A Class ..................... 18,951 174,202 38,763 373,736
Investor B Class ..................... 24,253 223,024 58,104 561,236
Investor C Class ..................... 2,979 27,423 6,424 60,884
Shares redeemed:
BlackRock Class ...................... (1,451,919) (13,281,168) (4,888,053) (46,820,534)
Institutional Class .................. (6,082,966) (55,790,530) (14,235,545) (136,184,476)
Service Class ........................ (2,038,913) (18,645,938) (3,102,768) (29,354,941)
Investor A Class ..................... (215,340) (1,970,718) (264,885) (2,547,956)
Investor B Class ..................... (383,522) (3,514,319) (343,118) (3,277,734)
Investor C Class ..................... (523,237) (4,803,859) (213,866) (2,037,003)
---------- ------------ ----------- ------------
Net increase .............................. 25,715,756 $234,803,435 19,304,672 $187,075,237
========== ============ =========== ============
</TABLE>
76
<PAGE>
BLACKROCK FUNDS
<TABLE>
<CAPTION>
GOVERNMENT INCOME PORTFOLIO
------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED
3/31/00 (UNAUDITED) 9/30/99
------------------------------ -------------------------------
SHARES VALUE SHARES VALUE
---------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Shares sold:
Investor A Class ..................... 362,732 $ 3,526,575 260,226 $ 2,715,739
Investor B Class ..................... 203,342 1,989,776 1,949,007 20,327,259
Investor C Class ..................... 15,955 154,033 285,429 3,023,210
Shares issued in reinvestment of dividends:
Investor A Class ..................... 11,769 114,980 30,494 315,789
Investor B Class ..................... 51,100 499,354 116,786 1,207,289
Investor C Class ..................... 1,935 18,924 5,135 53,075
Shares redeemed:
Investor A Class ..................... (473,075) (4,599,998) (171,587) (1,749,782)
Investor B Class ..................... (981,865) (9,522,145) (883,791) (9,009,692)
Investor C Class ..................... (108,615) (1,058,860) (188,143) (1,955,238)
-------- ----------- --------- -----------
Net increase (decrease) ................... (916,722) $(8,877,361) 1,403,556 $14,927,649
======== =========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
GNMA PORTFOLIO
------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED
3/31/00 (UNAUDITED) 9/30/99
------------------------------ -------------------------------
SHARES VALUE SHARES VALUE
---------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class .................. 853,893 $ 8,104,685 1,140,847 $ 11,252,768
Service Class ........................ 102,054 960,087 10,000 100,000
Investor A Class ..................... 120,636 1,149,429 163,262 1,623,804
Investor B Class ..................... 13,126 124,911 15,005 149,441
Investor C Class ..................... 2,855 27,006 2,509 24,987
Shares issued in reinvestment of dividends:
Institutional Class .................. 19,694 189,838 20,941 210,041
Service Class ........................ -- 4 1 7
Investor A Class ..................... 1,789 16,957 953 9,420
Investor B Class ..................... 618 5,877 837 8,294
Investor C Class ..................... -- 3 1 5
Shares redeemed:
Institutional Class .................. (1,707,208) (16,205,801) (1,390,033) (13,772,698)
Service Class ........................ (91,405) (860,120) -- --
Investor A Class ..................... (61,039) (578,327) (102,641) (1,006,748)
Investor B Class ..................... (5,858) (55,669) (8,598) (85,468)
Investor C Class ..................... (18) (163) (61) (632)
----------- ------------ ---------- ------------
Net decrease .............................. (750,863) $ (7,121,283) (146,977) $ (1,486,779)
=========== ============ ========== ============
</TABLE>
77
<PAGE>
BLACKROCK FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
MANAGED INCOME PORTFOLIO
------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED
3/31/00 (UNAUDITED) 9/30/99
------------------------------ -------------------------------
SHARES VALUE SHARES VALUE
----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class .................. 38,833,000 $ 375,601,894 19,369,006 $198,295,963
Service Class ........................ 27,502,757 266,208,711 23,985,008 246,124,482
Investor A Class ..................... 475,765 4,613,398 1,652,130 17,049,147
Investor B Class ..................... 44,898 438,278 241,920 2,480,512
Investor C Class ..................... 7,148 70,265 89,834 911,388
Shares issued in reinvestment of dividends:
Institutional Class .................. 289,784 2,865,754 1,741,803 17,972,961
Service Class ........................ 302,874 2,966,045 800,827 8,224,822
Investor A Class ..................... 37,193 363,509 84,338 865,048
Investor B Class ..................... 12,724 124,416 25,489 261,167
Investor C Class ..................... -- -- 112 1,120
Shares redeemed:
Institutional Class .................. (32,449,421) (314,402,471) (20,180,012) (206,556,608)
Service Class ........................ (22,644,668) (218,972,738) (21,667,679) (221,936,261)
Investor A Class ..................... (520,166) (5,066,718) (1,614,057) (16,588,344)
Investor B Class ..................... (123,959) (1,205,236) (116,526) (1,183,067)
Investor C Class ..................... (6,114) (59,413) (89,946) (909,267)
----------- ------------- ----------- ------------
Net increase .............................. 11,761,815 $ 113,545,694 4,322,247 $ 45,013,063
=========== ============= =========== ============
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL BOND PORTFOLIO
------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED
3/31/00 (UNAUDITED) 9/30/99
------------------------------ -------------------------------
SHARES VALUE SHARES VALUE
----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class .................. 1,275,095 $13,371,077 2,263,708 $25,360,758
Service Class ........................ 101,802 1,065,233 273,669 3,040,289
Investor A Class ..................... 165,942 1,745,215 110,247 1,215,695
Investor B Class ..................... 84,534 892,050 120,051 1,333,373
Investor C Class ..................... 39,696 423,796 146,359 1,627,582
Shares issued in reinvestment of dividends:
Institutional Class .................. 67,799 726,362 23,195 257,254
Service Class ........................ 6,147 65,336 4,843 53,860
Investor A Class ..................... 11,282 119,143 8,011 89,058
Investor B Class ..................... 6,899 72,822 4,349 48,278
Investor C Class ..................... 6,148 64,968 3,763 41,792
Shares redeemed:
Institutional Class .................. (331,361) (3,484,730) (688,344) (7,645,996)
Service Class ........................ (108,293) (1,130,935) (143,232) (1,588,480)
Investor A Class ..................... (69,258) (726,844) (25,793) (287,680)
Investor B Class ..................... (46,870) (492,157) (32,536) (356,783)
Investor C Class ..................... (47,636) (499,439) (51,322) (569,217)
--------- ----------- --------- -----------
Net increase .............................. 1,161,926 $12,211,897 2,016,968 $22,619,783
========= =========== ========= ===========
</TABLE>
78
<PAGE>
BLACKROCK FUNDS
<TABLE>
<CAPTION>
HIGH YIELD BOND PORTFOLIO
------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE PERIOD
3/31/00 (UNAUDITED) 11/19/98 1 THRU 9/30/99
------------------------------ -------------------------------
SHARES VALUE SHARES VALUE
----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Shares sold:
BlackRock Class ...................... -- $ -- 11 $ 100
Institutional Class .................. 2,031,588 19,600,119 6,762,768 68,071,217
Service Class ........................ -- -- 11 100
Investor A Class ..................... 116,737 1,127,596 479,652 4,861,542
Investor B Class ..................... 806,130 7,801,714 1,695,082 17,092,840
Investor C Class ..................... 406,809 3,930,424 285,616 2,901,857
Shares issued in reinvestment of dividends:
BlackRock Class ...................... -- 6 -- 7
Institutional Class .................. 211 2,054 88 880
Service Class ........................ -- 6 -- 7
Investor A Class ..................... 7,499 72,727 6,305 63,254
Investor B Class ..................... 27,525 266,878 15,397 154,087
Investor C Class ..................... 10,417 101,193 2,815 28,278
Shares redeemed
BlackRock Class ...................... -- -- -- --
Institutional Class .................. (772,886) (7,498,688) (201,248) (2,030,800)
Service Class ........................ -- -- -- --
Investor A Class ..................... (99,158) (962,542) (32,638) (329,155)
Investor B Class ..................... (324,603) (3,142,566) (435,698) (4,353,940)
Investor C Class ..................... (145,662) (1,407,511) (16,479) (163,867)
--------- ----------- --------- -----------
Net increase .............................. 2,064,607 $19,891,410 8,561,682 $86,296,407
========= =========== ========= ===========
<FN>
--------------------
1 Commencement of operations.
</FN>
</TABLE>
(E) AT MARCH 31, 2000, 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 ........................... $325,289,299 $415,433,538 $709,911,280 $1,241,680,937
Undistributed net investment income ....... 319,573 68,519 218,331 --
Distributions in excess of net
investment income ....................... -- -- -- (212,507)
Accumulated net realized loss on
investment transactions and
future contracts ........................ (2,856,768) (8,687,117) (13,045,817) (28,901,443)
Net unrealized depreciation on investment
transactions and futures contracts ...... (4,006,309) (10,306,057) (12,162,496) (19,482,049)
------------ ------------ ------------ --------------
$318,745,795 $396,508,883 $684,921,298 $1,193,084,938
============ ============ ============ ==============
</TABLE>
79
<PAGE>
BLACKROCK FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
<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 ....................... $37,111,917 $105,415,576 $1,716,100,029 $80,929,221 $106,187,817
Undistributed net investment income ... -- 244,318 -- -- 152,859
Distributions in excess of net
investment income ................... (32,360) -- (605,501) (340,321) --
Accumulated net realized gain (loss) on
investment transactions, future
contracts and foreign exchange
contracts ........................... (1,892,165) (255,220) (35,397,872) 2,403,473 (1,428,791)
Net unrealized depreciation on
investment transactions, future
contracts and foreign exchange
contracts ........................... (948,398) (2,354,394) (45,800,258) (2,544,131) (4,787,395)
----------- ------------ -------------- ----------- ------------
$34,238,994 $103,050,280 $1,634,296,398 $80,448,242 $100,124,490
=========== ============ ============== =========== ============
</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 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.
80
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<PAGE>
BLACKROCK FUNDS
Investment Adviser Co-Administrator and Transfer Agent
BlackRock Advisors, Inc. PFPC Inc.
New York, New York 10154 Wilmington,Delaware 19809
Sub-Adviser Distributor
BlackRock Financial Management, Inc BlackRock Distributors, Inc.
New York, New York 10154 King of Prussia, Pennsylvania 19406
Custodian Co-Administrator
PFPC Trust Co. BlackRock Advisors, Inc.
Philadelphia, Pennsylvania 19103 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.(R)
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 GNMA
Intermediate Government Bond Managed Income
Intermediate Bond International Bond
Core Bond High Yield Bond
Government Income
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>
[GRAPHIC OMITTED]
BLACKROCK
FUNDS (LOGO)
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.
SAR 3/31/00 TP
